The total gross unrealized loss on AFS CMBS of Aegon Americas, Aegon the Netherlands and Aegon UK amounted to EUR 18 million as of December 31, 2014 (December 31, 2013: EUR 91 million). All gross unrealized losses relate to positions held by Aegon USA.
Aegon UK at EUR 104 million and Aegon the Netherlands at EUR 3 million. Throughout 2014, CMBS fundamentals continued to improve as the pace of credit deterioration moderated, commercial real estate valuations continued to improve and there was a greater availability of financing. Liquidity has improved within the CMBS market; however, credit spreads on many legacy subordinate CMBS
The tables below summarize the credit quality of Aegon USA’s AFS CMBS portfolio. Additionally, Aegon USA has investments in CMBS
The fair values of Aegon USA’s CMBS instruments were determined as follows: Level II Level III Total 2014 Level II Level III Total 2013
by Aegon UK. Additionally, Aegon Americas has investments in ABS of EUR 16 million (December 31, 2013: EUR 24 million), which are
Notes to the consolidated financial statements of Aegon N.V. Note 4 classified as fair value through profit or loss. ABS are securitizations of underlying pools of credit card receivables, auto financing loans, small business loans, bank loans, and other receivables. The underlying assets of the asset backed securities have been pooled together and sold in tranches with varying credit ratings.
The total gross unrealized loss on AFS ABS of Aegon Americas, Aegon the Netherlands and Aegon UK amounted to EUR 80 million as of December 31, 2014 (December 31, 2013: EUR 99 million). Aegon USA has EUR 38 million (December 31, 2013: EUR 52 million) of this gross unrealized loss, Aegon the Netherlands EUR 41 million (December 31, 2013: EUR 40 million) and Aegon UK EUR 1 million
(December 31, 2013: EUR 7 million). The stronger financial and economic conditions have helped stabilize in the US, and improve in
Europe, the performance of the underlying collateral backing many of these securities. The European ABS market is well supported by the following strong technicals: the ABS purchase program from the ECB, the shortage of supply and the search for yield.
The breakdown by quality of the available-for-sale ABS portfolio of Aegon USA, Aegon the Netherlands and Aegon UK is as follows: ABS US, NL and UK AAA AA A BBB <BBB
ABS US, NL and UK 1) AAA AA A BBB <BBB
Corporate - Financial sector The Corporate – Financial sector is further subdivided into banking, brokerage, insurance, REIT’s and Financial – Other sub-sectors.
A majority of the gross unrealized loss in Aegon’s available-for-sale portfolio is from the banking sub-sector.
The Banking sub-sector in Aegon’s portfolio is relatively large, diverse, and of high quality. Aegon holds EUR 9,458 million
(December 31, 2013: EUR 8,288 million) of AFS bonds issued by banks. In aggregate, the gross unrealized loss on these bonds amounted to EUR 181 million (December 31, 2013: EUR 220 million) and the net unrealized gain on these bonds amounted to
Bank regulators are implementing a wide array of reforms designed to strengthen capital levels, reduce balance sheet risk and improve liquidity in an attempt to reduce systemic risk. Many banks already meet new capital and liquidity requirements, well ahead of regulatory deadlines. In addition, regulators and central governments are adopting new bank guidelines, which are designed to reduce systemic risk by tapping loss-absorbing capital, as needed, to recapitalize or resolve a bank without using taxpayer money. Globally, risk concentrations on bank balance sheets continue to exist, and ratings for some banks remain under pressure, but central banks are accommodative and confidence in the sector has increased materially since the financial crisis.
Within the Banking sub-sector, Aegon holds EUR 1,230 million (December 31, 2013: EUR 1,433 million) of deeply subordinated securities with deferrable coupons that have an associated unrealized loss of EUR 114 million (December 31, 2013 EUR 130 million).
Aegon’s available-for-sale debt securities for Belfius Bank SA have a fair value of EUR 74 million as of December 31, 2014
Dexia’s reliance on short-term wholesale funding caused a near-collapse as funding markets froze in 2008 and 2009. Capital injections from Belgium, France and Luxembourg along with guarantees on Dexia’s funding provided sufficient access to funding markets until the Sovereign debt crisis in 2011 put too much strain on Dexia’s large funding needs. In November 2011, a new restructuring plan was put in place for Dexia SA and 100% of Dexia Bank Belgium was sold to the Belgian state. Aegon’s bonds now form part of the capital structure of that entity which was rebranded as Belfius Bank SA during the first half of 2012. Payments continue to be made on
Aegon’s holdings in accordance with the original bond agreements. Aegon evaluated the near-term prospects of the issuer and it believes that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2014.
The Basic industry sector encompasses various sub-sectors including metals and mining, chemicals and paper and forest products with the majority of the gross unrealized loss relating to metals and mining. Fundamentals for the metals and mining industry have been negatively impacted by falling prices for base metals, ferrous metals, precious metals, iron ore and coal. Slowing economic data out of China has been the main driver of the pricing pressure for the base metals and bulk steel-making commodities as the country comprises from 40% to 60% of the demand for most of these commodities. Chemicals have been positively impacted by continued low natural gas prices within the United States, but given the global scale of most players in the industry, they have also been harmed by a slowdown in global growth as well as volatility in raw material costs, increasing competition from global peers and the potential for lower margins given falling oil prices. Paper and forest products have shown some improvement as the housing recovery takes hold in the United States, but more traditional paper products, such as newsprint, remain challenged. Aegon evaluated the near-term prospects of the issuers in relation to the severity and duration of the unrealized loss and does not consider those investments to be impaired as of December 31, 2014.
The Consumer non-cyclical sub-sector encompasses various industries ranging from consumer products to supermarkets. The more significant of these sub-sectors from an unrealized loss perspective are food and beverage and pharmaceuticals. Food and beverage balance sheets continue to be solid as the slow growth environment remains in place. Modest price increases, tight cost controls and cost savings programs have helped offset continued volume weakness, but with the low hanging fruit gone mergers/acquisitions and shareholder friendly activities have increased. While showing signs of stabilization, the Pharmaceutical sector continues to deal with patent cliff issues. As drugs roll off patent, generic competition takes market share and pulls down margins. Additionally, shareholder friendly activities in the form of increased dividends and share repurchases continue. Merger and acquisition activity continues to be prevalent in the sector, at times resulting in additional leverage. Finally, some companies have analyzed their business models and decided to spin off business lines, in an effort to concentrate on their core competencies. In certain instances, this has resulted in smaller, less diversified companies. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2014.
Corporate - Energy industry sector The Energy Industry sector encompasses various sub-sectors including integrated oil and gas producers, independent oil and gas producers, midstream processing and transport, oil field services and drilling, and refining. The majority of the gross unrealized loss relates to independent oil and gas producers, as well as oil field services and drilling. Falling oil prices, and continued low natural gas prices, have reduced cash flow for upstream oil and gas producers. Oil field service and drilling companies have been pressured by the prospect of margin pressure resulting from new capacity additions and the prospect of lower capital spending by their upstream client base. Commodity price pressure stem from strong non-OPEC supply growth, softening global demand, and shifting OPEC
policy. Midstream processing and transport companies have thus far not been materially pressured by falling commodity prices, although reduced upstream capital spending would impact volume growth. Refiners have seen positive near term impacts from lower feedstock costs. Aegon evaluated the near-term prospects of the issuers in relation to the severity and duration of the unrealized loss and does not consider those investments to be impaired as of December 31, 2014.
Below investment grade carrying value of securities with gross unrealized losses
There is one individual issuer, Belfius Bank SA, rated below investment grade that has an unrealized loss greater than EUR 25 million.
Realized gains and losses on debt securities of Aegon Americas, Aegon the Netherlands and Aegon UK The following table provides the realized gains and losses on the debt securities of Aegon Americas, Aegon the Netherlands and Aegon
UK for the twelve months ended December 31, 2014, and December 31, 2013.
Impairment losses and recoveries The composition of Aegon Americas, Aegon the Netherlands and Aegon UK’s bond impairment losses and recoveries by issuer for the periods ended December 31, 2014, and December 31, 2013, is presented in the table below. Those issuers with impairments or recoveries above EUR 25 million are specifically noted.
Aegon’s policy is to pursue realization of the collateral in an orderly manner as and when liquidity permits. Aegon generally does not use the non-cash collateral for its own operations.
Equity instruments classified as available-for-sale Objective evidence of impairment of an investment in an equity instrument classified as available-for-sale includes information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered. A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is also objective evidence of impairment.
These factors typically require significant management judgment. The impairment review process has resulted in EUR 3 million of impairment charges for the twelve months ended December 31, 2014 (twelve months ended December 31, 2013: EUR 3 million) for
Aegon’s portfolio, changes in DPAC amortization, contributions to pension plans for Aegon’s employees and the strengthening of the guaranteed minimum benefits, when applicable. The results of equity sensitivity tests are non-linear. The main reason for this is due to equity options sold to clients that are embedded in some of these products and that more severe scenarios could cause accelerated
Liquidity risk Liquidity risk is inherent in much of Aegon’s business. Each asset purchased and liability incurred has its own liquidity characteristics.
Investment contracts for account of policyholders 1) 29,911 3,427 - - 114 33,453
Investment contracts for account of policyholders 289 9,948 27,591 25,372 72,461 135,661
Maturity analysis relating to derivatives 1) (Contractual cash flows) 2014 On demand
5 Segment information For segment reporting purposes the following non-IFRS financial measures are included: underlying earnings before tax, income tax and income before tax. These non-IFRS measures are calculated by consolidating on a proportionate basis Aegon’s joint ventures and associated companies. Aegon believes that its non-IFRS measures provide meaningful information about the underlying results of
Aegon’s business, including insight into the financial measures that Aegon’s senior management uses in managing the business.
IFRS accounting policies for financial instruments and insurance contracts, which embed a number of accounting policies alternatives that companies may select in presenting their results (i.e. companies can use different local GAAPs to measure the insurance contract liability) and that can make the comparability from period to period difficult.
Underlying earnings Underlying earnings reflects Aegon’s profit from underlying business operations and excludes components that relate to accounting mismatches that are dependent on market volatility or relate to events that are considered outside the normal course of business.
Below the items that are excluded from underlying earnings are described.
The fair value movements of certain guarantees and the fair value change of derivatives that hedge certain risks on these guarantees of Aegon the Netherlands and Variable Annuities Europe (included in New Markets) are excluded from underlying earnings, and the long-term expected return for these guarantees is set at zero.
(BOLI/COLI) business and the life reinsurance business in Aegon Americas. Aegon has other blocks of business for which sales have been discontinued and of which the earnings are included in underlying earnings.
Brazil, the Netherlands, United Kingdom and Mexico are reported on an underlying earnings basis.
Realized gains / (losses) on investments 110 342 48 - - - 500 - 500
Realized gains / (losses) on investments 186 138 84 10 - - 418 3 421
Realized gains and (losses) on repurchased debt 10 3 - 7
Amortization of deferred expenses, VOBA and future servicing rights 571 53 216 94 1 936
Impairment charges / (reversals) on non- financial assets and receivables (5) 1 - 169 2 167
Amortization of deferred expenses, VOBA and future servicing rights 720 77 244 109 - 1,150
Of which Aegon's share of employees in joint ventures and associates 568 - - 1,046 - 1,614
Assets VOBA and future servicing rights 1,559 58 369 21 - - 2,006
Investments for account of policyholders 75,224 25,646 57,813 6,357 - (8) 165,032
Notes to the consolidated financial statements of Aegon N.V. Note 6 6 Premium income and premiums paid to reinsurers
Included in interest income is EUR 265 million (2013: EUR 238 million; 2012: EUR 197 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 5,498 million (2013: EUR 5,437 million; 2012: EUR 5,633 million).
Investment income from financial assets held for general account: 2014 2013 2012
Financial assets designated at fair value through profit or loss 127 123 139
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives 192 370 409
Net fair value change on investments in real estate for account of policyholders 53 (12) (46)
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives comprise: 2014 2013 2012
Realized gains and losses on financial investments comprise: 2014 2013 2012
Notes to the consolidated financial statements of Aegon N.V. Note 11
Ineffective portion of hedge transactions to which hedge accounting is applied 43 9 11
The ineffective portion of hedge transactions to which hedge accounting is applied comprises: 2014 2013 2012
Fair value change on hedging instruments in a fair value hedge (679) 225 (64)
Net fair value change on for account of policyholder financial assets at fair value through profit or loss comprise: 2014 2013 2012
Net fair value changes on for account of policyholder financial assets at fair value through profit or loss are offset by claims and benefits paid to policyholders and is reported in note 12 Policyholder claims and benefits.
Other income in 2014 mainly reflects the release of EUR 23 million regarding the earn out provision of Liberbank in Spain and the guarantee fund payments release of EUR 14 million related to the sale of sovereign assets in Poland to the state, following pension legislation changes introduced in 2013.
The change in valuation of liabilities for insurance and investment contracts include a loss of EUR 150 million regarding fair value movements of guarantees (2013: loss of EUR 143 million, 2012: gain of EUR 141 million) and a gain of EUR 40 million related to policyholder tax and other technical results (2013: loss of EUR 3 million, 2012: loss of EUR 230 million) that are classified for segment reporting purposes as non-underlying earnings.
Profit appropriated to policyholders 15 24 27 14 Commissions and expenses
Amortization of deferred expenses included a charge of EUR 22 million (2013: charge EUR 35 million, 2012: charge EUR 105 million), which is classified as non-underlying earnings for segment reporting purposes. This is offset against realized gains and losses and impairments on financial investments.
Amortization of VOBA and future servicing rights include a charge of EUR 4 million (2013: gain EUR 13 million; 2012: charge
Shares, share appreciation rights, share options and LTIP 33 41 32
Variable compensation Identified Staff Members of the Executive Board and the Management Board as well as other selected jobholders have been defined as ‘Identified Staff’
are prominent examples. The rules have been adopted in Aegon’s Global Remuneration Framework for Identified Staff. After the performance period, and based on the framework, variable compensation is partially made available and partly deferred. Variable compensation is paid in both cash and in Aegon N.V. shares. The shares were conditionally granted at the beginning of the year at the average share price on the Euronext stock exchange in Amsterdam during the period between December 15 preceding a plan year and January 15 of the plan year. The performance indicators apply over a performance period of one year and consist of Group and/
or reporting unit targets (both financial and non-financial) set by the Supervisory Board or the local remuneration committees and personal/strategic targets. For members of the Executive Board and the Management Board all variable compensation has vested after three years following the performance period. At vesting, the variable compensation is transferred to the individual employees.
Plan and the 2014 Variable Compensation Plan for Identified Staff. The shares were granted using the share price of EUR 6.739.
May 2, 2013 on the basis of realized performance and became unconditional. Holding periods of two years apply for vested shares awarded to members of the Executive Board and Management Board at the time of the conditional grant.
In compliance with regulations under Dutch law, share appreciation rights and share options cannot be exercised in blackout periods.
Weighted average remaining contractual term in years Aggregate intrinsic in EUR million
The liability related to SARs is valued at fair value at each balance sheet date. There were no costs related to the share appreciation rights in 2014 (2013: nil; 2012: nil).
Share appreciation rights and share options No SARs and share options were granted after 2008. With regard to the SARs and options granted before 2009, no share options were exercised and no SARs were paid during 2012, 2013, and 2014. Similarly, no cash is received from exercise of share options during
The exposure from the issued SARs and share options is economically hedged by part of the position in treasury shares.
Refer to note 53 Related party transactions for detailed information on conditional shares and share options granted to the Executive Board.
There are no interest charges and related fees that are classified for segment reporting purposes as non-underlying earnings.
EUR 23 million related to a provision for the closed block of European direct marketing activities and EUR 15 million related to the reduction of the carrying amount of non-current financial assets related to the sale of the Canada operations, subject to regulatory approval.
Other charges of EUR 134 million in 2013 mainly included EUR 71 million related to an increase in reserves in connection with the company’s use of the Social Security Administration’s death master-file in the United States. Additionally, it included a loss of EUR 22 million related to the sale of national independent financial advisor Positive Solutions in the United Kingdom.
Changes in tax rates / bases (12) (54) (47) 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 (63) 1 (3)
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 (63) 1 (3)
Tax effect of (profit) / losses from joint ventures and associates (8) (5) (7)
Income tax for the period (income) / charge 262 156 385
In the UK, the corporate income tax rate decreased from 23% in 2013 to 21% as from April 1, 2014, and will further decrease to 20% as from April 1, 2015. A beneficial impact of these changes is reflected in the change in tax rate/base which is partly offset by the effects of the decreasing corporate income tax rate in Spain on the deferred tax asset. In Spain the corporate income tax rate will decrease from 30% to 28% as from 2015 and will further decrease to 25% as from 2016.
In 2014, Other mainly consists of tax effects of the UK life company that have no direct correlation to the IFRS result and also consists of the effect of the various tax rates, other than the statutory tax rate, that are applicable to income of the UK life company.
Items that will not be reclassified to profit and loss: Changes in revaluation reserve real estate held for own use (2) 1 1
Items that may be reclassified subsequently to profit and loss: Gains / losses on revaluation of available-for-sale investments (1,752) 1,013 (1,199)
Total income tax related to components of other comprehensive income (1,685) 1,094 (1,020)
Net income / (loss) attributable to equity holders 1,186 854 1,671
Net income / (loss) attributable to equity holders for basic earnings per share calculation 1,034 604 1,417
Net income / (loss) attributable to common shareholders B 7 3 -
Basic earnings per common share (EUR per share) 0.49 0.30 0.74
Basic earnings per common share B (EUR per share) 0.01 0.01 -
It will be proposed to the Annual General Meeting of Shareholders on May 20, 2015, absent unforeseen circumstances, to pay a dividend for the year 2014 of EUR 0.23 per common share. After taking into account the interim dividend 2014 of EUR 0.11 per common share, this will result in a final dividend of EUR 0.12 per common share. Proposed dividend for the year and proposed final dividend 2014 per common share B are EUR 0.00575 and EUR 0.003 respectively.
Aegon executed a program to repurchase 16,319,939 common shares. Between September 17, 2014, and October 15, 2014, these common shares were repurchased at an average price of EUR 6.4900 per share. These shares are held as treasury shares and will be used to cover future stock dividends.
Approximately 60% of holders of commons shares elected to receive the cash dividend. The remaining 40% opted for stock dividend.
The interim dividend was payable as of September 13, 2013. The interim dividend 2013 for common shares B was fully paid in cash.
Final dividend 2012 The Annual General Meeting of Shareholders on May 15, 2013, approved a final dividend of EUR 0.21 per common share over 2012, payable in either cash or stock. Related to the second half of 2012, paid in the first half of 2013, the cash dividend amounted to
EUR 0.11 per common share, and the stock dividend amounted to one new Aegon common share for every 47 common shares held.
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. VOBA currently recognized is amortized over an average period of 24 years, with an average remaining amortization period of 10 years (2013: 11 years). Future servicing rights are amortized over an average period up to 30 years, of which 9 remains at December 31, 2014 (2013: 9 years). Software is generally depreciated over an average period of 5 years. At December 31, 2014, the remaining average amortization period was 3 years (2013: 4 years).
A geographical summary of the lines of business to which the VOBA is allocated is as follows: Americas The Netherlands United Kingdom New Markets Total
Individual savings and retirement products 157 - - - 157 22 Investments Investments for general account comprise financial assets, excluding derivatives, as well as investments in real estate.
Financial assets at fair value through profit or loss (FVTPL) 1) 4,895 4,833
Money market and other short-term investments 6,799 500 - 7,299 7,299
(2013: 77%), of which 100% was performed by independent external appraisers (2013: 99%).
Total investments for account of policyholders at fair value through profit or loss, excluding derivatives 1) 190,366 164,037
Of these derivatives EUR 263 million net asset is current (2013: 540 million net asset). In 2012, Aegon the Netherlands entered into a derivative to partially hedge its longevity risk. The derivative, with a notional amount of EUR 12 billion, becomes in the money if - in 2032 - realized mortality rates are more than 7.5% lower than pre-defined mortality tables. To further protect the longevity position of Aegon the Netherlands and combining this with protection for catastrophe mortality in the US, Aegon bought an additional longevity index derivative in 2013. This derivative will pay out in 22 years if some combination of higher than expected mortality rates in the United States and/or lower than expected mortality rates in the Netherlands persists over the next 20 years and, at that time, is expected to continue to do so. The derivatives are measured at fair value through profit or loss in accordance with IAS 39. The value of the longevity derivatives are calculated using an internal model as there is no active market for this type of derivatives. For more details refer to the paragraph on underwriting risk included in note 36 Insurance contracts and the paragraph on derivatives included in note 47 Fair value.
The fair value of derivatives on both the asset and liability side of the consolidated statement of financial position increased during 2014. This increase is mainly caused by decreases in market interest rates and other market developments. See note 47 Fair value for details on fair value measurement of derivatives.
Embedded derivatives that are not closely related to the host contracts have been bifurcated and recorded at fair value in the consolidated statement of financial position. 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. Please refer to note 38 Guarantees in insurance contracts for more disclosures about these guarantees.
Credit derivative disclosure by quality Notional Fair value Notional Fair value 1 The 2013 figures have been restated for the methodology in credit rating. For further details refer to note 4 Financial risks.
Fair value adjustments for these interest rate swaps are deferred and recorded in equity until the occurrence of the forecasted transaction at which time the interest rate swaps will be terminated. The accumulated gain or loss in equity will be amortized into investment income as the acquired asset affects income. Aegon hedges its exposure to the variability of future cash flows from interest rate movements for terms up to 29 years. The cash flows from these hedging instruments are expected to affect the profit and loss for approximately the next 38 years. For the year ended December 31, 2014, the contracts for which cash flow hedge accounting was terminated resulted in deferred gains of EUR 146 million (2013: EUR 181 million) that are recognized directly in equity to be reclassified into net income during the period when the cash flows occur of the underlying hedged items. During the year ended December 31, 2014, none of Aegon’s cash flow hedges were discontinued, as it was highly 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. Aegon projects investment needs many years into the future in order to support the insurance liabilities and pay all contractual obligations arising from the policies in force today. Projected cash flows are supported by running models using historical experience with an adjustment to grade from 95% down to 75% of best estimate cash flows in later years.
< 1 year 1 – 5 years 5 – 10 years > 10 years 2013 Total
Share in changes in joint ventures equity (note 32.6) 22 22
On September 3, 2014, Aegon reached an agreement with Ibercaja Banco S.A. to sell its 50% stake in its life insurance partnership originally established with Caja Badajoz Vida for a consideration of EUR 42 million. The sale resulted in a book gain of EUR 7 million.
On July 30, 2014, Aegon signed a new 25-year agreement to distribute both protection and general insurance products through
Notes to the consolidated financial statements of Aegon N.V. Note 25 there was a release of an earn-out provision of EUR 176 million. Consequently, the sale resulted in a total disposal amount of EUR 453 million. Aegon’s share in underlying earnings before tax of the joint venture totaled EUR 6 million for 2013.
Non-current financial liabilities excluding trade payables and other provisions 428 504
On November 23, 2014, Aegon reached an agreement to sell its 35% share in La Mondiale Participations. The consideration amounted to EUR 350 million and resulted in a book loss of EUR 3 million. An amount of EUR 353 million is transferred to held for sale.
On July 19, 2013, the sale of Aegon’s 50% stake in its life insurance partnership originally established with Caja de Ahorros del
Notes to the consolidated financial statements of Aegon N.V. Note 26
A reconciliation of the summarized financial information to the carrying amount of La Mondiale is as follows: La Mondiale
The summarized financial information of other associates presented above is based on the Group’s relative holding.
EUR 11 million of the reinsurance assets are current (2013: EUR 7 million).
Notes to the consolidated financial statements of Aegon N.V. Note 28
Individual savings and retirement products 1,319 - - 37 1,356 29 Assets and liabilities held for sale Assets and liabilities held for sale include disposal groups whose carrying amount will be recovered principally through a sale transaction rather than through continuing operations. This relates to businesses for which a sale is agreed upon or a sale is highly probable at the balance sheet date, but for which the transaction has not yet fully closed. For December 31, 2014, this relates to the following operations.
As of December 31, 2014, there are EUR 477 million unrealized gains relating to non-current assets and disposal groups classified as held for sale included in other comprehensive income.
Fair value measurement The fair value hierarchy of financial assets and liabilities (measured at fair value), which are presented as held for sale is included below. The fair value hierarchy consists of three levels. Reference is made to note 3 Critical accounting estimates and judgment in applying accounting policies for more details on the fair value hierarchy.
Liabilities carried at fair value Investment contracts for account of policyholders 122 - - 122
Real estate held for own use and equipment 30.1 509 487
General account real estate held for own use are mainly held by Aegon USA and Aegon the Netherlands, with relatively smaller holdings at Aegon Hungary and Aegon Spain. The carrying value under a historical cost model amounted to EUR 309 million
The movements in the provision for doubtful debts during the year were as follows: Additions charged to earnings (9) (7)
EUR 11 billion (2013: EUR 10.7 billion) of cash collateral is received related to securities lending, repurchase agreements and margins on derivatives transactions. A corresponding liability to repay the cash is recognized in other liabilities (note 44 Other liabilities).
(2013: EUR 116 million) of the cash collateral received is included in cash and cash equivalents and the remainder is included in other asset classes as that collateral is typically reinvested. Aegon earns a share of the spread between the collateral earnings and the rebate paid to the borrower of the securities. Income from securities lending programs was approximately EUR 7 million (2013: EUR 8 million; 2012: EUR 11 million).
The weighted effective interest rate on short-term deposits was 0.03% (2013: 0.28%) and these deposits have an average maturity of
Aegon Bank N.V. to place 1% of their deposits with agreed maturity or the savings accounts (without restrictions to withdraw their money) in an account with the Dutch Central Bank. This deposit is renewed twelve times per year, based on an updated valuation of total assets. During 2014 the interest rate declined to 0.05% (2013: 0.25%). The average minimum required balance on deposit by the Dutch Central Bank was EUR 39 million (2013: EUR 35 million). These deposits are therefore not freely available.
Net cash and cash equivalents at December 31, 2014, are positively impacted by effects of changes in exchange rates of
Analysis of IFRS cash flows 2014 compared to 2013 Net cash flows from operating activities
Total net cash flows from operating activities increased by EUR 6,133 million to a EUR 4,122 million inflow (2013: EUR 2,011 million outflow). The increase is mainly driven by higher results from financial transactions, a higher inflow from the change in accruals, lower net purchase of investments and derivatives and an inflow from the change in cash collateral. These cash inflows are partly offset by the remeasurement of defined benefit plans and the net purchase of money market investments.
Total net cash flows from operating activities decreased by EUR 784 million to a EUR 2,011 million outflow (2012: EUR 1,227 million outflow). The decrease is mainly driven by higher results from financial transactions, higher net purchases of investments and increasing net collateral payments. These cash outflows are partly offset by divestments of money market investments.
Net cash flows from investing activities increased by EUR 279 million to a EUR 516 million inflow (2012: EUR 237 million inflow).
The improved inflow in 2013 is primarily a result of the cash received from divestments of Unnim and CAM, partly offset by the acquisition of the joint venture with Santander. In 2012, the inflow was mainly attributable to the proceeds of EUR 102 million on the sale of Aegon’s interest in Prisma and the proceeds of EUR 190 million received from the exit from the partnership with
32 Shareholders’ equity Issued share capital and reserves attributable to shareholders of Aegon N.V.
Vereniging Aegon’s shareholding caused by the issuance of shares on May 21, 2014, in connection with the Long Term Incentive Plans for senior management.
The simplified capital structure entailed, but was not limited to, the amendment of the Articles of Association of Aegon N.V., including the conversion of all outstanding 329,773,000 preferred shares A and B, with a nominal value of EUR 0.25 each, into 120,713,389 common shares and 566,313,694 common shares B, with a nominal value of EUR 0.12 each. The financial rights attached to a common share B were determined at 1/40th of the financial rights attached to a common share.
In the years 2003 through 2011, 110,072,000 class B preferred shares were issued under these option rights.
32.3 Treasury shares On the balance sheet date, Aegon N.V. and its subsidiaries held 51,317,190 (2013: 41,307,910) of its own common shares with a par value of EUR 0.12 each.
Net (gains) / losses transferred to income statement (465) - (63) (528)
Movement in foreign currency translation and net foreign investment hedging reserves 1,976 (224) - 1,752
Recycling of revaluation reserve on disposal of joint ventures and associates - - (30) (30)
Recycling of revaluation reserve on disposal of joint ventures and associates - - 18 18
Movement in foreign currency translation and net foreign investment hedging reserves (93) (41) (1) (135)
Shares granted / Share options cost incurred - - 32 - 32
Shares vested / Share options forfeited - - (5) - (5)
USD 250 million floating LIBOR rate 1) Quarterly, December 15 2015 212 212 212
EUR 950 million floating DSL rate 2) Quarterly, July 15 2015 950 950 950
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 principle amounts to meet losses.
The securities are subordinated and rank senior to the junior perpetual capital securities, equally with the fixed floating subordinated notes, and junior to all other liabilities. The conditions of the securities contain certain provisions for optional and required cancellation of interest payments. The securities have a stated maturity of 30 years, however, Aegon has the right to call the securities for redemption at par for the first time on the first coupon date in 2017, or on any coupon payment date thereafter.
Notes to the consolidated financial statements of Aegon N.V. Note 34 34 Subordinated borrowings
USD 190 million 2) 7.625% Semi-annually, November 15 1997 2037 n.a. 41 36 1 Issued by a subsidiary of Aegon N.V. 2 Issued by a subsidiary of, and guaranteed by Aegon N.V.
The USD 18 million trust pass-through securities due 2034 were called in 2014. There were no defaults or breaches of conditions during the period.
The fair value of these loans amounted to EUR 139 million (2013: EUR 122 million).
Sensitivity analysis of net income and shareholders’ equity to various underwriting risks is shown in the table that follows.
Aegon the Netherlands partially hedges the risk of future longevity increases in the Netherlands related to a part of its insurance liabilities. In 2012, Aegon the Netherlands bought a longevity index derivative, which will pay out if in 20 years the mortality rates have decreased more than a predetermined percentage compared to the base scenario at the moment of signing the contract.
Payout of the derivative is defined based on a ‘cumulative cash index’, which represents the cumulative payout to a predefined
To further protect the longevity position of Aegon the Netherlands and combining this with protection for catastrophe mortality in the US, Aegon bought an additional longevity index derivative. This derivative will pay out in 21 years if some combination of higher than expected mortality rates in the US and/or lower than expected mortality rates in the Netherlands persists over the next twenty years and, at that time, is expected to continue to do so. Payout of the derivative is defined based on a ‘terminal present value’, which represents the sum of 1) the cumulative payout to a predefined (synthetic) insured population over the next 19 years and 2)
the remaining expected liability on this same population. The preceding sum is compared to amounts set at the moment of signing the contract to determine the actual payout.
Loss recognized as a result of liability adequacy testing - 3
Transfer (to) / from insurance contracts for account of policyholders (401) (16)
Accounting policies are disclosed in note 2.19 f Liability adequacy testing.
Loss recognized as a result of liability adequacy testing 2 5
Gross premium and deposits – existing and new business 1,428 1,385
Notes to the consolidated financial statements of Aegon N.V. Note 37 37 Investment contracts 37.1 Investment contracts for general account
Gross premium and deposits – existing and new business 8,702 3,422 12,124
38 Guarantees in insurance contracts 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 (note 2.9 and note 47); �� Total return annuities: these guarantees are not bifurcated from their host contracts because they are presented and valued at fair value together with the underlying insurance contracts (note 2.19); �� Life contingent guarantees in the United States: these guarantees are not bifurcated from their host contracts, presented and valued in accordance with insurance accounting (ASC 944, Financial Services - Insurance) together with the underlying insurance contracts (note 2.19); and �� Minimum investment return guarantees in the Netherlands: these guarantees are not bifurcated from their host contracts, valued at fair value and presented together with the underlying insurance contracts (note 2.19 and note 47).
a. Financial guarantees In the United States and New Markets (variable annuities sold in the United Kingdom), a guaranteed minimum withdrawal benefit
(GMWB) is offered directly on some variable annuity products Aegon issues and is also assumed from a ceding company. Variable annuities allow a customer to provide for the future on a tax-deferred basis and to participate in equity or bond market performance.
Notes to the consolidated financial statements of Aegon N.V. Note 38
5 Account value reflects the actual fund value for the policyholders. 6 The net amount at risk represents the sum of the positive differences between the discounted maximum amount payable under the guarantees and the account value.
The increase of incurred guarantee benefits mainly relates to fair value movements due to decreasing interest rates, partly offset by increased equity markets and tightening own credit spread.
Aegon Americas reinsures the elective guaranteed minimum withdrawal benefit rider issued with a ceding company’s variable annuity contracts. The rider is essentially a return of premium guarantee, which is payable over a period of at least 14 years from the date that the policyholder elects to start withdrawals. At contract inception, the guaranteed remaining balance is equal to the premium payment. The periodic withdrawal is paid by the ceding company until the account value is insufficient to cover additional withdrawals.
Once the account value is exhausted, Aegon pays the periodic withdrawals until the guaranteed remaining balance is exhausted.
The reinsurance contract is accounted for as a derivative and is carried in Aegon’s statement of financial position at fair value.
b. Total return annuities Total Return Annuity (TRA) is an annuity product in the United States which provides customers with a pass-through of the total return on an underlying portfolio of investment securities (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. The reinsurance contract is in the form of modified coinsurance, so only the liability for the minimum guarantee is recorded on Aegon’s books.
Product balances as of December 31, 2014, were EUR 380 million in fixed annuities (2013: EUR 372 million) and EUR 118 million in life reinsurance (2013: EUR 104 million).
Notes to the consolidated financial statements of Aegon N.V. Note 38 to be offset against any future surpluses within the contract period. In general, a guarantee is given for the life of the underlying employees so that their pension benefit is guaranteed. Large group contracts also share technical results (mortality risk and disability risk). The contract period is typically five years and the premiums are fixed over this period.
at December 31, 2014, and 23.9% at December 31, 2013. Correlations of market returns across underlying indices are based on historical market returns and their inter-relationships over a number of years preceding the valuation date. Assumptions regarding policyholder behavior, such as lapses, included in the models are derived in the same way as the assumptions used to measure insurance liabilities.
Had Aegon used a long-term equity implied volatility assumption that was five volatility points higher or lower, the impact on income before tax would have been a decrease of EUR 106 million or an increase of EUR 96 million, respectively, in 2014 income before tax
EUR 188 million) to earnings. The main drivers of this loss before tax are negative results related to increases in risk free rates of
EUR 4,927 million (2013: EUR 2,014 million gain), EUR 428 million related to decreasing own credit spread (2013: EUR 302 million loss) and EUR 10 million related to increases in equity volatilities (2013: EUR 67 million gain) offset by EUR 583 million related to an increase in equity markets (2013: EUR 514 million gain). Hedges related to these guarantee reserves contributed fair value profits of EUR 4,346 million to income before tax (2013: EUR 2,525 million loss) and DPAC offset and other contributed a gain of
In 2014, the Group changed the presentation of its borrowings. Aegon’s borrowings are now further defined separately as capital funding and operational funding. Capital funding includes debt securities that are issued for general corporate purposes and for capitalizing its business units. Capital funding is part of the Company’s total capitalization that is used for financing its subsidiaries and the cash held at the holding company. Operational funding includes debt securities that are issued for financing of dedicated pools of assets. These assets are either legally segregated or tracked as separate portfolios.
This change in presentation did not impact net profit, total assets or total liabilities.
Capital funding On December 8, 2014, Aegon redeemed medium-term notes with a coupon of 4.125% issued in 2004. The principal amount of
A detailed composition of capital funding is included in the following table: (sorted at maturity) Coupon rate Coupon date Issue / Maturity 2014 2013
GBP 250 million Medium-Term Notes 6.125% December 15 1999 / 31 320 298
GBP 400 million Senior Unsecured Notes 6.625% Semi-annually 2009 / 39 508 474 1 Measured at fair value. 2 Issued by subsidiaries of, and guaranteed by, Aegon N.V.
These loans are considered senior debt in calculating financial leverage in note 46 Capital and solvency.
On March 13, 2014, Aegon executed a transaction under the Dutch SAECURE program to sell Class A mortgage backed securities
Euribor plus 0.40%; and �� EUR 1,024 million of class A2 notes with an expected weighted average life of 5 years and priced with a coupon of 3 month
Notes to the consolidated financial statements of Aegon N.V. Note 39
During 2013, residential mortgage backed securities (RMBSs) were issued under the Dutch SAECURE program for a total amount of
Revolving Loan Facility Warehouse Mortgage Loans 1) Floating Monthly - / 2014-16 114 510
EUR 1,018 million 'SAECURE 7' RMBS Note 1), 2) Floating Quarterly 2010 / 15 772 825
EUR 1,500 million 'SAECURE 10' RMBS Note 1), 6) Floating Quarterly 2011 / 16 1,196 1,269
EUR 1,443 million 'SAECURE 15' RMBS Note 1),11) Floating Quarterly 2014 / 20 1,440 -
GBP 250 million Note issue agreement 1), 3), 4) Floating April 21 2008 / 23 - 17
USD 1.54 billion Variable Funding Surplus Note 3), 12) Floating Quarterly 2006 / 36 1,275 1,089
Aegon’s general account investments. 3 Outstanding amounts can vary up to the maximum stated nominal amount.
8 The first optional redemption date is October 2017; the legal maturity date is July 2092. Notes are fully collateralized by mortgage loans which are part of
11 The first optional redemption date is January 2020; the legal maturity date is January 2092. Notes are fully collateralized by mortgage loans which are part of Aegon’s general account investments.
13 This debenture is issued by a wholly owned captive that is consolidated in the Aegon N.V. consolidated financial statements.
Other Borrowings measured at fair value amounted to EUR 571 million (2013: EUR 1,017 million). For the year 2014, Aegon’s credit spread had a negative impact of EUR 19 million on income before tax (2013: negative impact of EUR 44 million) and a negative impact of
EUR 12 million on shareholders’ equity (2013: negative impact of EUR 30 million). The cumulative negative impact of Aegon’s credit spread for borrowings in portfolio at year end, based on observable market data, on income before tax amounted to EUR 7 million
The remaining provisions mainly consist of provisions for contingent consideration relating to joint ventures (earn out) of
In 2013, Disposals contain a release of an earn-out provision in Spain of EUR 120 million as Aegon has finalized exiting its joint venture with Unnim.
Notes to the consolidated financial statements of Aegon N.V. Note 41 41 Defined benefit plans
Remeasurements of defined benefit plans 1,156 - 1,156 (558) (4) (562)
Present value of wholly or partly funded obligations 4,471 - 4,471 3,376 - 3,376
Fair value of plan assets (3,426) - (3,426) (2,909) - (2,909)
Remeasurements of the defined benefit obligations: - Actuarial gains and losses arising from changes in demographic assumptions 210 5 - Actuarial gains and losses arising from changes in financial assumptions 1,146 (286)
Aegon USA. The Board of Managers has the full power and discretion to administer the plan and to apply all of its provisions, including such responsibilities as, but not limited to, developing the investment policy and managing assets for the plan, maintaining required funding levels for the plan, deciding questions related to eligibility and benefit amounts, resolving disputes that may arise from plan participants and for complying with the plan provisions, and legal requirements related to the plan and its operation. The benefits are based on years of service and the employee’s eligible annual compensation. The plans provide benefits based on a traditional final average formula or a cash balance formula (which defines the accrued benefit in terms of a stated account balance), depending on the age and service of the plan participant. The defined benefit plans were unfunded by EUR 709 million at December 31, 2014
Investment strategies are established based on asset and liability studies by actuaries which are updated as they consider appropriate.
Aegon USA maintains two plans which provide retiree medical benefits. For each plan, Aegon USA has the fiduciary responsibility to administer the plan in accordance with its terms, and decides questions related to eligibility and determines plan provisions and benefit amounts. Under the Employee Retirement Income Security Act (ERISA), Aegon USA has the fiduciary responsibility to monitor the quality of services provided by the third-party claims administrator and to replace the third-party administrator if needed. In addition, Aegon USA has the fiduciary obligation to interpret the provisions of the plans, and to comply with any statutory reporting and disclosure requirements. Finally, Aegon USA reviews the terms of the plans and makes changes to the plans if and when appropriate. Aegon USA funds the benefit payments of the post-retirement health care plans from its general account assets.
The weighted average duration of the defined benefit obligation is 14.0 years (2013: 12.7 years).
Health care trend rate 8.25% 8.50% 1 U.S. Society of Actuaries RP2014 mortality table with Scale MP2014. 2 Table in accordance with IRS regulation 1.430(h)(3)-1.
Financial actuarial assumptions 100 basis points increase in discount rate (418) (283)
100 basis points decrease in discount rate 524 350 100 basis points increase in salary increase rate 40 29 100 basis points decrease in salary increase rate (35) (25)
Aegon the Netherlands Aegon the Netherlands has a number of defined benefit plans and a small number of defined contribution plans. The defined benefit plans are governed by the Management Board of Aegon the Netherlands. The Management Board has the full power and discretion to administer the plan including developing investment policy and managing assets for the plans (although these assets do not qualify as ‘plan assets’ as defined by IFRS), deciding questions related to eligibility and benefit amounts, and any disputes that may arise from plan participants and for complying with the plan provisions, and legal requirements related to the plan and its operation.
Aegon the Netherlands has the obligation to interpret the provisions of the plans, and to comply with any statutory reporting and disclosure requirements. Finally, Aegon the Netherlands reviews the terms of the plans and makes changes to the plans if and when appropriate. The liability related to this plan amounted to EUR 46 million at December 31, 2014 (2013: EUR 42 million).
100 basis points increase in price inflation 2 1 100 basis points decrease in price inflation (2) (2)
Price inflation 3.10% 3.40% 1 SAPS S1NA light -2 years CMI 2012 1.25% p.a.
Financial actuarial assumptions 100 basis points increase in discount rate (333) (250)
EUR 358 million; tax EUR 71 million) the realization of the deferred tax asset is dependent on the projection of future taxable profits from existing business in excess of the profits arising from the reversal of existing taxable temporary differences.
Deferred corporate income tax asset dependent on the realization of capital profits 543 470 190 164
EUR 1,767 million; tax EUR 441 million (2013: gross EUR 1,753 million; tax EUR 438 million).
46 Capital and solvency Aegon’s total capitalization reflects the capital employed in insurance activities and consists of shareholders’ capital and total gross financial leverage. Aegon aims to keep total gross financial leverage below 30% of total capitalization as measured by the gross financial leverage ratio. The gross financial leverage ratio is calculated by dividing the total gross financial leverage by the total capitalization. At December 31, 2014, the gross financial leverage ratio was 28.7%.
Additionally, Aegon manages capital adequacy at the level of the Company, its business units and the individual legal entities. The goal is to ensure that Aegon units maintain their financial strength. Aegon maintains its companies’ capital adequacy levels at which ever is the higher of local regulatory requirements and, for rated entities, the relevant local Standard & Poor’s requirements for very strong capitalization, and any additionally self-imposed internal requirements.
Gross financial leverage ratio 28.7% 33.3% 1 Other equity instruments that are denominated in foreign currencies are, for purpose of calculating hybrid leverage, revalued to the period-end exchange rate. 2 Non-controlling interests are disclosed in the statement of financial position. 3 Senior debt for the gross financial leverage calculation also contains swaps for an amount of EUR 29 million (2013: EUR 8 million).
Insurance, reinsurance, investment management and banking companies are required to maintain a minimum solvency margin based on applicable local regulations. For managing Aegon’s capital, the life insurance and life reinsurance regulations in the EU
UK), and local regulatory solvency measurements for non-EU entities. Specifically, required capital for the life insurance companies in the US is calculated as two times the upper end of the Company Action Level range (200%) as applied by the National Association of
Markets Act 2000 and sets minimum solvency standards. Companies must manage their solvency positions according to the most stringent of the published Solvency I measure (Pillar 1) and a privately submitted economic capital measure (Pillar 2). For Aegon UK, the published measure continues to be the most stringent requirement. The Pillar I ratio in the United Kingdom, including the withprofits funds, was approximately 140% at the end of 2014 (with-profits funds included at unaudited June 30, 2014, values). The local regulator (PRA) requires the total capital number of the with-profits funds to be equal to the available capital.
Optas N.V., an indirect subsidiary of Aegon N.V., holds statutory reserves of EUR 1,050 million (2013: EUR 997 million) which are restricted. Aegon announced in April 2014 that it had reached agreement with BPVH - a foundation representing Dutch harbor workers and employers - on removing restrictions on the capital of the harbor’s former pension fund Optas pensioenen N.V., thereby ending a long-lasting dispute. To remove the restrictions required prior approval by the court, which was granted in January 2015. Restrictions may be removed three months from the date of the court ruling in January 2015, after the appeal period expires. Included in Aegon
N.V.’s legal reserves is an amount of EUR 510 million related to Optas N.V. which represents the increase in statutory reserves since the acquisition of Optas N.V. by Aegon (2013: EUR 458 million). The statutory reserves of Optas N.V. are linked to the acquired negative goodwill related to Optas N.V. at acquisition date.
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 to corroborate those inputs. Further details of the validation processes are set out below.
Fair value hierarchy The table below provides an analysis of assets and liabilities recorded at fair value on a recurring basis by level of the fair value hierarchy: Level I Level II Level III Total 2014
Revalued amounts Real estate held for own use - - 293 293
Liabilities carried at fair value Investment contracts for account of policyholders 2) 12,872 19,641 114 32,628
Other investments at fair value 1,217 21 - 57 (269) - 156 - 118 (62) - 1,237 25
Total assets at fair value 10,677 185 40 2,680 (1,949) (286) 751 (75) 485 (713) (61) 11,734 116
Other investments at fair value 883 (106) 73 134 (51) (70) (37) - - 826 -
3 Total gains/(losses) for the period during which the financial instrument was in Level III.
During 2014, Aegon transferred certain financial instruments from Level I and Level II to Level III of the fair value hierarchy. The reason for the change in level was that the market liquidity for these securities decreased, which led to a change in market observability of prices. Prior to transfer, the fair value for the Level I and Level II securities was determined using observable market transactions or corroborated broker quotes respectively for the same or similar instruments. The amount of assets and liabilities transferred to
Level III was EUR 485 million (2013: EUR 785 million). Since the transfer, all such assets have been valued using valuation models incorporating significant non market-observable inputs or uncorroborated broker quotes.
Similarly, during 2014, Aegon transferred certain financial instruments from Level III to other levels of the fair value hierarchy.
Fair value through profit or loss Debt securities Other n.a. 17 n.a. 17 n.a.
Longevity swap Discounted cash flow Mortality 82 n.a. 128 n.a. Other Other n.a. 110 n.a. 124 n.a.
Revalued amounts Real estate held for own use Direct capitalization technique
Financial liabilities carried at fair value Embedded derivatives in insurance contracts e 2,939 180 (171) 1,213 37 (36)
The impact of changes in inputs may not be independent, therefore the descriptions provided below indicate the impact of a change in an input in isolation: a. The primary unobservable assumptions used in fair value measurement of asset backed securities is in general a liquidity premium in the discount rate. Changing the liquidity premium changes the discount rate when using the discounted cash flow model.
Assets Mortgage loans - held at amortized cost 32,164 - 1 36,691 36,692
Private loans - held at amortized cost 2,058 - 73 2,381 2,454
Liabilities Trust pass-through securities - held at amortized cost 143 - 139 - 139
Subordinated borrowings - held at amortized cost 747 734 94 - 828
Liabilities Trust pass-through securities - held at amortized cost 135 - 122 - 122
Certain financial instruments that are not carried at fair value are carried at amounts that approximate fair value, due to their short-term nature and generally negligible credit risk. These instruments include cash and cash equivalents, short-term receivables and accrued interest receivable, short-term liabilities, and accrued liabilities. These instruments are not included in the table above.
Available-for-sale shares include shares in a Federal Home Loan Bank (FHLB) for an amount of EUR 107 million (2013: EUR 94 million)
The impact of the liquidity premium for private placement securities to the overall valuation is insignificant.
Aegon’s portfolio of debt securities can be subdivided in Residential mortgage-backed securities (RMBS), Commercial mortgagebacked securities (CMBS), Asset-backed securities (ABS), Corporate bonds and Sovereign debt. Below relevant details in the valuation methodology for these specific types of debt securities are described.
When available, Aegon uses quoted market prices in active markets to determine the fair value of its sovereign debt investments.
Tax credit investments The fair value of tax credit investments is determined by using a discounted cash flow valuation technique. This valuation technique takes into consideration projections of future capital contributions and distributions, as well as future tax credits and the tax benefits of future operating losses. The present value of these cash flows is calculated by applying a discount rate. In general, the discount rate is determined based on the cash outflows for the investments and the cash inflows from the tax credits and/or tax benefits
(and the timing of these cash flows). These inputs are unobservable in the market place.
Mortgage loans, policy loans and private loans (held at amortized cost) For private loans, fixed interest mortgage loans and other loans originated by the Group, the fair value used for disclosure purposes is estimated by discounting expected future cash flows using a current market rate applicable to financial instruments with similar yield and maturity characteristics. For fixed interest mortgage loans, the market rate is adjusted for expenses, prepayment rates, lapse assumptions (unobservable inputs), liquidity and credit risk (market observable inputs). An increase in expense spread, prepayment rates and/or prepayment assumptions, would decrease the fair value of the mortgage loan portfolio. In 2014, Aegon updated the fair value calculation of its Dutch mortgage loans based on additional market observable data. This resulted in an increase in the discount rate used to present value the future cash flows, mainly driven by an increase in the cost of funds. The carrying value, at amortized cost, of Dutch mortgage loans on Aegon’s balance sheet has not been impacted by the update of the fair value calculation.
Fair values for exchange-traded derivatives, principally futures and certain options, are based on quoted market prices in active markets.
In the fourth quarter of 2014 Aegon changed the discount rate used in measuring the fair value of the majority of its eurodenominated derivatives positions in the Netherlands. The valuation changed from using Euribor Swap curves to a valuation based on the Overnight Index Swap (OIS) curve. The valuation based on the OIS curve better reflects the value of these derivatives positions in case of an exit or settlement. The change in estimate had a positive effect of EUR 80 million on income before tax.
Given the complexity and long-term nature of these guarantees which are unlike instruments available in financial markets, their fair values are determined by using stochastic techniques under a variety of market return scenarios. A variety of factors are considered, including credit spread, expected market rates of return, equity and interest rate volatility, correlations of market returns, discount rates and actuarial assumptions. The most significant unobservable factor is credit spread. The credit spread used in the valuations of embedded derivatives in insurance contracts decreased to 0.3% (2013: 0.5%).
(EUR, USD and GBP) is set at 30 years. Additionally, Aegon updated the manner in which it estimates guarantees embedded within individual life contracts in the Netherlands. The impact on income before tax of these updates, in 2013, was EUR 27 million negative.
Investment contracts Investment contracts issued by Aegon are either carried at fair value (if they are designated as financial liabilities at fair value through profit or loss) or amortized cost (with fair value being disclosed in the notes to the consolidated financial statements). These contracts are not quoted in active markets and their fair values are determined by using valuation techniques, such as discounted cash flow methods and stochastic modeling or in relation to the unit price of the underlying assets. All models are validated and calibrated. A variety of factors are considered, including time value, volatility, policyholder behavior, servicing costs and fair values of similar instruments.
Derivatives with positive values not designated as hedges 25,789 - 12,651 -
Derivatives with negative values not designated as hedges 24,186 - 11,248 -
Borrowings Borrowings designated as at fair value through profit or loss includes financial instruments that are managed on a fair value basis together with related financial assets and financial derivatives (note 39 Borrowings).
Notes to the consolidated financial statements of Aegon N.V. Note 48
48 Commitments and contingencies Investments contracted In the normal course of business, the Group has committed itself through purchase and sale transactions of investments, mostly to be executed in the course of 2015. The amounts represent the future outflow and inflow, respectively, of cash related to these investment transactions that are not reflected in the consolidated statement of financial position.
Mortgage loans commitments represent undrawn mortgage loan facility provided and outstanding proposals on mortgages. The sale of mortgage loans relates to pre-announced redemptions on mortgage loans. Private loans represents deals on Aegon’s portfolio of private placement securities that Aegon has committed to, but have not yet settled and funded. Other commitments include future purchases of interests in investment funds and limited partnerships.
Guarantees include those guarantees associated with the sale of investments in low-income housing tax credit partnerships in the 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.
Aegon USA, LLC, a wholly-owned subsidiary of Aegon N.V., has provided a parental guarantee to TLIC Riverwood Reinsurance, Inc.
Company, to the extent that the assets in the captive (TRRI) are not sufficient to cover reinsurance obligations. As of December 31, 2014, this amounted to EUR 1,595 million (2013 EUR: 1,333 million).
Aegon N.V. entered into a contingent capital letter for an amount of JPY 7.5 billion (EUR 52 million) to support its joint venture Aegon
LLC, Commonwealth General Corporation and Transamerica Finance Corp. with respect to bonds, capital trust pass-through securities and notes issued under commercial paper programs amounted to EUR 552 million (2013: EUR 485 million); and �� Due and punctual payment of any amounts owed to third parties by the consolidated group company Aegon Derivatives N.V. in connection with derivative transactions. Aegon Derivatives N.V. only enters into derivative transactions with counterparties with which ISDA master netting agreements, including collateral support annex agreements, have been agreed. Net (credit) exposure on derivative transactions with these counterparties was therefore limited as of December 31, 2014.
Aegon subsidiaries have received inquiries from local authorities and policyholder advocate groups in various jurisdictions including the United States, the United Kingdom and the Netherlands. In the normal course of business, reviews of processes and procedures
Notes to the consolidated financial statements of Aegon N.V. Note 48 are undertaken to ensure that customers have been treated fairly, and to respond to matters raised by policyholders and their representatives. There is a risk that Aegon is not able to resolve some or all such matters in the manner that it expects. In certain instances, Aegon subsidiaries modified business practices in response to such inquiries or the findings thereof. Regulators may seek fines or other monetary penalties or changes in the way Aegon conducts its business. For example, in 2014 the UK Financial Conduct
Aegon has also sought and intends to continue to seek to settle certain claims, including via policy modifications, in appropriate circumstances. Aegon refers to the settlement Aegon reached in 2009 with Stichting Verliespolis and Stichting Woekerpolis in
The Netherlands, two major customer interest groups. In 2012, Aegon accelerated certain product improvements that reduce future costs and that increase policy value for its customers with unit-linked insurance policies. With these measures, Aegon committed to the ‘best of class’ principles of the Dutch Ministry of Finance for certain existing unit-linked products. These principles were the result of an industry-wide review by the Ministry of the various agreements reached between individual insurance companies and customer interest groups in relation to unit-linked insurance policies. The Ministry made a strong appeal to all industry participants to apply its principles. As a result of this acceleration, Aegon took a one-off charge of EUR 265 million before tax in 2012. In addition,
(the Netherlands financial services industry ombudsman) supported the arrangements reached with customer interest groups, the public debate over the adequacy generally of these and other arrangements, as well as discussions in the Dutch Parliament, continue and may lead to re-examination and adjustment of the settlements made. It is not yet possible to determine the direction or outcome of these matters, including what actions, if any, Aegon may take in response thereto, due to commercial necessity or future rulings or, for example, at the instigation of regulatory authorities, or the impact that any such actions may have on Aegon’s business, results of operations and financial position. For example, the Netherlands Authority for the Financial Markets (Autoriteit Financiële
In general, individual customers as well as policyholder advocate groups and their representatives, continue to focus on the level of fees and other charges included in products sold by the insurance industry (including Aegon), as well as the transparency of disclosure regarding such fees and charges and other product features and risks. In 2013, the Dutch Supreme Court denied Aegon’s appeal from a ruling of the Court of Appeal with respect to a specific Aegon unit-linked product, the “KoersPlan” product. Between 1989 and 1998,
Aegon has issued, sold or advised on approximately 600,000 KoersPlan products. In 2011, the Court of Appeal had ruled that Aegon should have more clearly informed its customers about the amount of premium which the company charged in relation to the death benefit embedded in those products. Prior to the ruling Aegon had already taken steps to improve its communications with customers as well as adjusting the amounts charged to KoersPlan customers. As a result of the Dutch Supreme Court’s denial of appeal, Aegon compensated the approximately 35,000 holders of KoersPlan products who were plaintiffs in the litigation and took a charge of
(KIFID), rendered an interim decision against another insurance company in The Netherlands. KIFID is an independent body that offers an alternative forum for customers to file complaints or claims over financial services. Its decisions may be appealed to the courts. In its interim decision, KIFID found that the consumer had not been adequately informed of the so-called initial costs embedded within its unit linked policy, nor of the leverage component thereof, and challenged the contractual basis for the charges. There are claims pending with KIFID filed by customers over Aegon products and that arguably include similar allegations.
In June 2014, the Attorney General to the European Court of Justice gave its non-binding advisory opinion to the European Court of Justice on preliminary questions raised in a court case pending before the District Court in Rotterdam against another insurance company in The Netherlands. The main preliminary question being considered by the European Court of Justice is whether European law permits the application of information requirements based on general principles of Dutch law that potentially extend beyond information requirements as explicitly prescribed by local laws and regulations in force at the time the policy was written. The opinion of the Attorney General refers to disclosure requirements existing under European law, as well as the possibility for national rules to embed principles of transparency of disclosure. The European Court will render a judgment in 2015. It is possible that a judgment, although it may clarify a question of legal principle only and would be rendered in a case against another insurer, may ultimately be used by plaintiffs against Aegon or to support potential claims against Aegon. Future claims based on emerging legal theories could have a material adverse effect on Aegon’s results of operations and financial condition.
Aegon subsidiaries and other US industry participants have been named in representative and purported class action lawsuits alleging, among other things, that asset-based fees charged for investment products offered on 401(k) platforms were higher than those generally available in the market. In addition to services provided to third party plan sponsors in connection with its pension recordkeeping services, Aegon’s primary US operating unit has been named as a defendant in an action relating to allegedly excessive fees in connection with the 401(k) plan provided to its own employees. Matters like these are being defended vigorously; however, at this time, due to the nature and the type of claims, it is not practicable for Aegon to quantify a range or maximum liability or the timing of the financial impact, if any. There can be no assurance that such claims may not have a material adverse effect on Aegon’s results of operations or financial position.
Aegon’s US operations also face employment-related lawsuits from time to time. For example, Aegon is currently defending claims related to alleged misclassification under the Fair Labor Standards Act (which, if those employees classified as exempt were classified as non-exempt would, among other things, potentially entitle such employees to overtime pay under certain circumstances). Aegon is also defending itself in a suit filed by self-employed independent insurance agents associated with one of Aegon’s financial marketing units who have claimed that they are, in fact, employees of the organization. While Aegon believes these independent contractors are not employees, if Aegon were not to prevail on that point, there can be no assurance that the outcome would not have a material effect on Aegon’s results of operations and financial condition. It is not practicable for Aegon to quantify a range or maximum liability or the timing of the financial impact, if any.
Notes to the consolidated financial statements of Aegon N.V. Note 49
Havenbedrijven of and will contribute an amount to help mitigate the effect for harbor workers of a reduction in the tax-free pension allowance in the Netherlands. Aegon recorded a charge of EUR 95 million in the fourth quarter of 2014.
The operating lease obligations relate mainly to office space leased from third parties. The total of future minimum sublease payments expected to be received on non-cancellable subleases was nil (2013: EUR 7 million).
Securities lending and repurchase activities The table above includes financial assets that have been transferred to another party under securities lending and repurchase activities.
49.2 Transferred financial assets that are derecognized in their entirety, but where Aegon has continuing involvement Aegon has no transferred financial assets with continuing involvement that are derecognized in their entirely as per year-end 2014 and 2013.
Notes to the consolidated financial statements of Aegon N.V. Note 49 49.3 Assets accepted Aegon receives collateral related to securities lending, reverse repurchase activities and derivative transactions. Non-cash collateral is not recognized in the statement of financial position. To the extent that cash is paid for reverse repurchase agreements, a receivable is recognized for the corresponding amount.
Non-cash collateral that can be sold or repledged in the absence of default 3,877 1,704
50 Offsetting, enforceable master netting arrangements and similar agreements The following table provides details relating to the effect or potential effect of netting arrangements, including rights of set-off associated with the entity’s recognized financial assets and recognized financial liabilities.
Notes to the consolidated financial statements of Aegon N.V. Note 51
On June 12, 2013, Aegon UK announced the sale of national independent financial advisor (IFA) Positive Solutions to Intrinsic
On December 30, 2013, Aegon Czech Republic has completed the sale of its local pension business. The consideration amounted to
The Netherlands �� Aegon Bank N.V., Utrecht; �� Aegon Levensverzekering N.V., The Hague; �� Aegon Schadeverzekering N.V., The Hague; �� Optas Pensioenen N.V., Rotterdam; �� Aegon Spaarkas N.V., The Hague; �� Unirobe Meeùs Groep B.V., The Hague; �� TKP Pensioen B.V., Groningen; and �� Aegon Hypotheken B.V., The Hague.
United Kingdom �� Scottish Equitable plc, Edinburgh; and �� Origen Financial Services Ltd., London.
The Netherlands �� AMVEST Vastgoed B.V., Utrecht (50%), property management and development.
Refer to note 25 Investments in joint ventures for further details on these investments.
New Markets �� La Mondiale Participations S.A., Lille (France), life insurance and pension company (35%) - Held for sale since fourth quarter of 2014; and �� Aegon Religare Life Insurance Company, Mumbai (India), life insurance company (26%).
53 Related party transactions Related party transactions include, among others, transactions between Aegon N.V. and Vereniging Aegon.
On May 29, 2013, the Articles of Association of Aegon N.V. were amended, which included the conversion of all outstanding 329,773,000 preferred shares A and B with a nominal value of EUR 0.25 each, all owned by Vereniging Aegon, into 120,713,389 common shares and 566,313,694 common shares B with a nominal value of EUR 0.12 each. The financial rights attached to a common share B was determined at 1/40th of the financial rights attached to a common share, (see also the section ‘Major Shareholders’).
On May 29, 2013, Aegon N.V. and Vereniging Aegon entered into a Voting Rights Agreement, which ensures that under normal circumstances, i.e. except in the event of a Special Cause, Vereniging Aegon will no longer be allowed to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in absence of a Special Cause, Vereniging Aegon may cast one vote for every common share it holds and only one vote for every 40 common shares B it holds, (see also the section ‘Major
On February 15, 2013, Aegon N.V. and Vereniging Aegon reached an agreement to simplify the capital structure of Aegon N.V. and to exchange all of Aegon’s preferred shares for cash and common shares, subject to approval by the annual General Meeting of
On August 15, 2012, Vereniging Aegon exercised its option rights to purchase in aggregate 4,114,000 class B preferred shares at par value to mitigate dilution caused by Aegon’s issuance of shares on June 15, 2012, being the final dividend 2011 in the form of stock dividend.
The Management Board, which assists the Executive Board in pursuing Aegon’s strategic goals, is formed by members of the Executive
Board, the CEO’s of Aegon USA, Aegon the Netherlands, Aegon UK and Aegon Central & Eastern Europe, and Aegon’s Chief Risk Officer.
The total remuneration for the members of the Management Board over 2014 was EUR 14.9 million (2013: EUR 15.2 million), consisting of EUR 5.1 million (2013: EUR 5.0 million) fixed compensation, EUR 5.2 million variable compensation awards (2013: EUR 6.3 million),
EUR 2.0 million (2013: EUR 1.3 million) other benefits and EUR 2.6 million (2013: EUR 1.6 million) pension premiums.
Board employed in the Netherlands. In 2013 this amounted to EUR 1.0 million and in 2012 to EUR 0.6 million. The special tax levy is no longer applicable as from 2014. Expenses as recognized under IFRS in the income statement for variable compensation and pensions differ from the variable compensation awards and pension premiums paid due to the accounting treatment under respectively IFRS 2 and IAS 19. IFRS expenses related to variable compensation amounted to EUR 5.6 million (2013: EUR 6.3 million) and EUR 2.0 million
Additional information on the remuneration and share-based compensation of members of the Executive Board and the remuneration of the Supervisory Board is disclosed in the sections below (all amounts in EUR ‘000, except where indicated otherwise).
In EUR thousand 2014 2013 2012 1 Mr. Button was appointed as CFO and member of Aegon’s Executive Board on May 15, 2013. Fixed compensation is disclosed for the period that Mr. Button has been part of the Executive Board. In his position as CFO and member of Aegon’s Executive Board Mr. Button earned an annual base salary of USD 1 million. 2 Mr. Nooitgedagt’s fixed compensation is reflective of his time with Aegon until retirement as of August 1, 2013.
Mr. Button has been part of the Executive Board. 2 Mr. Nooitgedagt’s conditional variable compensation is reflective of his time with Aegon until retirement as of August 1, 2013.
In 2013, expenses recognized in the income statement for Mr. Nooitgedagt amounted to EUR 836 (2012: EUR 736). Under IFRS, expenses related to conditional variable compensation awards are recognized in full at retirement date. Therefore, expenses under
During the performance year 2013, Mr. Wynaendts was awarded EUR 1,032 in total conditional variable compensation. Mr. Button was awarded EUR 468 for the period he served as member of the Executive Board.
The table below illustrates all the conditionally awarded cash and shares of the members of the Executive Board, and the years in which each component will be paid out and/or vest, subject to the conditions as mentioned: Conditional granted performance related remuneration Timing of vesting, subject to targets and conditions
Jan J. Nooitgedagt 1 The number of shares is based on a share grant price of EUR 4.727. After vesting a 3 year holding period applies to shares vested. 2 The number of shares is based on a share grant price of EUR 3.126. After vesting a 3 year holding period applies to shares vested. 3 The number of shares is based on a share grant price of EUR 4.917. After vesting a 3 year holding period applies to shares vested. 4 The number of shares is based on a share grant price of EUR 6.739. After vesting a 3 year holding period applies to shares vested. 5 During the vesting period, dividend payments on these shares are deposited in blocked savings accounts on behalf of the executive members. For active members of the Executive Board 50% of the shares vested in 2012 and 50% will vest in 2016.
In EUR thousand 2014 2013 2012 1 Mr. Button was appointed as CFO and member of Aegon’s Executive Board on May 15, 2013. Pension contributions are disclosed for the period that Mr. Button has been part of the Executive Board. 2 Mr. Nooitgedagt’s other benefits are reflective of his time with Aegon until retirement as of August 1, 2013.
In EUR thousand 2014 2013 2012 1 Mr. Button was appointed as CFO and member of Aegon’s Executive Board on May 15, 2013. Pension contributions are disclosed for the period that Mr. Button has been part of the Executive Board. 2 Mr. Nooitgedagt’s pension contributions are reflective of his time with Aegon until retirement as of August 1, 2013.
The amounts as presented in the table are the pension contributions in the related book year. The 2014 contribution for Mr. Wynaendts to the Aegon pension funds reflects the increase to his fixed salary as well the current low interest rates. Under IFRS, the service cost as recognized in the income statement related to the defined benefit obligation of Mr. Wynaendts amounted to EUR 951
(2013: EUR 736; 2012: EUR 580). Service cost for Mr. Button amounted to EUR 177 (2013: for Mr. Button EUR 114).
Total The total amount of remuneration for Mr. Wynaendts related to 2014 was EUR 3,947 (2013: EUR 3,282; 2012: EUR 3,717), for
Mr. Button EUR 2,113 (2013: EUR 1,619) and for Mr. Nooitgedagt EUR nil (2013: EUR 1,203; 2012: EUR 2,152). The remuneration of Mr. Button is charged from his home country to The Netherlands. These charges are subject to Dutch VAT, which is an expense for
Robert W. Dineen (as of May 21, 2014) 70,125 - -
Aegon’s Supervisory Board members are entitled to the following: �� A base fee for membership of the Supervisory Board itself. No attendance fees are paid to members for the attendance of the regular Supervisory Board meetings (2014: 7 meetings, 2013: 7 meetings; 2012: 7 meetings); �� An attendance fee of EUR 3,000 for each Supervisory Board meeting, attended in person or by video- or telephone conference, other than one of the regular Supervisory Board meetings; �� A committee fee for members on each of the Supervisory Board’s Committees;and �� An attendance fee for each Committee meeting attended in person or through video and telephone conference.
The remuneration for Supervisory Board members is as of 2013 Dutch VAT liability compliant.
Shares held by Supervisory Board members are only disclosed for the period for which they have been part of the Supervisory Board.
54 Events after the balance sheet date On February 18, 2015, Aegon signed a long-term agreement to form a strategic asset management partnership in France with
2.3 Offsetting of assets and liabilities Financial assets and liabilities are offset in the statement of financial position when Aegon N.V. has a legally enforceable right to offset and has the intention to settle the asset and liability on a net basis or simultaneously.
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.
Financial assets that are lent to a third party or that are transferred subject to a repurchase agreement at a fixed price are not derecognized as the Group retains substantially all the risks and rewards of the asset. A liability is recognized for cash collateral received, on which interest is accrued.
2.6 Cash and cash equivalents Cash comprises cash at banks and in-hand. Cash equivalents are short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known cash amounts, are subject to insignificant risks of changes in value and are held for the purpose of meeting short-term cash requirements. Money market investments that are held for investment purposes
Company after deducting all of its liabilities and the Company has an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation. In addition to common shares and preferred shares, the Company has issued perpetual securities. Perpetual securities have no final maturity date, repayment is at the discretion of Aegon and for junior perpetual capital securities Aegon has the option to defer coupon payments at its discretion. The perpetual capital securities are classified as equity rather than debt, are measured at par and those that are denominated in US dollars are translated into euro using historical exchange rates.
Dividends and other distributions to holders of equity instruments are recognized directly in equity, net of tax. A liability for noncumulative dividends payable is not recognized until the dividends have been declared and approved.
Civil Code has been registered with the Commercial Register of The Hague.
Notes to the financial statements of Aegon N.V. Note 6 6 Receivables Receivables from group companies and other receivables have a maturity of less than one year. Other receivables include an income tax receivable of EUR 93 million (2013: EUR 15 million).
It did this to prevent dilution caused by Aegon’s issuance of shares on May 1, 2013, May 16, 2013, in connection with the Long Term
Incentive Plans for senior management and the issuance of shares on June 14, 2013, being the final dividend 2012 in the form of stock-dividend.
Long-term incentive plan, share appreciation rights and share options For detailed information on the Long Term Incentive Plans, share appreciation rights and share options granted to senior executives and other Aegon employees, refer to note 14 Commissions and expenses to the consolidated financial statements of the Group.
Coupons and premium on convertible core capital securities and coupon on perpetual securities, net of tax - - - - - - (152) - - (152)
Foreign currency translation differences and movement in foreign investment hedging reserves - - - - (726) - - - - (726)
Coupons and premium on convertible core capital securities and coupon on perpetual securities, net of tax - - - - - - (167) - - (167)
were as follows: Transactions in 2014: Sale: 1 transaction, price EUR 6.33 (4,788,375) -
USD 250 million floating LIBOR rate 1) Quarterly, December 15 2015 212 212
USD 500 million floating CMS rate 3) Quarterly, July 15 2015 402 402 1 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 a spread of 87.5 basis points, with a minimum of 4%. 2 The coupon of the EUR 950 million junior perpetual capital securities is reset each quarter based on the then prevailing ten-year Dutch government bond yield plus a spread of ten basis points, with a maximum of 8%. 3 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 rate swap yield plus a spread of ten basis points, with a maximum of 8.5%.
Refer to note 11 Subordinated borrowings for details of the component classified as subordinated borrowings.
On April 25, 2014, Aegon issued EUR 700 million of subordinated notes, first callable on April 25, 2024, and maturing on April 25, 2044.
The coupon is fixed at 4% until the first call date and floating thereafter.
Transamerica Corporation at December 31, 2014 amounted to EUR 3,099 (2013: EUR 2,633 million) As of that date no amounts had been drawn, or were due under letter of credit facilities. The guarantees partly related to debt amounted to EUR 1,275 million
LLC, Commonwealth General Corporation and Transamerica Finance Corp. with respect to bonds, capital trust pass-through securities and notes issued under commercial paper programs amounted to EUR 552 million (2013: EUR 485 million); and �� Due and punctual payment of any amounts owed to third parties by the consolidated group company Aegon Derivatives N.V. in connection with derivative transactions. Aegon Derivatives N.V. only enters into derivative transactions with counterparties with which ISDA master netting agreements including collateral support annex agreements have been agreed; net (credit) exposure on derivative transactions with these counterparties was therefore limited as of December 31, 2014.
Mr. Wynaendts and Mr. Nooitgedagt, who retired on August 1, 2013.
16 Events after the balance sheet date On February 18, 2015, Aegon signed a long-term agreement to form a strategic asset management partnership in France with
Independent auditor’s report To: The Annual General Meeting of Shareholders’ and Supervisory Board of Aegon N.V.
Report on the consolidated financial statements 2014 Our opinion In our opinion: �� The consolidated financial statements give a true and fair view of the financial position of Aegon N.V. and its subsidiaries
Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code. �� The stand-alone financial statements give a true and fair view of the financial position of Aegon N.V. as at December 31, 2014 and of its results for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code.
The consolidated financial statements comprise: �� the consolidated statement of financial position as at December 31, 2014; �� the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended; and �� the notes, comprising a summary of significant accounting policies and other explanatory information.
The stand-alone financial statements comprise: �� the statement of financial position as at December 31, 2014; �� the income statement for the year then ended; and �� the notes, comprising a summary of the accounting policies and other explanatory information.
The basis of our opinion We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the ‘Our responsibilities for the audit of the financial statements’ section of our report.
Materiality � Overall materiality: EUR 70 million which represents circa 5% of a three year average of income before tax. This three year average was determined using 2014, 2013 and 2012 income before tax.
Key audit matters � Valuation of insurance contracts and insurance contracts for account of policyholders including the design and application of complex valuation models and the economic and actuarial assumptions that support the calculation; � Deferred policy acquisition costs (DPAC) and value of business acquired (VOBA); � Fair value of ‘hard to value’ financial instruments; � Uncertainties in policyholder claims and litigation; � Held-for-sale treatment for sale of Canadian business; and � Transition as auditors including audit of opening balances.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall group materiality EUR 70 million
How we determined it Circa 5% of a three year average of income before tax.
During the course of our audit we continuously reassess the appropriateness of the materiality levels, based on factors such as the financial performance of the Company, ongoing risk assessments, key audit findings and/or adjustments.
The regional units supported by local finance, risk management, actuarial and tax functions maintain their own accounting records and controls and report to the Group finance team in The Hague, the Netherlands through an integrated consolidation system.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed at each of the regional units by us, the Group engagement team, or component auditors within PwC Netherlands and from other PwC network firms operating under our instructions.
Where the work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those regional units to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the Group financial statements as a whole. In addition to issuing written instructions to each of the component teams, we developed an oversight strategy for each regional unit based on its significance and/or risk characteristics to the Group. These strategies included procedures such as regular meetings with component auditors to challenge and review significant audit matters and judgements within the component team audit files, extensive reporting to the Group team on a quarterly basis and quarterly site visits to attend closing meetings and local board meetings.
By performing the above-mentioned procedures at regional units, combined with additional procedures at Group level, we have obtained sufficient and appropriate audit evidence regarding the financial information of the Group to provide a basis for our opinion on the consolidated financial statements.
Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements. We have communicated the key audit matters to the supervisory board, but they are not a comprehensive reflection of all matters that were identified by our audit and that we discussed. We described the key audit matters and included a summary of the audit procedures we performed on those matters.
The key audit matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon. We do not provide a separate opinion on these matters.
Valuation of insurance contracts and insurance contracts for account of policyholders including the design and application of complex valuation models and the economic and actuarial assumptions that support the calculation
EUR 214 billion at December 31, 2014 representing 54% of the
In particular, our audit focused on the models considered more complex and/or requiring significant judgement in the setting of assumptions such as the corporate pension guarantees in the
Company’s validation of certain models considered higher risk by the Company as a result of complexity and/or magnitude. We also assessed and tested the internal controls over the
Company’s actuarial analyses including estimated versus actual results and experience studies.
Our work on the liability adequacy tests included assessing the reasonableness of the projected cash flows and challenging the assumptions adopted in the context of both the Company and industry experience and specific product features.
Intangible assets and 2.13 Summary of significant accounting policies – Deferred expenses and notes 21 Intangible assets and 28 Deferred expenses. DPAC and VOBA represent EUR 11 billion or 3 % of total assets and involve significant judgement in the measurement and assessment of recoverability of these assets. The recoverability is based in part on the adequacy of the insurance liabilities and projected future cash flows and, if determined to be insufficient, would trigger a write-down of the asset. The DPAC and VOBA associated with the investment and retirement business in Aegon Americas, which represents 67% of total DPAC and VOBA, involves the greatest judgment in terms of measurement and recoverability. The amortization of the DPAC and VOBA asset for these lines of business is based on projected future gross profits.
We assessed recoverability of DPAC and VOBA through our audit procedures concerning the liability adequacy test as explained in the valuation of insurance contracts key audit matter above.
Fair value of ‘hard to value’ financial instruments Refer to note 2.7 Summary of significant accounting policies
We performed our own independent price checks using external quotes where available for illiquid positions.
Held-for-sale treatment for sale of Canadian business Refer to note 2.2 Summary of significant accounting policies –
EU-IFRS called for the Company to exclude insurance balances and financial instruments when it determined the amount of the loss on the sale of the Canadian business as at December 31, 2014. In accordance with this guidance, the Company recorded a loss related to the non-current assets that were reclassified as held for sale and will record the remaining loss relating to the insurance balances and financial instruments when the transaction closes. In addition, we audited the calculation of the loss through obtaining the sales contract and auditing the balances associated with the sale. We also considered the adequacy of the Group’s disclosures in the consolidated financial statements in relation to the sale of the Canadian business.
Prior to becoming the Company’s auditors in 2014, we developed a comprehensive transition plan starting in August 2013 to understand the connection between the Company’s strategy, the related business risks and the way this impacts the
Our responsibilities for the audit of the financial statements Our responsibility is to plan and perform an audit engagement to obtain sufficient and appropriate audit evidence to provide a basis for our opinion. Our audit has been performed with a high but not absolute level of assurance which makes it possible that we did not detect all errors and frauds. Therefore our opinion provides reasonable assurance.
Our appointment We were appointed as auditors of Aegon N.V. by the Supervisory Board following the passing of a resolution by the shareholders at the annual meeting held on May 15, 2013. The audit 2014 was our first year’s audit.
Appendix to our auditor’s report on the financial statements 2014 of Aegon N.V. In addition to what is included in our auditor’s report we have further set out our responsibilities for the audit of the financial statements and explained what an audit involves in this appendix.
Standards on Auditing, ethical requirements and independence requirements. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. Our audit consisted among others things of: �� Identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; �� Obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control; �� Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management; �� Concluding on the appropriateness of management’s use of the going concern basis of accounting, and based on the audit evidence obtained, concluding whether a material uncertainty exists related to events and or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report and are made in the context of our opinion on the financial statements as a whole. However, future events or conditions may cause the company ceasing to continue as a going concern; and �� Evaluating the overall presentation, structure and content of the financial statements, including the disclosures, and evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with the Audit Committee of the Supervisory Board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We provide the Audit Committee of the Supervisory Board with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
3. The profits remaining after application of 2 above shall be put at the disposal of the General Meeting of Shareholders.
The Executive Board, subject to the approval of the Supervisory Board, shall make a proposal for that purpose. A proposal to pay a dividend shall be dealt with as a separate agenda item at the General Meeting of Shareholders; 4. The Executive Board may, subject to the approval of the Supervisory Board, make one or more interim distributions to the holders of common shares and common shares B; 5. Distributions are made in accordance with the principle as laid down in article 4 of the Articles of Association of Aegon N.V. that the financial rights attaching to a common share B are one-fortieth (1/40th) of the financial rights attaching to a common share; 6. The Executive Board may, subject to the approval of the Supervisory Board, decide that a distribution on common shares and common shares B shall not take place as a cash payment but as a payment in common shares, or decide that holders of common shares and common shares B shall have the option to receive a distribution as a cash payment and/or as a payment in common shares, out of the profit and/or at the expense of reserves, provided that the Executive Board is designated by the General Meeting to issue shares. Subject to the approval of the Supervisory Board, the Executive Board shall also determine the conditions applicable to the aforementioned choices; and 7. The Company’s policy on reserves and dividends shall be determined and can be amended by the Supervisory Board, upon the proposal of the Executive Board. The adoption and thereafter each amendment of the policy on reserves and dividends shall be discussed and accounted for at the General Meeting of Shareholders under a separate agenda item.
At the Annual General Meeting of Shareholders on May 20, 2015, the Executive Board will, absent unforeseen circumstances, propose a final dividend for 2014 of EUR 0.12 per common share and EUR 0.003 per common share B. The final dividend will be paid in cash or stocks at the election of the shareholder. The value of the stock dividend will be approximately equal to the cash dividend.
May 26, 2015. Shareholders can elect to receive a dividend in cash or in shares during the dividend election period, which will run from
In order to reflect the prevailing market price of Aegon N.V. common shares fully within the indication provided, the number of dividend coupons that give entitlement to a new common share of EUR 0.12 will be determined on June 12, 2015 after 5.30 p.m. (CET), based on the average share price on Euronext Amsterdam in the five trading days from June 8, 2015 up to and including June 12, 2015.
As of December 31, 2014, 230 million common shares were held in the form of New York Registry shares. As of December 31, 2014, there were approximately 19,800 record holders of Aegon’s New York Registry shares resident in the United States.
On May 9, 2003, Aegon’s shareholders approved certain changes to Aegon’s corporate governance structure. Preferred shares with a nominal value of EUR 0.12 were converted into 211,680,000 new class A preferred shares with a nominal value of EUR 0.25, and class B preferred shares were created with a nominal value of EUR 0.25 each. No class B preferred shares were issued at that time.
The voting rights pertaining to the preferred shares were adjusted accordingly to 25/12 vote per preferred share. However, in May 2003, Aegon N.V. and Vereniging Aegon entered into a Preferred Shares Voting Agreement, pursuant to which Vereniging Aegon agreed to exercise one vote only per preferred share, except in the event of a ‘Special Cause’, as defined below.
It did this to correct dilution caused by Aegon’s issuance of shares on June 15, 2012, being the final dividend 2011 in the form of stock dividend, and its issuance of shares on September 15, 2012, being the interim dividend 2012 in the form of stock dividend. In July 2013, Vereniging Aegon exercised its option rights to purchase in aggregate 12,691,745 common shares B at market value. It did this to correct dilution caused by Aegon’s issuance of shares on May 1, 2013 and May 16, 2013, in connection with the Long Term
Resolutions of the Executive Committee, other than regarding the amendment of the Articles of Association of Vereniging Aegon, are made with an absolute majority of the votes. When a vote in the Executive Committee results in a tie, the General Meeting of Members has the deciding vote. Regarding the amendment of the Articles of Association of Vereniging Aegon, a special procedure requires a unanimous proposal from the Executive Committee, thereby including the consent of the representatives of Aegon N.V. at the Executive
Committee. Following the amendment of the Articles of Association put into effect on September 13, 2005, this requirement does
Aegon may amend its Articles of Association without the cooperation of Aegon N.V. Furthermore, the two members of the Executive
These are the two US-based investment management firms Dodge & Cox and FMR.
SEC are held by Dodge & Cox on behalf of its other clients, including investment companies registered under the Investment Company
On February 13, 2015, FMR’s filing with the SEC shows that FMR holds 111,693,771 common shares, representing 4.2% of the issued capital and has voting rights for 14,662,935 shares, representing 0.5% of the votes.
Other financial information Schedules to the financial statements Schedule I Summary of investments other than investments in related parties
Other investments at fair value through profit or loss 2,338 2,570 2,570
Real estate: Investments in real estate 1,792 1,792 1 Cost is defined as original cost for available-for-sale shares and amortized cost for available-for-sale and held-to-maturity bonds.
Issuance, repurchase and coupons of non-cumulative subordinated notes (32) (28) 241
Net increase / (decrease) in cash and cash equivalents 29 (958) 505
Column A Column B Column C Column D Column E Column F
The numbers included in Schedule III are based on IFRS and excludes the proportionate share in Aegon’s joint ventures and
The provisions can be analyzed as follows: Other financial information Schedules320
De Nederlandsche Bank (DNB) are required to carry out ‘supplementary supervision’ on European insurance and reinsurance companies in an insurance group. The supplementary supervision of insurance companies in an insurance group enables EU supervisors to make a detailed assessment of the financial position of the EU insurance and reinsurance companies that are part of that group. The provisions of the Insurance Group Directive require EU supervisors, including DNB, to take into account the relevant financial affiliations between the insurance companies and other entities in the Group. In this respect, Aegon is required to submit reports to its EU supervisors twice a year setting out supplemental capital adequacy calculations of the insurance companies, risk concentrations and significant transactions and positions between insurance and non-insurance companies in the Aegon Group. The requirements of the Insurance
Group Directive will be included in the Solvency II framework, which will enter into force in EU member states as of January 1, 2016.
The Insurance Group Directive will formally be repealed as per the same date.
Since the beginning of October 2009, Aegon has been subject to supplemental group supervision by DNB in accordance with the requirements of the European Union’s Financial Conglomerate Directive. Supplemental group supervision pursuant to the Financial
II, the exercise of discretion by EU supervisors and the use of transitional provisions that would allow companies to continue the valuation of assets and liabilities may result in an unlevel competitive playing field. In the section risk factors, risks relating to Solvency
Aegon N.V. has developed a recovery plan, aimed to give direction to the Company to recover from financial difficulties. This fits in the broader context of regulatory developments, pursuant to which banks and certain other financial undertakings and groups of financial undertakings are subject or will become subject to enhanced regulatory requirements with respect to recoverability and resolvability.
In particular, such requirements follow from the European Bank Recovery and Resolution Directive, which applies to certain parts of the Aegon group, in particular Aegon Bank N.V.. Aegon Bank N.V. has also developed a separate recovery plan. In future, similar requirements may apply also to insurance companies and insurance groups, pursuant to European and international developments in this area, in particular the work of the International Association of Insurance Supervisors (IAIS) on ComFrame, a (future) international framework for the supervision of internationally active insurance groups.
During 2014, Aegon maintained in force several individual personal pensions where the pay or of the pension benefits is subject to U.S.
sanctions. Aegon holds one active Individual Personal Pension for a UK resident customer who is a UK-based employee of an Iranian bank. The Iranian bank, as the employer, makes contributions into the customer’s pension account. The Iranian bank in question has been designated for sanctions by OFAC pursuant to Executive Order 13224. The customer is not a specially designated national (SDN)
and the Iranian bank does not own, benefit from, or have control over, the pension. All payments from the Iranian bank have been made in UK pounds from a UK bank account. Her Majesty’s Treasury (HMT) have confirmed that this business activity falls within an acceptable sanctions exemption in the United Kingdom. The monthly premium on the pension was GBP 721.73 during 2014. Following approval by the HMT, GBP 178,474 was transferred on July 8, 2014 to a pension with another UK-based pension provider, leaving the account value at GBP 8,380.38 as of December 2014. The related annual net profit, including the pre-transfer amount, arising from this policy arising from this policy is estimated to be GBP 11,207.83. The pension remains active and subject to close on-going review.
Additionally, Aegon holds one active individual personal pension for each of four UK resident customers who are UK-based employees of a UK-registered charity that makes contributions into the customers’ pension accounts. The charity has been designated for sanctions by OFAC pursuant to Executive Order 13224. The customers are not SDNs and the charity does not own, benefit from, or have control over, the pensions. All payments from the charity have been paid in UK pounds from a UK bank account. The pensions are managed in accordance with applicable legislation and regulation in the UK and the charity is not subject to UK or EU sanctions. The pensions remain active and subject to close on-going review. The first of these plans (Individual Personal Pension #1) had a value of
I - Risks relating to Aegon’s businesses The following covers the key risk factors that may affect Aegon’s businesses and operations, as well as other risk factors that are particularly relevant to Aegon in the ongoing period of significant economic uncertainty. Additional risks to which Aegon is subject include, but are not limited to, the factors mentioned under ‘Forward-looking statements’ (pages 361 and 362), and the risks of
Factors additional to those discussed below or elsewhere in this Annual Report may also affect Aegon’s businesses and operations adversely. The following risk factors should not be considered a complete list of potential risks that may affect Aegon and its subsidiaries.
Risks related to the global financial markets and general economic conditions Disruptions in the global financial markets and general economic conditions have affected and continue to affect, and could have a materially adverse effects on Aegon’s businesses, results of operations, cash flows and financial condition.
In addition to the risks described in this section, these conditions may result in reduced demand for Aegon’s products as well as impairments and reductions in the value of the assets in Aegon’s general account, separate account, and company pension schemes, among other assets. Aegon may also experience a higher incidence of claims and unexpected policyholder behavior such as unfavourable changes in lapse rates. Aegon’s policyholders may choose to defer or stop paying insurance premiums, which may impact
Credit risk Defaults in Aegon’s debt securities, private placements and mortgage loan portfolios held in Aegon’s general account, or the failure of certain counterparties, may adversely affect Aegon’s profitability and shareholders’ equity.
Credit risk is the risk of loss resulting from the default by, or failure to meet contractual obligations of issuers and counterparties.
Aegon is exposed to credit risk on its general account fixed-income portfolio (debt securities, mortgages and private placements), over-the-counter (OTC) derivatives and reinsurance contracts. In addition, financial institutions acting as a counterparty on derivatives may not perform their obligations. Default by issuers and counterparties on their financial obligations may be due to, among other things, bankruptcy, lack of liquidity, market downturns or operational failures, and the collateral or security they provide may prove inadequate to cover their obligations at the time of the default.
Aegon to establish reserves to fund these future guaranteed benefits when equity market returns do not meet or exceed these guarantee levels. Aegon’s reported results under International Financial Reporting Standards (IFRS), as adopted by the European
In force life insurance and annuity policies may be relatively more attractive to consumers due to built-in minimum interest rate guarantees, resulting in increased premium payments on products with flexible premium features and a higher percentage of insurance policies remaining in force year-to-year. The majority of assets backing the insurance liabilities are invested in fixed-income securities.
Aegon manages its investments and derivative portfolio, considering a variety of factors, including the relationship between the expected duration of its assets and liabilities. However, as interest rates remain at low levels, Aegon may have to reinvest the cash it receives as interest or proceeds from investments that mature or are sold at lower yields. Reinvestment at lower yields may reduce the spread between interest earned on investments and interest credited to some of Aegon’s products and accordingly net income may decline. In addition, borrowers may prepay or redeem fixed maturity investments or mortgage loans in Aegon’s investment portfolio in order to borrow at lower rates. Aegon can lower crediting rates on certain products to offset the decrease in spread. However, its ability to lower these rates may be limited by contractually guaranteed minimum rates or competition.
IFRS. This is inconsistent with the IFRS accounting on much of Aegon’s liabilities, where corresponding economic gains from higher interest rates do not affect shareholders’ equity or income in the shorter term. Over time, the short-term reduction in shareholder equity and income due to rising interest rates would be offset in later years, all else being equal.
and expenses. In general, Aegon is at risk if policy lapses increase, as sometimes Aegon is unable to fully recover up-front sales expenses despite the presence of commission recoveries or surrender charges and fees. In addition, some policies have embedded options which at times are more valuable to the client if they stay (lower lapses) or leave (higher lapses), which may result in losses to Aegon’s businesses. Aegon sells certain types of policies that are at risk if mortality or morbidity increases, such as term life insurance and accident insurance. Aegon also sells certain other types of policies, such as annuity products, that are at risk if mortality decreases (longevity risk). For example, certain current products as well as products sold in previous years based on standard longevity assumptions have become less profitable or unprofitable as longevity assumptions increase, which may result in Aegon incurring losses.
Modeling risk Inaccuracies in (financial) models could have a significant adverse effect on Aegon’s business, results of operations and financial condition.
If these models or the underlying assumptions prove to be inaccurate, this could have a significant adverse effect on Aegon’s business or performance.
Aegon’s investments is subjective and may materially impact Aegon’s results of operations or financial position.
The National Association of Insurance Commissioners’ (NAIC) Model Regulation entitled ‘Valuation of Life Insurance Policies,’
United States are now affected by Regulation XXX and AG38, respectively.
For some of Aegon’s products, market performance impacts the level of statutory reserves and statutory capital Aegon is required to hold, which may have an adverse effect on returns on capital associated with these products. Capacity for reserve funding available in the marketplace is currently limited as a result of market conditions generally. Aegon’s ability to efficiently manage capital and economic reserve levels may be impacted, thereby affecting profitability and return on capital.
There may be heightened oversight of insurers by regulatory authorities in the jurisdictions in which Aegon’s subsidiaries are domiciled and operate. Aegon cannot predict specific proposals that might be adopted, or what impact, if any, such proposals or, if enacted, such laws, may have on its businesses, results of operations, or financial condition. The European Union is adopting Solvency II as discussed above, the NAIC or state regulators may adopt revisions to applicable risk based capital formulas, local regulators in other jurisdictions in which Aegon’s subsidiaries operate may increase their capital requirements, or rating agencies may incorporate higher capital thresholds into their quantitative analyses, thus requiring additional capital for Aegon’s insurance subsidiaries.
For example, in July 2010, the US Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which provides for comprehensive changes to the regulation of financial services in the United States by granting existing government agencies and newly created government agencies and bodies (for example the Financial Stability Oversight Council, Federal Reserve
(G-SIIs), and a set of policy measures that will apply to them. The Financial Stability Board (FSB) has endorsed the methodology and these policy measures. The policy measures include recovery and resolution planning requirements, enhanced group-wide supervision, including direct powers over holding companies and higher loss absorbency requirements (HLA) for non-traditional and non-insurance activities. In the absence of a global capital standard as a basis, the HLA will be built upon straightforward, backstop capital requirements for all group activities, including non-insurance subsidiaries. HLA requirements will need to be met by the highest quality capital. In November 2013, the FSB has identified an initial list of 9 G-SIIs to which the policy measures above should apply. The group
An important impact to Aegon USA of the Dodd-Frank Act and similar financial services reform legislation by other countries in which
Aegon operates will be the Derivatives Reform aspect of the Dodd-Frank Act, which aims to increase transparency of derivatives use and reduce systemic risk. Aegon USA entities are considered Category 2 under the regulations and are required to clear derivative transactions in accordance with the phase-in regulations. In addition, Aegon USA has new reporting, initial margin and variation margin obligations under the Dodd-Frank Act and its regulations. However, Aegon cannot predict how the regulations will affect the financial markets generally or how the regulations will affect Aegon’s operations or financial condition.
In the United States, the Patient Protection and Affordable Care Act (PPACA) was enacted in 2011 and upheld, with the exception of the Medicaid expansion mandate, by the US Supreme Court in 2012. PPACA significantly changes the regulation of health insurance in the United States, including in certain respects the regulation of supplemental health insurance products. The extent to which employers or individuals may discontinue their purchase of supplemental health insurance products as a result of these changes may significantly impact Aegon USA’s supplemental health insurance products business. Given ongoing litigation in the United States with regards to PPACA, the impact to Aegon remains uncertain.
Occupational Pensions Authority (EIOPA). This makes it difficult to ensure the Company’s system infrastructure is fully adapted to the final requirements. Over the course of 2015 Aegon expects to receive clarity on all these items, but the timelines are short and delays may impact the preparations Aegon makes to be Solvency II ready. The Company actively engages with industry peers, its supervisors and the regulatory community to get needed clarity needed as soon as possible. Aegon may be required to increase its statutory reserves and/or hold higher amounts of statutory capital for some of its products, which will decrease Aegon’s returns on these products unless Aegon increases its prices. Other initiatives, such as by the International Association of Insurance Supervisors, may create regulations that would increase capital and other requirements that would not be applicable to all carriers and create an uneven competitive playing field.
Insurance companies are routinely the subject of litigation, investigation and regulatory activity by various governmental and enforcement authorities, individual claimants and policyholder advocate groups, involving wide-ranging subjects such as transparency of disclosure - issues and the charges included in products, employment or third party relationships, adequacy of internal operational controls and processes, environmental matters, anti-competition, privacy, information security and intellectual property infringement.
For example, unclaimed property administrators and state insurance regulators performed examinations of the life insurance industry in the United States, including certain of Aegon’s subsidiaries. Among these were multi-state examinations that included the collective action of many of the states. Additionally, some states conducted separate examinations or instituted separate enforcement actions in regard to unclaimed property laws and related claims practices. As other insurers in the United States have done, Aegon Americas identified certain additional internal processes that it has implemented or is in the process of implementing. Aegon Americas established reserves related to this matter of approximately EUR 117 million. Like various other major insurers in the United States,
Aegon subsidiaries in the United States entered into resolutions with insurance regulators regarding claims settlement practices.
Certain examinations are still ongoing. While Aegon believes the reserves it has established for these unclaimed property matters are adequate to cover expected obligations, there can be no assurances that actual exposures may not exceed reserve amounts or that additional sources of liability related to these examinations or other unclaimed property-related matters will not arise in the future.
For more than a decade there has been an increase in litigation across the industry, together with new legislation, regulations, and regulatory initiatives, all aimed at curbing alleged improper annuity sales to seniors. As many of the estimated 78 million baby boomers in the United States are reaching the age of 60, the industry will likely see an increase in senior issues presented in various legal arenas.
In addition, insurance companies are generally the subject of litigation, inquiries, investigations and regulatory activity concerning common industry practices such as the disclosure of costs, both costs incurred upon inception of the policy as well as over the duration thereof, commissions, premiums and other issues relating to the transparency of disclosure concerning certain products and services including the risks thereof, in particular when costs and charges apply for or take effect over a longer duration, as is the case for many of Aegon’s products. Some inquiries have led to investigations, which remain open, or have resulted in fines corrective actions or restitution. In certain instances, Aegon subsidiaries modified business practices in response to those inquiries, investigations or findings. For example, in 2014 the UK Financial Conduct Authority fined Aegon GBP 8.3 million for past sales practices related to accident insurance products sold by an affinity marketing unit that was active in several European countries and as to which Aegon elected to cease writing new business.
Aegon cannot predict at this time the effect that litigation, investigations, and actions will have on the insurance industry or Aegon’s business. Lawsuits, including class actions and regulatory actions, may be difficult to assess or quantify, and may seek recovery of very large and/or indeterminable amounts, including bad faith, punitive and treble damages, and their existence and magnitude may remain unknown for substantial periods of time. Claimants may allege damages that are not quantifiable or supportable and may bear little relationship to their actual economic losses, or amounts they ultimately receive, if any. Besides potential monetary obligations, private litigation, regulatory action, legislative changes and developments in public opinion may require Aegon to alter the way it does business, which would have a material adverse effect on Aegon’s results of operations and prospects.
Aegon and other US industry participants have been named in lawsuits alleging, among other things, that asset-based fees charged for investment products offered on 401(k) platforms were higher than those generally available in the market. In the Netherlands, certain current and former customers, and groups representing customers have initiated litigation, and certain groups are encouraging others to bring lawsuits against Aegon and other insurers regarding the appropriateness of premiums and policy costs, in respect of certain products including securities leasing products and unit-linked products (so called ‘beleggingsverzekeringen’, including the KoersPlan product). Since 2005, unit-linked products in particular started to become the subject of public debate. Allegations started to emerge that products and services hadn’t been transparent, were too costly or delivered a result different from what was agreed to. Customer interest groups were formed specifically in this context. Also, regulators as well as the Dutch Parliament have paid attention to this matter since, principally aimed at achieving an equitable resolution for customers.
Aegon has defended and Aegon intends to continue defending itself vigorously when Aegon believes claims are without merit. Aegon has also sought and intends to continue to seek to settle certain claims, including via policy modifications, in appropriate circumstances. Aegon refers to the settlement Aegon reached in 2009 with Stichting Verliespolis and Stichting Woekerpolis in The Netherlands, two major customer interest groups. In 2012, Aegon accelerated certain product improvements that reduce future costs and that increase policy value for its customers with unit-linked insurance policies. With these measures, Aegon committed to the ‘best of class’ principles identified by the Dutch
In general, individual customers as well as policyholder advocate groups and their representatives, continue to focus on the level of fees and other charges included in products sold by the insurance industry (including Aegon), as well as the transparency of disclosure regarding such fees and charges and other product features and risks. In 2013, the Dutch Supreme Court denied Aegon’s appeal from a ruling of the Court of Appeal with respect to a specific Aegon unit-linked product, the “KoersPlan” product. Between 1989 and 1998, Aegon has issued, sold or advised on approximately 600,000 KoersPlan products. In 2011, the Court of Appeal had ruled that Aegon should have more clearly informed its customers about the amount of premium which the company charged in relation to the death benefit embedded in those products. Prior to the ruling Aegon had already taken steps to improve its communications with customers as well as adjusting the amounts charged to KoersPlan customers. As a result of the Dutch Supreme Court’s denial of appeal, Aegon compensated the approximately 35,000 holders of KoersPlan products who were plaintiffs in the litigation and took a charge of EUR 25 million in 2013 in connection therewith. In 2014, Aegon announced that it would voluntarily compensate holders of
KoersPlan products that were not plaintiffs in the litigation. The compensation amounts to the difference, if any, between the amount of premium charged by Aegon for a comparable risk in stand-alone death benefit coverage over the same period, and the premium
(if higher) actually charged by Aegon in connection with the KoersPlan product. This voluntary product improvement was supported by the consumer interest group that initiated the court action over the KoersPlan product, Stichting Koersplandewegkwijt. However, another interest group, Stichting Woekerpolisproces, announced in 2014 that it expected in future to file a claim in court against
In March 2014, consumer interest group Vereniging Woekerpolis.nl filed a claim against Aegon in court. The claim relates to a range of unit-linked products that Aegon sold in the past, including products over which Aegon was involved in litigation in the past, like the
In June 2014, the Attorney General to the European Court of Justice gave its non-binding advisory opinion to the European Court of Justice on preliminary questions raised in a court case pending before the District Court in Rotterdam against another insurance company in The Netherlands. The main preliminary question being considered by the European Court of Justice is whether European law permits the application of information requirements based on general principles of Dutch law that potentially extend beyond information requirements as explicitly prescribed by local laws and regulations in force at the time the policy was written. The opinion of the Attorney General refers to disclosure requirements existing under European law, as well as the possibility for national rules to embed principles of transparency of disclosure. The European Court will render a judgment in 2015. It is possible that a judgment, although it may clarify a question of legal principle only and would be rendered in a case against another insurer, may ultimately be used by plaintiffs against Aegon or to support potential claims against Aegon. Future claims based on emerging legal theories could have a material adverse effect on our results of operations and financial condition.
Certain of the products Aegon sells are complex and involve significant investment risks that may be assumed by Aegon’s customers.
Aegon is exposed to currency fluctuations, changes in the fair value of Aegon’s investments, the impact of interest rate, equity markets and credit spread changes, and changes in mortality and longevity. Aegon uses common financial derivative instruments, such as swaps, options, futures and forward contracts to hedge some of the exposures related to both investments backing insurance products and company borrowings. This is a more pronounced risk to Aegon in view of the stresses suffered by financial institutions and the volatility of interest rate, credit and equity markets. Aegon may not be able to manage the risks associated with these activities successfully through the use of derivatives. In addition, a counterparty may fail to honor the terms of its derivatives contracts with Aegon. Aegon’s inability to manage risks successfully through derivatives, a counterparty’s failure to honor Aegon’s obligations or the systemic risk that failure is transmitted from counterparty to counterparty may each have a material adverse effect on Aegon’s businesses, results of operations and financial condition.
a central clearing organization. This may limit Aegon’s ability to customize derivative transactions for its needs. As a result, Aegon may experience additional collateral requirements and costs associated with derivative transactions.
Changes in accounting policies may affect Aegon’s reported results and shareholders’ equity.
9 - Financial Instruments and IFRS 4 - Insurance contracts. On July 24, 2014, the IASB issued the fourth and final version of its new standard on financial instruments accounting - IFRS 9 Financial Instruments. The new IFRS 9 standard has a mandatory effective date of January 1, 2018. Implementation of IFRS 9 may have a significant impact on Aegon’s reported results, financial condition and shareholder’s equity. Further details on IFRS 9 are provided in note 2.1.3 Future adoption of new IFRS accounting standards of the consolidated financial statements.
With regards to IFRS 4, the IASB is currently deliberating on the comment letters received by its constituents with regard to the
The US Government, as well as state and local governments, also considers from time to time tax law changes that may increase the amount of taxes that Aegon pays. For example, the US Treasury Department and the Internal Revenue Service may propose new regulations regarding the methodology to determine the dividends received deduction (DRD) related to variable life insurance and variable annuity contracts. The DRD reduces the amount of dividend income subject to tax and is a significant component of the difference between Aegon’s effective tax rate and the federal statutory tax rate of 35%. A change in the DRD, including the possible elimination of this deduction, may reduce Aegon’s consolidated net income.
The adverse market and economic conditions that began in the second half of 2007 and significantly worsened in 2008 and into 2009, with recovery beginning in late 2009 and in 2010, followed in 2011, 2012 and 2013 by further periods of volatility and weakness, particularly in the eurozone, can be expected to result in changes in the competitive landscape. For example, the financial distress experienced by some financial services industry participants as a result of weak economic conditions and newly imposed regulation may lead to acquisition opportunities. Aegon’s ability or that of Aegon’s competitors to pursue such opportunities may be limited due to lower earnings, reserve increases, capital requirements or a lack of access to debt capital markets and other sources of financing. Such conditions may also lead to changes by Aegon or Aegon’s competitors in product offerings and product pricing that may affect Aegon and Aegon’s relative sales volumes, market shares and profitability. Additionally, the competitive landscape in which Aegon operates may be further affected by government-sponsored programs or actions taken in response to the severe dislocations in financial markets which occurred in 2008 and 2009, as well as the European sovereign debt crisis.
The failure of a sufficiently large and influential financial institution, or other market participant including a sovereign issuer, may disrupt securities markets or clearance and settlement systems in Aegon’s markets. This may cause market declines or volatility.
Even the perceived lack of creditworthiness of a sovereign or financial institution (or a default by any such entity) may lead to marketwide liquidity problems and losses or defaults by us or by other institutions. This risk is sometimes referred to as ‘systemic risk’ and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges with whom we interact on a daily basis and financial instruments of sovereigns in which we invest. Systemic risk could have a material adverse effect on our ability to raise new funding and on our business, financial condition, results of operations, liquidity and/or prospects. In addition, such distress or failure could impact future product sales as a potential result of reduced confidence in the financial services industry.
As a global financial services enterprise with a decentralized management structure, Aegon relies, to a considerable extent, on the quality of local management in the various countries in which Aegon operates. The success of Aegon’s operations is dependent, among other things, on Aegon’s ability to attract and retain highly qualified professional personnel. Competition for key personnel in most countries in which Aegon operates is intense. Aegon’s ability to attract and retain key personnel, in particular senior officers, experienced portfolio managers, mutual fund managers and sales executives, is very much dependent on the competitiveness of the compensation package for employees in the market in which it competes. As a part of the governmental response in Europe and, to a certain extent, the United States to the financial crisis in 2008, there have been various legislative initiatives that have sought to give guidance or regulate the structure of remuneration for personnel, in particular senior management, with a focus on performancerelated remuneration and limiting severance payments. With differences in interpretation of these regulations by local regulators on how the guidelines need to be applied, as well as to the question of whether they apply to insurance industries at all, these restrictions create an uncertain playing field and may adversely affect Aegon’s ability to compete for qualified employees, as well as Aegon’s ability to exchange employees between regions.
Under the terms of the reinsurance agreements, the reinsurer agrees to reimburse for the ceded amount in the event a covered claim is paid. However, Aegon’s insurance subsidiaries remain liable to their policyholders for ceded insurance if any reinsurer fails to meet the obligations assumed by it. A bankruptcy or insolvency or inability of any of Aegon’s reinsurance counterparties to satisfy its obligations may have a materially adverse effect on Aegon’s financial position and results of operations. Refer to Schedule IV of this Annual Report for a table showing life insurance in force amounts on a direct, assumed and ceded basis for 2012, 2013 and 2014.
In accordance with industry practices, Aegon reinsures a portion of its life insurance exposure with unaffiliated insurance companies under traditional indemnity reinsurance arrangements. In 2014, approximately 60% of Aegon’s total direct and assumed (for which
In recent years, Aegon has made a number of acquisitions and divestitures around the world and it is possible that Aegon may make further acquisitions and divestitures in the future. Growth by acquisition involves risks that may adversely affect Aegon’s operating results and financial condition. These include: the potential diversion of financial and management resources from existing operations; difficulties in assimilating the operations, technologies, products and personnel of the acquired company; significant delays in completing the integration of acquired companies; the potential loss of key employees or customers of the acquired company; potential losses from unanticipated litigation, and tax and accounting issues. In addition, expansion into new and emerging markets may involve heightened political, legal and regulatory risks, such as discriminatory regulation, nationalization or expropriation of assets, price controls and exchange controls.
Aegon’s acquisitions may result in additional indebtedness, costs, contingent liabilities and impairment expenses related to goodwill and other intangible assets. In addition, they may divert management’s attention and other resources. Divestitures of existing operations may result in Aegon assuming or retaining certain contingent liabilities. All of these may adversely affect Aegon’s businesses, results of operations and financial condition. Future acquisitions may also have a dilutive effect on the ownership and voting percentages of existing shareholders. There can be no assurance that Aegon will successfully identify suitable acquisition candidates or that Aegon will properly value acquisitions made. Aegon is unable to predict whether or when any prospective acquisition candidate will become available, or the likelihood that any acquisition will be completed once negotiations have commenced.
Aegon’s management maintains a well-controlled environment and sound policies and practices to control these risks and keep operational risk at appropriate levels. Notwithstanding these control measures, however, operational risk is part of the business environment in which Aegon operates, and is inherent in Aegon’s size and complexity, as well as Aegon’s geographic diversity, and the scope of the businesses Aegon operates. Aegon’s risk management activities cannot anticipate every economic and financial outcome, or the specifics and timing of such outcomes. Furthermore, if the contractual arrangements put in place with any third-party service providers are terminated, including contractual arrangements with providers of information technology, administrative or investment management services, Aegon may not be able to find an alternative provider on a timely basis or on equivalent terms. Aegon may incur losses from time to time due to these types of risks.
Aegon’s operations support complex transactions and are highly dependent on the proper functioning of information technology and communication systems. Any failure of Aegon’s information technology or communications systems may result in a material adverse effect on Aegon’s results of operations and corporate reputation.
Changes towards more sophisticated internet technologies, the introduction of new products and services, changing customer needs and evolving applicable standards increase the dependency on internet, secure systems and related technology. Introducing new technologies, computer system failures, cyber-attacks or security breaches may disrupt Aegon’s business, damage Aegon’s reputation and adversely affect Aegon’s results of operations, financial condition and cash flows.
II - Risks relating to Aegon’s common shares Aegon’s share price could be volatile and could drop unexpectedly, and investors may not be able to resell Aegon’s common shares at or above the price paid.
The high and low prices of Aegon’s common shares on Euronext Amsterdam were EUR 6.96 and EUR 5.75 respectively in 2014, and
EUR 6.86 and EUR 4.42 respectively in 2013. The high and low sales prices of Aegon’s common shares on NYSE New York were
USD 9.46 and USD 7.27 respectively in 2014, and USD 9.48 and USD 5.76 respectively in 2013. All share prices are closing prices.
Vereniging Aegon held 292,687,444 common shares and all issued common shares B. All of Aegon’s outstanding common shares are freely tradable, and all shareholders, including large shareholders such as Vereniging Aegon, are free to resell their common shares at any time.
(excluding issued common shares held in treasury by Aegon). In 2003, Aegon and Vereniging Aegon amended the 1983 Merger
Meeting of Shareholders of Aegon N.V. on May 15, 2013. For details on the simplification of the corporate structure, please see the section Major shareholders at pages 311-313.
�� Suspending or removing an Executive Board or Supervisory Board member other than pursuant to a Supervisory Board proposal.
For example, the price of Aegon’s common shares may become more volatile and may be depressed by investors’ anticipation of the potential resale in the market of substantial amounts of Aegon’s common shares received at maturity. Aegon’s common shares may also be depressed by the acceleration of any convertible securities (or other such securities) that Aegon has issued by investors who view such convertible securities (or other such securities) as a more attractive means of participation in Aegon’s equity. Negative results may also be produced by hedging or arbitrage trading activity that may develop involving such convertible securities (or other such securities) and Aegon’s common shares. Any such developments may negatively affect the value of Aegon’s common shares.
Netherlands’ employees. The Central Works Council has certain defined powers at the level of the Dutch subsidiary company Aegon
Of which Aegon's share of employees in joint ventures and associates 1,614 1,462 1,546
Amsterdam and NYSE New York as reported by Bloomberg and is based on closing prices.
Memorandum and Articles of Association Aegon is registered under number 27076669 in the Commercial Register of the Chamber of Commerce and Industries for Haaglanden,
In the event a Special Cause occurs (such as the acquisition of 15% of Aegon’s voting shares, a tender offer for Aegon’s shares or a proposed business combination by any person or group of persons, whether individually or as a group, other than in a transaction approved by the Executive Board and Supervisory Board), Vereniging Aegon will be entitled to exercise its full voting rights of one vote per each common share B for up to six months per Special Cause, thus increasing its current voting rights to 32.64%.
Exchange controls There are no legislative or other legal provisions currently in force in the Netherlands or arising under Aegon’s Articles of Association restricting remittances to holders of Aegon’s securities that are not resident in the Netherlands. Cash dividends payable in euros on
or more of the nominal paid-up share capital;Holders of Aegon common shares holding a substantial interest (aanmerkelijk belang)
Aegon is required to withhold 15% Netherlands dividend tax in respect of dividends paid on its common shares. In the Netherlands
Dividend Tax Act 1965 (Wet op de dividendbelasting 1965), dividends are defined as the proceeds from shares, which include: i. Proceeds in cash or in kind including direct or indirect distributions of profit; ii. Liquidation proceeds, proceeds on redemption of Aegon common shares and, as a rule, the consideration for the repurchase of its own common shares by Aegon in excess of the average paid-in capital recognised for Netherlands dividend tax purposes, unless a particular statutory exemption applies; iii. The par value of new common shares issued to a holder of Aegon common shares or an increase of the par value of Aegon common shares, except when the (increase in the) par value of Aegon common shares is funded out of its paid-in capital as recognized for
Netherlands dividend tax purposes; and iv. Partial repayments of paid-in capital recognised for Netherlands dividend tax purposes, if and to the extent there are qualifying profits (zuivere winst), unless Aegon’s General Meeting of Shareholders has resolved in advance to make such repayment and provided that the nominal value of Aegon common shares concerned has been reduced by an equal amount by way of an amendment of the Articles of Association.
If a holder of Aegon common shares is a resident of the Netherlands, or deemed to be a resident of the Netherlands for Netherlands corporate or individual income tax purposes, dividend tax which is withheld with respect to proceeds from Aegon common shares will generally be creditable for Netherlands corporate income tax or Netherlands income tax purposes.
If a holder of Aegon common shares is a resident of a country other than the Netherlands and if a treaty for the avoidance of double taxation with respect to taxes on income is in effect between the Netherlands and that country, and such holder is a resident for the purposes of such treaty, such holder may, depending on the terms of that particular treaty, qualify for full or partial relief at source or for a refund in whole or in part of the Netherlands dividend tax. A refund of the Netherlands dividend tax is available to entities resident in another EU member state, Norway, Iceland, or Liechtenstein if (i) these entities are not subject to corporate income tax there and
or exempt investment institutions (vrijgestelde beleggingsinstellingen). Furthermore, a similar refund of Netherlands dividend tax may be available to entities resident in other countries, under the additional condition that (i) the Aegon common shares are considered portfolio investments and (ii) the Netherlands can exchange information with this other country in line with the international standards for the exchange of information.
A recipient of proceeds from Aegon common shares will not be entitled to any exemption, reduction, refund or credit of Netherlands dividend tax if such recipient is not considered to be the beneficial owner of such proceeds. The recipient will not be considered the beneficial owner of these proceeds, if, in connection with such proceeds, the recipient has paid a consideration as part of a series of transactions in respect of which it is likely: �� That the proceeds have in whole or in part accumulated, directly or indirectly, to a person or legal entity that would: - as opposed to the recipient paying the consideration, not be entitled to an exemption from dividend tax; or - in comparison to the recipient paying the consideration, to a lesser extent be entitled to a reduction or refund of dividend tax; and �� That such person or legal entity has, directly or indirectly, retained or acquired an interest in Aegon common shares or in profitsharing certificates or loans, comparable to the interest it had in similar instruments prior to the series of transactions being initiated.
Netherlands corporate income tax act 1969 (Wet op de vennootschapsbelasting 1969).
If neither condition (i) nor condition (ii) above applies to an individual that holds Aegon common shares, such individual must determine taxable income with regard to Aegon common shares on the basis of a deemed return on income from savings and investments (sparen en beleggen), rather than on the basis of income actually received or gains actually realized. This deemed return on income from savings and investments has been fixed at a rate of 4% of the individual’s yield basis (rendementsgrondslag) at the beginning of the calendar year, insofar as the individual’s yield basis exceeds a certain threshold. The individual’s yield basis is determined as the fair market value of certain qualifying assets held by the holder of Aegon common shares less the fair market value of certain qualifying liabilities on
(other than by way of securities) entitled to a share in the profits of an enterprise that is effectively managed in the Netherlands and to which enterprise Aegon common shares are attributable. Income and gains derived from Aegon common shares as specified under (1) and (2) by an individual are subject to individual income tax at up to a maximum rate of 52%. Income derived from a share in the profits of an enterprise as specified under (3) that is not already included under (1) or (2) will be taxed on the basis of a deemed return on income from savings and investments (as described above under ‘Residents of the Netherlands’). The fair market value of the share in the profits of the enterprise (which includes Aegon common shares) will be part of the individual’s Netherlands yield basis.
Aegon common shares by way of a gift by, or on behalf of, or on the death of, a holder of Aegon common shares that is a resident or deemed to be a resident of the Netherlands for the purposes of Netherlands Gift and Inheritance Tax Act 1956 (Successiewet 1956) at the time of the gift or his or her death. A gift made under a condition precedent is for the purposes of Netherlands Gift and Inheritance
Netherlands. A holder of any other nationality is deemed to be a resident of the Netherlands for the purposes of the Netherlands Gift and
Inheritance Tax Act 1956 if he or she has been resident in the Netherlands and makes a gift within a twelve months period after leaving the Netherlands. The same twelve-month rule may apply to entities that have transferred their seat of residence out of the Netherlands.
Gift and Inheritance Tax Act 1956, However, inheritance tax will be due in the case of a gift of Aegon common shares by, or on behalf of, a holder who at the date of the gift was neither a resident nor deemed to be a resident of the Netherlands for the purposes of the
Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the participating Member States).
Joint statements issued by participating Member States indicate an intention to implement the FTT by January 1, 2016.
For the purposes of this section, a ‘US holder’ is a beneficial owner of common shares that is, for US Federal income tax purposes: �� A citizen or individual resident of the United States; �� A corporation created or organized in or under the laws of the United States or any state of the United States (including the
District of Columbia); �� An estate, the income of which is subject to US Federal income taxation regardless of its source; or �� A trust, if a court within the United States is able to exercise primary supervision over its administration and one or more US persons have the authority to control all of the substantial decisions of such trust.
A non-US holder is a beneficial owner of common shares that is not a US holder.
Tax consequences to US holders Distributions The gross amount of any distribution (including any amounts withheld in respect of Dutch withholding tax) actually or constructively received by a US holder with respect to common shares will be taxable to the US holder as a dividend to the extent of Aegon’s current and accumulated earnings and profits as determined under US Federal income tax principles. Such dividends will not qualify for the dividends received deduction otherwise allowable to corporations. Distributions in excess of current and accumulated earnings and profits are treated under US tax law as non-taxable return of capital to the extent of the US holder’s adjusted tax basis in the common shares. Distributions in excess of earnings and profits and such adjusted tax basis will generally be taxable to the US holder as capital gain from the sale or exchange of property. However, Aegon does not maintain calculations of its earnings and profits under US
Certain ‘qualified dividend income’ received by individual US holders is taxed at a maximum income tax rate of 20% under current law.
Distributions paid in currency other than US dollars (a ‘foreign currency’), including the amount of any withholding tax thereon, must be included in the gross income of a US holder in an amount equal to the US dollar value of the foreign currency calculated by reference to the exchange rate in effect on the date of receipt. This is the case regardless of whether the foreign currency is converted into US dollars.
‘rate differential portion’ of such dividend (which, assuming a US holder is in the highest income tax bracket, would generally require
a reduction of the dividend amount by approximately 49.49% under current law). Each US holder should consult their tax advisor regarding the implications of the rules relating to qualified dividend income on the calculation of US foreign tax credits under their particular circumstances.
dollars on the date received by the US holder, the US holder generally should not be required to recognize any gain or loss on such conversion.
Based on the nature of Aegon’s gross income, the average value of Aegon’s gross assets, and the active conduct of Aegon’s insurance business, Aegon does not believe that it could be classified as a Passive Foreign Investment Company (PFIC). If Aegon were treated as a
PFIC in any year during which a US holder owns common shares, certain adverse tax consequences could apply. Investors should consult their tax advisors with respect to any PFIC considerations.
Backup withholding and information reporting requirements may apply to certain payments on the common shares and to proceeds of a sale or redemption of the common shares to US holders made within the United States. Aegon, its agent, a broker, or any paying agent, as the case may be, may be required to withhold tax from any payment that is subject to backup withholding if a US holder fails to furnish the US holder’s taxpayer identification number, fails to certify that such US holder is not subject to backup withholding, or fails to otherwise comply with the applicable requirements of the backup withholding rules. Certain US holders are not subject to the backup withholding and information reporting requirements.
Ernst & Young Accountants (EY) has served as Aegon’s independent public accountant.
The following table presents the aggregate fees for services rendered by PwC in 2014, and EY in 2013 and 2012.
Audit-related fees consist of fees billed for audit-related services including assurance and related services that are reasonably related to the performance of the audit or review of Aegon’s financial statements or that are traditionally performed by the independent auditor. Audit-related services include, among others, assurance services to report on internal controls for third parties, due diligence services pertaining to potential business acquisitions/dispositions; accounting consultations related to accounting, financial reporting or disclosure matters not classified as ‘Audit services’; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; financial audits of employee benefit plans; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements.
For the period 2012 to 2014, all services provided to Aegon by its independent public accountant were pre-approved by the Audit
Annual Report, did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.
In connection with the audits of the Company’s financial statements for 2013 and 2012, there were no disagreements with EY on any matters of accounting principles or practices, financial statement disclosure, or auditing scope and procedures which, if not resolved to the satisfaction of EY, would have caused EY to make reference to the matter in their report.
Realized gains / (losses) on investments 110 198 85 304 697 112 81 202 104 500
Gross deposits (on and off balance sheet) 13,475 13,029 15,242 13,684 55,431 10,004 12,670 11,024 10,632 44,330
Net deposits (on and off balance sheet) (1,502) 6,070 3,532 625 8,724 591 2,912 2,933 1,876 8,312
Asset-Backed Securities (ABS) are securities whose value and income payments are derived from and collateralized
Cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
that, from the issuer’s perspective, contain both a liability and an equity element.
Derecognition is the removal of a previously recognized asset or financial liability from an entity’s statement of financial position.
Group that are classified as equity if they evidence a residual interest in the assets of the Group after deducting all of its liabilities.
Insurance risk is a risk, other than financial risk, transferred from the holder of a contract to the issuer.
Residential Mortgage Backed Security (RMBS) is an assetbacked security that is secured by a mortgage or collection of mortgages.
Further details of potential risks and uncertainties affecting Aegon are described in its filings with the Netherlands Authority for the