This is Aegon’s Annual Report for the year ending December 31, 2018. It is the Company’s first fully integrated report.
Aegon’s aim in producing this report is to provide a clear, balanced overview of the Company’s operations, strategy and performance. In this report, we look at the trends and challenges our business is facing, at our strategy, at how we create and share value – and at how we safeguard this value through a responsible approach to business. This report also contains the 2018 consolidated financial statements and Company financial statements for Aegon N.V. (from page 101).
(in compliance with our listing on the New York Stock Exchange).
References Throughout this document, Aegon N.V. is referred to as either ‘Aegon’ or ‘the Company’. Along with its member companies, Aegon N.V.
References to ‘NYSE’ and ‘SEC’ relate to the New York Stock Exchange and the US Securities and Exchange Commission respectively.
when referring to the lawful currency of the United States and ‘GBP’, ‘UK pound’ and ‘pound sterling’ when referring to the lawful currency of the United Kingdom.
The value we created for our stakeholders 28 Results, performance and targets 30 Value created and shared with our stakeholders 30  Customers 32  Employees 34  Business partners 35  Investors 36  Wider community
How we safeguard long-term value creation 40 Letter from our Supervisory
Other non-financial information 418 Other non-financial data 421 Basis of preparation 425 Reference tables 425  Global Reporting Initiative (GRI)
planning, promoting healthy lifestyles and offering the right solutions at every stage of our customers’ lives.”
Alex Wynaendts CEO Aegon 2018 was another year of positive change at Aegon. We have continued to improve our service to millions of customers, continued to simplify and modernize our organization and capitalized on new growth opportunities.
Serving customers Our services have never been more necessary than it is today.
But it does not end there. There is a clear relationship between well-being and the environment we live in. Toward the end of 2018, Aegon was entrusted to manage and administer more than EUR 800 billion of investments on behalf of our customers.
We are doing so, fully integrating environmental, social and governance factors into our investment analysis. Further to that, we are actively engaging with companies in our investment portfolio to improve their sustainability performance.
There is more work to be done. Our Net Promoter Score (NPS), a measure that captures all aspects of our relationship with our customers, showed a decrease in 2018 compared with 2018 at a glance Letter from our CEO Letter from our CEO
We have announced new financial targets for the period 20192021. Building on the successes of the previous three-year period, our focus remains on strong capital generation and providing shareholders with attractive returns. Our targets are underpinned by an active portfolio management of our various businesses, which can be grouped into three distinct strategic categories. These strategic categories are differentiated from each other based on the maturity of our businesses. This will allow us to unlock the full potential of our large customer base and market positions while leveraging our capabilities and propositions where they are most beneficial. The first category
Finally, we distinguish our ‘Scale-up for the future’ businesses with meaningful market opportunity, which help drive innovation.
These businesses bring new platforms, new technology and new business models, which can be leveraged across the company.
Simplification and growth We continue to simplify our portfolio of businesses and lay the foundations for sustained growth in the years ahead.
Specific steps in 2018 included rationalizing our geographical footprint, entering partnership agreements, upgrading our technology and the consolidation of our administration systems.
Slovakia. Rationalization helps to create the space to focus on higher-growth markets and business lines. In July, for instance, we expanded our successful partnership with Banco Santander in Spain. The new agreement gives Aegon access to an additional potential client base of four million customers. In September,
Aegon the Netherlands acquired Robidus, consistent with our strategic objective to expand our position in income protection and grow our fee-based businesses.
insurance and annuity business lines. Involving over 10 million policies, this transaction offers those customers a unique and enhanced digital platform. Transamerica will see a significant reduction in expenses, and an acceleration in growth through faster product development and state-of-the-art technology.
Offering a full suite of products gives us a distinctive competitive advantage. Supporting future growth through modernization and the emphasis on serving the customer has also been a feature of changes elsewhere. In the UK, we strengthened our existing partnership with Atos by signing a 15-year contract to service and administer existing business. This will further improve customer service for around 1.4 million people.
On behalf of Aegon’s Management Board, I would like to express my sincere thanks to everyone who has contributed to our success as a company over the last 12 months. In particular,
2018 was an important year for Aegon. We expanded distribution, strengthened our capital position and signed new service partnerships on policy administration in the US and UK.
First quarter  Transamerica transfers the administration of its insurance and annuity businesses to Tata Consultancy Services (TCS).  Transamerica launches a new USD 100 million US affordable housing fund. The fund is the first of its kind and will finance home loans across 13 states.  Aegon introduces its new ‘Goed met Geld’ – or ‘Mastering Money’ – financial awareness program in the Netherlands.
Netherlands. The fund will invest in around 85 small and medium-sized Dutch companies.  Aegon completes the sale of Aegon Ireland for EUR 195 million to Athora Holding.  William Connelly becomes Chairman of Aegon’s Supervisory Board. He takes over from
Rob Routs, who announced his retirement as Chairman in 2017.  Shareholders approve the reappointment of Supervisory Board members Corien
Wortmann and Robert Dineen for another four years. Both joined the Board in 2014.  Aegon decides to exclude investments in tobacco. The Company will sell or run off approximately EUR 500 million in current tobacco investments.
 Aegon’s Center for Longevity and Retirement releases its latest report, calling for a new social contract for pensions and retirement.
 Aegon is among investors pledging USD 350 million to support the Dementia Discovery
Third quarter  Aegon announces plans to expand its partnership with Spain’s Banco Santander.
The plans give Aegon access to another four million potential customers in Spain.  Aegon buys Robidus, a leading income protection services provider. The acquisition will strengthen Aegon’s existing income protection services for Dutch employers.  Aegon agrees to divest the last of its US life reinsurance business to SCOR Global Life.  Aegon agrees to sell its businesses in the Czech Republic and Slovakia to NN Group.
 Aegon UK signs a new 15-year contract with Atos. The digital services provider will take over the administration of policies belonging to around 1.4 million customers.  CEO Alex Wynaendts tells a conference in Munich that the Netherlands ‘waited too long’
before bringing in an individualized pension system.  Aegon decides to exclude investments in oil sands because of concerns over environmental damage. The decision was announced publicly in February 2019.  Aegon generates an additional USD 1 billion in capital following the merger of its
Main events of 2018 Main events of 2018 2018 at a glance Main events of 20186 7
+3.8 million Percentage of digitally connected customers (% of total number of customers)
For full definitions of non-financial data used in these charts, see page 423. 1 Figures are based on a new definition of adjusted shareholders' equity, which will no longer be adjusted for defined benefit pension plans. This new definition was introduced in the second half of 2018 and brings Aegon more in line with peers and rating agencies. Prior figures have been recalculated according to the new definition, refer to page 110 for further details.
Performance highlights 2018 Performance highlights 2018 2018 at a glance Performance highlights 20187
Japan, under the Kames Capital brand in the UK and under TKP Investments in the Netherlands.  We also operate under several other brands, including: Knab, TKP, Robidus and Nedasco (Netherlands); World Financial Group
(US, Canada); Origen Financial Services (UK); Futuready (Indonesia); Transamerica Ventures and Blue Square Re (global).
Where our customers are (total number of customers by location, in millions, end-2018)
Our purpose As a company, our purpose is to help people achieve a lifetime of financial security. This purpose is particularly relevant in today’s world as people live longer, healthier lives, new technologies are transforming the way we work, and it is clear that, in many countries, state and company pensions are no longer enough to maintain living standards.
Asia and Asset Management. Of these, the Americas is by far the largest, accounting for nearly 60% of our annual earnings.
Financial Services in the UK and World Financial Group, which operates in the US and Canada.
At the same time, we have seen new rules on data privacy – both in Europe with the EU’s General Data Protection Regulation
Sources of revenues and earnings Most of our revenues come from three sources: premiums from customers, investment income, and fees and commissions.
Our earnings come from fees, spreads, and technical profits.  Earnings from spreads come from the difference between investment income earned and interest credited to customers.  Technical earnings derive mainly from the difference between risk premiums received from, and claims paid to, customers.  Earnings from fees come from charges to customers relating to deposits and assets under management, or from services provided by Aegon (net of fees paid by the Company to third-party asset managers or service providers).
In recent years, we have concentrated more on fee-based business, and less on spread-based business. This is mainly in response to low interest rates and increased capital requirements. This shift makes the source of our earnings more balanced and diverse, and makes our capital base more predictable and less at risk from fluctuations in world financial markets. There is no material seasonality to our sales or income, though we usually experience an increase in mortality claims in the first quarter (which is winter in our main markets).
Singapore, Hong Kong, Japan, China, India, Indonesia, Malaysia, Thailand, Vietnam, Philippines, Australia and Bermuda1,2.
• Life insurance • Accident & health insurance • Savings • Individual investment accounts • Annuities • Retirement plan services • Group pensions • Property & casualty insurance • Mortgage loans • Retail and institutional investment management solutions
• Life insurance • Accident & health insurance • Annuities • Marketing and distribution services
• Aegon Sony Life, Japan (50%) • Aegon THTF, China (50%) • Aegon Life, India (49%) • GoBear, various locations
Ownership Aegon N.V. shares are listed in both Amsterdam (Euronext) and
New York (NYSE). More than three-quarters of our shareholders are located in our three main markets: the US, the Netherlands and UK. Shareholders meet at least once a year at our offices in The Hague. Aegon’s largest shareholder is Vereniging Aegon, an association whose purpose is to protect the long-term interests of both Aegon and its stakeholders. Vereniging Aegon currently holds 32.64% of voting rights in the Company. However, in the absence of a Special Cause, Vereniging Aegon may only cast one vote for every 40 common shares B it holds. For more details, see page 43.
Product development and pricing We begin with customers. We assess their needs, and develop products and services that meet those needs. Next we estimate and price the risk involved for us as a financial services provider.
Distribution Our products and services are then branded, marketed and sold. We offer products and services via intermediaries, like brokers, banks or financial advisors. We also sell directly to our customers.
Claims and benefits From premiums, deposits and investment returns, we pay customer claims and benefits, cover our expenses, and make profits for our shareholders.
Our value creation model To operate our businesses, we need resources. We need customers; we need investments; we need a workforce and business partners. These resources may be ‘financial’, ‘human’ or
‘intellectual’. The chart on page 14 shows our value chain: how our business uses these resources (or ‘capitals’) to create longterm value for our stakeholders and the wider community.
Human and intellectual capital Our aim is for an engaged and committed workforce. We know by experience the more engaged our workforce, the better our customer service. We look to improve internal processes – to make our customer service as quick and reliable as possible. We also share our knowledge and research on pensions and retirement.
Social and relationship capital Through our businesses, we provide employment for local communities. We offer customers protection. And we act as a responsible investor, investing where we can to bring social benefits and contribute to a healthier environment.
We use the skills, time and resources of our employees to develop, price and market our products and services. We also have well-established systems, investment platforms and processes to manage and model risk, for example, or ensure effective customer service.
• EUR 2.1 billion to our employees in salaries, benefits and training
• EUR 620 million in tax payments to support public services
• International research into retirement, pensions, healthy aging and treatment for illnesses like Alzheimer’s
• 41% of Aegon businesses in top half vs. peers in Net Promoter Score performance (down from 45% in 2017)
Council’s IR framework. Each capital represents a store of value, which companies use and transform through their business activities. In this process, value may be created or depleted.
For the purposes of this value chain, we have chosen the capitals most relevant to our business (financial, human and intellectual, and social and relationship). In the chart, the process is shown from the perspective of Aegon’s business. Both natural and manufactured capital are also part of the IR framework.
(as a services company, we do not use natural or manufactured products in our business, though of course we may affect the value of both through our investments). For more information on the IR framework, see www.integratedreporting.org.
2 Source: ‘Will robots really steal our jobs?’ – PwC, February 2018
 Business partners (distributors, joint venture partners, reinsurers and suppliers of goods and services)  Investors (shareholders and bondholders)  Wider community (governments, regulators, charities, tax authorities, community groups and other non-governmental organizations, academic and public institutions).
Aegon’s relationships with its stakeholders are based on mutual benefit. Through these relationships, we earn our ‘social license to operate’ – implicit consent from employees, stakeholders and the general public to continue our business1.
Stakeholder group Stakeholders provide Aegon with: Aegon provides stakeholders with: Customers Fees, premiums and deposits Protection and long-term financial security
Business partners Distribution, reinsurance, goods and services Financial support, payment of fees, expertise and a reliable, professional relationship
Investors Cash through investment in bonds and shares Attractive long-term returns for their investments
Wider community Public services, infrastructure, access to labor and markets, regulatory framework
Payment of taxes, community investment, expertise on aging and retirement, responsible approach to investments
Dilemmas We recognize that, in creating value for one stakeholder group, we may deplete value for another. In recent years, for example, we have seen significant investments in new technologies in the financial services industry. This investment has improved efficiency, reducing costs for financial companies and strengthening customer service. However, it has also led to job losses, particularly in areas of the industry with clearly-defined processes that can be easily automated. Recent research from
PwC estimated just over 30% of insurance jobs, for example, will disappear by the 2030s because of automation 2. Our asset management business faces similar dilemmas: Aegon’s recent decision no longer to invest in tobacco, for example, may reduce investment opportunities, but may also bring wider health and social benefits.
Where appropriate, we also embed this process in our policies and procedures. Our Pricing & Product Development Policy, for example, includes the principle of reasonable distribution of value; this ensures fair returns from our products to customers, intermediaries and shareholders.
We also engage regularly with the companies we invest in. These engagements focus on environmental, social and governance issues. In recent years, we have been particularly active, in this area, on climate change (see page 20). To support this approach, we are signatories to a number of international agreements, including the Global Coalition on Aging and the UN Principles for both Sustainable Insurance and Responsible Investment.
Our operating environment We operate in a complex environment. We are affected by a host of social and economic factors – from financial market performance and new regulation through to changing demographics and the increasing use of digital technology in our homes and offices.
To win trust, businesses must act responsibly, build relationships through regular contact with customers, and play their part in tackling social issues like climate change, poverty or health and well-being.
India. The Dutch housing market has been booming. In the US, economic growth has been boosted by tax cuts. In the last quarter of 2018 however, stock markets saw substantial declines.
Aegon also faces difficult market conditions in Turkey: political uncertainty, higher inflation and a substantial drop in the value of the Turkish lira. Growth could be slowed by disputes over trade. Meanwhile, a strong US dollar may weaken growth in emerging markets, as could worsening credit risk in China.
Our material topics We conduct a regular assessment of our operating environment.
– those most likely to affect Aegon (its operations, profits or reputation) or its stakeholders (their financial or personal well-being, their businesses, employment etc.). Results from this assessment are incorporated directly into Aegon’s annual strategy, business planning and reporting processes; they help identify emerging risks and opportunities, ensuring that we are able, where necessary, to adjust our strategy or risk management approach to take account of economic, social and environmental developments (for more details, see page 93). Our latest assessment covered 16 different social, financial, environmental, technological and regulatory topics. Of these topics, we identified five as most material (topics which were rated by both management and external stakeholders as having most impact on the Company’s ability to create value over the short, medium and long term): reputation & trust, cyber & information security, new technologies & digital transformation, low interest rates and changing consumer behavior.
Note on methodology: To conduct our materiality exercise, we first identified the main economic, social, environmental and governance topics a�ecting
& analytics, attracting and retaining talented employees, changing consumer behavior, partnerships, non-traditional competitors and de-globalization. For results of our December 2016 assessment, see our 2017 Annual Review, available online.
Who we are and what we do Our operating environment18 19
For each material topic, we have mapped out below the main risks and opportunities (for both Aegon and its stakeholders)1: Topic: Reputation and trust
Longer-term loss of trust in brand leads to impaired business and financial performance. Increased trust opens up new market opportunities, with higher sales and customer retention.
For our stakeholders: trust secures our ‘license to operate’ – to provide financial security for our customers, employment, and returns for investors. Correspondingly, any significant loss of trust would directly affect our stakeholders – through lower returns for investors, for example, or fewer opportunities for our business partners.
For our business: we are spending more on data security. We realize that any breach would mean a loss of trust and potentially a loss of business. Data breaches may also open us up to possible fines from regulators, particularly with the introduction in May 2018 of the EU’s General Data Protection Regulation (GDPR). They may also compromise our ability to sell direct to customers, or pay out claims.
Loss of business and revenues over time; lower profits; opportunity to build greater trust by demonstrating effective data security.
The financial sector has adopted new digital technologies in everything from customer service to risk and claims management.
Degree of influence or control: We have direct control over the technology we use and invest in, but we also need to respond to changes in customer behavior as a result of an increased use of technology, particularly in areas like healthcare, travel and financial services.
More access to data on performance and customer preferences; increased efficiency and cost savings.
For our business: low interest rates mean lower returns on our investments. That has a negative effect on both earnings and revenues, though this may be offset by higher equity markets. In some cases, returns may not be enough for us to meet guarantees we have on long-term products or to price these products attractively. With low interest rates, however, we have an opportunity to refinance our corporate debt at a lower rate. Over time, low interest rates make it less profitable to offer certain products – like annuities, which rely heavily on income from interest rate spreads.
Negative effect on earnings and revenues, lower returns on investments; opportunity to refinance corporate debt at a lower rate.
For our stakeholders: low interest rates also mean lower returns for our customers, especially those with savings products. Some will switch to products less reliant on interest rate returns. Reduced earnings may also mean lower returns for our shareholders.
For our stakeholders: in any organization, culture change is not easy. It makes new demands of employees and management. But change also brings opportunities for development. Adapting successfully should benefit customers (through better products and services). It will also benefit investors through improved earnings and higher returns.
However, we carry out a regular review of climate risk. This is partly in response to stakeholder expectations – partly because we recognize the potential impact of climate change on both our business and on the communities in which we operate.
We have measures in place to counter climate risk. These include monitoring of new regulations, business continuity plans and regular analysis of investments.
Who we are and what we do Our operating environment20 21
At the same time, we are investing in new business models –
Strong influence Company has ability to influence the topic within its own businesses and value chain.
Since then, they have formed the basis of Aegon’s position on pension reform and retirement.
See page 39 for more information on how our approach to secure retirement and healthy aging contributes to these UN Sustainable Development Goals.
overall carbon emissions. Where possible, we use our influence as an investor to persuade companies to reduce their impact on the environment. We engage with them on issues like scenario planning, disclosure and water management to increase our understanding of climate-related risk.
At the same time, we are investing in clean energy. At the end of 2018, our investments in this area were worth more than
EUR 570 million, mainly in wind power and solar energy tax credits. Alongside renewables, we also invest in green bonds, smart energy storage and smart grids. We encourage greater energy efficiency through our real estate investments – for example, we are renovating properties in our Amvest fund in the Netherlands. We want to achieve an average B label for energy efficiency; currently, more than half of these properties are rated E or F (A is the highest). To Dutch customers,
we offer green mortgages. We have also built consideration for climate into our Responsible Investment and Sustainable
No influence Company has little or no meaningful control or influence over the topic.
Note on methodology: For the December 2017 assessment, we introduced a number of new topics to reflect changes in our operating environment; these new topics included: reputation & trust, cyber security & information security, big data & analytics, attracting and retaining talented employees, changing customer behavior, partnerships, non-traditional competitors and de-globalization. For results of our December 2016 assessment, see our 2017 Annual Review, available online. In the chart above, arrows indicate movement in topics from the previous assessment; no arrows are included for new topics.
See page 39 for more information on how our approach to clean energy and sustainable real estate contributes to these UN Sustainable Development Goals.
Building a strong foundation for our business (2016-2018) To pursue our strategy, we need to have a business that is fit for purpose. Over the past several years, we have been through significant restructuring and simplification. We have sold businesses, and invested more in areas we believe will bring us growth. We have also reduced costs, redesigned products, tightened internal controls and strengthened our capital position.
Optimizing our portfolio of businesses Since 2016, we have sold several businesses. These businesses included our US BOLI-COLI1 and life reinsurance operations, as well as UMG, our distribution company in the Netherlands.
in businesses we believe will bring future growth. Generally, these businesses are digital or platform-based; they use less capital, provide earnings from fees, have shorter pay-back periods and offer us an opportunity to sell more products and services to existing customers. In the UK, for example, we now have the country’s leading investment platform, with GBP 120 billion in assets under administration. In the Netherlands, we have been expanding our banking services, including Knab, our online bank.
We have also invested in distribution – for example, we have expanded our partnership with Banco Santander in Spain and Portugal.
this to increase in the coming years. The rest comes from other businesses, like our Dutch life insurance operations, which tend to be lower growth, but which still generate cash and earnings for the Group.
Increasing efficiency We have also worked hard to improve our efficiency. This increases profitability, and helps us deliver quicker, more reliable customer service. We have cut back costs and put in place extensive hedging programs to reduce risk. In the US and the Netherlands, we have been simplifying our back-office systems, introducing new, more efficient IT platforms.
Excellence program. As part of this program, we have recently strengthened IT controls and checks on fraud. We have also tightened controls on financial reporting and revalidated many of our actuarial models. Our goal is to have management controls across the Group that are both predictable and consistently applied.
We increased rates in our long-term care and universal life businesses, for example – and repriced variable annuities in the US
Maintaining a strong capital position A strong capital position is an important part of Aegon’s strategy.
It protects our business against fluctuations in world financial markets – and ensures that, in turn, the Company continues to pay customers claims and benefits as expected. As a Group, we have a strong capital position. At the end of 2018, our
Services (TCS). In time, this is expected to save us USD 100 million a year. With this partnership, 2,000 employees moved to TCS.
We also sold our pay-out annuities and BOLI-COLI businesses, as well as the last of our US life reinsurance activities. We simplified our organization in the US, closing offices in three main locations: Los Angeles (CA), Folsom (CA) and West Chester (OH) – and exited distribution channels like direct TV and direct mail that were no longer core. We simplified our product portfolio by eliminating 20 products. This will allow us to devote more resources to customer service.
Santander. With this expansion, we will have access to 14 million customers across Spain and Portugal.
Asia We regard Asia as a long-term growth market. There, we have been concentrating on high-net-worth customers through
Transamerica Life Bermuda. We are also putting more emphasis on digital, and have taken steps to reduce costs and improve capital management. In India, Aegon Life is now direct only.
In China, 95% of our policies are issued digitally. Our joint venture
Management. We have created a single organizational structure, and combined our European sales teams to improve efficiency and decision-making.
1 To simplify our corporate structure, we will merge two of our US life insurance companies (Transamerica Advisors Life Insurance Co. and Transamerica Life Insurance Co.). At the same time, in the Netherlands, we will merge TKP Investments with Aegon Asset Management.
2 Source: Plansponsor and LIMRA, full year 2016. Note: rankings refer to workplace market only. 3 Sources: Organization for Economic Cooperation and Development (OECD): Spending on health – latest trends (June 2018).
In the next few years, we will:  Expand our customer base; this will be done through new products and services, new forms of distribution or new business models. We also would like our customers to buy more products so, as they progress through their careers, they move from a workplace pension, for example, to insurance, protection and investment products. Our aim is to build lasting, life-long relationships with our customers.  Increase efficiency; we will do this by simplifying our processes and corporate structures1, transferring administration and investing in new digital technologies.
 Invest more in growth businesses; we have grouped our businesses into three categories: ‘Manage for Value’ – these are businesses that are already at scale – ‘Drive for Growth’, where we have leading market positions, and ‘Scale up for the Future’, where we believe there are significant opportunities
We also want to grow our mortgage and income protection services. In banking, we will continue to look for growth, particularly through Knab, our online-only bank, and by selling more investments through independent financial advisors. We will also aim for profitable growth in our property & casualty and accident & health activities – and shift more to fee businesses.
In the UK, we will tap into the growing investment platform market. We expect this market to expand by approximately 20% each year through to at least 20221. With much of our administration now handled outside the Company, our goal is to attract new customers, and use our scale to bring down costs.
We will also look to sell more protection products, and investments alongside platform administration services.
Asset Management In asset management, we will look to build on recent progress.
We want to grow our third-party business, particularly through fixed income and alternative investments (like mortgages and real estate equity). We will also deepen our partnerships in France and China, extend our responsible investment approach and refocus our sales in Europe and Asia.
Allocation of resources Our priority is organic growth – in other words, growing existing businesses from our own resources. Any acquisitions are likely to be bolt-on – to add scale to our current businesses or give us access to new customers. We have much less capital committed to run-off businesses than previously; this also frees resources for investment elsewhere and reduces the ‘drag’
Expected growth in UK investment platform market 2008 – 2021 (AuA in GBP billions)
Investments (general account) Investments for account of policyholders Investments third-parties (o� balance sheet)
• Valuing new initiatives • Recognizing and rewarding success • Being honest about mistakes
Implementation of Future Fit is the responsibility of local businesses. We monitor performance through regular employee surveys. Our latest survey, carried out in November 2018, showed slightly lower scores for Acting as one (74% compared with 75%
the year before), Agility (62% compared with 64%) and Customer centricity (72% compared with 74%). Accountability, however, rose to 70%, up from 68%.
In addition, Aegon has a 24-hour Global Ethics Line; this allows employees and other stakeholders to report suspected violations of the Code in confidence.
For more information on Aegon’s Code of Conduct, see page 69.
During the year, we paid more to investors – combined, our dividends and interest payments increased by over 19%. Our employee engagement score – at 65 – was unchanged from the previous year. In relation to customers, our Net Promoter
Score (NPS) overall showed a decrease; Aegon businesses ranking in the top half of their markets was down at 41%.
Fair value items also showed losses in 2018 – the result mainly of lower stock markets and underperformance in our alternative investments. For further details on 2018 results, refer to Results 2018 worldwide starting from page 109.
Gross deposits 121,700 125,776 (3%) Gross deposits were affected by decreases in our UK platform and asset management businesses. During the year, these more than offset strong inflows into our Dutch mortgage funds.
Return on equity 10.2% 9.3% +0.9 pp Return on equity (RoE) improved, thanks in part to the effect of recent US tax reforms – but fell short of our 2018 target. We also changed our definition of shareholders’ equity – which affected calculation of our RoE (see page 110 for details). Based on the previous calculation, RoE for 2018 would have been 9.3% (compared with 8.4% in 2017).
The value we created for our stakeholders Results, performance and targets Results, performance and targets
The value we created for our stakeholders Results, performance and targets28 29
Benchmarked Net Promoter Score (% of Aegon businesses ranked in top half against peers)1 41% 45% (4 pp) Customer centricity
Number of customers with two or more products (% of total number of customers)
1 NPS figures cover Aegon businesses in the US, the Netherlands and UK. Results are weighted by number of customers. See also note to chart on page 31.
Aegon has now introduced new three-year financial targets, covering the period 2019-2021. These targets focus on sustainable growth, capital generation and ensuring attractive returns for the Company’s shareholders.
The value we created for our stakeholders Results, performance and targets29
Value created and shared with our stakeholders In the following pages, we detail the value created in 2018 by Aegon and shared with its main stakeholder groups: customers, employees, business partners, investors and the wider community. Given the nature of our business, much of this value is financial, but we also create social, economic and environmental benefits.
Customers Claims and benefits To our customers, we provide significant financial benefits.
These include pensions, payment of insurance claims and returns on their savings and investments. For our customers, this money may represent a source of income, or provide resources needed to meet healthcare costs or repair a damaged home.
In 2018, total claims, benefits and plan withdrawals increased to EUR 53.6 billion, up from just over EUR 48 billion the year before1. Alongside these financial benefits, we also manage investments for our customers. At the end of 2018, we were managing and administering more than EUR 800 billion on behalf of Aegon customers.
Customer loyalty Our goal is to create a positive customer experience; this means high-quality financial products and excellent customer service.
Promoter Score (NPS). In our measurement, we include only individual customers. NPS assesses customer loyalty rather than satisfaction – in other words, the likelihood that customers will recommend Aegon to their friends, colleagues and family2.
Where possible, we benchmark NPS scores against peers. In our main markets, our ambition is to be the most recommended financial services provider. Our businesses saw a significant increase in NPS in 2017 – the result primarily of efforts to speed up our processes and improve customer service, as well as our 1 Please note that customer claims, benefits and plan withdrawals is separate from ‘policyholder claims and benefits’ (included in our income statement). For more information, see pages 174 (Note 2.29 to the financial statements) and 221 (Note 12).
strong brand in the US. In 2018, however, our NPS scores decreased. According to our latest surveys, 41% of our businesses in the US, the Netherlands and UK rank in the top half of their respective markets, down from 45% in 2017.
Businesses ranking in the bottom quartile increased sharply to 54% (see all NPS results by quartile on page 418). Scores for our US retirement business were lower – this more than offset a higher ranking for our Dutch mortgages business. In several markets, our NPS scores improved, but we failed to match improvements by competitors. In response to these results, we will look to increase contact with customers, establish a more emotional connection and provide an effective, personalized customer service.
 Some 7.7 million of our customers were digitally connected –
We also measure customer complaints. In 2018, complaints increased by almost 20%. Complaints were lower in both the US and the Netherlands, but this was offset by increases in the UK and in Hungary; the increase in the UK was due mainly to the inclusion for the first time of complaints from Cofunds.
Complaints relating to digital privacy also rose significantly, following the introduction of the EU’s General Data Protection
Regulation (GDPR); these complaints, however, accounted for less than 0.8% of total customer complaints.
micro-insurance product in Brazil and low-cost life insurance in Romania. We also provide support to those facing chronic illness. In China, our critical illness coverage offers protection against both diabetes and cancer; we also have products that help customers suffering from cervical and breast cancer.
Foundation for Credit Counseling. We also offer lessons, online seminars and clinics for members of the public.
For our customers in the UK, the Netherlands and Hungary, we have SRI funds. At the end of 2018, these funds had
EUR 3.4 billion under management, almost 80% more than they had five years before – thanks primarily to growing demand among retail investors for a more ethical approach to investment.
2 In addition to our funds in the UK, Netherlands and Hungary, we also have separate sustainability funds in China. At the end of 2018, these funds had another EUR 0.7 billion under management.
Employees Salaries and benefits In our approach to salaries and benefits, we strike a balance. It is important that we control expenses. At the same time, we need to pay fair, competitive salaries if we are to attract and retain talented staff. Aegon’s approach in this area is set out in our
We have provisions ensuring that incentives and variable pay do not compromise integrity (in the case, for example, of internal audit employees) and do not encourage excessive risk-taking.
As well as engagement, our survey also helps us monitor progress in more specific areas; these include work-life balance, opportunities for career development, management performance, workplace diversity, pay, training and development. In 2018, we saw improvements in ‘constructive feedback’, ‘learning from mistakes’ and ‘work-life balance’; these were offset, however, by a lower score in ‘vision communications’; ‘recommending
Employee welfare and development Our aim is to create a safe and inclusive working environment.
We provide specialist training in areas including products and sales, new regulations, risk management and cyber security.
We also offer leadership training and awareness programs in diversity and health and safety. All employees have access to our global Learning Catalog. We also have a Digital Academy, which offers a three-year course to data and business analysts across the Company. In 2018, we spent a total of EUR 12.5 million on training and development (equivalent to nearly EUR 470 for each employee).
Netherlands, for example, we are signatories to the Talent to the Top program, which works to increase the number of women in senior management. In the US, we have a dedicated diversity team. At the end of 2018, women made up 33% of Aegon’s senior management, an improvement of 5 percentage points from 28% in 2017. In addition, two of our seven Supervisory
Young Aegon. We are also members of outside organizations, like Women in Financial Services and Workplace Pride.
In the latest US Corporate Equality Index, we were ranked as one of the best places to work for LGBT employees.
UK, we have also signed partnerships to transfer much of our policy administration.
1 Instead of commissions, brokers and intermediaries now generally receive fees, paid by customers.
Declaration; at the end of 2018, these declarations covered 25% of our total procurement spend. In 2018, we also signed partnerships in both the US and UK to transfer a large part of our policy administration to outside providers (see pages 6 and 24).
In both cases, we will pay regular fees for this service; we expect these contracts, over time, to deliver more than EUR 120 million a year in cost savings.
– an important indicator for insurance stocks – is around 6%, slightly above the European sector average.
Aegon’s US long-term care portfolio. Most of the losses were concentrated in the last two months of the year. Other European insurance sector stocks also lost ground during 2018, though not as much as Aegon. The Stoxx Europe 600 Insurance index ended the year down 10%. Our total shareholder return for the year came to -19% (this measure takes into account payment of dividends as well as share price performance).
Regular communications We keep financial markets fully informed of our strategy and performance. We have a dedicated Investor Relations team.
In 2018, we organized 642 face-to-face meetings with investors in the Americas, Europe and Asia. We hold a regular Analyst and Investor Conference; the most recent was held in New
York in December 2018. Our executives also speak regularly at insurance industry events. In 2018, we started publishing our financial results every six months, rather than quarterly. This was to encourage investors to take a longer-term perspective on our financial performance.
Aegon stock price performance (Jan-Dec 2018) Aegon stock price vs. Stoxx Europe 600 Insurance
most in the US, Netherlands and the UK; 3,891 joined Aegon during the year. Departures were mainly the result of business restructuring. Around 2,000 employees were also transferred to Tata Consultancy Services as part of our recent contract in the US. Where possible, we limit compulsory redundancies.
Our ESG investment standards are based, for the most part, on international agreements (these include the UN Declaration of Human Rights, the core standards of the International Labor
Investment Policy; we provide mandatory ESG training for portfolio managers, and have built responsible investment into both our risk management framework and into our investment mandates.
We engage with the companies we invest in when they fall short of our ESG standards or show poor overall ESG performance.
Impact investment Alongside ESG integration, we also make ‘impact investments’; these are investments that deliver both a minimum financial return and a specific social or environmental benefit. Examples include affordable housing, care homes, and renewable energy. We also invest in green bonds and in international development banks that work to reduce poverty in developing countries. At the end of 2018, our impact investments totaled EUR 8.4 billion. Nearly 60% of this amount is invested in affordable housing in the US. Impact investments are an important part of our strategy – particularly in supporting the switch to cleaner, low-carbon technologies and promoting health and well-being.
International development banks EUR 1.8 billion Investments in multi-lateral development banks, working to reduce poverty and create jobs in emerging economies
Micro-finance EUR 74 million Provides loans and savings accounts for more than three million people without access to traditional financial services
Renewable energy EUR 573 million Investment in clean energy in the US, UK and the Netherlands (including solar energy tax credits and wind power), reducing impact of energy use on the environment
Green bonds EUR 253 million Investment in green bonds; proceeds are invested in climaterelated projects, encouraging sustainable energy use
Green residential mortgage-backed securities (RMBS) EUR 152 million Investment in mortgages to finance more energy-efficient homes 1 In the US, these investments are made through the government’s Low-Income Housing Tax Credit program, which encourages private sector investment in affordable housing for low-income families.
Retirement research and expertise We provide extensive research into aging and retirement. Most of this is done through our Aegon Center for Longevity and
Retirement (ACLR) and its partners: the Transamerica Institute in the US and the Instituto de Longevidade Mongeral Aegon in Brazil. The ACLR publishes an annual Retirement Readiness
In addition to our own centers, we work closely with other partners. These include the Stanford Center on Longevity, the American Association of Retired Persons (AARP), the Leyden
We are also working on health issues – these are, of course, closely related to aging. We have our own Transamerica Center for Health Studies. In the US, through our business activities, we emphasize the importance of ‘wealth and health’. In 2018, we organized our global Hackathon focusing on the connection between financial security and well-being – with events in Mumbai, Budapest and Dallas. We also support research into chronic illnesses like cancer, heart disease and Alzheimer’s.
Global Tax Policy online. This Policy outlines Aegon’s approach to responsible tax, which seeks to align the long-term interests of all our stakeholders, including customers, employees, business partners, investors, and wider society. We also hold regular meetings with NGOs to discuss Aegon’s tax strategy and policy.
In our relationship with tax authorities we strive to work together in a constructive and transparent manner. Our Horizontal
Monitoring agreement with the Dutch tax authorities shows our commitment to this principle. This includes public discussion and disclosure of policies and principles, as well as the overall governance and oversight of our tax position.
Disclosures are provided in our financial statements and cover tax payments in our main markets. We provide country-by-country tax reporting in a transparent and accurate manner to the tax authorities. We are currently assessing the value that public disclosure of this information might have for our business and our stakeholders.
3. Aegon’s tax control framework is constantly evolving to a higher maturity level.
For a breakdown of corporate income tax by country/region please see page 420. Some numbers may not add due to rounding.
Aegon’s contribution to UN Sustainable Development Goals (SDGs) We have a responsibility to support the UN SDGs where we can, both as an investor and a provider of financial services.
We recognize that sustainable development is in the long-term interests of business and the global economy, and that genuine 1 The UN Sustainable Development Goals were formally adopted in September 2015. There are 17 SDGs in total, covering hunger, poverty, health, the environment, housing etc. For each SDG, there is a series of specific goals, targets and indicators. For more information, see sustainable development will not be possible without cooperation between private and public sectors. We focus on SDGs most relevant to our business. Within these SDGs, we have selected specific goals and targets1 linked to our strategy. This is where we believe we can make a significant contribution to the international development agenda.
• Inclusion of minimum labor standards in Aegon responsible investment and procurement policies
• Working for greater energy efficiency in Amvest’s real estate fund in the Netherlands
In addition to the goals and targets above, we also work directly with other organizations to support the SDGs. As well as the UN Principles for both Sustainable Insurance and
Responsible Investment (UNPSI, UNPRI), we are members of the CDP (formerly the Carbon Disclosure Project) and the Extractives Industry Transparency Initiative (EITI), which works for greater transparency in reporting financial flows within the global energy and minerals sector. Aegon also signed the Paris Pledge for Action, launched at the Paris climate change conference in 2015.
2018 was a year to be proud of as we continued to grow our business profitably, strengthened our capital position, executed our strategy and helped millions of people achieve a lifetime of financial security.
Above all, how can Aegon ensure that it first and foremost continues to grow as a responsible business dedicated to its purpose of helping people achieve a lifetime of financial security?
By posing these questions we are able to assess how futurefocused and prepared the company is, which in turn supports long-term thinking and long-term value creation, as set out in this report.
40 How we safeguard long-term value creation Letter from our Supervisory Board Chairman 41
‘shop floor’ rather than purely a ‘board room’ perspective. For instance, such visits are an opportunity to witness how Aegon is embracing the latest digital technologies and data analytics, as well as talking to the people leading these initiatives from the ground up.
Public trust No business operates in a vacuum and the Supervisory Board is both very aware of and attuned to discussions and debates regarding the role of financial services in society. The relationship between financial institutions and the public should, of course, be a positive one. Yet while the industry plays an important and laudable role providing people with financial security and helping businesses and economies to grow, it has yet to fully regain trust following the financial crisis, nor redress the apathy many still feel towards it.
I would like also to express my gratitude to my Supervisory Board colleagues for their contribution and support in 2018. I invite you all to look at the Report of the Supervisory Board, starting from page 51, for a comprehensive overview of our activities during 2018. We look forward to working with the Management Board in the year ahead to help them meet their targets and achieve
How we safeguard long-term value creation Letter from our Supervisory Board Chairman41
Aegon is incorporated and based in the Netherlands. As a company established and listed in the Netherlands, Aegon must comply with Dutch law and is subject to the Dutch Corporate Governance Code.
The shareholders Listing and shareholder base Aegon’s common shares are listed on Euronext Amsterdam and the New York Stock Exchange. Aegon has institutional and retail shareholders around the world. More than three-quarters of shareholders are located in Aegon’s three main markets, the Netherlands, United States and the United Kingdom.
General Meeting of Shareholders A General Meeting of Shareholders is held at least once a year and, if deemed necessary, the Supervisory or Executive Board of the Company is able to convene an Extraordinary General
Meeting of Shareholders is to decide on matters such as the adoption of annual accounts, the approval of dividend payments and (re)appointments to the Supervisory Board and
Voting at the General Meeting At the General Meeting, each common share carries one vote.
Supervisory Board Aegon’s Supervisory Board oversees the management of the Executive Board, in addition to the Company's business and corporate strategy. The Supervisory Board must take into account the interests of all Aegon stakeholders. The Supervisory Board operates according to the principles of collective responsibility and accountability.
by the General Meeting of Shareholders. In 2018, no transactions were concluded between the Company and any of the Supervisory
Committees The Supervisory Board also oversees the activities of its committees. These committees are composed exclusively of Supervisory Board members and deal with specific issues related to Aegon’s financial accounts, risk management, executive remuneration and appointments. These committees are the:  Audit Committee;  Risk Committee;  Remuneration Committee; and  Nomination and Governance Committee.
Management Board Aegon’s Executive Board is assisted in its work by the Company's Management Board, which has ten members, including the members of the Executive Board.
In the relation between the Management Board and the Supervisory Board, the CEO shall be the first contact for the Supervisory Board and its Chairman. In addition thereto, and in connection with how the contacts between the Supervisory
Capital, significant shareholders and exercise of control As a publicly-listed company, Aegon is required to provide the following detailed information regarding any structures or measures that may hinder or prevent a third party from acquiring the Company or exercising effective control over it.
B, each with a nominal value of EUR 0.12. As of December, 31 2018, a total of 2,095,648,244 common shares and 585,022,160 common shares B had been issued.
All common shares B are held by Vereniging Aegon, the Company's largest shareholder. The nominal value of the common shares B is equal to the nominal value of a common share. This means that common shares B also carry one vote per share. However, the voting rights attached to common shares B are subject to restrictions as laid down in the Voting Rights Agreement, under which Vereniging Aegon may cast one vote for every 40 common shares B it holds in the absence of a Special Cause.
is determined as one-fortieth (1/40th ) of the value of a common share. For such purposes, no account is taken of the difference between common shares and common shares B in terms of the proportion between financial rights and voting rights.
(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 Aegon’s issuance of shares on May 18, 2018 in connection with the Long Term Incentive Plans for senior management.
December 31, 2018. On February 14, 2019, Dodge & Cox’s filing with the US Securities and Exchange Commission (SEC)
shows that Dodge & Cox holds 237,992,105 common shares, representing 8.9% of the issued and outstanding capital as at
BlackRock holds 122,040,092 common shares, representing 4.6% of the issued capital as at December 31, 2018, and has voting rights for 106,522,921 shares, representing 4.0%
Based on its filing with the Dutch Autoriteit Financiële Markten as at June 10, 2015, Franklin Resources, Inc. (FRI) stated to hold 81,510,408 shares, representing 3.0% of the issued capital and of the votes as of December 31, 2018. On January 25, 2019, the filing of Franklin Resources, Inc. (FRI), a US based investment management firm, with the SEC shows that FRI holds 61,141,668 common shares and voting rights, representing 2.3%
Cause, Vereniging Aegon is not allowed to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in the absence of a Special Cause,
Issue and repurchase of shares New shares may be issued up to the maximum of the Company's authorized capital, following a resolution adopted by the General Meeting of Shareholders. Shares may also be issued following a resolution of the Executive Board, subject to approval by the Supervisory Board, providing, and to the extent that, the Board has been authorized to do so by
Under the terms of existing share plans the vesting of granted rights is predefined. The shares shall vest as soon as possible in accordance with payroll requirements of the relevant subsidiary after the adoption of the Company's Annual Report at the
The General Meeting may, in addition, bring forward a resolution to appoint someone not nominated by the Supervisory Board.
Members of Aegon’s Supervisory and Executive Boards may be suspended or dismissed by the General Meeting of Shareholders with a two-thirds majority of votes cast, representing at least one half of Aegon’s issued capital, unless the suspension or dismissal has first been proposed by the Company's Supervisory Board. A member of the Executive
Amending the Articles of Association The General Meeting of Shareholders may, with an absolute majority of votes cast, pass a resolution to amend
Dutch Corporate Governance Code As a company based in the Netherlands, Aegon adheres to the Dutch Corporate Governance Code. The version of the code applicable to the financial year 2018 is the version that came into force on January 1, 2017. Aegon endorses the Code and strongly supports its principles for sound and responsible corporate governance and long-term value creation. Aegon regards the Code as an effective means to help ensure that the interests of all stakeholders are duly represented and taken into account. It is the responsibility of both the Supervisory Board and the Executive Board to oversee Aegon’s overall corporate governance structure.
Aegon’s position on Best Practice 4.3.3 Aegon’s Articles of Association provide for a larger majority and a higher quorum than those advocated by the Code. Given that the Company has no specific anti-takeover measures, the current system is deemed appropriate within the context of the 1983
Members of the Executive Board Alexander R. Wynaendts (1960, Dutch) CEO and Chairman of the Executive and Management Boards of
Matthew J. Rider (1963, American) CFO and member of the Executive and Management Boards of
Matt Rider began his career at Banner Life Insurance Company and held various management positions at Transamerica,
From 2010 to 2013, he was Chief Administration Officer and a member of the Management Board at ING Insurance, based in the Netherlands. In this role he was responsible for all of ING's insurance and asset management operations, and specifically for Finance and Risk Management. Mr. Rider joined
Aegon on January 1, 2017 and was appointed as CFO and member of the Executive Board of Aegon at the Annual General
Mark Bloom (1964, American) Global Chief Technology Officer and member of the Management
UK in 2009, and was appointed CEO of Aegon UK in 2011 and as a member of the Management Board of Aegon in 2012.
Mr. Grace is a non-executive Director at Clydesdale Bank and a member of the Financial Conduct Authority practitioners’ panel.
Allegra van Hövell-Patrizi (1974, Italian and Belgian) Chief Risk Officer of Aegon N.V. and member of the Management
Fokker Aircraft and NS Reizigers, part of the Dutch railway company, NS Group. In 1999, he joined Swiss Life in the Netherlands as a Member of the Board, and was appointed
Carla Mahieu (1959, Dutch) Global Head Human Resources and member of the Management
Carla Mahieu started her career in 1984 at Royal Dutch Shell, where she held various management positions within Human
Management at Royal Philips Electronics in 2003. Ms. Mahieu joined Aegon in 2010 as Global Head Human Resources, and has been a member of Aegon’s Management Board since August 2016. Ms. Mahieu has been a member of the Supervisory Board of the Royal BAM Group since 2011, and the Supervisory Board of VodafoneZiggo Group B.V. since 2017.
subsidiaries, Diversified Investment Advisors, and as head of the Company’s US annuity and mutual fund businesses.
Chairman of the Board of Directors of the American Council of Life Insurers for the period October 2017-October 2018 and remains a member of the Board of Directors and Executive
in 1994. She moved to the Netherlands in 2000, where she held a number of various roles, leading to her appointment as CEO
of ABN AMRO’s asset management operations. Ms. Russell joined Aegon Asset Management as CEO in 2010, and has been a member of Aegon’s Management Board since August 2016. Ms. Russell has been a non-executive director of Nordea
Postale Asset Management. Ms. Russell is also a Board member of the American Chamber of Commerce, the Netherlands since May 2017.
Members of the Supervisory Board Robert J. Routs (1946, Dutch) Chairman of the Supervisory Board until May 18, 2018
Chairman in April 2010. Mr. Routs was re-appointed as a member of the Supervisory Board during the 2016 Annual General
Spain, the United Kingdom and the United States. He was appointed to Aegon’s Supervisory Board in 2017 and became
Remuneration Committee. Mr. Connelly is also an independent director at the Board of Directors of Société Générale.
He was appointed to Aegon’s Supervisory Board in May 2014, and his current term ends in 2022. He is a member of the Supervisory
Mark A. Ellman is a former Vice Chairman Global Origination of Bank of America/Merrill Lynch. Before joining Bank of Amercia/
Ben J. Noteboom worked for Randstad Holding N.V. from 1993 until 2014, where he was appointed member of the Executive
Mr. Noteboom is also a member of the Supervisory Board of Royal Ahold Delhaize N.V., Wolters Kluwer N.V. and Chairman of the Supervisory Board of Royal Vopak N.V. In addition,
Mr. Noteboom is a member of the Board of Directors of VUmc
Meeting of Shareholders, and his third and final term ends in 2020. He is Chairman of the Supervisory Board Audit
Mr Van der Veer was a former member of the Supervisory Board of Royal Imtech N.V., TomTom N.V., and Siemens Nederland N.V.
Dirk P.M. Verbeek (1950, Dutch) Member of the Risk Committee until May 18, 2018
Board in 2008. He was a member of the Supervisory Board
Corien M. Wortmann-Kool (1959, Dutch) Vice Chairman of the Supervisory Board
Board in May 2014, and her current term ends in 2022. She is Vice Chairman of the Supervisory Board, and a member of the Supervisory Board Audit Committee and the Supervisory
Council of the Centraal Bureau voor de Statistiek, Chairman of the Board of Trustees of Save the Children Netherlands and member of De Autoriteit Financiële Markten Capital Markets
Board of Mercedes-Benz Netherlands (not listed) until 2014, vice president of the European People's Party until March 2018 and member of the Advisory Council of the Centraal Bureau voor de Statistiek until June 2018.
Supervisory Board in 2013, and her current term will end in 2021.
Ms. Young is member and Lead Director of the Board of Directors of Foot Locker, Inc.. Furthermore, Ms. Young is Chair of the Audit
Committee of the Board of Trustees of Save the Children US
(not listed), and member of the Board of Save the Children
Oversight and advice The Supervisory Board is a separate independent corporate body, consisting of seven members on December 31, 2018.
Remuneration Policy adopted at the Company's General Meeting of Shareholders. Overall accountability for Aegon’s remuneration governance also resides with the Supervisory Board, which is advised by its Remuneration Committee. This includes the responsibility for designing, approving and maintaining the Aegon Group Global Remuneration Framework, including the remuneration policies for the Executive Board and Heads of Group Control functions.
Corporate Governance Code can be found on pages 51-58 of this Annual Report and in the Corporate Governance Statement published on aegon.com.
Dirk Verbeek stepped down after 10 years’ service at the Annual
General Meeting of Shareholders on May 18, 2018. The Board benefitted from Mr. Routs’ and Mr. Verbeek’s knowledge and contributions. The Supervisory Board elected William Connelly as its new Chairman following the Annual General Meeting
On May 18, 2018, shareholders approved the reappointment of Corien Wortmann-Kool and Robert Dineen for an additional four-year term. The Supervisory Board is in the process of selecting new candidates for appointment, and will propose any such candidate(s) in due course for approval to the Company's shareholders.
The retirement schedule and other information about members of the Supervisory Board are available on aegon.com.
Term Plan). Supervisory Board Committee meetings were usually held the day before the meetings of the full Supervisory
members. All committee meetings were attended by all committee members. An overview of Supervisory Board members'
Board and the CEO. Furthermore, the Supervisory Board held meetings without the presence of Executive Board or Management Board members.
Highlights and activities Key topics discussed during the 2018 Supervisory Board meetings were Aegon’s quarterly results and semi-annual and annual reporting, Aegon’s strategy, the main business risks, IT, regulatory developments, acquisitions and divestments and human resources items.
Annual Report were discussed in the March 2019 meeting in the presence of the external auditor PwC. At the Supervisory
The Supervisory Board regularly discussed the long-term value creation strategy with the Executive Board and the Management
Board, and closely monitored its execution, the risks involved in its execution, and any opportunities to further enhance the strategy where necessary. Every year during the Supervisory
Atos for administration services.  Executive Board and senior management succession planning;  Executive remuneration, including the risks of the remuneration framework;  Corporate Governance;  Composition of the Supervisory Board, including the
Company’s Medium Term Plan, including the 2019 budget, capital and funding plan;  Capital generation and Solvency II capital position, including regulatory capital reports and actions following the changes in the US Capital Framework for Variable Annuities resulting in the merger of two US legal entities;  Enterprise risk management, cybersecurity and information security risks, and the risks related to the execution of the strategy within the Company;  Investor relations, including shareholder listing, market analysis and roadshow feedback;  Legal, regulatory and compliance issues, including
Board reviewed and adopted Aegon’s 2017 Annual Report, the Consolidated Financial Statements of Aegon N.V., the Financial Statements of Aegon N.V., and the Annual Review of 2017. In May, August and November, the Supervisory Board reviewed Aegon’s first, second and third quarter 2018 results respectively.
Board reviewed the Company's Medium Term Plan, including the budget and capital plan for 2019. The Boards took note of the uncertainties and challenges in the coming years as described in the Plan. These included, among others: increased regulatory requirements, low interest rates, market volatility, digital developments, and the changing distribution landscape.
The Board also approved the 2019 funding plan and authorized the Executive Board to execute on the funding plan in 2019.
Legal, compliance and regulatory affairs In 2018, the Supervisory Board and the Audit Committee discussed a number of compliance, regulatory and legal topics relating to the Americas, Europe, Asia, and Asset Management with management, the Global Head of Group Legal & Regulatory
Educational sessions The Board and its Committees received updates and presentations on topics including developments in acquisitions and divestments, corporate governance and regulatory compliance, roles and responsibilities of the Board and the management and remuneration regulations for the insurance sector, responsible business and information technology. In addition to these updates and presentations from the Company, the members of the Supervisory Board gathered general information on industry developments by participating in networks, reading independent reports and sharing knowledge with other Board members within and outside
Regulation and on the Asset and Liability Management within the Company. The Audit Committee furthermore held a meeting dedicated to Aegon UK developments.
Board review The Supervisory Board undertakes a Board review on an annual basis, and an external assessment takes place at least once every three years. At the end of 2017, a self-assessment was undertaken by the Board and the results of this selfassessment were discussed at the beginning of 2018. Over 2018, an external assessment of the Supervisory Board will be conducted. The results of this assessment and the priorities and follow-up will be discussed in the beginning of 2019. In the assessment each member of the Board will be interviewed on the basis of a completed questionnaire.
Management Board. With regard to this mutual interaction, the 2018 Supervisory Board review also includes input from the Management Board. In 2018, the Supervisory Board acted on the priorities and follow-ups that were listed following the self-assessment over 2017.
The Supervisory Board reviewed the performance of individual members of the Executive and Management Board over the preceding calendar year in February 2018. In addition, the Supervisory Board discussed the cooperation and communication between the Supervisory Board and Management
The four Committees are the:  Audit Committee;  Risk Committee;  Nomination and Governance Committee; and  Remuneration Committee.
The Audit Committee Composition On December 31, 2018, the composition of the Audit Committee was as follows:  Ben van der Veer (chair);  Mark A. Ellman;  Corien M. Wortmann-Kool; and  Dona D. Young.
Oxley Act in the United States and his competence in accounting and auditing according to the Audit Committee Decree 2016
With regard to the oversight of the operation of the risk management framework and risk control systems, including supervising the enforcement of relevant legislation and regulations, the Audit Committee operates in close coordination with the Risk Committee as established by the Board. Certain
How we safeguard long-term value creation Report of the Supervisory Board54 55
Management Board;  Discussed PwC's quarterly reports leading to a review opinion on the interim financial statements;  Received presentations on various topics by local business unit managers and chief financial officers; and  Reviewed and discussed areas of significant judgments in the preparation of the financial statements, including, in particular: Solvency II, investment valuation and impairments, economic and actuarial assumption setting, and model validations.
Committee agenda in 2018 were Solvency II developments, controls, capital and liquidity, legal and compliance updates, and preparations for IFRS 9 and IFRS 17. Other items included the capital and funding plans and the performance review of the internal audit function.
The Risk Committee Composition On December 31, 2018, the composition of the Risk Committee was as follows:  Dona D. Young (chair);  Robert W. Dineen;  Mark A. Ellman; and  Ben J. Noteboom.
How we safeguard long-term value creation Report of the Supervisory Board55
Management (ERM) framework and the internal control systems of the Company and the subsidiaries and affiliates that comprise the Aegon Group. This includes:  Risk strategy, risk tolerance and risk governance;  Product development and pricing;  Risk assessment;  Risk responses and internal control effectiveness;  Risk monitoring; and  Risk reporting.
Furthermore, the Risk Committee regularly reviews risk exposures as they relate to capital, earnings and compliance with risk policies. The Company's risk management is an important topic for the Supervisory Board.
9 and IFRS 17, the evaluation of internal controls, cyber security and information security.
The Risk Committee convened five times in 2018, including the combined meeting with the Audit Committee.
Excellence', focused on internal controls and operational risk management with the relevant CROs;  Reviewing the Group Risk appetite, which consists of the risk strategy and risk limits and tolerances; and  Reviewing the risk governance structure and risk competencies, including the skills necessary for the risk function.
The Nomination and Governance Committee Composition On December 31, 2018, the composition of the Nomination and
Code and any other applicable corporate governance legislation and regulations; and  Assessing and advising on the responsible business strategy as part of the corporate strategy, and overseeing the execution of the responsible business strategy.
How we safeguard long-term value creation Report of the Supervisory Board56 57
Supervisory Board is an important issue for Aegon. Selection and appointment is based on expertise, skills and relevant experience, and the Supervisory Board takes diversity into account with a view to achieving its aim of having a balanced
The Remuneration Committee Composition On December 31, 2018, the composition of the Remuneration
Committee was as follows:  Ben J. Noteboom (chair);  William L. Connelly; and  Robert W. Dineen.
Heads of Group Control functions; and  Preparing the information provided to shareholders on remuneration policies and practices, including the
Identified Staff. This included:  Setting the 2018 performance indicators and targets for remuneration purposes;  Preparing the 2019 performance indicators for remuneration purposes;  Allocating variable compensation related to 2017;  Overseeing the scenario analysis of payout levels under the
In addition, the Remuneration Committee discussed possible developments with regards to regulations pertaining to remuneration.
Board. The Annual Accounts are signed by the members of the Executive Board and the Supervisory Board, and will be placed on the agenda of the 2019 Annual General Meeting of Shareholders for adoption. The Supervisory Board recommends that shareholders adopt the annual accounts.
Global Remuneration Principles The key pillars of the Aegon Group Global Remuneration
Principles are as follows:  Aegon remuneration is employee-oriented by: fostering a sense of value and appreciation in each individual employee; promoting the short- and long-term interests and well-being of all Aegon staff via fair compensation, pension and/or other benefits; supporting employees’ career development; and supporting the (international) mobility of its staff;  Aegon remuneration is performance-related by: establishing a clear link between pay and performance by aligning objectives and target setting with performance evaluation and remuneration; reflecting individual as well as collective performance in line with Aegon’s long-term interests; enhancing the transparency and simplicity of Aegon Group remuneration, consistent with the principle of pay for performance; and avoiding any pay for non-performance;  Aegon remuneration is fairness-driven by: promoting fairness and consistency in Aegon’s remuneration policies and practices, with remuneration packages that are well-balanced across the different echelons within Aegon and its business units; avoiding any discrimination in Aegon’s remuneration structures, including, among others, discrimination based on nationality, race, gender, religion, sexual orientation, and/or cultural beliefs; creating global alignment in the total compensation of all Identified Staff; and aiming at controlled market competitive remuneration, by providing total compensation packages in line with an appropriately established peer group at a regional unit, country and/or functional level;  Aegon remuneration is risk-prudent by: aligning business objectives with risk management requirements in the target setting practices throughout the Aegon Group; giving an incentive to appropriate risk-taking behavior while discouraging the taking of excessive risks; and protecting the risk alignment effects embedded in the remuneration arrangements of individual staff against any personal strategies or insurance to counter them.
These key pillars are set out in the Aegon Group Global
Remuneration Framework (GRF). The GRF applies to all Aegon employees. It contains the guiding principles for remuneration and therefore supports the consistent setting of sound and effective remuneration policies throughout the Company.
Wft 2014) from the DNB, and the 2015 Act on the Remuneration
Aegon’s remuneration policies are derived from the GRF, among which is the Executive Board Remuneration Policy. These policies define specific terms and conditions for the employment of various employee groups. All steps in the remuneration process are governed by the GRF and its underlying policies.
In 2018, there was one remuneration regulation change that affected Aegon. As per December 8, 2017, the Rbb has been withdrawn for insurers. However, as this announcement was made shortly before the start of the performance year, Aegon decided not change any of its remuneration policies or processes related to this performance year and continued to apply Rbb on a voluntary basis in 2018. For this reason, Aegon’s 2018 remuneration practices and processes did not change materially compared to 2017.
The Wbfo 2015 has a provision that makes it possible to offer employees up to a maximum variable compensation opportunity that is equal to the European CRD IV compensation ratio (i.e.
In line with another Wbfo 2015 provision, Aegon has obtained shareholder approval at the Annual General Meeting of Shareholders of May 20, 2016 to offer a maximum variable compensation opportunity up to 200% of fixed compensation to selected senior employees outside Europe in positions that, based on local market practice, could receive variable compensation that exceeds 100% of fixed compensation. Within this mandate, Aegon offered selected senior employees outside
Europe such an opportunity in 2018. The Company's capital was not adversely impacted by the maximum variable compensation that could be paid out.
In 2018 Aegon paid out EUR 207 million in variable compensation and 21 employees received EUR 1 million or more in total annual compensation (i.e. the sum of fixed and variable compensation paid/vested in 2018). These employees worked for
Given the rationale for having a separate policy for material risk takers and the risk mitigating measures that are applied to the remuneration of these individuals, Risk Management is involved in deciding which positions are deemed 'Identified
In addition, the Risk Management and Compliance functions, together with the Human Resources and Finance functions, are responsible for the execution of the various measures that ensure the GRF and associated practices are aligned with the defined risk tolerances and behaviors. The risk mitigating measures are aimed at various moments in the variable compensation process: when the targets are set, before a variable compensation award is allocated, before deferred parts of the award are paid and after pay-out of the award (when relevant).
General compensation practices Aegon has a pay philosophy based on total compensation. This means that the aim is for total remuneration for experienced and competent employees to be consistent with those in the markets in which Aegon operates and competes for employees. Total compensation typically consists of fixed compensation and –
Variable compensation, if any, is capped at an appropriate level as a percentage of fixed compensation. Variable compensation for senior management is usually paid out in cash and shares over multiple years, and is subject to further conditions being fulfilled.
Supervisory Board Remuneration Policy 2018 Aegon’s Supervisory Board Remuneration Policy is aimed at ensuring fair compensation, and protecting the independence of the Board's members. Terms and conditions for members of the Supervisory Board are part of Aegon’s broader Remuneration Policy, and are the responsibility of the Supervisory Board.
Board’s Committees;  An attendance fee for each Committee meeting attended, be it in person or through video and/or telephone conference; and  An additional fee for attending meetings that require intercontinental travel between the Supervisory Board member's home location and the meeting location.
Board members and to strengthen the overall effectiveness of Aegon’s corporate governance.
Fee for membership of a Supervisory Board committee EUR/year Chairman of the Audit Committee 13,000
Governance, Remuneration and Risk – can be found on pages 47-50.
Details on the remuneration of the Supervisory Board over the course of 2018 can be found in the Supervisory Board
Future changes Absent unforeseen circumstances, the General Meeting will be asked to approve an amendment to Remuneration Policy for members of Supervisory Board in May 2019. This amendment contains a proposal to change some of the fees to which the members can be entitled.
The Executive Board Remuneration Policy that has been applied in 2018 was adopted at the General Meeting of Shareholders on May 12, 2011. This policy has been subject to annual reviews by the Supervisory Board.
Remuneration Policy each year and may recommend policy changes to the Supervisory Board. When these recommendations are supported by the Supervisory Board, the policy changes are proposed to the General Meeting of Shareholders for adoption.
Aegon will ensure compliance if and when new remuneration regulations come into force.
Rights Directive in the Netherlands per 2019. This will likely require Aegon to amend the current Executive Board
In line with this policy, the Supervisory Board has determined a maximum total compensation level for each Executive
Board member, reflecting the specific roles, responsibilities, qualifications, experience and expertise of the individual.
In addition to that, the Remuneration Committee conducts regular scenario analyses to determine the long-term effect of the level and structure of compensation granted to each Executive Board member and reports their findings to the Supervisory Board.
Each year, the Remuneration Committee reviews these total compensation levels of the Executive Board members
In order for the Remuneration Committee to assess the competitiveness, they gather benchmark data on compensation levels at comparable companies, in accordance with the applicable rules and regulations. These comparable companies form a peer group and have been selected by the following criteria:  Industry (preferably life insurance);  Size (companies with similar number of employees, assets, revenue and market capitalization);  Geographic scope (preferably the majority of revenues generated outside of the country of origin); and  Location (companies based in Europe).
Based on these criteria the current peer group consists of the following 14 companies: Allianz, Aviva, Axa, CNP
In addition, a reference group is used in order to monitor alignment with the general industry in the Netherlands. This is comprised of the 12 leading companies listed on Euronext
The Remuneration Committee and the Supervisory Board regularly review the composition of the two groups in order to ensure that they continue to provide a reliable and suitable basis for comparison. The last change to these two groups as a result of this review was in 2015.
Committee may recommend changes to the compensation levels of the Executive Board members. These recommendations are subsequently discussed by the Supervisory Board, which can approve, revise or reject them.
The Supervisory Board, based on the Remuneration Committee review, discussed and approved the 2018 total compensation for the Executive Board.
Variable compensation Aegon believes that variable compensation strengthens the commitment of Executive Board members to the
 These indicators are regularly evaluated by experts in the company's Finance, Risk Management, Business Control,
Audit, Human Resources and Compliance departments to ensure alignment with the company's objectives, business strategy, risk tolerance and long-term performance remains strong.
Committee drafts a recommendation on which performance indicators apply to each Executive Board member, as well as what the threshold, target and maximum levels are per indicator. This recommendation is subsequently reviewed by the Company’s Risk
Once the Supervisory Board has approved the performance indicators for each Executive Board member, the Executive Board members are granted their conditional variable compensation award for that performance year. This conditional award is equal to their at target variable compensation level, which consists of 50% cash and 50% Aegon shares.
Based on this risk-assessment, the Remuneration Committee can include a proposal to adjust an intended variable compensation in their recommendation. This adjustment can only be downwards. The Remuneration Committee sends its recommendation and the ex-ante risk assessment to the Supervisory Board, which – based on its informed judgement – can approve, revise or reject the recommendation.
In line with the applicable rules and regulations, the allocated variable compensation award is split into equal parts of cash and Aegon shares, of which 40% is paid out (or vests) in the year following the performance year, and 60% is deferred to later years. This deferred portion remains conditional until it vests.
For the calculation of the conditionally granted and allocated shares, the company applies the share price at grant. This grant price is equal to the volume weighted average price on the Euronext Amsterdam stock exchange for the period
Committee also prepares a recommendation on whether there are reasons for a downward adjustment of deferred variable compensation, before it is paid or vests. This recommendation is based on the ex-post risk assessment by the Company's Risk
Management team, which takes into account significant and exceptional circumstances which were not (sufficiently) reflected in the initial performance assessment and/or the ex-ante risk assessment related the deferred variable compensation award in scope.
Implementation of this authority is on the basis of criteria such as:  The outcome of a re-assessment of the performance against the original financial performance indicators;  A significant downturn in the Company’s financial performance;  Evidence of misbehavior or serious error by the participant;  A significant failure in risk management; and  Significant changes in the Company’s economic or regulatory capital base.
Members of the Executive Board may terminate their engagement agreement with a notice period of three months. The Company may terminate the board agreement by giving six months' notice if it wishes to terminate the agreement of Mr. Wynaendts, and by giving three months' notice if it wishes to terminate the agreement of Mr. Rider.
The Supervisory Board has taken appropriate steps to ensure the arrangements of Executive Board members are in line with the Executive Board Remuneration Policy.
Executive Board Remuneration Report 2018 At the end of December 2018, Aegon’s Executive Board had two members:  Alexander R. Wynaendts, Chief Executive Officer and Chairman of the Executive Board. Mr. Wynaendts was appointed as a member of the Executive Board in 2003 for four years.
Shareholders on May 19, 2017. Mr. Rider’s current term ends at the General Meeting of Shareholders 2021.
Fixed compensation Mr. Wynaendts' fixed compensation increased with 2% in 2018 to EUR 1,294,867. The annual fixed compensation of Mr. Rider increased with 2% to EUR 918,000.
Group financial risk adjusted based Group market consistent value of new business, normalized capital generation and pre-tax return on economic required capital
Group non financial business indicators Group new business strain, customer engagement, employee engagement, control environment and digitally connected customers
Provisional allocation variable compensation 2018 Subject to the adoption of the annual accounts at the General Meeting of Shareholders on May 17, 2019, the variable compensation award for Executive Board members will be allocated in cash and shares, based on results of the performance indicators listed above.
(out of a maximum of 65%) for Mr. Wynaendts and 54.8%
(out of 65%) for Mr. Rider. The results of their individual
(strategic) performance indicators was 27.3% (out of 35%) and 28.0% (out of 35%) for Mr. Wynaendts and Mr. Rider respectively.
The remaining 60% of the 2018 variable compensation will be deferred, vesting in equal tranches over a three-year period.
Each of these tranches will be split equally in cash and shares
(for Mr. Wynaendts EUR 318,729 and 58,968 shares in total, and for Mr. Rider EUR 227,892 and 42,162 shares in total).
Once the upfront and deferred shares have vested, they will remain subject to a three-year retention period.
Impact of ex-ante and ex-post assessment on attribution of variable compensation In line with the Aegon Group Global Remuneration Framework, it was agreed to adjust Mr Wynaendts’ 2014 variable compensation award downwards by 3,388 shares and
EUR 22,832 to reflect the outcome of a regulatory matter relating to the company. No other circumstances have been identified to lower payout of the deferred payment from prior performance years that vest in 2018 (the so called 'ex-post assessment') or to lower the payout of the upfront payment of the 2017 performance year variable compensation that vests in 2018 (the so called 'ex-ante assessment').
versus the expense of the CEO pay elements based on costs recognized under IFRS. For 2018 this ratio was 42.2 (2017: 41.7; 2016: 41.9). The Remuneration Committee took note that certain factors may have influenced this ratio, such as the significant difference in the geographical footprint of the Company's employee population, and the way the Company was affected by restructuring and other organizational changes in 2018 (e.g. major acquisitions or divestments).
Code of Conduct • Applies to all employees worldwide • Covers topics such as data protection, environmental responsibility, human rights and money laundering
• Incidents of possible fraud involving employees, intermediaries and third parties rose sharply to 3,652 in 2018; this was due mainly to a sharp increase in attempted identity theft in the US; in response, we have organized extensive training and deployed new fraud detection software; as a result, very few attempts at fraud have been successful.
• Policy attestation for bribery and corruption risk (Conflict of Interest and Gift & Entertainment policies).
• Group action items identified under SIRA in 2017 were completed in 2018.
• 88% compliance with Aegon bribery and corruption policies; this figure reflects business units’ compliance with specific requirements within our Conflict of Interest and Gift & Entertainment policies; where there is not full compliance, this does not indicate a breach of the policy, but areas where units have requested time to further strengthen internal governance.
Policy for Charitable Donations • Covers Aegon’s objectives with regard to community investment, including priority areas, selection criteria, governance and approval
• In 2018, we donated a total of EUR 10.1 million, up from EUR 8.9 million the previous year. Cash donations rose to EUR 9.3 million; value of volunteering was lower, however, at EUR 0.7 million. Community investment represented 1.4% of net income, up from 0.4% in 2017; the increase was due mainly to the substantial decline in net income in 2018.
Global Information Security Policy • Sets out Company’s approach to cyber threats and data protection • Applies to all Aegon businesses • Supported by mandatory training in data and cyber security
• 80% compliance with Company's Global Information Security Policy (up from 73% the previous year); most examples of non-compliance were not significant and took place in smaller operating units.
• Customer complaints relating to data privacy totaled 636 (up from 198); this increase is the result of heightened awareness of privacy rights following the introduction of the EU’s General Data Privacy Regulation (GDPR)
How we safeguard long-term value creation Non-financial policies, procedures and outcomes66 67
• Total number of women in workforce • Percentage of women in senior management and at Supervisory, Executive or Management Board level
Environment Environmental Policy • Emphasizes importance of minimizing damage to the environment through the Company’s use of energy and other resources2
• Commits Aegon, where possible, to using renewable or sustainable sources of energy
emissions totaled 56,458 metric tons, down 5.1% compared with 2017. The decrease was due to lower energy consumption. Per employee, however, emissions were 15% higher at 3.1 metric tons because of a reduction during the year in Aegon’s workforce.
Rights, core standards of the International Labor Organization and the principles of the UN Global Compact
• Commits Aegon to upholding international human rights standards at all businesses where the Company has sufficient management control and, where possible, to ensure partners live up to the same standards
• Consideration for human rights is built into Aegon’s Sustainable Procurement and Responsible Investment policies. Other policies cover aspects of human rights; these include the Company's Conflict of Interest, employee screening, anti-money laundering, anti-fraud and Gift & Entertainment policies. Aegon UK also issues a modern slavery statement (in line with the UK government's 2015 Modern Slavery Act).
• Aegon excludes 136 companies from investment; these exclusions relate primarily to controversial weapons, coal, oil and tar sands and tobacco.
• Number of companies engaged as part of Aegon’s approach to responsible investment
• In 2018, we engaged with 360 companies as part of our responsible investment approach; these engagements covered a range of environmental, social and governance issues.
Procurement Sustainable Procurement Policy • Sets out business conduct, social and environmental standards for suppliers of goods and other services
• In 2018, 25% of our spend on goods and services was covered by a Supplier Sustainability Declaration.
How we safeguard long-term value creation Non-financial policies, procedures and outcomes67
Pricing and Product Development Policy • Sets out market conduct principles, aimed at ensuring fair treatment of customers and reasonable distribution of returns between customers, intermediaries and shareholders
• 90% compliance with requirements of Pricing & Product Development Policy (down from 95% the previous year), due to increased policy granularity
Remuneration Global Remuneration Framework • Details Company’s approach to pay, based on principle of ‘pay for performance’ • Variable pay for Aegon executives and other senior management is based on both financial and non-financial performance metrics (including employee engagement and customer loyalty scores)
Tax Global Tax Policy • Based on principles of ‘fair taxes’ and ‘tax follows business’ (tax is paid at the right amount in the right places, and that decisions are taken for business reasons, not for potential tax advantages).
• Total taxes borne by Aegon (US, Netherlands, UK, Asia and Others)
(regardless of the contractual basis of their employment) and employees of all Aegon companies around the world, including associate companies, joint ventures and other co-operative ventures.
Committee of the Supervisory Board. As part of an open and supportive culture Aegon will protect employees against any form of retaliation who, in good faith and with due care, report concerns of poor practice, inappropriate, unethical or illegal behaviour. Employees who believe they have experienced retaliation are encouraged to immediately bring the issue to the attention of the Group Compliance Officer.
The lower tiers of own funds (tiers 2 and 3) represent a limited part of the eligible own funds, as excess lower tier capital is disregarded for purposes of calculating SCR. Furthermore, the SCR may consist of limited amounts of off-balance sheet own funds ('ancillary own funds' such as letters of credits or guarantees). The MCR must be covered entirely by on-balance sheet items ('basic own funds').
Insurance and reinsurance companies are required to have an adequate and transparent organizational structure, with a clear allocation and appropriate segregation of responsibilities.
The system of governance should be subject to regular internal review. Solvency II requires insurance and reinsurance companies to have written policies in a number of areas
The Pillar 2 requirements include specific requirements relating to the risk management system. This should cover at least the following areas: underwriting and reserving, asset-liability matching, investments (in particular derivatives and similar commitments), liquidity and concentration risk management, operational risk management, reinsurance and other risk mitigating techniques. Risk management relating to Solvency II is discussed in further detail in the section
Risk management on page 90. As part of the risk management system, insurance and reinsurance undertakings are required to undertake an ORSA, which includes the overall solvency needs of the undertaking, taking into account the risk profile, risk tolerance limits and business strategy, the ongoing compliance with Solvency II capital requirements and rules regarding technical provisions, and the extent to which the risk profile of the undertaking deviates from the assumptions underlying the calculation of the SCR. Solvency II Pillar 2 requirements also include detailed requirements with respect to outsourcing, including intra group outsourcing.
Pillar 3 Solvency II has introduced new and more detailed reporting and disclosure requirements than formerly prescribed under the Solvency I framework. These requirements include nonpublic supervisory reporting on a regular (usually tri-annual)
Group supervision Solvency II not only imposes regulatory requirements on individual EU insurance and reinsurance undertakings; many of the requirements that apply to the individual insurance and reinsurance undertakings apply, with the necessary modifications, at group level. These requirements include group solvency requirements, group reporting and disclosure requirements, and requirements regarding the system of governance, risk management and internal control framework at group level. The group requirements do not include an MCR.
Solvency II does however require groups to maintain eligible own funds, at least equal to a floor, as further defined in the Solvency II rules (the absolute floor of the group solvency), which can be considered to be an MCR at group level. Although entities that are not subject to solo supervision under Solvency II
requirements for banks and certain investment firms) and using the Deduction and Aggregation method for inclusion of these
Furthermore, the DNB may require groups to deduct any participation from the own funds eligible for the Group Solvency ratio. As required by the DNB, Aegon deducts its participation in Aegon Bank N.V. from Aegon’s group solvency. However, Aegon
and EU Capital Requirements Regulation (CRR) on a solobasis and on consolidated basis, whereby consolidation takes place at the level of Aegon Bank N.V.. The prudential requirements (including CRD IV and CRR) are described in more detail on page 71.
requirements. Until June 30, 2017, Aegon used 250% of the local
Company Action Level (CAL) RBC as the SCR equivalent. Aegon received approval from the DNB to apply a revised methodology, as of July 1, 2017, that includes lowering the conversion factor from 250% to 150% RBC, and reducing the contribution to own funds by 100% of the local Company Action Level
Recent developments Solvency II On November 9, 2018, the European Commission published a proposal for public consultation for the amendment of the Solvency II Delegated Regulation. This draft proposal is the preliminary result of the 2018 review of the Solvency II
On March 8, 2019, the European Commission adopted the formal text for the amendment of the Solvency II Delegated Regulation in respect of the 2018 review of the Solvency II Framework.
Parliament and Council. Aegon is investigating the impact, if any, of these upcoming amendments.
The proposals include amendments to the Solvency II standard formula calculations, such as in the counterparty default risk sub module, which might specifically impact the treatment of guarantees of Dutch mortgages under the standard formula.
Standard Formula calculations. Furthermore, amongst others, the proposal contains amendments related to tiering requirements for subordinated liabilities as part of own funds and LAC DT.
Currently, it is not yet clear when the amendments will enter into force but Aegon is monitoring the finalization of the legislative process closely. These changes are also expected to impact the
 Specific methods, assumptions and standard parameters used when calculating the Solvency Capital Requirement standard formula;  Rules and supervisory authorities’ practices on the calculation of the Minimum Capital Requirement;  The supervision of insurance and reinsurance undertakings in a group; and  Other items related to the supervision of insurance and reinsurance undertakings.
The information provided by EIOPA to the European Commission, as described above, is expected to be taken into account in the Solvency II 2020 review. No EC legislative proposals have been published so far in that context.
Furthermore, EIOPA recently (end of 2018) launched consultations on the integration of sustainability risks and factors in Solvency and the Insurance Distribution Directive.
At the beginning of 2019 EIOPA has launched for input for a call for evidence by the European Commission to EIOPA
Solvency II group supervisory requirements – which include similar, and to a large extent overlapping, requirements to those covered by Financial Conglomerates Directive – the relevance of supplemental group supervision pursuant to the Financial
Supervisors (IAIS). The FSB reviews the G-SII designation annually. However, the FSB, in consultation with the IAIS and national authorities, has decided not to publish a new list of G-SIIs for 2017 and for 2018 and that the measures will continue to apply to the G-SIIs that were on the 2016 list.
governance structure in place to ensure the G-SII requirements are met. Within 12 months of a G-SII designation, G-SIIs were required to develop a liquidity risk management plan, a systemic risk management plan, and an ex ante recovery plan. In accordance with these requirements, Aegon submitted plans to DNB, and to the G-SII crisis management group (CMG)
that was established for Aegon and is updating these plans on an annual basis. The CMG is required to: enter into a crossborder cooperation agreement; develop a resolution plan based on a resolution strategy (within 18 months); and undertake a resolvability assessment (within 24 months).
International Capital Standards and G-SII In 2013, the IAIS announced its plan to develop a risk-based global insurance capital standard (ICS). This was in response to the request by the Financial Stability Board (FSB) that the IAIS produce a work plan to create a comprehensive group wide supervisory and regulatory framework for Internationally
Active Insurance Groups (including G-SIIs) and as such, if and when adopted, might shape or influence the future regulatory framework for insurance groups such as Aegon.
In 2017, for financial year 2016, G-SIIs have calculated and reported a Basic Capital Requirement (BCR) and Higher Loss
will proceed with the development of ICS version 2.0 informed by field tests in 2018 and 2019. The implementation of ICS
IAIS holistic framework for systemic risk in the insurance sector Recently, the International Association of Insurance Supervisors
(IAIS) has held a public consultation in which it proposes a holistic framework to assess and mitigate systemic risk in the insurance sector The IAIS is of the view that the implementation of the holistic framework should remove the need for an
The global monitoring exercise, including data collection, assessment and consideration of any insurer demonstrating
Insurers (R&R Act) came into force in the Netherlands, replacing the previously applicable intervention regime for insurance companies in the Netherlands faced with financial difficulties.
The R&R Act allows DNB to require a Dutch insurance or reinsurance company or a group in certain circumstances, to remove, ex ante, impediments to effective resolution of a Dutch insurance or reinsurance undertaking, such as the revision of financing arrangements, the reduction of exposures, the transfer of assets, the termination or limitation of business activities, or the prohibition to start certain business activities, change the legal or operational structure of the group, or securing certain critical business lines.
The R&R Act allows DNB to intervene in situations where a Dutch insurer or reinsurer, where it is failing or is likely to fail, as defined in the R&R Act. The powers under the R&R Act may also extend to the level of the Group and to entities, other than in insurance or reinsurance entities in the Netherlands, that are part of the group, such as Aegon N.V.. The powers include the transfer of the undertaking to a third party, the transfer to a bridge institution and the transfer of certain specific assets and/or liabilities. In addition, a bail-in tool is introduced, that allows for the write-off or conversion of rights of creditors, including policyholders and beneficiaries, while respecting the principle that they should not be worse off through resolution, including the application of the bail-in tool, than they would in ordinary insolvency proceedings.
Bank N.V., the framework of the EU Directive on the recovery
and Aegon N.V. fail or are likely to fail, could be applied to mixed financial holding companies such as Aegon N.V., including the right of bail-in of creditors.
Intervention by the Dutch Minister of Finance Lastly, under Part 6 of the Dutch Financial Supervision Act, the Dutch Minister of Finance may intervene immediately, when the stability of the financial system is threatened by the situation of a financial institution, in which case legal or statutory provisions, applicable to the financial institution, might be surpassed. The intervention measures available to the Minister of Finance, include in particular the right to expropriate assets of the financial institution, as well as securities and/or other financial instruments issued by or with the cooperation of the financial instruments. The exercise of this power may significantly impact the rights of the owners or holders of these assets, securities and/or financial instruments.
IBOR transistion The future of IBORs (Interbank Offered Rates) such as Euribor,
Aegon recognizes that IBOR transitions potentially have implications for all reporting units, including our insurance, asset management and banking activities. 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 derivatives, corporate bonds, structured debt products, deposits and mortgages and other financial instruments like (re-)insurance, guarantees and funding.
transition plan including project solutions and actions, timelines and ownership to ensure timely preparation and implementation.
Brexit The dynamics of Brexit are complex given its multifaceted nature, and its position within the wider geopolitical context. Hence, any description of the current and forward-looking status of Brexit will to a certain extent be outdated as soon as it has been documented. To date the UK Government has not succeeded in passing the negotiated Brexit deal with the European
have been identified and contingency plans are in place. These plans are updated on a continuous basis. Focus areas for Aegon have been derivatives, data transfer and cross border policies.
Aegon follows a number of guiding principles in terms of capital and liquidity management:  Promoting strong capital adequacy in Aegon’s businesses and operating units;  Managing and allocating capital efficiently in support of the strategy and in line with its risk tolerance;  Maintaining an efficient capital structure, with an emphasis on optimizing Aegon’s cost of capital;  Maintaining adequate liquidity in the operating units and at the holding to ensure that the Company is able to meet its obligations by enforcing stringent liquidity risk policies; and  Maintaining continued access to international capital markets on competitive terms.
Management of capital The Company's overall capital management strategy is based on adequate solvency capital, capital quality and the use of leverage.
Capital adequacy 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 resulting from adverse business and market conditions. The capitalization of Aegon and its operating units is managed in accordance with the most stringent of local regulatory requirements, rating agency requirements and selfimposed criteria.
On March 8, 2019 the European Commission has adopted the formal text for the amendment of the Solvency II Delegated
Framework. The amendments are expected to enter into force, after the scrutiny period of three months, that is available to the European Parliament and the European Council has ended, and the amendments have been approved accordingly by the
Dutch mortgages under the standard formula. These changes also impact the Standard Formula scope of the Partial Internal
How we safeguard long-term value creation Capital and liquidity management76 77
In addition, as per January 1, 2019, amendments to the Solvency II framework entered into force, relating to Solvency II standard formula treatment of standardized, transparent and simple (STS) securitizations. Aegon will take these amended provisions into account as of first quarter 2019
Aegon Group Own Funds amounted to EUR 17,602 million on December 31, 2018 (2017: EUR 15,628 million). The increase of EUR 1,974 million in Own Funds since December 31, 2017, is mostly driven by normalized capital generation by Aegon’s operating units and favorable one-time items.
These one-items include the sale of Aegon Ireland, introduction of unit matching in Aegon UK, and the merger of the captive
increase by EUR 575 million is mainly due to various large offsetting actions. The SCR increased mainly due to negative market movements, SCR for new business and one-time items (mainly US Tax Reform and the impact of tax changes in the Netherlands). These were largely offset by SCR
As a result of the above changes in Own Funds and PIM SCR, the Group Solvency II ratio improved by 10% to 211% in 2018.
Commissioners have adopted RBC requirements for insurance companies. RBC calculations measure the ratio of a company's statutory capital, which is measured on a prudent regulatory accounting basis, to a minimum capital amount determined by the risk-based capital formula. The RBC formula measures exposures to investment risk, insurance risk, market risk, and general business risk. The formula, as used for calculating the solvency ratio, applies a covariance diversification offset to determine the appropriate Risk-Based Capital. Life reinsurance is treated as life insurance. The most pertinent
This is the regulatory intervention level at which a company has to submit a plan to its state regulators. The domiciliary
Aggregation using available and required capital as per the local capital regimes. US insurance and reinsurance entities are included in Aegon’s group solvency calculation in accordance with local US (RBC) requirements of the top regulated entity. Aegon uses 150% of the local RBC Company Action Level as the SCR
equivalent for including the US life insurance and reinsurance entities into the Group solvency calculation. The US conversion methodology is subject to annual review and approval by DNB.
The non-regulated US entities and the US holding companies are included in the Aegon Group Solvency II results through application of the Accounting Consolidation method under
Americas entities to the Group Solvency II position on December 31, 2018, is estimated to be 210% (2017: 199%). This ratio includes the US Life insurance and reinsurance entities as well as non-regulated US entities and US holding companies.
(VA), but does not include the use of any transitional measures. In 2018, the Dynamic VA model has been updated for Aegon the Netherlands to align with the guidance from the European Insurance and Occupational Pensions Authority
The combined Solvency II position of the activities of Aegon the Netherlands, including Aegon Bank, on December 31, 2018, is estimated to be 181% (2017: 199%). This decrease is mainly driven by one-time items, including the lowering of the UFR by 15 basis points to 4.05%, impact of tax changes in the Netherlands and changes to the assumptions regarding mortgages, mortality rates and lapses for individual life policies.
This negative impact is partly offset by favorable market impacts mainly due to decreased interest rates combined with an increase of the EIOPA VA, and narrowed mortgage spread.
Aegon is mainly exposed to movements in equity, interest rates, credit spreads and defaults/migrations, and longevity.
1 Non-government bonds credit spreads. 2 Additional defaults for 1 year including rating migration of structured products. 3 Note 1: Equity markets +/- 25%, Interest rate +/-50% and UFR -15bps sensitivities were introduced in 2018 and therefore they are not available (n.a.) on
December 31,2017. These new sensitivities are introduced as these are more relevant than the previous sensitivities, refer to note 2. 4 Note 2: Equity markets +/- 20%, Interest rate +/-100% and UFR -50bps sensitivities are not available (n.a.) in 2018 as these are replaced by new more relevant sensitivities introduced in 2018, refer to note 1.
The Group is exposed to the risk of a fall in equity markets driven by adverse impacts on the solvency ratio in US, NL and
Account which are not symmetric between an equity up and down shock. Furthermore upward equity sensitivity for US is high as reserves set up in the equity decline in the fourth quarter of 2018 would be expected to be released.
The sensitivity towards lower interest rates is mainly caused by higher SCRs in NL and UK and lower Own Funds in the US due to additional reserves. The asymmetry in the interest rate movements arises from the set-up of required capital on the Fixed Annuity business in the US which increases in an upward interest rate sensitivity, but which is subject to a floor and therefore insensitive to a downward interest rate sensitivity. The amount of interest rate risk capital changes under the scenarios based on the extent of asset liability mismatches under different interest rate levels. In rising interest rate scenarios bonds backing the annuity liabilities may need to be sold at their lower market values in order to fund higher anticipated annuity withdrawals. This reduces the cash flow available to fund the remaining policyholder contracts.
The frequent monitoring of actual and forecast capitalization levels of both the Aegon Group and of its underlying businesses is an important element in Aegon’s capital framework in order to actively steer and manage towards maintaining adequate capitalization levels. Aegon’s capital framework is based on several capital management zones in which escalating management actions are called for in a timely manner to ensure that there is always adequate capitalization of both the Aegon
120% – 150% SCR Retention 300% – 350% RBC 130% – 150% SCR 130% – 145% SCR Re-assess capital plan and risk positions.
100% – 120% SCR Recovery 100% – 300% RBC 100% – 130% SCR 100% – 130% SCR Re-assess capital plan and risk positions. Reduce or suspend remittances.
<100% SCR Regulatory plan <100% RBC <100% SCR <100% SCR Suspension of dividends. Regulatory plan required.
Minimum solvency requirements Insurance laws and regulations in local regulatory jurisdictions often contain minimum regulatory capital requirements. For insurance companies in the European Union, Solvency II formally defines a lower capital requirement: the Minimum Capital
Requirement (MCR). An irreparable breach of the MCR would lead to a withdrawal of the insurance license. Similarly, for the US insurance entities, the withdrawal of the insurance license is triggered by a breach of the 100% Authorized Control Level
US insurance entities, and 100% SCR for insurance companies in the European Union.
The minimum regulatory capital requirements, as viewed by Aegon for its main operating units and the capitalization levels as at December 31, 2018, are included in the following table: Capital requirements Minimum capital requirement Actual capitalization Excess over minimum capital requirement
Aegon USA (Life entities) 1 100% Company Action Level (NAIC RBC CAL) 465% of combined CAL EUR 6.9 bln
Aegon the Netherlands 1,2 100% Solvency II SCR 181% Solvency II SCR EUR 3.1 bln
In practice – and for upstreaming purposes – Aegon manages the capitalization of its operating units towards the capitalization target ranges as identified in Aegon’s capital framework.
are also in place. Examples of these programs include hedging the interest rate and equity risk stemming from guarantees in the Netherlands, hedging of interest rate risk and equity risk in Aegon UK, and hedging the capital position in the Americas against adverse equity and interest rate movements.
Funds of Aegon Bank. These restrictions, applied to Aegon’s basic own funds, result in Aegon’s available Own Funds.
Available Own Funds Unrestricted Tier 1 capital consists of Aegon’s share capital, share premium and the reconciliation reserve. The reconciliation reserve includes deductions to account for foreseeable dividends that have been approved by the Board but that have yet to be distributed to Aegon’s shareholders, and restrictions related to Aegon’s with-profits fund in the UK for which the excess of Own Funds over its capital requirement is ring-fenced for the policyholder, and therefore unavailable to Aegon’s shareholders.
States, Aegon does not initially categorize these Own Funds into tiers or define tiers that are significantly different from those established under the Solvency II Directive. The Own
As a result of applying the restrictions to the available Own
Leverage metrics In line with the guiding principles of its capital and liquidity management, Aegon N.V. monitors and manages several leverage metrics:  Gross financial leverage ratio;  Fixed charge coverage; and  Various rating agency leverage metrics.
Aegon’s gross financial leverage ratio is calculated by dividing total financial leverage by total capitalization. Aegon defines total financial leverage as debt or debt-like funding issued for general corporate purposes and for capitalizing Aegon’s business units. Total financial leverage includes hybrid instruments, subordinated and senior debt. Aegon’s total capitalization consists of the following components:  Shareholders’ equity, excluding revaluation reserves, cash flow hedge reserves, based on IFRS as adopted by the EU;  Non-controlling interests and share options not yet exercised; and  Total financial leverage.
Operational leverage Although operational leverage is not considered part of Aegon’s total capitalization, it is an important source of liquidity and funding. Operational leverage relates primarily to financing Aegon’s mortgage portfolios through securitizations, warehouse facilities, covered bonds, and the funding of US
To support its commercial paper programs and need for LOCs, and to enhance its liquidity position, Aegon maintains backup credit and LOC facilities with international lenders. The Company's principal arrangements comprise a EUR 2 billion syndicated revolving credit facility and a LOC
After investments have been made in new business to generate organic growth, capital generated by Aegon’s operating units is available for distribution to the holding company, while maintaining a capital and liquidity position in the operating units in line with Aegon’s capital management and liquidity risk policies. In addition, the ability of Aegon’s insurance subsidiaries to transfer funds to the holding company is also constrained by the requirement for these subsidiaries to remain adequately capitalized at the levels set by local insurance regulations, and as administered by local insurance regulatory authorities.
Aegon uses cash flows from its operating units to pay for holding expenses, including funding costs. The remaining cash flow is available to execute the Company's strategy and to fund dividends on its shares. Aegon aims to pay out a sustainable dividend to enable equity investors to share in its performance.
Aegon’s Executive Board balances prudence with offering an attractive return to shareholders. This is particularly important during adverse economic and/or financial market conditions.
As at December 31, 2018, Aegon held a balance of EUR 1.3 billion in excess cash in the holding, compared with EUR 1.4 billion on December 31, 2017. The decrease of EUR 0.1 billion reflects the net impact of dividends from subsidiaries and capital injections in subsidiaries, divestments, acquisitions, the issuance and redemptions of capital instruments and senior unsecured notes, holding expenses and capital returns to shareholders. During 2018 Aegon exercised the right to redeem the USD 525 million 8% non-cumulative subordinated notes (grandfathered Tier 2) and the EUR 200 million 6%
Asset liability management Aegon specializes in writing long-term life insurance business with key markets in the US, Europe and Asia. Its product suite includes savings and annuity products that feature a guaranteed level of benefit. Aegon also issues mortgage loans in The Netherlands that are initiated using long-term insurance funds. Products are priced using a market-consistent framework, and comprehensive asset-liability management (ALM) programs are implemented to ensure that the assets backing policyholder benefits are invested prudently over the long term.
A range of ALM techniques are used across the Group. These range in terms of sophistication and complexity from cash-flow matching (for traditional fixed annuities) to duration matching
(for the universal life family) to derivative-based semi-static and dynamic hedges (to match variable annuities).
The Enterprise Risk Management (ERM) framework includes a number of risk policies that govern ALM strategies, such as the Investment and Counterparty Risk Policy (ICRP), the Interest Rate Risk Policy (IRRP) and the Currency Risk Policy
(CRP). The ICRP governs the management of investment risks associated with credit, equity, property and alternative asset classes, in addition to option markets and implied volatility risk.
The other policies govern interest rate and currency risk, including the risk associated with interest rate options and swaptions.
Collateral and margin requirements increased, introducing the potential for liquidity strain, which has to be carefully managed. Market volatility can cause collateral requirements to increase rapidly, which means that it is important to have sufficient high quality collateral available at all times. Regular liquidity stress testing is used to monitor required liquidity and ensure that sufficient funding is available.
Aegon USA also uses various liquidity management techniques, including a contingent liquidity management facility, to ensure sufficient access to funding for collateral calls in the event of rapidly rising interest rates. Regular stress testing is used to monitor and manage liquidity risk.
United Kingdom Having disposed of the majority of its annuity portfolio, the primary role of ALM at Aegon UK is to protect
The free assets are partly invested in equity put options and interest rate swaps and swaptions. Aegon UK has an exposure only once these assets have been exhausted. The risk of exposure has been assessed by Aegon UK as remote, based on applying the risk-based capital approach required for Solvency II reporting in the UK. As the fund is closed for new business, the free assets are gradually being distributed to the with-profit policyholders through the applicable bonus system.
SA Reinsurance Ltd. (SARe). SARe uses a sophisticated dynamic hedge program to manage guarantee risk included in variable annuity products associated with equity markets and interest rates.
Aegon’s Reinsurance Use Policy and facilitates approval of transactions if counterparties are not pre-approved. Reports are shared with the Global Risk and Capital Committee and Group
'excess of loss' contracts. Reinsurance helps Aegon manage, mitigate and diversify its insurance risks, and thereby limit the maximum loss it may incur. Since January 1, 2014, Aegon the Netherlands has reinsured its term life assurance through a quota-sharing contract. For non-life, Aegon the Netherlands only reinsures its property, general and motor third-party liability business. For property insurance, motor third-party liability insurance, and general third-party liability, 'excess of loss'
United Kingdom Aegon UK uses reinsurance to both manage risk and maximize financial value through returns achieved and efficient capital management. The degree to which reinsurance is used across the product lines varies, depending largely on the appropriateness and value of reinsurance available in the market. The protection business is significantly reinsured. A reinsurance panel is in place to provide reinsurance, predominantly on a quota share basis, across the range of benefits. A facultative reinsurance panel is also used to assist the placement of very large cases.
Regulatory and Development Authority of India. Aegon Life reinsures the mortality and morbidity risks of the policies it sells.
Risks and risk management are also referred to in various other sections of Aegon’s Annual Report, as they are relevant throughout the Company, for its various activities and its financial results. Relevant sections are: Our operating environment on page 17; Note 4 on Financial Risks in the Notes to the consolidated financial statements on page 178; and Risk factors on page 378.
Aegon’s risk appetite statement and risk tolerances are established in order to assist management in carrying out
Following from the risk appetite statement, risk tolerances are defined on: 1. Capital generation, to ensure free capital generation remains sufficiently in line with projections; 2. Solvency and liquidity, to ensure that Aegon remains solvent and liquid even under adverse scenarios; 3. Risk balance, to ensure a healthy balance of risk exposures that supports delivering on targets for capital generation and return on capital; 4. Responsible business with effective controls, which acknowledges an acceptable level of operational risk and stresses a low tolerance for (lack of) actions which could lead to material adverse risk events that result in breaking promises or not meeting reasonable expectations of customers, legal breaches or reputational damage.
Risk monitoring and reporting Risks are monitored regularly and reported on at least a quarterly basis. The impact of key financial, underwriting and operational risk drivers on earnings and capital is shown in the quarterly risk dashboard for the various risk types both separately as well as on an aggregate basis.
Low – Accepted to serve customer needs, but mitigated as much as possible.
Description of risk types Financial risk Credit risk Credit risk is the risk of economic loss due to the deterioration in the financial condition of counterparties, either through fair value losses on traded securities or through defaults on traded securities, loans and mortgages. Having a well-diversified investment portfolio means that Aegon can accept credit spread risk to earn a liquidity premium on assets that match liabilities.
Currency exchange rate risk As an international company, Aegon is exposed to different currencies, and therefore to movements in currency exchange rates. Foreign currency exposure exists primarily when policies are denominated in currencies other than the issuer's functional currency. Currency risk in the investment portfolios backing insurance and investment liabilities is managed using asset
Underwriting risk Underwriting risk relates to the products sold by Aegon’s insurance entities, and represents the risk of incurring losses when actual experience deviates from Aegon’s best estimate assumptions on mortality, morbidity, policyholder behavior, P&C claims and expenses. Aegon has a preference to selectively grow underwriting risk, but this must work handin -hand with a strong underwriting process. Aegon’s earnings depend, to a significant degree, on the extent to which claims experience is consistent with assumptions used to price products and establish technical liabilities. Changes in, among other things, morbidity, mortality, longevity trends and policyholder behavior may have a considerable impact on the Company's income.
Operational risk Like other companies, Aegon faces operational risk resulting from operational failures or external events, such as processing errors, inaccuracies in used models, acts from personnel, noncompliance to laws and regulations, and natural or man-made disasters including climate change. In addition, major programs or organizational transformations may also increase potential for operational risks. Aegon’s systems and processes are designed to support complex products and transactions, and to avoid such issues as system failures, business disruption, financial crime and breaches of information security. Aegon monitors and analyses these risks on a regular basis, and where necessary revises contingency plans to deal with them. Aegon’s operational risk universe distinguishes eight risk types: Business risk; Legal, regulatory, conduct and compliance risks; Tax risk; Financial crime risk; Processing risk; Systems and business disruption risk; People risk; and Facility risk. These level 1 risk types are split out into more granular level 2 risk types. The operational risk universe also covers social and environmental risks. Please refer to the chapter non-financial policies, procedures and outcomes for an overview of how various social and environmental issues are incorporated in decision making processes and policies throughout the company.
Cyber risk Cyber security has been recognized by Aegon as an important operational risk. Aegon’s digital security controls and cyber threat management program, as defined within the Company's global information security program, are intended to establish security controls that safeguard data, technology and operations, as well as activities outsourced to third parties.
Aegon recognizes the need to commit significant resources to protect and continually strengthen its existing security control environment and preventative tooling as new cyber threats and exposures emerge. Evaluations and scenario testing of security controls – including detection and response capabilities – are performed by both internal and external experts, and identified vulnerabilities are tracked and monitored by management.
Security Officer, who has a direct reporting line to the Global
Board, in conjunction with local business unit management and information security officers. Moreover, periodic updates are provided to Aegon’s Supervisory Board. Aegon takes cybercrime very seriously, and is committed to enhancing its existing systems over time in order to provide additional protections to its systems and information.
Aegon can influence and control these topics, what the risks and opportunities are and the actions taken in anticipation or response to the topic. For the material topics identified for 2018, the relevant risks are: 1. A loss of trust from customers impacting sales, reputation and profitability.
2. Fines from regulators and loss of trust and business following from cyber security breaches.
3. Tougher competition from peers and new distributors following from new technologies and digital transformation, increasing investment needs, and job losses in certain areas as a result of further automation.
5. A loss of business if Aegon does not adapt quickly enough to changing customer behavior.
The mentioned risks fall in the risk categories investment risks, mismatch risk, underwriting risks (including longevity and policyholder behaviour) and operational risks (including business risks and strategic risks). For more information to the materiality exercise refer to the section: Our operating environment on page 17.
The formal responsibility regarding the effectiveness and design, operation and appropriateness of the ERM and internal control system rests, however, with the Audit Committee of the Supervisory Board. The Audit Committee works closely together with the SBRC with regard to the oversight of and reports on the effectiveness of the ERM framework and the risk control systems of the Company. The Audit Committee relies on the findings of the SBRC. The SBRC is responsible for overseeing Aegon’s ERM framework, including risk governance and measures taken to ensure risk management is properly integrated into the Company's broader strategy.
For a description of the main roles and responsibilities of the SBRC see the section on the Risk Committee on page 55 of the Report of the Supervisory Board in this Annual Report.
It is responsible for managing Aegon’s balance sheet at the global level, and is in charge of risk oversight, risk monitoring and risk management related decisions on behalf of the Executive Board in line with its charter. The GRCC ensures risk-taking is within Aegon’s risk tolerances; that the capital position is adequate to support financial strength, credit rating objectives and regulatory requirements, and that capital is properly allocated. The GRCC informs the Executive Board about any identified (near) breaches of overall tolerance levels which threaten the risk balance, as well as any potential threats to the Company's solvency, liquidity or operations.
The following roles are important in order to realize the objective of the Risk Management function:  Advising on risk-related matters including risk tolerance, risk governance, risk methodology and risk policies;  Supporting and facilitating the development, incorporation, maintenance and embedding of the ERM framework and sound practices; and  Monitoring and challenging the implementation and effectiveness of ERM practices.
Supporting and facilitating  Developing and maintaining the global ERM framework for identifying, measuring and managing all material risks the
Model validation ensures independent review of methodology, assumptions, data, testing, production, reporting and use of the Solvency II PIM; How we safeguard long-term value creation Risk management94 95
Committees;  Providing subject matter expertise from the Centers of Excellence of the global Risk Management function to business areas through review of key initiatives, transactions, programs, projects, assumptions, methodologies and results across all important paradigms;  Providing assurance on the integrity of models and cash flows through model validations and maintenance of model validation policies and standards; and  Promoting a strong risk management culture across Aegon, including review of performance targets and remuneration in line with the Aegon Group Global Remuneration Framework.
Challenging and monitoring  Monitoring the ERM framework and overseeing compliance with group-wide risk governance requirements, risk strategy and risk tolerances, risk policies and risk methodology, which are applicable to all businesses for which Aegon has operational control;  Ensuring appropriate risk management information is prepared for use by the GRCC, the Management Board, the
Boards and (Supervisory) Committees on risk management related matters, including in relation to strategic affairs such as corporate strategy, mergers and acquisitions and major projects and investments;  Monitoring that the internal model is and remains appropriate to the Company’s risk profile and informing the Management
Board and the Supervisory Board about the on-going performance, suggesting improvements;  Monitoring risk exposures and risk policy compliance, including review of the Own Risk and Solvency Assessment (ORSA) and
Aegon’s Group and business unit's risk management staff structure is fully integrated. Business unit CROs have either a direct reporting line to the Group CRO or one of the regional
Management (ORM) Framework, and is considered wider than the 'Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
In 2018, risk management and internal control topics were discussed by the relevant management committees and bodies, including the Management Board, the Executive Board, the Risk
The Company’s first line of defense, the business and support functions, has direct responsibility for managing and taking risk in accordance with defined risk strategy, risk tolerances and risk policies. The second line of defense includes the risk management function. The risk management function facilitates and oversees the effectiveness and integrity of ERM across the Company. The third line of defense – the audit function
Integrated Framework', the Treadway Commission's Committee of Sponsoring Organizations (COSO, 2013 framework), are used by Aegon’s internal audit function to analyze and make recommendations to the Executive Board concerning the effectiveness of the Company's internal control framework.
The risk management function develops and monitors compliance with risk policies and risk frameworks. The risk management function advises on risk-related matters including risk tolerance, risk governance, risk methodology and risk policies; supports and facilitates the development, maintenance and embedding of the ERM framework and sound practices; and monitors and challenges the implementation and effectiveness of ERM
practices. Finally, both the Regulatory Compliance function and the Operational & Conduct Risk Management function play key roles in monitoring the Company's adherence to external rules and regulations and internal policies.
Aegon’s directors and management have adopted a going concern basis on the reasonable assumption that the Company is and will be able to continue its normal course of business in the foreseeable future.
Relevant facts, circumstances and risks relating to the consolidated financial position on December 31, 2018, were assessed in order to reach the going concern assumption.
Act (Wet op het financieel toezicht (Wft)), the Executive Board confirms that, to the best of its knowledge, the financial statements have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial condition and profit or loss of the Company and the undertakings included in the consolidation as a whole; and that the Report of the Executive Board gives a fair view of the position at the reporting date of the Company, the development and performance of the business during the financial year, and the undertakings included in the consolidation as a whole, together with a description of the principal risks and uncertainties that the Company faces.
Financial Disclosures. Aegon is not only a financial services provider. It is also an investor. Consequently, this report also examines the efforts we’ve made to embed social, environmental and economic factors into our own investment decision-making.
and GRI in their push for more complete and relevant corporate reporting. Disclosure is only part of the story. For us, integrated reporting is also about understanding both the financial and non-financial factors affecting our business, and using that understanding to drive better, more integrated decision-making.
Controls and procedures Disclosure controls and procedures At the end of the period covered by this Annual Report, Aegon’s management carried out an evaluation, under the supervision and with the participation of its Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), of the effectiveness of the design and operation of Aegon’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Board) and CFO report on and certify the effectiveness of Aegon’s internal controls over financial reporting on an annual basis. Furthermore, external auditors are required to provide an opinion on the effectiveness of Aegon’s internal controls over financial reporting. The SOX 404 statement by the Executive Board is stated below, followed by the report of the external auditor.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
Based on the assessment, management concluded that, in all material aspects, the internal control over financial reporting was effective as of December 31, 2018. They have reviewed the results of its work with the Audit Committee of the Supervisory Board.
Relevant facts and circumstances relating to the consolidated financial position on December 31, 2018, were assessed in order to reach the going concern assumption. The main areas assessed are financial performance, capital adequacy, financial flexibility, liquidity and access to capital markets, together with the factors likely to affect Aegon’s future development, performance and financial position. Commentary on these is set out in the 'Capital and liquidity management’, ‘Risk management’,
Opinion on Internal Control over Financial Reporting We have audited Aegon N.V.’s (the “Company”) internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework (2013)
Report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the Public Company
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Notes to the consolidated financial statements 151 1 General information 151 2 Significant accounting policies 175 3 Critical accounting estimates and judgment in applying accounting policies 178 4 Financial risks 208 5 Segment information 218 6 Premium income and premiums paid to reinsurers 218 7 Investment income 219 8 Fee and commission income 219 9 Income from reinsurance ceded 219 10 Results from financial transactions 220 11 Other income 221 12 Policyholder claims and benefits 221 13 Profit sharing and rebates 221 14 Commissions and expenses 223 15 Impairment charges/(reversals)
Additional information 345 Overview 345  Americas 354  The Netherlands 362  United Kingdom 366  Central & Eastern Europe 369  Spain & Portugal 372  Asia 375  Aegon Asset Management 378 Risk factors Aegon N.V.
Borrowings including subordinated and trust pass-through securities 13,583 14,532 14,076 13,361 15,049
Dividends Aegon declared interim and final dividends on common shares for the years 2013 through 2017 in the amounts set forth in the following table. The 2018 interim dividend amounted to EUR 0.14 per common share and EUR 0.0035 per common share B. The interim dividend was paid in cash or stock at the election of the shareholder. The interim dividend was payable as of September 21, 2018. At the General Meeting of Shareholders on May 17, 2019, the Supervisory Board will, absent unforeseen circumstances, propose a final dividend of EUR 0.15 per common share (at each shareholders option in cash or in stock), which will bring the total dividend for 2018 to EUR 0.29. With respect to the Common Shares B, each which has financial rights attached to it of 1/40th of a Common
Share B into account, this will result in a total 2018 dividend of EUR 0.00725 per Common Share B. Dividends in US dollars are calculated based on the foreign exchange reference rate
Aegon’s senior management is compensated based in part on Aegon’s results against targets using the non-
IFRS-EU measures presented by other insurers. There is no standardized meaning to these measures under IFRS-EU or any other recognized set of accounting standards and readers are cautioned to consider carefully the different ways in which
Aegon has changed the measurement of underlying earnings before tax for its real estate investments portfolio held by Aegon the Netherlands. Previously, direct returns on these investments were reported as part of underlying earnings before tax and the fair value movements were reported as part of Fair value items. From January 1, 2018, fair value items include the overor underperformance for the real estate investments of Aegon the Netherlands, for which ‘management’s best estimate’
Comparative numbers have been restated in Aegon’s segment reporting note, enabling a like for like comparison. The presentation of the items in the IFRS income statement remains unchanged and continue to be part of the line
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 829 2,437 (66) Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 47 44 6
Total life insurance gross premiums 7,004 1,632 7,509 405 217 9,763 779 - 2 17,548 (579) 16,969
Results 2018 worldwide Aegon’s net income in 2018 declined compared with 2017 to EUR 744 million. Underlying earnings before tax decreased by 3% compared with 2017 to EUR 2,074 million in 2018, as higher underlying earnings before tax from Europe, Asia and Asset Management were more than offset by lower underlying earnings before tax from Americas and Holding and other activities. The net income in 2018 was impacted by fair value losses of EUR 260 million as well as EUR 875 million other charges.
compared with 2017 to EUR 55 million in 2018, mainly as a result of higher earnings in the High-Net-Worth business.  Underlying earnings before tax from Asset Management increased by 12% in 2018 compared with 2017 to EUR 151 million. This increase was mainly driven by higher underlying earnings before tax in 2018 compared with 2017 from Strategic partnerships and the Netherlands.  Total Holdings costs amounted to EUR 188 million in 2018 compared with EUR 170 million in 2017, as a result of interest expenses on USD 800 million Tier 2 securities issued in April 2018 to replace perpetual securities. Interest expenses for these Tier 2 securities are taken through the profit & loss statement, while the interest expenses for the perpetuals were recognized directly through equity.
Ireland, EUR 75 million integration expenses for Cofunds and Blackrock’s DC business, and a EUR 49 million reserve strengthening related to the residual annuity book in the UK.
Net outflows amounted to EUR 4.7 billion as inflows in Asset Management, the United Kingdom platform and the Dutch banking business were more than offset by outflows in the United States mainly caused by Retirement Plans due to a small number of large contract discontinuances and higher participant withdrawals. New life sales declined by 9% compared with 2017 to EUR 820 million in 2018, mostly driven by lower indexed universal life and term life production in the United
On December 31, 2018, Aegon’s estimated Solvency II ratio amounted to 211%, up from 201% at the end of 2017. This increase was driven by capital generation net of dividends to shareholders. The RBC ratio in the United States remained relatively stable compared with the end of 2017 to 465%
Solvency II ratio at the end of 2018 amounted to 181%, down from 199% at the end of 2017. The ratio was impacted by adverse market impacts, the impact of tax changes and the lowering of the Ultimate Forward Rate. The estimated
The normalized capital generation, the positive impact from market movements, and de-risking of the investment portfolio, were only partly offset by other items including remittances to the group and the completion of the Part VII transfer related to the acquisition of BlackRock’s defined contribution business.
Dividends from and capital contributions to business units Aegon’s business units remitted over EUR 1.3 billion to the Group during 2018, including EUR 0.9 billion from the Americas,
EUR 200 million from the Netherlands and EUR 113 million from the United Kingdom. Aegon spent EUR 144 million on capital injections, while the proceeds from divestments net of acquisitions amounted to EUR 98 million.
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (44) (31) (45)
of which operating expenses 3,878 3,764 3 1 Aegon has changed the measurement of underlying earnings before tax for its real estate investments portfolio held by Aegon the Netherlands.
Gross deposits (on and off balance) Amounts in EUR millions 2017 2016 %
Number of employees, including agent employees 10,951 3,089 3,435 2,337 610 9,471 6,025 1,500 371 28,318
Net income Net income amounted to EUR 2,361 million in 2017 driven by underlying earnings before tax of EUR 2,140 million, realized gains and an effective tax rate of only 3% as a result of a benefit related to US tax reform.
 Underlying earnings before tax from the Americas increased compared with 2016 to EUR 1,381 million in 2017. Expense reductions, an improvement in claims experience, and higher fee revenue resulting from favorable equity market performance more than offset net outflows.
 In Europe, underlying earnings before tax in 2017 increased by 8% compared with 2016 to EUR 744 million. This was mainly driven by higher fee income in the United Kingdom compared with 2016 from favorable equity markets and net inflows. In addition, the inclusion of Cofunds in 2017 led to higher underlying earnings before tax compared with 2016.  In Asia, underlying earnings before tax increased in 2017 compared with 2016 to EUR 49 million as a result of increased underlying earnings before tax from the High Net
Worth business, Aegon Insights and the Strategic Partnership in China. This was in part driven by lower expenses compared with 2016 as well as favorable mortality experience, favourable persistency and favorable intangible adjustments related to anticipated investment yields.
 Total Holdings costs amounted to EUR 170 million in 2017 compared with EUR 162 million in 2016 impacted by regulatory projects.
Fair value items The results from fair value items amounted to a loss of EUR 61 million in 2017. EUR 170 million fair value gains in the United States in 2017 were driven by positive results on hedging programs and the outperformance of real estate investments. These positive results on hedging programs were the result of favorable equity market movements and reflect changes made to the macro equity hedge program throughout 2017 to a 100% option-based program. Fair value losses in Europe amounted to EUR 255 million, as gains on real estate investments in the Netherlands were more than offset by a fair value loss on the guarantee provision in the Netherlands, as well as negative fair value changes on equity hedges in the United
Production Compared with 2016, gross deposits in 2017 were up by 44%
to EUR 144.4 billion, driven by higher gross deposits in Asset
Management and the acquisition of Cofunds. Net outflows amounted to EUR 17.1 billion as inflows in Asset Management and the United Kingdom were more than offset by contract discontinuances from the business acquired from Mercer. These outflows were in line with the guidance provided in 2017, and are driven by the conversion of customers to the Transamerica recordkeeping platform. New life sales declined by 8% compared with 2016 to EUR 896 million in 2017, mostly driven by lower indexed universal life and term life production in the United
States and the sale of the annuity business in the United
This increase was driven by capital generation, divestments and an amendment of the conversion methodology for
US Life insurance entities under Solvency II. This methodology is consistent with EIOPA’s guidance on how to calculate group solvency in the context of equivalence. It includes a conversion factor of 150% for required capital and reducing own funds by 100% RBC requirement to reflect transferability restrictions.
Kingdom. Aegon spent EUR 1.1 billion on capital injections, including EUR 1 billion into the Netherlands.
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) (23) 1,535 n.m. (20) 1,369 n.m.
Net income The net income amounted to USD 61 million as underlying earnings before tax were largely offset by losses from fair value items, realized losses on investments and other charges.
Realized losses on investments were USD 241 million resulting from the sale of US treasuries as part of normal trading activity.
Underlying earnings before tax Underlying earnings before tax in 2018 decreased by 8%
compared with 2017 to USD 1.4 billion caused by lower fee revenue due to declining equity markets and net outflows, and unfavorable mortality experience. This was partly offset by expense reductions.
 Retirement Plans underlying earnings before tax were down 38% to USD 195 million in 2018 compared with
USD 410 million in 2017, driven by lower operating expenses as a result of changes in expense allocations between product lines.
 Fixed Annuity underlying earnings before tax decreased by 22% compared with 2017 to USD 114 million in 2018, mainly due to lower investment income, reflecting the continued balance reduction.
USD 99 million in 2017 caused by margin pressure and lower asset balances.  Latin America declined from USD 1 million underlying earnings before tax in 2017 to an underlying loss before tax of
Production Gross deposits increased by 4% in 2018 compared with 2017 to USD 45.2 billion as a result of increases in all business lines, most notably Mutual Funds, Fixed Annuities and Latin
New life sales declined by 7% in 2018 to USD 496 million compared with 2017, as a result of lower indexed universal life and term life sales, reflecting a loss of market share due to increased competition. New premium production for accident & health insurance was down by 62% compared with 2017 to USD 312 million in 2018 caused by the strategic decision to exit the travel insurance, affinity and stop loss insurance segments.
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 1,535 706 117 1,369 638 115
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (5) (3) (48) (5) (3) (45)
Total net deposits excluding run-off businesses (33,549) (1,123) n.m. (29,713) (1,015) n.m.
 Underlying earnings before tax from Life increased to USD 251 million in 2017 compared with USD 174 million in 2016. This increase was mainly driven by an improvement in mortality experience.
 Accident & health underlying earnings before tax increased by 30% to USD 284 million in 2017 compared with
USD 218 million in 2016, as an improvement in claims experience and expense savings more than offset the negative impact on underlying earnings before tax of product exits.  Underlying earnings before tax from Mutual Funds increased by USD 4 million in 2017 compared with 2016 to USD 54 million. Increased fee income from higher average account balances driven by equity market performance and inflows more than offset increased expenses.
to USD 315 million in 2017 compared with USD 280 million in 2016, primarily driven by increased fee income compared with 2016. This was the result of higher fee revenue from higher asset balances with favorable equity market performance more than offsetting net outflows related to the conversion of the Mercer business to Aegon USA's platform.  Underlying earnings before tax from Variable Annuities increased by 4% to USD 410 million in 2017 compared with
 Fixed Annuity underlying earnings before tax decreased by 15% in 2017 compared with 2016 to USD 145 million, reflecting the continued balance reduction and unfavorable adjustments of deferred acquisition costs.
Latin Americas in 2017 were more than offset by a decline in variable annuity and retirement plan deposits compared with 2016. Decreased variable annuity deposits in 2017 compared with 2016 were caused by lower market demand following the implementation of the Department of Labor Fiduciary Rule, in addition to not following competitors’ pricing changes for some products and partners deciding to offer their own variable annuities solutions. Retirement plan deposits decreased in 2017 compared with 2016, as higher recurring deposits were more than offset by lower takeover deposits. Net outflows amounted to USD 33.9 billion due to contract discontinuances from the business acquired from Mercer. These outflows were in line with guidance provided in 2017, and are driven by the conversion of customers to Aegon USA's recordkeeping platform.
New life sales declined by 11% in 2017 to USD 533 million compared with 2016, as a result of lower indexed universal life and term life sales. Universal life production was down in 2017 compared with 2016, as a result of a decline in market share in indexed universal life. Sales of term life products declined in 2017 compared with 2016 as Aegon did not lower its pricing in line with a number of its competitors. New premium production for accident & health insurance was down by 9%
to USD 0.8 billion in 2017 compared with 2016, as product exits and lower supplemental health sales more than offset higher travel sales.
Underlying earnings before tax by product segment 557 116 67 4 744
Underlying earnings before tax by product segment 567 59 55 8 688
Income/(loss) before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 721 (474) 34 6 288
Accident and health insurance premiums 210 36 1 73 320 1 Aegon has changed the measurement of underlying earnings before tax for its real estate investments portfolio held by Aegon the Netherlands.
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 909 1,078 (16)
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (11) (6) (70)
Results 2018 Europe Net income declined by 8% compared with 2017 to EUR 777 million in 2018, as higher underlying earnings before tax and positive fair value items were more than offset by other charges. The impact from model & assumption changes in the Netherlands, restructuring charges in the United Kingdom and the loss on the sale of Aegon Ireland were the main drivers for other charges of EUR 409 million in 2018. Underlying earnings before tax in 2018 increased by 13% compared with 2017 to EUR 839 million, reflecting increases in all regions.
Net impairments amounted to a net recovery of EUR 6 million in 2018. Other charges amounted to EUR 132 million in 2018 and reflect EUR 111 million model & assumption changes, mainly related to updated mortality and lapse assumptions.
Net income for the United Kingdom Net income from Aegon’s businesses in the United Kingdom amounted to EUR 38 million in 2018. The main driver was the underlying result before tax of EUR 128 million. Gains from fair value items of EUR 59 million were the result of gains on equity hedging programs as a result of lower equity markets where hedges have been set up to protect against such a decline.
(CEE) amounted to EUR 60 million in 2018 and reflect underlying earnings before tax of EUR 72 million mainly offset by other charges of EUR 7 million and income taxes of EUR 8 million.
Underlying earnings before tax Underlying earnings before tax in 2018 increased by 13%
compared with 2017 to EUR 839 million as a result of growth in all regions.
compared with 2017 to EUR 460 million, driven by a higher investment margin, reflecting a shift to higher-yielding assets.  Underlying earnings before tax from Non-life were up by 18%
compared with 2017 to EUR 40 million, due to improved disability underwriting results, reflecting higher provision releases.  Banking’s underlying earnings before tax increased by 32%
 Underlying earnings before tax from Digital Solutions improved from a loss of EUR 8 million in 2017 to a profit of
EUR 21 million in 2018. This was driven by higher fee income as a result of new business inflows and upgrades to the platform, as well as the realization of cost synergies related to the Cofunds integration.
Underlying earnings before tax for Central & Eastern Europe Underlying earnings before tax from Central & Eastern Europe increased to EUR 72 million in 2018, up 8% compared with 2017. This increase was primarily driven by business growth, most notably in Turkey and Hungary.
Underlying earnings before tax for Spain & Portugal Underlying earnings before tax from Spain & Portugal increased from EUR 4 million in 2017 to EUR 24 million in 2018, driven by portfolio growth and better underwriting results in the joint ventures with Santander and lower expenses in Aegon’s own business, reflecting the restructuring program, while 2017 included one-time expenses.
Commissions and expenses Commissions and expenses decreased by 7% compared with 2017 to EUR 1,991 million in 2018. Operating expenses declined by 7% compared with 2017 to EUR 1,496 million in 2018.
Commissions and expenses for the United Kingdom Commissions and expenses decreased by 7% compared with 2017 to EUR 704 million in 2018. Operating expenses decreased by 5% compared with 2017 to EUR 521 million in 2018, as higher restructuring expenses were more than offset by the realization of cost synergies and the sale of Aegon Ireland.
compared with 2017 to EUR 165 million in 2018, reflecting the growth of the business.
Production Gross deposits decreased by 7% compared with 2017 to EUR 23.8 billion in 2018, primarily caused by lower platform flows in the United Kingdom.
& health insurance decreased by 8% compared with 2017 to EUR 36 million in 2018, as 2017 included one-time higher sales in the Netherlands following legislative changes. New premium production in property & casualty insurance increased compared with 2017 to EUR 121 million in 2018, mainly driven by growth in Hungary.
Production for the Netherlands Gross deposits increased by 26% compared with 2017 to EUR 10.2 billion in 2018, mainly driven by the growth of Knab,
Aegon’s online bank. New life sales were up by 2% compared with 2017 to EUR 101 million in 2018, as a result of higher immediate annuity sales and pension indexation premiums.
Production for the United Kingdom Gross deposits decreased by 23% compared with 2017 to EUR 13.2 billion in 2018, due to lower retail and institutional platform flows. New life sales rose by 8% compared with 2017 to EUR 40 million in 2018, due to higher protection sales.
Production for Spain & Portugal Gross deposits decreased by 11% in 2018 compared with 2017 to EUR 32 million, driven by lower sales of savings products. New life sales in Spain & Portugal in 2017 increased by 11% compared with 2017 and amounted to EUR 54 million, driven by increasing sales through the joint venture with
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (6) (7) 16
Comparative numbers have been restated accordingly. For further details please refer to page 208.
Results 2017 Europe Net income improved to EUR 846 million in 2017 compared with 2016 driven by Other income and higher underlying earnings before tax. The gain on the sale of the insurance broker UMG in the Netherlands was the main driver behind Other income of EUR 336 million. Underlying earnings before tax in 2017 increased compared with 2016 to EUR 744 million. This was mainly the result of higher results in the United Kingdom, reflecting higher fee income.
Net income for the Netherlands Net income from Aegon’s businesses in the Netherlands amounted to EUR 710 million in 2017, largely driven by underlying earnings before tax of EUR 557 million. Results on fair value items declined compared with 2016 to a loss of EUR 112 million in 2017, as positive real estate revaluations were offset by losses on credit spread and interest rate hedges due to a mismatch on an IFRS basis between the valuation of hedges and liabilities. Realized gains of EUR 184 million in 2017 were the result of asset-liability management adjustments and normal trading activity in the investment portfolio. Impairments amounted to EUR 17 million in 2017 and were mostly driven by a loan loss provision related to growing consumer loan origination. Other income amounted to EUR 296 million in 2017. This reflects the EUR 208 million gain on the sale of UMG and EUR 101 million positive assumption changes and model updates mainly related to the guarantee provision in the Netherlands.
BlackRock's defined contribution business and the impairment of intangible assets related to the announced sales of Aegon Ireland.
Underlying earnings before tax Underlying earnings before tax in 2017 increased by 8%
Underlying earnings before tax for the Netherlands Underlying earnings before tax for the Netherlands in 2017 decreased by 2% compared with 2016 to EUR 557 million.
 Underlying earnings before tax from Pensions decreased by 9% compared with 2016 to EUR 209 million, mainly due to lower investment income.
 Underlying earnings before tax from the Distribution business decreased compared with 2016 to EUR 17 million. The decrease was caused by the sale of UMG and pressure on fee income due to increased competition.
 Underlying earnings before tax from Life increased in 2017 compared with 2016 to EUR 65 million, reflecting higher results on inflation-linked bonds and growth in the protection business.
EUR 9 million in 2016 to EUR 51 million in 2017. This was driven by higher fee income from favorable equity markets and net inflows, as well as the inclusion of Cofunds in 2017.
Underlying earnings before tax for Spain & Portugal Underlying earnings before tax from Spain & Portugal decreased compared with 2016 to EUR 4 million in 2017, mainly caused by higher operating expenses due to the write-down of an
Commissions and expenses for the United Kingdom Commissions and expenses increased by 13% in 2017 to EUR 757 million compared with 2016. Operating expenses increased by 39% in 2017 to EUR 546 million compared with 2016, mainly due to the inclusion of Cofunds and
Commissions and expenses for Central & Eastern Europe Commissions and expenses increased by 7% compared with 2016 to EUR 262 million in 2017. Operating expenses increased by 6% compared with 2016 to EUR 152 million in 2017, reflecting the growth of the business and higher variable personnel expenses.
Santander and project-related expenses, severance costs and the write-down of an IT system.
Production Gross deposits increased from EUR 12.8 billion in 2016 to EUR 25.7 billion in 2017. The increase compared with 2016 was primarily driven by the higher platform sales in the United Kingdom.
compared with 2016 and amounted to EUR 48 million, driven by increasing sales through the joint venture with Banco
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 43 38 14 36 33 9
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 15 19 (19) 13 16 (23)
Accident and health insurance premiums 111 110 1 94 97 (4)
Gross deposits (on and off balance) 2018 2017 % 2018 2017 %
New premium production accident and health insurance 9 14 (34) 8 12 (37)
Strategic partnerships. Fair value gains improved from a loss of USD 1 million 2017 to a gain of USD 3 million in 2018 due to hedging gains in Japan. Realized losses amounted to USD 10 million in 2018 compared with a USD 5 million realized gains in 2017 due to portfolio rebalancing on available for sale assets in the High Net Worth businesses to achieve higher yields. Other charges improved to USD 9 million in 2018 compared with USD 21 million in 2017 as a result of a lower impact of assumption changes and model updates . Income tax decreased to USD 29 million in 2018 compared with
Underlying earnings before tax In Asia, underlying earnings before tax improved by 17%
compared with 2017 to USD 65 million in 2018.  Underlying earnings before tax from the High Net Worth businesses in Hong Kong and Singapore increased to USD 71 million in 2018, compared with USD 67 million in 2017. This increase was mainly the result of a benefit related to higher investment yields and favorable claims experience.
USD 15 million in 2018 compared with USD 21 million in 2017 mainly a result of business growth and lower new business related expenses in Japan and India, partially offset by higher operating expenses due to higher sales in China.
Commissions and expenses Commissions and expenses increased to EUR 273 million in 2018 compared with EUR 257 million in 2017. Operating expenses increased by 7% in 2018 compared with 2017 to USD 187 million. The increase in operating expenses was mainly driven by strong sales in China and investments in the High Net Worth businesses.
Production New life sales decreased by 15% in 2018 to USD 144 million compared with 2017.  In the High Net Worth businesses in Hong Kong and
USD 92 million in 2018 compared with 2017 due to strong sales in China that was mainly driven by the critical illness product. Gross deposits in Asia declined to USD 151 million in 2018 compared with USD 250 million in 2017 as variable annuity sales in Japan continue to be impacted by a shrinking market due to the low interest rate environment.
Net income Net income improved from a loss of USD 14 million in 2016 to USD 6 million in 2017, mainly due to increased underlying earnings before tax in the High Net Worth business, Aegon
 New life sales in Strategic Partnerships were up 60% to
New premium production in Asia's accident & health declined by 27% in 2017 compared with 2016 to USD 14 million as a result of running off the Aegon Insights outbound telemarketing business.
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 22 17 27
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (22) (17) (27)
Commissions and expenses 488 481 2 of which operating expenses 439 444 (1)
Total net flows external third-party 7,526 6,913 9 1 Rest of world include intragroup eliminations from internal sub-advised agreements
 Underlying earnings before tax from Europe in 2018 decreased by EUR 1 million to EUR 30 million compared with 2017, as expense savings and higher management fee income in 2018 compared with 2017 in the Netherlands were more than offset by lower management fees in the United Kingdom.  Rest of World underlying earnings before tax in 2018 decreased by EUR 3 million compared with 2017 to a loss of EUR 10 million.
EUR 69 million in 2018. Aegon’s Chinese asset management joint venture AIFMC had higher management and performance fee income in 2018 compared with 2017.
Commissions and expenses Commissions and expenses increased by 2% in 2018 compared with 2017 to EUR 488 million. Operating expenses decreased by 1% in 2018 compared with 2017 to EUR 439 million. This decrease was mainly driven by lower expenses in the Americas and the United Kingdom as a result of continued strong expense control. These were partly offset by higher personnel expenses in China as a result of its strong performance. The cost/income ratio in 2018 improved by 2 percentage points compared with 2017 to 75%, as result from lower expenses and higher revenues in 2018 compared with 2017. Annualized operating expenses as a percentage of average assets under management remained stable at 14 basis points in 2018 compared with 2017.
Production Gross inflows in external third-party decreased by 3% in 2018 to EUR 59.5 billion compared with 2017. Higher gross inflows in the Netherlands were more than offset by lower gross inflows in Strategic partnerships, the Americas and the UK. In addition, gross inflows in 2017 included a single large mandate won by Aegon’s strategic partner LBPAM.
Assets under management Assets under management decreased by EUR 2 billion in 2018 to EUR 316 billion compared with the start of 2018. Net inflows in external third-party and favorable currency movements were more than offset by outflows in the general account, outflows in affiliates, and unfavorable market movements.
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (17) (19) 7
Net income Net income in 2017 declined 51% compared with 2016 to EUR 48 million. This was partly driven by lower underlying earnings before tax in 2017 compared with 2016.
Following the discovery of the errors, Aegon concluded a comprehensive and detailed review.
(EUR 40 million). Aegon believes that the investigation will come to a conclusion in 2018.
Underlying earnings before tax Underlying earnings before tax decreased by 9% in 2017 compared with 2016 to EUR 136 million. This decline was mainly driven by lower underlying earnings before tax in 2017 compared with 2016 from the United Kingdom due to lower management fees.
 Rest of World underlying earnings before tax in 2017 decreased by EUR 3 million compared with 2016 to a loss of EUR 7 million.
Amounts in EUR million (except per share data) Note 2018 2017 2016
Net income/(loss) attributable to: Owners of Aegon N.V. 744 2,361 586
Movement in foreign currency translation and net foreign investment hedging reserves 602 (2,149) 69
Income tax relating to items that may be reclassified 493 951 225
Total comprehensive income/(loss) attributable to: Owners of Aegon N.V. (361) 327 (729)
Income tax relating to items that will not be reclassified - - 7 (15) - - (8) - (8)
Items that may be reclassified subsequently to profit or loss: Gains/(losses) on revaluation of available-for-sale investments - - (2,138) - - - (2,138) - (2,138)
Income tax relating to items that may be reclassified - - 513 - (20) - 493 - 493
Total comprehensive income/(loss) for 2018 - 741 (1,459) (182) 539 - (361) 2 (359)
Issuance and redemption of other equity instruments - 2 - - - (471) (468) - (468)
Total other comprehensive income/(loss) - 13 (461) 151 (1,737) - (2,034) (3) (2,038)
Net income/(loss) recognized in the income statement - 586 - - - - 586 - 586
Changes in cash flow hedging reserve - - (54) - - - (54) - (54)
Issuance and purchase of treasury shares - (27) - - - - (27) - (27)
Amounts in EUR million Note 2018 2017 2016 Income/(loss) before tax 782 2,393 805
Purchase of investments (other than money market investments) (31,279) (32,057) (34,873)
Disposal of investments (other than money market investments) 29,192 35,512 33,246
Net purchase of investments for account of policyholders 10,819 8,869 5,160
Purchase of individual intangible assets (other than VOBA and future servicing rights) (42) (34) (22)
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.
Aegon N.V. (or 'the Company') and its subsidiaries ('Aegon' or 'the Group') have life insurance and pensions operations in more than 20 countries in the Americas, Europe and Asia and are also active in savings and asset management operations, accident and health insurance, general insurance and to a limited extent banking operations. Headquarters are located in The Hague, the Netherlands.
IFRS 15 Revenue from Contracts with Customers, including Clarifications to IFRS 15 as issued in 2016
IFRS 15 Revenue from Contracts with Customers issued in May 2014 and the amendments to IFRS 15 issued in April 2016 are effective for the Group from January 1, 2018. The adoption of this standard has a very limited impact on the Group’s financial statements because insurance revenue is not in scope of IFRS 15 and because the other types of revenue are already materially compliant with this standard. Given the very limited impact on the Group’s financial statements, Aegon chose to apply the modified retrospective approach as transition method.
2.1.2 Future adoption of new IFRS-EU accounting standards The following standards and amendments to existing standards, published prior to January 1, 2019, 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 Aegon Impact for Aegon
IFRS 16 Leases January 1, 2019 Yes No See below for comments
Amendment to IFRS 3 Business Combinations January 1, 2020 Not yet No Low
In order to implement the standard, the Group has adopted a number of key options and practical expedients allowed under IFRS 16 of which the following are the most significant:  The Group will apply the modified retrospective approach and therefore will not restate the comparative amounts for the year prior to initial application. Under this approach, on a lease-by-lease basis, the following two options are available: (i) right-of-use assets
(mainly high value properties) measured on transition as if the new rules had always been applied, but discounted using the lessee’s incremental borrowing rate at the date of initial application; or (ii) right-of-use assets measured at the amount of the lease liability on adoption (adjusted for any prepaid or accrued lease expenses). The group will apply these two available options on a lease-by-lease basis;  The Group has applied the exemption not to recognize right-of-use assets and liabilities for liabilities with less than 12 months of lease term;  The Group has elected to apply the ‘grandfather’ option, which means that all conclusions previously reached under IAS 17 (and
The IASB issued the complete version of IFRS 9 Financial Instruments in July 2014, which was endorsed by the European Union in November 2016. IFRS 9 combines classification and measurement, the expected credit loss impairment model and hedge accounting. The standard replaces IAS 39 and all previous versions of IFRS 9. Under IFRS 9 Classification and Measurement, financial assets are measured at amortized cost, fair value through profit or loss or fair value through other comprehensive income, based on both the entity’s business model for managing the financial assets and the financial asset’s contractual cash flow characteristics.
The classification and measurement of financial liabilities is unchanged from existing requirements apart from own credit risk. For financial liabilities that are designated at fair value through profit or loss, the changes which are attributable to the change in an entity’s own credit risk are presented in other comprehensive income, unless doing so would enlarge or create an accounting mismatch.
Application of IFRS 9 is required for annual periods beginning on or after January 1, 2018. However, on May 18, 2017, the IASB
An entity is eligible to apply the temporary exemption if the carrying amount of its liabilities connected with insurance activities is  greater than 90% of the total carrying value of all liabilities; or  between 80% and 90% of the total carrying value of all its liabilities, and the insurer does not have significant activities unrelated to insurance.
The table below details the credit risk rating grades, as of December 31, 2018, for financial assets with cash flows that are 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 tables show the carrying value of those financial assets applying IAS 39 (in the case of financial assets measured at amortized cost, before adjusting for any impairment allowances).
Shares – Carried at fair value - - - 42 9 17 - - 68
Money market and other short-term investments- carried at fair value 55 158 2,561 351 - - - - 3,126
Mortgage loans– Carried at amortized cost 941 3,204 3,567 266 15 - - 28,647 36,639
SPPI compliant financial assets with no low credit risk Carrying amount Fair value
The IASB issued IFRS 17 Insurance Contracts in May 2017. The Standard will replace IFRS 4, which was intended as an interim solution and allowed insurers to continue to use accounting principles that they had applied prior to the initial adoption of IFRS. IFRS
June/July 2019, and in light of the criteria for assessing them, any such potential amendments could take a year to finalize.
As a consequence of the IFRS 17 deferral, the IASB also agreed to revise the fixed expiry date of the temporary exemption from
IFRS 9 in IFRS 4 to allow entities to continue applying the temporary exemption from IFRS 9 until January 1, 2022. 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 choices have been made as to the accounting policy options provided in IFRS 17, however, it is expected that the impact of the initial application on Aegon’s financial statements is significant.
Structured entities that are consolidated include certain mortgage backed securitization deals, where Aegon was involved in the design of the structured entities and also has the ability to use its power to affect the amount of the investee’s returns. Other factors that contribute to the conclusion that consolidation of these entities is required includes consideration of whether Aegon fully services the investees and can therefore influence the defaults of the mortgage portfolios and the fact that in these cases the majority of risks are maintained by Aegon.
Where applicable, Aegon recognizes other intangibles on the acquisition of a business combination such as those related to customer relationships. This can include customer contracts, distribution agreements and client portfolios. For these intangibles the present value of future cash flows are recognized and amortized in the period when future economic benefits arise from these intangibles.
Financial assets with fixed or determinable payments, that are not quoted in an active market and that the Group does not intend to sell in the near future are classified as loans. Those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration, are accounted for as available-for-sale.
Financial assets at fair value through profit or loss are measured at fair value with all changes in fair value recognized in the income
Interest accrued to date is not included in the fair value of the financial asset.
Financial assets that are lent to a third party or that are transferred subject to a repurchase agreement at a fixed price are not derecognized as the Group retains substantially all the risks and rewards of the asset. A liability is recognized for cash (collateral)
With the exception of cash collateral, assets received as collateral are not separately recognized as an asset until the financial asset they secure defaults. When cash collateral is recognized, a liability is recorded for the same amount.
To qualify for hedge accounting, the hedge relationship is designated and formally documented at inception, detailing the particular risk management objective and strategy for the hedge (which includes the item and risk that is being hedged), the derivative that is being used and how hedge effectiveness is being assessed. A derivative has to be highly effective in accomplishing the objective of offsetting either changes in fair value or cash flows for the risk being hedged. The effectiveness of the hedging relationship is evaluated on a prospective and retrospective basis using qualitative and quantitative measures of correlation. Qualitative methods may include
of IFRS-EU. The EU ‘carve out’ macro hedging enables a group of derivatives (or proportions thereof) to be viewed in combination and jointly designated as the hedging instrument and removes some of the limitations in fair value hedge accounting. Under the EU
Aegon is not relieved of its legal liabilities when entering into reinsurance transactions, therefore the reserves relating to the underlying insurance contracts will continue to be reported on the consolidated statement of financial position during the contractual term of the underlying contracts.
For products sold in the United States, when unrealized gains or losses arise on available-for-sale assets backing the insurance liabilities, DPAC is adjusted to equal the effect that the realization of the gains or losses (through sale or impairment) would have had on its measurement. This is recognized in OCI and accumulated in the related revaluation reserve in shareholders’ equity.
For debt instruments carried at amortized cost, the carrying amount of impaired financial assets is reduced through an allowance account. The impairment loss is calculated as the difference between the carrying and recoverable amount of the investment.
The recoverable amount is determined by discounting the estimated probable future cash flows at the original effective interest rate of the asset. For variable interest debt instruments, the current effective interest rate under the contract is applied.
c. Impairment of equity instruments For equity instruments, objective evidence of impairment of an investment in an equity instrument classified as available-for-sale includes information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered. A significant or prolonged decline in fair value below initial cost is also considered objective evidence of impairment and always results in a loss being recognized in the income statement. Significant or prolonged decline is defined as an unrealized loss position for generally more than six months or a fair value of less than 80% of the cost price of the investment. Equity investments are impaired to the asset’s fair value and any unrealized gain or loss previously recognized in shareholders’ equity is taken to the income statement as an impairment loss. The amount exceeding the balance of previously recognized unrealized gains or losses is recognized in the income statement. If an available-for- sale equity security is impaired based upon Aegon’s qualitative or quantitative impairment criteria, any further declines in the fair value at subsequent reporting dates are recognized as impairments. Therefore, at each reporting period, for an equity security that is determined to be impaired based upon Aegon’s impairment criteria, an impairment is recognized for the difference between the fair value and the original cost basis, less any previously recognized impairments.
to the transition to IFRS-EU and with consideration of standards effective subsequent to the date of transition to IFRS-EU, as further described in the following paragraphs. In order to reflect the specific nature of the products written, subsidiaries are allowed to apply local accounting principles to the measurement of insurance contracts. All valuation methods used by the subsidiaries are based on the general principle that the carrying amount of the net liability must be sufficient to meet any reasonably foreseeable obligation resulting from the insurance contracts.
c. Embedded derivatives Life insurance contracts may include derivative-like terms and conditions. With the exception of policyholder options to surrender the contract at a fixed amount, contractual features that are not closely related to the insurance contract and that do not themselves meet the definition of insurance contracts are accounted for as derivatives.
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 directly in shareholders' equity 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.
All tests performed within the Group are based on current estimates of all contractual future cash flows, including related cash flows from policyholder options and guarantees. A number of valuation methods are applied, including discounted cash flow methods, option pricing models and stochastic modeling. Aggregation levels are set either on geographical jurisdiction or at the level of portfolio of contracts that are subject to broadly similar risks and managed together as a single portfolio. Specifically, in the Netherlands the liability adequacy test is performed on a consolidated basis for all life and non-life business, whereas in the Americas and the UK it is performed at the level of the portfolio of contracts. To the extent that the tests involve discounting of future cash flows, the interest rate applied is based on market rates or is based on management’s expectation of the future return on investments. These future returns on investments take into account management’s best estimate related to the actual investments and, where applicable, reinvestments of these investments at maturity. Aegon the Netherlands, as required locally, adjusts the outcome of the liability adequacy test for the difference between the fair value and the book value of the assets that are measured at amortized cost in the statement of financial position.
To the extent that the account balances are insufficient to meet future benefits and expenses, any resulting deficiency is recognized in the income statement, initially by impairing the DPAC and VOBA and subsequently by establishing an insurance liability for
b. Investment contracts without discretionary participation features At inception, investment contracts without discretionary participation features are carried at amortized cost.
c. Investment contracts for account of policyholders Investment contracts for account of policyholders are investment contracts for which the actual return on investments allocated to the contract is passed on to the policyholder. Also included are participations held by third parties in consolidated investment funds that meet the definition of a financial liability.
Defined contribution plans The contribution payable to a defined contribution plan for services provided is recognized as an expense in the income statement.
and shall not be reclassified to profit or loss in a subsequent period.
2.24 Tax assets and liabilities a. Current tax receivables and payables Tax receivables and payables for current and prior periods are measured at the amount that is expected to be received from or paid to the taxation authorities and that reflects uncertainty to income taxes, if any. Measurement is done using the tax rates that have been enacted or substantively enacted by the reporting date.
2.27 Investment income For interest-bearing assets, interest is recognized as it accrues and is calculated using the effective interest rate method. Fees and commissions that are an integral part of the effective yield of the financial assets or liabilities are recognized as an adjustment to the effective interest rate of the instrument. Investment income includes the interest income and dividend income on financial assets carried at fair value through profit or loss.
2.28 Fee and commission income Fees and commissions from investment management services and mutual funds are performed on an ongoing basis evenly throughout the year and are accounted for monthly (1/12 of the contractual agreement). Performance fees may be charged to policyholders in the event of outperformance in the investments compared to predefined benchmark levels. They are accounted for only when specified hurdles for generating performance fees are achieved i.e. when the full performance obligation is met.
In addition, the fair value movements of bifurcated embedded derivatives are included in this line.
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).
2.32 Interest charges and related fees Interest charges and related fees includes interest expense on trust pass-through securities and other borrowings. Interest expense on trust pass-through securities and other borrowings carried at amortized cost is recognized in profit or loss using the effective interest method.
3 Critical accounting estimates and judgment in applying accounting policies Application of the accounting policies in the preparation of the financial statements requires management to apply judgment involving assumptions and estimates concerning future results or other developments, including the likelihood, timing or amount of future transactions or events. 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 (please refer to paragraph 2.13), value of business acquired and other purchased intangible assets (please refer to paragraph 2.6), goodwill (please refer to paragraph 2.6), policyholder claims and benefits (please refer to paragraph 2.29), insurance guarantees (please refer to paragraph 2.19), pension plans (please refer to paragraph 2.22), income taxes (please refer to paragraph 2.24) and the potential effects of resolving litigation matters (please refer to paragraph 2.25). Accounting policies that are critical to the financial statement presentation and that require complex estimates or significant judgment are described in the following sections.
Valuation of assets and liabilities arising from life insurance contracts The liability for life insurance contracts with guaranteed or fixed account terms is either based on current assumptions, on the assumptions established at inception of the contract, reflecting the best estimates at the time increased with a margin for adverse deviation or on the valuation assumptions (historical cost), without risk margin. All contracts are subject to liability adequacy testing which reflects management’s current estimates of future cash flows (including investment returns). To the extent that the liability is based on current assumptions, a change in assumptions will have an immediate impact on the income statement. Also, if a change in assumption results in not passing the liability adequacy test, the entire deficiency is recognized in the income statement.
Actuarial and economic assumptions The main assumptions used in measuring DPAC, VOBA and the liabilities for life insurance contracts with fixed or guaranteed terms relate to mortality, morbidity, investment return and future expenses. Depending on local accounting principles, surrender, lapse, and utilization rates may be considered.