Results of operations 23 �� Worldwide 23 �� Americas 32 �� Europe 48 �� Asia 74 �� Aegon Asset Management 83
Exchange Commission. Aegon uses 'EUR' and 'euro' when referring to the lawful currency of the member states of the
European Monetary Union; 'USD', and 'US dollar' when referring to the lawful currency of the United States of America; 'GBP',
– and we made progress on our return on equity target.
EUR 350 million cost savings by year-end 2018. Most important of all, we paid out a total of close to EUR 50 billion in claims and benefits over the year, demonstrating how relevant our company is to the lives of our millions of customers
This growth is a direct result of our decision to reposition our
UK business, and underlines the benefits of moving to a feebased business model.
and innovation across our company. This means that customers in one market can benefit from what we have learned in another, demonstrating one of the key benefits of being active in such diverse markets.
EUR 2.1 billion of capital to shareholders from 2016 to 2018.
Our organization We are this year saying farewell to Aegon’s Supervisory Board
Alex Wynaendts Chief Executive Officer and Chairman of the Executive Board of Aegon N.V.
Composition of the Executive Board Alexander R. Wynaendts (1960, Dutch) CEO and Chairman of the Executive and Management Boards of Aegon N.V. Alex Wynaendts began his career in 1984 with ABN AMRO Bank, working in Amsterdam and London in the Dutch bank’s capital markets, asset management, corporate finance and private banking operations. In 1997, Mr. Wynaendts joined Aegon as Senior Vice President for Group Business Development.
Composition of the Management Board Alexander R. Wynaendts: see above Matthew J. Rider: see above
Company's technology and innovation activities, including leveraging technology to drive efficiency and enhancing the customer experience. Mr. Bloom was appointed as a member of Aegon’s Management Board in August 2016.
Management Board of Aegon in 2012. Mr. Grace is a nonexecutive Director at Clydesdale Bank and a member of the
Financial Conduct Authority practitioners’ panel. He was member of the Board of Scottish Financial Enterprise until June 2013.
Composition of the Executive Board and the Management Board Composition of the Executive Board and the Management Board
Marco Keim (1962, Dutch) Head of Aegon Continental Europe and member of the Management Board of Aegon N.V. Marco Keim began his career with accountancy firm Coopers &
Fokker Aircraft and NS Reizigers, part of the Dutch railway company, NS Group. In 1999, he joined Swiss Life in the
Counsel for the Dutch global mail and express group TNT, where he served from 2008 until the legal demerger of the group in 2011. This was followed by General Counsel positions at D.E. Master Blenders 1753 and Corio N.V.. Mr. Van Klinken rejoined Aegon in 2014 as General Counsel responsible for
Mr. Van Klinken was appointed member of the Board of Stichting Continuïteit SBM Offshore in December 2016.
Carla Mahieu (1959, Dutch) Global Head Human Resources and member of the Management Board of Aegon N.V. Carla Mahieu started her career in 1984 at Royal Dutch Shell, where she held various management positions within Human
August 2016. Ms. Mahieu has been a member of the Supervisory
Board of the Royal BAM Group since 2011, and the Supervisory
Mark Mullin (1963, American) CEO of Aegon Americas and member of the Management Board of Aegon N.V. Mark Mullin has spent more than 20 years with Aegon in various management positions in both the United States and Europe.
Chairman of the Board of Directors of the American Council of Life Insurers in October 2017.
Sarah Russell (1962, Australian) CEO of Aegon Asset Management and member of the Management Board of Aegon N.V. Sarah Russell has over 25 years’ experience in international finance and asset management.Ms. Russell began her career at Toronto Dominion in Melbourne before joining ABN AMRO
Aegon Asset Management as CEO in 2010, and has been a member of Aegon’s Management Board since August 2016.
Ms. Russell has been a non-executive director of Nordea Bank AB
since 2010, holds a Supervisory Board member position at the Nederlandse Investeringsinstelling, and is Vice Chairman of the Supervisory Board of La Banque Postale Asset
In order to do so, Aegon is focused on reducing complexity, eliminating duplication, improving accuracy, and increasing automation to realize cost efficiencies, allowing investments in its transformation to a digitally enabled, customer-centric company. Furthermore, the Company is focused on driving scale and establishing strong market positions in its current footprint, and strictly adhering to comprehensive standards that support the efficient use of capital by all its businesses. The different market segments, and starting positions of Aegon’s businesses nonetheless mean that they will experience different paths to meet the same goals. Expertise and knowledge available in Aegon’s established markets is utilized to position its businesses in emerging markets.
Aegon’s strategic objectives Aegon believes that it will achieve its ambition of becoming a trusted partner for financial solutions at every stage of life if it realizes the following strategic objectives: �� Serving customers’ need for financial security throughout their lifetimes by providing digitally-enabled, omni-channel, accessible solutions and superior customer experience
Company's greatest asset by engaging and enabling them with the tools, training and culture needed to exceed customers’
expectations (‘Empowered Employees’); and �� Ensuring that the Company always meets its long-term commitments to stakeholders by delivering sustainable financial results and maintaining a strong and stable balance sheet (‘Optimized Portfolio’).
Aegon’s business model Aegon’s overall business model has six basic stages (though these may vary according to product, local market and distribution channel): To develop its products and services, Aegon assesses and prices risk. Products and services are then branded and marketed.
Customers pay fees, single premiums or regular premiums (depending on the product or service). On pensions, savings and investment products, customers make deposits.
Aegon reinvests in its businesses, and returns money to its investors, mainly as interest or in the form of dividends.
Similar strategic and financial criteria are applied when considering the potential divestment of existing activities.
The financial underwriting and operational risks are described in the ‘risk management’ section on page 95. The non-financial risks are described in the non-financial statement on page 14.
Culture Refer to page 17 for overview of cultural change program
Aegon is headquartered in the Netherlands, and through its subsidiaries and joint ventures it employs over 28,000 people worldwide. Aegon’s common shares are listed on stock exchanges in Amsterdam (Euronext) and New York (NYSE). Aegon’s main operating units are separate legal entities that operate under the laws of their respective countries. The shares of these legal entities are directly or indirectly held by three intermediate holding companies incorporated under Dutch law: Aegon Europe
Holding B.V., the holding company for all European activities; Aegon International B.V., which serves as a holding company for the Aegon Group companies of all non-European countries; and Aegon Asset Management Holding B.V., the holding company for a number of its asset management entities.
Aegon has the following operating segments: the Americas, which includes the United States, Mexico and Brazil; the Netherlands; the United Kingdom; Central & Eastern
The separate operating segments of the Netherlands, the United Kingdom, Central & Eastern Europe and Spain &
Selected consolidated income statement information In EUR million (except per share amount) 2017 2016 2015 2014 2013
Borrowings including subordinated and trust pass-through securities 14,532 14,076 13,361 15,049 12,009
Dividends Aegon declared interim and final dividends on common shares for the years 2013 through 2017 in the amounts set forth in the following table. The 2017 interim dividend amounted to EUR 0.13 per common share. The interim dividend was paid in cash or stock at the election of the shareholder. The interim dividend was payable as of September 15, 2017. At the General
Common Share B. Dividends in US dollars are calculated based on the foreign exchange reference rate (WM/Reuters closing spot exchange rate fixed at 5.00 pm Central European Summer Time
Amsterdam and, as a result, are likely to impact the market price of Aegon’s common shares in the United States. Such fluctuations will also affect any US dollar amounts received by holders of common shares upon conversion of any cash dividends paid in euros on Aegon’s common shares.
The high and low exchange rates for the US dollar per euro for each of the last six months through February 2018 are set forth below: Closing rates Sept. 2017 Oct. 2017 Nov. 2017 Dec. 2017 Jan. 2018 Feb. 2018
The average exchange rates for the US dollar per euro for the five years ended December 31, 2017, calculated by using the average of the exchange rates on the last day of each month during the period, are set forth below: Year ended December 31, Average rate 1)
Introduction To prosper, companies must create long-term value for society and their stakeholders. It’s from this value that a company derives its license to operate2. Aegon creates value in several ways: as a provider of insurance and other financial services, and a responsible employer and business partner. Aegon also makes significant social and economic contributions through its returns to shareholders, its tax payments, its support for local communities and, most importantly, through investments for both for its own account and on behalf of its customers.
Aegon’s aim is to be a responsible corporate citizen, fully aware of the impact the Company’s businesses have on its stakeholders and on society as a whole.
Social and economic role of insurance Insurance plays a very important role in strengthening social stability and in creating the conditions necessary for long-term economic growth. Insurance protects people, property and assets and, by doing so, allows individuals and businesses to take risks, and invest and plan for the future. By pooling risk, insurance increases social solidarity between individuals, groups and generations. Insurers are also significant long-term investors in the economy, financing both public and private sectors, creating new jobs and driving business growth.
Aegon’s businesses Aegon is an international financial services, insurance, pension and asset management company. Its purpose is to help customers achieve a lifetime of financial security. Aegon’s main operations are located in the US, the Netherlands and the UK.
Aegon offers a range of financial products, including life insurance, savings and investments, retirement plans and property & casualty cover. Most of Aegon’s products and services are sold through brokers and other financial intermediaries, though direct-to-customer sales have been increasing in recent years.
Business model Please refer to page 10 of Aegon’s Strategy to view
Their relationship with the Company depends not only on the nature of each stakeholder’s organization or activities, but also the value created by that relationship (both for the stakeholder and for Aegon).
Aegon defines its stakeholders as: any individual or organization affected, or likely to be affected, by its business or that may, in turn, affect the environment in which the Company operates.
Aegon regularly engages its stakeholders, and uses their input to improve products and services, and to ensure the Company remains accountable and relevant.
Current operating environment Most Aegon businesses operate in a highly-regulated environment. This environment may be affected by a number of factors: economic, financial, regulatory, social, political and environmental. Over the past year, Aegon’s operating environment has shown signs of improvement, particularly as a result of stronger financial markets and economic growth in the
Material issues Every year, Aegon identifies a number of material issues. This is done through a formal materiality exercise, involving both stakeholders and the Company’s senior management. Material issues are those likely to have the most impact, over the next few years, on Aegon’s business, profits, reputation, and its ability to continue creating long-term value for stakeholders. Results of the materiality exercise are incorporated into Aegon’s strategy and reporting processes3. For 2017, five material issues were identified; the risks and opportunities have been mapped against each issue, and actions taken are outlined below: Non-Financial Statement Non-Financial Statement
Action taken Aegon has reduced reliance on income from interest rate spreads by expanding its fee-based businesses and scaling back its annuities books in both the US and UK. Fee-based businesses now account for approximately 45% of the Company’s underlying earnings.
Risks Competition may become tougher, not just from peers, but also new disruptors. There may be job losses as a result of automation and increased use of artificial intelligence /robotics.
Opportunities Technology can increase efficiency and help Aegon reduce operating costs. Using data will also help the Company understand its customers better, and develop new products and services to meet their needs.
Action taken Aegon is investing in emerging technologies to update its own internal processes, as well as to develop new business models, such as blockchain1). Aegon has also stepped up recruitment and training in digital to ensure the Company has the skills it needs to implement its strategy successfully.
Aging and changing demographics Influence and control Aegon has no control over changing demographics, but plays an important role in helping societies adapt to the effects of aging, particularly as a provider of pensions and other long-term savings and investment products.
Risks Longevity risk is a natural part of Aegon’s business: as people get older, the Company pays out more in pensions and other benefits. To price its products, Aegon makes assumptions about life expectancy; any underestimation has an effect on earnings and, ultimately, the Company’s capital position.
Opportunities Despite uncertainty, financial markets have performed strongly, lifting Aegon’s earnings. Uncertainty has also resulted in increased demand in some areas, particularly from customers wanting greater income security.
Action taken Aegon has stepped up its internal risk controls, and further strengthened the Company’s capital position to provide a buffer against uncertainty and financial market volatility. Where appropriate, Aegon may also hedge some of its exposure to movements in currencies and financial markets.
Employees Aegon offers employees training in new skills and opportunities for career development, as well as paying salaries and other social benefits.
Investors Investors receive returns on their investments through regular dividends or interest payments.
Wider Community Aegon invests responsibly, supports local communities through donations and volunteering, and by paying taxes, thereby helping to fund public services.
Aegon and through financial intermediaries responsible for selling the Company’s products and services).
Benefits and risks for stakeholders Aegon’s strategy aims to create additional value for each of the
Company’s main stakeholder groups: �� Customers: Quicker, easier access to products and services through increased investment in digital technologies and online business models; �� Employees: New skills and career opportunities through training and development (particularly in core areas, such as analytics and digital marketing); �� Investors: Increased efficiency and new business growth, mainly as a result of divestments, and management actions to reduce financial risk and strengthen the
Company’s capital position; �� Business partners: Further business growth through expansion of key joint ventures and distribution agreements; �� Wider Community: Better protection of the environment through targeted investments in renewable energy and green bonds; increased knowledge of the social effects of aging through the work of the Aegon Center for Longevity &
Prominent among them is the risk of job losses for employees, particularly those working in areas that can be easily automated
New jobs will be created in digital marketing, IT, analytics and a number of other specialized areas, but these will not be sufficient to compensate job losses elsewhere in the
Company5. Other risks related to implementation include financial market performance (which may reduce targeted returns for investors), and changes to the scope of Aegon’s businesses
Customers Claims, benefits & plan withdrawals €48 billion €59 billion €46 billion + Financial
Assets managed on behalf of policyholders €194 billion €204 billion €200 billion - Social
Investors Payments to investors (in the form of dividends and interest)2)
Employees Salaries and other social benefits €2.23 billion €2.29 billion €2.28 billion - Social
Spending on training and career development €14 million €15 million €14 million Social
Changes in size of workforce during year (headcount) (1,062) (2,150) 2,928 Social
Commissions paid to brokers and other financial intermediaries €2.7 billion €2.9 billion €3.3 billion - Financial
Future Fit is built on four themes: �� Agility (adapting quickly to new opportunities); �� Accountability (owning both problems and solutions); �� Acting as One (building on the ideas of others); �� Customer centricity (getting closer to customers and better understanding their needs).
These themes have been embedded into performance appraisals, training and remuneration; they also form part of Aegon’s leadership development, assessment and commitments. In addition, change plans aligned and connected with local business goals have been developed to drive the process of change in each of Aegon’s businesses. These and other actions will contribute to a culture focused on long-term value creation. The Management
To support Future Fit, Aegon is investing in new technical skills. Aegon has identified core capabilities that it believes will be critical to future performance and value creation. These new skills will be either developed internally, through training and development programs6, or brought in through the creation of new jobs or partnerships with other companies.
Company or outside. Progress with Future Fit is currently tracked through regular employee surveys (this includes awareness of Future Fit, and performance against each of the four themes).
• Total number of incidents of fraud, involving employees, intermediaries and third parties.
Incidents of fraud rose last year to 551 (compared with 196 in 2016); this was due to a reported rise in incidents involving third parties. There were no significant fines to address mis-selling. All action items under SIRA for 2016 were tracked to completion. By the end of 2017, 99% of employees had completed training on the Company’s Code of Conduct.
• Completion of internal risk assessment (SIRA, or Systematic Integrity Risk Assessment), and action items to address any gaps in performance.
Aegon’s Policy for Charitable Donations covers the Company’s objectives with regard to community investment, as well as priority areas, selection criteria, governance and approval. The policy also sets out Aegon’s approach to humanitarian aid.
Total cash donations €8.1 million (+3.8% compared with €7.8 million in 2016). This represented 0.4% of net income, down from 1.3% (due to increase in net income for 2017). Value of volunteering €0.8 million (-20% from €1.0 million in 2016).
• Percentage compliance with terms of Aegon’s Global Information Security Policy.
Women in Aegon’s workforce 53% (unchanged); women in senior management 28% (up from 27%). Please note, Aegon also tracks internally complaints made via its Ethics Line related to diversity and discrimination issues.
• Consumption of renewable energy (as percentage of overall energy use).
Aegon has a Global Health & Safety Statement. This commits the Company to upholding high health & safety standards in its offices. Aegon’s aim is to limit work-related injuries and illnesses to an absolute minimum.
Human rights Aegon’s Human Rights Policy is based on the UN Declaration of Human Rights, the core standards of the International Labor Organization and the principles of the UN Global Compact. The policy commits Aegon to upholding international human rights standards at all businesses where it has sufficient management control and, where possible, to ensure partners live up to the same standards.
• Complaints (internal and external) relating to Aegon’s or business partners’ human rights record.
Aegon has a global Ethics Line (which allows anonymous reporting), and an internal process to investigate any allegations of human rights abuse. All Ethics Line matters are reported to the Company’s Supervisory Board Audit Committee, though specific metrics on human rights are not tracked. Aegon completed a global human rights risk assessment in 2016. This assessment showed the Company’s operating environment and geographical spread created a low risk for human rights violations. Aegon’s profile did not change in 2017.
• Number of companies engaged as part of Aegon’s approach to responsible investment.
Aegon engaged 335 companies last year as part of its approach to responsible investment; of these 40% focused on social and environmental topics, the remainder on governance issues. A total of 120 companies are currently excluded from investments (these are related primarily to involvement with controversial weapons, coal mining or tobacco). Impact investments totaled €8.0 billion (up from €7.2 billion at the end of 2016).
Aegon businesses assessing suppliers for environmental, social and governance risk 51% (unchanged from 2016).
Aegon’s Pricing & Product Development Policy includes the principle of ’reasonable distribution‘. The aim is to ensure that returns are shared reasonably between customers, intermediaries and shareholders, and reduce any risk of unacceptably low returns to customers. The Pricing & Product Development Policy also contains broader market conduct principles aimed at ensuring fair treatment of customers.
Remuneration Aegon has a Global Remuneration Framework that details the Company’s approach to pay. The Framework is based on the principle of ’pay for performance‘. Variable pay for Aegon executives and other senior management is based on both financial and non-financial performance metrics (including employee engagement and customer loyalty).
Currently, 65% of Aegon’s workforce has non-financial metrics included in appraisals and variable pay.
• Number of social or environmental risks flagged as serious or material.
In 2017, no social or environmental risk exceeded Aegon’s operational risk tolerances. The Company has taken steps to further strengthen the monitoring and reporting of market conduct risks; this will continue to be an area of attention for management.
• Total taxes borne by Aegon (Americas, Netherlands, UK and Other).
Many of Aegon’s internal policies and processes are based on the relevant international standards. These include: the OECD
Guidelines for Multinational Enterprises, the UN Declaration of Human Rights, the UN Global Compact and the core standards of the International Labor Organization. In addition, Aegon is a signatory to other international agreements, including the
Extractives Industry Transparency Initiative, and the Principles for both Sustainable Insurance and Responsible Investment.
Development Goals, adopted in 2015. Details may be found in the Company’s Review.
Mutual funds Wide range of specialized mutual funds, including asset allocation,
US equity, global/international equity, alternative investments, hybrid allocation, fixed income and target date funds.
Retirement plans Comprehensive and customized retirement plan services to employers across the entire spectrum of defined benefit, defined contribution and non-qualified deferred compensation plans. Includes services to individuals rolling over funds from other qualified retirement funds or Individual Retirement
�� Mexico: Individual life, group life, and health insurance; saving plans; and investment funds.
�� Pensions: Individual pensions, including self-invested personal pensions and drawdown products, such as guaranteed income drawdown products; group pensions, sponsored by, or obtained via, an employer. Also includes the tied-agent distribution business ‘Origen’.
Asia High net worth businesses Life insurance marketed to high-net-worth individuals in Hong Kong and Singapore.
Aegon Asset Management Americas Investment products covering third-party customers, insurancelinked solutions, and Aegon’s own insurance companies.
United Kingdom Fixed income, equities, real estate and multi-asset solutions to Aegon’s own insurance companies as well as external UK and international customers.
Rest of World Asset management activities in Central & Eastern Europe and Spain & Portugal, in addition to results of the asset management holding.
Strategic partnerships �� In China, Aegon Asset Management owns 49% of the shares of Aegon Industrial Fund Management Company, a Shanghaibased asset manager.
measure is calculated by consolidating on a proportionate basis the revenues and expenses of Aegon’s joint ventures in China,
Aegon’s associates in Brazil, India, Mexico, the Netherlands and United Kingdom.
Accident and health insurance premiums 2,115 203 32 1 83 319 97 - - 2,531 (20) 2,511
Underlying earnings before tax by line of business Amounts in EUR millions 2017 2016 %
Worth business, Aegon Insights and the Strategic Partnership in China. This was in part driven by lower expenses compared with 2016 as well as favorable mortality experience, favorable persistency and favorable intangible adjustments related to anticipated investment yields.
�� Underlying earnings before tax from asset management decreased by 9% in 2017 compared with 2016 to EUR 136 million. This decline was mainly driven by lower underlying earnings before tax from the United Kingdom due to lower management fees.
Other charges Other charges amounted to EUR 68 million in 2017. The book gains on the divestments of UMG (EUR 208 million)
(EUR 231 million) were more than offset by the loss on the divestment of an additional block of life reinsurance business in the Americas (EUR 105 million), charges related to assumption changes and model updates (EUR 276 million), a provision in anticipation of a possible settlement in connection with
As a result of this benefit and the tax exempt gain on the sale of UMG, the effective tax rate on total income for 2017 amounted to 3%. The effective tax rate on underlying earnings before tax amounted to 27%.
Commissions and expenses Commissions and expenses decreased by 6% compared with 2016 to EUR 6.3 billion in 2017, mainly driven by lower sales of life and annuity products in the United States. Operating expenses increased by 3% compared with 2016 to EUR 3.9 billion in 2017.
Transamerica recordkeeping platform. New life sales declined by 8% compared with 2016 to EUR 896 million in 2017, mostly driven by lower indexed universal life and term life production in the United States and the sale of the annuity business in the United Kingdom, which more than offset the increase in sales in Asia driven by the continued success of the whole life critical illness product. New premium production for accident & health and general insurance decreased by 7% compared with 2016 to EUR 885 million in 2017, mainly as product exits and lower supplemental health sales in the United States more than offset increased general insurance production supported by a portfolio acquisition in Hungary.
Capital management During 2017, shareholders' equity decreased by EUR 0.3 billion to EUR 20.6 billion, as net income was more than offset by a weakening of the US Dollar, dividends paid to shareholders, and a reduction in revaluation reserves net of deferred tax liabilities.
The benefit from US tax reform in connection to the reduction in net deferred tax liabilities related to revaluation reserves was more than offset by the adverse impact from higher interest rates. Aegon’s shareholders' equity, excluding revaluation reserves and defined benefit plan remeasurements, amounted to EUR 17.4 billion on December 31, 2017, or 8.47 per common share. The gross leverage ratio improved to 28.6% on December 31, 2017, compared with 29.8% at the end of 2016, which was mostly the result of retained earnings. Excess cash in the holding declined in 2017 compared with 2016 to EUR 1.4 billion, as remittances from business units were more than offset by dividends to shareholders, interest payments, operating expenses and capital injections into the units, including a EUR 1 billion injection to increase the Solvency II ratio of Aegon the Netherlands.
This increase was driven by capital generation, divestments and an amendment of the conversion methodology for US Life insurance entities under Solvency II. This methodology is consistent with EIOPA’s guidance on how to calculate group solvency in the context of equivalence. It includes a conversion factor of 150% for required capital and reducing own funds by 100% RBC requirement to reflect transferability restrictions.
on December 31, 2017. The benefit to the ratio from capital generation and the divestment of the majority of the run-off businesses more than offset remittances to the Group. In the
Dividends from and capital contributions to business units Aegon’s business units remitted over EUR 1.8 billion to the Group during 2017, including EUR 1.4 billion from the
Number of employees, including agent employees 11,943 4,464 2,673 2,317 600 10,054 5,579 1,474 330 29,380
Results 2016 worldwide Aegon’s net income in 2016 improved to EUR 586 million compared with 2015. Underlying earnings before tax increased 2% compared with 2015 to EUR 1,913 million in 2016, primarily as a result of higher underlying earnings before tax from the United Kingdom. The net result in 2016 was impacted by a loss of EUR 645 million on fair value items, which was driven by accounting losses on hedging programs and underperformance of alternative investments. Realized gains of EUR 340 million in 2016 mainly related to normal trading in the investment portfolio. Other charges amounted to EUR 771 million in 2016, mainly driven by the EUR 682 million book loss on the divestment of the annuity portfolio in the United Kingdom.
�� Underlying earnings before tax from the Americas declined compared with 2015 to EUR 1,249 million in 2016. Expense reductions and an improvement in claims experience offset lower variable annuities underlying earnings before tax compared with 2015 and the impact on recurring underlying earnings before tax of the actuarial assumption changes and model updates implemented in the third quarter of 2015. �� In Europe, underlying earnings before tax in 2016 increased by 17% compared with 2015 to EUR 655 million. This was mainly driven by lower amortization of deferred policy acquisition costs in the United Kingdom related to upgrading customers to the retirement platform compared to 2015. �� In Asia, underlying earnings before tax increased in 2016 compared with 2015 to EUR 21 million as a result of increased underlying earnings before tax from the High Net
Americas (EUR 322 million). This was mainly driven by the loss on equity hedges, which were set up to protect Aegon’s capital position. Underperformance of fair value investments of EUR 226 million was primarily driven by investments related to hedge funds in the United States. In addition, the loss on interest rate swaps was the main driver of the EUR 74 million fair value losses in 2016 at the holding.
Income tax Income tax amounted to EUR 250 million in 2016, and included one-time tax benefits in the United States and the United
Mercer, and low asset management net flows. The latter were mainly driven by market insecurity following the Brexit vote and a reduction in flows from money market funds in China. New life sales declined by 12% compared with 2015 to EUR 969 million in 2016, mostly driven by lower universal life and term life production in the United States, fewer pension buy-out sales in the Netherlands, and lower sales in Asia as a result of Aegon’s strict pricing policy in a low rate environment. New premium production for accident & health and general insurance decreased by 9% compared with 2015 to EUR 954 million in 2016, mainly as a result of several product exits and a lower contribution from portfolio acquisitions.
Solvency II ratio at the end of 2016 of Aegon United Kingdom amounted to 156%.
Gains / (losses) on investments 177 (14) n.m. 157 (13) n.m.
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 5 3 48 5 3 45
New premium production accident and health insurance 818 895 (9) 725 808 (10)
Underlying earnings before tax Underlying earnings before tax in 2017 increased by 13%
�� Accident & Health underlying earnings before tax increased by 30% to USD 284 million in 2017 compared with
to USD 315 million in 2017 compared with USD 280 million in 2016, primarily driven by increased fee income compared with 2016. This was the result of higher fee revenue from higher asset balances with favorable equity market performance more than offsetting net outflows related to the conversion of the Mercer business to Transamerica’s platform. �� Underlying earnings before tax from Variable Annuities increased by 4% to USD 410 million in 2017 compared with
�� Underlying earnings before tax from Stable Value Solutions amounted to USD 99 million in 2017 compared with
Latin Americas in 2017 were more than offset by a decline in variable annuity and retirement plan deposits compared with 2016. Decreased variable annuity deposits in 2017 compared with 2016 were caused by lower market demand following the implementation of the Department of Labor Fiduciary Rule, in addition to not following competitors’ pricing changes for some products and partners deciding to offer their own variable annuities solutions. Retirement plan deposits decreased in 2017 compared with 2016, as higher recurring deposits were more than offset by lower takeover deposits. Net outflows amounted to USD 33.9 billion due to contract discontinuances from the business acquired from Mercer. These outflows were in line with guidance provided in 2017, and are driven by the conversion of customers to the Transamerica recordkeeping platform.
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 706 (268) n.m. 638 (241) n.m.
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (3) (5) 32 (3) (5) 32
Accident and health insurance premiums 2,440 2,515 (3) 2,204 2,266 (3)
Total net deposits / (outflows) (1,964) 7,682 n.m. (1,774) 6,920 n.m.
Results 2016 Americas The net income from the Americas amounted to USD 618 million in 2016. Underlying earnings before tax in 2016 were stable compared with 2015 at USD 1.4 billion. Expense reductions and an improvement in claims experience compared with 2015 offset lower variable annuities underlying earnings before tax and the impact on recurring underlying earnings before tax of the actuarial assumption changes and model updates implemented in the third quarter of 2015. Gross deposits increased to USD 45.3 billion in 2016 compared with 2015, as a result of the deposits from the defined contribution business acquired from Mercer in 2015, which more than offset lower variable annuity deposits. New life sales declined to USD 600 million in 2016 compared with 2015 due to a decline in the recruitment of new agents and Aegon’s strict pricing policy, while new premium production for accident & health insurance was down to USD 0.9 billion in 2016 compared with 2015 due to lower contribution from portfolio acquisitions and several product exits.
Net income The net income amounted to USD 618 million in 2016, as underlying earnings before tax were partly offset by losses from fair value items. Underlying earnings before tax in 2016 were stable compared with 2015 at USD 1.4 billion. Results on fair value items amounted to a loss of USD 577 million in 2016, which was primarily related to underperformance of hedge fund investments and the impact on hedging programs as a result of higher equity markets. Income before tax from run-off businesses in 2016 amounted to USD 60 million, while realized losses on investments in 2016 amounted to USD 14 million. Net impairments amounted USD 33 million in 2016, primarily related to investments in the energy industry.
Other charges of USD 111 million in 2016 mainly related to the net impact of assumption changes and model updates. These charges were mainly driven by the assumption changes and model updates in the US from long-term care, primarily resulting from experience updates for morbidity, termination rates and utilization assumptions. For the other business lines, assumption and model changes largely offset each other.
�� Underlying earnings before tax from Life decreased to USD 174 million in 2016 compared with USD 207 million in 2015. Expense savings were more than offset by unfavorable mortality, the impact of lower interest rates compared with 2015 and the impact on recurring underlying earnings before tax of the actuarial assumption changes and model updates implemented in the third quarter of 2015. �� Accident & Health underlying earnings before tax increased to USD 218 million in 2016 compared with USD 165 million in 2015, as an improvement in long-term care morbidity experience and expense savings more than offset the negative impact on underlying earnings before tax of product exits. �� Underlying earnings before tax from Mutual Funds were stable in 2016 compared with 2015 at USD 50 million. �� Retirement Plans underlying earnings before tax were up to
USD 280 million in 2016 compared with USD 261 million in 2015, primarily driven by the benefit of expense savings and increased fee income compared with 2015. Increased fee income resulted from higher average account balances driven by equity market performance, which more than offset margin pressure arising from the competitive environment on fees. �� Underlying earnings before tax from Variable Annuities declined to USD 393 million in 2016 compared with
Production Gross deposits increased by 10% in 2016 compared with 2015 to USD 45.3 billion. Higher gross deposits in Retirement Plans more than offset a decline in variable annuity deposits compared with 2015. Increased retirement plan gross deposits were mostly driven by the acquisition of the defined contribution business acquired from Mercer. Variable annuity gross deposits were down by 44% in 2016 compared with 2015 to USD 4.4 billion, mainly driven by product adjustments implemented last year in response to the low interest rate environment and lower market demand as a result of the upcoming implementation of the Department of Labor Fiduciary Rule.
New life sales declined by 10% in 2016 to USD 600 million compared with 2015, as a result of lower universal life and term life sales. Lower universal life sales resulted from a decline in the recruitment of new agents. Sales of term life products declined as Aegon did not lower its pricing in line with a number of its competitors. New premium production for accident & health insurance was down 11% to USD 0.9 billion compared with 2015, mainly resulting from a lower contribution from portfolio acquisitions and several product exits.
Through its subsidiaries and affiliated companies, Aegon provides a wide range of life insurance, long-term care insurance, and voluntary benefits including supplemental health insurance, retirement plans, recordkeeping and advisory services, annuities and other long-term savings and investment products.
Aegon in Mexico Aegon has a joint venture with Administradora Akaan S.A. de C.V.
Aegon in Canada In Canada, Aegon operates an insurance agency under the name
WFG Securities, Inc. (WFGS). WFGIA offers life insurance and segregated funds, and WFGS offers mutual funds.
Organizational structure Aegon USA Aegon USA was formed in 1989, when Aegon brought all of its operating companies in the United States together under a single financial services holding company: Aegon USA, LLC.
Transamerica Corporation, which is the holding company for the US operations. Business is conducted through its various subsidiaries. The use of the term 'Aegon USA' throughout this business overview refers to the operating subsidiaries in the United States, collectively or individually, through which
Aegon USA is a functionally organized firm that aims to meet customers' needs and create a consistent, positive experience for customers, business partners and employees. Aegon USA
Overview of sales and distribution channels Aegon USA's distribution channels are organized so as to meet customer needs and offer solutions to the third-party distributors that provide guidance to Aegon USA customers. Each channel is focused on a number of primary target market segments, which fall under four main categories: Brokerage, Partner, Institutional /
Wholesale Organizations'. These are typically non-registered products sold through independent insurance agents. This channel offers life insurance (term life, universal life, variable universal life, index universal life and whole life insurance), long-term care and supplemental health products and services through approximately 65,000 independent brokerage distributors and financial institutions that target the affluent, emerging affluent and middle markets. These products are designed for family protection, business needs and legacy planning.
Institutional/Workplace Aegon USA offers mutual funds, annuities, rollover individual retirement accounts (IRAs), life insurance (universal life, whole life and term life), supplemental health products (critical illness, cancer, hospital indemnity, supplemental medical expense, shortterm disability, vision, and dental policies), accident products, and stable value solutions in this channel. The channel focuses on the sale of products to consumers through the employer segment, also known as the workplace. Aegon USA also offers individual products through institutions including large brokerdealer research and advisory platforms and large registered investment advisers.
Wholesale Aegon USA offers annuities, mutual funds, retirement plans, life insurance and long-term care products through partnerships with independent broker-dealers that want a direct relationship with Aegon USA. The broker-dealer network is broken out into three areas: banks, wirehouses, and independent financial planners. Aegon USA's wholesalers are dedicated to one business line, but work closely together to refer advisors across Aegon USA's multiple business lines with the intent of creating deeper partnerships with advisors and becoming even more relevant in the financial lives of customers.
Other On December 8, 2016, Aegon announced that it would exit the Affinity and direct response channels of its accident and health lines, Transamerica wound-down its commitments and distribution operations throughout 2017 and will continue to do so in 2018.
Overview of business lines Life Aegon USA offers a comprehensive portfolio of protection solutions to customers in a broad range of market segments.
Aegon USA takes a wide number of factors into account that impact the cost of providing the insurance, including but not limited to: interest rates, mortality, persistency, premium funding levels, taxes, and other expenses associated with such plan.
Any changes in the monthly deduction rate reflect Aegon USA's current expectations with respect to future policy performance.
provide exposure to stocks and bonds. This exposure increases cash value return potential but also risk of additional premium requirements or lower coverage amounts over a universal life or permanent insurance policy.
The credited interest is based on the index, but with a floor and a cap. IUL offers both market-paced growth potential in the indexed accounts and downside protection. It is an appealing alternative to regular Universal Life – for which interest is credited at a fixed rate – and Variable Universal Life, in which the cash value is directly exposed to ups and downs of the market.
Premiums are generally fixed and usually payable over the life of the policy.
Accident & health Aegon USA offers supplemental health insurance and long-term care insurance as well as casualty products.
Medicare Part D prescription drug, retiree medical, and supplemental medical expense indemnity.
Casualty insurance Casualty insurance products include travel, involuntary unemployment and bike insurance products that provide protection for covered trips, unemployment and damage/loss to bicycles, respectively. Following the announcement to exit the Affinity and direct response channels, these casualty products will be discontinued after a wind-down period.
Transamerica offers mutual funds for many asset classes, including US equity, global/international equity, fixed income, and alternative investments, together with asset allocation and target date funds. Transamerica mutual funds utilize the portfolio management expertise of asset managers across the industry in a sub-advised platform using managers both affiliated and not affiliated with Aegon. These managers are subject to a rigorous selection process and are monitored through a continuous duediligence process conducted by Transamerica Asset Management.
Variable annuities Variable annuities allow the holder to accumulate assets for retirement on a tax-deferred basis and to participate in equity or bond market performance. Additional insurance guarantees, also referred to as riders, can be added to variable annuities, including guaranteed minimum death benefits (GMDBs) and guaranteed living benefits (GLBs). GMDBs provide a guaranteed benefit in the event of death. GLBs are intended to provide a measure of protection against market risk while the annuitant is alive. Different forms of GLBs are offered, such as guaranteeing an income stream for life and/or guaranteeing principal protection.
Retirement plans and IRAs Comprehensive and customized retirement plan services are offered to employers across the entire spectrum of defined benefit, defined contribution and non-qualified deferred compensation plans. Services are also offered to individuals rolling over funds from other qualified retirement funds or Individual Retirement Accounts (IRAs).
Retirement plan services, including administration, recordkeeping and related services are offered to employers of all sizes and to plans across all market segments. Aegon USA also partners with plan advisors and third-party administrators to serve their customers. Transamerica Retirement Solutions is a top ten defined contribution record-keeper in the United States based on plan participants and assets.
Stable Value Solutions Synthetic Guaranteed Investment Contracts (GICs) are offered primarily to tax-qualified institutional entities such as 401(k)
interest in Akaan-Aegon S.A.P.I. de C.V., a joint venture with Administradora Akaan S.A. de C.V., which operates as Akaan Transamerica in Mexico.
Mongeral Aegon’s insurance activities include pension product distribution, individual and group life insurance products, mutual fund management, and administrative services.
Seguradora de Vida e Previdência, a new life insurance and pensions company dedicated to providing life insurance and pension products to the Sicoob system. The joint venture began operations on March 1, 2017, and distributes products through
International mutual funds as well as diversified global investment solutions. In addition to the wide variety of investment products, Akaan Transamerica offers integrated investment solutions for individuals and companies based on their financial needs.
In 2017, the Mexican shareholders of Seguros Argos agreed to purchase Aegon’s shares for an undisclosed amount, ending the Seguros Argos joint venture. This was a mutual decision which allows both parties to pursue new opportunities and new relationships in Mexico.
(BOLI/COLI) to Wilton Re. The transaction was in line with the Company's stated strategic objective to reduce the amount of capital allocated to its run-off businesses.
Payout annuities are a form of immediate annuity purchased to provide periodic payments on an agreed schedule, in general to provide settlements of legal claims, product liability, pension payouts or other payment structured settlement. New sales of payout annuities were discontinued in 2003. BOLI/COLI
products are purchased as an efficient way for banks and corporations to finance long-term employee benefit liabilities.
The bank or corporation insures key employees, and is the owner and beneficiary of the policies. New sales of BOLI/COLI were discontinued in 2010.
Institutional spread-based business This business was put into run-off in 2009. The primary products included Guaranteed Investment Contracts (GICs), funding agreements and medium-term notes (MTNs). GICs were generally issued to tax qualified plans, while funding agreements and MTNs were typically issued to non-tax qualified institutional investors.
A number of the outstanding fixed rate funding agreements were effectively converted to a floating-rate via swap agreements when the contracts were issued. Contracts issued in foreign currencies were converted at issuance to US dollars through swap agreements when the contracts were issued to eliminate currency risk.
On December 28, 2017, Aegon divested a block of life reinsurance business that covers approximately half of the life reinsurance business Transamerica retained after it divested the vast majority of its life reinsurance business to SCOR in 2011.
As part of the transaction, the Company will dissolve a related captive insurance company in place to finance redundant reserves, generally referred to as XXX term life insurance reserves, and will redeem operational leverage supporting that captive.
Competition The US marketplace is highly competitive. Aegon USA's competitors include other large insurance carriers, in addition to certain banks, securities brokerage firms, investment advisors, and other financial intermediaries marketing insurance products, annuities and mutual funds. Aegon USA leverages long-term relationships with many institutions to offer them product lines such as life insurance, variable annuities, mutual funds, and defined contribution retirement plans.
Charles Schwab, and Lincoln National. Aegon USA's main competitors in the defined benefit segment are MassMutual,
State Insurance Regulation Aegon USA's largest insurance companies are domiciled in the
Commissioners (NAIC), a non-regulatory association that works to achieve uniformity and efficiency of insurance regulation across the United States and US territories.
Emerging state issues that may impact Aegon USA include consideration of changes to accounting and actuarial requirements for variable annuities (VA), which may reduce insurers' needs and abilities to deploy and cede specified risks to variable annuity captives. Aegon USA uses a captive for certain variable annuity business in order to facilitate effective hedging.
Guaranty Association Model Act. Among other things, the amendments will bring health maintenance organizations (HMO)
into the life and health guaranty association system and adjust guaranty fund assessments for future long-term care-related insolvencies so that 50% of such assessments will come from life/annuity accounts, with the other 50% from the combined health/HMO accounts. These amendments must be adopted into law in each state before becoming effective in each such state.
Financial Research (OFR). The FIO is authorized to review the insurance market in the US and make recommendations to
FIO is authorized to establish US insurance policy in international matters. The Federal Reserve Board also has authority to establish capital standards for systemically significant insurers, and insurers that own a federally insured bank or thrift, and to participate in the establishment of international insurance capital standards for Internationally Active Insurance Groups (IAIGs) and globally systemically significant insurers (G-SIIs). In the area of data security, there has been increased scrutiny at a state, federal and international level following a number of high-profile data breaches of financial services and other companies. As a result, numerous regulators and legislators at every level are proposing or have already passed additional legal requirements with regard to information security and data breach.
Solvency II The Solvency II requirements of the insurance and reinsurance activities of Aegon Americas have been consolidated into the Aegon Group Solvency II results through deduction and aggregation using available and required capital as per the local capital regimes. The US regulatory regimes have been granted provisional equivalence. The insurance regulatory regimes in the US, as well as Brazil and Mexico (which form part of the Aegon Americas operating segment) have been granted provisional equivalence under the Solvency II regime by the European Commission. The US insurance and reinsurance entities are included in Aegon’s group solvency calculation in accordance with local US (RBC) requirements. In 2017,
(CAL) as the Solvency Capital Requirement (SCR) equivalent, and reducing own funds by 100% RBC requirement to reflect transferability restrictions. This methodology is subject to annual review. The change in methodology leads to an increase in Aegon’s group solvency ratio by 13% points at the end of the second quarter of 2017, enhancing comparability with European peers and enhancing the quality of capital. The absolute and relative impact of this change in methodology may vary over time.
Securities Regulation A number of Aegon USA subsidiaries are subject to regulation under the federal securities laws administered by the Securities and Exchange Commission (SEC) and aspects of states' securities and other laws. Variable insurance policies, certain annuity contracts and registered management investment companies
(mutual funds) offered by Aegon USA are subject to regulation under the federal securities laws administered by the SEC
and aspects of states' securities laws. Certain separate accounts of Aegon USA insurers that offer variable life insurance and certain annuities and interests under these annuity and insurance policies are registered and subject to SEC regulation.
The financial services industry continues to operate under heightened scrutiny and increased regulation in various jurisdictions. Such scrutiny and regulations have included matters relating to conflicts of interest, cash and non-cash compensation arrangements, suitability of sales (especially to seniors), misleading sales practices, unclaimed property reporting, revenue sharing, investment management and valuation issues involving mutual funds and life insurance separate accounts and their underlying funds, sales, investments and oversight processes related to retail investors saving for retirement, variable annuity buyout offers, and share classes in mutual funds and variable annuities. Aegon USA, like other businesses in the financial services industry, is routinely examined and receives requests for information from the SEC, FINRA, state regulators and others in connection with examinations and investigations of its own companies and third-party or unaffiliated insurers, brokerdealers, investment advisers, investment companies and service providers relating to certain historical and current practices with respect to these and other matters. Some of those inquiries have led to investigations, which remain open, or have resulted in fines, corrective actions or restitution. Aegon USA continues to cooperate with these regulatory agencies. In certain instances,
Income Security Act (ERISA) (certain government and church plans are exempt from ERISA) and the federal Internal Revenue
became applicable. The compliance deadline for many parts of the DOL Rule, including the best interest contract exemption
(the BIC) and other prohibited transaction exemptions (PTEs), has however been extended until July 2019, during which time the DOL will consider further changes to the DOL Rule.
The DOL Rule significantly expands the scope of persons providing services and products to workplace retirement plans and IRAs to an impartial standard of conduct and also impacts the delivery of certain products, such as variable annuities offered in the qualified space. Impartial conduct standards include: acting in the clients' best interest; receiving no more than reasonable compensation; and making no misleading statements.
The reassessment of the DOL Rule, ordered by the President, could lead to major revisions in the DOL Rule. In addition, several lawsuits brought by industry coalitions remain pending in the appellate courts.
Legislation to enhance the retirement security of Americans, and in particular, through workplace retirement plans, is being considered in Congress. The legislation would facilitate the use of multiple employer plans (MEPs), of which Aegon USA
With respect to life insurance, pension and annuity contracts, among other changes, the Tax Cuts and Jobs Act reduced the tax deduction for life insurance reserves, limited the dividends received deduction for separate account products such as variable annuities, and increased the capitalization rates of acquisition costs for life insurance products and extended the amortization period for such deferred acquisition costs. It did not, however, make any significant changes to the tax incentives for life insurance, pensions or other retirement savings products.
Aegon USA is in the process of assessing the overall impact of the Tax Cuts and Jobs Act on its business and financial condition.
This segment reporting is based on the businesses as presented in internal reports that are regularly reviewed by the Executive Board which is regarded as Aegon’s chief operating decision maker. For Europe, the underlying businesses are separate operating segments which under IFRS 8 cannot be aggregated, therefore further details will be provided for these operating segments in this section. Management is of the opinion that presenting the information for the entire European area is beneficial to the users of the financial information as it aligns to how Aegon management is looking at the information following convergence in Europe from a regulatory standpoint and financial markets perspective.
Income statement - Underlying earnings Amounts in EUR millions The Netherlands United Kingdom
Net income Net income amounted to EUR 846 million in 2017 compared with EUR 127 million in 2016. Drivers of this improvement were Other income and a higher underlying earnings before tax.
Losses from fair value items of EUR 82 million were mainly caused by losses on equity hedging programs as a result of increased equity markets where hedges have been set up to protect against a decline in equity markets. Realized gains amounted to EUR 62 million in 2017 and reflect rebalancing of the investment portfolio, and the sale of bonds to fund remittances to the Group. Other income amounted to EUR 40 million, mainly driven by the net release of provisions following the completion of the Part VII transfers of the annuity portfolios sold to Rothesay and Legal & General.
Net income for Central & Eastern Europe Net income from Aegon’s businesses in Central & Eastern Europe
�� Underlying earnings before tax from Pensions decreased by 12% compared with 2016 to EUR 172 million, mainly due to lower investment income.
EUR 1 million in 2016 to EUR 30 million in 2017. The main drivers were favorable claims experience, in part due to management actions, and one-time claims provision releases.
�� Underlying earnings before tax from the Distribution business decreased compared with 2016 to EUR 17 million.
The decrease was caused by the sale of UMG and pressure on fee income due to increased competition.
Underlying earnings before tax for Central & Eastern Europe Underlying earnings before tax from Central & Eastern Europe increased to EUR 67 million in 2017, up from EUR 55 million in 2016. This increase was primarily driven by business growth, better underwriting results and the acquisition of a non-life portfolio in Hungary.
Commissions and expenses for the United Kingdom Commissions and expenses decreased by 14% in 2017 to EUR 757 million compared with 2017. Operating expenses increased by 39% in 2017 to EUR 546 million compared with 2016, mainly due to the inclusion of Cofunds and
New life sales declined by 9% compared with 2016 to EUR 273 million in 2017. The decline compared with 2016 was mainly the result of the sale of the annuity business in the United Kingdom. New premium production for general and accident & health insurance increased compared with 2016 to EUR 148 million in 2017.
Production for Central & Eastern Europe In Central & Eastern Europe, new life sales in 2017 increased compared with 2016 to EUR 88 million, driven by sales growth in Turkey. For the general insurance business, there were higher sales compared with 2016 amounting to EUR 64 million in 2017, reflecting the acquisition of a portfolio in Hungary.
Production for Spain & Portugal New life sales in Spain & Portugal in 2017 increased by 23%
Net income Net income amounted to EUR 127 million in 2016 compared witha loss of EUR 221 million in 2015. Drivers of the improvement were higher underlying earnings before tax, and lower losses from other charges. Other charges in 2015 included a write down of deferred policy acquisition costs in the
United Kingdom. The sale of the UK annuity portfolio was the main driver behind Other charges of EUR 658 million in 2016.
Net income for the Netherlands Net income from Aegon’s businesses in the Netherlands amounted to EUR 566 million in 2016, largely driven by underlying earnings before tax of EUR 534 million.
Results on fair value items worsened compared with 2015 to a loss of EUR 33 million in 2016 as the impact of credit spreads movements, declining interest rates as a result of a mismatch on an IFRS basis between the valuation of interest rate hedges and liabilities more than offset positive real estate revaluations.
Net income for Spain & Portugal Net income from Aegon’s businesses in Spain & Portugal amounted to a loss of EUR 2 million in 2016 as underlying earnings before tax of EUR 8 million were more than offset by income tax of EUR 8 million, losses on fair value items of EUR 1 million and losses on investments of EUR 1 million.
Underlying earnings before tax for the United Kingdom Underlying earnings before tax in the United Kingdom amounted to EUR 59 million in 2016.
�� Underlying earnings before tax from Pensions improved compared with 2015 to EUR 9 million in 2016. This was mainly driven by lower amortization of deferred policy acquisition costs in the United Kingdom related to upgrading customers to the retirement platform compared to 2015.
Commissions and expenses for the Netherlands Commissions and expenses decreased compared with 2015 to EUR 975 million in 2016. Operating expenses were down compared with 2015 to EUR 821 million in 2016 as the nonrecurrence of one-time charges in 2015 and expense savings were partly offset by investments in new business initiatives,
Commissions and expenses for Spain & Portugal Commissions and expenses increased compared with 2015 to EUR 172 million in 2016. Operating expenses increased compared with 2015 to EUR 88 million in 2016, mainly resulting from growth of Aegon’s joint ventures with Santander in Spain &
Production Gross deposits increased by 11% compared with 2015 to EUR 12.8 billion in 2016. The increase compared with 2015 was primarily driven by the growth of Knab, Aegon’s online bank in the Netherlands.
New life sales declined by 10% compared with 2015 to EUR 299 million in 2016. The decline compared with 2015 was mainly the result of the absence of large pension buyouts in the Netherlands. New premium production for general and accident & health insurance increased compared with 2015 to EUR 129 million in 2016.
Production for the Netherlands Gross deposits increased by 30% compared with 2015 to EUR 6.7 billion in 2016, mainly driven by the growth of Knab,
Production for Central & Eastern Europe In Central & Eastern Europe, new life sales in 2016 declined compared with 2015 to EUR 83 million. Sales growth in Turkey was more than offset by lower sales in Poland resulting from changes in the product offering. For general insurance business there were higher sales compared with 2015 amounting to EUR 43 million in 2016.
Overview of the Netherlands Aegon has operated in the Netherlands for more than 170 years, and is a leading provider of life insurance and pensions, with approximately 3,100 employees. Aegon the Netherlands is headquartered in The Hague, and its other main offices are in Hoofddorp, Leeuwarden and Groningen.
Organizational structure Aegon the Netherlands operates through a number of brands, including Knab, TKP Pension and Optas. Aegon is itself one of the most widely recognized brands in the Dutch financial services sector.
Overview of sales and distribution channels Aegon the Netherlands uses a variety of distribution channels to help customers assess which products and services are appropriate for their needs. In general, all business lines use the intermediary channel, which focuses on independent brokers in different market segments in the Netherlands.
In recent years, Aegon the Netherlands has invested heavily in its direct online channel, focussing primarily in 2017 on achieving a better digital self-service. Aegon usually distributes most of its products and services through intermediaries. The own advisory channel, Aegon Advisory, and the number of times that advice has been given to customers is growing rapidly. Distribution channels such as online and the contact centers generated leads for Aegon Advisory.
Aegon the Netherlands also uses specific distribution channels to help customers access its products and services. The Pensions business line includes sales and account management, which serves large corporations and financial institutions, such as company and industry pension funds.
Aegon Bank uses the direct channel primarily for savings, whereas Aegon Schadeverzekering uses an online channel and independent brokers to sell its products. Knab, Aegon’s online bank, enables customers to make their own choices about their personal financial situation, thereby helping them to achieve their financial goals. Additional services were added throughout 2017, including mortgage advice and Knab Verzekeren. Knab helps its customers to make smart decisions by providing them with a clear overview of their finances, and advises them pro-actively on products that can help them achieve their financial goals.
Overview of products per business line Pensions Aegon the Netherlands provides full-service pension solutions, administration-only services and life or disability insurances to company and industry pension funds, large companies and owners of small and medium-sized companies and employees.
Separate account group contracts are large group contracts that have an individually-determined asset investment underlying the pension contract. For older generation products, a guarantee consists of profit sharing with a contractual interest rate of 3% or 4%. At present, the contracts offered to clients hold a guarantee of 3% or market interest rate, and Aegon the Netherlands always relates guarantee cost to the current market interest rate. If profit sharing turns into a loss, the minimum guarantee becomes effective, but the loss in any given year is carried forward to be offset against future surpluses.
Aegon the Netherlands also offers products for small and medium-sized companies, both defined benefit and defined contribution products on a subscription basis. These products reduce complexity and enable Aegon to adapt the tariffs, cost loadings and risk premiums annually. Customers also have the opportunity on an annual basis to decide as to whether
Next to defined benefit subscriptions Aegon the Netherlands also offers defined contribution products on a subscription basis. Profit sharing is based on investment returns on specified funds. All positive and negative risks, such as investment risk and longevity risk, are attributed to the employees.
A decrease in the number of company and industry pension funds in the Netherlands is continuing. By law, the assets and liabilities of a terminated pension fund must be transferred to another pension provider. Aegon the Netherlands offers a pension fund buy-out product for terminating pension funds.
It takes on the guaranteed or non-guaranteed liabilities, with or without annual pension increases, and receives a lump-sum premium upfront. All risks related to the transferred benefits are carried by Aegon the Netherlands. Current market conditions lead to significantly fewer buy-outs in the Dutch market than in recent years.
Aegon the Netherlands provides a full range of pension products and services. In addition, TKP Pensioen specializes in pension administration for company and industry pension funds, and also provides defined contribution plans to corporate and institutional clients. Aegon offers defined contribution plans for small and medium-sized companies, and CAPPITAL offers the same plans for large companies.
On December 22, 2015, legislation was passed that enables companies to set up an 'Algemeen Pensioen Fonds' (General
Endowment insurance Endowment insurance includes several products that accumulate a cash value. Premiums are paid at inception or over the term of the contract.
Minimum interest guarantees exist for all generations of accumulation products written, except for universal life products, for which premiums are invested solely in equity funds.
Various profit-sharing mechanisms exist. Bonuses are either paid in cash (usually for a pension, as described below) or used to increase the sum insured. A common form of profit sharing is to set bonus levels by reference to external indexes based on pre-defined portfolios of Dutch government bonds. The bonds included in the portfolios have different remaining maturities and interest rates. Together they are considered an approximation of the long-term rate of return on high-quality Dutch financial investments.
Term life insurance policies do not include profit-sharing mechanisms. Part of the whole life insurance portfolio has profit-sharing features, which are based on external indexes or the return of related assets.
and products in the deaccumulation phase. Payout commences at a date determined in the policy, and usually continues until the death of the insured or the beneficiary. Premiums are paid at inception of the policy or during the accumulation phase of the policy. The contracts contain minimum guarantees of 3%
Variable unit-linked products These products have a minimum benefit guarantee, except for those premiums invested in equity funds, and the initial guarantee period is ten years. A certain type of unitlinked products called 'tontine plans' have a specific bonus structure. At the end of the year in which the insured dies, the policy balance is distributed to surviving policyholders that belong to the same tontine series, rather than to the policyholder's estate. A death benefit is paid to the dependents in the event that the policyholder dies before the policy matures. Aegon the Netherlands manages tontine plans, but no longer sells them.
Benelux NV on January 18, 2016, and was subsequently transferred on July 1, 2016. Following this divestment, Aegon the
Aegon the Netherlands offers its non-life insurance products primarily through direct and intermediary channels. In addition, sales and account management provides products for larger corporations in the Netherlands.
Savings and banking Aegon Bank N.V. aims to achieve its vision and ambition through two business units: Aegon Bank and Knab.
bank account. The amount saved is available after a certain period of time for specific purposes such as for a supplementary pension or paying off a mortgage.
Knab aims to be the most customer-oriented bank in the Netherlands, by informing customers about their personal financial situation and enabling them to achieve their financial goals. It reflects the core of Aegon’s purpose, offering customers both insight and an overview of their finances through its financial planning tools and alerts. Furthermore, Knab offers a wide range of banking and investment products with a focus on wealth accumulation and payment services.
Distribution (owned) The main distribution channel owned by Aegon the Netherlands was UMG, which Aegon sold in 2017. Aegon’s remaining owned distribution channel primarily consists of Nedasco, which offers financial advice to customers, including the sale of insurance, pensions, mortgage loans, financing, and savings and investment products.
Its main competitors are Achmea, ASR, NN Group / Delta Lloyd and Vivat. In addition, these markets are subject to rapid changing
dynamics, including the growing use of online distribution channels and the merger of NN Group with Delta Lloyd.
Aegon the Netherlands has been a key company in the total life market for many years, and was ranked second in 2017 based on gross premium income. The life insurance market in the Netherlands comprises pensions and life insurance.
Aegon the Netherlands is one of many insurers in the non-life market, where in 2017, ten companies accounted for 80% of the total premium income. In terms of premium income,
Aegon the Netherlands' non-life market share is around 3%, making it the nineth largest company in the market.
In the mortgage loans market, Aegon the Netherlands held a market share of approximately 9% based on new sales in 2017
In the pensions market, pension funds have faced pressure on their coverage ratios, in addition to increased regulatory and administrative requirements. In response, they have sought to reduce risks by insuring all or parts of their business. This is an opportunity for pension insurers, and Aegon is one of the leading providers of these solutions.
The defined contribution (PPI) market is set to grow significantly due to the shift from defined benefit plans to defined contribution plans and the demand for transparent and costeffective pension products. As a result, significant economies of scale will be required to effectively serve this market and the number of providers is expected to shrink within a few years. Aegon the Netherlands has identified this market as an opportunity for growth and intends to invest in maintaining its leadership position.
supervises the conduct of business of financial institutions, and the conduct of business on financial markets. The aim of the
With regard to banks, the DNB undertakes its supervisory role, in particular with respect to prudential supervision, together with the European Central Bank (ECB).
The AFM's conduct of business supervision focuses on ensuring orderly and transparent financial market processes, integrity in relations between market parties and due care in the provision of services to customers.
The Dutch supervisory authorities have a number of formal tools to exercise their supervisory tasks. These tools include the authority to request information, if this is necessary for the purpose of prudential supervision; and the power to issue formal instructions to financial institutions, to impose fines, or to publish sanctions. The DNB, as prudential supervisory authority, can, under certain circumstances, require a recovery plan, a short-term financing plan, appoint a trustee, draw up a transfer plan or
Netherlands in the Dutch Financial Supervision Act and lower level national rules, such as in particular the Decree on
Supervision Act. A large part of the Level II Solvency II rules are, however, also set out in EU regulations, which apply directly in EU member states, and as a consequence have not been implemented into national legislation, such as in the Decree on Prudential Rules under the Wft (Besluit prudentiële regels Wft).
An insurance company is neither permitted to conduct both life insurance and non-life insurance business within a single legal entity (with the exception of reinsurance), nor to carry out both insurance and banking activities within the same legal entity.
November 26, 2015, by the supervisor regulator the DNB as part of the Internal Model Application Process. Following the
Internal Model Application Process, Aegon the Netherlands made several major changes to its internal model, which have been approved by the DNB on July 12, 2017. These model changes are therefore now reflected in the solvency position of Aegon the Netherlands. In the second half of 2017,
Aegon the Netherlands received EUR 1 billion capital injection from Aegon N.V. to strengthen its capital position.
Financial supervision of credit institutions As of November 4, 2014, Aegon Bank N.V. has been subject to indirect supervision by the ECB under the new European system of banking supervision, the Single Supervisory Mechanism
States. The SSM is one of the elements of the Banking Union.
CRD IV is an EU directive, and is required to be implemented into local legislation. CRD IV has been implemented in the
The application in full of all measures under CRD IV (including any national implementation thereof in the Netherlands) has to be completed before January 1, 2019.
CRD IV. With respect to the percentage, the Dutch government has announced that it wishes to implement a leverage ratio of at least 4% for large Dutch banks, which does not apply to
European framework for recovery and resolution for (among others) ailing banks, certain investment firms and their holding companies. The BRRD was implemented in the Netherlands on November 26, 2015, by means of an amendment of the
be imposed by the national competent authority in respect of Aegon Bank N.V. in the event that its financial condition is deteriorating. These early intervention measures could pertain, among others, to a change of its legal or operational structure, the removal of (individuals within) senior management or the management body, or the appointment of a temporary administrator to work together with or replace such (individual within) senior management or management body. The national resolution authority may also under certain circumstances decide to write down or convert relevant capital instruments, including
Act, banks are required at all times to meet a minimum amount of own funds and eligible liabilities (MREL), expressed as a percentage of the total liabilities and own funds. The competent resolution authority will set a level of minimum MREL on a bankby -bank basis based on assessment criteria due to be set out in technical regulatory standards.
Organizational structure Aegon UK PLC (Aegon UK) is Aegon’s holding company in the United Kingdom. It was registered as a public limited company at the beginning of December 1998. The leading operating subsidiaries, which all operate under the Aegon brand, are: �� Scottish Equitable PLC; �� Cofunds Ltd; and �� Aegon Investment Solutions Ltd.
The main office of Aegon Ireland PLC (Aegon Ireland) is located in Dublin, Ireland, with a branch office in Frankfurt, Germany.
Investment Only capability, as well as assets under administration of around GBP 12 billion. This transaction will be finalized in 2018, once the legal ownership has been transferred through a so-called 'Part VII transfer'.
On April 11, and May 23, 2016, respectively, Aegon announced the divestment of its own annuity portfolio to Rothesay Life on June 30, 2017, and Legal & General on September 22, 2017, following the Part VII transfers. These transactions were consistent with the Company's ambition to free up capital from non-core businesses, and the capital position of the
Company improved as a result of the transactions. Aegon has approximately GBP 0.7 billion annuity liabilities remaining through an inward reinsurance transaction.
Intermediaries that use Cofunds will be upgraded to an enhanced version of Aegon’s platform, with approximately 79,000 customer upgraded in December.
'upgrade' existing customers to the digital solutions platform have enabled Aegon to create the largest UK platform with approximately GBP 117 billion assets under administration, and provide broad expertise across the savings, investments and pensions markets.
Overview of sales and distribution channels In the United Kingdom, Aegon has two main distribution channels: retail and workplace intermediaries. These are supported by Aegon UK's customer capability, which offers employees and advisor clients a market-leading portal to view and manage their money. Aegon UK's award-winning platform supports these channels in an integrated way, making it easier for customers to move between products and channels.
Retail channel Aegon UK offers a comprehensive proposition to intermediaries and strategic partners underpinned by technology that drives efficiency and supports the profitability of advisor's businesses.
the on-platform guaranteed drawdown product, and dealing with changing circumstances. It also provides valuable online reporting and lifestyle tools that enable advisors to demonstrate their professionalism and display their charges for advice in a transparent way. In addition to the Self Invested Pension Plan –
which provides a range of pre-and post-retirement investment options for high-net-worth customers (including insured funds and a wide range of open-ended investment companies) –
Aegon UK offers two distinct versions of the proposition targeted at distinct market segments: �� A 'fund supermarket' service, which includes multiple wrapper choices, fully open architecture fund choice and digital advisor/ customer self-service access; and �� ‘One Retirement’, a standalone pension accumulation and drawdown product, designed to be a single-point solution for customers that do not have a broader set of needs.
Services that Aegon UK offers include: �� ‘Workplace Aegon Retirement Choices’, a comprehensive pension proposition that manages workplace pensions for employers in a seamless and streamlined way, enabling them to offer employees a choice of savings wrappers; �� Employers’ auto-enrolment obligations, which are supported through Aegon’s SmartEnrol capability; �� Support for the governance of the workplace pension scheme, which is offered through the sophisticated analytics of Aegon’s Smart Governance; and �� Employee access to Retiready, which enables employers to cater for all levels of employee investment knowledge and confidence, in addition to moving with their employees throughout their working life.
The strength of Aegon’s proposition has historically been in the small- to medium-sized employer market. The acquisition of BlackRock's defined contribution pension business expanded
Customer capability Aegon’s Retiready digital retirement planning service is designed to help customers understand how 'on track' they are for the retirement they want, and to support them in taking action.
(guaranteed) contracts through Aegon UK's retail advisor channel since 2006. In Germany, Aegon Ireland has its own branch office in Frankfurt and has a number of distributors and a customer service team.
Solutions to ensure an enhanced customer experience, a more engaged relationship, and lower cost to serve.
These propositions include older style group pensions, individual pensions and with-profits policies.
Products Aegon UK's main product focus is on savings, investments, pensions and protection products.
Aegon UK operates, and market dynamics are continuing to evolve. While competition can be seen partly in terms of product features and benefits, it is also increasingly played out in terms of establishing Aegon UK's proposition as the primary or secondary 'platform' used by intermediaries to manage their clients assets, or as a preferred partner for EBCs advising corporate clients.
(which requires all employers to offer pensions to their employees) is driving greater numbers of customers to save in a pension. The next step will be for legislative minimum contributions to increase.
The UK vote to leave the European Union (EU) on June 23, 2016, has implications for the UK. Much financial regulation currently applicable in the UK derives from EU legislation. This regulation will remain in force until any changes are made, which will be a matter for the UK government and the UK Parliament. Aegon UK
must therefore continue to comply with UK law, including those that derive from EU law and continue with implementation plans for legislation that is anticipated to come into effect.
The FCA has acknowledged that the longer term impacts of the decision to leave the EU on the overall regulatory framework for the UK will depend, in part, on the relationship that the UK seeks with the EU in the future.
Aegon Ireland operates on an FOE basis in Germany (with a branch office in Frankfurt) and on an FOS basis in the UK, selling life insurance products in Class III (contracts linked to investment funds) and Class I (life insurance and contracts to pay annuities), excluding contracts written in Class II
Financial supervision of insurance companies The European Union Insurance Directives referred to collectively as Solvency II are incorporated into UK law. The Solvency II
directives came into effect on January 1, 2016. The directives are based on the 'home country control' principle, i.e. an insurance company with a license issued by the regulatory authorities in its home country is allowed to conduct business in any country of the European Union, either directly or through a branch. Separate licenses are required for each branch of the insurance company where it conducts business.
The regulatory body that issued the license (the PRA in the UK)
may also make recommendations for improvements, and may, ultimately, withdraw an insurance company's license.
PRA as part of the Internal Model Application Process, with an additional Major Model Change approved in July 2017, which added Currency Risk and Operational Risk into the Internal Model.
Részvénytársaság (Aegon Hungary Composite Insurance Co.); �� Aegon Towarzystwo Ubezpieczeń na Życie Spółka Akcyjna
Private S.A (Aegon Romania Pension Administrator Co.); �� Aegon Pojišťovna, a.s (Aegon Czech Life); �� Aegon Životná poisťovňa, a.s. (Aegon Slovakia Life); and �� Aegon, d.s.s., a.s (Aegon Slovakia Pension Management Co.).
In Poland and Romania, unit-linked and different types of traditional life insurance products are distributed by tied agents and bank partners respectively. In Turkey, the most important sales channels are insurance brokers and tied agents, in addition to bank partners, which distribute savings and term life insurance products. As Aegon Hungary Insurance is a composite insurance entity, owning several subsidiaries that also operate in the financial services sector, the Group’s products are marketed via a broad range of channels. The most important of these are tied agents and insurance brokers, in addition to bank partners, call centers, key account managers and its online channel.
Preferred life is an individual term life insurance product that offers insurance protection. The product distinguishes between whether an individual is a smoker or non-smoker, and uses standard and preferred pricing dependent on the respective health of customers.
Group life contracts are renewable each year and carry optional accident and health cover.
In Hungary, Aegon offers a wide range of life insurance products: including term life, whole life, group life insurance, accidental life and traditional saving type products, in addition to unitlinked policies, which are frequently accompanied with riders.
– with additional financial support in the event of, for instance: having an accident, becoming disabled, or being hospitalized.
In Romania, Aegon undertakes life insurance business via a branch of Aegon Poland Life Insurance Company.
Mortgage Finance Company suspended the acceptance of new loan applications for an indefinite period of time.
Poland and Romania. In the voluntary pension market, Aegon is active in Hungary, Turkey and Romania.
In terms of assets under management, Aegon’s private pension funds in Poland, Slovakia and Romania, and its voluntary pension fund in Hungary, are significant market players in the respective countries. In terms of numbers of members, Aegon has a significant market presence in Poland, Romania, and Hungary.
Nordea's Pillar 2 pension fund in Poland. The deal brought economies of scale and helped further improve the quality of services that Aegon provides to its customers. By end of May 2017, the pension fund under Aegon PTE S.A.'s management had assets of PLN 6.93 billion (EUR 1.6 billion)
and 890,000 members, whereas the fund managed by Nordea had assets of PLN 8.06 billion (EUR 1.9 billion) and 980,000 members. The merger of the two funds created the fourth largest Pillar 2 pension fund in the market10.
Non-life Aegon Hungary offers non-life cover (mainly household and car insurance, in addition to some wealth and liability industrial risk and travel insurance). Aegon is the leading insurance company in the Hungarian household market11. In recent years, margins on non-life insurance in Hungary have been attractive. Moreover, household insurance provides considerable opportunities for the cross-selling of life insurance.
As part of Aegon’s regional expansion, Aegon Hungary has operated branch offices selling household insurance policies in Slovakia since 2010 and Poland since 2011.
Competition In 2016, Aegon was the third largest life insurance provider in Hungary, based on annual standardized premium income, and the third largest provider in the non-life insurance market12.
Regulation and supervision In the European Union, a single insurance company may only be licensed for and conduct either a life insurance business or a non-life insurance business – not both. In Hungary, however, insurance companies established before 1995 are exempt from this rule. This exemption therefore applies to Aegon Hungary, which is a composite insurance company.
State supervision and oversight of the insurance industry is conducted by the following bodies and institutions: �� The Central Bank of Hungary (MNB); �� National Bank of Slovakia (NBS); �� Czech National Bank (CNB); �� Polish Financial Supervisory Authority (KNF); �� Authority for Financial Supervision (ASF) (Romania); and �� Undersecretariat of Treasury (Turkey).
In addition to legal regulation, insurance companies are members of a number of self-regulatory groups in their respective countries. These self-regulatory groups are the main forums for discussion among insurance companies. Their specialized departments (for example, actuarial, financial, and legal) meet periodically.
supervised by the MNB. Slovakia's pension market is regulated by the Pension Asset Management Companies and Respective
Notices Act (43/2004). The private pension business is under the supervision of the National Bank of Slovakia
Act (2013) stipulates the foundation, operation and reporting obligations of the country's financial institutions
Aegon Spain also operates in Portugal through a long-term partnership with Banco Santander, S.A., offering both life and general insurance products.
Organizational structure Aegon’s main subsidiaries and affiliates in Spain & Portugal are: �� Aegon España S.A.U. de Seguros y Reaseguros; �� Aegon Administracion y Servicios A.I.E.; �� Aegon Activos A.V, S.A.; �� Aegon Mediación, S.L.U.; �� Santander Generales Seguros y Reaseguros S.A. (51%); �� Santander Vida Seguros y Reaseguros S.A. (51%); �� Aegon Santander Portugal Vida-Companhia de Seguros de Vida S.A. (51%); �� Aegon Santander Portugal Não Vida-Companhia de Seguros
Overview of sales and distribution channels Aegon Spain´s subsidiaries and affiliates distribute their insurance products nationwide through partner branches and its own sales network. The main distribution channel in the Spanish market is bancassurance, which accounts for 73% of life sales, whereas brokers and direct customers account for 22% and 5%
These products are developed through two insurance entities: Santander Vida for pure life risk products and health; and
S.A. owns the remaining 49% of each entity. On December 28, 2016, Aegon Spain and Banco Santander further extended their partnership agreement to distribute health insurance products developed by Santander Vida, with sales commencing in 2017.
Aegon Spain and Liberbank Liberbank, S.A. has a presence nationwide, with a special focus on retail markets in a number of Spanish regions (Asturias,
Aegon Spain and Liberbank, S.A. are both shareholders of Liberbank Vida y Pensiones, Seguros y Reaseguros, S.A..
Aegon Spain own network Aegon Spain’s own network offers life insurance, health insurance, pension products and mutual funds. It uses two main distribution channels: its own network of brokers and agents for the products of its full subsidiaries, which comprises 90% of the total; and a direct channel, which comprises 10% of the total.
Protection business includes primarily life, accident and disability cover, and products can be complemented with critical illness, income protection and other riders. Customers' saving needs are serviced by Aegon Spain through its targeted offering of universal life, unit-linked and pension funds. Both savings and protection products are distributed through the channels mentioned above. In addition, Aegon Spain distributes mutual funds from third parties.
The gross premium written contribution in 2016 for each of Aegon Spain's business lines was 54% for life insurance, 20%
Spain's traditional life, unit-linked variable life and pension products, the major competitors are retail bank-owned insurance companies. The life market is dominated by Grupo VidaCaixa, with a 33% market share, and Zurich, with a 10% market share, followed by Mapfre, with a 7% market share. Aegon
With respect to the life insurance Portuguese market, Fidelidade and Ocidental Vida are the main players with a combined market share in 2017 of 53.1% (based on issued premiums of insurance contracts and deposits of financial products).
Spanish insurance industry. Spanish regulations incorporate all requirements from the relevant EU directives.
on a monthly basis (issued premiums and claims costs per line of business) and more extensively on a quarterly basis.
Government bonds compared with the German Bund was very stable. From a risk perspective, Aegon’s business in Spain has no exposure on its balance sheet to regional government debt or regional banks. From a business perspective, the total business of Aegon Spain in Catalonia is moderate, representing around 10 to 12% of Aegon Spain’s total business. At the time of publication of this annual report, impacts have not been significant, although it remains difficult to assess any long-term business impact.
Solvency II As of January 1, 2016, under Solvency II requirements,
Regularly risk scenarios are tested in order to check the solvency resilience and liquidity limitations of Aegon Spain, the results of which were satisfactory in all cases, and Aegon España and all Aegon entities in Spain are expected to remain adequately capitalized and to have sufficient liquidity.
Results 2017 Asia Amounts in USD millions Amounts in EUR millions
Gross deposits (on and off balance) 2017 2016 % 2017 2016 %
Net deposits (on and off balance) 2017 2016 % 2017 2016 %
Results 2017 Asia Net income in 2017 amounted to USD 6 million, which was mainly driven by improved underlying earnings before tax and a one-time tax benefit from the write-down of deferred tax liabilities as a result of US tax reform. Underlying earnings before tax improved to USD 55 million in 2017 compared with 2016 mainly due to higher underlying earnings before tax from the High Net Worth businesses, Aegon Insights and China. Gross deposits decreased to USD 250 million in 2017 compared with USD 337 million in 2016, primarily due to sales of the recently launched foreign currency variable annuity being more than offset by lower Japanese Yen-denominated variable annuity sales. New life sales amounted to USD 170 million for 2017, mainly related to the critical illness product in China and the new direct sales strategy implemented in India.
Net income Net income improved from a loss of USD 14 million in 2016 to USD 6 million in 2017, mainly due to increased underlying earnings before tax in the High Net Worth business,
Underlying earnings before tax In Asia, underlying earnings before tax improved by 136%
compared with 2016 to USD 55 million in 2017. �� Underlying earnings before tax from the high net worth businesses in Hong Kong and Singapore increased to USD 67 million in 2017, compared with USD 61 million in 2016. This increase was mainly the result of favorable mortality experience and favorable intangible adjustments related to anticipated investment yields compared with 2016. �� Underlying earnings before tax in Aegon Insights increased to USD 10 million in 2017 compared with USD 1 million in 2016 due to an accident & health reserve release, an expense release in Indonesia, and lower operating expenses as a result of discontinuing the outbound telemarketing business.
USD 21 million in 2017 compared with USD 39 million in 2016 mainly a result of favorable persistency and lower new business related expenses. Following the strong results in China throughout 2017, Aegon THTF is now profitable.
Commissions and expenses Commissions and expenses remained stable in 2017 compared with 2016 at USD 257 million. Operating expenses increased by 9% in 2017 compared with 2016 to USD 176 million.
�� New life sales in Strategic Partnerships were up 60% to
Net deposits (on and off balance) 2016 2015 % 2016 2015 %
New premium production accident and health insurance 19 31 (40) 17 28 (40)
Results 2016 Asia Net loss in 2016 amounted to USD 14 million, which was mainly driven by the increase in ownership from 26% to 49% in Aegon’s strategic partnership in India compared with 2015, hedging losses in the variable annuity business in Japan, and relatively high profits for tax purposes and limited tax benefits on losses. Underlying earnings before tax remained stable in 2016 compared with 2015 mainly as the result of higher underlying earnings before tax from the High Net Worth business offset by increased ownership in India. Gross deposits decreased to USD 337 million in 2016 compared with USD 453 million in 2015 primarily due to a pricing change on variable annuities in Japan to maintain profitability of new sales. New life sales for 2016 of USD 142 million mainly related to universal life products sold out of Hong Kong and Singapore.
Net income Net loss in 2016 amounted to USD 14 million. Net losses improved from a loss of USD 33 million in 2015 mainly due to the non-recurrence of one-time charges in 2015 of
USD 68 million primarily the result of a more detailed approach to modeled reinsurance premiums. Fair value losses increased compared with 2015 due to hedging as a result of the variable annuity business in Japan. The non-recurrence of charges and fair value losses were partially offset by higher income tax compared with 2015 due to the strong performance of Asia's high net worth business out of Hong Kong and Singapore and limited tax benefits on losses in strategic partnerships.
Commissions and expenses Commissions and expenses decreased by 4% in 2016 compared with 2015 to USD 257 million driven by lower production levels.
�� In the high net worth businesses in Hong Kong and Singapore, new life sales were down 42% to USD 88 million in 2016 compared with USD 151 million in 2015. This decrease was mainly the result of lower sales of universal life products as Aegon adhered to its strict pricing policy in the low interest rate environment.
�� New life sales in Strategic Partnerships were up 31% to
USD 54 million in 2016 compared with 2015 due to a strong increase from sales in China mainly driven by the continued success of the whole life critical illness product and successful launch of a universal life product in the bank channel. The increase in China in 2016 compared with 2015 was partly offset by the strategic decision to exit the agency distribution channel in India in order to move to a digital distribution model.
New premium production in Asia's accident & health declined 40% in 2016 compared with 2015 to USD 19 million, driven by the rationalization of unprofitable sales campaigns in Aegon Insights, especially in Indonesia.
Overview of Asia Aegon Asia operates through three major joint ventures in India, Japan and the People's Republic of China (hereafter referred to as 'China'), in addition to several wholly-owned subsidiaries, including Aegon’s businesses in Hong Kong and Singapore that serve the high-net-worth segment.
THTF is licensed to sell both life insurance and accident and health products in China. The company has expanded its network of offices and business in China since 2003. Having obtained 12 provincial licenses, its geographic presence provides access to a potential market of over 650 million people, primarily in the coastal provinces of eastern China.
Since 2009, Aegon has been operating in Japan through a joint venture with Sony Life, one of Japan's leading insurance companies, named Aegon Sony Life Insurance Co., Ltd.
Wholly-owned subsidiaries Transamerica Life Bermuda and its predecessors have been serving customers in Asia for over 80 years. TLB today primarily serves the wealth preservation and wealth transfer needs of the high-net-worth market segment in Asia through its offices in Hong Kong and Singapore, and Europe through its office in Bermuda.
In India, Aegon Life now distributes its products predominantly via its e-sales channels utilizing its own website and e-commerce partners, as well as its own direct sales force.
Aegon Sony Life in Japan has two distribution channels: the Sony Life Planner channel (operated by Sony Life), with over 4,900 agents; and the bank distribution channel, which consists predominately of mega banks and regional banks.
TLB distributes its products to high-net-worth consumers exclusively through relationships with local and international brokers, in addition to private banks.
Overview of business lines High-net-worth businesses TLB's main products consist of USD denominated Universal Life and USD Term Life Insurance plans for the high-net-worth market segment. Universal Life is TLB's key product to meet the needs of high-net-worth individuals for wealth preservation and wealth transfer to successive generations. In addition to the Universal
Strategic partnerships In China and India, Aegon provides a broad range of life insurance products including unit-linked, universal life, and traditional life products. Aegon also offers variable annuities in Japan through
In China, Aegon THTF's agency, broker, and direct marketing channels primarily sell whole-life critical illness products, while the agency channel and direct marketing channel also offer participating endowment products and personal accident products respectively. Regular premium critical illness, participating annuity and single premium universal life are the key products offered in the bancassurance channel, while the digital channel is currently focused on offering protection products.
through all channels. Non-life sales are, however, concentrated in the group channel, where the main products are group medical policies.
AUD. These products typically provide a guaranteed minimum death benefit, together with a lifetime withdrawal benefit and an accumulation benefit with or without a minimum guarantee.
Aegon THTF ranked fifty-fifth among life insurance companies and fifteenth among foreign life companies in China. Aegon THTF's market share among foreign-invested companies was 1.4% in terms of total premium.
India: Aegon Life There were 24 licensed life insurers in India at the end of November 2017. While the state-owned Life Insurance
Bermuda. The local branches of both Sun Life and Manulife, in addition to domestic insurers such as AIA, Great Eastern Life and FWD, are however increasingly developing very competitive offerings for the same market segment.
Established by the government of India, it safeguards the interests of the country's insurance policyholders.
IRDAI during 2017 included the issuing of regulations with regards to: the registration of Insurance Marketing Firms; the payment of commission, remuneration or rewards to insurance agents; insurance web aggregator; the outsourcing activities by the Indian Insurers; and the role, responsibilities and appointment of Appointed Actuaries. IRDAI has also issued
Japan: Aegon Sony Life The Financial Services Agency (FSA) is the government agency that supervises all insurance companies in Japan. New products and major product amendments are filed with, and approved by, the FSA, in addition to general policy provisions, statements of business procedure, and pricing and valuation.
Customer-Oriented Business Conduct” to help financial accumulation of household financial assets, and appropriate rules regarding markets and financial instruments exchanges.
Many insurers, including Sony Life, have published their own principles and the measures that they have taken in response to the FSA principles.
Monetary Authority, the integrated regulator of the financial services sector in Bermuda. TLB's Asia branches are located in Hong Kong and Singapore. The insurance industry in Hong
Companies Ordinance in 2015 provided for the establishment of a new independent insurance authority (IA, which came into operation during June 2017). The new IA will take over the regulation of insurance companies and insurance intermediaries from the three Self-Regulatory Organizations (SROs) through a statutory licensing regime in the next two to three years.
Asia: Aegon Insights A broad range of regulations apply to Aegon Insights' activities.
Asia Solvency II requirements became effective for Aegon Group as of January 1, 2016. Aegon’s Asian insurance activities are included in the Aegon Group Solvency II ratio through Deduction
Other income / (charges) (49) (2) n.m. Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 90 145 (38)
Results 2017 Aegon Asset Management Net income in 2017 decreased compared with 2016 to EUR 48 million as a result of lower underlying earnings before tax compared with 2016 and a provision taken for a potential settlement with the SEC. Lower underlying earnings before tax in 2017 compared with 2016 was mainly the result of lower management fees in the United Kingdom. Gross flows in other third-party asset management increased by 32% to EUR 61 billion in 2017 compared with 2016, mainly driven by higher gross inflows in the US, the Netherlands and Strategic partnerships.
The Company notified the SEC and cooperated fully with the investigation. Following the discovery of the errors,
EUR 30 million level in 2016. Lower expenses in 2017 compared with 2016 were more than offset by lower management fee income.
�� Rest of World underlying earnings before tax in 2017 decreased by EUR 3 million compared with 2016 to a loss of EUR 7 million.
EUR 53 million in 2017. Aegon’s Chinese asset management joint venture AIFMC had lower performance fee income in 2017 compared with 2016. This was partly offset by higher underlying earnings before tax from French joint venture
Americas and the United Kingdom as a result of continued strong expense control and favorable currency movements.
These were partly offset by restructuring charges and higher one-time expenses in the Netherlands. The cost/income ratio in 2017 increased by 2 percentage points to 77% compared with 2016, as lower expenses were more than offset by lower revenues in 2017 compared with 2016. Annualized operating expenses as a percentage of average assets under management increased in 2017 compared with 2016 by 1 basis point to 14 basis points.
Net other third-party inflows in 2017 increased compared with 2016 to EUR 6.9 billion, as higher net flows in Strategic partnerships and the Americas were partly offset by net outflows in the United Kingdom and lower net inflows in the Netherlands.
Other income / (charges) (2) (1) (16) Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 145 172 (15)
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (19) (19) 3
Commissions and expenses 486 487 of which operating expenses 451 444 2
1 Rest of world include intragroup eliminations from internal sub-advised agreements
Net income Net income in 2016 declined 20% compared with 2015 to EUR 97 million. This was mainly driven by lower underlying earnings before tax in 2016 compared with 2015.
�� Underlying earnings before tax from the United Kingdom amounted to EUR 30 million in 2016, a decrease from the EUR 32 million level in 2015. Lower expenses in 2016 compared with 2015 were more than offset by adverse currency movements and lower fee income mainly resulting from the sale of the majority of the UK annuity book. �� Rest of World underlying earnings before tax in 2016 remained stable compared with 2015 at a loss of EUR 4 million.
�� Underlying earnings before tax from Strategic Partnerships decreased with EUR 11 million compared with 2015 to
EUR 54 million in 2016. This was the result of lower performance fee income at AIFMC compared with 2015 and adverse currency movements, partly offset by higher underlying earnings before tax in 2016 compared with 2015 related to the inclusion of La Banque Postale Asset Management.
Commissions and expenses Operating expenses increased by 2% in 2016 compared with 2015 to EUR 451 million. This increase was mainly the result of higher employee related expenses in 2016 compared with 2015 due to increased headcount to support growth strategy and the inclusion of costs related to the partnership with
La Banque Postale Asset Management, which was only partly offset by currency movements. As a result of higher expenses and lower net income in 2016 compared with 2015, the cost/
income ratio in 2016 increased by 3 percentage points to 75%
Strategic direction and global oversight of business performance is executed by the Global Board of Aegon Asset Management, which has both global and local roles and responsibilities.
Management B.V and Kames Capital plc have been governed by a joint European Executive Committee. The-day-to-day management of these two entities is delegated to the European
liabilities. As a rule, general account assets are managed in a closed architecture structure, and the main asset classes are fixed income and mortgage loans. Furthermore, Aegon Asset
The majority of third-party business sourced through affiliates consists of funds sold by Aegon insurers through which the policyholder's return is determined by the investment return of the fund. These funds have various legal structures, and are usually managed against a benchmark or peer group target.
The main asset classes include fixed income, equities, real estate, mortgage loans and alternatives. In the United States and the United Kingdom, a significant element of Affiliate Sales
Management distributes its investment strategies directly to its clients. The wholesale businesses typically sell collective investment vehicles (mutual funds) to customers through wholesale distributors and independent intermediaries.
The main asset classes are fixed income and equities, and the funds are usually managed against a benchmark or peer group target. The institutional businesses typically sell tailored services to large corporations or pension funds. Aegon Asset Management employs a full range of asset classes, and manages the funds against objectives, targets and risk profiles agreed with clients.
In the United States, Aegon Asset Management focuses on offering investors fixed income, balance sheet solutions and real estate-related strategies. It works directly with pension funds, endowments and foundations as well as investment consultants within the institutional market. In the wholesale market, Aegon Asset Management works as a sub-advisor with its insurance company affiliates and other partners in order to offer competitive and relevant strategies for its client base.
It also works with consultants and other partners to offer products to third-party institutions. Primary competitors in the United States include AllianceBernstein, BlackRock,
In the Netherlands, Aegon Asset Management provides a wide range of investment strategies and solutions to institutional and wholesale clients, and through its affiliated insurance company to retail clients. In the third-party institutional market, it competes with domestic and global asset managers as well as with fiduciary and balance sheet managers. Competition continues to be strong in the institutional market due to both the ongoing consolidation of pension funds and the growing service requirements of pension fund clients. Primary competitors in the Netherlands include BlackRock, JP Morgan, Nationale
In mainland China, Aegon Industrial Fund Management Company focuses on Chinese equity, fixed income, and money market strategies. It competes against a wide range of locally-based asset managers including Alibaba's Yuebao fund China Universal
In France, La Banque Postale Asset Management competes for private investors through La Banque Postale's retail banking network, with a focus on new multi-asset strategies.
(conduct of business supervision) and the DNB (prudential supervision) for Dutch-based entities, the Financial Conduct
Commission (CFTC) for the US-based entities. Kames Capital is also regulated by the SEC for its activities in the US market.
United States do not fall under the responsibility of Aegon Asset
Management Holding B.V., as these entities are subsidiaries of Transamerica Corporation.
Solvency II Solvency II requirements became effective for Aegon Group as of January 1, 2016. The EU-domiciled asset management activities are accounted for in the Group Solvency II calculation using the requirements set by the Capital Requirements
Directives IV (CRD IV). Non EU-domiciled activities are accounted for using local capital requirements.
Management as of January 3, 2018, and the Company adheres to the regulation. In line with most of its peers, the European
strategy, a number of other ERM policies govern concentration risk, liquidity risk, use of derivatives and securities lending and repos. As Aegon uses derivatives extensively, collateral calls can be significant depending on market circumstances. Liquidity is managed at legal entity level in the first instance, and the large
Infrastructure Regulation (EMIR) derivative regulations has led in recent years to Aegon transitioning a significant proportion of formerly over-the-counter positions to clearing houses.
Collateral and margin requirements have also increased, introducing the potential for liquidity strain, which has to be carefully managed. Market volatility can cause collateral requirements to increase rapidly, which means that it is important to have sufficient high quality collateral available at all times.
Program’ is a largely option-based semi-static hedge that provides protection for distributable earnings against a sharp fall in equity markets.
Across the CEE units, ALM focuses on asset-liability matching in terms of duration and liquidity.
External reinsurance counterparties are in general major global reinsurers (approximately 60% of reinsurance premium) with more local reinsurers ensuring a balance between regional and global considerations. The key way in which reinsurance is used and the role that it plays by region is as follows: Corporate Center and Blue Square Re Global coordination takes place through Aegon Corporate Center working closely with local business units. Regular calls are conducted with reinsurance partners to manage relationships.
also oversees Aegon’s Reinsurance Use Policy and facilitates approval of transactions if counterparties are not pre-approved.
Americas Aegon Americas manages its life insurance exposure through various types of agreements with reinsurers. It relies heavily on quota-share and excess-of-loss reinsurance arrangements.
For property insurance, motor third-party liability insurance, and general third-party liability, ‘excess of loss’ contracts are in place.
Risk management General As an insurance group, Aegon manages risk for the benefit of its customers and other stakeholders. As a result, the Company is exposed to a range of underwriting, operational and financial risks. Aegon’s risk management and internal control systems are designed to ensure that these risks are managed effectively and efficiently in a way that is aligned with the Company's strategy.
Aegon is able to accept risk with the knowledge of potential returns and losses.
Risk strategy and risk tolerance The formulation of the risk strategy starts with the principle that taking a risk should be based on serving a customer’s need.
Aegon wants to keep on the balance sheet, and the risks Aegon would like to avoid. Aegon’s tolerance for risk is established in order to assist management in carrying out Aegon’s strategy using the resources available to Aegon Group. Aegon has defined four areas where risk tolerance plays an important role: �� Financial strength: ensure Aegon meets long-term obligations to policyholders, thereby enabling Aegon to compete in key markets as a financially strong global insurer; �� Continuity: ensure that Aegon remains solvent and liquid even under adverse scenarios; �� Culture: encourage strong risk awareness by stressing the Company’s low tolerance for operational risk.
This helps to improve operational excellence and ensures that the Company is fair in its treatment of customers and other stakeholders; and �� Risk balance: manage the concentration of risk and encourage risk diversification within Aegon.
Risk identification and risk assessment Aegon has identified a risk universe that captures all known material risks to which the Company is exposed. An Emerging
Risk process is in place to ensure on-going appropriateness of both the risk universe and the risk management framework.
Risk exposures are compared with the limits as defined by Aegon’s risk tolerance statements. Reporting also includes risk policy compliance and incident and compliance reporting.
Finally, the main risks derived from Aegon’s strategy and the day-to-day business are discussed, as well as forward looking points for attention. If necessary, mitigating actions are taken and documented.
Risk universe and risk appetite The risk factors described in this Annual Report (see risk factors in the ‘additional information’ section) generally have an impact on financial markets (e.g. interest rates and share prices),
underwriting assumptions (e.g. longevity and policyholder behavior) or result in operational risk events (e.g. fraud and business disruption). Aegon’s risk universe is structured to reflect the type of risk events to which the Company is exposed.
Operational Operational risk results from operational failures or external events, such as processing errors, legal and compliance issues, natural or man-made disasters, and cybercrime.
Most significant risks The most significant risks Aegon faces are changes in: �� Financial markets (particularly related to income credit, equity and interest rates), and �� Underwriting risk (particularly related to longevity and policyholder behavior).
The focus is on high quality securities with low expected defaults because Aegon has a low appetite for default risk.
Currency exchange rate risk As an international company, Aegon is exposed to different currencies, and therefore to movements in currency exchange rates. Foreign currency exposure exists primarily when policies are denominated in currencies other than the issuer’s functional currency. Currency risk in the investment portfolios backing insurance and investment liabilities is managed using asset liability matching principles. Assets allocated to equity are held in local currencies to the extent shareholders’ equity is required to satisfy regulatory and self-imposed capital requirements.
'frozen' capital markets, an immediate and permanent rise in interest rates, and policyholders withdrawing liabilities at the earliest conceivable date. In addition, the Company has liquidity stress planning in place.
Cyber risk Cyber security has been recognized by Aegon as an important operational risk. Aegon’s digital security controls and cyber threat management program, as defined within the Company's global information security program, therefore play an important role in reducing risk by establishing security controls that safeguard data, technology and operations, as well as activities outsourced to third parties. Aegon prioritizes its commitment of significant resources to protect and continually strengthen its existing security control environment and preventative tooling to minimize impact and exposure as new cyber threats and exposures emerge.
Comprehensive evaluations and scenario testing of security controls – including detection and response capabilities – are frequently performed by both internal and external experts, and resulting vulnerabilities require risk-based action plans that are reported, tracked and monitored by management. This program is overseen by Aegon’s Global Chief Information Security Officer, who has a direct reporting line to the Global Chief Technology
Aegon takes cybercrime very seriously, and wherever applicable applies available safeguards to assure investors and customers that data, technology and operations are adequately protected.
General Data Protection Regulation (GDPR). Conduct risk refers to the risks inherent in behaviors, business and staff integrity and business culture, including, but not limited to, meeting the standards of Aegon’s Market Conduct Principles. In 2017,
Development Policy), and continued to strengthen the Groupwide oversight of conduct risks, including the piloting of a broader set of conduct risk tests to support the Aegon Market
Risk governance framework Aegon’s risk management is based on clear, well-defined risk governance. The goals of risk governance are to: �� Define roles and responsibilities, and risk reporting procedures for decision makers; �� Institute a proper system of checks and balances; �� Provide a consistent framework for managing risk in line with the targeted risk profile; and �� Facilitate risk diversification.
Aegon has a comprehensive range of company-wide risk policies that detail specific operating guidelines and limits. These policies include legal, regulatory and internally set requirements, and are designed to keep overall risk-specific exposures to a manageable level. Any breach of policy limits or warning levels triggers immediate remedial action or heightened monitoring. Further risk policies may be developed at a local level to cover situations specific to particular regions or business units.
Aegon’s risk management governance structure has four basic layers: �� The Supervisory Board and the Supervisory Board Risk
Board. The Audit Committee works closely together with the SBRC with regard to the oversight of and reports on the effectiveness of the ERM framework and the risk control systems of the Company. The Audit Committee relies on the findings of the SBRC. The SBRC is responsible for overseeing Aegon’s ERM
SBRC are to assist and advice the Supervisory Board and the
Audit Committee of the Supervisory Board in fulfilling their oversight responsibilities regarding the effective operation and appropriateness of the ERM framework and internal controls system of Aegon N.V., and its subsidiaries and affiliates that comprise the Aegon Group. These include: �� Risk strategy, risk tolerance and risk governance; �� Product development and pricing; �� Risk assessment; �� Risk responses and internal control effectiveness; �� Risk monitoring; �� Risk reporting; �� Operational Risk; and �� Transformation Risks.
Board in line with its charter. The GRCC ensures risk-taking is within Aegon’s risk tolerances; that the capital position is adequate to support financial strength, credit rating objectives and regulatory requirements, and that capital is properly allocated. The GRCC informs the Executive Board about any identified (near) breaches of overall tolerance levels, as well as any potential threats to the Company's solvency, liquidity or operations.
The NFRC exchanges information on non-financial risk matters and prepares decision making for the GRCC or relevant Board, in line with applicable governance requirements. The NFRC
receives and reviews the regular reports from the regions on non-financial risk exposure, including issues related to regulatory compliance and conduct.
Company through safeguarding the value of existing business, protecting Aegon’s balance sheet and reputation, and through supporting the creation of sustainable value for all stakeholders.
�� Supporting and facilitating the development, incorporation, maintenance and embedding of the ERM framework and sound practices; and �� Monitoring and challenging the implementation and effectiveness of ERM practices.
Aegon’s risk universe remains up to date; �� Designing the Solvency II PIM, including the validation thereof.
Challenging and monitoring �� Monitoring the ERM framework and overseeing compliance with group-wide risk governance requirements, risk strategy and risk tolerances, risk policies and risk methodology, which are applicable to all businesses for which Aegon has operational control; �� Ensuring appropriate risk management information is prepared for use by the GRCC, the Management Board, the Executive Board and Supervisory Board; �� Overseeing material risk, balance sheet and business decisions taken throughout Aegon in line with established risk governance arrangements; �� Monitoring and reporting on risk exposures and advising the Boards and (Supervisory) Committees on risk management related matters, including in relation to strategic affairs such as corporate strategy, mergers and acquisitions and major projects and investments; �� Monitoring that the internal model is and remains appropriate to the Company’s risk profile and informing the Management
Recovery Plan defined triggers and early warning indicators; �� Acting as independent business partner with focus on talent development, control excellence, customer conduct, capital allocation and by providing management focused risk tools or fostering debates and proactively challenging on key business developments that may create significant exposure for example through hedging and investment remits; �� Providing subject matter expertise and overseeing critical business initiatives to strengthen risk management activities, to improve the risk profile and to resolve risk events and control issues noted; �� Embedding robust oversight and risk management culture and processes; and �� Protecting group capital for all stakeholders.
The internal control system was developed in accordance with regulations that Aegon must comply with (i.e. Sarbanes-Oxley
II and IFRS numbers. The objective is to provide assurance regarding the reliability, accuracy, completeness, timeliness and quality of internal and external (regulatory) reporting, the safeguarding of assets, and compliance with internal and external requirements. A key element of Aegon’s internal control system is to facilitate action planning and embed continuous improvement regarding the internal control environment throughout the organization.
In 2017, risk management and internal control topics were discussed by the relevant management committees and bodies, including the Management Board, the Executive Board, the
Board, and the Supervisory Board, according to their roles and responsibilities as outlined in the respective frameworks and charters. No material weaknesses was observed, and no significant changes or major improvements were made or planned to the risk management and internal control systems following from material weaknesses.
'lines of defense' to ensure conscious risk-return decisions, and to limit the magnitude of potential losses within defined levels of certainty. The objective of this structure is to avoid surprises due to the materialization of unidentified risks, or from losses that exceed predefined risk tolerance levels and related limit structures.
The Company's three lines of defense are its business and support functions, the risk management department, and the audit function. The Company's first line of defense, the business and support functions, has direct responsibility for managing and taking risk in accordance with defined risk strategy, risk tolerances and risk policies. The second line of defense – which includes the risk management department, including the operational and conduct risk management function - facilitates and oversees the effectiveness and integrity of ERM across the Company. The third line of defense
Risk management in 2017 Solvency II is used to both measure and aggregate risk, and to calculate Aegon’s Solvency Capital Requirement.
These were prepared in accordance with the requirements of the Solvency II Directive and Delegated Regulation and relevant European Insurance and Occupational Pensions
Management Policy was updated, with an enhanced focus on protecting capital generation. The target capitalization zone was lifted and widened in order to further strengthen the Company’s ability to absorb market volatility.
Capital and liquidity management Guiding principles The management of capital and liquidity is of vital importance for the Aegon Group, for its customers, investors in Aegon securities and for Aegon’s other stakeholders. In line with its risk tolerance, the goal of Aegon’s capital and liquidity management is to promote strong and stable capital adequacy levels for its businesses, in addition to maintaining adequate liquidity to ensure that the Company is able to meet its obligations.
The management and monitoring of capital and liquidity is firmly embedded in Aegon’s ERM framework, and is in line with Aegon’s risk tolerance. Aegon’s risk tolerance focuses on financial strength, continuity, steering the risk balance and the desired risk culture. Its core aim is to assist management in carrying out Aegon’s strategy within the Group's capital and liquidity resources.
Management of capital The Company’s overall capital management strategy is based on adequate solvency capital, capital quality and the use of leverage.
Capital adequacy Aegon’s goal for both its operating units and for the Aegon Group as a whole is to maintain a strong financial position and to be able to sustain losses resulting from adverse business and market conditions. The capitalization of Aegon and its operating units is managed in accordance with the most stringent of local regulatory requirements, rating agency requirements and selfimposed criteria.
Regulatory capital requirements For EU-domiciled insurance and reinsurance entities, the Solvency II regulatory framework determines the regulatory capital requirements. In Aegon’s Non-EEA (European Economic
Arena) regions, (re)insurance entities domiciled in third-countries deemed (provisionally) equivalent (US Life insurance entities,
Bermuda, Japan, Mexico and Brazil), the capital requirement is based on local capital requirements.
as disclosed in this section represent Aegon’s estimates and are subject to supervisory review. After discussions with the DNB,
Aegon resolved a number of outstanding methodological matters with respect to its partial internal model in 2017. Following agreement on the interpretation of the DNB’s guidance on the loss absorbing capacity of deferred taxes (LAC-DT), Aegon has applied a LAC-DT factor in the Netherlands of 75% as of
December 31, 2017. The LAC-DT factor will be recalibrated on a quarterly basis using the agreed methodology. The Solvency
Consolidation method. Local requirements are used for insurance and reinsurance entities in (provisionally) equivalent thirdcountry jurisdictions. On August 8, 2017, Aegon received a confirmation from the Dutch Central Bank (DNB) to apply a revised method in calculating the Solvency II contribution of the
Action Level and reducing own funds by a 100% RBC Company
As at December 31, 2017, Aegon’s estimated capital position was: Group own funds 15,628 15,957 18,119
December 31, 2017 Group Solvency II ratio is equal to 182%. 2 The numbers are based on the revised method which was confirmed by the DNB on August 8, 2017. Presented for comparative purposes. 3 The Solvency II ratios are estimates and subject to supervisory review. 4 The Solvency II ratios are based on Aegon’s partial internal model.
Aegon Group OF amounted to EUR 15,628 million on December 31, 2017 (2016: EUR 18,119 million). The decrease of
EUR 2,491 million in OF since December 31, 2016, is mostly driven by the change in the treatment of the US insurance entities within Solvency II. This methodology change reduced the Group OF by EUR 2,162 million. Aside from this methodology change, during 2017, normalized capital generation by Aegon’s operating units was more than offset by the impact of the weakening of the US dollar against the euro, final dividend for 2016 and interim dividend for 2017 to shareholders and offsetting impacts from market movements, the divestment of the US run-off business, the acquisition of Cofunds and the impact of the US tax reform.
US under Solvency II had an impact of 13%. The solvency ratio increased by another 31% as a result of normalized capital generation, the implementation of approved major model changes to Aegon’s PIM and management actions including the divestment of the majority of the US run-off businesses, the divestment of the UK annuity book, and the divestment of UMG and separate account derisking in Aegon the Netherlands.
The capitalization levels of the most relevant country units are as follows: Aegon USA (Life entities) (RBC CAL) 472% 440%
Commissioners have adopted RBC requirements for insurance companies. RBC calculations measure the ratio of a company's statutory capital, which is measured on a prudent regulatory accounting basis, to a minimum capital amount determined by the risk-based capital formula. The RBC formula measures exposures to investment risk, insurance risk, market risk, and general business risk. The formula, as used for calculating the solvency ratio, applies a covariance diversification offset to determine the appropriate Risk-Based Capital. Life reinsurance is treated as life insurance. The most pertinent RBC
to pose a Hazardous Financial Condition. The CAL is set at 200%
of the Authorized Control Level (ACL), the level at which regulators are permitted to seize control of the Company. At the end of 2017, the combined risk-based capital ratio of Aegon’s life insurance subsidiaries in the United States was estimated to be 472% of the CAL risk-based capital requirement. As of January 1, 2016, under the Solvency II requirements, the activities of Aegon
Americas life insurance and reinsurance companies have been consolidated into the Aegon Group Solvency II figures through
Deduction & Aggregation using available and required capital as per the local capital regimes. US insurance and reinsurance entities are included in Aegon’s group solvency calculation in accordance with local US (RBC) requirements of the top regulated entity. Aegon uses 150% of the local RBC Company
Netherlands does not include any contingent liability potentially arising from unit-linked products sold, issued or advised on by
Aegon in the Netherlands in the past, as the potential liability cannot be reliably quantified at this point.
UK was approved on December 14, 2015, by the PRA as part of the Internal Model Application Process. The combined
UK, and lower OF in the US due to additional reserves. Aegon the Netherlands and Aegon UK move in opposite directions with the widening of credit spreads. Aegon the Netherlands sees an increase in SCR that drives the decrease in solvency ratio for the Group, but this is partially offset by Aegon UK, where liabilities reduce driven by the IAS 19 discount rate. In the US, the credit defaults reduce OF, decreasing the solvency position.
interventions connected to these zones are set consistently throughout the Group, as illustrated in the table below.
In 2017, Aegon upwardly adjusted the capital management zones of the Netherlands and the UK, and also as a result those of Aegon Group. The higher capital buffers resulting from this upward adjustment enables these units to better absorb market volatility, thereby improving the robustness of capital generation and dividend payments.
Aegon Group Capitalization management zones1 US Life entities The Netherlands United Kingdom
150% - 200% SCR Target 350% - 450% RBC 150% - 190% SCR 145% - 185% SCR Execute capital deployment and remittances according to capital plan.
120% - 150% SCR Retention 300% - 350% RBC 130% - 150% SCR 130% - 145% SCR Re-assess capital plan and risk positions.
1 Capitalization management zones follow the revised capital management policy as of the second quarter of 2017.
would lead to a withdrawal of the insurance license. Similarly, for the US insurance entities, the withdrawal of the insurance license is triggered by a breach of the 100% Authorized Control
With the introduction of Solvency II for EEA countries, Aegon views these minimum regulatory capital requirements as the level at which regulators will formally require management to provide regulatory recovery plans. For the US insurance entities this is set at 100% CAL, and for insurance companies in the European
The capitalization level and shareholders' equity of the operating units can be impacted by various factors (e.g. general economic conditions, capital markets risks, underwriting risk factors, changes in government regulations, legal and arbitrational proceedings). To mitigate the impact of such factors on the ability of operating units to transfer funds, the operating units hold additional capital in excess of the levels of the minimum regulatory solvency requirements.
also announced the divestment of its business in Ireland, which is expected to be completed in the first half of 2018.
Extensive asset-liability management and hedging programs are also in place. Examples of these programs include hedging the interest rate and equity risk stemming from guarantees in the Netherlands, hedging of interest rate risk and equity risk in
G-SII designation and International Capital Standards For more information about Aegon’s G-SII designation, its consequences and the status of development of the International
Tier 2 and Tier 3 basic own funds. Aegon does not currently have ancillary own funds. Tier 1 basic own funds are divided into unrestricted Tier 1 items and restricted Tier 1 items. The latter category contains own fund items subject to the restrictions of article 82 (3) of the Solvency II Delegated Regulation, which includes grandfathered Tier 1 own fund items. Based on agreements with its supervisory authorities, Aegon applies a fungibilty and transferability restriction with respect to charitable trusts within Aegon Americas, and a restriction equal to the own funds of Aegon Bank. These restrictions, applied to
AC and D&A parts of the Group. The allocation of Aegon Group's 2016 subordinate debt was based on the Solvency II PIM SCR, but has been changed to an available own funds basis. In addition to increasing Aegon Group’s Solvency II ratio, the new methodology also had a positive effect on capital quality, mainly by reducing the share of Tier 3 own funds, and increasing the share of unrestricted Tier 1 own funds.
Limited loss absorption. With suspension of payments and deferral of interest. Net deferred tax assets.
Aegon’s Solvency II calculation. Both restricted Tier 1 and Tier 2 capital are subject to tiering restrictions.
Tier 1 capital. The total of Tier 2 and Tier 3 capital may not exceed 50% of the SCR while the eligibility of Tier 3 capital is limited to 15% of SCR. Restricted Tier 1 capital may not exceed 20% of Tier 1 Own Funds. As a result, it is possible that part of the own funds overflows to another tier or that is not considered eligible in determining the Group Solvency ratio.
�� Non-EEA entities – representing the part of the Group covered by the Deduction & Aggregation method. If a prudential regime of an equivalent or provisionally equivalent thirdcountry applies, such as the regulatory regimes in the United
The table below shows the composition of Aegon’s available and eligible own funds, taking into consideration tiering restrictions.
Eligible own funds 1 The tiering information is based on the revised method which was confirmed by the DNB on August 8, 2017.
As a result of applying the restrictions to the available own funds, there was an overflow from Tier 1 restricted own funds to Tier 2 in the eligible own funds as of December 31, 2017.
Letters of Credit (LOCs) issued by third parties provided to captives to provide collateral to affiliated insurers are disclosed in note 48 'Commitments and contingencies' to the consolidated financial statements. These LOCs have been provided by third parties for the benefit of the affiliated company whose liabilities are reinsured.
The Company's principal arrangements comprise a EUR 2 billion syndicated revolving credit facility and a LOC facility of
USD 2.6 billion. On February 28, 2018, the company refinanced its syndicated revolving credit facility. The new facility matures in 2023. The LOC facility matures in 2021. In addition, Aegon also maintains various shorter-dated bilateral backup liquidity facilities, and committed and uncommitted LOC facilities.
Aegon N.V. At the holding company Aegon N.V., liquidity is sourced from internal dividends from operating units and through the capital markets. The main sources and uses of liquidity at the holding company Aegon N.V. are dividends from operating units, movements in debt, net expenses (including interest), funding operations, capital returns to shareholders, and the balance of acquisitions and divestitures. In addition, contingent internal and external liquidity programs are maintained to provide additional safeguards against extreme unexpected liquidity stresses.
holding expenses, including funding costs. The remaining cash flow is available to execute the Company's strategy and to fund dividends on its shares. Aegon aims to pay out a sustainable dividend to enable equity investors to share in its performance.
Furthermore, Aegon’s operating subsidiaries are subject to local insurance regulations that could restrict dividends to be paid to the holding company. There is no requirement or assurance that Aegon will declare and pay any dividends.
Aegon’s holding excess cash The ability of the holding company to meet its cash obligations depends on the amount of liquid assets on its balance sheet and on the ability of the operating units to pay dividends to the holding company. In order to ensure the holding company's ability to fulfil its cash obligations and maintain sufficient management flexibility to allocate capital and liquidity support for Aegon’s operating units and external dividend stability, it is the Company's policy that the holding excess cash position, including Aegon’s centrally managed (unregulated) holding companies, is managed to a target range of EUR 1.0 to 1.5 billion.
EUR 1.4 billion in excess cash in the holding, compared with EUR 1.5 billion on December 31, 2016. The decrease of EUR 0.1 billion reflects the net impact of dividends from subsidiaries and capital injections in subsidiaries, divestments, acquisitions, the issuance of senior unsecured notes, holding expenses and capital returns to shareholders. During 2017, an injection of EUR 1 billion was made into Aegon the Netherlands to strengthen its capital position. This cash outflow was partly offset by dividends from Aegon Americas and Aegon UK.
Americas’ regular capital upstream and capital releases as a result of the divestment of the pay-out annuity and BOLI/COLI
businesses. The EUR 167 million from Aegon UK was funded from the capital release related to the divestment of the annuity portfolio. The EUR 176 million from Asia was funded through capital efficiencies programs. The proceeds of the issuance of
The Executive Board is responsible for designing, implementing and maintaining internal controls, including proper accounting records and other management information suitable for running the business on a going concern basis.
The risk management function develops and monitors compliance with risk policies and risk frameworks. The risk management function advises on risk-related matters including risk tolerance, risk governance, risk methodology and risk policies; supports and facilitates the development, maintenance and embedding of the ERM framework and sound practices; and monitors and challenges the implementation and effectiveness of ERM practices.
Relevant facts, circumstances and risks relating to the consolidated financial position on December 31, 2017, were assessed in order to reach the going concern assumption.
Management concluded that the going concern assumption is appropriate on the basis of the financial performance of the
On the basis of the above, Aegon’s Executive Board states the following with respect to risks to the Company's financial reporting: �� The report provides sufficient insights into any failings with regards to the effectiveness of the internal risk management and control systems; �� Aegon’s risk management and control systems provide reasonable assurance that the Company’s financial reporting does not contain any material inaccuracies; �� Based on the current state of affairs, it is justified that the financial reporting is prepared on a going concern basis; and �� The report states those material risks and uncertainties that are relevant to the expectation of the Company’s continuity for the period of twelve months after the preparation of the report.
Such additional requirements lead, in certain circumstances, to duplicative requirements, such as the simultaneous application of consolidated banking requirements and Solvency II group solvency requirements. Eligible capital to cover solvency requirements includes shareholders' equity, perpetual capital securities, and dated subordinated debt.
Solvency II Introduction The Solvency II framework imposes prudential requirements at group level as well as on the individual EU insurance and reinsurance companies in the Aegon Group. Insurance supervision is exercised by local supervisors on the individual insurance and reinsurance companies in the Aegon Group, and by the group supervisor at group level. The Dutch Central Bank (DNB) is
Aegon’s Solvency II group supervisor. Solvency II, which came into effect in EU member states on January 1, 2016, introduced economic, risk-based capital requirements for insurance and reinsurance companies in all EU member states, as well as for groups with insurance and/or reinsurance activities in the
EU. The Solvency II approach to prudential supervision can be described as a 'total balance sheet-approach,' and takes material risks to which insurance companies are exposed into account in addition to the correlation between these risks.
EU insurers and reinsurers, the Solvency II framework is complemented by requirements that apply at group level
Insurance and reinsurance companies are required to hold eligible own funds against the SCR and MCR. Own funds capital is divided into three tiers in accordance with the quality of the own funds.
is disregarded for purposes of calculating SCR. Furthermore, the SCR may consist of limited amounts of off-balance sheet own funds ('ancillary own funds' such as letters of credits or guarantees). The MCR must be covered entirely by on-balance sheet items ('basic own funds').
EU-licensed insurance or reinsurance undertakings, and not to the Group as a whole, which does not have a license).
Group supervision Solvency II not only imposes regulatory requirements on individual EU insurance and reinsurance undertakings; many of the requirements that apply to the individual insurance and reinsurance undertakings apply, with the necessary modifications, at group level. These requirements include group solvency requirements, group reporting and disclosure requirements, and requirements regarding the system of governance, risk management and internal control framework at group level.
II rules (the absolute floor of the group solvency), which can be considered to be an MCR at group level. Although entities that are not subject to solo supervision under Solvency II (such as entities in other financial sectors, non-financial entities, and regulated and non-regulated entities in third countries) are not directly subject to Solvency II requirements, these entities may be affected indirectly by the Solvency II group requirements.
Solvency II). However, subject to certain conditions, entities in other financial sectors may be included in accordance with the accounting consolidation method. In particular, this may be the case when the group supervisor is satisfied as to the level of integrated management and internal control regarding these entities. Furthermore, the DNB may require groups to deduct any participation from the own funds eligible for the Group Solvency ratio. As required by the DNB, Aegon deducts its participation in Aegon Bank N.V. from Aegon’s group solvency.
Group Solvency ratio, the Accounting Consolidation method and the Deduction and Aggregation method. Aegon applies the Accounting Consolidation method as the default method.
Action Level (CAL) RBC as the SCR equivalent. Aegon received approval from the DNB to apply a revised methodology, as of
Solvency II group supervision is exercised by a combination of the supervisory authorities of the local insurance and reinsurance entities and the group supervisor. An important role in the cooperation between the supervisory authorities in the context of group supervision is played by the college of supervisors, in which the local and group supervisors are represented. This college is chaired by the group supervisor.
Globally systemically important insurer (G-SII) On November 3, 2015, Aegon was first designated by the
designation, G-SIIs were required to develop a liquidity risk management plan, a systemic risk management plan, and an ex ante recovery plan. In accordance with these requirements,
Aegon submitted plans to DNB, and to the G-SII crisis management group (CMG) that was established for Aegon and is updating these plans on an annual basis. The CMG is required to: enter into a cross-border cooperation agreement; develop a resolution plan based on a resolution strategy
(IAIGs). Aegon will qualify as such. After an extended field testing period of ICS version 1.0, that ended in 2017, the
United States of development of an aggregation-based group capital calculation, the IAIS has further agreed to collect data during the monitoring period to assess whether the aggregation approach can be considered as outcome-equivalent for implementation of ICS in the US.
on Aegon is expected to be limited. Currently, insurance group supervision is only exercised at the level of Aegon N.V., pursuant to Solvency II, and the Covered Agreement increases the likelihood that this will continue to be the case. Also the impact of the agreed measures in the other areas covered in the agreement is expected to be limited.
The Supervisory Board is charged with the supervision of the Executive Board, of the general course of affairs and strategy of the Company, and of its businesses. In performing their duties, members of the Supervisory Board are guided by the interests of Aegon and the Company's stakeholders.
Meeting of Shareholders. Overall accountability for Aegon’s remuneration governance also resides with the Supervisory
This includes the responsibility for designing, approving and maintaining the Aegon Group Global Remuneration Framework, including the remuneration policies for the Executive Board,
A Supervisory Board member can then subsequently be reappointed again for a period of two years, which reappointment may be extended by at most two years. For a reappointment after an eight-year period, reasons will be provided in the report of the Supervisory Board. The retirement schedule and other information about members of the Supervisory Board are available on aegon.com.
Board meetings Attendance In 2017, the Supervisory Board had seven regular (face-to-face)
meetings: four related to the quarterly results; one to the annual report; and two to strategy (including the budget and Medium
Term Plan). In addition, four conference calls took place, three of which were updates in between the face-to-face meetings.
Supervisory Board Committee meetings were usually held the day before the meetings of the full Supervisory Board.
All regular board meetings were attended by all Board members, except for one Supervisory Board strategy meeting that
Dona Young 7/7 4/4 6/6 3/4 - - 1/1 1 Where a Supervisory Board member retired from the Supervisory Board, stepped down from a Committee or was appointed throughout the year, only meetings during his / her tenure are taken into account.
Aegon’s strategy, the main business risks, IT, acquisitions and divestments and human resources items.
Supervisory Board meeting in December 2017, the budget for 2018 was approved and the Medium Term Plan was discussed.
Acquisitions and divestments were discussed in the context of the execution of the strategy. The Supervisory Board supported the active management of the business portfolio with add-on acquisitions, the sale of underperforming businesses and the disposals of entities no longer consistent with Aegon’s strategy. While acquisitions and divestments of EUR 50 million or more require Supervisory Board approval, smaller add-ons and divestments were also discussed.
In 2017, Supervisory Board discussions included the following topics: �� Strategy, including Aegon’s long-term value creation, its responsible business strategy and business reviews; �� Acquisitions, divestments and the strategic direction of Aegon’s businesses, including the organizational transformation throughout the business, such as the strategic partnership to outsource administration of the majority of Transamerica’s insurance and annuity business. �� Executive Board and senior management succession planning; �� Executive remuneration, including the risks of the remuneration framework; �� Corporate Governance, including the Dutch Corporate
Aegon’s engagement with regulators and the governance of global functions within Aegon; �� Hghlighted topics by Supervisory Board Committees; �� Tax policy and tax developments; and �� Technology, including the technology strategy and technological developments, and how they can be used to enhance customer centricity.
Results and budget In February 2017, the Supervisory Board convened to discuss the fourth quarter 2016 results. In March 2017, the Supervisory
Board reviewed and adopted Aegon’s 2016 Annual Report, the Consolidated Financial Statements of Aegon N.V., the Financial
Board reviewed the Company's Medium Term Plan, including the budget and capital plan for 2018. The Boards took note of the uncertainties and challenges in the coming years as described in the Plan. These included, among others: increased regulatory requirements, low interest rates, market volatility, digital developments, and the changing distribution landscape.
The Board discussed Aegon’s free cash flow and capital projections, together with the continued focus on cost efficiency.
The Board also approved the 2018 funding plan and authorized the Executive Board to execute on the funding plan in 2018.
Legal, compliance and regulatory affairs In 2017, the Supervisory Board and the Audit Committee discussed a number of compliance, regulatory and legal topics relating to the Americas, Europe, Asia, and Asset Management with management, the General Counsel, the Global Head of Regulatory Compliance, and the Global Head of Operational and Conduct Risk Management. In particular, the Board discussed the consequences and actions resulting from being designated as a Global Systematically Important Insurer (G-SII) and the possible settlement in connection with a previously disclosed investigation by the US Securities and Exchange Commission
(SEC). An overview of the topics discussed in the field of Risk
Educational sessions The Board and its Committees received updates and presentations on topics ranging from developments in acquisitions and divestments, corporate governance, and remuneration regulations for the insurance sector, to sustainability and technology.
Company, the members of the Supervisory Board gathered general information on industry developments by participating in networks, reading independent reports and sharing knowledge
Aegon’s activities in Europe, Asia and Asset Management. In addition, the Board was updated on the developments around
IFRS 17 and followed an educational program dedicated to digital developments and digital customer solutions. The Audit
Board review The Supervisory Board undertakes a Board review on an annual basis, and an external assessment takes place at least once every three years. In 2015, an external assessment of the
Board, the meeting processes and procedures, the mutual interaction, dynamics and communication in the Board, and the Board's key areas of supervision. The 2017 questionnaire further addressed events from which lessons could be learned and reviewed the mutual interaction between the Supervisory
The Supervisory Board discussed the outcome of the selfassessment in detail in the absence of the Executive Board and Management Board in February 2018, and agreed that it and its Committees functioned well and fulfilled its duties and responsibilities in a satisfactory way. During the same meeting, the Supervisory Board listed the priorities and follow-up for the Board to address in 2018.
These provide an overview of the responsibilities and activities of the Committees.
The four Committees are the: �� Audit Committee; �� Risk Committee; �� Nomination and Governance Committee; and �� Remuneration Committee.
The Risk Committee is responsible for supervising the activities of, and advising the Supervisory Board’s Audit Committee with respect to, the Company's enterprise risk management framework and internal control systems. The Audit Committee primarily relies on the Risk Committee for these topics, as stated in the
The Committee confirmed that all of its members qualified as independent according to Rule 10A-3 of the SEC, and it also confirmed that the Chairman of the Audit Committee,
Committee meetings In 2017, the Audit Committee held seven meetings, one of which was a combined meeting with the Risk Committee of the Supervisory Board in December 2017. As part of regular deep-dive sessions, a separate meeting took place in October in the Netherlands dedicated to Aegon’s business in the
Committee meetings were attended by the members of the Audit Committee, Aegon’s Chief Financial Officer, the Head of Corporate Financial Center, the Chief Risk Officer, the internal auditor, and partners of PwC, Aegon’s external auditor.
Committee meetings. Aside from the Audit Committee meetings, additional sessions were held with internal and external auditors without members of the Executive Board or senior management present.
Financial Reporting In discharging their responsibilities with regards to the 2017 interim and full year financial statements, the Audit Committee: �� Reviewed and discussed the management letter and follow up actions with PwC, Internal Audit, the Executive and the
leading to a review opinion on the interim financial statements; �� Received presentations on various topics by local business unit managers and chief financial officers; and �� Reviewed and discussed areas of significant judgments in the preparation of the financial statements, including, in particular: Solvency II, investment valuation and impairments, economic and actuarial assumption setting, and model validations.
Committee agenda in 2017 were Solvency II developments, controls, capital and liquidity, legal and compliance updates, and preparations for IFRS 17.
Risk management and internal controls With respect to their oversight of accounting risk management and internal controls (provided they did not pertain to the work and responsibilities of the Risk Committee) the Audit Committee: �� Reviewed and approved the internal and external audit plans for 2017 and monitored execution, including progress in respect of recommendations made; �� Discussed quarterly updates on the activities of the internal audit function, together with details of progress on internal audits with the internal auditor. Areas of focus in 2017 included the internal audit organization, asset management,
External audit effectiveness The Audit Committee discussed and approved the external auditor's engagement letter and the audit plan for 2017.
Aegon has well-established policies on audit effectiveness and independence of auditors that set out, among other things: �� The review and evaluation of the external auditor and the lead partner of the external audit team on at least an annual basis; �� Non-audit services performed by the external auditor; �� Rotations of the external auditor and lead partner; and �� Discussions about planning and staffing of the external audit activities.
For more information about the policies relating to the effectiveness and independence of the external auditor, please see Annex A, B and C of the Audit Committee Charter on aegon.com.
Committee and has an annual combined meeting, which in 2017 was held in December. This combined meeting focused on internal reporting changes, the Group risk appetite, the resilience of the Group, the evaluation of internal controls and information technology security.
The Risk Committee convened five times in 2017, including the combined meeting with the Audit Committee. The Company’s
Committee meetings. The Chief Financial Officer had a standing invitation to attend the Committee meetings and attended all the meetings in 2017 as well. Other Management Board members and senior managers attended the meetings when relevant for the discussion.
Risk management and Internal controls Recurring items on the Risk Committee agenda in 2017 were risk exposure information and risk policy compliance monitoring.
The Risk Committee assessed the effectiveness of the design and operation of the ERM framework and internal control systems in 2017 by: �� Discussing the quarterly risk dashboard, including all material group level risks, with the Executive Board members and relevant senior managers. The material group level risks consisted of financial, actuarial and operational risks, including cybersecurity and information security risks and controls; �� Assessing a quarterly transformation dashboard that outlined risks with regards to the execution of the strategy in each region, and how those risks were monitored and mitigated; �� Discussing in-depth the control excellence programs within the regions with the relevant CROs. The CROs provided updates on the progress of the programs and the implementation of the programs in the day-to-day business; �� Reviewing the Group Risk appetite, which consists of the risk strategy and risk limits and tolerances; and �� Reviewing the risk governance structure and risk competencies, including the skills necessary for the risk function.
The Risk Committee also discussed several regulatory topics on a regular basis, including the DNB Focus report, the Group
Furthermore, the Risk Committee discussed the implications of the new Dutch Corporate Governance Code on its work, and approved an updated Risk Committee Charter that reflects the requirements of the new Dutch Corporate Governance Code.
Resources Management and Corporate Governance. This includes: �� Board member and senior management succession planning; �� Drawing up selection criteria and procedures for Board members, together with supervising the selection criteria and procedures for senior management; �� Advising on and proposing nominations, appointments and reappointments; �� Reviewing and updating the Supervisory Board profile and charters for the Supervisory Board and its committees; CONTENTS
Supervisory Board related activities The Nomination and Governance Committee discussed the composition of the Supervisory Board and its Committees and governance topics. The profile of Supervisory Board members, as well as their capabilities in terms of working collectively with other members of the Supervisory Board, were debated by the Committee. Furthermore, the existing and impending vacancies in the Supervisory Board were discussed and a search process for fulfilling those vacancies was commenced.
Executive Board related activities During 2017, the Nomination and Governance Committee reviewed the composition of the Executive Board and
Management Board, together with the functioning and effectiveness of the Board members, both individually and as a team. Acknowledging the importance of good succession planning, the Committee discussed with the CEO and
Committee during the year. The Committee was kept appraised of developments in employee engagement, talent management and international mobility. As in previous years, the Supervisory
Survey, which was conducted at the end of 2017. The Supervisory
Board discussed the outcome of this survey in detail in the
The Remuneration Committee Composition On December 31, 2017, the composition of the Remuneration
Committee are to advise the Supervisory Board and prepare decisions to be taken by the Board. The Committee is designated to safeguard sound remuneration policies and practices within the Company by overseeing the development and execution of these policies and practices. In order to ensure that the remuneration policies and practices take all types of risks properly into account, in addition to liquidity and capital levels,
Executive Board and the Supervisory Board, and will be placed on the agenda of the 2018 Annual General Meeting of
Shareholders for adoption. The Supervisory Board recommends that shareholders adopt the annual accounts.
Members of the Supervisory Board Robert J. Routs (1946, Dutch) Chairman of the Supervisory Board Chairman of the Nomination and Governance Committee Member of the Remuneration Committee Robert J. Routs is a former Executive Director for Downstream at the energy company Royal Dutch Shell. He was appointed to
Aegon’s Supervisory Board in April 2008 and became Chairman in April 2010. Mr. Routs was re-appointed as a member of the Supervisory Board during the 2016 Annual General Meeting of Shareholders19. Mr. Routs is Chairman of the Supervisory
Board Nomination and Governance Committee and a member of the Supervisory Board Remuneration Committee.
William L. Connelly (1958, French) Member of the Audit Committee Member of the Remuneration Committee. William L. Connelly is a former member of the Management
States. He was appointed to Aegon’s Supervisory Board in 2017, and his current term ends in 2021. He is a member of the
Robert W. Dineen (1949, American) Member of the Audit Committee Member of the Risk Committee Robert W. Dineen was Vice Chairman of Lincoln Financial Network
Shemaya Levy (1947, French) Vice Chairman of the Supervisory Board Chairman of the Risk Committee Member of the Nomination and Governance Committee Shemaya Levy is retired Executive Vice President and Chief
Mr. Van der Veer is a non-executive member of the Board of Directors of RELX N.V., RELX PLC and RELX Group PLC.
He is also a member of the Supervisory Board of Royal
Dirk P.M. Verbeek (1950, Dutch) Member of the Risk Committee Member of the Nomination and Governance Committee Dirk P.M. Verbeek is a former Executive Board member and former vice president Emeritus of Aon Group. Mr. Verbeek was appointed to Aegon’s Supervisory Board in 200820. He is a member of the Supervisory Board Risk Committee and the Supervisory
Mr. Verbeek is a member of the Advisory Council of CVC Benelux
(not listed) and OVG Real Estate (not listed), and member of the INSEAD Dutch Council. Mr. Verbeek was a member of the Supervisory Board of Aon Groep Nederland B.V. (not listed) until July 2017, and Chairman of the Supervisory Board of Robeco Groep N.V. (not listed) until December 2015.
Board of Trustees of Save the Children Netherlands and vice president of the European People’s Party. She was a member of the Supervisory Board of Mercedes-Benz Netherlands (not listed) until 2014.
Companies, which was an insurance and asset management company at the time of her tenure. She was appointed to Aegon’s Supervisory Board in 2013, and her current term will end in 2021. She is a member of the Supervisory Board
Ms. Young is member and Lead Director of the Board of Directors of Foot Locker, Inc.. Furthermore, Ms. Young is Chair of the
is designed in accordance with relevant rules, guidelines and interpretations, for instance the Decree on Sound Remuneration
from the DNB, and the 2015 Act on the Remuneration Policy of Financial Undertakings (Wet beloningsbeleid financiële ondernemingen, Wbfo 2015 stb 2015, 45). Aegon’s remuneration policies are derived from the GRF, among which is the
2017 was a year with relatively few changes to the remuneration regulations impacting Aegon. For this reason, the Company’s remuneration practices and processes did not change materially compared with the previous performance period.
The Dutch Code introduced, among other things, caps on variable compensation that go beyond the maximums suggested by European legislation, and require at least 50%
Aegon has offered selected senior staff at its corporate office a maximum variable compensation opportunity in line with
In line with the Wbfo, Aegon wishes to disclose the total amount of variable compensation paid in performance year 2017.
was EUR 197 million. In 2017, the total annual compensation paid out to 17 people was equal to or higher than EUR 1 million.
Compliance functions are involved in the design and execution of remuneration policies and practices.
Aegon endeavors to seek an appropriate balance of ex-ante and ex-post assessments to ensure effectiveness in both the shortand long-term risk taking behavior of employees.
Market survey information from reputable sources is used to provide information on competitive compensation levels and practices.
Fees and entitlements Members of the Supervisory Board are entitled to the following: �� A base fee for membership of the Supervisory Board.
No separate attendance fees are paid to members for attendance at the regular Supervisory Board meetings; �� An attendance fee for each extra Board meeting attended, be it in person or by video and/or telephone conference; �� A committee fee for members on each of the Supervisory
Information on members of the Supervisory Board and the composition of Aegon’s four committees – Audit, Nomination and Governance, Remuneration and Risk – can be found on pages 118 -122.
Details on the remuneration of the Supervisory Board over the course of 2017 can be found in the Supervisory Board
The amount of variable compensation actually allocated in relation to the performance delivered during 2017 is based on the achievement against the objectives and targets that were set at the start of the year. The objectives are an elaborate set of financial IFRS (non-Risk adjusted), financial market Consistent
(risk-adjusted), and non-financial, personal-, and strategic, sustainability measures linked to the Company strategy.
Role of the Remuneration Committee The Supervisory Board has overall responsibility for the
Remuneration Policy. Members of the Committee are drawn from the Supervisory Board.
Aegon’s remuneration policies to ensure they remain in line with prevailing international standards. This review is based partly on information provided by Aegon’s external advisor,
Towers Watson. The advisor does not, however, advise individual members of the Executive and Supervisory Boards.
The peer group was updated in 2015. It comprises the following fourteen companies: Allianz, Aviva, Axa, CNP Assurances,
In addition, a reference group is used in order to monitor alignment with the general industry in the Netherlands.
Board determines a maximum total compensation, reflecting the specific roles and responsibilities of the individual. Each year, the Supervisory Board reviews total compensation levels to ensure they remain competitive and to provide proper, risk-based incentives to members of Aegon’s Executive Board. To ensure
The Supervisory Board (Remuneration Committee) discussed and endorsed the 2017 total compensation for the Executive Board.
of each performance period. The number of conditionally granted shares is calculated using the value of one Aegon share at the beginning of this period. This value is equal to the volume weighted average price on the Euronext Amsterdam stock exchange for the period December 15 to January 15. After the performance year, the Company assesses the realized performance against the performance indicators and compares the minimum, target and maximum levels of the performance indicators with the realized performance. The amount of conditional variable compensation that can be allocated is then established. Variable compensation is allocated once the accounts for the financial year in question have been adopted by the Company's general meeting of shareholders and after an ex-ante assessment.
The deferred parts vest in equal tranches over a three-year period. After an ex-post assessment, which may lower the vesting parts, these individual parts are paid 50% in cash and 50% in shares. The shares are restricted for a further period of three years (with the exception of shares withheld to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the Company holds a withholding obligation in connection with the vesting of the shares).
The variable compensation payout can be illustrated by the following example and the table below. For every 1,000 variable compensation that is allocated following the performance period, 400 is paid out/vested in the year following that performance year (N in the following table). This part will be paid 50% in cash (=200) and 50% in shares vesting immediately (=200 / 5.246 = 38 shares). The remaining 600 is deferred and vests according to a pre-defined schedule.
This results in the allocation of EUR 317,370 and 60,497 shares for Mr. Wynaendts and
EUR 225,002 and 42,889 shares for Mr. Rider; �� 80% of base salary if the pre-determined performance targets are met. This results in the allocation of EUR 507,791 and 96,795 shares for Mr. Wynaendts and EUR 360,000 and 68,623 shares for Mr. Rider; �� Up to 100% of base salary if the targets are exceeded.
The arrangements with Mr. Wynaendts include retirement provisions that allow benefits to be taken at the end of the term. This retirement arrangement stem from pre Executive
Board membership. The arrangement with Mr. Rider is similar to the arrangements for other staff in the Netherlands and consists of a so-called career average defined benefits plan up to EUR 103,317 (2017 threshold) base salary and a defined contribution plan for the amount above EUR 103,317. Details are not disclosed due to the individual nature of such arrangement.
Both Executive Board members have an Engagement Agreement with Aegon N.V., rather than a contract of employment.
Members of the Executive Board may terminate their engagement agreement with a notice period of three months. The Company may terminate the board agreement by giving six months’ notice if it wishes to terminate the agreement of Mr. Wynaendts, and three months’ notice if it wishes to terminate the agreement of Mr. Rider.
Executive Board for four years at the Annual General Meeting of Shareholders on May 19, 2017. Mr. Rider’s current term ends at the General Meeting of Shareholders 2021.
Meeting of Shareholders on May 18, 2018, variable compensation for Executive Board members is set in cash and shares, based on both their individual and the Company's performance.
Performance as reported on the financial and non-financial Group performance indicators and targets resulted in a performance score of 56.6% (maximum 62.50%) for Mr. Wynaendts and 64.4% (maximum 72.5%) for Mr. Rider. The performance on individual (strategic) objectives resulted in a pay-out of 33.8%
(maximum 37.50% and 27.50% respectively). The amounts and number of shares below are reflective of period for which
In 2018, Mr. Wynaendts and Mr. Rider are eligible to receive a cash payment of EUR 229,420 and EUR 99,758 respectively.
Impact of ex-ante and ex-post assessment on attribution of variable compensation No variable compensation from previous performance years payable in 2017 has been adjusted downwards in 2017.
No circumstances have been identified to lower payout of the deferred payment from prior performance years that vest in 2017 (the so called 'ex-post assessment') or to lower the payout of the up-front payment of the 2016 performance year variable compensation that vests in 2017 (the so called
Future changes No material changes to the executive board remuneration policy are foreseen for 2018. Compensation for individuals in the financial sector, in particular for those that materially influence the risk profile of the organization, does however continue to be a focus of regulatory attention. Aegon will ensure compliance if and when new regulations are approved. Any such regulations may require further deferral and the extension of holding periods, which Aegon will apply to new allocations of variable compensation going forward.
General Meeting of Shareholders A General Meeting of Shareholders is held at least once a year and, if deemed necessary, the Supervisory or Executive Board of the Company is able to convene an Extraordinary General Meeting of Shareholders. The main function of the General Meeting of Shareholders is to decide on matters such as the adoption of annual accounts, the approval of dividend payments and
of Aegon’s issued capital or a block of shares worth at least
EUR 100 million may request items be added to the agenda of a General Meeting of Shareholders. In accordance with
Record date The record date is used to determine shareholders' entitlements with regard to their participation and voting rights. In accordance with Dutch law, the record date is 28 days before the day of the
In the absence of a Special Cause, Vereniging Aegon casts one vote for every 40 common shares B it holds.
Composition of the Supervisory Board Members of the Supervisory Board are appointed by the General Meeting of Shareholders, following nomination by the Supervisory Board itself. Aegon aims to ensure that the composition of the Company's Supervisory Board is in line with Aegon’s diversity policy for the Supervisory Board,
Executive Board and Management Board and is as such wellbalanced in terms of professional background, geography, gender and other relevant aspects of the diversity policy. A profile, which is published on aegon.com, has been established that outlines the required qualifications of its members. Supervisory
Board members are appointed for a four-year term, and may then be reappointed for another four-year period. Subsequently, the Supervisory Board member can be reappointed again for a period of two years, and then extended by two years at the most. Supervisory Board members are no longer eligible for
Supervisory Board decides to make an exception. Remuneration of the Supervisory Board members is determined by the General
Meeting of Shareholders. In 2017, no transactions were concluded between the Company and any of the Supervisory
Board members. Furthermore, the Company did not provide loans or issue guarantees to any members of the Supervisory Board.
At present, Aegon’s Supervisory Board consists of nine members, all of whom qualify as independent in accordance with the Dutch
Supervisory Board members and deal with specific issues related to Aegon’s financial accounts, risk management, executive remuneration and appointments. These committees are the: �� Audit Committee; �� Risk Committee; �� Remuneration Committee; and �� Nomination and Governance Committee.
Composition of the Executive Board Aegon’s Executive Board consists of Alexander R. Wynaendts, who is Chief Executive Officer (CEO) and Chairman of the
Officer (CFO), and member of the Executive Board, having been appointed to the Executive Board at the Annual General Meeting of the Company on May 19, 2017.
The members of the Executive Board have an engagement agreement with the Company rather than an employment contract. The Company's Remuneration Policy for the Executive
This ensures that Aegon is managed as an integrated international business. While the Executive Board is Aegon’s sole statutory executive body, the Management Board provides vital support and expertise in pursuit of the Company's strategic objectives.
Supervisory Board, the CEO shall be the first contact for the Supervisory Board and its Chairman. In addition thereto, and in connection with how the contacts between the
Company's largest shareholder. The nominal value of the common shares B is equal to the nominal value of a common share. This means that common shares B also carry one vote per share. However, the voting rights attached to common
B in terms of the proportion between financial rights and voting rights.
Significant shareholdings On December 31, 2017, Vereniging Aegon, Aegon’s largest shareholder, held a total of 279,236,609 common shares and 569,676,480 common shares B.
of the voting rights, irrespective of the circumstances that caused the total shareholding to be or become lower than 32.6%.
On May 19, 2017, Vereniging Aegon exercised its options rights to purchase in aggregate 1,979,260 common shares B at fair value (1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by Aegon’s issuance of shares on May 19, 2017, in connection with the Long Term Incentive Plans for senior management.
B from Vereniging Aegon for the amount of EUR 1.7 million,
On February 20, 2018, Dodge & Cox's filing with the US Securities and Exchange Commission (SEC) shows that Dodge & Cox holds 256,029,115 common shares, representing 9.8% of the issued and outstanding capital as at December 31, 2017, and has voting rights for 250,384,686 shares, representing 9.6% of the votes as at December 31, 2017.
Based on its filing with the Dutch Autoriteit Financiële Markten as at May 26 2017, BlackRock, Inc. stated to hold 59,827,512 shares, representing 2.3% of the issued and outstanding capital as at December 31, 2017 and 79,077,402 voting rights, representing 3.0% of the votes as at December 31, 2017.
Based on its filing with the Dutch Autoriteit Financiële Markten as at June 10, 2015, Franklin Resources, Inc (FRI). stated to hold 81,510,408 shares, representing 3.1% of the issued and outstanding capital and of the votes as of December 31, 2017.
Special Cause, Vereniging Aegon is not allowed to exercise more votes than is proportionate to the financial rights represented
If Vereniging Aegon, acting at its sole discretion, determines that a Special Cause has arisen, it must notify the General
Issue and repurchase of shares New shares may be issued up to the maximum of the Company's authorized capital, following a resolution adopted by the
Significant agreements and potential change of control Aegon is not party to any significant agreements that would take effect, alter or terminate as a result of a change of control following a public offer for the outstanding shares of the Company, other than those customary in financial markets (for example, financial arrangements, loans and joint venture agreements).
Report. Under the terms of existing share plans the vesting of granted rights is predefined. The shares shall vest as soon as possible in accordance with payroll requirements of the relevant subsidiary after the adoption of the Company's Annual
Shareholders may cancel the binding nature of these nominations with a majority of two-thirds of votes cast, representing at least one half of Aegon’s issued capital. The General Meeting may, in addition, bring forward a resolution to appoint someone not nominated by the Supervisory Board. Such a resolution also requires a two-thirds majority of votes cast, representing at least one half of Aegon’s issued capital.
Members of Aegon’s Supervisory and Executive Boards may be suspended or dismissed by the General Meeting of Shareholders with a two-thirds majority of votes cast, representing at least one half of Aegon’s issued capital, unless the suspension or dismissal has first been proposed by the Company's Supervisory
Dutch Corporate Governance Code As a company based in the Netherlands, Aegon adheres to the Dutch Corporate Governance Code. The version of the code applicable to the financial year 2017 is the version that came into force on January 1, 2017. Aegon endorses the Code and strongly supports its principles for sound and responsible corporate governance and long-term value creation.
Aegon regards the Code as an effective means to help ensure that the interests of all stakeholders are duly represented and taken into account. It is the responsibility of both the Supervisory
Best Practice 4.3.3 The Dutch Corporate Governance Code recommends that the
Board and a Supervisory Board. The Executive Board is the executive body. Its members are not Aegon employees and have an engagement agreement with the Company. Members of the Executive Board are appointed and dismissed by the
Code of ethics Aegon’s 'Code of Conduct' is a code of ethics that outlines the Company's ethical principles in relation to various subjects. This code applies to all directors, officers (regardless of the contractual basis of their employment) and employees of all Aegon companies. This includes members of the Executive Board, the Management Board and the
Supervisory Board of Aegon N.V., as well as other executive and non-executive or supervisory directors of Aegon companies.
All fraud matters are investigated and corrective actions are taken as appropriate.
Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of Aegon’s disclosure controls and procedures (as defined in Rules 13a-15(e)
Based on this evaluation, Aegon’s CEO and CFO concluded that, as of December 31, 2017, the disclosure controls and procedures were effective. There have been no material changes in the Company's internal controls or in other factors that could significantly affect internal controls over financial reporting subsequent to the end of the period covered by this
Exchange, Aegon is required to comply with the US Securities and Exchange Commission regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act, or SOX 404.
Management assessed the effectiveness of Aegon’s internal control over financial reporting as of December 31, 2017.
In making its assessment management used the criteria established in 'Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.
Management’s Annual Report on internal control over financial reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
Financial statements of Aegon N.V. Income statement of Aegon N.V. 310
Amounts in EUR million (except per share data) Note 2017 2016 2015
Income before share in profit / (loss) of joint ventures, associates and tax 2,221 665 (781)
Consolidated income statement of Aegon N.V. Consolidated income statement of Aegon N.V. Consolidated financial statements of Aegon N.V.
Consolidated statement of comprehensive income of Aegon N.V. For the year ended December 31
Items that will not be reclassified to profit or loss: Changes in revaluation reserve real estate held for own use 8 8 13
Income tax relating to items that will not be reclassified (166) 86 (77)
Items that may be reclassified subsequently to profit or loss: Gains / (losses) on revaluation of available-for-sale investments 1,283 854 (2,175)
Movement in foreign currency translation and net foreign investment hedging reserves (2,149) 69 1,419
Income tax relating to items that may be reclassified 951 225 783
Issued capital and reserves attributable to owners of Aegon N.V. 24,366 24,710
Net income / (loss) recognized in the income statement - 2,361 - - - - 2,361 - 2,361
Total other comprehensive income / (loss) - 13 (461) 151 (1,737) - (2,034) (3) (2,038)
Consolidated statement of changes in equity of Aegon N.V. Consolidated statement of changes in equity of Aegon N.V.
Movements in foreign currency translation and net foreign investment hedging reserves - - (38) 16 91 - 69 - 69
Total other comprehensive income / (loss) - (2) (1,090) (288) 64 - (1,315) 14 (1,301)
Net income / (loss) recognized in the income statement - (524) - - - - (524) 1 (523)
Total other comprehensive income / (loss) - 10 (1,837) 79 1,369 - (379) (1) (380)
1 Issued capital and reserves attributable to owners of Aegon N.V. 2 Refer to note 51 for details on the disposals.
Disposal of investments (other than money market investments) 35,512 33,246 36,619
Net purchase of investments for account of policyholders 8,869 5,160 4,371
Cash flow movements on operating items not reflected in income 11,082 4,260 2,875
Purchase of individual intangible assets (other than VOBA and future servicing rights) (34) (22) (52)
Purchase of equipment and real estate for own use (72) (69) (90)
Disposal of subsidiaries and businesses, net of cash (1,054) (1,082) 542
Proceeds from TRUPS 1), Subordinated borrowings and borrowings 9,170 3,711 1,821
Net increase / (decrease) in cash and cash equivalents 2) (125) 1,776 (1,257)
Net cash and cash equivalents at the beginning of the year 11,347 9,593 10,649
Net cash and cash equivalents at the end of the year 21 11,026 11,346 9,593 1 Trust pass-through securities. 2 Included in net increase / (decrease) in cash and cash equivalents are interest received (2017: EUR 6,215 million, 2016: EUR 6,691 million and 2015: EUR
Consolidated cash flow statement of Aegon N.V. Consolidated cash flow statement of Aegon N.V.
Netherlands. The Group employs over 28,000 people worldwide (2016: over 29,000).
The consolidated financial statements of Aegon N.V. were approved by the Executive Board and by the Supervisory Board on March 22, 2018. The financial statements will be put for adoption to the Annual General Meeting of Shareholders on May 18, 2018.
Group, but will be applied in future years: Accounting standard/ amendment/ interpretation IASB effective date Endorsed by EU Early adopted by Aegon Impact for
IFRS 2 Clarifications of Classification an measurement of Share Based Payments Transactions
Amendment to IFRS 9 Financial instruments on prepayment features with negative compensation
IFRIC 23 Uncertainty over Tax Treatments January 1, 2019 Not yet No Low
Annual improvements 2014-2016 IFRS 1, 'First time adoption of IFRS', regarding IFRS 7, IAS 19 and IFRS 10, IAS 28 Investments in associates and joint ventures
In order for an entity to be eligible for the temporary exemption it must have liabilities connected with insurance activities whose carrying value comprises either greater than 90% of the total carrying value of all liabilities or less than or equal to 90% but greater than 80%, and the insurer does not have significant activities unrelated to insurance. Aegon performed this analysis, and concluded that it meets the requirements for the temporary exception. As a result, Aegon will not implement IFRS 9 until January 1, 2021.
Union in September 2016. IFRS 15 will replace IAS 18 Revenue, as well as other interpretations issued by the IFRIC (International
Financial Reporting Interpretations Committee) and SIC (Standing Interpretations Committee) regarding revenue unless the contracts are within the scope of other standards (for example, financial instruments, insurance contracts or lease contracts). The standard outlines the principles an entity shall apply to measure and recognize revenue and the related cash flows. The core principle is that an entity will recognize revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. In April 2016, the IASB issued amendments to IFRS 15 to address several implementation issues discussed by the Transition Resource Group (TRG). The amendments are intended to clarify the requirements in IFRS 15, not to change the standard. IFRS 15 and the amendments is effective for the Group from January 1, 2018, using either of two methods: a full retrospective approach with certain practical expedients or a modified retrospective approach with the cumulative effect of initially applying this standard recognized at the date of initial application with certain additional disclosures. Aegon has evaluated the impact that adoption of this standard is expected to have on the Group’s financial statements and came to the conclusion that this impact will be very limited because insurance revenue is not in scope of IFRS 15 and because the other types of revenue are already materially compliant with this standard. Since IFRS 15 will have very limited impact on the Group’s financial statements, Aegon chose to apply the modified retrospective approach as transition method.
IFRS 16 Leases which replaces IAS 17 has been issued by the IASB In January 2016 and endorsed by the European Union in October 2017. It will be mandatorily effective for annual reporting periods beginning on or after January 1, 2019. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. Aegon is evaluating the impact that adoption of this Standard is expected to have on the Group’s financial statements.
The IASB issued IFRS 17 Insurance Contracts in May 2017. This is not yet endorsed by the European Union. The Standard will replace
2.2 Basis of consolidation Subsidiaries The consolidated financial statements include the financial statements of Aegon N.V. and its subsidiaries. Subsidiaries (including consolidated structured entities) are entities over which Aegon has control. Aegon controls an entity when Aegon is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The assessment of control is based on the substance of the relationship between the Group and the entity and, among other things, considers existing and potential voting rights that are substantive. For a right to be substantive, the holder must have the practical ability to exercise that right.
The excess of the consideration paid to acquire the interest and the fair value of any interest already owned, over the Group’s share in the net fair value of assets, liabilities and contingent liabilities acquired is recognized as goodwill. Negative goodwill is recognized directly in the income statement. If the fair value of the assets, liabilities and contingent liabilities acquired in the business combination has been determined provisionally, adjustments to these values resulting from the emergence of new evidence within 12 months after the acquisition date are made against goodwill. Aegon recognized contingent considerations either as provision or as financial liability depending on the characteristics. Contingent considerations recognized as provisions are discounted and the unwinding is recognized in the income statement as an interest expense. Any changes in the estimated value of contingent consideration given in a business combination are recognized in the income statement. Contingent considerations recognized as financial liabilities are measured at fair value through profit or loss.
(e.g. to elect or remove the asset manager); and �� Rights held by other parties (e.g. voting rights of policyholders that are substantive or not).