AEGON has businesses in more than 20 markets in the Americas, Europe and Asia, providing life insurance, pensions, savings and investment products for over 40 million policyholders around the world.
The Netherlands AEGON’s history in the Netherlands goes back to the country’s early burial funds, which rose to prominence more than 150 years ago. Today, AEGON The Netherlands is one of the country’s largest providers of life insurance, pensions and long-term investment products.
United Kingdom AEGON UK is a leading provider of life insurance and pensions and also has a strong presence in both the asset management and financial advice market.
Other countries In the past few years, AEGON has significantly expanded its international presence outside its three established markets. In particular, AEGON has seen strong growth in its business in Central & Eastern Europe, as well as in Asia.
new business plan, setting out measures to expand distribution and improve profitability.
These are unprecedented and challenging times for AEGON and for financial services companies across the globe. As such, I appreciate this opportunity to provide you an overview of the impact of the economic crisis on AEGON during 2008, as well as the actions we have initiated to strengthen AEGON’s long-term prospects in the life insurance, pension and retirement markets.
AEGON’s operations internationally and deploy capital to areas with higher growth and return prospects; to improve growth and returns within existing businesses; and to manage AEGON as an international company in order to more fully leverage our extensive expertise and resources.
AEGON’s many customers around the world, as evidenced by strong persistency levels and the growth of our customer base in both our established and developing markets. The severity of the crisis, however, had a negative impact on AEGON’s earnings in 2008. Despite the disappointing financial results, AEGON’s core businesses demonstrated their resilience. New life sales decreased by a modest 11% at constant currency, while
AEGON’s fixed and variable annuity sales doubled over the previous year. Total net deposits also rose sharply by 47% at constant currency. We regard these positive developments as a clear result of AEGON’s strong financial position and the steps we are taking to weather the turbulent conditions impacting nearly every sector of the economy.
In response to the sharp downturn in financial markets during the year, we implemented three strategic priorities to strengthen AEGON’s position. Characterized as ‘The 3 C’s’, they fit well with the strategy we introduced in June and are aimed at enhancing AEGON’s
Capital position, reducing Costs, and ensuring that sufficient Contingencies are in place to enable AEGON to withstand further market deterioration.
AEGON’s footprint in Latin America expanded further with a new life insurance joint venture in Brazil; and in
His many contributions as Chief Financial Officer for the past ten years have been invaluable. Jos’ in-depth knowledge of financial markets and keen understanding of developments in international accounting standards has helped guide AEGON through both difficult and prosperous times, complementing AEGON’s growth ambitions with prudent financial discipline. The nomination of Jan Nooitgedagt to succeed Jos ensures that AEGON’s strong financial and risk management capabilities will continue to be integral to the day-to-day management decisions that shape our business.
On behalf of the Management Board, I wish to thank the employees of AEGON around the world for their continued commitment to providing our customers the high quality products and services they have come to expect and require, particularly in these uncertain times.
Alex Wynaendts began his career in 1985 with ABN Amro, working in
Development. Since 2003, he has been a member of AEGON’s Executive
Mr. Wynaendts was named AEGON’s new Chief Operating Officer. A year later, Mr. Wynaendts succeeded Don Shepard as CEO and Chairman of
In 1986, he became the Chief Financial Officer of FGH Bank, joining the bank’s Executive Board the following year. In 1991, Mr. Streppel was appointed
Chairman and CEO of the merchant bank Labouchère. Four years later, he also became Chairman of FGH Bank. Mr. Streppel was named as
AEGON’s Chief Financial Officer in 1998. In 2000, he was appointed to the company’s Executive Board. In addition to his positions at AEGON,
Mr. Streppel is also a member of the Supervisory Boards of both Royal
KPN N.V. and Van Lanschot N.V. Mr. Streppel has announced that he will step down at AEGON’s General Meeting of Shareholders scheduled for
Pat Baird began his career at AEGON USA in 1976. He has served as
Mr. Baird is also a member of the board of directors at Cedar Rapids
He left Scottish Equitable in 1988 to take up various management and executive roles at UK insurers Abbey Life and Royal Insurance before returning to AEGON UK in 1994 as Development Director. In 2002,
Mr. Thoresen was appointed Finance Director of AEGON UK before becoming the company’s CEO three years later.
Mr. Keim has also worked for aircraft maker Fokker Aircraft and NS Reizigers, part of the Dutch national railway company NS Group. In 1999, Mr. Keim joined Swiss Life in the Netherlands as a board member. Three years later, he was appointed CEO before joining AEGON The Netherlands at the beginning of June 2008.
In that time, he has spearheaded an expansion of AEGON’s businesses not only in Hungary but also across the Central & Eastern European region.
Executive Board remains AEGON’s sole statutory executive body, the Management Board provides vital support and expertise in pursuit of the company’s strategic goals.
In 2008, AEGON marked its twenty-fifth anniversary. The company was formed in 1983 – the result of a merger between two Dutch insurance companies, AGO and Ennia. But AEGON’s roots date back much further, to the mid-nineteenth century when the company’s predecessors provided burial funds for customers in the Netherlands.
AEGON companies employ some 31,500 people worldwide, serving over 40 million customers in more than twenty markets.
AEGON has a clear, well-defined strategic framework, aimed at creating added value for the company’s customers, employees, shareholders and the wider community. This framework is based on five main principles – the building blocks of AEGON’s strategy: AEGON is committed to its core businesses: life ��
aiming to improve its return on equity and writing new business with a minimum internal rate of return of 11% after tax; AEGON aims to be a leader in the markets in which it ��
Potential‘ – is based on three strategic objectives: To target more of AEGON’s financial resources ��
“What happened in the financial markets in the second half of 2008 really changed the rules of the game for insurance companies. We needed to take immediate action – first of all, to further reduce the amount of risk we were carrying and secondly, to free up capital from our balance sheets.
At AEGON, because of the plans we’d announced in June, we were already focused on this area. Thanks to these measures – and the support we received from Vereniging AEGON, funded by the
Dutch state – we entered 2009 with a substantial capital buffer, comfortably above what we would require to maintain AA capitalization.
The global financial crisis, which took hold in the third quarter of 2008, has left the insurance industry facing a number of important challenges, including: A downturn in the world’s leading economies; ��
These factors have resulted in an increased need for capital within the insurance industry. At the same time, however, because of growing economic and market volatility, the cost of capital has risen sharply.
shifted its focus in the second half of 2008 to the following areas: Efforts to lower risk and free up additional capital from the ��
EUR 1.7 billion in capital from its businesses during the second half of 2008 – capital that helped the company withstand a considerable worsening in market conditions. AEGON expects to free up a further
Vereniging AEGON, funded by the Dutch State – a necessary precaution against further declines in world financial markets.
Overall, this approach ensured that AEGON would enter 2009 with a significantly reinforced capital buffer, an important safeguard in the current uncertain market environment. At the end of 2008, the company had EUR 2.9 billion in capital over and above what would be required to maintain a AA rating for its operating units.
In addition, AEGON has also announced that it expects to lower operating expenses in 2009 by more than EUR 150 million, equivalent to approximately 5% of the company’s 2008 cost base. These savings will be achieved through restructuring programs, efficiency improvements and expense reductions at AEGON’s operations in the United States, the Netherlands and the United Kingdom.
The financial crisis has led to an increased near-term focus on capital, but AEGON’s longer-term strategy – the company’s commitment to increase returns and grow its businesses – remains in place. ‘Unlocking the Global Potential’ is aimed at delivering sustainable, profitable growth for AEGON and its investors over the next several years. Despite the financial crisis, AEGON has made important progress with the specific measures outlined in the plan.
AEGON senior management is planning to update investors at the company’s regular Analyst & Investor Conference scheduled for
Canada to reduce capital use and ensure profitable growth by focusing on a select range of products. In the Netherlands, meanwhile, AEGON has introduced a new strategic plan, aimed at increasing profitability, expanding the company’s distribution network and improving the return on capital.
“AEGON has always had strong asset management businesses – in the
United States, the United Kingdom, the Netherlands and elsewhere around the world. But, traditionally, our businesses have worked independently of each other.
By setting up a single, global organization for asset management, we can start making the most of our collective strength – particularly important in the current troubled market environment. We can start thinking
AeGOn has begun to reallocate capital toward businesses with higher growth and return prospects
EUR 1.7 billion in the second half of 2008. But, because of the financial crisis, investment in new businesses has been reduced. Even so, over the past year, AEGON has opened new businesses in India and Turkey, signed a new joint venture with one of Brazil’s largest independent insurers, expanded its bank distribution network in Spain and invested in the company’s growing pension business in Central & Eastern Europe. By 2012, AEGON expects over 50% of its capital will be allocated to businesses outside the United States – an approach that will give the company a more balanced international presence.
Despite the financial crisis, AEGON believes that the insurance and pension industry offers prospects for strong, sustainable growth in the years ahead.
America and Japan, people are living longer, healthier lives. Governments are no longer able to afford the generous state pensions that were once commonplace.
As a result, demand for private pensions, life insurance and other long-term savings and investment products is rising. At the same time, the growing number of people entering retirement has led to a shift in focus, away from simply saving toward how to use those savings to ensure a comfortable old age. Fifty years ago, according to
Europe. Here, growth stems from a combination of recent economic expansion, political reform and rising levels of personal wealth. The potential size of some of these markets is enormous. By the middle of this century, it is estimated that there will be almost 340 million people in China over the age of 65 – more than the total populations of the United States, the
United States, the world’s biggest life insurance and pension market. And, over the past several years,
Other Western european countries Expand successful bank distribution model in Spain ��
Latin America Build scale in Mexico through joint venture with Seguros Argos ��
Potential’ is based on the following country unit initiatives and objectives:
AEGON endeavors to provide information that is clear, transparent, accurate and timely.
conferences around the world; Investor road shows in North America, Europe and ��
attracted around 120 participants. Presentations by members of AEGON’s senior management addressed specific industry issues as well as the financial performance of the company and its operating units.
Capital, Cost and Contingency, while Marco Keim, the new CEO for the Netherlands, outlined his strategy for the company’s Dutch operations. There was also a presentation on AEGON’s approach to risk and capital management
In February 2008, AEGON’s Executive Board adopted a new policy on communications between the company and its shareholders.
AEGON recognizes the importance of a clear, stable and coherent dividend policy. Dividends to shareholders depend on the company’s cash flow and capital position.
Payment of the interim and final dividend is made in either cash or stock.
shares on the Amsterdam and New York stock exchanges during 2008.
March 23 Record date for attending/voting at the April 22 AGM
May 14 First quarter 2009 results and Embedded Value Report 2008
May 12 First quarter 2010 results and Embedded Value Report 2009
Jos Streppel, AEGON’s CFO, gives his view of a year dominated by turmoil in the world’s financial markets.
But I’m confident we are taking the right steps to deal with the crisis. We reduced our risk and we freed up capital from our existing businesses.
EUR 41 billion in gross deposits in 2008 – remains intact, despite the shock of the financial crisis. As markets stabilize, we believe that profits in the insurance industry will begin to increase.
Today’s economic climate means that people have begun to think differently about their financial decisions and the steps they need to take to safeguard their futures. Customers, for example, are already more sensitive to risk now than they were six months ago.
They will want products that offer guarantees – products that, in an uncertain environment, will help them secure their long-term financial futures, products that are core to AEGON’s business and expertise.
Over the past several months, we’ve had to make some difficult choices. Among other things, we’ve introduced a program of cost reductions in the United States, the
Netherlands and the United Kingdom that will save us at least EUR 150 million in 2009. Cutting costs is never easy, but it’s something we have to do. In addition, measures to release capital and reduce risk will continue throughout 2009. For a company like AEGON, there are opportunities opening up because of the financial crisis – and these measures, by strengthening our financial position, will help ensure we’re able to capitalize on them.”
Inevitably, the global financial crisis affected AEGON’s earnings in 2008. But the company took steps to combat the crisis by reducing risks and freeing up extra capital from its existing businesses.
The internal rate of return on new business reached 17.8% in 2008, comfortably above AEGON’s own hurdle rate of 11%.
In 2008, AEGON’s earnings were severely affected by the global financial crisis. The company’s core businesses, however, remained resilient, while measures taken to reduce risk, release and secure additional capital helped ensure that AEGON entered 2009 with a strong financial position.�
Customers, in particular, became more cautious, while regulators took a significantly more conservative approach to capital and solvency requirements. AEGON’s earnings for the year were also affected by a rise in impairments, linked mainly to US financial institutions, housing-related structured assets in the United States, high-yield corporate bonds and equity investments.
operating costs by approximately EUR 150 million in 2009. These savings will be achieved mainly by restructuring businesses in the company’s three leading markets: the United States, the Netherlands and the United Kingdom.
This will free up an estimated EUR 600 million in capital over the next two years.
AA capital adequacy requirements. Its solvency ratio, under the European Insurance Group Directive, stood at 183%, down fractionally from 190% at the end of 2007.
The deterioration in world financial markets had a significant impact on AEGON’s earnings for 2008.
Americas and the Netherlands. New life sales declined 20% to EUR 2.6 billion – a reflection of adverse currency movements and the impact of increased market turmoil, particularly on sales of unit-linked products and bankowned and corporate-owned life insurance in the United
EUR 40.8 billion, with lower sales of institutional products and pensions and asset management more than offsetting strong sales of fixed annuities in the
United States. AEGON’s value of new business was also lower, down 10% at EUR 837 million due mainly to a sharp decline in sales in Taiwan and the stronger euro.
in 2008 to EUR 1.6 billion – a reflection primarily of reduced fees on asset balances and of lower equity markets, which led to reserve strengthening and an accelerated amortization of deferred policy acquisiton costs, particularly in the company’s variable annuities business in the Americas.
In the United Kingdom, lower equity and bond markets led to a decline in income from fees in the company’s pension business. Increase in long-term assumptions with regard to equity market volatility also adversely impacted AEGON’s earnings from the Americas.
These factors were offset partly by gains from higher interest rates spreads and a one-off dividend payment of EUR 75 million received from an investment fund in the Netherlands.
EUR 746 million in 2007 and included gains on derivatives held at holding level. Income tax amounted to EUR 21 million due to a charge of EUR 490 million related to inter-company reinsurance treaties more than offsetting the tax benefit from the company’s reported operational losses.
EUR 6.1 billion. This was due primarily to an acceleration in DPAC amortization, as well as a number of one-off items, including restructuring charges, project expenses and provisions.
Spain were boosted by changes to local pension legislation and an expansion of AEGON’s bank distribution network in the country. In Central & Eastern
Europe, sales of unit-linked products, in particular, were adversely affected by the decline in world equity markets, but AEGON’s pension business in the region continued to show signs of growth. In Asia, unit-linked sales were also adversely affected by the decline in world equity markets.
EUR 837 million, a decline of 10% compared with the previous year. Operations in the Americas, the
United Kingdom and Central & Eastern Europe all posted gains in VNB. Asia was, however, sharply lower – due mainly to a decrease in VNB from Taiwan. The company’s internal rate of return on new business declined slightly to 17.8% from 18.4%, but remains comfortably above its own minimum return target of 11%.
In 2008, shareholders’ equity on an IFRS basis declined by EUR 9.1 billion. AEGON’s revaluation reserve declined by EUR 6.7 billion. Net loss for the year
(EUR 1.1 billion) and the payment of dividends and coupons (EUR 970 million) were the other main contributors to the decline.
AEGON’s long-term business model, in combination with its disciplined approach to liquidity and asset and liability management, ensures that it is unlikely that the company will be forced to sell assets at distressed prices in order to generate cash. Therefore, AEGON’s negative revaluation reserve is not a good indication of future losses. AEGON expects impairments will be at elevated levels in 2009, due to the economic situation.
AEGON is one of the world’s leading providers of life insurance and financial protection products, serving millions of customers across the globe. AEGON offers a broad range of traditional, term, universal, permanent life insurance, as well as individual and group financial protection, including accident and health cover.
AEGON helps individuals and families around the world save for their retirements, increasingly important as people in many countries live longer, healthier lives. AEGON
provides a wide variety of savings and retirement products, including retail mutual funds and fixed sand variable annuities. AEGON
With people living longer lives, and governments increasingly shifting responsibility for retirement provisioning to the private sector,
AEGON believes demand for pensions will continue to grow in the years ahead. AEGON has a strong and expanding pension business in the United States, the Netherlands and United Kingdom.
The company has leading life insurance businesses in the Americas (United
States, Canada, Mexico), the Netherlands, the United Kingdom and Spain, as well as a growing presence in emerging markets in Asia and Central &
AEGON Scottish Equitable in the United Kingdom and AEGON itself in the
Demand is growing in other regions, opening up new opportunities for the company. Pensions are an important part of AEGON’s businesses, not only in our established markets, but also in new, emerging markets like the countries of Central & Eastern Europe.
companies provide institutional guaranteed products, such as guaranteed investment contracts and funding agreements, as well as management, administration and risk services for off-balance sheet items
Spain, Hong Kong, Ireland, Japan, Mexico, South Korea, Taiwan and the
AEGON USA’s main distribution channels include independent and career agents, financial planners and other registered representatives, independent marketing organizations, banks, broker-dealers, consultants, wirehouses, affinity groups and other institutional partners. AEGON USA also provides a range of products and services online and uses direct and worksite marketing. In addition, AEGON Canada also uses agencies owned by Transamerica Life Canada and operates through the World Financial Group, part of
AEGON Americas’ underlying earnings before tax declined 42% to USD 1.6 billion – a reflection primarily of reserve strengthening and an acceleration in deferred policy acquisition costs (DPAC), which were partly offset by increased spreads on institutional guaranteed products. Reserve strengthening affected earnings from both the Individual savings and Retirement products and the Life reinsurance lines of business.
Bermuda. These tax losses are largely expected to reverse as the book matures and when credit spreads narrow.
The underperformance in fair value items reflected lower financial markets during the year as well the decline in interest rates, wider credit spreads and a considerable increase in market volatility. As expected, given the deterioration in economic conditions, impairments showed a significant rise compared with 2007. Impairments were concentrated in three main areas: US financial institutions (particulary Lehman
AEGON Americas’ new life sales declined 26% in 2008 to USD 945 million – a reflection of the downturn in economic conditions. Sales of bank-owned and corporate-owned life insurance also slowed considerably because of the financial crisis. Total gross deposits, meanwhile, showed significant resistance, declining only 3% to USD 52.4 billion. Sales of fixed annuities tripled, offsetting declines in deposits of institutional products, saving products and asset management.
Despite extremely difficult market conditions, AEGON’s value of new business in the Americas increased by 4%
At the end of 2008, revenue-generating investments totaled USD 286.2 billion, down from USD 326.0 billion a year earlier. This decline was due to lower equity and bond markets.
Dutch group pension market. Underlying earnings before tax declined 10% to EUR 378 million, while net income decreased to EUR 94 million, largely because of the impact of lower gains on investments and a rise in impairments. Total gross deposits fell by 11%, due primarily to lower savings, pensions and asset management deposits. Value of new business was 16%
including selective price increases, cost reductions and a focus on less capital intensive products; To extend AEGON The Netherlands’ distribution ��
In September 2008, AEGON The Netherlands took further steps to reduce charges associated with unit-linked insurance policies sold in the Netherlands in line with industry-wide recommendations from the country’s
Ombudsman for Financial Services, following complaints from customers. In recent years, AEGON The Netherlands has made substantial improvements to these products.
In 2005 and 2006, AEGON The Netherlands revised its entire portfolio of unit-linked policies, reducing charges to customers retrospectively and reinvesting the difference.
At the end of 2008, AEGON’s revenue-generating investments in the Netherlands stood at EUR 63.1 billion, down from EUR 65.6 billion the year before. This decline was due to lower equity and bond markets.
earnings overview AeGOn The netherlands Amounts in EUR million 2008 2007
GBP 64 million. Much of the decline in earnings was due to lower fund-related charges in AEGON UK’s pension business. However, sales held up well, with new life sales up 3% and a strong performance in particular from group pensions, annuities and the financial protection business. Higher margins led to a further increase in the
AEGON UK reported underlying earnings before tax in 2008 of GBP 113 million, down from GBP 186 million the year before. Most of the decline may be attributed to the impact of lower corporate bond and equity markets on fund-related charges in AEGON’s unit-linked pension business. Earnings from Life and Protection decreased
AEGON UK’s value of new business rose 18% in 2008 to
GBP 186 million, as margins showed further improvement during 2008. AEGON’s strategy in the United Kingdom is to move more of its business to higher-margin areas, such as annuities and protection products. As a result, the internal rate of return on new business in the
At the end of 2008, revenue-generating investments stood at GBP 47.1 billion, down from GBP 53.1 billion.
This decline reflects primarily the effect of weak equity markets during the year.
AEGON’s activities in Central & Eastern Europe operate through a number of different sales channels. These include tied agents, insurance brokers and, particularly in Hungary, Poland and Romania, retail banks. Through tied agents, brokers and call centers, AEGON sells primarily life and non-life insurance products and pensions. Banks and loan centers are used to sell mainly life insurance, mortgages, mutual funds, pensions and household insurance.
La Mondiale in a number of areas including pensions, asset management and distribution.
Europe, however, proved resilient, despite a clear downturn in economic conditions and the impact of the global financial crisis. Underlying earnings before tax declined 35% to EUR 93 million, while AEGON’s Other countries reported a net loss for the year of
EUR 148 million – a reflection of lower equity markets, which led to a decrease in unit-linked sales in Central
amortization in Taiwan, which offset a resilient performance from the company’s operations in Spain and Central & Eastern Europe. Both AEGON’s pension business in Central & Eastern Europe and its asset management business in China showed signs of further growth during the year. Higher contributions from the joint venture with Caja de Ahorros del Mediterráneo
(CAM), AEGON’s largest bank partner in Spain, were offset by additional start-up costs at the company’s joint venture in India and lower income from La Mondiale,
Commissions and expenses in Other countries showed a sharp increase in 2008, up 33% to EUR 494 million, due primarily to an acceleration in DPAC amortization in
EUR 211 million. The rise in operating expenses was due to continued growth in AEGON’s pension business in
New life sales declined 34% to EUR 233 million – a reflection of continued extreme market volatility.
Europe showed a modest gain in 2008. The internal rate of return in Asia rose to 18.5% as a result of a change in the product mix. In Central & Eastern
Central & Eastern Europe continued to grow in 2008 – despite the global financial crisis and a worsening economic environment. With the inclusion of Turkey, we’re now active in six markets across the region.”
earnings overview AeGOn Other countries Amounts in EUR million 2008 2007
these risks; Establishing limits for the level of exposure to a ��
AEGON must, at all times, maintain a solvency position such that no plausible scenario would cause the company to default on its obligations to policyholders.
To accomplish this, AEGON has established two basic objectives for its risk management strategy: AA capital adequacy requirements: AEGON maintains ��
AEGON’s most significant risk is to changes in financial markets, related particularly to movements in interest
AEGON experienced the impact of unprecedented deterioration in capital markets in 2008. The global financial crisis brought about sharp declines in equity markets, a worsening in general economic conditions, lower interest rates, extreme market volatility, an 1 Please note that the information here is intended as an overview only. A more detailed explanation of credit risk, equity and other investment risk, interest rate risk, currency exchange rate risk, liquidity risk, underwriting risk and operational risk, as well as other group-wide risk management policies may be found on pages 116 to 140 of the Financial statements Annual Report 2008. Further information on sensitivity analyses may also be found on these pages.
Equity markets around the world fell sharply in 2008. AEGON had already sold most of its direct equity market exposure in the Netherlands and the United States before financial markets began to decline. In addition, AEGON has also increased the hedging of its product guarantees to protect itself against a further deterioration in equity markets. Since 2003, for example, AEGON has hedged almost all new variable annuity business.
interest rate risk Interest rates declined in 2008. This had important consequences, particularly for investment income and for the margins on financial guarantees included in certain policies. On some products, AEGON took steps to reduce such guarantees. In addition, AEGON implemented an interest rate hedge in the Netherlands, reducing the company’s exposure to interest rate volatility and the risk to earnings. AEGON also increased its forward-starting swap programs in the United States to achieve similar objectives.
As an international company, AEGON is exposed to movements in currency rates. However, AEGON does not consider this exposure to be material. The company holds its capital base in various currencies in amounts that correspond to the book value of individual country units, thus mitigating currency risk. On occasions, AEGON does hedge cash flows from operating subsidiaries as part of its broader capital and liquidity management.
Liquidity risk AEGON has a strong liquidity management strategy in place. The company’s current approach to liquidity management dates back to the early 1990s. As part of this approach, AEGON regularly considers the most extreme liquidity stress scenarios, including the possibility of prolonged ‘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 highly developed liquidity stress planning in place. In 2008, AEGON put its speciallydesignated Liquidity Stress Management Team into action to deal with the sharp deterioration in business and market conditions. AEGON’s liquidity management strategy ensures the company is not a forced seller of assets even in a severe stress scenario. Current tests show that available liquidity would more than match the company’s requirements for at least the next two years, even if the current poor market conditions detoriate further.
unprecedented widening in credit spreads and a sharp increase in bond defaults. These factors had serious implications not only for AEGON’s sales and earnings, but also for the company’s capital and liquidity position.
AEGON’s risk management framework is represented across all levels of the organization. This ensures a coherent and integrated approach to risk management throughout the company. Similarly, AEGON has put in place a number of company-wide risk policies, which detail specific operating guidelines and limits. These policies are designed to keep overall risk-specific exposures to a manageable level. Any breach of policy limits or warning levels trigger immediate remedial action or heightened monitoring. Further risk policies may be developed at a local level to cover situations specific to particular country or business units.
insolvency from an over-concentration of risk in particular areas; To facilitate diversification by enabling management ��
to identify diversification benefits from apparent riskreturn trade-offs; To reassure external constituencies that AEGON has ��
Underwriting risk AEGON’s earnings depend, to a significant degree, on the extent to which claims experience is consistent with assumptions used by the company to price products and establish technical liabilities. Changes in, among other things, morbidity, mortality, longevity trends and policyholder behavior could have a considerable impact on AEGON’s income. AEGON believes it has the capacity to take on more underwriting risk (providing of course it is correctly priced) in line with the company’s broader strategy to capitalize on growth opportunities in its main life insurance and pension markets.
Operational risk Like other companies, AEGON faces risk resulting from operational failures or external events, such as changes in regulations and natural or man-made disasters. AEGON’s systems and processes are designed to support complex products and transactions and to avoid such issues as system failures, financial crime and breaches of security. AEGON is constantly working on analyses studying such operational risks and regularly develops contingency plans to deal with them. These plans also cover extreme event scenarios, such as the possibility of mortality pandemics in one or more of the company’s main markets.
AEGON’s Executive Board has overall responsibility for risk management. The Board adopts the risk governance framework and determines the company’s overall risk tolerance and risk appetite. The Executive Board reports to the Risk Committee of AEGON’s Supervisory Board, which is responsible for overseeing AEGON’s enterprise risk management framework, including governance and measures taken to ensure risk management is integrated properly into the company’s broader strategy. In addition, the Risk Committee also reviews overall risk exposure in light of management’s risk appetite, the company’s own risk exposure limits and AEGON’s overall solvency position.
The GRCC is responsible for overseeing AEGON’s solvency position, ensuring that risk-taking is within overall tolerance levels and that the company’s capital position is adequate to support AA capital adequacy requirements. As such, the GRCC also works closely with the company’s Group Treasury and
Treasurer and CFOs from the company’s three main country units – the United States, the Netherlands and the United Kingdom – are also members of the GRCC.
RCCs have been established at each of AEGON’s country units and, within the United States, at each business unit. The responsibilities and prerogatives of the RCCs are set out in their respective charters and are similar in content to those of the GRCC, but applicable to local circumstances. AEGON’s regional Chief Risk Officers (or designated staff) are members of every operating unit
Before the second half of 2008, AEGON’s own risk management scenarios had recognized the possibility of such extreme market conditions, but company management, in common with most other economic commentators, did not recognize the imminent threat nor the degree of severity that unfolded.
These steps helped strengthen AEGON’s capital and liquidity position in the years immediately prior to the financial crisis. The crisis itself, however, proved more severe than anticipated, and to counter its effects the company was obliged to take further action in the second half of 2008. These short-term measures were aimed at: Lowering risk and preserving capital within existing ��
EUR 150 million. These savings will be achieved mainly by restructuring businesses in the United States, the Netherlands and the United Kingdom.
Taken together, these measures ensured AEGON entered 2009 with a significant capital buffer as a safeguard against a further deterioration in world financial markets. At the end of 2008, AEGON had an excess capital of EUR 2.9 billion over and above AA capital adequacy requirements – one of the key objectives of the company’s risk management strategy. AEGON’s solvency ratio, under the European Insurance Group
Directive, stood at 183%, down only marginally from 190% at the end of 2007.
Along with the mentioned goals, the funding and capital management process aims to ensure that high standards of liquidity are maintained even during periods of severely impaired financial markets. These goals reinforce AEGON’s capacity to withstand losses from severely adverse business and market conditions and help maximize the interests of all its stakeholders.
AEGON conducts its funding and capital management processes at various levels within the organization, coordinated by Group Treasury, under the remit of the
At the end of the year, the AEGON Group had excess capital over these self-imposed requirements of
The AEGON Group does not manage its capital based on the EU Insurance Group Directive. However, for comparison purposes, AEGON reports its IGD ratio. At the end of 2008, the Group’s IGD ratio was 183%
The capital base reflects the capital employed across the group and consists of core capital (which consists of shareholders’ equity, excluding revaluation reserve, as well as convertible core capital securities), perpetual capital securities (including currency revaluations), dated subordinated debt, and senior debt. AEGON
targets its capital base to comprise at least 70% core capital, and targets 25% perpetual capital securities and 5% dated subordinated debt and senior debt.
Excess capital is the capital in excess of the most stringent capital adequacy requirement adhered to by
AEGON. Leverage capacity is the maximum capacity to issue debt under the defined leverage tolerance.
Financial flexibility is a self-imposed managerial limitation for assuming debt and gives an indication of the capacity of the Group to assume debt. The current dislocation of the credit and funding markets may hamper the use of leverage capacity. Financial flexibility may be further restricted under certain financial covenants. Under the most stringent covenant applicable,
EUR 1.3 billion. Current liquidity needs are covered by excess cash held within the Group.
The main goals of AEGON’s capital and liquidity management are to ensure strong capital adequacy, manage and allocate capital efficiently across the company in order to maximize sustainable returns, and facilitate access to money markets and capital markets on competitive terms such that the cost of capital is minimized.
December 31, 2007. The main drivers of the decrease were a net loss of EUR 1,082 million, a decrease in the revaluation reserve of EUR 6,651 million, a decrease in the foreign currency translation reserve of EUR 170 million (largely as a result of the higher US dollar and lower British pound), dividend payments, repurchased shares and coupon payments on perpetual capital securities.
In the context of the unprecedented market conditions that materialized in 2008, AEGON secured, on
December 1, 2008, an additional EUR 3 billion in core capital from Vereniging AEGON, funded by the Dutch
Liquidity is managed at both Group and country unit levels. AEGON’s liquidity position remained strong throughout the year.
AEGON N.V. has regular access to the capital markets under its USD 6 billion Euro Medium Term Notes
US Commercial Paper Programs provide access to domestic and international money markets. At December 31, 2008, AEGON N.V. had EUR 0.4 billion outstanding under its commercial paper programs.
Internal sources of liquidity include distributions from operating subsidiaries. Internal distributions may be subject to (local) regulatory requirements. Excess liquidity is invested in highly liquid, short-term assets in accordance with internal risk management policies.
The duration profile of AEGON’s capital leverage is managed in line with the duration of surplus assets related to investments in its subsidiaries, subject to liquidity needs, capital and other requirements. AEGON
AEGON will continue to explore further opportunities for insurance-linked securitizations and other innovative capital market transactions as part of the Group‘s ongoing commitment to manage capital and reserve needs both efficiently and actively.
Claims paying ability and financial strength ratings are factors in establishing the competitive position of insurers. A rating downgrade of AEGON or any of its rated insurance subsidiaries may, among other things, materially increase the number of policy surrenders and withdrawals by policyholders of cash values from their policies. The outcome of this may be cash payments requiring the sale of invested assets, including illiquid assets, at a price that may result in realized investment losses. Such cash payments to policyholders would result in a decrease in total invested assets as well as a decrease in net income. Among other things, early withdrawals may also cause AEGON to accelerate amortization of policy acquisition costs, reducing net income.
During 2008, the credit ratings for AEGON remained unchanged, however, the outlook for all three credit ratings was changed to negative. In early 2009, Moody’s lowered its senior debt rating for AEGON N.V. to A3 with a negative outlook, Fitch lowered its senior debt rating to A with a negative outlook, while Standard & Poor’s put its senior debt rating of A+ on credit watch negative, with as likely outcome an affirmation or a one-notch downgrade to A.
Insurance financial strength ratings of AEGON USA by one notch, to A1 and AA respectively.
AEGON also faces a number of other risks, which could have a materially adverse effect on AEGON’s results of operations, corporate reputation and financial condition.
AEGON’s operating results and financial position may be adversely affected by volatile natural and man-made disasters such as hurricanes, windstorms, earthquakes, terrorism, riots, fires and explosions. Over the past several years, changing weather patterns and climatic conditions have added to the unpredictability and frequency of natural disasters in certain parts of the world and created additional uncertainty as to future trends and exposure. Generally, AEGON seeks to reduce its exposure to these events through individual risk selection, monitoring risk accumulation and purchasing reinsurance. However, such events could lead to considerable financial loss to AEGON’s business.
AEGON faces significant risks of litigation and regulatory investigations and actions in connection with activities as an insurer, securities issuer, employer, investment advisor, investor and taxpayer. In recent years, the insurance industry has increasingly been the subject of litigation, investigation and regulatory activity by various governmental and enforcement authorities. Lawsuits, including class actions and regulatory actions, may be difficult to assess or quantify and may seek recovery of very large and/or indeterminate amounts, including punitive and treble damages.
The failure of a major market participant could disrupt securities markets or clearance and settlement systems in AEGON’s markets, which could, in turn, cause market declines or volatility. Such a failure could lead to a chain of defaults that could adversely affect the Group.
The United States and the Netherlands do not currently have a treaty providing for the reciprocal recognition and enforcement of judgements (other than arbitration awards) in civil and commercial matters. Judgements of
AEGON’s financial reporting process and the company’s internal control framework. Based on risk assessments performed, the Executive Board, under supervision of the Supervisory Board and its Audit Committee, is responsible for determining the overall internal audit work and for monitoring the integrity of the financial statements of AEGON N.V.
The Executive Board is informed of any risks that threaten the economic/statutory solvency or operations of the Group.
provide reasonable assurance that the Group’s financial reporting does not contain any material inaccuracies; AEGON’s risk management and controls systems ��
functioned properly in 2008; There are no indications to suggest that AEGON’s risk ��
Responsibilities in respect of the financial statements and the Annual Report
The Executive Board is responsible for preparing the financial statements and the Annual Report in accordance with Dutch law and those International
Executive Board confirms that to the best of its knowledge, the financial statements prepared in accordance with applicable accounting standards give a true and fair view of the assets, liabilities, financial condition and profit or loss of the company and the undertakings included in the consolidation as a whole and that the report of the Executive Board includes a fair view of the development and performance of the business during the financial year and the position at balance sheet date of the company and the undertakings included in the consolidation as a whole, together with a description of the principal risks and uncertainties the company faces.
Executive Board in line with the Remuneration Policy as adopted by the company’s General Meeting of Shareholders.
In its meetings, the Supervisory Board regularly deals with the following issues: Business strategy; ��
Governance Code may be found on pages 72 to 76 of the Annual
Report. In 2008, the capital agreement with the Dutch State prompted certain changes to AEGON’s corporate governance structure. The details of these changes are set out on pages 77 to 78. The full report on AEGON’s compliance with the Dutch
Dutch State. These measures enabled the company to enter 2009 with a significant capital buffer, an important safeguard against further declines in world financial markets. During the year, the Supervisory Board met frequently with AEGON’s Executive Board to discuss the financial crisis and the company’s response to it. The Supervisory Board gave its full support to measures taken by the Executive Board to help AEGON
In accordance with AEGON’s Supervisory Board Rules, all regular meetings in 2008 were preceded by preparatory meetings, attended by the Chairman and Vice-Chairman of the Supervisory Board, as well as the Chief Executive
Supervisory Board discussed the annual results for 2007, interim and final shareholder dividends, all quarterly results and value of new business (VNB)
figures published in 2008, as well as press releases relating to these matters.
Representatives from Ernst & Young, AEGON’s independent auditor, also attended the discussion on the company’s 2007 annual results.
Board reviewed and discussed its own composition and performance. The Board assessed the performance of both individual members and its committees, following advisory work carried out by an external consultant.
Members of the Executive Board were not present during these discussions.
In May 2008, the Supervisory Board held its annual strategy meeting in London. At the meeting, the Board discussed, among other things, the company’s strategic review, which was used as the basis for AEGON’s new strategy and the underlying earnings and return on equity targets announced in June 2008. The Board also discussed ways in which AEGON’s merger and acquisition strategy should be used to support the company’s overall strategic goals.
AEGON’s Group Plan 2009, which set out the company’s near-term priorities to counter the effects of the global financial crisis. These priorities included measures to release and preserve capital, lower risk and reduce costs.
The Board also discussed a number of key questions with regard to the broader financial crisis and its implications for the company.
In March 2008, the Supervisory Board discussed AEGON’s annual results for 2007, including the company’s VNB
Board also endorsed the Executive Board’s decision, in view of the global financial crisis, not to issue a longterm incentive plan for AEGON management and staff worldwide for 2009.
agreement with Spanish savings bank Caixa Terrassa; The acquisition of a 50% interest in Brazilian life ��
member of the Supervisory Board; The appointment of Cecelia Kempler, Robert J. Routs, ��
Shareholders, reappoint Mr. Eustace for a term of one year. This decision was announced at the General
United States and Asia. The Board was also apprised of developments regarding OPTAS N.V., an acquisition made in 2007.
Supervisory Board considered the presentation and the discussion that followed to be very useful and informative. During the year, the Supervisory Board was informed on developments regarding risk management and economic capital.
The Supervisory Board relies on its four Committees to prepare specific issues for decision-making by the Board.
Sarbanes Oxley legislation in the United States. In accordance with legal requirements, the Audit
During 2008, the Audit Committee received an update each quarter on the activities of the company’s Internal
Internal Auditor as well as with external auditors, to discuss their findings. Members of the Executive Board were not present at these sessions.
Two separate meetings, in March and September, were devoted to AEGON’s filings during the year with the US Securities and Exchange Commission. These comprised the company’s: 2007 Annual Report (Form 20-F); ��
Board authorize AEGON’s Executive Board members to provide for the company’s funding requirements, as set out in the 2009 Capital Plan.
Enterprise Risk Management framework. The Committee also advises the Executive Board with respect to the company’s risk management strategy and policies.
Committee discussed the quarterly risk reports and risk overview. Other recurring subjects were the US credit portfolio and the capital preservation measures taken during 2008.
Executive Officer or the Chief Financial Officer. During the year, the Compensation Committee discussed the
(LTI) Plan, which matured in 2008 and noted that the 2006 LTI Plan would mature in 2009. The Committee discussed and assessed the 2007 Plan under the
Plan in 2008. In its assessment, the Committee made use of the advice of Towers Perrin, external independent advisors. Details of the payments under the Executive
The main items of discussion during the Committee’s meetings were the Remuneration Policy for the
Management Board. Possible amendments to variable compensation under the Executive Board Remuneration
Board’s remuneration, comparing AEGON’s arrangements with other two tier companies in Europe and decided that despite the fact its remuneration was well below the median, it would address this issue again in 2009, to prepare for a possible discussion during the General
Board. In addition, Irving W. Bailey, II, was reappointed for another four-year term of office after his previous mandate expired in 2008.
Board wish to thank Mr. Stevens for his long and distinguished service to AEGON.
As part of AEGON’s agreement with the Dutch State, the Supervisory
Board decided to nominate Mr. Nooitgedagt to the Executive Board for a four-year term. His appointment will be proposed to shareholders at the 2009 General Meeting of Shareholders.
Chief Financial Officer of AEGON. Mr. Nooitgedagt’s biography will be provided together with the agenda for the 2009 General
Executive Board is included in the company’s Executive Board Rules and posted on AEGON’s corporate website, www.aegon.com.
This Annual Report includes the annual accounts for 2008, prepared by the Executive Board, discussed by both the Audit
Members of the Supervisory Board would also like to express their appreciation for the dedication and commitment they have shown in what has been an exeptionally difficult market environment.
Financial Officer. His retirement takes effect at AEGON’s 2009 General Meeting of Shareholders. Mr. Streppel has been with AEGON for the past 35 years.
Robert J. Routs is a former Executive Director for Downstream at Royal Dutch Shell. Mr. Routs was appointed to
Board in 2007 and his current term will end in 2011. He is also a member of the Supervisory Boards of Akzo Nobel N.V.
and SHV Holdings N.V., as well as a member of the Board of Directors of BP plc.
Cecelia (Sue) Kempler is an independent consultant on insurance industry matters and director of the
Kaye School of Finance, Insurance and Economics at Florida Atlantic University. She is a former partner of law firm
Le Boeuf, Lamb, Greene & MacRae. Ms. Kempler was appointed to AEGON N.V.’s Supervisory Board in 2008. Her current term will end in 2012. She is a member of the American Bar Association, the Association of Life Insurance Counsel, the
Supervisory Board in 2005 and his current term will end in 2009. He is also a non-executive director of Nissan Motor,
Provinciale Staten of the Province of Utrecht from 1982 until 1998, a member of the European Parliament from 1989 to 2003 and Minister of Transport, Public Works and Water Management in the Dutch government from 2003 to 2007.
Kornelis (Kees) J. Storm is a former Chairman of the Executive Board of AEGON N.V. He was appointed to
AEGON’s Supervisory Board in 2002 and his current term will end in 2010. He is also Chairman of the Supervisory
Ben van der Veer is a former Chairman of the Board of Management of KPMG N.V. He was appointed to AEGON’s
Supervisory Board effective October 1, 2008 and his current term will end in 2012. He is also a member of the
Dirk P.M. Verbeek is Vice-President Emeritus of Aon Group and advisor to the President and CEO of Aon Corporation.
Hübener Holdings GmbH, Chairman of the Benelux Advisory Board of Leonardo & Co. B.V., and Chairman of the
Leo M. van Wijk is Vice-Chairman of Air France-KLM S.A. and former President and CEO of KLM Royal Dutch Airlines N.V.
He was appointed to AEGON’s Supervisory Board in 2003 and his current term will end in 2011. He is also a member of the Supervisory Board of Randstad Holding N.V. and a former member of the Supervisory Boards of Martinair and
AEGON’s Compensation Committee comprises five members: Leo M. van Wijk (Chairman) ��
Each year, AEGON’s Compensation Committee reviews the Remuneration Policy, partly based on information provided by the company’s external advisors
Supervisory Board members. This review concluded that fees for members of the Supervisory Board were generally below those paid at AEGON’s European peer companies. However, given the current market environment, Supervisory Board members have agreed to forego any immediate increases. AEGON’s pay structure for Supervisory Board members will be reviewed again at the end of 2009.
The current structure of Supervisory Board fees is as follows: base fee For membership of the Supervisory Board Amounts in EUR per annum
Committee fee For membership of a Supervisory Board Committee * Amounts in EUR per annum
Board. In addition, the policy is used as a guide for determining remuneration for members of the company’s Management Board and other senior managers throughout the organization.
AEGON’s Supervisory Board periodically reviews the composition of these two groups to ensure they continue to provide a reliable basis for comparison.
Compensation’. This amount reflects the particular responsibilities and expertise of each Executive Board member and is entirely at the discretion of the
When determining ‘Target Total Compensation’ levels, the Supervisory Board uses a range between the 40th and 60th percentile of the relevant peer group as an objective. Each year, the Supervisory Board reviews
‘Target Total Compensation’ levels to ensure they remain competitive and continue to provide proper incentives to members of AEGON’s Executive Board.
‘Target Total Compensation’ for Executive Board members comprises a fixed component, as well as both short-term and long-term variable compensation.
It is the responsibility of AEGON’s Supervisory Board to determine fixed compensation for each member of the company’s Executive Board, based on his or her qualifications, experience and expertise.
AEGON believes that variable compensation is an effective way of strengthening the commitment of individual Executive Board members to the company’s short-term and long-term objectives. Variable compensation is granted only once AEGON’s annual accounts have been formally adopted by shareholders during the company’s General Meeting of Shareholders.
Short-term incentive compensation is paid in cash. Longterm incentive compensation, on the other hand, is paid in the form of conditionally granted shares. The value of these shares is calculated using the fair market value of a single share at the start of the financial year.
Board members once their shares are fully vested. If the shares do not vest, then the amounts revert to AEGON.
Board makes use of its discretionary right to annul the grant. Grants may be annulled if: Employment is terminated before the vesting date for ��
If an Executive Board member retires, vesting shall occur two years after his/her retirement date.
Variable compensation is only granted if AEGON’s performance in any given year matches a series of pre-determined performance indicators.
Together, these indicators provide an accurate and reliable reflection of AEGON’s overall performance during the year in question.
AEGON’s Supervisory Board may also make discretionary adjustments to Executive Board members’ variable compensation, but must adhere to the following procedure: If the Supervisory Board considers that AEGON’s ��
short-term or long-term business is being impacted by significant and exceptional circumstances that are not reflected in the pre-determined indicators, it may set up an ad hoc committee to consider possible adjustments; This committee will consist of the Chairman of the ��
Members of AEGON’s Executive Board are offered pensions and other benefits in line with local practices in their countries of residence. Executive Board members may also receive other benefits based on their contracts of employment, local practices and comparable arrangements for executives at other similar multinational companies. AEGON does not grant
Executive Board members personal loans, financial guarantees or the like, unless in the normal course of business and on terms applicable to all personnel.
All such arrangements must have the prior approval of the Supervisory Board.
must give six months’ notice if it wishes to terminate the employment of any Executive Board member. Severance arrangements conform to the Dutch Corporate
In December 2008, AEGON finalized an agreement for additional core capital from the Dutch State.
This agreement contains a number of provisions with regard to executive remuneration: Members of the company’s Executive Board shall not ��
be entitled to any performance-related remuneration for the year 2008, whether in cash, options or shares; Severance payments for Executive Board members ��
shall be limited to a maximum of one year’s fixed salary, in line with the Dutch Corporate Governance Code; AEGON shall develop a sustainable Remuneration ��
At the end of December 2008, AEGON’s Executive Board had two members: Alexander R. Wynaendts, Chief Executive Officer, ��
Executive Board is subject to approval by shareholders during the annual General Meeting of Shareholders on
Fixed compensation provides Executive Board members with a base salary. The amount is paid each year. See table 1 for the base salaries for AEGON’s Executive Board members in 2008.
appointment as Chief Executive Officer and Chairman of the Executive Board in April 2008; Mr. Streppel’s base salary was increased to ensure it ��
AEGON’s financial performance in 2007 is shown in table 2 on page 71.
The STI Plan 2008 matured in 2009. Under the terms of
1 Please note that, in line with his employment contract, Mr. Streppel does not qualify for pension payments until his official retirement date of October 1, 2011. Until then, he is exempt from activities, but will continue to receive his base salary.
Remuneration Policy 1 and was based on a three-year period (2005, 2006 and 2007). The Plan matured in 2008. All share and option rights under this Plan vested as targeted. Please refer to page 96 of the Annual
AEGON’s financial performance in 2007, grants made under this Plan in 2008, were as shown in table 4.
Mr. Streppel are based on 70% of their final base salary, providing they have completed 37 years of service.
Table 2 - Short-term incentive Plan 2007, matured in 2008 executive board member Paid in 2008 over 2007 * Paid in 2007 over 2006 * % change
Donald J. Shepard (former CEO) * EUR 609,516 EUR 1,502,467 (59.4%)
AEGON N.V. is a public company under Dutch law. It is governed by three corporate bodies: the General Meeting of Shareholders, the Supervisory Board and the Executive Board 1.
However, in certain circumstances (see the Financial statements of the Annual Report, page 226, for further details), the holder of preferred shares, Vereniging
Incorporation, the Executive Board must seek prior approval from the Supervisory Board. In addition, the
Board. At present, AEGON’s Supervisory Board consists of twelve non-executive members, one of whom is a former member of AEGON’s Executive Board.
AEGON regards the Code as an effective means of ensuring that the interests of all stakeholders are duly represented and taken into account. The Code also promotes transparency in decision-making and helps strengthen the principles of good governance.
Overseeing AEGON’s overall corporate governance structure is the responsibility of both the Supervisory
Generally, AEGON applies the best practice provisions set out in the Code. For an extensive review of AEGON’s compliance with the Code, please refer to AEGON’s corporate website. A detailed explanation is given below for those instances where AEGON does not fully apply the best practice provisions of the Code. In these instances, AEGON adheres, as far as possible, to the spirit of the Code.
Dutch Corporate Governance Code recommends a maximum compensation in the event of dismissal of one year’s salary, or two years’ for cases where one year would be manifestly unreasonable for a member dismissed during his or her first term of office.
Board members may be found on AEGON’s corporate website, www.aegon.com. On December 1, 2008 1, AEGON
Code ii.3.3: The Code recommends that a member of the Executive Board should not take part in discussions or decision-making related to a subject or transaction in which he or she has a conflict of interest.
AEGON and Vereniging AEGON, it would not be in the company’s best interests to prevent their participating in discussions and decision-making related to Vereniging
Meeting of Shareholders may cancel the binding nature of nominations to the Executive and Supervisory Boards with an absolute majority of votes and a limited quorum.
As a publicly-listed company, AEGON is required to provide the following, detailed information regarding any structures or measures that may hinder or prevent a third party from acquiring the company or exercising effective control over it.
preferred shares, with a par value of EUR 0.25. As of
December 31, 2008, a total of 1,578,227,139 common shares and 246,850,000 preferred shares had been issued, representing respectively 75.4% and 24.6% of
Together, this represents 33.77% of AEGON’s voting capital, given that preferred shares carry multiple voting rights (see above).
Vereniging AEGON has option rights to acquire additional class B preferred shares in order to prevent its voting power being diluted by issues of common shares by AEGON N.V., unless, by exercising these rights,
AEGON’s major shareholder, Vereniging AEGON, has voluntarily waived its rights to cast 25/12 votes per preferred share, except in the event of a ‘special cause’, as defined in greater detail in the Preferred Shares
group of persons, whether individually or as a group, other than in a transaction approved by the Executive
If, at its sole discretion, Vereniging AEGON determines that a ‘special cause’ has occurred, it shall notify the
would for that limited period command 33.77% of the votes at a General Meeting of Shareholders. As a result of this and of the existence of certain qualified majority voting requirements specified in AEGON’s Articles of
In the absence of a ‘special cause’, Vereniging AEGON’s share of AEGON’s voting capital represents 23.73%.
Senior executives at AEGON companies and other employees have been granted share appreciation rights and share options. For further details, please refer to the
The General Meeting of Shareholders may, with an absolute majority of votes cast, pass a resolution to amend AEGON’s Articles of Incorporation or to dissolve the company, in accordance with a proposal made by the
The General Meeting of Shareholders may bring forward a resolution to appoint a person not nominated by the
Supervisory Board. But such a resolution also requires a two-thirds majority of the votes cast, representing at least one-half of AEGON’s issued capital.
Meeting of Shareholders with the same qualified majority, unless the suspension or dismissal is proposed by the Supervisory Board. A member of the Executive
The provisions on appointing Board members were included as part of a broader review of AEGON’s corporate governance and adopted at an Extraordinary
The qualified majority requirements were included to give AEGON temporary protection against unfriendly actions from, for example, a hostile bidder.
AEGON may block any hostile attempts to replace the company’s Supervisory or Executive Boards for period of up to six months.
The General Meeting of Shareholders usually authorizes the Executive Board to acquire shares of the company on conditions determined by the General Meeting of
AEGON is not party to any significant agreements which may take effect, alter, or terminate, conditional on a change of control following a public offer for the outstanding shares of the company, other than those customary in the financial markets (for example, financial arrangements, loan and joint venture agreements).
The employment contracts with current members of the Executive Board, as disclosed on AEGON’s website, contains provisions entitling to severance payments, should their employment be terminated as the result of a merger or takeover. As part of the capital support transaction concluded with the Dutch State on
December 1, 2008 1, however, these more favorable severance payment arrangements have been waived to the extend that, in the case of dismissal, compensation will be limited to a maximum of one year’s fixed salary.
On December 1, 2008, AEGON secured EUR 3 billion of additional core capital from Vereniging AEGON, funded by the Dutch State. The capital contribution was part of the Dutch government’s EUR 20 billion support program for banks and insurance companies in connection with the worldwide financial crisis.
The transaction was structured in such a way that it would not affect AEGON’s ownership. The new core capital was made available through a loan to the company’s major shareholder, Vereniging AEGON, which enabled the Vereniging to purchase core capital securities from the company at a corresponding amount and on terms and conditions similar to the loan. AEGON
In relation to repurchase of the securities and subsequent repayment of the loan the following arrangements have been made: until December 1, 2009,
AEGON may repurchase up to 250 million of the securities at nominal value plus accrued interest and a repurchase compensation dependent on the repurchase date and AEGON’s actual share price, but maximized at
AEGON may choose to convert all or some of the securities into common shares on a one-for-one basis, subject to adjustment of the conversion price under certain circumstances. In the event of AEGON exercising its conversion right, Vereniging AEGON and the Dutch
State may opt to receive repayment in cash at the original issue price of EUR 4.00 per security plus accrued interest.
Board and its Committees as long as less than three quarters of the loan facility has been redeemed. To this end, Karla Peijs, who already is a member of the
Nominating Committees and Mr. Docters van Leeuwen, formerly head of the Dutch financial markets regulator
Supervisory Board and committee meetings as an observer. Approval from the State representatives will be required for certain decisions, including the issuance and repurchase of shares and debentures, changes to
AEGON’s executive Remuneration Policy and any acquisitions or divestments with a value of 25% or more of AEGON’s issued capital and reserves.
AEGON believes that business success is not incompatible with respect for the environment, human rights and the broader communities in which it operates.
Indeed, the company recognizes that creating a sustainable business means taking into account the interests of all its stakeholders, including customers, employees, business partners and investors. AEGON also believes that it can make a valuable contribution to the communities in which it operates, not only as a provider of long-term financial products and services, but also as a responsible employer and investor. The insurance industry plays an important role in the global economy, protecting living standards and helping ensure the longterm viability of pension systems around the world.
Conduct, which applies to the company’s approximately 31,500 employees around the world.
that are transparent and easy to understand, helping customers secure their long-term financial futures; AEGON acts as a responsible employer, providing the ��
conditions, incentives and formal training its employees require for personal success; AEGON takes measures to help reduce the impact of ��
its business operations on the environment, seeking to limit energy use and curb unnecessary waste; AEGON recognizes its position as a leading investor ��
and strives to ensure that its investment decisions take into account not only the need for profit but also the interests of all legitimate shareholders and the wider communities in which the company operates; AEGON endeavors always to provide clear, accurate, ��
monitoring local activities; Reporting all progress to AEGON’s CR team, based at ��
importance of respecting the environment, conserving energy and eliminating waste; A Global Voting Policy, which sets out common voting ��
AEGON’s commitment to helping defend and promote a respect for human rights at the company’s businesses.
AEGON’s Code of Conduct contains rules, regulations and guidelines for employees. The Code covers a number of areas, including: Preventing discrimination in the workplace; ��
These agreements help shape and inform the company’s investment decisions. They include: The Carbon Disclosure Project; ��
into line with recent regulatory reforms; Supporting programs aimed at improving levels of ��
Responsibility Report; Launch of a ‘Green Team’ to coordinate efforts to ��
reduce the company’s consumption of electricity, water and other precious raw materials.
Note 3 Critical accounting estimates and judgment in applying accounting policies 109
Other equity instruments 17 4,699 4,795 issued capital and reserves attributable to equity holders of AeGOn n.V. 13,754 19,946
Consolidated income statement of AEGON Group for the year ended December 31
Interest charges and related fees 42 526 474 362 income before share in profit / (loss) of associates and tax (1,085) 3,041 3,939
Share in profit / (loss) of associates 24 36 32 income / (loss) before tax (1,061) 3,077 3,971 net income / (loss) (1,082) 2,551 3,169
Diluted earnings per share (EUR per share) 1 45 (0.92) 1.47 1.86
Purchase of investments (other than money market investments) (56,394) (70,156) (63,980)
Net purchase of investments for account of policyholders (2,563) (4,866) (5,361)
Cash flow movements on operating items not reflected in income (10,380) (10,732) (1,301)
Disposal of subsidiaries and associates, net of cash – 9 11
Dividend received from associates 4 7 4 neT CAsH FLOWs FROM inVesTinG ACTiViTies (398) (2,679) (228)
Net cash and cash equivalents at the beginning of the year 7,385 12,391 6,068
Equity movements of associates – – – (7) – – (7) – (7)
Aggregate tax effect of items recognized directly in equity – – 2,964 – – – 2,964 – 2,964 net income / (loss) recognized directly in equity – 10 (6,651) (177) – – (6,818) (10) (6,828)
Other equity instruments redeemed – – – – – (114) (114) – (114)
Aggregate tax effect of items recognized directly in equity – – 787 – – 787 – 787 net income recognized directly in equity – (31) (2,164) (1,503) – (3,698) – (3,698)
Coupons on perpetuals – (175) – – – (175) – (175)
As of January 1, 2008, AEGON included its treasury shares in the column retained earnings instead of in the column share capital. The change is 2 retrospectively applied. Reference is made to note 2.2.1.
Impact change in accounting principle 2 – (912) 351 – – (561) – (561)
In 2007, AEGON changed its accounting policy regarding the valuation of minimum guarantees applied by AEGON the Netherlands.2
As of January 1, 2008, AEGON included its treasury shares in the column retained earnings instead of in the column share capital. 3
The change is retrospectively applied. Reference is made to note 2.2.1.
Consolidated statement of changes in equity of AEGON Group for the year ended December 31, 2006
EUR USD GBP CAD PLN CNY RON HUF NTD CZK SKK 1 EUR – 1.4721 0.7334 1.4449 3.5940 10.7524 3.6080 253.7300 47.7340 26.6280 33.5830 1 USD 0.679 – 0.498 0.982 2.441 7.304 2.451 172.359 32.426 18.088 22.813 1 GBP 1.364 2.007 – 1.970 4.900 14.661 4.920 345.964 65.086 36.308 45.791 1 CAD 0.692 1.019 0.508 – 2.487 7.442 2.497 175.604 33.036 18.429 23.242 1 PLN 0.278 0.410 0.204 0.402 – 2.992 1.004 70.598 13.282 7.409 9.344 1 CNY 0.093 0.137 0.068 0.134 0.334 – 0.336 23.598 4.439 2.476 3.123 1 RON 0.277 0.408 0.203 0.400 0.996 2.980 – 70.324 13.230 7.380 9.308 100 HUF 0.394 0.580 0.289 0.569 1.416 4.238 1.422 – 18.813 10.495 13.236 100 NTD 2.095 3.084 1.536 3.027 7.529 22.526 7.559 531.550 – 55.784 70.354 100 CZK 3.755 5.528 2.754 5.426 13.497 40.380 13.550 952.869 179.262 – 126.119 100 SKK 2.978 4.383 2.184 4.302 10.702 32.017 10.744 755.531 142.137 79.290 –
EUR USD GBP CAD PLN CNY RON HUF NTD CZK SKK 1 EUR – 1.4660 0.7961 1.5589 3.5206 10.2470 3.6829 251.2908 46.1694 24.8931 31.1990 1 USD 0.682 – 0.543 1.063 2.402 6.990 2.512 171.413 31.493 16.980 21.282 1 GBP 1.256 1.841 – 1.958 4.422 12.871 4.626 315.652 57.994 31.269 39.190 1 CAD 0.641 0.940 0.511 – 2.258 6.573 2.362 161.198 29.617 15.968 20.013 1 PLN 0.284 0.416 0.226 0.443 – 2.911 1.046 71.377 13.114 7.071 8.862 1 CNY 0.098 0.143 0.078 0.152 0.344 – 0.359 24.523 4.506 2.429 3.045 1 RON 0.272 0.398 0.216 0.423 0.956 2.782 – 68.232 12.536 6.759 8.471 100 HUF 0.398 0.583 0.317 0.620 1.401 4.078 1.466 – 18.373 9.906 12.415 100 NTD 2.166 3.175 1.724 3.376 7.625 22.194 7.977 544.280 – 53.917 67.575 100 CZK 4.017 5.889 3.198 6.262 14.143 41.164 14.795 1,009.480 185.471 – 125.332 100 SKK 3.205 4.699 2.552 4.997 11.284 32.844 11.805 805.445 147.984 79.788 –
These reclassifications had no effect on net income or shareholders’ equity.
requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the reporting period.
Notes to the consolidated financial statements of AEGON Group AMOUNTS IN EUR MILLION, UNLESS OTHERWISE STATED
Interpretations Committee (IFRIC) became mandatory: IFRIC 12 Service concession arrangements�� 1; IFRIC 14 IAS 19 The limit on a defined benefit asset, minimum ��
funding requirements and their interaction; Amendments to IAS 39 and IFRS 7 Reclassification of ��
Similarly, IFRIC 14 IAS 19 The limit on a defined benefit asset, minimum funding requirements and their interaction does not have an impact on the Group’s financial statements.
conditions and cancellations; IFRS 3 Business combinations (Revised) and IAS 27 ��
The revision of IAS 1 is aimed at improving users’ ability to analyze and compare the information given in financial statements. It introduces for example a statement of comprehensive income. The amendment has a required adoption date of January 1, 2009 and will not impact net income or equity.
The amendments to IAS 23 remove the option of immediately recognizing as an expense borrowing costs that relate to assets that take a substantial period of time to get ready for use or sale. The amendments have a required adoption date of
The amendments have a required adoption date of January 1, 2009 and are not expected to have a material impact on equity or net income.
The revised IFRS 3 continues to apply the acquisition method to business combinations, with some significant changes.
This standard comes into effect for business combinations for which the acquisition date is on or after the beginning of the first annual period beginning on or after July 1, 2009.
The revised IAS 27 requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control. The standard also specifies the accounting when control is lost. The amendment has a required adoption date of January 1, 2009 and AEGON is currently evaluating the potential impact on equity and income.
Disclosures about segments of an enterprise and related information. The adoption of IFRS 8 only impacts segment disclosure and therefore will not have an impact on equity or net income. The standard has a required adoption date
IFRIC 16 clarifies the accounting treatment in respect of net investment hedging including the fact that net investment hedging relates to differences in functional currency, not presentation currency and hedging instruments may be held anywhere in the Group. The requirements of IAS 21 The effects of changes in foreign exchange rates further do not apply to the hedged item. This interpretation becomes effective for annual periods beginning on or after January 1, 2009. The interpretation is not expected to have a material impact on equity or net income.
The amendments to IAS 39 clarify how the principles that determine whether a hedged risk or portion of cash flows is eligible for designation should be applied in particular situations. The amendment has a required adoption date of July 1, 2009 and is not expected to have a material impact on equity or net income.
The IASB issued, in May 2008, a number of minor amendments to IFRS which resulted from the IASB’s annual improvements project. These amendments result in accounting changes for presentation, recognition or measurement purposes as well as terminology or editorial amendments related to a variety of individual standards. Most of the amendments are effective for annual periods beginning on or after January 1, 2009, with earlier adoption permitted. AEGON is currently evaluating the potential impact of these amendments on equity and income.
In addition to the above, the following standards, amendments to standards and interpretations have been published and are mandatory for accounting periods beginning on or after
January 1, 2009 or later periods but are not relevant for the
IFRIC 15 Agreements for the construction of real estate�� 1; IFRIC 17 Distributions of non-cash assets to owners�� 1; IFRIC 18 Transfers of assets from customers�� 1; IFRS 1 (revised) First time adoption of IFRS�� 1.
EUR 787 million at December 31, 2007 and December 31, 2006 respectively. The Retained earnings decreased by the same amounts.
When control is obtained in successive share purchases, each significant transaction is accounted for separately.
Equity instruments issued by the Group that are held by the investment funds are eliminated on consolidation. However, the elimination is reflected in equity and not in the measurement of the related financial liabilities towards policyholders or other third parties.
Joint ventures are contractual agreements whereby the Group undertakes with other parties an economic activity that is subject to joint control.
A group entity prepares its financial statements in the currency of the primary environment in which it operates. Transactions in foreign currencies are translated to the functional currency using the exchange rates prevailing at the date of the transaction.
At the balance sheet date monetary assets and monetary liabilities are translated at the closing rate. Non-monetary items carried at cost are translated using the exchange rate at the date of the transaction, whilst assets carried at fair value are translated at the exchange rate when the fair value was determined.
Exchange differences on monetary items are recognized in the income statement when they arise, except when they are deferred in equity as a result of a qualifying cash flow or net investment hedge. Exchange differences on non-monetary items are recognized in equity or the income statement, consistently with other gains and losses on these items.
As the Group’s risks and rates of return are predominantly affected by the fact that it operates in different countries, the primary basis for segment reporting is geographical segments.
Geographical segments are defined based on the location of where the activities are managed. Secondary segment information is reported for groups of related products.
Included in operating earnings are segment revenues and segment expenses. Segment revenues consist of premium income, investment income, fee and commission income, income from banking activities and other revenues. Segment expenses consist of premiums to reinsurers, policyholder claims and benefits (excluding the effect of charges to policyholders in respect of income tax), profit sharing and rebates and commissions and expenses. In addition to segment revenues, the following income items are also included in the calculation of operating earnings: reinsurance claims and benefits, fair value and foreign exchange gains including fair value movements on own debt, gains on investments for account of policyholders and share in net results of associates. Similarly, in addition to segment expenses, the following expense items are also included in the calculation of operating earnings: fair value and foreign exchange losses, losses on investments for account of policyholders and interest and related charges.
Operating earnings before tax excludes: Realized gains and losses on investments on general account ��
hedge accounting is applied 1; Realized gains and losses on repurchased debt; ��
Deferred policy acquisition costs (DPAC) and value of business acquired (VOBA) offsetting charges for realized gains and losses and impairments on investments are included in the respective line items mentioned above.
VOBA is amortized over the useful life of the acquired contracts, based on either the expected future premiums or the expected gross profit margins. Amortization is based on expected gross profit margins, the amortization period and pattern are reviewed at each reporting date. Any change in estimates is recorded in the income statement. For all products,
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 2.6 - 2.8
the present value of future servicing rights is recognized as an intangible asset. Future servicing rights can also be recognized on the sale of a loan portfolio or the acquisition of insurance agency activities.
Group, are expected to provide future economic benefits and can be measured reliably. The Group does not recognize internally generated intangible assets arising from research or internally generated goodwill, brands, customer lists and similar items.
Investments comprise financial assets, excluding derivatives, as well as investments in real estate.
The following financial assets are measured at fair value through profit or loss: financial assets held for trading, financial assets managed on a fair value basis in accordance with the
Financial assets with fixed or determinable payments that are not quoted in an active market and that the Group does not intend to sell in the near future or for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration, are accounted for as loans.
To the extent that the Group has the intention and ability to hold a quoted financial asset with fixed payments to the maturity date, it is classified as held-to-maturity.
Financial assets are initially recognized at fair value excluding interest accrued to date plus, in the case of a financial asset not at fair value through profit or loss, any directly attributable incremental transaction costs.
The fair value of an asset is the amount for which it could be exchanged between knowledgeable, willing parties in an arm’s length transaction. For quoted financial assets for which there is an active market, the fair value is the bid price at the balance sheet date. In the absence of an active market, fair value is estimated by using present value based or other valuation techniques. Where discounting techniques are applied, the discount rate is based on current market rates applicable to financial instruments with similar characteristics. The valuation techniques that include non-market observable inputs can result in a different outcome than the actual transaction price at which the asset was acquired. Such differences are not recognized in the income statement immediately but are deferred. They are released over time to the income statement in line with the change in factors (including time) that market participants would consider in setting a price for the asset.
A security that has been received under a borrowing or reverse repurchase agreement is not recognized as an asset. A receivable is recognized for any related cash collateral paid by AEGON.
The difference between sale and repurchase price is treated as investment income. If the Group subsequently sells that security, a liability to repurchase the asset is recognized and initially measured at fair value.
Group and that is not intended to be sold in the near future is classified as real estate held for own use and is presented in
All property is initially recognized at cost. Subsequently, investments in real estate are measured at fair value with the changes in fair value recognized in the income statement. Real estate held for own use is carried at its revalued amount, which is the fair value at the date of revaluation less subsequent accumulated depreciation and impairment losses. Depreciation is calculated on a straight line basis over the useful life of a building. Land is not depreciated. On revaluation the accumulated depreciation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount. Increases in the net carrying amount are recognized in the related revaluation reserve in shareholders’
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 2.9 - 2.10
On disposal of an asset, the difference between the net proceeds received and the carrying amount is recognized in the income statement. Any remaining surplus attributable to real estate in own use in the revaluation reserve is transferred to retained earnings.
Derivatives are financial instruments, classified as held for trading financial assets of which the value changes in response to an underlying variable, that require little or no net initial investment and are settled at a future date.
Derivatives for which the contractual obligation can only be settled by exchanging a fixed amount of cash for a fixed amount of AEGON N.V. equity instruments are accounted for in shareholders’ equity and are therefore discussed in the notes on equity.
Fair value hedges are hedges of a change in the fair value of an unrecognized firm commitment or an asset or liability that is not held at fair value through profit or loss. The hedged item is remeasured to fair value in respect of the hedged risk and the resulting adjustment is recorded in the income statement.
equity. Any ineffectiveness is recognized directly in the income statement. The amount recorded in shareholders’ equity is released to the income statement to coincide with the hedged transaction, except when the hedged transaction is an acquisition of a non-financial asset or liability. In this case, the amount in shareholders’ equity is included in the initial cost of the asset or liability.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 2.11 - 2.15
They are subject to impairment testing and are derecognized when the contractual rights are extinguished or expire or when the contract is transferred to another party.
Acquisition costs are deferred to the extent that they are recoverable and are subsequently amortized based on either the expected future premiums or the expected gross profit margins. For products sold in the United States and Canada with amortization based on expected gross profit margins, the amortization period and pattern are reviewed at each reporting date and any change in estimates is recognized in the income statement.
Estimates include, but are not limited to: an economic perspective in terms of future returns on bond and equity instruments, mortality, disability and lapse assumptions, maintenance expenses and expected inflation rates. For all products, DPAC, in conjunction with VOBA where appropriate, is assessed for recoverability at least annually on a country-bycountry basis and is considered in the liability adequacy test for each reporting period. If appropriate, the assumptions included in the determination of estimated gross profits are adjusted.
An interest rebate is a form of profit sharing whereby the Group gives a discount on the premium payable (usually single premium) based on the expected surplus interest that will be earned on the contract. The expected surplus interest is calculated with reference to a portfolio of government bonds.
Non-financial assets that only generate cash flows in combination with other assets and liabilities are tested for impairment at the level of the cash-generating unit.
Reinsurance assets are impaired if there is objective evidence, as a result of an event that occurred after initial recognition of the reinsurance asset, that not all amounts due under the
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 2.16 - 2.19
terms of the contract will be received and the impact of the event on the amount to be received from the reinsurer can be reliably measured. Impairment losses are recognized in the income statement.
AEGON and coupon payments are payable only if AEGON pays dividends on ordinary shares. Both the perpetual and convertible core capital securities are classified as equity rather than debt, are measured at par and those that are denominated in US
Some products, such as traditional life insurance products in continental Europe and products in the United States, for which account terms are fixed and guaranteed, are measured using the net premium method.
The liability is determined as the sum of the discounted value of the expected benefits and future administration expenses directly related to the contract, less the discounted value of the expected theoretical premiums that would be required to meet the future cash outflows based on the valuation assumptions used. The liability is either based on current assumptions or calculated using the assumptions established at the time the contract was issued, in which case a margin for risk and adverse deviation is generally included. A separate reserve for longevity may be established and included in the measurement of the liability. Furthermore, the liability for life insurance comprises reserves for unearned premiums and unexpired risks as well as for claims outstanding, which includes an estimate of the incurred claims that have not yet been reported to the Group.
Other products with account terms that are not fixed or guaranteed are generally measured at the policyholder’s account balance. Depending on local accounting principles, the liability may include amounts for future services on contracts where the policy administration charges are higher in the initial years than in subsequent years. In establishing the liability, guaranteed minimum benefits issued to the policyholder are measured as described in note 2.19C or, if bifurcated from the host contract, as described in note 2.10.
and can also affect the outcome of the liability adequacy test to the extent that it considers actual future investment returns.
At each reporting date the adequacy of the life insurance liabilities, net of VOBA and DPAC, is assessed using a liability adequacy test. Additional recoverability tests for policies written in the last year may also result in loss recognition.
All tests performed within the Group are based on current estimates of all contractual future cash flows, including related cash flows from policyholder options and guarantees. A number of valuation methods are applied, including discounted cash flow methods, option pricing models and stochastic modeling.
Any resulting deficiency is recognized in the income statement, initially by impairing the DPAC and VOBA and subsequently by establishing an insurance liability for the remaining loss, unless shadow loss recognition has taken place.
Contracts issued by the Group that do not transfer significant insurance risk, but do transfer financial risk from the policyholder to the Group are accounted for as investment contracts. Depending on whether the Group or the policyholder runs the risks associated with the investments allocated to the contract, the liabilities are classified as investment contracts or as investment contracts for account of policyholders.
A provision is recognized for present legal or constructive obligations arising from past events, when it is probable that it will result in an outflow of economic benefits and the amount can be reliably estimated.
A liability is recognized for the undiscounted amount of shortterm employee absences benefits expected to be paid within one year after the end of the period in which the service was rendered. Accumulating short-term absences are recognized over the period in which the service is provided. Benefits that are not service-related are recognized when the event that gives rise to the obligation occurs.
For share option plans that are equity-settled, the expense recognized is based on the fair value on the grant date of the share options, which does not reflect any performance conditions other than conditions linked to the price of the
Contingent assets are disclosed in the notes if the inflow of economic benefits is probable, but not virtually certain. When the inflow of economic benefits becomes virtually certain, the asset is no longer contingent and its recognition is appropriate.
Depending on the applicable local accounting principles, bonuses that are used to increase the insured benefits may be recognized as gross premiums.
Fees and commissions that are an integral part of the effective yield of the financial assets or liabilities are recognized as an adjustment to the effective interest rate of the instrument.
Policyholder claims and benefits consist of claims and benefits paid to policyholders, including benefit claims in excess of account value for products for which deposit accounting is applied and the change in the valuation of liabilities for insurance and investment contracts. It includes internal and external claims handling costs that are directly related to the processing and settlement of claims. Amounts receivable in respect of salvage and subrogation are also considered.
Gains and losses on financial investments include realized gains and losses on general account financial assets, other than those classified as at fair value through profit or loss.
Impairment charges include impairments on investments in financial assets, impairments on the valuation of insurance assets and liabilities and other non-financial assets and receivables. Refer note 41.
The financial statements are adjusted to reflect events that occurred between the balance sheet date and the date when the financial statements are authorized for issue, provided they give evidence of conditions that existed at the balance sheet date.
The liability for life insurance contracts with guaranteed or fixed account terms is either based on current assumptions or on the assumptions established at inception of the contract, reflecting the best estimates at the time increased with a margin for adverse deviation. All contracts are subject to liability adequacy testing which reflects management’s current estimates of future cash flows. To the extent that the liability is based on current assumptions, a change in assumptions will have an immediate impact on the income statement. Also, if a change in assumption results in the failure of the liability adequacy test, the entire deficiency is recognized in the income statement.
Some insurance contracts without a guaranteed or fixed contract term contain guaranteed minimum benefits.
The main assumptions used in measuring DPAC, VOBA and the liabilities for life insurance contracts with fixed or guaranteed terms relate to mortality, morbidity, investment return and future expenses. Depending on local accounting principles, surrender rates may be considered.
When available, AEGON uses quoted market prices in active markets to determine the fair value of investments and derivatives. In the absence of an active market, the fair value of investments in financial assets is estimated by using other market observable data such as external quotes and present value or other valuation techniques. An active market is one in which transactions are taking place regularly on an arm’s length basis. Although not necessarily determinative, indicators that a market is inactive are lower transaction volumes, reduced transaction sizes and, in some cases, no observable trading activity for short periods. A fair value measurement assumes that an asset or liability is exchanged in an orderly transaction between market participants, and accordingly, fair value is not determined based upon a forced liquidation or distressed sale.
Valuation techniques are used when AEGON determines the market is inactive for the asset or liability at the measurement date. However, the fair value measurement objective remains the same, that is, to arrive at the price at which an orderly transaction would occur between market participants at the measurement date. Therefore, unobservable inputs reflect
AEGON’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). These inputs are developed based on the best information available.
AEGON employs an oversight structure over valuation of financial instruments that includes appropriate segregation of duties.
Senior management, independent of the investing functions, is responsible for the oversight of control and valuation policies and for reporting the results of these policies. For fair values determined by reference to external quotation or evidenced pricing parameters, independent price determination or validation is utilized. Adjustments made to fair values as a result of the validation process are reported to senior management.
Fair values for unquoted shares are estimated using observations of the price / earnings or price / cash flow ratios of quoted companies considered comparable to the companies being valued. Valuations are adjusted to account for companyspecific issues and the lack of liquidity inherent in an unquoted investment. Illiquidity adjustments are generally based on available market evidence. In addition, a variety of other factors are reviewed by management, including, but not limited to, current operating performance, changes in market outlook and the third-party financing environment.
The fair values of investments held in non-quoted investment funds (hedge funds, private equity funds) are determined by management after taking into consideration information provided by the fund managers. AEGON reviews the valuations each month and performs analytical procedures and trending analyses to ensure the fair values are appropriate.
These market quotes are obtained through index prices or pricing services.
AEGON’s portfolio of private placement securities (held at fair value under the classification of available-for-sale) is valued using a matrix pricing methodology. The pricing matrix is obtained from a third party service provider and indicates current spreads for securities based on weighted average life, credit rating, and industry sector. Each month, AEGON’s asset specialists review the matrix to ensure the spreads are reasonable by comparing them to observed spreads for similar bonds traded in the market. Other inputs to the valuation include coupon rate, the current interest rate curve used for discounting and an illiquidity premium to account for the illiquid nature of these securities. The illiquidity premiums are determined based upon the pricing of recent transactions in the private placements market; comparing the value of the privately offered security to a similar public security. The impact of the illiquidity premium for private placement securities in 2008 and 2007 to the overall valuation is insignificant.
For private loans, fixed interest mortgage and other loans originated by the Group the fair value used for disclosure purposesis estimated by discounting expected future cash flows using a current market rate applicable to financial instruments with similar yield, credit quality and maturity characteristics.
The fair value of floating interest rate mortgages, policy loans and private placements used for disclosure purposes is assumed to be approximated by their carrying amount adjusted for changes in credit risk where appropriate based on market observable credit spreads.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 3
Fair values for exchange-traded derivatives, principally futures and certain options, are based on quoted market prices. Fair values for over-the-counter (OTC) derivative financial instruments represent amounts estimated to be received from or paid to a third party in settlement of these instruments.
These derivatives are valued using pricing models based on the net present value of estimated future cash flows, directly observed prices from exchange-traded derivatives, other OTC
spreads of a reference portfolio of life insurance companies, adjusted to reflect the subordination of senior debt holders at the holding company level to the position of policyholders at the operating company level (who have priority in payments to other creditors). Because CDS spreads for US Life insurers differed significantly from that for European life insurers,
Correlations of market returns across underlying indices are based on actual observed market returns and their interrelationships over a number of years preceding the valuation date. The volume of observable option trading from which volatilities are implied diminishes markedly after five years; and therefore, AEGON uses a volatility curve which grades from actual implied volatilities for five years to a long-term forward rate assumptions of 25%. The December 31, 2008 curve reflects a volatility factor of approximately 30% at year 30.
Other investments at fair value 17 746 2,220 2,983 25 1,369 2,109 3,503
Other than disclosed in note 47, the potential effect of using reasonable alternative assumptions for valuing financial instruments would not have a significant impact on AEGON’s net income (loss).
There are a number of significant risks and uncertainties inherent in the process of monitoring investments and determining if impairment exists. These risks and uncertainties include the risk that the Group’s assessment of an issuer’s ability to meet all of its contractual obligations will change based on changes in the credit characteristics of that issuer and the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated. Also, there is a risk that new information obtained by the Group or
changes in other facts and circumstances will lead the Group to change its investment decision. Any of these situations could result in a charge against the income statement in a future period to the extent of the impairment charge recorded.
RMBS asset specialists utilize modeling software to perform a loan-by-loan, bottom-up approach to modeling. The ABS - Housing models incorporate market estimates on the property market, borrowing characteristics, propensity of a borrower to defaults or prepay and the overall security structure. The CMBS models incorporate market estimates on the property market, capital markets, property cash flows and loan structure. The RMBS
models incorporate external loan-level analytics to identify the riskiest securities. The results from the models are then closely analyzed by the asset specialist to determine whether or not a principal or interest loss is expected to occur.
In addition, on a monthly basis, AEGON reviews all ABS - Housing securities, CMBS and RMBS that have been in an unrealized loss position of greater than 12 months and those with a month to month market value decline of 5%. Additional reviews include a realized loss analysis and analysis of holdings with a price decline of more than 10% or more during the quarter. ABS - Housing securities, CMBS and RMBS noted on exception reports are specifically addressed by research and credit analysts who evaluate the unrealized losses based upon current market conditions, changes in credit spreads specific to the asset class, and fundamentals related to the issuer. Impairments are recorded in instances where loss events have taken place that would affect future cash flows. The impairment analysis is therefore based on a combination of models and analysts review of market events on individual securities.
Recent payment history, a percentage of on-going delinquency rates and a constant repayment rate are also incorporated into the model. Once the entire pool is modeled, AEGON can determine whether the particular tranche or holding is at risk for payment interruption. Under these scenarios, the securities held in AEGON USA’s subprime mortgage portfolio model full payment of principal and interest as of the reporting date.
Goodwill is reviewed and tested for impairment under a fair value approach. Goodwill must be tested for impairment at least annually or more frequently as a result of an event or change in circumstances that would indicate an impairment charge may
be necessary. The recoverable amount is the higher of the value in use or fair value less costs to sell for a cash-generating unit.
Impairment testing requires the determination of the value in use and fair value less costs for each of AEGON’s identified cash generating units.
Deferred tax assets are established for the tax benefit related to deductible temporary differences, carryforwards of unused tax losses and carryforwards of unused tax credits when in the judgment of management it is more likely than not that AEGON
will receive the tax benefits. Since there is no absolute assurance that these assets will ultimately be realized, management reviews AEGON’s deferred tax positions periodically to determine if it is more likely than not that the assets will be realized. Periodic reviews include, among other things, the nature and amount of the tax income and expense items, the expected timing when certain assets will be used or liabilities will be required to be reported and the reliability of historical profitability of businesses expected to provide future earnings. Furthermore, management considers tax-planning strategies it can utilize to increase the likelihood that the tax assets will be realized. These strategies are also considered in the periodic reviews.
The volatility is derived from quotations from external market sources and the expected dividend yield is derived from quotations from external market sources and the binomial option pricing model. Future blackout periods are taken into account in the model in conformity with current blackout periods. The expected term is explicitly incorporated in the model by assuming that early exercise occurs when the share price is greater than or equal to a certain multiple of the exercise price. This multiple has been set at two based on empirical evidence. The risk free rate is the interest rate for
Many of these policies are group-wide while others are specific to the unique situation of local businesses. The group level policies limit the Company’s exposure to major risks such as equity, interest rates, credit and currency. The limits in these policies in aggregate remain within the Company’s overall tolerance for risk and the Company’s financial resources.
(ALM) processes and models, hedging programs (which are largely conducted via the use of derivatives) and insurance programs (which are largely conducted through the use of reinsurance). These risk management programs are in place in each country unit and are not only used to manage risk in each unit, but are also part of overall Group Risk Management.
Policy to govern its usage of derivatives and reinsurance. These policies establish the control, authorization, execution and monitoring requirements of the usage of such instruments. In addition, these policies stipulate necessary mitigation of credit risk created through these derivatives and reinsurance risk management tools. For derivatives, credit risk is normally mitigated by requirements to post collateral via credit support annex agreements. For reinsurance, credit risk is normally mitigated by downgrade triggers allowing AEGON’s recapture of business, funds withheld by treaties (when AEGON owns the assets) and assets held in trust for the benefit of AEGON (in the event of reinsurer insolvency).
The accounting mismatch inherent in IFRS is also apparent in the reported sensitivities. A change in interest rates has an immediate impact on the carrying amount of assets measured at fair value. However the shock will not have a similar effect on the carrying amount of the related insurance liabilities that are measured based on prudent assumptions or on management’s long term expectations. Consequently, the different measurement bases for assets and liabilities lead to increased volatility in
IFRS net income and equity. AEGON has classified a significant part of its investment portfolio as “available for sale”, which is one of the main reasons why the economic shocks tested have a different impact on net income than on equity. Unrealized gains and losses on these assets are not recognized in the income statement but are booked directly to the revaluation reserves in equity, unless impaired. As a result, economic sensitivities predominantly impact equity but leave net income unaffected. The effect of movements of the revaluation reserve on capitalization ratios and capital adequacy are minimal.
AEGON's target ratio for the composition of its capital base is based on shareholders’ equity excluding the revaluation reserve.
As an international group, AEGON is subject to foreign currency translation risk. Foreign currency exposure exists when policies are denominated in currencies other than the issuer’s functional currency. Currency risk in the investment portfolios backing insurance and investment liabilities are managed using asset liability matching principles. Assets allocated to equity are kept in local currencies to the extent shareholders’ equity is required to satisfy regulatory and self-imposed capital requirements. Therefore, currency exchange rate fluctuations may affect the level of shareholders’ equity as a result of translation of subsidiaries into euro, the Group’s presentation currency. AEGON holds the remainder of its capital base
The exchange rates for US dollar and UK pound per euro for each of the last five year-ends are set forth in the table below: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 4
exchange rates of AEGON’s non-euro currencies relative to the euro as included in the table below, are due to the translation of subsidiaries and joint-ventures in the consolidated financial statements.
The effect of currency exchange movements is reflected as a one-time shift up or down in the value of the non-euro currencies relative to the euro on 1 inTeResT RATe RisK
As premiums and deposits are received, these funds are invested to pay for future policyholder obligations. For general account products, AEGON typically bears the risk for investment performance equaling the return of principal and interest.
Credit Default Swaps CDSs). The positions outstanding at the end of the year were: CDOs and CDss notional Fair value Notional Fair value
For a fee, AEGON USA takes credit exposure on a credit index, i.e. super-senior tranches of the CDx index, via a synthetic collateralized debt obligation program (synthetic CDO). This index is composed of a reference portfolio of 125 investment grade corporate credits. 78% of the exposure is to the most senior of the super-senior tranches, i.e. the 30%-100% tranche.
At December 31, 2008, the notional amount of this program was
EUR 4.7 billion with a negative market value of EUR (112) million.
EUR 104 million. In August 2007, the Canadian asset backed commercial paper market experienced a disruption, which included Canadian government intervention and subsequent market litigation, resulting in AEGON and the counterparty negotiating settlement terms for the facility agreement. Per these terms, AEGON holds embedded contingent options, which reflects potential exposure to underlying senior tranches of synthetic CDOs with a notional of EUR 1.7 billion when losses exceed the fair value of collateral assigned by the counterparty
These contingent embedded options were marked to market at December 31, 2008 (EUR 15 million liability). When the contingent options are exercised, AEGON is exposed to the underlying tranches of the synthetic CDOs.
AEGON manages credit risk exposure by individual counterparty, sector and asset class. Normally it mitigates credit risk in derivative contracts by entering into collateral agreements, where practical, and in International Swaps and
Derivatives Association (ISDA) master netting agreements for each of AEGON’s legal entities to facilitate AEGON’s right to offset credit risk exposure. Main counterparties to these transactions are investment banks and are typically rated AA or higher. The credit support agreement will normally dictate the threshold over which collateral needs to be pledged by AEGON
or its counterparty. Transactions requiring AEGON or its counterparty to post collateral are typically the result of overthe -counter derivative trades, comprised mostly of interest rate swaps, currency swaps, and credit swaps. Collateral received is mainly cash (USD and EUR). The Credit Support Agreements that outline the acceptable collateral require high quality instruments to be posted. Nearly all securities received as collateral are US Treasuries or US Agency bonds. During the year, AEGON obtained securities with a value of EUR 1.1 billion by taking possession of collateral on reverse repurchase agreements and EUR 1.9 billion on securities lending transactions with Lehman Brothers. The loss incurred on these transactions amounted to EUR 10 million. At December 31, 2008 debt securities from the collateral amounting to EUR 27 million were included in AEGON’s investment portfolio. In 2007 AEGON
Capital Committee has granted temporary approval for these two limit breaches.
CCC or lower – 168 – 16 – – – – – 184
Americas assets were not rated in 2007; 2008 ratings have been based on internal ratings.2
The following table shows the credit quality of the gross balance sheet positions for general account reinsurance assets specifically: Carrying value 2008
Past due and / or impaired 82 192 – 112 386
Asset backed securities (ABSs) – Aircraft 81 – – – 81
Past due and / or impaired 227 66 – – 293
Past due and / or impaired 3 200 – 28 231
(2007: EUR 2,723 million). The unrealized loss on the ABS housing securities amounts to EUR 1,023 million (2007: EUR 347 million). ABS - Housing securities are secured by pools of residential mortgage loans primarily those which are categorized as subprime. The unrealized loss is primarily due to decreased liquidity and increased credit spreads in the market combined with significant increases in expected losses on loans within the underlying pools. Expected losses within the underlying pools are generally higher than original expectations, primarily in certain later-vintage adjustable rate mortgage loan pools, which has led to some rating downgrades in these securities.
December 31, 2008, the amortized cost of investments backed by subprime mortgage loans was EUR 2,575 million
The following table provides the market values of the subprime mortgage exposure by rating.
Subprime mortgages - fixed rate 1,016 66 – – – 1,082
Additionally, AEGON USA has exposure to asset backed securities collateralized by manufactured housing loans. The market value of these securities is EUR 139 million (2007: EUR 200 million)
RMBS are securitizations of underlying pools of non-commercial mortgages on real estate. The underlying residential mortgages have varying credit ratings and are pooled together and sold in tranches. The Company’s RMBS mainly includes government sponsored enterprise (GSE) guaranteed passthroughs, whole loan passthroughs, Alt-A MBS and negative amortization MBS.
Positions are impaired to fair value where loss events have taken place (or are projected to take place on structured securities) that would affect future cash flows.
The unrealized loss on RMBS is EUR 1.9 billion. Of the RMBS
Countrywide Alternative Loan Trust name, with each deal containing its own unique pool of collateral and representing a separate and distinct trust. The combination of low floating-rate reset margins, slow prepayment speeds, severe illiquidity in the market for near-prime securities, and the unprecedented level of mortgage-related credit spread widening have pushed the overall market value as a percent of book on those RMBS bonds in an unrealized loss position to 52%.
AEGON USA’s RMBS exposure includes exposure to securitized home equity loans (Alt-A positions). This portfolio totals
standing, which is especially important since the score must compensate for the lack of other necessary documentation related to borrower income and/or assets.
AEGON’s exposure to negative amortization mortgages is primarily AAA rated (2007 AAA rated), with a significant portion of these positions being ‘super-senior’ AAA rated securities. The following table provides the market values of the
of commercial mortgage backed securities (CMBS). The unrealized loss on CMBS is EUR 1,817 million (2007: EUR 89 million). The underlying mortgages have varying risk characteristics and are pooled together and sold in different rated tranches. The Company’s CMBS include conduit, large loan, single borrower, collateral debt obligations (CDOs), government agency, and franchise loan receivable trusts.
CMbs exposure by quality AAA AA A BBB < BBB Cost price Market value
Of the CMBS unrealized loss, over 16% is attributed to the
AEGON’s LBUBS holdings, EUR 0.9 billion (2007: EUR 0.6 billion), and are not due to specific pool performance but relate to diminished demand over the last few months of 2008 for low investment grade CMBS paper and historic widening of credit spreads. Over 99% of the securities in an unrealized loss position are rated investment grade. For all securities in an unrealized loss position, the market to cost ratio is 70%
of non housing related asset backed securities (ABS), unrealized losses on this portfolio amount to EUR 1,948 million at December 31, 2008 (2007: EUR 240 million). These are securitizations of underlying pools of credit cards receivables,
The fair values of AEGON USA’s ABS - non-housing instruments were determined as follows: Published price quotations in an active market
Credit Card Trust, is primarily a function of decreased liquidity and increased credit spreads in the structured finance and financial institution market. While the credit card ABS portfolios with large subprime segments may be negatively impacted by the slowing domestic economy and housing market, there has been little rating migration of the bonds held by AEGON. Over 95% of the ABS credit card bonds held by AEGON are rated investment grade.
The unrealized loss on ABS – autos is EUR 214 million. The unrealized loss in the ABS auto sector is primarily a function of decreased liquidity and increased credit spreads with additional pressure coming from depressed auto sales and lower margins on incremental sales. While the auto ABS portfolio may be negatively impacted by the slowing domestic economy and concern over the future of the large automakers, there has been little rating migration of the bonds held by AEGON.
Banks and finance companies have also scaled back their lending to small businesses.
ABS - Other includes debt issued by securitization trusts collateralized by various other assets including student loans, timeshare loans, franchise loans and other asset categories.
The ‘Hybrid’ category is comprised of capital securities issued by financial services entities which typically have an original maturity of more than 30 years and may be perpetual. In addition, Hybrids have other features that may not be consistent across issues such as a cumulative or non-cumulative coupon, capital replacement and an alternative payment mechanism, and could also be subordinate to the traditional Trust Preferred in the company’s capital structure. Capital securities categorized as ‘Tier 1’ are issued by non-US banks and are perpetual with a non-cumulative deferrable coupon. Capital securities categorized as ‘Upper Tier 2’ are also issued by non-US banks but these positions are generally perpetual where the deferrable coupon is cumulative.
The following table highlights AEGON’s credit risk to capital securities within the banking sector: Amortized Cost Americas The
EUR 157 million (2007: EUR 14 million), although an insolvency by one of the monolines could create significant market price volatility for the affected holdings.
The following table breaks down bonds in AEGON USA’s portfolio that are wrapped by monoline insurers. The disclosure by rating follows a hierarchy of Standard & Poor’s, Moody’s,
Of the EUR 2,604 million (2007: EUR 2,816 million) indirect exposure on the monoline insurers 29% relates to MBIA, 25%
to AMBAC, 19% to FGIC and 15% to FSA (2007: 32% related to
MBIA, 28% to AMBAC, 16% to FGIC and 11% to FSA). Of the remaining 12% (2007: 13%), no individual monoline insurer represents more than 10% of the total wrapped portfolio.
The tables that follow provide information on past due and individually impaired financial assets. An asset is past due when a counterparty has failed to make a payment when contractually due. Assets are impaired when an impairment loss has been charged to the income statement relating to this asset. After the impairment loss is reversed in subsequent periods, the asset is no longer considered to be impaired. When the terms and conditions of financial assets have been renegotiated, the terms and conditions of the new agreement apply in determining whether the financial assets are past due. There were no renegotiated assets that would have been past due or impaired if they had not been renegotiated in the reporting
Debt securities - carried at fair value 36 – – 36 94 11 6 111
Exposure to equity, real estate and capital markets exists in both assets and liabilities. Asset exposure exists through direct equity investment, where AEGON bears all or most of the volatility in returns and investment performance risk. Equity market exposure is also present in insurance and investment contracts for account of policyholders where funds are invested year (2007: nil). At December 31, 2008 EUR 119 million
(December 31, 2007: nil) collateral and other credit enhancements are held related to financial assets that were past due or individually impaired.
The tables that follow present specific market risk concentration information for general account shares.
The equity sensitivities related to the guarantees are non linear because of the impact of guarantees and DPAC amortization.
For gross settled derivatives only cash flows related to the pay leg are shown in the following table. Including the receive leg would significantly reduce the disclosed cash outflows for financial derivatives. Credit risk on the receive leg is mitigated through collateral agreements and ISDA master netting agreements as set out under Credit risk.
< 1 yr Amount 1 < 5 yrs Amount 5 < 10 yrs Amount > 10 yrs Amount
Insurance contracts for account of policyholders 3,480 19,162 15,960 76,503 115,105
Investment contracts for account of policyholders 2,973 13,193 15,117 56,589 87,872
Insurance contracts for account of policyholders 5,649 27,776 19,353 76,756 129,534
Investment contracts for account of policyholders 4,789 19,434 21,729 86,430 132,382
AEGON’s earnings depend significantly upon the extent to which actual claims experience is consistent with the assumptions used in setting the prices for products and establishing the technical liabilities and liabilities for claims. To the extent that actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, income would be reduced. Furthermore, if these higher claims were part of a permanent trend, AEGON may be required to increase liabilities, which could reduce income. In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force have been recorded as assets on the balance sheet and are being amortized into income over time. If the assumptions relating to the future profitability of these policies
(such as future claims, investment income and expenses) are not realized, the amortization of these costs could be accelerated and may even require write offs due to unrecoverability. This could have a materially adverse effect on
is unable to fully recover up front expenses in selling a product despite the presence of commission recoveries or surrender charges and fees. For mortality and morbidity risk, AEGON sells certain types of policies that are at risk if mortality or morbidity increases, such as term life insurance and accident insurance, and sells certain types of policies that are at risk if mortality decreases (longevity risk) such as annuity products. AEGON is also at risk if expenses are higher than assumed by management.
AEGON monitors and manages its underwriting risk by underwriting risk type. Attribution analysis is performed on earnings and reserve movements in order to understand the source of any material variation in actual results from what was expected. AEGON’s units also perform experience studies for underwriting risk assumptions, comparing AEGON’s experience to industry experience as well as combining AEGON’s experience and industry experience based on the depth of the history of each source to AEGON’s underwriting assumptions. Where policy charges are flexible in products, AEGON uses these analyses as the basis for modifying these charges, with a view to maintain a balance between policyholder and shareholder interests. AEGON
also has the ability to reduce expense levels over time, thus mitigating unfavorable expense variation.
Sensitivity analysis of net income and shareholders’ equity to various underwriting risks is shown in the table that follows. The sensitivities represent an increase or decrease of mortality and morbidity rates over 2008. Increases in mortality rates lead to an increase in the level of benefits and claims. The impact on net income and equity of sales transactions of investments required to meet the higher cash outflow are reflected in the sensitivities.
A shock in mortality or morbidity rates may not lead to a change in the assumptions underlying the measurement of the insurance liabilities as management may recognize that the shock is temporary. Life insurers are also exposed to longevity risk. In practice, however, this longevity risk can be mitigated, for example by adjusting premium.
neT inCOMe / (LOss) ATTRibUTAbLe TO eqUiTy HOLDeRs OF AeGOn n.V. (1,379) 94 80 (9) 113 19 (1,082)
Share in net results of associates – 7 1 24 – – 32
Attributable to minority interest – – – – – – –
The Group uses operating earnings before tax in its segment reporting as an important indicator of its financial performance.
Realized gains and losses on financial investments 36 99 957 597
Fair value changes on economic hedges for which no hedge accounting is applied 36 (46) (340) (193)
Ineffective portion of hedge transactions for which hedge accounting is applied 36 50 16 12
Individual savings and retirement products 2,256 213 – 34 – – 2,503
Interest charges and related fees (188) (197) (28) (8) (749) 644 (526)
(2007: EUR 262 million and 2006: nil). All intercompany loans are transacted at an arms’ length basis, based on readily available information.
Insurance contracts for account of policyholders 32,787 18,563 7,520 1,938 – – 60,808
Insurance contracts for account of policyholders 44,106 20,427 11,172 2,689 – – 78,394
Individual savings and retirement products 53,363 5,024 – 285 – – 58,672
Cost to acquire real estate held for own use, software and equipment were not material during the financial period.
EUR 12 million were reversed in 2008 after finalizing purchase accounting. Of additions to goodwill in 2008 of EUR 297 million, an amount of EUR 229 million relates to acquisitions of joint ventures by AEGON Spain during 2008 and amounts of
and 17%. Projections beyond that date have been extrapolated using a declining growth rate up to a maximum of 5%. Key assumptions used for the calculation include new business, renewals, value of new business, asset fees, investment return, persistency, expense inflation and mortality.
Fair value less costs to sell calculations were estimated based on the appraisal value for the cash-generating units using embedded value principles. Appraisal value represents available net asset value and the shareholders’ interest in the long-term business plus a multiple of the value of new business. Key assumptions used for the calculation were pre-tax risk adjusted discount rates of 11%, future premiums, commissions, inflation, persistency, mortality, morbidity and future investment returns.
With the exception of goodwill, all intangible assets have a finite useful life and are amortized accordingly. VOBA and Future servicing rights are amortized over the term of the related insurance contracts, which can vary significantly depending on the maturity of the acquired portfolio. The VOBA currently recognized is amortized over an average period of 12 to 15 years, with an average remaining amortization period of 11 years
(2007: 13 years). Future servicing rights are amortized over an average period up to 35 years, of which 13 remains at
Financial assets designated at fair value through profit or loss (FVTPL) 1 5,603 7,863
Refer to note 49 for a summary of all financial assets and financial liabilities designated at fair value through profit or loss.1
Receivables out of share lease agreements – – – 137 137 137
As part of the AEGON Levensverzekering N.V.’s funding program the company entered into securitization contracts for its mortgage loans. At December 31, 2008 a total of five publicly placed and one privately placed securitization contracts were outstanding with a total value of EUR 4.0 billion (2007: EUR 4.7 billion). Although no new securitizations took place in 2008 there was one replenishment of SAECURE 6, the most recent publicly placed securitization.
(SAECURE 1) was called by the special purpose vehicle. When these securitization programs were set up, the economic ownership of mortgage receivables was conveyed to special purpose companies. The special purpose companies funded the purchase of mortgages from AEGON The Netherlands with the issuance of mortgage-backed securities. The transfer of ownership title will take place only if the borrowers are duly notified by the special purpose company upon the occurrence of certain pre-defined ‘notification events’. At the same time
At that same time, the special purpose companies have the right to call the notes. A deferred purchase arrangement forming part of the contracts to sell the mortgage loans to the special purpose companies entitles AEGON Levensverzekering
N.V. to any specified residual positive value of the special purpose entities at maturity.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 7.1 - 7.2
In the year ended December 31, 2008, AEGON USA had sold
EUR 17 million (USD 23 million) of AAA-wrapped municipal debt securities to SPEs. AEGON has no continuing involvement with these SPEs. In 2007 AEGON consolidated SPEs in which it had continuing involvement. The fair value of all such debt securities reflected in investments and also measured at fair value through profit or loss amounted to EUR 592 million as at
AEGON owns EUR 201 million (2007: EUR 120 million) of shares in the Federal Home Loan Bank of Des Moines, Iowa, that are measured at par, which equals the amortized cost value.
In 2008, 95% of the value of AEGON’s properties, both for general account and for account of policyholders, were appraised, of which 84% was performed by independent external appraisers.
Rental income of EUR 96 million (2007: EUR 89 million; 2006: EUR 90 million) is reported as part of investment income in the income statement. No amount (2007: nil; 2006: EUR 2 million)
is attributable to rent on foreclosed real estate. Direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the period amounted to EUR 53 million (2007: EUR 53 million; 2006: EUR 28 million). EUR 1 million (2007: EUR 1 million; 2006: nil) of direct operating expenses is related to investment property that did not generate rental income during the period.
Investments for account of policyholders comprise financial assets at fair value through profit or loss, excluding derivatives, and investments in real estate.
Total investments for account of policyholders at fair value through profit or loss, excluding derivatives 1 104,269 139,876
Rental income of EUR 115 million (2007: EUR 134 million) is reported as part of investment income in the income statement.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 8 - 9
AEGON utilizes derivative instruments as a part of its asset liability risk management practices. The derivatives held for risk management purposes are classified as economic hedges to the extent that they do not qualify for hedge accounting, or that
Embedded derivatives that are not closely related to the host contracts have been bifurcated and recorded at fair value in the balance sheet. These bifurcated embedded derivatives are embedded in various institutional products, modified coinsurance and unit linked insurance contracts in the form of guarantees for minimum benefits. As a result of the decline in financial markets in 2008 the market value of the guarantees embedded in the written insurance contracts increased significantly. Please refer to note 47 for more disclosures about these guarantees.
Derivatives are used to add risk by selling protection in the form of single name credit default swaps and tranches of synthetic collateralized debt and commodity obligations. Another strategy used is to synthetically replicate corporate credit exposures with credit derivatives. This involves the purchase of high quality low risk assets and the sale of credit derivatives.
December 31, 2008 (EUR 15 million liability). When the contingent options are exercised, AEGON is exposed to the underlying tranches of the synthetic CDOs.
AEGON has entered primarily into interest rate swap agreements that effectively convert certain variable-rate assets and liabilities to a fixed-rate basis in order to match the cash flows of the assets and liabilities within AEGON’s portfolio more closely. These agreements involve the payment or receipt of variable-rate interest amounts in exchange for fixed-rate interest amounts over the life of the agreement without the exchange of the underlying principal amounts. AEGON is hedging its exposure to the variability of future cash flows from the interest rate movements for terms up to 28 years for hedges converting existing floating-rate assets and liabilities to fixed-rate assets.
December 31, 2008, cash flow hedge accounting for one contract was terminated. Due to default of the swap counterparty, prospective effectiveness of the hedge could no longer be asserted. As a result of the termination of cash flow hedge accounting the fair value movement on this contract has been recorded in the income statement since the date the swap counterparty went into administration. A loss of EUR 19 million has been recorded in result on financial transactions. For the year ended December 31, 2007, none of AEGON’s cash flow hedges were discontinued, as it was probable that the original forecasted transactions would occur by the end of the originally specified time period documented at the inception of the hedging relationship.
In addition, AEGON also makes use of cross currency swaps to convert variable or fixed foreign currency cash flows into fixed cash flows in local currencies. The cash flows from these hedging instruments are expected to occur over the next 25 - 33 years.
For the year ended December 31, 2008 AEGON recognized a gain of EUR 12 million of hedge ineffectiveness on cash flow hedges. In 2007 and 2006 gains of EUR 5 million and
EUR 7 million respectively of hedge ineffectiveness were recorded in the income statement. The amount of deferred gains or losses to be reclassified from equity into net income during the next twelve months is expected to be EUR 5 million.
The periods when the cash flows are expected to occur are as follows: < 1 year years 5 – 10 years > 10 years Total
AEGON funds its investments in insurance subsidiaries with a mixture of debt and equity. AEGON aims to denominate debt funding in the same currency as the functional currency of the investment. Investments outside the Eurozone, the United States,
These instruments include subordinated borrowings, long-term and short-term borrowings, short-term debts to credit institutions, cross currency swap contracts and forward foreign exchange contracts.
The investments in associates include interest in insurance companies that are required to maintain a minimum solvency margin based on local directives. Such restrictions can affect the ability of these associates to transfer funds in the form of cash dividends, or repayment of loans or advances, and therefore, there can be no assurance that these restrictions will not become a limitation in the future. There are no unrecognized shares of losses of associates.
Assets arising from reinsurance contracts related to: 2008 2007 Life insurance general account 3,890 3,279
Movements during the year in reinsurance assets relating to non-life insurance: 2008 2007
General insurance – – – 2 2 note 13 OTHeR AsseTs AnD ReCeiVAbLes
Real estate held for own use and equipment 13.1 540 673
Realized gains / (losses) through income statement 3 – – 3
Included in the net book value is equipment held for lease of
EUR 0 million (2007: EUR 16 million). Equipment has not been pledged as security for liabilities, nor are there any restrictions on title. Depreciation expenses have been charged in
AEGON USA and AEGON The Netherlands, with relatively smaller holdings in Hungary and Spain and are carried at revalued amounts. The carrying value under a historical cost model amounts to EUR 210 million (2007: EUR 213 million).
Refer to note 50 for a summary of contractual commitments for the acquisition of general account real estate held for own use.
The movements in the provision for impairment during the year were as follows: Additions charged to earnings (4) (2)
EUR 9.0 billion (2007: EUR 9.0 billion) cash collateral is received of which EUR 4.7 billion is included in cash and cash equivalents. A corresponding liability to repay the cash is recognized in other liabilities (note 29). Refer to note 51 for a discussion of collateral received and paid. Investment of cash collateral received is restricted through limitations on credit worthiness, duration, approved investment categories and borrower limits. AEGON earns a share of the spread between the collateral earnings and the rebate paid to the borrower of the securities. Income from security lending programs was approximately EUR 47 million (2007: EUR 23 million; 2006: EUR 26 million).
The weighted effective interest rate on short-term deposits was 1.96% (2007: 4.46%) and these deposits have an average maturity of 8.52 days (2007: 6.39 days).
Included in the short-term deposits is EUR 105 million (2007: EUR 205 million) of deposits which have a charge over them relating to loans made by banks to unit-linked funds.
As of January 1, 2008, AEGON’s treasury shares are included in ‘Retained earnings’ instead of ‘Share capital’. The comparative 2007 and 2006 1 information has been reclassified accordingly.
Board, is subject to approval of the Supervisory Board and must be resolved by the General Meeting of Shareholders. Moreover, repayment on preferred shares needs approval of the related shareholders. Refer to Other information for further information on dividend rights.
AEGON N.V. shares or a proposed business combination by any person or group of persons, whether individually or as a group, other than in a transaction approved by the Executive Board and Supervisory Board. If, in its sole discretion, Vereniging
Transactions in 2007: Purchase: 3 transactions, average price EUR 13.71 – 33,200 –
Net gains / (losses) transferred to income statement (891) – 25 (866)
Upon sale, the amounts realized are recognized in the income statement or transferred to retained earnings.
Upon impairment, unrealized losses are recognized in the income statement. There are restrictions on the distribution of the balance of the revaluation reserve related to real estate held for own use to shareholders.
The closing balances of the revaluation reserve for availablefor -sale investments relate to the following instruments: ReVALUATiOn ReseRVe FOR AVAiLAbLe-FOR-sALe inVesTMenTs (7,864) (679) 1,536
Movement in foreign currency translation and net foreign investment hedging reserves (407) 237 – (170)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 15.5- 16
AEGON a senior loan of EUR 3 billion was provided against issuance of 750 million non-voting convertible core capital securities at EUR 4.00 per security. The newly issued securities rank equal to common shares (pari passu), but carry no voting rights. This structure is designed to avoid dilution of voting rights of existing shareholders. The convertible core capital securities may only be used for general corporate purposes in the ordinary course of business; investments in subsidiaries chargeable to the additional capital of in excess of EUR 300 million outside the European Union require prior approval from the Dutch
Before December 1, 2009 AEGON has the right to repurchase 250 million of the securities at a price between
EUR 4 and EUR 4.52 per security, depending on AEGON’s share price at the date of the repurchase, and after that date at EUR 6 per security. AEGON may at any time repurchase the remaining 500 million securities at EUR 6 per security. Alternatively, after three years, AEGON may choose to convert these securities into common shares on a one-for-one basis. In this situation, the Dutch State may opt for repayment either in cash (at the original issue price of
AEGON retains full discretion over its policy regarding dividends paid on common shares. The coupon on the nonvoting securities will be paid only if a dividend is also paid to holders of common shares.
AEGON will receive either an annual coupon of EUR 0.34 per security or, if higher, an amount linked to the value of the dividend paid on AEGON common shares. This amount has been fixed at 110% for 2009, rising to 120% for 2010 and 125% for 2011 and beyond. The coupon is not tax deductible. Vereniging AEGON will use income from the nonvoting securities to service the loan from the Dutch State.
USD 250 million Floating LIBOR rate 1 Quarterly, December 15 2010 212 212 212
EUR 950 million Floating DSL rate 2 Quarterly, July 15 2014 950 950 950
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 17 - 18
USD 15 million 1 Floating Quarterly, February 23 2003 2033 2008 – 11
USD 12 million 1 Floating Quarterly, January 8 2003 2034 2009 9 8
USD 18 million 1 Floating Quarterly, July 23 2004 2034 2009 11 13
USD 190 million 2 7.625% Semi-annually, November 15 1997 2037 n.a. 36 34
Issued by a subsidiary of, and guaranteed by AEGON N.V. 2
Trust pass-through securities are securities through which the holders participate in a trust. The assets of these trusts consist of junior subordinated deferrable interest debentures issued by Transamerica Corporation and Clark Consulting Inc.
The trust pass-through securities are subordinated to all other unsubordinated borrowings and liabilities. There were no defaults or breaches of conditions during the period.
The fair value of these loans amounts to EUR 161 million
These loans are subordinated to all other unsubordinated borrowings and liabilities. There were no defaults or breaches of conditions during the period. The fair value of these loans amounts to EUR 41 million (2007: EUR 34 million).
Losses recognized as a result of liability adequacy testing – 15
Fair value of investment contracts without discretionary participation features 35,077 36,078 investment contracts consist of the following: 2008 2007 Institutional guaranteed products 23,578 24,004
Investment contracts with discretionary participation features 535 677 note 23 inVesTMenT COnTRACTs FOR
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 24
USD 100 million Domestic Debentures 1 9.375% Semi-annually 1996/08 – 68
EUR 1,000 million Medium-Term Notes 4.625% April 16 2003/08 – 1,000
USD 147 million Domestic Debentures 1 6.4% Semi-annually 1998/08 – 94
USD 500 million Senior Notes 1 5.75% Semi-annually 2005/20 333 353
GBP 250 million Medium-Term Notes 6.125% December 15 1999/31 258 341
The provisions include litigation provisions and provisions for contingent consideration relating to business combinations.
Movements during the year in defined benefit plans: Retirement benefit plans
Other post-employment benefit plans: 2008 2007 2006 2005 2004 Present value of wholly or partly funded obligations 4 4 4 4 –
Present value of wholly or partly funded obligations 2,148 2,361 2,491 2,546 2,091
Present value of wholly unfunded obligations 1 1,875 1,846 2,015 2,071 1,789
The fair value of AEGON’s own financial instruments included in plan assets and the fair value of other assets used by AEGON
Movements during the year of the present value of the defined benefit obligations: 2008 2007
Movements during the year in plan assets for retirement benefit plans: 2008 2007
breakdown of plan assets for retirement benefit plans: 2008 2007 Equity instruments 926 1,727
Accumulated post-employment benefit obligation for medical cost 17 (16) 17 (16)
Best estimate of contributions expected for the next annual period 171 estimated future benefits: Pension benefits
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 26
AEGON USA provides health care benefits to retired employees, which are predominantly unfunded. The post-retirement health benefit liability amounts to
The principal actuarial assumptions that apply for the year ended December 31, 2008 are as follows: Assumed health care trend rates: Health care cost trend rate assumed for next year 9.00% 10.00%
Target allocation of plan assets for retirement benefit plans for the next annual period is: Equity instruments 53-73%
The overall goal of the plans is to maximize total investment returns to provide sufficient funding for the present and anticipated future benefit obligations within the constraints of a prudent level of portfolio risk and diversification. AEGON
EUR 42,490 per year (as at January 1, 2008) have an option to contribute to a defined contribution plan for the excess salary.
However, the cost for the company remains the same. The defined benefit plans were unfunded by EUR 1,438 million at
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 27 - 28
Deferred corporate income tax assets are recognized for tax losses carried forward to the extent that the realization of the related tax benefit through the future taxable profits is probable. For an amount of EUR 513 million (2007: EUR 1 million, 2006: EUR 49 million) the realization of the deferred tax asset is dependent on future taxable profits in excess of the profits arising from the reversal of existing taxable temporary differences.
The realization of the deferred tax asset of EUR 3,761 million
EUR 687 million (2007: EUR 423 million, 2006: EUR 83 million)
EUR 340 million (2007: EUR 736 million, 2006: EUR 517 million)
will expire within the next five years; tax losses amounting to
will expire in five to ten years; tax losses amounting to
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 29 - 30
Investment income for account of policyholders 2,924 2,961 2,909 investment income from financial assets held for general account: 2008 2007 2006
Financial assets designated fair value through profit or loss 223 255 305
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 31 - 34
Included in interest income is EUR 10 million (2007: EUR 7 million; 2006: EUR 28 million) in respect of interest income accrued on impaired financial assets. The interest income on financial assets that are not carried at fair value through profit or loss amounted to EUR 6,603 million (2007: EUR: 6,930 million 2006: EUR 6,839 million).
Included in fee and commission income is EUR 85 million of fees on trust and fiduciary activities (2007: EUR 74 million; 2006: EUR 62 million). EUR 25 million of fees were recognized on financial assets and liabilities that are not carried at fair value with changes in the fair value recognized in the income statement (2007: EUR 6 million; 2006: EUR 14 million).
Net fair value change on investments in real estate for account of policyholders (557) (402) 187
Net fair value change on borrowings and other financial liabilities 105 (2) 42
net fair value change of derivatives comprise: 2008 2007 2006 Net fair value change on free standing derivatives 2,713 (12) 105
Fair value change on hedged items in a fair valued hedge 202 253 27
Ineffectiveness cash flow hedges 12 5 7 net fair value change on for account of policyholder financial assets at fair value through profit or loss comprise: 2008 2007 2006
Change in valuation of liabilities for insurance and investment contracts (4,036) 13,002 14,070
The change in valuation of liabilities for insurance and investment contracts include EUR 17 million of losses
EUR 26 million (2007: EUR 23 million and 2006: EUR 23 million)
EUR 14 million (2007: EUR 1 million and 2006: EUR 29 million)
that is classified for segment reporting purposes as non operating earnings as an offset against realized gains and losses on financial investments.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 38 - 40
Share appreciation rights and share options (15) 2 39 sHARe APPReCiATiOn RiGHTs AnD sHARe OPTiOns
(2007: EUR 18 million and 2006: EUR 13 million) and are recognized in the income statement as part of ‘Commissions and expenses’.
The fair value of a share appreciation right or share option at the grant date in 2008 amounted to EUR 1.57 (2007: EUR 2.87 and 2006: EUR 3.14). These amounts are equal to the weighted average fair value for the respective years. The total intrinsic value of share options exercised and SARs paid during 2008 amounts to EUR 1 million (2007: EUR 15 million and 2006: EUR 11 million).
EUR 19 million. The weighted average period over which it is expected to be recognized is 1.3 years.
No cash is received from exercise of share options during 2008, 2007 and 2006. Cash used to settle share appreciation rights amounts to EUR 0.4 million in 2008 (2007: EUR 17 million and 2006: EUR 10 million).
The exposure from the issued share appreciation rights and share options is economically hedged by a position in treasury shares. At December 31, 2008, AEGON N.V. held 42,464,790 of its own common shares with a face value of EUR 0.12 each by virtue of acquisitions for this purpose.
Impairment charges / (reversals) on financial assets, excluding receivables are for segment reporting excluded from operating earnings before tax 1
Debt securities and money market instruments 862 76 80 impairment reversals on financial assets, excluding receivables, from: 2008 2007 2006 Debt securities and money market instruments (36) (51) (103)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 41 - 44
The interest charges accrued on financial assets and liabilities that are not carried at fair value through profit or loss amounted to EUR 375 million (2007: EUR 314 million and 2006: EUR 331 million).
Recognition of previously unrecognized tax loss / tax credit (3) 27 (65)
Difference due to the effects of: Non-taxable income 2 (261) (247)
Changes in deferred tax assets as a result of recognition / write off of previously not recognized / recognized tax losses, tax credits and deductible temporary differences (3) 27 (12)
and 2006: 32.0%). The change from 2007 to 2008 is due to a change in the profitability of the countries and a change in applicable statutory tax rates. The change in the applicable statutory tax rates has however a minor effect. The increase of the weighted average applicable tax rate compared to 2007 and 2006 is caused by losses that are taxed at a higher rate than the compensating profits. In Spain, the corporate tax rate decreased from 32.5% in 2007 to 30% in 2008. In the
Czech Republic, the corporate tax rate decreased from 24% in 2007 to 21% in 2008. The rate will decrease to 20% in 2009 and 19% in 2010. In China, the corporate tax rate decreased from 33% in 2007 to 25% in 2008. In the United Kingdom, the corporate tax rate decreased from 30% in 2007 to 28% in 2008. The federal corporate tax rate in Canada will decrease as from 2008 to 2012 from 19.5% to 15%.
AEGON's consolidated result, while gains in the United States are taxed at 35% and losses in Ireland are taxed at 12.5%.
Basic earnings per share is calculated by dividing the net income attributable to equity holders, after deduction of preferred dividends declared and accrued coupons on perpetuals, by the weighted average number of common shares, excluding common shares purchased by the company and held as treasury shares (refer to note 15).
Weighted average number of common shares (thousands) 1,506,862 1,561,395 1,578,631 basic earnings per share (eUR per share) (0.92) 1.47 1.87
The number of share options that has not been included in the weighted average number of common shares used in the calculation of diluted earnings per share, because these share options were anti-dilutive for the periods presented, amounted to 29,178,516 (2007: EUR 8,993,229 and 2006: 9,151,195). The exercise prices of these share options range from EUR 14.98 to EUR 8.93.
Weighted average number of common shares for diluted earnings per share calculation (thousands) 1,506,862 1,562,577 1,579,703
Diluted earnings per share (eUR per share) (0.92) 1.47 1.86 note 46 DiViDenD PeR COMMOn sHARe
For financial reporting purposes AEGON distinguishes between the following types of minimum guarantees: Financial guarantees: these guarantees are treated as ��
bifurcated embedded derivatives, valued at fair value and presented as derivatives (refer note 2.10 and note 3); Total return annuities: these guarantees are not bifurcated ��
from their host contracts because they are valued at fair value and presented as part of insurance contracts (refer to note 2.19); Life contingent guarantees in the United States: these ��
guarantees are not bifurcated from their host contracts, valued in accordance with insurance accounting (SOP 03-1
Separate Accounts) and presented together with insurance liabilities (refer to note 2.19 and note 3); and
guarantees are not bifurcated from their host contracts, valued at fair value (the accounting policy for these guarantees was changed to fair value in 2007) and presented together with the underlying insurance contracts (refer to note 2.19 and note 3).
Funds’. Segregated funds are similar to variable annuities, except that they include a capital protection guarantee for mortality and maturity benefits (guaranteed minimum accumulation benefits). The initial guarantee period is ten years. The ten-year period may be reset at the contractholder’s option for certain products to lock-in market gains. The reset feature cannot be exercised in the final decade of the contract and for many products can only be exercised a limited number of times per year. The management expense ratio charged to the funds is not guaranteed and can be increased at management’s discretion.
Acquired through business combinations – – – – – 13 – – – 13
Total Return Annuity (TRA) is an annuity product in the United
(typically a mix of corporate and convertible bonds) subject to a cumulative minimum guarantee. Both the assets and liabilities are carried at fair value, however, due to the minimum guarantee not all of the changes in the market value of the asset will be offset in the valuation of the liability. This product exists in both the fixed annuity and life reinsurance lines of business and in both cases represents closed blocks.
contracts is defined as the current guaranteed minimum death benefit in excess of the capital account balance at the balance sheet date.
The guaranteed minimum income benefit feature provides for minimum payments if the contractholder elects to convert to an immediate payout annuity. The guaranteed amount is calculated using the total deposits made by the contractholder, less any withdrawals and sometimes includes a roll-up or step-up feature that increases the value of the guarantee with interest or with increases in the account value.
the projected account balance and recognizing the excess over the accumulation period based on total expected assessments.
Average attained age of contractholders 65 64 – 65 63 –
Note that the variable annuity contracts with guarantees may offer more than one type of guarantee in each contract; therefore, the amounts listed are 3 not mutually exclusive. Balances are included in the insurance liabilities on the face of the balance sheet; refer to note 20.4
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 47
AEGON added a premium to reflect the credit spread as required. The credit spread is set by using the credit default swap (CDS) spreads of a reference portfolio of life insurance companies, adjusted to reflect the subordination of senior debt holders at the holding company level to the position of policyholders at the operating company level (who have priority in payments to other creditors). Because CDS spreads for
European life insurers, AEGON’s assumptions reflect these differences in the valuation. If the credit spreads were 20 basis points higher or lower respectively, and holding all other variables constant in the valuation model, 2008 income before tax would have been EUR 255 million higher or lower.
EUR 4.3 billion. The main drivers of this increase are EUR 1.1 billion related to a decrease in equity markets, EUR 0.8 billion related to increases in equity volatilities and EUR 3.5 billion related to decreases in risk free rates offset by EUR 1.2 billion related to the increase in the spread of credit risk. Hedges related to these guarantee reserves contributed fair value gains of EUR 3.6 billion to income before tax.
Additionally, AEGON manages capital adequacy at the level of its country units and their operating companies. The goal is to ensure that AEGON companies maintain their strong financial strength, now and into the future, even after sustaining losses from severely adverse business and market conditions. AEGON
maintains its companies’ capital adequacy levels at whichever is the higher of local regulatory requirements and the relevant local Standard & Poor’s requirements for very strong capitalization, and any additionally self-imposed economic requirements.
Core capital, which consists of shareholders’ equity and the convertible core capital securities that were issued in 2008
Shareholders equity decreased by EUR 9,096 million due to the change in the revaluation reserve of EUR 6,651 million, a net loss of EUR 1,082 million and a number of other effects including dividends paid (EUR 660 million).
Securities (see note 17) such as the junior perpetual capital securities and the perpetual cumulative capital securities as well as other equity reserves. Group equity was EUR 13,760 million at December 31, 2008, compared to EUR 19,962 million at December 31, 2007.
(equivalent to 150% of the original issue price). Alternatively, after three years, AEGON may choose to convert these securities into common shares on a one-for-one basis.
EUR 0.34 per security or, if higher, an amount linked to the value of the dividend paid on AEGON common shares. This amount has been fixed at 110% for 2009, rising to 120% for 2010 and 125%
All financial agreements are closely monitored periodically to asses the likelihood of a breach of any financial covenant and the likelihood thereof in the near future. On the basis of this assessment, a breach of any such covenant has not occurred.
For the insurance and reinsurance undertakings of AEGON in the European Union, the European Solvency I directives are applicable, as implemented in the relevant member states.
Solvency I allows member states to require solvency standards, exceeding the minimum requirements set by the Solvency I
The Financial Services Authority regulates insurance companies in the United Kingdom under the Financial Services and Markets
AEGON UK, the published measure continues to be the most stringent requirement. At the end of 2008 AEGON UK’s aggregate Pillar 1 capital ratio was approximately 200%.
AEGON N.V. is subject to legal restrictions on the amount of dividends it can pay to its shareholders. Under Dutch law the amount that is available to pay dividends consists of total shareholders’ equity less the issued and outstanding capital and less the reserves required by law. The revaluation account and legal reserves, foreign currency translation reserve and other, cannot be freely distributed. In case of negative balances for individual reserves legally to be retained, no distributions can be made out of retained earnings to the level of these negative amounts. Total distributable reserves under Dutch law amount to EUR 2,660 million at December 31, 2008.
Total financial assets at fair value through profit or loss 5,451 109,856 1,079 147,668
Derivatives with negative values not designated as hedges 4,018 – 1,382 –
Total financial liabilities at fair value through profit or loss 4,018 17,674 1,382 22,651 inVesTMenTs FOR GeneRAL ACCOUnT
The Group elected to designate these investments for account of policyholders at fair value through profit or loss, a classification of financial assets as available-for-sale would result in accumulation of unrealized gains and losses in a revaluation reserve within equity whilst changes to the liability would be reflected in net income (accounting mismatch).
In addition the investment for account of policyholders include with profit assets, where an insurer manages these assets together with related liabilities on a fair value basis in accordance with a documented policy of asset and liability management.
In accordance with Group’s accounting policies, these assets have been designated as at fair value through profit or loss.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 49 - 50
With the exception of derivatives designated as a hedging instrument, all derivatives held for general account and held for account of policyholders are included in the table on the previous page.
Mortgage loans commitments represent undrawn mortgage loan facility provided and outstanding proposals on mortgages.
United States. Standby letters of credit amounts reflected above are the liquidity commitment notional amounts. In addition to the guarantees shown in the table, guarantees have been given for fulfillment of contractual obligations, such as investment mandates related to investment funds.
A group company entered into a net worth maintenance agreement with AEGON subsidiary Transamerica Life
International (Bermuda) Ltd ensuring the company is adequately capitalized and has sufficient cash for its operations.
AEGON N.V. has guaranteed and is severally liable for the following: Due and punctual payment of payables due under letter of ��
At December 31, 2008, the letter of credit arrangements amounted to EUR 3,544 million; as that date no amounts had been drawn or were due under these facilities; Due and punctual payment of payables by the consolidated ��
Transamerica Finance Corp. with respect to bonds, capital trust pass-through securities and notes issued under commercial paper programs (EUR 694 million), as well as payables with respect to certain derivative transactions of Transamerica
Corporation (nominal amount EUR 1,003 million); Due and punctual payment of any amounts owed to third ��
AEGON is involved in a dispute between AEGON N.V., the foundation that sold the insurance company OPTAS, and the unions and employers in the harbors of Rotterdam and
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 51
The operating lease obligations relate mainly to office space leased from third parties. The total of future minimum sublease payments expected to be received on non-cancelable subleases is EUR 8 million.
The following table reflects the carrying amount of non-cash financial assets that have been transferred to another party under security lending and repurchase activities where the counterparty has the right to sell or repledge.
Financial assets at fair value through profit or loss 39 113
The carrying amount of non-cash financial assets that have been transferred to another party under security lending and repurchase activities where the counterparty does not have the right to sell or repledge the security lending and repurchase activities amount to EUR 139 million (2007: EUR 212 million).
Cash collateral is recorded on the balance sheet as an asset and an offsetting liability is established for the same amount as AEGON is obligated to return this amount upon termination of the lending arrangement or repurchase agreement. Cash collateral is usually invested in pre-designated high quality investment strategies. The sum of cash and non-cash collateral is typically greater than the market value of the related securities loaned.
The following table analyses the fair value of the collateral received in relation to securities lending and (reverse)
financial assets as collateral for general account liabilities and contingent liabilities. None (2007: none) of the financial assets pledged can be sold or repledged by the counterparty.
EUR 56 million of the financial assets and other assets were pledged as collateral for liabilities and contingent liabilities for account of policyholders in 2008 (2007: none).
EUR 63 million was recognized. Since the acquisition date, the company has attributed EUR 0 million to net income. If the acquisition had been as of January 1, 2008, contribution to net income and total revenues would amount to EUR 0 million and
The transaction is expected to close by the end of the first quarter of 2009, subject to approval from Brazil’s regulatory authorities. The total consideration to be paid up front will amount to EUR 44 million. Based on the performance of the company, AEGON may pay a maximum additional consideration to the company of EUR 11 million.
The total purchase price amounted to EUR 139 million. Since the acquisition date, the company has attributed EUR 1 million to net income. If the acquisition had been as of January 1, 2008, contribution to net income and total revenues would amount to respectively EUR 4 million and EUR 14 million.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 52
EUR 39 million reflects the future new business and potential synergies with existing businesses.
in Hungary for a total purchase price of EUR 21 million.
The companies merged subsequently. Since the acquisition date, the company has attributed EUR 1 million to net income.
Company of New York, companies that sell non-participation life insurance and annuity products such as variable life insurance, variable annuities, market value adjusted annuities and immediate annuities. The total purchase price amounted to
EUR 9.9 billion respectively. As the acquisition was completed at the end of December 2007, the net income of the acquired operations was not material to the AEGON’s consolidated net income. Had the acquisition taken place on 1 January 2007, the contribution of these companies to the Group’s net income is estimated at EUR 75 million; contribution to revenues would have been approximately EUR 271 million.
Goodwill was recognized for an amount of EUR 84 million, reflecting the future commission revenue from inforce contracts. In addition an intangible asset was established for the present value of future commission receivables in the amount of EUR 365 million.
EUR 2 million to net income. If the acquisition had been as of
Assets of EUR 81 million and liabilities of EUR 9 million were recognized due to the acquisition. Goodwill amounting to
EUR 23 million reflects the future new business to be generated and potential synergies with existing businesses.
Unirobe has contributed EUR 5 million to the net income of
International S.A. for EUR 29 million, together with an earn-out arrangement. The cash and cash equivalents held at the end of
are listed by geographical segment. All are wholly owned, directly or indirectly, unless stated otherwise, and are involved in insurance or reinsurance business, asset management or services related to these activities. The voting power in these subsidiaries held by AEGON is equal to the shareholdings.
ML Life Insurance Company of New York, New York, New York ��
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 53
The legally required list of participations as set forth in articles 379 and 414 of Book 2 of the Dutch Civil Code has been registered with the Trade Register in The Hague. AEGON N.V.
Capital Partners LP (‘Prisma LP’) which serves as an investment manager for certain of AEGON's hedge fund investments as well as for other third parties, in exchange for management fees.
management board with seven voting members (three appointed by AEGON, three appointed by Prisma GP LLC and one independent member appointed collectively by the other six voting members) must approve certain actions, including restructuring transactions, hiring senior management and the annual operating budget. As a result, notwithstanding AEGON’s 57% economic interest, the company can not exercise voting control since AEGON only appoints three out of the seven board members, AEGON cannot remove the majority of the management board members and AEGON does not have other arrangements, contractual or otherwise, that would give AEGON
Related party transactions for the period under review include transactions between AEGON N.V. and Vereniging AEGON.
AEGON provides reinsurance, asset management and administrative services for employee benefit plans relating to pension and other post-employment benefits of AEGON
CEO for Central and Eastern Europe. The Management Board is now formed by members of the Executive Board, and the
other long-term benefits. Remuneration of Mr. Van der Werf who stepped down as CEO of AEGON the Netherlands at the beginning of 2008 amounted to EUR 3.7 million and included salary, pension premiums, compensation for entitlements to incentive plans and severance. Additional information on the remuneration and share-based compensation of members of the Executive Board and the Supervisory Board are disclosed in the sections on the following pages.
Members of the Executive Board are not entitled to performance related remuneration related to the financial year 2008 based on the remuneration policy as approved by the General Meeting of Shareholders.
The numbers of shares and options conditionally granted were based on the closing price on the day of the grant. This is also the exercise price of the options. The fair value information on the conditionally granted shares will be provided in the year when these vest and on the options when these will be exercised.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 54
share options and share appreciation rights and interests in AeGOn n.V. held by active members of the executive board
In accordance with the terms of the contracts, no principal repayments were received on the loans in 2008.
Remuneration of active and retired members of the supervisory board In EUR 2008 2007 2006
Robert J. Routs (as of April 23, 2008) 40,673 – –
O. John Olcay (up to April 23, 2008) 22,054 66,250 65,000
Clifford Sobel (from April 25, 2006 up to July 17, 2006) – – 9,231
Common shares held by supervisory board members Shares held in AEGON at December 31 2008 2007 2006 Irving W. Bailey, II 29,759 29,759 29,759
Karla M.H. Peijs (as of April 25, 2007) 1,400 900 n.a.
Not included in the table on the previous page is a premium for state health insurance paid on behalf of Dutch Supervisory
Chairman of the Board of the Dutch and Belgian firms of
Auditor’s report | TO: THE SUPERVISORY BOARD AND THE ExECUTIVE BOARD OF AEGON N.V.
We have audited the accompanying consolidated financial statements for the year 2008 (as set out on pages 84 to 218)
December 31, 2008, the consolidated income statement, statement of changes in equity and cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory notes.
Standards Board and with Part 9 of Book 2 of the Netherlands
In our opinion, the consolidated financial statements give a true and fair view of the financial position of AEGON N.V. as at
December 31, 2008, and of its result and its cash flows for the year then ended in accordance with International Financial
Notes to the financial statements of AEGON N.V. AMOUNTS IN EUR MILLION, UNLESS OTHERWISE STATED
‘the Group’) have life insurance and pensions operations in over ten countries in Europe, the Americas and Asia and are also active in savings and investment operations, accident and health insurance, general insurance and limited banking operations in a number of these countries. The largest operations are in the United States. Headquarters are located in
With regard to the income statement of AEGON N.V., article 402, Part 9 of Book 2 of the Netherlands Civil Code has been applied, allowing a simplified format.
As of January 1, 2008, legal reserves are presented on the face of the balance sheet as a separate item within shareholders’
Reserve (FCTR) and Other legal reserves. The comparable numbers have been reclassified accordingly. As of January 1, 2008, AEGON’s treasury shares are included in Retained earnings instead of in the Paid-in surplus line item. In the statement of changes in equity a reclassification has been included to show the impact.
The group companies are stated at their net asset value, determined on the basis of IFRS as applied in the consolidated financial statements of the Group. For details on the accounting policies applied for the group companies refer to the consolidated financial statements on page 84 and following.
An asset is impaired if the carrying amount exceeds the amount that would be recovered through its use or sale. Tangible, intangible and financial assets, if not held at fair value through profit or loss, are tested for impairment when there are indications that the asset may be impaired. Irrespective of the indications, goodwill and other intangible assets that are not amortized are tested at least annually. For assets denominated in a foreign currency, a decline in the foreign exchange rates is considered an indication of impairment.
Legal reserves include net increases in net asset value of subsidiaries and associates since their first inclusion, less any amounts that can be distributed without legal restrictions.
NOTES TO THE FINANCIAL STATEMENTS OF AEGON N.V. | NOTE 2.9 - 6
For a list of names and locations of the most important group companies, refer to note 53 of the consolidated financial statements of the Group, page 212-213. The legally required list of participations as set forth in article 379 of Book 2 of the Netherlands Civil Code has been registered with the
Other assets include derivatives with positive fair values of EUR 599 million (2007: EUR 180 million).
Par value in cents per share 2008 2007 Common shares 12 12
Refer to note 47 of the consolidated financial statements of the
preferred shares will then be issued at par value (EUR 0.25), unless a higher issue price is agreed. In the years 2003 through 2007, 35,170,000 class B preferred shares were issued under these option rights. In 2008, no option rights were exercised.
NOTES TO THE FINANCIAL STATEMENTS OF AEGON N.V. | NOTE 7
Changes in revaluation subsidiaries – – (2,164) – – – – – (2,164)
Issuance of shares 2 – – – – – – – 2
Changes in equity from relation with shareholders 3 (3) – – – (1,041) (1,266) – (2,307)
Changes in foreign currency translation reserve – – – (170) – – – – (170)
Changes in revaluation subsidiaries – – (6,651) – – – – – (6,651)
Repurchased and sold own shares – – – – – – (217) – (217)
Withdrawal of treasury shares (12) – – – – (1,533) 1,545 – –
Coupons on convertible core capital securities and perpetuals, net of tax – – – – – (310) – – (310)
NOTES TO THE FINANCIAL STATEMENTS OF AEGON N.V. | NOTE 8
The balance of the revaluation account, which includes revaluation reserves for real estate and investments that do not have a frequent market listing, consists for EUR 2,728 million
EUR 4.00 per security. The newly issued securities rank equal to common shares (pari passu), but carry no voting rights. This structure is designed to avoid dilution of existing common shareholders’ value.
Before December 1, 2009, AEGON has the right to repurchase 250 million of the securities at a price between EUR 4.00 and
EUR 4.52 per security, depending on AEGON’s share price and the date of the repurchase, and after that date at EUR 6.00 per security. AEGON may at any time repurchase the remaining 500 million securities at EUR 6.00 per security (equivalent to 150% of the original issue price). Alternatively, after three years, AEGON may choose to convert these securities into common shares on a one-for-one basis. In this situation, the Dutch State may opt for repayment either in cash (at the original issue price of EUR 4.00) or in shares.
Coupon rate Coupon date: as of Year of first call 2008 2007Junior perpetual capital securities
USD 250 million floating LIBOR rate 1 Quarterly, December 15 2010 212 212
The coupon of the USD 250 million junior perpetual capital securities is reset each quarter based on the then prevailing three-month LIBOR yield plus 1 a spread of 87.5 basis points, with a minimum of 4%. The coupon of the EUR 950 million junior perpetual capital securities is reset each quarter based on the then prevailing ten-year Dutch government 2 bond yield plus a spread of ten basis points, with a maximum of 8%. The coupon of the USD 500 million junior perpetual capital securities is reset each quarter based on the then prevailing ten-year US dollar interest 3 rate swap yield plus a spread of ten basis points, with a maximum of 8.5%.
The bonds have the same subordination provisions as dated subordinated debt. In addition, the conditions of the bonds contain provisions for interest deferral and for the availability of principal amounts to meet losses. Although the bonds have optional and required coupon payment deferral and mandatory payment events. Although the securities have no stated maturity, AEGON has the right to call the securities for redemption at par for the first time on the coupon date in the years as specified, or on any coupon payment date thereafter.
no stated maturity, AEGON has the right to call the bonds for redemption at par for the first time on the coupon date in the years as specified.
Loans from and payables to group companies have a maturity of less than one year. Other includes derivatives with negative fair values of EUR 403 million (2007: EUR 174 million).
AEGON N.V. will cause AFA to have a tangible net worth of at least 3% of its total liabilities under financial guaranty policies which it issues up to a maximum of EUR 3 billion.
credit agreements applied for by AEGON N.V. as co-applicant with its subsidiary companies Transamerica Corporation,
Transamerica Finance Corp. with respect to bonds, capital trust pass-through securities and notes issued under commercial paper programs (EUR 694 million), as well as payables with respect to certain derivative transactions of Transamerica Corporation (nominal amount EUR 1,003 million); Due and punctual payment of any amounts owed to third ��
AEGON N.V. is involved in a dispute between AEGON N.V., the foundation that sold the insurance company OPTAS and the unions and employers in the harbors of Rotterdam and
Other than the Executive Board members, there were no employees employed by AEGON N.V. in either 2008 or 2007.
AEGON will pay approximately EUR 11 million for the stake, which will give AEGON full control of the pension business.
Joseph B.M. Streppel as Chief Financial Officer and a member of the Executive Board, effective April 22, 2009 at AEGON’s annual General Meeting of Shareholders. Mr. Streppel, who has served as CFO since 1998 and a member of the Executive
Board since 2000, will step down from AEGON at the next annual General Meeting of Shareholders in line with
We have audited the accompanying company financial statements for the year 2008 (as set out on pages 220 to 233)
December 31, 2008, and of its result for the year then ended in accordance with Part 9 of Book 2 of the Netherlands Civil Code.
Appropriation of profit will be determined in accordance with the articles 31 and 32 of the Articles of Incorporation of
AEGON N.V. The relevant provisions read as follows: 1. The General Meeting of Shareholders shall adopt the annual accounts.
4. The profits remaining after application of the above shall be put at the disposal of the General Meeting of Shareholders.
and class B preferred shares shall be paid to the holder of the preferred shares.
Earnings to be (reduced) / retained (1,462) 1,868 neT ResULT (1,082) 2,551
became the only shareholder of AGO Holding N.V., which was the holding company for its insurance operations. In 1983,
AEGON N.V. subsequently sold these common shares in a global offering. The purchase price for the 206,400,000 common shares sold by Vereniging AEGON to AEGON N.V. was
On May 9, 2003, AEGON’s shareholders approved certain changes to AEGON’s corporate governance structure and
preferred shares were issued under these option rights. In 2008, no option rights existed.
Vereniging AEGON consisted of nineteen members. The majority of the voting rights is with the seventeen members not being employees or former employees of AEGON N.V. or one of the
The two other members are both elected by the General Meeting of Members of Vereniging AEGON from among the members of the Executive Board of AEGON N.V.
Vereniging AEGON has an Executive Committee consisting of seven members, five of whom, including the chairman and the vice-chairman, are not nor have ever been, related to AEGON.
Members has the deciding vote. With regards to the amendment of the Articles of Association of Vereniging AEGON, a special procedure is in place to provide for the need of a unanimous proposal from the Executive Committee, thereby including the consent of the representatives of AEGON N.V. at the Executive
Vereniging AEGON may amend its Articles of Incorporation without the cooperation of AEGON N.V.
To AEGON’s knowledge there are no other parties holding a capital / voting interest in AEGON N.V. in excess of the thresholds established under Dutch securities law.
Revenues by line of business 717 705 680 673 2,775 Individual savings and retirement products 638 613 630 622 2,503 10,375 9,392 9,696 9,808 39,271 ReVenUes by Line OF bUsiness 9,172 8,454 8,146 8,310 34,082 12,976 9,902 12,056 9,594 44,528 Gross deposits (on and off balance sheet) 8,636 9,131 11,051 11,933 40,751 318 (682) 2,716 118 2,470 net deposits (on and off balance sheet) (888) 971 1,652 1,679 3,414
New premium production accident and health insurance 166 141 146 161 614 12 13 12 21 58 New premium production general insurance 16 16 19 17 68
bifurcation is the measurement and presentation of embedded derivatives separate from the host contracts, as if they were stand-alone derivative financial instruments.
Claims settlement expenses are costs incurred in settling a claim. These costs include internal administration and payout costs, but also such items as attorney’s fees and investigation expenses.
Collateral is an asset pledged by a borrower to secure a loan and is subject to seizure in the case of default.
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss.
or a specified type of contract; Realized and/or unrealized investment returns on •
effective interest rate method is a method of calculating the amortized cost of a financial asset or liability and of allocating the interest income or expense over the relevant period.
embedded derivative is a component of a hybrid instrument that also includes a non-derivative host contract, with the effect that some of the cash flows of the combined instrument vary in a way similar to a derivative.
A contractual right to receive cash or another financial asset ��
equity instruments and is: A non-derivative for which the entity is or may be obliged •
A derivative that will or may be settled other than by the •
Financial liability is any liability that is: A contractual obligation to deliver cash or another financial ��
asset to another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity; or
Financial risks are risks of a possible future change in one or more of the following variables: a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index or prices or rates, credit rating or credit index or other variable, provided in the case of a non-financial variable, that the variable is not specific to a party to the contract.
incremental cost is one that would not have been incurred if the entity had not acquired, issued or disposed of a financial instrument.
insurance contract is a contract under which one party (the insurer) accepts significant insurance risk from another party
insurance liability is an insurer’s contractual obligation under an insurance contract.
insurance risk is a risk, other than financial risk, transferred from the holder of a contract to the issuer.
Plan assets are assets held by a long-term employee benefit fund and qualifying insurance policies.
Repurchase agreement is a sale of securities with an agreement to buy back the securities at a specified time and price.
Reverse repurchase agreement is a purchase of securities with the agreement to resell them at a later specified date and price.
security lending involves a loan of a security from one party to another.
sovereign exposures are AAA rated government bonds, or lower rated government bonds if purchased in local currency by a reporting unit.
Value of business Acquired (VObA) the difference between the fair value and the carrying amount of the insurance liabilities recognized when a portfolio of insurance contracts is acquired (directly from another insurance company or as part of a business combination).
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The statements contained in this Annual Report that are not historical facts are forward-looking statements as defined in the US Private Securities Litigation Reform Act of 1995.
The following are words that identify such forward-looking statements: believe, estimate, target, intend, may, expect, anticipate, predict, project, counting on, plan, continue, want, forecast, should, would, is confident, will, and similar expressions as they relate to AEGON. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict.
United States, the Netherlands and the United Kingdom; Changes in the performance of world financial markets, ��
including emerging markets, such as with regard to: The frequency and severity of defaults by issuers •
may impact the profitability of AEGON’s insurance products; Changes affecting interest rate levels and continuing low or ��
Netherlands, the United Kingdom and emerging markets; Changes in laws and regulations, particularly those affecting ��
jurisdictions in which AEGON operates; Acts of God, acts of terrorism, acts of war and pandemics;��
pay significant damages or change the way the company does business; Customer responsiveness to both new products and ��
distribution channels; Competitive, legal, regulatory, or tax changes that affect the ��