Information on the adoption of IFRS 9 by principal subsidiaries and joint ventures that for statutory purposes cannot elect to defer the effective date of IFRS 9 can be found in the publicly available statutory annual reports on www.aegon.nl and or Chamber of Commerce. This information is not part of the audited consolidated financial statements of Aegon N.V.. The related entities are:  Aegon Bank N.V.  Aegon Hypotheken B.V.  Aegon Asset Management Holding B.V.
In November 2018, the IASB agreed to start the process to amend IFRS 17 to defer the mandatory effective date of IFRS 17 by one year (original effective date was January 1, 2021). Subject to IASB due process, entities will be required to apply IFRS 17 for annual periods beginning on or after January 1, 2022. The IASB noted that given the considerations to propose amendments to IFRS 17 in
Transactions with non-controlling interests are accounted for as transactions with owners. Therefore disposals to non-controlling interests and acquisitions from non-controlling interests, not resulting in losing or gaining control of the subsidiary are recorded in equity. 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.
Exposure or rights to variability of returns can be the result of, for example:  General account investment of Aegon;  Aegon’s investments held for policyholder;  Guarantees provided by Aegon on return of policyholders in specific investment vehicles;  Fees dependent on fund value (including, but not limited to, asset management fees); and  Fees dependent on performance of the fund (including, but not limited to, performance fees).
For limited partnerships, the assessment takes into account Aegon’s legal position (i.e. limited partner or general partner) and any substantive removal rights held by other parties. Professional judgment is applied concerning the substantiveness of the removal rights and the magnitude of the exposure to variable returns, leading to the conclusion that Aegon controls some, but not all, of the limited partnerships in which it participates.
2.6 Intangible assets a. Goodwill Goodwill is recognized as an intangible asset for interests in subsidiaries and is measured as the positive difference between the acquisition cost and the Group’s interest in the net fair value of the entity’s identifiable assets, liabilities and contingent liabilities.
VOBA is amortized over the useful life of the acquired contracts, based on either the expected future premiums, revenues or the expected gross profit margins. The amortization period and pattern are reviewed at each reporting date; any change in estimates is recorded in the income statement. For all products, VOBA, in conjunction with deferred policy acquisition costs (DPAC) where appropriate, is assessed for recoverability using aggregation levels on a geographical jurisdiction basis or at the level of portfolio of contracts that are subject to broadly similar risks and managed together as a single portfolio. The portion determined not to be recoverable is charged to the income statement. VOBA is considered in the liability adequacy test for each reporting period, for more details refer to 2.19.f Liability adequacy testing.
When unrealized gains or losses arise on available-for-sale assets backing the insurance liabilities, VOBA is adjusted to equal the effect that the realization of the gains or losses (through a sale or impairment) would have had on VOBA. The adjustment is recognized in OCI and accumulated in the related revaluation reserve in shareholders’ equity. VOBA is derecognized when the related contracts are settled or disposed.
a. Financial assets, excluding derivatives Financial assets are recognized at trade date (except for Private placements that are recognized at settlement date) when the Group becomes a party to the contractual provisions of the instruments. All financial assets are classified for accounting purposes depending on the characteristics of the instruments and the purpose for which they were purchased.
The following financial assets are measured at fair value through profit or loss: financial assets held for trading, financial assets managed on a fair value basis in accordance with the Group’s investment strategy and financial assets containing an embedded derivative that is not closely related and that cannot be reliably bifurcated. In addition, in certain instances the Group designates financial assets to this category when by doing so a potential accounting mismatch in the financial statements is eliminated or significantly reduced.
A financial asset is derecognized when the contractual rights to the asset’s cash flows expire or when the Group retains the right to receive cash flows from the asset but has an obligation to pay any received cash flows in full without delay to a third party and either: has transferred the asset and substantially all the risks and rewards of ownership, or has neither transferred nor retained all the risks and rewards but has transferred control of the asset. Financial assets of which the Group has neither transferred nor retained significantly all the risk and rewards are recognized to the extent of the Group’s continuing involvement. If significantly all risks are retained, the assets are not derecognized.
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.
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 highly effective if the results of the hedging instrument are within a ratio of 80% to 125% of the results of the hedged item.
Net investment hedges are hedges of currency exposures on a net investment in a foreign operation. To the extent that the hedge is effective, the change in the fair value of the hedging instrument is recognized in the net foreign investment hedging reserve in shareholders’ equity. Any ineffectiveness is recognized in the income statement. The amount in shareholders’ equity is released to the income statement when the foreign operation is disposed of.
Hedge accounting is discontinued prospectively for hedges that are no longer considered effective. When hedge accounting is discontinued for a fair value hedge, the derivative continues to be carried on the statement of financial position with changes in its fair value recognized in the income statement. When hedge accounting is discontinued for a cash flow hedge because the cash flow is no longer expected to occur, the accumulated gain or loss in shareholders’ equity is recognized immediately in the income statement.
In other situations where hedge accounting is discontinued for a cash flow hedge, including those where the derivative is sold, terminated or exercised, accumulated gains or losses in shareholders’ equity are amortized into the income statement when the income statement is impacted by the variability of the cash flow from the hedged item.
The carrying amount is subsequently adjusted to reflect the change in the Group’s share in the net assets of the joint venture and is subject to impairment testing. The net assets are determined based on the Group’s accounting policies. Any gains and losses recorded in other comprehensive income by the joint venture are recognised in OCI and reflected in other reserves in shareholders’
2.13 Deferred expenses a. Deferred policy acquisition costs (DPAC) DPAC relates to all insurance contracts as well as investment contracts with discretionary participation features and represents directly attributable costs that are related to the selling, underwriting and initiating of these insurance contracts.
DPAC are deferred to the extent that they are recoverable and are subsequently amortized based on factors such as expected gross profit margins. For products sold in the United States with amortization based on expected gross profit margins or revenues, the amortization period and pattern are reviewed at each reporting date and any change in estimates is recognized in the income statement. Estimates include, but are not limited to: an economic perspective in terms of future returns on bond and equity instruments, mortality, morbidity and lapse assumptions, maintenance expenses and expected inflation rates.
b. Deferred cost of reinsurance A deferred cost of reinsurance is established when Aegon enters into a reinsurance transaction, except for reinsurance transactions that are entered into as part of a plan to exit a business. When Aegon enters into a reinsurance contract as part of a plan to exit a business, an immediate loss is recognized in the income statement. Upon reinsurance, Aegon is not relieved of its legal liabilities, so the reserves relating to the underlying reinsured contracts will continue to be reported in the consolidated statement of financial position during the contractual term of the underlying contracts.
The difference, if any, between amounts paid in a reinsurance transaction and the amount of the liabilities relating to the underlying reinsured contracts is part of the deferred cost of reinsurance.
2.15 Cash and cash equivalents Cash comprises cash at banks and in-hand. Cash equivalents are short-term, highly liquid investments generally with original maturities of three months or less that are readily convertible to known cash amounts, are subject to insignificant risks of changes in value and are held for the purpose of meeting short-term cash requirements. Money market investments that are held for investment purposes
Non-financial assets that only generate cash flows in combination with other assets and liabilities are tested for impairment at the level of the cash-generating unit. The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination. The allocation is based on the level at which goodwill is monitored internally and cannot be larger than an operating segment. When impairing a cash-generating unit, any goodwill allocated to the unit is first written-off and recognized in the income statement. The remaining impairment loss is allocated on a pro rata basis among the other assets, on condition that the resulting carrying amounts do not fall below the individual assets’ recoverable amounts.
b. Impairment of debt instruments Debt instruments are impaired if there is objective evidence that a credit event has occurred after the initial recognition of the asset that has a negative impact on the estimated future cash flows. Individually significant loans and other receivables are first assessed
separately. All non-impaired assets measured at amortized cost are then grouped by credit risk characteristics and collectively tested for impairment.
Non-cumulative subordinated notes were identified as a compound instrument due to the nature of this financial instrument. For these non-cumulative subordinated notes, Aegon had an unconditional right to avoid delivering cash or another financial asset to settle the coupon payments. The redemption of the principal was however not at the discretion of Aegon and therefore Aegon had 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 were separated into liability components and equity components. The liability component for the non-cumulative subordinated notes was equal to the present value of the redemption amount and carried at amortized cost using the effective interest rate method. The unwinding of the discount of this component was
recognized in the income statement. At initial recognition the equity component was assigned the residual amount after deducting the liability component from the fair value of the instrument as a whole. The equity component in US dollars was translated into euro using historical exchange rates. With effect on May 15, 2018, Aegon has exercised its right to redeem USD 525 million non-cumulative subordinated notes, subsequently leading to their redemption. As the Group's obligation under the contract has expired, the liability and equity components of the non-cumulative subordinated notes have been derecognised.
Incremental external costs that are directly attributable to the issuing or buying back of own equity instruments are recognized in equity, net of tax. For compound instruments incremental external costs that were directly attributable to the issuing or buying back of the compound instruments were recognized proportionate to the equity component and liability component, net of tax.
Trust pass-through securities and (subordinated) borrowings are initially recognized at their fair value including directly attributable transaction costs and are subsequently carried at amortized cost using the effective interest rate method, with the exception of specific borrowings that are designated as at fair value through profit or loss to eliminate, or significantly reduce, an accounting mismatch, or specific borrowings which are carried as at fair value through profit or loss as they are managed and evaluated on a fair value basis.
Terms and conditions, including participation features, are considered when establishing the insurance liabilities. Where the Group has discretion over the amount or timing of the bonuses distributed resulting from participation features, a liability is recognized equal to the amount that is available at the reporting date for future distribution to policyholders.
In the United States, the additional liability for guaranteed minimum benefits that are not bifurcated is determined each period by estimating the expected value of benefits in excess of the projected account balance and recognizing the excess over the accumulation period based on total expected assessments. The estimates are reviewed regularly and any resulting adjustment to the additional liability is recognized in the income statement. The benefits used in calculating the liabilities are commonly based on the average benefits payable over a range of stochastic scenarios. Where applicable, the calculation of the liability incorporates a percentage of the potential annuitizations that may be elected by the contract holder.
In the Netherlands, an additional liability is established for guaranteed minimum investment returns on group pension plans with profit sharing and on traditional insurance contracts, with profit sharing based on an external interest index, that are not bifurcated. These guarantees are measured at fair value.
2.20 Investment contracts Aegon conducts its operations through the following reporting segments: Contracts issued by the Group that do not transfer significant insurance risk, but do transfer financial risk from the policyholder to the Group are accounted for as investment contracts. Depending on whether the Group or the policyholder runs the risks associated with the investments allocated to the contract, the liabilities are classified as investment contracts or as investment contracts for account of policyholders. Investment contract liabilities are recognized when the contract is entered into and are derecognized when the contract expires, is discharged, cancelled or substantially modified.
The consolidated financial statements provide information on the fair value of all financial liabilities, including those carried at amortized cost. As these contracts are not quoted in active markets, their value is determined by using valuation techniques, such as discounted cash flow methods and stochastic modeling. For investment contracts without discretionary participation features that can be cancelled by the policyholder, the fair value cannot be less than the surrender value.
For unit-linked contracts without discretionary participation features and subject to actuarial funding, the Group recognizes a liability at the funded amount of the units. The difference between the gross value of the units and the funded value is treated as an initial fee paid by the policyholder for future asset management services and recognized as a deferred revenue liability, refer to note 2.23 Deferred gains.
The amount recognized as a provision is the best estimate of the expenditure required to settle the present obligation at the reporting date, considering all its inherent risks and uncertainties, as well as the time value of money. The estimate of the amount of a loss requires management judgment in the selection of a proper calculation model and the specific assumptions related to the particular exposure. The unwinding of the effect of discounting is recorded in the income statement as an interest expense.
The defined benefit obligation is based on the terms and conditions of the plan applicable on the reporting 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 yield for high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity that approximate the terms of the related pension liability. Actuarial assumptions used in the measurement of the liability include the discount rate, estimated future salary increases, mortality rates and price inflation. To the extent that actual experience deviates from these assumptions, the valuation of defined benefit plans and the level of pension expenses recognized in the future may be affected. Plan improvements (either vested or unvested) are recognized in the income statement at the date when the plan improvement occurs.
Remeasurements of the net defined benefit liability (asset) comprise of:  Actuarial gains and losses;  The return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset); and  Any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset).
Gains or losses on curtailments or settlements of a defined benefit plan comprise of the difference between:  The present value of the defined benefit obligation being settled, as determined on the date of settlement; and  The settlement price, including any plan assets transferred and any payments made directly by Aegon in connection with the settlement.
The cost for long term incentive plans are recognized in the income statement, together with a corresponding increase in shareholders’ equity, as the services are rendered. During this period the cumulative expense recognized at the reporting date reflects management’s best estimate of the number of shares expected to vest ultimately. For cash settled components (such as net settled component of long-term share-based plans) a liability will be recognized using the fair value of the equity settled award based on the elapsed portion of the vesting period. For modifications of the terms and conditions of equity-settled plans that result in those plans to be classified as cash-settled plans, the liability is recognized using the fair value measured at the modification date. The liability is remeasured at each reporting date and at the date of settlement, with any changes in fair value recognized in the income statement.
The withholding of shares to fund the payment to the tax authority in respect of the employee’s withholding tax obligation associated with the share-based payment is accounted for as a deduction from equity for the shares withheld, except to the extent that the payment exceeds the fair value at the net settlement date of the equity instruments withheld.
Premium loadings for installment payments and additional payments by the policyholder towards costs borne by the insurer are included in the gross premiums. Rebates that form part of the premium rate, such as no-claim rebates, are deducted from the gross premium, others are recognized as an expense. Depending on the applicable local accounting principles, bonuses that are used to increase the insured benefits may be recognized as gross premiums. The insurance premiums for the original contracts are presented gross of reinsurance premiums paid.
2.29 Policyholder claims and benefits Policyholder claims and benefits consist of claims and benefits paid to policyholders, including benefits in excess of account value for products for which deposit accounting is applied and the change in the valuation of liabilities for insurance and investment contracts.
To the extent that the deficiency relates to unrealized gains and losses on available-for-sale investments, the additional liability is recognized in the related revaluation reserve in shareholders' equity.
Surrender and lapse rates depend on product features, policy duration and external circumstances such as the interest rate environment and competitor behavior. For policies with account value guarantees based on equity market movements, a dynamic lapse assumption is utilized to reflect policyholder behavior based on whether the guarantee is in the money. Own experience, as well as industry published data, are used in establishing assumptions. Lapse experience is correlated to mortality and morbidity levels, as higher or lower levels of surrenders may indicate future claims will be higher or lower than anticipated. Such correlations are accounted for in the mortality and morbidity assumptions based on the emerging analysis of experience.
During 2018, Aegon implemented actuarial assumption and model updates resulting in a net EUR 121 million charge to income before tax (2017: EUR 276 million charge). Refer to note 5 Segment information for further details.
For the years 2016 through 2018, Aegon kept its long-term equity market return assumption for the estimated gross profits on variable life and variable annuity products in the Americas at 8%. During the three year period, the long-term assumption for 10year US Treasury yields was 4.25% and the uniform grading period was 10 years. Aegon’s assumed returns for US separate account bond funds are 4% over the next 10 years and 6% thereafter. The long term credit spread assumption, net of assumed defaults and expenses, on our most common corporate bonds is 114bps. The 90-day Treasury yield was 2.37%, 1.39%, and 0.51% at December 31, 2018, 2017 and 2016, respectively. During the period 2016 to 2018 the 90-day Treasury yield was assumed to have a uniform grading over 10 years to 2.5%. On a quarterly basis, the estimated gross profits are updated for the difference between the estimated market return and the actual market return.
Any reasonably possible changes in the other assumptions Aegon uses to determine EGP margins (i.e. maintenance expenses) would reduce net income by less than EUR 9 million (2017: EUR 15 million).
Sensitivities of significant product liability assumptions on the LTC IFRS after-tax Gross Present Value Reserve (GPV) margin are indicated below. The GPV is the liability as determined on a best estimate assumption basis. Until an assumption change is of significant amount to breach the current margin of EUR 35 million (loss recognition block of LTC), there will be no IFRS financial impact
EUR 170 million. A 5% decrease in the incidence rates with regard to Aegon’s long term care products would result in a GPV decrease of approximately EUR 170 million.
Results of Aegon’s sensitivity analyses are presented throughout this section to show the estimated sensitivity of net income and shareholders' equity to various scenarios. For each type of market risk, the analysis shows how net income and shareholders' equity would have been affected by changes in the relevant risk variable that were reasonably possible at the reporting date. For each
The accounting mismatch inherent in IFRS-EU is also apparent in the reported sensitivities. A change in interest rates has an immediate impact on the carrying amount of assets measured at fair value. However, the shock will not have a similar effect on the carrying amount of the related insurance liabilities that are measured based on locked-in assumptions or on management's long-term expectations. Consequently, the different measurement bases for assets and liabilities lead to increased volatility in IFRS-EU net income and shareholders' equity. Aegon has classified a significant part of its investment portfolio as 'available-for-sale', which is one of the main reasons why the economic shocks tested have a different impact on net income than on shareholders' equity. Unrealized gains and losses on these assets are not recognized in the income statement but are booked directly to the revaluation reserves in shareholders' equity, unless impaired. As a result, economic sensitivities predominantly impact shareholders' equity but leave net income unaffected. The effect of movements of the revaluation reserve on capitalization ratios and capital adequacy are minimal.
Aegon’s significant financial risks and related financial information are explained in the order as follows:  Credit risk  Equity market risk and other investment risks  Interest rate risk  Currency exchange risk  Liquidity risk
The table that follows shows the Group's maximum exposure to credit risk from investments in general account financial assets, as well as general account derivatives and reinsurance assets, collateral held and net exposure. Please refer to note 49 Transfer of financial assets for further information on collateral given, which may expose the Group to credit risk.
Other loans – carried at amortized cost 2,310 - - - - - 1,960 1,960 1,238 1,589
Other financial assets – carried at fair value 3,551 - - - - - - - - 3,551
Debt securities – carried at amortized cost - - - 14 - - - 14 - (14)
Money market and other short-term investments – carried at fair value 6,809 - 719 - - - - 719 25 6,115
Private loans – carried at amortized cost 3,642 79 - - - - - 79 - 3,563
A substantial part of Aegon’s Dutch residential mortgage loan portfolio benefits from guarantees by a Dutch government-backed trust (Stichting Waarborgfonds Eigen Woning) through the Dutch Mortgage loan Guarantee program (NHG). With exception of NHGbacked mortgage loans originated after January 1, 2014, for which a 10% lender-incurred haircut applies on realized losses on each defaulted loan, these guarantees cover all principal losses, missed interest payments and foreclosure costs incurred upon termination and settlement of defaulted mortgage loans when lender-specific terms and conditions of the guarantee are met. When not fully met, the trust may pay claims in part or in full, depending on the severity of the breach of terms and conditions. For each specific loan, the guarantee amortizes in line with an equivalent annuity mortgage loan. When the remaining loan balance at default does not exceed the amortized guarantee, it covers the full loss under its terms and conditions. Any loan balance in excess of this decreasing guarantee profile serves as a first loss position for the lender.
Aegon group level long-term counterparty exposure limits are as follows: Group limits per credit rating Amounts in EUR million 2018 2017
Past due and/or impaired assets 108 1,346 277 25 - - - 1 - - 277 26
Past due and/or impaired assets 35 1,145 299 41 - - 82 1 - - 381 43
Asset-backed securities (ABSs) – CDOs backed by ABS, Corp. bonds, Bank loans 717 1,669 - - - 1,669 61 - 2,447 3 1 Includes investments of Holding and other activities.
Asset Management Total 2018 1 1 Includes investments of Holding and other activities.
Credit risk concentrations – Credit rating 2017 2 Government bonds Corporate bonds RMBSs CMBSs
ABSs Other Total 2017 1 1 Includes investments of Holding and other activities. 2 CNLP Ratings are used and are the lower of the Barclay’s Rating and the Internal Rating with the Barclay’s rating being a blended rating of S&P, Fitch, and
The fair value of Aegon Americas commercial and agricultural mortgage loan portfolio as per December 31, 2018, amounted to EUR 8,059 million (2017: EUR 7,132 million). The loan to value (LTV) amounted to approximately 54% (2017: 55%).
(2017: EUR 30,926 million). The LTV amounted to approximately 70% (2017: 76%). A significant part of the portfolio 46% (2017: 51%) is government guaranteed. Of the portfolio, 0.2% (2017: 0.2%) is in delinquency (defined as 60 days in arrears). Impairments in 2018 amounted to EUR 0 million (2017: EUR 8 million). During the last ten years defaults of the portfolio have been 5 basis points on average.
For RMBSs, CMBSs and ABSs in which Aegon has an interest at reporting date, the following table presents total income received from those interests. The Investments column reflects the carrying values recognized in the statement of financial position of Aegon’s interests in RMBSs, CMBSs and ABSs.
portfolios, are as follows as of December 31, 2018, and December 31, 2017
Of which held by Aegon Americas and NL 72,486 4,370 (1,352) 75,504 50,976 24,528
Of which held by Aegon Americas and NL 72,937 6,392 (462) 78,867 66,688 12,179
Asset-backed securities (ABSs) – CDOs backed by ABS, Corp. bonds, Bank loans 2,088 (42) 87 (2)
As of December 31, 2018, there are EUR 4,370 million (December 31, 2017: EUR 6,392 million) of gross unrealized gains and
After generally strong performance through the first three quarters of 2018, U.S. credit and equity markets weakened dramatically during the fourth quarter. Credit spreads widened for the year, while U.S. equity markets finished the year sharply lower. Developedworld growth was fairly strong, with the U.S. economy outperforming. Emerging economies turned in mixed performances, with trade tensions weighing on some markets. Outside of the U.S., most equity markets were significantly weaker in 2018. The U.S. dollar strengthened against the Euro, but weakened versus the Yen. The U.S. Federal Reserve raised the Fed Funds rate by 100 basis points in 2018, reflecting strong labor conditions and healthy economic growth. Long-term U.S. Treasury rates also increased, but failed to keep pace with shorter term rates, flattening the U.S yield curve. Corporate default rates remained very low, in spite of widening credit spreads. After rising for most of the year, oil prices fell dramatically in the fourth quarter and ended the year significantly lower.
Chinese demand was therefore quickly felt via lower export volumes. The European Central Bank announced the end of its quantitative easing program. Markets are however not pricing in any rate hikes for next year.
(S&P, Moody's and Fitch) and Aegon’s internal rating of the counterparty.
Americas and EUR 395 million (December 31, 2017: EUR 556 million) by Aegon the Netherlands. Residential mortgage-backed securities are securitizations of underlying pools of non-commercial mortgages on real estate. The underlying residential mortgages have varying credit characteristics and are pooled together and sold in tranches. The following table shows the breakdown of Aegon
RMBS of Aegon Americas are monitored and reviewed on a monthly basis. Detailed cash flow models using the current collateral pool and capital structure on the portfolio are updated and reviewed quarterly. Model output is generated under base and stresscase scenarios. Aegon’s RMBS asset specialists utilize widely recognized industry modeling software to perform a loan-by-loan, bottom-up approach to modeling. Key assumptions used in the models are projected defaults, loss severities, and prepayments.
Americas, and the total net unrealized gain on available-for-sale RMBS was EUR 268 million (December 31, 2017: EUR 281 million), including a EUR 266 million (December 31, 2017: EUR 268 million) net unrealized gain relating to positions of Aegon Americas.
The housing market in the United States remains good but has begun its transition to a more moderate growth trajectory. The housing market continues to benefit from strong employment, historically low inventory, rising household formation rates, income growth, and modest credit easing. This is manifesting itself in low borrower delinquencies, better recoveries upon liquidation, and shorter timelines to sell properties. However, housing affordability has now come under pressure from years of price appreciation outpacing wage growth and rising mortgage rates. Home price appreciation and existing home sales volume have begun to decelerate. These confluence of factors will leave limited room for spread tightening across the asset class.
RMBS backed by new origination is increasing, securitizations backed by legacy mortgage pools continue to be part of the primary supply. Improving fundamentals, deleveraging of the deals and collateral, and negative net supply (together with increasing demand)
Commercial mortgage-backed securities As of December, 31, 2018, Aegon Americas and Aegon the Netherlands hold EUR 3,349 million (December 31, 2017: EUR 3,403 million) of AFS commercial mortgage-backed securities (CMBS), of which EUR 3,314 million (December 31, 2017: EUR 3,375 million) is held by Aegon Americas and EUR 35 million (December 31, 2017: EUR 28 million) by Aegon the Netherlands.
CMBS of Aegon Americas are monitored and reviewed on a monthly basis. Detailed cash flow models using the current collateral pool and capital structure on the portfolio are updated and reviewed quarterly. Model output is generated under base and several stress-case scenarios by Aegon’s internal CMBS asset specialists. For conduit securities, a widely recognized industry modeling software is used to perform a loan-by-loan, bottom-up approach. For non-conduit securities, a CMBS asset specialist works closely with Aegon’s real estate valuation group to determine underlying asset valuation and risk. Both methodologies incorporate external estimates on the property market, capital markets, property cash flows, and loan structure. Results are then closely analyzed by the asset specialist to determine whether or not a principal or interest loss is expected to occur.
Asset-backed securities Aegon Americas and Aegon the Netherlands hold EUR 4,503 million (December 31, 2017: EUR 4,225 million) of AFS ABS instruments of which EUR 2,626 million (December 31, 2017: EUR 2,429 million) is held by Aegon Americas and EUR 1,877 million (December 31, 2017: EUR 1,796 million) by Aegon the Netherlands. Additionally, as of December 31, 2018, Aegon Americas has investments in ABS
of EUR 6 million (December 31, 2017: EUR 10 million), which are classified as fair value through profit or loss. ABS are securitizations of underlying pools of credit card receivables, auto financing loans, small business loans, bank loans, and other receivables.
In the United States, increasing investor demand has been met with new issuance in the asset-backed sector. Spreads in the assetbacked sector widened in the latter part of 2018 in conjunction with the widening of corporate bond spreads. European ABS markets fared well through otherwise volatile financial markets in the first half of 2018. Against a benign macroeconomic backdrop and increasing demand for European ABS, spreads continued to tighten and resulted in positive performance. In the second half of 2018,
European ABS markets joined in on the general risk-off sentiment on financial markets. Spreads across all sectors were affected but overall the movements have been less severe when looking at credit markets over the last three months. Investors have shifted their attention to short-maturity assets and sectors further down the curve were affected the most. Due to the recent spread widening, valuations of European ABS have become more appealing. However, it seems that investors are still reluctant to add risk despite the attractive spreads. We expect this to be temporary and that investors will step back in the first half of 2019. Spreads will, however, remain volatile for the moment.
The fair values of Aegon Americas and Aegon the Netherlands available-for-sale (AFS) ABS instruments were determined as follows: Level II Level III Total 2018 Level II Level III Total 2017
Corporate – Financial sector The Corporate – Financial sector is further subdivided into banking, brokerage, insurance, REIT's and Financial – Other sub-sectors.
A majority of the gross unrealized loss in Aegon’s available-for-sale portfolio is from the banking and REITs sub-sectors.
(December 31, 2017: EUR 6,364 million) is held by Aegon Americas and EUR 224 million (December 31, 2017: EUR 305 million)
by Aegon the Netherlands. In aggregate, the gross unrealized loss on these bonds amounted to EUR 106 million (December 31, 2017: EUR 39 million) and the net unrealized gain on these bonds amounted to EUR 4 million (December 31, 2017: EUR 307 million).
Within the REITS sub-sector, Aegon Americas and Aegon the Netherlands hold EUR 1,624 million (December 31, 2017: EUR 1,369 million) of AFS bonds issued by banks, of which EUR 1,552 million (December 31, 2017: EUR 1,290 million) is held by Aegon Americas and EUR 71 million (December 31, 2017: EUR 79 million) by Aegon the Netherlands. In aggregate, the gross unrealized loss on these bonds amounted to EUR 49 million (December 31, 2017: EUR 5 million) and the net unrealized gain on these bonds amounted to EUR 33 million (December 31, 2017: EUR 48 million).
The REITs sub-sector encompasses companies invested across various real estate property types, including Apartment REITs,
There are no individual issuers rated below investment grade in the REITS sub-sector which have unrealized losses greater than
Corporate – Industrial sector The Industrial sector is further subdivided into various sub-sectors. A majority of Aegon’s available-for-sale portfolio gross unrealized loss is in the Consumer Non-Cyclical and Energy sub-sectors. Aegon also saw significant losses in the Capital Goods, Consumer Cyclical,
Within the Capital Goods sub-sector, Aegon Americas and Aegon the Netherlands hold EUR 2,038 million (December 31, 2017: EUR 2,308 million) of AFS bonds, of which EUR 1,995 million (December 31, 2017: EUR 2,212 million) is held by Aegon Americas and EUR 43 million (December 31, 2017: EUR 96 million) by Aegon the Netherlands. In aggregate, the gross unrealized loss on these bonds amounted to EUR 60 million (December 31, 2017: EUR 5 million) and the net unrealized gain on these bonds amounted to EUR 29 million (December 31, 2017: EUR 210 million).
However, negative headwinds for the sector have included: tariffs, commodity prices, regulations in Europe and deteriorating demand in China. Since the last downturn, ongoing efforts by the auto companies have significantly lowered the breakeven production and sales levels for the industry. Ford Motor Co has been slower than its peers to restructure its global operations, only recently announcing a general multi-year effort. As such, price declines have reflected investor uncertainty around the timing and success of the turnaround.
Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2018
Within the Consumer Non-Cyclical sub-sector, Aegon Americas and Aegon the Netherlands hold EUR 5,615 million (December 31, 2017: EUR 6,010 million) of AFS bonds, of which EUR 5,362 million (December 31, 2017: EUR 5,729 million) is held by Aegon
The Consumer Non-Cyclical sub-sector encompasses various industries ranging from consumer products to supermarkets. The more significant of these sub-sectors from an unrealized loss perspective are food, beverage and pharmaceuticals. In food and beverage, a number of large issuers have increased leverage for M&A in an effort to ignite growth, with the new issuance and higher leverage weighing on bond prices. And more recently, some larger issuers have been impacted by downgrades, notably AB Inbev (largest issuer in the space), which crossed over from A- to BBB+ due to a slower than expected de-levering trajectory. In pharmaceuticals, unrealized losses have primarily been driven by price volatility in the bond market rather than fundamental issues. We do note however that
EUR 211 million (December 31, 2017: EUR 207 million) by Aegon the Netherlands. In aggregate, the gross unrealized loss on these bonds amounted to EUR 138 million (December 31, 2017: EUR 41 million) and the net unrealized gain on these bonds amounted to EUR 13 million (December 31, 2017: EUR 316 million).
OPEC supply growth, reduced supply disruptions, high global inventories and concerns on softening global demand. In response, OPEC
has coordinated an agreement to cut production levels in an effort to reduce global inventories and increase prices. Aegon evaluated the near-term prospects of the issuers in relation to the severity and duration of the unrealized loss and does not consider those investments to be impaired as of December 31, 2018.
Within the Technology sub-sector, Aegon Americas and Aegon the Netherlands hold EUR 2,046 million (December 31, 2017: EUR 1,840 million) of AFS bonds, of which EUR 2,002 million (December 31, 2017: EUR 1,819 million) is held by Aegon Americas and EUR 44 million (December 31, 2017: EUR 21 million) by Aegon the Netherlands. In aggregate, the gross unrealized loss on these bonds amounted to EUR 47 million (December 31, 2017: EUR 6 million) and the net unrealized gain on these bonds amounted to EUR 28 million (December 31, 2017: EUR 157 million).
The Transportation sub-sector can be further divided into airlines, railroads and transportation services. The majority of the gross unrealized loss relates to completed and operating private infrastructure, such as airports, ports and toll roads. These investments tend to be longer dated debt which have had significant negative price changes solely due to moves in long term rates. Across the public credits, increases in fuel were a notable headwind, as well as North American railroads adopting more aggressive financial policies following lowered corporate tax rates. Aegon evaluated the near-term prospects of the issuers in relation to the severity and duration of the unrealized loss and does not consider those investments impaired as of December 31, 2018.
The Communication sector encompasses various sub-sectors including cable satellite, media entertainment, wireless and wirelines.
Corporate – Utility sector The Utility sector is further subdivided into various sub-sectors. A majority of Aegon’s available-for-sale portfolio gross unrealized loss is in the Electric sub-sector.
There are no individual issuers rated below investment grade in the government sector which have unrealized loss positions greater than EUR 25 million.
Aging and severity unrealized losses The table below provides the length of time a below investment grade security has been in an unrealized loss and the percentage of carrying value (CV) to amortized cost in Aegon Americas and Aegon the Netherlands.
Realized gains and losses on debt securities of Aegon Americas and Aegon the Netherlands The following table provides the realized gains and losses on the debt securities of Aegon Americas and Aegon the Netherlands for the twelve months ended December 31, 2018, and December 31, 2017.
Net (impairments) and recoveries Net recoveries for the twelve months ended December 31, 2018, totaled EUR 10 million (twelve months ended December 31, 2017: EUR 0 million net recoveries).
For the twelve months ended December 31, 2018, Aegon recognized EUR 34 million (twelve months ended December 31, 2017: EUR 16 million) in recoveries on previously impaired securities. In each case where a recovery was taken on structured securities, improvements in underlying cash flows for the security were documented and modeling results improved significantly. Recoveries on non-structured securities were supported by documented credit events combined with significant market value improvements.
Debt securities – carried at fair value 108 121 48 277 49 14 28 91
These factors typically require significant management judgment. The impairment review process has resulted in EUR 4 million of impairment charges for the twelve months ended December 31, 2018 (twelve months ended December 31, 2017: EUR 2 million)
As of December 31, 2018, there are EUR 40 million of gross unrealized gains and EUR 20 million of gross unrealized losses in the equity portfolio of Aegon (December 31, 2017: EUR 62 million of gross unrealized gains and EUR 13 million of gross unrealized losses). The table below represents the unrealized gains and losses on share positions held by Aegon Americas and
The composition of shares by industry sector in an unrealized loss position held by Aegon Americas and Aegon the Netherlands at December 31, 2018, and December 31, 2017 is presented in the following table.
Impairment losses on shares The table below provides the length of time the shares held by Aegon Americas and Aegon the Netherlands were below cost prior to their impairment in 2018 and 2017.
The general account equity, real estate and other non-fixed-income portfolio of Aegon is as follows: Equity, real estate and non-fixed income exposure Americas
Holding and other activities Total 2018 1 Common shares in Holding and other activities includes the elimination of treasury shares in the general account for an amount of EUR nil million.
The sensitivity of shareholders' equity and net income to changes in equity markets reflects changes in the market value of Aegon’s portfolio, changes in DPAC amortization, contributions to pension plans for Aegon’s employees and the strengthening of the guaranteed minimum benefits, when applicable. Aegon generally has positive income benefits from equity market increases and negative impacts from equity market declines as it earns fees on policyholder account balances and provides minimum guarantees for account values. Aegon uses options and other equity derivatives to provide protection against the negative impact of equity market declines.
The hedge strategy targets minimal mismatch according to the Aegon economic framework which aligns with Solvency II Own Funds and stabilize Solvency II ratio volatility.
Currency exchange rate risk As an international group, Aegon is subject to foreign currency translation risk. Foreign currency exposure exists mainly when policies are denominated in currencies other than the issuer's functional currency. Currency risk in the investment portfolios backing insurance and investment liabilities is managed using asset liability matching principles. Assets allocated to equity are kept in local currencies to the extent shareholders' equity is required to satisfy regulatory and self-imposed capital requirements. Therefore, currency exchange rate fluctuations will affect the level of shareholders' equity as a result of translation of subsidiaries into euro, the Group's presentation currency. Aegon holds the remainder of its capital base (perpetual capital securities, subordinated and senior debt) in various currencies in amounts that are targeted to correspond to the book value of the country units. This balancing mitigates currency translation impacts on shareholders' equity and leverage ratios. Aegon does not hedge the income streams from the main non-euro units and, as a result, earnings may fluctuate due to currency translation. As Aegon has significant business segments in the Americas and in the United Kingdom, the principal sources of exposure from currency fluctuations are from the differences between the US dollar and the euro and between the UK pound and the euro. Aegon may experience significant changes in net income and shareholders' equity because of these fluctuations.
in the table below: Net income Americas (in USD) 61 1,762 618
The sensitivity analysis in the following table shows an estimate of the effect of movements in the exchange rates of Aegon’s non-euro currencies relative to the euro on net income and shareholders' equity.
Decrease by 15% of non-euro currencies relative to the euro (9) (1,659)
Aegon operates a Liquidity Risk Policy under which country units are obliged to maintain sufficient levels of highly liquid assets to meet cash demands by policyholders and account holders over the next two years. Potential cash demands are assessed under a stress scenario including spikes in disintermediation risk due to rising interest rates and concerns over Aegon’s financial strength due to multiple downgrades of the Group's credit rating. At the same time, the liquidity of assets other than cash and government issues is assumed to be severely impaired for an extended period of time. All legal entities and Aegon Group must maintain enough liquidity in order to meet all cash needs under this extreme scenario.
Total financial liabilities (excluding investment/insurance contracts) 5,849 4,234 8,519 1,854 4,332 24,787
The projected cash benefit payments in the table below are based on management's best estimates of the expected gross benefits
Insurance contracts for account of policyholders - 8,382 35,238 36,455 130,475 210,550
Investment contracts for account of policyholders 234 10,117 23,871 21,202 54,930 110,353 1 The liability amount in the consolidated financial statements reflects the discounting for interest as well as adjustments for the timing of other factors as described above. As a result, the sum of the cash benefit payments shown for all years in the table exceeds the corresponding liability amounts included in notes 36 Insurance contracts and 37 Investments contracts.
Maturity analysis relating to derivatives 1 (Contractual cash flows) On demand
For maturity information on other obligations, please refer to note 48 Commitments and contingencies.
5 Segment information Aegon’s operating segments are based on the businesses as presented in internal reports that are regularly reviewed by the Executive
activities located outside these countries;  Europe: which covers the following operating segments: the Netherlands, United Kingdom, Central & Eastern Europe, Spain & Portugal;  Asia: one operating segment which covers businesses operating in Hong Kong, Singapore, China, Japan, India and Indonesia including any of the units’ activities located outside these countries;  Asset Management: one operating segment which covers business activities from Aegon Asset Management;  Holding and other activities: one operating segment which includes financing, reinsurance activities, employee and other administrative expenses of holding companies.
Performance Measure A non-IFRS-EU performance measure of reporting segments utilized by the Company is underlying earnings before tax. Underlying earnings before tax reflects Aegon’s profit from underlying business operations and mainly excludes components that relate to accounting mismatches that are dependent on market volatility, updates to best estimate actuarial and economic assumptions and model updates or events that are considered outside the normal course of business.
There is no standardized meaning to these measures under IFRS-EU or any other recognized set of accounting standards.
Aegon has changed the measurement of underlying earnings before tax for its real estate investments portfolio held by Aegon the Netherlands. Previously, direct returns on these investments were reported as part of underlying earnings before tax and the fair value movements were reported as part of Fair value items. From January 1, 2018, fair value items include the overor underperformance for the real estate investments of Aegon the Netherlands, for which ‘management’s best estimate’ is included in underlying earnings before tax. In addition, Aegon the Netherlands started to record its management’s best estimate investment return on consumer loan investments (net of expected impairments) in underlying earnings before tax, where previously the gross returns were recorded in underlying earnings before tax and the impairments in the impairment line. All other alternative investments are reported similarly with ‘management’s best estimate investment return’ being included in underlying earnings before tax and the over- or underperformance in Fair value items.
For segment reporting purposes, the impact of this change in measurement on full year 2017 was an increase in Aegon Group consolidated underlying earnings before tax of EUR 37 million and a decrease in fair value items of EUR 61 million and a decrease in impairment charges of EUR 24 million. There is no impact on net income in any of the reporting periods. Comparative numbers have been restated in Aegon’s segment reporting note, enabling a like for like comparison. The presentation of the items in the IFRS income statement remains unchanged and continue to be part of the line ‘Investment income’.
In 2018, a pre-tax charge of EUR 121 million (2017: EUR 276 million charge) has been recorded in other income/(charges)
in respect of assumption changes and model updates. The impact is mainly attributable to Aegon’s business in the Americas and the Netherlands. Assumption changes and model updates in the Americas led to a net negative impact of EUR 6 million, which includes charges of EUR 164 million, mainly driven by Americas Life mortality updates to reflect actual experience, partially offset by gains of EUR 158 million, mainly driven by the positive impact from new expense allocation methodology within Retirement plans and
modelling enhancement in discount curve upon account exhaustion. In the Netherlands, assumption changes and model updates led to a net loss of EUR 111 million, which includes charges of EUR 219 million mainly related to the population mortality best estimate update to reflect latest available data and an improvement in the modelling of policyholder behavior (lapses) and the lowering of IFRS
Fair value items Fair value items include the over- or underperformance of investments and guarantees held at fair value for which management's best estimate investment return is included in underlying earnings before tax.
Certain assets held by Aegon are carried at fair value and managed on a total return basis, with no offsetting changes in the valuation of related liabilities. These include assets such as investments in hedge funds, private equities, real estate (limited partnerships), convertible bonds and structured products. Underlying earnings before tax exclude any over- or underperformance compared to management’s best estimate investment return on assets. Based on current holdings and asset returns, the long-term expected return on an annual basis is 3-10%, depending on asset class, including cash income and market value changes. The expected earnings from these asset classes are net of deferred policy acquisition costs (DPAC) where applicable.
The fair value movements of certain guarantees and the fair value change of derivatives that hedge certain risks on these guarantees of Aegon’s businesses in the Netherlands and Japan are excluded from underlying earnings before tax, because management's best estimate expected return for these guarantees is set at zero. In addition, fair value items include market related results on our loyalty bonus reserves in the United Kingdom. The value of these reserves are directly related to policyholder investments which value is directly impacted by movements in equity and bond markets.
In the Consolidated income statement, these restructuring charges are included in operating expenses. Actuarial assumption and model updates are recorded in 'Policyholder claims and benefits' in the Consolidated income statement.
H ol di ng a nd ot he r ac ti vi ti es
Realized gains/(losses) on investments (204) 46 83 1 (1) 129 (8) 2 4 - (77) (2) (79)
The reconciliation from underlying earnings before tax to income before tax, being the most comparable IFRS-EU measure, is presented in the table below. For those items that cannot be directly reconciled to the respective notes, the explanation is provided below the table.
Elimination of share in earnings of joint ventures and associates 72 61 48
Realized gains and losses on financial investments 10 (92) 431 327
Realized gains and (losses) on repurchased debt 10 1 1 1
Change in valuation of liabilities for insurance contracts 12 (341) (254) (144)
 Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives is reported as part of the respective line in Note 10 and reflects the over- or underperformance of investments and guarantees held at fair value for which the expected long-term return is included in underlying earnings before tax.
 Net foreign currency gains and (losses) are reported as part of the respective line in Note 10.  Change in valuation of liabilities for insurance contracts is reported as part of the respective line in Note 12.  Change in valuation of liabilities for investment contracts is reported as part of the respective line in Note 12.  Policyholder claims and benefits – Other are reported as part of the "Other" line in note 12 and is related to policyholder tax.  Commissions and expenses include: 1) Restructuring charges of EUR 279 million (2017: EUR 116 million charge, 2016: EUR 54 million charge) which are reported as part of Employee and Administration expenses lines in Note 14; 2) Amortization of deferred expenses of EUR 67 million loss (2017: gain of EUR 285 million, 2016: gain of EUR 137 million) which is reported as part of the respective line in Note 14. This is offset against realized gains and losses and impairments on financial investments; 3) Amortization of VOBA and future servicing rights of EUR 20 million loss (2017: gain of EUR 94 million; 2016: charge of EUR 8 million) which is reported as part of the respective line in Note 14. Commissions and expenses include a DPAC/VOBA fair value adjustment of EUR 88 million loss (2017: gain of EUR 135 million; 2016: gain of EUR 105 million).
 Impairment (charges) reversals include: 1) Impairment charges and reversals on financial assets, excluding receivables of EUR 41 million charge (2017: EUR charge of 42 million, 2016: charge of EUR 59 million) as shown in Note 15; 2) Impairment charges and reversals on non-financial assets and receivables of EUR 19 million loss (2017: EUR 1 million gain; 2016: EUR 38 million charge) reported as part of the respective line in Note 15.
Amortization of deferred expenses, VOBA and future servicing rights 336 27 134 55 - 217 33 - - - 586
Impairment charges/(reversals) on financial assets, excluding receivables 19 17 - 2 - 19 - - 3 - 42
Of which Aegon’s share of employees in joint ventures and associates 549 - - - 83 83 5,702 163 - 6,497
Off-balance sheet investments third parties 204,184 3,339 106,347 5,360 491 115,537 2,818 149,197 - (774) 470,963
Financial assets at fair value through profit or loss 100,002 26,846 74,001 1,101 99 102,047 121 50 123 (5) 202,339
Off-balance sheet investments third parties 212,736 1,759 114,906 5,709 528 122,902 2,718 143,923 - (981) 481,297
Total premiums paid to reinsurers 2,663 3,431 3,176 - Accident and health insurance 152 205 238
The decrease of EUR 714 million in Premium paid to reinsurers Life in 2018 is mainly due to the divestment of annuity businesses in Americas and the United Kingdom which occurred in 2017.
Included in interest income is EUR 160 million (2017: EUR 190 million; 2016: EUR 230 million) in respect of interest income accrued on impaired financial assets. The interest income on financial assets that are not carried at fair value through profit or loss amounted to EUR 4,811 million (2017: EUR 5,056 million; 2016: EUR 5,642 million).
transfers of the annuity portfolios in the UK in 2017. Refer to note 51 Business combinations for more details on these transactions.
Gains and (losses) on investments in real estate 261 193 70
Net fair value change on investments in real estate for account of policyholders 5 38 (26)
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives comprise: 2018 2017 2016
Net fair value change on economic hedges where no hedge accounting is applied 317 (63) 969
Net fair value change on bifurcated embedded derivatives (824) (1,231) (565)
Ineffective portion of hedge transactions to which hedge accounting is applied (7) (7) 31
The ineffective portion of hedge transactions to which hedge accounting is applied comprises: 2018 2017 2016
Fair value change on hedging instruments in a fair value hedge (31) 121 (204)
Net fair value change on borrowings and other financial liabilities 2018 2017 2016
Meeùs Groep. Furthermore, a release of an expense reserve of EUR 82 million (GBP 71 million) was recorded that was embedded
Change in valuation of liabilities for investment contracts (8,143) (2,644) (104)
Policyholder claims and benefits includes claims and benefits in excess of account value for products for which deposit accounting is applied and the change in valuation of liabilities for insurance and investment contracts. The lines ''Change in valuation of liabilities for insurance contracts'' and ''Change in valuation of liabilities for investment contracts'' reflect movements in technical provisions resulting from "Net fair value change on for account of policyholder financial assets at fair value through profit or loss" included in note 10 Results from financial transactions of EUR 11,326 million negative (2017: EUR 20,524 million positive, 2016: EUR 15,121 million positive). In addition, the line ''Change in valuation of liabilities for insurance contracts'' includes an increase of technical provisions for life insurance contracts of EUR 1,403 million (2017: increase of EUR 601 million, 2016: increase of EUR 2,349 million).
Profit appropriated to policyholders 21 21 45 14 Commissions and expenses
The minimum lease payments recognized as expense for both 2017 and 2016 have been adjusted to conform to the current year presentation as certain amounts were previously not included in the narrative in this note. These adjusted amounts are not considered material as these adjustments had no effect on net income, shareholders’ equity and earnings per share, nor on the total of commissions and expenses of EUR 5,925 reported in 2017 and EUR 6,351 reported in 2016.
An amount of EUR 44 million is included in employee expenses relating to defined contributions (2017: EUR 46 million; 2016: EUR 46 million).
Once allocated, the shares are subject to a vesting period of two years from the moment of allocation. In specific circumstances
Variable Compensation Identified Staff Members of the Executive Board and the Management Board as well as other senior employees are classified as 'Identified Staff'
in accordance with the applicable rules and guidance from the relevant supervisory authorities. Of these, the Dutch 2015 Act on compensation in the financial sector (Wet beloningsbeleid financiële ondernemingen Wft) and the Dutch 2014 Decree on sound remuneration policy (Regeling beheerst beloningsbeleid 2014) are prominent examples. In line with these rules, variable compensation awards for Identified Staff is partially paid out and partly deferred and split into cash and Aegon shares. The shares are conditionally granted at the start of the performance year. The grant price of these shares is equal to the volume weighted average price (VWAP)
The shares may be subject to an additional holding period up to three years after vesting. For the Members of the Executive Board and the members of the Management Board, who are based in the Netherlands, this holding period is three years. During this holding period it is not allowed to sell the vested shares, with the exception of shares withheld or sold to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the Company holds a withholding obligation in connection with the vesting of the shares. In specific circumstances Aegon’s Supervisory Board will reclaim variable compensation that has already vested (claw back).
The following overview contains the cumulative number of shares and their status in relation to active Long Term Incentive Plans and allocated variable compensation to Identified Staff.
Average share price used for grant in EUR 3 6.739 6.106 5.128 5.246 5.405
Impairment reversals on financial assets, excluding receivables, from: 2018 2017 2016
The interest charges accrued on financial assets and liabilities that are not carried at fair value through profit or loss amounted to EUR 143 million (2017: EUR 162 million; 2016: EUR 176 million).
Aegon continues to hold a provision for these policyholders. The charge to the income statement for 2018 was USD 166 million
Other charges include a loss of USD 110 million (EUR 93 million) related to the divestment of the last substantial block of its life reinsurance business to SCOR Global Life. Under the terms of the agreement, Aegon’s Transamerica life subsidiaries reinsured approximately USD 700 million of liabilities through SCOR Global Life. The transaction covered the last substantial block of life reinsurance business that Transamerica retained after it divested the vast majority of its reinsurance business to SCOR Global Life
Other charges in 2017 of EUR 235 million mainly relate to the book loss of EUR 105 million (USD 119 million) regarding the divestment of a block of life reinsurance business in the Americas and a charge of EUR 85 million (USD 100 million), regarding a provision in anticipation of a possible settlement in connection with an investigation by the SEC, refer to Note 48 Commitments and contingencies. In addition, an impairment of deferred transaction costs of EUR 36 million (GBP 32 million) was recorded as a result of the agreed sale of Aegon Ireland plc. For more details on the divestment of a block of US reinsurance run off business and Aegon
Difference due to the effects of: Non-taxable income (78) (155) (128)
Non-taxable income in 2018 is lower compared to previous years because of the decrease of the US corporate income tax rate from 35% to 21% as from January 1, 2018. Non-taxable income in 2017 includes the tax exempt sale proceeds of the Dutch Unirobe
OCI to the income statement against a lower statutory tax rate in 2016. The difference caused a negative impact in changes in tax rate/base.
to 9% as from January 1, 2017. The minor impact of this tax rate change was included in the 2016 change in tax rate/base.
Gains/losses transferred to the income statement on disposal and impairment of available-for-
Movement in foreign currency translation and net foreign investment hedging reserve (20) 76 (39)
0.00375. After taking the interim dividend 2018 of EUR 0.0035 per common share B into account, this will result in a total 2018 dividend of EUR 0.00725 per common share B.
To neutralize the dilutive effect of the 2018 interim dividend paid in shares, Aegon executed a program to repurchase 24,133,950 common shares. Between October 1, 2018, and November 9, 2018, these common shares were repurchased at an average price of EUR 5.43 per share. These shares will be held as treasury shares and will be used to cover future stock dividends.
Final dividend 2017 The Annual General Meeting of Shareholders on May 18, 2018, approved a final dividend over the year 2017 of EUR 0.14 per common share payable in either cash or stock, related to the second half of 2017. Approximately 58% of holders of common shares elected to receive the cash dividend. The remaining 42% have opted for stock dividend. The final dividend was payable as of June 22, 2018.
EUR 6.2 billion (2017: EUR 7.0 billion) of cash collateral is received related to securities lending, repurchase agreements and margins on derivatives transactions. A corresponding liability to repay the cash is recognized in other liabilities (refer to note 44 Other liabilities).
For the purposes of the cash flow statement, cash and cash equivalents comprise the following: Cash and cash equivalents 8,744 10,768 11,347
The interest received on this deposit is equal to the ECB deposit rate (which was -40bp throughout 2017 and 2018). The year-end minimum required balance on deposit by the Dutch Central Bank was EUR 70 million (2017: EUR 67 million). These deposits are therefore not freely available.
Net cash and cash equivalents at December 31, 2018, are positively impacted by effects of changes in exchange rates of EUR 35 million (2017: EUR 196 million negative; 2016: EUR 23 million negative).
The decrease is a result of proceeds and repayments of borrowings (refer to the following table and note 39 Borrowings) and other equity instruments redeemed (refer to note 33 Other equity instruments).
Net cash flows from financing activities increased by EUR 984 million to a EUR 519 million inflow (2016: EUR 465 million outflow).
M ov em en ts re la te d to f ai r va lu e he dg es
23 Investments Investments for general account comprise financial assets, excluding derivatives, as well as investments in real estate.
Financial assets at fair value through profit or loss (FVTPL) 8,597 7,119
Total investments for general account 139,024 137,172 23.1 Financial assets, excluding derivatives
Of the debt securities, money market and other short-term investments, mortgage loans and private loans EUR 13,324 million is current (2017: EUR 13,784 million).
99% of the value of Aegon’s properties, both for general account and for account of policyholders, were appraised (2017: 95%), of which 98% was performed by independent external appraisers (2017: 99%).
Aegon the Netherlands has invested in long-term residential property leases that can be terminated subject to a short-term notice.
Transfers from other headings in 2017 mainly reflect the properties that were foreclosed during the year. The associated mortgage loans were previously reported as part of investments.
1 A Part VII transfer is a court-sanctioned legal transfer of some or all of the policies of one company to another governed by Part VII of the UK Financial Services and Markets Act 2000.
Total investments for account of policyholders at fair value through profit or loss, excluding derivatives 193,741 193,409
Refer to note 47 Fair value for a summary of all financial assets and financial liabilities at fair value through profit or loss.
Rental income of EUR 47 million (2017: EUR 50 million; 2016: EUR 60 million) is reported as part of investment income in the income statement. Direct operating expenses relating to investments in real estate for account of policyholder amounted to EUR 4 million in 2018 (2017: EUR 4 million, 2016: EUR 5 million). There are no restrictions on the realizability of investment property or the remittance of income and proceeds of disposal.
Refer to note 48 Commitments and contingencies for a summary of contractual obligations to purchase investment property.
Of the derivatives EUR 1,643 million (2017: EUR 495 million) and EUR 1,886 million (2017: EUR 949 million) are current derivative assets and liabilities respectively.
Aegon the Netherlands partially hedges the risk of future longevity increases in the Netherlands related to a part of its insurance liabilities. These longevity derivatives are constructed to pay out if the mortality rates in future years have decreased more than a predetermined percentage compared with the base scenario at the moment of signing the contract.
Use of derivatives Derivatives not designated in a hedge – general account
Derivatives not designated in a hedge – general account 2018 2017 2018 2017
Certain derivatives are used to add risk by selling protection in the form of single name and index based credit default swaps.This involves the purchase of high quality, low risk assets and the sale of credit derivatives. The table above provides a breakdown in credit quality of these credit derivatives.
Derivatives designated as cash flow hedges Aegon has entered primarily into interest rate swap agreements that effectively convert certain variable-rate assets and liabilities to a fixed-rate basis in order to match the cash flows of the assets and liabilities within Aegon’s portfolio more closely. These agreements involve the payment or receipt of variable-rate interest amounts in exchange for fixed-rate interest amounts over the life of the agreement without the exchange of the underlying principal amounts. Aegon hedges its exposure to the variability of future cash flows from the interest rate movements for terms up to 27 years for hedges converting existing floating-rate assets and liabilities to fixed-rate assets.
Aegon uses forward starting interest rate swap agreements to hedge the variability in future cash flows associated with the forecasted purchase of fixed-income assets. These agreements reduce the impact of future interest rate changes on the forecasted transaction.
Fair value adjustments for these interest rate swaps are deferred and recorded in equity until the occurrence of the forecasted transaction at which time the interest rate swaps will be terminated. The accumulated gain or loss in equity will be amortized into investment income as the acquired asset affects income. Aegon hedges its exposure to the variability of future cash flows from interest rate movements for terms up to 25 years. The cash flows from these hedging instruments are expected to affect the profit and loss for approximately the next 34 years. For the year ended December 31, 2018, the contracts for which cash flow hedge accounting was terminated resulted in deferred gains of EUR 57 million (2017: EUR 598 million) that are recognized directly in equity to be reclassified into net income during the period when the cash flows occur of the underlying hedged items. During the year ended December 31, 2017, EUR 248 million of Aegon’s cash flow hedges were discontinued, due to the divestment of the payout annuity and BOLI/COLI
business. Refer to note 51 Business combinations for more details regarding this investment. Outside of this transaction no other of Aegon’s cash flow hedges were discontinued as it was highly probable that the original forecasted transactions would occur by the end of the originally specified time period documented at the inception of the hedging relationship. Aegon projects investment needs many years into the future in order to support the insurance liabilities and pay all contractual obligations arising from the policies in force today.
The periods when the cash flows are expected to occur are as follows: < 1 year 1 – 5 years 5 – 10 years > 10 years 2018 Total
Kingdom are funded in euros. When the debt funding of investments is not in the functional currency of the investment, Aegon uses derivatives to swap the currency exposure of the debt instrument to the appropriate functional currency. This policy will ensure that total capital will reflect currency movements without distorting debt to shareholders’ equity ratios. Aegon utilizes various financial instruments as designated hedging instruments of its foreign investments. These instruments include long-term and short-term borrowings, short-term debts to credit institutions, cross currency swap contracts and forward foreign exchange contracts.
Share in changes in joint ventures equity (note 32.6) 8 (15)
Current financial liabilities excluding trade payables and other provisions - - 27 30
Non-current financial liabilities excluding trade payables and other provisions 590 643 416 220
The difference in the carrying value of investments in joint ventures of EUR 1,745 million (2017: EUR 1,712 million) and the total of the carrying value of joint ventures presented above of EUR 1,729 million (2017: EUR 1,693 million) relates to joint ventures with a negative carrying value of EUR 16 million (2017: EUR 18 million) which have been reclassified to Provisions.
Post-tax profit or loss 144 126 66 35 27 Investments in associates
All associates are unlisted and are accounted for using the equity method and are considered to be non-current. The investments in associates include interest in insurance companies that are required to maintain a minimum solvency margin based on local directives. Such restrictions can affect the ability of these associates to transfer funds in the form of cash dividends, or repayment of loans or advances, and therefore, there can be no assurance that these restrictions will not become a limitation in the future. There are no unrecognized shares of losses in associates. The financial statements of the principal associates have the same reporting date as the Group. Refer to note 52 Group companies for a listing of the investments in associates and the Group’s percentage holding.
Gross premium and deposits – existing and new business 84 99
General account real estate held for own use are mainly held by Aegon USA and Aegon the Netherlands, with relatively smaller holdings at Aegon UK, Aegon Hungary and Aegon Spain. The carrying value under a historical cost model amounted to EUR 301 million
57% of the value of the general account real estate held for own use was last revalued in 2018 (2017: 30%), based on market value appraisals by qualified internal and external appraisers. The increase is mainly related to positive revaluations in the Dutch real estate markets. 99% of the appraisals in 2018 were performed by independent external appraisers (2017: 95%).
Depreciation expenses are recorded in Commissions and expenses in the income statement. The useful lives of buildings range between 40 and 50 years.
None of the equipment is held for lease (2017: none). Equipment has not been pledged as security for liabilities, nor are there any restrictions on title. Depreciation expenses have been recorded in Commissions and expenses in the income statement. Equipment is generally depreciated over a period of three to five years.
With the exception of receivables from reinsurers, the receivables balances presented above are mostly not externally rated.
Of accrued income EUR 1,421 million is current (2017: EUR 1,364 million).
With the exception of goodwill, all intangible assets have a finite useful life and are amortized accordingly. VOBA and future servicing rights are amortized over the term of the related insurance contracts, which can vary significantly depending on the maturity of the acquired portfolio. VOBA currently recognized is amortized over an average period of 24 years, with an average remaining amortization period of 7 years (2017: 7 years). Future servicing rights are amortized over an average period up to 30 years, of which 13 years remain at December 31, 2018 (2017: 14 years). Software is generally depreciated over an average period of 5 years.
VOBA The movement in VOBA over 2018 can be summarized and compared to 2017 as follows: Amortization/depreciation through income statement (135) (63)
Share capital transactions relating to common shares A 2018 2017 2016
Share buyback program (final dividend 2016 and interim dividend 2017) 51,865
of issuance) to mitigate dilution caused the issuance of shares on May 18, 2018, in connection with the Long Term Incentive Plans for senior management.
In addition to the transactions presented above, in May 2017, Aegon issued a total of 1,979,260 common shares B with a par value of EUR 0.12 to compensate for the dilution of Vereniging Aegon’s shareholding caused by the allocation of shares with senior management on May 19, 2017, in connection with the Long Term Incentive Plans for senior management.
B respectively, to keep the voting rights of Vereniging Aegon on the agreed level.
Under the terms of the 1983 Amended Merger Agreement, dated May 2013, Vereniging Aegon has a call option relating to common shares B. Vereniging Aegon may exercise its call option at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to keep or restore its total stake at 32.6%, irrespective of the circumstances which cause the total shareholding to be or become lower than 32.6%.
Transactions in 2016: Purchase: transactions, average price EUR 0.11 17,325 2
USD 500 million floating CMS rate 2 Quarterly, July 15 2019 402 402 402
EUR 950 million floating DSL rate 3 Quarterly, July 15 2019 950 950 950
EUR 200 million 6.0% Annually, July 21 Called in 1 The coupon of the USD 250 million junior perpetual capital securities is reset each quarter based on the then prevailing three-month LIBOR yield plus a spread of 87.5 basis points, with a minimum of 4%. 2 The coupon of the USD 500 million junior perpetual capital securities is reset each quarter based on the then prevailing ten-year US dollar interest rate swap yield plus a spread of ten basis points, with a maximum of 8.5%. 3 The coupon of the EUR 950 million junior perpetual capital securities is reset each quarter based on the then prevailing ten-year Dutch government bond yield plus a spread of ten basis points, with a maximum of 8%.
The securities have been issued at par. The securities have subordination provisions, rank junior to all other liabilities and senior to shareholders' equity only. The conditions of the securities contain certain provisions for optional and required coupon payment deferral and, in situations under Aegon’s control, mandatory coupon payment events. Although the securities have no stated maturity,
Perpetual cumulative subordinated bonds Coupon rate Coupon date Year of 1 The coupon of the EUR 203 million bonds was originally set at 7.125% until March 4, 2011. Subsequently, the coupon has been reset at 4.26% until March 4, 2021. 2 The coupon of the EUR 114 million bonds was originally set at 8% until June 8, 2005. Subsequently, the coupon has been reset at 4.156% until June 8, 2015 and 1.506% until June 8, 2025.
USD 525 million 8% Quarterly, February 15 Called in 2018 - 271 271
With effect on May 15, 2018, Aegon has exercised its right to redeem USD 525 million non-cumulative subordinated notes, subsequently leading to their redemption. The securities had a stated maturity of 30 years, however, Aegon had the right to call the securities for redemption at par on any coupon payment date.
The securities were subordinated and rank senior to the junior perpetual capital securities, equally with the perpetual cumulative subordinated bonds and fixed floating subordinated notes, and junior to all other liabilities. The conditions of the securities contained certain provisions for optional and required cancellation of interest payments.
Prior to redemption, the equity component had a book value of EUR 271 million (2017: EUR 271 million), subordinated borrowings amounted to EUR 68 million (2017: EUR 69 million) and a deferred tax liability amounting to EUR 89 million (2017: EUR 92 million).
Non-cumulative subordinated notes USD 525 million 8% Quarterly, February 15 Called in 2018 - 69
For further information on the non-cumulative subordinated notes, their subordination and redemption refer to note 33 Other equity instruments.
USD 225 million 1 7.65% Semi-annually, December 1 1996 2026 n.a. 90 91
USD 190 million 1 7.625% Semi-annually, November 15 1997 2037 n.a. 43 41 1 Issued by a subsidiary of, and guaranteed by Aegon N.V.
36 Insurance contracts 36.1 Underwriting risk Aegon’s earnings depend significantly upon the extent to which actual claims experience differs from the assumptions used in setting the prices for products and establishing the technical liabilities and liabilities for claims. To the extent that actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, income would be reduced. Furthermore, if these higher claims were part of a permanent trend, Aegon may be required to change best estimate assumptions for future claims which could increase the required reserves for these future claims, which could reduce income. In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force have been recorded as assets on the statement of financial position and are being amortized into the income statement over time. If the assumptions relating to the future profitability of these policies (such as future claims, investment income and expenses) are not realized, the amortization of these costs could be accelerated and may even require write offs should there be an expectation of unrecoverability. This could have a materially adverse effect on Aegon’s business, results of operations and financial condition.
a view to maintain a balance between policyholder and shareholder interests. Aegon also has the ability to reduce expense levels over time, thus mitigating unfavorable expense variation.
Sensitivity analysis of net income and shareholders’ equity to various underwriting risks is shown in the table that follows. Aegon’s best estimate assumptions already include expected future developments and the sensitivities represent an increase or decrease of lapse rates, mortality rates and morbidity rates, compared to Aegon’s best estimate assumptions. These underwriting sensitivities were run using a permanent shock applied to all of Aegon’s products, exposed to an increase and to a decrease in the rates. The table below indicates that the mortality sensitivity has the largest impact and in aggregate, Aegon is exposed to a decrease in mortality rates.
Aegon the Netherlands partially hedges the risk of future longevity increases in the Netherlands related to a part of its insurance liabilities. Aegon the Netherlands hedges this risk via both longevity index derivatives and reinsurance contracts.
Gross premium and deposits – existing and new business 9,716 12,144
transfer on July 1, 2018, in the UK. This transaction has transferred into the Group’s portfolio GBP 16.3 billion (EUR 18.4 billion) unit linked defined contribution assets and liabilities. Refer to note 24 Investments for account of policyholders for the impact on assets.
38 Guarantees in insurance contracts For financial reporting purposes Aegon distinguishes between the following types of minimum guarantees: a. Financial guarantees: these guarantees are treated as bifurcated embedded derivatives, valued at fair value and presented as derivatives (refer to note 2.9 and note 47 Fair value); b. Total return annuities: these guarantees are not bifurcated from their host contracts because they are presented and valued at fair value together with the underlying insurance contracts (refer to note 2.19); c. Life contingent guarantees in the United States: these guarantees are not bifurcated from their host contracts, presented and valued in accordance with insurance accounting together with the underlying insurance contracts (refer to note 2.19); and d. Minimum investment return guarantees in the Netherlands: these guarantees are not bifurcated from their host contracts, valued at fair value and presented together with the underlying insurance contracts (refer to note 2.19 and note 47 Fair value).
The following table provides information on the liabilities for financial guarantees for minimum benefits, net of present value of the expected future premiums that are received to cover these guarantees: United States 1
2 Fund plan and unit-linked guarantees. 3 Balances are included in the derivatives liabilities on the face of the statement of financial position; refer to note 25 Derivatives. 4 Incurred guarantee benefits mainly comprise the effect of guarantees from new contracts, releases related to expired out-of-the-money guarantees and fair value movements during the reporting year.
The increase of incurred guarantee benefits mainly relates to declines in equity markets in 2018. This also lowered the account value and increased the amount at risk.
The GMWB rider Aegon assumed from the ceding company is accounted for as a derivative and is carried in Aegon’s statement of financial position at fair value. At December 31, 2018, the contract had a value of EUR 36 million (2017: EUR 34 million).
Aegon entered into a derivative program to mitigate the overall exposure to equity market and interest rate risks associated with the reinsurance contract. This program involves selling equity futures contracts and equity total return swap contracts (S&P 500,
The fixed annuities product balance as of December 31, 2018, amounted to EUR 243 million (2017: EUR 270 million).
The guaranteed amount is calculated using the total deposits made by the contract holder, less any withdrawals and sometimes includes a roll-up or step-up feature that increases the value of the guarantee with interest or with increases in the account value.
Average attained age of contract holders 70 71 69 70 1 Guaranteed minimum death benefit in the United States.
Net amount at risk 5 4,933 4,440 1 Guaranteed minimum investment return in the Netherlands.
These assumptions are reviewed at each valuation date, and updated based on historical experience and observable market data, including market transactions such as acquisitions and reinsurance transactions. Disclosure on interest rate risk, including interest rate risk sensitivity is included in note 4 Financial risks.
EUR 500 million Unsecured Notes 0% August 30 2017/18 - 500
EUR 75 million Medium-Term Notes 1 4.625% December 9 2004/19 78 82
USD 500 million Senior Notes 1, 2 5.75% Semi-annually 2005/20 457 455
During 2017, the operational funding increased EUR 0.6 billion due to new FHLB advances of EUR 1.3 billion and two covered bond issuances in the Netherlands of EUR 0.5 billion in June and November 2017. This was partly offset by the redemption of 'SAECURE
Revolving Loan Facility Warehouse Mortgage Loans 1 Floating Monthly -/2018-20 375 729
EUR 1,123 million "SAECURE 13" RMBS Note 1, 2 Floating Quarterly 2013/18 - 750
EUR 1,367 million "SAECURE 14" RMBS Note 1, 3 Floating Quarterly 2014/19 874 994
2 The Notes were called for redemption on the first optional redemption date (February 28, 2018) 3 The first optional redemption date is January 30, 2019; the final maturity date is January 30, 2092. Notes are fully collateralized by mortgage loans which are part of Aegon’s general account investments.
Other Included in borrowings is EUR 536 million relating to borrowings measured at fair value (2017: EUR 536 million). For the year 2018,
Aegon’s credit spread had a positive impact of EUR 1 million on income before tax (2017: negative impact of EUR 15 million) and a negative impact of EUR 3 million on shareholders’ equity (2017: negative impact of EUR 10 million). The cumulative negative impact of Aegon’s credit spread for borrowings in portfolio at year-end, based on observable market data, on income before tax amounted to EUR 26 million (2017: EUR 27 million).
Floating-rate - Expiring within one year 260 197 - Expiring beyond one year 3,420 3,170
The provisions as at December 31, 2018 mainly consist of litigation provisions of EUR 198 million (2017: EUR 92 million)
mainly related to a settlement in the US relating to increases in monthly deduction rates on universal life products, refer to note 48 Commitments and contingencies, restructuring provisions of EUR 30 million (2017: EUR 27 million), provisions regarding fees payable upon purchase and surrender of unit-linked policies in the Polish Life Insurance portfolio of EUR 17 million
Present value of wholly unfunded obligations 1 3,212 275 3,487 2,890 293 3,183 1 As all pension obligations are insured at subsidiary Aegon Levensverzekering almost all assets held by Aegon Nederland backing retirement benefits of EUR
2,568 million (2017: EUR 2,457 million) do not meet the definition of plan assets and as such were not deducted in calculating this amount. Instead, these assets are recognized as general account assets. Consequently, the return on these assets does not form part of the calculation of defined benefit expenses.
The fair value of Aegon’s own transferable financial instruments included in plan assets and the fair value of other assets used by Aegon included in plan assets was nil in both 2018 and 2017.
Defined benefit expenses are included in 'Commissions and expenses' in the income statement.
Movements during the year of the present value of the defined benefit obligations 2018 2017
Remeasurements of the defined benefit obligations: - Actuarial gains and losses arising from changes in demographic assumptions (28) 30 - Actuarial gains and losses arising from changes in financial assumptions (102) 29
Transamerica Corporation made a pension plan contribution of EUR 190 million in September 2018 (EUR 89 million in September 2017) that was over and above the minimum required funding levels as set forth by the Internal Revenue Code.
USA has the fiduciary obligation to interpret the provisions of the plans, and to comply with any statutory reporting and disclosure requirements. Finally, Aegon USA reviews the terms of the plans and makes changes to the plans if and when appropriate. Aegon
Health care trend rate 7.00% 7.40% 1 U.S. Society of Actuaries RP2014 mortality table with Scale MP2018. 2 U.S. Society of Actuaries RP2014 mortality table with Scale MP2017. 3 Aegon USA has separate discount rates beginning with 2018 – 4.22% for all pension plans and 4.05% for post retirement welfare plan.
The principal actuarial assumptions have an effect on the amounts reported for the defined benefit obligation. A change as indicated in the table below in the principal actuarial assumptions would have the following effects on the defined benefit obligation per year-end: 1 Aegon Nederland deducts employee contributions from the total pension expenses.
Furthermore, the specific statutory requirements governing the administration of group pension schemes have been laid down in the Pension Act (Pensioenwet/Pw). Insurers are subject to prudential supervision pursuant to the Financial Supervision Act (Wet op het financieel toezicht/Wft).
The contributions to the retirement benefit plan of Aegon the Netherlands are paid by both the employees and the employer, with the employer contribution being variable1. The benefits covered are retirement benefits, disability, death and survivor pension and are based on an average wage system. The defined benefit plans were unfunded by EUR 2,967 million at December 31, 2018. (2017: Integrated Annual Report 2018 CONTENTS
as defined by IFRS. The average remaining duration of the defined benefits obligation is 20.9 years (2017: 19.6 years).
Aegon the Netherlands also has a post-retirement medical plan that contributes to the health care coverage of employees and beneficiaries after retirement. For this plan, Aegon the Nederlands has the responsibility to administer the plan in accordance with its terms, and decides on questions related to eligibility and determines plan provisions and benefit amounts. In addition, Aegon the Nederlands has the obligation to interpret the provisions of the plans, and to comply with any statutory reporting and disclosure requirements. Finally, Aegon the Nederlands reviews the terms of the plans and makes changes to the plans if and when appropriate.
The principal actuarial assumptions that apply for the year-ended December 31 are as follows: Actuarial assumptions used to determine defined benefit obligations at year-end 2018 2017
Indexation 3 57.75% of Curve 2018 44.10% of Curve 2017 1 Based on prospective mortality table of the Dutch Actuarial Society with minor methodology adjustments. 2 Based on Dutch Consumer Price Index. 3 Based on Dutch Consumer Price Index.
The pension scheme is administered separately from Aegon UK and is governed by Trustees, who are required to act in the best interests of the pension scheme members.
The weighted average duration of the defined benefit obligation is 21.6 years (2017: 23.1 years).
The principal actuarial assumptions that apply for the year ended December 31 are as follows: Actuarial assumptions used to determine defined benefit obligations at year-end 2018 2017
Price inflation 3.32% 3.29% 1 Club Vita tables based on analysis of Scheme membership CMI 2017 1.5%/1.25% p.a. (males/females) 2 Club Vita tables based on analysis of Scheme membership CMI 2014 1.5%/1.25% p.a. (males/females)
with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognized within the statement of financial position.
Target allocation of plan assets for retirement benefit plans for the next annual period is: Equity instruments 33%
Transfer to current income tax - - - - - - - -
In 2018, the decrease of deferred tax liability primarily related to a decrease of unrealised profits in respect of financial assets mainly driven by an increase of interest rates and widening credit spread.
The movement in other of EUR 90 million is caused by the redemption of the non-cumulative subordinated note. Refer to note 33
The transfer to current income tax in 2017 relates to transfers from deferred to current tax, in relation to own equity instruments.
Deferred corporate income tax assets are recognized for tax losses carried forward to the extent that the realization of the related tax benefit through future taxable profits is probable. For an amount of gross EUR 26 million; tax EUR 6 million (2017: gross
Deferred corporate income tax assets in respect of deductible temporary differences are recognized to the extent that the realization of the related tax benefit through future taxable profits is probable. For an amount of gross EUR 162 million; tax EUR 29 million
The carrying amounts disclosed reasonably approximate the fair values as at the year-end.
46 Capital management and solvency Strategic importance Aegon’s approach towards capital management plays a vital role in supporting the execution of its strategy. The key capital management priority is to ensure adequate capitalization to cover Aegon’s obligations towards its policyholders and debtholders while providing sustainable dividends to shareholders. This priority is accomplished by allocating capital to products that offer high growth and return prospects. Furthermore, a priority for capital management for several years has been to shift the product portfolio from focusing mostly on capital intensive spread business to diversifying the portfolio to include more capital light fee business.
Capital adequacy The capitalization of the Aegon Group and its operating units is managed in relation to the most stringent of local regulatory requirements, rating agency requirements and/or self-imposed criteria. Aegon manages its Solvency II capital in relation to the required capital. Under Aegon’s capital management framework the own funds are managed such that the Group Solvency II ratio remains within the target range of 150% – 200% even in an adverse event. The Solvency contribution of Aegon US insurance entities under Deducation & Aggregation (D&A) involves converting 150% Risk-Based Capital Company Action Level into Solvency Required
(MCR). An irreparable breach of the MCR would lead to a withdrawal of the Company's insurance license. Similarly, for the US insurance entities the withdrawal of the insurance license is triggered by a breach of the 100% Authorized Control Level (ACL), which is set at 50% of the Company Action Level (CAL).
The below table provides the composition of Aegon’s available own funds across Tiers: Available own funds December 31, 2018 Available own funds
As at December 31, 2018, Tier 1 capital accounted for 89% of own funds (2017: 89%), including EUR 2,931 million of junior perpetual capital securities (2017: EUR 3,047 million) and EUR 476 million of perpetual cumulative subordinated bonds (2017: EUR 493 million)
IFRS-EU equity compares to Solvency II own funds as follows: Shareholders' Equity 19,543 20,573
IFRS adjustments for Other Equity instruments and non controlling interests 3,342 3,813
Available own funds 17,602 15,628 1 The 2017 comparative numbers have been updated for a change of the presentation for the subordinated debt 2 This includes the transferability restriction related to the RBC CAL conversion methodology. 3 Amongst others, this contains the exclusion of Aegon Bank.
Availability adjustments have increased by the same amount as available own funds have not changed by this change in presentation. The movement of subordinated liabilities mainly stem from the redemption of non-cumulative subordinated notes
Finally, the fungibility restrictions limit the availability of own funds on Aegon Group level as prescribed by Supervisory Authorities.
The following table shows the composition of Aegon’s total capitalization, the calculation of the gross financial leverage ratio and its fixed charge coverage: Total shareholders’ equity – based on IFRS as adopted by the EU 32 19,543 20,573
Fixed Charge Coverage 8.2x 8.2x 1 Other equity instruments that are denominated in foreign currencies are, for purpose of calculating hybrid leverage, revalued to the period-end exchange rate. 2 Non-controlling interests are disclosed in the statement of financial position. 3 Senior debt for the gross financial leverage calculation also contains swaps for an amount of EUR (1) million (2017: EUR 31 million). 4 To align closer to definitions used by peers and rating agencies, Aegon has retrospectively changed the definition of adjusted shareholders’ equity used in calculating the gross financial leverage ratio. Shareholders’ equity will no longer be adjusted for the remeasurement of defined benefit plans. All figures, including comparatives, are based on the new definition, unless stated otherwise.
Aegon N.V. is subject to legal restrictions with regard to the amount of dividends it can pay to its shareholders. Under Dutch law, the amount that is available to pay dividends consists of total shareholders' equity less the issued and outstanding capital and the reserves required by law. The revaluation account and legal reserves, foreign currency translation reserve (FCTR) and other reserves, cannot be freely distributed. In case of negative balances for individual reserves legally to be retained, no distributions can be made out of retained earnings to the level of these negative amounts. Total distributable items under Dutch law amounted to EUR 13,307 million as at December 31, 2018 (2017: EUR 13,749 million). The following table shows the composition of the total distributable items: Equity attributable to shareholders 19,543 20,573
Fair value hierarchy The table below provides an analysis of assets and liabilities recorded at fair value on a recurring basis by level of the fair value hierarchy: Level I Level II Level III Total 2018
Liabilities carried at fair value Investment contracts for account of policyholders 2 - 49,641 206 49,847
D is po sa l o f a bu si ne ss
Other investments at fair value 1,255 - - 11 - 332 (307) - 64 - 94 (72) - 1,376 3
Investments for account of policyholders 1,784 130 - 76 - 537 (660) - 3 - - - - 1,871 35
Total assets at fair value 9,130 130 (1) 435 (87) 2,570 (1,624) (472) 185 42 151 (382) - 10,077 388
Liabilities carried at fair value Investment contracts 2,064 - - 604 - 7 (14) - 35 - - - - 2,695 614 1 Includes impairments and movements related to fair value hedges. Gains and losses are recorded in the line item Results from financial transactions of the income statement.
To ta l g ai ns /l os se s in in co m e st at em en t 1
To ta l g ai ns /l os se s in
To ta l u nr ea liz ed g ai ns a nd
fo r t he p er io d re co rd ed in th e P&
Investments in real estate for policyholders 686 38 - 10 (53) - (26) - - - - 655 38
2 Total gains and losses are recorded in line items: Gains/(losses) on revaluation of available-for-sale investments, (Gains)/losses transferred to the income statement on disposal and impairment of available-for-sale investments and Changes in revaluation reserve real estate held for own use of the statement of other comprehensive income.
During 2018, Aegon transferred certain financial instruments from Level II to Level III of the fair value hierarchy. The reason for the change in level was that the market liquidity for these securities decreased, which led to a change in market observability of prices.
Similarly, during 2018, Aegon transferred EUR 382 million (2017: EUR 454 million) of financial instruments from Level III to other levels of the fair value hierarchy. The change in level was mainly the result of a return of activity in the market for these securities and that for these securities the fair value could be determined using observable market transactions or corroborated broker quotes for the same or similar instruments.
Available-for-sale Shares Net asset value 3 n.a. 205 n.a. 231 n.a.
Tax credit investments Discounted cash flow Discount rate 435 6.8% 528 5.8%
Fair value through profit or loss Shares Other n.a. 1,226 n.a. 604 n.a.
Investment funds Net asset value 3 n.a. 1,334 n.a. 1,246 n.a.
Real estate held for own use Direct capitalization technique Capitalization rate 53
Liabilities carried at fair value Derivatives Embedded derivatives in insurance contracts Discounted cash flow Own credit spread 2,484
Policyholder assets, and their returns, belong to policyholders and do not impact Aegon’s net income or equity. The effect on total assets is offset by the effect on total liabilities. Derivatives exclude derivatives for account of policyholders amounting to EUR 2 million (2017: EUR 3 million).
Liabilities Subordinated borrowings – held at amortized cost 1,389 1,355 - - 1,355
Investment contracts – held at amortized cost 17,825 - - 18,028 18,028
Liabilities Subordinated borrowings – held at amortized cost 764 791 162 - 953
Trust pass-through securities – held at amortized cost 133 - 137 - 137
Investment contracts – held at amortized cost 16,665 - - 17,031 17,031
Shares When available, Aegon uses quoted market prices in active markets to determine the fair value of its investments in shares. For Level
cash flow ratios of quoted companies considered comparable to the companies being valued. Valuations are adjusted to account for company-specific issues and the lack of liquidity inherent in an unquoted investment. Adjustments for lack of liquidity are generally based on available market evidence. In addition, a variety of other factors are reviewed by management, including, but not limited to, current operating performance, changes in market outlook and the third-party financing environment.
Aegon’s valuation policy utilizes a pricing hierarchy which dictates that publicly available prices are initially sought from indices and third-party pricing services. In the event that pricing is not available from these sources, those securities are submitted to brokers to obtain quotes, the majority of which are non-binding. As part of the pricing process, Aegon assesses the appropriateness of each quote (i.e. as to whether the quote is based on observable market transactions or not) to determine the most appropriate estimate of fair value. When broker quotes are not available, securities are priced using internal cash flow modeling techniques. These valuation methodologies commonly use the following inputs: reported trades, bids, offers, issuer spreads, benchmark yields, estimated prepayment speeds, and/or estimated cash flows.
To understand the valuation methodologies used by third-party pricing services Aegon reviews and monitors the applicable methodology documents of the third-party pricing services. Any changes to their methodologies are noted and reviewed for reasonableness. In addition, Aegon performs in-depth reviews of prices received from third-party pricing services on a sample basis.
Aegon’s portfolio of debt securities can be subdivided in Residential mortgage-backed securities (RMBS), Commercial mortgagebacked securities (CMBS), Asset-backed securities (ABS), Corporate bonds and Government debt. Below relevant details in the valuation methodology for these specific types of debt securities are described.
Valuations of corporate bonds are monitored and reviewed on a monthly basis. The pricing hierarchy is dependent on the possibility of corroboration of market prices when available. If no market prices are available, valuations are determined by a discounted cash flow methodology using an internally calculated yield. The yield is comprised of a credit spread over a given benchmark. In all cases the benchmark is an observable input. The credit spread contains both observable and unobservable inputs. Aegon starts by taking an observable credit spread from a similar bond of the given issuer, and then adjust this spread based on unobservable inputs. These unobservable inputs may include subordination, liquidity and maturity differences. The weighted average credit spread used in valuation of corporate bonds has increased to 3.4% (December 31, 2017: 2.6%).
Tax credit investments The Level III fair value of tax credit investments is determined by using a discounted cash flow valuation technique. This valuation technique takes into consideration projections of future capital contributions and distributions, as well as future tax credits and the tax benefits of future operating losses. The present value of these cash flows is calculated by applying a discount rate. In general, the discount rate is determined based on the cash outflows for the investments and the cash inflows from the tax credits and/or tax benefits (and the timing of these cash flows). These inputs are unobservable in the market place. The discount rate used in valuation of tax credit investments has increased to 6.8% (December 31, 2017: 5.8%).
analyses to ensure the fair values are appropriate. The net asset value is considered the best valuation method that approximates the fair value of the funds.
Since the price of these guarantees is not quoted in any market, the fair values of these guarantees are based on discounted cash flows calculated as the present value of future expected payments to policyholders less the present value of assessed rider fees attributable to the guarantees. Given the complexity and long-term nature of these guarantees which are unlike instruments available in financial markets, their fair values are determined by using stochastic models under a variety of market return scenarios. A variety of factors are considered, including own credit spread, expected market rates of return, equity and interest rate volatility, correlations of market returns, discount rates and actuarial assumptions. The most significant unobservable factor is own credit spread. The weighted average own credit spread used in the valuations of embedded derivatives in insurance contracts increased to 0.3% (2017: 0.2%).
Since many of the assumptions are unobservable and are considered to be significant inputs to the liability valuation, the liability included in future policy benefits has been reflected within Level III of the fair value hierarchy. Refer to note 38 Guarantees in insurance contracts for more details about Aegon’s guarantees.
Aegon uses a discounted cash flow method including yield curves such as deposit rates, floating rates and 3-month swap rates.
Total financial assets at fair value through profit or loss 7,188 202,165 5,472 200,451
Derivatives with negative values not designated as hedges 6,424 - 6,484 -
Borrowings Borrowings designated as at fair value through profit or loss includes financial instruments that are managed on a fair value basis together with related financial assets and financial derivatives (refer to note 39 Borrowings).
Refer to note 39 Borrowings for the impact of Aegon’s own credit spread on the fair value of the borrowings designated at fair value through profit or loss.
Aegon has commited itself, through certain subsidiaries, to invest in real estate, private loans, mortgage loans and receivables and investment funds.
Real estate commitments represent the committed pipeline of investments in real estate projects. The sale of real estate relates to properties that are under contract to be sold as per December 31, 2018.
At end 2018, outstanding transition and conversion charges are estimated to amount to approximately GBP 108 million, which are expected to be recorded over the next three years, with fixed payments to Atos defined in the agreement and subject to completion of milestones which have been agreed with Aegon UK.
Aegon N.V. has guaranteed and is severally liable for the following:  Due and punctual payment of payables due under letter of credit agreements applied for by Aegon N.V. as co-applicant with its captive insurance companies that are subsidiaries of Transamerica Corporation and Commonwealth General Corporation.
 Due and punctual payment of payables by the consolidated group companies Transamerica Corporation, Aegon Funding Company
LLC and Commonwealth General Corporation with respect to bonds, capital trust pass-through securities and notes issued under commercial paper programs amounted to EUR 614 million (2017: EUR 585 million); and  Due and punctual payment of any amounts owed to third parties by the consolidated group company Aegon Derivatives N.V. in connection with derivative transactions. Aegon Derivatives N.V. only enters into derivative transactions with counterparties with which ISDA master netting agreements, including collateral support annex agreements, have been agreed. Net (credit) exposure on derivative transactions with these counterparties was therefore limited as of December 31, 2018.
Aegon subsidiaries regularly receive inquiries from local regulators and policyholder advocates in various jurisdictions, including the United States, the Netherlands, and the United Kingdom. In some cases, Aegon subsidiaries have modified business practices in response to inquiries or findings of inquiries. Regulators may seek fines or penalties, or changes to the way Aegon operates.
or the imposition of monetary fines, penalties and/or disgorgement as well as other remedies, sanctions, damages and restitutionary amounts. There can be no assurance that government and regulatory investigations will not have a material and adverse effect on Aegon’s reputation, financial position, results of operations or liquidity.
Proceedings in which Aegon is involved Several US insurers, including Aegon subsidiaries, have been named in class actions as well as individual litigation relating to increases in monthly deduction rates (''MDR'') on universal life products. Plaintiffs generally allege that the increases were made to recoup past losses rather than to cover the future costs of providing insurance coverage. In one such class action against Aegon’s subsidiary pending in the US federal district court for the Central District of California, the parties agreed to settle the case which resulted in a net charge to the income statement for 2018 of USD 166 million. In January 2019, a court approved the aforementioned settlement.
Aegon’s US-based subsidiaries may face employment-related lawsuits from time to time. For example, several US-based Aegon subsidiaries have been named in two purported class actions alleging that the business model inappropriately characterizes distributors as independent contractors instead of employees. Depending on the outcome, these lawsuits, along with similar claims against other companies, as well as regulatory action could necessitate a change in the distribution model and could result in significant settlements or judgments.
That dispute was resolved in Delaware court for USD 235 thousand plus interest in 2010. The plaintiff took the Delaware judgment relating to the 1976 dispute to a Nigerian court and alleged that it was entitled to approximately the same damages for 1977 through 1984 despite the absence of any contract relating to those years. The Nigerian trial court issued a judgment in favor of the plaintiff of the alleged actual damages as well as pre-judgment interest of approximately USD 120 million. On appeal this decision was reversed on procedural grounds and remanded back to the trial court which ruled to dismiss the case; however, at this time the case is still subject to appeal. Aegon has no material assets located in Nigeria.
Vereniging Woekerpolis.nl filed a claim against Aegon in court. The claim related to a range of unit linked products that Aegon sold in the past, including Aegon products involved in the earlier litigation. The claim challenges a variety of elements of these products, on multiple legal grounds, including allegations made previously. In June 2017, the court issued a verdict which upheld the principle that disclosures must be evaluated according to the standards at the time when the relevant products were placed in-force. Most of the claims of Vereniging Woekerpolis.nl were dismissed under this standard, although the court found that Aegon did not adequately disclose certain charges on a limited set of policies. The district court did not decide on the reasonableness of the cost levels and whether the previous compensation arrangements provide sufficient compensation. This court decision has been appealed by both parties. Aegon expects the claims and litigation on unit linked products to continue for the foreseeable future. Developments in similar cases against other Dutch insurers currently before regulators and courts may also affect Aegon. At this time, Aegon is unable to estimate the range or potential maximum liability. There can be no assurances that these matters, in the aggregate, will not ultimately result in a material adverse effect on Aegon’s business, results of operations and financial position.
Securities leasing products ('aandelenlease producten') have also been the subject of litigation in the Netherlands. Although sales of securities leasing products ended more than a decade ago, litigation relating to these products has resurfaced. In 2016, the Dutch
Supreme Court ruled on a case involving a securities leasing product sold by one of Aegon’s competitors. It decided that the financial
institution was liable if a broker ('remisier') that advised on the sale of the institution's products was not properly licensed. In July 2016, consumer interest group Platform Aandelenlease filed a claim against Aegon Bank regarding securities leasing product
Non-cash collateral that can be sold or repledged in the absence of default 1,171 1,550
As part of Aegon’s mortgage loan funding program in the Netherlands, EUR 6 billion (2017: EUR 6.5 billion) has been pledged as security for notes issued (refer to note 39 Borrowings). In addition, in order to trade derivatives on the various exchanges,
As shown in the second column there are no financial assets and liabilities offset in 2018 and 2017.
Equitable plc., a subsidiary of Aegon NV, was completed following the approval of the High Court on June 21, 2018, in accordance with
On January 1, 2017, Aegon completed the acquisition of Cofunds Ltd., following regulatory approval. The purchase of the Cofunds
On August 2, 2017, Aegon Poland has received approval by the Polish Financial Supervision Authority to take over the management of the Nordea second-pillar pension fund. The value of the transferred net assets of Nordea to Aegon Poland as per June 30, 2017 amounted to approximately PLN 8.1 billion (EUR 1.9 billion).
On August 15, 2018, Aegon has agreed to sell its business in Czech Republic and Slovakia for EUR 155 million to NN Group.
Aegon entered into a series of agreements under which it disposed of its Hungarian mortgage business, captured in a separate legal entity. The sale was completed on October 2018, and the result on the sale was not material. This divestment has no material impact on underlying earnings before tax going forward.
On June 28, 2017, Aegon completed its transaction to divest its two largest run-off businesses in the Americas, the payout annuity business and Bank Owned Life Insurance/Corporate Owned Life Insurance business (BOLI/COLI). Under the terms of the agreement, Aegon’s Transamerica life subsidiaries has reinsured USD 14 billion of liabilities. The transaction resulted in a book gain of USD 250 million (EUR 231 million), reported in the line other income in the condensed consolidated income statement.
(EUR 905 million) and USD 1,018 million (EUR 941 million) respectively related to revaluation reserves and cash flow hedging reserves has been reclassified from Other Comprehensive Income into the income statement. Gains on sale of certain assets carried at amortized cost backing the insurance liabilities amount to USD 94 million (EUR 87 million). Other expenses related to the transaction, including cost of sale, amounted to USD 28 million (EUR 26 million).
GBP 6 billion of the portfolio to Rothesay Life. On May 23, 2016 Aegon announced the sale of around GBP 3 billion of the portfolio to Legal & General. Aegon incurred a book loss on the transaction before tax of GBP 530 million (EUR 682 million), reported in the line other charges in the consolidated income statement. The transaction resulted in a tax benefit of GBP 41 million (EUR 53 million).
Under the terms of the agreements, Aegon reinsured GBP 6.8 billion of liabilities to Rothesay Life and Legal & General, followed by a
1 An insurance business transfer scheme under Part VII of the United Kingdom Financial Services and Markets Act 2000 allows an insurer to transfer policies as at a fixed time and date to another insurer, along with related contracts with other parties (including reinsurance).
52 Group companies Subsidiaries The principal subsidiaries of the parent company Aegon N.V. are listed by geographical segment. All are wholly owned, directly or indirectly, unless stated otherwise, and are involved in insurance or reinsurance business, pensions, asset management or services related to these activities. The voting power in these subsidiaries held by Aegon is equal to the shareholdings.
Americas  Transamerica Corporation, Wilmington, Delaware (United States);  Transamerica Advisors Life Insurance Company, Little Rock, Arkansas (United States);  Transamerica Casualty Insurance Company, Columbus, Ohio (United States);  Transamerica Financial Life Insurance Company, Harrison, New York (United States);  Transamerica Life Insurance Company, Cedar Rapids, Iowa (United States);  Transamerica Premier Life Insurance Company, Cedar Rapids, Iowa (United States).
Europe The Netherlands  Aegon Bank N.V., The Hague;  Aegon Hypotheken B.V., The Hague;  Aegon Levensverzekering N.V., The Hague;  Aegon PPI B.V., The Hague (until January 1, 2019);  Aegon Schadeverzekering N.V., The Hague;  Aegon Spaarkas N.V., The Hague;  CAPPITAL Premiepensioeninstelling B.V., Groningen (Aegon Cappital B.V. as of January 1, 2019);  Optas Pensioenen N.V., Rotterdam;  TKP Pensioen B.V., Groningen;  Nedasco B.V., Amersfoort;  Robijn Participaties B.V. (Robidus Groep B.V.), Zaandam (until January 2, 2019).
Insurance Co.);  Aegon Towarzystwo Ubezpieczeń na Życie Spółka Akcyjna, Warsaw (Aegon Poland Life);  Aegon Powszechne Towarzystwo Emerytaine Spólka Akcyjna, Warsaw (Aegon Poland Pension Fund Management Co.);  Aegon Emeklilik ve Hayat A.Ş., Istanbul (Aegon Turkey);  Aegon Pensii Societate de Administrare a Fondurilor de Pensii Private S.A., Cluj (Aegon Romania Pension Administrator Co.);  Aegon Pojištovna, a.s., Prague (Aegon Czech Life, until January 8, 2019);  Aegon Životná poist'ovňa, a.s., Bratislava (Aegon Slovakia Life, until January 8, 2019);  Aegon, d.s.s., a.s., Bratislava (Aegon Slovakia Pension Management Co., until January 8, 2019).
Spain & Portugal  Aegon España S.A.U. de Seguros y Reaseguros, Madrid (Spain);  Aegon Administracion y Servicios A.I.E., Madrid (Spain);  Aegon Activos A.V., S.A., Madrid (Spain);  Aegon Mediacion, S.L.U, Madrid (Spain).
Asset Management  Aegon Asset Management Holding B.V., The Hague (The Netherlands);  Aegon Custody B.V., The Hague (The Netherlands);  Aegon Asset Management Pan-Europe B.V., The Hague (The Netherlands);  Kames Capital plc, Edinburgh (United Kingdom);  TKP Investments B.V., Groningen (The Netherlands), (Merged with Aegon Investment Management B.V. as per January 1, 2019);  Aegon USA Investment Management, LLC, Cedar Rapids (United States);  Aegon USA Realty Advisors, LLC, Des Moines (United States);  Aegon Magyarország Befektetési Alapkezelő Zártkörűen Működő Részvénytársaság (Aegon Hungary Asset Management Company
ZrtA), Budapest (Hungary);  Aegon Investment Management B.V, The Hague (The Netherlands); The legally required list of participations as set forth in articles 379 and 414 of Book 2 of the Dutch Civil Code has been registered with the Trade Register in The Hague. Aegon N.V. has issued a statement of liability as meant in article 403 of Book 2 of the Dutch Civil
Spain & Portugal  Santander Generales Seguros y Reaseguros, S.A., Madrid (Spain) (51%);  Santander Vida Seguros y Reaseguros, S.A., Madrid (Spain) (51%);  Liberbank Vida y Pensiones, Seguros y Reaseguros, S.A., Oviedo (Spain) (50%);  Aegon Santander Portugal Não Vida – Companhia de Seguros S.A., Lisbon (Portugal) (51%);  Aegon Santander Portugal Vida – Companhia de Seguros de Vida S.A., Lisbon (Portugal) (51%).
Asia  Aegon Sony Life Insurance Co., Tokyo (Japan) (50%);  Aegon THTF Life Insurance Co., Ltd., Shanghai (China) (50%);  SA Reinsurance Ltd, Hamilton (Bermuda) (50%);  Aegon Life Insurance Co. ltd (India) (49%).
Americas  Mongeral Aegon, Seguros e Previdencia S.A., Rio de Janeiro (Brazil) (50%).
Related party transactions include, among others, transactions between Aegon N.V. and Vereniging Aegon.
On December 19, 2017 Aegon N.V. repurchased 13,042,592 common shares B from Vereniging Aegon for the amount of
EUR 1,725,169.73 based on 1/40th of the Value Weight Average Price of the common shares of the five trading days preceding this transaction. The repurchase of common shares B was executed to align the aggregate shareholding of Vereniging Aegon in Aegon N.V.
with its special cause voting rights of 32.6% following the completion of the Share Buy Back Program, initiated by Aegon N.V. in
The total remuneration for the members of the Management Board over 2018 was EUR 22.6 million (2017: EUR 19.8 million; 2016: EUR 18.6 million), consisting of EUR 8.4 million (2017: EUR 7.4 million; 2016: EUR 7.0 million) fixed compensation, EUR 8.7 million variable compensation awards (2017: EUR 7.8 million; 2016: EUR 6.4 million), EUR 0.9 million (2017: EUR 0.9 million; 2016: EUR 1.9 million) other benefits and EUR 4.5 million (2017: EUR 3.7 million; 2016: EUR 3.4 million) pension premiums. Amounts are reflective of time spent on the Management Board.
of the Management Board over 2018 were EUR 20.5 million (2017: EUR 18.3 million; 2016: EUR 18.7 million). The amount is reflective of time spent on the Management Board.
Total fixed compensation 2,213 1,829 2,202 1 Mr. Rider was appointed as CFO and member of Aegon’s Executive Board per May 19, 2017. Fixed compensation is disclosed for the period that Mr. Rider has been part of the Executive Board. The base salary of Mr Rider in 2017 was EUR 900 on an annualized basis.
Wynaendts amounted to EUR 962 (2017: EUR 1,092; 2016: EUR 956). For Mr. Rider the expenses under IFRS-EU amounted to EUR
The remaining part of variable compensation award for the performance year 2018 (60%), for Mr. Wynaendts EUR 319 and 58,968 shares and for Mr. Rider EUR 228 and 42,162 shares, is to be paid out in equal portions in 2018, 2019 and 2020, subject to ex-post assessments, which may result in downward adjustments and may be subject to additional conditions being met. Any payout will be split 50/50 in a cash payment and vesting of shares. The vested shares, minus the number of shares to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the Company holds a withholding obligation in connection with the vesting of the shares, are subject to a three year holding period, before they are at the disposal of the Executive Board members.
The variable compensation award is split 50/50 in cash payments and an allocation of shares. Of the variable compensation related to performance year 2017, 40% is payable in 2018. Accordingly, Mr. Wynaendts and Mr. Rider will receive a cash payment of EUR 229 and EUR 100 respectively. The number of shares to be made available in 2018 relating to performance year 2017 is 43,732 and 19,017 for Mr. Wynaendts and Mr. Rider respectively. The vested shares, minus the number of shares to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the Company holds a withholding obligation in connection with the vesting of the shares, are subject to a three year holding period, before they are at the disposal of the Executive Board members.
The remaining part of variable compensation award for the performance year 2017 (60%), for Mr. Wynaendts EUR 344 and 65,598 shares and for Mr. Rider EUR 150 and 28,522 shares, is to be paid out in equal portions in 2019, 2020 and 2021, subject to ex-post assessments, which may result in downward adjustments and may be subject to additional conditions being met. Any payout will be split 50/50 in a cash payment and vesting of shares. The vested shares, minus the number of shares to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the Company holds a withholding obligation in connection with the vesting of the shares, are subject to a three year holding period, before they are at the disposal of the Executive Board members.
The remaining part of variable compensation award for the performance year 2016 (60%), for Mr. Wynaendts EUR 313 and 61,083 shares and for Mr. Button EUR 224 and 44,424 shares, is to be paid out in equal portions in 2018, 2019 and 2020, subject to ex-post assessments, which may result in downward adjustments and may be subject to additional conditions being met. Any payout will be split 50/50 in a cash payment and vesting of shares. The vested shares, minus the number of shares to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the Company holds a withholding obligation in connection with the vesting of the shares, are subject to a three year holding period, before they are at the disposal of the Executive Board members.
9 The shares that were allocated, vested with the acceptance of the Annual Accounts at the AGM in the year of vesting. The vesting price (in EUR) was: 4.5020 on 20 May 2016, 4.4230 on 19 May 2017 and 5.848 on 18 May 2018.
10 In line with the Aegon Group Global Remuneration Framework, it was agreed to adjust Mr Wynaendt’s 2014 variable compensation award downwards by 3,388 shares and EUR 22,832 to reflect the outcome of a regulatory matter relating to the company.
Total other benefits 240 224 917 1 Mr. Rider was appointed as CFO and member of Aegon’s Executive Board per May 19, 2017. Other benefits are disclosed for the period that Mr. Rider has been part of the Executive Board. The other benefits for Mr Rider in 2017 was EUR 95 on an annualized basis.
2 Mr. Button stepped down as CFO and member of Aegon’s Executive Board on December 1, 2016. Other benefits are disclosed for the period that Mr. Button has been part of the Executive Board and are reflective of his time with Aegon December 1, 2016. These benefits also included expenses related to his expatriation and commuter assignment from the United States to the Netherlands, borne by the Group.
Total pension contributions 2,048 1,894 2,006 1 The increase Mr. Wynaendts’ fixed compensation in 2016 and 2018 resulted in a back service liability of EUR 1,361 and EUR 340 respectively. The 2016 back service liability is expensed over 2016-2019 (2018: EUR 442; 2017: EUR 432; 2016: EUR 416).
3 Mr. Button stepped down as CFO and member of Aegon’s Executive Board on December 1, 2016. Pension contributions are disclosed for the period that
The amounts as presented in the table are the pension contributions in the related book year. The 2016-2018 contributions for
Mr. Wynaendts to the Aegon pension funds reflect the increase to his fixed salary in 2016 and 2018, as well as the current low interest rates. Under IFRS-EU, the service cost as recognized in the income statement related to the defined benefit obligation of Mr.Wynaendts amounted to EUR 1,952 (2017: EUR 1,733; 2016: EUR 1,666). Service cost for Mr. Rider amounted to EUR 379 (2017: 175; 2016: nil).
and for Mr. Rider EUR 2,091 (2017: EUR 1,342). The total remuneration for the members of the Executive Board over 2018 was
(2017: EUR 5.3 million; 2016: 8.0 million). As a result of the termination of the Board membership of Mr. Button in 2016, an additional
Dutch employer wage tax was estimated at EUR 1,394 in 2016. In 2017 it turned out that based on the actual situation and the expected value of the deferred compensations no additional Dutch employer wage tax will be due.
(2017: nil). Mr. Rider was appointed as CFO and member of Aegon’s Executive Board per May 19, 2017. The shares held in Aegon mentioned above do not exceed 1% of total outstanding share capital at the reporting date. At the reporting date no loans with Aegon or outstanding balances such as guarantees or advanced payments exist for either Mr. Wynaendts or Mr. Rider.
William L. Connelly (as of May 19, 2017) 119,000 60,125 -
Mark A. Ellman (as of May 19, 2017) 103,000 70,125 -
Irving W. Bailey, II (up to May 20, 2016) - - 53,625
Robert J. Routs (up to May 18, 2018) 47,625 134,000 140,000
Dirk P.M. Verbeek (up to May 18, 2018) 28,750 100,000 111,000
Aegon’s Supervisory Board members are entitled to the following:  A base fee for membership of the Supervisory Board. No separate attendance fees are paid to members for attendance at the regular Supervisory Board meetings (2018: 7 meetings; 2017: 7 meetings; 2016: 8 meetings);  An attendance fee of EUR 3,000 for each extra Board meeting attended, be it in person or by video and/or telephone conference;  A committee fee for members on each of the Supervisory Board’s Committees;  An attendance fee for each Committee meeting attended, be it in person or through video and/or telephone conference; and  An additional fee for attending meetings that require intercontinental travel between the Supervisory Board member's home location and the meeting location.
Aegon ceded businesses to a subsidiary of Scottish Re Group. In January 2018, Scottish Re Group announced a sale and restructuring plan and commenced Chapter 11 (reorganization) procedures for some of its subsidiaries. In December 2018, the Delaware Department of Insurance began also oversight procedures of the Scottish Re Group subsidiary ‘SRUS’ with whom Aegon is a counterparty for some of its reinsurance activities. On March 1, 2019, the Delaware Department of Insurance requested SRUS to be placed in rehabilitation.
The Company’s management closely monitors the current developments but is not yet able to assess whether its outstanding reserves and receivables will be recoverable. The reserves and receivables of Aegon to Scottish Re Group at December 31, 2018 are less than
Notes to the financial statements 313 1 General information 313 2 Significant accounting policies 313 3 Investment income 313 4 Results from financial transactions 314 5 Commissions and expenses 314 6 Interest charges and related fees 314 7 Income tax 314 8 Shares in group companies 314 9 Loans to group companies 315 11 Other current assets 315 12 Share capital 317 13 Shareholders’ equity 320 14 Other equity instruments 321 15 Subordinated borrowings 322 16 Long-term borrowings 322 17 Current liabilities 322 18 Commitments and contingencies 322 19 Number of employees 322 20 Auditor's remuneration 323 21 Events after the reporting period 323 22 Proposal for profit appropriation 324 Independent auditor’s report
TOC 3Financial statements of Aegon N.V. Financial statements of Aegon N.V. Financial statements of Aegon N.V. Financial statements of Aegon N.V. Other financial information
Income statement of Aegon N.V. Income statement of Aegon N.V. Income statement of Aegon N.V.
Remeasurement of defined benefit plans of group companies 13 (1,850) (1,669)
Notes to the financial statements 1 General information Aegon N.V., incorporated and domiciled in the Netherlands, is a public limited liability company organized under Dutch law and recorded in the Commercial Register of The Hague registered under number 27076669 and with its registered address at Aegonplein 50, 2591
TV, The Hague, the Netherlands. Aegon N.V. serves as the holding company for the Aegon Group and has listings of its common shares in Amsterdam and New York.
The other changes in Loans to group companies mainly relate to currency exchange rate fluctuations.
10 Receivables Receivables from group companies and other receivables have a maturity of less than one year. Other receivables include an income tax receivable of EUR 88 million (2017: EUR 130 million).
On June 23, 2017, Vereniging Aegon exercised its options rights to purchase in aggregate 13,042,612 common shares B at fair value of a common share B (based on 1/40th of the market value of a common share in the capital of the Company at the time of issuance)
On May 19, 2017, Vereniging Aegon exercised its options rights to purchase in aggregate 1,979,260 common shares B at fair value of a common share B (based on 1/40th of the market value of a common share in the capital of the Company at the time
of issuance) to mitigate dilution caused the issuance of shares on May 19, 2017, in connection with the Long Term Incentive Plans for senior management.
R em ea su re m en t of de fi ne d be ne fi t pl an s of g ro up c om pa ni es
Changes and transfer to legal reserve - - 7 - 204 (202) - - - 9
Remeasurement of defined benefit plans of group companies - - - - - - 49 - - 49
Changes and transfer to legal reserve - - 28 - (47) (1) - - - (20)
Coupons and premium on convertible core capital securities and coupon on perpetual securities, net of tax - - - - - (131) - - - (131)
The balance of the revaluation account, which includes revaluation reserves for real estate and investments that do not have a frequent market listing, consisted of EUR 4,459 million (2017: EUR 5,380 million) of items with positive revaluation and of EUR 895 million
On the reporting date, Aegon N.V., and its subsidiaries held 62,562,070 of its own common shares (2017: 65,650,650) with a nominal value of EUR 0.12 each. Most of the shares have been purchased to neutralize the dilution effect of issued share dividend and to hedge share based payment plans for executives and employees. Aegon N.V. held 13,856,480 of its own common shares B
Movements in the number of treasury common shares held by Aegon N.V. were as follows: Number of shares (thousands) Amount
Junior perpetual capital securities Coupon rate Coupon date, as of Year of next call 2018 2017
USD 250 million floating LIBOR rate 1 Quarterly, December 15 2019 212 212
October 14, 2018 and 1.425% until October 14, 2028. 4 If the bonds are not called on the respective call dates and after consecutive period of ten years, the coupons will be reset at the then prevailing effective yield of ten-year Dutch government securities plus a spread of 85 basis points.
With effect May 15, 2018, Aegon has exercised its right to redeem USD 525 million non-cumulative subordinated notes, subsequently leading to their redemption. The securities had a stated maturity of 30 years, however, Aegon had the right to call the securities for redemption at par on any coupon payment date.
The newly issued subordinated debt securities of USD 800 million issued on April 11, 2018 have a fixed coupon of 5.5% until the first call date and floating thereafter with a margin including a 100 basis points step-up. The securities are first callable on April 11, 2028 and maturing on April 11, 2048.
These securities are subordinated and rank senior to the junior perpetual capital securities, equally with the perpetual cumulative subordinated bonds and junior to all other liabilities. The conditions of the securities contain certain provisions for optional and required deferral of interest payments. There have been no defaults or breaches of conditions during the period.
Long-term borrowings decreased by EUR 509 million to EUR 1,292 million compared to December 31, 2017, mainly related to the repayment of EUR 500 million 0% senior unsecured notes on August 30, 2018.
17 Current liabilities Loans from and payables to group companies have a maturity of less than one year. Other current liabilities includes derivatives with negative fair values of EUR 164 million (2017: EUR 97 million).
in connection with derivative transactions. Aegon Derivatives N.V. only enters into derivative transactions with counterparties with which ISDA master netting agreements including collateral support annex agreements have been agreed; net (credit) exposure on derivative transactions with these counterparties was therefore limited as of December 31, 2018.
22 Proposal for profit appropriation At the Annual General Meeting of Shareholders on May 17, 2019, the Executive Board will, absent unforeseen circumstances, propose a final dividend for 2018 of EUR 0.15 per common share and EUR 0.00375 per common share B. The final dividend will be paid in cash or stock at the election of the shareholder. The value of the stock dividend will be approximately equal to the cash dividend.
If the proposed dividend is approved by shareholders, Aegon shares will be quoted ex-dividend on May 21, 2019, for the shares listed on the New York Stock Exchange and on May 21, 2019, for shares listed on Euronext. The record date for the dividend will be May 22, 2019. Shareholders can elect to receive a dividend in cash or in shares during the dividend election period, which will run from May 28, 2019 up to and including June 14, 2019. The dividend will be payable as of June 21, 2019.
Our opinion In our opinion:  Aegon N.V.’s consolidated financial statements give a true and fair view of the financial position of the Group as at December 31, 2018, and of its result and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS-EU) and with Part 9 of Book 2 of the Dutch Civil Code;  Aegon N.V.’s financial statements give a true and fair view of the financial position of the Company as at December 31, 2018, and of its result for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code.
The basis for our opinion We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. We have further described our responsibilities under those standards in the section ‘Our responsibilities for the audit of the financial statements’ of our report.
the Netherlands; United Kingdom; Central & Eastern Europe; Spain & Portugal; Asia; Asset Management and Holding. Aegon has significant operations in Americas, the Netherlands and United Kingdom. To be able to obtain sufficient and appropriate audit evidence over the consolidated financial statements, we considered our group audit scope and approach as set out in the section ‘The scope of our group audit’. We paid specific attention to the areas of focus driven by the operations of the Group, as set out below.
For determining the risks of material misstatement in the financial statements, in particular, we considered where management made important judgment, for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain.
Given the importance of information technology (IT) for the Group and hence for our audit of the financial statements, we have, to the extent relevant to our audit, paid specific attention to the IT dependencies and IT general controls, which comprise the policies and procedures to ensure reliable automated processing of information used for financial reporting purposes, and relevant application controls.
As in all of our audits, we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by management that may represent a risk of material misstatement due to fraud.
Audit scope  We conducted audit work in the operating segments Americas, the Netherlands,
United Kingdom, Central & Eastern Europe, Spain & Portugal, Asia, Asset Management and Holding.
 Site visits were conducted to the United States for Americas, the Netherlands for the operating segments Netherlands and Asset Management, United Kingdom, Hungary for Central & Eastern Europe, Spain for Spain & Portugal and Hong Kong for Asia. For Holding, we performed the audit work ourselves.
 Fair value of ‘hard to value’ financial instruments.  Uncertainties in policyholder claims and litigation.  Implications of outsourcing activities on internal controls.
Based on our professional judgment, we determined certain quantitative thresholds for materiality, including the overall materiality for the financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and to evaluate the effect of identified misstatements, both individually and in aggregate, on the financial statements as a whole and on our opinion.
We used our professional judgment to determine overall materiality. Consistent with prior years, we used 5% of a three-year average of income before tax adjusted for significant one-off transactions.
We believe that income before tax, excluding one-off significant transactions, is a generally accepted auditing practice, based on our analysis of the common information needs of users of the financial statements of listed entities. We believe that income before tax is an important metric for the group’s financial performance.
Component materiality To each component in our audit scope, we, based on our judgment, allocate materiality that is less than our overall group materiality. The range of materiality allocated across components was between EUR 20 million and EUR 75 million.
The group audit primarily focussed on the significant components: Americas, the Netherlands and United Kingdom. We subjected these components to audits of their complete financial information, as these components are individually financially significant to the Group.
In total, in performing these procedures and excluding our group analytical procedures, we achieved the following coverage on the financial line items: Revenue 95%
None of the remaining components represented more than 1% of total Group revenue or total Group assets. For those remaining components we performed, among other things, analytical procedures to corroborate our assessment that there were no significant risks of material misstatements within those components.
By performing the procedures above at components, combined with additional procedures at group level, we have been able to obtain sufficient and appropriate audit evidence on the group’s financial information, as a whole, to provide a basis for our opinion on the financial statements.
The Group has insurance contracts stated at EUR 115.3 billion (2017: EUR 110.8 billion) and insurance contracts for account of policyholders stated at EUR 117.1 billion (2017: EUR 122.2 billion) at December 31, 2018 representing 62.8% (2017: 62.6%)
for EUR 1.1 billion (2017: EUR 1.2 billion) at December 31, 2018 representing 2.9% (2017: 2.7%) of the Group’s total assets. These assets are amortized to the income statement over time and the assumptions relating to the future profitability of these assets involve significant judgment in the measurement and assessment of the recoverability of these assets. For this reason, they are considered key matters for our audit.
Aegon performs liability adequacy testing. This test is done to verify that the valuation of these assets and liabilities are adequate as compared to the expected future contractual cash flows. Consistent with the insurance industry, Aegon uses valuation models to support the calculations of the insurance contract liabilities. The complexity of the models may give rise to errors as a result of inadequate/incomplete data or design or application of the models. Models considered more complex and/or requiring significant judgment in the setting of assumptions are those in respect of the guarantees associated with universal life and annuities along with long-term care in the Americas and the corporate pension guarantees in the Netherlands.
The main assumptions used in measuring the liabilities for insurance contracts and the DPAC and VOBA relate to mortality, morbidity, investment return and futures expenses. Significant judgment is applied in setting these assumptions. Given the magnitude of the insurance contract liabilities and the sensitivities as explained in Note 36 ‘Insurance contracts’, a change in assumptions
(especially mortality and morbidity) could have a significant effect on net income and shareholders’ equity.
Model updates in combination with the Group’s actuarial and economic assumptions update resulted in a EUR 121 million (2017: EUR 276 million) pre-tax charge for the year as explained in Note 5 ‘Segment information’.
We performed audit procedures over the complex valuation models and the model updates to determine that the models and systems calculated the insurance contracts liabilities adequately. For the models used, we considered the appropriateness of data used as well as actuarial judgments applied, which may vary depending on the product and/or the specifications of the product, and the compliance of the models with the applicable accounting standards.
Our work on the liability adequacy test included assessing the reasonableness of the projected cash flows and challenging the main assumptions adopted in the context of both Company’s and industry experience and specific product features, as well as reconciliations to supporting audit information. The quality of previous years’ assumptions is assessed by the analyses of the actual versus expected developments. Based on our procedures performed, we found that the assumptions set by management are supported by available audit information and are within a range we consider acceptable based on Company and market experience.
Key audit matter Fair value of ‘hard to value’ financial instruments. Refer to Note 2.7 ‘Investments’, Note 2.8 Investments for the account of policyholders, Note 2.9 ‘Derivatives’ and Note 47 ‘Fair value’.
Key audit matter Uncertainties in policyholder claims and litigation. Refer to Note 48 ‘Commitments and contingencies’.
We also validated that the disclosures in the consolidated financial statements are adequate and in accordance with IFRS-EU.
Key audit matter Implications of outsourcing activities on internal controls. Refer to Note 48 ‘Commitments and contingencies’.
As the Group’s outsourcing strategy further developed in 2018 and the services outsourced have a significant impact on the Group’s financial statements and operations, we determined this as a key audit matter.
Furthermore, we assessed the reputation, objectivity and the competence of the service provider’s auditor. We obtained and read the service provider’s auditor’s report and evaluated the control objectives and control activities, including system-generated information, which are relevant to the Group’s internal control over financial reporting. In addition, we evaluated the design and tested the existence and operating effectiveness of controls implemented by the Group to monitor the outsourced serviced.
Based on our controls procedures performed, no significant deficiencies or material weaknesses are noted.
Report on the other information included in the annual report In addition to the financial statements and our auditor’s report thereon, the integrated annual report contains other information that consists of:  Welcome to Aegon’s 2018 annual report;  the directors’ report, consisting of ‘2018 at a glance’, ‘who we are and what we do’, ‘the value we created for our stakeholders’,
‘how we safeguard long-term value creation’ and ‘financial information’;  other information;  other financial information;  additional information; and  other non-financial information.
By performing our procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope of such procedures was substantially less than the scope of those performed in our audit of the financial statements.
Services rendered The services that we have provided to the company and its controlled entities, in addition to the audit, for the period to which our consolidated audit relates, are disclosed in the additional information (principal accountant fees and services) section of the integrated annual report.
As part of the preparation of the financial statements, the Executive Board is responsible for assessing the Company’s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, the Executive Board should prepare the financial statements using the going-concern basis of accounting unless the Executive Board either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. The Executive Board should disclose events and circumstances that may cast significant doubt on the Company’s ability to continue as a going concern in the financial statements.
The auditor’s responsibilities for the audit of the financial statements We have exercised professional judgment and have maintained professional scepticism throughout the audit in accordance with
Dutch Standards on Auditing, ethical requirements and independence requirements. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. Our audit consisted, among other things of the following:  Identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the intentional override of internal control.
 Obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.  Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Executive Board.
 Concluding on the appropriateness of the Executive Boards’ use of the going concern basis of accounting, and based on the audit evidence obtained, concluding whether a material uncertainty exists related to events and/or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report and are made in the context of our opinion on the financial statements as a whole. However, future events or conditions may cause the Company to cease to continue as a going concern.
Considering our ultimate responsibility for the opinion on the consolidated financial statements, we are responsible for the direction, supervision and performance of the group audit. In this context, we have determined the nature and extent of the audit procedures for components of the Group to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole. Determining factors are the geographic structure of the Group, the significance and/or risk profile of group entities or activities, the accounting processes and controls, and the industry in which the Group operates. On this basis, we selected group entities for which an audit or review of financial information or specific balances was considered necessary.
Board, subject to the approval of the Supervisory Board, shall make a proposal for that purpose. A proposal to pay a dividend shall be dealt with as a separate agenda item at the General Meeting of Shareholders; 4. The Executive Board may, subject to the approval of the Supervisory Board, make one or more interim distributions to the holders of common shares and common shares B; 5. Distributions are made in accordance with the principle set forth in article 4 of the Articles of Association of Aegon N.V. that the financial rights of a common share B are one fortieth (1/40th) of the financial rights of a common share; 6. The Executive Board may, subject to the approval of the Supervisory Board, decide that a distribution on common shares and common shares B shall not take place as a cash payment but as a payment in common shares. Alternatively, it may decide that holders of common shares and common shares B shall have the option to receive a distribution as a cash payment and/or as a payment in common shares, out of the profit and/or at the expense of reserves, provided that the Executive Board is designated by the General Meeting to issue shares. Subject to the approval of the Supervisory Board, the Executive Board shall also determine the conditions applicable to the aforementioned choices; and 7. The Company’s policy on reserves and dividends shall be determined and can be amended by the Supervisory Board, upon the proposal of the Executive Board. The adoption and each amendment of the policy on reserves and dividends thereafter, shall be discussed and accounted for at the General Meeting of Shareholders under a separate agenda item.
All of Aegon’s common shares and common shares B are fully paid and not subject to calls for additional payments of any kind.
All of Aegon’s common shares are registered shares. Holders of shares of New York registry hold their common shares in the registered form issued by Aegon’s New York transfer agent on Aegon’s behalf. Shares of New York registry and shares of Netherlands registry are exchangeable on a one-to-one basis and are entitled to the same rights, except that cash dividends are paid in US dollars on shares of New York registry.
Vereniging Aegon Vereniging Aegon is the continuation of the former mutual insurer AGO. In 1978, AGO demutualized and Vereniging AGO became the only shareholder of AGO Holding N.V., which was the holding company for its insurance operations. In 1983, AGO Holding N.V.
On February 15, 2013, Aegon N.V. and Vereniging Aegon entered into an agreement to simplify the capital structure of Aegon and to cancel all of Aegon’s preferred shares, of which Vereniging Aegon was the sole owner. The execution of this agreement was subject to the approval of the General Meeting of Shareholders of Aegon N.V. This approval was granted at the Annual General Meeting of Shareholders on May 15, 2013.
Aegon, known as the Preferred Shares Voting Agreement before May 2013. As a matter of Dutch corporate law, the shares of both classes offer equal full voting rights, as they have equal nominal values (EUR 0.12). The amended Voting Rights Agreement ensures that under normal circumstances, i.e. except in the event of a Special Cause, Vereniging Aegon will no longer be able to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in the absence of a Special
On May 19, 2016, Aegon N.V. repurchased 13,450,835 common shares from Vereniging Aegon for the amount of EUR
On June 6, 2016, Aegon N.V. repurchased 17,324,960 Common Shares B from Vereniging Aegon for the amount of EUR 1,968,332, based on 1/40th of the Value Weight Average Price of the common shares of the 5 trading days preceding this transaction.
The repurchase of common shares B was executed to align the aggregate shareholding of Vereniging Aegon in Aegon N.V. with its special cause voting rights of 32.6%.
On May 19, 2017, Vereniging Aegon exercised its options rights to purchase in aggregate 1,979,260 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused the issuance of shares on May 19, 2017, in connection with the Long Term Incentive Plans for senior management.
in October 2017 to neutralize the dilutive effect of the distribution of final dividend 2016 in stock and interim dividend 2017 in stock.
On May 18, 2018, Vereniging Aegon exercised its options rights to purchase in aggregate 1,489,200 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused the issuance of shares on May 18, 2018, in connection with the Long Term Incentive Plans for senior management.
At December 31, 2018, the General Meeting of Members of Vereniging Aegon consisted of seventeen members. The majority of the voting rights is with the fifteen members who are not employees or former employees of Aegon N.V. or one of the Aegon Group companies, nor current or former members of the Supervisory Board or the Executive Board of Aegon N.V. The other two members are from the Executive Board of Aegon N.V.
Vereniging Aegon has an Executive Committee consisting of seven members, five of whom are not, nor have ever been, related to Aegon, including the Chairman and the Vice-Chairman. The other two members are also member of the Executive Board of Aegon N.V. Resolutions of the Executive Committee, other than regarding the amendment of the Articles of Association of Vereniging Aegon, are made with an absolute majority of the votes. When a vote in the Executive Committee results in a tie, the General Meeting of Members has the deciding vote. Regarding the amendment of the Articles of Association of Vereniging Aegon, a special procedure requires a unanimous proposal from the Executive Committee, thereby including the consent of the representatives of Aegon N.V. at the Executive Committee. This requirement does not apply in the event of a hostile change of control at the General
To Aegon’s knowledge based on the filings made with the Dutch Autoriteit Financiële Markten, Dodge & Cox International Stock Fund,
Based on its filing with the Dutch Autoriteit Financiële Markten as at March 27, 2018, BlackRock, Inc. stated to hold 112,661,670 shares, representing 4.2% of the issued capital as at December 31, 2018 and 131,979,873 voting rights, representing 4.9%
On February 4, 2019, BlackRock, Inc.’s filing with the US Securities and Exchange Commission (SEC) shows that BlackRock holds 122,040,092 common shares, representing 4.6% of the issued capital as at December 31, 2018, and has voting rights for 106,522,921 shares, representing 4.0% of the votes as at December 31, 2018.
Based on its filing with the Dutch Autoriteit Financiële Markten as at June 10, 2015, Franklin Resources, Inc. (FRI), a US based investment management firm, stated to hold 81,510,408 shares, representing 3.0% of the issued capital and of the votes as of
On January 25, 2019, the filing of Franklin Resources, Inc. (FRI) with the SEC shows that FRI holds 61,141,668 common shares and voting rights, representing 2.3% of the issued and outstanding capital, as of December 31, 2018.
Schedule III—Supplementary Insurance Information for the years ended December 31, 2018, 2017 and 2016
Schedule V—Valuation and Qualifying Accounts for the years ended December 31, 2018, 2017 and 2016
As at December 31, 2018 Amounts in million EUR Cost1 Fair value Book value
Real estate: Investments in real estate 2,700 2,700 1 Cost is defined as original cost for available-for-sale shares and amortized cost for available-for-sale and held-to-maturity bonds
Dividends and capital repayments of subsidiaries, associates and joint ventures 824 700 895
Aegon received EUR 1.8 billion of dividends from its business units during 2017, mainly from Americas, United Kingdom,
Asset Management, Central & Eastern Europe and Spain & Portugal. Capital contributions of EUR 1.1 billion were paid to Aegon’s businesses, mainly to the Netherlands.
The provisions can be analyzed as follows: Schedule V Schedule V Schedule V Schedule V
399 Compliance with regulations 400 Property, plant and equipment 400 Employees and labor relations 400 Dividend policy 401 The offer and listing 402 Memorandum and Articles of Association 404 Material contracts 405 Exchange controls 406 Taxation 414 Principal accountant fees and services 415 Purchases of equity securities by the issuer and affiliated purchasers 416 Half year results – unaudited
Rapids, Iowa; Denver, Colorado and Baltimore, Maryland – with additional offices located throughout the United States.
Through its subsidiaries and affiliated companies, Aegon provides a wide range of life insurance, long-term care insurance, and voluntary benefits including supplemental health insurance, retirement plans, recordkeeping and advisory services, annuities and other long-term savings and investment products – all solutions and services that help customers achieve financial security and a healthy lifestyle throughout their lives.
Aegon in Brazil Aegon has a 50% interest in Mongeral Aegon Seguros e Previdência S.A. (hereafter referred to as Mongeral Aegon), Brazil's third largest independent (i.e. non-bank affiliated) life insurer. To further capture growth prospects in Brazil, Mongeral Aegon and Bancoob
Aegon in Mexico Aegon has a joint venture with Administradora Akaan S.A. de C.V. called Akaan-Aegon S.A.P.I. de C.V.. The Mexico City-based operating company, Akaan Transamerica, launched a series of mutual funds in October 2017, targeting family offices, high net worth individuals, and institutions. As of December 31, 2018, Aegon Mexico had 25 employees.
Organizational structure Aegon USA Aegon USA was formed in 1989, when Aegon brought all of its operating companies in the United States together under a single financial services holding company: Aegon USA, LLC. On December 31, 2015, Aegon USA, LLC was merged into Transamerica
US state, in addition to the District of Columbia, Puerto Rico, the US Virgin Islands and Guam.
Aegon USA's primary insurance subsidiaries are:  Transamerica Life Insurance Company;  Transamerica Financial Life Insurance Company;  Transamerica Advisors Life Insurance Company;  Transamerica Premier Life Insurance Company; and  Transamerica Casualty Insurance Company.
to administer the company’s US insurance and annuity business lines. The partnership enables Transamerica to accelerate the enhancement of its digital capabilities and the modernization of its platforms to service its customers in all lines of business.
Effective October 1, 2018, Aegon merged its Arizona-based variable annuity captive with Transamerica Life Insurance Company (TLIC), subject to customary regulatory approval. The merger of this company into TLIC is in response to the National Association of Insurance
Commissioners (NAIC) recently proposed improvements to the existing variable annuity capital framework. As a result of the merger of two legal entities, Aegon realized a one-time benefit to capital generation of approximately USD 1 billion in the second half of 2018.
Overview of sales and distribution channels Aegon USA's distribution channels are organized so as to meet customer needs and offer solutions to the third-party distributors that provide guidance to Aegon USA customers. Each channel is focused on a number of primary target market segments, which fall under four main distribution categories: Workplace and Individual, Brokerage, Closely-Affiliated and the Transamerica Advice Center.
Workplace and Individual solutions Aegon USA offers retirement plans, rollover individual retirement accounts (IRAs), life insurance (universal life, whole life, and term life), supplemental health products (critical illness, cancer, hospital indemnity, supplemental medical expense, short-term disability, vision, and dental policies), accident products, and stable value solutions to consumers through the employer segment, also known as the Workplace solutions segment.
Overview of business lines Life Aegon USA offers a comprehensive portfolio of protection solutions to customers in a broad range of market segments. Products offered include term life, universal life, variable universal life, index universal life and whole life insurance.
Any changes in the monthly deduction rate reflect Aegon USA's current expectations with respect to future policy performance. At any time, the policy owner is able to see the maximum monthly deduction rate that can be charged. Some versions of this product have
Variable universal life insurance Variable universal life insurance is permanent life insurance that offers both a death benefit and cash value accumulation potential with financial market participation. The premium amount for variable universal life insurance is flexible and within contract limits may be changed by the policyholder. Coverage amount may change as well. The investment feature usually includes 'sub-accounts,' which provide exposure to investments, such as stocks and bonds. This exposure increases cash value return potential, but also the risk of additional premium requirements or lower coverage amounts in comparison with a traditional, non-variable life insurance policy.
Life – for which interest is credited at a fixed rate – and Variable Universal Life, in which the cash value is directly exposed to ups and downs of the market. Long-term care riders that provide benefits if policyholders are unable to perform two or more specific activities of daily living or develop a severe cognitive impairment, and other living benefit riders that provide accelerated death benefits for critical illnesses or chronic conditions, are available on IUL.
Whole life insurance Whole life insurance provides permanent death benefit protection, provided that the required premiums are paid, while accumulating cash values based on statutory requirements. Premiums are generally fixed and usually payable over the life of the policy.
Accident & health Aegon USA offers supplemental health insurance and long-term care insurance.
Mutual funds Mutual funds are professionally managed investment vehicles comprised of pooled money invested by numerous and different individuals or institutions. Such funds are invested in various underlying security types such as stocks, bonds, money market instruments and other securities. Transamerica offers mutual funds that are focused on several different asset classes, including
US equity, global/international equity, fixed income, money markets and alternative investments, as well as asset allocation and target date funds with combined equity and fixed income strategies. Transamerica mutual funds utilize the portfolio management expertise of asset managers across the industry in a sub-advised platform, using managers both affiliated with and not affiliated with Aegon. These managers are subject to a rigorous selection and monitoring due diligence process conducted by Transamerica
Exchange Traded Funds (ETFs) are a pooled investment vehicle for individual and institutional investors that combine some of the features of a mutual fund with the flexibility of allowing investors to trade throughout the day on an exchange. Transamerica offers a suite of managed risk passive exchange-traded funds that seek to track the S&P Managed Risk 2.0 Indices under the brand name DeltaShares. The Managed Risk strategy is applied to US Large Cap, Mid Cap, Small Cap, International Developed Equity and
Variable annuities Variable annuities allow the policyholder to accumulate assets for retirement on a tax-deferred basis and to participate in equity or bond market performance. Additional insurance guarantees, also referred to as riders, can be added to variable annuities, including guaranteed minimum death benefits (GMDBs) and guaranteed living benefits (GLBs). GMDBs provide a guaranteed benefit in the event of death. GLBs are intended to provide a measure of protection against market risk while the annuitant is alive. Different forms of GLBs are offered, such as guaranteeing an income stream for life and/or guaranteeing principal protection.
at the start and end of the crediting period. A fixed account option is also available. Additional guarantees, also referred to as riders, can be added to fixed-index annuities, including GLBs.
Retirement plans and IRAs Comprehensive and customized retirement plan services are offered to employers across the entire spectrum of defined benefit, defined contribution, non-qualified deferred compensation, and multiple employer plans (MEPs). Services are also offered to individuals rolling over funds from other qualified retirement funds or Individual Retirement Accounts (IRAs).
Retirement plan services, including administration, recordkeeping and related services are offered to employers of all sizes and to plans across all market segments. Aegon USA also partners with plan advisors and third-party administrators to serve their customers.
retirement. Managed Advice® is a managed account option that plan sponsors can make available to participants that provides investment advice to participants using the plan's line-up.
For individual plan participants in transition due to a job loss or change or planned retirement, services are offered through the Transamerica Advice Center, which includes a team of experienced registered representatives, investment advisor representatives, and licensed insurance agents. Services and products include IRAs, advisory services, annuities and access to other financial insurance products and resources.
Stable Value Solutions Synthetic Guaranteed Investment Contracts (GICs) are offered primarily to tax-qualified institutional entities such as 401(k) plans and other retirement plans. A synthetic GIC 'wrapper' is offered around fixed-income invested assets, which are owned by the plan and managed by the plan or a third-party money manager hired by the plan. A synthetic GIC is typically issued with an evergreen maturity and may be terminated under certain conditions. Such a contract helps to reduce fluctuations in the value of the wrapped assets and provides book value withdrawals for plan participants, while ensuring that investment fund conditions are met.
Mongeral Aegon’s insurance activities include pension product distribution, individual and group life insurance products, mutual fund management, and administrative services. To further capture growth prospects in Brazil, Mongeral Aegon and Bancoob (Banco
Akaan Transamerica offers a wide variety of Mexican and International mutual funds as well as diversified global investment solutions.
Run-off businesses On June 28, 2017, Aegon completed the divestment of its two largest US run-off businesses, the payout annuity business and the Bank
used to secure that particular series of notes. The payment terms of any particular series substantially matched the payment terms of the funding agreement that secured that series.
On December 28, 2017, Aegon divested a block of life reinsurance business that covered approximately half of the life reinsurance business Transamerica retained after it divested the vast majority of its life reinsurance business to SCOR Global Life in 2011. Under the terms of the agreement, Aegon’s Transamerica life subsidiaries will cede approximately USD 750 million of liabilities to SCOR
Global Life. As part of the transaction, the Company dissolved a related captive insurance company in place to finance redundant reserves, generally referred to as regulation XXX term life insurance reserves, and redeemed operational leverage supporting that captive.
In addition, on August 7, 2018, Aegon agreed to divest the last substantial block of its life reinsurance business to SCOR Global Life after it divested the vast majority of its reinsurance business to SCOR Global Life in 2011 and 2017. This transaction is consistent with Aegon’s stated strategic objective to reduce the amount of capital allocated to its run-off businesses. Under the terms of the agreement, Aegon’s Transamerica life subsidiaries will reinsure approximately USD 700 million of liabilities through SCOR Global
Life. As a result of the transaction, Aegon will significantly reduce the size of a related captive insurance company and the related letter of credit facility in place to finance redundant reserves, generally referred to as regulation XXX term life insurance reserves.
In individual life insurance, leading competitors include AIG, Lincoln National, Nationwide, Prudential Financial, Pacific Life, Voya
The largest competitors in the mutual fund market include American Funds, Fidelity, Vanguard, JP Morgan Funds and T. Rowe Price.
Financial, MassMutual, Principal Financial, Charles Schwab, and Lincoln National. Aegon USA's main competitors in the defined benefit segment are MassMutual, New York Life, Principal Financial and Prudential Financial. In the emerging market segment and the multiple employer plan segment, Aegon USA's main competitors are Fidelity, Empower, Voya Financial, John Hancock, Principal Financial and
In the area of financial regulation, state regulators implement and supervise statutory reserve and capital requirements, including minimum risk-based capital solvency standards. Insurance companies are also subject to extensive reporting, investment limitations, and required approval of significant transactions. State regulators, by law, conduct extensive financial examinations every three to five years.
Aegon USA is subject to NAIC Actuarial Guidelines 48 and 49, which became fully effective in 2015 and 2016 respectively, and is also subject to Principle-based reserving requirements for life insurance, which must be implemented by January 1, 2020.
Association Model Act. Among other things, the amendments will bring health maintenance organizations (HMO) into the life and health guaranty association system and adjust guaranty fund assessments for future long-term care-related insolvencies so that 50% of such assessments will come from life/annuity accounts, with the other 50% from the combined health/HMO accounts. These amendments must be adopted into law in each state before becoming effective in each such state. To date, approximately 12 states have adopted the amended model.
Federal Regulation of Financial Services and Health Insurance Although the insurance business is primarily regulated at the state level, many federal laws and initiatives impact the insurance sector in such areas as the regulation of financial services, derivatives, retirement plans, securities products, health care, taxes, data security and privacy. Regulation of financial services has increased as a result of the Dodd Frank Act, which also created the Federal Insurance
Office (FIO) and the Office of Financial Research (OFR). The FIO is authorized to review the insurance market in the US and report to Congress, and the OFR conducts research in financial services, including insurance, in support of such oversight. In addition, the FIO
is authorized to establish US insurance policy in international matters. The Federal Reserve Board also has authority to establish capital standards for systemically significant insurers, and insurers that own a federally insured bank or thrift, and to participate in the establishment of international insurance capital standards for Internationally Active Insurance Groups (IAIGs) and globally systemically significant insurers (G-SIIs). In the area of data security and privacy, there has been increased scrutiny at a state, federal and international level following a number of high-profile data breaches and data exploitation events at various companies. As a result, numerous regulators and legislators at every level are proposing or have already passed additional legal requirements with regard to information security, data breach response and privacy.
Exchange Commission (SEC) and aspects of states' securities and other laws. Variable insurance policies, certain annuity contracts and registered investment management companies (mutual funds) offered by Aegon USA are subject to regulation under the federal securities laws administered by the SEC and aspects of states' securities laws. Certain separate accounts of Aegon USA insurers that offer variable life insurance and certain annuities and interests under these annuity and insurance policies are registered and subject to SEC regulation. The distribution and sale of these and other securities by affiliate and non-affiliate broker-dealers are regulated by the SEC and the Financial Industry Regulatory Authority (FINRA). A number of Aegon USA companies are also registered as investment advisors and subject to SEC regulation or operate under registrations or exemptions from registration as commodity pool operators or Commodities Trading Advisers, regulated by the Commodities Futures Trading Commission and the National Futures
Aegon USA also owns or manages other investment vehicles that are exempt from registration but may be subject to other requirements of those laws, such as anti-fraud provisions and the terms of applicable exemptions.
Regulation of Retirement Plans and IRAs Aegon USA administers and provides recordkeeping, investment and insurance services and products used to fund defined contribution plans, such as 401(k), 403(b), multiple employer and 457 plans, in addition to defined benefit plans, IRAs, 529 plans and other savings vehicles. Aegon USA also administers benefits distributed on termination of defined benefit plans. These products and services are generally subject to the Employee Retirement Income Security Act (ERISA) (certain government and church plans are exempt from
Legislation to enhance the retirement security of Americans, and in particular, through workplace retirement plans, is being considered in Congress. The legislation would facilitate the use of multiple employer plans (MEPs), of which Aegon USA is a leading provider, as well as expand the safe harbor for automatic enrollment in plans, and reduce the burden of offering annuities either as an in-plan investment option or as the form of distribution from a plan. In addition, on August 31, 2018, the President issued an Executive Order directing Treasury and the DOL to issue regulations or guidance to make it easier for small businesses to establish retirement plans, including through facilitation of multiple employer plans. Many states have also sought to open their plans to non-government workers who do not have access to an employer retirement savings plan.
Tax Treatment of Insurance Companies and their Products and Plans Although the insurance business is regulated at state level, the US federal income tax treatment of life insurers, life insurance, pension and annuity products is governed by the US federal tax code. The 'Tax Cuts and Jobs Act,' signed into law on December 22, 2017, made significant changes to the federal tax code, generally effective as of January 1, 2018. Along with other changes, the new law lowered the corporate tax rate to 21%, eliminated the corporate alternative minimum tax, changed interest deductibility limitations
Overview of the Netherlands Aegon has operated for more than 170 years in the Netherlands, where it is a leading provider of life insurance and pensions, and employs approximately 3,100 people. Aegon the Netherlands is headquartered in The Hague, and its other main offices are in Amsterdam, Leeuwarden and Groningen.
Aegon the Netherlands' primary subsidiaries are:  Aegon Bank N.V.;  Aegon Hypotheken B.V.;  Aegon Levensverzekering N.V.;  Aegon PPI B.V. (until January 1, 2019);  Aegon Schadeverzekering N.V.;  Aegon Spaarkas N.V.;  CAPPITAL Premiepensioeninstelling B.V. (Aegon Cappital B.V. as of January 1, 2019);  Optas Pensioenen N.V.;  TKP Pensioen B.V.;  Nedasco B.V.;  Robijn Participaties B.V. (Robidus Groep B.V. until January 2, 2019).
Within the organization structure, Aegon is aiming for less complexity with a merger. Aegon PPI B.V. merged into CAPPITAL
Premiepensioeninstelling B.V. as per 1 January 2019. The latter subsequently changedits name into Aegon Cappital B.V. In addition,
Robijn Participaties B.V. was acquired through Salus Holding B.V., a private limited liability company incorporated by Aegon Nederland
N.V. in 2018. Robijn Participaties B.V. has been merged into Salus Holding B.V. as per 2 January 2019.
For wholesale clients, Aegon has an integrated sales organization for pension and income products servicing corporate clients and advisors.
On September 11, 2018, Aegon completed the acquisition of Robidus Group, including the independent broker division.
Separate account group contracts are large group contracts that have an individually-determined asset investment strategy underlying the pension contract. For older generation products, a guarantee consists of profit sharing with a contractual interest rate of 3% or 4%.
At present, the contracts offered to clients hold a guarantee of 3% or market interest rate, and Aegon the Netherlands always relates guarantee costs to the current market interest rate. If profit sharing turns into a loss, the minimum guarantee becomes effective, but the loss in any given year is carried forward to be offset against future surpluses. In general, the guarantee is such that the pension benefit payment is guaranteed and profit sharing offers potential upside via indexation. Some large group contracts also receive part of the technical results for mortality risk and disability risk. The contract period for these types of contracts is typically five years, and the tariffs, cost loadings and risk premiums are generally fixed over this period.
An increasing number of customers is becoming more interested in these low-cost and flexible subscription products. This has resulted in a significant movement from separate account and other 5-year contracts to 1-year subscription products. More specifically, customers are increasingly interested in defined contribution products not managed on the Aegon Leven balance sheet. This means that Aegon Leven now primarily manages premium paying DB products, annuities (as explained below), and existing DB and DC books, while most of the new business flows to other Aegon entities.
Customers include individuals, company and industry pension funds, and small, medium and large corporations. Aegon the Netherlands is one of the country's leading pension providers.
Together they are considered an approximation of the long-term rate of return on high-quality Dutch financial investments.
Annuity insurance Annuity insurance includes older products with both an accumulation and payout phase, with guaranteed interest rates and profit sharing for which no new business is written. The most active products in this category are, however, simple payout annuities and variable annuities. These products are clearly linked to defined contribution schemes in which participants build up their capital, and purchase an annuity at the pension date. Participants can choose between a guaranteed annuity, where all risks are borne by Aegon, or a variable annuity, where all risks are borne by the participant – including investment risk and longevity. Given that a significant shift has been observed towards defined contribution schemes, these annuities are a natural driver of growth as they provide a solution for the payout phase.
Traditional Variable unit-linked products This category consists of traditional unit-linked business with guarantees. These products are managed on the Aegon Leven balance sheet and are non-selling.
Non-life Non-life accident and health protection insurance Aegon the Netherlands offers disability and sick leave products to employers that cover disability and sick leave payments for employees not covered by social security and for which employers bear the risk. In addition, for some forms of disability, employers can choose to use the social security system with related premiums or opt out and seek private insurance. Private insurance may lead to lower premiums and Aegon offers solutions for this.
For individuals, Aegon the Netherlands offers a disability product mainly targeted at the growing self-employed market. Product options were extended during 2018 and this product is expected to be a driver of future growth.
Non-life Property and Casualty Aegon the Netherlands has focused exclusively on retail lines in general insurance, with products providing cover for property, motor, travel, legal aid and casualty claims. The ambition for the P&C retail segment is to provide the best digital servicing in the Dutch market by 2022, while building long-lasting relationships with customers.
Aegon the Netherlands primarily offers its non-life insurance products through the intermediary channel, where service concepts are in place for high-value intermediaries. Through the service concepts, Aegon provides (non-financial) incentives for intermediaries to help their customers in the optimal way, while also protecting the health of the supply chain by stimulating performance at sustainable levels for customers, intermediaries and insurer. In addition to the intermediary market, Aegon the Netherlands develops digital and online capabilities, as distribution is slowly shifting towards the direct market. This market includes sales via Aegon’s own website and agents, and via aggregator websites.
Banking Savings Aegon Bank N.V. aims to achieve its vision and ambition through two business units: Aegon Bank and Knab.
Knab Knab aims to be the most customer-oriented financial platform in the Netherlands, by informing customers about their personal financial situation and enabling them to achieve their financial goals. It therefore reflects the core of Aegon’s purpose, offering customers both insight and an overview of their finances through its financial planning tools and alerts. As an online bank, Knab offers payment-accounts, savings and a basic investment product.
Investment contracts Investment contracts are investment products that offer returns and generate fee income from the performance of the investments.
PPIs cannot bear any investment or insurance risks on their offerings due to regulatory requirements. The schemes can, however, include disability or life insurance, which are offered by partners Aegon Levensverzekering N.V., Aegon Schadeverzekering N.V. and Elips
The model enables employers to choose from a variety of contribution tables and franchises, while remaining flexible for regulatory changes, such as changes in pension age or fiscal contribution tables. Savings premiums are invested in life cycle funds by Aegon
Cappital PPI offers tailor-made contribution pension schemes to large corporations and industry pension funds. Its size and expertise enables it to offer customized pension solutions to its customers. Savings premiums are invested in life cycle funds by TKP
The combined entity Aegon Cappital B.V. offers further scalability, and puts Aegon in an optimal position to benefit from the rise of defined contribution pension schemes.
Knab Advies & Bemiddeling As an adviser and broker, Knab Advies & Bemiddeling it offers online advice and comparison ofn car-insurance and home-related insurances. As a mortgage broker, Knab provides advices on more than 30 different mortgage-labels.
Knab services two segments: private customers and as well the business-customers, mainly focusing on the self-employed segment.
Products are distributed and managed through its own digital channels, and specifically for mortgages remote -advice specifically for mortgages is offered through its own advisors.
TKP, Robidus and Nedasco TKP Pensioen specializes in pension administration for company and industry pension funds, and also provides defined contribution plans to corporate and institutional clients. Aegon offers defined contribution plans for small and medium-sized companies, and
On December 22, 2015, legislation was passed that enables companies to set up an 'Algemeen Pensioen Fonds' (General Pension
Fund). On June 20, 2016, Aegon received approval from the Dutch Central Bank (DNB) to launch the first such fund called 'Stap'
Aegon acquired Robidus from the investment company Avedon Capital Partners on September 11, 2018. Robidus advises corporations on the risks and associated costs under Dutch social security legislation, and provides corporations and insurance companies with solutions as to how to manage these issues, including outsourcing services. It operates as an independent organization within Aegon, and the acquisition gives Robidus both more room to invest and access to the broad expertise within Aegon.
Subsidiary Nedasco is a fast-growing intermediary service provider that is mainly active in non-life business domains.
The Wft embeds the cross-sectorial functional approach within the Dutch supervisory system. The supervision of financial institutions pursuant to the Wft rests with the DNB and the Dutch Authority for the Financial Markets (AFM).
Financial supervision of insurance companies The Solvency II framework consists of an EU Directive and has consequently been transposed into the Dutch Financial Supervision
Act. A large part of the Level II Solvency II rules are, however, also set out in EU regulations, which apply directly in EU member states, and as a consequence have not been implemented into national legislation, such as in the Decree on Prudential Rules under the Wft
VA model has been updated for Aegon the Netherlands and the updated Dynamic VA model uses an asset-only model approach to quantify required capital for spread risk. The initial internal model of Aegon the Netherlands was approved on November 26, 2015, by the supervisor, the DNB, as part of the Internal Model Application Process. The combined Solvency II position of the activities
of Aegon the Netherlands, including Aegon Bank, on December 31, 2018, is estimated to be 181% (2017: 199%). This decrease is mainly driven by one-time items, including the lowering of the UFR by 15 basis points to 4.05%, impact of tax changes in the Netherlands and changes to the assumptions regarding mortgages, mortality rates and lapses for individual life policies.
This negative impact is partly offset by favorable market impacts mainly due to decreasing interest rates combined with widening of the EIOPA VA, and narrowed mortgage spread. The solvency position of the banking activities are calculated using the CRR/CRD
Dutch Act on Recovery & Resolution for Insurers On January 1 2019, the Dutch Act on Recovery & Resolution for Insurers (R&R Act) came into force in the Netherlands, replacing the previously applicable intervention regime for insurance companies in the Netherlands faced with financial difficulties.
Financial supervision of credit institutions As of November 4, 2014, Aegon Bank N.V. has been subject to indirect supervision by the ECB under the new European system of banking supervision, the Single Supervisory Mechanism (SSM), which comprises the European Central Bank and the relevant national authorities of participating EU Member States. The SSM is one of the elements of the Banking Union. The ECB may give instructions to the DNB in respect of Aegon Bank N.V. or even assume direct supervision over the prudential aspects of the Aegon Bank
N.V.'s business. Pursuant to the banking supervision by the DNB, Aegon Bank N.V. is (among others) required to file monthly regulatory reports and an audited Annual Report.
Credit institutions are subject to regulatory requirements. These include (among others) capital and liquidity requirements, the requirement to maintain a certain leverage ratio, governance and reporting requirements in line with the requirements of EU
Mechanism (the SRM Regulation) form the European framework for recovery and resolution for (among others) ailing banks, certain investment firms and their holding companies. The BRRD was implemented in the Netherlands on November 26, 2015, by means of an amendment of the Wft (the BRRD Implementation Act). The SRM Regulation was adopted on July 15, 2014. Those parts of the SRM
Bank N.V. in the event that its financial condition is deteriorating. These early intervention measures could pertain, among others, to a change of its legal or operational structure, the removal of (individuals within) senior management or the management body, or the appointment of a temporary administrator to work together with or replace such (individual within) senior management or management body. The national resolution authority may also under certain circumstances decide to write down or convert relevant capital instruments, including Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments, in a specific order.
Pursuant to the SRM Regulation and the BRRD Implementation Act, banks are required at all times to meet a minimum amount of own funds and eligible liabilities (MREL), expressed as a percentage of the total liabilities and own funds. The competent resolution authority will set a level of minimum MREL on a bank-by-bank basis based on assessment criteria due to be set out in technical regulatory standards.
Overview of United Kingdom Aegon in the UK (hereafter referred to as Aegon UK) is leading financial services provider that offers advisors, employers and individuals a range of pension, investment and protection products through its online platform. It employs over 3,000 people and its main offices are in Edinburgh, London, Peterborough, Hove and Witham.