Corporate governance 116 �� Differences between Dutch and US company laws 120 �� Code of ethics 121 �� Controls and procedures 122
Purchases of equity securities by the issuer and affiliated purchasers 364
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December 31, 2015. It presents the consolidated financial statements of Aegon (pages 130-292) and the stand-alone financial statements of Aegon N.V. (pages 294-308), both prepared in accordance with the International Financial Reporting
'the Company', and is together with its member companies referred to as 'Aegon Group' or 'the Group'. For such purposes,
Presentation of certain information References to the 'NYSE' are to the New York Stock Exchange and references to the SEC are to the US Securities and Exchange
Commission. Aegon uses 'EUR' and 'euro' when referring to the lawful currency of the member states of the European
Monetary Union; 'USD', and 'US dollar' when referring to the lawful currency of the United States of America; 'GBP',
'UK pound' and 'pound sterling' when referring to the lawful currency of the United Kingdom; 'CAD' and 'Canadian dollar' when referring to the lawful currency of Canada; 'CNY' when referring to the lawful currency of the People's Republic of China; 'CZK'
2015 was a year in which we made significant progress in the execution of our strategy. Our operational and financial successes are ultimately the result of customers placing their trust in Aegon, and I’m proud that we are helping millions of people achieve a lifetime of financial security.
did not meet our expectations. The main cause of this decline in earnings was the adverse effect from model updates and assumption changes. These included the impact of changes in customer behavior, the effect of which was exacerbated by the low interest rate environment. We have taken actions to mitigate this adverse effect and remain committed to generating attractive returns.
Adapting to change The global economic climate continues to present challenges for the insurance sector. Credit conditions worsened in 2015 as world oil prices reached their lowest point in over a decade.
Focusing on value creation We continued to make progress in the optimization of our portfolio, allocating capital to those businesses that create value and growth in order to deliver on our financial targets and strategy. 2015 saw the divestment of a number of non-core activities, including our life insurance business in Canada,
compliance costs are rising, with the right business model these changes represent a clear opportunity. Indeed, Aegon has the added competitive advantage of knowing how to operate in rapidly changing markets due to its global presence.
Preparations for the European Union Solvency II Directive were a considerable undertaking throughout the year. Gaining approval for Aegon’s internal model in the Netherlands and the United
– this year by 9% – in line with our dividend policy of having a sustainable and growing dividend.
In November, Aegon was designated as one of a group of nine
Aegon’s financial activities, we take the impact we have on the communities in which we operate, wider society and the environment very seriously. For this reason, we are pleased to also publish an annual review, which is available on aegon.com.
I am proud to work alongside over 31,500 talented colleagues who are dedicated to making a difference and who share my passion for our purpose – to help people achieve a lifetime of financial security. On behalf of the Management Board I would like to express my sincere thanks for all their hard work and commitment. Furthermore, I would like to thank Aegon’s many shareholders for placing their trust in the company. Without their support and investment, we would not be able to deliver on the promises we make to our 30 million customers around the world.
Chief Executive Officer and Chairman of the Executive Board of Aegon N.V.
Darryl Button (1969, Canadian) Chief Financial Officer Member of the Executive Board Member of the Management Board Darryl Button began his career at Mutual Life Insurance Co. of
Adrian Grace (1963, British) Chief Executive Officer of Aegon UK Member of the Management Board Adrian Grace began his career with Leeds Permanent Building
In 2001, Mr. Grace joined Sage Group PLC as Managing Director of the Small Business Division. In 2004, he moved to Barclays
January 1, 2016 as Group Chief Risk Officer, and member of the Management Board.
Gábor Kepecs (1954, Hungarian) Chief Executive Officer of Aegon Central & Eastern Europe Member of the Management Board Gábor Kepecs began his career with the Hungarian government before joining former state-owned insurance company
Állami Biztosító. He was appointed CEO in 1990, two years before Állami Biztosító was privatized and acquired by Aegon.
Aegon’s strategy Achievements since 2011 In 2011, Aegon embarked on a strategic direction based on the following objectives: to get closer to customers by addressing their financial needs across the various stages of their lives; to leverage technology to improve service and customer experience, while also reducing expenses in order to remain competitive; and to focus on protection and accumulation needs in emerging markets, and on accumulation and post-retirement needs in developed markets.
Since this time, the profile of the Company has been transformed by refocusing the Group on fee business. Key accomplishments include: divesting non-core businesses, such as Transamerica’s
La Mondiale in France, and the Company’s Canadian life insurance business; creating a successful asset management business; significantly reducing expenses, while investing in new digital business models, e.g. Knab in the Netherlands and Aegon’s retirement platform in the UK; and increasing the number of customers that place their trust in Aegon to 30 million.
Key drivers for change Going forward, it is necessary to constantly anticipate changes in
Aegon’s business environment. This environment is being shaped by a number of trends: �� Low interest rates, which may persist for a longer period than anticipated; �� The shift from state and corporate benefits to individuals taking responsibility for their own privately-funded plans; �� Reduced accessibility to traditional financial advice for the middle market and mass-affluent customer segments; �� Increased competition due to the blurring of boundaries between insurers, banks, asset managers, distributors, and other (new) non-traditional entrants into the financial services industry following regulatory and technology developments; �� Shifting consumer demand towards digital first, multi-channel access, and personalized offerings; �� Increasing customer expectations for greater transparency, simplicity, and superior service; and �� A regulatory environment that increases complexity across all lines of business and puts pressure on returns.
The aim of Aegon’s strategy is that the Company be a truly international enterprise with a common culture across its businesses of working together; that Aegon’s respective businesses learn from each other and replicate best practices to benefit customers; that it recognizes and addresses opportunities in rapidly changing markets in a timely and nimble way; and that it attracts, develops, and retains the best people who share its values and are committed to its purpose.
To realize these objectives, Aegon needs to be more focused and more forward-looking, and it needs to accelerate and improve the quality of execution.
Aegon is an international life insurance, pensions and asset management group. Its listed holding company, Aegon N.V., is a public limited liability company with its statutory seat and head office in the Netherlands.
Aegon has the following reportable operating segments: the Americas, which includes the United States, Mexico and
The financial results in this Annual Report are based on Aegon’s consolidated financial statements, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS).
1 Excluded from the income statements prepared in accordance with IFRS are receipts related to investment-type annuity products and investment contracts.
Meeting of Shareholders on May 20, 2016, the Supervisory Board will, absent unforeseen circumstances, propose a final dividend of EUR 0.13 per common share (at each shareholders option in cash or in stock), which will bring the total dividend for 2015 to
EUR 0.25. Proposed final dividend for the year and proposed total dividend 2015 per common share B are EUR 0.00325 and
The average exchange rates for the US dollar per euro for the five years ended December 31, 2015, calculated by using the average of the exchange rates on the last day of each month during the period, are set forth below: Year ended December 31, Average rate 1)
Products offering supplemental health, accidental death and dismemberment insurance, critical illness, cancer treatment, credit/disability, income protection, travel and long-term care insurance.
�� United States - Investments & Retirement Products and services include variable and fixed annuities, retirement plans (including ancillary services), mutual funds and stable value solutions.
�� Non-life General insurance, consisting mainly of automotive, liability, disability, household insurance, and fire protection.
�� Distribution Independent distribution channel, offering both life and non-life insurance solutions.
Immediate annuities, individual protection products, such as term insurance, critical illness, and income protection.
�� Central & Eastern Europe Active in the Czech Republic, Hungary, Poland, Romania, Slovakia,
Turkey, and Ukraine. Includes life insurance, individual and group pension products, savings and investments, in addition to general insurance.
�� Asia Joint ventures in China and India offering (term) life insurance and savings products, and in Japan offering variable annuities.
�� Variable Annuities Europe Variable annuities offered by Aegon companies operating in
In January 2016, Aegon announced that it had changed its reporting structure going forward. The new reporting structure will consist of four business lines: Americas, Europe (consisting of the Netherlands; United Kingdom, including Variable Annuities
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 33 10 -
The table also includes the non-IFRS financial measure: net underlying earnings. This is the after-tax equivalent of underlying earnings before tax. The reconciliation of net underlying earnings to the most comparable IFRS measure is presented in the table above. Aegon believes that its non-IFRS measure provides meaningful information about the underlying operating results of
Aegon’s businesses, including insight into the financial measures that senior management uses in managing the businesses.
Aegon’s results against targets using the non-IFRS measures presented in this report. While many other insurers in Aegon’s peer group present substantially similar non-IFRS measures, the non-IFRS measures presented in this document may nevertheless differ from the non-IFRS measures presented by other insurers. There is no standardized meaning to these measures under IFRS or any other recognized set of accounting standards and readers are cautioned to consider carefully the different ways in which Aegon and its peers present similar information before making a comparison. Aegon believes the non-IFRS measures present within this report, when read together with Aegon’s reported IFRS financial statements, provide meaningful supplemental information for the investing public. This enables them to evaluate Aegon’s businesses after eliminating the impact of current IFRS accounting policies for financial instruments and insurance contracts, which embed a number of accounting policy alternatives that companies may select in presenting their results (as companies may use different local generally accepted accounting principles (GAAPs)), and this may make the comparability difficult between time periods.
Accident and health insurance premiums 2,266 234 47 170 - 2,717 (14) 2,703
Underlying earnings before tax by line of business Amounts in EUR millions 2015 2014 %
Results 2015 worldwide Aegon’s net income in 2015 declined to EUR 619 million. Underlying earnings before tax increased to EUR 1,939 million, driven by favorable currency movements. Results in 2015 were impacted by a loss of EUR 620 million on fair value items, which was driven by accounting losses on hedging programs and the impact of assumption changes. Other charges amounted to EUR 980 million, mainly driven by the loss on the divestment of the Canadian life insurance activities and the impact of model updates. This loss was partly offset by realized gains of EUR 346 million, and net recoveries of EUR 49 million.
Net income Net income declined by 48% to EUR 619 million compared with 2014 as lower losses on fair value items and net recoveries were more than offset by higher other charges and lower realized gains.
Underlying earnings before tax Aegon’s underlying earnings before tax in 2015 increased by 4%
The impact of the stronger US dollar more than offset adverse claims experience and the impact on recurring earnings of the actuarial assumption changes and model updates implemented in the third quarters of 2014 and 2015. �� In the Netherlands, underlying earnings before tax declined by 4% to EUR 537 million in 2015 compared with 2014, as underlying earnings before tax in 2014 included a EUR 45 million employee benefit release resulting from legislation changes in the Netherlands. Excluding this benefit, earnings increased by 5%, primarily driven by lower funding costs and higher investment income.
�� Underlying earnings before tax from New Markets increased by 20% to EUR 236 million compared with 2014, as the positive impact of higher performance fees and thirdparty assets under management at Aegon Asset Management more than offset lower earnings from Central & Eastern
Europe primarily driven by the negative impact of higher surrenders in Poland following product changes.
�� Total holding costs increased by 17% to EUR 161 million in 2015 compared with 2014. This was mainly as a result of higher net interest costs following a debt issuance to refinance a perpetual security for which the cost was previously accounted for directly through shareholders’
EUR 620 million. The loss was mainly driven by adverse results on hedging programs in the United States (EUR 521 million), the positive impact of assumption changes (EUR 101 million), and the underperformance of alternative investments in the United States (EUR 171 million).
Included in the loss on hedging programs in the United States is the loss on fair value hedges without accounting match in the Americas (EUR 402 million). This was mainly driven by the loss on equity and interest rate hedges, which were set up to protect Aegon’s capital position.
Underperformance of fair value investments was primarily driven by investments related to the energy sector and hedge funds in the United States.
Realized gains on investments Realized gains on investments amounted to EUR 346 million, and were primarily related to a rebalancing of the fixed income portfolio in the Netherlands and the United Kingdom to improve
Other charges Other charges amounted to EUR 980 million. These were mostly caused by the loss on the divestment of the Canadian life insurance activities (EUR 751 million) and charges related to model updates (EUR 205 million).
Run-off businesses The results of run-off businesses improved to EUR 52 million, as the 2014 result included a negative impact from model updates of EUR 32 million.
Production Compared with 2014, Aegon’s total sales in 2015 increased by 24% to EUR 10.7 billion. This was a result of higher gross deposits, partly driven by favorable currency movements.
to EUR 18.4 billion compared to 2014, mostly due to higher gross deposits and the de-recognition of movements in stable value solutions balances. New life sales declined by 5%
New premium production for accident & health life and general insurance increased by 3% compared with 2014 to
December 31, 2015, or 8.97 per common share. The gross leverage ratio improved to 27.0% on December 31, 2015, compared with the end of 2014, which was mostly as a result of earnings generated during the year. The negative impact on the gross leverage ratio of the book loss on the sale of the Canadian life insurance activities was offset by the redemption of the USD 500 million senior bond, which matured on December 8, 2015. Excess capital in the holding increased from EUR 1.2 billion at the end of 2014 to
EUR 1.4 billion on December 31, 2015, as dividends from business units and proceeds from divestments were partly offset by the impact of cash used for deleveraging, dividends to shareholders, interest payments and operating expenses.
On March 3, 2015, Aegon completed the sale of its 35% share in La Mondiale Participations to La Mondiale for EUR 350 million.
December 31, 2014, to ~240% at the end of 2015 due to earnings generated during the year. The Pillar 1 ratio in the United Kingdom, including the with-profit fund, increased from 140% at the end of 2014 to ~165% at the end of 2015 due to earnings and changes to longevity assumptions in the fourth quarter.
The placement enabled Aegon to further diversify its funding sources and to attract new external long-term funding. The net proceeds were used to refinance part of the existing
Dividends from and capital contributions to business units Aegon received EUR 1.1 billion of dividends from its business units during 2015, almost all of which from the Americas.
Aegon spent EUR 0.3 billion on capital contributions and acquisitions in New Markets.
Run-off businesses (21) 21 Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 1,458 1,021 43%
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 10 8 33%
Number of employees, including agent employees 12,865 4,426 2,420 8,617 274 28,602
�� Underlying earnings before tax from New Markets declined 14% to EUR 196 million compared with 2013. A 21% increase in underlying earnings before tax, compared with 2013, from
�� Total holding costs increased 22% to EUR 138 million in 2014 compared with 2013. This was mainly as a result of higher net interest costs following a debt issuance to refinance a perpetual security for which the cost was previously accounted for directly through shareholders’ equity.
EUR 807 million. The loss was mainly driven by adverse results on hedging programs in the United States (EUR 301 million), adverse fair value movements on interest rate hedges and longevity hedges in the Netherlands (EUR 180 million), the adverse impact of assumption changes and model updates
(EUR 123 million), and the underperformance of alternative investments in the United States (EUR 90 million).
Underperformance of fair value investments was primarily driven by investments related to the energy sector in the United States, and credit spread tightening in the Netherlands.
Production Compared with 2013, Aegon’s total sales, in 2014, increased 20% to EUR 8.6 billion. This was a result of higher gross deposits, new life sales and production of accident and health and general insurance. In 2014, compared with 2013, gross deposits increased 25% to EUR 55.4 billion, driven by pensions, variable annuities and mutual funds in the United States, production from online bank Knab in the Netherlands, and Aegon
EUR 3.0 billion and a one-time transfer of pension assets to the Polish government due to legislative changes. New life sales increased 7% compared with 2013 to EUR 2.0 billion, mostly driven by higher universal life production in the United States and
Shareholders’ equity per common share, excluding revaluation reserves and defined benefit plan remeasurements, amounted to EUR 8.34 on December 31, 2014.
threshold in the United States remained stable at USD 1.1 billion, as dividends paid to the holding were offset by earnings.
Effective as of March 15, 2014, Aegon redeemed junior perpetual capital securities with a coupon of 6.875% and a principal amount of USD 550 million. Effective as of June 15, 2014, Aegon redeemed perpetual capital securities with a coupon of 7.25%
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (5) (4) (39%) (5) (3) (66%)
Gross deposits (on and off balance) 2015 2014 % 2015 2014 %
Results 2015 Americas The net loss in 2015 was USD 273 million, primarily the result of the book loss on the divestment of Canada of USD 837 million. Underlying earnings before tax decreased to USD 1.3 billion compared with 2014. This was mainly driven by adverse claims experience and the impact on recurring earnings of the actuarial assumption changes and model updates implemented in the third quarters of 2014 and 2015. Gross deposits and new life sales declined to USD 41.1 billion and USD 665 million respectively, due to product adjustments to improve profitability, while new premium production for accident & health insurance was down to USD 1.0 billion.
Net loss The net loss amounted to USD 273 million in 2015, primarily the result of the book loss on the divestment of Aegon’s
Canadian life insurance business of USD 837 million. Results on fair value items amounted to a loss of USD 654 million, which was primarily related to the impact on hedging programs as a result of lower interest rates and higher equity markets.
USD 1.3 billion compared with 2014. This was mainly driven by adverse claims experience and the impact on recurring earnings of the actuarial assumption changes and model updates implemented in the third quarters of 2014 and 2015. �� Underlying earnings before tax from Life & Protection increased by 77% compared with 2014 to USD 353 million.
The earnings impact of the updates in 2015 was primarily caused by long-term care.
�� Investments & Retirement underlying earnings before tax declined by 23% to USD 978 million compared with 2014, which was caused by higher charges for actuarial assumption changes and margin pressure. Retirement plans underlying earnings before tax were down 4% to USD 261 million in 2015 compared with 2014, primarily driven by lower general account pension liabilities and margin pressure arising from the competitive environment on fees. Underlying earnings before tax from variable annuities declined by 25% to
USD 174 million. Underlying earnings before tax from mutual funds increased by 6% to USD 50 million, mainly driven by favorable markets. Fixed annuity underlying earnings before tax were down 62% to USD 66 million compared with 2014, as the product is no longer actively sold. Furthermore, underlying earnings before tax from fixed annuities were adversely impacted by assumption changes amounting to
USD 4.5 billion compared with 2014. Operating expenses decreased by 2% in 2015 to USD 1.8 billion compared with 2014, and this was mainly driven by the divestment of Canada.
New life sales declined by 9% in 2015 to USD 665 million compared with 2014, as growth in indexed universal life was more than offset by the divestment of Canada, the withdrawal of the universal life secondary guarantee product due to the low interest rate environment, and lower term life sales.
New premium production for accident & health insurance was down 16% to USD 1.0 billion, mainly resulting from a lower contribution from portfolio acquisitions and several product exits.
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 4 4 - 3 3 -
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (4) (4) - (3) (3) -
Accident and health insurance premiums 2,49 2,372 5% 1,874 1,787 5%
Results 2014 Americas Net income in 2014 amounted to USD 784 million. Underlying earnings before tax decreased to USD 1,506 million compared with 2013. This was mainly because higher earnings from variable annuities and pensions were more than offset by lower earnings in Life & Protection, mostly due to the impact of assumption changes and model updates, and unfavorable mortality. Higher new life sales increased driven by higher universal life products and gross deposits increased driven by successful expansion of distribution.
Net income Net income increased to USD 784 million in 2014 compared with 2013. Lower underlying earnings before tax, higher other charges, lower income before tax from run-off business and lower realized gains were more than offset by lower losses from fair value items and net reversals of impairments. Results on fair value items amounted to a loss of USD 661 million, which was primarily related to the impact on hedging programs as a result of lower interest rates and higher equity markets. Realized gains on investments amounted to USD 113 million. Net impairments improved compared with 2013 to a benefit of USD 27 million as recoveries, mostly related to investments in subprime residential mortgage-backed securities, more than offset gross impairments.
Other charges were USD 69 million, and were primarily related to a provision for the closed block of European direct marketing activities and a write down of fixed assets in Aegon’s
USD 1,506 million compared with 2013. Higher underlying earnings before tax in variable annuities and pensions as a result of higher balances due to business growth and favorable markets were more than offset by lower underlying earnings before tax from Life & Protection and fixed annuities.
Higher underlying earnings before tax from variable annuities and mutual funds more than offset lower underlying earnings before tax from fixed annuities. Underlying earnings before tax from variable annuities were up 62% to USD 671 million compared to 2013, resulting from the positive impact from actuarial assumption changes and model update of
USD 39 million. �� Underlying earnings before tax from Employer Solutions &
Pensions increased 9% to USD 381 million in 2014 compared to 2013, primarily driven by higher balances as a result of business growth and favorable markets. �� Underlying earnings before tax in Canada amounted to
USD 30 million in 2014, compared to USD 4 million in 2013.
Commissions and expenses Commissions and expenses increased by 1% in 2014 to
Variable annuity gross deposits were up 20% to USD 10.2 billion compared with 2013, mainly due to continued focus on key distribution partners and distribution expansion through alternative channels. In 2014, retirement plan gross deposits were also higher compared with 2013, driven by plan takeovers and the focus on retirement readiness by growing customer participation and contributions.
Rapids, Iowa, and Baltimore, Maryland – with additional offices located throughout the United States.
Like other Aegon companies, Aegon USA uses a variety of distribution channels to help customers access its products and services as best suits their needs. Aegon USA distributes products and services through a number of channels, including agents, banks, investment advisers, registered representatives of broker-dealers, the internet, and direct and worksite marketing.
To further capture growth prospects in Brazil, on November 6, 2014, Mongeral Aegon and Bancoob (Banco Cooperativo do
Aegon USA's primary insurance subsidiaries are: �� Transamerica Life Insurance Company; �� Transamerica Financial Life Insurance Company; �� Transamerica Advisors Life Insurance Company; �� Transamerica Premier Life Insurance Company; and �� Transamerica Casualty Insurance Company.
In 2015, Aegon USA was organized into two divisions each operating through one or more of the Aegon USA life insurance companies: �� Life & Protection (L&P); and �� Investments & Retirement (I&R).
These divisions, described in greater detail below, represent groups of products and services that Aegon USA offers through a number of distribution methods and sales channels.
Overview of sales and distribution channels Aegon USA Aegon USA uses a variety of sales and distribution channels in the United States. These include: �� Affinity groups; �� Banks; �� Benefit consulting firms; �� Direct- to-consumer; �� Independent and career agents; �� Independent marketing organizations; �� Institutional partners; �� Registered representatives of regional and independent broker-dealers; �� Registered investment advisers; �� Third-party administrators; �� Wirehouses; and �� Worksite.
Products Products offered include term life insurance, universal life, variable universal life, indexed universal life and whole life insurance, in addition to supplemental health, long-term care insurance, and specialty coverage.
Net premiums may be allocated to either a fixed account or indexed accounts. Indexed accounts credit interest based in part on the performance of one or more major stock market indices.
Supplemental health insurance products include accidental death, accident, cancer, critical illness, disability, hospital indemnity, Medicare Supplement, Medicare Part D prescription drug, and retiree medical.
This channel offers life insurance (term life, universal life, variable and indexed universal life and whole life), long-term care and supplemental health products and services through approximately 65,000 independent brokerage distributors and financial institutions that target the affluent, emerging affluent and middle markets. These products are designed for family protection, business needs, and estate and legacy planning.
The L&P division is also active in the employee benefits market.
Transamerica Direct targets consumers in the mass affluent, emerging mass affluent and middle markets both directly and via affinity endorsements to provide them with easy access to insurance, investment and retirement solutions.
international equity, alternative investments, hybrid allocation, fixed income and target date funds. Funds are offered through
For new sales, I&R currently offers several different variable annuity products to meet a range of investor needs. I&R also offers guaranteed living benefits, often referred to as riders.
Variable annuities allow the holder to accumulate assets for retirement on a tax-deferred basis and to participate in equity or bond market performance, in addition to receiving one of many payout options designed to help meet the policyholder’s need for income in retirement. Variable annuity payments can vary based on investment performance. Guaranteed living benefits (GLBs) are generally optional guarantees that can be embedded into variable annuity products. GLBs are intended to provide a significant measure of protection against market risk while the annuitant is alive. I&R offers different forms of GLBs, such as guaranteeing an income stream for life and/or guaranteeing principal protection.
I&R provides comprehensive and customized retirement plan services to employers across the entire spectrum of defined benefit, defined contribution and non-qualified deferred compensation plans. I&R also offers services to individuals rolling over funds from other qualified retirement funds or Individual
The Company also offers Managed Advice®, an option that plan sponsors can make available to participants that provides investment and savings advice.
‘wrapper’ around fixed-income invested assets, which are owned by the plan and managed by the plan or a third-party money manager hired by the plan. A synthetic GIC is typically issued with an evergreen maturity and may be terminated under certain conditions. Such a contract helps to reduce fluctuations in the value of the wrapped assets for plan participants, and provides book value benefit-responsiveness.
rollover products. YFL is marketed directly to customers, primarily through digital channels.
Agreements (FAs), and medium-term notes (MTNs). GICs were generally issued to tax qualified plans, while FAs and MTNs were typically issued to non-tax qualified institutional investors.
Structured settlement annuities Structured settlement annuities are a form of immediate annuity purchased as a result of a lawsuit or claim. New sales of structured settlement annuities were discontinued in 2003, although Aegon USA continues to administer the closed block of business.
Bank- and corporate-owned life insurance Aegon USA services life insurance products sold to the bank- and corporate-owned life insurance (BOLI/COLI) market in the United
States. BOLI/COLI helps bank and corporate customers fund long-term employee benefits such as executive compensation and post-retirement medical plans. The bank or corporation insures key employees, and is the owner and beneficiary of the policies. New sales of BOLI/COLI were discontinued in 2010.
Life reinsurance In August 2011, Aegon completed the divestment of its life reinsurance business, Transamerica Reinsurance, to SCOR, a global reinsurance company based in France. Under the agreement, Aegon divested its global life reinsurance activities with the exception of select blocks of business.
Aegon USA's primary competitors in the variable annuity market are AIG, Jackson National, Lincoln National, MetLife, Nationwide, and Prudential Financial.
The top five competitors in the mutual fund market are American
Iowa and are also licensed and regulated in each US state and jurisdiction in which they conduct insurance business. The extent
of such regulation varies, but has a shared purpose in terms of the protection of policy and contract holders. The insurance regulators in each state carry out their mission by providing oversight in the broad areas of market conduct and financial solvency regulation.
In the areas of licensing and market conduct, states grant or revoke licenses to transact insurance business, regulate trade and marketing practices, approve policy forms and certain premium rates, review and approve products and rates prior to sale, address consumer complaints, and perform market conduct examinations on both a regular and targeted basis.
Insurance companies are also subject to extensive reporting, investment limitations, and required approval of significant transactions in each state in which they are licensed.
Emerging state issues that may impact Aegon USA include consideration of changes to accounting and actuarial requirements for variable annuities (VA), which may reduce insurers’ needs and abilities to use variable annuity captives, and initiatives to develop group capital requirements for certain
Federal Regulation of Financial Services and Health Insurance Although the insurance business is primarily regulated at the state level, many federal laws and initiatives impact the insurance sector in such areas as the regulation of financial services, derivatives, retirement plans, securities products, health care, taxes and privacy. Regulation of financial services has increased as result of the Dodd Frank Act, which also created the Federal Insurance Office (FIO) and the Office of Financial
Medicare Supplement products, are subject to both federal and state regulation as health insurance. The Patient Protection and
Affordable Care Act (PPACA), enacted in 2011, significantly changed the regulation of health insurance and the delivery of health care in the United States, including in certain respects, the regulation and delivery of supplemental health insurance products. Following decisions by the US Supreme Court to uphold critical provisions of PPACA, continued federal regulation of certain health insurance products should be expected.
In accordance with Dodd-Frank Act requirements, in January 2011 the SEC studied and recommended a harmonized standard of care for broker-dealers, investment advisors and persons associated with firms that provide personalized investment advice. Broker-dealers are currently subject to requirements to make suitable recommendations, while investment advisers are regulated as fiduciaries, required to put customer interests above their own. The SEC intends to propose regulations imposing a harmonized standard of care, and has announced that the proposed regulations will be published in the fall of 2016.
The financial services industry continues to operate under heightened scrutiny and increased regulation in various jurisdictions. Such scrutiny and regulations have included matters relating to producer and other compensation arrangements, suitability of sales (especially to seniors), misleading sales practices, unclaimed property reporting, revenue sharing, investment management and valuation issues involving mutual funds and life insurance separate accounts and their underlying funds. Aegon USA, like other businesses in the financial services industry, is routinely examined and receives requests for information from the SEC, FINRA, state regulators and others in connection with examinations and investigations of its own companies and third-party or unaffiliated insurers, brokerdealers, investment advisers, investment companies and service providers relating to certain historical and current practices with respect to these and other matters. Some of those inquiries have led to investigations, which remain open, or have resulted in fines, corrective actions or restitution. Aegon USA continues to cooperate with these regulatory agencies. In certain instances,
Revenue Code of 1986, as amended (the 'Code') for which the Department of Labor (DOL) and the US Treasury Department
Tax Treatment of Insurance Companies and their Products and Plans Although the insurance business is regulated at a state level, the US federal tax treatment of life insurers, life insurance, pension and annuity products is governed by the US federal tax code. Provisions that increase the taxation of life insurers, as well as remove or decrease the value of tax incentives for life insurance, pensions and annuity products – considered alone and relative to other investment vehicles – have been proposed in the Executive Administration's Fiscal Year 2016 budget for the US federal government and set forth in discussion drafts and whitepapers on comprehensive federal tax reform legislation.
Asset diversification and quality considerations are also taken into account, along with considerations of the policyholders'
ALM, and Aegon USA's investment personnel are highly skilled and experienced in these investments.
Reinsurance ceded Ceding reinsurance does not remove Aegon’s liability as the primary insurer. Aegon could incur losses should reinsurance companies not be able to meet their obligations.
Aegon USA reinsures part of its life insurance exposure with third-party reinsurers under both quota-share and excess-of-loss
(traditional indemnity) reinsurance treaties. Aegon USA's reinsurance strategy is consistent with typical industry practice.
Aegon USA insurance companies also enter into contracts with company-affiliated reinsurers, both in the United States and overseas. These contracts have been eliminated from the Company's consolidated financial statements.
Net income in 2015 increased to EUR 661 million compared with EUR 491 million in 2014, mainly driven by the positive impact of rising credit spreads on fair value items. Underlying earnings before tax declined, as 2014 included an employee pension-related reserve release of EUR 45 million. On a comparable basis, underlying earnings before tax increased by 5%, as lower funding costs, higher earnings from mortgages and a mortality provision release more than offset lower non-life results. Lower new life sales were driven by the absence of large pension buyouts given the low interest rate environment. Gross deposits almost doubled resulting from growth of Knab, Aegon’s online bank and premium pension institutions (PPI), Aegon’s defined contribution pension business.
Underlying earnings before tax Underlying earnings before tax in 2015 decreased by 4% to
EUR 21 million in 2015. This was driven by a continuation of the high level of claims in the proxy channel and commercial lines, which Aegon agreed in January 2016 to sell to Allianz. �� Underlying earnings before tax from the Distribution business increased to EUR 22 million in 2015, compared with
EUR 15 million in 2014. The increase was mainly driven by cost savings.
EUR 831 million in 2015 compared with 2014 due to a charge related to the non-life business, the release of the employee benefit reserve booked in 2014, and the higher employee benefit expenses, which resulted from the low interest rate environment.
EUR 5.9 billion, of which EUR 3.7 billion was related to third-party investor demand (2014: EUR 2.1 billion).
Premium production for accident & health was stable in 2015 compared to 2014 at EUR 9 million. General insurance production increased to EUR 29 million.
Results 2014 the Netherlands 2014 net income increased to EUR 491 million compared with 2013 due mostly to higher underlying earnings before tax and higher realized gains. Growth in underlying earnings was mostly driven by higher investment income and an employee pension-related reserve release. Higher new life sales were driven by increased pension production and higher gross deposits were driven by growth of online bank Knab.
EUR 558 million compared with 2013. Higher underlying earnings before tax in Life & Savings and Non-life more than offset lower underlying earnings before tax from Pensions.
�� Underlying earnings before tax from the Distribution business amounted to EUR 15 million in 2014. The decrease compared with 2013 was mainly driven by lower margins, as a result of the competitive market environment.
Production New life sales increased 22% in 2014 compared with 2013 to
EUR 9 million in 2014 down from EUR 24 million in 2013.
Gross deposits more than doubled in 2014 to EUR 2.8 billion compared with 2013 driven by the growth of Knab, Aegon’s online bank in the Netherlands.
Aegon the Netherlands' primary subsidiaries are: �� Aegon Bank N.V.; �� Aegon Levensverzekering N.V.; �� Aegon Schadeverzekering N.V.; �� Aegon Spaarkas N.V.; �� Optas Pensioenen N.V.; �� Aegon Hypotheken B.V.; �� TKP Pensioen B.V.; �� Unirobe Meeùs Groep B.V.; �� Aegon PPI B.V.; and �� Stichting CAPPITAL Premiepensioeninstelling.
Aegon the Netherlands has four lines of business: �� Life & Savings; �� Pensions; �� Non-life; and �� Distribution.
The Pensions business line includes sales and account management, which serves large corporations and financial institutions, such as company and industry pension funds.
Aegon’s purpose by offering its customers an insight and overview of their finances through its unique financial planning tools. It alerts them to opportunities relevant to their personal situation. Furthermore, Knab offers a wide range of banking products, with a focus on wealth accumulation and payment services.
In early 2015, Aegon launched its own advice channel, in response to growing customer demand for direct services.
Various profit-sharing arrangements exist. Bonuses are either paid in cash (usually for a pension, as described later) or used to increase the sum insured. A common form of profit sharing is to set bonus levels by reference to external indexes based on pre-defined portfolios of Dutch government bonds. The bonds included in the portfolios have differing remaining maturities and interest rates. Together they are considered an approximation of the long-term rate of return on high-quality Dutch financial investments.
Term life insurance pays out death benefits should the insured die during the term of the contract. Whole life insurance pays out death benefits in the event of death, regardless of when this occurs. Premiums and amounts insured are established at inception of the contract and are guaranteed. The amount insured may be adjusted at the request of the policyholder. Term life insurance policies do not include profit-sharing arrangements.
Part of the whole life insurance portfolio has profit-sharing features, which are based on external indexes or the return of related assets.
Annuity insurance includes products in the accumulation phase and products in the deaccumulation phase. Payout commences at a date determined in the policy, and usually continues until the death of the insured or the beneficiary. Premiums are paid at inception of the policy or during the accumulation phase of the policy. The contracts contain minimum guarantees of 3% or 4%, and prior to 1999, of 4%. Interest rebates are given on both single and regular premium annuity insurance, and may be based on a portfolio of Dutch government bonds – although other calculation benchmarks may also be applied. There are also profit-sharing schemes set by reference to external indexes based on pre-defined portfolios of Dutch government bonds.
Investment contracts are investment products that offer index-linked returns and generate fee income from the performance of the investments.
Sales and distribution Aegon the Netherland's Life & Savings products are sold through
have an individually-determined asset investment underlying the pension contract. For older generation products, a guarantee consists of profit sharing, and is the highest of either the market interest rate or the contractual interest rate of 3% or 4%.
At present, the contracts offered to clients hold a maximum guarantee of 3%, and Aegon is also planning to introduce a 0%
Large group contracts also receive part of the technical results for mortality risk and disability risk. The contract period for these types of contracts is typically five years and the tariffs, cost loadings and risk premiums are generally fixed over this period.
Defined benefit group contracts provide a guarantee on the benefits paid. The longevity risk therefore lies with
Sales and distribution Most of Aegon the Netherlands' pensions are sold through sales and account management and Aegon’s intermediary channel.
Customers include individuals, company and industry pension funds, and small, medium and large corporations. Aegon the Netherlands is the country's leading pension provider1.
Competition Aegon the Netherlands faces strong competition in all of its markets from insurers, banks, investment management companies and pension funds. Its main competitors are NN
Aegon the Netherlands has been a key company in the total life market for many years, and was ranked number one in 20141 based on gross premium income. The life insurance market in the Netherlands comprises pensions and life insurance. The top six companies in the Netherlands by gross premium income accounted for approximately 90% of total premium income in 2014 in the insurance market. Aegon the Netherlands is one of the main companies in the pension market for insurance companies and pension funds. Aegon the Netherlands is ranked fifth in the individual life insurance market2. Aegon the Netherlands is one of a number of many insurers in the non-life market.
ING and ABN AMRO are the largest mortgage loan providers in this market. Competition from foreign competitors and capital from pension funds is increasing.
Aegon the Netherlands holds approximately 1.9% of Dutch household savings5, and is therefore small in comparison to banks such as Rabobank, ING, ABN AMRO and SNS Bank.
In the pensions market, pension funds face pressure on their coverage ratios, in addition to increased regulatory and governance requirements. In response, these funds are seeking to reduce risk exposure by insuring the whole or part of their business. This is an opportunity for pension insurers, and Aegon is one of the leading providers of these solutions.
Aegon the Netherlands has identified this market as an opportunity for growth and plans to invest in building a leadership position.
Regulation and supervision General Regulation of the financial sector in the Netherlands is included in the Financial Supervision Act (Wet op het financieel toezicht or
The aim of the Wft is to embed the cross-sectoral functional approach within the Dutch supervisory system. This approach replaced the prior sectoral approach to financial supervision, which was embedded in the previous legislation. The supervision of financial institutions pursuant to the Wft rests with the Dutch Central Bank (DNB) and the Authority for the
supervises the conduct of business of financial institutions, and the conduct of business on financial markets. The aim of DNB’s prudential supervision is to ensure the solidity of financial institutions and contribute to the stability of the financial sector.
The AFM’s conduct of business supervision focuses on ensuring orderly and transparent financial market processes, integrity in relations between market parties and due care in the provision of services to clients. With regard to insurance companies and banks,
to exercise their supervisory tasks. These tools include the authority to request information, if this is necessary for the purpose of prudential supervision; and the power to issue formal instructions to financial institutions, to impose fines, or to publish sanctions. DNB, as prudential supervisory authority, can, under certain circumstances, require a recovery plan, a short-term financing plan, appoint a trustee, draw up a transfer plan or
Financial supervision of insurance companies Insurance supervision in EU member states is based on EU
legislation, which, up until December 31, 2015, was set out in the Solvency I framework. Effective as of January 1, 2016, EU
The Solvency II framework also consists of an EU Directive and has consequently been transposed into the Dutch Financial
(the so-called ‘European passport’). Aegon the Netherlands does not have material cross-border insurance business or business conducted through branch offices elsewhere in the EU.
Preparing for Solvency II Solvency II came into effect on January 1, 2016. In anticipation of
Financial Undertakings. This amendment to the Bpr Wft meant that insurance companies were required to submit an annual report for 2014 and two quarterly reports (for the second and third quarters of 2015) on the basis of the EIOPA guidelines in preparation for Solvency II. These mandatory preparatory
Solvency II reports and ERB were used as proxies for the ability of insurance companies (going forward) to comply with the applicable solvency requirements. Capital requirements until the date from which Solvency II came into force were based on
If an insurance company in the Netherlands is not compliant with the Solvency II requirements or does not expect to remain compliant with the applicable Solvency II requirements within one year, the approval of the DNB is required for it to be able to pay a dividend or to redeem capital. For this reason, the preparatory
Solvency II reports also served as indications for the ability to pay a dividend or to redeem capital.
Solvency II Aegon the Netherlands uses a Partial Internal Model to calculate the solvency position of its insurance activities under Solvency II.
The internal model was approved on November 26, 2015, by the regulator DNB as part of the Internal Model Application Process.
The solvency position of the banking activities will continue to be calculated using the CRR/CRD IV framework. The combined
These include (among others) capital and liquidity requirements, the requirement to maintain a certain leverage ratio, governance and reporting requirements in line with the requirements of EU
CRD IV and the CRR are the European Union's translation of the Basel III accord for prudential supervision of credit institutions and investment firms. The CRR is binding for all EU
member states and became effective on January 1, 2014. CRD IV
The CRR has applied across all EU member states since January 1, 2014. The CRD IV and CRR frameworks include requirements with respect to capital adequacy, and introduce requirements with respect to the counterparty risk relating to derivative transactions, a new liquidity framework (liquidity coverage ratio and net stable funding ratio) in addition to a leverage ratio and two new, supplementary capital buffers, a capital preservation buffer and a countercyclical buffer. The capital requirements include qualitative in addition to quantitative requirements.
Capital of the highest quality, Core Equity Tier 1 or CET1 capital, forms a substantial part of the capital of a credit institution.
November 16, 2015, by means of an amendment of the Wft.
July 15, 2015. This hedge is based on a longevity experience index and provides out-of-the money protection. The tenor is 50 years, while Aegon the Netherlands has a one-sided option to exit after five years and after ten years.
Reinsurance ceded Like other Aegon companies around the world, Aegon the Netherlands reinsures part of its insurance exposure with third-party reinsurers under traditional indemnity, and 'excess of loss' contracts. Reinsurance helps Aegon manage, mitigate and diversify its insurance risks, and limit the maximum loss it may incur.
Since January 1, 2014, Aegon the Netherlands reinsures its term life assurance through a quota-sharing contract between its subsidiary Aegon Levensverzekering N.V. and a reinsurer.
For general third-party liability, Aegon the Netherlands has reinsurance in place with a retention level of EUR 1 million for each event.
Income tax attributable to policyholder return (12) (34) 63% (17) (42) 59%
Income before tax on shareholders return 147 139 6% 203 172 18%
Net income Net income from Aegon’s businesses in the United Kingdom increased by more than 10% to GBP 158 million in 2015 compared with 2014, primarily due to lower business transformation costs and the non-recurrence of a provision for the implementation of the pension fee cap. Realized gains on investments totaled GBP 69 million, and were mainly the result of selective de-risking of the asset portfolio to improve Aegon’s capital position in preparation for Solvency II. Results on fair value items amounted to a loss of GBP 19 million as a result of unrealized losses on equity hedges to protect the capital position.
Other income of GBP 19 million was mostly due to charges for policyholders in respect of tax, with an equal offset in taxes attributable to policyholder return.
Commissions and expenses Commissions and expenses decreased by 18% in 2015 to
GBP 508 million compared with 2014. Operating expenses decreased by 27% in 2015 to GBP 259 million compared with 2014, mainly due to lower business transformation costs and the non-recurrence of a provision for the implementation of the pension fee cap.
Production New life sales decreased by 16% in 2015 to GBP 661 million compared with 2014. This was mostly the result of lower group pensions sales driven by lower demand for traditional pension products.
Gross deposits of GBP 223 million in 2015 were mainly driven by the addition of new customers as the platform gained additional traction in the market.
Income before tax on shareholders return 139 9 - 172 11 -
Net income Net income from Aegon’s businesses in the United Kingdom more than doubled to GBP 143 million in 2014 compared with 2013, which was driven by higher underlying earnings before tax, realized gains and lower impairments. Realized gains on investments totaled GBP 132 million, and were mainly the result of selective de-risking of the asset portfolio in preparation for Solvency II.
GBP 40 million were mostly due to business transformation costs, and provision and expenses of GBP 26 million for the implementation of the upcoming pension fee cap.
Solvency II. �� Underlying earnings before tax from Pensions increased to
GBP 620 million compared with 2013. Operating expenses increased by 8% in 2014 to GBP 354 million compared with 2013, mainly the result of provision and expenses of
GBP 26 million for the upcoming fee cap on pension business.
Production New life sales decreased 9% in 2014 to GBP 783 million compared with 2013, which was mostly the result of lower group pensions sales following the implementation of the RDR in 2013.
Platform assets reached GBP 2.7 billion by the end of 2014, more than doubling compared with the end of 2013.
Gross deposits of GBP 227 million in 2014 were mainly driven by the addition of new customers as the platform gained additional traction in the market.
Overview of United Kingdom In the United Kingdom, Aegon is a major provider of corporate and individual pensions, protection products, annuities, and savings products. Aegon UK has over two million customers, approximately 2,300 employees, and GBP 59 billion in revenue-generating investments. Aegon UK's main offices are in Edinburgh and London.
Aegon UK is now predominantly a retirement savings and protection business, supporting customers who are retired or saving for their retirement. Products are increasingly sold through its web portals, which enable advisors, employers and individuals to buy and manage investments online, and to have a single view of investments.
Retail channel – Aegon Retirement Choices (ARC) Aegon UK offers a comprehensive digital proposition to independent financial advisors and strategic partnerships.
– which provides a range of pre-and post-retirement investment options for high-net-worth customers (including insured funds and a wide range of open-ended investment companies) –
Aegon’s Smart Governance; and �� Employee access to Retiready, which enables employers to cater for all levels of employee investment knowledge and confidence, in addition to moving with their employees throughout their working life.
Since its launch, Aegon UK has been focusing on existing Aegon customers that no longer have an advisor, and either upgrading them to Retiready or offering a ‘Digital Look Through’ service for their existing Aegon policy on Retiready. Retireready customers have access to a number of tools to help them better engage with and manage their retirement savings. In 2015, over 140,000 customers with assets of around GBP 2 billion were upgraded to the new proposition.
‘Pensions’ comprises a broad range of workplace and personal pensions in addition to investment products.
Customer channels. The majority of new assets going forward will be accumulated in this business. In addition, where appropriate,
Business to Digital propositions to ensure an enhanced customer experience, a more engaged relationship and lower cost to serve.
However, new assets are accumulated as customers pay into existing policies, or as new employees join older workplace schemes. These propositions include older style group and individual pensions, with-profits policies and annuities.
Retirement solutions Aegon UK provides a full range of personal and corporate pensions and pension-related products. These include: �� Individual Saving Accounts; �� Flexible personal pensions; �� Self-invested personal pensions; �� Platform-based corporate pension schemes; �� Transfers from other retirement plans; �� Phased retirement options and income drawdown; �� Secure retirement income (SRI), a new retirement solution that bridges the gap between annuities and income drawdown products. It offers customers a guaranteed income for life, in addition to continued control over their investments. This product is currently unique in offering a guaranteed pension product integrated into a digital proposition. The underlying guarantee is reinsured by Aegon Ireland PLC; and �� A range of unit-linked guarantee investment products that provide valuable guarantees for the at-retirement market.
These include an offshore investment plan, which provides a guaranteed income for life, and an offshore bond, which provides capital guarantees (offered by Aegon Ireland PLC).
In addition, Aegon UK offers a range of protection products for small and medium-sized companies that wish to insure key personnel. This is a key market for Aegon, and the Company currently protects 400,000 customers.
In recent years, the life and pension market has been increasingly concentrated among the largest companies and those perceived to be financially strong. Aegon UK's competitors include insurance companies such as Legal and General, Standard Life,
One of the key drivers for competition is the considerable regulatory and legislative change that is continuing to create new
Auto-enrolment (which requires all employers to offer pensions to their employees) are still working through the market.
Retirement Income product is unique in the UK in providing a guaranteed retirement income product on a platform.
Financial supervision of insurance companies Solvency I The European Union Insurance Directives referred to collectively as Solvency I are incorporated into UK law. The directives are based on the 'home country control' principle, i.e an insurance company with a license issued by the regulatory authorities in its home country is allowed to conduct business in any country of the European Union, either directly or through a branch. Separate licenses are required for each branch of the insurance company where it conducts business. The regulatory body that issued the license (the PRA in the UK) is responsible for monitoring the solvency of the insurer.
Under UK law, a company (other than existing conglomerates) is not permitted to conduct both life insurance and non-life insurance business within one legal entity, nor is a company allowed to carry out both insurance and banking business within the same legal entity.
income statement, extensive actuarial information, and detailed information regarding the investments of the insurance company. The PRA's regulatory reporting is based on a single entity focus, and is designed to highlight risk assessment and risk management.
Under Solvency I, life insurance companies are required to maintain certain levels of shareholders' equity in accordance with
EU directives. Until January 1, 2016, this level was approximately 4% of general account technical provision.
The PRA also requires that all life insurance firms conduct an annual Individual Capital Assessment (ICA) of the capital required to withstand a 1 in 200 shock on a 1-year value at risk basis.
Solvency II Since the introduction of Solvency II on January 1, 2016,
For non-profit business, considerable interest rate risk arises from Aegon UK's large book of annuities in payment. Assets are purchased to provide a close expected match to liability outflows, with regular reporting to the MIC on the capital implications of any mismatching.
For unit-linked business, the matching philosophy is to closely match the unit liabilities with units in the relevant underlying funds. A proportion of the unit-linked assets are invested in funds managed by external investment managers. The MIC
Life' (which are written by Aegon Ireland PLC) and the product guarantees within Secure Retirement Income, Investment Control and Income for Life (which are reinsured to Aegon Ireland PLC), all Aegon UK contracts with investment guarantees are written in policyholder-owned funds (otherwise called 'with-profit funds').
Scottish Equitable only sells guaranteed annuity products in the UK to existing customers. Certain policies also have a guaranteed minimum rate of return, guaranteed minimum pension, or guaranteed death or other benefits. Guaranteed rates of return only apply if the policy is kept in force as per the dates specified, or according to the events described in the policy conditions. The costs of all guarantees are borne by the with-profit funds, and therefore impact payouts to with-profit policyholders.
Guaranteed rates of return on with-profit policies are typically in the range of 0% to 5.5% a year. The funds with the highest rates have, however, been closed to premiums since 1999, and all funds have been closed to new business with investment guarantees since October 2002 (except for a small increase in regular payments). For a number of contracts written mainly in the 1970s and 1980s, Scottish Equitable also offered minimum pension guarantees, including guaranteed annuity options. As life expectancy rates have improved and interest rates have fallen over time, these minimum guarantees are now often valuable.
The results of the with-profit fund's investment performance are distributed to policyholders through a system of bonuses that depends on: �� The guarantees under the policy, including previous annual bonus additions; and �� The investment returns on the underlying assets, with an allowance for 'smoothing' to reduce volatility. Although smoothing means that investment profits are spread from one year to the next, the aim is to pay out all of the investment profits earned by the fund over the long term. For early withdrawals, there are other measures to ensure that a fair share of total fund growth is received. A market value reduction may be applied to certain funds where, for cohorts of similar contracts, the face value of the benefits is greater than the value of the underlying assets. Policy conditions may state specific points for which a market value reduction will not apply.
Aegon UK as remote, based on applying the risk-based capital approach now required for Solvency II reporting in the UK.
As the Scottish Equitable with-profit fund is now closed to new business with investment guarantees, the free assets are gradually being distributed to with-profit policyholders through the bonus system outlined above. This includes ensuring that any surpluses in the with-profit fund from other (historic) business lines can be distributed to existing with-profit policyholders at a suitable rate, helping to prevent a tontine effect as the number of with-profit policyholders declines.
Longevity reinsurance is in place for a number of in-force tranches of annuity business. Financial reinsurance has been used historically across the unitized business with the final repayments made in 2014.
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 28 8 -
EUR 47 million and mainly related to model updates in Asia.
in 2015 compared with 2014 to EUR 236 million, as higher earnings in Aegon Asset Management and Asia were only partly offset by the divestment of Aegon’s stake in La Mondiale
Commissions and expenses Commissions and expenses increased by 21% in 2015 compared with 2014 to EUR 1.2 billion. Operating expenses increased by 21% in 2015 compared with 2014 to EUR 827 million.
EUR 35 billion. Aegon Asset Management’s deposits grew to a record-high of EUR 34 billion. This increase was due to higher deposits in the Dutch Mortgage Fund, higher absolute return fund sales in the United Kingdom, increased flows in Chinese money market, equity and bond funds and the inclusion of Aegon’s share in La Banque Postale Asset Management sales. Variable annuity deposits in Europe and Asia totaled EUR 375 million and
In addition, sales in China increased as a result of the success of the whole life critical illness product.
Underlying earnings before tax by business / country Central & Eastern Europe 60 57 5%
Other income / (charges) (24) (33) 27% Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 139 158 (12%)
Net income Net income in 2014 declined by 30% to EUR 89 million compared with 2013. The increase in realized gains was more than offset by higher impairments both compared with 2013.
EUR 57 million in 2013. This increase was primarily driven by higher underlying earnings before tax in Hungary, which more than offset the negative impact of higher surrenders in Poland following product changes �� Underlying earnings before tax from Asia decreased significantly to EUR (17) million, compared with
EUR 34 million in 2013. This decrease in underlying earnings before tax was primarily the result of a charge from model updates in 2014 of EUR 26 million, primarily related to changes to modeled premium persistency, in the high net worth business. In addition, 2013 included a gain of
EUR 22 million related to actuarial assumption changes and model refinements.
Management increased 21% in 2014 to EUR 115 million compared with 2013. This increase was driven by higher performance and management fees. Higher management fees resulted from growth of third-party asset balances.
Production New life sales in 2014 increased 19% to EUR 271 million compared with 2013.
�� In Asia, new life sales increased 70% in 2014 to
Hong Kong and Singapore. �� New life sales in Spain declined 9% in 2014 to EUR 49 million compared with 2013, as the sales contribution from the joint venture with Santander was offset by the loss of sales driven by the divestment of partnerships.
Gross deposits in New Markets increased 44% in 2014 compared with 2013 and amounted to EUR 21 billion. Gross deposits in
Powszechne Towarzystwo Emerytalne Spółka Akcyjna); �� Aegon Turkey (Aegon Emeklilik ve Hayat A.Ş.); �� Aegon Romania Pension Administrator Co.( Aegon Pensii
Societate de Administrare a Fondurilor de Pensii Private S.A); �� Aegon Czech Life (Aegon Pojišťovna, a.s); �� Aegon Slovakia Life (Aegon Životná poisťovňa, a.s.); �� Aegon Slovakia Pension Management Co. (Aegon, d.s.s., a.s); and �� Aegon Life Ukraine (ПРАТ ‘СК ЕЙГОН ЛАЙФ УКРАЇНА’).
Overview of sales and distribution channels Aegon operates through a number of different sales channels in
In Hungary, Aegon offers a wide range of life insurance products, including term life products, whole life products, group life insurance, and accidental life and traditional saving type products, in addition to unit-linked policies, which are frequently accompanied with riders. These riders provide customers – in addition to the main coverage – with additional financial support in the event of, for instance, having an accident, disabled disability, or being hospitalized, over and above that of the main coverage. Furthermore, Aegon is also a significant market player2 in Hungary in the unit-linked segment.
In both the Czech Republic and Slovakia, Aegon focuses on the unit-linked segment, in addition to offering term life products and offering a wide range of riders that cover, among others, accidental death, disability, critical illness risks, and providing a daily hospitalization allowance to insured clients.
In Turkey, Aegon provides only traditional life insurance products, the most important of which are pure term life with several riders, term life with premium refund on maturity, and savingtype endowment products. Aegon’s insurance portfolio is growing significantly in Turkey due to the country's high growth rate.
S.A.'s life portfolio in Romania, which consists of mainly traditional life and unit-linked policies.
In 2013, Aegon Hungary Composite Insurance Company incorporated a new subsidiary, Aegon Hungary Home Savings and
In addition, following a decision made by the Curia (the Hungarian
Pensions Aegon’s pension business in Central & Eastern Europe experienced considerable growth before the financial crisis of 2008, mainly due to the region's strong economic growth, and the reform of pension systems in many of the countries in the region. In recent years, pension systems in several countries in the region have been revised, and this has had a significant impact on Aegon’s business activities.
Aegon is currently active in the (formerly mandatory) private pension market in Slovakia, Poland and Romania. In the voluntary pension market, Aegon is active in Hungary, Turkey and Romania.
In Romania, Aegon Romania Pension Administrator Company took over the management of Eureko private pension fund on
Esential, in Romania, on May 11, 2015. On December 4, 2015,
Aegon Romania Pension Administrator Company took over the management of Eureko’s voluntary pension fund, which subsequently merged with Aegon Esential.
As of December 2015, Aegon had over 2.1 million pension fund members in Central & Eastern Europe.
As part of Aegon’s regional expansion, Aegon Hungary opened branch offices selling household insurance policies in Slovakia in 2010 and Poland in 2011.
Hungary, based on the first nine months' standardized premium income, and the third largest provider in the non-life insurance market3. Aegon is also a significant market participant in Poland.
Regulation and supervision In Central & Eastern Europe, a single insurance company may only be licensed for and conduct either a life insurance business or a non-life insurance business - not both. In Hungary, however, insurance companies established before 1995 are exempt from this rule. This exemption therefore applies to Aegon Hungary.
In addition to legal regulation, insurance companies are members of a number of self-regulatory groups in their respective countries. These self-regulatory groups are the main forums for discussion among insurance companies. Their specialized departments (for example, actuarial, financial, and legal)
Economic Area (EEA) countries that form part of the CEE region enacted the new insurance laws during 2015, incorporating the requirements of the new solvency regime. As of January 1, 2016, when the Solvency II requirements became effective,
Aegon’s EU-domiciled entities in Central & Eastern Europe have been using the Standard Formula to calculate the solvency position of their insurance activities. The activities in Ukraine and
Turkey have been included through Deduction & Aggregation on a Solvency II Standard Formula basis. The combined Solvency II
(43/2004). The private pension business is under the supervision of the National Bank of Slovakia (NBS). In Romania, the private and voluntary pension system is regulated and supervised by the Authority for Financial Supervision (ASF). The mandatory pension system is subject to the Privately Administered Pension
Act. In Turkey, the voluntary pension funds are under the supervision of the Undersecretariat of Treasury and the companies are subject to Individual Retirement Saving and Investment System Law No. 4632.
Reinsurance Use Committee, and assessed on a quarterly basis by the Risk & Capital Committee. From 2013, Aegon Hungary began a long-term arrangement with Aegon’s internal reinsurer, Blue
Square Re takes the risk and, in the second phase, Blue Square
(EUR 0.8 million retention); �� Property per risk excess of loss treaty
The majority of treaties in force for Aegon’s operations in Central
– except for the life reinsurance treaties, which are made on a surplus and quota-share basis (including various riders).
Aegon’s partner in Aegon’s Chinese joint venture. The name of the joint venture was changed from Aegon CNOOC Life Insurance
June 18, 2015. Aegon THTF is licensed to sell both life insurance and accident and health products in China. Aegon THTF has expanded its network of offices and business in China since 2003. Having obtained 12 provincial licenses, its geographic presence provides access to a potential market of over 640 million people, primarily in the coastal provinces of eastern China.
India, which commenced operations in 2008. In December 2015, following regulatory approvals, Aegon and BCCL increased their ownership percentages in the joint venture to 49% and 48.4%
Wholly-owned subsidiaries In 2011, a new organizational structure was adopted for Aegon’s operations in Asia, whereby all of Aegon’s Asia-based insurance businesses are managed as one regional division headquartered in Hong Kong.
Aegon Direct and Affinity Marketing Services (ADAMS) is a direct marketing services group with four active operations and four run off operations in eight countries in the Asia-Pacific region.
The first ADAMS company was established in Australia in 1998, and ADAMS subsequently launched operations in Korea, Japan,
Australia ceased writing new business, while continuing to support its existing business.
Aegon Sony Life in Japan has two primary distribution channels: the Sony Life Planner channel (operated by Sony Life), and the bank distribution channel.
TLB distributes its products through relationships with private banks, local and international brokers, and intermediaries.
In China, Aegon THTF's agency and broker channels primarily sell whole- or life-critical illness products. Regular premium participating endowment and single-pay universal life are both key products for the bancassurance channel. Telemarketers largely sell return of premium products. The e-sales channel is currently focused on offering protection products.
Individual savings and retirement Aegon Sony Life sells variable annuities. These products provide either a guaranteed lifetime withdrawal benefit (GLWB) or a guaranteed minimum accumulation benefit (GMAB).
ADAMS develops, funds and executes direct marketing activities in exchange for reinsurance participation. ADAMS typically establishes brokerage or agency companies in order to be part of the selling process and to comply with existing regulations.
Competition China: Aegon THTF As of November 31, 2015, there were 75 life insurance companies in the market, including 47 domestic life companies and 28 foreign life insurers. Based on total premium income,
Japan: Aegon Sony Life There are eight active companies in Japan's variable annuities market. In 2015, Aegon Sony Life ranked second in the market behind Dai-ichi Frontier.
Hong Kong and Singapore: TLB TLB's main competitors in Hong Kong and Singapore are local and global providers in the high-net-worth market, such as HSBC Life,
Asia: ADAMS The use of direct marketing in the insurance industry is growing due to economic pressure on traditional distribution channels and changes in customer behavior. For this reason, multinational insurers across the region are increasing their marketing capabilities.
the release of 17 regulations on C-ROSS by the CIRC in
India’s insurance laws were amended by the Indian Parliament in March 2015 to allow foreign investors to hold up to 49%
Aegon increased its equity interest in Aegon Life to 49% in
Hong Kong and Singapore. The insurance industry in Hong Kong is regulated by the Office of the Commissioner of Insurance.
Authority of Singapore (MAS). The MAS is an integrated regulator that oversees all banks, insurers, capital market intermediaries, and financial advisors in Singapore.
Asia: ADAMS There is an evolving regulatory environment for the use of personal data for marketing purposes, particularly in the market for direct distribution. ADAMS keeps abreast of all changes or proposed changes to regulations governing personal data in all of its markets. Where appropriate, ADAMS implements industry standard compliance programs, such as Payment Card Industry
January 1, 2016. Aegon’s Asian activities are included in the Aegon Group Solvency II ratio through Deduction &
The combined Solvency II position of the activities of Aegon Asia on December 31, 2015, is estimated to be ~350%.
Asset liability management China: Aegon THTF Aegon THTF has a board-level Investment and Risk Committee
India: Aegon Life Aegon Life has a board-level Investment Committee (IC), a board-level Risk Management Committee (RMC), and a management-level Risk & Capital Committee (RCC). Regular reviews of risk and capital requirements are conducted by the RCC and RMC. Regular reviews are performed to ensure appropriate ALM for the business. An ALM report is tabled at the RCC meeting on a quarterly basis.
Hannover Re and China Re in quota share. The group products are mainly reinsured by Hannover Re. Aegon THTF also has modified co-reinsurance with Hannover Re to improve its solvency ratio, in addition to morbidity and mortality risk transfer. Aegon THTF
India: Aegon Life Reinsurance arrangements are regulated by the IRDAI. Aegon Life primarily reinsures the mortality and morbidity risks of its policies sold with RGA Re. For specific products, reinsurance treaties are entered into with other major reinsurance companies such as
Japan: Aegon Sony Life and SARe Aegon Sony Life reinsures 100% of its guarantees on variable annuities with SARe.
In April 2014, Aegon Sony Life entered into a Surplus Relief reinsurance contract with Reinsurance Group of America Re (RGA
Re) on a local statutory basis only. Surplus Relief provides relief from acquisition cost recovery risk.
Asia: ADAMS ADAMS's traditional business model primarily creates value by offshore reinsurance through an Aegon risk carrier, whereby risk-based premium is acquired for the group. ADAMS positions itself as an independent marketing services provider. This enables it to form partnerships with local insurers, particularly in locations where Aegon does not have a local presence.
Overview of Spain & Portugal Aegon entered the Spanish insurance market in 1980 with the purchase of local insurer Seguros Galicia. In recent years, Aegon’s activities in Spain have developed through distribution partnerships with Spanish banks.
(51%), in partnership with Banco Santander Totta; �� Aegon Santander Portugal Nao Vida Companhia de Seguros
Aegon Spain distributes its products nationwide through partner branches and its own sales network.
In the Portuguese market, approximately 69% of pure life risk premiums and 17% of health and general insurance premiums are written through bancassurance channels, where credit-related policies mostly related to household mortgages play a significant role2.
Aegon Spain and Banco Santander On December 20, 2012, Aegon Spain and Banco Santander formed a partnership to distribute a number of insurance products. This became fully operational on June 4, 2013, following regulatory approval.
Aegon Spain and Liberbank Liberbank, S.A. has a presence nationwide, with special focus on retail markets in a number of Spanish regions (Asturias,
On December 31, 2014, Cantabria Vida y Pensiones (Aegon’s partner until 2014) was taken over by Liberbank Vida y Pensiones.
through a direct channel. Aegon Spain's sales network is focused on individual life, pensions, general, accident and health insurance in both urban and rural areas.
1 Investigación Cooperativa entre Entidades Aseguradoras y Fondos de Pensiones (ICEA), which is responsible for researching, compiling and publishing all statistics in the Spanish insurance industry.
2 Associação Portuguesa de Seguradores (APS), which promotes risk management in Portugal.
Overview of business lines Aegon Spain focuses primarily on retail customers. It offers individual life, pensions, general insurance, accident and health cover through different distribution channels, including its own channels (agents, brokers and direct), together with bancassurance products through its joint venture partnerships with Liberbank, S.A. and Banco Santander, the latter of which in both Spain and Portugal.
Spain's traditional life, unit-linked variable life and pension products, the major competitors are retail bank-owned insurance companies. The life market is dominated by Grupo VidaCaixa, with a 28% market share, and Zurich, with a 12% market share, followed by BBVA Seguros, with a 7% market share. Aegon
Mapfre leads the non-life insurance market with a 15% market share, followed by Grupo Mutua Madrileña with a 13% market share, and Allianz with a 7% market share. The non-life market is more fragmented than the life market. Aegon Spain's multi-risk business line is responsible for non-life and has a market share of less than 1%2.
Pensiones (DGSFP), the regulatory authority for the Spanish insurance industry. Spanish regulations incorporate all requirements from the relevant EU directives.
The regulatory authority for the Portuguese insurance industry is the Autoridade de Supervisão de Seguros e Fundos de Pensões
(ASF). Insurance companies are required to report to the ASF on a monthly basis and more extensively on a quarterly basis.
Solvency II As of January 1, 2016, under the new Solvency II requirements,
Aegon Spain has been using the Standard Formula to calculate the solvency position of its insurance activities. The calculation includes the use of the matching adjustment or volatility adjustment, depending on the underlying portfolio in addition to transitional measures. The combined Solvency II position of the activities of Aegon Spain on December 31, 2015, is estimated to be ~190%.
This means that both its joint ventures and own business are treated as a whole, with the same economic conditions and reinsurers panel, but with individual profit shares without losses carried forward by each entity belonging to Aegon Spain.
La Mondiale Participations offered a range of life insurance, pensions, savings, investment and asset management services to corporate and individual retail customers through three subsidiaries: Arial Assurance, La Mondiale Partenaire and
Organizational structure The legal entity of Variable Annuities Europe is Aegon Ireland
PLC (Aegon Ireland). Its main office is located in Dublin, Ireland, with a branch office in Frankfurt, Germany. It operates two business lines: variable annuities (guarantees) and offshore investment bonds.
Overview of sales and distribution channels In the UK, Aegon Ireland products are sold exclusively through
In the UK, Aegon Ireland variable annuities (often referred to as unit-linked guarantees) are sold exclusively via Aegon UK’s retail advisor channel, and are distributed through the Aegon
Retirement Choices (ARC) and One Retirement propositions, banks, and financial advisors. In July 2015, Aegon UK launched a new guaranteed pension product (Secure Retirement Income), of which the guaranteed lifetime income option is reinsured to
In France, AG2R La Mondiale offers a variable annuity product, of which the guaranteed lifetime income option is reinsured to
Offshore investment bonds Aegon Ireland offshore investment bonds are offered exclusively in the UK, and are distributed through the ARC proposition, other third-party propositions, banks and financial advisors. Offshore investment bonds are traditionally marketed to high-net-worth individuals. Offshore contracts offer considerable tax advantages and a wide choice of investment options.
Overview of business lines Variable annuities (guarantees) Variable annuity products are essentially unit-linked life and pension insurance products with guarantees. They typically offer a range of investment fund options linked to equities and fixed-interest investments. Some options enable the policyholder to select assets in fixed proportions. Increasingly, however, investment fund options aim to control fund volatility around certain target levels. In each case, an appropriate guarantee charge is set according to fund risk or fixed equity content.
The guarantees offered may take several different forms: a minimum level of future lifetime income (immediate or deferred), an income for a defined term, or a minimum return of capital at the end of a defined period. Optional or integrated minimum death benefits are also usually offered. Charges for the guarantees are applied to the policyholder's account value, and vary according to the guarantee and the fund choice.
These products allow a customer to participate in equity and bond market performance with the assurance of a minimum level of future benefit, regardless of the performance of their account.
Policyholder contributions are invested in the chosen underlying fund(s). For the majority of products, the client selects investment options based on their preferred level of risk.
The premiums paid are invested in the underlying funds as selected by customers. Alternatively, customers may request the appointment of a specialist fund manager to select the underlying funds on an advisory or discretionary basis.
The account value of offshore bond products reflects the performance of the funds. The insurance provider earns ongoing administration and expense charges on the policy.
Variable Annuities Europe, it is also an opportunity to grow the market for retirement income products. Due to the new pension reforms, Aegon launched Secure Retirement Income, a variable annuity pension product offering guaranteed lifetime income.
Offshore investment bonds In recent years, the UK offshore investment bond market has been increasingly concentrated among the largest companies and is highly competitive.
Regulation and supervision Aegon Ireland is registered as a life insurance company in Ireland under the European Communities (Life Assurance) Framework
For this reason, Aegon Ireland's entire business, state of solvency, establishment and maintenance of technical reserves, quality of corporate governance, risk management, and internal control systems are all subject to monitoring and supervision by the Central Bank of Ireland. Aegon Ireland is required to submit annual returns to the Central Bank of Ireland, and is subject to annual review meetings and themed visits. The Central Bank of
products. The primary exposure is to changes in equity and interest rates. Variable Annuities Europe employs a dynamic hedge programme to mitigate these financial market risks associated with the guarantees provided. On a daily basis, and if necessary on an intra-day basis, the hedge positions are reviewed and updated. Instruments used for the hedge program include equity futures, total return swaps, variance swaps and interest rate swaps.
Hong Kong. It operates under three main brands: �� Aegon Asset Management specializes in providing clients with a range of high-quality investment solutions across asset classes, including fixed income, equities, real estate, absolute return, liability-driven, and multi-asset and balance sheet solutions. Its focus lies on illiquid investment products. A long and successful history of partnership with Aegon’s insurance businesses has enabled Aegon Asset Management to establish experienced investment teams, a solid asset base and proven long-term records; �� Kames Capital is a UK-based asset management company that provides fixed income, equities, real estate and multiasset solutions to both UK and international clients; and �� TKP Investments is a Netherlands-based fiduciary manager that is recognized for its manager selection and tailored advice on balance sheet solutions for the pension market.
Management. This strategic partnership supports Aegon’s ambition to grow and diversify its customer base through associated distribution arrangements. La Banque Postale
Asset Management offers a comprehensive range of investment strategies to French institutional clients, and to private investors through La Banque Postale group’s retail banking network.
Depending on regulatory requirements and the local business environment, boards of local operating entities may include oversight through independent non-executive directors.
General account business consists of funds held on the balance sheet of Aegon insurance companies to meet policyholder liabilities – typically when the insurer has given the policyholder a guarantee. These assets are managed to match the insurers'
The majority of affiliate sales business consists of funds sold by
In the Netherlands, Aegon Asset Management provides a wide range of investment solutions to retail and institutional clients through its affiliate insurance company. In the third-party institutional market, it competes with both fiduciary and balance sheet managers, together with global asset managers with an asset-only proposition. Competition continues to be strong in the pension fund industry due to both the ongoing consolidation of pension funds and the growing service requirements of pension fund clients.
In the United Kingdom, competition in the third-party wholesale market has been heavily influenced by the effect that new regulatory changes stemming from the Retail Distribution Review
In mainland China, Aegon Industrial Fund Management Company focuses on Chinese equity, fixed income, and money market strategies. It competes against a wide range of locally-based asset managers including China Universal Asset Management and Alibaba’s Yuebao fund.
Regulation and supervision Regulation of asset management companies in general differs to that of insurers. Aegon Asset Management's global holding company, Aegon Asset Management Holding B.V., is regulated by De Nederlandse Bank (The Dutch Central Bank (DNB)) as a financial holding company according to the Dutch Financial
Supervision Act. Local operating entities are regulated by their local regulators, most notably the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten (AFM), conduct of business supervision) and DNB (prudential supervision) for Dutch-based entities, the Financial Conduct
Commission (CFTC) for the US-based entity. From a regulatory perspective, the asset management activities of Aegon Asset
Objectives of risk management Aegon’s risk strategy provides direction for the targeted Aegon risk profile while supporting Aegon’s business strategy.
Aegon for the risk and whether there is sufficient capacity to take the risk. Key inputs for Aegon’s risk preferences include expected returns, alignment between Aegon, counterparty and customer interests, the existing risk exposures and other risk characteristics such as diversification, the severity of the risk in an extreme market event and the speed at which risk can materialize in
Further risk policies may be developed at a local level to cover situations specific to particular regions or business units. Aegon’s risk management governance structure has four basic layers: �� The Supervisory Board and the Supervisory Board Risk
management. The Executive Board adopts the risk strategy, risk governance, risk tolerance and material changes in risk methodology and risk policies. The Group's CRO has a direct reporting line to the Supervisory Board and attends Executive
During 2015, Aegon also commenced a reorganization of its compliance and operational risk functions in order to improve their focus and influence. This reorganization included splitting the function at Group into a first line Regulatory Compliance function and a second line Operational and Conduct Risk
Management (OCRM) function, in addition to strengthening reporting lines from the relevant business unit heads to the new
Scenario analysis As part of the Company's ERM Framework, Aegon undertakes regular sensitivity analyses to verify that the impact of different economic and business scenarios on earnings and the capital position are within the risk tolerances set. These analyses cover a variety of extreme event scenarios that have been constructed to test Aegon’s exposure to identified critical market events or conditions that would present an extraordinary business challenge. These scenarios include events such as economic depression and inflation.
Risk management in 2015: Preparation for Solvency II Under Solvency II, capital requirements can be calculated: (i) on the basis of an internal model, developed by the insurance company itself, which requires the approval of the supervisor; (ii)
(SCR) under Solvency II. A standard formula is used for certain less material risks in the Netherlands and the UK, and all risks in other business units.
Furthermore, the ERM Framework, risk tolerances, risk policies and standards and practices have all been made Solvency II
The preparation for Solvency II concerned the quantitative, methodological, Pillar 1 component of Solvency II (technical provisions, valuation of assets and liabilities, solvency requirements, own fund requirements), the full embedment in risk management governance (Pillar 2) and in reporting (Pillar 3).
II regulation in Aegon’s capital framework was not possible until after the legislation came into force, Aegon started applying
A description of risks relating to Aegon’s businesses and risks relating to Aegon’s common shares can be found on pages 331-351 of this Annual Report.
IFRS accounting, this hedge showed a negative impact on income before tax of EUR 372 million in 2015 (2014: EUR 251 million).
The Dutch operations further extended hedging of equity volatility risk in the existing equity hedge program.
Interest rate risk In 2015, 30-year swap rates in the US and UK decreased by 8 bps and 13 bps to 2.72% and 2.17% respectively, compared with an increase in the 30-year swap rate in the eurozone by 15 bps to 1.67%. In the US, additional interest rate hedges were put in place in the first half of 2015 by implementing forward-starting swaps. The existing interest rate programs also remained in place in 2015 for hedging guarantees for Aegon’s operations in the Netherlands, its long-term care business in the US, and for its variable annuities businesses in the US, Ireland and Asia.
In 2015, Aegon made several significant changes to assumptions and updates to models. Please refer to note 3 Critical accounting estimates and judgment in applying accounting policies for further information.
Capital and liquidity management Liquidity and capital resources In line with its risk tolerance, the goal of Aegon’s capital and liquidity management is to promote strong and stable capital adequacy levels for its businesses on various capital metrics, and to maintain adequate liquidity to ensure that the Company is able to meet its obligations.
Examples of these programs include hedging the interest rate and equity risk from guarantees in the Netherlands, and hedging the capital position in the Americas against adverse equity and interest rate movements. In addition, Aegon is actively involved in hedging longevity risk. Furthermore, Aegon continuously monitors the risk-return profile of new business written and withdraws products that do not meet the required hurdle rates.
As Solvency II became effective on January 1, 2016, Aegon prepared for the implementation throughout 2015. Aegon uses a combination of the two aggregation methods defined within the Solvency II framework to calculate the Group Solvency ratio: �� Accounting Consolidation-based method; and �� Deduction and Aggregation method.
Aegon applies the Accounting Consolidation-based method as the default method. However, for insurance entities domiciled outside the EEA for which provisional or full equivalence applies, such as the United States, Aegon uses the Deduction and
Aggregation method, with local regulatory requirements to bring these into the Group Solvency position. The local regulatory requirements of the US life insurance companies are calculated using 250% of the Company Action Level (CAL).
Solvency II requirements, notably the uncertainty on the loss absorbency of taxes.
Furthermore, within 12 months of a G-SII designation, G-SIIs will be required to develop a liquidity risk management plan, a systemic risk management plan, and an ex ante recovery plan.
Relevant supervisory authorities will be required to: establish a crisis management group (within 6 months after G-SII
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, and subordinated and senior debt. Aegon’s total capitalization consists of the following components: �� Shareholders’ equity, excluding revaluation reserves and the remeasurement of defined benefit plans, based on IFRS
The fixed charge coverage includes the impact of interest rate hedging.
EUR 26.1 billion (EUR 24.8 billion on December 31, 2014), its gross financial leverage ratio was 27.0% (28.7% on
Ratings Aegon’s objective is to be capitalized to maintain a very strong financial strength rating in its operating units, and this plays an important role in determining the Company's overall capital management strategy. Aegon maintains strong financial strength ratings from leading international rating agencies for its main operating subsidiaries, and a strong credit rating for Aegon N.V.
reporting and for Solvency II based on local valuations under equivalence.
All external financing provided to captives to support statutory reserves is disclosed in note 39 (Borrowings) to the consolidated financial statements to the extent to which it has been funded.
Liquidity management Strategic importance Liquidity management is a fundamental building block of Aegon’s overall financial planning and capital allocation processes. Aegon aims to have sufficient liquidity to meet cash demands even under extreme conditions. The Company's liquidity risk policy sets guidelines for its operating companies and the holding in order achieve a prudent liquidity profile.
and at the business unit level. Aegon maintains a liquidity policy that requires all business units to project their sources and uses of liquidity over a two-year period under normal and severe business and market scenarios. This policy ensures that liquidity is measured and managed consistently across the Company, and that liquidity stress management plans are in place.
Sources and uses of liquidity Aegon’s subsidiaries are primarily engaged in the life insurance and pensions business, which is a long-term business with relatively illiquid liabilities and generally matching assets.
United States1) 100% Authorized Control Level (NAIC RBC ACL) ~920% of combined ACL ~EUR 6.7 bln
Aegon’s liquidity position On December 31, 2015, Aegon held a balance of EUR 1.4 billion in excess capital at group level, compared with EUR 1.2 billion on
Aegon’s liquidity is invested in accordance with the Company's internal risk management policies. Aegon believes its working capital, backed by its external funding programs and facilities, is ample for the Company's present requirements.
After investments have been made in new business to generate organic growth, capital generated by Aegon’s operating subsidiaries is available for distribution to the holding company, while maintaining a capital and liquidity position in the operating subsidiaries in line with Aegon’s capital management and liquidity risk policies.
This is particularly important during adverse economic and/or financial market conditions. Furthermore, Aegon’s operating subsidiaries are subject to local insurance regulations that could restrict dividends to be paid to the holding company.
Aegon’s internal audit function assists the Executive Board in maintaining effective controls by independently and objectively evaluating the adequacy and effectiveness of the organization’s internal control and risk management systems. Criteria established under 'Internal Control - 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. Based on risk assessments performed, the Executive Board, under the supervision of the Supervisory Board and its Audit
Finally, the compliance function plays a key role in monitoring the Company's adherence to external rules and regulations and internal policies.
The risk management and control systems provide reasonable assurance for the reliability of financial reporting and the preparation and fair presentation of Aegon’s published financial statements. They cannot, however, provide absolute assurance that a misstatement of Aegon’s financial statements can be prevented or detected.
Responsibilities for the financial statements and the Annual Report The Executive Board is responsible for preparing the financial statements and the Annual Report in accordance with Dutch law and the International Financial Reporting Standards (IFRS) as adopted by the European Union.
Insurance Groups Directive Until December 31, 2015, EU supervisors, such as
De Nederlandsche Bank (The Dutch Central Bank, DNB), were required to carry out 'supplementary supervision' on European insurance and reinsurance companies in an insurance group, based on the EU's Insurance Groups Directive (EU Directive 98/79/EC, the Insurance Groups Directive). The supplementary supervision of insurance companies in an insurance group enables
Directive require EU supervisors, including DNB, to take the relevant financial affiliations between the insurance companies, and other entities in the Group into account.
EU supervisors twice a year setting out supplemental capital adequacy calculations of the insurance companies, risk concentrations and significant transactions and positions between insurance and non-insurance companies in the Group.
Solvency II Introduction The Solvency II framework imposes prudential requirements at group level as well as on the individual EU insurance and reinsurance companies in Aegon. Insurance supervision is exercised by local supervisors on the individual insurance and reinsurance companies in the Aegon group, and by the group supervisor at group level. DNB is Aegon’s Solvency II group supervisor. Solvency II introduces economic, risk-based capital requirements for insurance and reinsurance companies in all
EU insurance and reinsurance undertakings apply, with the necessary modifications at group level. The core focus of EU insurance supervision continues to be on the supervision of individual EU insurance and reinsurance undertakings.
In addition, group supervision remains supplementary to the supervision of individual insurance and reinsurance undertakings, and group supervision encompasses more extensive requirements than supplementary supervision under the EU Insurance Groups Directive.
Pillar 1 Solvency II requires EU insurance and reinsurance companies to determine technical provisions at a value that corresponds with the present exit value of their insurance and reinsurance obligations towards policyholders and other beneficiaries of insurance and reinsurance contracts. The calculation of the technical provisions should be based on market consistent information to the extent to which that information is available.
The value of the technical provisions is equal to the sum of a best estimate and a risk margin. The discount rate at which technical provisions are calculated is an important element in order to determine the technical provisions. This and other parameters to determine the technical provisions may have an important effect on the amount and volatility of the own funds that insurance and reinsurance undertakings are required to maintain. The Solvency II
framework contains several measures (in particular the volatility and matching adjustment) that should reduce volatility of the technical provisions and own funds, in particular for insurance and reinsurance products with long-term guarantees.
This represents a lower level of financial security than the SCR, below which the level of eligible own funds held by the insurance or reinsurance company is not allowed to drop.
Insurance and reinsurance companies are required to hold eligible own funds against the SCR and MCR. The capital is divided into three tiers in accordance with the quality of the own funds.
(such as policies and procedures), a risk governance system and an effective assessment of the risk and solvency position of the company (including a prospective assessment of risks), through the Own Risk and Solvency Assessment (ORSA) process.
In general, Solvency II requires insurance and reinsurance companies to maintain an effective system of governance that is proportionate to the nature, scale and complexity of the insurance or reinsurance company. A number of risks that insurance or reinsurance companies face can only be addressed through proper governance structures, rather than quantitative requirements. The management body of the insurance or reinsurance company is ultimately responsible for the maintenance of an effective governance system.
The persons responsible for these functions are required to be fit and proper.
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 87. 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.
Solvency II). However, subject to certain conditions, entities in other financial sectors may be included in accordance with the accounting consolidation method. In particular, this may be the case where the group supervisor (DNB) is satisfied as to the level of integrated management and internal control regarding these entities. Furthermore, DNB may require groups to deduct any participation from the own funds eligible for the Group Solvency ratio. Accordingly, Aegon will deduct its participation in Aegon Bank N.V. from Aegon’s group solvency.
Aegon uses a combination of the two aggregation methods defined within the Solvency II framework to calculate the Group
However, for insurance entities domiciled outside the EEA for which provisional or full equivalence applies, such as the
of the local RBC Company Action Level (CAL) as the SCR
January 27, 2016 (EIOPA-BoS-16-008), the own funds brought in by the Deduction and Aggregation Method are allocated to tiers according to the principles laid down in Articles 87 to 99 of the Solvency II Directive for each individual third-country insurance undertaking. Entities belonging to other financial sectors are usually included in the Group Solvency Calculation using prudential requirements applicable to that specific sector and using the Deduction and Aggregation Method.
(Basic Capital Requirements or BCR) internationally active insurance groups will be required to hold pursuant to IAIS
G-SIIs will be required to develop a liquidity risk management plan, a systemic risk management plan, and an ex ante recovery plan. Relevant supervisory authorities will be required to: establish a crisis management group (within 6 months after G-SII
designation); develop a resolution plan based on a resolution strategy and enter into a cross-border cooperation agreement
The Supervisory Board is a separate corporate body, independent of the Executive Board. The Supervisory Board consists of nine members. For further details on its individual members, please see pages 106 and 107.
The Supervisory Board is charged with the supervision of the Executive Board, of the general course of affairs of the Company, and of its businesses.
Regulations can be found on pages 116 and 119 of this
Composition of the Supervisory Board and Executive Board Supervisory Board The composition of the Board is discussed regularly in Board meetings and in particular by the Nominating and Governance
Executive Board The Executive Board consists of two members, Alex Wynaendts,
Code, members of the Executive Board are appointed by shareholders for a term of four years, with the option of reappointment for additional four-year terms. Mr. Wynaendts'
meetings: four related to the quarterly results, one on the annual report, one on strategy and one on the budget and Medium Term
Plan. In addition, there were seven conference calls, the majority of which were updates in between the face-to-face meetings.
Meetings of the Committees of the Supervisory Board committees were usually held the day before the meetings of the full Supervisory Board. All but one of the regular board meetings were attended by all board members, and all committee meetings were attended by all committee members. An overview of the attendance by Supervisory Board members per meeting is provided in the following table.
Ben van der Veer 7/7 7/7 6/6 - - 6/6 1/1
Dona Young 7/7 7/7 6/6 4/4 - - 1/1 1 Where a Supervisory Board member retired from the Supervisory Board, stepped down from a Committee or was appointed throughout the year, only meetings during his / her tenure are taken into account.
At the request of the Supervisory Board, other Aegon executives also attended the meetings to provide reports and updates on specific topics. Representatives from Aegon’s external auditor
Activities The key topics discussed during the 2015 Supervisory Board meetings were the quarterly results, Aegon’s strategy, acquisitions, divestments and preparations for the introduction of the Solvency II capital regime in 2016.
The Supervisory Board was closely involved in defining the strategic direction for the Company. Plans and projects were discussed during executive sessions and in regular meetings.
Digitization of the business is a key priority company-wide, changing it from a primarily product-oriented to a fully clientoriented company.
education program. The annual strategy meeting in June was partly dedicated to a full update on all Solvency II preparations, with discussions on the expected Solvency II ratios for both the Group as a whole and for individual business units, in addition to operational readiness.
Term Plan, including the 2016 budget and capital plan; �� Capital position (including hedging programs to protect the capital position) and Solvency II; �� Enterprise risk management; �� Investor relations; �� Legal, regulatory and compliance issues, and Aegon’s engagement with regulators; �� Accounting changes, including voluntary accounting policy changes adopted as of January 1, 2016; �� Actuarial changes; and �� IT and IT security.
Management presented regular updates on Solvency II and the Company's readiness to comply with it. In addition, the Board followed an extensive Solvency II education program. During the strategy offsite meeting in June 2015, in Budapest, Hungary, the Supervisory Board and the Management Board had extensive discussions about Group and business unit strategies, digital transformation and Solvency II. The Board reviewed the progress of the execution of Aegon’s strategic objectives, and the challenges the Company faces. After the December 2014
Board review of Aegon’s Sustainability Program, the Board discussed the progress of this program again in May 2015.
Further details of Aegon’s sustainability vision and progress are available in Aegon’s 2015 Review.
In recognition of the importance of succession planning and talent management, the Board received updates from Aegon’s
During the year, the Board discussed various M&A transactions and divestitures: the strategic asset management partnership with La Banque Postale in France was completed in June; and
Aegon N.V. and the Financial Statements of Aegon N.V.. In May,
August and November, the Supervisory Board reviewed Aegon’s first, second and third quarter 2015 results respectively.
Board reviewed the Group Medium Term Plan, including the budget for 2016. The Boards took notice 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 discussed Aegon’s cash flow and capital projections, together with the continued focus on cost efficiency. The Plan provides for a continuation of investments in digital capabilities to increase customer connectivity. The Board supported the Plan and approved the budget for 2016. The Board also approved the 2016 capital plan and authorized the Executive Board to execute the capital plan in 2016. Discussions about the strategy process will be continued on a regular basis by both the Management Board and Supervisory Board.
After discussions in the Nominating and Governance Committee, the Board Profile and all Charters of the Supervisory Board,
The performance of the members of the Executive Board was discussed regularly during 2015 and at a dedicated meeting of the Nominating and Governance Committee in December.
Supervisory Board reviewed the performance of individual members of the Management Board over the preceding calendar year.
The four committees are the: �� Audit Committee; �� Risk Committee; �� Nomination and Governance Committee; and �� Remuneration Committee.
The Audit Committee Composition On December 31, 2015, the composition of the Audit Committee was as follows: �� Ben van der Veer (Chair) �� Irving W. Bailey II �� Robert W. Dineen �� Ben J. Noteboom �� Dirk P.M. Verbeek �� Dona D. Young
The Committee confirmed that all of its members qualified as independent according to Rule 10A-3 of the SEC, and it also confirmed that Ben van der Veer qualifies as a financial expert according to the terms and conditions of the Dutch
Role and responsibilities As Aegon has both an Audit Committee and a Risk Committee, the risk management responsibilities as mentioned in the Dutch
The main role and responsibilities of the Audit Committee are to assist and advise the Supervisory Board in fulfilling its oversight responsibilities regarding: �� The integrity of the consolidated interim and full-year financial statements and financial reporting processes; �� Internal control systems and the effectiveness of the internal auditors; and �� The performance of the external auditors and the effectiveness of the external audit process, including monitoring the independence and objectivity of PwC.
The Audit Committee reports to the Supervisory Board on its activities, identifying any matters about which it considers action or improvements are needed, and making recommendations as to the steps to be taken. For more information about the functioning of the Audit Committee, please see the Audit Committee Charter on aegon.com.
Committee meetings In 2015, the Audit Committee had seven meetings including conference calls, one of which was a combined meeting with the Risk Committee of the Supervisory Board. The Audit
Committee meetings are typically attended by the members of the Audit Committee, Aegon’s Chief Financial Officer,
Group Risk, Group Legal and Investor Relations were often present at the Audit Committee meetings. Additional sessions were regularly held with internal and external auditors at the end of Audit Committee meetings. Members of the Executive Board were not present at these extra sessions.
Financial reporting In discharging their responsibilities in respect of the 2015 interim and full year financial statements, the Audit Committee: �� Reviewed the critical accounting policies (and proposed changes effective January 1, 2016) and compliance with applicable accounting standards and other disclosure requirements and received regular update reports on accounting and regulatory developments; �� Reviewed PwC's quarterly board reports; �� Reviewed and discussed with PwC, the Executive Board and the Management Board the annual management letter and follow up actions; �� 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: model validation remediation, investment valuation and impairments, economic and actuarial assumption setting, and the guarantee hedge programs.
(in relation to approval of partial internal model application); and �� Discussed the internal control statement with the
External audit effectiveness The Audit Committee discussed and approved the external auditor's engagement letter and the audit plan for 2015. Aegon has well established policies on audit effectiveness and independence of auditors that set out, inter alia: �� The review and evaluation of the external auditor and the lead partner of the external audit team on at least an annual basis; �� Non-audit services performed by the external auditor; �� Rotations of external auditor and lead partner as required by law; and �� Discussion about planning and staffing of the external audit activities.
Annex A, B and C of the Audit Committee Charter, as revised in
The Risk Committee Composition On December 31, 2015, the composition of the Risk Committee was as follows: �� Shemaya Levy (Chair) �� Robert W. Dineen �� Dirk P.M. Verbeek �� Corien M. Wortmann-Kool �� Dona D. Young
Role and responsibilities Aegon has both an Audit Committee and a Risk Committee.
The main role and responsibilities of the Risk Committee are to assist and advise the Supervisory Board in fulfilling its oversight responsibilities regarding the effective operation and appropriateness of the Enterprise Risk Management (ERM)
This includes: �� risk strategy, risk tolerance and risk governance; �� product development and pricing; �� risk assessment; �� risk responses and internal control effectiveness; �� risk monitoring; �� risk reporting; and �� regulatory compliance.
The Company’s risk management is an important topic for the Supervisory Board, especially in the current financial climate.
In addition, the Risk Committee dedicated significant time overseeing the Company’s preparations for Solvency II compliance and the PIM application process, including sessions on: �� the Solvency II PIM design; �� review of model validation findings; and �� the Company’s own risk and solvency assessment (ORSA).
Supervisory Board related activities The Nomination and Governance Committee discussed the composition of the Supervisory Board and its Committees, current and upcoming vacancies and governance topics.
Committee were prepared and discussed by the Nomination and Governance Committee during the course of 2015. To better reflect the activities of this Committee, the name was changed to the ‘Nomination and Governance Committee’. These updates were later discussed and approved by the full Supervisory Board.
(AGM) in May 2015 to reappoint Alex Wynaendts as Aegon’s CEO.
During the year, the Committee reviewed the composition of the Executive Board and Management Board, together with the functioning and effectiveness of their members as individuals and as a team. Acknowledging the importance of good succession planning, the Committee also discussed with the CEO
Governance Committee during the year. The Committee was kept appraised of developments in employee engagement, talent management and international mobility. In February 2015, the full Board discussed these topics extensively with the Global
Supervisory Board is an important issue for Aegon. Selection and appointment is based on expertise, skills and relevant experience.
The Supervisory Board also takes gender diversity into account in view of its aim of having a balanced Executive and Management
Corien M. Wortmann-Kool in 2014, the gap with the 'balanced composition' was reduced. When identifying candidates for open positions, the Board actively searches for suitable female candidates. It also instructs external search firms to present female candidates. While this has had a positive effect, the requirement has not yet been met.
Committee are to advise the Supervisory Board and prepare decisions to be taken by the Board. The Committee is designated to safeguard sound remuneration policies and practices within the Aegon Group by overseeing the development and execution of these policies and practices. This includes inter alia: �� reviewing the Aegon Group Global Remuneration Framework and making recommendations on the outcomes; �� preparing recommendations regarding variable compensation both at the beginning and after the end of the performance year; �� to overseeing the remuneration of the Executive Board,
Supervisors/European Banking Authority. These regulations have been implemented by way of the Decree on Sound Remuneration
The Committee discussed the effect of recent developments regarding regulatory and legislative changes on remuneration policy, including the Wbfo (Dutch legislation on Remuneration in the financial sector), effective as of February 2015. Particular attention was paid to the continuing public debate – also during
In 2015, the Remuneration Committee oversaw the further application, implementation and approval of Aegon’s Group
Accounts are signed by the members of the Executive Board and the Supervisory Board, and are on the agenda of the 2016
Acknowledgment The members of the Supervisory Board are very grateful for the work undertaken by the Executive and Management Boards in pursuit of Aegon’s purpose of helping people achieve a lifetime of financial security.
Robert Dineen (1949, American) Member of the Audit Committee Member of the Risk Committee Robert Dineen was Vice Chairman of Lincoln Financial Network and a member of the Senior Management Committee of Lincoln
Aegon’s Supervisory Board in May 2014, and his current term will end in 2018. He has no other board memberships.
Shemaya Levy (1947, French) Chairman of the Risk Committee Member of the Nomination and Governance Committee Shemaya Levy is retired Executive Vice President and Chief
Aegon’s Supervisory Board in 2005 and his current and final term will end in 2017. He is also a Vice-Chairman of the Supervisory
Board of TNT Express N.V. and member of the Board of Directors of PKC Group Oyj.
Board in 2015, and his current term will end in 2019. He is also a member of the Supervisory Boards of Ahold N.V. and Wolters
In addition, he is a member of the Supervisory Board of
RELX N.V., RELX PLC and RELX Group PLC. He is also a member of the Supervisory Board of Royal FrieslandCampina N.V.
Dirk P.M. Verbeek (1950, Dutch) Member of the Audit Committee Member of the Risk Committee Member of the Nomination and Governance Committee Dirk P.M. Verbeek is a former Executive Board member and Vice
(not listed) and OVG Real Estate (not listed) and member of the INSEAD Dutch Council. Until December 2015 he was
Corien M. Wortmann-Kool (1959, Dutch) Member of the Risk Committee Member of the Remuneration Committee Corien M. Wortmann-Kool was a Member of the European
Board in May 2014, and her current term will end in 2018.
Companies, which was an insurance and asset management company during her tenure. She was appointed to Aegon’s
Ms. Young is also member of the Board of Directors of Foot
Aegon staff, contains the guiding principles to support sound and effective remuneration policies and practices by ensuring consistency throughout the Aegon Group. The GRF is designed in accordance with relevant rules, guidelines and interpretations, for instance the Decree on Sound Remuneration Policy (Regeling beheerst beloningsbeleid (Rbb) Wft 2014) from DNB (the Dutch
Over the course of 2014, in anticipation of the 'Act on the Remuneration Policy of Financial Undertakings’ (which came into effect on February 7, 2015), Aegon aligned its GRF and related policies and practices to bring them into line with anticipated new regulations announced by the Dutch government.
European legislation, and requires a minimum level of nonfinancial performance indicators for determining variable compensation as well as limitations to financial retention and severance arrangements. Aegon has been compliant with the Wbfo as of the official date that it came into force in the Netherlands. The maximum levels of variable compensation as defined by Wbfo were implemented for the majority of
Aegon’s organizations globally for the full performance year 2015 (similar regulations apply for Aegon Asset Management).
In line with the Wbfo, Aegon wishes to disclose the total amount of variable compensation paid in relation to performance year 2015. The total amount of variable compensation paid out in 2015 was EUR 204 million. In 2015, the total annual compensation paid out to 18 people was equal to or higher than EUR 1 million. These people worked for Aegon’s Global Corporate Office, Aegon
Role of Risk Management and Compliance Variable compensation may have an impact on risk-taking behaviors and, as such, may undermine effective risk management. This can lead to excessive risk taking, which can have a material impact on the Company's financial soundness.
To avoid such undesired effects, both the Risk Management and Compliance functions are involved in the design and execution of remuneration policies and practices.
Furthermore, where exceptions to the policies are made to reflect local practices or regulations, Risk Management and Compliance are involved in order to ensure such exceptions do not undermine effective risk management and that sufficient mitigating measures are undertaken. Since 2011, in conjunction with Risk
In addition, the Risk Management and Compliance functions, together with the Human Resources and Finance functions, are responsible for the execution of the various ex-ante and ex-post measures that have been introduced by Aegon to ensure the GRF
Supervisory Board Remuneration Policy 2015 Aegon’s Remuneration Policy for members of its Supervisory
Supervisory Board do not receive any performance or equityrelated compensation, and do not accrue pension rights with the Company. These measures are designed to ensure the independence of Supervisory Board members and to strengthen the overall effectiveness of Aegon’s corporate governance.
May 15, 2013, members of the Supervisory Board are entitled to the following payments: Base fee for membership of the Supervisory Board EUR / year Chairman 80,000
Supervisory Board Remuneration Report 2015 Members of Aegon’s Supervisory Board received the following payments (in EUR) in 2015: in EUR 2015 2014
Aegon’s remuneration policies to ensure they remain in line with prevailing international standards. This review is based partly on information provided by Aegon’s external advisor, Towers Watson.
The advisor does not, however, advise individual members of the Executive and Supervisory Boards.
The Remuneration Committee may recommend changes to the policies to the Supervisory Board. Any material changes in the Executive Board Remuneration Policy must also be referred to the General Meeting of Shareholders for adoption.
Ensuring pay remains competitive The Company regularly compares its levels of executive remuneration with those of other comparable companies.
Companies included in the peer group are chosen according to 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).
The peer group was reviewed in 2015. Compared with the 2014 sample Allianz and Mapfre were added, and ING Group was replaced by NN Group. The 2015 peer group therefore comprised the following fourteen companies: Allianz, Aviva, Axa, CNP
Amsterdam, excluding financial services providers. Going forward, the Supervisory Board will also regularly review the composition of these two groups to ensure that they continue to provide a reliable and suitable basis for comparison.
Executive Board members are compensated in accordance with the desired market positioning, alignment to the desired market position needs to be addressed over time, in accordance with applicable rules, regulations and codes.
Fixed compensation It is the responsibility of the Supervisory Board to determine fixed compensation for members of the Executive Board based on their qualifications, experience and expertise.
non-financial indicators. Aegon believes these indicators provide an accurate and reliable reflection of both company and individual performance. The type of performance indicators are selected in accordance with the long-term goals of the Company.
The amount of conditional variable compensation that can be allocated is then established. Variable compensation is allocated once the accounts for the financial year in question have been adopted by the Company's shareholders and after an ex-ante assessment.
The deferred parts vest in equal tranches over a three-year period. After an ex-post assessment, which may lower the vesting parts, these individual parts are paid 50% in cash and 50% in shares. The shares are restricted for a further period of three years (with the exception of shares sold to meet income tax obligations).
The variable compensation payout can be illustrated by the following example and the table below. For every 1,000 variable compensation that is allocated following the performance period, 400 is paid out/vested in the year following that performance year (N in the following table).
Variable compensation 2015 Variable compensation is initially granted based on performance, as measured against Aegon group targets and personal objectives. These objectives represent a mix of financial and non-financial measures, providing an accurate and reliable reflection of corporate and individual performance. The mix of group measures versus personal performance measures is 60%-40%.
Group financial IFRS based 21% Group underlying earnings after tax, return on equity
Each year a one-year target is set for each performance indicator.
If at an aggregated level the threshold target is not reached, no variable compensation related to the performance period will be made available.
In addition, the Supervisory Board applies an ex-post risk assessment to deferred payouts of variable compensation to determine whether allocated (that is, unvested) variable compensation should become unconditional (meaning it vests)
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; �� Significant failure in risk management; and �� Significant changes in the Company’s economic or regulatory capital base.
(including non-achievement of performance indicators in hindsight), or in the event of material financial restatements or individual gross misconduct, Aegon’s Supervisory Board has the right to claim back variable compensation that has already been paid out or vested.
1 Mr Button earned an annual salary in USD. Amounts are based on USD, converted to EUR, based on annual average exchange rates.
Executive Board Remuneration Report At the end of December 2015, 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, and re-appointed in 2007 and 2011. At the General Meeting of
Shareholders in 2015, Mr. Wynaendts was re-appointed for an additional four years.
�� Darryl D. Button, Chief Financial Officer and member of the Executive Board, was appointed as a member of the Executive Board for four years at the Annual General
Conditional variable compensation awards 2015 Subject to the adoption of the annual accounts at the General
Forty percent of variable compensation related to performance year 2015 is payable in 2016. This is split 50/50 in a cash payment and in an allocation of shares.
In 2016, Mr. Wynaendts and Mr. Button are eligible to receive a cash payment of EUR 184,522 and EUR 156,862 respectively.
The number of shares to be made available in 2016 is 30,219 for
Mr. Wynaendts and 23,621 for Mr. Button. With regard to vested shares (with the exception of shares sold to meet income tax obligations), a retention (holding) period of a further three years is applicable before they are at the disposal of the Executive
The remaining part of variable compensation for the performance year 2015 (60% of the total, which for Mr. Wynaendts equates to
EUR 276,783 and 45,330 shares, and for Mr. Button equates to
EUR 235,292 and 35,433 shares) is to be paid out in future years, subject to ex-post assessments, which may result in downward adjustments and be subject to meeting additional conditions. In each of the years 2017, 2018 and 2019, 20%
Impact of ex-ante and ex-post assessment on attribution of variable compensation No variable compensation from previous performance years payable in 2015 has been adjusted downwards in 2015.
Composition of the Supervisory Board Members of the Supervisory Board are appointed by the General
and the development of the Company’s earnings. Each member has duties related to his or her specific area of expertise.
Aegon’s Articles of Association determine that for certain decisions the Executive Board must seek prior approval from the Supervisory Board and/or the approval of the General
Meeting of Shareholders. In addition, the Supervisory Board may also subject other Executive Board decisions to its prior approval.
The number of Executive Board members and their terms of employment are determined by the Company’s Supervisory Board.
The members of the Executive Board have an engagement agreement with the company rather than an employment contract. The Company’s Remuneration Policy for the Executive
Management Board, which has seven members, including the members of the Executive Board. Aegon’s Management Board is composed of Alex Wynaendts, Darryl Button, Adrian Grace,
Tom Grondin (who was succeeded by Allegra van Hövell-Patrizi on January 1, 2016), Marco Keim, Gábor Kepecs and Mark Mullin.
Depository receipts for Aegon shares are not issued with the Company’s cooperation.
The financial rights attached to a common share B are onefortieth (1/40th) of the financial rights attached to a common share. The rights attached to the shares of both classes are otherwise identical. For the purpose of the issuance of shares, reduction of issued capital and the transfer of common shares B, the value or the price of a common share B 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.
Under the terms of the 1983 Merger Agreement as amended in
The SEC filing also shows that of this number of shares Dodge &
Dodge & Cox on behalf of its other clients, including investment companies registered under the Investment Company Act of 1940 and other managed accounts. The filing of Franklin
with the SEC on February 3, 2016, shows that FRI holds 135,002,163 common shares, representing 4.9% of the issued capital as at December 31, 2015. The SEC filing also shows that the commons shares are held by various entities to whom they provide asset management services. Each of these entities hold less than 3% of the issued capital as at December 31, 2015.
Board to issue new shares is usually presented at Aegon’s Annual
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.
Vereniging Aegon. While this may be construed as a businessrelated conflict of interest, under Vereniging Aegon’s Articles of
and CFO from participating in discussions and decision-making related to Vereniging Aegon. For this reason, a protocol authorizes the CEO and CFO to continue their activities regarding
Differences between Dutch and US company laws Dutch company law is different from US law in the following respects: Aegon, like most large Dutch public companies, has a two-tier governance system comprising an Executive Board and a Supervisory Board. The Executive Board is the executive body.
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 Exchange Act of 1934). Based on this evaluation,
Exchange Commission regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act, or SOX 404. These regulations require that Aegon’s CEO (the Chairman of the Executive Board)
and CFO report on and certify the effectiveness of Aegon’s internal controls over financial reporting on an annual basis.
Management's Annual Report on internal control over financial reporting The directors and management of Aegon are responsible for establishing and maintaining adequate internal control over financial reporting. Aegon’s internal control over financial reporting is a process designed under the supervision of Aegon’s principal executive and financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of its published financial statements.
Internal control over financial reporting includes policies and procedures that: �� Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; �� Provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with the generally accepted accounting principles; �� Provide reasonable assurance that receipts and expenditures are made only in accordance with the authorizations of management and directors of the Company; and �� Provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on Aegon’s financial statements would be prevented or detected in a timely manner.
Management assessed the effectiveness of Aegon’s internal control over financial reporting as of December 31, 2015.
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 conducted our audit in accordance with the standards of the Public Company
Amounts in EUR million (except per share data) Note 2015 2014 2013
Share in profit / (loss) of joint ventures 142 56 -
Earnings per share (EUR per share) 19 Basic earnings per common share 0.23 0.49 0.30
Items that will not be reclassified to profit or loss: Changes in revaluation reserve real estate held for own use 13 9 (6)
Items that may be reclassified to profit or loss: Gains / (losses) on revaluation of available-for-sale investments (2,175) 6,759 (3,376)
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments (485) (702) (435)
Issued capital and reserves attributable to equity holders of Aegon N.V. 27,732 28,120
Net income / (loss) recognized in the income statement - 619 - - - - 619 1 619
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments - - (485) - - - (485) - (485)
Total other comprehensive income / (loss) - 10 (1,837) 79 1,363 - (385) (1) (386)
Total comprehensive income / (loss) for 2015 - 628 (1,837) 79 1,363 - 234 - 234
Issuance and purchase of treasury shares - 52 - - - - 52 - 52
1 Issued capital and reserves attributable to equity holders of Aegon N.V. 2 Refer to note 51 for details on the disposals.
Net income / (loss) recognized in the income statement - 1,186 - - - - 1,186 1 1,186
Income tax relating to items that will not be reclassified - - (2) 335 - - 333 - 333
Share options and incentive plans - 7 - - - (4) 3 - 3 1 Issued capital and reserves attributable to equity holders of Aegon N.V.
Net income / (loss) recognized in the income statement - 854 - - - - 854 3 857
Insurance and investment liabilities for account of policyholders (3,343) 12,302 18,787
Purchase of investments (other than money market investments) (38,290) (36,577) (34,100)
Disposal of investments (other than money market investments) 36,619 33,846 31,176
Cash flow movements on operating items not reflected in income 2,875 (1,843) (3,180)
Purchase of equipment and real estate for own use (90) (77) (66)
Acquisition of subsidiaries, joint ventures and associates, net of cash (239) (95) (291)
Disposal of subsidiaries, joint ventures and associates, net of cash 912 42 811
Repayment of TRUPS 1), subordinated loans and borrowings (3,916) (1,307) (2,283)
Net cash and cash equivalents at the beginning of the year 10,649 5,652 9,497
The consolidated financial statements have been prepared in accordance with the historical cost convention as modified by the revaluation of investment properties and those financial instruments (including derivatives) and financial liabilities that have been measured at fair value. Information on the standards and interpretations that were adopted in 2015 is provided below in note 2.1.1
The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Those estimates are inherently subject to change and actual results could differ from those estimates. Included among the material (or potentially material) reported amounts and disclosures that require extensive use of estimates are: fair value of certain invested assets and derivatives, deferred policy acquisition costs, value of business acquired and other purchased intangible assets, goodwill, policyholder claims and benefits, insurance guarantees, pension plans, income taxes and the potential effects of resolving litigation matters. Aegon applies fair value hedge accounting for portfolio hedges of interest rate risk
The consolidated financial statements of Aegon N.V. were approved by the Executive Board and by the Supervisory Board on
The IASB issued the final version of IFRS 9 Financial Instruments in July 2014. IFRS 9 combines classification and measurement, the expected credit loss impairment model and hedge accounting. The standard will replace IAS 39 and all previous versions of IFRS 9.
Application of IFRS 9 is required for annual periods beginning on or after January 1, 2018. However, at the time of issuance of the new standard, the IASB said it would consider potential challenges arising if IFRS 9 is implemented before the new insurance contracts standard (IFRS 4 Phase II - which is at an advanced stage of development but it is expected that it will not become effective before 2021). Subsequent discussions at the IASB have resulted in a proposal for temporary deferral for insurers which was further described in an Exposure Draft: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts issued by the IASB in December 2015.
The comment period ended on February 8, 2016. The measures that the Exposure Draft proposes to introduce into IFRS 4 are: �� The overlay approach – an option for all entities that issue insurance contracts to adjust profit or loss to remove any additional accounting volatility that may arise from qualifying financial assets, and �� The deferral approach – an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing insurance contracts.
9, if and when endorsed by the EU, is expected to have a significant impact on shareholders’ equity, net result and/or other comprehensive income and disclosures. The full impact however will only be clear after full assessment of the standard.
The resulting exchange differences are recognized in the 'foreign currency translation reserve', which is part of shareholders’ equity.
2.4 Segment reporting Aegon conducts its operations through five primary reporting segments: �� Aegon Americas: Covers business units in the United States, Canada (until July 31, 2015), Brazil and Mexico, including any of the units’ activities located outside these countries; �� Aegon the Netherlands: Covers businesses operating in the Netherlands; �� Aegon UK: Covers businesses operating in the United Kingdom; �� New Markets: Covers businesses operating in Central & Eastern Europe; Asia, Spain and Portugal, as well as Aegon’s variable annuity activities in Europe and Aegon Asset Management that are aggregated as one reportable segment due to their respective size; �� Holding and other activities: Includes financing, employee and other administrative expenses of holding companies.
Segment measures are explained and disclosed in note 5 Segment information.
The present value of the future servicing rights is amortized over the servicing period and is subject to impairment testing. It is derecognized when the related contracts are settled or disposed.
The depreciation period and pattern are reviewed at each reporting date, with any changes recognized in the income statement.
Fair value is defined as the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability). For quoted financial assets for which there is an active market, the fair value is the bid price at the balance sheet date. In the absence of an active market, fair value is estimated by using present value based or other valuation techniques. Where discounting techniques are applied, the discount rate is based on current market rates applicable to financial instruments with similar characteristics. The valuation techniques that include unobservable inputs can result in a different outcome than the actual transaction price at which the asset was acquired. Such differences are not recognized in the income statement immediately but are deferred. They are released over time to the income statement in line with the change in factors (including time) that market participants would consider in setting a price for the asset. Interest accrued to date is not included in the fair value of the financial asset.
b. Real estate Investments in real estate include property held to earn rentals or for capital appreciation, or both. Investments in real estate are presented as investments. Property that is occupied by the Group and that is not intended to be sold in the near future is classified as real estate held for own use and is presented in 'Other assets and receivables.'
The carrying amount is subsequently adjusted to reflect the change in the Group’s share in the net assets of the joint venture and is subject to impairment testing. The net assets are determined based on the Group’s accounting policies. Any gains and losses recorded in other comprehensive income by the joint venture are reflected in other reserves in shareholders’ equity, while the share in the joint ventures net income is recognized as a separate line item in the consolidated income statement. The Group’s share in losses is recognized until the investment in the joint ventures' equity and any other long-term interest that are part of the net investment are reduced to nil, unless guarantees exist.
b. Deferred cost of reinsurance A deferred cost of reinsurance is established when Aegon enters into a reinsurance transaction. Aegon is not relieved of its legal liabilities, so the reserves relating to the underlying reinsured contracts will continue to be reported in the consolidated statement of financial position during the contractual term of the underlying business.
(backing insurance liabilities, investment liabilities or equity based on asset liability management considerations) are not included in cash and cash equivalents but are presented as investments or investments for account of policyholders.
a. Impairment of non-financial assets Assets are tested individually for impairment when there are indications that the asset may be impaired. For goodwill and intangible assets with an undefined life, an impairment test is performed at least once a year or more frequently as a result of an event or change in circumstances that would indicate an impairment charge may be necessary. The impairment loss is calculated as the difference between the carrying and the recoverable amount of the asset, which is the higher of an asset’s value in use and its fair value less cost of disposal. The value in use represents the discounted future net cash flows from the continuing use and ultimate disposal of the asset and reflects its known inherent risks and uncertainties. The valuation utilizes the best available information, including assumptions and projections considered reasonable and supportable by management. The assumptions used in the valuation involve significant judgments and estimates. Refer to note 21 Intangible assets for more details.
Non-financial assets that only generate cash flows in combination with other assets and liabilities are tested for impairment at the level of the cash-generating unit. The goodwill acquired in a business combination, for the purpose of impairment testing, is
2.17 Equity Financial instruments that are issued by the Group are classified as equity if they represent a residual interest in the assets of the Group after deducting all of its liabilities and the Group has an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation. In addition to common shares, the Group has issued perpetual securities. Perpetual securities have
no final maturity date, repayment is at the discretion of Aegon and for junior perpetual capital securities, Aegon has the option to defer coupon payments at its discretion. The perpetual capital securities are classified as equity rather than debt, are measured at par and those that are denominated in US dollars are translated into euro using historical exchange rates.
The liability component for the non-cumulative subordinated notes is equal to the present value of the redemption amount and carried at amortized cost using the effective interest rate method. The unwinding of the discount of this component is recognized in the income statement. The liability component is derecognized when the Group’s obligation under the contract expires, is discharged or is cancelled. The equity component is assigned the residual amount after deducting the liability component from the fair value of the instrument as a whole. The equity component in US dollars is translated into euro using historical exchange rates.
Treasury shares are deducted from Group equity, regardless of the objective of the transaction. No gain or loss is recognized in the income statement on the purchase, sale, issue or cancellation of the instruments. If sold, the difference between the carrying amount and the proceeds is reflected in retained earnings. The consideration paid or received is recognized directly in shareholders’
agreeing to compensate the beneficiary on the occurrence of an uncertain future event by which he or she will be adversely affected.
The consolidated financial statements provide information on the fair value of all financial liabilities, including those carried at amortized cost. As these contracts are not quoted in active markets, their value is determined by using valuation techniques, such as
The defined benefit obligation is based on the terms and conditions of the plan applicable on the balance sheet date. In measuring the defined benefit obligation the Group uses the projected unit credit method and actuarial assumptions that represent the best estimate of future variables. The benefits are discounted using an interest rate based on the market yield for high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity that approximate the terms of the related pension liability. Actuarial assumptions used in the measurement of the liability include the discount rate, estimated future salary increases, mortality rates and price inflation. To the extent that actual experience deviates from these
Plan assets are qualifying insurance policies and assets held by long-term employee benefit funds that can only be used to pay the employee benefits under the plan and are not available to the Group’s creditors. They are measured at fair value and are deducted from the defined benefit obligation in determining the amount recognized on the statement of financial position.
2.23 Deferred gains a. Deferred revenue liability Initial fees and front-end loadings paid by policyholders and other clients for future investment management services related to investment contracts without discretionary participation features are deferred and recognized as revenue when the related services are rendered.
2.35 Future adoption of voluntary changes in accounting policies On January 13, 2016, Aegon provided an update on its strategic plans at its Analyst & Investor Conference. Following this update
Aegon will make voluntary changes in accounting policies, effective January 1, 2016, to reflect its strategic priorities. The voluntary changes in accounting policies will be applied retrospectively. Firstly, Aegon will adopt a group-wide accounting policy for reinsurance transactions that are entered into as part of a plan to exit a business. Also, Aegon will make two voluntary accounting policy changes that better reflect its business strategy after restructuring in the United Kingdom. The changes in the United Kingdom do not impact other reporting units within Aegon as these are changes specific to Aegon UK. However, these changes do increase alignment with other reporting units within Aegon.
The adoption of the new accounting policy is expected to decrease shareholders’ equity at the date of adoption (January 1, 2016) by between USD 0.1 billion and USD 0.2 billion. Aegon estimates that this accounting change will increase net income by approximately
USD 10 million, USD 10 million and USD 20 million for the years 2015, 2014 and 2013 respectively as deferred costs of reinsurance are no longer amortized and the initially recorded deferred costs of reinsurance have been directly accounted for in the income statement at the date of the reinsurance transaction.
Aegon will make two voluntary accounting policy changes that better reflect its business strategy after restructuring in the United
The current accounting policy for the level of aggregation for the liability adequacy test in the United Kingdom is on a geographical basis, therefore the total Aegon UK book is considered as one population. In the announced restructuring, Aegon’s business in the United Kingdom has been split into different portfolios that will be managed independently from one another. Management is of the opinion that the liability adequacy test should be disaggregated to a portfolio level to reflect this change in strategy. This change in the definition of portfolio for Aegon UK will better align with other reporting units in the Group where insurance contracts are grouped consistent with the Company’s manner of acquiring, servicing and measuring the profitability of its insurance contracts.
manages the business. Currently, Aegon has the following reportable segments: Americas, the Netherlands, United Kingdom, New
Markets and Holdings and other activities. New Markets was established to aggregate Aegon’s emerging businesses and global /
European initiatives which is a combination of the following operating segments: Central & Eastern Europe, Asia, Spain & Portugal,
Asset Management and VA Europe. Under IFRS 8 these operating segments were aggregated as one reportable segment due to their respective size.
Given that Aegon will change its managerial view to geographical areas and underlying businesses have developed since 2010, internal management reports will change as of 2016 accordingly. Alignment of segment reporting with those changes and developments will be put in place in 2016 reflecting Aegon’s announcements related to its strategic plan. This means that the operating segments as described above will be presented on this basis and introduces separate presentation of the asset management business. The following will be reported from 2016 onwards: �� Americas: one operating segment which covers business units in the United States, Brazil and Mexico, including any of the units’
activities located outside these countries; �� Europe: which covers the following operating segments: the Netherlands, United Kingdom (including VA Europe), Central & Eastern
For Europe, the underlying businesses (the Netherlands, United Kingdom including VA Europe, Central & Eastern Europe and Spain &
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 or on the assumptions established at inception of the contract, reflecting the best estimates at the time increased with a margin for adverse deviation. All contracts are subject to liability adequacy testing which reflects management’s current estimates of future cash flows
(including investment returns). To the extent that the liability is based on current assumptions, a change in assumptions will have an immediate impact on the income statement. Also, if a change in assumption results in not passing the liability adequacy test, the entire deficiency is recognized in the income statement. To the extent that the deficiency relates to unrealized gains and losses on availablefor -sale investments, the additional liability is recognized in the revaluation reserve in equity.
For 2015, Aegon kept its long-term equity market return assumption for the estimated gross profits on variable life and variable annuity products in the Americas at 8% (December 31, 2014: 8%). The long-term assumption for 10-year US Treasury yields remains at 4.25% and the uniform grading period was 10 years. Aegon’s assumed returns for US separate account bond fund remains at 4%
over the next 10 years and 6% thereafter. The 90-day Treasury yield was 0.04% at December 31, 2014, and was assumed to remain level for the next two years followed by an eight year grade to 2.5%. These assumptions have been set for the relevant reporting period. On a quarterly basis, the estimated gross profits are updated for the difference between the estimated market return and the actual market return.
Treasury yields by 50 basis points to 4.25% and extended the uniform grading period from 5 years to 10 years. Aegon also changed its assumed returns for US separate account bond fund to 4% over the next 10 years and 6% thereafter from its previous assumptions of
4% over the next 5 years and 6% thereafter. In addition, Aegon changed its long-term equity market return assumption for the estimated gross profit in variable life and variable annuity products in the Americas from 9% to 8%. In total, these assumption changes led to a negative impact on earnings of EUR 405 million in the third quarter of 2013. Both the assumptions for the bond fund and that for the long-term equity market are gross assumptions from which asset management and policy fees are deducted to determine the policyholder return. The 90-day Treasury yield was 0.07% at December 31, 2013, and was assumed to remain level for the next two years followed by an eight year grade to 2.5%. These assumptions have been set for the relevant reporting period.
EUR 147 million (2014: EUR 130 million). The DPAC and VOBA balances for these products in the United States amounted to
A relative increase ranging from 5% to 10% to the mortality assumption, dependent on the block of business, would reduce net income by approximately EUR 103 million (2014: EUR 63 million). A relative 20% increase in the lapse rate assumption would increase net income by approximately EUR 76 million (2014: EUR 71 million).
Any reasonably possible changes in the other assumptions Aegon uses to determine EGP margins (i.e. maintenance expenses, inflation and disability) would reduce net income by less than EUR 37 million (per assumption change) (2014: EUR 32 million).
Aegon operates a Derivative Use Policy to govern its usage of derivatives. These policies establish the control, authorization, execution and monitoring requirements of the usage of such instruments. In addition, these policies stipulate necessary mitigation of credit risk created through these derivatives management tools. For derivatives, credit risk is normally mitigated by requirements to post collateral via credit support annex agreements or through a central clearinghouse.
Each sensitivity analysis reflects the extent to which the shock tested would affect management’s critical accounting estimates and judgment in applying Aegon’s accounting policies. Market-consistent assumptions underlying the measurement of non-listed assets and liabilities are adjusted to reflect the shock tested. The shock may also affect the measurement of assets and liabilities based on assumptions that are not observable in the market. For example, a shock in interest rates may lead to changes in the amortization schedule of DPAC or to increased impairment losses on equity investments. Although management’s short-term assumptions may
Aegon’s target ratio for the composition of its capital base is based on shareholders' equity excluding the revaluation reserve.
dollar and the euro and between the UK pound and the euro. Aegon may experience significant changes in net income and shareholders’ equity because of these fluctuations.
The sensitivity analysis in the following table shows an estimate of the effect of movements in the exchange rates of Aegon’s non-euro currencies relative to the euro on net income and shareholders’ equity. The effects as included in the following table are due to the translation of subsidiaries, joint ventures and associates in the consolidated fi nancial statements. The 2014 numbers in the sensitivity analysis of net income and shareholders’ equity to translation risk have been restated as a result of a change in methodology in compiling the sensitivities. This year the methodology used for translation risk has been brought in line with the methodology used for calculating the other sensitivities. This restatement had no impact on net income, shareholders’ equity, total assets, total liabilities or earnings per share.
Sensitivity analysis of net income and shareholders’ equity to translation risk
Increase by 15% of USD currencies relative to the euro 69 2,181
Increase by 15% of GBP currencies relative to the euro 38 766
Decrease by 15% of other non-euro currencies relative to the euro (77) (2,155)
Decrease by 15% of USD currencies relative to the euro (59) (1,428)
Decrease by 15% of GBP currencies relative to the euro (32) (544)
In periods of rapidly increasing interest rates, policy loans, surrenders and withdrawals may and usually do increase. Premiums in flexible premium policies may decrease as policyholders seek investments with higher perceived returns. This activity may result in cash payments by Aegon requiring the sale of invested assets at a time when the prices of those assets are adversely affected by the increase in market interest rates; this may result in realized investment losses. These cash payments to policyholders result in a decrease in total invested assets and a decrease in net income. Among other things, early withdrawals may also require accelerated amortization of DPAC, which in turn reduces net income.
Money market and other short-term investments - carried at fair value 7,444 - 984 - - - - 984 - 6,460
Mortgage loans - carried at amortized cost 33,214 2,070 - 1,387 45,244 - 1 48,702 15,644 156
Other loans - carried at amortized cost 2,517 - - - - - 2,193 2,193 1,377 1,701
Other financial assets - carried at fair value 3,932 - - - - - - - - 3,932
Private loans - carried at amortized cost 2,058 - - - - - - - - 2,058
Several bonds in Aegon USA’s portfolio are insured by monoline insurers. Further information on the monoline insurers is provided in the section 'Additional information on credit risk, unrealized losses and impairments'.
Cash collateral for mortgage loans includes the savings that have been received to redeem the underlying mortgage loans at redemption date. These savings are part of the credit side of the statement of financial position, but reduce the credit risk for the mortgage loan as a whole.
Aegon manages credit risk exposure by individual counterparty, sector and asset class, including cash positions. Normally, Aegon mitigates credit risk in derivative contracts by entering into credit support agreement, where practical, and in ISDA master netting agreements for most of Aegon’s legal entities to facilitate Aegon’s right to offset credit risk exposure. Main counterparties to these transactions are investment banks which are typically rated 'A' or higher. The credit support agreement will normally dictate the threshold over which collateral needs to be pledged by Aegon or its counterparty. Transactions requiring Aegon or its counterparty to post collateral are typically the result of derivative trades, comprised mostly of interest rate swaps, equity swaps, currency swaps, credit swaps and other bilateral exposure derivatives. Collateral received is mainly cash (USD and EUR). The credit support agreements that outline the acceptable collateral require high quality instruments to be posted. In 2015 and 2014, there was no default with any derivatives counterparty. The credit risk associated with financial assets subject to a master netting agreement is eliminated only to the extent that financial liabilities due to the same counterparty will be settled after the assets are realized. New interest rate swap transactions in the US are traded via Central Clearing Houses as required by the Dodd-Frank act. Credit risk in these transactions is mitigated through posting of initial and variation margins.
At December 31, 2015 there was one violation of the Credit Name Limit Policy at Group level. This violation will be resolved overtime by reducing the exposure. At December 31, 2014 there were three violations of the Credit Name Limit Policy at Group level. These violations have been resolved in 2015 through reducing the exposure.
At December 31, 2015 Aegon’s largest corporate credit exposures are to American United Life Insurance Company, Berkshire Hathaway,
General Electric, HSBC and JP Morgan. Aegon had large sovereign exposures, the largest being in the USA, the Netherlands, Germany,
The ratings distribution of general account portfolios of Aegon’s major reporting units, excluding reinsurance assets, are presented in the table that follows, organized by rating category and split by assets that are valued at fair value and assets that are valued at amortized cost. Aegon uses a composite rating based on a combination of the ratings of S&P, Moody's, Fitch, Internal and National
Past due and / or impaired assets 28 1,540 592 122 - 2 161 23 782 1,687 2,469 1 Includes investments of Holding and other activities.
The following table shows the credit quality of the gross positions in the statement of financial position for general account reinsurance assets specifically: Carrying value 2015 Carrying value 2014
EUR 8,202 million (2014: EUR 7,622 million). The loan to value (LTV) amounted to approximately 55% (2014: 57%). Of the portfolio 0.07% (2014: 0.23%) is in delinquency (defined as 60 days in arrears). In 2015, Aegon Americas recognized EUR 5 million impairments
(net of recoveries) (2014: EUR 8 million) on this portfolio. In 2015, Aegon Americas foreclosed upon, or recovered EUR 23 million
Aegon invests primarily in senior notes of RMBSs, CMBSs and ABSs. Additional information on credit ratings for Aegon's investments in
RMBSs, CMBSs and ABSs are disclosed in the sections that describe per category of debt securities the composition and impairment assessments. The composition of the RMBSs, CMBSs and ABSs portfolios of Aegon are widely dispersed looking at the individual amount per entity, therefore Aegon only has non-controlling interests in individual unconsolidated structured entities. Furthermore these investments are not originated by Aegon.
For RMBSs, CMBSs and ABSs in which Aegon has an interest at reporting date, the following table presents total income received from those interests. The Investments column reflects the carrying values recognized in the statement of financial position of Aegon's interests in RMBSs, CMBSs and ABSs.
Total income for the year ended December 31, 2015 December 31, 2015 2015 Interest income
Of the EUR 473 million (2014: EUR 510 million) indirect exposure on the monoline insurers, 38% relates to Municipal Bond Insurance
unrealized loss position at December 31, 2015, and December 31, 2014, is presented in the following table: Unrealized losses - debt securities and money market investments
Commercial mortgage-backed securities (CMBSs) 2,152 (39) 987 (18) Asset-backed securities (ABSs) - CDOs backed by
Total held by Aegon Americas, NL and UK 24,300 (1,710) 12,011 (713)
Americas, Aegon the Netherlands and Aegon UK. One issuer represents more than 4% of the total unrealized loss position.
dollar strengthened materially against most currencies. In December, the US Federal Reserve ended its zero interest rate policy and tightened the Fed Funds rate by 25 basis points. Longer term US Treasury rates, though, were only modestly higher for the year.
(December 31, 2014: EUR 21 million) by Aegon UK. Residential mortgage-backed securities are securitizations of underlying pools of non-commercial mortgages on real estate. The underlying residential mortgages have varying credit characteristics and are pooled together and sold in tranches. The following table shows the breakdown of Aegon USA’s RMBS available-for-sale portfolio.
AFS RMBS by quality AAA AA A BBB <BBB Total amortized cost Total fair value 1 Reported as part of asset-backed securities in the table on page 174.
However, the positive trends in the housing market have led to improvements in borrower delinquencies and prepayment rates as well as liquidation timelines. Loss severities on liquidated properties remain elevated for subprime loans but are starting to show signs of improvement for other RMBS sectors. The improving housing market and underlying loan credit performance has led to credit spreads tightening across the asset class for the past few years, but the upside going forward is limited.
(December 31, 2014: EUR 118 million) by Aegon the Netherlands. CMBS are securitizations of underlying pools of mortgages on commercial real estate. The underlying mortgages have varying risk characteristics and are pooled together and sold in different rated tranches. The company’s CMBS include conduit, large loan, single borrower, commercial real estate collateralized debt obligations
(December 31, 2014: EUR 18 million). The total net unrealized gain on the available-for-sale CMBS as of December 31, 2015, is
EUR 181 million (December 31, 2014: EUR 275 million), of which EUR 61 million (December 31, 2014: EUR 167 million) relates to positions of Aegon USA, followed by Aegon UK at EUR 119 million and Aegon the Netherlands at EUR 1 million. Throughout 2015,
CMBS fundamentals continued to improve as the pace of credit deterioration moderated, commercial real estate valuations continued to improve and there was a greater availability of financing. Liquidity has improved within the CMBS market; however, credit spreads on many legacy subordinate CMBS tranches remain at wide levels.
of EUR 1 million (December 31, 2014: EUR 29 million), which are classified as fair value through profit or loss.
by Aegon UK. Additionally, Aegon Americas has investments in ABS of EUR 12 million (December 31, 2014: EUR 16 million), which are classified as fair value through profit or loss. ABS are securitizations of underlying pools of credit card receivables, auto financing loans, small business loans, bank loans, and other receivables. The underlying assets of the asset backed securities have been pooled together and sold in tranches with varying credit ratings.
The total gross unrealized loss on AFS ABS of Aegon Americas, Aegon the Netherlands and Aegon UK amounted to EUR 85 million as of December 31, 2015 (December 31, 2014: EUR 80 million). Aegon USA has EUR 55 million (December 31, 2014: EUR 38 million) of this gross unrealized loss and Aegon the Netherlands EUR 29 million (December 31, 2014: EUR 41 million). The stronger financial and economic conditions have helped stabilize in the US and Europe, the performance of the underlying collateral backing many of these securities. The European ABS market had a reasonable strong start of the year. Towards the mid-part of 2015, the sentiment started to turn due to macroeconomic concerns about a slowdown in global economic growth and the oil turmoil. The combination of these factors has led to wider credit spreads over 2015. In the US, increasing investor demand has been met with new issuance in the assetbacked sector. The combination of these factors has led to varied performance by sector, with most sectors exhibiting wider credit spreads over the course of the year.
CDOs backed by ABS, Corp. bonds, Bank loans 1,747 744 304 128 107 3,031 3,005
ABS US, NL and UK AAA AA A BBB <BBB Total amortized cost Total fair value
The fair values of Aegon USA, Aegon the Netherlands and Aegon UK ABS instruments (AFS and FVTPL) were determined as follows: Level II Level III Total 2015 Level II Level III Total 2014
The Banking sub-sector in Aegon’s portfolio is relatively large, diverse, and of high quality. Aegon holds EUR 9,157 million
Bank regulators have implemented a wide array of reforms designed to strengthen capital levels, reduce balance sheet risk and improve liquidity in an effort to reduce systemic risk. Many banks already meet new capital and liquidity requirements, well ahead of regulatory deadlines. In addition, regulators and central governments are adopting new bank guidelines, which are designed to reduce systemic risk by tapping loss-absorbing capital, as needed, to recapitalize or resolve a bank without using taxpayer money. Globally, risk concentrations on bank balance sheets continue to exist, and ratings for some banks remain under pressure, but central banks are accommodative and confidence in the sector has increased materially since the financial crisis.
Aegon’s available-for-sale debt securities for Belfius Bank SA have a fair value of EUR 90 million as of December 31, 2015
(December 31, 2014: EUR 74 million). These below investment grade securities had gross unrealized losses of EUR 36 million as of
The funding provided to Dexia was repaid in February, 2015 and the bond portfolio and credit guarantees have declined in scale and will be run-down to a risk level in line with Belfius’ core franchise business. The material de-risking by the bank since 2011, combined with a relatively stable bank-insurance business model, has lessened Aegons' concern with Belfius. Aegon evaluated the near-term prospects of the issuer and it believes that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2015.
These below investment grade securities had gross unrealized losses of EUR 37 million as of December 31, 2015 (December 31, 2014: EUR 7 million). Teck Resources Limited is a diversified mining company with assets in Canada, the United States, Peru and Chile.
The decline in value has been due to the weakness in pricing for metallurgical coal, copper and zinc, which are Teck’s three main commodity exposures. The reduction in earnings relates to falling commodity prices, which is compounded by sizable capital expenditure commitments. Teck’s liquidity position continues to remain solid. The weaker Canadian dollar and lower oil prices are helping to offset some of the top line pressure by driving down unit costs for Teck's commodity production. While pressure is expected to remain on commodity prices, Teck’s maturity profile is not overly onerous relative to its liquidity position, providing it with an ample runway to wait out an improvement in commodity prices, therefore Aegon evaluated that the contractual terms of this investment will be met and was not impaired as of December 31, 2015.
Additionally, shareholder friendly activities in the form of increased dividends and share repurchases continue. In the aerospace/
Corporate - Industrial sector - Transportation sub-sector The Transportation sub-sector can be further divided into airlines, railroads and transportation services. The majority of the gross unrealized loss relates to completed and operating private infrastructure, such as airports, ports and toll roads. These investments tend to trade at tighter yields than the broader transportation sector due to limited competition and the benefit of security in long-life asset.
Aegon evaluated the near-term prospects of the issuers in relation to the severity and duration of the unrealized loss and does not consider those investments impaired as of December 31, 2015.
Merger and acquisition speculation and activity created volatility in each of the sub-sectors during the year. In addition, several issuers in the communications sector are among the largest issuers in the market and were negatively impacted by the sell-off in liquid securities. On a fundamental basis, the competitive environment in the wireless market remains challenging. The wireline market continues to see a gradual secular decline, whereas cable continues to benefit from the demand for broadband. Media is experiencing an evolution away from traditional media to digital. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2015.
Corporate - Energy industry sector The Energy Industry sector encompasses various sub-sectors including integrated oil and gas producers, independent oil and gas producers, midstream processing and transport, oil field services and drilling, and refining. The majority of the gross unrealized loss relates to independent oil and gas producers, as well as oil field services and drilling. Falling oil prices, and continued low natural gas prices, have reduced cash flow for upstream oil and gas producers. Oil field service and drilling companies have been pressured by the prospect of margin pressure resulting from new capacity additions and the prospect of lower capital spending by their upstream client base. Commodity price pressure stems from strong non-OPEC supply growth, softening global demand, and shifting OPEC policy.
Some issuers have also initiated debt exchange offers that have put additional pressure on security pricing. Midstream processing and transport companies have begun to be impacted by weaker volume growth, higher capital costs, counterparty concerns, and in some cases, commodity price exposure. Refiners have seen positive near term impacts from lower feedstock costs and stronger demand.
Aegon evaluated the near-term prospects of the issuers in relation to the severity and duration of the unrealized loss and does not consider those investments to be impaired as of December 31, 2015.
There is one individual issuer rated below investment grade in the Energy Industry sector which has unrealized losses greater than
Corporate - Utility sector The Utility sector is further subdivided into electric, natural gas and other sub-sectors, with a majority of the gross unrealized losses in electrics domiciled in the United States.
impacted by low natural gas prices and the corresponding low electricity prices as well as reduced customer usage. These companies have experienced margin pressure for their coal and nuclear generation assets. Absent a recovery in electricity prices, credit fundamentals for merchant generators could show further deterioration as hedges continue to roll-off. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2015.
There are no individual issuers rated below investment grade in this sub-sector which have unrealized loss positions greater than
Below investment grade carrying value of securities with gross unrealized losses Investment grade unrealized loss
Below investment grade carrying value of securities with gross unrealized losses Investment grade unrealized loss Below investment grade unrealized loss
The unrealized loss worsened during 2015 due to rising interest rates and widening credit spreads in the US and UK.
There are three individual issuers, Belfius Bank SA, Teck Resources and Transocean Inc. rated below investment grade that have an unrealized loss greater than EUR 25 million. These issuers have been separately disclosed above in the Corporate – Financial sector and
UK for the twelve months ended December 31, 2015, and December 31, 2014.
The table below provides the length of time the security was below cost prior to the sale and the respective realized loss for assets not considered impaired.
Impairment losses and recoveries The composition of Aegon Americas, Aegon the Netherlands and Aegon UK’s bond impairment losses and recoveries by issuer for the periods ended December 31, 2015, and December 31, 2014, is presented in the table below. Those issuers with impairments or recoveries above EUR 25 million are specifically noted.
Impairments: Other (none individually greater than EUR 25 million) (32) (36)
Net (impairments) and recoveries Net recoveries for the twelve months ended December 31, 2015, totaled EUR 77 million (twelve months ended December 31, 2014: EUR 20 million net recoveries).
is no longer considered to be impaired. When the terms and conditions of financial assets have been renegotiated, the terms and conditions of the new agreement apply in determining whether the financial assets are past due.
Debt securities - carried at fair value 51 3 53 108 10 53 14 77
These factors typically require significant management judgment. The impairment review process has resulted in EUR 4 million of impairment charges for the twelve months ended December 31, 2015 (twelve months ended December 31, 2014: EUR 3 million) for
UK at December 31, 2015, and December 31, 2014 is presented in the table below.
Impairment losses on shares The table below provides the length of time the shares held by Aegon Americas, Aegon the Netherlands and Aegon UK were below cost prior to their impairment in 2015 and 2014.
Holding and other activities Total 2014 1 Common shares in Holding and other activities includes the elimination of treasury shares in the general account for an amount of EUR 1 million.
DPAC amortization and guaranteed minimum benefits provisioning, while moderate scenarios may not. Aegon generally has positive income benefits from equity market increases and negative impacts from equity market declines as it earns fees on policyholder account balances and provides minimum guarantees for account values. Aegon holds options in its portfolio to provide protection for equity market declines. In 2015 Aegon added options to the portfolio to provide additional protection.
Aegon operates a Liquidity Risk Policy under which country units are obliged to maintain sufficient levels of highly liquid assets to meet cash demands by policyholders and account holders over the next two years. Potential cash demands are assessed under a stress scenario including spikes in disintermediation risk due to rising interest rates and concerns over Aegon’s financial strength due to multiple downgrades of the Group’s credit rating. At the same time, the liquidity of assets other than cash and government issues is assumed to be severely impaired for an extended period of time. All legal entities and Aegon Group must maintain enough liquidity in order to meet all cash needs under this extreme scenario.
The projected cash benefit payments in the table below are based on management’s best estimates of the expected gross benefits and
Investment contracts for account of policyholders 255 11,489 28,422 26,050 64,509 130,725
Investment contracts for account of policyholders 289 9,948 27,591 25,372 72,461 135,661 1 The liability amount in the consolidated financial statements reflects the discounting for interest as well as adjustments for the timing of other factors as described above. As a result, the sum of the cash benefit payments shown for all years in the table exceeds the corresponding liability amounts included in notes 36 Insurance contracts and 37 Investments contracts.
These are presented together with the host contract. For interest rate derivatives only, cash flows related to the pay leg are taken into account for determining the gross undiscounted cash flows.
The reconciliation from underlying earnings before tax to income before tax, being the most comparable IFRS measure, is presented in the tables in this note.
The items that are excluded from underlying earnings before tax as described further below are: fair value items, realized gains or losses on investments, impairment charges/reversals, other income or charges, run-off businesses and share in earnings of joint ventures and associates.
During 2015, Aegon implemented actuarial assumption and model updates resulting in a net EUR 181 million charge to income before tax.
Assumption updates resulted in a net EUR 24 million gain to income before tax. Charges arising from actuarial assumption updates included in underlying earnings before tax in 2015 amounted to EUR 77 million: �� A charge for actuarial assumption updates in the Americas Life & Protection business amounted to EUR 17 million, and was primarily related to updated mortality assumptions of active lives and updated lapse assumptions. �� Actuarial assumption updates in the Americas Investments & Retirement business resulted in a charge of EUR 60 million and was primarily related to expense assumption updates related to fixed and variable annuity contracts.
In 2015, management decided to change the measurement of underlying earnings before tax by including the impact of model updates as part of ‘Other income/(charges)’ rather than as part of underlying earnings before tax. The models are used to support calculations of Aegon’s liabilities for insurance and investment contracts sold to policyholders and related assets. Model updates could result in either a strengthening of reserves or a release of reserves held to cover for insurance or investment contracts inforce and the related treatment of deferred acquisition costs or costs of value of business acquired. The reason for this change in measurement is that management believes that these model updates are expected not to be recurring.
income statement remained unchanged and continue to be part of the line ‘Policyholder claims and benefits’.
Impairment charges/reversals Impairment charges include impairments on available-for-sale debt securities, shares including the effect of deferred policyholder acquisition costs, mortgage loans and other loan portfolios at amortized cost, joint ventures and associates including the effect of deferred policyholder acquisition costs when the returns are part of a product grouping where DPAC is amortized based on gross profits. Impairment reversals include reversals on available-for-sale debt securities.
As of 2015, the impact of model updates used to support calculations of Aegon’s liabilities for insurance and investment contracts sold to policyholders and related assets are reported under this caption as well.
outside the normal course of business. In the consolidated income statements, these charges are included in operating expenses.
Gains and (losses) on investments in real estate 10 145 (4) (49)
Fair value changes on economic hedges for which no hedge accounting is applied 10 (139) (241) (108)
Realized gains and (losses) on repurchased debt 10 2 3 -
Fair value movements of guarantees related to liabilities for insurance contracts 12 (183) (150) (143)
Amortization of deferred expenses, VOBA and future servicing rights 767 39 218 123 - 1,147
Of which Aegon’s share of employees in joint ventures and associates 441 - - 1,021 - 1,462
Investment contracts for account of policyholders 29,842 2,424 53,644 4,209 - - 90,119
Off-balance sheet investments third parties 212,704 897 830 131,940 - - 346,371
Investment income from financial assets held for general account: 2015 2014 2013
Included in fee and commission income is EUR 56 million of fees on trust and fiduciary activities (2014: EUR 35 million; 2013: EUR 40 million).
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives (35) 192 370
Net fair value change on for account of policyholder financial assets at fair value through profit or loss (110) 11,226 15,571
Net fair value change on investments in real estate for account of policyholders 67 53 (12)
Net foreign currency gains and (losses) includes a loss of EUR 5 million (2014: nil, 2013: nil) that is classified for segment reporting purposes as non-underlying earnings.
Realized gains and losses on financial investments comprise: 2015 2014 2013
Net fair value change on economic hedges where no hedge accounting is applied (598) 3,650 (1,339)
Ineffective portion of hedge transactions to which hedge accounting is applied (14) 43 9
Net fair value change on economic hedges where no hedge accounting is applied includes a loss of EUR 139 million related to fair value movements of derivatives (2014: loss of EUR 241 million, 2013: loss of EUR 108 million) that is classified for segment reporting purposes as non-underlying earnings.
Seven Investment Management (7IM) which is accounted for as an associate. The 7IM transaction led to a net gain of EUR 10 million
(GBP 7 million) and was recorded as an associate in the books of Aegon. The sale of Clark led to a book gain of EUR 7 million
Other income in 2014 mainly reflected the release of EUR 23 million regarding the earn out provision of Liberbank in Spain and the guarantee fund payments release of EUR 14 million related to the sale of sovereign assets in Poland to the state, following pension legislation changes introduced in 2013.
Change in valuation of liabilities for investment contracts (6,678) 1,404 2,370
EUR 19 million (2014: EUR 6 million; 2013: EUR 12 million).
Amortization of VOBA and future servicing rights include a charge of EUR 3 million (2014: charge EUR 4 million; 2013: gain
EUR 13 million) that is classified as non-underlying earnings for segment reporting purposes.
Supervisory Board has the right to reclaim variable compensation that has already been paid out or vested.
Staff' in accordance with the rules applicable to them and their interpretation by relevant supervisory authorities. Of these, the Dutch 2015 Act on compensation in the financial sector (Wet beloningsbeleid financiële ondernemingen Wft), the Dutch 2014 Decree on sound remuneration policy (Regeling beheerst beloningsbeleid 2014) and the guidelines issued by the European Banking Authority
The conditional grant of variable compensation is also dependent on continued employment of the individual employee to whom the rights have been granted. An ex-post assessment is applicable to determine whether allocated (unvested) variable compensation should become unconditional or should be adjusted. In addition, in specific circumstances Aegon’s Supervisory Board has the right to reclaim variable compensation that has already been paid out or vested. For members of the Executive Board and the Management
Below an overview is provided of active plans for Long-term incentive and Variable compensation Identified Staff.
Number of shares conditionally granted 2) 18,506 4,075,460 9,195,284 5,735,046 5,306,037 5,178,633 29,508,966
Number of shares conditionally granted 2) - - - - 5,306,037 - 5,306,037
Share appreciation rights and share options Senior executives of Aegon companies, as well as other Aegon employees, have been offered both share appreciation rights (SARs) and share options. These share appreciation rights and share options have been granted at an exercise price equal to the market price of the shares at the date of the grant. The rights and options granted in 2006 - 2008 vest after three years and can only be exercised during the four years after the vesting date. Vesting and exercisability depend on continuing employment of the individual employee to whom the rights and options have been granted. Option plans are settled in equity, while stock appreciation rights are settled in cash or provide the employee with the choice of settlement.
Share appreciation rights The following tables present the movements in number of SARs outstanding, as well as the breakdown by the year in which they were granted.
The liability related to SARs is valued at fair value at each balance sheet date. There were no costs related to the share appreciation rights in 2015 (2014: nil; 2013: nil).
The costs related to the share options amount to EUR nil million (2014: EUR nil million; 2013: EUR 1 million) and are recognized in the income statement as part of Commissions and expenses.
The exposure from the issued SARs and share options was economically hedged by part of the position in treasury shares.
Impairment reversals on financial assets, excluding receivables 1) (119) (66) (77)
Segment information). 2 Of impairment charges on non-financial assets and receivables nil is excluded from underlying earnings before tax for segment reporting (refer to note 5 Segment information) (2014: EUR 13 million and 2013: EUR 170 milion).
In 2013, impairment charges on non-financial assets and receivables included the impairment on goodwill and customer related intangibles on the Polish pension business totaling EUR 163 million. Refer to note 21 Intangible assets for more details.
Impairment reversals on financial assets, excluding receivables, from: 2015 2014 2013
Other charges of EUR 774 million in 2015 mainly relate to the book loss on the sale of Aegon’s Canadian life insurance business. For the sale of Canada refer to note 51 Business combinations.