Items that may be reclassified subsequently to profit or loss: Gains / (losses) on revaluation of available-for-sale investments - - 1,376 - - - 1,376 - 1,376
Income tax relating to items that may be reclassified - - 851 - 76 - 927 - 927
Total other comprehensive income / (loss)‍ - 13 (391)‍ 151 (1,737)‍ - (1,965)‍ (3)‍ (1,968)‍
Total comprehensive income / (loss)‍ for 2017 - 2,374 (391)‍ 151 (1,737)‍ - 397 (3)‍ 393
Income from joint ventures (214) (210) (161) Income from associates (12) (6) (11) Release of cash flow hedging reserve (97) (80) (739)
Net cash and cash equivalents at the beginning of the year 8,744 11,026 11,347 Effects of changes in exchange rate 33 35 (196)
Net cash and cash equivalents at the end of the year 21 12,263 8,744 11,026 1 Trust pass-through securities. 2 Included in net increase / (decrease) in cash and cash equivalents are interest received EUR 5,999 million (2018: EUR 5,914 million and 2017: EUR 6,215 million)
Notes to the consolidated financial statements 1 General information Aegon N.V., incorporated and domiciled in the Netherlands, is a public limited liability company organized under Dutch law and recorded in the Commercial Register of The Hague registered under number 27076669 and with its registered address at Aegonplein 50, 2591 TV, The Hague, the Netherlands. Aegon N.V. serves as the holding company for the Aegon Group and has listings of its common shares in Amsterdam and New York.
The preparation of financial statements in conformity with IFRS-EU requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Those estimates are inherently subject to change and actual results could differ from those estimates. Included among the material (or potentially material) reported amounts and disclosures that require extensive use of estimates are: fair value of certain invested assets and derivatives, deferred policy acquisition costs, value of business acquired and other purchased intangible assets, goodwill, policyholder claims and benefits, insurance guarantees, pension plans, income taxes and the potential effects of resolving litigation matters. Aegon applies fair value hedge accounting for portfolio hedges of interest rate risk (macro hedging) under the European Union (EU) ‘carve out’ of IFRS-EU. Details are provided in note 2.9 Derivatives and note 24 Derivatives.
2.1.1 Adoption of new IFRS-EU accounting standards and amendments effective in 2019 New standards and amendments to standards become effective at the date specified by IFRS-EU, but may allow companies to opt for an earlier adoption date. In 2019, the following standards and amendments to existing standards issued by the IASB became mandatory or early adopted: Accounting standard/ amendment/ interpretation IASB effective date Endorsed by EU Impact for Aegon IFRS 16 Leases January 1, 2019 Yes See below for comments
Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures January 1, 2019 Yes Low
Amendments to IAS 19 Plan amendment, curtailment or settlement January 1, 2019 Yes Low
17 these leases were reported as (off-balance) operating lease obligations, and after January 1, 2019 are reported as (on-balance)
The reconciliation between operating lease commitments at December 31, 2018 and lease liabilities at January 1, 2019 is as follows: Operating lease commitments at December 31, 2018 as per the consolidated annual financial statements 386
Discounted using the incremental borrowing rate at January 1, 2019 302
Aegon has elected to early adopt the ‘Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform’ issued in September 2019. In accordance with the transition provisions, the amendments have been adopted retrospectively to hedging relationships that existed on January 1, 2019 or were designated thereafter. The amendments provide temporary relief from applying specific hedge accounting requirements, thereby ensuring that uncertainty on the outcome of the Interest Rate Benchmark Reform (IBOR)
The IASB is currently working on additional amendments to IAS 39 and IFRS 9, which will include the accounting for contract modifications following IBOR reform. Aegon continues to follow the status of the IASB’s IBOR reform project, and will assess the impact for the Group when further information becomes available.
2.1.2 Voluntary change in accounting policy effective in 2019 Liability adequacy test (LAT)
Effective January 1, 2019, Aegon adopted a voluntary accounting policy change related to the liability adequacy test (LAT) of Aegon the Netherlands, which is applied retrospectively for all periods presented.
The recognition of a LAT deficit (refer to note 34 Insurance contracts) in Aegon the Netherlands triggered a review and change of its existing accounting policy related to the LAT. When assessing the adequacy of the insurance liabilities, Aegon the Netherlands takes into account any unrecognized gains on the investments backing the insurance liabilities measured at amortized cost. The subsequent sales of these assets can trigger a LAT deficiency, because previously unrecognized gains are realized and therefore no longer included in the LAT. Under the previous policy, unrealized gains on intercompany transferred assets which at balance sheet date are allocated to the insurance liabilities were taken into account. Under the new policy the LAT takes into account the unrecognized gain on the transferred investments that are still held by the group, but only to the extent that these gains arose whilst the assets were backing the insurance liabilities. Consistently, for assets transferred to the insurer from another group company, the unrecognized gain that arose prior to transfer is not taken into account in the LAT. The change avoids that unrealized gains on assets that are still held by the group are not taken into account in the LAT.
The impact of the change in accounting policy on full year 2019, is an increase in net income of EUR 19 million, an increase in shareholders’ equity of EUR 19 million, a decrease in insurance contracts of EUR 25 million and an increase in other liabilities of EUR 6 million. As a result, the basic and diluted earnings per common share increased with EUR 0.01. The basic and diluted earnings per common share B as disclosed on the face on the income statement remain unchanged.
Impact of the adjustment on previous periods is provided in the following tables, including references to the notes that are impacted by the change in accounting policy.
Income tax relating to items that may be reclassified 493 1 494 951 (23) 927
Impact of voluntary changes in accounting policies on the statement of changes in equity Note
Remeasurement of defined benefit plans 30.5 (1,850) - (1,850) (1,669) - (1,669)
1 As reported in Aegon’s 2018 Integrated Annual Report dated March 21, 2019.
th er n o n -fin an cial in fo rm atio n 2.1.3 Future adoption of new IFRS-EU accounting standards and amendments The following standards and amendments to existing standards, published prior to January 1, 2020, were not early adopted by the Group, but will be applied in future years: Accounting standard/ amendment/ interpretation IASB effective date Endorsed by EU Early adopted by
IFRS 9 Financial instruments January 1, 2018 1) Yes No See below for comments
Amendments to IFRS 3 Business Combinations January 1, 2020 Not yet No Low
Amendments to IAS 1 and IAS 8: Definition of Material January 1, 2020 Yes No Low 1 The amendments to IFRS 4, Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts, issued in September 2016, allow entities that issue insurance contracts within the scope of IFRS 4 to defer the implementation of IFRS 9 (and linked amendments ‘Amendments to IFRS 9 Financial instruments on prepayment features with negative compensation’). The amendments to IFRS 4 are further explained below.
For the impairment component, the IASB included requirements for a credit loss allowance or provision which should be based on expected losses rather than incurred losses.
9 for annual periods beginning before January 1, 2021 (i.e., a temporary exemption of IFRS 9). The objective of the amendment is to address the temporary accounting consequences of the different effective dates of IFRS 9 and IFRS 17. This amendment was endorsed by the European Union in November 2017. However, in November 2018, the IASB agreed to start the process to amend IFRS 17, which could lead to the temporary exemption from IFRS 9 to be extended until January 1, 2022. As this decision is still subject to IASB due process, this could lead to another year of deferral.
Aegon performed this analysis at December 31, 2015, and concluded that it meets the requirements for the temporary exception as 94% of its liabilities are connected with insurance activities. As a result, Aegon elected to make use of the temporary exemption of IFRS 9.
As Aegon defers the application of IFRS 9 (including linked amendments as included in above table), the full impact of the standard is not yet clear, however an initial impact assessment resulted in the expectation that it will have a significant impact on shareholders’
 that are managed and whose performance are evaluated on a fair value basis.
Other financial assets SPPI 36 - 111 1 The SPPI-compliant shares include preferred equity instruments.
SPPI compliant financial assets at carrying value AAA AA A BBB BB B
Private loans – Carried at amortized cost 1,799 82 198 970 49 - - 1,383 4,479 Other financial assets – Carried at fair
Other financial assets – Carried at fair value - - 64 12 44 61 1 70 252 1 Mortgage loans with no low credit risk are defined as being more than 90 days past due, in line with regulatory guidelines.
As no external ratings are available for residential mortgage loans, the residential portfolio is included under ‘Not rated’.
For assets that do not have low credit risk (rated BB or below) and of which cash flows represent SPPI, excluding any financial assets that meet the definition of held for trading in IFRS 9, or that are managed and whose performance is evaluated on a fair value basis, the table below provides the credit risk exposure from the financial assets held by Aegon 1. The financial assets are categorized by asset class with a carrying amount and fair value measured in accordance with IAS 39 measurement requirements.
SPPI compliant financial assets with no low credit risk Carrying amount Fair value Carrying amount Fair value Shares – Carried at fair value 27 27 26 26
Mortgage loans – Carried at amortized cost 29,593 33,132 28,661 31,711
Other financial assets – Carried at fair value 35 35 106 106
Investments in joint ventures and associates All Aegon’s equity accounted investments remain to apply IAS 39. Except AMVEST Vastgoed B.V. (AMVEST), Aegon does not hold any other individually material joint-venture nor associate. As most of AMVEST financial assets are measured at fair value through profit or loss, there is no material difference between the financial statements of AMVEST under IFRS 9 and IAS 39. As the remaining joint ventures and associates are not material on a consolidated level, the additional information required by IFRS 4 for electing the temporary exemption is not disclosed for these entities.
Subsidiaries and joint ventures applying IFRS 9 in their statutory accounts Information on the adoption of IFRS 9 by principal subsidiaries and joint ventures that for statutory purposes cannot elect to defer the effective date of IFRS 9 can be found in the publicly available statutory annual reports on www.aegon.nl and/or the Chamber of Commerce. This information is not part of the audited consolidated financial statements of Aegon N.V.. The related entities are:  Aegon Bank N.V.  Aegon Hypotheken B.V.  Aegon Asset Management Holding B.V.
The Standard represents a fundamental change to current financial reporting and the implementation effort is expected to be significant. Early adoption of the standard is therefore not expected. An implementation project was started soon after the publication of the new Standard. Currently no final decisions have been made as to the accounting policy options provided in IFRS 17 as a consequence of awaiting the final amendments and the outcome of quantitative studies intended to be performed subsequently, however, it is expected that the impact of the initial application on Aegon’s financial statements is significant.
As of January 1, 2020, Aegon will voluntarily change its accounting policy for the deferred cost of reinsurance. A deferred cost of reinsurance is established when Aegon enters into a reinsurance transaction, except for reinsurance transactions that are entered into as part of a plan to exit a business.
Until 2019, the amortization of the deferred cost of reinsurance is based solely on assumptions relating to the underlying insurance contracts. As of January 1, 2020, for products sold in the Americas and Asia where the amortization is based on expected gross profit margins (EGPs), these EGPs will be net of reinsurance (i.e. net of actual reinsurance cash flows that exceed expected reinsurance cash flows). Additionally, the reinsurance cash flows used to calculate the amortization rate will be unlocked prospectively. The accounting policy on the amortization of similar intangibles, such as deferred policy acquisition costs, will be updated accordingly.
Aegon N.V. shares held by subsidiaries, which are recognized as treasury shares in equity, are eliminated. Intra-group losses may indicate an impairment that requires recognition in the consolidated financial statements. Non-controlling interests are initially stated
th er n o n -fin an cial in fo rm atio n at their share in the fair value of the net assets on the acquisition date and subsequently adjusted for the non-controlling share in changes in the subsidiary’s equity.
(e.g. to elect or remove the asset manager); and  Rights held by other parties (e.g. voting rights of policyholders that are substantive or not).
Investment funds where Aegon acts as an agent are not consolidated due to lack of control of the funds. In particular, for some separate accounts, the independent board of directors has substantive rights and therefore Aegon does not have power over these separate accounts but acts as an agent.
Equity instruments issued by the Group that are held by investment funds are eliminated on consolidation. However, the elimination is reflected in equity and not in the measurement of the related financial liabilities towards policyholders or other third parties.
equity. On disposal of a foreign entity the related cumulative exchange differences included in the reserve are recognized in the income statement.
Financial assets at fair value through profit or loss are measured at fair value with all changes in fair value recognized in the income statement as incurred. Available-for-sale assets are recorded at fair value with unrealized changes in fair value recognized in other comprehensive income. Financial assets that are designated as hedged items are measured in accordance with the requirements for hedge accounting.
If significantly all risks are retained, the assets are not derecognized.
b. Real estate Investments in real estate include property held to earn rentals or for capital appreciation, or both. Investments in real estate are presented as 'Investments'. Property that is occupied by the Group and that is not intended to be sold in the near future is classified as real estate held for own use and is presented in 'Other assets and receivables'.
All property is initially recognized at cost. Such cost includes the cost of replacing part of the real estate and borrowing cost for longterm construction projects if recognition criteria are met. Subsequently, investments in real estate are measured at fair value with the changes in fair value recognized in the income statement. Real estate held for own use is carried at its revalued amount, which is the fair value at the date of revaluation less subsequent accumulated depreciation and impairment losses. Depreciation is calculated on a straight line basis over the useful life of a building. Land is not depreciated. Revaluation of real estate for own use is recognized in OCI and accumulated in revaluation reserve in equity. On revaluation the accumulated depreciation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount.
Derivatives with positive values are reported as assets and derivatives with negative values are reported as liabilities. Derivatives for which the contractual obligation can only be settled by exchanging a fixed amount of cash for a fixed amount of Aegon N.V. equity instruments are accounted for in shareholders’ equity.
Following the financial crisis, the reform and replacement of benchmark interest rates such as LIBOR and other interbank offered rates
(‘IBORs’) has become a priority for global regulators. There is currently uncertainty around the timing and precise nature of these changes, in light of which the following assumptions have been made with respect to hedge accounting:  When considering the ‘highly probable’ requirement, it is assumed that the current benchmark interest rate on which the hedged positions is based will not change as a result of IBOR reform.
 In assessing whether the hedge is expected to be ‘highly effective’ on a forward-looking basis, it is assumed that the current benchmark interest rate on which the cash flows of the hedged item and the derivative that hedges it are based is not altered as a result of the IBOR reform.
 For macro hedging the assessment whether the hedged risk component is a separately identifiable, is performed only when a hedged item is first included in the hedge and not on an ongoing basis.
Since January 31, 2020, the United Kingdom (UK) is no longer a member of the European Union. The UK has until the end of 2020 to negotiate a trade deal with the EU and prevent a hard Brexit (no deal) scenario. A hard Brexit will have consequences for the derivatives contracts Aegon holds with UK counterparties as they may lose their eligibility under European regulation. Aegon transferred part of its derivatives with UK counterparties, clearing members and part of its derivatives that were held at the London
Clearing House (LCH) to non-UK counterparties and to Eurex in Frankfurt. Based on new information about Brexit, the future eligibility of LCH and the liquidity at the different venues will be assessed.
equity, while the share in the joint ventures net income is recognized as a separate line item in the consolidated income statement.
The Group’s share in losses is recognized until the investment in the joint ventures' equity and any other long-term interest that are part of the net investment are reduced to nil, unless guarantees exist.
th er n o n -fin an cial in fo rm atio n 2.12 Reinsurance assets Reinsurance contracts are contracts entered into by the Group in order to receive compensation for claims/benefits incurred on contracts written by the Group (outgoing reinsurance). Reinsurance assets are also held as part of exiting the business. For contracts transferring sufficient insurance risk, a reinsurance asset is recognized for the expected future benefits, less expected future reinsurance premiums. Reinsurance contracts with insufficient insurance risk transfer are accounted for as investment or service contracts, depending on the nature of the agreement.
DPAC are deferred to the extent that they are recoverable and are subsequently amortized based on factors such as expected gross profit margins. For products sold in the United States and Asia with amortization based on expected gross profit margins or revenues, the amortization period and pattern are reviewed at each reporting date and any change in estimates is recognized in the income statement. Estimates include, but are not limited to: an economic perspective in terms of future returns on bond and equity instruments, mortality, morbidity and lapse assumptions, maintenance expenses and expected inflation rates.
Deferred transaction costs are derecognized when the related contracts are settled or disposed.
a. Impairment of non-financial assets Assets are tested individually for impairment when there are indications that the asset may be impaired. For goodwill and intangible assets with an undefined life, an impairment test is performed at least once a year or more frequently as a result of an event or change in circumstances that would indicate an impairment charge may be necessary. The impairment loss is calculated as the difference between the carrying and the recoverable amount of the asset, which is the higher of an asset’s value in use and its fair value less cost of disposal. The value in use represents the discounted future net cash flows from the continuing use and ultimate disposal of the asset and reflects its known inherent risks and uncertainties. The valuation utilizes the best available information, including assumptions and projections considered reasonable and supportable by management. The assumptions used in the valuation involve significant judgments and estimates. Refer to note 29 Intangible assets for more details.
Impairment losses are charged to other comprehensive income to the extent that they offset a previously recorded revaluation reserve relating to the same item. Any further losses are recognized directly in the income statement. Impairment of deferred policy acquisition costs is included in note 15 Impairment charges/(reversals).
After impairment the interest accretion on debt instruments is recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
Non-cumulative subordinated notes were identified as a compound instrument due to the nature of this financial instrument. For these non-cumulative subordinated notes, Aegon had an unconditional right to avoid delivering cash or another financial asset to settle the coupon payments. The redemption of the principal was however not at the discretion of Aegon and therefore Aegon had a contractual obligation to settle the redemption in cash or another financial asset or through the exchange of financial assets and liabilities at potentially unfavorable conditions for Aegon. Compound instruments were separated into liability components and equity components. The liability component for the non-cumulative subordinated notes was equal to the present value of the redemption amount and carried at amortized cost using the effective interest rate method. The unwinding of the discount of this component was recognized in the income statement. At initial recognition the equity component was assigned the residual amount after deducting the liability component from the fair value of the instrument as a whole. The equity component in US dollars was translated into euro using historical exchange rates. With effect on May 15, 2018, Aegon has exercised its right to redeem USD 525 million non-cumulative subordinated notes, subsequently leading to their redemption. As the Group's obligation under the contract has expired, the liability and equity components of the non-cumulative subordinated notes have been derecognized.
The Group recognizes the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where it originally recognized the past transactions or events that generated the distributable profits. A liability for non-cumulative dividends payable is not recognized until the dividends have been declared and approved.
th er n o n -fin an cial in fo rm atio n specific product features in these local markets. At the time of IFRS-EU adoption, Aegon was applying US GAAP for its United States operations whereas in the Netherlands and the United Kingdom, Aegon was applying Dutch Accounting Principles. Since adoption of IFRS-EU, Aegon has considered new and amended standards in those GAAPs which have become effective subsequent to the date of transition to IFRS-EU. If any changes are made to current accounting policies for insurance contracts, these will be in accordance with IFRS 4.
Liabilities arising from traditional life insurance products that are offered by Aegon, particularly those with fixed and guaranteed account terms, are typically measured using the net premium method. Under this method the liability is determined as the sum of the discounted value of the expected benefits and future administration expenses directly related to the contract, less the discounted value of the expected theoretical premiums that would be required to meet the future cash outflows based on the valuation assumptions used. The liability is either based on current assumptions or calculated using the assumptions established at the time the contract was issued, in which case a margin for risk and adverse deviation is generally included. Furthermore, the liability for life insurance comprises reserves for unearned premiums and accrued annuity benefits payable.
In establishing the liability, guaranteed minimum benefits issued to the policyholder are measured as described in note 2.19.c Embedded derivatives or, if bifurcated from the host contract, as described in note 2.9 Derivatives.
d. Shadow accounting Shadow accounting allows that all gains and losses on investments affect the measurement of the insurance assets and liabilities in the same way, regardless of whether they are realized or unrealized and regardless of whether the unrealized gains and losses are recognized in the income statement or through other comprehensive income in the revaluation reserve. In some instances, realized gains or losses on investments have a direct effect on the measurement of the insurance assets and liabilities. For example, some insurance contracts include benefits that are contractually based on the investment returns realized by the insurer. In addition, realization of gains or losses on available-for-sale investments can lead to unlocking of VOBA or DPAC and can also affect the outcome of the liability adequacy test to the extent that it considers actual future investment returns. For similar changes in unrealized gains and losses, shadow accounting is applied. If an unrealized gain or loss triggers a shadow accounting adjustment to VOBA, DPAC
or the insurance liabilities, the corresponding adjustment is recognized through other comprehensive income in the revaluation reserve, together with the unrealized gain or loss.
th er n o n -fin an cial in fo rm atio n f. Liability adequacy testing At each reporting date, the adequacy of the life insurance liabilities (including life insurance contracts for account of policyholders), net of VOBA and DPAC, is assessed using a liability adequacy test.
The adequacy of the non-life insurance liability is tested at each reporting date. Changes in expected claims that have occurred, but that have not been settled, are reflected by adjusting the liability for claims and future benefits. The reserve for unexpired risk is increased to the extent that the future claims and expenses in respect of current insurance contracts exceed the future premiums plus the current unearned premium reserve.
Investment contracts without discretionary participation features are carried at amortized cost based on the expected cash flows and using the effective interest rate method. The expected future cash flows are re-estimated at each reporting date and the carrying amount of the financial liability is recalculated as the present value of estimated future cash flows using the financial liability’s original effective interest rate. Any adjustment is immediately recognized in the income statement. For these investment contracts deposit accounting is applied, meaning that deposits are not reflected as premium income, but are recognized as part of the financial liability.
c. Share-based payments The Group has issued share-based plans that entitle selected employees to receive Aegon N.V. common shares, subject to pre-defined conditions such as the grant price of the shares and (business and personal) performance criteria.
The expenses recognized for these plans are based on the fair value on the grant date of the shares. The fair value is measured at the market price of Aegon N.V. common shares, adjusted to take into account the non-vesting and market conditions upon which the shares were granted. For example, where the employee is not entitled to receive dividends during the vesting period, this factor is taken into account when estimating the fair value of the shares granted. For the determination of factors such as expected dividends, market observable data has been considered.
Aegon acts also as an insurance broker selling insurance contracts of other insurance companies to policyholders and receiving direct sales commission as well as commissions over time when the same policyholders renew their contracts. These commissions are recognized only when received as policyholders’ renewals are not certain enough to be recorded upfront.
Net fair value change on for account of policyholder financial assets at fair value through profit or loss Net fair value change on for account of policyholder financial assets at fair value through profit or loss includes fair value movements of investments held for account of policyholders (refer to note 2.8 Investments for account of policyholders). The net fair value change does not include interest or dividend income.
2.31 Impairment charges/(reversals)‍ Impairment charges and reversals include impairments and reversals on investments in financial assets, impairments and reversals on the valuation of insurance assets and other non-financial assets and receivables. Impairment of deferred policy acquisition costs is included in note 15 Impairment charges/ (reversals). Refer to note 15 Impairment charges/(reversals).
Policy applicable from January 1, 2019 As a lessee The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option.
The Group presents right-of-use assets that do not meet the definition of investment property in ‘Other assets and receivables’ and lease liabilities in ‘Other liabilities’ in the statement of financial position.
As a lessor Where the Group is the lessor under an operating lease, the assets subject to the operating lease arrangement are presented in the statement of financial position according to the nature of the asset. Income from these leases are recognized in the income statement on a straight line basis over the lease term, unless another systematic basis is more representative of the time pattern in which use benefit derived from the leased asset is diminished.
2.34 Events after the reporting period The financial statements are adjusted to reflect events that occurred between the reporting date and the date when the financial statements are authorized for issue, provided they give evidence of conditions that existed at the reporting date.
Some insurance contracts without a guaranteed or fixed contractual term contain guaranteed minimum benefits. Depending on the nature of the guarantee, it may either be bifurcated and presented as a derivative, or be reflected in the value of the insurance liability in accordance with local accounting principles. Given the dynamic and complex nature of these guarantees, stochastic techniques under a variety of market return scenarios are often used for measurement purposes. Such models require management to make numerous estimates based on historical experience and market expectations. Changes in these estimates will immediately affect the income statement.
Mortality tables applied are generally developed based on a blend of company experience and industry wide studies, taking into consideration product characteristics, own risk selection criteria, target market and past experience. Mortality experience is monitored through regular studies, the results of which are fed into the pricing cycle for new products and reflected in the liability calculation when appropriate. For contracts insuring survivorship or mortality, allowance may be made for further longevity or mortality improvements. Morbidity assumptions are based on own claims severity and frequency experience, adjusted where appropriate for industry information.
Actuarial assumption and model updates Assumptions are reviewed periodically in the second quarter for the US and Asia and in the fourth quarter for Europe, based on historical experience, observable market data, including market transactions such as acquisitions and reinsurance transactions, anticipated trends and legislative changes. Similarly, the models and systems used for determining our liabilities are reviewed periodically and, if deemed necessary, updated based on emerging best practices and available technology.
For the years 2017 through 2019, Aegon kept its long-term equity market return assumption for the estimated gross profits on variable life and variable annuity products in the Americas at 8%. During the three year period, the long-term assumption for 10-year US Treasury yields was 4.25% and the uniform grading period was 10 years. Aegon’s assumed returns for US separate account bond funds are 4% over the next 10 years and 6% thereafter. The long term credit spread assumption, net of assumed defaults and expenses, on our most common corporate bonds is 114bps. The 90-day Treasury yield was 1.55%, 2.37% and 1.39% at December 31, 2019, 2018 and 2017, respectively. During the period 2017 to 2019 the 90-day Treasury yield was assumed to have a uniform grading over 10 years to 2.5%. On a quarterly basis, the estimated gross profits are updated for the difference between the estimated market return and the actual market return.
Sensitivity on long term care products (LTC)‍ in the United States Sensitivities of significant product liability assumptions on the LTC IFRS after-tax Gross Present Value Reserve (GPV) margin are indicated below. The GPV is the liability as determined on a best estimate assumption basis. Until an assumption change is of significant amount to breach the current margin of EUR 251 million (loss recognition block of LTC), there will be no IFRS financial impact (2018: EUR 35 million). The GPV margin is the amount by which the IFRS reserve exceeds the GPV liability.
Sensitivity on liability adequacy test (LAT)‍ in the Netherlands At December 31, 2019 the liability adequacy test (LAT) of Aegon the Netherlands resulted in a deficiency driven by market movements in 2019. The LAT assesses the adequacy of the insurance liabilities by comparing them to their fair value. Aegon the Netherlands adjusts the outcome of the LAT for certain unrealized gains in the bond portfolio and certain differences between the fair value and the book value of assets measured at amortized cost, mainly residential mortgages (shadow loss recognition). Please also refer to Note 2.19f Liability adequacy testing for further details on the accounting policy.
The LAT deficit per December 31, 2019 in Aegon the Netherlands amounted to EUR 5.1 billion, which was partially offset by the shadow loss recognition of EUR 3.4 billion, resulting in a net deficit of EUR 1.7 billion.
The results are indicated below: An increase of 100 bps in interest rate would result in a decrease in LAT deficit of EUR 3.5 billion. A decrease of 100 bps would result in an increase in LAT deficit of approximately EUR 4.7 billion.
A 50 bps increase in mortgage spread would result in an increase in LAT deficit of EUR 0.6 billion. A 50 bps decrease would result in a decrease in LAT deficit of EUR 0.6 billion.
Given the LAT deficit at December 31, 2019, the above mentioned results would be reflected directly in the income statement.
Fair value is defined as the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability). A fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either:  In the principal market for the asset or liability; or  In the absence of a principal market, in the most advantageous market for the asset or liability.
Aegon uses the following hierarchy for measuring and disclosing of the fair value of assets and liabilities:  Level I: quoted prices (unadjusted) in active markets for identical assets or liabilities that Aegon can access at the measurement date;  Level II: inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices of identical or similar assets and liabilities) using valuation techniques for which all significant inputs are based on observable market data; and  Level III: inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) using valuation techniques for which any significant input is not based on observable market data.
Additional information is provided in the table headed 'Effect of changes in significant unobservable assumptions to reasonably possible alternatives' in note 44 Fair Value. While Aegon believes its valuation techniques are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain instruments (both financial and non-financial) could result in a different estimate of fair value at the reporting date.
Aegon sells, deferred expenses and value of business acquired. Other risks include insurance related risks, such as changes in mortality, morbidity, bond credit spread and liquidity premium, which are discussed in note 34 Insurance contracts. Aegon manages risk at local level where business is transacted, based on principles and policies established at the Group level. Aegon's integrated approach to risk management involves similar measurement of risk and scope of risk coverage to allow for aggregation of the Group's risk position.
As part of its risk management programs, Aegon takes inventory of its current risk position across risk categories. Aegon also measures the sensitivity of net income and shareholders' equity under both deterministic and stochastic scenarios. Management uses the insight gained through these 'what if?' scenarios to manage the Group's risk exposure and capital position. The models, scenarios and assumptions used are reviewed regularly and updated as necessary.
Results of Aegon's sensitivity analyses are presented throughout this section to show the estimated sensitivity of net income and shareholders' equity to various scenarios. For each type of market risk, the analysis shows how net income and shareholders' equity would have been affected by changes in the relevant risk variable that were reasonably possible at the reporting date. For each
sensitivity test the impact of a reasonably possible change in a single factor is shown. Management action is taken into account to the extent that it is part of Aegon's regular policies and procedures, such as established hedging programs. However, incidental management actions that would require a change in policies and procedures are not considered.
The accounting mismatch inherent in IFRS-EU is also apparent in the reported sensitivities. A change in interest rates has an immediate impact on the carrying amount of assets measured at fair value. However, the shock will not have a similar effect on the carrying amount of the related insurance liabilities that are measured based on locked-in assumptions or on management's long-term expectations. Consequently, the different measurement bases for assets and liabilities lead to increased volatility in IFRS-EU net income and shareholders' equity. Aegon has classified a significant part of its investment portfolio as 'available-for-sale', which is one of the main reasons why the economic shocks tested have a different impact on net income than on shareholders' equity.
Nor are the results of the sensitivities intended to be an accurate prediction of Aegon's future shareholders' equity or earnings.
The analysis does not take into account the impact of future new business, which is an important component of Aegon's future earnings. It also does not consider all methods available to management to respond to changes in the financial environment, such as changing investment portfolio allocations or adjusting premiums and crediting rates. Furthermore, the results of the analyses cannot be extrapolated for wider variations since effects do not tend to be linear.
Debt securities - carried at fair value 86,853 - - 267 - - - 267 - 86,586
Money market and other short-term investments - carried at fair value 5,327 - 363 - - - - 363 23 4,987
Other loans - carried at amortized cost 2,353 - - - - - 2,008 2,008 1,329 1,674
Other financial assets - carried at fair value 4,083 - - - - - - - - 4,083
Debt securities - carried at fair value 81,253 - - 169 - - - 169 - 81,084
Private loans - carried at amortized cost 4,103 45 - - - - - 45 - 4,058
'Letters of credit / guarantees'. Further information on the Monoline insurers is provided below under 'Monoline insurers'.
The real estate collateral for mortgages includes both residential and commercial properties. The collateral for commercial mortgage loans in Aegon Americas is measured at fair value. At a minimum on an annual basis, a fair value is estimated for each individual real estate property that has been pledged as collateral. When a loan is originally provided, an external appraisal is obtained to estimate the value of the property. In subsequent years, the value is typically estimated internally using various professionally accepted valuation methodologies. Internal appraisals are performed by qualified, professionally accredited personnel. International valuation standards are used and the most significant assumptions made during the valuation of real estate are the current cost of reproducing or replacing the property, the value that the property's net earning power will support, and the value indicated by recent sales of comparable properties. Valuations are primarily supported by market evidence. For Aegon the Netherlands, collateral for the residential mortgages is measured as the foreclosure value which is indexed periodically.
The master netting agreements column in the table relates to derivative liability positions which are used in Aegon's credit risk management. The offset in the master netting agreements column includes balances where there is a legally enforceable right of offset, but no intention to settle these balances on a net basis under normal circumstances. As a result, there is a net exposure for credit risk management purposes. However, as there is no intention to settle these balances on a net basis, they do not qualify for net presentation for accounting purposes.
The collateral related to the reinsurance assets include assets in trust that are held by the reinsurer for the benefit of Aegon.
At December 31, 2019, Aegon's largest corporate credit exposures are to Wilton Re Holdings Ltd, American United Mutual
Past due and / or impaired assets - 9 - - 305 1,101 1,406 1 Includes investments of Holding and other activities.
Commercial mortgage-backed securities (CMBSs) 3,428 13 128 - 141 584 1 4,154 8
Asset-backed securities (ABSs) - CDOs backed by ABS, Corp. bonds, Bank loans 519 1,050 - - 1,050 73 - 1,642 4 1 Includes investments of Holding and other activities.
Credit risk concentrations – Credit rating 2019 2)‍ Government bonds Corporate bonds RMBSs
Residential mortgage-backed securities (RMBSs) 2,138 395 - - 395 52 - 2,585 918
Credit risk concentrations – Government bonds per country of risk 2018 Americas
The fair value of Aegon Americas commercial and agricultural mortgage loan portfolio as per December 31, 2019, amounted to EUR 9,447 million (2018: EUR 8,059 million). The loan to value (LTV) amounted to approximately 53% (2018: 54%).
EUR 0 million of net recoveries (2018: EUR 1 million net impairments) on this portfolio. In 2019, there were no foreclosures (2018: EUR 0 million) and no impairments or recoveries associated with foreclosed loans (2018: EUR 0 million).
Aegon's investments in unconsolidated structured entities such as RMBSs, CMBSs and ABSs and investment funds are presented in the line item 'Investments' of the statement of financial position. Aegon's interests in these unconsolidated structured entities can be characterized as basic interests, Aegon does not have loans, derivatives, guarantees or other interests related to these investments.
For debt instruments, specifically for RMBSs, CMBSs and ABSs, the maximum exposure to loss is equal to the carrying amount which is reflected in the credit risk concentration table regarding debt securities and money market investments. To manage credit risk
Except for commitments as noted in note 45 Commitments and contingencies, Aegon did not provide, nor is required to provide financial or other support to unconsolidated structured entities. Nor does Aegon have intentions to provide financial or other support to unconsolidated structured entities in which Aegon has an interest or previously had an interest.
An insolvency by one of the Monolines could create significant market price volatility for the affected holdings. Of the EUR 272 million indirect exposure on the Monoline insurers, 6% relates to Municipal Bond Insurance Association, Inc. (MBIA), 54% to Ambac Financial
Group, Inc. (AMBAC), and 27% to Assured Guaranty Corporation (AGC) (2018: 15% related to MBIA, 13% to AMBAC, and 52% to AGC).
Of which held by Aegon Americas and NL 69,012 10,493 (327) 79,178 74,025 5,153
Of which held by Aegon Americas and NL 72,520 4,336 (1,352) 75,504 50,976 24,528
Unrealized bond losses by sector The composition by industry category of Aegon's available-for-sale (AFS) debt securities, money market investments and other in an unrealized loss position at December 31, 2019, and December 31, 2018, is presented in the following table: Aegon Integrated Annual Report 2019
Asset-backed securities (ABSs) - CDOs backed by ABS, Corp. bonds, Bank loans 662 (5) 2,088 (42)
US credit and equity market returns were strong during 2019, rebounding from sharp sell-offs at the end of 2018. Credit spreads tightened dramatically, and US equity markets rose throughout the year. Developed-world economic growth was steady and positive, though somewhat lack-luster, with the US generally outperforming most other developed economies. Outside of US, global equity markets were also very strong. The dollar was modestly stronger versus the Euro, and little-changed versus the yen. The US Federal
GDP growth in 2019 slowed down markedly. The Eurozone economy was impacted by a manufacturing slowdown. Especially export dependent countries like Germany and Italy were impacted. The slowdown was the result of a combination of factors. The automotive sector was hit by new emission standards and weakness in some export markets like the UK. Also the trade conflict between the US and China, might have resulted in lower Chinese demand. A bright spot remained private consumption and the services sectors, which held up well despite these developments. The Brexit process also resulted in continued uncertainty. The deadline was postponed twice. Firstly, due to the inability of the UK parliament ratify a deal and secondly, to allow for new elections. These elections resulted in a clear majority of the conservative party, which led to an exit from the EU in January 2020.
The ECB decided to ease monetary conditions further. Initially they introduced new targeted longer-term refinancing operations
Individual issuers rated below investment grade in any sector which have unrealized loss positions greater than EUR 25 million are
disclosed separately. Furthermore, quality ratings of investment portfolios are based on a composite of the main rating agencies (S&P,
Residential mortgage-backed securities Aegon Americas and Aegon the Netherlands hold EUR 2,533 million (December 31, 2018: EUR 2,497 million) of residential mortgagebacked securities available-for-sale (RMBS), of which EUR 2,222 million (December 31, 2018: EUR 2,102 million) is held by Aegon
Americas and EUR 311 million (December 31, 2018: EUR 395 million) by Aegon the Netherlands. Residential mortgage-backed securities are securitizations of underlying pools of non-commercial mortgages on real estate. The underlying residential mortgages have varying credit characteristics and are pooled together and sold in tranches. The following table shows the breakdown of Aegon
A significant part of Aegon America's RMBS holdings are rated below BBB, as the issuances took place before the United States housing downturn that started in 2007.
th er n o n -fin an cial in fo rm atio n the increase compared to prior year is related to a change in the model from using 'delinquent' loans to using 'defaulted' loans.
Aegon's particular tranche or holding is at risk for not collecting all contractual cash flows taking into account the seniority and other terms of the tranches held.
Aegon the Netherlands has mandated Aegon Asset Management to invest in RMBS transactions. Aegon Asset Management uses its own proprietary cash flow tools to analyze and stress test RMBS transactions. The key input parameters are default rates and loss given default assumptions, which are established based on historical pool characteristics and current loan level data. Cash flows for each bond are modelled in 225 scenarios of varying severity, ranging from our base case to extreme stress to even unrealistic scenarios to establish breaking points of the tranche. The model takes all deal characteristics, such as waterfall or reserve funds, into account and gives us detailed insight in the risk of principal loss or deferral of contractual cash flows.
(December 31, 2018: EUR 30 million), of which EUR 18 million (December 31, 2018: EUR 29 million) relates to positions of Aegon
Americas, and the total net unrealized gain on available-for-sale RMBS was EUR 288 million (December 31, 2018: EUR 269 million), including a EUR 284 million (December 31, 2018: EUR 266 million) net unrealized gain relating to positions of Aegon Americas.
Unemployment levels meanwhile continue to be at historically low levels which is clearly beneficial for consumer risk in general and retail mortgages in particular. Improving fundamentals, deleveraging of the deals and collateral, and negative net supply (together with increasing demand) in the sector were compensated by political related turmoil and expectations of a less benign macroeconomic climate due to increased trade tensions and this resulted in a marginal widening of credit spreads.
The total gross unrealized loss on available-for-sale CMBS of Aegon Americas amounted to EUR 6 million as of December 31, 2019
(December 31, 2018: EUR 44 million). The total net unrealized gain on the available-for-sale CMBS as of December 31, 2019, is EUR 157 million (December 31, 2018: EUR 17 million), of which EUR 104 million (December 31, 2018: EUR 17 million) relates to positions of Aegon Americas. CMBS fundamentals remain stable. The delinquency rate continues to fall, led by distressed legacy
CMBS of Aegon Americas are monitored and reviewed on a monthly basis. Detailed cash flow models using the current collateral pool and capital structure on the portfolio are updated and reviewed quarterly. Model output is generated under base and several stress-case scenarios by Aegon's internal CMBS asset specialists. For conduit securities, a widely recognized industry modeling software is used to perform a loan-by-loan, bottom-up approach. For non-conduit securities, a CMBS asset specialist works closely with Aegon's real estate valuation group to determine underlying asset valuation and risk. Both methodologies incorporate external estimates on the property market, capital markets, property cash flows, and loan structure. Results are then closely analyzed by the asset specialist to determine whether or not a principal or interest loss is expected to occur.
As the remaining unrealized losses in the CMBS portfolio relate to holdings where Aegon expects to receive full principal and interest,
The fair values of Aegon Americas' available-for-sale (AFS) CMBS instruments were determined as follows: Level II Level III Total 2019 Level II Level III Total 2018
The total gross unrealized loss on available-for-sale ABS of Aegon Americas and Aegon the Netherlands amounted to EUR 9 million as of December 31, 2019 (December 31, 2018: EUR 52 million). Aegon Americas has EUR 5 million (December 31, 2018: EUR 18 million) of this gross unrealized loss and Aegon the Netherlands EUR 3 million (December 31, 2018: EUR 34 million).
ABS sectors. In addition, favorable technicals will persist for the European ABS markets. Alongside ECB demand, investor demand is increasing as well driven by the search for yield.
CDOs backed by ABS, Corp. bonds, Bank loans 1,201 229 45 42 49 1,567 1,569
The fair values of Aegon Americas and Aegon the Netherlands available-for-sale (AFS) ABS instruments were determined as follows: Level II Level III Total 2019 Level II Level III Total 2018
Corporate - Industrial sector The Industrial sector is further subdivided into various sub-sectors. A majority of Aegon’s available-for-sale portfolio gross unrealized loss is in the Energy sub-sectors.
EUR 117 million (December 31, 2018: EUR 211 million) by Aegon the Netherlands. In aggregate, the gross unrealized loss on these bonds amounted to EUR 62 million (December 31, 2018: EUR 138 million) and the net unrealized gain on these bonds amounted to EUR 367 million (December 31, 2018: EUR 13 million).
The Energy sub-sector encompasses various industries including integrated oil and gas producers, independent oil and gas producers, midstream processing and transport, oil field services and drilling, and refining. Lower oil and natural gas prices have reduced cash flow for upstream companies, and reduced access to capital for some producers. Oil field service and drilling companies have been pressured by reduced capital spending by their upstream client base and excess capacity which has resulted in pricing concession and margin compression. Refiners are navigating rising feedstock prices and tightening quality spreads as well as uncertainty around global demand. Commodity price pressure has been the result of strong non-OPEC supply growth, high global inventories and concerns on trade and softening global demand, partially offset by supply disruptions and geo-political tensions. In response, OPEC has coordinated a series of agreements to curtail production levels in an effort to reduce global inventories and increase prices. Aegon evaluated the near-term prospects of the issuers in relation to the severity and duration of the unrealized loss and does not consider those investments to be impaired as of December 31, 2019.
Realized gains and losses on debt securities of Aegon Americas and Aegon the Netherlands The following table provides the realized gains and losses on the debt securities of Aegon Americas and Aegon the Netherlands for the twelve months ended December 31, 2019, and December 31, 2018.
Gross realized gains and (losses)‍ Gross realized gains Gross realized losses
December 31, 2019, and December 31, 2018, is presented in the table below. Those issuers with impairments or recoveries above
Impairments: Other (none individually greater than EUR 25 million) (49) (24)
Net (impairments)‍ and recoveries Net recoveries for the twelve months ended December 31, 2019, totaled EUR 17 million (twelve months ended December 31, 2018: EUR 10 million net recoveries).
Past due but not impaired assets 0-6 months months > 1 year Total months months > 1 year Total
Debt securities - carried at fair value 70 21 10 101 108 121 48 277
Other financial assets - carried at fair value 22 - - 22 - - - -
As of December 31, 2019, there are EUR 47 million of gross unrealized gains and EUR 24 million of gross unrealized losses in the equity portfolio of Aegon (December 31, 2018: EUR 40 million of gross unrealized gains and EUR 20 million of gross unrealized losses).
The table below represents the unrealized gains and losses on share positions held by Aegon Americas and Aegon the Netherlands.
S afeg u ard in g valu e creatio n F
Equity market risk and other investments risk Fluctuations in the equity, real estate and capital markets have affected Aegon's profitability, capital position and sales of equity related products in the past and may continue to do so. Exposure to equity, real estate and capital markets exists in both assets and liabilities. 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 policyholders where funds are invested in equities, backing 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 earned by Aegon on the asset balance in these products. In addition, some of this business has minimum return or accumulation guarantees.
th er n o n -fin an cial in fo rm atio n non-euro units and, as a result, earnings may fluctuate due to currency translation. As Aegon has significant business segments in the Americas and in the United Kingdom, the principal sources of exposure from currency fluctuations are from the differences between the US dollar and the euro and between the UK pound and the euro. Aegon may experience significant changes in net income and shareholders' equity because of these fluctuations.
Information on Aegon's three year historical net income/(loss) and shareholders' equity in functional currency are shown in the table below: Net income Americas (in USD) 1,323 61 1,762
Movement of currency exchange rates 1)‍ Estimated approximate effects on net income Estimated approximate effects on shareholders' equity
Increase by 15% of USD currencies relative to the euro 203 2,528
Increase by 15% of GBP currencies relative to the euro (11) 241
Decrease by 15% of USD currencies relative to the euro (158) (1,830)
Liquidity risk Liquidity risk is inherent in much of Aegon's business. Each asset purchased and liability incurred has its own liquidity characteristics.
Maturity analysis – gross undiscounted contractual cash flows (for non-derivatives)‍ On demand
Total financial liabilities (excluding investment/insurance contracts)‍ 4,867 6,798 4,988 1,658 4,520 22,831
Investment contracts for account of policyholders 1) 29,360 19,670 20 26 91 49,166
Aegon's liquidity management is based on expected claims and benefit payments rather than on the contractual maturities.
Financial liabilities relating to insurance and investment contracts 1)‍ On demand
Investment contracts for account of policyholders 169 8,839 23,185 28,747 64,185 125,125 1 The liability amount in the consolidated financial statements reflects the discounting for interest as well as adjustments for the timing of other factors as described above. As a result, the sum of the cash benefit payments shown for all years in the table exceeds the corresponding liability amounts included in notes 34 Insurance contracts and 35 Investments contracts.
For maturity information on other obligations, please refer to note 45 Commitments and contingencies.
Change in operating segments Aegon has changed the grouping of the operating segments included in the performance measure as of 2019. Previously, the operating segments ‘Spain & Portugal’ and ‘Central & Eastern Europe’ were disclosed separately in the segment information whilst as of 2019 these are disclosed combined under the operating segment ‘Southern & Eastern Europe’. The tables presented in this note have been updated to reflect this change.
The fair value movements of certain guarantees and the fair value change of derivatives that hedge certain risks on these guarantees of Aegon's businesses in the Netherlands and Japan are excluded from underlying earnings before tax, because management's best estimate expected return for these guarantees is set at zero. In addition, fair value items include market related results on our loyalty bonus reserves in the United Kingdom. The value of these reserves are directly related to policyholder investments which value is directly impacted by movements in equity and bond markets.
Realized gains or losses on investments Realized gains or losses on investments includes realized gains and losses on available-for-sale investments, mortgage loans and other loan portfolios.
Realized gains / (losses) on investments 125 240 3 27 271 9 - 1 - 405 (2) 403
H o ld in g a n d o th er ac ti vi ti es
Realized gains / (losses) on investments 157 184 62 1 248 4 3 - - 413 (5) 408
performance. The reconciliation from underlying earnings before tax to income before tax, being the most comparable
IFRS-EU measure, is presented in the table below. For those items that cannot be directly reconciled to the respective notes, the explanation is provided below the table. Aegon believes that underlying earnings before tax, together with the other information included in this report, provides a meaningful measure for the investing public to evaluate Aegon’s business relative to the businesses of its peers.
Realized gains and losses on financial investments 10 399 (92) 431
 Net fair value change of derivatives is reported as part of the respective line in note 10 and includes: 1) the overor underperformance of derivatives of EUR 34 million gain (2018: EUR 3 million gain, 2017: EUR 9 million gain) for which the expected long-term return is included in underlying earnings before tax; 2) Net fair value change on economic hedges where no hedge accounting is applied of EUR 482 million gain (2018: EUR 32 million loss, 2017: EUR 278 million loss); 3) Ineffective portion of hedge transactions to which hedge accounting is applied of EUR 22 million gain (2018: EUR 7 million loss, 2017: EUR 7 million loss).
Impact from assumption and model updates The 2019 assumption changes and model updates amounted to a negative impact of EUR 196 million and mainly relates to Aegon’s businesses in the Americas and the Netherlands. Assumption changes and model updates in the Americas led to a net negative impact of EUR 64 million mainly driven by updates to Universal Life products for surrender, lapse and mortality to reflect actual experience, partially offset by gains driven by updates to the annuitization of Variable Deferred Annuities Guaranteed Minimum
In 2018, the pre-tax charge of EUR 121 million has been recorded in other income/(charges) in respect of assumption changes and model updates. The impact is mainly attributable to Aegon’s business in the Americas and the Netherlands. Assumption changes and model updates in the Americas led to a net negative impact of EUR 6 million, which includes charges of EUR 164 million, mainly driven by Americas Life mortality updates to reflect actual experience, partially offset by gains of EUR 158 million, mainly driven by the positive impact from new expense allocation methodology within Retirement plans and Variable and Fixed annuities lines of business, Universal Life model update using results from AXIS model and a Variable Annuities (WB) modelling enhancement in discount curve upon account exhaustion. In the Netherlands, assumption changes and model updates led to a net loss of EUR 111 million, which includes charges of EUR 219 million mainly related to the population mortality best estimate update to reflect latest available data and an improvement in the modelling of policyholder behavior (lapses) and the lowering of IFRS ultimate forward rate from 4.25% to 3.65%. This was partly offset by EUR 108 million gains driven by the TKP/UL model conversion.
Amortization of deferred expenses, VOBA and future servicing rights 685 4 117 37 159 32 - - - 876
(reversals) on financial assets, excluding receivables (12) 72 - - 72 - - - - 60
Impairment charges / (reversals) on non- financial assets and receivables 3 94 - 3 96 - - 10 - 109
Impairment charges / (reversals) on financial assets, excluding receivables (9) 34 - 1 35 5 - 9 - 41
Impairment charges / (reversals) on financial assets, excluding receivables 19 17 - 2 19 - - 3 - 42
Insurance contracts for account of policyholders 77,988 25,328 31,559 815 57,702 20 - - - 135,710
Investment contracts for account of policyholders 27,217 2,101 50,532 169 52,802 79 - - - 80,097 1 Comparative figures have been reclassified to conform to the current year presentation as the elimination logic has changed. This reclassification is not considered material as there is no effect on consolidated group figures.
Investments for account of policyholders 107,963 25,491 91,848 994 118,332 82 - - (4)‍ 226,374
Total investments on balance sheet 183,039 86,248 93,882 2,704 182,834 6,745 266 244 (4)‍ 373,124 1 Due to the announced divestment of Aegon’s 50% stake in the joint venture with Sony Life, Revenue Generating Investments of Japan are no longer included in 2019. Off-balance investments for Japan amount to EUR 2.3 billlion per December 31, 2019.
Investments for account of policyholders 95,343 23,767 73,958 1,187 98,912 103 - - (5)‍ 194,353
Total investments on balance sheet 166,399 81,904 76,072 2,847 160,823 5,823 181 157 (5)‍ 333,377 1 Comparative figures have been reclassified to conform to the current year presentation as the elimination logic has changed. This reclassification is not considered material as there is no effect on consolidated group figures.
th er n o n -fin an cial in fo rm atio n 6 Premium income and premiums paid to reinsurers
Total premium income 18,138 19,316 22,826 - Accident and health insurance 1,823 1,979 2,511
Total premiums paid to reinsurers 2,434 2,663 3,431 - Accident and health insurance 138 152 205
Non-life insurance paid to reinsurers 158 163 217 7 Investment income
Included in interest income is EUR 146 million (2018: EUR 160 million; 2017: EUR 190 million) in respect of interest income accrued on impaired financial assets. The interest income on financial assets that are not carried at fair value through profit or loss amounted to EUR 4,943 million (2018: EUR 4,811 million; 2017: EUR 5,056 million).
Investment income from financial assets held for general account: 2019 2018 2017 Available-for-sale 3,267 3,180 3,467
Financial assets designated at fair value through profit or loss 125 212 148 8 Fee and commission income
The decrease in income from reinsurance ceded in 2018 reflects the completion of the BlackRock Part VII transfer on July 1, 2018, in the UK. Refer to note 48 Business combinations for more details on these transactions.
Results from financial transactions comprise: 2019 2018 2017 Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives 279 (79) 232
Net fair value change on investments in real estate for account of policyholders (18) 5 38
Net fair value change on borrowings and other financial liabilities 15 29 10
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives comprise: 2019 2018 2017
Other mainly includes net fair value changes of limited partnerships such as hedge and private equity funds.
Net fair value change on bifurcated embedded derivatives (1,153) (824) (1,231)
Ineffective portion of hedge transactions to which hedge accounting is applied 22 (7) (7)
The ineffective portion of hedge transactions to which hedge accounting is applied comprises: 2019 2018 2017 Fair value change on hedging instruments in a fair value hedge (355) (31) 121
Net fair value change on for account of policyholder financial assets at fair value through profit or loss increased in 2019 compared to 2018, mainly from favorable equity markets and decreasing interest rates. Net fair value changes on for account of policyholder financial assets at fair value through profit or loss are offset by changes in technical provisions reported as part of the lines Change in valuation of liabilities for insurance contracts and Change in valuation of liabilities for investment contracts in note 12 Policyholder claims and benefits.
Net fair value change on borrowings and other financial liabilities 2019 2018 2017
Other income of EUR 200 million for 2019 includes a gain of EUR 101 million on pension plan amendments in the Netherlands following the move from a defined benefit plan to a defined contribution plan, as well as a book gain of EUR 70 million on the divestment of the business in Slovakia and Czech Republic. Refer to note 48 Business combinations for more details on this divestment.
Other income in 2017 of EUR 540 million mainly related to a book gain of EUR 231 million (USD 250 million) from the divestment of the payout annuity and the BOLI/COLI businesses in the Americas and a book gain of EUR 208 million on the sale of the Unirobe
Policyholder claims and benefits includes claims and benefits in excess of account value for products for which deposit accounting is applied and the change in valuation of liabilities for insurance and investment contracts. The lines ''Change in valuation of liabilities for insurance contracts'' and ''Change in valuation of liabilities for investment contracts'' reflect movements in technical provisions resulting from "Net fair value change on for account of policyholder financial assets at fair value through profit or loss" included in note 10 Results from financial transactions of EUR 33,188 million positive (2018: EUR 11,326 million negative, 2017: EUR 20,524 million positive). In addition, the line ''Change in valuation of liabilities for insurance contracts'' includes an increase of technical provisions for life insurance contracts of EUR 2,431 million (2018: increase of EUR 1,403 million, 2017: increase of EUR 601 million).
Profit appropriated to policyholders 15 21 21 14 Commissions and expenses
An amount of EUR 43 million is included in employee expenses relating to defined contributions (2018: EUR 44 million; 2017: EUR 46 million).
Once allocated, the shares are deferred and cliff-vest two years after allocation. In specific circumstances Aegon’s Supervisory Board can reclaim variable compensation that has already been allocated (but still unvested) or vested (claw back).
in accordance with the Solvency II Legal Framework (up to 2018 these employees were classified as ‘Identified Staff’ in accordance with Capital Requirements Directives). In line with these rules, variable compensation awards for Material Risk Takers is partially paid out directly after allocation and partly deferred, as well as split into cash and Aegon shares. The shares are conditionally granted at the start of the performance year. The grant price of these shares is equal to the volume weighted average price (VWAP)
on the Euronext stock exchange in Amsterdam during the period between December 15 preceding a plan year and January 15 of the plan year. The actual allocation of these shares to eligible employees depends on Aegon Group performance, the employee’s unit performance and individual performance against predefined financial and non-financial performance indicators and targets, as well as the continued employment of the employee.
For the Members of the Executive Board, the shares are subject to an additional holding period of three years. During this holding period it is not allowed to sell the vested shares, with the exception of shares withheld or sold to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the Company holds a withholding obligation in connection with the vesting of the shares. In specific circumstances Aegon’s Supervisory Board can reclaim variable compensation that has already vested (claw back).
Impairment charges on financial assets, excluding receivables, from: 2019 2018 2017
Impairment charges/(reversals) on non-financial assets and receivables amount to EUR 109 million and are mainly related to a writeoff of VOBA and DPAC amounting to EUR 76 million as a result of a liability adequacy test (LAT) deficit in Aegon the Netherlands.
Refer to note 34 “Insurance contracts” for further details on the LAT impact. In addition, 2019 includes the dilution of the capital injections in India (ALIC) of EUR 10 million and impairments to software in the Netherlands of EUR 9 million.
Impairment charges/(reversals) on non-financial assets and receivables in 2018 amounted to EUR 46 million mainly due to updated valuations on various real estate properties in the Americas and impairments to software in the Netherlands.
Furthermore, other charges in 2018 include a loss of EUR 93 million (GBP 81 million) from the divestment of Aegon Ireland Plc. For more details on the divestment of Aegon Ireland Plc. refer to note 48 Business combinations.
Changes in deferred tax assets as a result of recognition / write off of previously not recognized / recognized tax losses, tax credits and deductible temporary differences 4 (35) (45)
Income tax for the period (income)‍ / charge 304 37 32
Adjustments to prior years include shifts between current and deferred tax.
Reconciliation between standard and effective income tax: 2019 2018 2017 Income before tax 1,832 782 2,393
Tax effect of (profit) / losses from joint ventures and associates (11) (9) (7)
Items that will not be reclassified to profit and loss: Changes in revaluation reserve real estate held for own use 1 7 9
Items that may be reclassified subsequently to profit and loss: (Gains) / losses on revaluation of available-for-sale investments (724) 531 (157)
(Gains) / losses transferred to the income statement on disposal and impairment of availablefor -sale investments 94 (17) 441
Movement in foreign currency translation and net foreign investment hedging reserve (5) (20) 76
Income tax related to equity instruments and other Income tax related to equity instruments 31 51 38 44
Total income tax recognized directly in retained earnings 50 26 58 19 Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the net income attributable to owners, after deduction of coupons on perpetual securities and non-cumulative subordinated notes by the weighted average number of common shares, excluding common shares purchased by the Company and held as treasury shares (refer to note 30.1 Share capital – par value and 30.3 Treasury shares respectively).
Net income / (loss)‍ attributable to owners for basic earnings per share calculation 1,440 631 2,230 Net income / (loss) attributable to common shareholders 1,430 626 2,214
Diluted earnings per share The diluted earnings per share equaled the basic earnings per share for all years disclosed since there were no Long Term Incentive
20 Dividend per common share Final dividend 2019 At the Annual General Meeting of Shareholders currently scheduled for May 15, 2020, the Executive Board will, in line with its earlier announcement and absent a further significant deterioration of market circumstances, propose a final dividend for the year 2019 of EUR 0.16 per common share and EUR 0.004 per common share B, which has financial rights attached to it of 1/40th of a common share. After taking into account the interim dividend 2019 of EUR 0.15 per common share, this will result in a total 2019 dividend of EUR 0.31 per common share. After taking the interim dividend 2019 of EUR 0.00375 per common share B into account, this will result in a total 2019 dividend of EUR 0.00775 per common share B.
To neutralize the dilutive effect of the 2019 interim dividend paid in shares, Aegon executed a program to repurchase 43,149,667 common shares. Between October 1, 2019, and November 8, 2019, these common shares were repurchased at an average price of EUR 3.89 per share. These shares will be held as treasury shares and will be used to cover future stock dividends.
Final dividend 2018 At the Annual General Meeting of Shareholders on May 17, 2019 a final dividend was approved for the year 2018 of EUR 0.15 per common share payable in either cash or stock. After taking into account the interim dividend 2018 of EUR 0.14 per common share, which results in a total 2018 dividend of EUR 0.29 per common share. With respect to the common shares B, each of which has financial rights attached to it of 1/40th of a common share, the final dividend amounted to EUR 0.00375. After taking into account the interim dividend 2018 of EUR 0.0035 per common share B, which results in a total 2018 dividend of EUR 0.00725 per common share B. Approximately 55% of holders of common shares elected to receive the cash dividend. The remaining 45% opted for stock dividend. The final dividend was payable as of June 21, 2019. The stock dividend amounted to one new Aegon common share for every 28 common shares held. The stock dividend and cash dividend are approximately equal.
To neutralize the dilutive effect of the 2018 final dividend paid in shares, Aegon executed a share buyback program to repurchase 32,873,805 common shares. Between July 1, 2019 and August 2, 2019, these common shares were repurchased at an average price of EUR 4.52 per share. These shares will be held as treasury shares and will be used to cover future stock dividends.
The stock dividend and cash dividend are approximately equal in value. The interim dividend was payable as of September 21, 2018.
The interim dividend 2018 for common shares B amounted to 1/40th of the dividend paid on common shares.
Final dividend 2017 The Annual General Meeting of Shareholders on May 18, 2018, a final dividend was approved over the year 2017 of EUR 0.14 per common share payable in either cash or stock, related to the second half of 2017. Approximately 58% of holders of common shares elected to receive the cash dividend. The remaining 42% opted for stock dividend. The final dividend was payable as of June 22, 2018.
Refer to note 46 Transfer of financial assets for details on collateral received and paid. Investment of cash collateral received is restricted through limitations on credit worthiness, duration, approved investment categories and borrower limits. EUR 11 million
(2018: EUR 2 million) of the cash collateral received is included in cash and cash equivalents and the remainder is included in other asset classes as that collateral is typically reinvested. Aegon earns a share of the spread between the collateral earnings and the rebate paid to the borrower of the securities. Income from securities lending programs was approximately EUR 6 million (2018: EUR 8 million; 2017: EUR 11 million).
Bank overdrafts classified as Liabilities held for sale - - (1)
Bank N.V. to place 1% of their deposits with agreed maturity or the savings accounts (without restrictions to withdraw their money)
in an account with the Dutch Central Bank. This deposit is renewed every 42-49 days, based on an updated valuation of total assets.
Summary cash flow statement 2019 2018 2017 Net cash flows from operating activities 7,302 517 553
Net cash and cash equivalents at December 31, 2019, are positively impacted by effects of changes in exchange rates of EUR 33 million (2018: EUR 35 million positive; 2017: EUR 196 million negative).
Total net cash flow from operating activities increased by EUR 6,785 million to a EUR 7,302 million inflow (2018: EUR 517 million inflow). The main movements are the cash inflows regarding insurance and investment liabilities general account and for account of policyholder (refer to note 34 Insurance contracts and note 35 Investment contracts), cash inflows from disposal of derivatives
EUR 155 million. Transferred cash and cash equivalents amounts to an outflow of EUR 17 million as a result of disposal of entities over which control is lost. The outflow in 2019 is mainly driven by the expansion of the joint venture arrangement with Banco Santander in Spain and capital injections to support growth in Amvest, offset by the sale off the businesses in Czech Republic and Slovakia (refer to note 48 Business combinations).
Net cash flow from financing activities decreased by EUR 1,312 million to a EUR 3,707 million outflow (2018: EUR 2,395 million outflow). The decrease is a result of proceeds and repayments of borrowings (refer to the table below and note 37 Borrowings) and other equity instruments redeemed (refer to note 31 Other equity instruments).
Net cash flow from financing activities decreased by EUR 2,914 million to a EUR 2,395 million outflow (2017: EUR 519 million inflow).
/ lo ss es in in co m e st at em en t
M o ve m en ts re la te d t o f ai r va lu e h ed g es
N et e xc h an g e d if fe re n ce
Assets held to hedge Trust pass-through securities 10 - - - 1 - - - - - 11
22 Investments Investments for general account comprise financial assets, excluding derivatives, as well as investments in real estate.
Money market and other short-term investments 5,169 158 - 5,327 5,327
Refer to note 44 Fair value for further detail on fair value measurement.
Loan allowance Movement on the loan allowance account during the year were as follows: Addition charged to income statement (76) (35)
Of the investments in real estate EUR 653 million (2018: EUR 530 million) is held by Aegon Americas and EUR 2,229 million (2018: EUR 2,150 million) is held by Aegon the Netherlands.
Aegon Americas has invested in a commercial property portfolio, consisting of office, retail and industrial buildings. These noncancellable leases have remaining lease terms up to 20 years. Most leases include a clause to enable upward revision of the rental charge on an annual basis according to either a fixed schedule or prevailing market conditions.
Refer to note 45 Commitments and contingencies for a description of non-cancellable lease rights.
Rental income of EUR 83 million (2018: EUR 82 million; 2017: EUR 71 million) is reported as part of investment income in the income statement. Direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the period amounted to EUR 59 million (2018: EUR 63 million; 2017: EUR 71 million). In 2019, EUR 2 million of direct operating expenses is related to investment properties that did not generate rental income during the period (2018: EUR 2 million; 2017: EUR 1 million).
Rental income of EUR 42 million (2018: EUR 47 million; 2017: EUR 50 million) is reported as part of investment income in the income statement. Direct operating expenses relating to investments in real estate for account of policyholder amounted to EUR 6 million in 2019 (2018: EUR 4 million, 2017: EUR 4 million). There are no restrictions on the realizability of investment property or the remittance of income and proceeds of disposal.
Refer to note 45 Commitments and contingencies for a summary of contractual obligations to purchase investment property.
Derivatives for account of policyholders Derivatives not designated in a hedge 499 278 114 56 1 Refer to note 44 Fair value for a summary of all financial assets and financial liabilities at fair value through profit or loss.
Derivatives not designated in a hedge – general account 2019 2018 2019 2018 Derivatives held as an economic hedge 10,011 6,641 7,070 3,767
Aegon utilizes derivative instruments as a part of its asset liability risk management practices. The derivatives held for risk management purposes are classified as economic hedges to the extent that they do not qualify for hedge accounting, or that Aegon has elected not to apply hedge accounting. The economic hedges of certain exposures relate to an existing asset, liability or future reinvestment risk.
Aegon has entered into free-standing credit derivative transactions. The positions outstanding at the end of the year were: Credit derivative disclosure by quality Notional Fair value Notional Fair value
Derivatives designated as fair value hedges Aegon's fair value hedges consist mainly of interest rate swaps, swaptions, equity and fixed income total return swaps, equity options, equity futures, bond futures and variance swaps that are used to protect against changes in the fair value of interest rate and equity sensitive instruments or liabilities. Gains and losses on derivatives designated under fair value hedge accounting are recognized in the income statement. The effective portion of the fair value change on the hedged item is also recognized in the income statement.
For the years ended December 31, 2019, 2018 and 2017, Aegon recognized gains and (losses) related to the ineffectiveness portion of designated fair value hedges of EUR 22 million, EUR (9) million and EUR (6) million respectively. No portion of derivatives was excluded when assessing hedge effectiveness.
The periods when the cash flows are expected to occur are as follows: < 1 year 1 – 5 years 5 – 10 years > 10 years 2019 Total
< 1 year 1 – 5 years 5 – 10 years > 10 years 2018 Total
Effect of uncertainty of IBOR reform on derivatives designated as fair value and cash flows hedges
The future of IBORs (Interbank Offered Rates) such as Euribor, Eonia and LIBOR has been a major topic on the global agenda since the G20 asked the Financial Stability Board (FSB) to undertake a fundamental review of leading interest rate benchmarks in 2013.
The FSB proposed new standards to reform interest rate benchmarks and the use of transaction-based input data instead of nontransactional /panel input data. In the EU this is adopted in the new Benchmark Regulation (BMR) which stipulates that from January 2020 only BMR compliant benchmarks may be used within the EU.
Despite current uncertainties on how the transition from IBORs to alternative benchmarks will be managed, it is widely acknowledged that IBOR benchmarks impact financial products and contracts, including among others derivatives, corporate bonds, structured debt products, deposits and mortgages. Aegon recognizes that IBOR transitions potentially have implications for all reporting units, including its insurance, asset management and banking activities. In order to facilitate an orderly transition from the different IBORs to the new risk free rates Aegon has established for each region a project group led by the local CFO. Transition plans have been prepared by each unit covering the impact on the business- and operating models and include among others project solutions and actions, timelines and ownership to ensure timely preparation and implementation. Aegon has identified a number of legal, financial, pricing, operational and conduct risks and are in the process of addressing these. Aegon continues to analyze these risks and their evolution over the course of the transition. In addition Aegon will continue to engage with industry participants on the transition while monitoring further transition guidance and insights from the different market working groups and regulators.
For example, the majority of financial instruments designated as fair value or cash flow hedges have a maturity date beyond December 31, 2021 (Net notional amount: EUR 12,165 million).
Share in changes in equity (note 30.6) 8 8 4 2
In 2018, one of the Amvest funds with a carrying value of EUR 211 million was liquidated. Based on the termination agreement,
With the exception of a limited number of immaterial venture capital entities, all joint ventures and associates are unlisted and are accounted for using the equity method and are considered to be non-current. The investments in joint ventures and associates include interest in insurance companies that are required to maintain a minimum solvency margin based on local directives. Such restrictions can affect the ability of these joint ventures and associates to transfer funds in the form of cash dividends, or repayment of loans or advances, and therefore, there can be no assurance that these restrictions will not become a limitation in the future.
Refer to note 45 Commitments and contingencies for any commitments and contingencies related to investments in joint ventures.
Summarized statement of financial position Cash and cash equivalents 124 132 525 511
Current financial liabilities excluding trade payables and other provisions - - 17 27
In 2018, the difference in the carrying value of investments in joint ventures of EUR 1,745 million and the total of the carrying value of joint ventures presented above of EUR 1,729 million relates to joint ventures with a negative carrying value of EUR 16 million which have been reclassified to Provisions.
Gross premium and deposits – existing and new business 99 84
th er n o n -fin an cial in fo rm atio n 27 Deferred expenses
DPAC for insurance contracts and investment contracts with discretionary participation features 9,972 10,457
In December 2019, Aegon the Netherlands entered into a longevity reinsurance contract with Canada Life Reinsurance. The contract reinsures a specified portfolio of insurance contracts against possible future mortality developments. The reinsurer will pay benefits as long as the participants live and receive fixed payments from Aegon the Netherlands. EUR 360 million is recognized as deferred cost of reinsurance with regard to this reinsurance contract, which will be amortized over the duration of the underlying insurance contracts.
Real estate held for own use and equipment 28.1 489 498
General account real estate held for own use are mainly held by Aegon Americas and Aegon the Netherlands, with relatively smaller holdings at Aegon Hungary and Aegon Spain. The carrying value under a historical cost model amounted to EUR 231 million (2018: EUR 301 million).
51% of the value of the general account real estate held for own use was last revalued in 2019 (2018: 57%), based on market value appraisals by qualified internal and external appraisers. 99% of the appraisals in 2019 were performed by independent external appraisers (2018: 99%).
Of accrued income EUR 1,442 million is current (2018: EUR 1,421 million).
For information on the Lease liabilities and respective maturity analysis, please refer to note 41 Other liabilities and note 4 Financial risks, respectively.
Goodwill in Aegon Americas is allocated to groups of cash-generating units including variable annuities, fixed annuities and the retirement plans cash-generating unit. Value in use calculations of Aegon Americas have been actuarially determined based on business plans covering a period of typically three years and pre-tax risk adjusted discount rates. Based on the value in use tests, goodwill in the Americas for the group of annuities cash-generating units (2019: EUR 127 million: 2018: EUR 127 million) and the retirement plans cash-generating unit (2019: EUR 56 million: 2018: EUR 55 million) remain unchanged from prior year except for the impact of currency translation adjustments. The value in use tests assume business plans covering a period of three years further extrapolated to ten years, where the new business levels for years 4-10 assumed a 0% growth rate (2018: 0%). The pre-tax adjusted discount rate was 17% for annuities and 18% for retirement plans.
To determine the recoverable amounts of the cash generating units of Aegon Southern and Eastern Europe (SEE), value in use was calculated, and compared to the carrying amounts. Value in use has been determined based on a business plan covering a period of typically 3 years, that, in certain instances was further extrapolated to 20 years where the new business levels for years 4-20 assumed a growth rate based on the business plan of the third year, prudentially decreased by 20% (2018: 20%). Other key assumptions used for the calculation were pre-tax risk adjusted discount rate of ranging between 8.6%-25.2% (2018: 9.1%-28.5%), new business contribution, renewals, asset fees, investment return, persistency and expenses. Operating assumptions are best estimate assumptions and based on historical data where available. Economic assumptions are based on observable market data and projections of future trends.
VOBA The movement in VOBA over 2019 can be summarized and compared to 2018 as follows: Amortization / depreciation through income statement (112) (135)
Net exchange differences 24 49 30 Shareholders’ equity Issued share capital and reserves attributable to shareholders of Aegon N.V.
The table below represents weighted average number of common shares including treasury shares attributable to Aegon N.V.: Weighted average number of common shares (thousands)
All issued common shares and common shares B each have a nominal value of EUR 0.12 and are fully paid up. Repayment of capital can only be initiated by the Executive Board, is subject to approval of the Supervisory Board and must be resolved by the General
th er n o n -fin an cial in fo rm atio n 30.2 Share premium
30.3 Treasury shares On the reporting date, Aegon N.V. and its subsidiaries held 66,583,671 (2018: 62,562,070) of its own common shares and 25,309,920
(2018: 13,856,480) own common shares B with a par value of EUR 0.12 each.
Transactions in 2019: Sale: 1 transaction, average price 0.12 (1,774) -
Net (gains) / losses transferred to income statement 66 - (80) (14)
The revaluation accounts for both available-for-sale investments and for real estate held for own use include unrealized gains and losses on these investments, net of tax. Upon sale, the amounts realized are recognized in the income statement (for available-for-sale investments) or transferred to retained earnings (for real estate held for own use). Upon impairment, unrealized losses are recognized in the income statement.
Movement in foreign currency translation and net foreign investment hedging reserves 562 (46) (3) 513
Movement in foreign currency translation and net foreign investment hedging reserves (1,929) 129 - (1,800)
The foreign currency translation reserve includes the currency results from investments in non-euro denominated subsidiaries.
Perpetual contingent convertible securities Coupon rate Coupon date Year of next call 2019 2018 2017 EUR 500 million 5.625% Semi-annually, April 15 2029 500 - -
The securities have been issued at par and have subordination provisions, rank junior to all other liabilities and senior to shareholders'
equity only. The conditions of the securities contain certain provisions for optional and required coupon payment cancelation. Although the securities have no stated maturity, Aegon has the right to call the securities for redemption at par for the first time between
April 15, 2029 and October 15, 2029 and every reset date (October 15, with five year intervals) thereafter. Upon breach of certain regulatory capital requirement levels, the securities convert into common shares.
USD 250 million floating LIBOR rate 1) Quarterly, December 15 2020 212 212 212
EUR 950 million floating DSL rate 3) Quarterly, July 15 2020 950 950 950
3 The coupon of the EUR 136 million bonds was originally set at 7.25% until October 14, 2008. Subsequently, the coupon has been reset at 5.185% until 4 If the bonds are not called on the respective call dates and after consecutive period of ten years, the coupons will be reset at the then prevailing effective yield of ten-year Dutch government securities plus a spread of 85 basis points.
The non-cumulative subordinated notes were initially issued on February 7, 2012, in aggregate principal amount of 8.00%, due 2042, in an underwritten public offering in the United States registered with the US Securities and Exchange Commission.
These securities are subordinated and rank senior to the junior perpetual capital securities and the perpetual contingent convertible securities, equally with the perpetual cumulative subordinated bonds and junior to all other liabilities. The conditions of the securities contain certain provisions for optional and required deferral of interest payments. There have been no defaults or breaches of conditions during the period.
The fair value of these loans amounted to EUR 2,416 million (2018: EUR 1,355 million).
There were no defaults or breaches of conditions during the period.
The fair value of these loans amounted to EUR 144 million (2018: EUR 128 million).
(such as mortality, longevity or morbidity) and expenses. For some product lines, Aegon is at risk if policy lapses increase as sometimes
charges and fees. There are also products where Aegon is at risk if lapses decrease, for example where this would result in a higher utilization rate of product guarantees. For mortality and morbidity risk, Aegon sells certain types of policies that are at risk if mortality or morbidity increases, such as term life insurance and accident insurance, Aegon also sells certain types of policies that are at risk if mortality decreases (longevity risk) such as annuity products. Aegon is also at risk if expenses are higher than the expenses assumed beforehand by management and that were priced into the products.
Gross premium and deposits – existing and new business 6,913 6,293
The LAT deficit per December 31, 2019 in Aegon the Netherlands amounted to EUR 5.1 billion, which was partially offset by the shadow loss recognition of EUR 3.4 billion, resulting in a net deficit of EUR 1.7 billion. The LAT deficit of EUR 1.7 billion for
The positive LAT headroom of Aegon the Netherlands at the end of 2018 of EUR 0.6 billion was negatively impacted by adverse credit spread movements (widening mortgage spreads, tightened liquidity premium) of EUR 0.8 billion and the impact of lower interest rate of EUR 1.1 billion.
The LAT deficit was partly recorded as an impairment of DPAC and VOBA balances (EUR 76 million) (refer to note 15 “Impairment charges/(reversals)”) and for the remainder by increasing the insurance liability by EUR 1.8 billion.
Gross premium and deposits – existing and new business 1,397 1,441
Sensitivity analysis of net income and shareholders’ equity Estimated approximate effects on net income Estimated approximate effects on shareholders' equity
Shift up 50 basis points - Bond credit spreads (205) (2,386)
Shift down 50 basis points - Bond credit spreads 198 2,117
1 The sensitivities shown above were collected for the first time in 2019, therefore we do not provide comparatives.
Gross premium and deposits – existing and new business 10,545 1,066 11,610
36 Guarantees in insurance contracts For financial reporting purposes Aegon distinguishes between the following types of minimum guarantees: a. Financial guarantees: these guarantees are treated as bifurcated embedded derivatives, valued at fair value and presented as derivatives (refer to note 2.9 and note 44 Fair value); b. Total return annuities: these guarantees are not bifurcated from their host contracts because they are presented and valued at fair value together with the underlying insurance contracts (refer to note 2.19); c. Life contingent guarantees in the United States: these guarantees are not bifurcated from their host contracts, presented and valued in accordance with insurance accounting together with the underlying insurance contracts (refer to note 2.19); and d. Minimum investment return guarantees in the Netherlands: these guarantees are not bifurcated from their host contracts, valued at fair value and presented together with the underlying insurance contracts (refer to note 2.19 and note 44 Fair value).
a. Financial guarantees In the United States and in the United Kingdom, a guaranteed minimum withdrawal benefit (GMWB) is offered directly on some variable annuity products Aegon issues and is also assumed from a ceding company. Additionally, Aegon offers guarantees on variable annuities sold through its joint venture in Japan. Variable annuities allow a customer to provide for the future on a tax-deferred basis and to participate in equity or bond market performance. Variable annuities allow a customer to select payout options designed to help meet the customer’s need for income upon maturity, including lump sum payment or income for life or for a period of time. This benefit guarantees that a policyholder can withdraw a certain percentage of the account value, starting at a certain age or duration, for either a fixed period or during the life of the policyholder.
The following table provides information on the liabilities for financial guarantees for minimum benefits, net of present value of the expected future premiums that are received to cover these guarantees: United States 1) The Netherlands 2) Total 3)‍ United States 1) The Netherlands 2) Total 3)
Aegon Americas mitigates the exposure from the elective guaranteed minimum withdrawal benefit rider issued with a ceding company’s variable annuity contracts. The rider is essentially a return of premium guarantee, which is payable over a period of at least 14 years from the date that the policyholder elects to start withdrawals. At contract inception, the guaranteed remaining balance is equal to the premium payment. The periodic withdrawal is paid by the ceding company until the account value is insufficient to cover additional withdrawals. Once the account value is exhausted, Aegon pays the periodic withdrawals until the guaranteed remaining balance is exhausted. At December 31, 2019, the reinsured account value was EUR 1.8 billion (2018: EUR 1.7 billion) and the guaranteed remaining balance was EUR 1.1 billion (2018: EUR 1.1 billion).
Aegon the Netherlands provides guarantees to its customers on expiry date for certain insurance contracts. In order to mitigate the risks related to the guarantees Aegon the Netherlands has setup a hedging program. Aegon the Netherlands does not use reinsurance in order to mitigate risks related to insurance contracts with a guarantee component. The net amount at risk represents the sum of the positive differences between the discounted maximum amount payable under the guarantees and the account value, which is the actual fund value of the policyholder.
The fixed annuities product balance as of December 31, 2019, amounted to EUR 234 million (2018: EUR 243 million).
th er n o n -fin an cial in fo rm atio n of the underlying employees so that their pension benefit is guaranteed. Large group contracts also share technical results (mortality risk and disability risk). The contract period is typically five years and the premiums are fixed over this period.
The following table provides information on the liabilities for guarantees that are included in the valuation of the host contracts, net of the present value of the expected future premiums that are received to cover these guarantees: GMI 1)‍, 2)‍ GMI 1), 2)
Net amount at risk 5) 6,335 4,933 1 Guaranteed minimum investment return in the Netherlands.
2 Balances are included in the insurance liabilities on the face of the statement of financial position; refer to note 34 Insurance contracts. 3 Incurred guarantee benefits mainly comprise the effect of guarantees from new contracts, releases related to expired out-of-the-money guarantees and fair value movements during the reporting year. 4 Account value reflects the liability value of the insurance contracts as a whole. 5 The net amount at risk represents the sum of the differences between the guaranteed and actual amount that is credited to the policyholders. For Individual policies only positive differences are included, for Group pensions contracts carry forwards of negative differences are recognized.
Fair value measurement of guarantees in insurance contracts The fair values of guarantees mentioned above (with the exception of life contingent guarantees in the United States) are calculated as the present value of future expected payments to policyholders less the present value of assessed rider fees attributable to the guarantees. For further details refer to note 44 Fair value.
Guarantees valued at fair value contributed a net gain before tax of EUR 424 million (2018: loss of EUR 56 million) to earnings.
Capital funding A detailed composition of capital funding is included in the following table: (sorted at maturity)‍ Coupon rate Coupon date Issue /
EUR 500 million Senior Unsecured Notes 1.00% December 8 2016 / 23 497 496
GBP 250 million Medium-Term Notes 6.125% December 15 1999 / 31 293 277
These loans are considered senior debt in calculating financial leverage in note 43 Capital management and solvency.
During 2018, the operational funding decreased by EUR 1.1 billion mainly due to the redemption of ‘SAECURE 13’ of EUR 0.7 billion, paydown of FHLB advances of EUR 0.7 billion and a decrease in other mortgage funding of EUR 0.5 billion. This was partly offset by a transaction under the Dutch SAECURE program ('SAECURE 16') to sell Class A mortgage backed securities (RMBS). ‘SAECURE
EUR 1,367 million "SAECURE 14" RMBS Note 1), 2) Floating Quarterly 2014 / 19 - 874
EUR 750 million Conditional Pass-Through Covered Bond 1), 6) 0.267% Annual 2015 / 20 749 748
FHLB Secured borrowings 1) Floating Quarterly 2016 / 46 1,777 3,495
Aegon Bank Senior Non-Preferred debt 1) Fixed Annual 2019/24 497 1 Issued by a subsidiary of Aegon N.V.
4 The first optional redemption date is October 30, 2023; the final legal maturity date is October 30, 2091. Notes are fully collateralized by mortgage loans which are part of Aegon’s general account investments.
6 The maturity date is December 1, 2020; the extended due for payment date is December 1, 2052. 7 The maturity date is May 25, 2023; the extended due for payment date is May 25, 2055. 8 The maturity date is June 27, 2027; the extended due for payment date is June 27, 2059. 9 The maturity date is November 21, 2024; the extended due for payment date is November 21, 2056. 10 Outstanding amounts can vary up to the maximum stated nominal amount. 11 This debenture is issued by a wholly owned captive that is consolidated in the Aegon N.V. consolidated financial statements. A guarantee has been provided by
Aegon’s credit spread had a negative impact of EUR 1 million on income before tax (2018: positive impact of EUR 1 million) and a positive impact of EUR 1 million on shareholders’ equity (2018: negative impact of EUR 3 million). The cumulative negative impact of Aegon’s credit spread for borrowings in portfolio at year-end, based on observable market data, on income before tax amounted to EUR 28 million (2018: EUR 26 million).
EUR 2,736 millions (2018: EUR 2,568 million) do not meet the definition of plan assets and as such were not deducted in calculating this amount. Instead, these assets are recognized as general account assets. Consequently, the return on these assets does not form part of the calculation of defined benefit expenses.
The fair value of Aegon’s own transferable financial instruments included in plan assets and the fair value of other assets used by Aegon included in plan assets was nil in both 2019 and 2018.
Remeasurements of the defined benefit obligations: - Actuarial gains and losses arising from changes in demographic assumptions 40 (28)
- Actuarial gains and losses arising from changes in financial assumptions 1,126 (102)
Net exchange differences 144 144 1 In 2019, ‘Other’ mainly relates to the plan amendment from Aegon the Netherlands as described in the section on ‘Aegon the Netherlands’ in this note.
Breakdown of plan assets for retirement benefit plans Quoted Unquoted Total in % of total plan assets Quoted Unquoted Total in % of total plan assets
Transamerica Corporation made a pension plan contribution of EUR 223 million in September 2019 (EUR 190 million in September 2018) that was over and above the minimum required funding levels as set forth by the Internal Revenue Code.
Aegon USA also sponsors supplemental retirement plans to provide senior management with benefits in excess of normal retirement benefits. The plans are unfunded and are not qualified under the Internal Revenue Code. The supplemental retirement plans are governed by either Transamerica Corporation, or the Compensation Committee of the Board of Directors of Transamerica Corporation.
Aegon USA provides health care benefits to retired employees through continuation of coverage primarily in self funded plans, and partly in fully insured plans, which are classified as unfunded per IAS 19 financial guidance. The postretirement health care benefits under the Plans are administered by Transamerica Corporation, which has delegated the claims administration to thirdparty administrators. Aegon USA maintains two plans which provide continuation of coverage for retiree medical benefits. For each plan, Aegon USA has the fiduciary responsibility to administer the plan in accordance with its terms, and decides questions related to eligibility and determines plan provisions and benefit amounts.
USA has the fiduciary obligation to interpret the provisions of the plans, and to comply with any statutory reporting and disclosure requirements. Finally, Aegon USA reviews the terms of the plans and makes changes to the plans if and when appropriate. Aegon USA
100 basis points increase in health care trend rate 12 12 100 basis points decrease in health care trend rate (11) (11)
Target allocation of plan assets for retirement benefit plans for the next annual period is: Equity instruments 19-28%
Aegon the Netherlands also has a post-retirement medical plan that contributes to the health care coverage of employees and beneficiaries after retirement. For this plan, Aegon the Netherlands has the responsibility to administer the plan in accordance with its terms, and decides on questions related to eligibility and determines plan provisions and benefit amounts. In addition, Aegon the Netherlands has the obligation to interpret the provisions of the plans, and to comply with any statutory reporting and disclosure requirements. Finally, Aegon the Netherlands reviews the terms of the plans and makes changes to the plans if and when appropriate.
Plan amendments In 2019, Aegon the Netherlands amended the current defined pension plans for their own employees. The entitlements build up under the existing defined benefit scheme will continue to exist and will remain insured at Aegon Levensverzekering, but is closed to new entrants. All contributions after January 1, 2020, will be made to a new individual defined contribution pension scheme. The new Aegon
The plan amendment resulted in a release of EUR 101 million in 2019 which is included in note 11 ‘Other income’. This release is driven by the effect of no longer taking into account future salary increases under the new defined contribution pension scheme.
Indexation 3) 59.2 % of Curve 2019 57.75% of Curve 2018 1 Based on prospective mortality table of the Dutch Actuarial Society with minor methodology adjustments. 2 Based on Dutch Consumer Price Index. 3 Based on Dutch Consumer Price Index.
Under the scheme rules, pensions in payment increase in line with the UK Retail Price Index, and deferred benefits increase in line with the UK Consumer Price Index. The pension scheme is therefore exposed to UK inflation changes as well as interest rate risks, investment returns and changes in the life expectancy of pensioners.
The weighted average duration of the defined benefit obligation is 21.6 years (2018: 21.6 years).
Price inflation 3.08% 3.32% 1 Club Vita tables based on analysis of Scheme membership CMI 2017 1.5%/1.25% p.a. (males/females) 2 Club Vita tables based on analysis of Scheme membership CMI 2017 1.5%/1.25% p.a. (males/females)
100 basis points decrease in discount rate 414 313 100 basis points increase in price inflation 130 119 100 basis points decrease in price inflation (281) (192)
Target allocation of plan assets for retirement benefit plans for the next annual period is: Equity instruments 32%
The position as per January 1, 2019 has been adjusted due to the initial application of IFRS 16. Reference is made to note 2.1.1 for details.
Transfer to/from other headings in 2019 includes the transfer between the columns "other" and "tax losses and credits carried forward", in relation to credits carried forward for an amount of EUR 473 million.
For the following amounts, arranged by loss carry forward periods, the deferred corporate income tax asset is not recognized: Gross amounts1) Not recognized deferred tax assets 1 The gross value of state tax loss carry forward is not summarized in the disclosure, due to the fact that the United States files in different state jurisdictions with various applicable tax rates and apportionment rules
(2018: gross EUR 162 million; tax EUR 29 million) the realization of the deferred corporate income tax asset is dependent on future taxable profits in excess of the profits arising from the reversal of existing taxable temporary differences.
Aegon did not recognize deferred corporate income tax assets in respect of deductible temporary differences relating to Financial assets and Other items for the amount of gross EUR 32 million; tax EUR 6 million (2018: gross EUR 40 million; tax EUR 8 million).
Management of capital Disciplined risk and capital management support Aegon’s decisions in deploying the capital that is generated in the Company's businesses and that is provided for by investors. Aegon balances the funding of new business growth with the funding required to ensure that its obligations towards policyholders and debtholders are always adequately met, and providing for a sustainable dividend to shareholders.
Aegon’s goal for both its operating units and for the Aegon group as a whole is to maintain a strong financial position and to be able to sustain losses from extreme business and market conditions. The company’s overall capital management strategy is based on adequate solvency capital, capital quality, and the use of leverage.
& Aggregation (D&A) involves converting 150% Risk-Based Capital Company Action Level into Solvency Capital Requirement (SCR)
and reducing own funds by a 100% RBC Company Action Level requirement to reflect transferability restrictions. The methodology is subject to annual review.
During 2019, the Aegon Group and the regulated entities within the Aegon Group that are subject to regulatory capital requirements on a solo-level continued to comply with such requirements, except for Aegon España, S.A.U. de Seguros y Reaseguros (Aegon
The decrease in Tier 1 capital is mainly due to the redemptions of USD 1 billion perpetual capital securities issued in 2005, partly offset by the issuance of perpetual contingent convertible security during 2019.
As at December 31, 2019, Tier 2 capital accounted for 13% of own funds (2018: 8%), including USD 925 million subordinated notes issued by Aegon Funding Corporate LLC (AFC) during 2019 contributing EUR 823 million to Tier 2 capital, EUR 773 million of subordinated liabilities which are classified as Solvency II compliant Tier 2 capital (2018: EUR 716 million), EUR 774 million of fixed floating subordinated notes (2018: EUR 771 million) which are classified as grandfathered Tier 2 capital. Changes in Tier 2 capital compared to previous year is mainly related to the issuance of subordinated notes by AFC.
The grandfathered restricted Tier 1 and Tier 2 capital instruments are grandfathered such that they are considered as capital under the Solvency II framework for up to 10 years. For the terms and conditions of these grandfathered instruments refer to note 31 Other equity instruments and note 32 Subordinated borrowings.
Tier 3 capital as of December 31, 2019 is comprised of deferred tax assets balances related to Solvency II entities.
IFRS-EU equity compares to Solvency II own funds as follows: Shareholders' Equity 22,457 19,518
December 31, 2019 compared to December 31, 2018 is mainly driven by lower interest rates during 2019, increasing the revaluation reserves in Aegon US. The Solvency II revaluations and reclassification can be grouped into four categories:  Items that are not recognized under Solvency II. The most relevant examples of this category for Aegon include Goodwill, DPAC and other intangible assets (EUR 1,932 million negative, 2018: EUR 2,024 million negative);  Items that have a different valuation treatment between IFRS-EU and Solvency II. Solvency II is a market consistent framework hence all assets and liabilities are to be presented at fair value while IFRS-EU also includes other valuation treatments in addition to fair value. The most relevant examples of this category for Aegon Group include Loans and Mortgages, Reinsurance Recoverables, and Technical provisions. The revaluation difference stemming from this category amounted to EUR 2,753 million positive (2018: EUR 2,471 million positive) compared to the IFRS-EU Statement of Financial Position;  The Net Asset Value of subsidiaries that are included under the Deduction & Aggregation method (on provisional equivalence or Standard Formula basis) in the Group Solvency II results. The revaluation difference stemming from this category amounted to EUR 5,663 million negative (2018: EUR 4,095 million negative) compared to the IFRS-EU Statement of Financial Position, which is mainly driven by lower interest rates during 2019;  Reclassification of subordinated liabilities of EUR 3,372 million negative (2018: EUR 3,262 negative). The movement of subordinated liabilities mainly stem from the redemption of perpetual capital securities, the issuance Restricted Tier 1 perpetual contingent convertible securities, and the issuance of Tier 2 subordinated notes during 2019.
Examples include the adjustments for subordinated liabilities, ring-fenced fund, treasury shares and foreseeable dividend.
Capital leverage Aegon’s total capitalization reflects the capital employed in the business units and consists of shareholders’ capital and total gross financial leverage. Aegon’s gross financial leverage ratio is calculated by dividing total financial leverage by total capitalization. Aegon aims to keep total gross financial leverage within a range of 26% to 30% of total capitalization as measured by the gross financial leverage ratio, and a fixed charge coverage in the range of 6-8x the interest payments on financial leverage.
The ability of Aegon's subsidiaries, principally insurance companies, to pay dividends to the holding company is constrained by the requirement for these subsidiaries to remain adequately capitalized to the levels set by local insurance regulations and governed by local insurance supervisory authorities. Based on the capitalization level of the local subsidiary, local insurance supervisors are able to restrict and/or prohibit the transfer of dividends to the holding company. In addition, the ability of subsidiaries to pay dividends to the holding company can be constrained by the requirement for these subsidiaries to hold sufficient shareholders'
44 Fair value The estimated fair values of Aegon’s assets and liabilities correspond with the amounts that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available, Aegon uses quoted market prices in active markets to determine the fair value of investments and derivatives. In the absence of an active market, the fair value of investments in financial assets is estimated by using other market observable data, such as corroborated external quotes and present value or other valuation techniques. An active market is one in which transactions are taking place regularly on an arm’s length basis. Fair value is not determined based upon a forced liquidation or distressed sale.
Valuation of assets and liabilities is based on a pricing hierarchy, in order to maintain a controlled process that will systematically promote the use of prices from sources in which Aegon has the most confidence, where the least amount of manual intervention exists and to embed consistency in the selection of price sources. Depending on asset type the pricing hierarchy consists of a waterfall that starts with making use of market prices from indices and follows with making use of third-party pricing services or brokers.
Revalued amounts Real estate held for own use - - 208 208
Total liabilities at fair value 59 68,696 3,278 72,033 1 The investments for account of policyholders included in the table above only include investments carried at fair value through profit or loss. 2 The investment contracts for account of policyholders included in the table above represents only those investment contracts carried at fair value. 3 Total borrowings on the statement of financial position contain borrowings carried at amortized cost that are not included in the above schedule.
Total liabilities at fair value 93 54,824 2,695 57,613 1 The investments for account of policyholders included in the table above only include investments carried at fair value through profit or loss. 2 The investment contracts for account of policyholders included in the table above represents only those investment contracts carried at fair value. 3 Total borrowings on the statement of financial position contain borrowings carried at amortized cost that are not included in the above schedule.
Significant transfers between Level I, Level II and Level III Aegon’s policy is to record transfers of assets and liabilities between Level I, Level II and Level III at their fair values as of the beginning of each reporting period.
lo ss es in in co m e st at em en t 1
Tr an sf er s to d is p o sa l g ro u p s
Money markets and other short-term instruments - - - - - 1,061 (855) (103) - - 126 (229) - - -
Investments in real estate for policyholders 612 - - (18) - 2 (43) - 34 - - - - 586 (27)
) fo r th e p er io d r ec o rd ed in t h e P
Investments in real estate for policyholders 655 - - 5 - 2 (43) - (7) - - - - 612 4
Liabilities carried at fair value Investment contracts 2,064 - - 604 - 7 (14)‍ - 35 - - - - 2,695 614 1 Includes impairments and movements related to fair value hedges. Gains and losses are recorded in the line item Results from financial transactions of the income statement .
EUR 263 million (2018: EUR 151 million). Since the transfer, all such assets have been valued using valuation models incorporating significant non market-observable inputs or uncorroborated broker quotes.
Other investments at fair value Tax credit investments Discounted cash flow Discount rate 435 6.5% 435 6.8% Investment funds Net asset value 3) n.a. 14 n.a. 24 n.a. Other Other n.a. 33 n.a. 34 n.a.
Real estate held for own use Direct capitalization technique Capitalization rate 54
Total assets at fair value 4)‍ 8,330 7,592 Liabilities carried at fair value Derivatives Embedded derivatives in insurance contracts Discounted cash flow Own credit spread 3,072
Longevity swap Discounted cash flow Mortality 9 n.a. 5 n.a. Other Other n.a. - n.a. - n.a.
Other loans - held at amortized cost 2,353 45 2,080 228 2,353
Other loans - held at amortized cost 2,310 13 2,064 233 2,310
Liabilities Subordinated borrowings - held at amortized cost 1,389 1,355 - - 1,355
Fair value measurement The description of Aegon's methods of determining fair value and the valuation techniques are described on the following pages.
Credit ratings are also an important consideration in the valuation of securities and are included in the internal process for determining
profit or loss) is valued using a matrix pricing methodology. The pricing matrix is obtained from a third-party service provider and indicates current spreads for securities based on weighted average life, credit rating, and industry sector. Each month, Aegon’s asset specialists review the matrix to ensure the spreads are reasonable by comparing them to observed spreads for similar bonds traded in the market. Other inputs to the valuation include coupon rate, the current interest rate curve used for discounting and a liquidity premium to account for the illiquid nature of these securities. The liquidity premiums are determined based upon the pricing of recent transactions in the private placements market; comparing the value of the privately offered security to a similar public security.
Valuations of corporate bonds are monitored and reviewed on a monthly basis. The pricing hierarchy is dependent on the possibility of corroboration of market prices when available. If no market prices are available, valuations are determined by a discounted cash flow methodology using an internally calculated yield. The yield is comprised of a credit spread over a given benchmark. In all cases the benchmark is an observable input. The credit spread contains both observable and unobservable inputs. Aegon starts by taking an observable credit spread from a similar bond of the given issuer, and then adjust this spread based on unobservable inputs. These unobservable inputs may include subordination, liquidity and maturity differences. The weighted average credit spread used in valuation of corporate bonds has decreased to 2.5% (December 31, 2018: 3.4%).
Tax credit investments The Level III fair value of tax credit investments is determined by using a discounted cash flow valuation technique. This valuation technique takes into consideration projections of future capital contributions and distributions, as well as future tax credits and the tax benefits of future operating losses. The present value of these cash flows is calculated by applying a discount rate. In general, the discount rate is determined based on the cash outflows for the investments and the cash inflows from the tax credits and/or tax benefits (and the timing of these cash flows). These inputs are unobservable in the market place. The discount rate used in valuation of tax credit investments has decreased to 6.5% (December 31, 2018: 6.8%).
Investment funds: Real estate funds, private equity funds and hedge funds
The valuation techniques incorporate all factors that a typical market participant would consider and are based on observable market data when available. Models are validated before they are used and calibrated to ensure that outputs reflect actual experience and comparable market prices.
Since the price of these guarantees is not quoted in any market, the fair values of these guarantees are based on discounted cash flows calculated as the present value of future expected payments to policyholders less the present value of assessed rider fees attributable to the guarantees. Given the complexity and long-term nature of these guarantees which are unlike instruments available in financial markets, their fair values are determined by using stochastic models under a variety of market return scenarios. A variety of factors are considered, including own credit spread, expected market rates of return, equity and interest rate volatility, correlations of market returns, discount rates and actuarial assumptions. The most significant unobservable factor is own credit spread. The weighted average own credit spread used in the valuations of embedded derivatives in insurance contracts decreased to 0.2% (2018: 0.3%).
The expected returns are based on risk-free rates. Aegon added a premium to reflect the credit spread as required. The credit spread is set by using the Credit default swap (CDS) spreads of a reference portfolio of life insurance companies (including Aegon), adjusted
Forward Rate of 3.65% in the Netherlands and 4.25% in the US from the last liquid point. The uniform last liquid point for all
Since many of the assumptions are unobservable and are considered to be significant inputs to the liability valuation, the liability included in future policy benefits has been reflected within Level III of the fair value hierarchy. Refer to note 36 Guarantees in insurance contracts for more details about Aegon’s guarantees.
Real estate Valuations of Level III investments in real estate and real estate held for own use are conducted in full by independent external appraisers at least every three to five years and reviewed at least once a year by qualified internal appraisers to ensure the value correctly reflects the fair value at the reporting date. Appraisals are different for each specific local market, but are based on market guidelines such as International Valuation Standards, Uniform Standards of Professional Appraisal Practice or guidelines issued by the Investment Property Databank. Valuations are mostly based on active market prices, adjusted for any difference in the nature, location or condition of the specific property. If such information is not available, other valuation methods are applied, considering the value that the property’s net earning power will support, the value indicated by recent sales of comparable properties and the current cost of reproducing or replacing the property. Discount rates used in the valuation of real estate reflect the risk embedded in the projected cash flows for the asset being valued. Capitalization rates represent the income rate for a real estate property that reflects the relationship between a single year’s net operating income expectancy and the total property price or value. For property held for own use, appraisers consider the present value of the future rental income cash flows that could be achieved had the real estate been rented to a third party.
In addition, Aegon includes own credit spread based on Aegon’s credit default swap curve.
Derivatives with negative values not designated as hedges 10,391 - 6,424 -
Gains and losses on financial assets and financial liabilities classified at fair value through profit or loss Gains and losses recognized in the income statement on financial assets and financial liabilities classified as at fair value through profit or loss can be summarized as follows: Trading Designated Trading Designated
Aegon has committed itself, through certain subsidiaries, to invest in real estate, private loans, mortgage loans and receivables and investment funds.
Real estate commitments represent the committed pipeline of investments in real estate projects. The sale of real estate relates to properties that are under contract to be sold as per December 31, 2019.
In April 2018, affiliates of Transamerica Corporation entered into a series of agreements with affiliates of Tata Consultancy Services
Limited (‘TCS’) to administer the Company’s US life insurance, voluntary benefits, and annuity business lines. The collaboration enables
Transamerica Corporation, a wholly-owned subsidiary of Aegon N.V., previously had a parental guarantee to TLIC Riverwood
Nederland. Under the share purchase agreement between Aegon Nederland and the buyer, Aegon the Netherlands indemnifies and holds the buyer and its group (including UMG) harmless for and against any damage suffered or incurred which is the result of the Unit
Linked Insurances Claims until 2027 with respect to Unit Linked Policies in the portfolio of UMG prior to 1 January 2017. The aggregate liability for Aegon the Netherlands is maximized at an amount equal to the purchase price.
An Aegon N.V. indirect US life subsidiary has a net worth maintenance agreement with its subsidiary Transamerica Life (Bermuda) Ltd, pursuant to which Transamerica Life Insurance Company, a US life insurance subsidiary, will provide capital sufficient to maintain a S&P
Corporation at December 31, 2019 amounted to EUR 1,666 million (2018: EUR 3,164 million). As of that date no amounts had been drawn, or were due under letter of credit facilities.  Due and punctual payment of payables by the consolidated group companies Transamerica Corporation, Aegon Funding Company
Due to the geographic spread of its business, Aegon Group may be subject to tax audits or litigation in various jurisdictions. Although uncertainties are provided for adequately in the tax position, the ultimate outcome of the tax audits of litigation may result in an outcome that differs from the amounts provided for.
Aegon cannot predict the effect of litigation, investigations or other actions on its businesses or the insurance industry. In some jurisdictions, plaintiffs may seek recovery of very large or indeterminate amounts under claims of bad faith, resulting in punitive or treble damages. Damages alleged may not be quantifiable or supportable, or may have no relationship to economic losses or final awards. Separate from financial loss, litigation, regulatory action, legislative changes or changes in public opinion may require Aegon
Proceedings in which Aegon is involved Several US insurers, including Aegon subsidiaries, have been named in class actions as well as individual litigation relating to increases in monthly deduction rates (''MDR'') on universal life products. Plaintiffs generally allege that the increases were made to recoup past losses rather than to cover the future costs of providing insurance coverage. In one such class action against Aegon's subsidiary pending in the US federal district court for the Central District of California, the parties agreed to settle the case which resulted in a net charge to the income statement for 2018 of USD 166 million. In January 2019, a court approved the aforementioned settlement.
Aegon continues to hold a provision for these policyholders. Resolution of this class action ended a number of other related cases, including several other class actions. At this time it is impracticable for Aegon to quantify a range or maximum liability or the timing of the financial impact, if any, of the remaining MDR increase related litigation, as the potential financial impacts are dependent both on the outcomes of court proceedings and future developments in financial markets and mortality. If decided adversely to Aegon, these claims could have a material adverse effect on Aegon's business, results of operations, and financial position.
A former subsidiary of Transamerica Corporation was involved in a contractual dispute with a Nigerian travel broker that arose in 1976.
In Poland, owners of unit-linked policies continue to file claims in civil court against Aegon over fees payable upon purchase or surrender of the product. Plaintiffs claim that these fees are not contractually supported. Aegon faces a significant number of these cases. For reasons of commercial necessity as well as at the instigation of the regulatory authorities, Aegon decided to modify the fee structure. As of 2019, a provision of EUR 14 million remains, which represents management's best estimate of the exposure. The final amount may vary based on regulatory developments and the outcome of litigation.
In the Netherlands, unit linked products ('beleggingsverzekeringen') have been controversial and the target of litigation since at least 2005. Allegations include excessive cost, unfair terms, inadequate disclosure, and failure to perform as illustrated. Consumer groups have formed to address these issues and initiate mass claims against insurers. Regulators as well as the Dutch Parliament have been involved ever since, with the principal goal of achieving an equitable resolution. Aegon has made improvements across its product lines, including after settlements reached in 2009 with Stichting Woekerpolis and Stichting Verliespolis. In 2013 Aegon took a charge of EUR 25 million after the Dutch Supreme Court ruled adversely in litigation concerning premium amounts charged in the KoersPlan product. Some of the unit linked products are still involved in ongoing litigation. In September 2014, consumer interest group
Vereniging Woekerpolis.nl filed a claim against Aegon in court. The claim related to a range of unit linked products that Aegon sold
in the past, including Aegon products involved in the earlier litigation. The claim challenges a variety of elements of these products, on multiple legal grounds, including allegations made previously. In June 2017, the court issued a verdict which upheld the principle that disclosures must be evaluated according to the standards at the time when the relevant products were placed in-force. Most of the claims of Vereniging Woekerpolis.nl were dismissed under this standard, although the court found that Aegon did not adequately disclose certain charges on a limited set of policies. The district court did not decide on the reasonableness of the cost levels and whether the previous compensation arrangements provide sufficient compensation. This court decision has been appealed by both parties. Aegon expects the claims and litigation on unit linked products to continue for the foreseeable future. Developments in similar cases against other Dutch insurers currently before regulators and courts may also affect Aegon. At this time, Aegon is unable to estimate the range or potential maximum liability. There can be no assurances that these matters, in the aggregate, will not ultimately result in a material adverse effect on Aegon's business, results of operations and financial position.
Supreme Court ruled on a case involving a securities leasing product sold by one of Aegon's competitors. It decided that the financial institution was liable if a broker ('remisier') that advised on the sale of the institution's products was not properly licensed. In July 2016, consumer interest group Platform Aandelenlease filed a claim against Aegon Bank regarding securities leasing product
Institute for Financial Services (‘Klachteninstituut Financiële Dienstverlening’), with numerous cases having been initiated by Leaseproces B.V. At this time, Aegon is unable to estimate the range or potential maximum liability. There can be no assurances that this matter will not ultimately result in a material adverse effect on Aegon's business, results of operations and financial position.
In the normal course of business Aegon is involved in the following transactions:  Transferred financial assets that are not derecognized in their entirety:  Securities lending; whereby Aegon legally (but not economically) transfers assets and receives cash and non-cash collateral.
 Transferred financial assets that are derecognized in their entirety and Aegon does not have a continuing involvement (normal sale);  Transferred financial assets that are derecognized in their entirety, but where Aegon has a continuing involvement;  Collateral accepted in the case of securities lending, reverse repurchase agreement and derivative transactions; and  Collateral pledged in the case of (contingent) liabilities, repurchase agreements, securities borrowing and derivative transactions.
Reverse repurchase agreements 2019 2018 Cash paid for reverse repurchase agreements 4,980 2,195
Non-cash collateral that can be sold or repledged in the absence of default 4,640 1,740
Assets pledged for repurchase agreements 2019 2018 Cash received on repurchase agreements 719 322
47 Offsetting, enforceable master netting arrangements and similar agreements The following table only includes financial positions for which there is a recognized corresponding position that could be offset under a legally enforceable master netting arrangement or similar agreement. Aegon also enters into collateralized (reverse) repo or security lending and borrowing transaction, for which the collateral is not recognized on the balance sheet. For further information on the financial positions resulting from such transactions please refer to note 46. The table provides details relating to the effect, or potential effect, of netting arrangements, including rights to set-off, associated with the entity's recognized financial assets and recognized financial liabilities.
Related amounts not set off in the statements of financial position
Gross amounts of recognized financial assets set off in the statement of financial position
Under the terms of the agreement, Aegon acquired 94.4% and voting interests of the company with the remainder to be retained by Robidus’ management team. The total consideration of the acquisition amounted to EUR 103 million. Based on the purchase price allocation the fair value of the net assets amounted to EUR 18 million, resulting in a goodwill of EUR 85 million.
On January 29, 2020, Aegon completed the sale of its 50% stake in the variable annuity joint ventures in Japan. The sale was announced on May 17, 2019. The total cash proceeds are EUR 153 million (JPY 18.75 billion). The divestment will not have a material impact on Aegon's capital position and is expected to lead to an IFRS gain of EUR 51 million. This divestment has no material impact on underlying earnings before tax going forward.
On January 8, 2019, Aegon completed the sale of its businesses in Czech Republic and Slovakia. The businesses consisted mainly of unit linked life insurance coverage, term life products and pension reserves. The proceeds of the sale amount to EUR 155 million and the book gain amounts to approximately EUR 70 million, which were reflected in other income. As a consequence of the transaction, annual income before tax and underlying earnings before tax have decreased. In 2018, the underlying earnings before tax of the combined operations amounted to EUR 17 million.
On August 7, 2018, Aegon agreed to divest the last substantial block of its US life reinsurance business to SCOR Global Life.
On June 28, 2017, Aegon completed its transaction to divest its two largest run-off businesses in the Americas, the payout annuity business and Bank Owned Life Insurance/ Corporate Owned Life Insurance business (BOLI/COLI). Under the terms of the agreement, Aegon’s Transamerica life subsidiaries has reinsured USD 14 billion of liabilities. The transaction resulted in a book gain of USD 250 million (EUR 231 million), reported in the line other income in the condensed consolidated income statement.
Comprehensive Income following the disposal of assets to fund the transaction.
Americas  Transamerica Corporation, Wilmington, Delaware (United States);  Transamerica Casualty Insurance Company, Columbus, Ohio (United States);  Transamerica Financial Life Insurance Company, Harrison, New York (United States);  Transamerica Life Insurance Company, Cedar Rapids, Iowa (United States);  Transamerica Premier Life Insurance Company, Cedar Rapids, Iowa (United States).
Europe The Netherlands  Aegon Bank N.V., The Hague;  Aegon Hypotheken B.V., The Hague;  Aegon Levensverzekering N.V., The Hague;  Aegon Schadeverzekering N.V., The Hague;  Aegon Spaarkas N.V., The Hague;  Aegon Cappital B.V., Groningen  Salus Holding B.V., Zaandam;  TKP Pensioen B.V., Groningen;  Nedasco B.V., Amersfoort; United Kingdom  Aegon Investment Solutions Ltd., Edinburgh;  Aegon Investments Ltd., London;  Scottish Equitable plc, Edinburgh;  Cofunds Limited, London.
Insurance Co.);  Aegon Towarzystwo Ubezpieczeń na Życie Spółka Akcyjna, Warsaw (Aegon Poland Life);  Aegon Powszechne Towarzystwo Emerytaine Spólka Akcyjna, Warsaw (Aegon Poland Pension Fund Management Co.);  Aegon Emeklilik ve Hayat A.Ş., Istanbul (Aegon Turkey);  Aegon Pensii Societate de Administrare a Fondurilor de Pensii Private S.A., Cluj (Aegon Romania Pension Administrator Co.);  Aegon España S.A.U. de Seguros y Reaseguros, Madrid (Spain);  Aegon Administracion y Servicios A.I.E., Madrid (Spain);  Aegon Activos A.V., S.A., Madrid (Spain);  Aegon Mediacion, S.L.U, Madrid (Spain).
Asset Management  Aegon Asset Management Holding B.V., The Hague (The Netherlands);  Aegon Custody B.V., The Hague (The Netherlands);  Aegon Asset Management Pan-Europe B.V., The Hague (The Netherlands);  Kames Capital plc, Edinburgh (United Kingdom);  Aegon USA Investment Management, LLC, Cedar Rapids (United States);  Aegon USA Realty Advisors, LLC, Des Moines (United States);  Aegon Magyarország Befektetési Alapkezelő Zártkörűen Működő Részvénytársaság (Aegon Hungary Asset Management Company
ZrtA), Budapest (Hungary);  Aegon Investment Management B.V, The Hague (The Netherlands); Aegon Integrated Annual Report 2019
Southern and Eastern Europe  Santander Generales Seguros y Reaseguros, S.A., Madrid (Spain) (51%);  Santander Vida Seguros y Reaseguros, S.A., Madrid (Spain) (51%);  Liberbank Vida y Pensiones, Seguros y Reaseguros, S.A., Oviedo (Spain) (50%);  Aegon Santander Portugal Não Vida – Companhia de Seguros S.A., Lisbon (Portugal) (51%);  Aegon Santander Portugal Vida – Companhia de Seguros de Vida S.A., Lisbon (Portugal) (51%).
Asia  Aegon Sony Life Insurance Co., Tokyo (Japan) (50%); (Sold as of January 29, 2020)  Aegon THTF Life Insurance Co., Ltd., Shanghai (China) (50%);  SA Reinsurance Ltd, Hamilton (Bermuda) (50%);  Aegon Life Insurance Co. ltd (India) (49%).
Refer to note 25 Investments in joint ventures and associates for further details on these investments.
Asset Management  La Banque Postale Asset Management, Paris (France) (25%).
50 Related party transactions In the normal course of business, Aegon enters into various transactions with related parties. Parties are considered to be related if one party has the ability to control or exercise significant influence over the other party in making financial or operating decisions. Related parties of Aegon include, amongst others, its associates, joint ventures, key management personnel and the defined benefit and contribution plans. Transactions between related parties have taken place on an arm’s length basis. Transactions between Aegon and its subsidiaries that are deemed related parties have been eliminated in the consolidation and are not disclosed in the notes.
On December 23, 2019 Aegon N.V. repurchased 13,227,120 common shares B from Vereniging Aegon for the amount of EUR 1,384,046 based on 1/40th of the Value Weight Average Price of the common shares on the five trading days preceding this
On May 17, 2019, Vereniging Aegon exercised its options rights to purchase 1,773,680 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by the issuance of shares on May 17, 2019, in connection with the Long Term Incentive Plans for senior management.
On December 19, 2017 Aegon N.V. repurchased 13,042,592 common shares B from Vereniging Aegon for the amount of EUR
1,725,169 based on 1/40th of the Value Weight Average Price of the common shares of the five trading days preceding this transaction. The repurchase of common shares B was executed to align the aggregate shareholding of Vereniging Aegon in Aegon
N.V. with its special cause voting rights of 32.6% following the completion of the Share Buy Back Program, initiated by Aegon N.V.
In 2019 the fixed compensation amount of the Key Management included EUR 717 thousand in severance payments. The Key
Additional information on the remuneration and share-based compensation of members of the Executive Board and the remuneration of the Supervisory Board is disclosed in the Remuneration report.
(2018: 20,462). The shares held in Aegon mentioned above do not exceed 1% of total outstanding share capital at the reporting date. At the reporting date no loans with Aegon or outstanding balances such as guarantees or advanced payments exist for either Mr.
Board. At the reporting date no loans with Aegon or outstanding balances such as guarantees or advanced payments exist for the members of the Supervisory Board.
Financial markets have been severely impacted by significant decreases in interest rates, equity markets and commodity prices, and by credit spreads widening. Governments and central banks worldwide are responding to this crisis with aid packages and further quantitative easing. At the date of this report the depth and length of this crisis is unknown.
The Company is continuously monitoring the market and economic turbulence that has arisen as a consequence of the COVID-19 outbreak, and its impact on Aegon. The most significant risks Aegon faces are related to financial markets (particularly credit, equity and interest rates), and underwriting risks (particularly related to mortality, morbidity and policyholder behavior). The notes to Aegon’s financial statements include elaborate descriptions and related financial market sensitivities. Aegon continues to monitor claim activity, including mortality and morbidity claims, and policyholder behavior. At the date of this report it is too early to tell what the impact of the COVID-19 crisis is on Aegon’s underwritings results and Aegon’s long term underwriting and economic assumptions, if any.
Because of the far-reaching measures governments around the world are taking to control the impact of this pandemic, we expect the sale of new business to be impacted by these measures. At the date of this report it remains too early to tell what the impact of these measures will be on Aegon’s sales. Lower interest rates are also likely to impact the profitability of Aegon’s sales depending on the market response. Aegon has invoked its business continuity plans to help ensure the safety and well-being of its staff, as well as its capability to support its customers and maintain its business operations, while maintaining our financial and operational resilience.
315 Income statement of Aegon N.V. 316 Statement of financial position of Aegon N.V.
Income statement of Aegon N.V. For the year ended December 31
Statement of financial position of Aegon N.V. As at December 31
January 1, 2019. Refer to note 2.1.2 Voluntary changes in accounting policies in the consolidated notes for details about this change.
Results from financial transactions comprise: Net fair value change of derivatives (22) (8)
Reconciliation between standard and effective tax Income before tax (181) (124)
Differences due to the effect of: Non deductible expenses (6) (5)
Net income / (loss) for the financial year 1,668 865 1 See in consolidated financial statements note 2.1.1 for details about the impact of adopting IFRS 16 on Leases and note 2.1.2 for details about the impact of voluntary change in accounting policy on Liability Adequacy Testing
th er n o n -fin an cial in fo rm atio n 9 Loans to group companies
Other receivables include an income tax receivable of EUR 134 million (2018: EUR 88 million). Aegon N.V., together with certain of its subsidiaries, is part of a tax grouping for Dutch corporate income tax purposes. The members of the fiscal unit are jointly and severally liable for any taxes receivable or payable by the Dutch tax grouping.
11 Other current assets Other current assets include derivatives with positive fair values of EUR 120 million (2018: EUR 134 million).
On December 23, 2019 Aegon N.V. repurchased 13,227,120 common shares B from Vereniging Aegon for the amount of EUR
On May 18, 2018, Vereniging Aegon exercised its options rights to purchase 1,489,200 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused the issuance of shares on May 18, 2018, in connection with the Long Term Incentive Plans for senior management.
th er n o n -fin an cial in fo rm atio n 13 Shareholders’ equity
R em ea su re m en t o f d ef in ed b en ef it p la n s o f g ro u p c o m p an ie s
Foreign currency translation differences and movement in foreign investment hedging reserves - - 296 - - (25) - - 271
Changes in revaluation reserve real estate held for own use - - (28) - - 25 (3)
Changes and transfer to legal reserve - - 143 - 377 (509) - - - 11
1 See in consolidated financial statements note 2.1.1 for details about the impact of adopting IFRS 16 on Leases and note 2.1.2 for details about the impact of voluntary change in accounting policy on Liability Adequacy Testing
R em ea su re m en t o f d ef in ed b en ef it p la n s o f g ro u p co m p an ie s
Foreign currency translation differences and movement in foreign investment hedging reserves - - - 531 - - (32) - - 499
The balance of the revaluation account, which includes revaluation reserves for real estate and investments that do not have a frequent market listing, consisted of EUR 6,438 million (2018: EUR 4,434 million) of items with positive revaluation and of EUR 323 million
The legal reserves in respect of the foreign currency translation reserve (FCTR), group companies and the revaluation reserves, cannot be freely distributed. In case of negative balances for individual reserves legally to be retained, no distributions can be made out of retained earnings to the level of these negative amounts.
Transactions in 2019: Sale: 1 transaction, average price EUR 0.12 (1,774) -
Perpetual contingent convertible securities Coupon rate Coupon date Year of next call 2019 2018 EUR 500 million 5.625% Semi-annually, April 15 2029 500 -
The perpetual contingent convertible securities of EUR 500 million issued on April 4, 2019 have a fixed coupon of 5.625% until the first call date and reset thereafter to 5 year mid swap plus a margin of 5.207%.
With effect on June 15, 2019, Aegon has exercised its right to redeem USD 500 million 6.5% perpetual capital securities issued in 2005. The securities had no stated maturity, however Aegon had the right to call the securities for redemption and exercised this right with effect on June 15, 2019.
With effect on December 15, 2019, Aegon has exercised its right to redeem USD 1 billion 6.375% perpetual capital securities issued in 2005. The securities had no stated maturity, however Aegon had the right to call the securities for redemption and exercised this right with effect on December 15, 2019.
The market value of the long-term borrowings amounted to EUR 1,728 million (2018: EUR 1,649 million).
17 Current liabilities Loans from and payables to group companies have a maturity of less than one year. Other current liabilities includes derivatives with negative fair values of EUR 165 million (2018: EUR 164 million).
At December 31, 2019, the letter of credit arrangements utilized by captives to provide collateral to affiliates amounted to EUR 2,249 million (2018: EUR 3,469 million); as of that date no amounts had been drawn, or were due under these facilities.
Other letter of credit arrangements for subsidiaries amounted to EUR 10 million (2018: EUR 60 million); as of that date no amounts had been drawn, or were due under these facilities; �� Due and punctual payment of payables due under letter of credit agreements or guarantees provided for subsidiaries of Transamerica Corporation at December 31, 2019 amounted to EUR 1,666 million (2018: EUR 3,164 million) as of that date no amounts had been drawn, or were due under letter of credit facilities; �� Due and punctual payment of payables by the consolidated group companies Transamerica Corporation, Aegon Funding Company
LLC and Commonwealth General Corporation with respect to fixed subordinated notes, bonds, capital trust pass-through securities and notes issued under commercial paper programs amounted to EUR 1,449 million (2018: EUR 614 million); and �� Due and punctual payment of any amounts owed to third parties by the consolidated group company Aegon Derivatives N.V.
in connection with derivative transactions. Aegon Derivatives N.V. only enters into derivative transactions with counterparties with which ISDA master netting agreements including collateral support annex agreements have been agreed; net (credit) exposure on derivative transactions with these counterparties was therefore limited as of December 31, 2019.
Aegon Sony Life Insurance Co. and SA Reinsurance Ltd., to partner Sony Life. The proceeds of the sale amount to EUR 153 million and the book gain amounts to EUR 51 million.
On February 3, 2020, Aegon’s subsidiary in the Americas, Transamerica accepted an offer to sell the Transamerica Pyramid property in San Francisco for a consideration of EUR 635 million (USD 711 million). The sale is expected to close in the second quarter of 2020.
Financial markets have been severely impacted by significant decreases in interest rates, equity markets and commodity prices and credit spreads widening. Governments and central banks worldwide are responding to this crisis with aid packages and further quantitative easing. At the date of this report the depth and length of this crisis is unknown.
Because of the far-reaching measures governments around the world are taking to control the impact of this pandemic we expect the sale of new business to be impacted by these measures. At the date of this report it is too early to tell what the impact of these measures will be on Aegon’s subsidiaries’ sales. Lower interest rates are also likely to impact the profitability of Aegon’s subsidiaries’
sales depending on the market response. Aegon has invoked its business continuity plans to help ensure the safety and well-being of its staff, as well as its capability to support its customers and maintain its business operations, while maintaining our financial and operational resilience.
If the proposed dividend is approved by shareholders, Aegon shares will be quoted ex-dividend on May 19, 2020, for the shares listed on the New York Stock Exchange and on May 19, 2020, for shares listed on Euronext. The record date for the dividend will be May 20, 2020. Shareholders can elect to receive a dividend in cash or in shares during the dividend election period, which will run from May 26, 2020 up to and including June 12, 2020. The dividend will be payable as of June 19, 2020.
In order to reflect the prevailing market price of Aegon N.V. common shares fully within the indication provided, the number of dividend coupons that give entitlement to a new common share of EUR 0.12 (nominal value) will be determined on June 12, 2020 after 5.30 p.m. (CET), based on the average share price on Euronext Amsterdam in the five trading days from June 8, 2020 up to and including June 12, 2020.
Independent auditor’s report To: the Annual General Meeting of Shareholders and the Supervisory Board of Aegon N.V.
The consolidated financial statements comprise:  the consolidated statement of financial position as at December 31, 2019;  the following statements for 2019: the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated cash flow statement; and  the notes to the consolidated financial statements, comprising the significant accounting policies and other explanatory information.
Independence We are independent of Aegon N.V. in accordance with the European Union Regulation on specific requirements regarding statutory audit of public-interest entities, the ‘Wet toezicht accountantsorganisaties’ (Wta, Audit firms supervision act), the ‘Verordening inzake de onafhankelijkheid van accountants bij assuranceopdrachten’ (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence requirements in the Netherlands. Furthermore, we have complied with the
Aegon has the following reportable segments: Americas, which covers business units in the United States, Brazil, Mexico and Canada; Europe, which covers the operating segments the Netherlands, United Kingdom and Southern and Eastern Europe, which in turn covers business units Central & Eastern Europe and Spain & Portugal; Asia; Asset Management and Holding. Aegon has significant operations in Americas, the Netherlands and United Kingdom. To be able to obtain sufficient and appropriate audit evidence over the consolidated financial statements, we considered our group audit scope and approach as set out in the section ‘The scope of our group audit’.
‘Key audit matters’ of this report. Furthermore, we identified uncertainties in policyholder claims and litigation as key audit matter.
Audit scope  We conducted audit work in the segments Americas, the Netherlands, United Kingdom,
Key audit matters  Valuation of certain assets and liabilities arising from insurance contracts.  Valuation of certain Level 3 investments.  Uncertainties in policyholder claims and litigation.
We evaluated the income before tax amounts for 2019 and prior years noting significant fluctuations from year to year. As a result, we used the average of 2019, 2018 and 2017 income before tax for purposes of determining our group materiality, consistent with prior years. Using an average helps to maintain an appropriate and consistent materiality level giving more considerations to the users’ view of the scale of the financial position and operations rather than volatile circumstances.
We also take misstatements and/or possible misstatements into account that, in our judgment, are material for qualitative reasons.
We agreed with the Supervisory Board that we would report to them misstatements identified during our audit above EUR 4 million
(2018: EUR 4 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
‘regional units’, as described in Note 5, ‘Segment information’ in the financial statements. The financial information of this group is included in the consolidated financial statements of Aegon N.V.
The group audit primarily focused on the significant components: Americas, the Netherlands and United Kingdom. We subjected these components to audits of their complete financial information, as these components are individually financially significant to the Group.
Where component auditors performed the work, we determined the level of involvement we needed to have in their audit work to be able to conclude whether we had obtained sufficient and appropriate audit evidence as a basis for our opinion on the consolidated financial statements as a whole.
We issued instructions to the component audit teams in our audit scope. These instructions included amongst others our risk analysis, materiality and scope of the work. We explained to the component audit teams the structure of the Group, the main developments that are relevant for the component auditors, the risks identified (including the risk of fraud), the materiality levels to be applied and our global audit approach. We had individual calls with each of the in-scope component audit teams during the year and upon conclusion of their work. During these calls, we discussed the significant accounting and audit issues identified by the component auditors, their reports, the findings of their procedures and other matters, which could be of relevance for the audit of the consolidated financial statements. In addition, we developed an oversight strategy for each component based on its significance and/or risk characteristics to the Group. This strategy included procedures such as regular meetings and discussions with component auditors to challenge and review significant audit matters and judgments within the component team audit files including the review of selected working papers.
By performing the procedures above at component level, combined with additional procedures at group level, we have been able to obtain sufficient and appropriate audit evidence on the Group’s financial information, as a whole, to provide a basis for our opinion on the financial statements.
In respect to non-compliance with laws and regulations:  to identify and assess the risk of material misstatement of the financial statements due to non-compliance with laws and regulations; and  to obtain reasonable assurance that the financial statements, taken as a whole, are free from material misstatement, whether due to fraud or error when considering the applicable legal and regulatory framework.
‘Non-financial policies, procedures and outcomes’ and ‘Risk management’ (the last two as part of section ‘Safeguarding value creation’)
of the annual report where the Executive Board included their perspectives on the risk of fraud and section ‘Report of the Supervisory
Board’ as part of section ‘Safeguarding value creation’ of the annual report where the Supervisory Board reflects on this assessment.
Risk of fraud As part of our process of identifying fraud risks, we evaluated fraud risk factors with respect to financial reporting fraud, misappropriation of assets and bribery and corruption. We together with our forensic specialists, evaluated the fraud risk factors to consider whether those factors indicated a risk of material misstatement due to fraud.
We have performed an assessment of matters reported on the (Group’s) whistleblowing procedures with the entity and results of management’s investigation of such matters.
Risk of non-compliance with laws and regulations There is an industry risk that emerging compliance or litigation areas have not been identified and or addressed by management for financial statement purposes. This includes the consideration whether there is a need for the recognition of a provision or a contingent liability disclosure on the future outcome of legal or regulatory processes.
In line with Standard 250 we made in our audit approach a distinction between those laws and regulations which:  Have a direct effect on the determination of material amounts and disclosures in the financial statements. For this category, in line with the requirements as included in Standard 250, we obtained sufficient audit evidence regarding compliance with the provision of those laws and regulations; and  Do not have a direct effect on the determination of material amounts and disclosures in the financial statements, but where compliance may be fundamental to the operating aspect of the business, to the Group’s ability to continue its business or to avoid material penalties. For this category, we performed specific procedures to identify non-compliance with those laws and regulations that may have a material effect on the financial statements.
We identified that the risk of non-compliance with laws and regulations relates mainly to the laws and regulations which have an indirect impact on the financial statements, such as anti-money laundering and anti-terrorist financing regulations, regulations linked to the operating licenses for the group’s activities (insurance, asset management, banking) including Solvency II in Europe and
We addressed the key audit matters in the context of our audit of the financial statements as a whole, and in forming our opinion thereon. We do not provide separate opinions on these matters or on specific elements of the financial statements. Any comment or observation we made on the results of our procedures should be read in this context.
Valuation of certain assets and liabilities arising from insurance contracts. Refer to Note 2 ‘Significant accounting policies’, Note 2.6 ’Intangible assets’, Note 2.13 ‘Deferred expenses’, Note 2.19 ‘Insurance contracts’, Note 3 ‘Critical accounting estimates and judgment in applying accounting policies’, Note 27 ‘Deferred expenses’, Note 29 ‘Intangible assets’, Note 34 ‘Insurance contracts’ and Note 44 ‘Fair value’.
The Group had deferred policy acquisition costs (DPAC) of EUR 10.0 billion included in the deferred expenses line item, value of business acquired (VOBA) of EUR 1.0 billion included in the intangible assets line item, insurance contracts of EUR 123.5 billion and embedded derivatives in insurance contracts of EUR 3.1 billion included in the derivatives liability line item as of December 31, 2019 (collectively, ‘certain assets and liabilities arising from insurance contracts’). The areas above involve the use of complex valuation models and significant judgment over uncertain future outcomes, including the timing and ultimate full settlement of long-term policyholder liabilities and as a result, are more subject to material misstatement. Therefore, we considered these areas a key matter for our audit.
The main assumptions used in measuring the liabilities for insurance contracts and the DPAC and VOBA relate to mortality, morbidity, investment return, future expenses, surrender, lapse, incidence rates and, for embedded derivatives, own credit spread. In addition, Aegon the Netherlands adjusts the outcome of the liability adequacy test (LAT) for the difference between the fair value and the book value of mortgage loans, which are valued using significant assumptions, including prepayment and lapse assumptions. Significant judgment is applied in setting these assumptions. Given the magnitude of the insurance contract liabilities and the sensitivities as explained in Note 34 ‘Insurance contracts’, a change in assumptions (especially mortality and morbidity) could have a significant effect on net income and shareholders’ equity.
In respect of DPAC and VOBA, we tested the capitalisation during the period and evaluated the appropriateness of the main assumptions used in determining the estimated gross profit patterns which are the basis for the periodic amortization.
Our focus considered both the positions that are presented at fair value on the balance sheet and those positions carried at amortized cost on the balance sheet but for which fair value is required to be disclosed. The risk is considered higher for investments traded in the absence of an active market as the fair value of those instruments is estimated by using other market observable data, such as corroborated external quotes and present value or other valuation techniques using unobservable data.
We assessed pricing models and the underlying methodologies against industry practice and valuation guidelines. Real estate valuation experts are used to assess the fair value of properties as determined by management based on available market information. Based on our procedures we considered that the valuation of these investments was within the bandwidth that we consider as acceptable.
Uncertainties in policyholder claims and litigation. Refer to Note 45 ‘Commitments and contingencies’.
The insurance industry continues to face consumer activism and regulatory scrutiny over product design and selling practices. The Group has encountered claims and litigations in this respect. Depending on the actual legal position and expectations from management, claims, including litigation related, are either provided for as a liability or reflected as contingent liabilities in the notes to the financial statements based on the criteria as outlined in IAS 37. The Group uses internal and external legal experts where applicable to evaluate its legal positions. Given the uncertainty and judgment in this area in terms of valuation and presentation and disclosure, this area is subject to the risk of understatement of recorded liabilities and incomplete disclosure of contingent liabilities. Therefore, we determined this as a key audit matter.
We gained an understanding of the policyholders’ claims and litigations through discussions with management including general legal counsel. We have tested the effectiveness of controls relating to management’s evaluation of policyholder claims and litigation contingencies, including controls over determining whether a loss is probable and whether the amount of the loss can be reasonably estimated. These procedures also included, among others, obtaining and evaluating lawyers’ letters to the extent considered necessary for our audit. For all (potential) material claims, we tested the underlying facts and circumstances considered and assessed the best estimate of outflows as determined by the Group.
We also evaluated whether the disclosures in the consolidated financial statements are adequate and in accordance with IFRS-EU. We found the disclosures to be appropriate in this context.
of the European Regulation on specific requirements regarding statutory audit of public-interest entities.
Services rendered The services, in addition to the audit, that we have provided to the Company and its controlled entities, for the period to which our consolidated audit relates, are disclosed in the additional information (principal accountant fees and services) section of the integrated annual report.
Civil Code; and for  such internal control as Executive Board determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.
Reasonable assurance is a high but not absolute level of assurance, which makes it possible that we may not detect all material misstatements. Misstatements may arise due to fraud or error. They are considered to be material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
 Obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.  Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
 Concluding on the appropriateness of management’s use of the going-concern basis of accounting, and based on the audit evidence obtained, concluding whether a material uncertainty exists related to events and/or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report and are made in the context of our opinion on the financial statements as a whole. However, future events or conditions may cause the Company to cease to continue as a going concern.
Other information Profit appropriation Appropriation of profit will be determined in accordance with the articles 31 and 32 of the Articles of Association of Aegon N.V.
Meeting to issue shares. Subject to the approval of the Supervisory Board, the Executive Board shall also determine the conditions applicable to the aforementioned choices; and 7. The Company’s policy on reserves and dividends shall be determined and can be amended by the Supervisory Board, upon the proposal of the Executive Board. The adoption and each amendment of the policy on reserves and dividends thereafter, shall be discussed and accounted for at the General Meeting of Shareholders under a separate agenda item.
Major shareholders General As of December 31, 2019, Aegon's total authorized share capital consisted of 6,000,000,000 common shares with a par value of EUR 0.12 per share and 3,000,000,000 common shares B with a par value of EUR 0.12 per share. At the same date, there were 2,105,138,885 common shares and 585,022,160 common shares B issued. Of the issued common shares, 65,540,444 common shares and 25,309,920 common shares B were held by Aegon as treasury shares and 1,043,227 treasury shares were held by its subsidiaries
In accordance with the 1983 Amended Merger Agreement, Vereniging Aegon had certain option rights on preferred shares to prevent dilution of voting power as a result of share issuances by Aegon N.V. This enabled Vereniging Aegon to maintain voting control at the General Meeting of Shareholders of Aegon N.V. In September 2002, Aegon N.V. effected a capital restructuring whereby
to mitigate dilution caused the issuance of shares on May 19, 2017, in connection with the Long Term Incentive Plans for senior management.
On December 19, 2017, Aegon N.V. repurchased 13,042,592 Common Shares B from Vereniging Aegon for the amount of EUR 1,725,169 based on 1/40th of the Value Weight Average Price of the common shares of the five trading days preceding this transaction. The repurchase of common shares B was executed to align the aggregate holding of voting shares by Vereniging
Aegon in Aegon N.V. with its special cause voting rights of 32.6% following the completion of the Share Buy Back Program, initiated by Aegon N.V. in October 2017 to neutralize the dilutive effect of the distribution of final dividend 2016 in stock and interim dividend 2017 in stock.
In the event of a Special Cause, Vereniging Aegon’s voting rights will increase, currently to 32.6%, for up to six months.
Vereniging Aegon has an Executive Committee consisting of seven members, five of whom are not, nor have ever been, related to Aegon, including the Chairman and the Vice-Chairman. The other two members are also member of the Executive Board of Aegon
at the Executive Committee. This requirement does not apply in the event of a hostile change of control at the General Meeting of Shareholders of Aegon N.V., in which event Vereniging Aegon may amend its Articles of Association without the cooperation of Aegon N.V. Furthermore, the two members of the Executive Board of Aegon N.V., who are also members of the Executive Committee, have no voting rights on several decisions that relate to Aegon N.V., as set out in the Articles of Association of Vereniging Aegon.
On February 13, 2020, Dodge & Cox’s filing with the US Securities and Exchange Commission (SEC) shows that Dodge & Cox holds 235,569,910 common shares, representing 9.1% of the issued and outstanding capital as at December 31, 2019, and has voting rights for 230,578,490 shares, representing 8.9% of the votes as at December 31, 2019.
Based on its filing with the Dutch Autoriteit Financiële Markten as at November 14, 2019, BlackRock, Inc. stated to hold 116,325,180 shares, representing 4.3% of the issued capital as at December 31, 2019 and 136,885,389 voting rights, representing 5.1%
On February 5, 2020, BlackRock, Inc.’s filing with the US Securities and Exchange Commission (SEC) shows that BlackRock holds 149,073,955 common shares, representing 5.7% of the issued and outstanding capital as at December 31, 2019, and has voting rights for 129,834,767 shares, representing 5.0% of the votes as at December 31, 2019.
Based on its filing with the Dutch Autoriteit Financiële Markten as at June 10, 2015, Franklin Resources, Inc. (FRI), a US based investment management firm, stated to hold 81,510,408 shares, representing 3.0% of the issued capital as at December 31, 2019.
Schedule II—Statement of Financial Position as of December 31, 2019 and 2018
Schedule II—Income Statement (Loss) for the years ended December 31, 2019, 2018 and 2017
Schedule III—Supplementary Insurance Information for the years ended December 31, 2019, 2018 and 2017
Schedule IV—Reinsurance for the years ended December 31, 2019, 2018 and 2017
Other investments at fair value through profit or loss 2,849 3,333 3,333
Other financial information Other financial information Other financial information Schedule I Schedule I Schedule I
Net increase / (decrease)‍ in cash and cash equivalents (196)‍ 165 188
Aegon received EUR 1.4 billion of dividends from its business units during 2018, mainly from Americas, the Netherlands, United
Aegon received EUR 1.8 billion of dividends from its business units during 2017, mainly from Americas, United Kingdom, Asset
Amounts in million EUR Deferred policy acquisition costs Future policy benefits Unearned premiums
Premium revenue 1 Comparative figures have been reclassified. The intercompany eliminations have been removed from the individual reporting units and included in a separate line as ‘Eliminations’. This reclassification is not considered material as there is no effect on consolidated group figures.
Premiums written 1 Comparative figures have been reclassified. The intercompany eliminations have been removed from the individual reporting units and included in a separate line as ‘Eliminations’. This reclassification is not considered material as there is no effect on consolidated group figures.
The provisions can be analyzed as follows: Aegon Integrated Annual Report 2019
Additional information 349 Overview of Americas 357 Overview of the Netherlands 363 Overview of United Kingdom 367 Overview of Southern and Eastern Europe 371 Overview of Asia 374 Overview of Aegon Asset Management 376 Risk factors Aegon N.V. 397 Compliance with regulations 398 Property, plant and equipment 398 The offer and listing 398 Material contracts 398 Exchange controls 399 Employees and labor relations 400 Dividend policy 401 Memorandum and Articles of Association 403 Taxation 410 Purchases of equity securities by the issuer and affiliated purchasers 411 Principal accountant fees and services
Overview of Americas 1 SUSEP, Webpage visited October 4, 2019. 2 SICOOB, Webpage visited January 3, 2020.
Aegon Americas operates primarily under the Transamerica brand in the United States, and has operations in Brazil and Mexico and a small operation in Canada.
Transamerica employs approximately 7,900 people and its businesses in the United States serve customers in all fifty states and the District of Columbia. Most Aegon companies in the United States operate under the Transamerica brand, which stands for the pursuit of financial and physical well-being: Wealth + Health. Its primary offices are in Cedar Rapids, Iowa; Denver, Colorado and
Baltimore, Maryland. There are additional offices located throughout the United States.
Through its subsidiaries and affiliated companies, Transamerica provides a wide range of life insurance, long-term care insurance and voluntary benefits (including supplemental health insurance), retirement plans, recordkeeping and advisory services, annuities, mutual funds and other long-term savings and investment products.
Aegon in Brazil Aegon has a 50% interest in Mongeral Aegon Seguros e Previdência S.A. (Mongeral Aegon), Brazil's third largest independent (i.e. nonbank affiliated) life insurer1. To further capture growth prospects in Brazil, Mongeral Aegon and Bancoob (Banco Cooperativo do Brasil)
Aegon USA aims to meet customers' needs and to create a consistent, positive experience for customers, business partners and employees. Aegon USA is structured in such a way as to provide relevant customer solutions that are easy to understand and that address the full range of customers' financial protection and savings needs at every stage of life. Moreover, Aegon USA's structure enables it to leverage Transamerica's brand strength, expertise and capabilities in order to fulfill Aegon's purpose of helping people achieve a lifetime of financial security.
Overview of Americas Overview of Americas Overview of Americas Overview of Americas
In 2019, Aegon USA realigned into two core business lines, Workplace Solutions and Individual Solutions, that operate through one or more of Aegon USA's life insurance companies. Retirement plans, employee benefits (including supplemental health insurance), and stable value solutions are offered through Workplace Solutions. Annuities, mutual funds, supplemental health insurance, and life and long term care (LTC) insurance are offered through Individual Solutions. Aegon USA offers these product lines, described in greater detail below, through a number of distribution and sales channels and methodologies.
insurance and annuity business lines. Complimented by the transfer of over 2,000 Transamerica employees to TCS, TCS supports the administration of Transamerica's life insurance, annuity, and employee benefits products (both for inforce and new business based on a transition timeline), taking on the administration of over 10 million policies.
Through the Transamerica Advice Center (TAC), which includes a team of experienced registered representatives, investment advisor representatives, and licensed insurance agents, Workplace Solutions offers rollover individual retirement accounts (IRAs), advisory services, annuities and access to other insurance products and resources to eligible retirement plan participants.
Individual solutions Wholesale distribution Through its Individual Solutions business line, Aegon USA offers annuities, investments (mutual funds and exchange traded funds
Additionally, Aegon USA offers protection products (life insurance, supplemental health insurance and LTC insurance products)
Supplement, accident, and cancer insurance) through approximately 51,000 independent brokerage distributors and financial institutions that operate in the affluent, emerging affluent and middle markets. Effective December 2019, accident and cancer insurance products are no longer sold in the Individual line.
Overview of product lines Life Aegon USA offers a comprehensive portfolio of protection solutions to customers in a broad range of market segments. Life products include term life (TL), universal life (UL), variable universal life (VUL), index universal life (IUL) and whole life insurance (WL).
Term life insurance TL insurance provides protection for a stated period of time. Benefits are paid to policy beneficiaries in the event of the death of the insured during a specified period. Living benefit riders that provide accelerated benefits for critical illnesses or chronic conditions are available on term insurance.
Universal life insurance UL insurance is flexible permanent life insurance that offers death benefit protection together with the potential for cash value accumulation. After the first few years, there is usually no set premium. The policyholder can adjust the frequency and amount of premium payments, as long as sufficient premiums are accumulated in the policy’s account value to cover charges in the month that follows, which are called 'monthly deductions'. Any changes in the monthly deduction rate reflect Aegon USA's current expectations with respect to future policy performance. At any time, the policy owner is able to see the maximum monthly deduction rate that can be charged. Some versions of this product have 'secondary guarantees.' These maintain life insurance coverage when cash value is insufficient, as long as the customer pays a specified minimum premium.
Coverage amount may change as well. The investment feature usually includes 'sub-accounts,' which provide exposure to investments, such as stocks and bonds. This exposure increases cash value return potential, but also the risk of additional premium requirements or lower coverage amounts in comparison with a traditional, non-variable life insurance policy. Aegon USA does not actively market
Supplemental health insurance Supplemental health insurance products include accidental death and dismemberment, accidental injury, cancer, critical illness, disability, hospital indemnity, Medicare Supplement, retiree medical, and supplemental medical expense indemnity.
A number of these products provide policyholders with lump sums or specified payments if these policyholders are hospitalized, injured, or diagnosed with a critical illness. Others pay benefits for specific medical expenses and treatments, or cover deductibles, co-payments and co-insurance amounts not covered by other health insurance.
Long-term care insurance LTC insurance products are a category of health insurance, and provide benefits to policyholders that require qualified LTC services when they are unable to perform two or more specified activities of daily living or develop a severe cognitive impairment. LTC insurance helps protect against the high cost of LTC services, and it may also help families better manage the financial, health and safety issues associated with LTC. Transamerica’s LTC product is offered as a standalone product or as a rider to certain life insurance products.
Mutual funds and ETFs Mutual funds are professionally managed investment vehicles comprised of pooled money invested by numerous individuals or institutions. Such funds are invested in various underlying security types such as stocks, bonds, money market instruments, and other securities. Transamerica offers mutual funds that are focused on several different asset classes, including US equity, global/
Variable annuities Variable annuities (VAs) allow the policyholder to accumulate assets for retirement on a tax-deferred basis and to participate in equity or bond market performance. Additional insurance guarantees, which are offered through riders, can be added to variable annuities, including guaranteed minimum death benefits (GMDBs) and guaranteed living benefits (GLBs). GMDBs provide a guaranteed benefit in the event of death. GLBs are intended to provide a measure of protection against market risk while the annuitant is alive. Different forms of GLBs are offered, such as guaranteeing an income stream for life and/or guaranteeing principal protection.
Retirement plans and IRAs Comprehensive and customized retirement plan services are offered to employers across the entire range of defined benefit, defined contribution, non-qualified deferred compensation, and multiple employer plans (MEPs). Services are also offered to individuals rolling over funds from other qualified retirement funds or IRAs.
Retirement plan services, including administration, recordkeeping and related services are offered to employers of all sizes and to plans across all market segments. Aegon USA also works closely with plan advisors and third-party administrators to serve their customers.
Transamerica Retirement Solutions is a top-ten1 defined contribution record-keeper in the United States based on plan participants.
Tools are provided to help plan participants monitor their retirement accounts and engage in behavior to stay on track towards a funded retirement. Managed Advice® is a managed account option that plan sponsors can make available to participants that provides investment advice to participants using the plan's slate of funds.
For individual plan participants in transition due to a job loss or change or planned retirement, services and products include IRAs, advisory services, and annuities as well as access to other financial insurance products and resources.
Stable Value Solutions Stable Value Solutions are Synthetic Guaranteed Investment Contracts (GICs) which are offered primarily to tax-qualified institutional entities such as 401(k) plans and other retirement plans. A synthetic GIC 'wrapper' is offered around fixed-income invested assets, which are owned by the plan and managed by the plan or a third-party money manager hired by the plan. A synthetic GIC is typically issued with an evergreen maturity and may be terminated under certain conditions. Such a contract helps to reduce fluctuations in the value of the wrapped assets and provides book value withdrawals for plan participants, while ensuring that investment fund conditions are met.
Mongeral Aegon, which already serves over 3.8 million customers nationwide through over 4,000 brokers.
Institutional spread-based business The institutional spread-based business, primarily comprised of small blocks of non-synthetic GICs, funding agreements and funding agreement-backed medium-term notes (MTNs), was put into run-off mode in 2009.
Competition The US marketplace is highly competitive. Aegon USA's competitors include other large insurance carriers, in addition to certain banks, securities brokerage firms, investment advisors, and other financial intermediaries marketing insurance products, annuities and mutual funds.
Aegon USA's primary competitors in the variable annuity market are Jackson National, Prudential Financial, Lincoln National, AIG,
Financial, Voya, Vanguard, Alight, and Bank of America Merrill Lynch. Aegon USA’s largest competitors in the defined benefit segment are Alight, Willis Towers Watson, Conduent, Fidelity, Aon, Mercer, and Milliman.
In the market for synthetic GICs, Transamerica’s Stable Value Solutions business, the largest competitors are Prudential Financial,
In the areas of licensing and market conduct, states grant or revoke licenses to transact insurance business, regulate trade, advertising and marketing practices, approve policy forms and certain premium rates, review and approve products and certain rates prior to sale, address consumer complaints, and perform market conduct examinations on both a regular and targeted basis.
State regulators have the authority to impose a variety of punitive measures, including revoking licenses, for failure to comply with applicable regulations. All state insurance regulators are members of the National Association of Insurance Commissioners (NAIC), a non-regulatory association that works to achieve uniformity and efficiency of insurance regulation across the United States and
Assessment (ORSA). Aegon USA is subject to NAIC Actuarial Guidelines 48 and 49, which became fully effective in 2015 and 2016 respectively, and is also subject to principle-based reserving requirements for life insurance, which was implemented on January 1, 2020.
In 2017, the NAIC approved amendments to the Life and Health Insurance Guaranty Association Model Act. Among other things, the amendments will bring health maintenance organizations (HMO) into the life and health guaranty association system and adjust guaranty fund assessments for future long-term care-related insolvencies so that 50% of such assessments will come from life/
The Federal Reserve Board also has authority to establish capital standards for systemically significant insurers, and insurers that own a federally insured bank or thrift, and to participate in the establishment of international insurance capital standards for Internationally
At the state level, Departments of Insurance and Financial Services typically administer a series of privacy and information security laws and regulations that impact a number of Transamerica businesses. Following a series of high profile data breaches and data exploitation events at various companies that attracted substantial media attention, numerous US regulators and legislators are currently proposing or have already passed additional legal requirements with respect to information security and privacy. These include but are not limited to the California Consumer Protection Act and the New York Department of Financial Services Cybersecurity
Rule. Additional laws and regulations with respect to these topics are also anticipated to be promulgated and to go into effect in the coming years.
Securities Regulation A number of Aegon USA subsidiaries are subject to regulation under the federal securities laws administered by the US Securities and
Aegon USA also owns or manages other investment vehicles that are exempt from registration, but may be subject to other requirements of those laws, such as anti-fraud provisions and the terms of applicable exemptions.
On June 5, 2019, the SEC adopted Regulation Best Interest (Regulation BI), a new rule imposing a 'best interest' standard of conduct on broker-dealers making recommendations to retail clients. Among other things, Regulation BI requires broker-dealers and investment advisers to provide retail clients with information about the nature of their relationship.
(DOL) and the US Department of the Treasury ('Treasury') have regulatory jurisdiction, respectively.
The Setting Every Community Up for Retirement Enhancement Act of 2019, better known as the SECURE Act, was signed into law on December 20, 2019. The legislation facilitates the use of multiple employer plans (MEPs), of which Aegon USA is a leading provider, as well as expands the safe harbor for automatic enrollment in plans, and reduces the burden of offering annuities either as an in-plan investment option or as the form of distribution from a plan. The SECURE Act also expands retirement coverage to long-time, part-time workers and “gig economy” workers may not otherwise have access to tax-deferred retirement savings, as well as increases the age for “required minimum distributions” from tax deferred accounts from 70 ½ to 72. The Act would also accelerate distributions from inherited IRAs (i.e. stretch IRAs) to offset the cost of the other provisions. Separately, many states have also sought to open their plans to non government workers who do not have access to an employer retirement savings plan.
Overview of the Netherlands Aegon has operated for 175 years in the Netherlands, where it is a leading provider of life insurance and pensions, and employs approximately 3,100 people. Aegon’s Dutch business, Aegon the Netherlands, is headquartered in The Hague, and its other main offices are in Amsterdam, Leeuwarden and Groningen.
Organizational structure Aegon the Netherlands operates through a number of brands, including Knab, TKP Pensioen, Optas and Robidus, and is itself one of the most widely recognized brands in the Dutch financial services sector.
Within the organization structure, Aegon is aiming for less complexity with two mergers in 2019. Aegon PPI B.V. merged into CAPPITAL
N.V. has been legally merged into Aegon Levensverzekering N.V. as per April 1, 2019. In addition, Robijn Participaties B.V. was acquired through Salus Holding B.V., a private limited liability company incorporated by Aegon Nederland N.V. in 2018. Robijn Participaties B.V.
has been merged into Salus Holding B.V. as per January 2, 2019, which owns the Robidus brand.
Aegon the Netherlands has four lines of business:  Life;  Non-life;  Banking; and  Service Business.
Overview of sales and distribution channels Aegon the Netherlands uses a variety of distribution channels to help customers assess the products and services appropriate for their needs. In general, all business lines use the intermediary channel, which focuses on independent brokers in different market segments in the Netherlands.
Overview of the Netherlands Overview of the Netherlands Overview of the Netherlands Overview of the Netherlands
Benefit (DB) pension plans to Defined Contribution (DC) pensions plans where, in the latter, all investment risk and longevity risk is borne by the policyholder. Aegon offers its defined contribution plans in a separate legal entity and these are therefore not managed on the Aegon Leven balance sheet. This means that Aegon Leven now primarily manages premium paying DB products, annuities
DB products without profit sharing and with guaranteed benefit payments. All investment risk and longevity risk is borne by Aegon and customers need to contribute additional funds for indexations.