Results of operations 17 �� Worldwide 17 �� Americas 25 �� Netherlands 43 �� United Kingdom 53 �� New Markets 62
About this report This report serves as Aegon´s Annual Report prepared in accordance with International Financial Reporting Standards, as adopted by the European Union (IFRS), and with Part 9 of Book 2 of the Dutch Civil Code for the year ended December 31, 2013, for Aegon N.V. (the company) and its subsidiaries (collectively known as Aegon). This report presents the consolidated financial statements of Aegon (pages 122-288) and the Parent Company
Commission. Aegon uses “EUR” and “euro” when referring to the lawful currency of the member states of the European Monetary
United Kingdom; “CAD” and “Canadian dollar” when referring to the lawful currency of Canada; “PLN” when referring to the lawful currency of Poland; “CNY” when referring to the lawful currency of the People’s Republic of China; “RON” when referring to the lawful currency of Romania; “HUF” when referring to the lawful currency of Hungary; “TRY” when referring to the lawful currency of Turkey; “CZK” when referring to the lawful currency of Czech Republic, and “UAH” when referring to the lawful currency of Ukraine.
In 2013 we achieved strong results across our markets and experienced increasing demand for our core products and services, as we pursue our mission of helping individuals and families take responsibility for their financial future. Over the past year, we have made significant progress in enhancing the growth prospects for our business, strengthening our financial position, and in transforming our business to create value for our many stakeholders.
Moreover, they provide the basis for the broad range of actions we are taking to further transform our businesses and enhance our ability to interact better and more frequently with those who depend on us.
During 2013, we expanded our reach through promising new distribution agreements in our key markets. We continued to invest in our businesses in Central & Eastern Europe, Asia and
Latin America, given the strong demand for protection and savings products in these developing economies. Meanwhile, we continued to review our products and services, broadening and deepening our capabilities in order to target opportunities, and ensuring that the products we offer deliver value for both our customers and Aegon, given our long-term risk-return criteria.
Transamerica brand, furthering the strategic integration of our operations which began three years ago. In what continues to be the largest market in the world for life insurance and retirement products and services, we have enhanced our leadership positions with new distribution partners, and developed new digital capabilities that will allow us to better serve our current and future customers’ diverse financial needs across their life-cycle.
At the center of our strategy is our focus on getting closer to our customers through an accelerated investment in technology.
The nature of many of our products necessitates professional advice and, as such, we believe the financial advisor will continue to play an essential role in our business. New digital platforms have been introduced to provide intermediaries with the tools to operate more efficiently in a rapidly changing landscape. In the
Consistent with our strict risk-return discipline, we further strengthened Aegon’s risk profile by maintaining a solid balance sheet and further improving our capital position. The strong financial performance, combined with our actions to reduce costs across our organization during 2013, enabled us to continue the momentum of recent years. Clearly, our strategic priorities have delivered their intended benefits to our customers and businesses, and to our valued shareholders who have every reason to expect an attractive and growing return on their investment.
Equipping our leaders with the resources they require to promote this culture is among our most important objectives. During the past year, we have introduced a number of training and development programs to enhance the professional skills and competencies of employees at all levels. Mindful of the pace of technological advances in today’s digital environment, we also recognize the need to attract talented individuals from outside our industry who are able to embrace and accelerate the changes we are implementing. Encouraging new ways of thinking and responding to the considerable opportunities we have identified is a pre-requisite of management, and key to our long-term success.
In addition to maintaining sound corporate governance standards and practices, we believe this can have a positive impact on issues related to the environment, responsible investment, financial literacy, and other socially sustainable concerns.
My Management Board colleagues and I wish to express our gratitude to the dedicated men and women of Aegon who have contributed to our solid results and strategic progress over the past year. Through their focused and determined efforts, we have enhanced our ability to better serve our current and future customers by delivering consistently high quality products and services, while strengthening our prospects for sustainable, profitable growth going forward. We also wish to reaffirm our commitment to you, our valued shareholders, who have likewise made possible the achievements of recent years through your abiding confidence and support.
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
Officer. A year later, he became CEO and Chairman of Aegon’s
Darryl Button (1969, Canadian) Chief Financial Officer Member of the Executive Board Member of the Management Board Darryl Button began his career by Mutual Life Insurance Co.
of Canada and joined Aegon in 1999 as Director of Product
Markets operation unit. He was appointed Corporate Actuary of Aegon USA in 2002, followed by CFO of Aegon Americas in 2005. Between 2008-2011, Mr. Button took on the responsibilities of Chairman and executive management of
Adrian Grace (1963, British) Member of the Management Board Chief Executive Officer of Aegon UK Adrian Grace started his career with Leeds Permanent Building
Society in 1979, before joining Mercantile Credit in 1984. In 2001, Mr. Grace joined Sage Group PLC as Managing Director of the Small Business Division. In 2004, Barclays Insurance asked him to join them as Chief Executive. Mr. Grace joined HBOS in 2007 as Managing Director of Commercial within the Corporate
Chief Executive Officer. Mr. Grace has been a member of Aegon’s
Marco Keim (1962, Dutch) Member of the Management Board Chief Executive Officer of Aegon the Netherlands Marco Keim began his career with accountants Coopers &
Lybrand/Van Dien. Mr. Keim has also worked for aircraft manufacturer Fokker Aircraft and NS Reizigers, part of the
Life in the Netherlands as a member of the Board. Three years later, Mr. Keim was appointed CEO. In June 2008, he became
Gábor Kepecs (1954, Hungarian) Member of the Management Board Chief Executive Officer of Aegon Central & Eastern Europe Gábor Kepecs began his career with the Hungarian government before joining former state-owned insurance company Állami
subsidiaries, Diversified, and as head of the company’s annuity and mutual fund businesses. In January 2009, he was named
Aegon’s strategy is supported by its ambition: to be a leader in all of its chosen markets. To support this ambition, Aegon has implemented four strategic objectives: �� To optimize its portfolio by investing in businesses that offer attractive returns and strong prospects for growth and, if necessary, closing or divesting business that do not meet
In 2013, Aegon took clear steps toward each of these objectives, helping position the company’s businesses for the future, and meet the risks and opportunities presented by long-term industry trends.
Europe and Asia by: �� Investing in the rapidly-expanding 'at-retirement' market of people in their fifties and sixties who are actively preparing for retirement in the United States, the United Kingdom and the Netherlands. In the United Kingdom, Aegon is seeking to increase its share of the workplace savings and non-advised markets; �� Repositioning in Central & Eastern Europe – by channeling other resources into new products and services, ceasing new investment in mandatory private pensions due to government restrictions, selling off pension operations in the Czech
Aegon’s ambition is to become a leader in all of its chosen markets. This means being the most recommended provider of life insurance and pensions among customers, the preferred partner among intermediaries and distributors, and the employer of choice for both current and prospective employees.
Fostering a truly customer-centric culture throughout the organization is at the core of Aegon’s strategy. This entails ensuring that every employee understands how he or she can contribute to a distinctive and consistently positive customer experience. To support this essential cultural mindset, a new coordinated approach to performance management has been implemented across Aegon’s businesses, with a strong emphasis on talent development and customer centricity. Compensation and incentives have been aligned accordingly. Aegon encourages new thinking and innovative approaches as it continues to transform its businesses.
In recent years, Aegon has taken steps to reduce costs, lower risk and free up capital for reinvestment in its businesses. It has divested businesses no longer considered core, or which have failed to provide sufficient returns or prospects for long-term growth. These actions have enabled Aegon to achieve a solid capital position, deal effectively with economic and market volatility, and position its businesses for future growth. At the same time, Aegon has invested in key areas of growth, such as emerging markets in Central & Eastern Europe, Asia and the
Americas, while also restructuring its businesses to achieve greater operational efficiency and deliver a higher level of customer service. Better leveraging the broad expertise that exists within Aegon across various businesses and geographies continues to be a key strategic objective.
Enhance customer loyalty Aegon is expanding digital distribution capability and improving understanding of customers’ changing needs by: �� Launching new online products in Spain and Turkey. Aegon now retails online in nearly all its markets, and has also expanded its digital marketing and social media efforts; �� Investing in emerging new business models. In the
Aegon has implemented the Net Promoter Score (NPS) across its businesses, and is using NPS methodology to drive long-term improvements in products and customer service.
Council to improve analysis of customer data and statistics, and launched the not-for-profit Transamerica Center for
Health Studies to research and contribute to important health issues in the United States.
Deliver operational excellence Aegon improved efficiency, supported intermediaries and expanded distribution through traditional channels by: �� Continuing to reduce costs where possible to allow for increased investments. Cost saving initiatives included the creation of a shared service center in the Americas, further cost reduction in the Netherlands, and restructuring both in the United Kingdom and at Aegon’s Corporate Center; �� Pursuing value over volume through a strict pricing discipline, an approach aimed at securing profitable, sustainable growth
Development Policy; �� Investing in a new online platform in the United Kingdom, called Aegon Retirement Choices. The platform provides independent financial advisors with a clear overview of
United States and other developed economies. High rates of unemployment persisted, particularly in those countries hit hardest by the recent eurozone crisis. The German and French economies showed modest growth, while those of Spain and
US bonds also increased significantly on expectations of tapered debt purchases by the Federal Reserve. Short-term interest rates remained at historical lows of close to zero. In the United States, the Federal Reserve began to tighten monetary policy at the end of the year in response to further significant improvement in unemployment rates. Yields on 10-year German bonds improved, due in part to increased demand from eurozone banks.
against the US dollar, and more than 3% against sterling. Slower economic growth brought depreciation in many emerging market currencies, including the Brazilian real, the Indian rupee and the
Long-term industry trends The life insurance and pensions industry is in a period of significant change for several reasons. These include shifts in the global economic balance, aging populations, changing demographics, new legislation, and the increasing trend of customers who research financial services products and then purchase online.
The economic recovery remains uncertain. Despite improvement, economic growth remains uncertain. Financial volatility has increased, and interest rates are at historical lows, which may restrict profits for insurance companies and other financial service providers. Increased volatility means customers are more aware of financial risk.
There is increasing pressure on companies to be responsible employers, investors and purchasers of goods and services.
Solvency II and related developments Solvency II will become operational on January 1, 2016; to ensure a smooth transition, many national prudential frameworks are undergoing adjustment. Aegon continues to remain on track with its preparations.
Aegon aims to contribute to the resolution of any outstanding issues relating to Solvency II by active participation in discussions with several industry bodies. In particular, it provides input to measures to address long-term guarantee issues. At the request of their national supervisory authorities, a number of Aegon companies participated in the recent long-term guarantees assessment.
In accordance with Solvency II requirements, Aegon has set up risk management processes and governance structures.
Aegon actively manages its business in a market-consistent and risk-sensitive manner. These processes and structures include product pricing, asset and liability management, capital management, and business strategy setting. The company is also optimizing its reporting process to be aligned with the requirements to be introduced by Solvency II.
Aegon is on track with embedding Solvency II requirements into its existing business processes in a business-as-usual environment, while keeping abreast of the latest national, EU and international policy and regulatory developments relevant to insurance groups.
Aegon N.V., through its member companies that are collectively referred to as Aegon or the Aegon Group, is an international life insurance, pensions and asset management company. Aegon is headquartered in the Netherlands and employs, through its subsidiaries, nearly 27,000 people worldwide. Aegon’s common shares are listed on stock exchanges in Amsterdam (NYSE
Aegon N.V. is a holding company. Aegon’s businesses focus on life insurance, pensions and asset management. Aegon is also active in accident, supplemental health, and general insurance, and has some limited banking activities. The company’s operations are conducted through its operating subsidiaries.
The main operating units of Aegon are separate legal entities organized under the laws of their respective countries. The shares of those legal entities are directly or indirectly held by three intermediate holding companies incorporated under Dutch law: Aegon Europe 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-
Mexico; the Netherlands; the United Kingdom; and New Markets, which includes a number of countries in Central & Eastern
1 As described in Note 2 of the consolidated financial statements, comparative information related to previous periods was retrospectively restated for the changes in accounting policies on IFRS 10, IFRS 11 and IAS 19.
Borrowings and trust pass-through securities 3) 12,159 13,846 10,040 8,604 7,314 1 As described in Note 2 of the consolidated financial statements, comparative information related to previous periods was retrospectively restated for the changes in accounting policies on IFRS 10, IFRS 11 and IAS 19.
2 The consolidated financial statements, comparative information related to previous periods was retrospectively restated for the changes in accounting policies on IAS 19.
Dividends Aegon declared interim and final dividends on common shares for the years 2010 through 2013 in the amounts set forth in the following table. The 2013 interim dividend amounted to EUR
0.11 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 13, 2013. At the General Meeting of Shareholders on May 21, 2014, the Supervisory Board will, absent unforeseen circumstances, propose a final dividend of
EUR 0.22. 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.
Aegon’s class A and class B preferred shares was calculated on the basis of the paid-in capital on the preferred shares using a rate equal to the European Central Bank’s fixed interest percentage for basic refinancing transactions plus 1.75%, as determined on NYSE Euronext Amsterdam’s first working day of the financial year to which the dividend relates. Apart from this, no other dividend was paid on the preferred shares. This resulted in a rate of 2.75% for the year 2012. Applying this rate to the weighted average paid-in capital of its preferred shares during 2012, the total amount of annual dividends Aegon made in 2013 on its preferred shares for the year 2012 was
EUR 59 million. In addition, Aegon paid a 2013 interim dividend on the preferred shares of EUR 24 million, covering the period from January 1, 2013 until the cancellation of all preferred shares in May 2013.
The high and low exchange rates for the US dollar per euro for each of the last six months through February 2014 are set forth below: Closing rates Sept. 2013 Oct. 2013 Nov. 2013 Dec. 2013 Jan. 2014 Feb. 2014
• Individual Savings & Retirement Primarily variable annuity products and retail mutual funds.
• Employer Solutions & Pensions Includes both individual and group pensions, as well as 401(k)-type of pension plans, and stable value solutions.
• Pensions Individual and group pensions usually sponsored by, or obtained via, an employer.
• Non-life General insurance, consisting mainly of automotive, liability, disability, household insurance, and fire protection.
Turkey, and Ukraine. Includes life insurance, individual and group pension products, savings and investments, as well as general insurance.
• Spain Distribution partnerships with Spanish banks, offering life insurance, accident and health, and general insurance and investment products.
• Asia Direct and affinity products are marketed in Asia through Aegon
• Aegon Asset Management Asset management products, including equity and fixed income, covering third party clients, insurance-linked solutions, and
presented herein. While many other insurers in Aegon’s peer group present substantially similar non-IFRS measures, the non-IFRS measure presented in this document may nevertheless differ from the non-IFRS measures presented by other insurers.
(GAAPs)), and this may make the comparability difficult from period to period.
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 8 15 (47%)
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 as well as in note 5 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 Spain, China and Japan and
Number of employees, including agent employees 12,256 4,282 2,400 7,651 302 26,891 (3,417) 23,474
Results 2013 worldwide Aegon's 2013 net income amounted to EUR 849 million. Increased underlying earnings before tax of EUR 1,945 milion were impacted by a loss of EUR 1,309 million on fair value items driven by losses on the hedging programs and long-term economic assumption changes. This was partly offset by lower impairment charges and lower other charges since 2012 included a charge of EUR 265 million in relation to the acceleration of product improvements for unit-linked insurance policies.
In 2013, to reflect the low interest rate environment, Aegon lowered its long-term assumption for 10-year US Treasury yields by 50 basis points to 4.25% and extended the uniform grading period from 5 years to 10 years. Aegon also changed its assumed returns for US separate account bond fund to 4%
Net income Net income decreased to EUR 849 million compared to EUR
Underlying earnings before tax Aegon’s underlying earnings before tax in 2013 increased 5% to
Underlying earnings before tax rose from business growth, deleveraging, the positive effects of favorable equity markets and the net positive impact of one-time items. These positive one-time items were only partly offset by the loss of earnings due to divestments in Spain and Aegon Asset Management and the impact of unfavorable currency exchange rates. �� Underlying earnings before tax in the Americas improved slightly to EUR 1,369 million. Growth in Variable Annuities and Pensions offset the impact of unfavorable currency exchange rates, lower earnings from Fixed Annuities, higher sales and employee related expenses, and additional investments in technology. At constant currencies, underlying earnings increased by 3%.
�� Underlying earnings before tax in the United Kingdom amounted to EUR 98 million in 2013, a decline of 11%
Realized gains on investments Realized gains on investments amounted to EUR 502 million and were driven primarily by adjustments to the asset mix in the
Other charges Other charges amounted to EUR 52 million, which is a 68% improvement from 2012 and included a charge of
EUR 192 million related to a write-off of intangibles related to the Polish pension fund business following a legislation change coming into force in January 2014. In addition, 2013 included a charge of EUR 71 million due to increased accruals in connection with Aegon's use of the U.S. Social
Security Administration's death master-file and a EUR 25 million charge in the Netherlands following the Koersplan court verdict and restructuring charges mainly in the Americas and the
United Kingdom (EUR 108 million in total). These charges were partly offset by gains from the sale of joint ventures with Unnim and CAM of EUR 102 million and EUR 74 million respectively, and gains from the recapture of certain reinsurance contracts amounting to EUR 200 million in the Americas.
Run-off businesses The results of run-off businesses improved to EUR 14 million, mainly due to a deferred policy acquisition cost (DPAC) true-up of EUR 11 million in BOLI/COLI (bank/corporate owned life insurance).
Capital management The 2013 gross leverage ratio, which is calculated by dividing the total gross financial leverage by the total capitalization, was 30.1%.
On February 10, 2014, Aegon called for the redemption of the USD 550 million in junior perpetual capital securities with a coupon of 6.875% issued in 2006. The redemption was effective March 15, 2014, when the principal amount of
Dividends from business units Aegon received EUR 1.5 billion of dividends from its business units during 2013, split between EUR 0.9 billion from the
Run-off businesses 2 28 (93%) Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 1,933 947 104%
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 15 9 67%
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (15) (9) (67%)
Total life insurance gross premiums 6,541 3,004 6,047 1,374 (73) 16,893 (693) 16,200
Accident and health insurance premiums 1,833 220 - 188 - 2,241 (11) 2,230
Net income Net income increased to EUR 1,582 million, driven by higher underlying earnings, more favorable results on fair value items, lower impairments, and lower other charges. These were only partly offset by higher tax charges and lower realized gains.
Underlying earnings before tax Aegon’s underlying earnings before tax increased 20% to
EUR 1,366 million. The 6% increase compared to 2011 was mainly due to growth of the business and a strengthening of the US dollar against the euro. The positive effects of business growth and favorable equity markets were partly offset by lower fixed annuity earnings (as the product was de-emphasized)
Savings driven by lower funding costs on its growing mortgage portfolio more than offset lower earnings in Pensions and Nonlife, mostly driven by unfavorable claim experience.
Underlying earnings before tax from New Markets increased 10% to EUR 274 million as higher earnings from Aegon Asset
Management and Asia more than offset lower underlying earnings from Spain and Central & Eastern Europe. Results in
Spain were impacted by the divestment of the joint venture with Banca Cívica and the exclusion of results from Aegon’s partnership with CAM pending the exit from this joint venture.
Fair value items Results from fair value items amounted to a gain of
EUR 11 million, driven by positive results on the guarantee portfolio in the Netherlands, partially offset by negative results in the Americas and in the United Kingdom on hedges, due to higher equity markets.
United States (EUR 26 million). Providing most of the offset against these charges were the book gain of EUR 100 million on the sale of Aegon’s minority stake in Prisma Capital Partners and the divestment of Aegon’s 50% stake in the joint venture with
Shareholders’ equity increased to EUR 23.5 billion, mainly as a result of net income and an increase in the revaluation reserves.
The revaluation reserves increased EUR 2.6 billion during the year to EUR 6.1 billion, mainly a reflection of lower interest rates and credit spreads. Shareholders’ equity per common share, excluding preference capital and revaluation reserves, amounted to EUR 8.42 at December 31, 2012 (2011: EUR 8.19).
ratio amounted to 228%, an increase from the level of 195%
at December 31, 2011. Measured on a local solvency basis, the
The IGD ratio in the Netherlands increased to approximately 251%, driven mainly by a change in the yield curve to discount liabilities as prescribed by the Dutch Central Bank, offset somewhat during the year by interest rate movements. The Pillar
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 4 4 0% 3 3 0%
Results 2013 Americas Net income of USD 592 million for the year 2013 was negatively impacted by long-term economic assumption changes and losses on equity macro hedges, which have been put in place to protect Aegon's capital position. Underlying earnings before tax increased to USD 1,817 million in 2013, mainly driven by higher earnings from variable annuities and pensions. New life sales decreased, primarily due to focus on profitability of universal life products, while gross deposits increased.
�� Employer Solutions & Pensions underlying earnings before tax increased 10% to USD 350 million in 2013, which was primarily the result of strong net pension inflows and favorable equity markets.
Commissions and expenses Commissions and expenses increased by 1% to USD 4,332 million in 2013 compared to 2012. Operating expenses increased by 9%, to USD 1,985 million, primarily the result of higher sales and employee performance related expenses, investments to expand
Medicare part D prescription plan product, which was introduced in 2012, being offset by the loss of two distribution partners for travel insurance and the termination of certain affinity marketing partnerships.
Gross deposits increased 9% to USD 37.7 billion in 2013. Gross deposits in variable annuities, retail mutual funds and retirement plans were all higher than in 2012. Variable annuities gross deposits were up 59% to USD 8.5 billion in 2013, which was primarily driven by Aegon's continued focus on key distribution partners. The increase in retirement plan deposits was driven by plan takeover deposits and focusing on retirement readiness by growing customer participation and contributions.
USD 95 million, mainly related to gains of USD 265 million on the recapture of certain reinsurance contracts being partly offset by increased accruals of USD 94 million in connection with the company's use of the U.S. Social Security Administration's death master-file and restructuring charges of USD 48 million.
USD 1,817 million as higher earnings in variable annuities and pensions from business growth and favorable equity markets more than offset lower earnings in fixed annuities. �� Life & Protection underlying earnings before tax increased 1%
to USD 752 million, as growth of the business was partially offset by the negative impact of lower reinvestment rates due to the low interest rate environment. �� Underlying earnings before tax from Individual Savings &
Retirement increased 8% to USD 688 million, as higher earnings from variable annuities and mutual funds more than offset lower earnings from fixed annuities. Earnings from variable annuities were up 25% to USD 450 million, primarily driven by higher net inflows and favorable equity markets.
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (4) (1) - (3) (1) -
Gains on investments of USD 225 million were realized as a result of normal trading activity. Net impairments amounted to
USD 151 million, down from USD 349 million in 2011, and continue to be primarily caused by mortgage related securities.
USD 1,756 million in 2012, a decrease of 2% compared to 2011.
�� Life & Protection underlying earnings before tax decreased by 6% to USD 746 million, mostly the result of the nonrecurrence of favorable items in 2011.
Retirement decreased by 5% to USD 639 million in 2012 driven mostly by lower fixed annuity earnings due to declining account balances as the product is de-emphasized.
EUR 4,276 million in 2012, mainly due to lower amortization of deferred policy acquisition costs. Operating expenses decreased by 6% to USD 1,823 million, as cost savings and lower expenses related to the divestment of the life reinsurance business were only partly offset by higher performance related employee expenses, an increase in employee benefit expenses and costs to support growth.
Aegon USA Aegon USA is one of the leading life1 insurance organizations in the United States and the largest of Aegon’s operating units. Aegon USA administers millions of policies and employs approximately 11,000 people. Many of the Aegon USA
S.A.P.I. de C.V. to explore financial service opportunities. This organization will initially focus on third party asset management.
Aegon USA Aegon USA was founded in 1989 when Aegon brought all of its operating companies in the United States under a single financial services holding company, AEGON USA, LLC. Business is conducted through its subsidiaries. The use of the term
Aegon's subsidiary companies in the United States contain three divisions acting through one or more of the Aegon USA life insurance companies: �� Life & Protection; �� Individual Savings & Retirement; �� Employer Solutions & Pensions.
These divisions, described in further detail below, represent groups of products that are sold through Aegon USA’s operating companies through distribution methods and sales channels. 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 the Aegon USA licensed insurance or brokerage subsidiary companies.
Aegon USA Aegon USA uses a variety of sales and distribution channels in the United States. These include: �� Independent and career agents; �� Registered Representatives; �� Independent marketing organizations; �� Banks; �� Regional and independent broker-dealers; �� Benefit consulting firms; �� Wirehouses; �� Affinity groups; �� Institutional partners; �� Third party administrators.
USA companies are focused on particular products or market segments, ranging from lower income to high-net-worth individuals, and from small to large corporations.
Aegon USA Life & Protection Life & Protection (L&P), the largest of the three divisions, serves customers in a broad range of market segments. Consumers may choose to purchase directly or through career (or independent)
Products offered include whole life, universal life, variable universal life, indexed universal life and term life insurance, and supplemental health, specialty insurance, and long-term care protection.
Long-term care (LTC) insurance products provide benefits to policyholders who require care due to a 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 a family better manage the financial, health and safety issues that are associated with LTC.
Edgewood Financial Network and several independent marketing organizations. This group provides life insurance and supplemental health insurance products, as well as marketing services to closely-tied distribution groups serving the middle income and small business markets.
Transamerica Employee Benefits (TEB) offers life and supplemental health insurance products through employers, labor unions and trade associations. TEB’s comprehensive portfolio includes universal life, whole life and term life insurance, as well as accident, critical illness, cancer, hospital indemnity, medical expense indemnity, short-term disability, and dental policies. Some of these products provide insureds with lump sum or specified income payments when hospitalized, disabled or diagnosed with a critical illness. Others pay benefits for specific medical expenses and treatments, or cover deductibles, co-payments and coinsurance amounts not covered by other health insurance. In addition, TEB offers stop loss insurance to employers to protect against catastrophic losses under self-funded health plans.
Individual Savings & Retirement Through its insurance companies, broker-dealers and investment advisors, Aegon USA offers a wide range of savings and retirement products and services, including mutual funds and variable and fixed annuities. The Individual Savings & Retirement
selects, manages, and retains affiliated and non-affiliated managers from a variety of investment firms based on a number of qualitative and quantitative factors.
Transamerica is a sub-advised or “manager of managers” fund platform. Fund managers can include those affiliated with
Transamerica. Aegon USA earns investment management fees on investment products managed by unaffiliated sub-advisors and also earns direct investment management fees through affiliated managers acting as sub-advisors.
Variable annuities are sold to individuals and retirement plans in the United States. Variable annuities allow policyholders to accumulate assets for retirement on a tax-deferred basis, and to participate in equity or bond market performance. Variable annuities allow policyholders to select payout options designed to help meet the policyholders need for income upon maturity, including lump sum payment, or income for a fixed period or life. Variable annuities have a maturity date at which benefits must be used or the contract surrendered. Commonly this date corresponds to the annuitant's age, with a maximum age of
The account value of variable annuities reflects the performance of the underlying funds. Aegon USA earns mortality and expense
Income from fixed annuities is generated by spread on investment earnings over the credited rate, policy fees if applicable, and surrender charges. Fees and surrender charges are not a large source of revenue on fixed annuities.
An immediate annuity is purchased with a single lump sum premium payment, and the benefit payments generally begin within a year of purchase. The benefit payment period may be for a fixed period or as long as the beneficiary is alive, or a combination of the two. Some immediate annuities and payout options under deferred annuities may also offer the owner or beneficiaries the option to surrender the annuity to have access to the account value if needed for unexpected events.
The policyholder may surrender the annuity prior to maturity and receive the cash value less surrender charges. Fixed annuities have a specified crediting rate that may be reset periodically at the company’s discretion after an initial guarantee period. Fixed annuity contracts in the United States also offer guaranteed minimum surrender values and payout options. Fixed annuities have a maturity date at which benefits must be used or the contract surrendered. Commonly this date corresponds to the annuitant’s age, up to a maximum of 95 years. Upon maturity of the annuity, the policyholder’s payout options include a lump sum payment, income for life, or payment for a specified period of time.
Minimum interest rate guarantees exist in all generations of fixed annuity products, as they are required by state non-forfeiture regulations. The average minimum interest rate guarantees of the in-force fixed annuity block is approximately 2.65%. The average current credited rate of the in-force fixed annuity block is approximately 3.25%. Equity indexed annuities offer additional returns that are index-linked to published stock market indices and proprietary indices, with a minimum cash value equal to a percentage of the premium increased at a minimum fixed or variable rate. Equity indexed annuities make up a small fraction of the in-force business. Certain fixed annuity products also offer a bailout provision. Under the bailout provision, if the crediting rate falls below the bailout rate, policyholders may surrender their contracts without incurring any surrender charges.
TFA provides a range of financial and investment products, operating as a retail broker-dealer registered with the FINRA and an investment adviser registered with the SEC. Products offered by TFA include mutual funds, variable life insurance, variable annuities and other securities.
Employer Solutions & Pensions Aegon USA offers retirement plans, pension plans, and pensionrelated products and services, as well as step-by-step guidance to people who are transitioning to, or living in, retirement related to five key areas, - lifestyle, investments, health care, protection and income.
Aegon USA covers a range of different retirement plans, including: �� 401(k) - a type of deferred compensation plan sponsored by a corporation (including subchapter S), self-employed individual, sole proprietorship, partnership or non-profit organization; �� 403(b) - a type of deferred compensation plan for certain employees of tax-exempt organizations and certain minister; �� 457(b) - a type of deferred compensation plan sponsored by governmental and certain non-governmental employers in the
plans, 457(b) plans, money purchase plans and profit-sharing plans; �� Profit-sharing - a type of defined contribution plan in which the employer may make a contribution, on behalf of the plan participants, to the plan each year, either out of the company's profits or otherwise.
Transamerica Retirement Solutions is a leading provider of retirement plans in both the institutional market (mid- to large-sized organizations) and the emerging market (small U.S.
In the institutional market, Transamerica Retirement Solutions offers a wide array of investment options designed to create a fully customized investment line-up for clients, and a personalized retirement funding strategy for their retirement plan participants. Transamerica Retirement Solutions’ open architecture investment platform provides access to a broad range of investment options, including institutional and retail mutual funds, registered or non-registered variable annuities, and a collective investment trust. The investment options offered in each plan are selected by the client or the client’s financial adviser.
Transamerica Retirement Solutions provides a comprehensive and customized approach to retirement plan management for mid- to large-sized defined contribution, defined benefit and non-qualified deferred compensation retirement plans.
Run-off businesses Institutional spread-based business This business was put into run-off during 2009. The primary products included guaranteed investment contracts (GICs), funding agreements (FAs), and medium term notes (MTNs).
Guaranteed investment contracts and funding agreements Guaranteed investment contracts (GICs) were generally issued to tax qualified plans, while FAs and MTNs were typically issued to non-tax qualified institutional investors.
Futures or swap contracts are used to hedge the market risk on market-indexed contracts and effectively convert such contracts to a floating-rate.
Medium-term notes Aegon USA utilized consolidated special purpose entities to issue
States. BOLI/COLI helps institutional customers fund long-term employee benefits such as executive compensation and postretirement medical plans. The corporation insures key employees and is the owner and beneficiary of the policies. New sales of
Competition Competitors of Aegon Americas’ companies include other large and highly-rated insurance carriers, as well as 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 401(k)
It maintains an effective wholesaling force, and focuses on strategic business relationships and products with competitive features, benefits and pricing. Aegon USA’s primary competitors in the variable annuity market are Jackson National, Lincoln
Financial, Schwab, T. Rowe Price, and Vanguard. Aegon USA’s main competitors in the defined benefit segment are Mass
Fidelity, ING, John Hancock, and Principal Financial. In the single premium group annuity market, Aegon USA’s main competitors are John Hancock, Mass Mutual, MetLife, Mutual of Omaha, and
Regulation and supervision Aegon USA The Aegon USA insurance companies are subject to regulation and supervision in the states and jurisdictions in which they transact business, maintain offices or otherwise have a business presence. Regulators in each of those states and jurisdictions have broad powers to grant or revoke licenses to transact business, regulate trade and marketing practices, license agents, approve policy forms and certain premium rates, set reserve and capital requirements, determine the form and content of required financial reports, examine the insurance companies, prescribe the type and amount of investments permitted, levy fines and seek restitution, fines, sanctions or other monetary penalties for failure to comply with applicable regulations. The international businesses of Aegon USA are governed by the laws and regulations of the countries in which they transact business, maintain offices or otherwise have a business presence.
In addition, examinations by non-domestic state insurance departments are conducted, on a targeted, random or cyclical basis. Some state Attorneys General have also commenced investigations into certain insurers’ business practices. Within the insurance industry, substantial liability has been incurred by insurance companies based on their past sales, marketing and operational practices. Aegon USA continues to focus on these compliance issues, and costs may increase as a result of these regulatory activities.
use of captives through 2014. The impact of changes to the use of captives on the company cannot be predicted at this time. Proposals have included abolishing the use of captives or significantly restricting their use.
Securities & Exchange Commission and others have recently considered the regulation of captive reinsurance transactions.
Insurance Office. While the FIO has no direct regulatory authority over US insurers, it does have certain authority to represent the
The Dodd-Frank Act has entrusted to the Board of Governors of the Federal Reserve Board (the “Federal Reserve”) a significant regulatory role with respect to life insurers which are either designated as systemically significant or have a bank within the group. Finally, the International Association of Insurance
USA insurance companies are subject to regulation under the federal securities laws administered by the SEC and under certain state securities laws. The SEC conducts regular examinations of the insurance companies’ variable life insurance and variable annuity operations, and occasionally makes requests for information from these insurers in connection with examinations of affiliate and third party broker-dealers, investment advisors and investment companies. The SEC and other governmental regulatory authorities, including state securities administrators, may institute administrative or judicial proceedings that may result in censure, fines, issuance of cease-and-desist orders, or other sanctions against insurance companies or their distributors.
Act). Aegon USA insurance companies and other subsidiaries also own or manage other investment vehicles that are exempt from registration under the Securities Act and the Investment
The impact of any future legislation regulations regarding investment advisors, money market funds, or other investment products cannot be predicted at this time.
The financial services industry, which includes businesses engaged in issuing, administering, and selling fixed and variable insurance products, mutual funds, and other securities, and also includes broker-dealers, continues to be under heightened scrutiny and increased regulation in various jurisdictions. Such scrutiny and regulations have included matters relating to so-called producer compensation arrangements, suitability of sales (especially to seniors), selling practices, unclaimed property reporting, revenue sharing, and valuation issues involving mutual funds and life insurance separate accounts and their underlying funds. Aegon USA companies, like other businesses in the financial services industry, have received inquiries, examinations, and requests for information from regulators and others relating to certain Aegon USA companies’ historical and current practices with respect to these and other matters. Some of those inquiries have led to investigations, which remain open or have resulted in fines, corrective actions or restitution. Aegon USA companies continue to cooperate with these regulatory agencies. In certain instances, Aegon USA companies modified business practices in response to those inquiries or findings. Certain Aegon USA
companies have paid, or 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. Over the years, there has been an increase in litigation across the industry, new legislation, regulations, and regulatory initiatives aimed at curbing alleged improper annuity sales to seniors. As many of the estimated 78 million baby boomers are reaching the age of 60, the industry will likely see an increase in senior issues presented in various legal arenas. In addition, certain industry practices in respect of market conduct have been the subject of investigations by various state regulators.
Management expects any significant marketplace volatility to drive further regulation and litigation, which could increase costs and limit Aegon USA’s ability to operate.
businesses. The DOL has issued regulations defining the nature of fees to be paid for investment advice in these plans, as well as requiring increased fee disclosure from defined contribution plan service providers and to plan participants. The DOL has indicated that it will re-propose regulations regarding the scope of an "investment advice fiduciary" in IRAs and defined contribution plans, as well as further define the nature of a plan sponsor’s obligations regarding certain plan participants’
Finally, both the US Treasury Department and the DOL have published, in final and proposed forms, respectively, guidance to facilitate the offering of guaranteed lifetime income products
Moreover, legislative proposals which impose restrictions on executive compensation, or restrict employment-based savings plans or the tax benefits related thereto, could adversely impact the sale of life insurance products used in funding those plans and their attractiveness relative to other non-insurance products.
Death Master File records would adversely impact the efficient administration of its life insurance policies. The likelihood of enactment of any such legislation cannot be predicted at this time.
US Congress that target foreign-owned companies, such as a proposal containing a corporate residency provision that would redefine some historically foreign-based companies as US
Many details of the Dodd-Frank Act were left to study or regulation; therefore, the impact of the Dodd-Frank Act on
Stabilization Oversight Council ('FSOC'), responsible for identifying 'systemically significant' companies which are to be subject to additional oversight and heightened and other prudential standards imposed by the Federal Reserve Board.
management services and products used to fund defined contribution plans, individual retirement accounts, 529 plans and other savings vehicles. Changes to defined benefit plans by sponsors in reaction to the financial economic environment and the enactment of funding relief provisions may impact the services Aegon USA companies provide to these plans. In addition, legislative and regulatory proposals are considered from time to time which relate to the disclosure and nature of fees paid by defined contribution plan sponsors and their participants. Other proposals that may be considered relate to the nature of education, advice or other services Aegon
The Patient Protection and Affordable Care Act does not directly impact the business of life insurance. It is uncertain whether any of the new regulations to implement this law, anticipated over the next several years, will impact the nature or distribution of any of Aegon USA’s supplemental products.
(permitting participants in qualified retirement savings plans to convert otherwise non-distributable 401(k) plan balances to a Roth account if the plan so provides); and (c) increasing the top individual income tax rates to 39.6% and capital gains rates to 20%. Other provisions of ATRA, such as the phase-out of personal exemptions and limitations on itemized deductions, as well as the new 3.8% tax on net investment income (enacted by the Patient Protection and Affordable Care Act and first effective in 2013), will further increase the marginal income tax rate of certain high income households. Making the estate tax permanent will facilitate estate planning for Americans. The extent to which the other tax law changes impact the purchase of life insurance and annuity products, as well as the participation of individuals in qualified retirement savings plans, is as yet uncertain.
Asset liability management The Aegon USA 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.
The Aegon USA companies manage their 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. Cash flow testing analysis is performed using
(capital charges, cash flows, present value of profits, and interest rate spreads) forms the foundation for modifying investment strategies, adjusting asset duration and mix, and exploring hedging opportunities. On the liability side, Aegon USA has some offsetting risks, whereby some liabilities perform better in rising interest rate environments while others tend to perform well in falling interest rate environments. The amount of offset may vary depending on the absolute level of interest rates and the magnitude and timing of interest rate changes, but it generally provides some level of diversification. On the asset side, hedging instruments are continuously studied to determine whether their cost is commensurate to the risk reduction they offer.
Ceding reinsurance does not remove Aegon´s liability as the primary insurer. Aegon could incur losses should reinsurance companies not be able to meet their obligations. To minimize its exposure to the risk of such defaults, the creditworthiness of
Aegon USA remains contingently liable with respect to the amounts ceded should the reinsurance company not be able to meet its obligations. To minimize its exposure to such defaults,
Aegon USA reinsures part of its life insurance exposure with third-party reinsurers under quota share (traditional indemnity)
reinsurance treaties, and excess-of-loss contracts. Aegon USA’s reinsurance strategy is consistent with typical industry practice.
Canada reinsures part of its mortality and morbidity risk with third-party reinsurers that are registered with Canada’s Office of the Superintendent of Financial Institutions. The maximum life insurance exposure retained is CAD 1.25 million per life insured.
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax - (3) -
EUR 118 million. This loss in the guarantee portfolio was mainly the result of the tightening of Aegon’s credit spread and model refinements. 2013 impairment charges amounted to
EUR 32 million and other charges were EUR 36 million, which mainly included charges of EUR 25 million related to Koersplan
(compared to a charge of EUR 265 million related to the acceleration of product improvements for unit-linked insurance products in 2012).
�� Earnings from Life & Savings declined 9% to EUR 243 million compared to 2012 and was impacted by EUR 28 million from reduced policy charges on unit-linked products, as part of the acceleration of product improvements for unit-linked insurance policies. �� Earnings from Pensions increased 66% to EUR 111 million compared to 2012, mainly driven by a benefit resulting from observed mortality of EUR 25 million and higher income on mortgage loan investments allocated to the investment portfolio of the Pension business. �� Non-life earnings improved to a loss of EUR 20 million in 2013. Higher investment income and lower claims on disability products more than compensated for lower profitability of the general insurance business. Distribution recorded a prodit of EUR 18 million, up 13% from 2012. This was primarily dirven by a continued focus on cost control.
Production Total new life sales decreased 16% in 2013 to EUR 206 million.
Share in underlying earnings before tax of associates 2 1 100%
Results 2012 the Netherlands Higher underlying earnings before tax in the Netherlands were driven by improved Life & Savings earnings and lower operating expenses following implemented cost reduction initiatives in 2011. Aegon’s business in the Netherlands realized EUR 89 million of the targeted EUR 100 million reduction in operating expenses. Net income was impacted by a one-off charge of EUR 265 million related to the acceleration of product improvement for unit-linked insurance products.
�� Underlying earnings before tax from Aegon’s Life & Savings operations in the Netherlands increased to EUR 267 million, up 44% compared to 2011. This increase was driven by cost savings, a higher contribution from Aegon’s growing mortgage portfolio on lower funding costs, the nonrecurrence of certain expenses and a benefit in the fourth quarter resulting from updated mortality tables of
EUR 27 million in 2012 as a result of adverse claim experience on disability and general insurance products.
Gross deposits declined to EUR 1,484 million, driven by strong competition on the Dutch savings market and a reduction of the rate offered on savings accounts to protect margins.
Commissions and expenses Commissions and expenses decreased by 8% in 2012 compared to 2011 driven by lower operating expenses. Operating expenses decreased by 9%, to EUR 746 million, as realized cost savings and the non-recurrence of restructuring charges offset investments in new distribution capabilities and recurring charges for Corporate Center expenses.
Aegon was on track to reduce operating expenses by EUR 100 million in comparison to the cost base for 2010, of which the majority was in 2012. Over the years, Aegon has implemented cost savings of EUR 89 million.
Organizational structure Aegon the Netherlands operates through a number of brands, including TKP Pensioen, Optas and Unirobe Meeùs. Aegon itself is one of the most widely recognized brands in the Dutch financial services sector3.
�� Aegon Levensverzekering N.V. �� Aegon Schadeverzekering N.V. �� Aegon Spaarkas N.V. �� Optas Pensioenen N.V. �� Aegon Hypotheken B.V. �� TKP Pensioen B.V.
Netherlands has made significant investments in the direct online channel, which is starting to generate results.
Minimum interest guarantees exist for all generations of accumulation products written, except for universal life type products for which premiums are invested solely in equity funds. Older generations contain a 4% guarantee; in 1999 the guarantee decreased to 3% and in 2013 the guarantee decreased to 0%.
There are various profit-sharing arrangements. Bonuses are either paid in cash (usually for a pension, as described later)
or used to increase the sum insured. A common form of profit sharing is to set bonus levels by reference to external indices that are based on pre-defined portfolios of Dutch government bonds. The bonds included in the portfolios have differing remaining maturities and interest rates. Together they are considered an approximation of the long-term rate of return on
Term life insurance policies do not include profit-sharing arrangements. Part of the whole life insurance portfolio has profit-sharing features, which are based on external indices or the return of related assets.
Annuity insurance includes products in the accumulation phase and products in the payout phase. Payout commences at a date determined in the policy and usually continues until death of the insured or the beneficiary. Premiums are paid at inception of the policy or during the accumulation phase of the policy.
Tontine policyholders may invest premiums in a number of Aegon funds. Aegon the Netherlands manages but no longer sells tontine plans.
Aegon the Netherlands offers flexible savings accounts with cash withdrawal with limited restrictions, and deposit accounts with a predetermined maturity.
Pensions The Pensions business provides a variety of full service pension products to pension funds and companies.
Separate account guaranteed group contracts provide a guarantee on the benefits paid. The longevity risk therefore lies with Aegon the Netherlands. Non-guaranteed separate account group contracts provide little guarantee on the benefits.
Aegon the Netherlands may not renew a contract at the end of a contract period.
Aegon offers all customers a defined benefit product with guaranteed benefits. The expected profit is paid to the customer upfront, with the premium adjusted for anticipated investment returns. Customers may contribute funds for future pension increases to a separate account. Aegon the Netherlands also offers defined contribution products with single and recurring premiums to all customers. Profit sharing is based on investment returns on specified funds, and 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, for which it takes on the guaranteed or non-guaranteed liabilities, with or without annual pension increases, and receives a lump-sum premium. All risks related to the transferred benefits are carried by Aegon the Netherlands.
Aegon the Netherlands, through which it offers financial advice to its customers, including the sale of insurance, pensions, mortgage loans, financing, savings and investment products.
Delta Lloyd/OHRA. This market is, however, subject to quickly changing market dynamics, including the growing use of online channels and a slowly changing pensions landscape (PPI).
In the mortgage loans market, Aegon the Netherlands’ market share is growing and the company now holds a market share of approximately 9,1% based on new sales2. Rabobank, ING
and ABN AMRO are the largest mortgage loan providers in this market.
Aegon the Netherlands holds approximately 1.3%3 of Dutch households savings and is small in comparison to banks
In recent years, several changes in regulations have limited opportunities in the Dutch insurance market, notably in the life insurance market where the tax deductibility of certain products has been reduced, such as for company savings plans.
Netherlands has accelerated its response through organizational restructuring accompanied by significant cost savings.
In the pension market, funds face pressure on their coverage ratios, and increased regulatory and governance requirements.
The PPI market is to grow significantly due to the shift from defined benefit plans to defined contribution plans, and demand 1 Source: DNB/CVS Reports 2012.
Regulations for the supervision of financial institutions are referred to as the “Wet op het financieel toezicht” (or Financial
The AFM supervises the conduct of, and the provision of information by, all parties in the financial markets in the
Under Dutch law, a company is not permitted to conduct both life insurance and non-life insurance business within one legal entity, nor is a company allowed to carry out both insurance and banking business within the same legal entity.
DNB may request additional information it considers necessary and may conduct an audit at any time. DNB may also make recommendations for improvements and publish these recommendations if the insurance company does not follow them. Finally, DNB may appoint a trustee for an insurance company or, ultimately, withdraw the insurance company’s license.
The following insurance entities of Aegon the Netherlands are subject to the supervision of DNB: �� Aegon Levensverzekering N.V. �� Aegon Schadeverzekering N.V. �� Aegon Spaarkas N.V.
Under Solvency I, life insurance companies are required to maintain certain levels of shareholders’ equity in accordance with
EU directives. Currently this level is approximately 4% of general account technical provision or, if no interest guarantees are provided, approximately 1% of technical provisions with investments for the account of policyholders and an additional 0.3% charge for value at risk.
General insurance companies are required to maintain shareholder equity of equal to or greater than 18% of gross written premiums a year, or 23% of the three-year average of gross claims.
Solvency II will likely be effective from January 1, 2016. In anticipation of Solvency II, the Dutch Ministry of Finance and
II is in force, the most important change in the supervision of insurance companies will be the introduction of the Theoretical
TSC is effective from January 1, 2014. The TSC requires that several important “Solvency II” scenarios are calculated for an insurer, thus giving information about the sensitivity of these scenarios on the available solvency under the current regime in the Financial Supervision Act. The TSC is not comparable with the Solvency Capital Requirement (SCR) under Solvency I, as it is not a capital requirement. It will be used by DNB in the ladder of intervention to prevent breaches of solvency requirement as defined by the Financial Supervision Act.
Credit institutions are required to maintain solvency and liquidity ratios in line with the requirements of the “Wet op het financieel toezicht”. The "Wet op het financieel toezicht" incorporates the requirements of Directive 2006/48/EC, Directive 2006/49/
accord, the new regulatory framework for the banking sector, has been finalized and is currently being translated into European legislation through the CRD IV framework. The CRD IV framework was implemented in the Netherlands in the Financial Supervision
Scenarios and optimization analyses are conducted for fixed income, equities and real estate asset classes. The result is an asset allocation and hedges representing the desired risk-return profile. Constraints, such as the minimum return on equity and the minimum desired solvency ratio, are also taken into account.
Aegon 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.
Aegon the Netherlands or Deutsche Bank may activate an early termination clause to terminate the contract after ten years.
The pay-out is maximized at a predetermined percentage which is higher than compared to the base scenario. This transaction was the first transaction in Continental Europe to be based on population data and it is the first longevity swap to be targeted directly at capital markets.
Aegon the Netherlands implemented a second longevity hedge in 2013, in line with its strategy of reducing longevity risk from the balance sheet. This covers underlying longevity reserves in the Netherlands of EUR 1.4 billion. It retains some risk around the best estimate of the insurance liabilities of Aegon the
contracts. Reinsurance helps Aegon manage, mitigate and diversify its insurance risks and limit the maximum loss it may incur.
Aegon the Netherlands has ended this reinsurance contract and therefore retains the full mortality and disability risk.
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.
Income tax on shareholders return 83 13 - 97 16 -
GBP 2 million. Earnings from Distribution will no longer be reported separately. Positive Solutions was sold, and Origen was moved into the Pensions line of business.
Platform assets reached GBP 1.3 billion by the end of 2013.
Net income Net income decreased to GBP 102 million compared to 2012.
Income before tax on shareholders return 127 (89) - 157 (103) -
Income tax on shareholders return 13 50 (74%) 16 58 (72%)
Results 2012 United Kingdom Underlying earnings before tax from Aegon’s operations in the United Kingdom improved to GBP 89 million driven by lower expenses following the implementation of the cost reduction program in 2011 and the absence of charges and expenses related to the customer redress program in 2011. Aegon introduced a new platform to the market in 2012.
Underlying earnings before tax Underlying earnings before tax from Aegon’s operations in the
United Kingdom increased to GBP 89 million in 2012, driven by a strong improvement in underlying earnings before tax from pensions compared to 2011. Underlying earnings before tax included recurring charges for Corporate Center expenses of
GBP 8 million. �� Underlying earnings before tax from Life declined to GBP
15 million benefit and recurring charges for Corporate Center expenses. �� Underlying earnings before tax from Pensions improved to
Kingdom, the non recurrence of restructuring charges in 2011, partly offset by the benefit from changes to employee pension plans in 2011. This reduction has been achieved while continuing to invest in new propositions in the pension business. Operating expenses included GBP 8 million of recurring charges for
Production New life sales increased to GBP 758 million, reflecting growth in both the life and group pension businesses. Platform sales accelerated throughout the year as new advisors joined the
Retail Distribution Review (RDR). Aegon UK has successfully adapted its working practices, business models and products to meet these changes.
1 The ARC platform won Best Innovation on a Platform and Best Workplace
The At Retirement and Workplace Savings propositions offer customers a mix of products to cover saving for retirement and taking a retirement income.
Enhanced corporate distribution Aegon UK’s commitment to, and focus on, the workplace savings market has resulted in significant achievements this year. In
These appointments further broaden Aegon UK’s distribution network and highlight the strong competitive positioning of the
Organizational structure Aegon UK plc is Aegon UK’s principal holding company. It was registered as a public limited company at the beginning of
Aegon UK’s leading operating subsidiaries are: �� Scottish Equitable plc. (trading as Aegon); �� Aegon Investment Solutions Ltd.
In all, there are an estimated 25,000 registered financial advisors in the United Kingdom. Until December 31, 2012, these advisors were classified as either single-tied, multi-tied, whole of market or independent, depending on whether or not they were restricted in the number of providers they represented. The
A dedicated team supports our key corporate advisors and corporate strategic accounts.
As mentioned above, Aegon UK is also developing new distribution opportunities, including agreements with banks and affinity partnerships with organizations outside the industry.
Immediate annuity In the United Kingdom, funds in pension plans are generally converted into a source of income at retirement, usually through the purchase of an immediate annuity.
'defined contribution' (DC) plans has continued to accelerate in recent years. DC plans are similar to personal pensions, with contributions paid into a plan owned by individual employees and then invested. Generally, at retirement, employees can choose to take a percentage of tax-free cash from their pension plan, using the remainder to either purchase an annuity or invest it in a separate drawdown policy.
(an employer) requires investment solutions that are specific to each pension scheme. These solutions typically require a nonbranded investment portal and the provision of fund blending to create scheme default funds. In addition, a growing number of corporate customers want target dated lifestyle fund solutions for their members as they approach retirement.
Individual pensions Aegon UK provides a wide range of personal pensions and associated products and services. These include: �� Flexible personal pensions; �� Self invested personal pensions; �� Transfers from other retirement plans; �� Phased retirement options and income drawdown.
Investment products Aegon UK offers offshore investment bonds1. An offshore bond is traditionally marketed to high-net-worth individuals. Offshore contracts offer considerable tax advantages and a wide choice of investment options. Aegon UK also offers GIAs and ISAs through its platform.
1 The offshore bond is offered by Aegon Ireland plc and is reported separately in the New Markets segment, rather than as part of the UK segment.
Sales and distribution Investment products and individual and corporate pensions are distributed widely through independent financial advisors, tied distribution and, more recently, partnerships with banks. Aegon
Over the past few years, the life and pension market has been increasingly concentrated among the largest companies and those perceived to be financially strong. Aegon UK’s competitors include Legal and General, Standard Life, Lloyds Bank and Aviva.
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 regulator will only approve a candidate whom it is satisfied is fit and proper to perform the controlled function(s) for which they have applied.
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 unit-linked business, the matching philosophy results in close matching of the unit liabilities with units in the relevant underlying funds. A proportion of the unit-linked assets are invested in funds managed by external investment managers.
With-profit fund The invested assets, insurance and investment contract liabilities of Aegon UK’s with-profit fund are included in 'for account of policyholder assets and liabilities'. Assets and liabilities are always equal, as an excess of assets over liabilities regarding guaranteed benefits and constructive obligations is classified as an insurance or investment contract liability. The Scottish
Equitable with-profit fund is a 100:0 fund, whereby benefits are held for participating policyholders.
In previous years, Scottish Equitable sold guaranteed annuity products in the United Kingdom. Certain policies also have a guaranteed minimum rate of return or guaranteed minimum pension or guaranteed death or other benefits. Guaranteed rates of return apply only if the policy is kept in force to the dates specified, or only on the events described in the policy conditions.
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.
Guaranteed rates of return on with-profit policies are typically in the range of 0% to 5.5% a year; however, the highest rates have been closed to premiums since 1999, and all funds have been closed to new business with investment guarantees since
The results of the with-profit fund’s investment performance are distributed to policyholders through a system of bonuses which depends on: �� The guarantees under the policy, including previous annual bonus additions.
�� The investment returns on the underlying assets, with an allowance for ‘smoothing’ to reduce volatility. Although smoothing means that investment profits are spread from one year to the next, the aim is to pay out all of the investment profits earned by the fund over the long term. For early withdrawals, there are other measures to ensure that a fair share of total fund growth is received. A market value reduction may be applied to certain funds where, for cohorts of similar contracts, the face value of the benefits is greater than the value of the underlying assets. Policy conditions may state specific points for which a market value reduction will not apply.
As mentioned above, the free assets (that is, assets which, as yet, have not been distributed to policyholders) help meet the cost of guarantees and provide a buffer to deal with adverse events. These free assets are partly invested in equity puts and fixed interest swaps/swaptions to protect against adverse market movements. Aegon UK has an exposure only once these free assets are exhausted. The risk of exposure has been assessed by Aegon UK as remote, based on applying the riskbased capital approach now required for solvency reporting in the United Kingdom.
Reinsurance ceded Aegon UK’s reinsurance strategy is aimed at limiting the overall volatility of mortality and morbidity when managing risk, and maximizing the financial benefits of reinsurance. The actual percentage of business reinsured varies, depending largely on the appropriateness and value of reinsurance available in the market.
Underlying earnings before tax by product segment Central & Eastern Europe 59 85 (31%)
Other income / (charges) (33) 113 Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 167 370 (55%)
Results 2013 New Markets Net income in 2013 decreased to EUR 133 million as gains from divestments were more than offset by a write down of intangible assets in Poland following legislative changes and lower underlying earnings before tax as increases in underlying earnings before tax in Asia and Variable Annuities Europe were more than offset by decreases in Central & Eastern Europe, Spain and Aegon Asset Management.
EUR 988 million compared to 2012. Operating expenses increased 7% to EUR 656 million. The increase in operating expenses was the result of higher costs in Asia and Variable
EUR 108 million compared to 2012. Sales growth in Turkey and Slovakia driven by improved distribution productivity and product launches respectively, was more than offset by lower sales in Poland resulting from reduced production in the broker channel.
�� New life sales in Spain declined 37% to EUR 54 million compared to 2012, as the sales contribution from the joint venture with Santander was offset by the loss of sales driven by the divestment of partnerships.
Underlying earnings before tax In New Markets, underlying earnings before tax in 2013 declined 14% to EUR 236 million compared to 2012, as increases in Asia and
Central & Eastern Europe, Spain and Aegon Asset Management. �� Earnings from Central & Eastern Europe declined 31% to
EUR 95 million, as the positive impact of higher third party asset balances was more than offset by the loss of earnings from the sale of hedge fund manager Prisma in the fourth quarter of 2012.
Results 2012 New Markets Amounts in EUR millions 2012 2011 %
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (15) (8) (88%)
Results 2012 New Markets Aegon’s operations in New Markets reported higher underlying earnings before tax in 2012 as growth in Asset Management and Asia offset declines in Central & Eastern Europe and Spain due to new pension legislation in Poland and changes to Aegon’s joint venture partnerships in Spain.
Underlying earnings before tax In New Markets, Aegon’s underlying earnings before tax increased 10% to EUR 274 million in 2012. Higher underlying earnings before tax from Aegon Asset Management and
Asia offset lower earnings from Spain, Central & Eastern Europe and Variable Annuities Europe. �� Underlying earnings before tax from Central & Eastern
Részvénytársaság �� Aegon Towarzystwo Ubezpieczeń na Życie Spółka Akcyjna; �� Aegon Powszechne Towarzystwo Emerytalne Spółka Akcyjna; �� Aegon Emeklilik ve Hayat A.S.
Poland, Romania and Turkey, retail banks. Aegon primarily sells life and non-life insurance through tied agents, brokers and call centers, household and car insurance through online channels; in addition, life insurance, mortgage loans, mutual funds and household insurance are sold through banks and other alternative channels.
Overview of business lines Life & Savings Aegon companies in Central & Eastern Europe offer a range of life insurance and personal protection products. This includes traditional life and unit-linked products. Unit-linked products cover all types of life insurance, including pension, endowment and savings. Aegon is one of the leading providers of unit-linked products in Poland1 and Hungary2.
In Poland, an insurance fund with a guaranteed rate reset on a quarterly and annual basis is offered on unit-linked products.
Similar products are sold in the Czech Republic and Slovakia, with declared interest guarantees of 1.2% and 1% respectively, and further conditional increases. In Slovakia, the minimum interest rate on universal life products was 3% at the close of 2006, and has since been 2.5%. Universal life products in the Czech
for new products introduced after the acquisition of the company in 2008. A minimum of 85% of the interest income in excess of guaranteed return is credited to policyholders’ funds in Turkey.
Aegon Life Insurance Company in Romania operates as a branch of Aegon Poland Life Insurance Company and sells unit-linked, term life and endowment insurance policies. An interest guarantee is provided to a unit-linked product that varies between 2%-3.2%, depending on the policy year.
In February 2013, Aegon acquired Fidem Life, a life insurance player in Ukraine selling traditional life insurance products.
Mortgage loans Aegon Hungary has offered mortgage loans to retail customers since 2006. Home mortgage loans provided in the past were mainly Swiss franc denominated and provided by Aegon Hungary
Since 2010, the mortgage loans business has been affected by several legislative changes enacted by the Hungarian Parliament, each having the aim of reducing the financial burden on debtors with foreign currency denominated loans, and arising as a result of the economic downturn. One of the most significant one-time measures was enacted in September 2011 to permit debtors to redeem the outstanding loan amount at a fixed, below market exchange rate that resulted in a substantial loss for the financial industry. Under the currently effective rules debtors may fix the exchange rate applied to their monthly instalments at a belowmarket exchange rate for a maximum period of five years. The financial losses resulting from this program are borne partially by the Hungarian State and partially by financial institutions.
In terms of assets under management, Aegon’s private pension funds in Poland, Slovakia and Romania, and voluntary pension fund in Hungary, are among the largest1 in their countries. In terms of member numbers, Aegon has a significant market presence2 in Poland, Romania, and Hungary. As of December 2013, Aegon had a total of 1.6 million pension fund members in
The Hungarian pension legislation changes enacted at the end of 2010 had a significant impact on the private (formerly mandatory) pension system. One of the most important measures was that private pension members were required to choose whether to remain enrolled in the private pension fund (on condition of termination of entitlement to the state pension for employment years after 2011) or opt out of private pension funds, transferring accumulated savings to the state held pension system. As a result, approximately 3% of members decided to remain enrolled in the private pension system and 97% moved to the state pension system.
Financial Supervision, The Central Bank of Hungary, 2 Sources: Polish Financial Supervision Authority, www.knf.gov.pl; Authority for Financial Supervision, The Central Bank of Hungary, https://
Social Insurance Institution (ZUS) of Poland. Furthermore, as a result of the changes, membership for the purpose of paying future contributions is to become voluntary. Additionally, ZUS
Since September 2012 there has been a significant reduction in the contribution rate payable into private pension funds in
Slovakia. Additionally, as of new legislation in 2013, it is no longer mandatory to join a private pension fund (Pillar II).
As of 2013 in Turkey, in accordance with legislative changes enacted in 2012, a reduction is applied to the maximum chargeable level of entrance fees, administration fees, and asset management fees. From 2013, pension contributions are no longer subject to tax incentives; instead, members receive 25% of their contributions in the form of direct support from the state.
These exist alongside the so-called transformation fund, into which savings accumulated to the end of 2012 were placed.
Aegon elected not to enter Pillar II in the Czech market. Aegon operated a transformation fund throughout 2013. On December 30, 2013, Aegon disposed of its pension line of business, and thus exited the Czech pension market.
As part of Aegon’s regional expansion, Aegon Hungary opened branch offices in Slovakia in 2010, and in Poland in 2011, selling household insurance policies in these markets.
In Hungary’s voluntary pension fund market, Aegon was ranked third6 for both the number of its members and its managed assets in 2012. For managed assets, in 2013 Aegon was ranked fifth7 in the Slovakian private pension market. In Poland, Aegon was ranked eighth8 for number of members and ninth9 for managed assets in 2013. As of December 31, 2013, Aegon ranked seventh10 in the Romanian mandatory private pension market, both for net assets under management and number of members.
Regulation and supervision In Central & Eastern Europe, a single insurance company may only be licensed for, and conduct, one of either a life insurance or non-life insurance business, and not both. In Hungary, however, insurance companies established before 1995 are exempt from this rule. This exemption applies to Aegon Hungary.
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); �� National Commission for State Regulation of Ukrainian
In addition to legal regulation, insurance companies are subject to a number of self-regulatory groups in their respective countries. These self-regulatory groups are the main forums for discussion among insurance companies. Their specialized departments (for example, actuarial, financial, and legal) meet periodically. They also engage in lobbying activities.
In Hungary, the foundation and operations of voluntary pension funds are regulated by the country’s Act on Voluntary Mutual
National Bank of Slovakia (NBS). In Romania, the private pension system is regulated and supervised by the Authority for Financial
Supervision (ASF), and the mandatory pension system is subject to Act 411/2004 on Privately Administered Pension Funds, as primary legislation, complemented by individual regulations, as secondary legislation. In Poland, this activity is supervised by the KNF and is governed by the Organization and Operation of
Enterprises (CXII. 1996) regulates the foundation, operation and reporting obligations of the country’s financial institutions
Reinsurance ceded Aegon takes out reinsurance for its life and non-life businesses in Central & Eastern Europe. This strategy is aimed at mitigating insurance risk. Aegon’s companies in the region work only through large multinational reinsurers, which have well-established operations in the region, in accordance with the
& Poor’s (S&P) rating of A-, and for long-tail business Aegon
CEE accepts reinsurance companies with a minimum S&P rating of AA-. The credit standing of the reinsurance partners is held under strict monitoring, discussed on a monthly basis by the
Global Reinsurance Use Committee and assessed on a quarterly basis by the Risk & Capital Committee. From 2013, Aegon
In the first phase, Blue Square Re takes the risk; in the second phase, Blue Square Re retro-seeds the risk in the reinsurance market with some retention levels.
The three most important reinsurance programs currently in force (with retention levels for each event indicated in parentheses) are: �� Property catastrophe excess of loss treaty (EUR 5.4 million retention). The Slovakian and Polish branch offices have a separate XL treaty with lower retention (EUR 0.2 million); �� Motor third party liability excess of loss treaty (EUR 0.4 million retention); �� Property per risk excess of loss treaty (EUR 1 million retention).
The majority of treaties in force for Aegon's operations in Central
& Eastern Europe are non-proportional excess of loss programs, except for the life reinsurance treaties, which are made on a surplus and quota-share basis (including various riders).
Overview of Asia Aegon Asia operates in the Asia region through three major joint ventures in China, India and Japan, and a network of wholly-owned subsidiaries.
China National Offshore Oil Corporation (CNOOC), China’s leading offshore oil and gas producer. Aegon-CNOOC Life Insurance Co.
In early 2007, Aegon signed a joint venture agreement in Japan with Sony Life, one of Japan’s leading insurance companies.
Wholly-owned subsidiaries In 2011, a new organizational structure was adopted for
Aegon’s operations in Asia, with all Asia-based insurance businesses managed as one regional division headquartered in Hong Kong and operates to a branch of Aegon Asia B.V..
ADAMS is an independent direct marketing services company with operations in five Asian countries. It was established in
Overview of sales and distribution In China, Aegon sells its products through multiple distribution channels, such as agents, independent brokers, banks, direct marketing, and the group channel. As of November 2013,
Customer (D2C) distribution, such as digital sales platforms and the use of the direct sales force channel. Aegon Religare is a pioneer in the online protection space, and has experienced a significant increase in the number of sales generated online in 2012 and 2013. Aegon Religare also distributes its products through strategic partner Religare Group, and partnerships with companies that offer financial services to their clients, brokers, and, to an extent, co-operative banks.
Life launched a partnership with SMBC, one of Japan’s largest national banks, and substantially added further regional bank partners thereafter.
The focus of TLB is on building strong relationships with private and priority banks, local and international brokers and intermediaries.
In China, Aegon-CNOOC’s agency channel mainly sells regular premium endowment with high-sum assured protection and critical illness products. Regular premium participating endowment and single-pay universal life are key products for the bancassurance channel. Telemarketers largely sell return of premium products. Popular products in the brokerage channel are return of premium, participating endowment, and critical illness.
Universal life and term products TLB main products consist of USD Guaranteed Universal Life
(GUL) and USD term plans in 2013 for the high-net-worth market, and a new range of products was launched in the fourth quarter of 2013.
Individual savings and retirement Aegon Sony Life sells variable annuities. It provides a guaranteed lifetime withdrawal benefit (GLWB) with a rollup function of 3%
trigger feature that allows the customer to receive either a lump-sum withdrawal of the difference between the initial premium and account value or have the difference transferred into a separate non-guaranteed account.
Since early 2012, all actively distributed Aegon Sony Life products had an underlying policyholder fund with a volatilitycontrol mechanism which uses the simple index funds of major economies. Target volatilities are in the range of 4.5% to 6%.
Non-life Aegon-CNOOC offers non-life products – mainly short-term accidental and short-term health – to all channels, although sales are concentrated in the group channel, for which the main products are group medical policies.
Aegon Religare sells a health product with the same features as a defined-benefit product, which pays benefits specified for the categories of hospitalization, surgery or critical illness, irrespective of the actual expense incurred by the policyholder. In
May 2012, Aegon Religare launched online health plan iHealth, in line with the company’s focus on digital channels. The off-line version is sold by all channels of the joint venture, including agency, direct and business alliances.
Competition China - Aegon-CNOOC As of November 30, 2013, there were 70 life insurance companies in the market, including 42 domestic life companies and 28 foreign life insurers. As of November 30, 2013,
Insurance Experienced Critical Illness Table (2006-2010). As of December 31, 2013, the table is to be used as the basis for evaluating the statutory reserves of critical illness products.
The table is expected to have a profound impact on product innovation in the life insurance industry in China.
WeChat, alongside standard corporate website and third party website platforms. Estimates suggest e-sales have significant potential in the China life insurance market.
India - Aegon Religare First year premiums, a measure of new business secured by life insurers, were INR 1,024 billion from January to November 2013, compared to INR 1,029 billion in the same period of 2012.
From January to December 2013, the total premium collected by Aegon Religare decreased by 7% to around INR 4.21 billion, from INR 4.52 billion in 2012. This was due to a drop of nearly 22% in first year premium collection to INR 1.29 billion, from INR 1.67 billion in 2012. Renewal premium collection was slightly up at around INR 2.91 billion, compared to
There is a strong need in Japan for individual annuity products for self-support after retirement. This is because falling birth rates and an aging population work against the public pension scheme.
Guaranteed minimum accumulation benefit remains the main product in the variable annuities market. There are seven active companies in Japan’s variable annuities market. Aegon Sony Life had the second largest market share in 2013, up from fifth in 2012, with cumulative annual variable annuities sales of JPY
Asia - ADAMS Economic pressure on traditional distribution channels and changes in customer purchasing behavior are driving market recognition that direct marketing is a growing opportunity with further potential. Multinational insurers are increasing their capabilities across the region.
In D2C, market participants use their customers’ preferred channels. For insurers, this primarily involves the tactical deployment of media such as Direct Response TV, product microsites, health portals, social media platforms. and mobile applications. Online sales for non-life products is increasing in many markets across the region, while life products e-commerce is emerging.
Production for the year reached USD 54.9 million, which was 183% of budget and more than double 2012’s figure of
1 Source: China Internet Network Information Centre as of June 2013.
To further strengthen the protection of policyholders’ rights and interests, the CIRC continuously advances the supervision of misleading sales, improves supervision systems and measures on life insurance services, and formulates a minimum service standard.
The CIRC also promotes market-oriented reform by further reducing administrative approval processes, driving a broad range of reforms, such as product pricing and marketing mechanisms, and allowing markets to play a fundamental role in resource allocation.
India - Aegon Religare Indian life insurance companies are regulated by the Insurance
regulates, promotes and encourages the orderly growth of insurance and reinsurance business in India. Established by the
Japan - Aegon Sony Life The Financial Services Agency (FSA) is the government agency supervisor of all insurance companies in Japan. New products and major product amendments are filed with, and approved by, the FSA. General policy provisions, statements of business procedure, pricing and valuation are approved by the FSA.
The FSA has the right to on- and off-site inspections. Relevant regulations for insurance operations include, among others, the Insurance Business Law and related enforcement/notice, the
Bermuda Monetary Authority, the integrated regulator of the financial services sector in Bermuda. TLB’s Asia branches are located in Hong Kong and Singapore. The insurance industry in Hong Kong is regulated by the Office of the Commissioner of Insurance (the “OCI”). The OCI’s priorities are to oversee the financial conditions and operations of authorized insurers in
Hong Kong. In addition, the OCI considers itself to be a market enabler, committed to facilitating both the healthy development of the insurance industry and the protection of policyholders.
Asset liability management China - Aegon-CNOOC A monthly asset liability management meeting is held to monitor duration and liquidity management. The durations of liabilities and assets are calculated separately by block and the duration gap is analyzed. Based on the payment structure and term of
insurance liabilities, Aegon-CNOOC usually purchases corporate bonds, government bonds, bank deposits, debt projects, or other fixed income assets to match this liability. Operating funds are invested in the bond fund, money-market fund and bond repurchase markets to achieve higher investment returns.
The respective Risk & Capital Committees of Aegon-CNOOC meet every quarter to manage and monitor asset and liability matching, using the result of stress-test scenarios based on the Economic
Capital Committee (RCC). A regular review of risk and capital requirements is conducted by the committee members of the
Japan - Aegon Sony Life and SARe Aegon Sony Life reinsures (cedes) 100% of its guarantees on variable annuities to SARe. SARe has a comprehensive hedging program in place that covers the major risk dimensions.
In reinsuring minimum variable annuity guarantees, SARe accepts certain market and policyholder behavior risks. SARe covers payments under the guarantees to the extent that benefits to the policyholder exceed the variable annuity account value.
The hedging program includes futures contracts, foreign currency forwards and interest rate swaps. Futures contracts are traded on market indices such as TOPIX, S&P 500, FTSE 100, and
EuroStoxx 50. Not all equity indices are traded in Japanese Yen
Policyholder behavior risks are managed through a combination of product design, pricing techniques, hedge construction and rebalancing to reflect emerging experience, and are reflected in the reinsurance premium that is charged by SARe to
Aegon Sony Life. In addition to these pricing and hedging risk mitigation techniques, for certain products capital contains a provision for adverse deviation. As such, increases in capital due to unexpected deviations in policyholder behavior or an unfavorable basis error are cushioned by applying an assumption for hedge effectiveness in capital (and reflected in pricing). This assumption is lower than is expected to be realized based on results from a ten-year back-test of Aegon Sony Life's hedge strategy (the back-test is from June 1999 to June 2009). SARe’s
General Re and Munich Re in quota share. The group products are mainly reinsured by Hannover Re. Aegon-CNOOC has also modified co-reinsurance with Hannover Re to improve its solvency ratio in addition to morbidity and mortality risk transfer. Aegon-
RGA Re to share mortality and morbidity risks through surplusand quota-share arrangements on a risk-premium basis.
There is also a coinsurance arrangement with the affiliate company TLIC for some universal life business. The mortality risk on these products is first ceded to third party reinsurers, and the retained risks are 100% or 80% coinsured with TLIC.
Aegon Seguros Salud and Aegon Seguros de Vida, which merged to form Aegon Espana S.A. de Seguros y Reaseguros, as of January 1, 2011. Aegon Administracion y Servicos A.I.E., a separate legal entity, provides administration and operations services to all Aegon companies in Spain, including joint ventures with third parties. In addition, Aegon operates through partnerships with the financial entities Banco Santander, Cajatres and Liberbank.
Organizational structure Aegon Spain’s main subsidiaries and affiliates are: �� Aegon Espana S.A. de Seguros y Reaseguros; �� Aegon Administracion y Servicos A.I.E.; �� Caja Badajoz Vida y Pensiones (50%), in partnership with Cajatres; �� Cantabria Vida y Pensiones (50%), in partnership with Liberbank; �� Liberbank Vida (50%), in partnership with Liberbank; �� 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 and Caja Badajoz set up a 50/50 joint company to sell life insurance and pensions. Caja Badajoz has a network of 229 branches, primarily in the western region of Extremadura, which adjoins Spain’s border with Portugal. In 2011, Caja Badajoz
In 2011, Caja Cantabria Vida y Pensiones entered into a SIP
This became fully operational in June 2013 following completion of the precedent conditions and administrative authorizations.
Banco Santander is the largest financial institution in Spain, with 4,548 branches nationwide. Aegon’s agreement with Banco
Bancassurance, comprising 66% of the total, and its own network of brokers and agents. Aegon Spain’s sales network is focused on individual life and health insurance in urban and rural areas.
Overview of business lines Aegon Spain primarily serves retail customers, and offers life insurance, general insurance, accident and health, and pension products. The recent partnership with Banco Santander enabled
For Aegon Spain’s traditional life, unit-linked variable life and pension products, the major competitors are retail bank-owned insurance companies. The life market is dominated by Grupo
Caixa, with a 21% market share, and Santander, with a 12%
share, followed by Mapfre, with 10%. Aegon Spain’s market share is 1.09%.
For Aegon Spain’s health and general insurance products, the main competitors are foreign and local companies. Mapfre leads the non-life insurance market with a 19% market share, followed by Axa and Generalli, both with an 8% share. The non-life market is more fragmented than the life market. Aegon Spain’s multirisk business line is responsible for non-life and has a market share of 0.88%.
Regulation and supervision Direccion General de Seguros (DGS) is the regulatory authority for the Spanish insurance industry. Insurance companies are required to report to DGS on a quarterly basis. Spanish regulations incorporate all requirements of the relevant
Asset liability management Aegon Spain’s approach to asset liability management is, respectively, to make projections of asset and liability cash flows, calculate their present values using a market yield curve, and compute 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, meaning that both its joint ventures and own business are treated as a whole, with the same economic conditions and reinsurers panel, but with individual profit shares without losses carried forward by each entity belonging to Aegon Spain. The main contract for mortality and morbidity provides proportional reinsurance protection for both its individual risk and group risk policies. 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 nature of the risk being reinsured; generally, however, the retention limit is between EUR 30,000 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 uses only 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 of 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.
France serving some 8 million customers (including retirees). The new group became operational at the start of 2008. In 2009,
Overview of sales and distribution channels Arial Assurance specializes in collective pensions for large corporates. La Mondiale Partenaire focuses on high-net-worth individuals in France. La Mondiale Europartenaire serves high-net-worth individuals in Luxembourg. Arial Assurance distributes its corporate solutions through agents and brokers, while La Mondiale Partenaire and La Mondiale Europartenaire distribute their individual solutions predominantly through banks and independent financial advisers.
Market position In 2012, AG2R La Mondiale is ranked tenth by premiums in the life insurance sector and first by premiums in corporate pensions.
Europartenaire fourth by premiums in 2013 with a 9% market share.
Overview of Variable Annuities Europe Variable Annuities Europe’s legal entity is Aegon Ireland plc, located in Dublin. Its primary business line is variable annuities for Europe, active in the United Kingdom, Germany, France, and the Netherlands. In addition Aegon Ireland offers offshore bonds for the market in the United Kingdom.
Overview of sales and distribution channels In the United Kingdom and the Netherlands, Aegon Ireland does not employ a direct sales force, but works with the local sales forces of the Aegon companies.
Variable annuities Variable annuities are advised products distributed primarily through financial advisers and banks.
Aegon Retirement Choices (ARC) platform – an online service that allows financial advisers to manage their clients' investment portfolios – banks, and financial advisers.
La Mondiale’s own internal networks and through platforms to financial advisers and banks.
In the Netherlands, a single variable annuity product is distributed through Aegon’s local banking and financial adviser channels.
Offshore bonds Offshore bonds are offered exclusively in the United Kingdom and distributed through Aegon’s ARC platform, other third party platforms, banks, and financial advisers.
The account value of variable annuities reflects the performance of the funds. The insurance provider earns administration and expense charges, as well as guarantee charges for the guaranteed benefits.
The premiums paid are invested in the underlying funds as selected by the client. Alternatively, clients may request the appointment of a specialist fund manager to select the underlying funds on an advisory or discretionary basis.
In Germany, several competitors offer variable annuity type products, but variable annuities are generally not essential to their overall offering. The main competitors are Canada Life, Axa, and Baloise. Other providers include Allianz, Swiss Life, Generali, and Friends Provident.
Offshore bonds The UK offshore bond market remains highly competitive. Aegon has a 6% market share, placing it sixth. The top three providers by market share are Axa Wealth, Standard Life, and Canada Life, respectively.
(FOE) basis, subject to the notification requirements set out in the 1994 Regulations.
Ireland must comply with the general good provisions that apply to insurers selling such policies in each jurisdiction.
The Central Bank of Ireland has sole responsibility for the prudential supervision and regulation of Aegon Ireland. As a consequence, Aegon Ireland's entire business, state of solvency, establishment and maintenance of technical reserves, quality of corporate governance, risk management, and internal control systems are all subject to monitoring and supervision by the Central Bank of Ireland. Aegon is required to submit annual returns to the Central Bank of Ireland and is subject to annual review meetings and themed visits. The Central Bank of
Ireland has wide powers of intervention in all areas of Aegon
Organizational structure Aegon Asset Management has three main brands; �� Aegon Asset Management specializes in providing fixed income, real estate loan and asset allocation solutions to a range of customers. It benefits from long-standing experience in managing these asset classes for Aegon. �� Kames Capital is a United Kingdom based asset management company providing fixed income, equities, real estate and multi-asset solutions to United Kingdom and international clients.
�� TKPi is a Netherlands-based fiduciary manager recognized for its manager selection and tailored advice to the Dutch pension market.
Overview of business lines Aegon Asset Management manages significant funds on behalf of other Aegon insurance units. Asset inflows are derived from insurance company sales invested into the general account or insurance funds, depending on the product sold. Aegon Asset
Management also services third party retail and institutional customers investing through collective investment schemes or segregated mandates.
liabilities. As a rule, general account assets are managed in a closed architecture structure, and the main asset classes are fixed income and mortgage loans. Aegon Asset Management also manages the general account derivatives book.
For third party business, product design and distribution are typically controlled by Aegon Asset Management (whereas for general account and affiliate sales business these are controlled by the insurance companies). Some third party business is sourced through co-operation arrangements with insurance affiliates. The retail businesses typically sell collective investment vehicles (mutual funds) to the public through wholesale distributors and independent intermediaries. The main asset classes are fixed income and equities, and the funds are usually managed against a benchmark or peer group target.
Management collaborates as a subadvisor with its insurance company affiliates to produce competitive products. It also works with consultants and other partners to offer products to third party institutions.
In the Netherlands, Aegon Asset Management provides a wide range of investment solutions to retail and institutional clients through its affiliate insurance company. In the third party institutional market, it competes with both fiduciary and balance sheet managers, and global asset managers with an asset-only proposition. Competition continues to be strong in the pension fund industry due to the ongoing consolidation of pension funds and growing service requirements of pension fund clients.
In the United Kingdom, competition in the third party wholesale market is heavily influenced by the effect on distribution of new regulation changes. Kames Capital has received strong net inflows to its flagship fixed income and equity products.
Asset Management’s underlying operating entities are regulated by their local regulators, including the AFM (Autoriteit Financiële
Aegon is able to accept risk with the knowledge of potential returns and losses
Objectives of risk management Aegon’s risk strategy provides direction for the targeted Aegon risk profile while supporting the Aegon business strategy. The targeted risk profile is determined by customer need, Aegon’s competence to manage the risk, the preference of Aegon for the risk and whether there is sufficient capacity to take the risk.
Key inputs for our risk preferences include expected returns, alignment with customer interests, the existing risk exposures and other risk characteristics.
Next 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 and to enable 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 a 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; �� 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 a clear, well-defined risk governance. The goals of this risk governance are: �� To minimize ambiguity by clearly defining roles and responsibilities and risk reporting procedures for decision makers; �� To institute a proper system of checks and balances, and to ensure that senior management is aware at all times of material risk exposure; �� To manage risk in line with the targeted risk profile, including the avoidance of an over-concentration of risk in particular areas; �� To facilitate diversification by enabling management to identify diversification benefits from apparent risk-return trade-offs; �� To reassure external stakeholders that Aegon has appropriate risk management structures and controls in place.
Additionally, there are working groups and regional committees which support the ERMC and GRCC.
Group Risk also keeps oversight of material risk, balance sheet and commercial decisions taken throughout the company.
Group Risk further identifies good risk management practices, facilitates implementation thereof, and helps to ensure that there is consistency in the application of these practices across the company. In addition, Group Risk prepares risk management information, including information about current risk exposures and issues, and further sensitivity and scenario analyses, either at its own initiative or at the request of management.
Group Risk also identifies best risk management practices, facilitates implementation thereof and helps ensure there is consistency in the application of these practices across the company. In addition, Group Risk performs risk and scenario analyses, either at its own initiative or at the request of management.
‘lines of defense’ to ensure conscious risk-return decisions and limit the magnitude of potential losses within defined levels of certainty. The objective of this structure is to avoid surprises due to unidentified risks materializing or losses that exceed predefined risk tolerance levels and related limit structures.
The company’s first line of defense, including the business and support functions, has direct responsibility for managing and taking risk in accordance with defined risk strategy, risk tolerance and risk policies. The second line of defense, including the risk management function, facilitates and oversees the effectiveness and integrity of enterprise risk management across the company. The third line of defense, including the audit function, provides independent assurance and challenge regarding the effectiveness and integrity of enterprise risk management across the company.
The effects of the global crisis that began in 2008 continued to be felt throughout 2013. General economic and business conditions remained difficult, especially in Europe where economic growth is low and sometimes even negative. Equity markets are driven mainly by announcements by the United
1 Please note that the information here is intended as an overview only. A more detailed explanation of credit risk, equity and other investment risk, interest rate risk, currency exchange rate risk, liquidity risk, underwriting risk and operational risk, as well as other company-wide risk management policies may be found in note 4 of the consolidated financial statements. Further information on sensitivity analyses may also be found on these pages.
As part of the company’s ERM Framework, Aegon carries out regular sensitivity analyses to verify that the impact of different economic and business scenarios on earnings and the capital position are within the risk tolerances set. These analyses also cover extreme event scenarios, such as depression and inflation scenarios.
Risk overview 2013 Credit risk Credit spreads remained stable in 2013. During the year, Aegon continued to reduce its exposure to credit risk. The Dutch operations agreed with the Dutch Central Bank to change the
Solvency I valuation curve from ECB AAA to swap. As a result of this decision and of managing the sovereign spread risk under
Solvency I, investments in German and French government bonds were exchanged for investment in Dutch government bonds.
Equity market risk and other investment risks Equity markets trended upward in 2013. During 2013, Aegon continued to progress its program of hedging equity risk at its UK
pension business, Variable Annuities, US and Dutch operations to protect the company against a possible deterioration in equity markets. The US business implemented a macro hedge to protect the business capital position of Variable Annuities from fluctuations in equity markets. As a result of a mismatch between US statutory and IFRS accounting, this hedge showed a negative impact on income before tax of EUR 590 million in 2013. The Dutch operations extended the existing equity hedge program with an equity volatility hedge.
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. Aegon’s most significant risk is to changes in financial markets, related particularly to movements in interest rates, equity and credit markets. These risks, whether internal or external, may affect the company’s operations, its earnings, its share price, the value of its investments, or the sale of certain products and services.
Taken together, Aegon believes these guiding principles strengthen the company’s ability to withstand adverse market conditions, enhance its financial flexibility and serve the long-term interests of both the company and its stakeholders.
Capital management Strategic importance Aegon’s approach towards capital management plays an important role in supporting the execution of Aegon’s strategic priorities. These priorities include the shift of capital to those markets that offer higher growth and return prospects, and the shift from spread business to fee business. In addition, the company is improving its risk profile by further reducing total financial leverage. Disciplined risk and capital management support Aegon’s aim to pay a sustainable dividend to its shareholders.
Capital requirements and leverage Aegon’s goal for all units is to maintain a strong financial position in order to sustain losses from adverse business and market conditions. The company’s overall capital management strategy is based on capital adequacy, capital quality and capital leverage.
Capital adequacy Capital adequacy is managed at the company, country and operating unit level, as well as at the level of individual legal entities within the organization. As a matter of policy, Aegon maintains the capitalization of its operating companies based on whichever of the following is the most stringent: �� Regulatory capital requirements; �� Rating agency AA capital requirements for rated entities; �� Any additional, self-imposed internal requirements.
Aegon’s Insurance Group Directive ratio was 212% at December 31, 2013, down from 228% at the end of 2012, driven mainly by the switch to the swap curve for regulatory solvency calculations in the Netherlands and the negative impact of IAS 19.
Total financial leverage Consistent with the guiding principles of its capital and liquidity management, Aegon NV monitors and manages to several financial flexibility related metrics, including: �� Various rating agency leverage metrics; �� Gross financial leverage ratio; �� Fixed charge coverage.
fund the capital employed in insurance activities. Total financial leverage includes hybrid leverage, subordinated and senior debt, and short term debt such as commercial paper. Aegon’s fixed charge coverage is a measure of the company’s ability to service its total financial leverage and is calculated as the ratio of underlying earnings before tax and prior to the payment of interest expenses on total financial leverage to interest payments on total financial leverage and preferred dividends.
Debt funding and back-up facilities Most of Aegon’s debt 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.
Aegon also has access to domestic and international money markets through its USD 4.5 billion commercial paper programs.
To support its commercial paper programs and need for letters of credit (LOCs), and to enhance its liquidity position, Aegon maintains backup credit and LOC facilities with international lenders. The company’s principal arrangement is a EUR 2 billion syndicated revolving credit facility maturing in 2019, and additional LOC facilities of USD 2 billion, of which USD 1.5 billion matures in 2015 and USD 0.5 billion matures in 2017. In addition, Aegon also maintains various shorter-dated bilateral backup liquidity and LOC facilities in both committed and uncommitted format.
Operational leverage Although operational leverage is not considered part of Aegon’s total capitalization, it is an important source of liquidity and funding. Operational leverage relates primarily to financing
The captives are utilized for a number of purposes which may include: �� Financing term life insurance (subject to Regulation XXX
All external financing provided to captives to support statutory reserves is disclosed in note 41 (Borrowings) to the consolidated financial statements to the extent that it has been funded.
Letters of credit issued by third parties provided to captives to provide collateral to affiliated insurers are disclosed in note 51
Liquidity management Strategic importance Liquidity management is a fundamental building block of Aegon’s overall financial planning and capital allocation processes. Aegon aims to have sufficient liquidity to meet cash demands even under extreme conditions. The company’s liquidity risk policy sets guidelines for its operating companies and the holding in order achieve a prudent liquidity profile.
N.V. and at country unit levels. Aegon maintains a liquidity policy that requires all operating units to project their sources and uses of liquidity over a two year period under normal and severe business and market scenarios. This policy ensures that liquidity is measured and managed consistently across the company and the liquidity stress management plans are in place.
The ability of our insurance subsidiaries to transfer funds to the holding company is constrained by the need for these subsidiaries to remain adequately capitalized to the levels set by local insurance regulations and as administered by local insurance regulatory authorities.
The Netherlands2) 100% Solvency I ~240% Solvency I ~EUR 2.3 bln
2 Excluding the banking activities. 3 Including the With Profits fund at unaudited 30 June 2013 values.
Aegon’s liquidity position At December 31, 2013, Aegon N.V. held a balance of
Aegon’s liquidity is invested in highly liquid assets, in accordance with the company’s internal risk management policies. Aegon believes its working capital, backed by its external funding programs and facilities, is ample for the company’s present requirements.
Aegon uses cash flows from its operating subsidiaries to pay holding expenses, including funding costs. The remaining cash flow is available to execute Aegon’s strategy and to fund dividends on its shares. When determining whether to declare or propose a dividend, Aegon’s Executive Board balances
In addition, the Executive Board is responsible for Aegon’s enterprise risk management under supervision of the Supervisory
Act (Wet op het financieel toezicht), the Executive Board confirms that, to the best of its knowledge, the financial statements prepared in accordance with applicable accounting standards give a true and fair view of the assets, liabilities, financial condition and profit or loss of the company and the undertakings included in the consolidation as a whole and that the Report of the Executive Board includes a fair view of the development and performance of the business during the financial year and the position at balance sheet date of the company and the undertakings included in the consolidation as a whole, together with a description of the principal risks and uncertainties the company faces.
All members of the Supervisory Board are considered independent under the terms of the Dutch Corporate Governance
Code, with the exception of Mr. Kornelis J. Storm. Mr. Storm is not regarded as independent within the definition of the Code as he served as Chairman of Aegon’s Executive Board prior to his retirement in April 2002. Mr. Storm joined the Supervisory
Board in July 2002. He will step down from the Supervisory
Board at the Annual General Meeting in May 2014 at the end of his third and last term. On February 20, 2014, Mr. Antony
Burgmans announced that he will step down from the Board as per April 1, 2014, in order to comply with the Dutch Act on
Executive Board The Executive Board consists of two members, Mr. Alexander
In compliance with the Dutch Corporate Governance Code, members of the Executive Board are appointed by shareholders for a term of four years, with the option of reappointment for further four-year terms. In 2014, no members are due for reappointment. The appointment schedule for members of the
(face to face) meetings and six additional conference call meetings. Seven out of the ten members attended all regular
Annual Report and in the Corporate Governance Statement published on aegon.com.
Aegon’s Supervisory Board Rules, regular Board meetings were preceded by preparatory conference call meetings. These were attended by the Chairman and Vice Chairman of the Supervisory
Meetings of the Committees of the Supervisory Board were usually held before the meetings of the full Supervisory Board.
In the quarterly meetings, the Board discussed the business units’ business initiatives, use of technology, mergers and acquisitions activity, and regulatory issues, and studied relevant developments at competitors in a peer group review. The Board also expressed its support for launching an Aegon Corporate
innovation and market movements and trends, and generate solid investment returns.
II Directive, a European Union Directive governing capital requirements, supervisory review and disclosures. On November 13, 2013, the European Parliament, the Council of the European
Program and noted the significant advances made in areas such as integrated reporting, responsible investing and employee volunteering. The Board also stated the need for further sustainability efforts, and its support and desire for management to develop an updated Sustainability Program in 2014.
Further details of Aegon’s sustainability vision and progress are in the Aegon Review 2013.
Aegon’s 2012 Annual Report, the consolidated financial statements of Aegon N.V., and the financial statements of
Aegon N.V. In May, August and November, the Supervisory Board reviewed Aegon’s first, second and third quarter 2013 results.
Compliance Officer a number of compliance, regulatory and legal issues from Europe, the United States and Asia. In particular, the Board discussed the judgment of the Supreme Court of the
In the year under review, the Chairman of the Board and the chairs of the Audit Committee and Risk Committee held discussions with officials of Aegon’s lead regulator, De
Nederlandsche Bank N.V. and monitored management interface with regulators in the United States, the United Kingdom and elsewhere.
As in previous years the Supervisory Board carried out an extensive Board self-evaluation, following an external evaluation in 2012. The Chairman, supported by the Company
Board concluded that the Board and its individual members had functioned well and fulfilled their duties and responsibilities in a satisfactory manner in 2013, and had addressed the recommendations of the 2012 self-evaluation. The Board agreed further improvements relating to agenda-setting and focus areas
No transaction with a potential or actual conflict of interest was reported by members of the Board in 2013.
Supervisory Board Committees The Supervisory Board requires its four Supervisory Board
The Committees report their findings to the Supervisory Board at Supervisory Board meetings.
Risk Committee: Irving W. Bailey, II (Chair); Kornelis J. Storm; Ben van der Veer; Dirk P.M. Verbeek; Dona D. Young.
The Audit Committee The Audit Committee held seven meetings in 2013, one of which was a combined meeting with the Risk Committee of the Supervisory Board. A meeting held at the headquarters of
Kingdom insurance market, and Aegon’s position and financial performance in that market. Aegon business leaders reviewed industry developments and the response of Aegon’s United
Legal and actuarial departments were present at some of these meetings.
In 2013, Audit Committee discussions focused on the quarterly results, the annual accounts and the audit process, actuarial analyses, accounting principles defined by IFRS, financial reports filed with the Securities and Exchange Commission, capital updates, internal control systems and compliance, the external auditor’s engagement letter and the audit plan for 2013, tax matters, and information technology. The latter two topics were discussed in the aforementioned combined meeting of the Risk and Audit committees. Throughout 2013, business unit managers provided various topic updates to the
As announced at the Annual General Meeting of Shareholders in 2012, the audit of Aegon’s accounts from 2014 was put to tender in 2012. In February 2013, after a thorough process the Audit Committee and the Board decided to propose to shareholders to appoint EY as the company’s independent auditor for the annual accounts of 2013 and PwC as the company’s independent auditor for the annual accounts of 2014 through 2016. These proposals were approved at the
The Audit Committee also discussed Aegon’s compliance with the Sarbanes Oxley Act of the United States, regular reports from the Group Compliance Officer on operational risk issues such as fraud and general compliance issues. In addition, the
Recurring items on the agenda in 2013 were the quarterly risk dashboard and the Board risk list. The Risk Committee also discussed risk priorities for 2013 and Aegon’s risk strategy
The CEO and Global Head of Human Resources attended of these meetings in whole or in part.
Supervisory Board and its Committees, and current and upcoming vacancies. The Committee prepared decision-making on the proposal to appoint Mrs. Dona D. Young to the Supervisory
Board, as approved by the shareholders on May 15, 2013. The
Nominating Committee determined that they were in line with the Supervisory Board profile as set by the Board and published on Aegon’s corporate web site.
The Board aims to have a balanced composition in terms of professional background, geography and gender. This is taken into account when selecting suitable candidates for the
Board expects to propose to shareholders the appointment of two new members for a term of four years at the annual General
Executive Board and Management Board and the functioning of their members. Acknowledging the importance of good succession planning, the Committee also discussed with the
CEO and Aegon’s Global Head of Human Resources the extent to which sufficient internal candidates are available to fill positions at EB, MB and senior management level in cases of emergency and when positions open up in the future. The CEO
also discussed with the Nominating Committee changes in the global senior management team during the year. The Committee was kept apprised of developments in employee engagement, talent management and international mobility. In February 2014, the full Board discussed these topics extensively with the Global
Head of HR. The Board felt that the right steps are taken to ensure proper succession planning is in place and was pleased to see that Aegon is continuing to make further progress in the area of employee engagement and talent management.
The Compensation Committee The Compensation Committee held six meetings in 2013, which were attended by the CEO. The scope of the Compensation
Banking Authority. CRD III and IV have been implemented by way of the Decree on Sound Remuneration Policy (Regeling Beheerst
In 2013, the Compensation Committee oversaw the application and implementation of Aegon’s Global Remuneration Framework and the various policies and related procedures, including the
A recurring topic was executive remuneration, particularly in the context of the draft legislation applicable to remuneration in the financial services sector in the Netherlands (“Wet beloningsbeleid financiële ondernemingen”) announced at the end of 2013. The Dutch government intends to use this new legislation to introduce a broad set of rules to ensure that financial services companies conduct sound remuneration policies and avoid payment of excessive variable remuneration.
The Compensation Committee will study the proposal and its consequences for Aegon’s remuneration practices.
Irving W. Bailey II (1941, American) Vice-Chairman of the Supervisory Board Chairman of the Risk Committee Member of the Compensation Committee Irving W. Bailey II is retired Chairman and Chief Executive Officer of Providian Corp., a former Managing Director of Chrysalis
Bailey is also a member of the Board of Directors of Hospira, Inc.
as well as a senior adviser to Chrysalis Ventures Inc. (not listed).
Chairman of the Supervisory Board of TNT Express N.V. and a member of the Supervisory Board of Akzo Nobel N.V. as well as a member of the Board of Directors of BP p.l.c. Furthermore, he is Chairman of the Supervisory Board of Intergamma B.V. (not listed) and a member of the Supervisory Boards of SHV Holdings
Shemaya Levy (1947, French) Chairman of the Audit Committee Member of the Nominating Committee Shemaya Levy is retired Executive Vice President and Chief
Aegon’s Supervisory Board in 2005 and his current and final term will end in 2017. He is also a member of the Supervisory
Board of TNT Express N.V. and the Board of Directors of PKC
Aegon N.V. He was appointed to Aegon’s Supervisory Board in 2002 and his current and final term will end in 2014. He is also
Ben van der Veer (1951, Dutch) Member of the Audit Committee Member of the Risk Committee Ben van der Veer is former Chairman of the Board of
Elsevier N.V. and Reed Elsevier PLC. He is also a member of the
Dirk P.M. Verbeek (1950, Dutch) Member of the Audit Committee Member of the Risk Committee Dirk P.M. Verbeek is Vice President Emeritus of Aon Group. Mr.
Airlines N.V. He was first appointed to Aegon’s Supervisory Board in 2003, and his current and final term will end in 2015. He is also a member of the Board of Directors of Air France-KLM S.A.
Companies, an insurance and asset management company during her tenure. She was appointed to Aegon’s Supervisory
Board in 2013. Her current term will end in 2017. Mrs. Young is also member of the Board of Directors of Foot Locker, Inc. and a member of the Board of Trustees of Save the Children.
with relevant rules, guidelines and interpretations. Of these, the 2010 Guidelines on Remuneration Policies and Practices by the
WfT 2011 - Rbb) by the Dutch Central Bank (DNB) are prominent examples.
Aegon’s Remuneration Policies are derived from the GRF, among which is the Remuneration Policy for the Executive
Role of Risk Management and Compliance It is recognized that variable compensation may have an impact on risk-taking behaviors and, as such, may undermine effective risk management. This can lead to excessive risk taking, which can materially impact financial soundness. To avoid such unwarranted effects, both the Risk Management and Compliance functions are involved in the design and execution of the remuneration policies and practices.
The GRF includes separate remuneration policies for three groups of employees, which addresses 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 Staff); and (iii) Control Staff. Given the rationale for having a separate policy for material risk takers and the risk mitigating measures that are applied to the remuneration of these individuals,
Principles are as follows: �� Aegon remuneration is employee-oriented by: fostering a sense of value and appreciation in each individual employee; promoting the shorter- and longer-term interests and wellbeing of all Aegon staff via adequate compensation, pension and/or other benefits; supporting the career development of its employees; supporting (international) mobility of its staff; �� Aegon remuneration is performance-related by: establishing a clear link between pay and performance by aligning adequate objectives and target setting with performance evaluation and remuneration; reflecting individual as well as collective performance in line with the long-term interests of Aegon; 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 balanced proportions in the remuneration packages, across the different echelons within Aegon Group and regional units (internally equitable); avoiding, among others, any discrimination based on nationality, race, gender, religion, sexual orientation, and/or cultural beliefs in Aegon’s remuneration structures (internally equitable); creating global alignment in the total compensation of all ‘Identified Staff’ (internally equitable); aiming at controlled market competitive remuneration, by providing for total compensation packages in comparison with an appropriately established peer group at regional unit, country and/or functional level (externally equitable); �� Aegon remuneration is risk-prudent by: aligning business objectives with risk management requirements in the target setting practices throughout Aegon Group; giving an incentive to appropriate risk-taking behavior while discouraging the taking of excessive risks; protecting the risk alignment effects imbedded in the remuneration arrangements of individual staff against any personal strategies or insurance to counter them.
Global Remuneration Framework and for ensuring practices are aligned with the defined risk tolerances and behaviors. In this respect, risk mitigating measures that are undertaken prior to the payout of compensation to individual employees (regardless of whether the compensation is deferred) are considered ex-ante measures. Retribution measures that are applied after payout, or concerning allocated but deferred payments (before vesting of these payments) to ensure sustainability of performance, are considered ex-post measures.
Variable compensation, if any, is capped at an appropriate level as a percentage of base pay. Usually variable compensation for senior management is paid out in cash and shares over multiple years and is subject to further conditions being fulfilled. Variable compensation already paid out may be clawed back in defined circumstances.
In the next sections more detailed information is provided on the compensation practice for the Supervisory Board and
Supervisory Board Remuneration Policy 2013 Aegon´s Remuneration Policy with regard to members of its
Aegon´s broader Remuneration Policy, and are the responsibility of the company´s Compensation Committee1.
Fees and entitlements Members of the Supervisory Board are entitled to the following: �� A base fee for membership of the Supervisory Board itself.
No separate attendance fees are paid to members for attendance at the regular Supervisory Board meetings; �� An attendance fee for each extra Board meeting, attended in person or by video and/or telephone conference; �� A committee fee for members on each of the Supervisory
Supervisory Board do not receive any performance or equityrelated compensation, and do not accrue pension rights with the company. These measures are designed to ensure the independence of Supervisory Board members and strengthen the overall effectiveness of Aegon’s corporate governance.
Member of other committees 5,000 1 Members of the Compensation Committee are as follows: Leo M. van Wijk (Chair); Irving W. Bailey II; Robert J. Routs.
Information on members of the Supervisory Board and the composition of Aegon’s four committees, Audit, Nominating,
The Compensation Committee may recommend changes to the policies to the Supervisory Board. Any material changes in the
Supervisory Board will regularly review the composition of these two groups to ensure that they continue to provide a reliable basis for comparison.
Board determines a maximum total compensation, reflecting the specific roles and responsibilities of the individual. Each year, the Supervisory Board will review total compensation levels to ensure they remain competitive and provide proper, risk-based incentives to members of Aegon’s Executive Board. At present, the Executive Board Target Direct Compensation (defined as base salary plus variable compensation) is below the median of the international market. To ensure Executive Board members are compensated in accordance with the desired market positioning, the alignment to the desired market position needs to be addressed over time, in accordance with applicable rules and regulations and codes.
The Supervisory Board conducts regular scenario analyses to determine the long-term effect of level and structure of compensation granted to members of the Executive Board. The
This performance is determined using a mix of financial and non-financial indicators. Aegon believes these indicators provide an accurate and reliable reflection of both company and individual performance. The type of performance indicators are selected in accordance with the long-term goals of the company.
For 2013, 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
Board members are aligned with the interests of Aegon and its stakeholders
The amount of conditional variable compensation that can be allocated will then be established. Variable compensation will be allocated once accounts for the financial year in question have been adopted by the company’s shareholders and after an ex-ante assessment.
The deferred part will vest in equal parts (that is, cash and shares) over a three year period. After an ex-post assessment, which may lower the vesting parts, the parts will be paid 50% in cash and 50% in shares vesting. Vested shares are restricted for a further period of three years (with the exception of shares sold to meet income tax obligations).
The payout of the variable compensation can be illustrated with an example as follows. For every 1,000 variable compensation, 400 will be paid out/vest following the performance year. This part will be paid 50% in cash (=200) and 50% in shares vesting immediately (=200 / 1 = 40 shares). The remaining 600 will be deferred. The deferred part will vest in three equal parts, after the end of each of the following performance periods. The three deferred parts will each be paid 50% in cash (=100) and 50% in shares vesting (=100 / 4.917 = 20 shares). For all vested shares there is an additional holding period of three years after vesting.
Group financial risk adjusted based 30% Group market consistent value of new business 2013, group pre-tax return on required capital 2013
Risk adjustment methodology (ex-ante) At the end of the performance period, but prior to allocation of variable compensation, the Supervisory Board will assess whether (downward) modifications are needed. For this purpose, quantitative and qualitative measures at group, regional unit and individual level will be taken into account, such as: �� Breaches of laws and regulations; �� Breaches of internal risk policies (including compliance); �� SOX significant deficiencies or material weaknesses; �� Reputation damage due to risk events.
Ex-post assessment and discretionary adjustments The Supervisory Board uses its judgment in the assessment of the outcome of strategic/personal targets to ensure that, taken together, they form a fair reflection of the overall performance of the Board member over the performance period.
In addition, the Supervisory Board will apply an ex-post risk assessment to deferred payouts of variable compensation to determine whether allocated (that is, unvested) variable compensation should become unconditional (meaning it will vest) or should be adjusted. This ex-post assessment will be 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.
Implementation of this authority will be on the basis of criteria such as: �� Outcome of a re-assessment of the performance against the original financial performance indicators; �� Significant downturn in the company’s financial performance; �� Evidence of misbehavior or serious error by the participant; �� Significant failure in risk management; �� Significant changes in the company’s economic or regulatory capital base.
The Supervisory Board will ask the Compensation Committee to review these criteria in detail at each moment of vesting and document its findings. Based on this analysis, the Committee may then put forward a proposal to the Supervisory Board to adjust unvested variable compensation. Deferred variable compensation may only be adjusted downwards. Ex-post, riskbased assessments concern deferred variable compensation, not fixed compensation.
(including non-achievement of performance indicators in hindsight), or in the case of material financial restatements or individual gross misconduct, Aegon’s Supervisory Board will have the right to reclaim variable compensation that has already been paid out or vested.
Shareholders in 2011, Mr. Wynaendts was re-appointed for another four years. �� Darryl D. Button, Chief Financial Officer and member of the
Jan J. Nooitgedagt CFO & Member EB (retired)2) 433,959 743,930 1 Mr. Button was appointed as CFO and member of Aegon’s Executive Board per May 15, 2013. Fixed compensation is disclosed for the period that Mr. Button has been part of the Executive Board 2 Mr. Nooitgedagt’s fixed compensation is reflective of his time with Aegon till retirement as per August 1, 2013
Conditional variable compensation awards 2013 Subject to the adoption of the annual accounts at the General
Mr. Button was awarded EUR 467,6653. Mr. Nooitgedagt was awarded EUR 433,9594 total conditional variable compensation 5.
Forty percent of variable compensation related to performance year 2013 is payable in 2014. This will be split 50/50 in a cash payment and in an allocation of shares.
The number of shares to be made available in 2014 is 41,961 for
The remaining part of variable compensation for the performance year 2013 (60% of the total, which for Mr. Wynaendts equates to EUR 309,489 and 62,943 shares and for Mr. Button equates to EUR 140,300 and 28,716 shares) is to be paid out in future years, subject to ex-post assessments which may result in downward adjustments and be subject to meeting additional conditions. In each of the years 2015, 2016 and 2017, 20% of the total variable compensation may be made available. Any payout will be 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.
Impact of ex-ante and ex-post assessment on attribution of variable compensation No variable compensation from previous performance years payable in 2013 has been adjusted downwards in 2013.
The remaining part (60%, EUR 130,188 and 26,478 shares) will be split in thee equal parts and will vest in cash and shares in 2015, 2016 and 2017.
The vested shares (with the exception of shares sold to meet income tax obligations) are subject to a three year retention (holding) period before they are at the disposal of Mr. Nooitgedagt.
General Meeting of Shareholders A General Meeting of Shareholders is held at least once a year and, when deemed necessary, the Supervisory or Executive Board of the company has the authority to convene an Extraordinary
Convocation Meetings are convened by public notice at least 42 days before the meeting. The convocation mentions 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
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.
Attendance Every shareholder is entitled to attend the General Meeting to speak and vote, either in person or by proxy granted in writing.
Voting at the General Meeting At the General Meeting, each common share carries one vote. In the absence of a Special Cause, Vereniging Aegon will also cast one vote for every 40 common shares B it holds2.
Composition of the Board Members of the Supervisory Board are appointed by the
Board itself. Aegon aims to ensure that the composition of the company’s Supervisory Board is well balanced in terms of professional background, geography and gender. A profile exists, outlining the required qualifications of its members. Supervisory
Shareholders. At present, Aegon’s Supervisory Board consists of nine non-executive members, one of whom is a former member of Aegon’s Executive Board.
1 For further details on how Aegon’s corporate governance practices differ from those required of US companies under New York Stock Exchange standards, please refer to the NYSE Listing standards in the Governance section of Aegon’s website at aegon.com.
Supervisory Board members and deal with specific issues related to Aegon’s financial accounts, risk management strategy, executive remuneration and appointments. These committees are: �� Audit Committee �� Risk Committee �� Compensation Committee �� Nominating Committee
Executive Board Aegon’s Executive Board is charged with the overall management of the company and is therefore responsible for achieving
Shareholders. In addition hereto, the Supervisory Board may also subject other Executive Board decisions to its prior approval.
Composition of the Executive Board The Executive Board of Aegon has two members: Alex Wynaendts, who is Chairman of the Executive Board and Chief Executive
Executive Board limits exit arrangements to a maximum of one year of salary.
Management Board Aegon’s Executive Board is assisted in its work by the company’s
Management Board, which has seven members, including the members of the Executive Board1. Aegon’s Management Board is composed of Alex Wynaendts, Darryl Button, Mark Mullin,
The capital of the company Aegon has authorized capital of EUR 1,080 million, divided into 3 billion common shares and 6 billion common shares B, each with a par value of EUR 0.12. At the end of 2013, a total of 2.131.458.863 common shares and 579.005.440 common shares B had been issued.
Each common share carries one vote. There are no restrictions on the exercise of voting rights by holders of common shares, whether regarding the number of votes or the time period in which they may be exercised.
All common shares B are held by Vereniging Aegon, the company’s largest shareholder. Their nominal value being equal to the nominal par value of a common share implies that common shares B also carry one vote per share. The voting rights attached to common shares B are subject to restrictions, however, under which Vereniging Aegon may cast one vote for every 40 common shares B it holds in the absence of a Special Cause2.
Under the terms of the 1983 Merger Agreement3 as amended in
May 2013, Vereniging Aegon has the option to acquire additional common shares B. Vereniging Aegon may exercise its call option 1 For an overview of the members of the Executive Board and of the Management Board, please refer to page 6 and 7.
3 The 1983 Merger Agreement, as amended in May 2013, is published on Aegon’s corporate website (aegon.com)
US-based investment management firm FMR LLC each hold a capital and voting interest in Aegon N.V in excess of 3%.
Special control rights As a matter of Dutch corporate law, the common shares and the common shares B offer equal1 full voting rights, as they have equal nominal value (EUR 0.12). The Voting Rights Agreement entered into between Vereniging Aegon and Aegon ensures that under normal circumstances, i.e. except in the event of a Special
Issue and repurchase of shares New shares may be issued up to the maximum of the company’s authorized capital, following a resolution adopted by the General
Board to issue new shares is usually presented at Aegon’s annual
Transfer of shares There are no restrictions on the transfer of common shares.
Significant agreements and potential change of control Aegon is not party to any significant agreements which would take effect, alter or terminate as a consequence of a change of control following a public offer for the outstanding shares of the company, other than those customary in the financial markets
Meeting of Shareholders may cancel the binding nature of these nominations with a majority of two-thirds of votes cast, representing at least one half of Aegon’s issued capital. The
Members of Aegon’s Supervisory and Executive Boards may be suspended or dismissed by the General Meeting of Shareholders with a two-thirds majority of votes cast, representing at least one half of Aegon’s issued capital, unless the suspension or dismissal has first been proposed by the company’s Supervisory
1 The Voting Rights Agreement is published on Aegon’s corporate website (aegon.com).
2 For more details, please refer to clause 14A of Aegon’s Articles of Association or clause 10.6 of the 1983 Amended Merger Agreement.
Code as an effective means of helping ensure that the interests of all stakeholders are duly represented and taken into account.
Aegon’s position on Code II.2.8 Aegon is committed to applying this best practice provision to all new Executive Board appointments. This best practice provision is also embedded in the company’s remuneration policy for the
Executive Board. Employment contracts with Executive Board members that existed prior to the code coming into force in 2003 will be respected. The employment agreement of Aegon’s
Aegon. This may be construed as a conflict of interest. However, under Vereniging Aegon’s Articles of Association, Aegon’s CEO
Aegon and Vereniging Aegon, it is not in the company’s best interests to prevent Aegon’s CEO and CFO from participating in discussions and decision-making related to Vereniging Aegon.
For this reason, a protocol authorizes the CEO and CFO to continue their activities regarding Vereniging Aegon. The text of this protocol is available on Aegon’s website, aegon.com.
Corporate Governance Statement For an extensive review of Aegon’s compliance with the
A new Code of Conduct came into force in 2012 giving a clearer commitment to a customer-centric approach. No waivers were granted in respect of the Code of Conduct which is posted on
Management assessed the effectiveness of Aegon’s internal control over financial reporting as of December 31, 2013.
Based on the assessment, management has concluded that, in all material aspects, the internal control over financial reporting was effective as at December 31, 2013. 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, 2013, was audited by EY, an independent registered public accounting firm, as stated in their report included under item C below.
C. Attestation report of the independent registered public accounting firm Report of independent registered public accounting firm The Supervisory Board, the Executive Board and Shareholders of Aegon N.V. We have audited Aegon N.V.’s internal control over financial reporting as of December 31, 2013, based on criteria established in ‘Internal Control-Integrated Framework’ issued by the
Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
A. Disclosure controls and procedures As of the end of the period covered by this Annual Report,
We also have audited, in accordance with the standards of the
Aegon N.V., and our report dated March 19, 2014 expressed an unqualified opinion thereon.
Notes to the consolidated financial statements 1 General information 129 2 Summary of significant accounting policies 129 3 Critical accounting estimates and judgment in applying accounting policies 157 4 Financial and insurance risks 174 5 Segment information 202 6 Premium income and premiums to reinsurers 210 7 Investment income 211 8 Fee and commission income 211 9 Income from reinsurance ceded 212 10 Results from financial transactions 212 11 Other income 213 12 Policyholder claims and benefits 213 13 Profit sharing and rebates 214 14 Commissions and expenses 214 15 Impairment charges / (reversals) 218 16 Interest charges and related fees 218 17 Other charges 218 18 Income tax 219 19 Earnings per share 220 20 Dividend per common share 221 21 Intangible assets 222 23 Investments for account of policyholders 227 25 Investments in joint ventures 230 26 Investments in associates 233 27 Investments in unconsolidated structured entities 234 28 Reinsurance assets 235 29 Deferred expenses 236 30 Other assets and receivables 237 31 Cash and cash equivalents 239 32 Shareholders’ equity 241 33 Convertible core capital securities 246 34 Other equity instruments 247 35 Trust pass-through securities 248 36 Subordinated borrowings 249 37 Insurance contracts 249 38 Insurance contracts for account of policyholders 250 39 Investment contracts 251 40 Investment contracts for account of policyholders 252 43 Defined benefit plans 254 44 Deferred revenue liabilities 261 45 Deferred tax 261 46 Other liabilities 263 48 Guarantees in insurance contracts 263 49 Capital and solvency 268 50 Summary of total financial assets and financial liabilities at fair value through profit or loss 270 51 Commitments and contingencies 271 52 Transfers of financial assets 274 53 Offsetting, enforceable master netting arrangements and similar agreements 278 54 Business combinations 279 55 Group companies 280 56 Related party transactions 282 57 Events after the balance sheet date 288
Financial statements of Aegon N.V. Income statement of Aegon N.V. 291
Notes to the financial statements 1 General information 293 2 Summary of significant accounting policies 293 3 Shares in group companies 296 4 Loans to group companies 296 5 Other investments 296 7 Other assets 297 8 Share capital 297 9 Shareholders’ equity 299 10 Other equity instruments 302 11 Subordinated borrowings 303 12 Long-term borrowings 303 13 Short-term borrowings 303 14 Other liabilities 304 15 Number of employees 304 16 Accountants remuneration 304 17 Events after the balance sheet date 305
Share in profit / (loss) of joint ventures - (13) -
Items that may be reclassified to profit or loss: Gains / (losses) on revaluation of available-for-sale investments (3,349) 4,176 3,113
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments (435) (465) (513)
Total comprehensive income attributable to: Equity holders of Aegon N.V. (2,585) 3,978 3,341
Issued capital and reserves attributable to equity holders of Aegon N.V. 24,981 28,506 24,634
Net income / (loss) recognized in the income statement - 846 - - - - 846 3 849
Items that may be reclassified subsequently to profit or loss: Gains / (losses) on revaluation of available-for-sale investments - - (3,349) - - - (3,349) - (3,349)
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments - - (435) - - - (435) - (435)
Other 1 Issued capital and reserves attributable to equity holders of Aegon N.V.
Changes in accounting policies relating to IFRS 10 2) - (122) - - - - (122) - (122)
Changes in accounting policies relating to IFRS 11 2) - - 17 - (17) - - - -
Movements in foreign currency translation and net foreign investment hedging reserves - - - 6 (116) - (110) - (110)
Transfer from / to other headings (19) 19 - - - - - -
Total comprehensive income / (loss) for 2012 ­ 1,556 2,592 (106) (64) ­ 3,978 (1) 3,977
Share options and share-based incentive plans - - - - - 27 27 - 27 1 Issued capital and reserves attributable to equity holders of Aegon N.V. 2 Amounts have been restated for the changes in accounting policies IFRS 10, 11 and IAS 19. Refer to note 2 for details about these changes.
Consolidated statement of changes in equity of Aegon N.V. For the year ended December 31, 2011
Net income / (loss) recognized in the income statement - 884 - - - - - 884 3 887
Other comprehensive income: Items that will not be reclassified to profit or loss: Changes in revaluation reserve real estate held for own use - - 3 - - - - 3 - 3
Income tax relating to items that will not be reclassified - - (1) 180 - - - 179 - 179
Items that may be reclassified subsequently to profit or loss: Gains / (losses) on revaluation of available-for-sale investments - - 3,113 - - - - 3,113 - 3,113
Movements in foreign currency translation and net foreign investment hedging reserves - - - (29) 409 - - 380 - 380
Repurchase of convertible core capital securities - - - - - (1,500) - (1,500) - (1,500)
Coupons and premiums on convertible core capital securities - (750) - - - - - (750) - (750)
Purchase of investments (other than money market investments) (34,100) (32,018) (29,612)
Net cash flows from operating activities (1,730) (997) 2,266 Purchase of individual intangible assets (other than VOBA and future servicing rights) (22) (36) (18)
Proceeds from TRUPS 1), subordinated loans and borrowings 2,011 6,453 5,627
EUR 7,407 million) dividends received (2013: EUR 1,021 million, 2012: EUR 1,069 million, and 2011: EUR 760 million) and interest paid (2013: EUR 347 million, 2012: EUR 1,261 million and 2011: EUR 273 million).
The consolidated financial statements have been prepared in accordance with the historical cost convention as modified by the revaluation of investment properties and those financial instruments (including derivatives) and financial liabilities that have been measured at fair value. Information on the standards and interpretations that were adopted in 2013 is provided below in note 2.1.1.
The consolidated financial statements are presented in euro and all values are rounded to the nearest million unless otherwise stated.
With regard to the income statements of Aegon N.V., article 402, Part 9 of Book 2 of the Netherlands Civil Code has been applied, allowing a simplified format.
(macro hedging) under the EU ‘carve out’ of IFRS. Details are provided in note 2.9 and note 24.
“Consolidated Financial Statements”, IFRS 11 “Joint Arrangements”, IAS 19 “Employee Benefits” and IAS 1 “Presentation of Financial
The amendments to IFRS 7 enable users of the financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with the entity’s recognized financial assets and recognized financial liabilities, on the entity’s financial position. The amendment affects disclosure only and is included in note 53.
IFRS 12 provides disclosure requirements on interests in subsidiaries, associates, joint ventures, and structured entities. This standard affects disclosure only and has therefore no impact on Aegon’s financial position or performance. Aegon has included the required disclosures in notes 4, 25, 26 and 27. In accordance with the transitional provisions of IFRS 12, comparatives for disclosures regarding unconsolidated structured entities are not presented.
The amendments require the grouping of items within other comprehensive income that may be reclassified to the profit or loss section of the income statement. The amendments also reaffirm existing requirements that items in other comprehensive income and profit or loss should be presented as either a single statement or two consecutive statements. The amendment affects presentation only and changes are included in the statement of comprehensive income as Aegon presents two consecutive statements.
The revised standard eliminates the option to defer the recognition of actuarial gains and losses, known as the “corridor method”.
In addition, the following new standards, amendments to existing standards and interpretations are mandatory for the first time for the financial year beginning January 1, 2013, but are not currently relevant or do not significantly impact the financial position or financial statements: �� Annual improvements 2009-2011 Cycle; �� IFRS 1 First Time Adoption - Government Loans; �� IAS 27 Separate Financial Statements; �� IAS 28 Investments in Associates and Joint Ventures; and �� IFRIC 20 - Stripping Costs in the Production Phase of a Surface Mine.
Notes to the consolidated financial statements of Aegon N.V. Note 2 2.1.2 Impact of changes in accounting policies on the financial position Impact of changes in accounting policies on the consolidated income statement reported) Change in accounting policy
Earnings per common share calculation Net income attributable to equity holders of Aegon N.V. 1,571 (32) 43 1,582 869 15 884
Coupons and premium on convertible core capital securities (750) - (750)
Earnings attributable to common shareholders 1,317 (32) 43 1,328 (117) 15 (102)
Items that will not be reclassified to profit or loss: Changes in revaluation reserve real estate held for own use (5) - - (5) 3 3
Remeasurements of defined benefit plans - - (149) (149) - (583) (583)
Income tax relating to items that will not be reclassified 1 - 37 38 - 179 179
Items that may be reclassified to profit or loss: Gains / (losses) on revaluation of available-for-sale investments 4,221 (45) - 4,176 3,113 3,113
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments (465) - - (465) (513) (513)
Changes in cash flow hedging reserve (92) 6 (86) 1,058 1,058
Income tax relating to items that may be reclassified (1,064) 13 - (1,051) (1,167) 1 (1,166)
Total other comprehensive income for the period 2,501 ­ (106) 2,395 2,889 (432) 2,457
Investments for account of policyholders 153,670 (702) - 152,968 142,529 (866) - 141,663
Investment contracts for account of policyholders 78,418 - - 78,418 71,433 - - 71,433
Accrued expenses and other liabilities 536 (70) 84 550 (421) 561 140
Disposal of investments (other than money market investments) 34,050 (308) - 33,742 34,924 - 34,924
Net change in cash collateral (179) 2 - (177) 2,180 - 2,180
Net purchase of money market investments 552 4 - 556 445 - 445
Cash flow movements on operating items not reflected in income 1,898 381 ­ 2,279 6,609 ­ 6,609
Disposal of subsidiaries and associates, net of cash 286 (10) - 276 823 - 823
Repayment of TRUPS, subordinated loans and borrowings (3,886) 149 - (3,737) (4,342) - (4,342)
Coupons and premium on convertible core capital securities - - - - (750) - (750)
Coupons on non-cumulative subordinated notes (30) - - (30) - - -
2.1.3 Future adoption of new IFRS accounting standards The following standards, amendments to existing standards and interpretations, published prior to January 1, 2014, were not early adopted by the Group, but will be applied in future years: �� IFRS 9 Financial Instruments*; �� IAS 36 Impairment of Assets – Recoverable Amounts Disclosures for Non-Financial Assets; and �� IAS 39 Novation of Derivatives and Continuation of Hedge Accounting.
However, the full impact of IFRS 9 will only be clear after the remaining stages of the IASB’s project on IFRS 9 are completed and issued.
The IASB has issued amendments to IAS 36, “Impairment of Assets” relating to disclosures in respect of fair value less costs of disposal. The IASB has made changes to three disclosure requirements, including the requirement to add information about the fair value measurement of impaired assets when the recoverable amount is based on fair value less costs of disposal. The amendments are effective per January 1, 2014, with earlier application permitted. The amendment affects disclosure only and has therefore no impact on Aegon’s financial position or performance.
The following amendments to the existing standard and interpretation, published prior to January 1, 2014, which are not yet effective for or early adopted by the Group, will not significantly impact the financial position or financial statements: �� IFRS 10 Consolidated Financial Statements - Amendment Investment Entities; �� IFRS 14 Regulatory Deferral Accounts*; �� IAS 19 Employee Benefits – Amendment Employee Contributions*; �� IAS 32 Financial Instruments: Presentation – Amendment Offsetting Financial Assets and Financial Liabilities; �� Annual improvements 2010-2012 Cycle*; �� Annual improvements 2011-2013 Cycle*; and �� IFRIC 21 – Levies*.
‘’Joint Arrangements”, IFRS 12, ”Disclosure of Interests in Other Entities”, and consequential amendments to IAS 28, ”Investments in Associates and Joint Ventures” and IAS 27, “Separate Financial Statements”, at the same time. Aegon’s accounting policy for consolidation, as set out below, reflects the changes under IFRS 10 for the control definition.
The consolidated financial statements include the financial statements of Aegon N.V. and its subsidiaries. Subsidiaries (including consolidated structured entities) are entities over which Aegon has control. Aegon controls an entity when Aegon is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The assessment of control is based on the substance of the relationship between the Group and the entity and, among other things, considers existing and potential voting rights that are substantive. For a right to be substantive, the holder must have the practical ability to exercise that right.
The excess of the consideration paid to acquire the interest and the fair value of any interest already owned, over the Group’s share in the net fair value of assets, liabilities and contingent liabilities acquired is recognized as goodwill. Negative goodwill is recognized directly in the income statement. If the fair value of the assets, liabilities and contingent liabilities acquired in the business combination has been determined provisionally, adjustments to these values resulting from the emergence of new evidence within twelve months after the acquisition date are made against goodwill. Contingent consideration is discounted and the unwinding is recognized in the income statement as an interest expense. Any changes in the estimated value of contingent consideration given in a business combination prior to the adoption of IFRS 3 (as revised in 2008) are recognized as goodwill. Any changes in the estimated value of contingent consideration given in a business combination after the adoption of IFRS 3 (as revised in 2008) are recognized in the income statement.
Transactions with non-controlling interests are accounted for as transactions with equity holders. Therefore disposals to noncontrolling interests and acquisitions from non-controlling interests, not resulting in losing or gaining control of the subsidiary are recorded in other comprehensive income. Any difference between consideration paid or received and the proportionate share in net assets is accounted for in equity attributable to shareholders of Aegon N.V.
Investment funds managed by the Group in which the Group holds an interest are consolidated in the financial statements if the Group has power over that investment fund and it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The assessment of control is based on the substance of the relationship between the Group and the investment fund and, among other things, considers existing and potential voting rights that are currently exercisable and convertible. In assessing control, all interests held by the Group in the fund are considered, regardless of whether the financial risk related to the investment is borne by the Group or by the policyholders (unless the fund meets the definition of a silo or when, under strict facts and circumstances, a direct link between the policyholder and the fund can be assumed).
Aegon early adopted IFRS 11 - Joint arrangements, on January 1, 2013. This resulted in the Group changing its accounting policy for its interests in joint arrangements. Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has rather than the legal structure of the joint arrangement.
Aegon has assessed the nature of its joint arrangements and determined them to be joint ventures. The accounting policy for joint ventures will then be equity accounting and therefore joint ventures are no longer recognized using proportionate consolidated.
�� New Markets: Covers businesses operating in Central & Eastern Europe, Asia, Spain and France as well as Aegon’s variable annuity activities in Europe and Aegon Asset Management.
�� Holding and other activities: Includes financing, employee and other administrative expenses of holding companies.
The line item “Run-off businesses” includes earnings of certain business units where management has decided to exit the market and to run-off the existing block of business. Aegon believes that excluding the earnings of these blocks of businesses from underlying earnings enhances the comparability from period to period of Aegon’s key earnings measure, underlying earnings.
is derecognized when the related contracts are settled or disposed of.
Notes to the consolidated financial statements of Aegon N.V. Note 2
b. Real estate Investments in real estate include property held to earn rentals or for capital appreciation, or both. Investments in real estate are presented as investments. Property that is occupied by the Group and that is not intended to be sold in the near future is classified as real estate held for own use and is presented in “Other assets and receivables”.
2.8 Investments for account of policyholders Investments held for account of policyholders consist of investments in financial assets, excluding derivatives, as well as investments in real estate. Investment return on these assets is passed on to the policyholder. Also included are the assets held by consolidated investment funds that are backing liabilities towards third parties. Investments for account of policyholders are valued at fair value through profit or loss.
2.9 Derivatives a. Definition Derivatives are financial instruments, classified as held for trading financial assets or financial liabilities, of which the value changes in response to an underlying variable, that require little or no net initial investment and are settled at a future date.
To qualify for hedge accounting, the hedge relationship is designated and formally documented at inception, detailing the particular risk management objective and strategy for the hedge (which includes the item and risk that is being hedged), the derivative that is being used and how hedge effectiveness is being assessed. A derivative has to be effective in accomplishing the objective of offsetting either changes in fair value or cash flows for the risk being hedged. The effectiveness of the hedging relationship is evaluated on a prospective and retrospective basis using qualitative and quantitative measures of correlation. Qualitative methods may include comparison of critical terms of the derivative to the hedged item. Quantitative methods include a comparison of the changes in the fair value or discounted cash flow of the hedging instrument to the hedged item. A hedging relationship is considered effective if the results of the hedging instrument are within a ratio of 80% to 125% of the result of the hedged item.
of IFRS. The EU ‘carve out’ macro hedging enables a group of derivatives (or proportions thereof) to be viewed in combination and jointly designated as the hedging instrument and removes some of the limitations in fair value hedge accounting. Under the EU ‘carve out’, ineffectiveness in fair value hedge accounting only arises when the revised projection of the amount of cash flows in scheduled time buckets falls below the designated amount of that bucket. Aegon applies fair value hedge accounting for portfolio hedges of interest rate risk (macro hedging) under the EU ‘carve out’ to mortgage loans. Changes in the fair value of the derivatives are recognized in the profit and loss account, together with the fair value adjustment on the mortgages (hedged items) insofar as attributable to interest rate risk (the hedged risk).
2.10 Investments in joint ventures Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has rather than the legal structure of the joint arrangement. Joint control exists when it is contractually agreed to share control of an economic activity. This exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Aegon has assessed the nature of its joint arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method.
Acquisition costs are deferred to the extent that they are recoverable and are subsequently amortized based on either the expected future premiums or the expected gross profit margins. For products sold in the United States and Canada with amortization based on expected gross profit margins, the amortization period and pattern are reviewed at each reporting date and any change in estimates is recognized in the income statement. Estimates include, but are not limited to: an economic perspective in terms of future returns on bond and equity instruments, mortality, disability and lapse assumptions, maintenance expenses and expected inflation rates.
For products sold in the United States or Canada, 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 value in use represents the discounted future net cash flows from the continuing use and ultimate disposal of the asset and reflects its known inherent risks and uncertainties.
2.17 Equity Financial instruments that are issued by the Group are classified as equity if they represent a residual interest in the assets of the Group after deducting all of its liabilities and the Group has an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation. In addition to common shares, the Group has issued perpetual securities. Perpetual securities have no final maturity date, repayment is at the discretion of Aegon and for junior perpetual capital securities Aegon has the option to defer coupon payments at its discretion. The perpetual capital securities are classified as equity rather than debt, are measured at par and those that are denominated in US dollars are translated into euro using historical exchange rates.
Non-cumulative subordinated notes are identified as a compound instrument due to the nature of this financial instrument. For these non-cumulative subordinated notes, Aegon has an unconditional right to avoid delivering cash or another financial asset to settle the coupon payments. The redemption of the principal is however not at the discretion of Aegon and therefore Aegon has a contractual obligation to settle the redemption in cash or another financial asset or through the exchange of financial assets and liabilities at potentially unfavorable conditions for Aegon. Compound instruments are separated into liability components and equity components.
equity. All treasury shares are eliminated in the calculation of earnings per share and dividend per common share.
the exception of specific borrowings that are designated as at fair value through profit or loss to eliminate, or significantly reduce, an accounting mismatch, or specific borrowings which are carried as at fair value through profit or loss as they are managed and evaluated on a fair value basis. The liability is derecognized when the Group’s obligation under the contract expires, is discharged or is cancelled.
Subordinated borrowings include the liability component of non-cumulative subordinated notes. These notes are identified as a compound instrument due to the nature of this financial instrument. Compound instruments are separated into equity components and liability components. The liability component for the non-cumulative subordinated notes is related to the redemption amount. For further information on the accounting policy of the non-cumulative subordinated notes refer to note. 2.17.
Included under insurance contracts are interest rate rebates. Interest rate rebate is a form of profit sharing whereby the Group determines the premium based on the expected interest that will be earned on the contract. The expected interest is calculated with reference to a portfolio of government bonds. Interest rate rebates that are expected to be recovered in future periods are deferred and amortized as the interest is realized. The amortization is recognized in Aegon’s income statement. They are considered in the liability adequacy test for insurance liabilities. Deferred interest rebates are derecognized when the related contracts are settled or disposed off.
Depending on local accounting principles, the liability may include amounts for future services on contracts where the policy administration charges are higher in the initial years than in subsequent years. In establishing the liability, guaranteed minimum benefits issued to the policyholder are measured as described in note 2.19 c or, if bifurcated from the host contract, as described in note 2.9.
c. Embedded derivatives and participation features Life insurance contracts typically include derivative-like terms and conditions. With the exception of policyholder options to surrender the contract at a fixed amount, contractual features that are not closely related to the insurance contract and that do not themselves meet the definition of insurance contracts are accounted for as derivatives.
Other terms and conditions, such as participation features and expected lapse rates, are considered when establishing the insurance liabilities. Where the Group has discretion over the amount or timing of the bonuses distributed resulting from participation features, a liability is recognized equal to the amount that is available at the balance sheet date for future distribution to policyholders.
The Group issues life insurance contracts, which do not expose the Group to interest rate risk as the account terms are not fixed or guaranteed or because the return on the investments held is passed on to the policyholder. Some of these contracts, however, may contain guaranteed minimum benefits. Bifurcated guaranteed minimum benefits are classified as derivatives.
In the Netherlands, an additional liability is established for guaranteed minimum benefits that are not bifurcated on group pension plans with profit sharing and on traditional insurance contracts with profit sharing based on an external interest index. These guarantees are measured at fair value.
specific assets held. To the extent that the bonus relates to gains or losses on available-for-sale investments for which the unrealized gains or losses are recognized in the revaluation reserve in equity, shadow accounting is applied. This means that the increase in the liability is also charged to equity to offset the unrealized gains rather than to the income statement.
f. Liability adequacy testing At each reporting date, the adequacy of the life insurance liabilities, net of VOBA and DPAC, is assessed using a liability adequacy test.
Additional recoverability tests for policies written in the last year may also result in loss recognition.
Life insurance contracts for account of policyholders and any related VOBA and DPAC are considered in the liability adequacy test performed on insurance contracts. To the extent that the account balances are insufficient to meet future benefits and expenses, additional liabilities are established and included in the liability for life insurance.
Aegon has applied the new policy for employee benefits on or after January 1, 2011, in accordance with the transitional provisions of the revised IAS 19. Aegon's accounting policy for assets and liabilities relating to employee benefits as set out below reflects the changes under the revised IAS 19.
Prior to January 1, 2013, short-term benefits were recognized based on the employee's entitlement to the benefits. Under the revised IAS 19 a liability is recognized for the undiscounted amount of short-term employee benefits expected to be settled within one year after the end of the period in which the service was rendered. Accumulating short-term absences are recognized over the period in which the service is provided. Benefits that are not service-related are recognized when the event that gives rise to the obligation occurs.
The defined benefit obligation is based on the terms and conditions of the plan applicable on the balance sheet date. In measuring the defined benefit obligation the Group uses the projected unit credit method and actuarial assumptions that represent the best estimate of future variables. The benefits are discounted using an interest rate based on the market yields for high-quality corporate bonds on the balance sheet date. Prior to January 1, 2013, Aegon charged plan improvements directly to the income statement, unless they were conditional on the continuation of employment. In that case, the related cost was deducted from the liability as past service cost and amortized over the vesting period. Under the revised IAS 19, plan improvements (either vested or unvested) are recognized in the income statement at the date when the plan improvement occurs.
Plan assets are qualifying insurance policies and assets held by long-term employee benefit funds that can only be used to pay the employee benefits under the plan and are not available to the Group’s creditors. They are measured at fair value and are deducted in determining the amount recognized on the statement of financial position.
Prior to January 1, 2013, Aegon determined the cost of the plans at the beginning of the year, based on the prevalent actuarial assumptions, discount rate and expected return on plan assets. Changes in assumptions, discount rate and experience adjustments were not charged to the income statement in the period in which they occur, but were deferred. Unrecognized actuarial gains and losses were amortized in a straight line over the average remaining working life of the employees covered by the plan, to the extent that the gains or losses exceeded the corridor limits. The corridor was defined as ten percent of the greater of the defined benefit obligation or the plan assets.
For share option plans that are equity-settled, the expense recognized is based on the fair value on the grant date of the share options, which does not reflect any performance conditions other than conditions linked to the price of the Group’s shares. The cost is recognized in the income statement, together with a corresponding increase in shareholders’ equity, as the services are rendered.
2.28 Fee and commission income Fees and commissions from investment management services and mutual funds, and from sales activities are recognized as revenue over the period in which the services are performed or the sales have been closed.
Amounts receivable in respect of salvage and subrogation are also considered.
Net fair value change on for account of policyholder financial assets at fair value through profit or loss includes fair value movements of investments held for account of policyholders (refer to note 2.8). The net fair value change does not include interest or dividend income.
In addition, results from financial transactions include gains/losses on real estate (general account and account of policyholders), net foreign currency gains/(losses) and net fair value change on borrowings and other financial liabilities and realized gains on repurchased debt.
Aegon will adopt a single group-wide accounting policy for deferral of policy acquisition costs as of January 1, 2014. Upon initial adoption of IFRS, Aegon operations were permitted to continue existing accounting policies for insurance contracts even though such policies were often non-uniform between countries. Through adoption of a uniform, group-wide accounting policy, Aegon will eliminate this lack of uniformity for the deferral of policy acquisition costs thereby providing the users of the financial statements with more meaningful information.
Associated with Acquiring or Renewing Insurance Contracts”), if not conflicting with IFRS 4 or the Exposure Draft. IFRS currently differs from US GAAP by not limiting the deferral to expenses from successful efforts only and in the detail of how that principle is applied.
As of January 1, 2014, Aegon will amend its policy to determine the insurance contract liability of Aegon the Netherlands to account for longevity risk assumed by Aegon. This change will provide more current information about the financial effects of changes in life expectancy of the insured population. The change will also increase alignment with market pricing of longevity risk. It will supply users of the financial statements with more relevant decision making information on the insurance contract liability and will improve transparency on the longevity risks assumed by Aegon.
EUR 105 million for the years 2013, 2012 and 2011 respectively.
Valuation of assets and liabilities arising from life insurance contracts The liability for life insurance contracts with guaranteed or fixed account terms is generally based on current assumptions or on the assumptions established at inception of the contract. All contracts are subject to liability adequacy testing which reflects management’s current estimates of future cash flows (including investment returns). To the extent that the liability is based on current assumptions, a change in assumptions will have an immediate impact on the income statement. Also, if a change in assumption results in not passing the liability adequacy test, the entire deficiency is recognized in the income statement. To the extent that the deficiency relates to unrealized gains and losses on available-for-sale investments, the additional liability is recognized in the revaluation reserve in equity.
Some insurance contracts without a guaranteed or fixed contract term contain guaranteed minimum benefits. Depending on the nature of the guarantee, it may either be bifurcated and presented as a derivative or be reflected in the value of the insurance liability in accordance with local accounting principles. Given the dynamic and complex nature of these guarantees, stochastic techniques under a variety of market return scenarios are often used for measurement purposes. Such models require management to make numerous estimates based on historical experience and market expectations. Changes in these estimates will immediately affect the income statement.
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 country units, is the annual long-term growth rate of the underlying assets. The reconsideration of this assumption may affect the original DPAC or VOBA amortization schedule, referred to as DPAC or
A 1% decrease in the expected long-term equity growth rate with regards to Aegon’s variable annuities and variable life insurance products in the United States and Canada would result in a decrease in DPAC and VOBA balances and reserve strengthening of approximately EUR 169 million (2012: EUR 150 million). The DPAC and VOBA balances for these products in the United States and
Applying a reasonably possible increase to the mortality assumption, which varies by block of business, would reduce net income by approximately EUR 105 million (2012: EUR 53 million). A relative 20% increase in the lapse rate assumption would increase net income by approximately EUR 18 million (2012: EUR 42 million).
Any reasonably possible changes in the other assumptions Aegon uses to determine EGP margins (i.e. maintenance expenses, inflation and disability) would reduce net income by less than EUR 37 million (per assumption change) (2012: EUR 39 million).
The analysis also depends on whether Aegon is exposed or has rights to variable returns from its involvement with the investee and whether Aegon has the ability to use its powers over the investee to affect the amount of the investor’s returns.
In determining whether Aegon has power the following has been considered: �� Is the asset manager external or internal (i.e. an Aegon subsidiary); �� Is the investment mandate broad or narrow; �� Does the policyholder have legal rights to the separate assets in the investment vehicle (e.g. policyholders could have the voting rights related to these investments); �� The governance structure, such as an independent board of directors, representing the policyholders, which has substantive rights
For some investment funds Aegon concludes that Aegon is an agent and thus does not control those investment funds. In particular, for some separate accounts, Aegon concluded that the independent board of directors has substantive rights and therefore Aegon does not have power over these separate accounts and in that case Aegon acts as an agent.
For some limited partnerships, determining whether Aegon has control over these entities is dependent on whether Aegon is a limited partner, general partner and whether other parties have substantive removal rights. The conclusion differs per situation and judgment is applied on the substantiveness of the removal rights and on the magnitude of the exposure to variable returns.
A structured entity is defined in IFRS 12 as “An entity that has been designed so that voting rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements.” In these instances the tests and indicators to assess control provided by IFRS
Aegon concluded for several structured entities that the Group controls those investees. In particular the implementation of IFRS
In accordance with IFRS 13, Aegon uses the following hierarchy for measuring and disclosing of the fair value of assets and liabilities: �� Level I: quoted prices (unadjusted) in active markets for identical assets or liabilities that Aegon can access at the measurement date; �� Level II: inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices of identical or similar assets and liabilities) using valuation techniques for which all significant inputs are based on observable market data; and �� Level III: inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) using valuation techniques for which any significant input is not based on observable market data.