The real estate collateral for mortgages includes both residential and commercial properties. The collateral for commercial mortgage loans in Aegon Americas is measured at fair value. At a minimum, on an annual basis, a fair value is estimated for each individual real estate property that has been pledged as collateral. When a loan is originally provided, an external appraisal is obtained to estimate the value of the property. In subsequent years, the value is typically estimated internally using various professionally accepted valuation methodologies. Internal appraisals are performed by qualified, professionally accredited personnel. International valuation standards are used and the most significant assumptions made during the valuation of real estate are the current cost of reproducing or replacing the property, the value that the property's net earning power will support, and the value indicated by recent sales of comparable properties. Valuations are primarily supported by market evidence. For Aegon the Netherlands collateral for the residential mortgages is measured as the foreclosure value which is indexed periodically.
Aegon manages credit risk exposure by individual counterparty, sector and asset class, including cash positions. Normally, Aegon mitigates credit risk in derivative contracts by entering into credit support agreement, where practical, and in ISDA master netting agreements for most of Aegon’s legal entities to facilitate Aegon’s right to offset credit risk exposure. Main counterparties to these transactions are investment banks which are typically rated A or higher. The credit support agreement will normally dictate the threshold over which collateral needs to be pledged by Aegon or its counterparty. Transactions requiring Aegon or its counterparty to post collateral are typically the result of derivative trades, comprised mostly of interest rate swaps, currency swaps, and credit swaps. Collateral received is mainly cash (USD and EUR). The credit support agreements that outline the acceptable collateral require high quality instruments to be posted. In 2013 and 2012, there was no default with any derivatives counterparty. The credit risk associated with financial assets subject to a master netting agreement is eliminated only to the extent that financial liabilities due to the same counterparty will be settled after the assets are realized.
Aegon may also mitigate credit risk in reinsurance contracts by including down-grade 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 modelling in order to assess the Group’s credit risk profile, associated earnings and capital implications due to various credit loss scenarios.
Limits are placed on the exposure at both group level and individual country units. The limits also vary by a rating system, which is a composite of the main rating agencies (S&P, Moody’s and Fitch) and Aegon’s internal rating of the counterparty. If an exposure exceeds the stated limit, then the exposure must be reduced to the limit for the country unit and rating category as soon as possible.
Exceptions to these limits can only be made after explicit approval from Aegon’s Group Risk and Capital Committee (GRCC). The policy is reviewed regularly.
At December 31, 2013, there was one violation of the Credit Name Limit Policy at Group level, which received an exemption from
Aegon’s GRCC. This exposure is an reinsurance exposure. At December 31, 2012, there were four violations of the Credit Name Limit
Policy at Group level. Three of these exposures have been reduced in 2013.
At December 31, 2013, Aegon’s largest corporate credit exposures are to Rabobank, ING, Citigroup, General Electric and Berkshire
Hathaway. Aegon had large investments in sovereign backed assets, the largest being in USA, the Netherlands, Germany, UK and
Aegon Group level long-term counterparty exposure limits are as follows: Group Limit Amounts in EUR million 2013 2012
Past due and / or impaired assets 79 1,497 638 160 - 26 160 28 877 1,711 2,588 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 2013
Residential mortgage backed securities (RMBSs) 5,079 1,142 20 106 6,966 1,232
Asset Backed Securities (ABSs) - CDOs backed by ABS, Corp. Bonds, Bank loans 507 780 - - 1,287 18 1 Includes investments of Holding and other activities
The fair value of Aegon Americas commercial and agricultural mortgage loan portfolio as per December 31, 2013 amounts to
EUR 6,514 million (2012: EUR 7,317 million). The loan to value (LTV) amounts to about 59% (2012: 61%). Of the portfolio 1.24%
The 2013 additional recoveries associated with these loans at the time of foreclosure amounted to EUR 4 million (2012: impairment recoveries of EUR 2 mllion).
Aegon's unconsolidated structured entities such as RMBSs, CMBSs and ABSs are presented in the line item "Investments" of the statement of financial position. The composition of the structured entities portfolios of Aegon are widely dispersed looking at the individual amount per entity. This is shown in the following table together with the number of individual entities: Number of entities
EUR 343 million of bonds (2012: EUR 419 million) in the EUR 1.0 billion subprime portfolio (2012: EUR 1.2 billion). Expected claims against the monolines amount to EUR 98 million (2012: EUR 108 million), although an insolvency by one of the monolines could create significant market price volatility for the affected holdings.
Bonds insured by monoline insurers Amortized cost Fair value Amortized cost Fair value
Of the EUR 751 million (2012: EUR 892 million) indirect exposure on the monoline insurers, 34% relates to MBIA, 28% to AMBAC, 7%
to FGIC and 24% to FSA (2012: 34% related to MBIA, 27% to AMBAC, 7% to FGIC and 24% to FSA).
At the end of 2013, Aegon USA had no indirect exposure via wrapped bonds via holdings in monoline insurers and derivative counterparty exposure where monoline insurers are Aegon's counterparty (2012: no indirect exposure).
portfolios, are as follows as of December 31: Amortized cost Unrealized gains Unrealized losses Total fair value
As of December 31, 2013, there are EUR 5,580 million (2012: EUR 10,669 million) of gross unrealized gains and EUR 1,575 million
(2012: EUR 1,341 million) of gross unrealized losses in the AFS debt securities portfolio of Aegon Americas, Aegon the Netherlands and Aegon UK. No one issuer represents more than 4% of the total unrealized loss position. The largest single issuer unrealized loss is EUR 257 million and relates to securities issued by the government of the United States of America and is primarily from rising interest rates.
Reserve maintained a Fed Funds rate near zero. U.S. Treasury rates fell to new all-time lows during the second quarter, but rose significantly thereafter as the markets began to discount U.S. Federal Reserve tapering of quantitative easing. Corporate default rates
remained low in 2013 due largely to readily available access to funding and strong corporate balance sheet fundamentals. Commodity prices were mixed and volatile over the second half of 2013 after trending lower in the first half of 2013 as growth expectations weakened. The rise in US Treasury rates during 2013, as well as net outflows from run-off businesses in the Americas, caused the fair value of the debt securities portfolio to decline from 2012 to 2013.
Impairment of financial assets Aegon regularly monitors industry sectors and individual debt securities for indicators of impairment. These indicators may include one or more of the following: 1) deteriorating market to book ratio, 2) increasing industry risk factors, 3) deteriorating financial condition of the issuer, 4) covenant violations of the issuer, 5) high probability of bankruptcy of the issuer, or 6) nationally recognized credit rating agency downgrades. Additionally, for asset-backed securities, cash flow trends and underlying levels of collateral are monitored.
(2012: EUR 20 million) by Aegon UK and EUR 1,143 million (2012: EUR 1,141 million) by Aegon the Netherlands. Residential mortgage-backed securities are securitizations of underlying pools of non-commercial mortgages on real estate. The underlying residential mortgages have varying credit characteristics and are pooled together and sold in tranches. The following table shows the breakdown of Aegon USA’s RMBS available-for-sale portfolio. Additionally, Aegon USA has investments in RMBS of EUR 60 million
Total amortized cost Total fair value 1 Reported as part of asset backed securities in the table on page 186.
Aegon’s RMBS asset specialists utilize widely recognized industry modeling software to perform a loan-by-loan, bottom-up approach to modeling. Key assumptions used in the models are projected defaults, loss severities, and prepayments. Each of these key assumptions varies greatly based on the significantly diverse characteristics of the current collateral pool for each security. Loan-tovalue, loan size, and borrower credit history are some of the key characteristics used to determine the level of assumption that is utilized. Defaults were estimated by identifying the loans that are in various delinquency buckets and defaulting a certain percentage of them over the near-term and long-term. Assumed defaults on delinquent loans are dependent on the specific security’s collateral attributes and historical performance.
Loss severity assumptions were determined by obtaining historical rates from broader market data and by adjusting those rates for vintage, specific pool performance, collateral type, mortgage insurance and estimated loan modifications. Prepayments were estimated by examining historical averages of prepayment activity on the underlying collateral. Quantitative ranges of significant assumptions within Aegon’s modeling process for Prime Jumbo, Alt-A and Negative Amortization RMBS are as follows: prepayment assumptions range from approximately 0.5% to 25% with a weighted average of approximately 4.8% (2012: 4.8%), assumed defaults on delinquent loans range from 50% to 100% with a weighted average of approximately 84.3% (2012: 84.6%), assumed defaults on current loans are dependent on the specific security’s collateral attributes and historical performance, while loss severity assumptions range from approximately 13.9% to 75%, with a weighted average of approximately 54.5% (2012: 54.3%). Additionally, quantitative ranges of significant assumptions within Aegon’s modeling process for the RMBS subprime mortgage portfolio are as follows: prepayment assumptions range from approximately 2% to 6% with a weighted average of approximately 5.2% (2012: 5.2%), assumed defaults on delinquent loans range from 60% to 100% with a weighted average of approximately 87.2% (2012: 87.2%), assumed defaults on current loans are dependent on the specific security’s collateral attributes and historical performance, while loss severity assumptions range from approximately 65% to 103%, with a weighted average of approximately 72.6% (2012: 72.9%).
(2012: 397 million), of which EUR 190 million (2012: EUR 351 million) relates to positions of Aegon USA, and the total net unrealized gain on available-for-sale RMBS is EUR 229 million (2012: EUR 157 million), including a EUR 192 million (2012: EUR 31 million) net unrealized gain relating to positions of Aegon USA. The unrealized loss in the sector is primarily a result of the housing downturn in the
(2012: EUR 102 million), of which all relates to positions of Aegon USA. The total net unrealized gain on CMBS is EUR 162 million
The pace of credit deterioration appears to be moderating as property transactions have increased and there is greater availability of financing for commercial real estate. Liquidity has improved within the CMBS market, but a broad re-pricing of risk has kept credit spreads on legacy subordinate CMBS tranches at wide levels.
of EUR 38 million (2012: EUR 62 million), which are classified as fair value through profit or loss.
Securities are impaired to fair value when Aegon expects that it will not receive all contractual cash flows on its tranches. As the remaining unrealized losses in the CMBS portfolio relate to holdings where Aegon expects to receive full principal and interest, Aegon does not consider the underlying investments to be impaired as of December 31, 2013.
Asset-backed securities Aegon Americas, Aegon the Netherlands and Aegon UK hold EUR 5,861 million (2012: EUR 5,744 million) of AFS ABS instruments of which EUR 2,592 million (2012: EUR 2,908 million) is held by Aegon USA, EUR 1,563 million (2012 : EUR 1,103 million) by Aegon the
Netherlands and EUR 1,682 million (2012: EUR 1,674 million) by by Aegon UK. Additionally, Aegon Americas has investments in ABS of
EUR 24 million (2012: EUR 16 million), which are classified as fair value through profit or loss. ABS are securitizations of underlying pools of credit card receivables, auto financing loans, small business loans, bank loans, and other receivables. The underlying assets of the asset backed securities have been pooled together and sold in tranches with varying credit ratings.
Aegon USA has 52 million of this gross unrealized loss, followed by Aegon the Netherlands at 40 million and Aegon UK at 7 million.
The unrealized loss in the sector is primarily a result of the credit crisis that started in 2007 which resulted in weak liquidity and increased credit spreads. The stronger financial and economic conditions in 2013 have helped stabilize the performance of the underlying collateral backing many of these securities. New issuance in the asset-backed sector has been weak but buyers began returning to the market. The combination of these factors has led to a decrease in credit spreads in 2013.
CDOs backed by ABS, Corp. Bonds, Bank loans 738 623 338 93 186 1,978 1,950
There were no individual issuers rated below investment grade in this ABS sector which has unrealized loss position greater than EUR
The fair values of Aegon USA, Aegon the Netherlands & Aegon UK ABS instruments were determined as follows: Level II Level III Total 2013 Level II Level III Total 2012
Corporate - Financial sector The Corporate Financial Sector is further subdivided into banking, brokerage, insurance, REIT’s and financial-other sub-sectors. A
The banking sub-sector in Aegon’s portfolio is relatively large, diverse, and of high quality. Aegon holds EUR 8,288 million
(2012: EUR 8,599 million) of AFS bonds issued by banks. In aggregate, the gross unrealized loss on these bonds amounts to EUR 221 million (2012: EUR 335 million) and the net unrealized gain on these bonds amounts to EUR 226 million
Aegon evaluated the near-term prospects of the issuer and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2013.
Corporate - Industrial sector The Industrial sector is further subdivided into various sub-sectors with a majority of its gross unrealized loss in Basic Industry and
Consumer Non-Cyclical sub-sectors. The Basic Industries sector encompasses various sub-sectors including metals and mining, chemicals and paper and forest products with the majority of the loss relating to metals and mining. Fundamentals for the metals and mining industry have been negatively impacted by falling prices for base metals, non-ferrous metals, precious metals, coal and steel. Slowing economic data out of China has been the main driver of the pricing pressure for the base metals and bulk steel-making commodities as the country comprises from 40%-60% of the demand for most of these commodities. Rising interest rates have put pressure on precious metals as investors become less worried about inflation and look to put money to work in income generating assets. Chemicals have been positively impacted by continued low natural gas prices within the US, but given the global scale of most players in the industry, they have also been harmed by a slowdown in global growth as well as volatility in raw material costs and increasing competition from global peers. Paper and forest products have shown some improvement as the housing recovery takes hold in the United States, but more traditional paper products such as newsprint remains challenged. Aegon evaluated the near-term
The Consumer Non-Cyclical sub-sector encompasses various industries ranging from consumer products to supermarkets. The more significant of these sub-sectors from an unrealized loss perspective are food and beverage and pharmaceuticals. The slow growth environment in food and beverage combined with improved balance sheets resulted in an increase in acquisition activity and shareholder friendly activity. Volumes were challenged, but largely offset by previous price increases and tight cost controls, along with relatively benign input cost inflation. While starting to show signs of stabilization, the Pharmaceutical sector continues to deal with patent cliff issues. As drugs roll off patent, generic competition takes market share and pulls down margins. Additionally, shareholder friendly activities in the form of increased dividends and share repurchases continue. Merger and acquisition activity is increasing in the sector, at times resulting in additional leverage. Finally, some companies have analyzed their business models and decided to spin-off business lines, in an effort to concentrate on their core competencies. In certain instances, this has resulted in smaller, less diversified companies. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2013.
There are no individual issuers rated below investment grade in the corporate – industrial sector which have unrealized loss positions greater than EUR 25 million.
The majority of the unrealized losses relate to investment grade holdings resulting from the increase in interest rates during the second half of 2013.
Aegon's policy is to pursue realization of the collateral in an orderly manner as and when liquidity permits. Aegon generally does not use the non-cash collateral for its own operations.
Aegon UK at December 31, 2013 and December 31, 2012 is presented in the table below.
Impairment losses on shares The table below provides the length of time the shares held by Aegon Americas, Aegon the Netherlands and Aegon UK were below cost prior to the impairment in 2013.
The maturity analysis below shows the remaining contractual maturities of each category of financial liabilities (including coupon interest). When the counterparty has a choice of when an amount is paid, the liability is included on the basis of the earliest date on which it can be required to be paid. Financial liabilities that can be required to be paid on demand without any delay are reported in the category “On demand”. If there is a notice period, it has been assumed that notice is given immediately and the repayment has been presented at the earliest date after the end of the notice period. When the amount payable is not fixed, the amount reported is determined by reference to the conditions existing at the reporting date. For example, when the amount payable varies with changes in an index, the amount disclosed may be based on the level of the index at the reporting date.
To manage the liquidity risk arising from financial liabilities, Aegon holds liquid assets comprising cash and cash equivalents and investment grade investment securities for which there is an active and liquid market. These assets can be readily sold to meet liquidity requirements. Hence, Aegon believes that it is not necessary to disclose a maturity analysis in respect of these assets to enable users to evaluate the nature and extent of liquidity risk.
Maturity analysis – gross undiscounted contractual cash flows (for non­derivatives) On demand
Investment contracts for account of policyholders 2) 20,342 5,192 - - 2 25,536 1 Borrowings include debentures and other loans, short term deposits, bank overdrafts and commercial paper; refer to note 41 for more details. 2 Excluding investment contracts with discretionary participating features.
The projected cash benefit payments in the table below are based on management’s best estimates of the expected gross benefits and expenses, partially offset by the expected gross premiums, fees and charges relating to the existing business in force. Estimated cash benefit payments are based on mortality, morbidity and lapse assumptions based on Aegon’s historical experience, modified for recently observed trends. Actual payment obligations may differ if experience varies from these assumptions. The cash benefit payments are presented on an undiscounted basis and are before deduction of tax and before reinsurance.
Net settled 1 Financial derivatives include all derivatives regardless whether they have a positive or a negative value. It does not include bifurcated embedded derivatives. These are presented together with the host contract. For interest rate derivatives only cash flows related to the pay leg are taken into account for determining the gross undiscounted cash flows.
Underwriting risk Aegon’s earnings depend significantly upon the extent to which actual claims experience differs from the assumptions used in setting the prices for products and establishing the technical liabilities and liabilities for claims. To the extent that actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, income would be reduced. Furthermore, if these higher claims were part of a permanent trend, Aegon may be required to increase liabilities, which could reduce income. In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force have been recorded as assets on the statement of financial position and are being amortized into income over time. If the assumptions relating to the future profitability of these policies (such as future claims, investment income and expenses) are not realized, the amortization of these costs could be accelerated and may even require write offs due to unrecoverability. This could have a materially adverse effect on Aegon’s business, results of operations and financial condition.
Sensitivity analysis of net income and shareholders’ equity to changes in various underwriting risks Estimated approximate effect
Aegon the Netherlands partially hedges the risk of future longevity increases in the Netherlands related to a part of its insurance liabilities. Aegon the Netherlands bought a longevity index derivative, which will pay out if in twenty years the mortality rates have decreased more than a predetermined percentage compared to the base scenario at the moment of signing the contract. Payout of the derivative is defined based on a 'cumulative cash index', which represents the cumulative payout to a predefined (synthetic)
insured population in relation to the expected payout (in the base scenario) to this same population. Both parties in the contract have the possibility to terminate the contract after ten years (early termination clause). The payout is maximized at a predetermined percentage compared to the base scenario.
5 Segment information For segment reporting purposes, the following non-IFRS financial measures are included: underlying earnings before tax, income tax and income before tax. The reconciliation of these measures to the most comparable IFRS measures is presented in this note. These non-IFRS measures are calculated by consolidating on a proportionate basis Aegon’s joint ventures and associated companies. Aegon believes that its non-IFRS measures provide meaningful information about the underlying results of Aegon’s business, including insight into the financial measures that Aegon’s senior management uses in managing the business.
measures presented here. While many other insurers in Aegon’s peer group present substantially similar non-IFRS measures, the non-
IFRS accounting policies for financial instruments and insurance contracts, which embed a number of accounting policy alternatives that companies may select in presenting their results (i.e. companies can use different local GAAPs to measure the insurance contract liability) and that can make the comparability from period to period difficult. Below details are provided for the individual line items presented in this note.
The earnings on these products are impacted, among others, by movements in equity markets and risk-free interest rates. Short-term developments in the financial markets may therefore cause volatility in earnings. Included in underlying earnings is a long-term expected return on these products and excluded is any over- or underperformance compared to management’s expected return. The fair value movements of certain guarantees and the fair value change of derivatives that hedge certain risks on these guarantees of Aegon the Netherlands and Variable Annuities Europe (included in New Markets) are excluded from underlying earnings, and the long-term expected return for these guarantees is set at zero.
Fair value items Fair value items include the over- or underperformance of investments and guarantees held at fair value for which the expected long-term return is included in underlying earnings. Changes to these long-term return assumptions are also included in the fair value items.
Impairment charges / reversals Also included are impairments on mortgage loans and loan portfolios on amortised cost and associates.
Other income or charges Other income or charges is used to report any items which cannot be directly allocated to a specific line of business. Also items that are outside the normal course of business are reported under this heading.
Share in earnings of joint ventures and associates Earnings from Aegon’s joint ventures in Spain, China and Japan and Aegon’s associates in insurance companies in India, Brazil and
Realized gains and (losses) on financial investments 10 500 552 803
Fair value changes on economic hedges for which no hedge accounting is applied 10 (108) (79) (117)
Impairment charges/(reversals) on financial assets, excluding receivables 48 32 31 17 - 127
Impairment charges/(reversals) on non- financial assets and receivables (5) 1 - 169 2 167
Impairment charges/(reversals) on non- financial assets and receivables 4 8 - 14 - 26
Impairment charges/(reversals) on financial assets, excluding receivables 271 15 63 57 - 406
Of which Aegon's share of employees in joint ventures and associates 463 - - 1,083 - 1,546
Assets VOBA and future servicing rights 1,533 58 369 21 - - 1,980
Insurance contracts for account of policyholders 52,184 25,401 4,252 2,474 - - 84,311
Investment contracts for account of policyholders 23,040 1,650 54,036 3,883 - - 82,608
Assets VOBA and future servicing rights 1,563 66 396 135 - - 2,160
Investments for account of policyholders 65,970 25,094 55,886 6,024 - (6) 152,968
Investment contracts for account of policyholders 20,381 2 54,422 3,613 - - 78,418
Separate accounts and investment funds 68,905 - 26,173 5,744 - - 100,822
Separate accounts and investment funds 59,029 - 23,593 5,778 - - 88,400
Included in interest income is EUR 238 million (2012: EUR 197 million; 2011: EUR 118 million) in respect of interest income accrued on impaired financial assets. The interest income on financial assets that are not carried at fair value through profit or loss amounted to
Other in 2013 and 2012 mainly includes net fair value changes of alternative investments.
The ineffective portion of hedge transactions to which hedge accounting is applied comprises: 2013 2012 2011
Fair value change on hedged items in fair value hedge (215) 80 111
Other income in 2013 mainly reflects two reinsurance recapture transactions totaling EUR 200 million and book gains totaling
EUR 176 million related to the sale of joint ventures with Unnim and CAM. The book gain of Unnim of EUR 102 million included an amount of EUR 26 million which is recycled from equity through profit and loss. The net gain of EUR 74 million related to the sale of CAM included a negative amount of EUR 44 million which is recycled from equity through profit and loss.
Other income is fully excluded from underlying earnings for segment reporting purposes (refer to note 2.4).
Policyholder claims and benefits, includes claims and benefits in excess of account value for products for which deposit accounting is applied and the change in valuation of liabilities for insurance and investment contracts. Claims and benefits fluctuates mainly as a result of changes in technical provisions resulting from fair value changes on for account of policyholder financial assets included in
EUR 105 million, 2011: loss of EUR 388 million) regarding fair value movements of guarantees and EUR 3 million of net losses
Finance, to reduce future costs for its customers with unit-linked insurance policies in the Netherlands. This decision has led to an increase in the technical provisions (which is included in the Change in valuation of liabilities for insurance and investment contracts line in the table above) by EUR 265 million. Refer to note 51 Commitments and contingencies for more details.
Profit appropriated to policyholders 24 27 48 14 Commissions and expenses
Within employee and administration expenses is an amount of EUR 107 million relating to restructuring charges that is classified as non-underlying earnings for segment reporting purposes (2012: EUR 27 million; 2011: EUR 209 million).
Amortization of deferred expenses included a charge of EUR 18 million (2012: EUR 126 million, 2011: EUR 263 million), which is classified as non-underlying earnings for segment reporting purposes. This is offset against realized gains and losses and impairments on financial investments.
Amortization of VOBA and future servicing rights include an amount of EUR 8 million (2012: charge EUR 13 million, 2011: charge
Shares, share appreciation rights, share options and LTIP 41 32 18
An amount of EUR 39 million is included in employee expenses relating to defined contributions (2012: EUR 30 million; 2011: EUR 27 million).
Long Term Incentive Plans In 2010, Aegon implemented a Long Term Incentive Plan which replaced the option plan, share appreciation plans, share plans or similar plans relating to Aegon shares. Members of the Executive Board and the Management Board, as well as other senior managers within Aegon, were granted the right to receive Aegon shares if certain performance indicators are met and depending on continued employment of the individual employee to whom the rights have been granted. The shares were conditionally granted in May 2010 at the average share price on the NYSE Euronext stock exchange in Amsterdam during the period between December 15 preceding a plan year and January 15 of a plan year. The performance indicators apply over a vesting period of three years (2010 – 2012) and consisted of financial and non-financial targets set by the Supervisory Board or the local remuneration committees. Shares are allocated based on actual performance. After the vesting period, the shares were transferred to the individual employees on May 2, 2013. Members of the Executive Board and the Management Board at the time of the conditional grant are not entitled to execute any transactions regarding the shares for a period of two years following vesting.
December 15 preceding a plan year and January 15 of a plan year. The performance indicators apply over a performance period of one year and consist of financial and non-financial targets set by the Supervisory Board or the local remuneration committees. Following the performance year shares are allocated based on actual performance. A vesting period of two years applies after which the shares are transferred to the individual employees. Ex post assessment is not applicable to this group of employees.
remuneration principles, the 2010 Guidelines on Remuneration Policies and Practices by the Committee of European Banking
WFt 2011 - Rbb) are prominent examples. The rules have been adopted in Aegon’s Global Remuneration Framework for Identified Staff.
After the performance period, and based on the framework, variable compensation is partially made available and partly deferred.
Following the 2011 performance year 6,441,488 shares were allocated to participants in the 2011 Long Term Incentive Plan and the 2011 Variable Compensation Plan for Identified Staff. The shares were granted using the share price of EUR 4.727. As per
December 31, 2013 392,880 shares had vested. Additional holding periods of up to 3 years may apply. 6,032,524 shares are unvested and will vest in future years.
Plan and the 2013 Variable Compensation Plan for Identified Staff. The shares were granted using the share price of EUR 4,917.
Share appreciation rights The following tables present the movements in number of share appreciation rights outstanding (SARs), as well as the breakdown by the year in which they were granted.
The liability related to share appreciation rights is valued at fair value at each balance sheet date. There were no costs related to the share appreciation rights in 2013 (2012: nil; 2011: nil).
Impairment charges on financial assets, excluding receivables 1) 203 243 461
Impairment reversals on financial assets, excluding receivables 1) (77) (70) (55)
Impairment charges on financial assets, excluding receivables, from: 2013 2012 2011
There are no interest charges and related fees that are classified for segment reporting purposes as non underlying earnings.
Other charges of EUR 134 million in 2013 mainly include EUR 71 million related to an increase in reserves in connection with the company’s use of the Social Security Administration’s death master-file in the United States. Additionally, it includes a loss of
EUR 22 million related to the sale of national independent financial advisor Positive Solutions in the United Kingdom.
Security administration’s death master file in the United States and a loss of EUR 7 million on the sale of the Guardian life and pension business in the United Kingdom.
Other charges is fully excluded from underlying earnings for segment reporting purposes (refer to note 2.4).
Changes in tax rates / bases (89) (70) (51) Changes in deferred tax assets as a result of recognition / write off of previously not recognized / recognized tax losses, tax credits and deductible temporary differences 1 (3) (31)
The prior year adjustments include shifts between current and deferred tax. In 2013 the shift between current and deferred tax is mainly caused by an agreement with tax authorities, resulting in an increased current tax receivable and a decreased deferred tax asset.
Income tax for the period (income) / charge 123 336 51
Notes to the consolidated financial statements of Aegon N.V. Note 19
In the UK, the corporate income tax rate decreased from 24% in 2012 to 23% as from April 1, 2013. The rate will further decrease to 21% as from April 1, 2014 and to 20% as from April 1, 2015. The beneficial impact of these changes is reflected in the Change in tax rate/base.
In 2013, Other consists of tax effects of the UK Life company that have no direct correlation to the IFRS result and also consists of the effect of the various tax rates, other than the statutory tax rate, that are applicable to income of the UK Life company.
Items that may be reclassified subsequently to profit and loss: Gains / losses on revaluation of available-for-sale investments 1,004 (1,192) (940)
Gains / losses transferred to the income statement on disposal and impairment of available-for-sale investments 69 117 147
Movement in foreign currency translation and net foreign investment hedging reserve 21 3 (12)
Total income tax related to components of other comprehensive income 1,085 (1,013) (987)
Net income / (loss) attributable to equity holders 846 1,582 887
Weighted average number of common shares B outstanding (in million) 366 - -
Basic earnings per common share B (EUR per share) 0.01 - -
of diluted earnings per share amounted to 8,495,768 (2012: 13,922,977; 2011: 18,778,361). In 2013, 2012 and 2011, the average share price did not exceed the exercise price. At December 31, 2013, the exercise prices of these share options range from
EUR 8.93 to EUR 14.98. Aegon has no share options on common shares B.
20 Dividend per common share It will be proposed to the annual General Meeting of Shareholders on May 21, 2014, absent unforeseen circumstances, to pay a dividend for the year 2013 of EUR 0.22 per common share and of EUR 0.0055 per common share B. After taking into account the interim dividend 2013 of EUR 0.11 per common share and of EUR 0.00275 per common share B, this results in a final dividend of
Commission’s approval granted in August 2010 regarding the State support received in December 2008, Aegon committed itself not to pay any dividend to the common shareholder until the convertible core capital securities had been fully repurchased. The repurchase of the convertible core capital securities was completed in 2011, refer to note 33 for additional information on this repurchase. Aegon did not have common shares B during 2011.
December 31, 2013, the remaining average depreciation period was 4 years (2012: 4 years).
The recoverable amount is the higher of the value in use and fair value less costs to sell for a cash-generating unit. The operating assumptions used in all the calculations are best estimate assumptions and based on historical data where available.
To determine the recoverable amounts of the cash generating units of Aegon CEE, value in use was calculated, and compared to the carrying amounts. Value in use has been determined based on a business plan covering a period of typically three years further extrapolated to twenty years where the new business levels for years 4-20 assumed a growth rate based on the business plan of the third year, prudentially decreased by 10%-20%. Other key assumptions used for the calculation were pre-tax risk adjusted discount rate of 9.2%-15.9% (2012: 10.9%-16.4%), new business contribution, renewals, asset fees, investment return, persistency and expenses. Operating assumptions are best estimate assumptions and based on historical data where available. Economic assumptions are based on observable market data and projections of future trends.
VOBA The movement in VOBA over 2013 can be summarized and compared to 2012 as follows: Amortization / depreciation through income statement (109) (142)
A geographical summary of the lines of business to which the VOBA is allocated is as follows: Americas The
Individual savings and retirement products 138 - - - 138 22 Investments Investments for general account comprise financial assets, excluding derivatives, as well as investments in real estate.
Of the debt securities, money market and other short-term investments, mortgage loans and private loans EUR 10,892 million is current (2012: EUR 17,428 million).
Refer to note 52 for a discussion of collateral received and paid.
Aegon USA has entered into commercial property portfolio, consisting of office, retail and industrial buildings. These non-cancellable leases have remaining lease terms of between 9 months and 20 years. Most leases include a clause to enable upward revision of the rental charge on an annual basis according to either a fixed schedule or prevailing market conditions.
Under Dutch law, the maximum annual rent increase on residential property rented in the affordable housing segment is specified by the Dutch national government and equals the annual inflation rate plus a small margin.
23 Investments for account of policyholders Investments for account of policyholders comprise financial assets at fair value through profit or loss, excluding derivatives, and investments in real estate.
Refer to note 51 for a summary of contractual obligations to purchase investment property or for repairs, maintenance or enhancements.
Derivatives for account of policyholders Derivatives not designated in a hedge 238 310 155 67 1 Refer to note 50 for a summary of all financial assets and financial liabilities at fair value through profit or loss.
Notes to the consolidated financial statements of Aegon N.V. Note 24
In 2012, Aegon the Netherlands entered into a derivative to partially hedge its longevity risk. The derivative, with a notional amount of EUR 12 billion, becomes in the money if - in 2032 - realized mortality rates are more than 7.5% lower than pre-defined mortality tables. To further protect the longevity position of Aegon the Netherlands and combining this with protection for catastrophe mortality in the US, Aegon bought an additional longevity index derivative in 2013. This derivative will pay out in twenty-two years if some combination of higher than expected mortality rates in the United States and/or lower than expected mortality rates in the Netherlands persists over the next twenty years and, at that time, is expected to continue to do so. The derivatives are measured at fair value through profit or loss in accordance with IAS 39. The value of the longevity derivatives are calculated using an internal model as there is no active market for this type of derivatives. For more details refer to the paragraph on derivatives included in note 3 and the paragraph on underwriting risk included in note 4.
The fair value of derivatives on both the asset and liability side of the consolidated statement of financial position decreased during 2013. This decrease is mainly caused by increases in market interest rates and other market developments. See note 3 for details on measurement of derivatives.
Derivatives not designated in a hedge – general account 2013 2012 2013 2012
Aegon utilizes derivative instruments as a part of its asset liability risk management practices. The derivatives held for risk management purposes are classified as economic hedges to the extent that they do not qualify for hedge accounting, or that Aegon has elected not to apply hedge accounting. The economic hedges of certain exposures relate to an existing asset, liability or future reinvestment risk. In all cases, these are in accordance with internal risk guidelines and are closely monitored for continuing compliance.
Aegon has entered into free-standing credit derivative transactions (Single Tranche Synthetic CDOs and Single Name Credit Default
Derivatives designated as fair value hedges Aegon’s fair value hedges consist mainly of interest rate swaps that are used to protect against changes in the fair value of fixed-rate instruments due to movements in market interest rates. Gains and losses on derivatives designated under fair value hedge accounting are recognized in the income statement. The effective portion of the fair value change on the hedged item is also recognized in the income statement. As a result, only the net accounting ineffectiveness has an impact on the net result.
For the years ended December 31, 2013, 2012, and 2011, Aegon recognized gains and (losses) related to the ineffectiveness portion of designated fair value hedges of EUR 10 million, EUR 16 million and EUR 12 million respectively. No portion of derivatives was excluded when assessing hedge effectiveness.
Notes to the consolidated financial statements of Aegon N.V. Note 25
For the year ended December 31, 2013, Aegon recognized a loss of EUR 1 million of hedge ineffectiveness on cash flow hedges.
In 2012 and 2011, gains and losses of EUR (5) million and EUR 1 million respectively of hedge ineffectiveness were recorded in the income statement. In 2013, EUR 26 million was released from equity into investment income (2012: EUR (62) million, 2011: EUR (18) million). The amount of deferred gains or losses to be reclassified from equity into net income during the next 12 months is expected to be EUR 25 million.
The periods when the cash flows are expected to occur are as follows: < 1 year 1 – 5 years 5 – 10 years > 10 years 2013 Total
< 1 year 1 – 5 years 5 – 10 years > 10 years 2012 Total
Share in changes in joint ventures equity (note 32.6) 22 27
Additionally a revaluation reserve of EUR 26 million was released, which was recycled from equity through profit and loss account.
Furthermore there was a release of an earn out provision of EUR 176 million. Consequently the sale resulted in a total disposal amount of EUR 453 million. Aegon’s share in underlying earnings before tax of the joint venture totalled EUR 6 million for 2013
CaixaBank for a total consideration of EUR 190 million. The transaction was closed on October 11, 2012, after obtaining regulatory approval. The sale resulted in a book gain of EUR 35 million before tax and was recorded in the fourth quarter of 2012. Aegon’s share in underlying earnings before tax of the joint venture totalled EUR 13 million for 2012.
Summarized financial information of material joint ventures Aegon considers its investment in AMVEST Vastgoed B.V. (AMVEST) a material joint venture. The summarized financial information presented below are the amounts included in the IFRS financial statements of AMVEST on 100% basis.
Summarized statement of financial position Cash and cash equivalents 52 67
A reconciliation of the summarized financial information to the carrying amount of AMVEST is as follows: AMVEST
All associates are unlisted and are accounted for using the equity method and are considered to be non-current. The investments in associates include stakes in insurance companies that are required to maintain a minimum solvency margin based on local directives.
Refer to note 55 for a listing of the investments in associates and the Group’s percentage holding.
The final proceeds are subject to certain contingent arrangements which may lead to further payments in 2014 and 2017. The book gain amounted to EUR 100 million. The carrying value of Prisma at the transaction date was EUR 2 million. Aegon’s share in Prisma earnings from January 1, 2012, till October 1, 2012, amounted to EUR 10 million.
Aegon considers its investment in La Mondiale Participations S.A. (La Mondiale) a material associate. The summarized financial information presented below are the amounts included in the IFRS financial statements of La Mondiale on 100% basis, including fair value adjustments made at the time of acquisition.
Notes to the consolidated financial statements of Aegon N.V. Note 27
27 Investments in unconsolidated structured entities For unconsolidated structured entities in which Aegon has an interest at reporting date, the following table presents total income received from those interests. The Investments column reflect the carrying values recognized in the statement of financial position of Aegon's interests in unconsolidated structured entities. These general account investments are recognized in the line item
Aegon did not provide financial or other support to unconsolidated structured entities. Nor does Aegon have intentions to provide financial or other support to unconsolidated structured entities in which Aegon has an interest or previously had an interest.
EUR 7 million of the reinsurance assets are current (2012: EUR 8 million).
Gross premium and deposits – existing and new business 2,749 66 2,815
In 2012, Aegon USA reinsured approximately EUR 1.2 billion of fixed annuities on a quota share basis which was ceded to
The reinsured policies consist of fixed annuity contracts issued by Transamerica Life Insurance Company in the U.S. between 2004 and early 2009 that were previously reinsured to Transamerica International Reinsurance Ireland (TIRI) on a 90% quota share basis. Over half of the business was sold in 2008 and primarily included products with 3 and 5 year surrender charge periods. Most of the business has an initial credited rate guarantee matching the surrender charge period followed by annual renewals after the initial period.
Investment assets and cash were transferred as part of these transactions with any related gain/(loss) being recognized. In order to secure the obligations of the reinsurer, Aegon has required the establishment of trust accounts to hold collateral supporting ceded policy reserves. A deferred cost of reinsurance was established and is amortized based on gross profits of the underlying contracts.
Gross premium and deposits – existing and new business 136 253
DPAC for insurance contracts and investment contracts with discretionary participation features 11,685 11,239
Below a breakdown is provided of DPAC balances by line of business and reporting segment: Americas The
Individual savings and retirement products 1,162 - - 36 1,198 30 Other assets and receivables
Real estate held for own use and equipment 30.1 487 521
Notes to the consolidated financial statements of Aegon N.V. Note 30 30.1 Real estate held for own use and equipment
37% of the value of the general account real estate held for own use was last revalued in 2013 (2012: 45%), based on market value appraisals by qualified internal and external appraisers. 97% of the appraisals in 2013 were performed by independent external appraisers (2012: 97%).
General account real estate held for own use has not been pledged as security for liabilities, nor are there any restrictions on title.
Depreciation expenses are recorded in “Commissions and expenses” in the income statement. The useful lives of buildings range between 40 and 50 years.
None of the equipment is held for lease (2012: EUR 0 million). Equipment has not been pledged as security for liabilities, nor are there any restrictions on title. Depreciation expenses have been recorded in “Commissions and expenses” in the income statement. Equipment is generally depreciated over a period of three to five years.
EUR 1,599 million of accrued income is current (2012: EUR 1,592 million).
Net cash and cash equivalents at December 31, 2013 are negatively impacted by effects of changes in exchange rates of
EUR 79 million (2012: EUR 29 million; 2011: EUR 107 million).
Total net cash flows from operating activities decreased by EUR 733 million to a EUR 1,730 million outflow (2012: EUR 997 million outflow). The decrease is mainly driven by lower results from financial transactions, higher net purchases of investments and increasing net collateral payments. These cash outflows are partly offset by divestments of money market investments.
The improved inflow in 2013 is primarily a result of the cash received from divestments of Unnim and CAM, partly offset by the acquisition of the joint venture with Santander. In 2012 the inflow was mainly attributable to the proceeds of EUR 102 million on the sale of Aegon's interest in Prisma and the proceeds of EUR 190 million received from the exit from the partnership with Banca
Net cash flows from financing activities decreased by EUR 5,063 million to a EUR 2,552 million outflow (2012: EUR 2,511 million inflow). The decrease is mainly a result of repayments of borrowings and repayment of share premium of EUR 401 million during 2013.
Net cash flows from investing activities reduced by EUR 416 million to a EUR 237 million inflow (2011: EUR 653 million inflow).
In 2013, Aegon issued 19,668,540 and 19,047,386 common shares with a par value of EUR 0.12 in respect of the final dividend for 2012 which was paid in June 2013 and the interim dividend paid in September 2013, respectively.
In July 2013, Vereniging Aegon exercised its option right to purchase 13 million common shares B for EUR 0.1275 to mitigate the dilution caused by the issuance of shares issuance of shares on May 1, 2013 and May 16, 2013 in connection with the Long Term
In 2012, Aegon issued 33,203,150 and 29,172,394 common shares with a par value of EUR 0.12 in respect of the final dividend for 2011 which was paid in May 2012 and the interim dividend paid in September 2012, respectively.
The shares were issued at a price of EUR 5.20 per share. The proceeds of EUR 903 million were used to fund part of the repurchase of the convertible core capital securities described in note 33.
Common shares Common shares B Number of shares (thousands) Total amount
Vereniging Aegon exercised its option rights to purchase in aggregate 8,021,000 class B Preferred Shares at par value. It did this to correct dilution caused by Aegon’s issuance of shares on June 15, 2012, being the final dividend 2011 in the form of stock dividend, and its issuance of shares on September 15, 2012, being the interim dividend 2012 in the form of stock dividend. In July 2013, Vereniging
Movements in the number of treasury shares of Aegon N.V. were as follows: Number of shares
The closing balances of the revaluation reserve for available-for-sale investments relate to the following instruments: Revaluation reserve for available­for­sale investments 2,262 4,969 2,299
Movement in foreign currency translation and net foreign investment hedging reserves (883) 79 - (803)
1 Amounts for 2012 and 2011 have been restated for the changes in accounting policies IFRS 10, 11 and IAS 19. Refer to note 2 for details about these changes.
The net foreign investment hedging reserve is made up of gains and losses on the effective portions of hedging instruments, net of tax.
Shares granted / Share options cost incurred - - 20 - 20
Perpetual cumulative subordinated bonds Coupon rate Coupon date Year of next call 2013 2012 2011 1 The coupon of the EUR 114 million bonds was originally set at 8% until June 8, 2005. Subsequently, the coupon has been reset at 4.156% until 2015. 2 The coupon of the EUR 136 million bonds was originally set at 7.25% until October 14, 2008. Subsequently, the coupon has been reset at 5.185% until
The subordinated notes bear interest at a fixed rate of 8.00% and have been priced at 100% of their principal amount. Any cancelled interest payments will not be cumulative.
The securities are subordinated and rank senior to the junior perpetual capital securities, equally with the perpetual cumulative subordinated bonds and junior to all other liabilities. The conditions of the securities contain certain provisions for optional and required cancellation of interest payments. The securities have a stated maturity of 30 years, however Aegon has the right to call the securities for redemption at par for the first time on the first coupon date in 2017, or on any coupon payment date thereafter.
EUR 271 million, subordinated borrowings amounts to EUR 44 million and a deferred tax liability amounting to EUR 84 million.
USD 190 million 2) 7.625% Semi-annually, November 15 1997 2037 n.a. 36 38 1 Issued by a subsidiary of Aegon N.V. 2 Issued by a subsidiary of, and guaranteed by Aegon N.V.
36 Subordinated borrowings Subordinated borrowings are subordinated to all other unsubordinated borrowings and liabilities. There have been no defaults or breaches of conditions during the period.
Subordinated borrowings include a liability of EUR 44 million (2012: EUR 42 million) relating to the non-cumulative subordinated notes issued on February 7, 2012. The liability component of the non-cumulative subordinated notes is related to the redemption amount.
Non-life insurance - Unearned premiums and unexpired risks 3,886 4,093 - Incurred but not reported claims 680 675
Transfer (to) / from insurance contracts for account of policyholders (16) 277
Loss recognized as a result of liability adequacy testing 5 170
Gross premium and deposits – existing and new business 11,031 6,627
Notes to the consolidated financial statements of Aegon N.V. Note 40 40 Investment contracts for account of policyholders
Investment contracts for account of policyholders 1) 82,608 78,418 1 Refer to note 50 for a summary of all financial assets and financial liabilities at fair value through profit or loss.
(sorted at maturity) Coupon rate Coupon date Issue / Maturity 2013 2012
USD 750 million Senior Notes 13) 4.75% Semi-annually 2003 / 13 - 569
EUR 2,068 mln "SAECURE 6" RMBS note 2), 3) Floating Quarterly 2006 / 13 - 1,229
EUR 500 million Medium-Term Notes 12), 15) 4.125% December 8 2004 / 14 517 532
USD 500 million Senior Unsecured Notes 15) 4.625% Semi-annually 2009 / 15 362 378
EUR 1,018 million “SAECURE 7” RMBS Note 2), 4) Floating Quarterly 2010 / 15 825 914
EUR 842 million “SAECURE 9” RMBS Note 2), 9) Floating Quarterly 2010 / 16 670 735
EUR 1,365 million "SAECURE 12" RMBS Note 2), 10) Floating Quarterly 2012 / 17 1,297 1,365
USD 500 million Senior Notes 1), 12), 15) 5.75% Semi-annually 2005 / 20 416 436
USD 305 million Note issue agreement 2) 5.54% / 8.88% Quarterly 2002 / 22 58 78
GBP 250 million Note issue agreement 2), 5), 6) Floating April 21 2008 / 23 17 92
GBP 250 million Medium-Term Notes 15) 6.125% December 15 1999 / 31 298 305
GBP 400 million Senior Unsecured Notes 15) 6.625% Semi-annually 2009 / 39 474 486 1 Issued by subsidiaries of, and guaranteed by Aegon N.V. 2 Issued by a subsidiary of Aegon N.V. 3 The first optional redemption date was August 2013; the legal maturity date was August 2098. Notes were fully collateralized by mortgage loans which are part of Aegon’s general account investments.
6 Private Value-in-Force (ViF) securitization by Aegon UK to monetize a portion of future profits associated with an existing book of unit-linked business. 7 The first optional redemption date is July 2015; the legal maturity date is July 2092. Notes are fully collateralized by mortgage loans which are part of Aegon’s general account investments.
Aegon’s general account investments. 11 The first optional redemption date is February 2018; the legal maturity date is November 2093. Notes are fully collateralized by mortgage loans which are part of
Aegon’s general account investments. 12 Measured at fair value. 13 This debenture is issued by a wholly owned captive that is consolidated in the Aegon N.V. consolidated financial statements. A guarantee has been provided by
For the year 2013, Aegon’s credit spread had a negative impact of EUR 44 million on income before tax (2012: negative impact of EUR 48 million) and a negative impact of EUR 30 million on shareholders’ equity (2012: negative impact of EUR 34 million).
Floating-rate - Expiring within one year 1,433 1,248 - Expiring beyond one year 2,018 2,020
The provisions mainly consist of provisions for contingent consideration relating to joint ventures (earn out) of EUR 57 million
(2012: EUR 187 million), restructuring provisions of EUR 39 million (2012: EUR 56 million), provisions for unearned commission of
In 2013, Disposals contain a release of an earn out provision in Spain of EUR 120 million as Aegon has finalized exiting its joint venture with Unnim. In 2012 Disposals contain a release of an earn out provision in Spain of EUR 38 million relating to the disposal of the Banca Civica joint venture.
In 2012, Other reflects the release of earn out provisions relating to Caja Cantabria. Refer to note 25 for more details.
Remeasurements of defined benefit plans (558) (4) (562) 146 3 149
Fair value of plan assets (2,909) - (2,909) (2,747) - (2,747)
Present value of wholly unfunded obligations 1) 2,323 236 2,559 2,412 246 2,658 1 Assets held by Aegon the Netherlands backing retirement benefits of EUR 2,194 million (2012: EUR 2,280 million) do not meet the definition of plan assets and as such were not deducted in calculating this amount. Instead, these assets are recognized as general account assets. Consequently, the return on these assets does not form part of the calculation of defined benefit expenses.
Net interest on the net defined benefit liability (asset) 124 9 134 141 11 152
Defined benefit expenses are included in “Commissions and expenses” in the income statement.
Movements during the year of the present value of the defined benefit obligations 2013 2012
Movements during the year in plan assets for retirement benefit plans 2013 2012
These studies, along with the investment policy, assist to develop the appropriate investment criteria for the plan, including asset allocation mix, return objectives, investment risk and time horizon, benchmarks and performance standards and restrictions and prohibitions. The overall goal is to maximize total investment returns to provide sufficient funding for the present and anticipated
future benefit obligations within the constraints of a prudent level of portfolio risk and diversification. Aegon believes that the asset allocation is an important factor in determining the long-term performance of the plan. The plan uses multiple asset classes as well as sub-classes to meet the asset allocation and other requirements of the investment policy, which minimizes investment risk. From time to time the actual asset allocation may deviate from the desired asset allocation ranges due to different market performance among the various asset categories. If it is determined that rebalancing is required, future additions and withdrawals will be used to bring the allocation to the desired level.
Aegon USA, LLC, or the Compensation Committee of the Board of Directors has the full power and discretion to apply all of the plan’s provisions, including such responsibilities as, but not limited to, interpret the plan provisions, to make factual determinations under the plan, to determine plan benefits, and to comply with any statutory reporting and disclosure requirements. The benefits are based on years of service and the employee’s eligible annual compensation. The plans provide benefits based on a traditional final average formula or a cash balance formula (which defines the accrued benefit in terms of a stated account balance), depending on the age and service of the plan participant. The Company funds the benefit payments of the supplemental retirement plans from its general account assets. The unfunded amount related to these plans, for which a liability has been recorded, was EUR 192 million
The principal actuarial assumptions that apply for the year ended December 31 are as follows: Actuarial assumptions used to determine defined benefit obligations at year­end 2013 2012
Health care trend rate 8.50% 7.25% 1 Table in accordance with IRS regulation 1.430(h)(3)-1.
Financial actuarial assumptions 100 basis points increase in discount rate (283)
Instead, these assets are recognized as general account assets. Consequently, the return on these assets do not form part of the calculation of defined benefit expenses.
beneficiaries after retirement. For this plan, the Aegon the Netherlands has the responsibility to administer the plan in accordance with its terms, and decides questions related to eligibility and determines plan provisions and benefit amounts. In addition, Aegon the Netherlands has the obligation to interpret the provisions of the plans, and to comply with any statutory reporting and disclosure requirements. Finally, Aegon the Netherlands reviews the terms of the plans and makes changes to the plans if and when appropriate.
The principal actuarial assumptions have an effect on the amounts reported for the defined benefit obligation. A change as indicated in the table below in the principal actuarial assumptions would have the following effects on the defined benefit obligation per year-end: Estimated approximate effects on the defined benefit obligation Demographic actuarial assumptions 10% increase in mortality rates (23)
100 basis points decrease in discount rate 359 100 basis points increase in salary increase rate 16 100 basis points decrease in salary increase rate (16)
The pension scheme Trustees are required to carry out triennial valuations on the scheme’s funding position, with the latest valuation being as at March 31, 2013. As part of this triennial valuation process, a schedule of contributions is agreed between the Trustees and Aegon UK in accordance with UK pensions legislation and guidance issued by the Pensions Regulator in the UK. The schedule of contributions includes deficit reduction contributions to clear any scheme deficit.
The weighted average duration of the defined benefit obligation is 24.4 years (2012: 25.0 years).
Financial actuarial assumptions 100 basis points increase in discount rate (250)
Target allocation of plan assets for retirement benefit plans for The next annual period is: Equity instruments 40%
(refer to note 18) led to an increase of deferred corporate income tax liabilities, with the main impact on financial assets, insurance contracts and defined benefit plans. In 2012, Other in real estate results from a restructuring of the real estate portfolio.
EUR 88 million; tax EUR 16 million) the realization of the deferred tax asset is dependent on the projection of future taxable profits from existing business in excess of the profits arising from the reversal of existing taxable temporary differences.
Deferred corporate income tax assets in respect of deductible temporary differences are recognized to the extent that the realization of the related tax benefit through future taxable profits is probable. For the following amounts relating to available-for-sale financial assets, defined benefit plans and other items the recognition of the deferred corporate income tax asset is dependent on future taxable profits in excess of the profits arising from the reversal of existing taxable temporary differences: Gross amounts Deferred tax assets
Deferred corporate income tax asset dependent on the realization of capital profits 470 683 164 239
for the amount of gross EUR 39 million; tax EUR 8 million (2012: gross EUR 37 million; tax EUR 9 million).
Notes to the consolidated financial statements of Aegon N.V. Note 48 a. Financial guarantees In the United States and New Markets (VA's sold in United Kingdom), a guaranteed minimum withdrawal benefit (GMWB) is offered directly on some variable annuity products Aegon issues and is also assumed from a ceding company. Variable annuities allow a customer to provide for the future on a tax-deferred basis and to participate in equity or bond market performance. Variable annuities allow a customer to select payout options designed to help meet the customer’s need for income upon maturity, including lump sum payment or income for life or for a period of time. This benefit guarantees that a policyholder can withdraw a certain percentage of the account value, starting at a certain age or duration, for either a fixed period or during the life of the policyholder.
In Canada, variable products sold are known as “Segregated Funds”. Segregated funds are similar to variable annuities, except that they include a capital protection guarantee for mortality and maturity benefits (guaranteed minimum accumulation benefits). The initial guarantee period is ten years. The ten-year period may be reset at the contractholder’s option for certain products to lock-in market gains. The reset feature cannot be exercised in the final decade of the contract and for many products can only be exercised a limited number of times per year. The management expense ratio charged to the funds is not guaranteed and can be increased by management decision. In addition, Aegon Canada sells a contract with a minimum guaranteed withdrawal benefit. The contract provides capital protection for longevity risk in the form of a guaranteed minimum annuity payment.
1 Guaranteed minimum accumulation and withdrawal benefits. 2 Fund plan and unit-linked guarantees.
3 Balances are included in the derivatives liabilities on the face of the statement of financial position; refer to note 24. 4 Incurred guarantee benefits mainly comprise the effect of guarantees from new contracts, releases related to expired out-of-the-money guarantees and fair value movements during the reporting year.
The additional liability for guaranteed minimum benefits that are not bifurcated are determined (based on ASC 944) each period by estimating the expected value of benefits in excess of the projected account balance and recognizing the excess over the accumulation period based on total expected assessments. The estimates are reviewed regularly and any resulting adjustment to the additional liability is recognized in the income statement. The benefits used in calculating the liabilities are based on the average benefits payable over a range of stochastic scenarios. Where applicable, the calculation of the liability incorporates a percentage of the potential annuitizations that may be elected by the contract holder. In the table below, no significant movements are shown at incurred guarantee benefits due to differences in measurement compared to financial guarantees and life contingent guarantees in the Netherlands.
d. Minimum investment return guarantees in the Netherlands The traditional life and pension products offered by Aegon in the Netherlands include various products that accumulate a cash value.
The traditional group pension contracts offered by Aegon in the Netherlands include large group insurance contracts that have an individually determined asset investment strategy underlying the pension contract. The guarantee given is that the profit sharing is the maximum of 0% and the realized return on an asset portfolio specified in the policy conditions adjusted for technical interest rates ranging from 3% to 4%. If the adjusted return is negative, the 0% minimum is effective, but the loss in any given year is carried forward to be offset against any future surpluses within the contract period. In general, a guarantee is given for the life of the underlying employees so that their pension benefit is guaranteed. Large group contracts also share technical results (mortality risk and disability risk). The contract period is typically five years and the premiums are fixed over this period.
Net amount at risk 5) 2,756 3,841 1 Guaranteed minimum investment return in the Netherlands.
2 Balances are included in the insurance liabilities on the face of the statement of financial position; refer to note 37. 3 Incurred guarantee benefits mainly comprise the effect of guarantees from new contracts, releases related to expired out-of-the-money guarantees and fair value movvements during the reporting year. 4 Account value reflects the liability value of the insurance contracts as a whole. 5 The net amount at risk represents the sum of the differences between the guaranteed and actual amount that is credited to the policyholders. For Individual policies only positive differences are included, for Group pensions contracts carry forwards of negative differences are recognize.
December 31, 2013 and 24.4% at December 31, 2012. Correlations of market returns across underlying indices are based on historical market returns and their inter-relationships over a number of years preceding the valuation date. Assumptions regarding policyholder behavior, such as lapses, included in the models are derived in the same way as the assumptions used to measure insurance liabilities.
EUR 289 million) to earnings. The main drivers of this loss before tax are positive results related to increases in risk free rates of
EUR 2,525 million to income before tax (2012: EUR 407 million gains) and DPAC offset and other contributed a gain of EUR 44 million
Notes to the consolidated financial statements of Aegon N.V. Note 49 49 Capital and solvency Aegon’s total capitalization reflects the capital employed in insurance activities and consists of shareholders’ capital and total gross financial leverage. Aegon aims to bring total gross financial leverage below 30% of total capitalization as measured by the gross financial leverage ratio. The gross financial leverage ratio is calculated by dividing the total gross financial leverage by the total capitalization. At December 31, 2013 the gross financial leverage ratio was 30.1%.
States are of main importance. Aegon’s Insurance Group Directive ratio (IGD ratio) was 212% at the end of 2013 (2012: 228%).
The calculation of the IGD ratio is based on Solvency I capital requirements for entities within the EU (Pillar 1 for Aegon UK), and local regulatory solvency measurements for non-EU entities. Specifically, required capital for the life insurance companies in the US is calculated as two times the upper end of the Company Action Level range (200%) as applied by the National Association of Insurance
Commissioners in the US. The calculation of the IGD ratio excludes the available and required capital of the UK With Profits fund.
The Prudential Regulation Authority (PRA) regulates insurance companies in the United Kingdom under the Financial Services and
Profits fund, was approximately 150% at the end of the fourth quarter of 2013 (With Profits fund included at unaudited June 30, 2013 values). The local regulator (PRA) requires the total capital number of the With-Profits funds to be equal to the available capital.
Aegon N.V. is subject to legal restrictions on the amount of dividends it can pay to its shareholders. Under Dutch law the amount that is available to pay dividends consists of total shareholders’ equity less the issued and outstanding capital and less the reserves required by law. The revaluation account and legal reserves, foreign currency translation reserve and other, cannot be freely distributed.
Notes to the consolidated financial statements of Aegon N.V. Note 50 50 Summary of total financial assets and financial liabilities at fair value through profit or loss The table that follows summarizes the carrying amounts of financial assets and financial liabilities that are classified as at fair value through profit or loss, with appropriate distinction between those financial assets and financial liabilities held for trading and those that, upon initial recognition, were designated as at fair value through profit or loss.
Total financial assets at fair value through profit or loss 12,771 168,749 20,102 156,769
Investments for general account backing insurance and investment liabilities, that are carried at fair value with changes in the fair value recognized in the income statement, are designated at fair value through profit or loss. The Group elected to designate these investments at fair value through profit or loss, as a classification of financial assets as available-for-sale would result in accumulation of unrealized gains and losses in a revaluation reserve within equity whilst changes to the liability would be reflected in net income
Borrowings Borrowings designated as at fair value through profit or loss includes financial instruments that are managed on a fair value basis together with related financial assets and financial derivatives (Refer to note 41).
Refer to note 41 Borrowings for the impact of Aegon’s credit spread on the fair value of the borrowings designated at fair value through profit or loss.
Share of contingent liabilities incurred in relation to interests in joint ventures 64 102
Aegon USA, LLC, a wholly owned subsidiary of Aegon N.V., has provided a parental guarantee to TLIC Riverwood Reinsurance, Inc.
Variable Funding Surplus Note. �� Due and punctual payment of payables by the consolidated group companies Transamerica Corporation, Aegon Funding Company
In addition, the insurance industry has routinely been the subject of litigation, investigations, regulatory activity and challenges by various governmental and enforcement authorities and policyholder advocate groups concerning certain practices. In this context,
Proceedings in which Aegon is involved In June, 2013, the Dutch Supreme Court denied Aegon’s appeal from a ruling of the Court of Appeal with respect to a specific Aegon unit-linked product, the “Koersplan”-product. In 2011, the Court of Appeal had ruled that Aegon should have more clearly informed its customers about the amount of premium which the company charged in relation to the death benefit embedded in the product, sold during the period 1989-1998. Prior to the ruling Aegon had already taken steps to improve its communications with customers as well as adjusting the amounts charged to Koersplan-customers. As a result of the Dutch Supreme Court’s denial of appeal, Aegon will compensate the approximately 35,000 holders of KoersPlan-products who were plaintiffs in the litigation and took a charge of
KIFID found that the consumer had not been adequately informed of the so-called initial costs embedded within its unit linked policy, nor of the leverage component thereof, and challenged the contractual basis for the charges. There are claims pending with KIFID filed by customers over Aegon products and that arguably include similar allegations. If KIFID were to finally decide unfavorably and that decision were to be upheld by a court, there can be no assurances that ultimately the aggregate exposure to Aegon of such adverse decision would not have a material adverse effect on Aegon’s results of operations or financial position if the principles underlying any such decision were to be applied also to Aegon products.
The operating lease obligations relate mainly to office space leased from third parties. The total of future minimum sublease payments expected to be received on non-cancellable subleases is EUR 7 million (2012: EUR 9 million).
52 Transfers of financial assets Transfers of financial assets occur when Aegon transfers contractual rights to receive cash flows of financial assets or when Aegon retains the contractual rights to receive the cash flows of the transferred financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients in that arrangement.
52.1 Transferred financial assets that have not been derecognized in their entirety The following table reflects the carrying amount of financial assets that have been transferred to another party in such a way that part or all of the transferred financial assets do not qualify for derecognition. Furthermore, it reflects the carrying amounts of the associated liabilities.
Cash collateral is usually invested in pre-designated high quality investments. The sum of cash and non-cash collateral is typically greater than the market value of the related securities loaned. Refer to 52.3 and 52.4 for an analysis of collateral accepted and pledged in relation to securities lending and repurchase agreements.
Notes to the consolidated financial statements of Aegon N.V. Note 52 52.3 Assets accepted Aegon receives collateral related to securities lending and reverse repurchase activities. Non-cash collateral is not recognized in the statement of financial position. To the extent that cash is paid for reverse repurchase agreements, a receivable is recognized for the corresponding amount.
The following table analyses the fair value of the assets received in relation to securities lending and reverse repurchase activities: Securities lending 2013 2012
Non-cash collateral that can be sold or repledged in the absence of default 1,704 3,710
The following tables analyse the carrying amount of collateral pledged and the corresponding amounts.
Non-cash collateral that can be sold or repledged by the counterparty - -
As part of Aegon’s mortgage loan funding program in the Netherlands, EUR 5.4 billion (2012: EUR 6.3 billion) have been pledged as security for notes issued (refer to note 41). In addition, in order to trade derivatives on the various exchanges, Aegon posts margin as collateral. The amount of collateral pledged for derivative transactions is EUR 1,852 million (2012: EUR 1,641 million).
On June 12, 2013, Aegon UK announced the sale of national independent financial advisor (IFA) Positive Solutions to Intrinsic Financial
Services. The loss on the sale amounted to EUR 22 million. The sale is completed in the third quarter of 2013.
129 million and net income for 2010 was GBP 26 million.
On August 9, 2011, Aegon completed the divestment of its life reinsurance business, Transamerica Reinsurance (TARe), to SCOR.
The divestment resulted in a total after-tax consideration of USD 1.4 billion, consisting of cash proceeds of USD 0.9 billion and a capital release of USD 0.5 billion. Aegon has retained certain blocks of business consisting primarily of variable annuity guarantee products with a book value of USD 0.4 billion. The divestment of TARe consists of a series of reinsurance agreements between various statutory insurance entities and SCOR for the US domestic business. In addition, SCOR has acquired Transamerica International
Reinsurance Ireland (TIRI), a company that includes reinsurance contracts that are assumed by Aegon US domestic companies which have been retroceded to TIRI, and has taken over the operational assets and systems of TARe.
United Kingdom �� Scottish Equitable plc, Edinburgh �� Origen Financial Services Ltd., London
New Markets �� Aegon España S.A., Madrid (Spain) (99.98%) �� Aegon Magyarország Általános Biztosító Zártkörűen Működő Részvénytársaság, Budapest (Hungary) �� Aegon Towarzystwo Ubezpieczeń na Życie Spółka Akcyjna, Warsaw (Poland) �� Aegon Life Ukraine PJSC, Kiev (Ukraine) �� Aegon PENSII - Societate de Administrare a Fondurilor de Pensii Private S.A., Clui (Romania)
New Markets �� Aegon-CNOOC Life Insurance Company Ltd, Shanghai (China), life insurance company (50%) �� Aegon Sony Life Insurance Cy, Tokyo (Japan), life insurance company (50%) �� Caja Badajoz Vida y Pensiones, SA de Seguros, Badajoz (Spain), life insurance and pension company (50%) �� Cantabria Vida y Pensiones, SA de Seguros y Reaseguros, Santander (Spain), life insurance and pension company (50%) �� Liberbank Vida y Pensiones, Seguros y Reaseguros, S.A., Oviedo (Spain), life insurance and pension company (50%) �� Aegon Santander Generales Seguros y Reaseguros, S.A., Madrid (Spain), non-life insurance company (51%) �� Aegon Santander Vida Seguros y Reaseguros, S.A., Madrid (Spain), life insurance company (51%) �� Aegon Industrial Fund Management Co., Ltd, Shanghai (China), investment management company (49%)
New Markets �� La Mondiale Participations S.A., Lille (France), life insurance and pension company (35%) �� Seguros Argos, S.A. de C.V., Mexico City (Mexico), life insurance company (49%) �� Aegon Religare Life Insurance Company, Mumbai (India), life insurance company (26%) �� Mongeral Aegon, Seguros e Previdencia S.A., Rio de Janeiro (Brazil), life insurance company (50%)
Refer to note 26 for further details on investments in associates.
On July 5, 2013, and with effect of June 14, 2013, Vereniging Aegon exercised its option rights to purchase in aggregate 12,691,745 common shares B at fair value of a common share B (being 1/40th of the Market value of a common share in the capital of the company at the time of issuance) to mitigate dilution caused by Aegon’s issuance of shares on June 14, 2013, being the final dividend 2012 in the form of stock dividend.
On May 29, 2013, Aegon N.V. and Vereniging Aegon entered into an amendment of the Amended 1983 Merger Agreement between
Aegon N.V. and Vereniging Aegon. Following this 2013 amendment, Vereniging Aegon’s call option relates to common shares
On June 15, 2011, Aegon repurchased 187.5 million of the convertible core capital securities. The total payment to the Dutch government on June 15, 2011 amounted to EUR 1.125 billion and included a premium of EUR 375 million. Including this repurchase
(2012: EUR 6.2 million), EUR 1.3 million (2012: EUR 0.6 million) other benefits, EUR 1.6 million (2012: EUR 2.3 million) pension premiums and EUR 1.0 million (2012: EUR 0.6 million) reflecting 16% crisis tax which was accrued for members of the Management
Board employed in the Netherlands. Expenses as recognized under IFRS in the income statement for variable compensation and pensions differ from the variable compensation awards and pension premiums paid due to the accounting treatment under respectively
IFRS 2 and IAS 19. IFRS expenses related to variable compensation amounted to EUR 6.3 million (2012: EUR 5.5 million) and for pensions EUR 1.7 million (2012: EUR 1.4 million).
Alexander R. Wynaendts 1,049 1,049 1 Mr. Button was appointed as CFO and member of Aegon’s Executive Board per May 15, 2013. Fixed compensation is disclosed for the period that Mr. Button has been part of the Executive Board. 2 Mr. Nooitgedagt’s fixed compensation is reflective of his time with Aegon till retirement as per August 1, 2013.
Alexander R. Wynaendts 1,032 1,018 1 Mr. Button was appointed as CFO and member of Aegon’s Executive Board per May 15, 2013. Conditional variable compensation is disclosed for the period that
Expenses recognized under IFRS accounting treatment in the income statement for conditionally awarded cash and shares differ from the awards. For the performance year 2013 and previous performance years, expenses under IFRS for Mr. Wynaendts amount to
For Mr. Button, the expenses under IFRS with regard to conditionally awarded cash and shares recognized in the income statement during the performance year 2013 for his role as CFO and member of Aegon’s Executive Board amount to EUR 288. In performance year 2013 and previous performance years Mr. Button has been awarded with variable compensation in his role as CFO of Americas and Head of Corporate Financial Center. The related expenses under IFRS for those awards recognized in 2013 for the period that
Notes to the consolidated financial statements of Aegon N.V. Note 56
EUR 206 and EUR 94 respectively. The number of shares to be made available in 2014 related to performance year 2013 is 41,961 and 19,146 for Mr. Wynaendts and Mr. Button respectively. The vested shares, with the exception of shares sold to meet income tax obligations, are subject to a three year retention (holding) period before they are at the disposal of the Executive Board members.
The remaining part of variable compensation for the performance year 2013 (60%), for Mr. Wynaendts EUR 309 and 62,943 shares and for Mr. Button EUR 140 and 28,716 shares, is to be paid out in equal portions in 2015, 2016 and 2017, subject to ex-post assessments, that may result in downward adjustments and may be subject to additional conditions being met. Any payout will be split 50/50 in cash payment and an allocation of shares vesting. To the vested shares, with the exception of shares sold to meet income tax obligations, a retention (holding) period is applicable for a further three years, before they are at the disposal of the Executive Board members.
Mr. Nooitgedagt was awarded EUR 434 variable compensation for the period he served as a member of the Executive Board in 2013. Variable compensation is split 50/50 in a cash payment and an allocation of shares. Of the variable compensation related to performance year 2013 40% is payable in 2014. Accordingly, Mr. Nooitgedagt will receive a cash payment of EUR 87. The number of shares to be made available in 2014 related to performance year 2013 is 17,650 . The remaining part of 60%, EUR 130 and 26,478 shares is to be paid out in future years, subject to ex-post assessments, that may result in downward adjustments. In each of the years 2015, 2016 and 2017, equal portions of the deferred variable compensation over 2013 may be made available. Any pay-out will be split 50/50 in cash payment and an allocation of shares vesting. The vested shares (with the exception of shares sold to meet income tax obligations) are subject to a three year retention (holding) period before they are at the disposal of Mr. Nooitgedagt.
The table below illustrates all the conditionally awarded cash and shares of the members of the Executive Board during 2013, and the years in which each component will be paid out and/or vest, subject to the conditions as mentioned: Conditional granted performance related remuneration Timing of vesting, subject to targets and conditions
4 During the vesting period, dividend payments on these shares are deposited in blocked savings accounts on behalf of the executive members. For active members of the Executive Board 50% of the shares vested in 2012 and 50% will vest in 2016.
Alexander R. Wynaendts 132 111 1 Mr. Button was appointed as CFO and member of Aegon’s Executive Board per May 15, 2013. Other benefits are disclosed for the period that Mr. Button has been part of the Executive Board. 2 Mr. Nooitgedagt’s other benefits are reflective of his time with Aegon till retirement as per August 1, 2013.
Other benefits concern non-monetary benefits (e.g. company car), social security contributions by the employer, and tax expenses borne by the Group. For Mr. Button these benefits also include all expenses related to his expatriation from the United States to the Netherlands, borne by the Group.
Alexander R. Wynaendts 652 1,228 1 Mr. Button was appointed as CFO and member of Aegon’s Executive Board per May 15, 2013. Pension contributions are disclosed for the period that Mr. Button has been part of the Executive Board. 2 Mr. Nooitgedagt’s pension contributions are reflective of his time with Aegon till retirement as per August 1, 2013.
The amounts as presented in the table are the pension contributions in the related book year. Under IFRS the service cost as recognized in the income statement related to the defined benefit obligation of Mr. Wynaendts amount to EUR 736 (2012: EUR 580). Service cost for Mr. Button amount to EUR 114, and for Mr. Nooitgedagt EUR 44 (2012: EUR 175).
EUR 150). This caused an increase of Aegon’s total remuneration expenses for Alexander R. Wynaendts of EUR 417 (2012: EUR 311)
At the balance sheet date, Mr. Wynaendts had mortgage loans with Aegon totaling to EUR 735,292 with interest rates of 4.0%, 4.2%
The remuneration for Supervisory Board members is as of 2013 Dutch VAT liability compliant. The amounts 2013 include the VAT
Notes to the consolidated financial statements of Aegon N.V. Note 57 57 Events after the balance sheet date There were no events after the balance sheet date with a significant impact on the financial position of the company per December 31, 2013.
December 31, 2013 its result and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Dutch Civil Code.
Remeasurement of defined benefit plans of group companies 9 (706) (1,085)
N.V. serves as the holding company for the Aegon Group and has listings of its common shares in Amsterdam and New York.
Aegon N.V. (or 'the company') and its subsidiaries ('Aegon' or 'the Group') have life insurance and pensions operations in over twenty countries in the Americas, Europe and Asia and are also active in savings and asset management operations, accident and health insurance, general insurance and to a limited extent banking operations. Headquarters are located in The Hague, the Netherlands. The
Book 2 of the Netherlands Civil Code. Based on article 2:362.8 of the Netherlands Civil Code, the valuation principles applied are based on International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS), as used for the preparation of the consolidated financial statements of the Group.
Notes to the financial statements of Aegon N.V. Note 3 2.12 Events after the balance sheet date The financial statements are adjusted to reflect events that occurred between the balance sheet date and the date when the financial statements are authorized for issue, provided they give evidence of conditions that existed at the balance sheet date.
7 Other assets Other assets include derivatives with positive fair values of EUR 306 million (2012: EUR 330 million).
Shareholders on May 15, 2013. For details refer to the 'Major Shareholders' section.
Vereniging Aegon exercised its option rights to purchase in aggregate 8,021,000 class B Preferred Shares at par value. It did this to correct dilution caused by Aegon’s issuance of shares on June 15, 2012, being the final dividend 2011 in the form of stock dividend, and its issuance of shares on September 15, 2012, being the interim dividend 2012 in the form of stock dividend. In July 2013,
Vereniging Aegon exercised its option rights to purchase in aggregate 12,691,745 common shares B at market value.
The following table shows the movement during the year in the number of common shares: Number of common shares 2013 2012
The following table shows the movement during the year in the number of common shares B: Number of common shares B 2013 2012
The weighted average number of EUR 0.12 common shares B for 2013 was 366,439,040 (2012: nil).
The shares repurchased by Aegon, although included in the issued and outstanding number of shares, are excluded from the calculation of the weighted average number of shares. The number has been adjusted for share dividend.
Long Term Incentive Plan, share appreciation rights and share options For detailed information on the long term incentive plan, share appreciation rights and share options granted to senior executives and other Aegon employees, refer to note 14 to the consolidated financial statements of the Group.
Foreign currency translation differences and movement in foreign investment hedging reserves - - - - (783) - - - - (783)
Changes in accounting policies relating to IFRS 10 and 11 1) - - 17 - - - (139) - - (122)
Foreign currency translation differences and movement in foreign investment hedging reserves - - - - (113) - - - - (113)
1 Amounts have been restated for the changes in accounting policies as describes in note 2 of the consolidated financial statements.
The balance of the revaluation account, which includes revaluation reserves for real estate and investments that do not have a frequent market listing, consists for EUR 6,527 million (2012: EUR 9,353 million) of items with positive revaluation and for EUR 978 million of items with negative revaluation (2012: EUR 927 million negative revaluation).
Optas N.V., an indirect subsidiary of Aegon N.V., holds statutory reserves of EUR 997 million (2012: EUR 981 million) which are restricted. Included in Aegon N.V.’s legal reserves is an amount of EUR 458 million related to Optas N.V. which represents the increase in statutory reserves since the acquisition of Optas N.V. by Aegon (2012: EUR 441 million). The statutory reserves of Optas N.V. are linked to the acquired negative goodwill related to Optas N.V. at acquisition date.
Although the securities have no stated maturity, Aegon has the right to call the securities for redemption at par for the first time on the coupon date in the years as specified, or on any coupon payment date thereafter.
October 14, 2018. 3 The coupon of the EUR 203 million bonds was originally set at 7.125% until March 4, 2011. Subsequently, the coupon has been reset at 4.26% until March 4, 2021. 4 If the bonds are not called on the respective call dates and after consecutive period of ten years, the coupons will be reset at the then prevailing effective yield of ten-year Dutch government securities plus a spread of 85 basis points.
These notes are recognized as a compound instrument due to the nature of this financial instrument. Compound instruments are separated into an equity component and liability component. At December 31, 2013 the equity component amounts to EUR 271 million, subordinated borrowings amounts to EUR 44 million and a deferred tax liability amounting to EUR 84 million.
The repayment periods of borrowings vary from within one year up to a maximum of 27 years. The interest rates vary from 3.000% to 6.625% per annum. The market value of the long-term borrowings amounts to EUR 2,518 million (2012: EUR 3,126 million).
Notes to the financial statements of Aegon N.V. Note 14 14 Other liabilities Loans from and payables to group companies have a maturity of less than one year. Other includes derivatives with negative fair values of EUR 272 million (2012: EUR 350 million).
Aegon N.V. has guaranteed and is severally liable for the following: �� Due and punctual payment of payables due under letter of credit agreements applied for by Aegon N.V. as co-applicant with its captive insurance companies that are subsidiaries of Transamerica Corporation, Aegon USA, LLC and Commonwealth General
Transamerica Corporation. As at December 31, 2013, this debt amounted to EUR 1,089 million and is included in the ‘debentures and other loans’ table in note 41 (Borrowings) of the consolidated financial statements of the Group in the line USD 1.54 billion
15 Number of employees Other than the Executive Board members, there were no employees employed by Aegon N.V. in either 2013 or 2012.
17 Events after the balance sheet date There were no events after the balance sheet date with a significant impact on the financial position of the company per
Independent auditor’s report Report on the company financial statements We have audited the accompanying company financial statements 2013 of Aegon N.V., The Hague (as set out on pages 291 to 305), which comprise the statement of financial position as at December 31, 2013, the income statement for the year then ended and the notes, comprising a summary of the significant accounting policies and other explanatory information.
Auditor’s responsibility Our responsibility is to express an opinion on the company financial statements based on our audit. We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the company financial statements are free from material misstatement.
Opinion with respect to the company financial statements In our opinion, the company financial statements give a true and fair view of the financial position of Aegon N.V. as at December 31, 2013 and of its result and for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code.
Report on other legal and regulatory requirements Pursuant to the legal requirement under Section 2:393 sub 5 at e and f of the Dutch Civil Code, we have no deficiencies to report as a result of our examination whether the Report of the Executive Board, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of this Code, and whether the information as required under Section 2:392 sub 1 at b-h has been annexed.
Further we report that the Report of the Executive Board, to the extent we can assess, is consistent with the company financial statements as required by Section 2:391 sub 4 of the Dutch Civil Code.
3. The profits remaining after application of 2 above shall be put at the disposal of the General Meeting of Shareholders. The
Executive Board, subject to the approval of the Supervisory Board, shall make a proposal for that purpose. A proposal to pay a dividend shall be dealt with as a separate agenda item at the General Meeting of Shareholders.
4. The Executive Board may, subject to the approval of the Supervisory Board, make one or more interim distributions to the holders of common shares and common shares B.
5. Distributions are made in accordance with the principle as laid down in article 4 of the Articles of Association of Aegon N.V. that the financial rights attaching to a Common Share B are one-fortieth (1/40th) of the financial rights attaching to a Common Share.
If the proposed dividend is approved by shareholders, Aegon shares will be quoted ex-dividend on May 23, 2014. The record date for the dividend will be May 27, 2014. Shareholders can elect to receive a dividend in cash or in shares during the dividend election period, which will run from May 30, 2014 up to and including June 13, 2014. The dividend will be payable as of June 20, 2014.
0.12 per share and 3,000,000,000 common shares B with a par value of EUR 0.12 per share. At the same date, there were 2,131,458,863 common shares and 579,005,440 common shares B issued. Of the issued common shares, 39,836,533 common shares were held by Aegon as treasury shares and 1,471,377 treasury shares were held by its subsidiaries.
As of December 31, 2013, 225 million common shares were held in the form of New York Registry shares. As of December 31, 2013, there were approximately 20,800 record holders of Aegon’s New York Registry shares resident in the United States.
Aegon N.V. and Vereniging Aegon entered into a Preferred Shares Voting Agreement, pursuant to which Vereniging Aegon agreed to exercise one vote only per preferred share, except in the event of a “Special Cause”, as defined hereunder.
Vereniging Aegon to prevent or correct dilution to below its actual percentage of voting shares, to a maximum of 33%.
Vereniging Aegon exercised its option rights to purchase in aggregate 12,691,745 Common Shares B at market value. It did this to correct dilution caused by Aegon’s issuance of shares on May 1, 2013 and May 16, 2013 in connection with the Long Term Incentive
At December 31, 2013, the General Meeting of Members of Vereniging Aegon consisted of 17 members. The majority of the voting rights is with the 15 members who are not employees or former employees of Aegon N.V. or one of the Aegon Group companies, nor current or former members of the Supervisory Board or the Executive Board of Aegon N.V. The two other members are elected by the
Board of Aegon N.V. who are also members of the Executive Committee have no voting rights on several decisions that relate to Aegon
N.V., as set out in the Articles of Association of Vereniging Aegon.
Other major shareholders To Aegon’s knowledge based on the filings made with the Netherlands Authority for Financial Markets, the AFM, the US-based investment management firm Dodge & Cox and the US-based investment management firm FMR LLC each hold a capital and voting interest in Aegon N.V in excess of 3%.
Other investments at fair value through profit or loss 2,113 2,234 2,234
Issuance, repurchase and coupons of convertible core capital securities - - (2,250)
Net increase / (decrease) in cash and cash equivalents (958) 505 (214)
Nederlandsche Bank (DNB or Dutch Central Bank) are required to carry out “supplementary supervision” on EU insurance companies in an insurance group. The supplementary supervision of insurance companies in an insurance group enables EU supervisors to make a detailed assessment of the financial position of the EU insurance companies that are part of that group. The Directive requires DNB to take into account the relevant financial affiliations between the insurance companies and other entities in the group. In this respect,
Both the insurance and banking companies in the Aegon Group are required to maintain a minimum solvency margin based on local requirements. The required solvency margin is the sum of the margins of each of Aegon’s insurance and banking subsidiaries, based on the local requirements. Available liability capital includes shareholders’ equity, convertible core capital securities, perpetual capital securities, and dated subordinated debt and senior debt.
I - Risks relating to Aegon’s businesses The following covers some key risk factors that may affect Aegon’s businesses and operations, as well as other risk factors that are particularly relevant to Aegon in the ongoing period of significant economic uncertainty. Additional risks to which Aegon is subject to include, but are not limited to, the factors mentioned under ‘Forward-looking statements’ (refer to page 354 and 355), and the risks of
Risks related to the global financial markets and general economic conditions Disruptions in global financial markets and general economic conditions have affected, continue to affect and may have a materially adverse effect on Aegon’s businesses, results of operations, cash flows and financial condition.
Governmental action in the Netherlands, the United Kingdom, the United States, the European Union and elsewhere to address any of the above may impact Aegon's businesses. Aegon cannot predict with certainty the effect that these or other government actions and actions by the ECB or the Federal Reserve may have on the financial markets or on Aegon’s businesses, results of operations, cash flows and financial condition.
Credit risk Defaults in Aegon’s debt securities, private placements and mortgage loan portfolios held in Aegon’s general account, or the failure of certain counterparties, may adversely affect Aegon’s profitability and shareholders´ equity.
Equity market risk A decline in equity markets may adversely affect Aegon’s profitability and shareholders´ equity, sales of savings and investment products, and the amount of assets under management.
Some of Aegon´s insurance and investment contract businesses have minimum return or accumulation guarantees, which requires
equity may fluctuate. As Aegon has significant business segments in the Americas and in the United Kingdom, the principal sources of exposure from currency fluctuations are from the differences between the US dollar and the euro and between the UK pound and the euro. Aegon may experience significant changes in net income and shareholders´ equity because of these fluctuations.
The exchange rates between Aegon’s primary operating currencies (US dollar, euro and UK pound) continued to fluctuate during 2013.
Some liabilities can be surrendered, while some assets, such as privately placed loans, mortgage loans, real estate and limited partnership interests, are to some degree illiquid. Aegon continued to maintain its reserves of cash and liquid assets in 2013. In depressed markets, Aegon may be unable to sell or buy significant volumes of assets at quoted prices.
In 2013, approximately 40% of Aegon’s general account investments were not highly liquid.
Underwriting risk Differences between actual claims experience and underwriting and reserve assumptions may require liabilities to be increased.
Modelling risk Inaccuracies in (financial) models could have a significant adverse effect on Aegon’s business, results of operations and financial condition.
Reliance on various (financial) models to establish key results and assumptions is critical to Aegon’s operations. If these models prove to be inaccurate, the same may apply to assumptions that are based thereon. Aegon’s earnings depends significantly on models and assumptions used. Whereas the assumptions used to set the price for Aegon’s products, the inaccuracy of our financial models could have a significant adverse effect on Aegon’s business.
The National Association of Insurance Commissioners´ (NAIC) Model Regulation entitled ‘Valuation of Life Insurance Policies,’
Insurance Policies Regulation, commonly known as Regulation AXXX, or AG38, requires insurers to establish additional statutory reserves for certain universal life insurance policies with secondary guarantees. Virtually all of Aegon’s newly issued term and universal life insurance products in the United States are now affected by Regulations XXX and AXXX, respectively.
In response to the NAIC regulations, Aegon has implemented reinsurance and capital management actions to mitigate their impact.
However, for a variety of reasons, Aegon may not be able to implement actions to mitigate the impact of Regulation XXX and AXXX on future sales of term or universal life insurance products, potentially resulting in an adverse impact on these products and Aegon’s market position in the life insurance market. In addition, the NAIC is reviewing internal captive reinsurance, the vehicle used in many capital management actions.
Aegon may not be able to comply fully with, or obtain appropriate exemptions from, the wide variety of laws and regulations applicable to insurance companies and insurance holding companies. Failure to comply with or to obtain appropriate exemptions under any applicable laws may result in restrictions on Aegon’s ability to do business in one or more of the jurisdictions in which Aegon operates and may result in fines and other sanctions, which may have a materially adverse effect on Aegon’s businesses, financial position or results of operations.
continues to consider changes to corporate governance and insurers' use of captives. Due to the uncertainty of the proposals it is not possible to provide an estimate of the effects at this time.
Claims-paying ability and financial strength ratings are factors in establishing the competitive position of insurers. A rating downgrade
Aegon cannot predict what actions rating agencies may take, or what actions Aegon may take in response to the actions of rating agencies, which may adversely affect Aegon’s businesses. As with other companies in the financial services industry, Aegon’s ratings may be downgraded at any time and without notice by any rating agency.
Commodity Futures Trading Commission and Securities and Exchange Commission) authority to promulgate new financial regulations applicable to systemically important non-bank financial institutions. The regulatory changes include or may include differing standards of capital for companies deemed systemically important financial institutions ‘SIFIs’ and other companies, as well as initiatives of U.S.
Court in 2012. PPACA significantly changes the regulation of health insurance in the United States, including in certain respects the regulation of supplemental health insurance products. The extent to which employers or individuals may discontinue their purchase of supplemental health insurance products as a result of these changes may significantly impact Aegon USA´s supplemental health insurance products business.
Changes in pension and employee benefit regulation, social security regulation, financial services regulation, taxation and the regulation of securities products and transactions may adversely affect Aegon’s ability to sell new policies or claims exposure on existing policies. For example, in Hungary, the mandatory pension business has been nationalized and therefore Aegon in Hungary has liquidated its mandatory pension business. Similarly, in December 2013 the Polish parliament approved legislation to overhaul the existing state pension system, which is a reason for Aegon to write down its intangible assets.
The possibility of Scotland becoming independent from the remainder of the United Kingdom may affect Aegon UK’s results of operations in the future.
It is possible that following a referendum in September 2014, Scotland may vote to become independent from the remainder of the
Legal and arbitration proceedings and regulatory investigations and actions may adversely affect Aegon’s businesses, results of operations and financial position.
Insurance companies are routinely the subject of litigation, investigation and regulatory activity by various governmental and enforcement authorities, individual claimants and policyholder advocate groups, involving wide-ranging subjects such as transparency issues and the charges included in products, employment or third party relationships, adequacy of operational processes, environmental matters, anti-competition, privacy, information security and intellectual property infringement. In this context, Aegon refers to the unclaimed property examinations that unclaimed property administrators and state insurance regulators performed of the life insurance industry in the United States, including certain of Aegon’s subsidiaries. Among these were multi-state examinations that included the collective action of many of the states. Additionally, some states conducted separate examinations or instituted separate enforcement actions in regard to unclaimed property laws and related claims practices. As other insurers in the United States have done, Aegon Americas identified certain additional internal processes that it has implemented or is in the process of implementing. Aegon Americas originally established reserves related to this matter of approximately EUR 117 million. Like various other major insurers in the United States, Aegon subsidiaries in the
United States entered into settlements with insurance regulators regarding claims settlement practices. Certain examinations are still ongoing. While Aegon believes the reserves it has established for these unclaimed property-related matters are adequate to cover expected obligations, there can be no assurances that actual exposures may not exceed reserve amounts or that additional sources of liability related to these examinations or other unclaimed property-related matters will not arise in the future.
Aegon and other US industry participants have been named in lawsuits alleging, among other things, that asset-based fees charged for investment products offered on 401(k) platforms were higher than those generally available in the market. In the Netherlands, certain current and former customers, and groups representing customers have initiated litigation, and certain groups are encouraging others to bring lawsuits against Aegon and other insurers, in respect of certain products including securities leasing products and unit-linked products (so called ‘beleggingsverzekeringen’, including the KoersPlan product).
Dutch Ministry of Finance to apply ‘best of class’ principles to certain existing unit-linked products. As a result of this acceleration,
Aegon is exposed to currency fluctuations, changes in the fair value of Aegon’s investments, the impact of interest rate, equity markets and credit spread changes and changes in mortality and longevity. Aegon uses common financial derivative instruments, such as swaps, options, futures and forward contracts to hedge some of the exposures related to both investments backing insurance products and company borrowings. This is a more pronounced risk to Aegon in view of the stresses suffered by financial institutions and the volatility of credit and equity markets. Aegon may not be able to manage the risks associated with these activities successfully through the use of derivatives. In addition, a counterparty may fail to honor the terms of its derivatives contracts with Aegon. Aegon’s inability to manage risks successfully through derivatives, a counterparty´s failure to honor Aegon’s obligations or the systemic risk that failure is transmitted from counterparty to counterparty may each have a material adverse effect on Aegon’s businesses, results of operations and financial condition.
State statutes and regulators may limit or prohibit the aggregate amount of dividends payable by Aegon’s subsidiaries and Aegon N.V., thereby limiting Aegon’s ability to make payments on debt obligations.
Changes in accounting policies may affect Aegon’s reported results and shareholders´ equity.
Tax law changes may adversely affect Aegon’s profitability, as well as the sale and ownership of Aegon’s products.
Further, insurance products enjoy certain tax advantages, particularly in the United States and the Netherlands, which permit the tax deferred accumulation of earnings on the premiums paid by the holders of annuities and life insurance products under certain
experienced portfolio managers, mutual fund managers and sales executives, is very much dependent on the competitiveness of the compensation package for employees in the market in which it competes. As a part of the governmental response in Europe and, to a certain extent, the United States to the financial crisis in 2008, there have been various legislative initiatives that have sought to give guidance or regulate the structure of remuneration for personnel, in particular senior management, with a focus on performancerelated remuneration and limiting severance payments. With differences in interpretation of these regulations by local regulators on how the guidelines need to be applied, as well as to the question of whether they apply to insurance industries at all, these restrictions create an uncertain playing field and may adversely affect Aegon’s ability to compete for qualified employees, as well as Aegon's ability to exchange employees between regions.
Reinsurers to whom Aegon has ceded risk may fail to meet their obligations.
The major reinsurers of Aegon Hungary for non- life are Swiss Re, Munich Re and Hannover Re and for life insurance Munich Re and
Munich Re, China Re and Aegon India’s major reinsurer is RGA.
Reinsurance may not be available, affordable or adequate to protect Aegon against losses.
Aegon’s acquisitions may result in additional indebtedness, costs, contingent liabilities and impairment expenses related to goodwill and other intangible assets. In addition, they may divert management´s attention and other resources. Divestitures of existing operations may result in Aegon assuming or retaining certain contingent liabilities. All of these may adversely affect Aegon’s businesses, results of operations and financial condition. Future acquisitions may also have a dilutive effect on the ownership and voting percentages of existing shareholders. There can be no assurance that Aegon will successfully identify suitable acquisition
Aegon regularly develops new financial products to remain competitive in its markets and to meet the expectations of its clients. If clients do not achieve expected returns on those products, Aegon may be confronted with legal claims, advocate groups and negative publicity.
Aegon relies on a combination of contractual rights with third parties and copyright, trademark, patent and trade secret laws to establish and protect Aegon’s intellectual property. Third parties may infringe on or misappropriate Aegon’s intellectual property, and it is possible that third parties may claim that Aegon has infringed on or misappropriated their intellectual property rights. Any resulting proceedings in which Aegon would have to enforce and protect its intellectual property, or defend itself against a claim of infringement of a third party´s intellectual property, may require significant effort and resources and may not prove successful. As a result of any proceeding in which Aegon would have to enforce and protect its intellectual property, Aegon may lose intellectual property protection, which may have a materially adverse effect on Aegon’s businesses, results of operation, financial condition and Aegon’s ability to compete. As a result of any proceeding in which Aegon would have to defend itself against a claim of infringement of a third party´s intellectual property, Aegon may be required to pay damages and provide injunctive relief, which may have a materially adverse effect on Aegon’s businesses, results of operations and financial condition.
While systems and processes are designed to support complex transactions and avoid systems failure, fraud, information security failures, processing errors and breaches of regulation, any failure may lead to a materially adverse effect on Aegon’s results of operations and corporate reputation. In addition, Aegon must commit significant resources to maintain and enhance its existing systems in order to keep pace with industry standards and customer preferences. If Aegon fails to keep up-to-date information systems, Aegon may not be able to rely on information for product pricing, risk management and underwriting decisions. In addition, even though backup and recovery systems and contingency plans are in place, Aegon cannot assure investors that interruptions, failures or breaches in security of these processes and systems will not occur, or if they do occur, that they can be adequately addressed. The occurrence of any of these events may have a materially adverse effect on Aegon’s businesses, results of operations and financial condition.
A computer system failure or security breach may disrupt Aegon’s businesses, damage Aegon’s reputation and adversely affect Aegon’s results of operations, financial condition and cash flows.
The price at which Aegon’s common shares trade is influenced by many factors, some of which are specific to Aegon and Aegon’s operations, and some of which are related to the insurance industry and equity markets in general. As a result of these factors, investors may not be able to resell their common shares at or above the price paid for them. In particular, the following factors, in addition to other risk factors described in this section, may have a material impact on the market price of Aegon’s common shares: �� Investor perception of Aegon as a company; �� Actual or anticipated fluctuations in Aegon’s revenues or operating results; �� Announcements of intended acquisitions, disposals or financings, or speculation about such acquisitions, disposals or financings; �� Changes in Aegon’s dividend policy, which may result from changes in Aegon’s cash flow and capital position; �� Sales of blocks of Aegon’s shares by significant shareholders, including Vereniging Aegon; �� A downgrade or rumored downgrade of Aegon’s credit or financial strength ratings, including placement on credit watch;
�� Potential litigation involving Aegon or the insurance industry in general; �� Changes in financial estimates and recommendations by securities research analysts; �� Fluctuations in capital markets including foreign exchange rates, interest rates and equity markets; �� The performance of other companies in the insurance sector; �� Regulatory developments in the Netherlands, the United States, the United Kingdom, and other countries in which Aegon operates; �� International political and economic conditions, including the effects of terrorist attacks, military operations and other developments stemming from such events, and the uncertainty related to these developments; �� News or analyst reports related to markets or industries in which Aegon operates; �� General insurance market conditions.
Aegon and Aegon’s significant shareholders may offer additional common shares in the future, and these and other sales may adversely affect the market price of the outstanding common shares.
Aegon may decide to offer additional common shares in the future, for example, to strengthen Aegon’s capital position in response to regulatory changes or to effect an acquisition.
An additional offering of common shares by Aegon, the restructuring of Aegon’s share capital, the sales of common shares by significant shareholders or by lenders to Vereniging Aegon, or the public perception that an offering or such sales may occur, may have an adverse effect on the market price of Aegon's common shares. As of December 31, 2013, there were 2,131,458,863 common shares and 579,005,440 common shares B issued. Of these Vereniging Aegon held 292,687,444 common shares and all issued common shares B. All of Aegon's outstanding common shares are freely tradable, and all shareholders, including large shareholders such as Vereniging Aegon, are free to resell their common shares at any time.
Aegon. Following this 2013 amendment, Vereniging Aegon’s call option relates to common shares B. Vereniging Aegon may exercise its call option to keep or restore its total stake at 32.6%, irrespective of the circumstances which cause the total shareholding to be or become lower than 32.6%.
Vereniging Aegon. As a matter of Dutch corporate law, the shares of both classes offer equal full voting rights, as they have equal nominal values (EUR 0.12). The amended Voting Rights Agreement ensures that under normal circumstances, i.e. except in the event of a Special Cause, Vereniging Aegon will no longer be able to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in the absence of a Special Cause Vereniging Aegon may cast one vote for every common share it holds and one vote only for every 40 common shares B it holds for a limited period of 6 months. A Special Cause includes the acquisition of a 15% interest in Aegon N.V., a tender offer for Aegon N.V. shares or a proposed business combination by any person or group or persons, whether individually or as a group, other than in a transaction approved by the Executive Board and the Supervisory
Board. Accordingly, at December 31, 2013, the voting power of Vereniging Aegon under normal circumstances amounted to approximately 14.58%, based on the number of outstanding and voting shares (excluding issued common shares held in treasury by
Since Aegon’s common shares listed on NYSE Euronext Amsterdam are quoted in euros and Aegon’s common shares listed on NYSE
Convertible securities (or other securities that permit or require Aegon to satisfy Aegon’s obligations by issuing common shares) that Aegon may issue may influence the market price for Aegon’s common shares.
Other principal offices owned by Aegon are located in The Hague, the Netherlands; Budapest, Hungary; and Madrid, Spain. Aegon owns its headquarters and leases other offices in the Netherlands (Leeuwarden), the United Kingdom and Canada under long-term leases.
Americas, 17% in the Netherlands, 9% in the United Kingdom and 28% in New Markets.
All of Aegon’s employees in the Netherlands, other than senior management, are covered by collective labor agreements, which are generally renegotiated annually on an industry wide basis. Individual companies then enter into employment agreements with their employees based on the relevant collective agreement. Since its founding, Aegon has participated in collective negotiations in the insurance industry and has based its employment agreements with its employees on the relevant collective agreement. The collective agreements are generally for a duration of one year. Aegon has experienced no significant strike, work stoppage or labor dispute in recent years.
employees. The Central Works Council has certain defined powers at the level of the Dutch subsidiary company Aegon Nederland N.V., including the right to make non-binding recommendations for appointments to its Supervisory Board and the right to enter objections against proposals for appointments to that Supervisory Board. Moreover, the Central Works Council of Aegon the Netherlands is to be consulted as regards a nomination for appointment pertaining to one seat on the Supervisory Board of Aegon.
Aegon aims to pay out a sustainable dividend to allow equity investors to share in Aegon’s performance, which can grow over time if
Aegon’s performance so allows. After investment in new business to generate organic growth, capital generation in Aegon’s operating subsidiaries is available for distribution to the holding company, while maintaining a capital and liquidity position in the operating subsidiaries in line with Aegon’s capital management and liquidity risk policies.
Depending on circumstances, future prospects and other considerations, Aegon’s Executive Board may elect to deviate from this target.
When determining whether to declare or propose a dividend, Aegon’s Executive Board has to balance prudence versus offering an attractive return to shareholders, for example in adverse economic and/or financial market conditions. Also, Aegon’s operating subsidiaries are subject to local insurance regulations which could restrict dividends to be paid to us. There is no requirement or assurance that we will declare and pay any dividends.
�� In achieving the aforesaid objects due regard shall be taken, within the scope of sound business operations, to provide fair safeguards for the interests of all the parties directly or indirectly involved in Aegon.
Common characteristics of the common shares and common shares B �� All shares are in registered form.
�� However, under normal circumstances, i.e. except in the event of a Special Cause, Vereniging Aegon will no longer be able to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in the absence of a Special Cause
Vereniging Aegon may cast one vote for every common share it holds and one vote only for every 40 common shares B it holds. As
�� In the event of liquidation, all shares have the right to participate in any remaining balance after settlement of all debts. �� The General Meeting of Shareholders may, at the proposal of the Executive Board, as approved by the Supervisory Board, resolve to reduce the outstanding capital either by (i) repurchasing shares and subsequently canceling them, or (ii) by reducing their nominal share value.
Provisions that would have the effect of delaying a change of control A resolution of the General Meeting of Shareholders to suspend or dismiss a member of the Executive Board or a member of the
Supervisory Board, other than pursuant to a proposal by the Supervisory Board, shall require at least two-thirds of the votes cast representing more than one-half of the issued capital.
In the event a “special cause” occurs (such as the acquisition of 15% of Aegon’s voting shares, a tender offer for Aegon’s shares or a proposed business combination by any person or group of persons, whether individually or as a group, other than in a transaction approved by the Executive Board and Supervisory Board), Vereniging Aegon will be entitled to exercise its full voting rights of one vote per each common share B for up to six months per “special cause”, thus increasing its current voting rights to 32.64%.
Netherlands corporate income tax; iii. corporate holders of Aegon common shares, the shareholding of which qualifies for the participation exemption
or more of the nominal paid-up share capital; iv. holders of Aegon common shares holding a substantial interest (aanmerkelijk belang) or deemed substantial interest (fictief aanmerkelijk belang) in Aegon and holders of Aegon common shares of whom a certain related person holds a substantial interest in Aegon. Generally speaking, a substantial interest in Aegon arises if a person, alone or, where such person is an individual, together with his or her partner (statutory defined term), directly or indirectly, holds or is deemed to hold (i) an interest of 5% or more of the total of capital issued by Aegon or of 5% or more of the issued capital of a certain class of Aegon shares, (ii) rights to acquire, directly or indirectly, such interest or (iii) certain profit sharing rights in Aegon; v. persons to whom the beneficial interest in Aegon common shares is attributed based on the separated private assets (afgezonderd particulier vermogen) provisions of the Netherlands income tax act 2001 (Wet inkomstenbelasting 2001); vi. entities which are a resident of Aruba, Curacao or Sint Maarten that have an enterprise which is carried on through a permanent establishment or a permanent representative on Bonaire, Sint Eustatius or Saba, to which permanent establishment or permanent representative the Aegon common shares are attributable; vii. holders of Aegon common shares which are not considered the beneficial owner (uiteindelijk gerechtigde) of these shares or of the benefits derived from or realised in respect of the Aegon common shares; and viii. individuals to whom Aegon common shares or the income therefrom are attributable to employment activities which are taxed as employment income in the Netherlands.
Dividend Tax Act 1965 (Wet op de dividendbelasting 1965), dividends are defined as the proceeds from shares, which include: i. proceeds in cash or in kind including direct or indirect distributions of profit; ii. liquidation proceeds, proceeds on redemption of Aegon common shares and, as a rule, the consideration for the repurchase of its own common shares by Aegon in excess of the average paid-in capital recognised for Netherlands dividend tax purposes, unless a particular statutory exemption applies; iii. the par value of new common shares issued to a holder of Aegon common shares or an increase of the par value of Aegon common shares, except when the (increase in the) par value of Aegon common shares is funded out of its paid-in capital as recognised for
Non-residents of the Netherlands If a holder of Aegon common shares is a resident of a country other than the Netherlands and if a treaty for the avoidance of double taxation with respect to taxes on income is in effect between the Netherlands and that country, and such holder is a resident for the purposes of such treaty, such holder may, depending on the terms of that particular treaty, qualify for full or partial relief at source or for a refund in whole or in part of the Netherlands dividend tax. A refund of the Netherlands dividend tax is available to entities resident in another EU member state, Norway, Iceland, or Liechtenstein if (i) these entities are not subject to corporate income tax there and (ii) these entities would not be subject to Netherlands corporate income tax, if these entities would be tax resident in the
Netherlands for corporate income tax purposes and (iii) these entities are not comparable to investment institutions (fiscale beleggingsinstellingen) or exempt investment institutions (vrijgestelde beleggingsinstellingen). Furthermore, a similar refund of
Beneficial owner A recipient of proceeds from Aegon common shares will not be entitled to any exemption, reduction, refund or credit of Netherlands dividend tax if such recipient is not considered to be the beneficial owner of such proceeds. The recipient will not be considered the beneficial owner of these proceeds, if, in connection with such proceeds, the recipient has paid a consideration as part of a series of transactions in respect of which it is likely: a. that the proceeds have in whole or in part accumulated, directly or indirectly, to a person or legal entity that would: - as opposed to the recipient paying the consideration, not be entitled to an exemption from dividend tax; or - in comparison to the recipient paying the consideration, to a lesser extent be entitled to a reduction or refund of dividend tax; and b. that such person or legal entity has, directly or indirectly, retained or acquired an interest in Aegon common shares or in profit-sharing certificates or loans, comparable to the interest it had in similar instruments prior to the series of transactions being initiated.
Netherlands withholding tax upon redistribution of foreign dividends Aegon must transfer to the Dutch tax authorities all Netherlands dividend withholding tax it withholds on dividends it distributed with respect to the Aegon common shares. Provided certain conditions are met, Aegon may apply a reduction with respect to the withholding tax that it has to pay over to the Dutch tax authorities. This reduction can be applied if Aegon distributes dividends that stem from dividends Aegon itself has received from certain qualifying non-Netherlands subsidiaries, provided these dividends received by Aegon are exempt from Dutch corporate income tax and were subject to withholding tax of at least 5% upon distribution to Aegon.
If neither condition (i) nor condition (ii) above applies to an individual that holds Aegon common shares, such individual must determine taxable income with regard to Aegon common shares on the basis of a deemed return on income from savings and investments (sparen en beleggen), rather than on the basis of income actually received or gains actually realised. This deemed return on income from savings and investments has been fixed at a rate of 4% of the individual’s yield basis (rendementsgrondslag) at the beginning of the calendar year, insofar as the individual’s yield basis exceeds a certain threshold. The individual’s yield basis is determined as the fair market value of certain qualifying assets held by the holder of Aegon common shares less the fair market value of certain qualifying liabilities on 1 January. The fair market value of Aegon common shares will be included as an asset in the individual’s yield basis. The 4% deemed return on income from savings and investments is taxed at a rate of 30%.
ii. the person is an individual that (1) has an enterprise or an interest in an enterprise that is, in whole or in part, carried on through a permanent establishment or a permanent representative in the Netherlands to which permanent establishment or permanent representative Aegon common shares are attributable, or (2) realises income or gains with respect to Aegon common shares that qualify as income from miscellaneous activities (resultaat uit overige werkzaamheden) in the Netherlands which includes activities with respect to Aegon common shares that exceed regular, active portfolio management (normaal, actief vermogensbeheer), or (3) is
(other than by way of securities) entitled to a share in the profits of an enterprise that is effectively managed in the Netherlands and to which enterprise Aegon common shares are attributable. Income and gains derived from Aegon common shares as specified under (1) and (2) by an individual are subject to individual income tax at up to a maximum rate of 52%. Income derived from a share in the profits of an enterprise as specified under (3) that is not already included under (1) or (2) will be taxed on the basis of a deemed return on income from savings and investments (as described above under “Residents of the Netherlands”). The fair market value of the share in the profits of the enterprise (which includes Aegon common shares) will be part of the individual’s Netherlands yield basis.
Gift and inheritance tax Residents of the Netherlands Generally, gift tax (schenkbelasting) or inheritance tax (erfbelasting) will be due in the Netherlands in respect of the acquisition of
Tax Act 1956 deemed to be made at the time the condition precedent is fulfilled and is subject to gift tax if the donor is, or is deemed to be a resident of the Netherlands at that time.
Non-residents of the Netherlands No gift or inheritance tax will arise in the Netherlands in respect of the acquisition of Aegon common shares by way of a gift by, or as a result of, the death of, a holder that is neither a resident nor deemed to be a resident of the Netherlands for the purposes of
The proposed financial transactions tax (“FTT”) The European Commission has published a proposal for a Directive for a common FTT in Belgium, Germany, Estonia, Greece, Spain,
France, Italy, Austria, Portugal, Slovenia and Slovakia (the participating Member States).
Under the current proposals the FTT could apply in certain circumstances to persons both within and outside of the participating
Member States. Generally, it would apply to certain dealings in Aegon common shares where at least one party is a financial institution, and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, “established” in a participating Member State in a broad range of circumstances, including (a) by transacting with a person established in a participating
Member State or (b) where the financial instrument which is subject to the dealings is issued in a participating Member State.
Further, this section does not address alternative minimum tax consequences or the indirect effects on the holders of equity interests in a holder of common shares. This section also does not describe any tax consequences arising under the laws of any taxing jurisdiction other than the Federal income tax laws of the US Federal government.
Tax consequences to US Holders Distributions The gross amount of any distribution (including any amounts withheld in respect of Dutch withholding tax) actually or constructively received by a US holder with respect to common shares will be taxable to the US holder as a dividend to the extent of Aegon’s current and accumulated earnings and profits as determined under US Federal income tax principles. Such dividends will not qualify for the dividends received deduction otherwise allowable to corporations. Distributions in excess of current and accumulated earnings and profits are treated under US tax law as non-taxable return of capital to the extent of the US holder’s adjusted tax basis in the common shares. Distributions in excess of earnings and profits and such adjusted tax basis will generally be taxable to the US holder as capital gain from the sale or exchange of property. However, Aegon does not maintain calculations of its earnings and profits under US Federal income tax principles. Therefore, US holders of Aegon shares will generally be taxed on all distributions as dividends, even if some portion of the distributions might otherwise be treated as a non-taxable return of capital or as capital gain if the amount of
Distributions paid in currency other than US dollars (a “foreign currency”), including the amount of any withholding tax thereon, must be included in the gross income of a US holder in an amount equal to the US dollar value of the foreign currency calculated by reference to the exchange rate in effect on the date of receipt. This is the case regardless of whether the foreign currency is converted into US
The amount of the qualified dividend income paid by Aegon to a US holder that is subject to the reduced dividend income tax rate and that is taken into account for purposes of calculating the US holder’s US foreign tax credit limitation must be reduced by the “rate differential portion” of such dividend (which, assuming a US holder is in the highest income tax bracket, would generally require a reduction of the dividend amount by approximately 49.49% in 2013 and subsequent years). Each US holder should consult their tax advisor regarding the implications of the rules relating to qualified dividend income on the calculation of US foreign tax credits under their particular circumstances.
In general, upon making a distribution to shareholders, Aegon is required to remit all Dutch dividend withholding taxes to the Dutch tax authorities The full amount of the taxes so withheld should (subject to certain limitations and conditions) be eligible for the US holder’s foreign tax deduction or credit as described above. Investors are urged to consult their tax advisors regarding the general creditability or deductibility of Dutch withholding taxes.
The following table presents the aggregate fees for professional services and other services rendered by Ernst & Young Accountants to
They also include fees billed for other audit services, which are those services that only the external auditor reasonably can provide, and include statutory audits or financial audits for subsidiaries or affiliates of the company and services associated with SEC
Under the Pre-approval Policy, proposed services either �� May be pre-approved by the Audit Committee without consideration of specific case-by-case services (“general pre-approval”); or �� Require the specific pre-approval of the Audit Committee (“specific pre-approval”). Appendices to the Pre-approval Policy (that are adopted each year) set out the audit, audit-related, tax and other services that have received general pre-approval of the Audit
Changes in registrant’s certifying accountants As announced at the Annual General Meeting of Shareholders in 2012, the audit of Aegon’s accounts from 2014 was put to tender in 2012. In February 2013, after a thorough process the Audit Committee and the Board decided to propose to shareholders to appoint
PwC as the company´s independent auditor for the annual accounts of 2014 through 2016. These proposals were approved at the
2 On September 17, 2013, a repurchase program to neutralize the dilutive effect of the 2013 interim dividend paid in shares was announced. As a consequence approximately 19 million shares have been repurchased between September 17 and October 2014, 2013.
Realized gains/(losses) on investments 113 82 202 104 502 45 85 128 149 407
New premium production accident & health insurance 225 173 167 181 746 195 187 190 196 768
mortgages are primarily backed by loans with fixed interest rates for the entire term of the loan.
Amortized cost is the amount at which the financial asset or liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization using the effective interest rate method of any difference between that initial amount and the maturity amount and minus any reduction
That are contractually based on: �� The performance of a specified pool of contracts or a specified type of contract; �� Realized and/or unrealized investment returns on a specified pool of assets held by the issuer; or �� The profit or loss of the company, fund or other entity that issues the contract.
Equity method is a method of accounting whereby the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the investor’s share of net assets of the investee. The profit or loss of the investor includes the investor’s share of the profit or loss of the investee.
Financial liability is any liability that is: �� A contractual obligation to deliver cash or another financial asset to another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity; or �� A contract that will or may be settled in the entity’s own equity instruments; and is �� A non-derivative for which the entity is or may be obliged to deliver a variable number of the entity’s own equity instruments; or �� A derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments.
Incremental cost is one that would not have been incurred if the entity had not acquired, issued or disposed of a financial instrument.
action is required, typically payment of a premium, in order to maintain benefits under the contract.
Functional currencies This report contains certain information about Aegon’s results and financial condition in USD for the Americas and GBP for the United
Securities Litigation Reform Act of 1995. The following are words that identify such forward-looking statements: aim, believe, estimate, target, intend, may, expect, anticipate, predict, project, counting on, plan, continue, want, forecast, goal, should, would, is confident, will, and similar expressions as they relate to Aegon. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Aegon undertakes no obligation to publicly update or revise any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which merely reflect company expectations at the time of writing. Actual results may differ materially from expectations conveyed in forward-looking statements due to changes caused by various risks and uncertainties. Such risks and uncertainties include but are not limited to the following: �� Changes in general economic conditions, particularly in the United States, the Netherlands and the United Kingdom. �� Changes in the performance of financial markets, including emerging markets, such as with regard to: �� The frequency and severity of defaults by issuers in Aegon’s fixed income investment portfolios; �� The effects of corporate bankruptcies and/or accounting restatements on the financial markets and the resulting decline in the value of equity and debt securities Aegon holds; and �� The effects of declining creditworthiness of certain private sector securities and the resulting decline in the value of sovereign exposure that Aegon holds.
�� Changes in the performance of Aegon’s investment portfolio and decline in ratings of Aegon’s counterparties. �� Consequences of a potential (partial) break-up of the euro or the potential independence of Scotland from the United Kingdom. �� The frequency and severity of insured loss events. �� Changes affecting longevity, mortality, morbidity, persistence and other factors that may impact the profitability of Aegon’s insurance products.
�� Reinsurers to whom Aegon has ceded significant underwriting risks may fail to meet their obligations. �� Changes affecting interest rate levels and continuing low or rapidly changing interest rate levels. �� Changes affecting currency exchange rates, in particular the EUR/USD and EUR/GBP exchange rates. �� Changes in the availability of, and costs associated with, liquidity sources such as bank and capital markets funding, as well as conditions in the credit markets in general such as changes in borrower and counterparty creditworthiness. �� Increasing levels of competition in the United States, the Netherlands, the United Kingdom and emerging markets. �� Changes in laws and regulations, particularly those affecting Aegon’s operations, ability to hire and retain key personnel, the products Aegon sells, and the attractiveness of certain products to its consumers.
�� Customer responsiveness to both new products and distribution channels. �� Competitive, legal, regulatory, or tax changes that affect profitability, the distribution cost of or demand for Aegon’s products. �� Changes in accounting regulations and policies or a change by Aegon in applying such regulations and policies, voluntary or otherwise may affect Aegon’s reported results and shareholders’ equity.
�� The impact of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including Aegon’s ability to integrate acquisitions and to obtain the anticipated results and synergies from acquisitions. �� Catastrophic events, either manmade or by nature, could result in material losses and significantly interrupt Aegon’s business. �� Aegon’s failure to achieve anticipated levels of earnings or operational efficiencies as well as other cost saving, excess capital and leverage ratio management initiatives.
Financial Markets and the US Securities and Exchange Commission, including the Annual Report. These forward-looking statements speak only as of the date of this document. Except as required by any applicable law or regulation, Aegon expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Aegon’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.