Monetary Union; ‘USD’, and ‘US dollar’ when referring to the lawful currency of the United States of America; ‘GBP',
From the Brexit referendum in the UK to the presidential election in the US, 2016 was a year defined by a series of events that had profound effects on the global economy. Uncertainty and instability led to considerable volatility on financial markets, interest rates decreased to historically low levels before rising later in the year, and the trend of governments retreating from providing retirement security continued. Against this backdrop,
Aegon’s work of bringing certainty in an uncertain world has never been more important, and I’m proud of how we delivered on our promises to our many millions of customers worldwide during the year – paying out over EUR 59 billion in claims, benefits and plan withdrawals.
Our financial performance I am pleased that Aegon’s Solvency II ratio remained well within our target range of 140 to 170 percent throughout the year
December 31, 2016, of 157 percent was above the midpoint of our target range, and this consistent performance throughout the year is a demonstration of our company’s diligent approach to managing risk and protecting our balance sheet. There is nonetheless potential for renewed volatility and uncertainty around the calculation of this ratio, and we remain mindful and focused on such risks.
While we experienced some significant headwinds this year in the form of market volatility and some adverse claims experience
– both of which had an impact on earnings – we are on track to deliver on our 2018 financial targets. Moreover, I am pleased that we successfully increased capital returns to our shareholders this year as part of our commitment to return EUR 2.1 billion to shareholders in the period 2016-2018.
Transforming our company Meeting our purpose of helping people achieve a lifetime of financial security demands that we constantly evolve as a business so that we can continue to serve our customers’
US business, which has brought all of Transamerica’s business units together into a single, customer-facing company, and gives our customers easier access to all our different products and services.
Alex Wynaendts (1960, Dutch) CEO and Chairman of the Executive and Management Boards of Aegon N.V. Alex Wynaendts began his career in 1984 with ABN AMRO Bank, working in Amsterdam and London in the Dutch bank’s capital markets, asset management, corporate finance and private banking operations. In 1997, Mr. Wynaendts joined Aegon as
Executive Board and Management Board. Mr. Wynaendts was reappointed at the Annual General Meeting of Shareholders in 2015. His third term of office ends in 2019. Mr. Wynaendts has been an Independent Director of the Board of Air France-KLM S.A.
Aegon USA in 2002 and became CFO of Aegon Americas in 2005.
Center. In 2013, Mr. Button was appointed as CFO and member of the Executive Board of Aegon. In addition, Mr. Button is a Board member at the American Chamber of Commerce in the Netherlands. He has held no other external board memberships in the past five years.
Technology, responsible for Digital, Data and Operations technology solutions and innovations, including Citi’s online and mobile banking applications, ATMs, and Call Center technologies.
Aegon’s Management Board in August 2016. Mr. Bloom has held no other external board memberships in the past five years.
Aegon as CEO of the UK in 2011. He became member of the Management Board of Aegon in 2012 and is a non-executive
Director at Clydesdale Bank and a member of the Financial Conduct
Authority practitioners panel. Mr. Grace was member of the Board of Scottish Financial Enterprise up until June 2013 and held no other external board memberships in the past five years.
Strategic information Composition of the Executive Board and the Management Board6
Allegra van Hövell-Patrizi (1974, Italian) Chief Risk Officer of Aegon N.V. and member of the Management Board Aegon N.V. Allegra van Hövell-Patrizi began her career in 1996 at McKinsey &
Prudential plc where she became Group Risk Director, 1 On December 16, 2016, Aegon announced that Mr. Keim would become responsible for Aegon’s activities in continental Europe as of January 1, 2017. 2 On December 16, 2016, Aegon announced that Mr. Kepecs will retire in 2017.
Mr. Keim was appointed CEO of Aegon the Netherlands and member of Aegon’s Management Board in June 2008. Mr. Keim was a member of the Supervisory Board of AMVEST Vastgoed
Eneco Holding N.V. In addition, Mr. Keim holds board positions at
VNO-NCW and at Verbond van Verzekeraars. Mr. Keim has held no other external board memberships in the past five years.1
Mr. Van Klinken rejoined Aegon in 2014 as General Counsel responsible for Group Legal, Regulatory Compliance, the
August 2016. He has not held any external board memberships in the past five years.
Strategic information Composition of the Executive Board and the Management Board7
Carla Mahieu (1959, Dutch) Global Head Human Resources and member of the Management Board Aegon N.V. Carla Mahieu started her career in 1984 at Royal Dutch Shell, where she held various management positions within Human
President and CEO of Aegon Americas and a member of the Management Board in 2010. Mr. Mullin has not held any external board memberships in the past five years.
Aegon’s Management Board since August 2016. Ms. Russell is a non-executive director of Nordea Bank AB since 2010 and also holds a Supervisory Board member position at Nederlandse
Board of La Banque Postale Asset Management. Ms. Russell has held no other external board memberships in the past five years.
Aegon’s strategy Aegon’s ambition Aegon’s purpose – to help people achieve a lifetime of financial security – forms the basis of the Company’s strategy. The central focus of the strategy is to further change the Company by shifting from a product-based company to a customer needdriven one. This means serving diverse and evolving needs across the customer life cycle (‘right time, right solution’); aligning
(‘Loyal Customers’); �� Delivering excellent service to customers at competitive cost levels by increasing scale and improving quality, efficiency, and accuracy of processes with technology
Aegon is headquartered in the Netherlands, and through its subsidiaries and joint ventures it employs over 29,000 people worldwide. Aegon’s common shares are listed on stock exchanges in Amsterdam (Euronext) and New York (NYSE). Aegon’s main operating units are separate legal entities that operate under the laws of their respective countries. The shares of these legal entities are directly or indirectly held by three intermediate holding companies incorporated under Dutch law: Aegon Europe
The separate operating segments of the Netherlands, the United Kingdom, Central & Eastern Europe and Spain & Portugal may be referred together as ‘Europe', but Europe is not an operating segment.
2 Excluded from the income statements prepared in accordance with IFRS are receipts related to investment-type annuity products and investment contracts.
Dividends Aegon declared interim and final dividends on common shares for the years 2012 through 2016 in the amounts set forth in the following table. The 2016 interim dividend amounted to
Meeting of Shareholders on May 19, 2017, 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 2016 to EUR 0.26. Proposed final dividend for the year and proposed total dividend 2016 per common share B are EUR 0.00325 and
EUR 0.00650 respectively. Dividends in US dollars are calculated based on the foreign exchange reference rate (WM/Reuters closing spot exchange rate fixed at 5.00 pm Central European
Year Interim Final Total Interim Final Total 1 Paid at each shareholders’ option in cash or in stock. 2 Proposed.
The average exchange rates for the US dollar per euro for the five years ended December 31, 2016, 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)
Includes services to individuals rolling over funds from other qualified retirement funds or Individual Retirement
Latin America �� Brazil: Life and critical illness insurance; private and company pensions; pension scheme administration; and investment funds.
�� Mexico: Individual life, group life, and health insurance; and saving plans.
�� Pensions: Individual and group pensions usually sponsored by, or obtained via, an employer. Administration-only services are offered to company and industry pension funds. �� 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.
Central & Eastern Europe Activities in the Czech Republic, Hungary, Poland, Romania,
Slovakia, and Turkey. This business line includes life insurance, individual and group pension products, savings and investments, in addition to general insurance.
Asia High net worth businesses Life insurance marketed to high-net-worth individuals in
Accident and health insurance premiums 2,204 210 36 1 73 320 104 - (4) 2,624 (15) 2,609
�� Underlying earnings before tax from asset management decreased by 12% in 2016 compared with 2015 to
EUR 645 million in 2016, and were mainly driven by fair value losses in the United States. EUR 521 million fair value losses in the United States in 2016 were driven by the loss on hedging programs and the underperformance of alternative investments.
EUR 226 million was primarily driven by investments related to hedge funds in the United States. In addition, the loss on interest rate swaps was the main driver of the EUR 74 million fair value losses in 2016 at the holding.
Impairment charges Net impairments of EUR 54 million in 2016 primarily related to investments in the energy industry in the United States.
Other charges Other charges amounted to EUR 771 million in 2016. These were mostly caused by the book loss on the divestment of the annuity portfolio in the United Kingdom (EUR 682 million), and assumption changes and model updates (EUR 118 million).
to EUR 100.3 billion, driven by higher gross deposits in asset management and Retirement Plans in the United States.
EUR 3.5 billion in 2016 compared with 2015, mostly due to lower gross deposits in variable annuities, anticipated contract discontinuances from the business acquired from Mercer, and low asset management net flows. The latter were mainly driven by market insecurity following the Brexit vote and a reduction in flows from money market funds in China. New life sales declined by 12% compared with 2015 to EUR 969 million in 2016, mostly driven by lower universal life and term life production in the
United States, fewer pension buy-out sales in the Netherlands, and lower sales in Asia as a result of Aegon’s strict pricing policy in a low rate environment. New premium production for accident
& health and general insurance decreased by 9% compared with 2015 to EUR 954 million in 2016, mainly as a result of several product exits and a lower contribution from portfolio acquisitions.
EUR 1.1 billion to EUR 5.4 billion. Aegon’s shareholders’ equity, excluding revaluation reserves and defined benefit plan remeasurements, amounted to EUR 17.4 billion on December 31, 2016, or 8.51 per common share. The gross leverage ratio increased to 29.8% on December 31, 2016, compared with 28.4% at the end of 2015, which was mostly the result of the issuance of EUR 500 million senior unsecured notes. Excess capital in the holding increased from EUR 1.4 billion at the end of 2015 to EUR 1.5 billion on December 31, 2016, as net remittances from business units and the aforementioned issuance of senior unsecured notes more than offset the
EUR 400 million share buyback, dividends to shareholders, interest payments and operating expenses.
In the Netherlands, the estimated Solvency II ratio at the end of 2016 amounted to 135%. The estimated Solvency II ratio at the end of 2016 of Aegon United Kingdom amounted to 156%.
The Group Solvency II ratio and Aegon the Netherlands Solvency II
ratio have been updated since the earlier public communications on February 17, 2017 as a result of a change in the calculation of the risk margin in the Netherlands.
Results 2015 worldwide Underlying earnings geographically Amounts in EUR millions 2015 2014 %
Run-off businesses 88 11 Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) (601) 1,485 -
Total life insurance gross premiums 7,046 2,240 8,465 477 174 11,356 1,713 - (102) 20,013 (431) 19,583
Accident and health insurance premiums 2,266 234 47 1 64 345 105 - - 2,717 (14) 2,703
Number of employees, including agent employees 12,701 4,503 2,478 2,470 534 9,985 7,163 1,382 299 31,530
Net income The net loss amounted to EUR 523 million in 2015, impacted by the write down of deferred policy acquisition costs in the
United Kingdom related to the restructuring of the organization, the loss on the divestment of the Canadian life insurance activities and the impact of model updates.
Underlying earnings before tax Aegon’s underlying earnings before tax in 2015 declined compared with 2014 to EUR 1,867 million. This was driven by the write down of deferred policy acquisition costs in the United Kingdom related to upgrading customers to the retirement platform and a lower result from the Holding.
�� Underlying earnings before tax from the Americas remained stable compared with 2014 at EUR 1,278 million in 2015.
�� The result from the holding deteriorated compared with 2014 to a loss of EUR 161 million in 2015. This was mainly the result of higher net interest costs compared with 2014 following a debt issuance to refinance a perpetual security for which the cost was previously accounted for directly through shareholders’ equity and a tax gain received in 2014.
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 403 million). This was mainly driven by the loss on equity hedges, which were set up to protect Aegon’s capital position. Underperformance of fair value investments of
EUR 201 million was primarily driven by investments related to energy-related investments and hedge funds in the United States.
Realized gains on investments Realized gains on investments amounted to EUR 346 million in 2015 and were primarily related to a rebalancing of the fixed income portfolio in the Netherlands and the United Kingdom.
Other charges Other charges amounted to EUR 2,180 million in 2015.
Run-off businesses The results of run-off businesses improved compared with 2014 to EUR 88 million in 2015.
This was mostly driven by tax credits related to solar energy investments in the United States and the low tax rate on losses as a result of the write down of deferred policy acquisition costs in the United Kingdom.
Commissions and expenses Commissions and expenses increased by 18% in 2015 compared with 2014 to EUR 6.9 billion, which was mainly caused by the adverse impact of the accounting changes. Operating expenses increased by 13% in 2015 compared with 2014 to EUR 3.7 billion.
Production In 2015, compared with 2014, gross deposits were up 38% to
EUR 82.6 billion, driven by higher pensions and mutual fund deposits in the United States, production from online bank
compared with 2014 to EUR 17.2 billion in 2015, mostly due to higher gross deposits and the de-recognition of movements in stable value solutions balances. New life sales declined by 3%
compared with 2014 to EUR 1.1 billion in 2015, mostly driven by lower universal life production in the United States, fewer pension buy-out sales in the Netherlands. New premium production for accident & health and general insurance increased by 3% compared with 2014 to EUR 1.0 billion in 2015, as the stronger US dollar more than offset a lower contribution from portfolio acquisitions and several product exits.
Canadian life insurance activities was offset by the redemption of the USD 500 million senior bond, which matured on
on December 31, 2015. The decrease in the United States primarily reflected market conditions and the impact of assumption changes and model updates implemented during the third quarter. In the Netherlands, the IGD ratio, excluding Aegon
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 3 5 (32%) 3 5 (32%)
Accident and health insurance premiums 2,440 2,515 (3%) 2,204 2,266 (3%)
Net impairments amounted USD 33 million in 2016, primarily related to investments in the energy industry. Other charges of
compared with 2015 in 2016 to USD 1.8 billion. Expense savings and lower restructuring charges compared with 2015 were partly offset by increased variable personnel expense and the acquisition of the defined contribution business acquired from Mercer.
Production Gross deposits increased by 10% in 2016 compared with 2015 to
Results 2015 Americas Amounts in USD millions Amounts in EUR millions
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) (268) 925 - (241) 696 -
Results 2015 Americas The net loss in 2015 was USD 261 million, primarily the result of the book loss on the divestment of Canada of USD 837 million. Underlying earnings before tax decreased by 16% in 2015 compared with 2014 to USD 1.4 billion. This was mainly driven by adverse claims experience and the impact on recurring underlying earnings before tax of the actuarial assumption changes and model updates implemented in the third quarters of 2014 and 2015. Gross deposits declined by 3% in 2015 compared with 2014 to USD 41.1 billion and new life sales by 9% in 2015 compared with 2014 to USD 665 million, both due to product adjustments to improve profitability, while new premium production for accident & health insurance was down 16% in 2015 compared with 2014 to USD 1.0 billion.
Result on fair value items amounted to a loss of USD 768 million in 2015, which was primarily related to the impact on hedging programs as a result of lower interest rates and higher equity markets compared with 2014. Income before tax from run-off businesses amounted to USD 98 million in 2015. Realized losses on investments amounted to USD 83 million in 2015, and were mainly related to investments in emerging markets and the energy sector. Net impairments improved from a benefit of
USD 27 million in 2014 to a benefit of USD 79 million in 2015 as recoveries, which were mostly related to investments in subprime residential mortgage-backed securities, more than offset gross impairments. Other charges were USD 1.0 billion in 2015, and were primarily related to the divestment of Aegon’s Canadian business and model updates.
Underlying earnings before tax Underlying earnings before tax in 2015 decreased by 16%
�� Underlying earnings before tax from Variable Annuities increased by 9% in 2015 compared with 2014 to
USD 503 million as a result of higher average balances driven by net deposits. �� Fixed Annuity underlying earnings before tax were down 38%
in 2015 compared with 2014 to USD 131 million. Underlying earnings before tax from fixed annuities were impacted by the decline of balances compared with 2014 as a result of deemphasizing the business.
Production Gross deposits declined by 3% in 2015 to USD 41.1 billion compared with 2014. Higher gross deposits in retirement plans were more than offset by lower gross deposits in variable annuities. Gross deposits in retirement plans increased by 4%
New premium production for accident & health insurance was down 16% in 2015 compared with 2014 to USD 1.0 billion, mainly resulting from a lower contribution from portfolio acquisitions and several product exits.
Overview of Americas Aegon Americas operates under the Transamerica brand in the United States, and also has operations in Brazil and Mexico.
Aegon utilizes a variety of distribution channels to help customers access its products and services as suits their needs.
Aegon in Brazil In 2009, Aegon acquired a 50% interest in Mongeral Aegon
Aegon), Brazil's fourth largest independent (i.e. non-bank affiliated) life insurer. As of December 2016, Aegon Brazil had approximately 500 employees.
Mongeral Aegon, which already serves over 2 million customers nationwide through over 4,000 brokers.
Aegon in Mexico In 2006, Aegon acquired a 49% interest in Seguros Argos S.A. de C.V., a Mexican life insurance company. In 2013, Aegon entered into a joint venture with Administradora Akaan S.A. de C.V. and created Akaan-Aegon S.A.P.I. de C.V. to explore financial service opportunities. This Mexico City-based organization is still in the start-up phase and focuses on third-party asset management.
Aegon in Canada In Canada, Aegon operates an insurance agency under the brand
Transamerica Corporation, which is the holding company for the US operations. Business is conducted through its various subsidiaries. The use of the term ‘Aegon USA’ throughout this business overview refers to the operating subsidiaries in the
Aegon conducts business. Aegon USA has operating licenses in every US state, in addition to the District of Columbia,
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.
The product lines sold or operated through one or more of the Aegon USA’s life insurance companies include: life, accident & health, mutual funds, variable annuities, fixed annuities, retirement plans, stable value solutions, and Latin
America. The product lines, described in greater detail below, represent groups of products and services that Aegon USA
channels. Products are also offered and distributed through one or more of Aegon USA’s licensed insurance or brokerage subsidiary companies.
Organizations’. These are typically non-registered products sold through independent insurance agents. This channel offers life insurance (term life, universal life, variable universal life1, index universal life and whole life insurance), 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 legacy planning.
Partner Known as ‘Transamerica Financial Network’, Aegon USA provides advice and guidance to individuals to meet their protection and investment needs. Over 54,000 associates (World Financial
offer insurance, annuities, mutual funds, retirement plans and managed accounts to individuals. This channel provides the same life and health products as the brokerage channel, with a focus on the middle and emerging affluent markets.
Aegon USA also offers individual products through institutions including large broker-dealer research and advisory platforms and large registered investment advisors.
Wholesale Aegon USA offers annuities, mutual funds, retirement plans, life insurance and long-term care products through partnerships with independent broker-dealers that want a direct relationship with Aegon USA. The broker-dealer network is broken out into three areas: banks, wirehouses, and independent financial planners. Aegon USA’s wholesalers are dedicated to one product line, but work closely together to refer advisors across Aegon
USA’s multiple product lines with the intent of creating deeper partnerships with advisors and becoming even more relevant in the financial lives of customers.
After reviewing these businesses, Aegon decided that they no longer fitted with its strategic objectives.
Products offered include term life, universal life, variable universal life, index universal life and whole life insurance.
The premium amount for variable universal life insurance is flexible and, within contract limits, may be changed by the consumer as needed – although these changes can result in a change in the coverage amount. The investment feature usually
Index universal life insurance Index Universal Life (IUL) insurance provides permanent death benefit protection and cash value accumulation with flexible premium payments. What distinguishes it from other types of permanent life insurance is the way in which interest earnings are credited. 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 market indices.
Supplemental health insurance Supplemental health insurance products include accidental death and dismemberment, accidental injury, cancer, critical illness, disability, hospital indemnity, Medicare Supplement, Medicare
Part D prescription drug, retiree medical, and supplemental medical expense indemnity.
A number of these products provide policyholders with lump sum or specified income payments if hospitalized, injured, or diagnosed with a critical illness. Others pay benefits for specific medical expenses and treatments, or cover deductibles, co-payments and co-insurance amounts not covered by other health insurance. In addition, medical stop-loss insurance is offered to employers to protect against catastrophic losses under self-funded health plans.
Long-term care insurance Long-term care (LTC) insurance products provide benefits to policyholders that require qualified LTC services as they are unable to perform two or more specific activities of daily living or due to a severe cognitive impairment. LTC insurance helps protect a policyholder’s assets from the high cost of LTC services, and it may also help families better manage the financial, health and safety issues associated with LTC.
Casualty insurance Casualty insurance products include travel, involuntary unemployment and bike insurance products that provide protection for covered trips, unemployment and damage/loss to bicycles respectively. Following the announcement to exit the Affinity, Direct TV and Direct Mail channels, these casualty products will be discontinued after a wind down period.
Mutual funds Mutual funds are offered for all market conditions, including asset allocation, US equity, global/international equity, alternative investments, hybrid allocation, fixed income and target date funds. Mutual funds are offered through a sub-advised or
A rigorous on-going process of due diligence, manager selection, and ongoing reviews of manager performance versus objectives and peers enables our sub-advised mutual fund business to provide best-in-class investment options to Aegon USA customers.
Fixed annuities Fixed annuities allow investors to make a lump-sum payment or a series of payments and receive income in the form of periodic payments that can begin immediately or after a period of time.
Aegon USA is not actively marketing new sales of traditional fixed deferred annuities, and current sales primarily represent annuitizations and additional premium on existing contracts.
Aegon USA’s fixed-indexed annuity is distributed through third-party or affiliated broker-dealers and/or insurance agencies.
Plan sponsors have access to a wide array of investment options.
de C.V., a joint venture with Administradora Akaan S.A. de C.V., and a 49% interest in Seguros Argos S.A. de C.V., a Mexican life insurance company. Mongeral Aegon’s insurance activities include 1 PLANSPONSOR, June 2016, Webpage visited November 21, 2016.
Akaan-Aegon is in the start-up process and will initially focus on third-party asset management. Seguros Argos’ primary product is a 20-year term life insurance product.
The payment terms of any particular series substantially matched the payment terms of the funding agreement that secured that series.
Payout annuities Payout annuities are a form of immediate annuity purchased as a result of a lawsuit or claim. New sales of payout annuities were discontinued in 2003, although Aegon USA continues to administer the closed block of business.
On September 2, 2015, Aegon USA sold Clark Consulting, its BOLI distribution and servicing unit. Clark Consulting was a distinct entity within the BOLI/COLI insurance business that continues to be in run-off.
Competition The US marketplace is highly competitive. Aegon USA's competitors include other large insurance carriers, in addition to certain banks, securities brokerage firms, investment advisors, and other financial intermediaries marketing insurance products, annuities and mutual funds. Aegon USA leverages long-term relationships with many institutions to offer them product lines such as life insurance, variable annuities, mutual funds, and defined contribution pension plans.
Schwab, and Lincoln. Aegon USA’s main competitors in the defined benefit segment are MassMutual, New York Life, Principal
Regulation and supervision Aegon USA’s insurance companies and the business they conduct in the US are regulated primarily at state level, as carried out by various state insurance regulators. Some activities, products and services are also subject to federal regulation.
This regulation includes implementation and enforcement of standards of solvency, adequacy of reserves and capital, and reinsurance.
The Aegon USA insurance companies are licensed as insurers and are 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, advertising 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. State regulators, by law, conduct extensive financial examinations every three to five years.
Recent regulatory enhancements include increased reporting of holding company activities, increased transparency and uniformity for certain captive reinsurance transactions, and requirements for companies to conduct an Own Risk and Solvency Assessment
(ORSA). In 2014, the NAIC adopted a regulatory framework impacting captives used for term and universal life with secondary guarantee products (‘Actuarial Guideline 48’), which became effective on January 1, 2015. In addition, principle-based reserving for life insurance will come into force in 2017. Actuarial
Aegon USA uses captives for certain variable annuity business in order to facilitate effective hedging. Other current initiatives
include a project to update capital charges for asset default risk, longevity risk and operational risk. A project to develop a group capital calculation is in its early stages. Long-term care is currently regulated by states as health insurance, although both state regulators and federal agencies are examining the current environment for long-term care industry, and this may lead to a more predictable regulatory regime for premium adjustments, and facilitate the development of new and innovative products.
Federal Regulation of Financial Services and Health Insurance Although the insurance business is primarily regulated at 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
Savings and Loan Holding Companies, and to participate in the establishment of international insurance capital standards for Internationally Active Insurance Groups (IAIGs) and globally systemically significant insurers (G-SIIs). The Federal Reserve
Board has issued an Advanced Notice of Proposed Rulemaking, the initial step in establishing capital standards for insurers under its jurisdiction. In the area of privacy, there has been increased scrutiny at a state, federal and international level following a number of high-profile data breaches of financial services and other companies. As a result, Congress and federal regulators are considering options to combat data breaches and cyber-threats, in addition to those already imposed by the Gramm-Leach-Bliley
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. Regulations under the PPACA have been proposed, which if promulgated in the form proposed, could impose additional restrictions and requirements on these products.
Trump administration, although at present it is too early to comment as to what, if any, impacts will come to pass.
Securities Regulation A number of Aegon USA subsidiaries are subject to regulation under the federal securities laws administered by the Securities and Exchange Commission (SEC) and aspects of states’ securities and other laws. Variable insurance policies, certain annuity contracts and registered management investment companies
Aegon USA insurers that offer variable life insurance and certain annuities and interests under these annuity and insurance policies are registered and subject to SEC regulation. The distribution and sale of these and other securities by affiliate and non-affiliate broker-dealers is regulated by the SEC and the Financial Industry
Regulatory Authority (FINRA). A number of Aegon USA companies are also registered as investment advisors and subject to
oversight of registered investment advisors, but has not provided any timeframe for such a proposal. Finally, the SEC has reformed the regulation of money market funds by distinguishing between
The compliance date for the majority of the rule’s requirements was October 14, 2016. In response to the rule, Aegon’s money market funds in the United States have all converted to government money market funds, effective as of May 1, 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, sales, investments and oversight processes related to retail investors saving for retirement, variable annuity buyout offers, and share classes in mutual funds and variable annuities.
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 advisors, 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,
Regulation of Retirement Plans and IRAs Aegon USA administers and provides recordkeeping, investment and insurance services and products used to fund defined contribution plans, such as 401(k) plans, in addition to defined benefit plans, IRAs, 529 plans and other savings vehicles. Aegon
(MEPs), of which Aegon USA is a leading provider. In addition, both the Treasury and the DOL have published, in final and proposed forms respectively, guidance to facilitate the offering of guaranteed lifetime income products. Finally, many states have sought to open their plans to non-government workers who do not have access to an employer retirement savings plan. Any proposals that impact the current business models or fees and services to employer plans or IRAs will impact the Aegon USA companies that provide administration and investment services and products to private workforce plans. The likelihood that these legislative proposals will be passed or the regulatory guidance finalized cannot be predicted at this time.
These initiatives also contemplate international tax reform, including proposals that would limit the ability of companies to deduct interest expense on financing provided by a non-US
affiliate. Executive Administration budget proposals, legislative proposals and discussion drafts must be enacted by Congress and signed by the President before they become law. The risk of tax law changes is heightened when additional revenue is sought
to reduce the federal deficit or to pay for other tax law changes, such as lower tax rates. In addition, tax reform initiatives of the type contemplated by discussion drafts of comprehensive federal tax reform legislation further increase the risk of both increased taxation of life insurers and of decreased tax incentives for short- and long-term savings products. These changes, if enacted, would have a direct impact on the cost and competitiveness of life insurance, annuity and pension products sold to ensure
These decisions are built into portfolio benchmarks in terms of duration and asset mix targets, and also in exploring hedging opportunities. On the liability side, Aegon USA has some offsetting risks, whereby some liabilities perform better in rising interest rate environments, while others tend to perform well in falling interest rate environments. The amount of offset may vary depending on the absolute level of interest rates, together with the magnitude and timing of interest rate changes, but it generally provides some level of diversification. On the asset side, hedging instruments are continuously studied to determine whether their cost is commensurate with the risk reduction they offer.
USA has experienced no material reinsurance recoverability problems in recent years.
USA's overall risk and limit the maximum loss on risks that exceed policy retention levels. Maximum retention levels vary by product, method of underwriting, and the nature of the risk being reinsured.
Europe), Central & Eastern Europe, Spain & Portugal. As disclosed in note 2.4 Segment reporting to the consolidated financial statements, Aegon changed its segment reporting.
The following tables comprise the reconciliation of the operating segments within Europe for the years 2016, 2015 and 2014: Income statement - Underlying earnings Amounts in EUR millions
Underlying earnings before tax by product segment 534 59 55 8 655
Income / (loss) before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 721 (474) 34 6 288
Income / (loss) before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 857 (1,196) 35 29 (275)
Underlying earnings before tax by product segment 558 125 60 28 771
Results 2016 Europe Net income improved to EUR 127 million in 2016 compared with 2015 driven by higher underlying earnings before tax, and lower losses from other charges. The sale of the annuity portfolio of Aegon UK was the main driver behind Other charges of EUR 658 million in 2016. Underlying earnings before tax increased compared with 2015 to EUR 655 million in 2016. This was mainly the result of lower amortization of deferred policy acquisition costs in the United Kingdom related to upgrading customers to the new retirement platform.
The sale of the UK annuity portfolio was the main driver behind
Net income for the Netherlands Net income from Aegon’s businesses in the Netherlands amounted to EUR 566 million in 2016, largely driven by underlying earnings before tax of EUR 534 million. Results on fair value items worsened compared with 2015 to a loss of
EUR 12 million in 2016 and were mostly driven by the consumer loan portfolio. Other income amounted to EUR 44 million in 2016 and was driven by model updates.
Kingdom related to upgrading customers to the retirement platform compared to 2015.
Underlying earnings before tax for the Netherlands Underlying earnings before tax for the Netherlands in 2016 decreased by 1% compared with 2015 to EUR 534 million. �� Underlying earnings before tax from Life & Savings declined by 5% compared with 2015 to EUR 309 million in 2016 as lower funding costs for the mortgage portfolio were offset by lower investment income and increased expenses, which were partly the result of new business initiatives. �� Underlying earnings before tax from Pensions decreased by 7% compared with 2015 to EUR 197 million in 2016, mainly due to lower investment income.
�� Underlying earnings before tax from Life decreased compared with 2015 to EUR 50 million. This was mostly due to the impact of the sale of the annuity business partly offset by expense savings, favorable claims experience and reserve releases.
Commissions and expenses Commissions and expenses decreased by 13% compared with 2015 to EUR 2.1 billion in 2016. Operating expenses were stable compared with 2015 and amounted to
Solvency II related expenses, and the cost of an IT project that will result in annual expense savings going forward.
Commissions and expenses for Central & Eastern Europe Commissions and expenses decreased compared with 2015 to
EUR 244 million in 2016. Operating expenses remained stable compared with 2015 at EUR 143 million in 2016.
Commissions and expenses for Spain & Portugal Commissions and expenses increased compared with 2015 to
EUR 172 million in 2016. Operating expenses increased compared with 2015 to EUR 88 million in 2016, mainly resulting from growth of Aegon’s joint ventures with Santander in Spain &
EUR 12.8 billion in 2016. The increase compared with 2015 was primarily driven by the growth of Knab, Aegon’s online bank in the Netherlands.
Production for the Netherlands Gross deposits increased by 30% compared with 2015 to
Production for Central & Eastern Europe In Central & Eastern Europe, new life sales in 2016 declined compared with 2015 to EUR 83 million. Sales growth in
Other income / (charges) (1,205) (189) Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) (275) 904 -
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 6 2 -
Aegon’s capital position in preparation for Solvency II. Results on fair value items amounted to a loss of GBP 18 million in 2015 as a result of unrealized losses on equity hedges to protect the capital position. Other charges of GBP 905 million in 2015 were mainly due to the write down of deferred policy acquisition costs related to the restructuring of the organization.
Net income for Central & Eastern Europe Net income from Aegon’s businesses in Central & Eastern Europe improved compared with 2014 by EUR 15 million in 2015 mainly as a result of lower impairments recorded in Hungary.
Net income for Spain & Portugal Net income in Spain & Portugal remained level compared with 2014 at EUR 22 million in 2015.
Underlying earnings before tax Underlying earnings before tax in 2015 decreased 27% compared with 2014 to EUR 559 million. This was mainly driven by an acceleration in the amortization of deferred policy acquisition costs in the United Kingdom related to upgrading customers to the new retirement platform.
�� Underlying earnings before tax from Life & Savings amounted to EUR 325 million in 2015. Higher investment income compared with 2014, primarily generated by profitable mortgage production, and lower funding costs compared with 2014 were more than offset by the non-recurrence of an employee benefit reserve release and the transfer of part of the mortgage portfolio to the Pension business. �� Underlying earnings before tax from Pensions increased by 9% compared with 2014 to EUR 212 million in 2015. Higher underlying earnings before tax from mortgages and favorable mortality more than offset the non-recurrence of an employee benefit reserve release and lower investment income resulting from rebalancing the fixed income portfolio.
Underlying earnings before tax for the United Kingdom Underlying earnings before tax in the United Kingdom amounted to a loss of GBP 20 million in 2015. This was mainly driven by the write down of deferred policy acquisition costs in the United Kingdom related to upgrading customers to the retirement platform.
compared with 2014 to GBP 59 million in 2015. This was mostly due to lower investment income as a result of selective de-risking of the asset portfolio to improve Aegon’s capital position in preparation of Solvency II.
EUR 60 million in 2014. This decrease was primarily driven by the negative impact of higher surrenders in Poland following product changes and adverse claim experience due to storms in Hungary.
Underlying earnings before tax for Spain & Portugal Underlying earnings before tax from Spain & Portugal decreased from EUR 28 million in 2014 to EUR 12 million in 2015.
Underlying earnings before tax in 2014 include EUR 19 million of Aegon’s stake in La Mondiale Participations (France) which was divested by Aegon in 2015. Excluding this divestment, underlying earnings before tax increased in 2015 compared with 2014 driven by growth of Aegon’s joint ventures with
Commissions and expenses Commissions and expenses increased by 9% compared with 2014 to EUR 2.4 billion in 2015. Operating expenses increased by 3%
compared with 2014 to EUR 1,442 million in 2015, mainly the result of currency movements.
Commissions and expenses for the United Kingdom Commissions and expenses decreased by 1% in 2015 to
Commissions and expenses for Spain & Portugal Commissions and expenses increased by 20% in 2015 to
EUR 144 million compared with 2014. Operating expenses increased by 17% in 2015 to EUR 70 million compared with 2014, mainly to support growth of Aegon’s joint ventures with Santander in Spain & Portugal.
Production Gross deposits increased by 39% in 2015 to EUR 11.5 billion.
New premium production for general and accident & health insurance increased to EUR 112 million in 2015 compared with 2014.
Production for the United Kingdom New life sales decreased by 1% in 2015 to GBP 52 million compared with 2014. This was mostly the result of lower annuity levels largely offset by higher protection sales. Gross deposits increased compared with 2014 to GBP 4,423 million in 2015.
This increase was mainly driven by the addition of new customers as the platform gained additional traction in the market.
1 Verbond van Verzekeraars, Verzekerd van cijfers, The Hague, 2016. 2 Assurantie Magazine, AM Jaarcijfers. Deventer, 2016. 3 Metrixlab brandtrackers.
Organizational structure Aegon the Netherlands operates through a number of brands, including KNAB, TKP Pensioen, Optas and Unirobe Meeùs. Aegon is itself one of the most widely recognized brands in the Dutch financial services sector3.
In 2015, Aegon launched its own advice channel Aegon Advies, and the number of times advice was given to customers is growing rapidly ever since. Distribution channels such as online and the contact centers generated leads for Aegon Advies.
Schadeverzekering has Strategic partnerships for the sale of its products, and uses an online channel.
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.
These products have a minimum benefit guarantee, except for those premiums invested in equity funds, and the initial guarantee period is ten years. A certain type of unit-linked products called ‘tontine plans’ have a specific bonus structure.
A death benefit is paid to the dependents in the event that the policyholder dies before the policy matures. Aegon the Netherlands manages tontine plans, but no longer sells them.
Pensions The Pensions business provides a variety of pension products to pension funds and companies both full service contracts and low cost subscriptions.
Separate account group contracts are large group contracts that have an individually-determined asset investment underlying the pension contract. For older generation products, a guarantee consists of profit sharing with a contractual interest rate of 3% or 4%. At present, the contracts offered to clients hold a guarantee of 3% or market interest rate, and Aegon always relates guarantee cost to the current market interest rate. If profit sharing turns into a loss, the minimum guarantee becomes effective, but the loss in any given year is carried forward to be offset against future surpluses. In general, the guarantee is dependent on the life of the insured in order that their pension benefit is guaranteed. Some large group contracts also receive part of the technical results for mortality risk and disability risk.
A decrease in the number of company and industry pension funds in the Netherlands is continuing. By law, the assets and liabilities of a terminated pension fund must be transferred to another pension provider. Aegon the Netherlands offers a pension fund buy-out product for its terminating pension funds. It takes on the guaranteed or non-guaranteed liabilities, with or without annual pension increases, and receives a lump-sum premium upfront. All risks related to the transferred benefits are carried by Aegon the Netherlands. Current market conditions lead to significantly fewer buy-outs in de Dutch market than in recent years.
Pension Fund). In 2016, Stap (a separate legal entity) introduced this new proposition to clients. This offers pension solutions to clients in which STAP provides no guarantees and the investment benefits lie with the participants. Aegon the Netherlands provides fee-based services to this General Pension Fund as administration and investment solutions.
Aegon the Netherlands is one of the country's leading pension providers1.
Bank to launch a general pension fund ‘Stap’, together with TKP.
Stap is a pension pooling vehicle that enables separate financial administration for multiple pension plans from multiple employers. This vehicle enables smaller pension schemes to benefit from economies of scale and to comply with complex pension regulations, meaning that a greater percentage of the employees’ pension premium is invested, and that employers and participants receive the same high quality of service as a traditional pension plan. The fiduciary investments for Stap are carried out by TKP Investments, a subsidiary of Aegon
During 2015, Aegon revised its general insurance strategy and consequently concluded that its commercial portfolio (including authorized agent and co-insurance distribution channels) was non-core. The commercial portfolio was sold to Allianz Benelux
July 1, 2016. Following this divestment, Aegon the Netherlands has focused exclusively on private lines in general insurance, with products offered providing cover for property, motor, travel, legal aid and casualty.
Distribution The main distribution channel owned by Aegon the Netherlands is
NN Group, ASR, Delta Lloyd and Vivat. In addition, these markets are subject to fast-changing dynamics, including the growing use of online distribution channels and a changing pensions landscape (such as the introduction of Premie Pensioen
Aegon the Netherlands has been a key company in the total life market for many years, and was ranked number two in 2015 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 1 Verbond van Verzekeraars, Verzekerd van cijfers, The Hague, 2016.
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 all or part of their business.
This is an opportunity for pension insurers, and Aegon is one of the leading providers of these solutions.
The premium pension institution (PPI) market is set to grow significantly due to the shift from defined benefit plans to defined contribution plans, and demand for more transparent and cost-efficient pension products. As a result, significant economies of scale will be required to service this market effectively, and the number of providers is expected to shrink within a few years. Aegon the Netherlands has identified this market as an opportunity for growth, and plans to invest in maintaining its leadership position.
The supervision of financial institutions pursuant to the Wft rests with the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM).
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 Dutch supervisory authorities have a number of formal tools 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
Netherlands in the Dutch Financial Supervision Act and lower level national rules, such as in particular the Decree on Prudential
The following insurance entities of Aegon the Netherlands are subject to prudential supervision of DNB: �� Aegon Levensverzekering N.V.; �� Aegon Schadeverzekering N.V.; �� Aegon Spaarkas N.V.; and �� Optas Pensioenen N.V.
Aegon Spaarkas N.V. and Optas Pensioenen N.V. conduct life insurance activities. Aegon Schadeverzekering N.V. conducts non-life insurance activities. Prudential supervision is exercised by the home state supervisory authority (DNB in the Netherlands).
Application Process, Aegon the Netherlands has made minor changes to the internal model and has submitted several major changes to its regulator (DNB) for approval. Until approval, these model changes are not reflected in the solvency position of Aegon the Netherlands. The solvency position of the banking activities will continue to be calculated using the CRR/CRD IV framework.
Aegon Bank N.V. is (among others) required to file monthly regulatory reports and an audited Annual Report.
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
CRD IV and the CRR are the European Union's translation of the
The BRRD was implemented in the Netherlands on November 26, 2015, by means of an amendment of the Wft (the BRRD
Implementation Act). The SRM Regulation was adopted on July 15, 2014. Those parts of the SRM Regulation that deal with recovery and resolution entered into force on January 1, 2016.
Bank N.V. in the event that its financial condition is deteriorating.
Were Aegon Bank N.V. to fail or be likely to fail and the other resolution conditions were also met, the national resolution authority would be able to place Aegon Bank N.V. under resolution.
Regulation and the BRRD Implementation Act introduce the bail-in tool which gives the national resolution authority the power to write down or convert into equity certain debt and other liabilities of the institution.
Other financial undertakings in the Netherlands DNB also supervises pension funds, including investment firms and fund management companies as well as general pension funds.
Aegon mainly uses fixed income instruments to match its liabilities. These are to a large extent high-quality government and corporate bonds. In addition, a sizeable portfolio of residential mortgages in the Netherlands has been built up to match liability cash flows. Derivatives are used in addition to these instruments in order to hedge the guarantees embedded in some of Aegon the Netherlands’s products and optimize ALM.
processes. The derivatives market is a highly regulated market that has in recent years been subject to many changes following the introduction of European Market Infrastructure Regulation
Netherlands’s collateral position may change rapidly, and in order not to breach any collateral agreements, Aegon has to ensure sufficient high quality collateral is available at all times in order to comply with collateral calls from its counterparties. Liquidity stress testing has been set up to monitor this need. Operational risk is another key risk, given that derivatives are specialized instruments that require expertise as well as a specific (IT)
infrastructure in order to be properly managed. Furthermore, as recent developments have shown, regulatory risk as a category within operational risk, needs to be constantly monitored.
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’
For non-life, Aegon the Netherlands only reinsures its property, general and motor third-party liability business. The main counterparties are Hannover Re, SCOR Re Europe and QBE Re.
For property insurance, an ‘excess of loss’ contract is in place with a retention level of EUR 1.5 million for each separate risk, and EUR 15 million for each windstorm event. For motor third-party liability insurance, Aegon the Netherlands has reinsurance in place with a retention level of EUR 1.5 million for each event. For general third-party liability, Aegon the Netherlands has reinsurance in place with a retention level of EUR 1 million for each event.
Overview of United Kingdom Following the agreed sale of its own annuity portfolio and the acquisition of Cofunds and the BlackRock’s Defined Contribution business, Aegon UK will be primarily a long term savings and protection business, supporting customers who are retired or saving for their retirement. Products are increasingly sold through its online platform, which enables advisors, employers and individuals to buy and manage investments online, and to also have a single view of investments. Aegon Ireland is a specialist provider reinsurer of variable annuity (guarantee) products in the United Kingdom, and Germany. It also offers offshore investment bonds in the United Kingdom.
Organizational structure Aegon UK PLC (Aegon UK) is Aegon’s holding company in the
On May 3, 2016, Aegon UK announced an agreement to acquire
BlackRock’s UK defined contribution (DC) platform and administration business, strengthening its position as a leading player in the UK workplace market, adding Master Trust and
On April 11, and May 23, 2016, Aegon announced the divestment of its own annuity portfolio to Rothesay Life and Legal & General respectively. Aegon initially reinsured GBP 9 billion of liabilities to
Cofunds, funding for which came from the divestment of the annuity portfolio. The transaction demonstrates Aegon’s commitment to the retail platform market. Intermediaries that use Cofunds will be upgraded to an enhanced version of Aegon’s platform.
‘upgrade’ existing customers to the digital solutions platform will see Aegon create the largest 1UK platform with approximately
Overview of sales and distribution channels In the United Kingdom, Aegon has two main distribution channels: retail and workplace intermediaries. These are supported by Aegon UK’s customer capability, which offers employees and adviser clients a market leading portal to view and manage their money. Aegon UK’s award-winning platform supports these channels in an integrated way, making it easier for customers to move between products and channels. The platform continues to be the fastest-growing platform in the UK market.
Aegon Retirement Choices (ARC) helps advisors and their customers save for the long term and manage the transition from work to retirement. ARC uses leading-edge digital technology to deliver an intuitive method of saving for the long term including retirement, taking income in retirement, including the UKs only on-platform guaranteed drawdown product, and dealing with changing circumstances. It also provides valuable online reporting and lifestyle tools that enable advisors to demonstrate their professionalism and display their charges for advice in a transparent way. In addition to the Self Invested Pension Plan
– which provides a range of pre-and post-retirement investment options for high-net-worth customers (including insured funds
‘fund supermarket’ adding approximately GBP 80 billion of assets, predominantly in ISAs and GIAs, complementing Aegon
Workplace channel Aegon is building and diversifying its workplace distribution capability to cover a range of intermediaries from Independent
BlackRock’s main focus in this market is on Mastertrust products, defined benefit target, investment-only business, and unbundled defined contribution pension schemes.
1 Source: UK Adviser Platform Guide, Issue 27, September 2016. 2 Source: UK Adviser Platform Guide, Issue 27, September 2016.
Customer capability Aegon’s Retiready digital retirement planning service is designed to help customers understand how ‘on track’ they are for the retirement they want, and to support them in taking action.
Aegon Ireland Aegon Ireland reinsures Aegon UK’s Secure Retirement Income product, a guaranteed SIPP/drawdown product on the ARC
Digital Solutions to ensure an enhanced customer experience, a more engaged relationship, and lower cost to serve. The Digital
Solutions business also includes Aegon UK's protection proposition. As of January 1, 2016, Aegon’s European variable annuity business has also been part of this business line.
Competition There are a diverse range of competitors in the markets in which
(which requires all employers to offer pensions to their employees) is driving greater numbers of customers to save in a pension, and the proposed introduction of a Lifetime Individual
Regulation and supervision All relevant Aegon UK companies based in the United Kingdom are regulated by the Prudential Regulation Authority (PRA)
Aegon UK must therefore continue to comply with UK law, including those that derive from EU law and continue with implementation plans for legislation that is anticipated to come into effect. The FCA has acknowledged that the longer term impacts of the decision to leave the EU on the overall regulatory framework for the UK will depend, in part, on the relationship that the UK seeks with the EU in the future.
Consolidated Life Directive in Ireland. Aegon Ireland is regulated by the Central Bank of Ireland. As an Irish-authorized life insurance company, Aegon Ireland may undertake life insurance business in any member state of the European Economic Area on either a freedom of services (FOS) or freedom of establishment
Aegon Ireland must comply with the general good provisions that apply to insurers selling such policies in each jurisdiction.
directives came into effect on January 1, 2016. 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.
Every life insurance company licensed by and/or falling under the supervision of the PRA must file audited regulatory reports on at least an annual basis. These reports, primarily designed to enable the PRA to monitor the solvency of the insurance company, include a (consolidated) balance sheet, a (consolidated) income statement, a breakdown of the Solvency Capital Requirements
EU directives, and have to hold the level of capital required to withstand a 1 in 200 shock on a 1-year value at risk basis.
Aegon Ireland has been using the Standard Formula to calculate the solvency position of its insurance activities.
For its with-profits business, Aegon UK's guiding philosophy is to match guarantees with appropriate investments. The nature of with-profits businesses, however, typically prevents perfect matching, and the role of the MIC is therefore to monitor the capital implications of any mismatching. Reports covering the impact of a range of possible investment scenarios on the solvency of the fund are produced on a periodic basis.
These reports allow the investment strategy for the with-profits fund to be discussed, and are summarized for the With-Profits
With-profits fund The invested assets, insurance and investment contract liabilities of Aegon UK's with-profits fund are included in ‘for account of policyholder assets and liabilities'. Assets and liabilities are always equal, as an excess of assets over liabilities regarding guaranteed benefits and constructive obligations is classified as an insurance or investment contract liability. All assets in the Scottish Equitable with-profits fund are held 100% for participating policyholders.
With-profits fund guarantees With the exception of ‘Aegon Secure Lifetime Income’ and
This fund contains free assets that have not yet been fully distributed to individual policyholders. Free assets help meet the cost of guarantees and provide a buffer to protect the fund from the impact of adverse events. Aegon UK has an exposure only once these assets have been exhausted. As outlined below,
These free assets are partly invested in equity put options and interest rate swaps and swaptions to protect against adverse market movements. Aegon UK has an exposure only once these free assets are exhausted. The risk of exposure has been assessed by Aegon UK as remote, based on applying the risk-based capital approach now required for Solvency II
Aegon UK uses a range of reinsurers across the reinsurance market. Reinsurance is currently in place with Hannover,
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, becoming disabled, or being hospitalized. Aegon is a significant market player in Hungary in the unit-linked segment1.
Aegon entered the Ukrainian life insurance market in February 2013 by acquiring Fidem Life, a life insurance company offering mainly endowment traditional life products. The company was subsequently renamed ‘Aegon Life Ukraine'. The business developed slowly due to the unstable political and economic climate, and Aegon entered into an agreement on September 21, 2016 to sell 100 percent of its shares to TAS Group. The transaction was completed on December 16, 2016.
Association provides a saving product combined with a preferential loan option, which is subsidized by the state during the saving period.
Following the merger, the fund will grow to PLN 13.5 billion
3 Source: MABISZ, Q32016 Quarterly report, Webpage visited February 9, 2017.
Aegon was ranked third in terms of both the number of participants and managed assets in 2015 in the voluntary pension fund market in Hungary5. For managed assets, in
At year-end 2016, Aegon was the fourth largest provider in the
Their specialized departments (for example, actuarial, financial, and legal) meet periodically.
(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
Voluntary Pension Law (204/2006), both complemented by individual regulations (as secondary legislation). In Poland, this activity is supervised by the KNF and governed by the Organization and Operation of Pension Funds Act. In Turkey, the voluntary pension funds are under the supervision of the Undersecretariat of Treasury and the companies are subject to Individual Retirement
Hungary Mortgage Finance Company is under the supervision of the MNB, in exactly the same way as Aegon Hungary Home
CEE's asset liability management focuses on asset liability duration and liquidity. The performance of the portfolios against benchmarks is also evaluated during the Committee's meetings.
Furthermore, each country unit in the CEE region has an Asset
Liability Committee that coordinates ALM-related reporting and makes the relevant decisions within the framework set by local management or by the Regional Risk and Capital Committee.
For short-tail business, Aegon CEE accepts reinsurance companies with a minimum Standard & Poor's (S&P) rating of A-.
(up to EUR 1.0 million retention); The majority of treaties in force for Aegon’s operations in Central
1 Investigación Cooperativa entre Entidades Aseguradoras y Fondos de Pensiones. 2 Associação Portuguesa de Seguradores.
Vida S.A. (51%), in partnership with Banco Santander Totta; �� Aegon Santander Portugal Não Vida-Companhia de Seguros
Overview of sales and distribution channels The main distribution channel in the Spanish market is bancassurance, which accounts for 66% of life sales, whereas brokers and direct customers account for 25% and 9% of the total respectively1. Aegon Spain distributes its products nationwide through partner branches and its own sales network.
of pure life risk premiums and 29% (2015: 29%) of household insurance premiums are written through bancassurance channels, where credit-related policies mostly related to mortgages play a significant role2.
(accident, home and commercial multi-risk insurance, and sickness) through over 600 branches nationwide – the largest network of its kind in the country. These are sold through two insurance entities: Aegon Santander Portugal Vida, for pure life risk products; and Aegon Santander Portugal Não Vida, for general insurance products. Aegon has a 51% share in each entity.
On December 21, 2015, Banco Santander Totta announced that it had acquired domestic bank Banco Internacional de Funchal
(Banif). On December 5, 2016, Aegon and Santander Totta reached an agreement in order to add Banif’s retail and corporate network – consisting of 174 branches and 370,000 clients – to the current distribution network for Aegon Santander Portugal
Aegon Spain and Liberbank Liberbank, S.A. has a presence nationwide, with special focus on retail markets in a number of Spanish regions (Asturias, Cantabria,
Castilla La Mancha and Extremadura). Liberbank Vida y Pensiones currently distributes its products through nearly 650 Liberbank,
Distribution Aegon Spain offers life insurance, general insurance, health, pension products and mutual funds. It uses three main distribution channels: bancassurance, which comprises 58% of the total; 39%
Overview of business lines Aegon Spain focuses primarily on retail customers. It offers individual life, pensions, general insurance, accident and health products 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 & Portugal.
Protection business includes primarily life, accident and disability cover, and products can be complemented with critical illness, income protection and other riders. Customers’ saving needs are serviced by Aegon Spain through its targeted offering of universal life, unit-linked and pension funds. Both savings and protection products are distributed through the channels mentioned above.
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 30% market share, and Zurich, with a 14% market share, followed by Mapfre, with a 6% market share. Aegon Spain's market share is less than 1%.
Mapfre leads the non-life insurance market with a 15% market share, followed by Grupo Mutua Madrileña with a 14% 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%.
With respect to the life insurance Portuguese market, Fidelidade and Ocidental Vida are the main players with a combined market share in 2016 of 56.4% (based on issued premiums of insurance contracts and deposits of financial products).
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 and volatility adjustment, depending on the underlying portfolio in addition to transitional measures on technical provisions.
For its life insurance business, Aegon Spain’s goal is to minimize interest rate risk by matching the duration of assets to the duration of liabilities. Most of Aegon Spain’s life insurance liabilities are long-term. The role of the ALCO is therefore to monitor the capital implications of any mismatching.
Constraints, such as the minimum guaranteed rates to the policyholders, return on equity or required capital, and the minimum desired solvency ratio, are also taken into account.
This means that both its joint ventures and own business are treated as a whole, with similar economic conditions and reinsurers panel, but with individual profit shares without losses carried forward by each entity belonging to Aegon Spain.
The main contract for mortality and morbidity provides proportional reinsurance protection for both its individual risk and group risk policies. With this approach, Aegon Spain seeks to optimize the cost of reinsurance coverage, including through profit sharing, while achieving prudential diversification of its insurance risk by limiting the maximum possible losses on risks that exceed retention levels. Household insurance contracts for
Aegon Santander follow the same principles. Maximum retention levels vary by product and by the nature of the risk being reinsured, although the retention limit is in general between
EUR 9,000 and EUR 60,000 per life insured. Aegon Spain remains contingently liable for the amount ceded should the reinsurance company fail to meet its obligations. Natural catastrophe reinsurance programs are also in place to provide cover for high impact – low frequency events. Aegon Spain generally uses only reinsurance companies that have a Standard & Poor credit rating of ‘A’ or higher. The principal reinsurance counterparties in the
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (2) (3) 38% (2) (3) 37%
Underlying earnings before tax In Asia, underlying earnings before tax remained stable at
USD 61 million in 2016, compared with USD 45 million in 2015. This increase was mainly the result of favorable mortality experience compared with 2015. �� Underlying earnings before tax in Aegon Insights decreased to
USD 1 million in 2016 compared with USD 5 million in 2015 due to lower production in Indonesia as a result of rationalizing sales campaigns and unfavorable currency movements.
Results 2015 Asia Amounts in USD millions Amounts in EUR millions
Accident and health insurance premiums 117 136 (14%) 105 102 3%
Gross deposits (on and off balance) Amounts in USD millions Amounts in EUR millions
New premium production accident and health insurance 31 30 3% 28 23 24%
Results 2015 Asia Net loss in 2015 amounted to USD 33 million, which was mainly driven by Other charges. Higher underlying earnings before tax in 2015 of USD 23 million compared with a loss of USD 23 million in 2014 were mainly the result of higher underlying earnings before tax from the High Net Worth business. Gross deposits decreased to USD 453 million in 2015 compared with USD 699 million in 2014 primarily due to a pricing change on variable annuities in Japan to maintain profitability of new sales. New life sales of USD 193 million in 2015 mainly related to universal life products sold out of Hong Kong and Singapore.
USD 45 million in 2015, compared with USD 17 million in 2014. This increase was mainly the result of higher policy fees. �� Underlying earnings before tax in Aegon Insights increased to
USD 27 million in 2015 compared with USD 38 million in 2014 due to lower new business strain in Japan, a more profitable product mix in China and lower expenses.
USD 41 million in 2015 compared with 2014 due to a strong increase from sales in China mainly driven by the continued success of the whole life critical illness product.
USD 31 million, driven by continued strong performance of fee-based health sales in Aegon Insights.
(including Aegon’s ownership percentages) are: �� Aegon THTF Life Insurance Co. Ltd. (50%); �� Aegon Life Insurance Co. Ltd. (49%); �� Aegon Sony Life Insurance Co. Ltd. (50%); �� SA Reinsurance Ltd. (50%); �� Transamerica Life (Bermuda) Ltd. (TLB) (wholly-owned); and �� Aegon Insights (various wholly-owned legal entities).
Joint ventures Aegon operates in China through a joint venture with Tsinghua
SA Reinsurance Ltd. (SARe), to provide Aegon Sony Life with greater flexibility in the pricing and design of its annuity products.
Overview of sales and distribution In China, Aegon THTF has a multi-channel distribution strategy.
TLB distributes its products through relationships with private banks and local and international brokers.
Aegon Insights is a leading specialist in insurance marketing consultancy of protection products across Asia Pacific. It offers data-driven and customer-focused marketing, together with distribution solutions, to business partners across the insurance marketing value chain.
Overview of business lines High net worth businesses TLB's main products consist of USD denominated universal life and USD term plans for the high-net-worth market. Universal life is TLB’s key product to meet the needs of high-net-worth individuals for estate planning.
Aegon Insights Aegon Insights primarily works with local insurers to develop marketing and distribution solutions that are tailored to the needs of specific markets and customers. Revenue is primarily generated through reinsurance arrangements and fee income from marketing services and product distribution.
AUD. These products typically provide a guaranteed minimum death benefit along with either a lifetime withdrawal benefit or a guaranteed minimum accumulation benefit.
In India, Aegon Life offers term plans, traditional individual participating products, traditional pension participating products, traditional non-participating savings products, and unit-linked plans through e-sales and direct sales force channels.
As of November 30, 2016, there were 76 life insurance companies in the market, including 48 domestic life companies and 28 foreign life insurers. Based on total premium income,
There were 24 licensed life insurers in India at the end of
Corporation of India continues to maintain a dominant share of new business premiums (April 2016 to December 2016), private sector companies have shown double-digit growth to garner more than 22% of the individual recurring new business premiums written. Aegon Life India ranked twenty-third in the individual recurring premium market (April 2016 to December 2016).
Insurance Regulatory Commission (CIRC). On January 1, 2016, a new solvency regime, China Risk Oriented Solvency System
India: Aegon Life Indian life insurance companies are regulated by the Insurance
The IRDAI regulates, promotes and encourages the orderly growth of insurance and reinsurance businesses in India.
The Insurance Business Act was revised with respect to market conduct rules, emphasizing fiduciary duty of insurance companies, and implemented in May 2016. Two main revisions were: the establishment of basic solicitation rules for providing information to customers, and for obtaining an understanding and confirmation of the customers’ intent when purchasing insurance products to prohibit improper conducts by solicitors; and the implementation of an internal control system to ensure proper conduct of business by agents.
Self-Regulatory Organizations (SROs) through a statutory licensing regime in the next two to three years.
Depending on the precise nature of the activities undertaken and the form of business entity used in the jurisdictions in which
consultancy business licensing rules, insurance laws, and personal data protection laws. In addition, various regulators also keep oversight of a number of activities undertaken by entities licensed by Aegon Insights. These regulators include the FSA
Where appropriate, it also implements industry standard compliance programs, such as Payment Card Industry Compliance in Australia and Privacy Mark in Japan.
Asset liability management (ALM) China: Aegon THTF Aegon THTF has a board-level Investment and Risk Committee
Capital Committee at management-level. Regular review of risk and capital requirements is conducted in these committees to monitor asset and liability mismatch risk, investment risk and the solvency position. Based on the payment structure and term of insurance liabilities, Aegon THTF invests in corporate bonds, government bonds, bank deposits, debt projects, or other fixed income assets to match liabilities. Operating and shareholders’
India: Aegon Life Aegon Life has a board-level Investment Committee (IC), a board-level Risk Management Committee (RMC), and a management-level Asset & Liability Management Committee
Asia: Aegon Insights Aegon Insights’ assets are managed by Aegon USA Investment
Management, LLC in the United States in a pool of assets backing similar liabilities. ALM is performed as part of asset portfolio management.
Results 2016 Aegon Asset Management Amounts in EUR millions 2016 2015 %
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 19 19 (3%)
Commissions and expenses 486 487 of which operating expenses 451 444 2%
Total net flows other third-party 2,964 8,235 (64%) 1 Rest of world include intragroup eliminations from internal sub-advised agreements
Underlying earnings before tax Underlying earnings before tax decreased by 12% in 2016 compared with 2015 to EUR 149 million. This decline was mainly driven by lower underlying earnings before tax in 2016 compared with 2015 from Aegon’s Chinese asset management joint venture
�� Underlying earnings before tax from the United Kingdom amounted to EUR 30 million in 2016, a decrease from the
EUR 32 million level in 2015. Lower expenses in 2016 compared with 2015 were more than offset by adverse currency movements and lower fee income mainly resulting from the sale of the majority of the UK annuity book. �� Rest of World underlying earnings before tax in 2016 remained stable compared with 2015 at a loss of
EUR 46.4 billion compared with 2015. This was mainly the result of higher gross flows in AIFMC in 2016 compared with 2015, which were mainly driven by higher recognized gross inflows, the acquisition of La Banque Postale Asset Management, and higher gross flows in the US and the Netherlands.
Assets under management Assets under management decreased by EUR 14 billion in 2016 to EUR 332 billion compared with the start of 2016. Favorable market movements and net inflows in other third-party were more than offset by outflows in affiliates, due to a contract loss in the US, outflows in the general account, primarily resulting from the divestment of the majority of the annuity book in the United Kingdom, and unfavorable currency movements.
Results 2015 Aegon Asset Management Amounts in EUR millions 2015 2014 %
Other income / (charges) (1) (1) (38%) Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 172 115 49%
Total net flows other third-party 8,235 4,215 95% 1 Rest of world include intragroup eliminations from internal sub-advised agreements
Strategic partnerships were only partly offset by lower underlying earnings before tax in the Netherlands. �� Underlying earnings before tax from the Americas increased by 30% to EUR 66 million in 2015 compared with 2014.
This increase was primarily driven by favorable currency movements and lower employee expenses, partly offset by project-related expenses.
�� Underlying earnings before tax from the United Kingdom increased to EUR 32 million in 2015 from EUR 27 million in 2014. This increase was a result of absolute return fund sales and favorable currency movements, partly offset by increased expenses due to growth of the business.
�� Underlying earnings before tax from Rest of World improved to a loss of EUR 4 million in 2015 compared with a loss of
EUR 25 million in 2014. This was mainly the result of the first time inclusion of underlying earnings before tax from Aegon’s partnership with La Banque Postale Asset Management and higher performance and management fees in AIFMC, of which performance fees totaled EUR 35 million.
Third-party net flows were up 95% in 2015 compared with 2014 to EUR 8.2 billion, as higher net flows in the Netherlands and the United Kingdom more than offset lower net flows in 2015 compared with 2014 from money market funds in China.
Assets under management Assets under management increased by EUR 43 billion in 2015 to EUR 346 billion compared with the start of 2015. This was primarily driven by third-party net flows, the inclusion of Aegon’s share in La Banque Postale Asset Management and favorable currency movements, partially offset by outflows in the general account and in the affiliate business.
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 multi-asset 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.
Strategic direction and global oversight of business performance is executed by the Board of Aegon Asset Management, which has both global and local roles and responsibilities. The Board (AAM)
(AAM) and its Human Resources Committee (AAM), along with the Global Product Committee and the Global Steering
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’
Management distributes its investment strategies directly to its clients. The wholesale businesses typically sell collective investment vehicles (mutual funds) to customers through wholesale distributors and independent intermediaries. The main asset classes are fixed income and equities, and the funds are usually managed against a benchmark or peer group target.
In the United States, Aegon Asset Management focuses on offering investors fixed income, balance sheet solutions and real estate-related strategies. It works directly with pension funds, endowments and foundations as well as investment consultants within the institutional market. In the wholesale market, Aegon
In the Netherlands, Aegon Asset Management provides a wide range of investment strategies and solutions to institutional and wholesale clients, and through its affiliated insurance company to retail clients. In the third-party institutional market, it competes with domestic and global asset managers as well as with fiduciary and balance sheet managers. Competition continues to be strong in the institutional market due to both the ongoing consolidation of pension funds and the growing service requirements of pension fund clients. Primary competitors in the Netherlands include
In the United Kingdom, Aegon Asset Management focuses on offering investors fixed income, equities, real estate, multi-asset, absolute return and ethical investments. It serves institutional clients and their advisors, and is active in the wholesale market.
In France, La Banque Postale Asset Management competes for private investors through La Banque Postale's retail banking network, with a focus on new multi-asset strategies. In the institutional market, it also offers strategies from Aegon Asset
Management businesses in order to compete with large local asset managers and specialized international competitors. In
AXA Investment Management, BNP Paribus Investment Partners and Natixis Global Asset Management.
Solvency II Solvency II requirements became effective for Aegon Group as of
Aegon’s risk management and control systems are designed to ensure that these risks are managed effectively and efficiently in a way that is aligned with the Company's strategy.
To accomplish this, Aegon has established a number of risk criteria and tolerances as part of its risk strategy: �� Financial strength: ensure Aegon meets long-term obligations to policyholders, thereby enabling Aegon to compete in key markets as a financially strong global insurer; �� Continuity: ensure that Aegon meets policyholder obligations, even under extreme event scenarios; �� Culture: encourage strong risk awareness by stressing the
Aegon’s risk governance framework Aegon has a strong culture of risk management, based on clear, well-defined risk governance; the goals of which are to: �� Minimize ambiguity by clearly defining roles and responsibilities and risk reporting procedures for decision makers; �� Institute a proper system of checks and balances, and ensure that senior management is aware of material risk exposures at all times; �� Manage risk in line with the targeted risk profile, including the avoidance of an over-concentration of risk in particular areas; �� Facilitate diversification by enabling management to identify diversification benefits from apparent risk-return trade-offs; and �� Reassure external stakeholders that Aegon has appropriate risk management structures and controls in place.
Committee (SBRC); �� The Executive Board and the Management Board; �� The Group Risk & Capital Committee (GRCC) and its sub-committees; and �� The Regional Risk & Capital Committees.
Company's risk exposure as it relates to capital, earnings and compliance with Group Risk policies. It is the responsibility of the Executive Board and the Group's Chief Risk Officer (CRO) to inform the Supervisory Board of any risk that directly threatens the solvency, liquidity or operations of the Company. Details of members of the SBRC can be found on pages 107, 111 and 112 of this Annual Report.
Board and Management Board with framework setting and maintenance across all group-level balance sheet bases, including policies, standards, guidelines, methodologies and assumptions.
The ERMAAC can seek advice on significant framework development work from temporary working groups comprised of subject-matter experts from across the Company's businesses.
These working groups are established by the ERMAAC, including their membership, scope of work and deliverables.
The Non-Financial Risk Committee (NFRC) exchanges information on non-financial risk matters and prepares decision making for the GRCC or relevant Board, in line with applicable governance requirements. The NFRC receives and reviews the regular reports from the regions on non-financial risk exposure, including issues related to regulatory compliance and conduct.
The Model Validation Committee (MVC) is responsible for approving all model validation reports across Aegon. This is an independent committee that reports into the GRCC and Executive
In addition to the four basic layers described above, Aegon has an established group-wide risk function. It is the mission of the Risk
Management function to ensure the continuity of the Company through safeguarding the value of existing business, protecting
Company reviews, assesses, understands and manages its risk profile. Through oversight, the Risk Management function ensures the group-wide risk profile is managed in line with
The following roles are important in order to realize the objective of the function: �� Advising on risk-related matters including risk tolerance, risk governance, risk methodology and risk policies; �� Supporting and facilitating the development, incorporation, maintenance and embedding of the ERM framework and sound practices; and �� Monitoring and challenging the implementation and effectiveness of ERM practices.
In the context of these roles, the following responsibilities can be distinguished: Advising on risk-related matters: �� Bringing businesses together to facilitate information exchange, sharing best practices and working together on relevant case studies and external standards in order to develop, adopt and maintain relevant standards of practice throughout Aegon; and �� Optimizing the use of capital and growth within risk/return and consumer conduct criteria.
Supporting and facilitating: �� Developing and maintaining the global ERM framework for identifying, measuring and managing all material risks the Company is exposed to as defined in Aegon’s risk universe and protecting Aegon’s reputation; �� Developing and maintaining Aegon’s risk methodology as described in the Aegon Market Consistent Reporting
framework, risk methodology and standards of practice where needed; �� Supporting the Management Board in ensuring the effective operation of the ERM framework and related processes, providing subject matter expertise to businesses as appropriate and facilitating information exchange on good risk practices; �� Identifying and analyzing emerging risks, being input for ongoing risk strategy development and to ensure that
Aegon’s risk universe remains up to date; �� Designing the Solvency II PIM1, including the validation thereof. Model validation ensures independent review of methodology, assumptions, data, testing, production, reporting and use of the Solvency II PIM; �� Analyzing Solvency II PIM outputs and performance and reporting results to the Boards and relevant
Excellence of the global Risk Management function to business areas through review of key initiatives, transactions, programs, projects, assumptions, methodologies and results across all important paradigms; �� Providing assurance on the integrity of models and cash flows through model validations and maintenance of model validation policies and standards; and �� Promoting a strong risk management culture across Aegon, including review of performance targets and remuneration in line with the Aegon Group Global Remuneration Framework.
Challenging and monitoring: �� Monitoring the ERM framework and overseeing compliance with group-wide risk governance requirements, risk strategy and risk tolerances, risk policies and risk methodology, which are applicable to all businesses for which Aegon has operational control; �� Ensuring appropriate risk management information is prepared for use by the GRCC, the Management Board, the Executive Board and Supervisory Board; �� Overseeing material risk, balance sheet and business decisions taken throughout Aegon in line with established risk governance arrangements; �� Monitoring and reporting on risk exposures and advising the Boards and (Supervisory) Committees on risk management 1 This excludes Regions not directly subject to Solvency II regulations, i.e. the Americas and Asia Regions.
related matters, including in relation to strategic affairs such as corporate strategy, mergers and acquisitions and major projects and investments; �� Monitoring that the internal model is and remains appropriate to the Company’s risk profile and informing the Management
Board and the Supervisory Board about the on-going performance, suggesting improvements; �� Monitoring risk exposures and risk policy compliance, including review of the Own Risk and Solvency Assessment (ORSA) and
Group CRO or one of the regional CROs that reports directly to the Group CRO.
Conduct Risk Management function – facilitates and oversees the effectiveness and integrity of ERM across the Company. The third line of defense – the audit function – provides independent assurance opinions on the effectiveness of the internal control, risk management and governance systems.
Committee (ERMC) has been replaced by the ERMAAC. Membership was broadened to include representatives from the Finance and
Framework) and its ERM framework are a strong basis on which to continue to refine the Solvency II PIM. In 2016, a project was initiated to further align Aegon’s Economic Framework and the
The risk strategy should also be linked with other risk and capital policies. A description of risks relating to Aegon’s businesses and risks relating to Aegon’s common shares can be found on pages 342-359 of this Annual Report.
Underwriting The risk of incurring losses when actual experience deviates from Aegon’s best estimate assumptions on mortality, longevity, morbidity, policyholder behavior, P&C claims and expenses used to price products and establish technical provisions.
Medium to high - Underwriting risk is Aegon’s core business and meets our customer needs.
The focus is on high quality securities with low expected defaults because Aegon has a low appetite for default risk. In 2016, credit spreads tightened further and Aegon reduced its exposure to credit risk. Net impairments amounted to 2 basis points of general account investments in 2016, which reflects the current benign credit environment. In the UK, the majority of the annuity book was disposed of, reducing general account credit risk. In the general account investment portfolio, Aegon retained minimum exposure to peripheral European countries.
changes. Investment risk affects Aegon’s direct investments in the general account, indirect investments on the account of policyholders and agreements where Aegon relies on counterparties, such as reinsurance and derivative counterparties.
Aegon has a low preference for investments in equity securities via the general account. Equity investments generate an equity risk premium over the long run, but in combination with a high capital charge result in a relatively low return on capital. Aegon has experience and expertise in managing complex investment guarantees and leverages this capability by providing customers access to a range of investment strategies and guaranteed benefits. Equity markets were volatile over 2016 but closed the year flat in Europe, and up by approximately 10% in the US.
Union. During the year, Aegon continued to progress its program of hedging equity risk at its UK pension business, variable annuities, and US and Dutch operations in order to protect the Company against a possible deterioration in equity markets. The US business has a macro hedge in place to protect the business capital position of variable annuities against a decline in equity markets. As a result of a mismatch between US statutory and IFRS accounting, this hedge showed a negative impact on income before tax of
Aegon accepts interest rate risk in order to meet customer needs.
However, as no spread is earned on this interest rate risk, Aegon prefers to hedge the risk to the extent possible. In 2016, 30-year swap rates in the US fell and rose over the course of the year, closing unchanged at 2.6%. Swap rates in the eurozone and UK
Currency exchange rate risk As an international company, Aegon is exposed to different currencies and, therefore, to movements in currency exchange rates.
‘frozen’ capital markets, an immediate and permanent rise in interest rates, and policyholders withdrawing liabilities at the earliest conceivable date. In addition, the Company has liquidity stress planning in place. In 2016, Aegon retained significant holdings of cash and highly liquid assets as a precaution against potential adverse market developments. Stress tests show that available liquidity would more than match the Company's liquidity requirements even if market conditions were to significantly deteriorate. At the end of 2016 the Company sourced additional interest rate contingent liquidity facilities to support stressed requirements in the event of a rapid rise in interest rates.
In 2016, Aegon made several changes and updates to assumptions and models. Please refer to note 3 Critical accounting estimates and judgment in applying accounting policies for further information.
Operational risk Like other companies, Aegon faces operational risk resulting from operational failures or external events, such as processing errors, acts from personnel, and natural or man-made disasters. Aegon’s systems and processes are designed to support complex products and transactions and to avoid such issues as system failures, business disruption, financial crime and breaches of information security. Aegon works on analyses on a continuous basis, studying such operational risks, and regularly develops contingency plans to deal with them.
Cyber risk Cyber security has been recognized by Aegon as an emerging risk whereby Aegon’s digital security controls and cyber threat management program, as defined within the Company’s global information security program, are key in reducing the risk by establishing security controls that safeguard data, technology and operations as well as activities outsourced to third parties.
Comprehensive evaluations and scenario testing of security controls – including detection and response capabilities – are frequently performed by both internal and external experts and resulting vulnerabilities require risk based actions plans that are reported, tracked and monitored by management. Aegon has in place an experienced Global Chief Information Security Officer that has oversight of the program with direct reporting lines to the Global Chief Technology Officer who is a member of the
Aegon takes cybercrime seriously and reasonably applies available safeguards to assure investors and customers that data, technology and operations are adequately protected.
Conduct Risk Both industry-wide and within Aegon, cultural & behavioral elements of risks increasingly play a role within overall risk frameworks. Conduct risk refers to the risks inherent in behaviors, business and staff integrity and business culture, including, but not limited to, meeting the standards of the Aegon Market
Aegon follows a number of guiding principles in terms of capital and liquidity management: �� Promoting strong capital adequacy in Aegon’s businesses and operating units; �� Managing and allocating capital efficiently in support of the strategy and in line with its risk tolerance; �� Maintaining an efficient capital structure, with an emphasis on optimizing Aegon’s cost of capital; �� Maintaining adequate liquidity in the operating units and at the holding to ensure that the Company is able to meet its obligations by enforcing stringent liquidity risk policies; and �� Maintaining continued access to international capital markets on competitive terms.
Management and monitoring of capital and liquidity is firmly embedded in Aegon’s ERM framework, and is in line with Aegon’s risk tolerance. Aegon’s risk tolerance focuses on financial strength, continuity, steering the risk balance and the desired risk culture. Its core aim is to assist management in carrying out
Management of Capital The Company’s overall capital management strategy is based on adequate solvency capital, capital quality and the use of leverage.
Capital adequacy Aegon’s goal for both its operating units and for the Aegon group as a whole is to maintain a strong financial position and to be able to sustain losses from adverse business and market conditions. The capitalization of Aegon and its operating units is managed based on the most stringent of local regulatory requirements, rating agency requirements and self-imposed criteria.
Regulatory capital requirements With the introduction of the Solvency II regulatory framework on January 1, 2016, the regulatory capital requirements for EU
domiciled insurance and reinsurance entities changed, as well as the regulatory capital requirements at group level for groups, such as the Aegon Group. In Aegon’s other markets, most notably in the Americas and Asia, the local regulatory capital requirements form the basis for Aegon’s internal capital management framework.
Netherlands do not include any contingent liability potentially arising from unit-linked products sold, issued or advised on by
Deduction & Aggregation based methods. Solvency II capital requirements are mainly used for the EEA-based insurance and reinsurance entities, applying the Accounting Consolidation method. Local requirements are used for insurance and reinsurance entities in (provisionally) equivalent third-country jurisdictions. Most notably, the local regulatory requirements of the US life insurance companies are included in the Group
(CAL). Aegon Bank is excluded from the Group Solvency ratio, as required by the Group Solvency II supervisor, DNB.
On December 31, 2016, Aegon’s estimated capital position was: Group own funds 18,112
Group Solvency II ratio 157% 1 The Solvency II ratios are estimates, are not final until filed with the regulator and subject to supervisory review. The Group Solvency II ratio has been updated since the earlier public communications on February 17, 2017 as a result of a change in the calculation of the risk margin in the Netherlands. 2 The Solvency II ratios are based on Aegon’s partial internal model. 3 Aegon Bank is not included in the Group Solvency II ratio.
December 31, 2016. During the year, capital generation by its operating units was more than offset by the impact of less favorable markets, final dividend distributed to its shareholders and the execution of the share buyback program.
1 Note that on a consolidated group level Aegon Bank is not included in the calculation of the Solvency II ratio.
Under Aegon’s capital management framework, the capitalization levels of the most relevant country units are as follows: Aegon USA (Life entities) (RBC CAL) 440%
Aegon Americas In the United States, regulation of the insurance business is principally at the state level. State insurance regulators and the
risk-based capital requirement. As of January 1, 2016, under the new Solvency II requirements, the activities of Aegon Americas life insurance and reinsurance companies have been consolidated into the Aegon Group Solvency II figures through Deduction &
The combined Solvency II position of the activities of Aegon in the
made use of the transitional provisions on technical provisions as allowed for under the Solvency II framework. As a result of the reinsurance transactions with Rothesay Life and L&G announced on April 11, 2016 and May 23, 2016 respectively, Aegon UK no longer uses the transitional measures on technical provisions.
Sensitivities Aegon calculates sensitivities of its Solvency II ratios as part of its risk management framework. The following table describes the shocks to parameters used to assess the sensitivities, and their estimated impact on the Solvency II ratio at
Aegon is mainly exposed to movements in interest rates, credit spreads and defaults/migrations, and longevity. In the downward equity shock scenario, the benefit of a lower SCR of Aegon UK
Aegon UK and lower own funds in the US due to additional reserves. The upward interest rate shock scenario in the US is affected by the impact from statutory hedge losses on the recognition of DTAs. Aegon the Netherlands and Aegon UK are exposed to corporate credit spread narrowing, via the volatility adjustment and the IAS 19 discount rate respectively. Lower mortality rates increase the longevity exposed liabilities, especially for Aegon the Netherlands and Aegon UK, the latter mainly via the own pension scheme. The higher liability values decrease own funds, as longevity is only partially hedged, and increase the SCR.
Aegon USA (Life entities) 350% - 450% RBC Company Action Level
European Economic Area entities US Life entities Capital management actions >170% SCR Opportunity >150% SCR >450% RBC Accelerate capital redeployment and/or additional dividends.
120% - 140% SCR Caution 120% - 130% SCR 300% - 350% RBC Re-assess capital plan and risk positions.
100% - 120% SCR Recovery 100% - 120% SCR 100% - 300% RBC Re-assess capital plan and risk positions. Reduce or suspend remittances.
Aegon, for its main operating units and the capitalization levels on December 31, 2016, are included in the following table: Capital requirements Minimum capital requirement Actual capitalization Excess over minimum capital requirement
Aegon USA (Life entities) 1), 3) 100% Company Action Level (NAIC RBC CAL) 440% of combined CAL ~EUR 7.4 bln
Aegon United Kingdom 3) 100% Solvency II SCR 156% Solvency II SCR ~EUR 1.0 bln 1 Capitalization for the United States represents the internally defined combined risk-based capital (‘RBC’) ratio of Aegon’s life insurance subsidiaries in the
business, 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 and continuously monitors the risk-return profile of new business written, withdrawing products that do not meet the required hurdle rates.
The grandfathered restricted Tier 1 and Tier 2 capital instruments are grandfathered to count as capital under Solvency II for up to 10 years as from January 1, 2016. All call dates are listed in note 33 Other equity instruments and note 34 Subordinated borrowings.
Eligible own funds Under Solvency II regulation, restrictions apply to the eligibility of Tier 2 and Tier 3 capital, as well as the eligibility of restricted
IFRS 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.
Commitments and contingencies. These LOCs have been provided by third parties for the benefit of the affiliated company whose liabilities are reinsured.
Funding and back-up facilities The majority of Aegon’s financial leverage is issued by Aegon N.V., the parent company. A limited number of other Aegon companies have also issued debt securities, but for the most part these securities are guaranteed by Aegon N.V.
To support its commercial paper programs and need for LOCs, and to enhance its liquidity position, Aegon maintains backup credit and LOC facilities with international lenders.
Furthermore, Aegon’s operating subsidiaries are subject to local insurance regulations that could restrict dividends to be paid to the holding company. There is no requirement or assurance that
Aegon’s holding excess capital The ability of the holding company to meet its cash obligations depends on the amount of liquid assets on its balance sheet and on the ability of the operating units to pay dividends to the holding company. In order to ensure the holding company's ability to fulfil its cash obligations and maintain sufficient management flexibility to manage capital and liquidity support for Aegon’s operating units and external dividend stability, it is the Company's policy that the holding excess capital position, including Aegon’s centrally managed (unregulated) holding companies, is managed to a target range of EUR 1.0 to 1.5 billion.
EUR 500 million 3% senior unsecured notes due in July 2017.
Audit Committee, is responsible for determining the overall internal audit work and for monitoring the integrity of the financial statements of Aegon N.V.
In addition, the Executive Board is responsible for Aegon’s enterprise risk management under the supervision of the Supervisory Board and its Risk Committee. Aegon’s risk management function monitors and controls Aegon’s solvency position, and ensures that risk taking is within Aegon’s risk tolerance levels. The Executive Board is timely informed of any risks that post a threat to the Company's economic/statutory solvency, reputation, reliability of financial reporting or operations.
Act (Wet op het financieel toezicht), the Executive Board confirms that, to the best of its knowledge, the financial statements prepared in accordance with applicable accounting standards give a true and fair view of the assets, liabilities, financial condition and profit or loss of the Company and the undertakings included in the consolidation as a whole; and that the Report of the Executive Board gives a fair view of the position at reporting date of the Company, the development and performance of the business during the financial year, and the undertakings included in the consolidation as a whole, together with a description of the principal risks and uncertainties that the Company faces.
Insurance and banking companies, together with a number of the investment undertakings in the Group, are required to maintain a minimum solvency margin based on local requirements. In addition, some parts of the Group are subject to prudential requirements on a consolidated basis, including capital and reporting requirements. Such additional requirements lead, in certain circumstances, to duplicative requirements, such as the simultaneous application of consolidated banking requirements and Solvency II group solvency requirements.
Eligible capital to cover solvency requirements includes shareholders’ equity, perpetual capital securities, and dated subordinated debt.
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, which came into effect in EU member states on January 1, 2016, introduced economic, risk-based capital requirements for insurance and reinsurance companies in all EU member states, as well as for groups with insurance and/
EU insurance and reinsurance undertakings apply, with the necessary modifications at group level. The core focus of EU
(insurance or reinsurance company's balance sheet ability to withstand a 1-in-200-year event). The buffer that insurance and reinsurance companies are required to hold is the SCR. Insurance and reinsurance companies are allowed to: (a) use a standard formula to calculate their SCR (the rules for which are set out in detail in the Solvency II rules and guidelines); (b) use an internal model (for which the approval of the supervisory authorities is required); or (c) use a partial internal model (PIM) (which is a combination of the standard formula and an internal model).
An internal model is developed by the insurance or reinsurance company in question, and should better reflect the actual risk profile of the insurance or reinsurance company than the standard formula. Aegon (as a group) uses a PIM.
Pillar 2 Under Pillar 2, insurance and reinsurance companies are required to set up and maintain an adequate and effective system of governance, which includes an appropriate internal organization
II Pillar 2 requirements also include detailed requirements with respect to outsourcing, including intra group outsourcing.
Pillar 3 Solvency II introduces new and more detailed reporting and disclosure requirements than formerly prescribed under the
Solvency I framework. These requirements include non-public supervisory reporting on a quarterly and annual basis through regular supervisory reports (RSR), complemented by detailed quantitative reporting templates (QRTs) containing detailed financial data. In addition, it is a requirement to publish a Solvency and Financial Condition Report (SFCR) on an annual basis.
The group requirements do not include an MCR. Solvency II does however require groups to maintain eligible own funds, at least equal to a floor, as further defined in the Solvency II rules (the absolute floor of the group solvency), which can be considered to be an MCR at group level. Although entities that are not subject to solo supervision under Solvency II (such as entities in other financial sectors, non-financial entities, and regulated and non-regulated entities in third countries) are not directly subject to Solvency II requirements, these entities may be affected indirectly by the Solvency II group requirements. Entities in other financial sectors are, in most cases, taken into account in the group solvency calculation, applying the capital requirements of
banks and certain investment firms) and using the deduction and aggregation method for inclusion of these entities in the group calculation (as opposed to the accounting consolidation method, which is the default method under 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.
Solvency ratio, the Accounting Consolidation method and the Deduction and Aggregation method. Aegon applies the
States, Aegon uses the Deduction and Aggregation method, with local regulatory requirements to bring these into the Group
Solvency position. US insurance and reinsurance entities are included in Aegon’s group solvency calculation in accordance with local US (RBC) requirements. Aegon uses 250% of the local
An important role in the cooperation between the supervisory authorities in the context of group supervision is played by the college of supervisors, in which the local and group supervisors are represented. This college is chaired by the group supervisor.
reviews the G-SII designation annually, and Aegon continues to be designated at the time of publication of this annual report.
Aegon submitted plans to DNB, and to the G-SII crisis management group that was established for Aegon.
These authorities are required: to establish a crisis management group (within 6 months of G-SII designation); to enter into a cross-border cooperation agreement; to develop a resolution plan based on a resolution strategy (within 18 months); and to undertake a resolvability assessment (within 24 months).
As of 2016, G-SIIs have calculated and reported a Basic Capital
Oversight and advice The Supervisory Board is a separate corporate body, independent of the Executive Board, consisting of eight members on
Board is charged with the supervision of the Executive Board, of the general course of affairs of the Company, and of its businesses. In performing their duties, members of the
Supervisory Board are guided by the interests of Aegon and the Company's stakeholders.
Board Charter, which is published on Aegon’s corporate website, aegon.com. The Supervisory Board makes recommendations to the General Meeting of Shareholders concerning all appointments and reappointments to, and dismissals from, both the Executive
In addition, the Supervisory Board determines the remuneration of individual members of the Executive Board in line with the
Aegon Group Global Remuneration Framework, including the remuneration policies for the Executive Board, Identified Staff, and for staff in Control Functions.
Corporate governance Details of Aegon’s corporate governance structure and a summary of how the Company complies with the Dutch
Board in 2016 can be found on pages 111 and 112. All members of the Supervisory Board are considered independent under the terms of the Dutch Corporate Governance Code.
Shemaya Levy’s knowledge and experience and thanks them for their contributions. Given the resignation of Irv Bailey and
Board. The Supervisory Board discussed the selection and appointment of a new CFO. The proposal to appoint Matt Rider as CFO will be put on the agenda of the Annual General Meeting of Shareholders on May 19, 2017.
In addition, there were three conference calls, two of which were updates in between the face-to-face meetings. Supervisory Board
Committee meetings were usually held the day before the meetings of the full Supervisory Board. All regular board meetings were attended by all board members, except for one Supervisory Board conference call, which was not attended by Corien Wortmann-Kool.
Members of the Executive Board and Management Board, including the members that were added to the Management
Board in 2016, were present at most of the Supervisory Board meetings held in 2016. At the request of the Supervisory Board, other Company executives also attended the meetings to provide reports and updates on specific topics. Representatives from
Supervisory Board meeting on Aegon’s annual report. PwC also attended all 2016 Audit Committee meetings, except for the
Quarterly results were discussed on the basis of feedback from the Audit Committee. The full-year results reported in the Annual
December 2016. Digitization and cultural transformation of the business were additional important strategic priorities that were discussed during the Supervisory Board meetings.
Acquisitions and divestments were discussed in the context of the strategy. The Supervisory Board supported the active management of the business portfolio with add-on acquisitions, the sale of underperforming businesses and the disposals of entities no longer consistent with the strategy. While acquisitions and divestments of EUR 50 million or more require Supervisory
transactions, including the disposal of the own annuity portfolio in the UK, the acquisition of BlackRock’s UK Defined Contribution platform and administration business, the acquisition of Cofunds in the UK, and the disposal of the commercial line non-life activities in The Netherlands.
Aegon’s Global Head Human Resources on progress made towards achieving the objectives of the talent agenda: attracting new staff with a wide range of different skills and experience; identifying sufficiently qualified succession candidates; and strengthening the talent pipeline for future succession.
The Board also received and discussed the results of the annual global employee survey.
In 2016, Supervisory Board discussions included the following topics: �� Strategy, including Aegon’s sustainability program and business reviews; �� Acquisitions, divestments and the strategic direction of businesses; �� Executive Board and senior management succession planning; �� Executive remuneration; �� Governance and composition of the Supervisory Board, including the Board’s effectiveness; �� Technological developments and the application of these to enhance customer centricity; �� Human resources, including talent development, results of the global employee survey and cultural change; �� Annual and quarterly results, dividends and the Company’s
Medium Term Plan, including the 2017 budget, capital and funding plan; �� Capital generation and Solvency II capital position; �� Enterprise risk management; �� Investor relations; �� Legal, regulatory and compliance issues, including Aegon’s engagement with regulators and the governance of global functions within Aegon; �� Tax policy; and �� Technology, including the technology strategy.
The Plan provides for a continuation of investments in digital capabilities to increase customer connectivity. The Supervisory
The Board also approved the 2017 funding plan and authorized the Executive Board to execute on the funding plan in 2017.
Conduct Risk Management. In particular, the Board discussed the consequences and actions resulting from being designated as a Global Systematically Important Insurer (G-SII). An overview of the topics discussed in the field of Risk Management can be found in the Audit Committee and Risk Committee sections below. Furthermore, the Supervisory Board discussed the appointment of members of the Management and Supervisory
All members of the Supervisory Board and Management Board confided with the Dutch financial sector oath.
Educational sessions and Board review The Board and its Committees received updates and presentations on topics ranging from developments in acquisitions and divestments, corporate governance, and remuneration regulations for the insurance sector, to sustainability and technology.
Company, the members of the Supervisory Board gathered general information on industry developments by participating in networks, reading independent reports and sharing knowledge with other board members within and outside Aegon. The Board visited local offices and employees in Spain and the US and was furthermore in particular informed on the strategic direction of
Aegon’s activities in Spain and Asset Management. In addition, the Board was updated on the developments around IFRS 9 and
The Supervisory Board reviewed the performance of individual members of the Management Board over the preceding calendar year.
Board. These provide an overview of the responsibilities and activities of the Committees.
1 Except for the October meeting in the US, which was not attended by PwC.
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 audit process; and �� The performance of the external auditors and the effectiveness of the external audit process, including monitoring the independence and objectivity of PwC.
Aegon has well established policies on audit effectiveness and independence of auditors that set out, among other things: �� 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.
The Risk Committee Composition On December 31, 2016, 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
framework and internal control systems of Aegon N.V. and its subsidiaries and affiliates that comprise the Aegon Group.
This includes: �� Risk strategy, risk tolerance and risk governance; �� Product development and pricing; �� Risk assessment; �� Risk responses and internal control effectiveness; �� Risk monitoring; and �� Risk reporting.
Committee and has an annual combined meeting, which was this year held in December. The focus during this combined meeting was on IFRS 9 and IFRS 17, evaluation of internal controls,
The Risk Committee convened five times in 2016, including the combined meeting with the Audit Committee. The Company's
In addition, the Risk Committee dedicated time to wider developments in the geo-political environment and financial markets in 2016, including possible consequences as a result of the outcome of the referendum on EU membership in the
The Nomination and Governance Committee Composition On December 31, 2016, the composition of the Nomination and
Governance Committee was as follows: �� Robert J. Routs (chair) �� Shemaya Levy �� Ben van der Veer �� Dirk P.M. Verbeek
Committee meetings Aegon’s Nomination and Governance Committee had six meetings in 2016. In addition to the committee members, these meetings were attended in whole or in part by the CEO, the Global Head
Committee. Furthermore, the existing and impending vacancies in the Supervisory Board were discussed and a search process for fulfilling those vacancies was commenced. The Supervisory Board intends to propose two new members to the Supervisory Board for appointment to the Annual General Meeting of Shareholders on May 19, 2017.
Executive Board related activities During 2016, the Nomination and Governance Committee reviewed the composition of the Executive Board and Management Board, together with the functioning and effectiveness of the board members, both individually and as a team. In particular the
Head Human Resources the extent to which sufficient internal candidates are available to fill positions at Executive Board,
Aegon continued to make progress in order to ensure proper succession planning is in place. The Supervisory Board was pleased with the results of the annual Global Employee Survey, which was conducted in January in 2016. The Committee debated the merits of setting up Aegon Continental Europe, which became operational on January 1, 2017, and also started initial discussions on the developments around the new Dutch Corporate Governance Code, which came into effect on January 1, 2017.
Board currently has two female board members. When identifying candidates for open positions in the Executive, Management and
Supervisory Board, the Board actively searches for 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 was as follows: �� Ben J. Noteboom (chair) �� Robert J. Routs �� Corien M. Wortmann-Kool
Identified Staff and Group Control functions; and �� Preparing the information provided to shareholders on remuneration policies and practices, including the Remuneration Report.
The Committee discussed the effects of regulations introduced by the European Union (CRD IV), together with the Guidelines on Remuneration Policies and Practices issued by the European
In 2016, the Remuneration Committee oversaw the further application, implementation and approval of Aegon’s Group
Mr. Routs is also chairman of the Supervisory Board of Royal
Møller-Mærsk A/S and AECOM Technology Corporation. He is a former non-executive director at UPM and former vice chairman of the Supervisory Board of Royal KPN N.V. He has held no other board memberships in the past five years.
Irving W. Bailey II (1941, American) Vice Chairman of the Supervisory Board Member of the Audit Committee Member of the Remuneration Committee Irving W. Bailey II is retired Chairman and Chief Executive Officer of Providian Corp., a former Managing Director of Chrysalis
Aegon’s Supervisory Board in 2005 and his current and final term ends in 2017. He is chairman of the Supervisory Board Risk
Committee and a member of the Supervisory Board Nomination and Governance Committee.
Mr. Levy is also vice chairman of the Supervisory Board of TNT
Express N.V. and member of the Board of Directors of PKC Group
Ben J. Noteboom (1958, Dutch) Chairman of the Remuneration Committee Member of the Audit Committee Ben J. Noteboom worked for Randstad Holding N.V. from 1993 until 2014, where he was appointed member of the Executive
He started his career in 1982 at Zurel as management assistant.
He was appointed to Aegon’s Supervisory Board in May 2015 and his current term ends in 2019. He is chairman of the Supervisory
Ben van der Veer (1951, Dutch) Chairman of the Audit Committee Member of the Nomination and Governance Committee Ben van der Veer is former Chairman of the Board of Management of KPMG N.V. Mr. Van der Veer retired from KPMG per September 30, 2008. He was appointed to Aegon’s Supervisory Board in
Mr. Van der Veer is a member of the Supervisory Board of
Directors of RELX N.V., RELX PLC and RELX Group PLC. He is also a member of the Supervisory Board of Royal FrieslandCampina
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 president Emeritus of Aon Group. Mr. Verbeek was appointed to Aegon’s Supervisory Board in 2008, and his third and final term ends in 2020 following his reappointment during the 2016
Annual General Meeting of Shareholders. He is a member of the
Advisory Boards of CVC Europe (not listed) and OVG Real Estate
Corien M. Wortmann-Kool (1959, Dutch) Member of the Risk Committee Member of the Remuneration Committee Corien M. Wortmann-Kool is Chairman of the Board of Stichting
Ms. Wortmann-Kool is also a member of the Supervisory Board of
Het Kadaster (not listed), member of the Centraal Bureau voor de
Statistiek, Chairman of the Board of Trustees of Save the Children
Dona D. Young (1954, American) Member of the Audit Committee Member of the Risk Committee Dona D. Young is an executive/board consultant and retired
Supervisory Board in 2013 and her current term will end in 2017.
Ms. Young is member and Lead Director of the Board of Directors of Foot Locker, Inc.. Furthermore, Ms. Young is a member of the
Board of Trustees of Save the Children US (not listed). In 2015,
Directors’ Directorship 100. She has held no other board memberships in the past five years.
The Aegon Group Global Remuneration Principles provide the foundation for remuneration policies and practices throughout Aegon. They are applied regionally and/or locally.
The key pillars of the Aegon Group Remuneration Principles are as follows: �� Aegon remuneration is employee-oriented by: fostering a sense of value and appreciation in each individual employee; promoting the short- and long-term interests and well-being of all Aegon staff via fair compensation, pension and/or other benefits; supporting employees’ career development; and supporting the (international) mobility of its staff; �� Aegon remuneration is performance-related by: establishing a clear link between pay and performance by aligning objectives and target setting with performance evaluation and remuneration; reflecting individual as well as collective performance in line with Aegon’s long-term interests; enhancing the transparency and simplicity of Aegon Group remuneration, consistent with the principle of pay for performance; and avoiding any pay for non-performance; �� Aegon remuneration is fairness-driven by: promoting fairness and consistency in Aegon’s remuneration policies and practices, with remuneration packages that are well-balanced across the different echelons within Aegon and its business units; avoiding any discrimination in Aegon’s remuneration structures, including, among others, discrimination based on nationality, race, gender, religion, sexual orientation, and/or cultural beliefs; creating global alignment in the total compensation of all Identified Staff; and aiming at controlled market competitive remuneration, by providing total compensation packages in line with an appropriately established peer group at a regional unit, country and/or functional level; and �� Aegon remuneration is risk-prudent by: aligning business objectives with risk management requirements in the target setting practices throughout the Aegon Group; giving an incentive to appropriate risk-taking behavior while discouraging the taking of excessive risks; and protecting the risk alignment effects embedded in the remuneration arrangements of individual staff against any personal strategies or insurance to counter them.
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
(the Dutch Central Bank), and the 2015 Act on the Remuneration
Policy of Financial Undertakings (Wet beloningsbeleid financiële ondernemingen, Wbfo 2015 stb 2015, 45). 2016 has been a year with relatively few changes to the remuneration regulations impacting Aegon. As a result the Aegon remuneration practices and processes have not materially changed compared with the previous performance period.
Human Resources, Risk Management, Compliance and Audit are involved in all steps of the process
The regulations concern, among other things, caps on variable compensation that go beyond the maximums suggested by
For compensation of staff outside Europe, the Company obtained shareholder approval at the Annual General Meeting of
The GRF includes separate remuneration policies for three specific groups of employees. This is in recognition of the fact that these employees’ roles and responsibilities require specific risk mitigating measures and governance processes.
Furthermore, where exceptions to the policies are requested 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.
(regardless of whether the compensation is deferred) as well as after payouts, or allocated but deferred payments (before vesting of these payments) to ensure sustainability of performance, are considered ex-post measures.
Variable compensation already paid out may also be retrieved under certain circumstances (‘Claw-back’).
In the following sections more detailed information is provided on the compensation practice for the Supervisory Board and the Executive Board.
Board is aimed at ensuring fair compensation, and protecting the independence of the Board's members. Terms and conditions for members of the Supervisory Board are part of Aegon’s broader
Board’s Committees; �� An attendance fee for each Committee meeting attended, be it in person or through video and/or telephone conference; and �� An additional fee for attending meetings that require intercontinental travel between the Supervisory Board member's home location and the meeting location.
General Meeting of Shareholders on May 12, 2011. The Policy will remain in force until such time as the Supervisory Board proposes changes or amendments. Any material changes in the Executive Board Remuneration Policy will be referred to the General Meeting of Shareholders for adoption.
NN Group, Old Mutual, Prudential plc., Standard Life, Swiss Re and Zurich Financial Services.
The Supervisory Board regularly reviews the composition of the two groups in order to ensure that they continue to provide a reliable and suitable basis for comparison.
The Supervisory Board conducts regular scenario analyses to determine the long-term effect on the level and structure of compensation granted to members of the Executive Board.
Audit, Human Resources and Compliance departments to ensure alignment with the Company's objectives, business strategy, risk tolerance and long-term performance remains strong.
Performance is determined by using a mix of financial and non-financial indicators. For the CEO and CFO the mix of individual and company performance measures is 37.5% to 62.5% and 27.5% to 72.5% respectively. The type of performance indicators are selected in accordance with the long-term goals of the Company. The level of the indicators should be challenging but achievable. The targets and levels are agreed by the Supervisory Board.
1 For shares allocated in prior years but that vested in 2016 the company did not sell any shares on the market, but kept part of the gross number of these shares in treasury and paid the value of these shares to the participants to cover taxes (under IFRS terms net settlement). The net number of shares was made available (although holding periods apply) to the participants similar as when a sale to cover tax would have taken place.
Performance is assessed by Aegon’s Remuneration Committee and validated by the full Supervisory Board. Each year, a one-year target is set for each performance indicator. By paying half of the variable compensation in cash and the other half in shares, together with adding deferral and additional holding periods to the variable compensation that is allocated, Aegon believes that the long-term interests of Executive Board members are aligned with the interests of Aegon and its stakeholders.
All variable compensation is conditionally granted at the beginning of each performance period. The number of conditionally granted shares is calculated using the value of one
Aegon share at the beginning of this period. This value is equal to the volume weighted average price on the Euronext Amsterdam stock exchange for the period December 15 to January 15.
The allocated variable compensation consists of equal parts of cash and shares, of which 40% is paid out (or vests) in the year following the performance year, and 60% is deferred to later years. This deferred portion remains conditional until it vests.
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). This part will be paid 50% in cash (=200) and 50% in shares vesting immediately
(=200 /5.128 = 39 shares). The remaining 600 is deferred and vests according to a pre-defined schedule.
Variable compensation over 2016 At an aggregated level, payments are made as follows: �� 50% of base salary if the threshold target is reached.
EUR 397,507 and 77,516 shares for Mr. Button; �� Up to 100% of base salary if the targets are exceeded. This results in the allocation of EUR 634,739 and 123,779 shares for Mr. Wynaendts and EUR 496,883 and 96,896 shares for Mr. Button.
Pension arrangements Members of Aegon’s Executive Board are offered pension arrangements and retirement benefits. Benefits offered are consistent with Executive Board members’ agreements. Details on the pension contributions to the Executive Board over the course of 2016 can be found in the Remuneration of members of the Executive Board on page 113 and 300.
1 Mr. Button has not received any severance payments. Previously allocated but not yet paid out variable compensation for Mr. Button will vest according to the regular and agreed conditions (including customary claw back provisions). As a result of the termination the Dutch government imposes a tax levy. This additional employer wage tax is currently estimated at EUR 1,394.
Transamerica Life Insurance while he was seconded on an expatriate assignment to the Netherlands effective till August 1, 2016, which was successively followed by a commuter assignment from that date until the termination date.
It is expected that the terms of the engagement agreements will remain largely unchanged during 2017.
Shareholders on May 15, 2013. Mr. Button concluded his tenure1 with the Company on December 1, 2016.
Fixed compensation The fixed compensation of Mr. Wynaendts was increased in 2016 to EUR 1,269,478 to further align his Total compensation towards the desired market position. The fixed compensation of
Meeting of Shareholders on May 19, 2017, variable compensation for Executive Board members is set in cash and shares, based on both their individual and the Company's performance. Targets for the performance indicators have been set in line with the agreed variable compensation targets and 2016 company budgets.
Forty percent of variable compensation related to performance year 2016 is payable in 2017. This is split 50/50 in a cash payment and in an allocation of shares.
Mr. Wynaendts and 29,614 for Mr. Button. With regard to vested shares (with the exception of shares withheld to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the
Mr. Wynaendts equates to EUR 313,236 and 61,083 shares, and for Mr. Button equates to EUR 224,021 and 44,424 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 2018, 2019 and 2020, 20% of the total variable compensation may be made available. Any payout is split 50/50 in a cash payment and an allocation of shares (vesting). After vesting (with the exception of shares withheld to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the Company holds a withholding obligation in connection with the vesting of the shares ), a retention (holding) period is applicable for a further three years, before shares are at the disposal of the Executive Board members.
Impact of ex-ante and ex-post assessment on attribution of variable compensation No variable compensation from previous performance years payable in 2016 has been adjusted downwards in 2016.
General Meeting of Shareholders is to decide on matters such as the adoption of annual accounts, the approval of dividend payments and (re)appointments to the Supervisory Board and
Convocation Meetings are convened by public notice at least 42 days before the meeting. The convocation states the time and location of the meeting, the record date, the agenda items, and the procedures for admittance to the meeting and representation at the meeting by means of a written proxy. Those shareholders who alone or jointly represent at least 1% of Aegon’s issued capital or a block of shares worth at least EUR 100 million may request items be added to the agenda of a General Meeting of Shareholders. In accordance with Aegon’s Articles of Association, such a request will be granted if it is received in writing at least 60 days before the meeting, and if there are no important interests of the
profile has been established that outlines the required qualifications of its members. Supervisory Board members are no longer eligible for (re)appointment after reaching the age of 70, unless the Supervisory Board decides to make an exception.
Remuneration of the Supervisory Board members is determined by the General Meeting of Shareholders. At present, Aegon’s
Shareholders. In addition, the Supervisory Board may also subject other Executive Board decisions to its prior approval.
Composition of the Executive Board The Executive Board of Aegon consists of: Alex Wynaendts, who is Chief Executive Officer (CEO) and Chairman of the Executive
(CFO), was a member of the Executive Board until he concluded his tenure with the Company on December 1, 2016.
Board limits exit arrangements to a maximum of one year of salary.
Management Board Aegon’s Executive Board is assisted in its work by the Company's
Management Board, which has ten members, including the sole member of the Executive Board. Aegon’s Management Board is composed of Alex Wynaendts, Mark Bloom, Adrian Grace, Allegra van Hövell-Patrizi, Marco Keim, Gábor Kepecs, Onno van Klinken,
Carla Mahieu, Mark Mullin and Sarah Russell. Darryl Button was a member of the Management Board until he concluded his tenure with the Company on December 1, 2016.
Agreement, under which Vereniging Aegon may cast one vote for every 40 common shares B it holds in the absence of a Special Cause.
September 22, 2016, Dodge & Cox International Stock Fund stated to hold 134,654,439 common shares, which represent 5.1% of the capital issued and 5.1% of the votes as at December 31, 2016.
5.1% of the capital issued and 5.1% of the votes as at December 31, 2016. The remainder of the common shares registered in name of Dodge & Cox with the SEC are held by Dodge & Cox on behalf of its other clients, including investment companies registered under the Investment Company Act of 1940 and other managed accounts.
Special control rights As a matter of Dutch corporate law, the common shares and the common shares B offer equal full voting rights, as they have equal nominal value (EUR 0.12). The Voting Rights Agreement entered into between Vereniging Aegon and Aegon provides that under normal circumstances, i.e. except in the event of a Special
amounting to 15% or more; �� A tender offer for Aegon N.V. shares; or �� A proposed business combination by any person or group of persons, whether acting individually or as a group, other than in a transaction approved by the Company’s Executive and
Share plan Senior executives at Aegon companies and some other employees are entitled to variable compensation of which part is granted in the form of shares. For further details, please see the remuneration-report on page 113 and note 53 of the notes to
General Meetings of Shareholders in the year of vesting of these shares.
member of the Executive Board may also be suspended by the
In general, Aegon applies the best practice provisions set out in the Code. A detailed explanation is given below for those instances where Aegon does not fully apply the best practice provisions of the Code. In these few instances, Aegon adheres, as much as is possible, to the spirit of the Code.
Aegon’s position on Code II.2.13 (j) Members of Aegon’s Executive Board are offered pension arrangements and retirement benefits. Benefits offered are consistent with Executive Board members’ agreements. Pension arrangements do not include discretionary elements. These arrangements include retirement provisions that allow benefits to be taken at the end of the term. These retirement arrangements stem from pre-executive board membership. Details are not disclosed due to the individual nature of such arrangements.
Vereniging Aegon, it would not be in the Company's best interests to prevent their participation in discussions and decision-making related to Vereniging Aegon. For this reason, a protocol authorizes the members of Aegon’s Executive Board to continue their existing practice with respect to their dealings with
Merger Agreement under which Aegon was formed. However, to mitigate any possible negative effects stemming from this, the
Shareholders. The remuneration of Supervisory Board members is fixed by the General Meeting of Shareholders. Resolutions entailing a significant change in the identity or character of the
The current version of the Code of Conduct came into force in 2012, and is available on aegon.com. The Code outlines Aegon’s clear commitment to a customer centric approach, and reflects
All reports are investigated and results are reported to the Audit
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 acting 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,
Aegon’s CEO and acting CFO concluded that, as of December 31, 2016, the disclosure controls and procedures were effective.
There have been no material changes in the Company's internal controls or in other factors that could significantly affect internal controls over financial reporting subsequent to the end of the period covered by this Annual Report.
and acting 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 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, 2016.
Based on the assessment, management concluded that, in all material aspects, the internal control over financial reporting was effective as of December 31, 2016. They have reviewed the results of its work with the Audit Committee of the
The effectiveness of internal control over financial reporting as of December 31, 2016, was audited by PricewaterhouseCoopers
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 Accounting Oversight Board (United States).
Notes to the consolidated financial statements 1 General information 140 2 Summary of significant accounting policies 140 3 Critical accounting estimates and judgment in applying accounting policies 172 4 Financial risks 175 5 Segment information 203 6 Premium income and premiums paid to reinsurers 214 7 Investment income 214 8 Fee and commission income 215 9 Income from reinsurance ceded 215 10 Results from financial transactions 215 11 Other income 217 12 Policyholder claims and benefits 217 13 Profit sharing and rebates 217 14 Commissions and expenses 217 15 Impairment charges / (reversals) 220 16 Interest charges and related fees 221 17 Other charges 221 18 Income tax 221 19 Earnings per share 223 20 Dividend per common share 224 21 Cash and cash equivalents 225 22 Assets and liabilities held for sale 226 24 Investments for account of policyholders 229 26 Investments in joint ventures 232 27 Investments in associates 234 28 Reinsurance assets 235 29 Deferred expenses 236 30 Other assets and receivables 238 31 Intangible assets 240 32 Shareholders’ equity 242 33 Other equity instruments 248 34 Subordinated borrowings 249 35 Trust pass-through securities 250 36 Insurance contracts 250 37 Investment contracts 253 38 Guarantees in insurance contracts 254 41 Defined benefit plans 260 42 Deferred gains 266 43 Deferred tax 267 44 Other liabilities 269 46 Capital management and solvency 269 47 Fair value 273 48 Commitments and contingencies 285 49 Transfers of financial assets 288 50 Offsetting, enforceable master netting arrangements and similar agreements 290 51 Business combinations 292 52 Group companies 293 53 Related party transactions 295 54 Events after the reporting period 302
Purchases of equity securities by the issuer and affiliated purchasers 373
Consolidated income statement of Aegon N.V. For the year ended December 31
Income before share in profit / (loss) of joint ventures, associates and tax 665 (781) 1,395
Movement in foreign currency translation and net foreign investment hedging reserves 69 1,419 1,654
Income tax relating to items that may be reclassified 225 783 (2,018)
Consolidated statement of financial position of Aegon N.V. As at December 31
Issued capital and reserves attributable to owners of Aegon N.V. 24,710 26,485 28,010
Consolidated statement of changes in equity of Aegon N.V. For the year ended December 31, 2015
January 1, 2016. Furthermore a voluntary change in insurance accounting for business in United Kingdom was adopted by Aegon effective January 1, 2016 as well. Refer to note 2.1.2 Voluntary changes in accounting policies for details about these changes.
Movements in foreign currency translation and net foreign investment hedging reserves - - - (84) 1,738 - 1,654 - 1,654
Insurance and investment liabilities for account of policyholders 10,716 (3,343) 12,302
Purchase of investments (other than money market investments) (34,873) (38,290) (36,577)
Disposal of investments (other than money market investments) 33,246 36,619 33,846
Repayment of TRUPS 1), subordinated loans and borrowings (3,070) (3,916) (1,307)
Net increase / (decrease) in cash and cash equivalents 2) 1,776 (1,257) 4,766
3 Amounts have been restated to reflect the voluntary changes in accounting policies for deferred cost of reinsurance that was adopted by Aegon effective January 1, 2016. Furthermore a voluntary change in insurance accounting for business in United Kingdom was adopted by Aegon effective January 1, 2016 as well. Refer to note 2.1.2 Voluntary changes in accounting policies for details about these changes.
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 2016 is provided below in note 2.1.1
Adoption of new IFRS-EU accounting standards. The consolidated financial statements are presented in euro and all values are rounded to the nearest million unless otherwise stated. The consequence is that the rounded amounts may not add up to the rounded total in all cases. All ratios and variances are calculated using the underlying amount rather than the rounded amount. Certain amounts in prior years, next to the voluntary accounting changes as described in note 2.1.2, may have been reclassified to conform to the current year presentation. These reclassifications had no effect on net income, shareholders’ equity or earnings per share.
(macro hedging) under the European Union (EU) ‘carve out’ of IFRS-EU. Details are provided in note 2.9 Derivatives and note 24 Derivatives.
Aegon adopted voluntary changes in accounting policies, effective January 1, 2016, which are applied retrospectively for all periods presented. Firstly, Aegon adopted a group-wide accounting policy for reinsurance transactions that are entered into as part of a plan to exit a business. Also, Aegon made 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.
business into three components: the annuity business, the traditional pension book and the new digital solutions platform.
Kingdom, only affecting Aegon UK. The changes involve the aggregation level at which the liability adequacy test is carried out and the definition of when a substantially modified contract will be derecognized.
The previous accounting policy for the level of aggregation for the liability adequacy test in the United Kingdom was on a geographical basis, therefore the total Aegon UK book was considered as one population. After the announced restructuring, Aegon’s business in the
United Kingdom has been split into different portfolios that are 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. Details for the liability adequacy test are included in note 2.19 Insurance contracts.
The previous accounting policy for Aegon’s business in the United Kingdom is to derecognize insurance contracts when legal extinguishment occurs. As the annuity business, the traditional pension book and the new digital solutions platform will be managed separately post-restructuring, Aegon has decided to change its accounting policy for Aegon UK to one that applies criteria from IAS 39 contract modification. Under these criteria a change could be significant enough to be considered an extinguishment of the existing contract and the issuance of a new contract. Aegon considers that this change in accounting policy is preferred as introducing a more sophisticated approach to contract modification is consistent with how the business will be managed post-restructuring. Furthermore, it will provide the user with information that is more relevant and that reliably reflects the economic substance of our transactions with our upgraded policyholders, as required by IFRS 4 and IAS 8, in relation to the nature of contract modifications. Details for the recognition and derecognition of insurance contracts are included in note 2.19 Insurance contracts.
Impact of the adjustments Details of the impact of both of the adjustments on previous periods of the financial statements are provided in the following tables, including references to the notes that are impacted by changes in accounting policies. Notes that are impacted other than those referenced in the restatement tables provided include note 4, 5, 46 and 52. Furthermore, the Company financial statements of Aegon N.V.
Diluted earnings per common share B 0.01 - (0.01) (0.01) 0.01 - - 0.01
Earnings per common share calculation 19 Net income / (loss) attributable to owners 619 10 (1,153) (524) 1,186 9 - 1,194
Weighted average number of common shares outstanding (in million) 2,101 - - 2,101 2,094 - - 2,094
Total comprehensive income attributable to: 1 As reported in Aegon’s Annual Report dated March 25, 2016.
Equity and liabilities 1 As reported in Aegon’s Annual Report dated March 25, 2016.
The IASB issued the complete 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.
For these amendments EFRAG has issued a positive endorsement advice to the European Union and expects the European Union to come to a final endorsement decision in 2017. Once the European Union has endorsed the amendments, Aegon intends to make use of the ‘temporary exemption’ to defer the application of IFRS 9 until 2021, as it meets the underlying qualifying criteria for doing so.
The amendments are intended to clarify the requirements in IFRS 15, not to change the standard. IFRS 15 and the amendments will be effective for the Group on January 1, 2018, using either of two methods: a full retrospective approach with certain practical expedients or a modified retrospective approach with the cumulative effect of initially applying this standard recognized at the date of initial application with certain additional disclosures. Aegon is evaluating the impact that adoption of this standard is expected to have on the Group’s financial statements. The full impact will only be clear after full assessment of the standard, however as insurance revenue is not in scope of IFRS 15, the impact on Aegon is limited to other types of revenue.
2.1.4 Disclosure of new standards that have been issued but are not yet effective The following new standards and amendments to existing standards and interpretations, published prior to January 1, 2017, which are not yet effective for the Group nor early adopted, are not expected to significantly impact the financial position or financial statements: �� IFRS 2 Clarifications of Classification and Measurement of Share Based Payments Transactions; �� IFRS 16 Leases; �� IAS 7 Amendment Disclosure initiative; �� IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses; �� IAS 40 Amendment Transfers of Investment Property; �� Annual improvements 2014-2016 Cycle; and �� IFRIC 22 – Foreign Currency Transactions and Advance Consideration.
Aegon N.V. shares held by subsidiaries, which are recognized as treasury shares in equity, are eliminated. Intra-group losses may indicate an impairment that requires recognition in the consolidated financial statements. Non-controlling interests are initially stated at their share in the fair value of the net assets on the acquisition date and subsequently adjusted for the non-controlling share in changes in the subsidiary’s equity.
A structured entity is defined in IFRS 12 as ‘An entity that has been designed so that voting rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements.’ In these instances the tests and indicators to assess control provided by IFRS 10 have more focus on the purpose and design of the investee (with relation to the relevant activities that most significantly affect the structured entity) and the exposure to variable returns, which for structured entities lies in interests through e.g. derivatives, and will not be focused on entities that are controlled by voting rights.
2.4 Segment reporting During 2016 Aegon made changes which affected its segment reporting: �� Changes to Aegon’s operating and reporting segments (paragraph 2.4.1) �� Voluntary changes in accounting policies (paragraph 2.4.2) �� Change in measurement of underlying earnings before tax (paragraph 2.4.3)
Aegon’s segment reporting in previous years was established by considering the requirements outlined in IFRS 8 – Operating Segments.
IFRS 8 requires operating segments to be defined in line with how the ‘chief operating decision maker’ (CODM, i.e. Aegon’s Executive
Board) manages the business. Between 2010 and 2015 Aegon had the following reportable segments: Americas, the Netherlands,
Given that Aegon changed its managerial view to geographical areas, and underlying businesses have developed since 2010, Aegon has evolved the way it manages its businesses including the internal managerial reports it uses to manage the businesses. Alignment of segment reporting with those changes and developments have been put in place in 2016 reflecting Aegon’s announcements related to its strategic plan. Accordingly as of January 1, 2016 Aegon adopted refinements to its segment reporting including presenting the
operating segments as described above and introducing a 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’
Europe, Spain & Portugal; �� Asia: one operating segment which covers businesses operating in Hong Kong, Singapore, China, Japan, India and Indonesia including any of the units’ activities located outside these countries; �� Asset Management: one operating segment which covers business activities from Aegon Asset Management; �� Holding and other activities: one operating segment which includes financing, reinsurance activities, employee and other administrative expenses of holding companies.
Portugal) are separate operating segments which under IFRS 8 cannot be aggregated, therefore further details on these operating segments is provided for in the segment note (note 5 Segment information). The change in segment reporting does not have an impact on the consolidated statement of financial position, the consolidated income statement and results of operations or the consolidated cash flow statement of Aegon N.V.
The following table presents Aegon’s 2015 segment results after adoption of the refinements of its segment reporting: Income statement –Underlying earnings A
The following table presents Aegon’s 2014 segment results as previously reported: Income statement – Underlying earnings Americas
The following table presents Aegon’s 2014 segment results after adoption of the refinements of its segment reporting: Income statement - Underlying earnings A
Realized gains / (losses) on investments 85 431 164 9 2 606 5 1 - - 697 (3) 694
2.4.2 Voluntary changes in accounting policies As described in paragraph 2.1.2, Aegon adopted voluntary changes in accounting policies, effective January 1, 2016. The following table presents the impact of the voluntary changes in accounting policies on the new segments on the comparative numbers for the years ended December 31, 2015 and 2014: Income statement - Underlying earnings A
VOBA is amortized over the useful life of the acquired contracts, based on either the expected future premiums, revenues or the expected gross profit margins. The amortization period and pattern are reviewed at each reporting date; any change in estimates is recorded in the income statement. For all products, VOBA, in conjunction with deferred policy acquisition costs (DPAC) where appropriate, is assessed for recoverability on a country-by-country basis and the portion determined not to be recoverable is charged to the income statement. VOBA is considered in the liability adequacy test for each reporting period.
When unrealized gains or losses arise on available-for-sale assets, VOBA is adjusted to equal the effect that the realization of the gains or losses (through a sale or impairment) would have had on VOBA. The adjustment is recognized directly in shareholders’ equity. VOBA
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'.
of IFRS-EU. The EU ‘carve out’ macro hedging enables a group of derivatives (or proportions thereof) to be viewed in combination and jointly designated as the hedging instrument and removes some of the limitations in fair value hedge accounting. Under the EU ‘carve out’, ineffectiveness in fair value hedge accounting only arises when the revised projection of the amount of cash flows in scheduled time buckets falls below the designated amount of that bucket. Aegon applies fair value hedge accounting for portfolio hedges of interest rate risk (macro hedging) under the EU ‘carve out’ to mortgage loans. Changes in the fair value of the derivatives are recognized in the profit and loss account, together with the fair value adjustment on the mortgages (hedged items) insofar as attributable to interest rate risk (the hedged risk).
2.10 Investments in joint arrangements In general, joint arrangements are contractual agreements whereby the Group undertakes, with other parties, an economic activity that is subject to joint control. Joint control exists when it is contractually agreed to share control over an economic activity. Joint control exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
Aegon N.V. that are held by the joint venture are not eliminated.
2.13 Deferred expenses a. Deferred policy acquisition costs (DPAC)‍ DPAC relates to all insurance contracts as well as investment contracts with discretionary participation features and represents directly attributable costs that are related to the selling, underwriting and initiating of these insurance contracts.
For all products, DPAC, in conjunction with VOBA where appropriate, is assessed for recoverability at least annually on a country-bycountry basis as part of the liability adequacy test for each reporting period. If appropriate, the assumptions included in the determination of estimated gross profits or revenues are adjusted. The portion of DPAC that is determined not to be recoverable is charged to the income statement.
Impairment losses are charged to shareholders’ equity to the extent that they offset a previously recorded revaluation reserve relating to the same item. Any further losses are recognized directly in the income statement. Impairment of deferred policy acquisition costs is included in note 15 Impairment charges/(reversals).
The allocation is based on the level at which goodwill is monitored internally and cannot be larger than an operating segment.
The remaining impairment loss is allocated on a pro rata basis among the other assets, on condition that the resulting carrying amounts do not fall below the individual assets’ recoverable amounts.
b. Impairment of debt instruments Debt instruments are impaired if there is objective evidence that a credit event has occurred after the initial recognition of the asset that has a negative impact on the estimated future cash flows. Individually significant loans and other receivables are first assessed separately. All non-impaired assets measured at amortized cost are then grouped by credit risk characteristics and collectively tested for impairment.
For debt instruments classified as available-for-sale, the asset is impaired to its fair value. Any unrealized loss previously recognized in other comprehensive income is taken to the income statement in the impairment loss. After impairment the interest accretion on debt instruments that are classified as available-for-sale is recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
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. At initial recognition 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.
2.18 Trust pass-through securities and (subordinated) borrowings A financial instrument issued by the Group is classified as a liability if the contractual obligation must be settled in cash or another financial asset or through the exchange of financial assets and liabilities at potentially unfavorable conditions for the Group.
If any changes are made to current accounting policies for insurance contracts, these will be in accordance with IFRS 4.
Contracts that do not meet this definition are accounted for as investment contracts. The Group reviews homogeneous books of contracts to assess whether the underlying contracts transfer significant insurance risk on an individual basis. This is considered the case when at least one scenario with commercial substance can be identified in which the Group has to pay significant additional benefits to the policyholder. Contracts that have been classified as insurance are not reclassified subsequently.
Some profit sharing schemes issued by the Group entitle the policyholder to a bonus which is based on the actual total return on specific assets held. To the extent that the bonus relates to gains or losses on available-for-sale investments for which the unrealized gains or losses are recognized in the revaluation reserve in equity, shadow accounting is applied. This means that the increase in the liability is also charged to equity to offset the unrealized gains rather than to the income statement.
f. Liability adequacy testing At each reporting date, the adequacy of the life insurance liabilities (including life insurance contracts for account of policyholders), net of VOBA and DPAC, is assessed using a liability adequacy test.
liability adequacy test is performed on a consolidated basis for all life and non-life business, whereas in the Americas and the UK it is performed at the level of the portfolio of contracts. To the extent that the tests involve discounting of future cash flows, the interest rate applied is based on market rates or is based on management’s expectation of the future return on investments. These future returns on investments take into account management’s best estimate related to the actual investments and, where applicable, reinvestments of these investments at maturity. Aegon the Netherlands, as required locally, adjusts the outcome of the liability adequacy test for the difference between the fair value and the book value of the assets that are measured at amortized cost in the statement of financial position.
2.22 Assets and liabilities relating to employee benefits a. Short-term employee benefits A liability is recognized for the undiscounted amount of short-term employee benefits expected to be settled within one year after the end of the period in which the service was rendered. Accumulating short-term absences are recognized over the period in which the service is provided. Benefits that are not service-related are recognized when the event that gives rise to the obligation occurs.
Deducted from current year service cost are discretionary employee contributions and employee contributions that are linked to service
(those which are independent of the number of years of service). Net interest on the net defined benefit liability (asset) shall be determined by multiplying the net defined benefit liability (asset) by the applicable discount rate. Net interest on the net defined benefit liability (asset) comprises interest income on plan assets and interest cost on the defined benefit obligation. Whereby interest income on plan assets is a component of the return on plan assets and is determined by multiplying the fair value of the plan assets by the applicable discount rate. The difference between the interest income on plan assets and the actual return on plan assets is included in the remeasurement of the net defined benefit liability (asset).
The liability is remeasured at each reporting date and at the date of settlement, with any changes in fair value recognized in the income statement.
Deferred tax assets and liabilities are reviewed at each reporting period and are measured at tax rates that are expected to apply when the asset is realized or the liability is settled. Since there is no absolute assurance that these assets will ultimately be realized, management reviews Aegon’s deferred tax positions at each reporting period to determine if it is probable that the assets will be realized. These reviews include, among other things, the nature and amount of the taxable income and deductible expenses, the expected timing when certain assets will be used or liabilities will be required to be reported and the reliability of historical profitability of businesses expected to provide future earnings. Furthermore, management considers tax-planning opportunities it can utilize to increase the likelihood that the tax assets will be realized. The carrying amount is not discounted and reflects the Group’s expectations concerning the manner of recovery or settlement.
2.26 Premium income Gross premiums, including recurring and single premiums, from life and non-life insurance and investment contracts with discretionary participation features are recognized as revenue when they become receivable. For products where deposit accounting is required, the deposits are not reflected as premium income, but are recognized as part of the financial liability. For these products the surrender charges and charges assessed have been included in gross premiums.
Realized gains and losses on financial investments Gains and losses on financial investments include realized gains and losses on general account financial assets, other than those classified as at fair value through profit or loss.
2.31 Impairment charges/(reversals) Impairment charges and reversals include impairments and reversals on investments in financial assets, impairments and reversals on the valuation of insurance assets and other non-financial assets and receivables. Impairment of deferred policy acquisition costs is included in note 15 Impairment charges/ (reversals). Refer to note 15 Impairment charges/(reversals).
Events that are indicative of conditions that arose after the reporting date are disclosed, but do not result in an adjustment of the financial statements themselves.
Valuation of assets and liabilities arising from life insurance contracts The liability for life insurance contracts with guaranteed or fixed account terms is either based on current assumptions, on the assumptions established at inception of the contract, reflecting the best estimates at the time increased with a margin for adverse deviation or on the valuation assumptions (historical cost), without risk margin. All contracts are subject to liability adequacy testing which reflects management’s current estimates of future cash flows (including investment returns). To the extent that the liability is based on current assumptions, a change in assumptions will have an immediate impact on the income statement. Also, if a change in assumption results in not passing the liability adequacy test, the entire deficiency is recognized in the income statement. To the extent that the deficiency relates to unrealized gains and losses on available-for-sale investments, the additional liability is recognized in the revaluation reserve in equity.
accordance with local accounting principles. Given the dynamic and complex nature of these guarantees, stochastic techniques under a variety of market return scenarios are often used for measurement purposes. Such models require management to make numerous estimates based on historical experience and market expectations. Changes in these estimates will immediately affect the income statement.
Investment assumptions are prescribed by the local regulator, market observable or based on management’s future expectations. In the latter case, the anticipated future investment returns are set by management on a countrywide basis, considering available market information and economic indicators. A significant assumption related to estimated gross profits on variable annuities and variable life insurance products in the United States and some of the smaller countries, is the annual long-term growth rate of the underlying assets. The reconsideration of this assumption may affect the original DPAC or VOBA amortization schedule, referred to as DPAC or
VOBA unlocking. The difference between the original DPAC or VOBA amortization schedule and the revised schedule, which is based on estimates of actual and future gross profits, is recognized in the income statement as an expense or a benefit in the period of determination.
During 2016, Aegon implemented actuarial assumption and model updates resulting in a net EUR 118 million charge to income before tax (2015: EUR 131 million charge). Refer to note 5 Segment information for further details.
For the years 2014 through 2016, Aegon kept its long-term equity market return assumption for the estimated gross profits on variable life and variable annuity products in the Americas at 8%. During the three year period, the long-term assumption for 10-year
US Treasury yields was 4.25% and the uniform grading period was 10 years. Aegon’s assumed returns for US separate account bond fund are 4% over the next 10 years and 6% thereafter. The 90-day Treasury yield was 0.51%, 0.16%, and 0.04% at December 31, 2016, 2015 and 2014, respectively. During 2016 the Treasury yield was assumed to have a uniform grading over 10 years to 2.5%.
In 2015, the Treasury yield was assumed to remain level for six months followed by a 9.5 year grade to 2.5%, while in 2014, it was assumed to remain level for the next two years followed by an eight year grade to 2.5%. On a quarterly basis, the estimated gross profits are updated for the difference between the estimated market return and the actual market return.
A relative increase of 10% to the mortality assumption (in 2015 a range from 5% to 10% was used, dependent on product and characteristics of the block of business), would reduce net income by approximately EUR 343 million (2015: EUR 103 million).
However, certain assets and liabilities are valued on the basis of valuation techniques that feature one or more significant market inputs that are unobservable and, for such assets and liabilities, the derivation of fair value is more judgmental. An instrument is classified in its entirety as valued using significant unobservable inputs (Level III) if, in the opinion of management, a significant proportion of the instrument’s carrying amount is driven by unobservable inputs. ‘Unobservable’ in this context means that there is little or no current market data available from which to determine the price at which an at arm’s length transaction would be likely to occur. It generally does not mean that there is no market data available at all upon which to base a determination of fair value.
Additional information is provided in the table headed ‘Effect of changes in significant unobservable assumptions to reasonably possible alternatives’ in note 47 Fair Value. While Aegon believes its valuation techniques are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain instruments (both financial and non-financial) could result in a different estimate of fair value at the reporting date.
As part of its risk management programs, Aegon takes inventory of its current risk position across risk categories. Aegon also measures the sensitivity of net income and shareholders’ equity under both deterministic and stochastic scenarios. Management uses the insight gained through these ‘what if?’ scenarios to manage the Group’s risk exposure and capital position. The models, scenarios and assumptions used are reviewed regularly and updated as necessary.
change if there is a reasonably possible change in a risk factor, long-term assumptions will generally not be revised unless there is evidence that the movement is permanent. This fact is reflected in the sensitivity analyses.
The accounting mismatch inherent in IFRS-EU is also apparent in the reported sensitivities. A change in interest rates has an immediate impact on the carrying amount of assets measured at fair value. However, the shock will not have a similar effect on the carrying amount of the related insurance liabilities that are measured based on locked-in assumptions or on management’s long-term expectations. Consequently, the different measurement bases for assets and liabilities lead to increased volatility in IFRS-EU net income and shareholders’ equity. Aegon has classified a significant part of its investment portfolio as ‘available-for-sale', which is one of the main reasons why the economic shocks tested have a different impact on net income than on shareholders’ equity. Unrealized gains and losses on these assets are not recognized in the income statement but are booked directly to the revaluation reserves in shareholders’ equity, unless impaired. As a result, economic sensitivities predominantly impact shareholders’ equity but leave net income unaffected. The effect of movements of the revaluation reserve on capitalization ratios and capital adequacy are minimal.
The analysis does not take into account the impact of future new business, which is an important component of Aegon’s future earnings. It also does not consider all methods available to management to respond to changes in the financial environment, such as changing investment portfolio allocations or adjusting premiums and crediting rates. Furthermore, the results of the analyses cannot be extrapolated for wider variations since effects do not tend to be linear. No risk management process can clearly predict future results.
Aegon’s business strategy is tested in several extreme event scenarios. In the Depression and Inflation scenario, financial markets are stressed without assuming diversification across different market factors. As part of the Extreme Event Scenario testing, certain management actions are implemented when management deems this necessary.
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.
Increase by 15% of GBP currencies relative to the euro (3) 259
Increase by 15% of non-euro currencies relative to the euro 79 2,537
Decrease by 15% of GBP currencies relative to the euro (55) (170)
Decrease by 15% of non-euro currencies relative to the euro (110) (1,794)
Increase by 15% of non-euro currencies relative to the euro (91) 2,820
Decrease by 15% of GBP currencies relative to the euro 123 (390)
Decrease by 15% of non-euro currencies relative to the euro 72 (1,993) 1 The effect of currency exchange movements is reflected as a one-time shift up or down in the value of the non-euro currencies relative to the euro on December 31. 2 For the sensitivity analysis the book loss of Canada in 2015 has not been taken into account and for 2016 the book loss of the UK annuity portfolio has been excluded.
Aegon manages interest rate risk closely, taking into account all of the complexity regarding policyholder behavior and management action. Aegon employs sophisticated interest rate measurement techniques and actively uses derivatives and other risk mitigation tools to closely manage its interest rate risk exposure. Aegon operates an Interest Rate Risk policy that limits the amount of interest rate risk to which the Group is exposed. All derivative use is governed by Aegon’s Derivative Use Policy. A detailed description on the use of derivatives within Aegon is included in note 24 Derivatives.
Parallel movement of yield curve Estimated approximate effects on net income Estimated approximate effects on shareholders’ equity
Mortgage loans – carried at amortized cost 34,206 2,319 - 760 49,448 - - 52,527 19,198 876
Other loans – carried at amortized cost 2,441 - - - - - 2,197 2,197 1,326 1,570
Other financial assets – carried at fair value 3,425 - - - - - - - - 3,425
Debt securities – carried at fair value 107,390 - - 470 - - - 470 - 106,920
Mortgage loans – carried at amortized cost 33,214 2,070 - 1,387 45,244 - 1 48,702 15,644 156
Private loans – carried at amortized cost 2,847 - - - - - - - - 2,847
Other financial assets – carried at fair value 3,932 - - - - - - - - 3,932
Several bonds in Aegon’s USA's portfolio are guaranteed by monoline insurers. This is shown in the table above in the column ‘Letters of credit / guarantees'. Further information on the monoline insurers is provided below under ‘Monoline insurers'.
Within tri-party repos Aegon invests under short-term reverse repurchase agreements and the counterparty posts collateral to a third party custodian. The collateral posted is typically high-quality, short-term securities and is only accessible for or available to Aegon in the event the counterparty defaults.
The assets in trust can be accessed to pay policyholder benefits in the event the reinsurers fail to perform under the terms of their contract. Further information on the related reinsurance transactions is included in note 28 Reinsurance assets.
Aegon may also mitigate credit risk in reinsurance contracts by including downgrade clauses that allow the recapture of business, retaining ownership of assets required to support liabilities ceded or by requiring the reinsurer to hold assets in trust. For the resulting net credit risk exposure, Aegon employs deterministic and stochastic credit risk modeling in order to assess the Group’s credit risk profile, associated earnings and capital implications due to various credit loss scenarios.
At December 31, 2016 there was one violation of the Credit Name Limit Policy at Group level. This violation will be solved over time by taking appropriate management actions. At December 31, 2015 there was one violation of the Credit Name Limit Policy at Group level.
This violation has been resolved in 2016 by reducing the exposure.
America (RGA), Barclays and Citigroup. Aegon had large government exposures, the largest being in the USA, the Netherlands and
Germany. Highly rated government bonds and government exposure domestically issued and owned in local currency are excluded from the Credit Name Limit Policy.
Past due and / or impaired assets 23 1,479 520 119 - 1 154 2 - - 674 122
Past due and / or impaired assets - 54 - - 697 1,655 2,352 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 2016 Carrying value 2015
Credit risk concentrations – Credit rating 2016 2) Government bonds Corporate bonds RMBSs
CMBSs ABSs Other Total 1 Includes investments of Holding and other activities. 2 CNLP Ratings are used and are the lower of the Barclay’s Rating and the Internal Rating with the Barclay’s rating being a blended rating of S&P, Fitch, and
RMBSs CMBSs ABSs Other 1 Includes investments of Holding and other activities. 2 CNLP Ratings are used and are the lower of the Barclay’s Rating and the Internal Rating with the Barclay’s rating being a blended rating of S&P, Fitch, and Moody’s.
The fair value of Aegon Americas commercial and agricultural mortgage loan portfolio as per December 31, 2016, amounted to
EUR 8,789 million (2015: EUR 8,202 million). The loan to value (LTV) amounted to approximately 54% (2015: 55%). There were no delinquencies (defined as 60 days in arrears) in the portfolio (2015: 0.1%). In 2016, Aegon Americas recognized EUR 0 million impairments (net of recoveries) (2015: EUR 5 million) on this portfolio. In 2016, Aegon Americas foreclosed upon, or recovered
The fair value of Aegon the Netherlands mortgage loan portfolio as per December 31, 2016, amounted to EUR 29,479 million
Impairments in 2016 amounted to a release of EUR 5 million (2015: EUR 9 million charge). During the last ten years defaults of the portfolio have been 5 basis points on average.
Aegon’s investments in unconsolidated structured entities such as RMBSs, CMBSs and ABSs and investment funds are presented in the line item ‘Investments’ of the statement of financial position. Aegon’s interests in these unconsolidated structured entities can be characterized as basic interests, Aegon does not have loans, derivatives, guarantees or other interests related to these investments. Any existing commitments such as future purchases of interests in investment funds are disclosed in note 48 Commitments and contingencies.
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.
Total income, 2015 December 31, 2015 2015 Interest income Total gains and losses on sale of assets Total Investments
An insolvency by one of the Monolines could create significant market price volatility for the affected holdings.
portfolios, are as follows as of December 31, 2016, and December 31, 2015: Amortized cost Unrealized gains Unrealized losses Total fair value
Of which held by Aegon Americas, NL and UK 95,806 7,739 (1,217) 102,329 81,335 20,993
Unrealized bond losses by sector The composition by industry category of Aegon’s available-for-sale (AFS) debt securities, money market investments and other in an unrealized loss position at December 31, 2016, and December 31, 2015, is presented in the following table: Unrealized losses - debt securities, money market investments and other
Total held by Aegon Americas, NL and UK 20,993 (1,217) 24,363 (1,766)
EUR 1,217 million (December 31, 2015: EUR 1,766 million) of gross unrealized losses in the AFS debt securities, money markets and other portfolio of Aegon Americas, Aegon the Netherlands and Aegon UK. One issuer represents more than 4% of the total unrealized loss position. The unrealized loss is EUR 343 million and relates to securities issued by the government of the United States of America.
recession and a Chinese slowdown at the start of 2016 subsided later in the year. 2016 was shaped by a number of global political events such as the decision of UK voters to leave the European Union, followed by the US presidential election later in the year.
Developed market economies performed relatively positive despite this tumultuous backdrop. Unemployment declined sharply in