Consolidated financial statements Consolidated income statement of Aegon N.V. 132 Consolidated statement of comprehensive income of Aegon N.V. 133 Consolidated statement of financial position of Aegon N.V. 134 Consolidated statement of changes in equity of Aegon N.V. 135 Consolidated cash flow statement of Aegon N.V. 138 Exchange rates 139 Notes to the consolidated financial statements 141 Remuneration 282
Additional information Supervision 315 Property, plants and equipment 315 Employees and labor relations 315 Dividend policy 316 The offer and listing 317 Additional company information 318 Material contracts 319 European Commission approval of State support 320 Exchange controls 320 Taxation 320 Glossary 328 Quarterly results - unaudited 333 Disclaimer 334
Business overview History and development of Aegon 12 Selected financial data 13 Business lines 16 Results of operations 17 �� Worldwide 17 �� Americas 25 �� The Netherlands 43 �� United Kingdom 52 �� New Markets 61
Risk management 84 Capital and liquidity management 102 In control statement 105
References to the “NYSE” are to the New York Stock Exchange and references to the “SEC” are to the Securities and Exchange
Letter of the CEO There has never been a better time - or a greater need - for Aegon’s core business of helping people achieve long-term financial security and peace of mind. I am therefore pleased to report that during 2012 we made meaningful progress in transforming Aegon’s ability to better understand the needs of our customers.
It is for these reasons that we have embarked on a journey to get much closer to the people who depend on us. During the past year, our management has taken a number of decisive steps to realign our businesses and improve our interactions with customers. These include working to re-establish and strengthen their trust; working to leverage the potential of digital technology to provide greater customer access, better service and a distinctive, positive experience, and at the same time, working to create greater simplicity and transparency in our products and services. Clear examples of how our customer-centric approach is being integrated in all parts of our businesses include involving actual customers in rewriting marketing brochures and correspondence so that they are easily understood by all customers, simplifying back-office systems, introducing new products and online distribution channels and using social media to strengthen customer relationships and
Aegon’s brand identity. We have also engaged Aegon employees through in-depth discussions about the basis of our strategy to ensure broad understanding and a clear view for how each and every person can contribute to our ambitions. We recognize the essential role our employees play in creating the level of customer loyalty that will distinguish Aegon as a leader in each of our markets. Consequently, we are committed to providing the training and tools necessary for personal and professional development, as well as fostering a culture of innovation whereby new ideas and approaches have the opportunity to be heard and implemented.
Aegon is today a company transformed by the actions we have taken to realign our entire organization to a very simple objective: putting the customer first in everything we do, as well as how we do it. In the Americas, the United Kingdom and the Netherlands we have been working to streamline our operations in order to improve our ability to respond to market opportunities. In these established markets, we are committed to further leveraging our strong capabilities to address the needs of the “at-retirement” population, those looking to retire in a few short years and needing to make provisions for a steady income during retirement. Given the continued shift in responsibilities of retirement security from governments and employers to individuals - and with people living longer than at any other time in history - we are determined to fully exploit our expertise in providing the long-term financial guarantees which create the possibility for a retirement with confidence and dignity.
Within our newer markets in Asia, Central & Eastern Europe and Latin America, we are making steady progress in building sustainable businesses, as well as strengthening and developing new approaches in digital distribution. In these markets the potential for protection and savings products is significant, and we intend to serve a larger share of the developing need.
Aegon’s risk profile, while maintaining a strong balance sheet and capital position - advantages that have served us well in the continuing economic turmoil. With interest rates at historic lows, we have repriced certain products, lowered guarantees of others, and ceased selling those that no longer offer value for our customers or reflect our risk-return discipline. We have likewise maintained a sharp focus on reducing our costs, recognizing that in this new environment we must now compete with nontraditional providers who increasingly sell financial products online or through retail outlets, and typically with a much lower cost base. Moreover, reducing costs is essential to our ability not only to improve the returns generated by our businesses, but on the capital our shareholders continue to provide.
During the course of 2012, we have further strengthened our broader commitments to society and defined additional criteria for measuring our performance, beyond financial metrics.
Last year, we joined other leading insurance companies in signing the United Nations Principles for Sustainable Insurance. These four principles aim to incorporate sustainability measurers into the day-to-day management of business operations and we have established clear targets reflecting our commitment to them.
Our ambition has not changed - it is to be a leader in all our chosen markets. This does not necessarily mean being the largest provider, though sufficient scale is necessary to offer products at competitive prices and also attract the most talented employees. Ultimately, we define leadership as being the most recommended by customers, by business partners and our intermediaries - and, equally important - being the most preferred employer in our sector.
We are likewise grateful for the continued confidence of our many other stakeholders and pledge our determined efforts to further justify that confidence, while creating the long-term value that they, and all who entrust us with their financial security needs, have every reason to expect.
Composition of the Executive Board and the Management Board Alexander R. Wynaendts (1960, Dutch) Chief Executive Officer
Jan Nooitgedagt has worked in Europe’s financial services sector for over 30 years. Formerly with PWC, he joined Ernst & Young in 1980, becoming a partner in the firm in 1989. Mr. Nooitgedagt headed Ernst & Young’s financial services business in the
Netherlands for five years until his appointment in 2005 to the firm’s Executive Committee. A year later, Mr. Nooitgedagt was appointed Chairman of Ernst & Young in the Netherlands and became Managing Partner for the Netherlands and Belgium in July 2008. He was appointed member of Aegon’s Executive
Mr. Nooitgedagt is a member of the Supervisory Board of Bank
Lybrand/Van Dien. Mr. Keim has also worked for aircraft manufacturer Fokker Aircraft and NS Reizigers, part of the Dutch railway company, NS Group. In 1999, he joined Swiss Life in the
Gábor Kepecs began his career with the Hungarian government before joining former state-owned insurance company Állami
In that time, he has headed the expansion of Aegon’s businesses not only in Hungary but also across the Central & Eastern
of Aegon Americas and a member of the Management Board one year later.
Since the 2008 financial crisis, Aegon has undergone a significant financial transformation, including rationalizing its portfolio (for example divestment of its reinsurance business in the United States and Guardian in the United Kingdom), major cost restructurings in its main markets and running-off or de-emphasizing several of its US-based businesses, due to the historically low interest rate environment. In 2011, Aegon completed full repayment of the capital support provided by the Dutch government at the beginning of the financial crisis.
Market conditions The global economy weakened over the course of 2012.
The United States continued its moderate recovery, however, the eurozone dropped back into recession.
Western Europe. However, it is seen as too weak to significantly improve labor market conditions. To support economic growth the Federal Reserve in September 2012 announced its third quantitative easing program. Furthermore, the Federal Reserve stated its intention to keep the Federal funds rate near zero until at least mid-2015. Toward the end of 2012, further economic uncertainty arose over the legislative budget impasse in the
Domestic Product being enacted in the event that Congress and the Administration are unable to reach agreement on measurers to address the sizeable budget deficit. A positive development in 2012, was the early improvement experienced in the US housing market.
In Europe, economic growth deteriorated due to the eurocrisis and the severe austerity measures being implemented. Greece,
Italy, Portugal and Spain all experienced deep recessions, but other countries were also negatively affected. The German economy grew by approximately 1%, France experienced stagnant growth, while the United Kingdom, the Netherlands and the southern peripheral economies were in a state of recession.
Growth also slowed in Central & Eastern Europe, Asia and Latin
America. The emerging markets were adversely impacted by a combination of effects from the advanced economies and unfavorable domestic developments.
At the start of 2012, spreads on peripheral bonds decreased due to large liquidity operations by the European Central Bank
Monetary Transactions (OMTs), through which it can purchase government securities of countries requesting assistance from the European Financial Stability Facility/ESM. The eurozone members progressed toward a solution for troubled Greece.
The “safe haven” German 10-year interest rates dropped to below 1.2% at the height of the eurozone crisis. With the easing of market pressures, interest rates increased somewhat, but remain at very low levels. At the short end of the yield curve,
The deepening of the eurocrisis resulted in a weakening of the euro against the US dollar, which was reversed with the easing
of the crisis. The euro ended the year at approximately the same level against the US dollar as at the beginning of 2012.
Long-term industry trends The life insurance and pensions industry is still going through a period of significant change, with increasing and changing customer demands and the resulting impact of new digital technologies. Moreover, the industry will continue to face further regulatory reforms and changing capital requirements under Solvency II.
Aegon’s services have never been more needed, yet it is still adapting to the new reality. The company is actively identifying new and growing market opportunities, as well as working to better understand the essential financial needs of all its customers, while adjusting products and services accordingly.
�� Earning customers’ trust by putting them first in everything it does.
Aegon’s ambition is to become a leader in all its chosen markets by 2015. In order to achieve its ambition, Aegon has defined four strategic areas of focus which it regards as essential to positioning its businesses for the future. During 2012, the company continued to make clear progress within each of these key strategic objectives: Optimize portfolio - Focus on those businesses that reflect
Aegon’s core expertise and which adhere to Aegon’s risk and return requirements.
�� Despite challenging market conditions, Aegon’s market share has been growing in various segments or remains stable across most of its businesses.
�� Continuing its business transformation, Aegon divested its stake in Prisma (a 3rd party asset manager in the United
States) and exited its Spanish joint venture with Banca Civica, while continuing to actively manage its other joint venture relationships in Spain given the structural reform program that has been implemented in Spain’s financial sector, which triggered a wave of mergers and acquisitions among Aegon’s distribution partners. Aegon also reached an agreement to exit its partnership with Unnim, another of its bank joint ventures in the Spanish market. In December, Aegon entered into an exclusive 25- year strategic partnership with Banco
Santander, Spain’s largest financial group, to distribute both protection and general insurance products through the group’s extensive network of over 4,600 bank branches
(including Banesto, Banif and Openbank). This partnership provides Aegon access to a potential client base of over twelve million customers. Also in December, Aegon entered into its seventh market in the Central & Eastern European region with its acquisition of Fidem Life in Ukraine, the country’s fifth largest life insurance provider. This newest market entry is consistent with Aegon’s focus on those developing markets with a growing need for its core products and services and strong economic development prospects.
�� Intent on developing a closer and ongoing relationship with customers to serve their broader financial needs, Aegon is making substantial investments in digital technology to increase direct access to customers and provide intermediaries with the necessary means to do so as well.
In 2012, the company launched several initiatives focusing on building digital customer relationships, including its
�� Aegon continues to extend its at-retirement propositions in the company’s main markets to better address the needs of its customers intent on accumulating assets even while facing retirement, and then manage those assets for a longer period of time once having fully entered retirement. Aegon achieved substantial growth in retirement-related products and services, including its strong variable annuity business.
Enhance customer loyalty - Establish a long-term relationship with customers to serve their diverse needs throughout the life cycle; providing simpler, transparent products and services.
�� In order to ensure that Aegon fully understands the developing needs of its customers, Aegon’s businesses have continued to adopt the Net Promoter Score (NPS)
methodology to regularly measure customer loyalty on a consistent basis. NPS is now measured in 74% of the company’s businesses. The results are used to further enhance service levels and increase client satisfaction.
United Kingdom and the Netherlands, Aegon has significantly reduced operating costs. In the United States the company lowered expenses in its main Life & Protection business by
�� Aegon received the Life Transaction of the Year Award for excellence and innovation in the insurance sector. The award is based on a transaction with Deutsche Bank to offset tail risk related to longevity. The innovative “swap” transaction was the first of its kind in Europe.
�� Aegon continues to improve service quality across its local businesses.
�� Actions to address the results of the Global Employee Survey in 2011 have been successfully implemented. The second
�� Senior management committed to a broad engagement program to ensure that employees within their country and business units understand the strategic direction of Aegon, and importantly, how the strategy relates to individual roles and responsibilities. A series of Town Hall meetings, as well as intranet-based tools and insight articles were created to support alignment across the organization.
Solvency II Despite the continued uncertainty around the implementation date of Solvency II, Aegon has continued to remain on track with its preparations. Aegon has allocated considerable resources to the development of its partial internal model. This model is currently in the pre-application phase with Aegon’s College of Supervisors. Through its engagement with several industry bodies, Aegon actively participates in discussions surrounding Solvency II with the aim of contributing to the resolution of outstanding issues.
Association of Insurance Supervisors (IAIS) to establish a common framework for the supervision of internationally active insurance groups (ComFrame). Aegon is on track with the ongoing transition of embedding Solvency II requirements into its existing business processes in a “business as usual” environment, while simultaneously keeping abreast of the latest regulatory developments.
European activities, Aegon International B.V., which serves as a holding company for the Group companies of all non-European countries and Aegon Asset Management B.V., the holding company for some of its asset management entities.
Europe and Asia, serving millions of customers. Its main markets are the United States, the Netherlands and the United Kingdom.
Aegon has the following reportable operating segments: the Americas (which include the United States, Canada,
A summary of historical financial data is found in the table below. It is important to read this summary in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report.
Selected consolidated income statement information In EUR million (except per share amount) 2012 2011 2010 2009 2008
Selected consolidated balance sheet information In million EUR (except per share amount) 2012 2011 2010 2009 2008
Trust pass-through securities and (subordinated) borrowings1 12,881 10,040 8,604 7,314 4,824 1 Excludes bank overdrafts
Balance at end of period 1,972,030 1,909,654 1,736,049 1,736,049 1,578,227 13Annual Report 2012
Meeting of Shareholders on May 15, 2013, the Supervisory Board will, absent unforeseen circumstances, propose a final dividend of EUR 0.11 per common share (at each shareholders option in cash or in stock), which will bring the total dividend for 2012 to
EUR 0.21. Dividends in US dollars are calculated based on the foreign exchange reference rate as published each working day at 14:15 hours by the European Central Bank on the business day following the announcement of the interim dividend or on the business day following the General Meeting of Shareholders approving the relevant final dividend.
As of March 1, 2013, the USD exchange rate was EUR 1 =
five years ended December 31, 2012, calculated by using the average of the exchange rates on the last day of each month during the period, are set forth below: Year ended December 31, Average rate1 1 The US dollar exchange rates are the noon buying rates in New York City for cable transfers in euros as certified for customs purposes by the Federal Reserve Bank of New York.
Business lines Americas Includes Aegon’s businesses and operating units in the United
Products with mortality, morbidity, and longevity risks, including traditional and universal life, as well as employer, endowment, term, whole life insurance products, mortgages, saving deposits and annuity products.
�� Non-life General insurance, consisting mainly of automotive, liability, disability, household insurance and fire protection.
Romania, Slovakia and Turkey. Includes life insurance, individual and group pension products, savings and investments, as well as general insurance. At the end of 2012, Aegon entered into an agreement to acquire a life insurance company in Ukraine.
�� Spain Distribution partnerships with Spanish banks, offering life insurance, accident and health insurance and investment products.
�� Asia Direct and affinity products are marketed in Asia through Aegon
Direct & Affinity Marketing Services. Aegon offers life insurance to high-net-worth individuals via the Transamerica brand
India and Japan. Products include (term) life insurance in China and India and variable annuities in Japan.
Results 2012 worldwide Underlying earnings geographically Amounts in EUR millions 2012 2011 %
Income before tax (excluding income tax from certain proportionately consolidated associates) 1,910 925 106%
As of the first quarter of 2012, Aegon has revised its financial reporting to reflect changes in its organization. Businesses in
segment. For the full year 2011, the underlying earnings before tax generated by the Asian operations totaling EUR 37 million were previously reported under the “Americas” segment.
This Annual Report includes the non-IFRS financial measure: underlying earnings before tax. The reconciliation of this measure to the most comparable IFRS measure is presented in the table above as well as in note 5 of the consolidated financial statements. This non-IFRS measure is calculated by consolidating on a proportionate basis the revenues and expenses of Aegon’s associated companies in Spain, India, Brazil and Mexico. Aegon believes that its non-IFRS measure provides meaningful information about the underlying operating results of
Total life insurance gross premiums 6,541 3,004 6,047 1,374 (73) 16,893 (227) 16,666
Results 2012 worldwide Aegon’s 2012 net income of EUR 1,571 million and underlying earnings before tax of EUR 1,787 million were higher than in 2011 resulting from business growth, implemented cost reduction programs, the non-recurrence of certain charges in the United Kingdom, and favorable markets. Sales and deposits increased compared to 2011 despite repricing and product changes made to reflect the continued low interest rate environment. Growth was driven mostly by pensions, variable annuities, mortgages and asset management. Aegon has continued to maintain a strong capital position while maintaining its commitment to delivering sustainable earnings growth with an improved risk-return profile.
Underlying earnings before tax Aegon’s underlying earnings before tax increased 17% to
EUR 1,317 million. The 3% increase compared to 2011 is mainly due to growth of the business and a strengthening of the US dollar against the euro. The positive effect of business growth and favorable equity markets was partly offset by lower fixed annuity earnings (as the product is de-emphasized)
and lower Life & Protection earnings mostly the result of the non-recurrence of favorable items in 2011, recurring charges for Corporate Center expenses implemented in 2012, higher performance-related expenses and an increase in employee benefit expenses.
EUR 315 million. The 6% increase compared to 2011 was mainly due to cost savings, lower funding costs, and the wind up of several contracts in Pensions, partly offset by a higher claim ratio and investments in banking activities. Higher earnings in Life &
For the holding, underlying earnings before tax amounted to a loss before tax of EUR 224 million. This EUR 79 million improvement compared to 2011 was driven mostly by lower expenses as Aegon’s Corporate Center expenses are now being charged, in part, to operating units. These charges reflect the services and support provided to operating units by the
Realized gains on investments Realized gains on investments amounted to EUR 407 million and were mainly the result of asset liability management and normal activity in the investment portfolio in a low interest rate environment.
wrap charge in the United States (EUR 26 million). Providing most of the offset against these charges were the book gain of EUR 100 million on the sale of Aegon’s minority stake in
Run-off businesses The results of run-off businesses amounted to a gain of
(including a tax charge of EUR 6 million related to profits of associates), resulting in an effective tax rate of 18%. Deviation from the nominal tax rate is largely the result of tax exempt items in the United States and the Netherlands, tax credits which primarily relate to low income housing and renewable energy in the United States (EUR 69 million), benefits from a tax rate reduction in the United Kingdom (EUR 70 million), benefits from cross border intercompany reinsurance transactions
(EUR 38 million) and a benefit related to the run-off of the company’s institutional spread-based activities in Ireland
Shareholders’ equity increased to EUR 24.7 billion, mainly as a result of net income and an increase in the revaluation reserves.
During 2012, Aegon aimed to maintain excess capital at the holding of at least EUR 750 million. At the end of the year, excess capital in the holding amounted to EUR 2.0 billion, an increase of EUR 0.8 billion compared to year-end 2011, as dividends received from business units were only partly offset by interest payments and operational expenses.
Risk Based Capital (RBC) ratio in the United States increased to approximately 495%, driven mainly by strong net income throughout the year and a capital management transaction in third quarter, offset by dividends paid to the holding company.
The IGD ratio in the Netherlands increased to approximately 251% driven mainly by a change in the yield curve to discount liabilities as prescribed by the Dutch Central Bank, offset somewhat during the year by interest rate movements. The Pillar I
Results 2011 worldwide Underlying earnings geographically Amounts in EUR millions 2011 2010 %
Of which income tax from certain proportionately consolidated associates included in income
Total life insurance gross premiums 6,004 3,213 6,474 1,600 (55) 17,236 (383) 16,853
Results 2011 worldwide Aegon’s 2011 underlying earnings before tax of EUR 1,522 million and net income of EUR 872 million were impacted by considerable charges, expenses related to the customer redress program in the United Kingdom and business restructuring in its established markets. New life sales volumes were below those of 2010 as a result of repricing of products, however, deposits continued to be strong, particularly in the Americas. Aegon maintained a strong capital position during the year and by completing the repurchase of convertible core capital securities, the company has turned its focus on carrying out a strategy to deliver sustainable earnings growth with an improved risk-return profile.
Underlying earnings before tax Aegon’s underlying earnings before tax declined to
Individual Savings & Retirement earnings remained stable as increased earnings from variable annuities and retail mutual funds were offset by lower earnings from fixed annuities as the product is de-emphasized. Earnings from Employer Solutions &
Underlying earnings from Aegon’s operations in the Netherlands amounted to EUR 298 million, a decrease of 23% compared to 2010. Additional provisioning for longevity of EUR 82 million was only partly offset by the positive impact of favorable technical results.
For Holding and other activities, underlying earnings before tax amounted to a loss of EUR 303 million which is the result of higher expenses related primarily to the preparation for implementation of Solvency II, and higher funding costs.
Fair value items In 2011, fair value items recorded a loss of EUR 416 million.
Realized gains on investments In 2011, realized gains on investments amounted to
Security Administration’s death master-file. Restructuring charges in the Netherlands related to a restructuring program to reduce operating expenses going forward amounted to
This was partly offset by the amortization of the prepaid cost of reinsurance and transaction costs related to the divestment of the life reinsurance activities.
Income tax Net income contained a tax charge of EUR 53 million in 2011
and benefits from cross border intercompany reinsurance transactions (EUR 39 million). These benefits were partly offset by charges for non recognition and impairment of deferred tax assets (EUR 59 million) in the United Kingdom.
Commissions and expenses Commissions and expenses increased 1% in 2011 to
Production New life sales declined, mainly as a result of lower single premium production in the United Kingdom and the effect of the discontinuance of single premium universal life sales in the bank channel during the second half of 2010, as well as repricing of certain universal life products in 2011 in the Americas to reflect the low interest rate environment. Gross deposits of
EUR 31.7 billion were supported by variable annuity and pension deposits in the United States, partly offset by lower asset management inflows.
Capital management Aegon’s core capital, excluding revaluation reserves, amounted to EUR 17.5 billion, equivalent to 73.5% of the company’s total capital base at year-end 2011. Aegon is on track to reach a capital base ratio of at least 75% by the end of 2012.
The revaluation reserves at December 31, 2011, increased mainly as the result of a decrease in interest rates which had a positive effect on the value of fixed income securities. Shareholders’
equity per common share, excluding preferred capital, amounted to EUR 8.19 at December 31, 2011.
ratio amounted to 195%. Measured on a local solvency basis, the
In February 2011, Aegon issued ordinary shares in an amount of 10% of its share capital, via an accelerated book-build offering.
The issue was conducted under Aegon’s US Shelf Registration through the sale of 173,604,912 new common shares of Aegon
N.V. with a nominal value of EUR 0.12. The shares were issued at a price of EUR 5.20 per share. The proceeds of EUR 903 million were used to fund part of the repurchase of 375 million convertible core capital securities issued to the Dutch State.
Of which Income tax from certain proportionately consolidated associates included in income before tax (4) (1) - (3) (1) -
1 As of the first quarter of 2012, Aegon has revised its financial reporting to reflect changes in its organization. Businesses in Asia, which were previously managed by Aegon Americas, are included in the Asia line of business within the “New Markets” segment. For the full year 2011, the underlying earnings before tax generated by the Asian operations totaling EUR 37 million were previously reported under the “Americas” segment. The 2011 and 2010 figures have been revised to reflect this change.
Net income Net income from Aegon’s businesses in the Americas increased to USD 1,316 million in 2012. Better results from fair value items, lower impairments and higher realized gains on investments more than offset lower underlying earnings, lower earnings from run-off businesses and higher taxes.
Results from fair value items improved from USD (663) in 2011 to USD (98) million in 2012 as better than expected alternative asset performance and the impact of tightening credit spreads more than offset by the negative impact of the macro hedge caused by higher equity markets and the continued low interest rate environment. In addition, Aegon lowered its interest rate assumptions in 2011 which led to a charge of USD 237 million in 2011.
USD 1,692 million in 2012, a decrease of 4% compared to 2011.
The positive effect of business growth and favorable equity markets was offset by lower Life & Protection earnings mostly the result of the non-recurrence of favorable items in 2011, recurring charges for Corporate Center expenses and higher employee benefit expenses.
Retirement decreased by 6% to USD 627 million in 2012 driven mostly by lower fixed annuity earnings due to declining account balances as the product is de-emphasized. Earnings from variable annuities were down slightly to USD 352 million as the benefit of higher account balances was offset mainly by the negative effect of policyholder assumption changes of
USD 55 million. Earnings from retail mutual funds were flat at USD 22 million.
�� Employer Solutions & Pensions underlying earnings before tax increased by 12% to USD 366 million in 2012 driven mostly by growing retirement plan account balances.
Production New life sales increased 15% to USD 668 million in 2012, primarily driven by strong indexed universal life sales as distribution expanded into the brokerage channel and by higher sales of certain products as they were withdrawn from the market. New premium production for accident & health insurance amounted to USD 905 million, up 11% on increased travel insurance sales following the addition of a new distribution partner in the second half of 2011.
Results 2011 Americas Amounts in USD millions Amounts in EUR millions
Net income Net income from Aegon’s businesses in the Americas declined to USD 895 million. This was the result of lower underlying earnings before tax, lower than expected results from fair value items and fewer gains on investments. Lower other charges and improved levels of impairments only partly offset the decline.
Americas decreased to USD 727 million, mainly as a result of unfavorable persistency and lower spreads. Also higher
Commissions and expenses Total commissions and expenses increased by 5% in 2011.
Production New life sales decreased 5% to USD 582 million, mainly the effect of the discontinuance of single premium universal life sales in the bank channel during the second half of 2010, as well as repricing of certain universal life products in 2011 to reflect the low interest rate environment. New premium production for accident & health insurance increased to USD 812 million, primarily the result of improved sales in the employer benefits and affinity marketing businesses.
The deposits businesses showed net inflows of USD 3 billion - excluding run-off businesses - as a result of strong inflows for pensions and variable annuities. Aegon is de-emphasizing sales of fixed annuities as part of a strategic repositioning and therefore incurs significant net outflows for this business as a result. Outflows from run-off businesses amounted to
Overview Americas Aegon Americas comprises Aegon USA, Aegon Canada and the group’s operations in Brazil and Mexico.
USA operates under one of the best known names2 in the US
Aegon Mexico In 2006, Aegon acquired a 49% interest in Seguros Argos S.A. de
USA was founded in 1989 when Aegon brought all of its operating companies in the United States under a single financial services holding company, Aegon USA, LLC.
Business is conducted through its subsidiaries. Aegon USA has operating licenses in every US state, the District of Columbia,
Aegon’s subsidiary companies in the United States contain three business lines acting through one or more of the Aegon USA life insurance companies: �� Life & Protection
These lines of business, which are described in further detail below, represent groups of products that are sold through
Products are also offered and distributed through one or more of the Aegon USA licensed insurance or brokerage subsidiary companies.
Aegon Canada In Canada, Aegon has two main operating subsidiaries: �� Transamerica Life Canada
In addition, Aegon USA provides a range of products and services online, and uses direct and worksite marketing. This approach allows Aegon USA customers more ways to access products and services. Generally, Aegon USA companies are focused on particular products or market segments, ranging from lower income to high-net-worth individuals and from small to large corporations.
Products Products offered include whole life, universal life, variable universal life, indexed universal life and term life insurance, and supplemental health, special accident, and long-term care protection products.
independent agents or sponsored/affinity groups. L&P offers a wide array of life, health and specialty insurance with a common purpose: to protect families and their dreams.
Universal life insurance pays death benefits, accumulates cash values at interest rates that adjust periodically, and has flexible premiums. Indexed universal life products have both interest rate guarantees and interest crediting linked in part to performance of an index, subject to a cap. Variable universal life products include varying investment options for cash values.
Supplemental health insurance products are sold primarily through affinity markets and include accidental death, other injury, critical illness, hospital indemnity, Medicare supplement, and student health. Specialty lines include travel, membership and creditor (installment/mortgage/guaranteed auto protection)
Sales and distribution The L&P division is organized by distribution channel, with a shared services support platform. Each channel focuses on a specific type of distribution method and target market. The L&P
Affinity Markets The Affinity Markets group markets directly to consumers through either the broad market or affinity relationships, including associations, employers, financial institutions, retailers, and other sponsor groups. Life, supplemental health, and
Brokerage Transamerica Brokerage offers life and long-term care insurance products and services through independent brokerage distributors to high-net-worth, affluent, emerging affluent and middle income individuals, families and businesses. These products are designed for family protection, business needs, and estate and legacy planning.
Financial Industry Regulatory Authority (FINRA) registered independent broker-dealer and Securities and Exchange
Individual Savings & Retirement Through its insurance companies, broker-dealers and investment advisers, Aegon USA offers a wide range of savings and retirement products and services, including mutual funds, fixed and variable annuities. The Individual Savings & Retirement division administers and distributes these products through a variety of channels: including wirehouse firms, banks, regional broker dealers, independent financial planners and direct to consumer.
The assets and liabilities related to this product are legally segregated in separate accounts of the insurance company for the benefit of variable annuity policyholders. These separate accounts are classified as investments for the account of policyholders on Aegon’s statement of financial position.
Variable annuity contracts contain riders such as guaranteed minimum death, maturity, withdrawal, accumulation or income benefits.
The account value of variable annuities reflects the performance of the underlying funds. Aegon USA earns mortality and expense charges as well as various types of rider fees for providing guarantees and benefits. Surrender charges are generally not a large form of revenue as policyholder surrender rates are typically lower when a surrender charge penalty is still present.
Any surrender charges collected are typically used to recoup unamortized deferred acquisition costs. A guaranteed minimum withdrawal benefit is offered on some variable annuity products
increases the value of the guarantee with interest or with increases in the account value.
Aegon USA addresses equity market risk through product design, including robust analysis of the underlying funds allowed within a product, and by using hedging strategies. Variable annuity products also contain interest rate risk and policyholder behavior risk, which are handled similarly to those in fixed annuities.
Aegon’s operations in the United States provide various investment products and administrative services, individual and group variable annuities, mutual funds, collective investment trusts and asset allocation services.
The operations in the United States provide the fund manager oversight for the Transamerica funds. Aegon USA selects, manages, and retains affiliated and non-affiliated managers from a variety of investment firms based on performance.
Fixed annuities include both deferred annuities and immediate annuities. This product line has been de-emphasized due to the low interest rate environment. A fixed deferred annuity exposes Aegon to interest rate risk and lapse risk. The insurer interest rate risk can be mitigated through product design, close asset liability management and hedging, though the effects of policyholder behavior can never be fully mitigated.
An immediate annuity is purchased with a single lump sum premium payment, and the benefit payments generally begin within a year after the purchase. The benefit payment period can be for a fixed period, for as long as the beneficiary is alive, or a combination of the two. Some immediate annuities and payout options under deferred annuities may also offer the owner or beneficiaries the option to surrender the annuity to have access to the account value if needed for unexpected events.
Upon maturity of the annuity, the policyholder can select payout options that include a lump sum payment, income for life, or payment for a specified period of time. In the event of the death of the policyholder prior to receiving the benefits of the policy, the beneficiary receives either an accumulated cash value death benefit or an enhanced death benefit in the event there are benefit riders attached to the base contract. Early withdrawal by the policyholder of the cash value of the annuity is subject to surrender charges. These surrender charges are generally not a large form of revenue as policyholder surrender rates are typically lower when a surrender charge penalty is still present.
Any surrender charges collected are typically used to recoup unamortized deferred acquisition costs.
Minimum interest rate guarantees exist in all generations of deferred annuity products, as they are required by state non-forfeiture regulations. The average minimum interest rate guarantees of the in-force fixed annuity block is approximately 2.65%. The average current credited rate of the in-force fixed annuity block is approximately 3.40%. Equity indexed annuities offer additional returns that are index-linked to published stock market indices, with a minimum cash value equal to a percentage of the premium increased at a minimum, variable rate. Equity indexed annuities make up a small fraction of the in-force business.
TFA provides a range of financial and investment products, operating as a retail broker-dealer registered with FINRA and an investment adviser registered with the SEC. Products offered by TFA include mutual funds, variable life insurance, variable annuities and other securities.
Employer Solutions & Pensions Aegon USA offers retirement plans, pension plans, pensionrelated products and services, life and supplemental health insurance products through employers, as well as step-by-step guidance related to five key areas - Lifestyle, Investments, Health
Care, Protection and Income - to people who are transitioning to, or living in, retirement.
�� 403(b) - a type of deferred compensation plan for certain employees of public schools, employees of certain tax-exempt organizations and certain ministers.
�� Deferred compensation plan - a plan or agreement that defers the payment of a portion of the employee’s compensation to a future date and which may also include a contribution made by the employer for the employee’s benefit.
�� Money purchase - a type of defined contribution plan where the employer is required to make a contribution, on behalf of the plan participants, to the plan each year.
�� Defined benefit - a pension plan in which an employer promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee’s earnings history, tenure of service and age.
�� Profit-sharing - a type of defined contribution plan in which the employer may make a contribution, on behalf of the plan participants, to the plan each year either out of the company’s profits or otherwise.
Transamerica Retirement Solutions Corporation) offers a wide array of investment options designed to create a fully customized investment line-up for clients and a personalized retirement funding strategy for their retirement plan participants.
Transamerica Retirement Solutions’ open architecture investment platform provides its clients access to a broad investment universe, including institutional and retail mutual funds, registered or non-registered variable annuities, or a collective investment trust. The investment options offered in each plan are selected by the client or the client’s financial adviser.
Single premium group annuities (Terminal Funding) is a non-participating group annuity product. This product is usually used for an insurance company takeover of a terminating defined benefit pension plan. The company receives a single deposit from the contract holder and in return guarantees the payment of benefits to participants. Usually these annuity payments are paid monthly for the life of the participant or participant and spouse, commencing immediately for retired participants or at some date in the future for deferred participants.
Transamerica Employee Benefits offers life, supplemental health and stop loss products.
Other plans pay scheduled benefits for specific hospital or surgical expenses and cancer treatments, hospice care and cover deductible, as well as co-payment amounts, not covered by other health insurance. Stop loss provides catastrophic coverage to self-insured employer health plans.
Stable value solutions (SVS) provides synthetic guaranteed investment contracts (GICs) in the United States primarily to tax-qualified institutional entities such as 401(k) plans and other 35Annual Report 2012
retirement plans. SVS provides a synthetic GIC “wrapper” 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 can be terminated under certain conditions. Such a contract helps to reduce fluctuations in the value of the wrapped assets for plan participants, and provides book value benefitresponsiveness.
Transamerica Retirement Solutions serves more than 17,000 small- to mid-sized companies across the United States.
Transamerica Retirement Solutions offers a number of specialized services, including innovative plan design, a wide array of investment choices, extensive education programs and online investment education.
S.A. de C.V., a Mexican life insurance company. Mongeral’s insurance activities include pension product distribution, individual and group life insurance products, and administrative services. Seguros Argos’s primary product is a twenty-year term life insurance product. Both insurance companies distribute their products in the worksite market.
GICs and FAs are spread-based products and were issued on a fixed-rate or floating-rate basis. They provide the customer a guarantee of principal and a specified rate of return. Some spread products were issued by pledging, selling with the intent to repurchase, or lending investment securities that serve as collateral to these products. Practically all of the liabilities represented by the fixed-rate contracts were effectively converted to floating-rate via swap agreements and contracts issued in foreign currencies were converted at issuance to US
designated in the contract. Futures or swap contracts are used to hedge the market risk on market-indexed contracts and effectively convert such contracts to a floating-rate.
BOLI/COLI Aegon USA services life insurance products sold to the bankand corporate-owned life insurance (BOLI/COLI) market in the
Competition Competitors of the Aegon Americas’ companies include other large and highly-rated insurance carriers, as well as certain banks, securities brokerage firms, investment advisers and other financial intermediaries marketing insurance products, annuities and mutual funds.
Industrial-Alliance. The result is a highly competitive marketplace and increasing commoditization in many product categories.
Aegon USA Aegon USA markets variable universal life, mutual funds, and variable annuities to middle-income clients with equity investment objectives. Sales are often driven by the competitiveness of the living benefits offered by competitors, with most product development focusing on guaranteed lifetime withdrawal benefits, which guarantee lifetime withdrawals of a certain amount under certain conditions.
In the small business retirement plan segment and the multiple employer plan segment, Aegon USA’s main competitors are
ING. In the single premium group annuity market, Aegon USA’s main competitors are Mass Mutual, Prudential, John Hancock,
Regulation and supervision Aegon USA The Aegon USA insurance companies are subject to regulation and supervision in the states and jurisdictions in which they transact business, maintain offices or otherwise have a business presence. Supervisory agencies in each of those states and jurisdictions have broad powers to do any of the following: grant or revoke licenses to transact business, regulate trade and marketing practices, license agents, approve policy forms and certain premium rates, set reserve and capital requirements, determine the form and content of required financial reports, examine the insurance companies, prescribe the type and amount of investments permitted, levy fines and seek restitution for failure to comply with applicable regulations. The international businesses of Aegon USA are governed by the laws and regulations of the countries in which they transact business, maintain offices or otherwise have a business presence.
States have risk-based capital (RBC) standards for life insurance companies, established by the National Association of Insurance
Aegon USA. States previously adopted conservative reserving requirements for term and universal life products that continue to cause capital strain for the life insurance industry. In volatile market conditions, funding for those reserves continues to be challenging.
Regulation to enhance disclosure to regulators about risk exposure to insurers from within their holding company system, for adoption by jurisdictions in 2012 and 2013. Existing insurance holding company statutes and the regulations of each insurer’s domiciliary state in the United States already impose various limitations on investments in affiliates, and require prior approval of the payment of dividends above certain threshold levels by the licensed insurer to Aegon or its affiliates. In response to international developments, the NAIC also passed a new Own Risk and Solvency Protection Model Act and Guidance
Manual, which may come into effect as early as 2013. The NAIC
Based Reserving (PBR) in 2012. A few states are considering passage of the SVL in 2013, but implementation of PBR is not expected until 2016 or later. NAIC will continue to consider changes to corporate governance and insurers’ use of captives through 2013.
Although the US federal government has not historically regulated the insurance business, many federal laws impact the insurance business in a variety of ways. US federal and state privacy laws and regulations impose restrictions on financial institutions’ use and disclosure of customer information.
Legislation is sometimes introduced - in the US Congress or state governments - that would either impose additional restrictions on the use and disclosure of customer information or would require financial institutions to enhance the security of personal information and impose new obligations in the event of data security breaches.
Protection and Affordable Care Act (PPACA), enacted in 2011, significantly changes the regulation of health insurance and delivery of health care in the United States, including in certain respects, the regulation and delivery of supplemental health insurance products. Individual states are required to establish health care exchanges for the purchase of health care insurance by individuals. The extent to which employers may discontinue their provision of supplemental health insurance products to retired employees and the extent to which supplemental health insurance products may be sold through state exchanges may significantly impact Aegon USA’s supplemental health products business.
Company Act. With the exception of its investment accounts which fund private placement investment options that are exempt from registration, or support fixed rate investment options that are also exempt from registration, all of Aegon
Some of the Aegon USA companies are registered as brokerdealers with the SEC under the Securities Exchange Act of 1934, as amended (the Securities Exchange Act) and are regulated by the FINRA. A number of Aegon USA companies are also registered as investment advisers under the Investment
The financial services industry, which includes businesses engaged in issuing, administering, and selling variable insurance products, mutual funds, and other securities, as well as broker-dealers, continues to be under heightened scrutiny and increased regulation in various jurisdictions. Such scrutiny and regulations have included matters relating to so-called producer compensation arrangements, suitability of sales, selling practices, unclaimed property reporting, revenue sharing, and valuation issues involving mutual funds and life insurance separate accounts and their underlying funds. Aegon
USA companies, like other businesses in the financial services industry, have received inquiries, examinations, and requests for information from regulators and others relating to certain
Aegon USA companies’ historical and current practices with respect to these and other matters. Some of those inquiries have led to investigations, which remain open or have resulted in fines, corrective actions or restitution. Aegon USA companies continue to cooperate with these regulatory agencies. In certain instances, Aegon USA companies modified business practices in response to those inquiries or findings. Certain Aegon USA
In an attempt to increase the number of workers covered by a retirement savings plan, California has enacted legislation that would permit non-governmental workers to join the state government workers retirement plan or a similar governmental plan. Certain steps must be taken, however, before the legislation can be implemented. Several other states are considering similar legislation. The opening of State retirement plans to non-governmental workers could impact the products and sevices sold by some Aegon USA companies to private employers in those states.
US federal tax treatment of life insurance, pension and annuity products are governed by the US federal tax code. Proposals to remove or decrease the value of these tax incentives for these products - both in and of themselves and relative to other investment vehicles - are debated periodically in the US Congress and are also proposed in the Executive Administration’s annual budget for the US federal government. Executive Administration budget proposals, to be effective, must be enacted by Congress before they become law. This risk of tax changes is heightened when additional revenue is sought to reduce the federal deficit.
Moreover, legislative proposals which impose restrictions on executive compensation or restrict employment-based savings plans, adversely impact the sale of life insurance products used in funding those plans and their attractiveness relative to other non-insurance products. Finally, regulations announced under the Dodd-Frank Act that limit investment by banks in certain financial services products or increase the cost of issuing certain life insurance products would adversely impact the sale of life insurance products. In particular, the market for stable value
The economic crisis of 2008 has resulted in proposals for regulatory reform of the financial services industry, both in the United States and around the world. The Dodd-Frank Act generally leaves the state insurance regulatory system in place, but creates a Federal Insurance Office in part to represent the
US insurance industry in international matters. Many details of the Dodd-Frank Act are left to study or regulation, and therefore, the impact of the Dodd-Frank Act on Aegon USA or the life insurance market in general, cannot be fully determined until the regulations implementing the Dodd-Frank Act are promulagated and the studies completed. This includes any determination of the likelihood that Aegon USA will be considered systemically significant and subject to heightened prudential standards.
companies provide to defined contribution plan sponsors and their participants. Finally, as noted above, proposals to change the structure, remove or decrease the US federal tax preferences of pension and annuity products, either as part of tax reform or pursuant to deficit reduction, would directly impact the cost and competitiveness of pension and annuity products and pension services sold to ensure Americans’ financial retirement security.
The Patient Protection and Affordable Care Act does not directly impact the business of life insurance. It is uncertain whether any of the new regulations, anticipated over the next several years, that will implement this law, will impact the nature or distribution of any of Aegon USA’s supplemental products.
The American Taxpayer Relief Act (“ATRA”), enacted in January 2013, made permanent, with some modifications, many of the tax cuts enacted in 2001 and 2003 during the Bush
and raising the maximum tax rate from 35% to 40%; (b) on
Roth conversions (permitting participants in qualified retirement savings plans to convert otherwise non-distributable 401(k)
plan balances to a Roth account if the plan so provides; and
Americans. The extent to which the other tax law changes impact the purchase of life insurance and annuity products, as well as the participation of individuals in qualified retirement savings plans, is as yet uncertain. Further tax proposals are likely to deal with the debt situation in the U.S. The impact of such proposals, if they were passed, cannot be predicted at this time.
Aegon Canada Transamerica Life Canada (TLC) is organized and regulated pursuant to the federal Insurance Companies Act (Canada). The primary regulator is the Office of the Superintendent of Financial
Institutions. In addition, TLC is subject to the laws, regulations and insurance commissions of each of Canada’s ten provinces and three territories in which it carries on business. The laws of these jurisdictions generally establish supervisory agencies with broad administrative powers that include the following: granting and revoking licenses to conduct business, regulating trade practices, licensing agents, establishing reserve requirements, determining permitted investments and establishing minimum levels of capital. TLC’s ability to continue to conduct its insurance business depends upon the maintenance of its licenses at both the federal and provincial/territorial levels. It is also governed by policy statements and guidelines established by the Canadian
Investment-grade fixed income securities are the main vehicle for asset liability management, and Aegon USA’s investment personnel are highly skilled and experienced in these investments.
Reinsurance ceded Ceding reinsurance does not remove Aegon’s liability as the primary insurer. Aegon could incur losses should reinsurance companies not be able to meet their obligations. To minimize its exposure to the risk of such defaults, the creditworthiness of its reinsurers is monitored regularly.
Aegon Canada In the normal course of business, Transamerica Life Canada reinsures part of its mortality and morbidity risk with thirdparty reinsurers that are registered with Canada’s Office of the Superintendent of Financial Institutions. The maximum life insurance exposure retained is CAD 1.25 million per life insured.
Net income Net income from Aegon’s businesses in the Netherlands amounted to EUR 291 million and included a charge of
Netherlands increased 6% in 2012 to EUR 315 million as higher earnings in Life & Savings more than offset lower earnings in
EUR 29 million in 2012 as a result of adverse claim experience on disability and general insurance products.
Losses on these products have led to the implementation of actions to improve future results with disability insurance products already showing improvements in 2012.
Commissions and expenses Commissions and expenses decreased by 7% in 2012 compared to 2011 driven by lower operating expenses. Operating expenses decreased by 8%, to EUR 756 million, as realized cost savings and the non-recurrence of restructuring charges offset investments in new distribution capabilities and recurring charges for Corporate Center expenses.
Results 2011 the Netherlands Underlying earnings in the Netherlands were impacted by increased provisioning for longevity, while net income was affected by business restructuring. In 2011, Aegon initiated actions to make its business in the Netherlands more agile and better positioned to respond to changing conditions and opportunities in the Dutch market.
Aegon’s businesses in the Netherlands of EUR 92 million and a write-down of goodwill and VOBA of EUR 75 million related to the distribution businesses. Aegon’s distribution businesses in the Netherlands are experiencing pressure on margins and are implementing a new operating model following legislative changes related to commission payments which will result in lower profitability going forward. Realized gains on investments increased to EUR 269 million and were primarily the result of a decision to replace equities by fixed income securities and normal trading activity in the investment portfolio in a low interest rate environment. Impairments amounted to EUR 15 million.
Additional provisioning for longevity of EUR 82 million was only partly offset by the positive impact of favorable technical results.
�� Earnings from Non-life declined to EUR 6 million, mainly as the result of a lower release of provisions, adverse claim experience and investments made in the business to increase efficiency.
Commissions and expenses Commissions and expenses increased by 6% in 2011. Operating expenses increased 10% to EUR 823 million in 2011, mainly as a result of restructuring charges and investments in the further development of a new online banking proposition.
Netherlands more agile and better positioned to respond to changing conditions and opportunities in the Dutch market.
Production New life sales increased to EUR 254 million. Pension sales increased 5% compared with 2010, mainly driven by successful institutional sales during the fourth quarter of 2011. Individual life sales declined and amounted to EUR 81 million, primarily driven by lower recurring premiums as mortgage production slowed down.
EUR 27 million and benefited from stronger sales in income insurance products. General insurance production also increased 4% to EUR 27 million driven by increased sales for the motor and fire segments of the market.
Overview the Netherlands Aegon has a history in the Netherlands that dates back more than 150 years. Today, Aegon the Netherlands is one of the country’s leading1 providers of life insurance and pensions, with millions of customers and approximately 4,500 employees. The fully owned Unirobe Meeùs Group is one of the largest2 intermediaries in the Netherlands. Aegon the Netherlands has its headquarters in The Hague and offices in Leeuwarden and Groningen.
Organizational structure Aegon is one of the most widely recognized brand names in the Dutch financial services sector3. Additionally Aegon the Netherlands operates through a number of other brands, including TKP Pensioen, OPTAS and Unirobe Meeùs.
Aegon the Netherlands has four lines of business: �� Life & Savings
Restructuring In September 2011, Aegon the Netherlands announced a restructuring that resulted in a loss of 300 positions as part of strategic plans to reduce the size and cost of the Dutch business.
This plan was also aimed at increasing the fexibility and strength of the organization. The restructuring was largely finalized in 2012.
Term life insurance pays out death benefits in the event of the death of the insured during the term of the contract. Whole life insurance pays out death benefits in the event of death, regardless of the timing of this event. Premiums and amounts insured are established at inception of the contract and are guaranteed. The amount insured may be adjusted on request of the policyholder. In principle, term life insurance policies will not include profit sharing arrangements. Part of the portfolio of whole life insurance has profit-sharing features, which are based on external indices or return of related assets.
Tontine plans in the Netherlands are unit-linked contracts with a specific bonus structure. Policyholders can choose from several Aegon funds in which to invest premiums paid. The main characteristic of a tontine system is that at the death of the insured, the balance is not paid out to the policyholder’s estate, but is distributed at the end of the year to the surviving policyholders of the specific series to which the deceased policyholder belonged. When the policyholder dies before maturity, Aegon the Netherlands pays a death benefit to the dependants. Tontine plans are in run-off.
Savings accounts are offered which allow customers to retain flexibility to withdraw cash with limited restrictions. In addition deposit accounts are offered with a predetermined maturity.
Banksparen is a saving product for which amounts are deposited on a blocked bank account, exempt from capital gains tax. The amount is only available after a certain time period, for specific purposes.
Sales and distribution Life and savings products are sold through Aegon’s intermediary and direct channel.
Pensions Pensions provides a variety of full service pension products to pension funds and companies. In 2012, it accounted for approximately 20% of Aegon the Netherlands total underlying earnings before tax.
Large group contracts also share technical results (mortality risk and disability risk). The contract period is typically five years and the premium levels are generally fixed over this period.
Sales and distribution Most of Aegon the Netherlands’ pensions are sold through
For the majority of company and industry customers, Aegon the Netherlands provides a full range of pension products and services. In addition, TKP Pensioen is specialized in pension administration for company and industry pension funds and
Aegon PPI offers defined contribution plans for small and medium companies where employees bear the investment risk.
Aegon the Netherlands offers general insurance products in both the corporate and retail markets. They include house, inventory, car, fire and travel insurance.
Aegon the Netherlands offers disability and sick leave products to employers that cover the sick leave payments to employees that are not covered by social security and where the employers bear the risk.
Sales and distribution Aegon the Netherlands offers non-life insurance products mostly through the Aegon intermediary channel. Non-life products are also sold via the direct channel Aegon Online and through strategic partnerships (for example white labeling products for sale via Kruidvat). In the corporate sector Aegon also uses the co-assurance market. Corporate & Institutional Clients also provide products for larger corporations in the Netherlands.
Knab Designed in collaboration with customers, experts and critics, online bank Knab was launched in 2012. The platform is set up to be fully aligned with customer needs, offering customers insights into their financial future and empowering informed decision making through a fee based model.
Distribution Aegon the Netherlands offers financial advice, which includes selling insurance, pensions, mortgage loans, financing, savings and investment products. Unirobe Meeùs Group is the main distribution channel owned by Aegon the Netherlands.
Aegon the Netherlands has been a key player in the total life market for many years. The life insurance market in the
Netherlands ranks second2 after ING . Aegon the Netherlands is one of the smaller players in the non-life market. The nonlife market share of Aegon the Netherlands is around 4%2,
In mortgage loans, Aegon the Netherlands1 holds a market share of approximately 7.3% based on new sales. Rabobank, ING and
ABN AMRO are the largest2 parties in the mortgage loan market.
Aegon the Netherlands is currently the largest insurance company in this market.
The result is competitive pricing and a focus on service levels, client retention and product innovation.
Regulation and supervision Two institutions are responsible for the supervision of financial institutions in the Netherlands: �� De Nederlandsche Bank (the Dutch Central Bank) or DNB and
DNB is responsible for safeguarding financial stability, supervising financial institutions and the financial sector.
The AFM supervises the conduct of, and the provision of information by, all parties on the financial markets in the Netherlands. The objective of the AFM is to promote an orderly and transparent market process within the financial markets, the integrity of relations between market players and the protection of the consumer.
Financial supervision of insurance companies The various European Union Insurance Directives, collectively referred to as “Solvency I”, have been incorporated into Dutch law. The Directives are based on the “home country control”
DNB may request any additional information it considers necessary and may conduct an audit at any time. DNB can also make recommendations for improvements and publish these recommendations if the insurance company does not follow them. Finally, DNB can appoint a trustee for an insurance company or, ultimately, withdraw the insurance company’s license.
EU directives. Currently this level is approximately 4% of their general account technical provision, or, if no interest guarantees are provided, approximately 1% of the technical provisions with investments for the account of policyholders and an additional 0.3% charge for value at risk.
Most (insurance) liabilities of Aegon the Netherlands are nominal and long-term. Based on their characteristics, a long-term liability-driven benchmark is derived. Scenarios and optimization analyses are conducted with respect to the asset classes fixed income, equities and real estate. Various subclasses, such as commodities, hedge funds and private equity, are also included in the analyses. The result is an optimal asset allocation representing different investment risk-return profiles.
Constraints such as the minimum return on equity and the maximum solvency risk also determine alternative strategic asset allocations. Most of Aegon the Netherlands’ investments are managed by Aegon Asset Management. For certain specialized investments, such as hedge funds and private equity, Aegon the Netherlands hires external managers. Portfolio managers are allowed to deviate from the benchmark based on their short-term and medium-term investment outlook. Risk-based restrictions are in place to monitor and control the actual portfolio allocations compared to their strategic portfolio allocations. An internal framework limits investment exposure to any single counterparty.
In 2012, Aegon the Netherlands partially offset the risk of future longevity increases related to a part of its insurance liabilities by buying a longevity index derivative from Deutsche Bank, which will pay out if in twenty years the mortality rates have decreased more than a predetermined percentage compared to the base scenario at the moment of signing the contract. Both Aegon the Netherlands and Deutsche Bank have the possibility to terminate the contract after ten years (early termination clause).
For non-life, Aegon the Netherlands only reinsures its fire and car insurance business. For fire insurance, an “excess of loss”
Results 2012 United Kingdom Amounts in GBP millions Amounts in EUR millions
Income tax attributible to policyholder return (32) (37) 14% (40) (43) 7%
Results 2012 United Kingdom Underlying earnings before tax from Aegon’s operations in the United Kingdom improved to GBP 85 million driven by lower expenses following the implementation of the cost reduction program in 2011 and the absence of charges and expenses related to the customer redress program in 2011. Aegon introduced a new platform to the market in 2012.
�� Underlying earnings before tax from Pensions improved to GBP 21 million, mainly driven by the non-recurrence of charges and execution expenses related to a program to correct historical issues within customer policy records recorded in the previous year and the implementation of the cost reduction program. These positives were partly offset by the effect from adverse persistency, which the UK insurance industry is experiencing as a result of the implementation of the Retail Distribution Review, the sale of Guardian in 2011 and by a benefit as a result of changes to the employee pension plan in 2011.
�� Distribution amounted to an underlying loss before tax of GBP 2 million, improving over last year mainly due to cost savings.
Results 2011 United Kingdom Amounts in GBP millions Amounts in EUR millions
Income tax attributible to policyholder return (37) (57) 35% (43) (67) 36%
Income before tax on shareholders return (97) 19 - (112) 22 -
Gross deposits (on and off balance) 2011 2010 % 2011 2010 %
Results 2011 United Kingdom Earnings from Aegon’s operations in the United Kingdom were impacted by charges and expenses related to the customer redress program and restructuring charges related to a program to reduce operating expenses in the company’s Life & Pension businesses by 25%.
Underlying earnings before tax In the United Kingdom, underlying earnings before tax of
�� Earnings from Life increased to GBP 86 million, mainly as a result of benefits related to the annuities business and a curtailment gain related to changes to the employee pension plan (GBP 8 million). In addition, the effect of cost reductions contributed to the increase.
Investments related to the development of Aegon’s new pension proposition amounted to GBP 26 million. Additionally, 2010 included a full year of earnings from Guardian, which was sold in the third quarter of 2011.
Operating expenses included a curtailment gain related to changes to employee pension plans of GBP 46 million.
Overview United Kingdom In the United Kingdom, Aegon is a major provider of corporate and individual pensions, protection products and annuities, and in financial advice markets, through its owned adviser companies Origen and Positive Solutions. Aegon UK has some two million customers, approximately 2,800 employees and GBP 54.5 billion in revenue-generating investments. Aegon UK’s main offices are in Edinburgh, London and Lytham St. Annes.
Aegon UK is focused on the two core markets in the UK of at-retirement and workplace savings. Both these markets present opportunities for growth and are markets where Aegon has a heritage of expertise. In 2011, Aegon launched a new
ARC proposition is unique in the United Kingdom as it is the only platform to effectively link the accumulation stage of savings through the workplace, with the decumulation stage of securing income in retirement.
In addition to its platform capability, Aegon UK continues to offer stand-alone pension, investment and protection products to serve the needs of those advisers who have not yet adopted a platform approach, or who feel that an off-platform solution meets their current and future financial requirements.
Aegon UK’s leading operating subsidiaries are: �� Scottish Equitable plc. (trading as Aegon)
In all, there are an estimated 30,000 registered financial advisers in the United Kingdom. Until December 31, 2012, these advisers could be classified as “single-tied”, “multi-tied”,
Distribution Review came into effect on January 1, 2013, and financial advisers had been preparing for this over the last few years. From January 1, 2013, financial advisers are either classed as “independent” or “restricted” and are remunerated directly by the customer based on the service they receive. Aegon UK
continues to maintain strong links with financial advisers in all segments of the market.
Aegon UK is also developing new distribution opportunities, including agreements with banks and affinity partnerships with organizations outside the industry.
In addition, it also provides products for companies wishing to insure key personnel.
In the United Kingdom, funds in pension plans are generally converted into a source of income at retirement, usually through the purchase of an immediate annuity.
Sales and distribution Individual protection products are distributed through intermediated advice channels. Annuity products comprise internally vested immediate annuities and those through intermediated advice channels.
Pensions Aegon UK provides a full range of personal and corporate pensions. The company also offers investment products, including onshore and offshore bonds, and trusts.
Aegon UK provides a wide range of personal pensions as well as associated products and services. These include: �� Flexible personal pensions.
Aegon Retirement Choices (ARC) was launched in November 2011. ARC helps advisers and their customers with the transition from work to retirement efficiently and effectively through a technology driven platform. The leading edge technology that Aegon UK has employed delivers an intuitive method of saving for retirement through the workplace, taking income in retirement and dealing with changing circumstances. It also provides valuable online reporting and lifestyle tools that enable advisers to demonstrate their professionalism and display their advice charges in a completely transparent way. Professionalism and transparency are key principles of the Retail Distribution
(automatic-enrollment) is expected to have a dramatic effect on the workplace savings market, increasing the number of employees who will engage with saving through their employers’
As a result of this trend, the market for new DB plans has shrunk dramatically in recent years, largely because of concerns over long-term liabilities.
The onshore bond is a type of life contract, aimed primarily at pre- and post-retirement customers looking for either a source of income or a way of growing their savings. The bond offers a wide range of investment options and funds, managed by some of the world’s leading asset managers. While the onshore bond is aimed at a mass affluent market, Aegon UK’s offshore contracts have traditionally been marketed to high net-worth individuals.
Sales and distribution Investment products as well as individual and corporate pensions are distributed widely through independent financial advisers, tied distribution and, more recently, through partnerships with banks. In addition, Aegon UK also maintains close relations with a number of specialist advisers in these markets.
Competition Aegon UK faces competition from two main sources: life and pension companies and financial advice firms.
Over the past few years, the life and pension market has been increasingly concentrated among the largest companies and those perceived to be financially strong. Aegon UK’s competitors include Legal and General, Standard Life, Lloyds and Aviva.
For certain products competition also comes from asset management companies and platform providers.
Distribution Review, which will radically change the advisory business models. Even so, fragmentation remains high. There are few firms with a genuine nationwide presence or a well-known brand outside specific local areas.
Regulation and supervision All relevant Aegon UK companies are regulated by the Financial
The Financial Services Authority (FSA) acts both as a prudential and conduct of business supervisor. On December 19, 2012, the
FSA with effect on April 1, 2013. Its responsibilities will be split between the Prudential Regulatory Authority and the Financial
Currently the FSA sets minimum standards for capital adequacy and solvency, and regulates the sales and marketing activities of regulated companies.
All directors and some senior managers of Aegon UK undertaking particular roles (for example finance/actuarial, fund managers, dealers, and salesmen) have responsibilities to the Financial
For its with-profit business, Aegon UK’s general philosophy is to match guarantees with appropriate investments. However, the nature of with-profit businesses typically prevents perfect matching, and the role of the MIC is therefore to monitor the capital implications of any mismatching. On an annual basis, detailed reports are produced covering the impact of a range of possible investment scenarios on the solvency of each of the funds. These reports allow the central investment strategy for the with-profit funds to be discussed and are summarized for the
In respect of non-profit business, interest rate risk arises substantially on Aegon UK’s large book of annuities in payment.
With-profit fund The invested assets, insurance and investment contract liabilities of Aegon UK’s with-profit fund are included in “for account of policyholder assets and liabilities”. Assets and liabilities are always equal as any excess of assets over liabilities in respect of guaranteed benefits and constructive obligations are classified as an insurance or investment contract liability. The Scottish
Equitable with-profit fund is a 100:0 fund, where all benefits are held for participating policyholders.
“5 for Life” (which are written by Aegon Ireland plc), and the product guarantees within Investment Control and Income for
Life (which are reinsured to Aegon Ireland plc), all Aegon UK
These funds contain “free assets”, which, as yet, have not been fully distributed to individual policyholders. “Free assets” help meet the cost of guarantees and provide a buffer to protect the fund from the impact of adverse events. Aegon UK has an exposure only once these assets have been exhausted. As outlined below, Aegon UK believes this exposure to be low.
In previous years, Scottish Equitable sold guaranteed annuity products in the United Kingdom. Certain policies also have a guaranteed minimum rate of return or guaranteed death or other benefits. Any guaranteed rates of return only apply if the policy is kept in force to the dates specified, or on the events described in the policy conditions. The costs of all guarantees are borne by the with-profit funds and therefore impact the payouts to withprofit policyholders.
As part of its demutualization process before being acquired by Aegon N.V., on December 31, 1993, the business and assets of Scottish Equitable Life Assurance Society were transferred to Scottish Equitable plc. Aegon UK has no financial interest in Scottish Equitable plc.’s with-profit fund, apart from routine yearly fund management charges, as well as costs and expenses that the company agreed to accept at the time of demutualization.
Guaranteed rates of return on with-profit policies are typically in the range of 0% to 5.5% a year, with the highest rates closed to all premiums in 1999 and all funds closed to new business with investment guarantees from October 2002, except for a low level of increments. Under a number of contracts written mainly in the 1970s and 1980s, Scottish Equitable also offered minimum pension guarantees (including guaranteed annuity options). As life expectancy rates have improved and interest rates have fallen over time, these minimum guarantees are now often valuable.
Management of the with-profit fund It has been Aegon UK’s practice to have an investment strategy of its with-profit fund that reflects the nature of the underlying guarantees. The fund can invest in a variety of different asset types. The main categories are United Kingdom and overseas equities, United Kingdom fixed interest securities and cash.
The results of the with-profit fund’s investment performance is distributed to policyholders through a system of bonuses which depend on: �� The guarantees under the policy, including previous annual bonus additions.
On early withdrawals there are other measures to ensure that a fair share of total fund growth has been received. Indeed, a market value reduction may be applied under certain funds when, for cohorts of similar contracts, the face value of the benefits is greater than the value of the underlying assets.
have been exhausted. This has been assessed by Aegon UK to be remote based on applying the risk-based capital approach now required for solvency reporting in the United Kingdom.
As the Scottish Equitable with-profit fund is now closed to new business with investment guarantees, the process has begun of gradually distributing free assets to with-profit policyholders through the bonus system outlined above. Part of the management of this process involves ensuring that any surpluses in the with-profit fund from other (historic) business lines can be distributed to existing with-profit policyholders at a suitable rate.
Reinsurance ceded Aegon UK’s reinsurance strategy is aimed at limiting the overall volatility of mortality and morbidity when managing risk and maximizing the financial benefits that reinsurance can bring.
The actual percentage of business reinsured varies, depending largely on the appropriateness and value of reinsurance available in the market.
Aegon UK prefers to work only with reinsurance companies that have a strong credit rating subject to an economic assessment of the terms on offer. Using a reinsurer with a credit rating below AA requires approval under Aegon UK’s governance process as well as approval by Aegon’s Group Reinsurance Use
Committee in The Hague. A range of reinsurers is used across the reinsurance market.
Underlying earnings before tax by product segment Central & Eastern Europe 85 96 (11%)
Income before tax (excluding income tax from certain proportionately consolidated associates) 370 172 115%
(EUR 35 million) and Prisma (EUR 100 million). Impairment charges were lower during the year, due to lower mortgage related impairments in Hungary.
Aegon’s partnership with CAM were, beginning in the second quarter of 2012, no longer included pending the exit from this joint venture. Contributions by these partnerships in comparable periods in 2011 amounted to EUR 25 million.
�� Underlying earnings before tax from Aegon Asset Management increased to EUR 101 million, as a result of asset growth and higher performance fees, partly offset by the divestment of Prisma as of the fourth quarter of 2012.
Turkey, Slovakia and the Czech Republic due to distribution improvements and product innovation offset lower production in Hungary due to difficult market circumstances.
Production in China was higher due to strong performance of new distribution partners. This was more than offset by lower sales in Hong Kong and Singapore following the withdrawal of a universal life product with secondary guarantees in July 2012.
New premium production from Aegon’s general insurance business in Central & Eastern Europe was stable compared to 2011 and amounted to EUR 25 million in 2012. New premium production from Aegon’s accident & health insurance business increased 24% to EUR 42 million in 2012, mainly driven by
EUR 9.9 billion in 2012 as a result of strong institutional sales in the United States and the Netherlands, and retail sales in the
Hungary and Poland. Higher gross deposits in Asia, on the other hand, were driven by variable annuity sales in Japan in 2012.
Results 2011 New Markets Amounts in EUR millions 2011 2010 %
Underlying earnings before tax by product segment Central & Eastern Europe 96 95 1%
Income before tax (excluding income tax from certain proportionately consolidated associates) 172 172 -
Of which Income tax from certain proportionately consolidated associates included in income
Results on fair value items amounted to EUR (30) million, mainly as a result of hedge ineffectiveness in Variable Annuities
Central & Eastern Europe. Following new legislation in Hungary, customers are allowed to repay their Swiss franc denominated mortgages at pre-set foreign currency rate between the Swiss franc and the Hungarian forint. Other charges of EUR 58 million in 2010 included restructuring charges related to the restructuring in Aegon Asset Management and charges related to legislation changes in Central & Eastern Europe, which did not recur in 2011. In addition, 2011 included a favorable
Underlying earnings before tax In New Markets, Aegon reported underlying earnings before tax of EUR 249 million, an increase of 2% compared to 2010. The increase is mainly a result of higher underlying earnings from
EUR (4) million, as the positive impact from growth of the business and cost reductions have been offset by the inclusion of the expenses related to the Asian regional office.
�� Earnings from Spain & France amounted to EUR 88 million and remained level compared to 2010. Earnings from Spain increased to EUR 66 million as a result of business growth in
Earnings contributions from partner La Mondiale in France declined to EUR 22 million.
�� Earnings from Variable Annuities Europe declined to EUR 9 million as growth of the business was offset by a true-up of deferred policy acquisition cost and unfavorable currency movements. In addition, earnings in 2010 included a benefit of EUR 5 million.
EUR 60 million for the year as a result of higher performance fees and cost savings.
�� In Central & Eastern Europe, new life sales increased 15%
�� New life sales in Asia decreased 23% to EUR 58 million, as a result of lower life single premium production.
New premium production from Aegon’s general insurance and accident & health businesses in Central & Eastern Europe decreased to EUR 25 million, as strong household insurance sales in Hungary were offset by lower motor production due to increased price competition.
Overview sales and distribution channels Aegon’s activities in CEE operate through a number of different sales channels. These include tied agents, insurance brokers, call centers, online channels and, particularly in Hungary, Poland,
Over the course of 2012, the number of investment funds offered reached 149.
Preferred life is an individual life term insurance product which offers insurance protection. The product distinguishes between smoker and non-smoker status and uses standard and preferred pricing dependent on the health status of the client. Group life contracts are renewable each year. They also carry optional accident and health cover.
Mortgage loans Since 2006, Aegon Hungary has been offering mortgage loans to retail customers. Home mortgage loans provided in the past were mainly Swiss franc denominated and provided by Aegon Hungary
Since 2010, the mortgage loans business has been affected by some legislative changes enacted by the Hungarian Parliament.
The Hungarian pension legislation changes enacted at the end of 2010 had a significant impact on the private (formerly mandatory) pension system. One of the most important measures was that private pension members were required to choose whether to stay with their private pension funds (on condition that they would lose entitlement to the state pension related to employment years following the end of 2011) or to opt out of the private pension funds, transferring their accumulated savings to the state held pension system. As a result, approximately 3% of members decided to remain enrolled in the private pension system and the rest (97%) moved to the state pension system.
As of September 2012, there has been a significant reduction in the contribution rate payable in Slovakia. Additionally, from 2013, new laws come into force which mean it will no longer be mandatory to join a private pension fund (Pillar II).
In 2012, the pension reform preparatory activities continued in the Czech Republic. Accordingly, as of January 2013 the existing pension companies will transform into a management company managing newly launched Pillar II and Pillar III pension funds alongside the so called transformation fund in which savings, accumulating up to the end of 2012, will be placed. Aegon decided not to enter into Pillar II in the Czech market.
Non-life In addition to life insurance and pensions, Aegon Hungary offers non-life cover (household, car insurance and some wealth industrial risk). Aegon is the leading2 insurance company in the household market.
In recent years, margins on non-life insurance in Hungary have been attractive. Moreover, household insurance provides considerable opportunities for cross-selling life insurance.
As part of Aegon’s regional expansion, Aegon Hungary opened branch offices in 2010 in Slovakia, and then in 2011 in Poland, selling household insurance policies in these markets.
However, in Hungary, insurance companies established before 1995, including Aegon Hungary, are exempt from this rule.
This activity is also supervised by the HFSA. Slovakia’s mandatory pension market is regulated by Act 43/2004 on pension asset management companies and respective notices. The mandatory pension business falls under the supervision of the National Bank of Slovakia (NBS).
Capital Committee that meets on a quarterly basis. Aegon CEE’s asset liability management focuses on asset liability duration and liquidity. The performance of portfolios against benchmarks is also evaluated during these meetings.
The three most important reinsurance programs currently in force are (with retention levels for each event indicated in parentheses): �� Property catastrophe excess of loss treaty (EUR 5.5 million, for the Slovakian and Polish accounts EUR 0.2 million).
�� Property per risk excess of loss treaty (EUR 1 million).
The majority of treaties in force for Aegon’s operations in CEE
Overview Asia Aegon Asia operates throughout the Asia region via three major joint ventures, in China, India and Japan, and its network of wholly owned subsidiaries.
Aegon signed a joint venture agreement with Sony Life, one of
The initial focus of Sony Life Insurance Co. Ltd (Aegon Sony
Life) is variable annuities sales in Japan, but the agreement also provides a platform for additional co-operation between the two companies.
Americas operating unit, are included within the Asia section of the New Markets unit. The aim is to leverage product and distribution expertise, capture efficiencies, and pursue organic growth of Aegon’s franchise in Asia. The integration was completed in 2012.
TLB has served the high-net-worth market in Asia in an off-shore and on-shore capacity since the early 1990’s.
Religare continues to be a pioneer in the online protection space. Aegon Religare distributes products via: Religare Group, a strategic partner; other partnerships with companies that offer financial services to their clients; brokers, and, to some extent, co-operative banks.
Aegon Sony Life in Japan has two primary channels of distribution, the Life Planner channel of Sony Life, Aegon’s joint venture partner, and the bank distribution channel. Life
sell Aegon Sony Life’s products. Aegon Sony Life launched a partnership with one of the largest national mega banks (SMBC)
Bancassuarance is expected to become an increasingly important channel in Japan as banks are growing more accustomed to selling insurance. Furthermore, banks are eager to expand into fee income based activities since their mainstay business margins have been reduced because of the financial crisis and related low interest rates.
Building direct relationships with the customer and developing a clear understanding of customer needs allows ADAMS to maximize the effectiveness of marketing campaigns, deciding what to offer each customer through the most appropriate channel and at a time when the customer will be most receptive.
During 2012, DTC initiatives were launched in Hong Kong under the banner of Aegon Direct Club, these initiatives will launch in
The focus of TLB is on building direct relationships with private banks where appropriate and targeting and nurturing new brokers and intermediaries who have been identified as future leading advisers, while maintaining strong ties with established international brokers.
Overview business lines Life and savings Aegon provides a broad range of life insurance products through its businesses in China and India. These include unit-linked and traditional life products, as well as endowment, term life, health, group life, accident and annuities.
In China, Aegon-CNOOC’s agency channel mainly sells regular premium participating endowment and critical illness products.
The regular premium participating endowment product and the single-pay universal life product are key products for the bancassurance channel. Telemarketers mainly sell return of premium products and the popular products in the brokerage channel are return of premium, participating endowment and critical illness products.
Universal life and term products TLB maintained its focus on USD Guaranteed Universal Life
Since 2010, SARe has reinsured all minimum guarantees offered on the variable annuity products from Aegon Sony Life.
Non-life Aegon-CNOOC offers non-life products (mainly short-term accidental and short-term health products) to all channels but sales are currently concentrated in the group channel for which the main products are group medical policies.
focuses on protection products (for example term life insurance, personal accident insurance and supplemental health insurance)
Competition China - Aegon-CNOOC As of December 31, 2012, there were 68 life insurance companies in the market, including 42 domestic life companies and 26 foreign life insurers.
As of December 31, 2012, Aegon-CNOOC ranked 38, in terms of total premium income, among all life insurance companies and 13th1 among foreign life companies. The company’s market share among foreign-invested companies was 2.9%1. Channel contributions for Aegon-CNOOC ranked in the following order: brokerage, bancassurance, DM, agency and group in terms of annual premium equivalent production and bancassurance, brokerage, group, DM and agency in terms of first year premium production.
A number of new life insurance companies were established in 2012, including five regional life insurance companies (Qian
(Group) Corporation (CPIC) partnered with Lenovo Group to launch the Smart Mobile Terminal for insurance distribution. AIA
India - Aegon Religare The first year premium which is a measure of new business secured by the life insurers during January to December 2012 was INR 1,115 billion as compared to INR 1,111 billion in the corresponding period in 2011 registering a marginal increase of 0.3%. In terms of individual and group business during
January to December 2012, 59.3% of first year premiums were underwritten in the individual segment while 40.7% of the business was in the group business segment (57% and 43%
While renewal premiums accounted for 60.31% (56.66% in 2010-11) of the total premiums received by life insurers, first year premiums contributed 39.69% (43.34% in 2010-2011)3.
December 2012. The Life Insurance Company of India remains the dominant player in the market and has a 73% share of new business premiums while the balance is dispersed among private sector companies.
2.85 billion, compared to INR 2.03 billion for the corresponding period in 2011.
Japan - Aegon Sony Life The bancassurance channel is the key area of growth within the
Japanese insurance market. The largest share of market growth comes from single premium whole life products. Its surrender payment rate is higher than the savings account interest and its commission rate serves as the incentive for strong sales by bancassurance representatives.
Due to the difficulty in maintaining the public pension scheme, driven by falling birth rates and an aging population, there is a strong need in Japan for individual annuity products as a means for self-support after retirement. GMAB remains the main product in the variable annuities market. The players in the variable annuities market have been reduced to six companies since Tokyo Marine Financial suspended its Variable Annuities sales in July 2012 following Allianz last year. Up to December 2012, Aegon Sony Life has achieved cumulative annual variable annuities sales of JPY 34.3 billion (2011: JPY 12.9 billion).
Asia - ADAMS Economic pressures on traditional distribution channels and changes in customer purchasing behavior are driving an overall market change toward the recognition that DM is a growing opportunity requiring further proposition development. Multinational insurers are trying to grow capability across the region.
Hong Kong and Singapore - TLB One of the key challenges affecting the Hong Kong and
Singapore regions is the number of new providers entering the high-net-worth and affluent market, notably HSBC Life, AIA,
The CIRC sought to guard against the risk of policy surrender and to rectify illegal activity such as embezzlement of insurance funds, false business and financial data and misleading sales.
With regard to financial risk, CIRC issued a series of regulations to guard against the risk of inadequate capital and solvency.
In order to ease solvency pressure, CIRC enhanced the supervision on risk capital and encouraged insurance companies to supplement capital funds through a variety of channels.
Insurance funds investing in securitized financial products was permitted, in which subordinated convertible bonds, hybrid capital bonds and subordinated term bonds were their key investment channels. It broadened the scope of insurance companies’ overseas investments and optimized capital structure of the insurance industry.
Asia - ADAMS In the DM landscape, there is an evolving regulatory environment especially in the area relating to the use of personal data for marketing purposes. ADAMS ensures that it is constantly abreast
Hong Kong and Singapore - TLB Due to Transamerica Life Insurance Company being the parent of TLB and both Asia branches, TLB falls under US regulatory structures and is classified as a US Controlled Foreign
Corporation. For this reason, TLB is subject to US statutory capital regulations and is also subject to US tax rates.
India - Aegon Religare Aegon Religare has a Board level Investment Committee and
Risk Management & Capital Committee. Additionally, there is a management level Risk & Capital Committee (RCC). A regular review of risk and capital requirement is conducted across the committees. As the business mix changed during the year, with traditional products increasingly being sold, asset liability management (ALM) became critical to the business. Monthly reviews are performed to ensure appropriate ALM for the closed block of business under the traditional products and at the end of each quarter the ALM report is tabled in the RCC meeting.
The market risks are managed through the use of capital markets hedging techniques.
The hedging program includes combinations of futures contracts, forwards and options on market indices such as, but not limited to, the NIKKEI, TOPIX, the S&P 500, FTSE 100, and the
EuroStoxx 50. Not all of the equity indices are traded in Japanese
The program requires substantial amounts of cash, to cover potential losses on hedging instruments, transaction costs and other charges which will be supported by the shareholders as necessary. The hedge strategy is not expected to completely eliminate the volatility due to guarantee value changes. The hedge objective is to minimize income volatility, and it is expected that income volatility will be reduced by approximately 70%-80%. In addition, the hedge will not fund all changes in capital, as the minimization of income volatility leads to a strategy different from that required to minimize capital volatility.
Reinsurance ceded China - Aegon-CNOOC Aegon-CNOOC shares its morbidity and mortality risk with both international and national reinsurers. The mortality risk of individual products is shared through a surplus reinsurance structure. Most of the individual morbidity risks are taken by
Japan - Aegon Sony Life and SARe Aegon Sony Life reinsures 100% of its guarantees on the variable annuities to SARe. Aegon Sony Life may utilize third party reinsurance for a minor portion, considering transfer pricing issues.
Asia - ADAMS Under the ADAMS business model, value is largely created by offshore reinsurance through an Aegon reinsurer, whereby risk based premium is acquired for the group. As ADAMS position themselves as an “independent” marketing services provider, fronting partnerships with a local insurer are also a possibility for consideration especially where Aegon does not have a local presence.
There is also a coinsurance arrangement with the affiliate company TLIC for some universal life business. For this business, the mortality risk on these products is first ceded to third party reinsurers, and the retained risks are 100% or 80% coinsured with TLIC.
Overview Spain Aegon first entered the Spanish market in 1980 when it bought local insurer Seguros Galicia. In recent years, Aegon’s activities in Spain further developed through distribution partnerships with some Spanish banks.
(Aegon Seguros Salud and Aegon Seguros de Vida), which merged to form Aegon España S.A. de Seguros y Reaseguros as of January 1, 2011. Administration and operational services to all Aegon companies in Spain, including joint ventures with third parties, are provided by Aegon Administracion y Servicos A.I.E., a separate legal entity. In addition, Aegon operates through partnerships with the financial entities Caja Mediterraneo (CAM),
Cajatres, Liberbank and Unnim. On October 10, 2012, Aegon sold its stake in its joint venture with Banca Civica.
The main distribution channel in the Spanish market has been bancassurance, 71% in life, compared with 27% of brokers and a negligible share for direct customers.
CAM/Aegon Holding Financiero Aegon’s partnership with Caja de Ahorros del Mediterráneo
Vida, the life insurance and pensions company that has exclusive access to CAM’s branch network.
Vida (MedVida). Subsequently, Aegon decided to exercise its put option pursuant to the shareholder’s agreement between
Caja Badajoz Vida y Pensiones Under Aegon’s partnership with Caja Badajoz, agreed in 2005,
Spain, located primarily in its home province of Cantabria. In 2011, Caja Cantabria Vida y Pensiones entered into a SIP named
On October 9, 2012, Aegon closed an agreement with Liberbank, to extend the partnership with Caja Cantabria to their network.
Unnim is one of the largest savings banks in Catalonia, one of the wealthiest areas of Spain.
Unnim. Subject to regulatory approval, the transaction is expected to close during the second quarter of 2013.
Distribution Aegon’s current partnerships distribute a combination of life insurance, health and pension products. Aegon also uses brokers to distribute its products, particularly individual life insurance, throughout both urban and rural areas.
Competition There is considerable competition in the Spanish market. Major competitors are the bank-owned insurance companies for life and pension products plus foreign and local companies for health insurance products.
Regulation and supervision The Dirección General de Seguros (DGS) is the regulatory authority for the Spanish insurance industry. Insurance companies are required to report to the DGS on a quarterly basis. Spanish regulations incorporate all the requirements of the relevant EU Directives. In terms of solvency margin, local regulations are based on a percentage of the reserves for the life insurance business and on a percentage of premiums for the health insurance business. In terms of investments, the regulations require the appropriate matching of investments and technical provisions, and also establishes different levels of restrictions on the type of assets that the insurance company can invest in.
Asset liability management Aegon Spain’s approach to asset liability management is to make projections of asset and liability cash flows, to calculate their present values using a market yield curve, and to compute the main parameters affecting these cash flows (for example duration and convexity). The goal is to lock-in the spread by matching the duration of assets to the duration of liabilities.
Aegon Spain, generally, only uses reinsurance companies that have a credit rating from S&P’s of at least “A”. Aegon’s Group
Reinsurance Use Committee are involved in pre-approving reinsurers and selecting reinsurers where a reinsurer has a rating below “A”. In addition, to lessen its exposure to defaults, Aegon
Overview France Aegon is present in the French insurance market, the second largest in Europe, through its partnership agreement with AG2R La Mondiale.
The new group became operational at the start of 2008. In 2009, La Mondiale Partenaire started to distribute “Terre d’Avenir”, Aegon’s variable annuities product.
Overview sales and distribution channels Arial Assurance is specialized in collective pensions for large corporates, La Mondiale Partenaire is focused on high-net-worth individuals in France and La Mondiale Europartenaire is focused on high-net-worth individuals in Luxembourg. Arial Assurance distributes its corporate solutions via agents and brokers, while La Mondiale Partenaire and La Mondiale Europartenaire distribute its individual solutions predominantly through banks and independent financial advisers.
AG2R La Mondiale tenth in the life insurance sector (by premiums), with a market share of 3.3%. The FFSA also ranked
with a 16% market share while the Association of Insurers of Luxembourg ranked La Mondiale Europartenaire fifth by premiums in 2011 with a 7.7% market share.
Overview Variable Annuities Europe Aegon Ireland plc (Variable Annuities Europe) has two business lines, firstly variable annuities for Europe (active in the United Kingdom, France and the Netherlands), and secondly international bonds for the UK market.
La Mondiale Participations, which includes the insurance entity that Aegon Ireland cooperates with.
Variable annuities Variable annuities are advised products and are primarily distributed through independent financial advisers (IFAs)
Mondiale. The guaranteed lifetime income option in this product is reinsured to Aegon Ireland. The product is sold via AG2R
La Mondiale’s own internal networks as well as via platforms to financial advisers and banks.
Overview business lines Variable annuities Variable annuity products are essentially unit-linked life insurance products with guarantees. They typically offer a range of investment fund options linked in various proportions - at the choice of the policyholder - to equities and fixed interest investments. The guarantees may take several different forms, from guarantees of a minimum level of future income for life
(immediate or deferred) or for a given term to capital guarantees over a defined period and death benefits. Charges for the guarantees are applied to the policyholder’s account value and typically vary according to the proportion of equity investment.
Variable annuities allow a customer to participate in equity or bond market performance with the assurance of a minimum level of future benefit, regardless of the performance of their account.
Variable annuities allow a customer to select payout options designed to help meet their need for income upon maturity, including lump sum payment or income for life or for a period of time.
Premiums paid on variable annuity contracts are invested in underlying funds, including bond and equity funds and (usually) a cash fund. In most products, the investment options are selected by a client based on the client’s preferred level of risk. The assets and liabilities related to this product are legally segregated for the benefit of policyholders in a separate account of the insurance company.
The account value of variable annuities reflects the performance of the funds. The insurance provider earns administration and expense charges as well as guarantee charges for the guaranteed benefits. Surrender charges are generally not a large form of revenue as policyholder surrender rates are typically lower when a surrender charge penalty is still present. Any surrender charges collected are typically applied to recoup deferred acquisition costs.
The premiums paid are invested in the underlying funds as selected by the client based on their preferred level of risk.
The assets and liabilities related to this product are legally segregated for the benefit of particular policyholders in separate accounts of the insurance company. These separate accounts are classified as investments for the account of policyholders.
Offshore Wealth Management products allow a customer to make regular withdrawals from their policy as long as there is sufficient value in the underlying fund. The death benefit is typically 100.1% of the surrender value of the policy on
the death of the last life assured. Offshore Wealth Management products do not have any explicit guarantees. Their surrender value reflects the performance of the funds selected by the client. Therefore, the final surrender value of the policy may be less than the original investment.
The account value of Offshore Wealth Management products reflects the performance of the funds. The insurance provider earns ongoing administration and expense charges on the policy.
Competition Variable annuities There has been no significant change from 2011 to 2012 in the competitive environment for variable annuities across Europe.
Canada Life respectively. Aegon’s current ranking reflects the difficulties experienced in 2011 and 2012 as a result of fierce price competition in the retail IFA market and the banking channel along with conflicting priorities for the UK sales force.
Key channels going forward will be Aegon’s ARC platform, banks and IFAs (non-platform).
Aegon Ireland currently operates on a FOS basis in the United
Class III (contracts linked to investment funds) and Class I (life insurance and contracts to pay annuities on human life, excluding contracts written in Classes II (contracts of insurance to provide a sum on marriage or on the birth of a child). Aegon Ireland must ensure it complies with the general good provisions that apply to insurers selling such policies in these jurisdictions.
Holding B.V. and Religare Trust Company, units based in India, were dissolved and the asset management unit based in Canada transferred into Aegon Asset Management.
The asset management entities are organized on a matrix basis according to investment platform line of business, managed by a global board. The main operating entities are: �� Aegon USA Investment Management LLC
Asset Management entities have close links with local insurance companies. Inflows to funds under management are derived through the sales efforts of these insurance companies who subsequently invest the proceeds into general account or unitlinked funds depending on the nature of the product sold. In some cases, Aegon Asset Management holds a control over this relationship in a closed architecture while in others Aegon Asset
Overview business lines Aegon Asset Management operates three business lines: general account, unit-linked and third party corresponding to the client groups listed above. In the United States, most of its business is general account, although there is some unit-linked and third party business. In Europe, Aegon manages a combination of general account, unit-linked and third party business.
These assets are carefully managed in order to match the insurers liabilities to policyholders obligations. As a rule, general account assets are managed in a closed architecture structure. The main asset class is fixed income and various derivative instruments are also used.
These funds are normally managed with an objective to beat a target (typically a benchmark or peer group). The main asset classes include fixed income, equities, real estate, mortgage loans and alternatives. In the United States and the United
Kingdom, a significant element of unit-linked business is conducted on an open architecture basis.
�� Third party business is not normally on the Aegon balance sheet and typically product design and distribution are controlled by Aegon Asset Management rather than the affiliated insurance companies, although some third party business is sourced through co-operation arrangements with the insurance affiliates. The retail businesses typically sell collective investment vehicles (mutual funds) to the public via intermediaries. The main asset classes are fixed income and equities and the funds are normally managed against a peer group target. The institutional businesses typically sell tailored services to large corporations or pension funds.
They employ a full range of asset classes and manage the funds against objectives, targets and risk profiles agreed with the clients. Both absolute and relative return products are offered. Aegon Asset Management distributes these services internationally.
continued to dominate asset management activity. The allocation to fixed income remained strong throughout the year, although there was a significant move back towards equities in the third quarter. This move was witnessed both in the retail and institutional marketplace. The continued policy support provided by central banks around the world has certainly helped risk assets, and particularly the efforts of the European Central Bank through its long-term refinancing and unlimited bond buying programmes. Analysis of the inflows into the equity sector shows that absolute return vehicles have benefited from strong demand, with global equity income products also popular.
Regulation and supervision Aegon Asset Management has a global holding company,
Aegon Asset Management Holding B.V., which is regulated by the DNB (Dutch Central Bank) under the European consolidated supervision rules. In Europe, regulation for asset management companies is different from that for insurers as it is based on separate European Directives. However, in most jurisdictions the same regulators oversee insurance and asset management.
(for Dutch entities), the FSA (for UK based entities), the SEC (for
Risk management General As an insurance company, Aegon manages risk on behalf of its customers and other stakeholders. As a result, the company is exposed to a variety of underwriting, operational and financial risks. Aegon’s risk management and control systems are designed to ensure that these risks are managed effectively and efficiently.
Definition and tolerances For Aegon, risk management involves: �� Understanding which risks the company is able to underwrite.
�� Establishing a company-wide framework through which the risk-return trade-off associated with these risks can be assessed.
Objectives of risk management Aegon must, at all times, maintain a solvency and liquidity position such that no plausible scenario would cause the company to default on its obligations to policyholders. To accomplish this, Aegon has established a number of basic objectives for its risk management strategy: �� Financial strength: Ensure Aegon meets long-term obligations to policyholders. Aegon uses two measures to determine its approach to financial strength: �� Regulatory requirements
�� Culture: Encourage a strong risk culture by stressing the company’s low tolerance for operational risk. This will help improve operational excellence and ensure the company treats its customers and other stakeholders fairly.
�� To reassure external stakeholders that Aegon has appropriate risk management structures and controls in place.
Governance structure Aegon’s risk management framework is represented across all levels of the organization. This ensures a coherent and integrated approach to risk management throughout the company. Similarly, Aegon has a comprehensive suite of company-wide risk policies, which detail specific operating guidelines and limits. These policies are designed to keep overall risk- specific exposures to a manageable level. Any breach of policy limits or warning levels triggers immediate remedial action or heightened monitoring. Further risk policies may be developed at a local level to cover situations specific to particular regions or business units. Aegon’s risk management governance structure has three basic layers: �� The Supervisory Board (SB) and the Supervisory Board Risk
EBRC regularly reports significant risks to, and discusses Aegon’s risk strategy with, the SBRC. The Group Chief Risk Officer (CRO)
The MB oversees a broad range of strategic and operational issues. While the EB remains Aegon’s sole statutory executive body, the MB provides vital support and expertise in safeguarding
management framework, including risk governance and measures taken to ensure risk management is integrated properly into the company’s broader strategy. The SBRC reviews the company’s risk exposure as it relates to capital, earnings and compliance with Group Risk policies. It is the responsibility of the EB and the Group CRO to inform the SB should any risks directly threaten the solvency, liquidity or operations of the company.
Details of members of the SBRC can be found on pages 111 and 112 of this Annual Report.
The EBRC is supported by two committees: �� The Enterprise Risk Management Committee (ERMC)
supporting ERM framework development and maintenance, including risk governance and risk policies.
�� The Group Risk & Capital Committee (GRCC) supporting risk oversight, as the primary balance sheet management committee of Aegon.
The responsibilities and prerogatives of the RCCs are set out in their respective charters and are similar in content to those of the GRCC, but are tailored to local circumstances. Aegon’s regional and business unit CROs have the additional authority to defer decisions that can have a significant impact on the region’s or business unit’s solvency, liquidity or operations to the Board of the region or business unit and the Group CRO.
CRO or one of the regional CROs that report directly into the Group CRO. Regions include Americas, the Netherlands,
“lines of defense” to ensure conscious risk-return decisions and limit the magnitude of potential losses within defined levels of certainty. The objective of this structure is to avoid surprises due to unidentified risks materializing or losses that exceed predefined risk tolerance levels and related limit structures.
The company’s first line of defense has direct responsibility for managing and taking risk in accordance with defined risk tolerances and risk policies, that is business and support functions. The second line of defense facilitates and oversees the effectiveness and integrity of enterprise risk management across the company, the risk functions and SBRC, EBRC, ERMC.
Risk overview 2012 Credit risk Credit spreads have narrowed over 2012. During the year,
�� In the United Kingdom, optimizing credit risk exposure (traded gilts for high quality agencies).
Equity market risk and other investment risks Equity markets were volatile throughout the year. During 2012,
Aegon continued to progress its program of hedging equity risk at its UK pension business, Variable Annuities Europe, US and
Dutch operations to protect the company against a possible deterioration in equity markets.
New sales of fixed annuities in the United States, meanwhile, were discontinued. Furthermore, the United Kingdom put on hedges for the pension scheme.
Stress tests show that available liquidity would more than match the company’s liquidity requirements, even if market conditions were to significantly deteriorate.
Operational risk Like other companies, Aegon faces risks resulting from operational failures or external events, such as changes in regulations, acts from personnel and natural or man-made disasters. Aegon’s systems and processes are designed to support complex products and transactions and to avoid such issues as system failures, financial crime and breaches of security. Aegon is constantly working on analyses studying such operational risks and regularly develops contingency plans to deal with them.
I - Risks relating to Aegon’s businesses The following discusses some of the key risk factors that could affect Aegon’s businesses and operations, as well as other risk factors that are particularly relevant to Aegon in the current period of significant economic and market disruption. Additional risks to which Aegon is subject to includes, but is not limited to, the factors mentioned under “Forward-looking statements”
Aegon’s results of operations and financial condition may be materially affected from time to time by general economic conditions, such as levels of employment, consumer lending or inflation in the countries in which we operate. Global financial markets experienced extreme and unprecedented volatility and disruption in recent years and signficiant uncertainty remains today - particularly in Europe. These developments have created an unfavorable environment for banking activity generally. Bank lending has been reduced below the levels seen before the financial crisis for some time and the housing markets in Europe and North America remain depressed.
In addition to the other risks described in this section, these conditions may result in reduced demand for Aegon’s products as well as impairments and reductions in the value of the assets in Aegon’s general account, separate account, and company pension schemes, among other assets. Aegon may also experience a higher incidence of claims and lapses or surrenders of policies. Aegon’s policyholders may choose to defer or stop paying insurance premiums. Aegon cannot predict definitively whether or when such actions, which could impact Aegon’s businesses, results of operations, cash flows and financial condition, may occur.
European peripheral countries). Yields on the sovereign debt of most European Union member states are volatile. The European
federal government is unable to achieve a resolution that would mitigate the impact of the Fiscal Cliff to a meaningful degree, there could be an adverse impact on the US economy with a decrease in consumer spending, which could negatively impact
Credit risk Defaults in Aegon’s debt securities, private placements and mortgage loan portfolios held in Aegon’s general account or failure of certain counterparties may adversely affect profitability and shareholders’ equity.
Asset exposure exists through direct equity investment where Aegon bears all or most of the volatility in returns and investment performance risk. Equity market exposure is also present in insurance and investment contracts for account of policyholders where funds are invested in equities (such as variable annuities, unit-linked products and mutual funds).
Although most of the risk remains with the policyholder, lower investment returns can reduce the asset management fee that Aegon earns on the asset balance in these products and prolonged investment under-performance may cause existing customers to withdraw funds and potential customers not to grant investment mandates.
(DPAC), which could impact the reported net income as well as shareholders’ equity. Volatile or poor market conditions may also significantly reduce the demand for some of Aegon’s savings and investment products, which could lead to lower sales and net income. Deteriorating general economic conditions may again result in significant decreases in the value of Aegon’s equity investments. The equity market conditions experienced through 2012 led to a recognized impairment loss on equity securities held in general account of EUR 15 million (2011: EUR 10 million, 2010: EUR 7 million).
This activity may result in cash payments by Aegon requiring the sale of invested assets at a time when the prices of those assets are affected adversely by the increase in market interest rates. This may result in realized investment losses. These cash payments to policyholders also result in a decrease in total invested assets and net income. Early withdrawals may also require accelerated amortization of DPAC, which in turn reduces net income.
During periods of sustained low interest rates, such as Aegon has been facing in recent years, Aegon may not be able to preserve margins as a result of minimum interest rate guarantees and minimum guaranteed crediting rates provided in policies. Also, investment earnings may be lower because the interest earnings on new fixed-income investments are likely to have declined with the market interest rates. Life insurance and annuity products may be relatively more attractive to consumers, resulting in increased premium payments on products with flexible premium features and a higher percentage of insurance policies remaining in force year-to-year. Mortgages and redeemable bonds in the investment portfolio are more likely to be repaid as borrowers seek to refinance at lower interest rates and Aegon may be required to reinvest the proceeds in securities bearing lower interest rates. Risk is heightened in the current market and economic environment in which certain securities may be unavailable. Accordingly, net income may decline as a result of a decrease in the spread between returns on the investment portfolio and the interest rates either credited to policyholders or assumed in reserves.
To the extent these expected dividends are not hedged or actual dividends vary from expected, Aegon’s net income and shareholders’ equity may fluctuate. 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.
The exchange rates between Aegon’s primary operating currencies (US dollar, euro and UK pound) continued to fluctuate during 2012. In 2012, the US dollar ranged by as much as 18 %
against the euro, finishing around 7% up on 2011. The UK pound fluctuated by around 12% against the euro ending the year with a 3% gain.
UK pounds, total revenues and net income in 2012 amounted to EUR 8.5 billion and EUR 169 million, respectively. On a consolidated basis, these two segments represented 73% of the total revenues and 76% of the net income for the year 2012. Additionally, Aegon borrows in various currencies to hedge the currency exposure arising from its operations. As of
It is possible that the euro could be abandoned as a currency in the future by countries that have already adopted its use.
This could lead to the re-introduction of individual currencies in one or more European Monetary Union member states, or in more extreme circumstances, the dissolution of the European
Any security Aegon issues in significant volume may be issued at higher financing costs if funding conditions are impaired as they have been from time to time in recent years. The requirement to issue securities can be driven by a variety of factors, for instance Aegon may need liquidity for operating expenses, debt servicing and the maintenance of capital levels of insurance subsidiaries. Although Aegon manages its liquidity position for extreme events, including greatly reduced liquidity in capital markets, if these conditions were to persist for an extended 89Annual Report 2012
period of time, Aegon may need to sell assets substantially below prices at which they are currently recorded to meet its insurance obligations.
In 2012, approximately 40% of Aegon’s general account investments were not highly liquid.
Aegon’s income. In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force have been recorded as assets on the balance sheet and are being amortized into income over time. If the assumptions relating to the future profitability of these policies (such as future claims, investment income and expenses) are not realized, the amortization of these costs could be accelerated and may even require write-offs due to an expectation of unrecoverability.
Aegon may be required to increase its statutory reserves and/or hold higher amounts of statutory capital for some of its products which will decrease Aegon’s returns on these products unless Aegon increases its prices.
The European Commission’s Solvency II directive, effective date pending, is expected to impose, among other things, substantially greater quantitative and qualitative capital requirements on some of Aegon’s businesses and at Group level as well as supervisory and disclosure requirements and may impact the structure, business strategies, and profitability of Aegon’s insurance subsidiaries and of the Group. Some of Aegon’s competitors who are headquartered outside the
Aegon, particularly in Aegon’s businesses in the United States and Asia.
and AXXX on future sales of term or universal life insurance products, potentially resulting in an adverse impact on these products and Aegon’s market position in the life insurance
There may be heightened oversight of insurers by regulatory authorities in the jurisdictions in which Aegon’s subsidiaries are domiciled and operate. Aegon cannot predict specific proposals that might be adopted, or what impact, if any, such proposals or, if enacted, such laws, could have on its businesses, results of operations, or financial condition. The European Union is adopting Solvency II as discussed above, the NAIC or state regulators may adopt revisions to applicable risk based capital formulas, local regulators in other jurisdictions in which Aegon’s subsidiaries operate may increase their capital requirements, or rating agencies may incorporate higher capital thresholds into their quantitative analyses, thus requiring additional capital for
Claims paying ability and financial strength ratings are factors in establishing the competitive position of insurers. A rating downgrade (or the potential for such a downgrade) of Aegon or any of its rated insurance subsidiaries may, among other things, materially increase the number of policy surrenders and withdrawals by policyholders of cash values from their policies.
Aegon has experienced downgrades and negative changes to its outlook in the past and, may experience downgrades and negative changes in the future. For example during 2012, Fitch put a negative outlook on its long term issuer default rating for
(Aegon UK). A downgrade or potential downgrade, including changes in outlook, could result in higher funding costs and/
or affect the availability of funding in the capital markets. In addition, a downgrade may adversely affect relationships with broker-dealers, banks, agents, wholesalers and other distributors of Aegon’s products and services, which may negatively impact new sales and adversely affect Aegon’s ability to compete. This would have a materially adverse effect on Aegon’s businesses, results of operations and financial condition.
Aegon’s regulated businesses, such as insurance, banking and asset management, are subject to comprehensive regulation and supervision. The primary purpose of such regulation is to protect clients (i.e. policyholders), not holders of securities. Changes in existing insurance laws and regulations may affect the way in which Aegon conducts business and the products offered.
Additionally, the laws or regulations adopted or amended from time to time may be more restrictive or may result in higher costs than current requirements. The recent financial markets dislocation has resulted in, and may continue to result in further, extensive changes to existing laws, regulations and regulatory 91Annual Report 2012
Frank Act), which provides for comprehensive changes to the regulation of financial services in the United States by granting existing government agencies and newly created government agencies and bodies (for example., the Financial Stability
USA will be the Derivatives Reform part of the Dodd-Frank Act, which aims to increase transparency of derivatives and reduce systemic risk. Aegon USA entities will be considered Category 2 under the regulations and will be required to begin clearing derivative transactions as they are phased in over time, beginning with the four categories of interest rate swaps and two categories of indexed credit default swaps on June 10, 2013. In addition, Aegon USA will have new reporting, initial margins and variation margins obligations under the Dodd-Frank Act and its regulations. However, Aegon cannot predict how the regulations will affect the financial markets generally or how the regulations will affect Aegon’s operations or financial condition.
Care Act (PPACA) was enacted in 2011 and upheld by the
US Supreme Court in 2012. PPACA significantly changes the regulation of health insurance in the United States, including in certain respects the regulation of supplemental health insurance products. The extent to which employers or individuals may discontinue their purchase of supplemental health insurance products as a result of these changes may significantly impact
As the methodology to identify deceased policyholders becomes more refined, it is possible Aegon will add to this reserve. Also, various major insurers in the U.S. have entered into settlements with insurance regulators recently regarding claims settlement practices. Aegon expects that regulators will be trying to reach settlements with other US insurers. While Aegon believes that
Adequate transparency of product features and cost levels is important for customer satisfaction, especially when they apply for, or take effect over, a longer duration, as is the case for many of Aegon’s products. In addition, many of Aegon’s products offer returns that are affected by, among other things, fluctuations in equity markets as well as interest rate
Netherlands, certain current and former customers, and groups representing customers have initiated litigation, and certain groups are encouraging others to bring lawsuits against Aegon and other insurers, in respect of certain products including securities leasing products and unit-linked products (so called
Aegon has defended and Aegon intends to continue defending itself vigorously when we believe claims are without merit.
Aegon has also sought and will continue to seek to settle certain claims including via policy modifications in appropriate circumstances such as the settlement we reached in July 2009 with Stichting Verliespolis and Stichting Woekerpolis Claim in the Netherlands, two major customer interest groups. In May 2012, Aegon announced that it would accelerate certain product improvements that reduce future costs and that increase policy value for its customers with unit-linked insurance policies consistent with the agreements Aegon announced in July 2009.
Dutch Ministry of Finance to apply ‘best of class’ principles to certain existing unit-linked products. As a result of this acceleration, in the second quarter of 2012 Aegon took a oneoff charge of EUR 265 million before tax. In addition, Aegon will reduce future policy costs from 2013 onward for the large majority of its unit-linked portfolio. This will impact underlying earnings before tax over the remaining duration of the policies by approximately EUR 125 million in the aggregate including approximately EUR 7 million per quarter during 2013. While parties such as Ombudsman Financiële Dienstverlening (the
Netherlands financial services industry ombudsman) support the arrangement, the public debate on the adequacy generally of the arrangements reached with customer interest groups, as well as the discussions in the Dutch Parliament, continue and may lead to re-examination and further adjustment of the settlements made. It is not yet possible to determine the direction or outcome of any further debate, including what actions, if any, we may take in response thereto, or the impact that any such actions may have on Aegon’s business, results of operations and financial position. Any such actions, whether triggered by legal requirements or commercial necessity, any substantial legal liability or a significant regulatory action could have a materially adverse effect on Aegon’s business, results of operations and financial condition.
For example, in July 2011, the Amsterdam Court of Appeal, an intermediate appeals court, ruled with respect to the
Koersplan-product that customers are required to pay a reasonable premium. However, the Court went on to define what it considers to be a reasonable premium at a level below that charged by Aegon. Aegon believes that the Court’s ruling, which was based on a single industry example that Aegon believes is not representative, was wrongly decided and, in
October 2011, appealed the decision to the Supreme Court in the Netherlands. The Attorney General (Procureur Generaal) in
March 2013 advised the Supreme Court to annul the decision of the Amsterdam Court of Appeal. However, for reasons that are limited to this specific case, the Attorney General’s advice to annul did not include the Amsterdam Court’s decision to apply a single industry example to define a reasonable premium.
Supreme Court, it could result in a legal liability of approximately
Aegon does not believe have merit, there can be no assurance that any claims brought against Aegon by its customers will not have a materially adverse effect on Aegon’s business, results of operations and financial position.
As a result of the European Commission’s approval of the core capital Aegon received from the Dutch State in 2008, Aegon was subject to certain requirements which may continue to have a materially adverse effect on Aegon’s business, results of operations and financial condition. These requirements included behavioral constraints of the core capital securities and repayment of the Dutch State on June 15, 2011.
Structural measures that remained in force throughout 2012: �� Reduction of the total US general account assets of the consolidated Aegon USA balance sheet on a constant currency and amortized cost basis by USD 25 billion from 2007 (USD 130 billion) to the end of 2012 (USD 105 billion); as at December 31, 2012, this figure was USD 102 billion.
�� Improvement, by December 2012, of the ratio of consolidated shareholders’ equity (excluding revaluation reserve) to total equity base (including equity, hybrids and net senior debt)
The execution of these structural measures may have a material adverse effect on Aegon’s businesses, results of operations and financial condition.
Aegon is exposed to currency fluctuations, changes in the fair value of Aegon’s investments, the impact of interest rate, equity markets and credit spread changes and changes in mortality and longevity. Aegon uses common financial derivative instruments, such as swaps, options, futures and forward contracts to hedge some of the exposures related to both investments backing insurance products and company borrowings. This is a more pronounced risk to Aegon in view of the stresses suffered by financial institutions and the volatility of credit and equity markets. Aegon may not be able to manage the risks associated with these activities successfully through the use of derivatives.
In addition, a counterparty may fail to honor the terms of its derivatives contracts with Aegon. Aegon’s inability to manage risks successfully through derivatives, a counterparty’s failure to honor Aegon’s obligations or the systemic risk that failure is transmitted from counterparty to counterparty could each have a material adverse effect on Aegon’s businesses, results of operations and financial condition.
derivative markets through a central clearing organization. This may limit Aegon’s ability to customize derivative transactions for its needs. As a result, Aegon may experience additional collateral requirements and costs associated with derivative transactions.
In addition, local regulators, acting to represent the interests of local policyholders, are taking an increasingly restrictive stance with respect to permitting dividend payments, which may affect
The amended standard applies to financial years beginning on or after January 1, 2013. The amendments eliminate the option to defer the recognition of gains and losses, known as the
“corridor method”. The amendments streamline the presentation of changes in assets and liabilities arising from defined benefit plans, including requiring remeasurements to be presented in other comprehensive income. As per December 31, 2012, Aegon estimates the adverse impact on equity of removing the corridor to be approximately EUR 1.1 billion (post tax), consisting of the unrecognized actuarial gains and losses as per that date.
Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC 12 Consolidation-Special
The changes introduced by IFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore are required to be consolidated, as compared with the requirements of IAS 27. The amended IFRS
10 standard is effective for annual periods beginning on or after
January 1, 2013. As per December 31, 2012, Aegon estimates the adverse impact on equity of consolidating securitization contracts that currently have off balance sheet treatment to amount EUR 155 million.
Aegon is subject to the substance and interpretation of tax laws in all countries in which Aegon operates or invests. Tax risk is the risk associated with changes in tax laws, or the interpretation of tax laws, later jurisprudence or case law, or the introduction of new taxes or tax laws. This tax risk also includes the risk of changes in tax rates and the risk of consequences arising from failure to comply with procedures required by tax authorities.
Further, insurance products enjoy certain tax advantages, particularly in the United States and the Netherlands, which permit the tax deferred accumulation of earnings on the premiums paid by the holders of annuities and life insurance products under certain conditions and within certain limits.
Taxes on this inside build-up of earnings may not be payable at all and, if payable, generally are due only when the earnings are actually paid.
The US Government, as well as state and local governments, also considers from time to time tax law changes that could increase the amount of taxes that Aegon pays. For example, the US Treasury Department and the Internal Revenue Service may propose new regulations regarding the methodology to determine the dividends received deduction (DRD) related to variable life insurance and variable annuity contracts. The DRD
reduces the amount of dividend income subject to tax and is a significant component of the difference between Aegon’s effective tax rate and the federal statutory tax rate of 35%.
Competition in Aegon’s business segments is based on service, product features, price, commission structure, financial strength, claims paying ability, ratings and name recognition. Aegon faces intense competition from a large number of other insurers, as well as non-insurance financial services companies such as banks, broker-dealers and asset managers, for individual customers, employers, other group customers, agents and other distributors of insurance and investment products. Consolidation in the global financial services industry can enhance the competitive position of some of Aegon’s competitors by broadening the range of their products and services, increasing their distribution channels and their access to capital. In addition, development of alternative distribution channels for certain types of insurance and securities products, including through the internet, may result in increasing competition as well as pressure on margins for certain types of products. Traditional distribution channels are also challenged by the ban on sales based commissions in some countries.These competitive pressures could result in increased pricing pressures on a number of products and services, particularly as competitors seek to win market share. This may harm Aegon’s ability to maintain or increase profitability.
The adverse market and economic conditions that began in the second half of 2007 and significantly worsened in 2008 and into 2009, with recovery beginning in late 2009 and in 2010, followed in 2011 and 2012 by further periods of volatility and weakness, particularly in the eurozone, can be expected to result in changes in the competitive landscape. For example, the financial distress experienced by some financial services industry participants as a result of weak economic conditions and newly imposed regulation may lead to acquisition opportunities.
Spanish banks to distribute a combination of life insurance and pension products. Savings banks in Spain are currently undergoing a period of consolidation as a result of ongoing economic uncertainty. As banks with which Aegon has partnerships consolidate with other banks or otherwise alter their operations, Aegon may experience significant adverse effects on its partnerships with those banks as well as its competitive position in the Spanish life insurance and pensions market. Currently, one of Aegon’s partnerships has been dissolved as a result of these consolidations and more partnerships may dissolve in the future.
The default of a major market participant could disrupt the markets.
The failure of a sufficiently large and influential financial institution could disrupt securities markets or clearance and settlement systems in Aegon’s markets. This could cause market declines or volatility. Such a failure could lead to a chain of defaults that could adversely affect Aegon and Aegon’s contract counterparties. In addition, such a failure could impact future product sales as a potential result of reduced confidence in the insurance industry.
Aegon may be unable to attract and retain personnel who are key to the business.
As a global financial services enterprise with a decentralized management structure, Aegon relies, to a considerable extent, on the quality of local management in the various countries in which Aegon operates. The success of Aegon’s operations is dependent, among other things, on Aegon’s ability to attract and retain highly qualified professional personnel. Competition for key personnel in most countries in which Aegon operates is intense. Aegon’s ability to attract and retain key personnel, in particular senior officers, experienced portfolio managers, mutual fund managers and sales executives, is very much dependent on the competitiveness of the compensation package in the market in which it competes for employees. As a part of the governmental response in Europe and to a certain extent the United States to the financial crisis in 2008, there have been various legislative initiatives that have sought to give guidance or regulate the structure of remuneration for personnel, in particular senior management, with a focus on performancerelated remuneration and limiting severance payments. With differences in interpretation of these regulations by local regulators on how the guidelines need to be applied as well as to the question of whether they apply to insurance industries at all, these restrictions create an uncertain playing field and could adversely affect Aegon’s ability to compete for qualified employees as well as Aegon’s ability to exchange employees between regions.
Aegon divested Transamerica Reinsurance to SCOR in August 2011, as a result Aegon is exposed to certain risks including enhanced counterparty exposure risk to SCOR.
is at risk if SCOR defaults on its obligations under the policies
As part of Aegon’s overall risk and capacity management strategy, Aegon purchases reinsurance for certain risks underwritten by Aegon’s various business segments. Market conditions beyond Aegon’s control determine the availability and cost of the reinsurance protection Aegon purchases. Accordingly,
Aegon may have difficulty managing its expanding operations and Aegon may not be successful in acquiring new businesses or divesting existing operations.
Aegon’s acquisitions could result in additional indebtedness, costs, contingent liabilities and impairment expenses related to goodwill and other intangible assets. In addition, they may divert management’s attention and other resources. Divestitures of existing operations could result in Aegon assuming or retaining certain contingent liabilities. All of the foregoing could adversely affect Aegon’s businesses, results of operations and financial condition. Future acquisitions may also have a dilutive effect on the ownership and voting percentages of existing shareholders.
Catastrophic events, which are often unpredictable by nature, could result in material losses and abruptly and significantly interrupt Aegon’s business activities.
Over the past several years, changing weather patterns and climatic conditions have added to the unpredictability and frequency of natural disasters in certain parts of the world and created additional uncertainty as to future trends and exposure. Generally, Aegon seeks to reduce its exposure to these events through individual risk selection, monitoring risk accumulation and purchasing reinsurance. However, such events could lead to considerable financial loss to Aegon’s businesses.
Aegon’s operations and result in significant loss of property, key personnel and information about Aegon and its clients.
Aegon relies on a combination of contractual rights with third parties and copyright, trademark, patent and trade secret laws to establish and protect Aegon’s intellectual property. Third parties may infringe on or misappropriate Aegon’s intellectual property, and it is possible that third parties may claim that Aegon has 97Annual Report 2012
Operational risk is inherent in Aegon’s businesses and can manifest itself in many ways including business interruption, poor vendor performance, information systems malfunctions or failures, regulatory breaches, processing errors, modeling errors, and/or internal and external fraud. These events can potentially result in financial loss, harm to Aegon’s reputation and hinder Aegon’s operational effectiveness. Management undertakes significant effort to control these risks and keep operational risk at appropriate levels by maintaining a wellcontrolled environment and sound policies and practices.
Notwithstanding these control measures, however, operational risk is part of the business environment in which Aegon operates and is inherent in Aegon’s size and complexity as well as
Aegon operates. Aegon’s risk management activities cannot anticipate every economic and financial outcome or the specifics and timing of such outcomes. Furthermore, if the contractual arrangements put in place with any third party service providers, including providers of information technology, administrative or investment management services, are terminated, Aegon may not find an alternative provider on a timely basis or on equivalent terms. Aegon may incur losses from time to time due to these types of risks.
Aegon’s operations support complex transactions and are highly dependent on the proper functioning of information technology and communication systems. Any failure of
Aegon must commit significant resources to maintain and enhance its existing systems in order to keep pace with industry standards and customer preferences. If Aegon fails to keep up-to-date information systems, Aegon may not be able to rely on information for product pricing, risk management and underwriting decisions. In addition, even though backup and recovery systems and contingency plans are in place, Aegon cannot assure investors that interruptions, failures or breaches in security of these processes and systems will not occur, or if they do occur, that they can be adequately addressed. The occurrence of any of these events could have a materially adverse effect on
Aegon’s businesses, damage Aegon’s reputation and adversely affect Aegon’s results of operations, financial condition and cash flows.
The price at which Aegon’s common shares trade will be influenced by a large number of factors, some of which will be specific to Aegon and Aegon’s operations and some of which will be related to the insurance industry and equity markets in general. As a result of these factors, investors may not be able to resell their common shares at or above the price paid for them. In particular, the following factors, in addition to other risk factors described in this section, may have a material impact on the market price of Aegon’s common shares: �� Investor perception of Aegon as a company.
�� Changes in Aegon’s dividend policy, which could result from changes in Aegon’s cash flow and capital position.
�� A downgrade or rumored downgrade of Aegon’s credit or financial strength ratings, including placement on credit watch.
�� Changes in financial estimates and recommendations by securities research analysts.
�� Fluctuations in capital markets including foreign exchange rates, interest rates and equity markets.
USD 6.47 and USD 3.92 respectively in 2012. All share prices are closing prices.
Aegon’s preferred shares for cash and common shares. As a result of the transaction, the number of common shares outstanding would increase by approximately 7%. However, the dilutive effect on earnings per share is limited to 3% as there will be no preferred dividend payments following the transaction.
An additional offering of common shares by Aegon, the restructuring of Aegon’s share capital (see also the section
As of December 31, 2012, Aegon’s total authorized share capital consisted of 3,000,000,000 common shares, par value EUR 0.12 per share, and 1,000,000,000 preferred shares (divided into 500,000,000 class A and 500,000,000 class B preferred shares), par value EUR 0.25 per share. All of Aegon’s outstanding common shares are freely tradable, and all shareholders, including large shareholders such as Vereniging Aegon, are free to resell their shares at any time.
The class B preferred shares would then be issued at par value (EUR 0.25), unless a higher price is agreed. In the years 2003 through 2009, a total of 69,030,000 class B preferred shares were issued under these option rights. On March 15, 2011, Vereniging Aegon exercised its option rights to purchase 41,042,000 class B preferred shares at par value to offset dilution caused by the equity issuance completed on March 1, 2011. In 2012, Vereniging Aegon exercised its option rights to purchase 8,021,000 class B preferred shares at par value to offset the dilution caused by the distribution of an (interim)
Meeting of Shareholders. However, this reduction in voting percentage is not applicable in all circumstances. In certain limited circumstances at the sole discretion of Vereniging Aegon
(such as the acquisition of 15% of the voting shares, a tender offer for shares or a proposed business combination, each by any person or group of persons, whether individually or acting as a group, other than in a transaction approved by the Executive
Board and Supervisory Board), Vereniging Aegon’s voting rights for a limited period of six months will increase to a percentage that at December 31, 2012, amounted to 32.64%. Consequently,
Vereniging Aegon may have substantial influence on the outcome of corporate actions requiring shareholder approval, including: �� Adopting amendments to the Articles of Association.
In February 2013, Aegon and Vereniging Aegon reached an agreement to exchange, subject to approval by the annual
dollar may affect the value of Aegon’s common shares. In addition, Aegon declares cash dividends in euros, but pays cash dividends, if any, on Aegon’s shares of New York registry in US
dollars based on an exchange rate set the business day following the shareholder meeting approving the dividend. As a result, fluctuations in exchange rates may affect the US dollar value of any cash dividends paid.
For example, the price of Aegon’s common shares could become more volatile and could be depressed by investors’ anticipation of the potential resale in the market of substantial amounts of
Capital and liquidity management Liquidity and capital resources In line with its risk tolerance, the goal of Aegon’s capital and liquidity management is to secure a stable and strong capital adequacy level for its businesses on various capital metrics, ensuring the company is able to meet its obligations.
Risk Management Framework, and focuses on financial strength, continuity, steering of the risk preferences and desired risk culture. The core aim is to establish the organization’s tolerance for risk in order to assist management in carrying out Aegon’s strategy within the Group’s available resources.
�� Maintain an efficient capital structure with an emphasis on optimizing Aegon’s cost of capital.
�� Ensure Aegon’s continued access to international money and capital markets on competitive terms.
Taken together, Aegon believes these guiding principles strengthen the company’s ability to withstand adverse market conditions, enhance its financial flexibility and serve the longterm interests of both the company and its stakeholders.
Capital management Strategic importance In recent years, Aegon has released a significant amount of capital from its existing businesses through a combination of risk reduction, greater capital efficiency and a more active capital management strategy. Given current economic and market uncertainty, Aegon intends to retain prudent capital and liquidity buffers in its operating units and the Holding for the foreseeable future.
Aegon’s approach to capital management plays a vital role in the company’s broader strategy, which is based in part on ensuring more capital is directed toward those markets that offer stronger growth prospects and higher returns. This includes markets in Latin America, Asia, Spain and Central & Eastern Europe, as well as specific, high-growth segments in the company’s more established markets of the United States, the Netherlands and the United Kingdom.
Capital requirements and leverage Aegon’s goal is to ensure that all units maintain a strong financial position, now and into the future, and are able to sustain losses from adverse business and market conditions. The company’s overall capital management strategy depends on the following factors: �� Capital adequacy
Aegon’s Insurance Group Directive ratio - a common measure of capital adequacy in the European Union - was 228% at
December 31, 2012, up from 195% at the end of 2011, driven mainly by the company’s positive operating performance.
Capital quality Aegon’s total capital base, excluding revaluation reserves, consists of the following components: �� Core capital, which comprises shareholders’ equity (excluding the revaluation reserve).
(December 31, 2011: EUR 17.5 billion) and the total capital base, excluding revaluation reserves, amounted to EUR 24.2 billion (December 31, 2011: EUR 23.8 billion).
Aegon N.V. has regular access to international capital markets under a USD 6 billion debt issuance program. Access to United
States markets is made possible by a separate US shelf registration.
EUR 2 billion syndicated revolving credit facility maturing in 2017. There are additional backup facilities of USD 2 billion, of which USD 1.5 billion matures in 2015 and USD 0.5 billion matures in 2017. In addition, Aegon also maintains USD 425 million of shorter-dated bilateral backup facilities. Aegon N.V.
has not drawn any amounts under any of its liquidity backup facilities.
Aegon’s aim is to ensure that liquidity is sufficient to meet cash demands even under extreme conditions. The amount of liquidity held is determined by the company’s liquidity risk policy, which ensures that Aegon and its operating companies maintain a prudent liquidity profile.
Sources and uses of liquidity Aegon’s subsidiaries are primarily engaged in the life insurance business, which is a long-term business with relatively illiquid liabilities and generally matching assets. Liquidity consists of both liquid assets held in investment portfolios, as well as inflows generated by premium payments and customer deposits.
These are used primarily to purchase investments, as well as to fund benefit payments to policyholders, policy surrenders, operating expenses, and, if the subsidiary’s capital position so allows, to pay dividends to Aegon N.V. At Aegon N.V., liquidity is sourced from internal dividends from operating companies and by accessing capital and money markets. Liquidity is coordinated centrally and managed both at Aegon N.V. and at country unit levels.
This policy ensures that liquidity is measured and managed consistently across the company and the liquidity stress management plans are in place.
External dividends Aegon aims to pay out a sustainable dividend to allow equity investors to share in Aegon’s performance, which can grow over time if Aegon’s performance so allows. After investment in new business to generate organic growth, capital generation in Aegon’s operating subsidiaries is available for distribution to the holding company, while maintaining a capital and liquidity position in the operating subsidiaries in line with Aegon’s capital management and liquidity risk policies.
Ratings Throughout the recent financial crisis, Aegon’s aim has been to maintain excess capital over and above the amount required to maintain an AA financial strength rating. This remains the company’s objective, and plays an important role in determining the overall capital management strategy. Aegon maintained strong financial strength ratings from leading international rating agencies for its operating subsidiaries and a strong credit rating for the Holding.
In control statement Internal risk management and control systems The Executive Board is responsible for designing, implementing and maintaining internal controls, including proper accounting records and other management information suitable for running the business.
(COSO), are used by Aegon’s Internal Audit to analyze and make recommendations to the Executive Board concerning the effectiveness of internal controls over Aegon’s financial reporting process and the company’s internal control framework.
In addition, the Executive Board is responsible for Aegon’s enterprise risk management framework under supervision of the Supervisory Board and its Risk Committee. Aegon’s risk management function monitors and controls Aegon’s solvency position and ensures that risk taking is within Aegon’s risk tolerance levels. The Executive Board is informed of any risks that threaten the economic/statutory solvency, reputation of the company, reliability of financial reporting, or operations of the company.
Board makes the following statement regarding the company’s financial reporting risks: �� Aegon’s risk management and control systems provide reasonable assurance that the company’s financial reporting does not contain any material inaccuracies.
The risk management and control systems provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of Aegon’s published financial statements. However, they cannot provide absolute assurance that a misstatement of Aegon’s financial statements would be prevented or detected.
Responsibilities in respect of the financial statements and the Annual Report The Executive Board is responsible for preparing the financial statements and the Annual Report in accordance with Dutch law and International Financial Reporting Standards as adopted by the European Union (IFRS).
Board currently consists of nine members (for further details on the individual members of Aegon’s Supervisory Board, please see pages 111 and 112). The Supervisory Board makes recommendations to the General Meeting of Shareholders concerning all appointments and reappointments to, and dismissals from, both the Executive Board and the Supervisory
Corporate governance Details of Aegon’s corporate governance structure and a summary of the company’s compliance with the Dutch Corporate
Management Boards attended the Supervisory Board meetings held in 2012. Other company executives also attended the meetings at the request of the Supervisory Board to update it on various subjects. Representatives from Ernst & Young, Aegon’s external auditors, attended the discussions on the company’s 2011 results.
In the following paragraphs further detail is provided on the discussions of the Supervisory Board on some of these topics.
Aegon received from the Dutch State in 2008, therefore during 2012 Aegon could again fully focus on preparing its businesses for a changing environment in terms of continuing market volatility, increasing longevity trends, changing customer behaviors and regulatory and technological developments. In two strategy sessions, and as part of other meetings, the Supervisory
Committee discussed the proposed cancellation of the preferred shares owned by Vereniging Aegon, which was announced on
February 15, 2013, and will be submitted to shareholders for approval at the annual General Meeting of Shareholders on
Strategy sessions During a one day session in March and two days in June the
In the December meeting, the Board discussed further Aegon’s approach to sustainability and its objectives: trusted products and services, a responsible approach to investing and building better communities. The Board also discussed the views of the members of the Board on materiality - which issues, risks and opportunities are most important for Aegon’s stakeholders and for Aegon as a whole. The outcome was that there is a broad agreement between the views of the Board and external stakeholders. A full description of Aegon’s vision on sustainability and the progress on objectives is included in
Aegon’s first, second and third quarter 2012 results, as well as disclosures on value of new business and embedded value.
In December, the Board and management extensively discussed the Group Plan 2013-2015 (including the budget for 2013).
At- and after-retirement segments in established markets and the protection and ccumulation segments in developing markets.
Talent management and other Human Resources topics In the Board’s December meeting, Aegon’s Global Head of
Compliance Officer various issues of compliance, regulatory and legal issues in Europe, the United States and Asia, among which was the issue of unit-linked policies sold in the Netherlands.
During the year under review, the Chairman of the Board and the
Chairs of the Audit Committee and Risk Committee met twice with officials of Aegon’s lead regulator, De Nederlandsche Bank
Supervisory Board was subject to a fit and proper test carried out by DNB and AFM in 2012. The outcome of this assessment was shared with Aegon at the end of 2012.
Verbeek for a term of four years as members of the Supervisory
Educational sessions and Board review As part of the Board’s continuous professional development two sessions, from both internal and external presenters, provided the members with updates on the following subjects: regulatory and legal developments, Solvency II, IFRS, and capital and risk.
In line with previous years, the Supervisory Board again carried out an extensive Board evaluation. This year the evaluation was facilitated by an external consultant on the basis of written questionnaires and interviews. The review assessed the collective performance of the Board and its Committees and the performance of the Chairman. The consultant presented the results during a meeting of the Supervisory Board in the absence of management. The overall feedback from the selfevaluation found that the Board is operating well and has acted on outcomes of previous evaluations. The Board agreed on the recommendations to be followed up in 2013. The Board established that all of its members are committed to allocating sufficient time and attention to the requirements of Aegon and its businesses.
No transactions with a (potential) conflict of interest were reported by the members of the Board in 2012.
Supervisory Board itself. In accordance with its charter, each committee reports its findings to the Supervisory Board during a subsequent Supervisory Board meeting. The four Committees are: �� the Audit Committee
Members: Shemaya Levy, Karla M.H. Peijs, Kornelis J. Storm and Leo M. van Wijk.
Members: Irving W. Bailey II, Karla M.H. Peijs and Robert J. Routs.
Ernst & Young, Aegon’s external auditor, also attended these meetings. Officials from Aegon’s Group Risk, Group Legal and the
& Audit Committee meeting. During the year, managers from various business units provided updates on specific topics.
The Audit Committee also discussed Aegon’s compliance with the Sarbanes Oxley Act of the United States, regular reports from the Group Compliance Officer on fraud and general compliance issues and the quarterly legal updates. The
Veer qualify as financial experts within the terms and conditions of both the Dutch Corporate Governance Code and the Sarbanes
Recurring items on the agenda in 2012 were the quarterly risk dashboard and the Board risk list. The Risk Committee discussed other topics, such as information security, the eurocrisis management plan and developments in the investment portfolio.
Over the course of 2011, the Committee reached the opinion that the composition of the Board could be better balanced in terms of gender and geographic diversity. The Committee set out to find a suitable candidate to join the Board and during 2012 the members of the Committee reviewed and interviewed a number of candidates. It is expected that the Board will propose to shareholders that they appoint a new member for a term of four years as from the date of the annual General Meeting of
The Committee reviewed the composition and functioning of the Executive Board and discussed succession planning with the
also discussed with the Nominating Committee changes in global senior management and the Committee decided to positively advise the full Board with regard to the proposal to appoint
Board consists of two members. Selection and appointment of members of the Executive Board is based on skills and experience necessary for the position. With these considerations in mind the
Executive Board. The Committee also supported the appointment of Mr. Adrian Grace, CEO of Aegon UK, and Mr. Tom Grondin, CRO
of Aegon, to the Management Board. In addition, the Committee reviewed and discussed the initiatives taken by management with regard to talent management and international mobility.
Mr. Dirk P.M. Verbeek and Mr. Ben van der Veer expired. They were reappointed for terms of four years each by the shareholders on
Board wish to thank the Executive and Management Boards for their continued contributions to further enhancing Aegon’s financial position, while making the business investments necessary to the company’s increased prospects for growth and market competitiveness. Additionally, Board members recognize and express their gratitude to Aegon’s employees around the world for their dedication to serving their customers with integrity, transparency and with the aim of fully understanding and serving their long-term financial security needs. The
Supervisory Board has full confidence in management and employees and in their ability to establish a leadership position in each of Aegon’s chosen markets, ensuring that it becomes the most recommended provider of quality life insurance, pension, and asset management products and services.
The Board is also grateful to Aegon’s business partners and many valued customers for their continued confidence in the company.
The Hague, March 20, 2013 Robert J. Routs Chairman of the Supervisory Board of Aegon N.V.
Supervisory Board of Royal KPN N.V. He also sits on the Board of Directors at ATCO Ltd., A.P. Møller - Mærsk A/S and AECOM
Irving W. Bailey II (1941, American) Vice-Chairman of the Supervisory Board
Irving W. Bailey II is retired Chairman and Chief Executive Officer of Providian Corp., a former Managing Director of Chrysalis
Mr. Bailey is also a member of the Board of Directors of
Board in 2007. His current term will end in 2015. Mr. Burgmans is also Chairman of the Supervisory Board of TNT Express N.V. and a member of the Supervisory Board of Akzo Nobel N.V. as well as a member of the Board of Directors of BP p.l.c. Furthermore, he is Chairman of the Supervisory Board of Intergamma B.V. (not listed) and a member of the Supervisory Boards of SHV Holdings
Zeeland in the Netherlands until March 1, 2013. Mrs. Peijs was formerly a member of the European Parliament and Minister of
Transport, Public Works and Water Management in the Dutch government. She was appointed to Aegon’s Supervisory Board in 2007 and her current term will end in 2015. Mrs. Peijs is also a member of the Supervisory Boards of Q-Park N.V. (not listed) and
Kees J. Storm is former Chairman of the Executive Board of
NV/SA. He is Vice-Chairman & Senior Independent Director of the Board of Directors of Unilever N.V. and Unilever PLC and a member of the Board of Directors of Baxter International Inc.
Ben van der Veer (1951, Dutch) Member of the Audit Committee
Ben van der Veer is former Chairman of the Board of
Board of Directors of Reed Elsevier PLC. He is also a member of the Supervisory Boards of Siemens Nederland N.V. (not listed)
Leo M. van Wijk is former President and CEO of KLM Royal Dutch
Antony Burgmans Kornelis J. Storm Shemaya Levy Irving W. Bailey II
The key pillars of Aegon’s Remuneration Principles are as follows: �� Aegon remuneration is employee-oriented by: fostering a sense of value and appreciation in each individual employee; promoting the shorter- and longer-term interests and wellbeing of all Aegon staff via adequate compensation, pension and/or other benefits; supporting the career development of its employees; supporting (international) mobility of its staff.
�� Aegon remuneration is performance-related by: establishing a clear link between pay and performance by aligning adequate objectives and target setting with performance evaluation and remuneration; reflecting individual as well as collective performance in line with the long-term interests of
(internally equitable); aiming at controlled market competitive remuneration, by providing for total compensation packages in comparison with an appropriately established peer group at regional unit, country and/or functional level (externally equitable).
�� Aegon remuneration is risk-prudent by: aligning business objectives with risk management requirements in the target setting practices throughout Aegon Group; giving an incentive to appropriate risk-taking behavior while discouraging the taking of excessive risks; protecting the risk alignment effects imbedded in the remuneration arrangements of individual staff against any personal strategies or insurance to counter them.
Framework (GRF), supporting the above key pillars. This GRF, which covers all staff of the Aegon Group, contains the guiding principles to support sound and effective remuneration policies and practices by ensuring consistency in remuneration policies and practices throughout the Aegon Group. The GRF is designed in accordance with relevant rules, guidelines and interpretations.
Supervisors, CEBS - now European Banking Authority (EBA), and the Decree on Sound Remuneration Policy (Regeling beheerst beloningsbeleid WfT 2011 - Rbb) by the Dutch Central Bank
As part of the GRF, separate remuneration policies have been made for three groups of employees, addressing that the roles and responsibilities of these employees require specific risk mitigating measures and governance processes. There are remuneration policies for (i) the Executive Board; (ii) material risk takers (Identified Staff1); and (iii) Control Staff2. Given the rationale for having a separate policy for material risk takers and the risk mitigating measures that are applied to the remuneration of these individuals, Risk Management is involved in deciding which positions are qualified as Identified Staff. Furthermore, where exceptions to the policies are made to reflect local practices or regulations, Risk Management and Compliance are involved to ensure such exceptions do not undermine effective risk management and sufficient mitigating measures are undertaken. Since 2011, in conjunction with Risk Management and Compliance, existing remuneration policies, including deferral and holding arrangements, payment in non-cash instruments and specific ex-ante and ex-post measures, have been amended.
Global Remuneration Framework and practices are aligned with the defined risk tolerances and behaviors. In this respect, risk mitigating measures that are undertaken prior to the payout of compensation to individual employees (regardless whether this compensation is deferred) are considered ex-ante measures.
Aegon has endeavored to seek an appropriate balance of ex-ante and ex-post assessments to ensure effectiveness both on the short-term and longer-term risk taking behavior of employees.
Variable compensation, if any, is capped at an appropriate level as a percentage of base pay. Usually variable compensation for senior management is paid out in cash and shares over multiple years and is subject to further conditions being fulfilled.
Variable compensation already allocated may be clawed back in defined circumstances.
Supervisory Board Remuneration Policy 2012 Aegon’s Remuneration Policy with regard to members of its
Base fee for membership of the Supevisory Board EUR / year Chairman 60,000
Leo M. van Wijk 86,250 78,250 1 Mr. Docters van Leeuwen stepped down from Aegon’s Supervisory Board in July 2011. 2 Ms. Kempler stepped down from Aegon’s Supervisory Board in February 2011.
Watson. The adviser, however, does not advise individual members of the Executive and Supervisory Boards.
Executive Board Remuneration Policy 2012 Executive Board remuneration The Executive Board of Aegon is remunerated on the basis of the principles described in Aegon’s GRF. Aegon’s Remuneration
Policy for members of the Executive Board is derived from this
�� To provide a well-balanced and performance-related compensation package for Executive Board members.
�� To ensure that the interests of Executive Board members are aligned with Aegon’s business strategy and risk tolerance as well as the objectives, values and long-term interests of the company.
Dutch Corporate Governance Code and the Decree on Sound 115Annual Report 2012
Board determines a maximum total compensation, reflecting the specific roles and responsibilities of the individual. Each year, the Supervisory Board will review total compensation levels to ensure they remain competitive and provide proper, risk-based incentives to members of Aegon’s Executive Board. At present, the Executive Board Target Direct Compensation (defined as base salary plus variable compensation) is below the median of the international market. Over time, in order to pay Executive Board members in accordance with the desired market positioning, the alignment to the desired market position needs to be addressed, in accordance with rules and regulations as well as applicable codes. A proposal will be presented at the General Meeting of
Executive Board members’ commitment to the company’s objectives and strengthens the Executive Board members’
This performance is determined using a mix of financial and nonfinancial indicators. Aegon believes these indicators provide an accurate and reliable reflection of both company and individual performance. The type of performance indicators are selected in accordance with the long-term goals of the company. The level of the indicators should be challenging but at target level achievable. The targets and levels are agreed by the Supervisory
The deferred part will vest in equal parts (that is cash and shares) over a three year period. After an ex-post assessment, which may lower the vesting parts, the parts will be paid 50% in cash and 50% in shares vesting. Vested shares are restricted for a further period of three years (with the exception of shares sold to meet income tax obligations).
an example as follows. For every 1,000 variable compensation, 400 will be paid out/vest following the performance year. This part will be paid 50% in cash (=200) and 50% in shares vesting immediately (=200 / 3.1261 = 64 shares). The remaining 600 will be deferred. The deferred part will vest in three equal parts, after the end of each of the following performance periods. The three deferred parts will each be paid 50% in cash (=100) and 50% in shares vesting (=100 / 3.126 = 32 shares). For all vested shares there is an additional holding period of three years after vesting. The compensation schedule can be illustrated by the following overview.
Variable compensation 2012 Variable compensation is initially granted based on performance, as measured against Aegon group targets and personal objectives. These objectives represent a mix of financial and nonfinancial measures, providing an accurate and reliable reflection of corporate and individual performance. The mix of group targets versus personal objectives is 75%-25%.
Personal objectives 25% Individual basket of strategic and personal objectives related to Aegon’s strategy.
Risk adjustment methodology (ex-ante) At the end of the performance period, but prior to allocation of variable compensation, the Supervisory Board will assess whether (downward) modifications are needed. For this purpose quantitative measures as well as qualitative measures (at Group, regional unit and individual level) will be taken into account, such as: �� Breaches of laws and regulations.
Implementation of this authority will be on the basis of criteria such as: �� Outcome of a re-assessment of the performance against the original financial performance indicators.
�� Significant changes in the company’s economic or regulatory capital base.
Board members’ contractual agreements, local practices and comparable arrangements at other multinationals. Aegon does not grant Executive Board members personal loans, guarantees or the like, unless in the normal course of business and on terms applicable to all employees, and only with the approval of the company’s Supervisory Board.
Executive Board Remuneration Report 2012 At the end of December 2012, Aegon’s Executive Board had two members: �� Alexander R. Wynaendts, Chief Executive Officer and
Shareholders in 2011, Mr. Wynaendts was re-appointed for another four years.
�� Jan J. Nooitgedagt, Chief Financial Officer and member of the
Executive Board. Mr. Nooitgedagt was appointed member of the Executive Board in 2009 for four years.
Fixed compensation The Supervisory Board has adjusted the 2012 fixed compensation of the Executive Board members in order to reflect cost of living increases in line with what has been awarded to all staff in the Netherlands in previous years.
Conditional variable compensation awards 2012 Subject to adoption of the annual accounts at the General
Actual performance is being measured over 2012. Under the Executive Board Remuneration Policy 2011, the variable compensation Executive Board members are entitled to, will be paid out over a number of years.
The number of shares to be made available in 2013 is 65,111 and 44,741 for Mr. Wynaendts and Mr. Nooitgedagt respectively
The remaining part of variable compensation for the performance year 2012 (60%; for Mr. Wynaendts EUR 305,304 and 97,665 shares and for Mr. Nooitgedagt EUR 209,787 and 67,110 shares)
(holding) period is applicable for a further three years, before shares are at the disposal of the Executive Board members (with the exception of shares sold to meet income tax obligations).
The ex-post assessment related to the deferred payment from performance year 2011 did not result in a change to the payout of the part that vests in 2013. 20% of the 2011 variable compensation will therefore vest in 2013. Half of this portion of variable compensation will be paid out in cash, the other half in shares vesting. The shares which will vest, with the exception of shares sold to meet income tax obligations, are subject to a three year holding period.
The ex-ante 3 assessment, related to performance year 2012, did not result in a change in payout of variable compensation as determined on the basis of the results.
2 The Dutch law currently provides for a threshold of 1% of the shares of the issued capital or a block of shares worth at least EUR 50 million. As per 1/7/2013 the law will be amended. The threshold will be increased to 3% of the issued capital and the threshold of the value will be deleted. The Articles of Association of Aegon N.V. provide for a threshold of EUR 100 million. During the General Meeting of Shareholders in 2010 it was confirmed that the threshold of
Aegon has institutional and retail shareholders around the world. More than three-quarters of shareholders are located in
North America, the Netherlands and the United Kingdom, the company’s three main markets. Aegon’s largest shareholder is Vereniging Aegon, an association established to protect the broader interests of the company and its stakeholders.
General Meeting of Shareholders A General Meeting of Shareholders is held at least once a year.
Its main function is to decide matters such as the adoption of annual accounts, the approval of dividend payments and appointments to Aegon’s Supervisory and Executive Boards.
Agenda Those shareholders who alone or jointly represent at least 1% of Aegon’s issued capital or block of shares worth at least
EUR 50 million2 may request items be added to the agenda of these meetings. In accordance with Aegon’s Articles of
Attendance Every shareholder is entitled to attend the General Meeting of
All shareholders wishing to take part must provide proof of their identity and shareholding, and must notify the company ahead of time of their intention to attend the meeting. Aegon also solicits proxies from New York registry shareholders in line with common practice in the United States.
Voting at the General Meeting At the General Meeting of Shareholders, each share carries one vote. However, under certain circumstances, Aegon’s largest shareholder, Vereniging Aegon, may cast 25/12 votes per preferred share3. All resolutions are adopted by an absolute majority of votes cast, unless Dutch law or Aegon’s Articles of
Executive Board Aegon’s Executive Board has two members: �� Alexander R. Wynaendts, Chairman of the Executive Board and Chief Executive Officer
Executive Board members are appointed by the General Meeting of Shareholders following nomination by the Supervisory Board.
Association - the Executive Board must seek prior approval from the Supervisory Board. In addition, the Supervisory Board may also choose to subject other Executive Board decisions to its prior approval.
Management Board, which has seven members, including the members of the Executive Board1. Aegon’s Management Board is composed of Alexander R. Wynaendts, Jan J. Nooitgedagt,
Appointment of Board members Members are appointed by the General Meeting of Shareholders following nomination by the Supervisory Board itself. At present,
Aegon’s Supervisory Board consists of nine non-executive members, one of whom is a former member of Aegon’s
Preferred shares All preferred shares are held by Vereniging Aegon, the company’s largest shareholder. In line with their higher par value, preferred shares may carry 25/12, or approximately 2.08, votes per share.
No other dividend is paid on the preferred shares. In the event of the liquidation of the company, the paid-in amount on preferred shares will be reimbursed before any payments on common shares are made.
3 See pages 115 and 116 for the Remuneration Report Executive Board. The Remuneration Policy is also available on Aegon’s website (aegon.com).
Aegon has the option, under the terms of the 1983 Merger
�� A proposed business combination by any person, or group of persons, whether acting individually or as a group, other than in a transaction approved by the company’s Executive and
If Vereniging Aegon, acting at its sole discretion, determines that a special cause has arisen, it must notify the General Meeting of
Shareholders. In this event, Vereniging Aegon retains full voting rights on its preferred shares for a period limited to six months.
Based on its current shareholding, Vereniging Aegon would, for that limited period, command 32.64% of the votes at a General
Association, Vereniging Aegon may effectively be in a position to block unfriendly actions by either a hostile bidder or others for a period of six months. In the absence of a special cause,
General Meeting of Shareholders on May 15, 2013, to approve the new capital structure. When this new structure is approved and implemented, it will not have any consequences for the control position of Vereniging Aegon.
Commission on February 13, 2013, US-based investment management firm Dodge & Cox owns over 195 million common shares.
Such a resolution also requires a two-thirds majority of votes cast and representing at least one half of Aegon’s issued capital.
Board. A member of the Executive Board may also be suspended by the Supervisory Board, though the General Meeting of
F. Amending the Articles of Association The General Meeting of Shareholders may, with an absolute majority of votes cast, pass a resolution to amend Aegon’s
Meeting of Shareholders. Shares may also be issued following a resolution of the Executive Board, providing - and to the extent that - the Board has been authorized to do so by the General
2 The Preferred Shares Voting Rights Agreement is published on Aegon’s website (aegon.com).
J. Exercise of option rights Senior executives at Aegon companies and other employees have been granted share appreciation rights and share options.
K. Significant agreements and potential change of control Aegon is not party to any significant agreements which would take effect, alter or terminate as a consequence of a change of control following a public offer for the outstanding shares of the company, other than those customary in the financial markets
Code, dated December 2003, was amended in 2008. This new, amended Code came into force on January 1, 2009. This review deals with the Dutch Corporate Governance Code in force from that date. Overseeing Aegon’s overall corporate governance structure is the responsibility of both the Supervisory and
Executive Boards. Any substantial change to this structure is submitted to the General Meeting of Shareholders for discussion.
Aegon does not fully apply the best practice provisions of the
Aegon’s position on Code II.2.8 Aegon is committed to applying this best practice provision to all new Executive Board appointments. This best practice provision is also embedded in the company’s Remuneration Policy for the
Executive Board. The employment contracts with Executive Board members that existed prior to the Code coming into force in 2003 will be respected. The employment agreement of Aegon’s
Code II.3.3 The Code recommends that a member of the Executive Board should not take part in discussions or decision-making related to a subject or a transaction in which he or she has a conflict of interest.
Aegon’s position on Code II.3.3 Aegon’s CEO and CFO are also members of the Executive
Meeting of Shareholders may cancel the binding nature of nominations for the appointment of members to the Executive and Supervisory Boards with an absolute majority of votes and a limited quorum.
Merger Agreement under which Aegon was formed. However, to mitigate any possible negative effects from this, the Supervisory
Corporate Governance Statement Generally, Aegon applies the best practice provisions set out in the Code. For an extensive review of Aegon’s compliance with the Code, please refer to the Corporate Governance Statement on Aegon’s corporate website, aegon.com.
1 As a result of a change in Dutch corporate law, with effect of 1 January 2013, new members of the Executive Board will not be employees of the company, but will enter into engagement agreements with the company regarding their position as member of the Executive Board.
The Supervisory Board performs supervisory and advisory functions only and its members are outsiders that are not employed by the company. The Supervisory Board has the duty to supervise the performance of the Executive Board, the company’s general course of affairs and the business connected with it. The Supervisory Board also assists the Executive Board by giving advice. Other powers of the Supervisory Board include the prior approval of certain important resolutions of the Executive
Shareholders. The remuneration of Supervisory Board members is fixed by the General Meeting of Shareholders. Resolutions entailing a significant change in the identity or character of the company or its business require the approval of the General
Code of ethics Aegon has adopted a code of ethics, titled the Code of Conduct, which contains Aegon’s ethical principles in relation to various subjects. The Code of Conduct applies to Aegon employees worldwide, including Aegon’s Chief Executive Officer,
B. Management’s Annual Report on internal control over financial reporting The directors and management of Aegon are responsible for establishing and maintaining adequate internal control over financial reporting. Aegon’s internal control over financial reporting is a process designed under the supervision of Aegon’s principal executive and financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of its published financial statements. Internal control over financial reporting includes policies and procedures that: �� Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company.
�� Provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with the generally accepted accounting principles.
�� Provide reasonable assurance that receipts and expenditures are being made only in accordance with the authorizations of management and directors of the company.
�� Provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on Aegon’s financial statements would be prevented or detected in a timely manner.
Management assessed the effectiveness of Aegon’s internal control over financial reporting as of December 31, 2012.
In making its assessment management used the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
Public Company Accounting Oversight Board (United States), the consolidated financial statements of Aegon N.V., which comprise the consolidated statements of financial position as of
Consolidated financial statements of Aegon N.V. Consolidated income statement of Aegon N.V. 132 Consolidated statement of comprehensive income of Aegon N.V. 133 Consolidated statement of financial position of