December 31, 2014. It presents the consolidated financial statements of Aegon (pages 122-283) and the financial statements of Aegon N.V. (pages 286-300), both prepared in accordance with the International Financial Reporting Standards
‘member companies’ means, in relation to Aegon N.V., those companies required to be consolidated in accordance with the legislative requirements of the Netherlands relating to consolidated accounts.
Presentation of certain information References to the ‘NYSE’ are to the New York Stock Exchange and references to the ‘SEC’ are to the Securities and Exchange
Monetary Union; ‘USD’, and ‘US dollar’ when referring to the lawful currency of the United States of America; ‘GBP’, ‘UK
pound’ and ‘pound sterling’ when referring to the lawful currency of the United Kingdom; ‘CAD’ and ‘Canadian dollar’ when referring to the lawful currency of Canada; ‘CNY’ when referring to the lawful currency of the People’s Republic of China; ‘CZK’
when referring to the lawful currency of Hungary; ‘PLN’ when referring to the lawful currency of Poland; ‘RON’ when referring to the lawful currency of Romania; ‘TRY’ when referring to the lawful currency of Turkey, and ‘UAH’ when referring to the lawful currency of Ukraine.
Investing in Aegon’s digital presence and reach has been central to our continued work to enhance customer loyalty.
2014 saw a range of new and improved online platforms, products and services that enabled us to strengthen and deepen our relationship with customers. The external awards that many of these received is recognition of the progress we have made in serving customers in the way they wish to be served –
An important development in delivering operational excellence was the creation of Transamerica’s new ‘Investments &
Retirement’ division. This new division will enable us to become more efficient, and more effective in serving customers’
corporate governance and transparency, and to report in an open and transparent way. For this reason, in addition to the information presented in this report, we are also pleased to produce a separate integrated report, available on Aegon.com.
This contains further information about our social, economic and environmental performance and impacts, together with how we create value for our stakeholders.
The new regulations will change capital requirements and remain a key priority of our activities throughout 2015.
He was appointed as a member of the Executive Board in 2003, overseeing the Company’s international growth strategy. In April 2007, Mr. Wynaendts was named Aegon’s Chief Operating
Officer, and has been CEO and Chairman of the Executive Board and Management Board since April 2008.
USA in 2002 and became CFO of Aegon Americas in 2005.
From 2008 to 2011, Mr. Button also took on the responsibilities of Chairman and executive management of Aegon’s Canadian operations, before joining Aegon’s Corporate Center in 2012 as
Aegon serves customer needs for protection, accumulation and retirement by providing insurance, pensions and asset management products. The company operates in more than 25 markets in the Americas, Europe and Asia, with EUR 558 billion in revenue-generating assets. Aegon employs over 28,000 people, and has millions of customers across the globe.
This means being the most recommended provider of insurance, pensions and asset management products among customers, the preferred partner among intermediaries and distributors, and the employer of choice for both current and prospective employees.
Company strives to provide easy-to-understand products that help customers make better financial decisions for themselves and their families.
Recognizing the increasing demand for asset protection, accumulation and long-term retirement security products and services, Aegon is investing in new approaches to better serve the full range of customers’ financial needs throughout the customer life cycle. This includes accelerating investment in technology to better enable Aegon’s businesses to interact directly with customers.
In recent years, Aegon has taken steps to reduce costs, lower risk and free up capital for reinvestment in its businesses, to deleverage and to pay out dividends. Furthermore, it has divested businesses no longer considered core, or that have failed to provide sufficient returns or prospects for long-term growth.
Aegon across various businesses and geographies continues to be a key strategic objective.
market of people in their fifties and sixties who are actively preparing for retirement in the United States and the
Santander in Spain to Portugal, providing access to over 2 million additional potential customers through more than 600 branches; �� Acquiring the remaining 50% stake of Dutch online car insurance broker onna-onna; Annual Report 2014
�� Agreeing to sell its Canadian business, subject to regulatory approval; �� Selling its 35% stake in La Mondiale Participations in France; �� Replacing its life insurance joint venture partner in China with technology company Tsinghua Tongfang; �� Re-pricing, redesigning and withdrawing products, improving
Aegon’s overall product mix to reduce capital requirements and improve profitability; and �� Entering into exclusive talks to form a new asset management strategic alliance with La Banque Postale in France.
Enhance customer loyalty Aegon is expanding its digital distribution capability, strengthening its brands, improving the understanding of customers’s changing needs, and improving customer services by: Investing in ‘Digital’: �� Launching new online products in Spain and Turkey, Aegon now retails online in nearly all its markets, and has also expanded its digital marketing and social media activities; �� Relaunching Transamerica.com, including a program targeted at ‘Active Lifestyle customers’ and ‘Your Financial Life’ –
Retiready is designed to help people understand whether their finances are on track to meet their retirement ambitions, and offers a range of products to support their retirement needs; �� Launching the Mijn Aegon (‘My Aegon’) portal in the
Netherlands. Customers can view the status of all their products online, such as their savings and investment accounts, insurance and pension products; �� Improving services delivered at customer service centers by, among other things, the implementation of new Customer
Relationship Management (CRM) software and training of employees; and �� Investing in data analytics. Aegon has established a Customer
Partners’ 2014 Client Satisfaction Analysis; �� Aegon UK awarded the best workplace savings platform at the Platforum Awards 2014; �� Mongeral Aegon won the Products and Services category at the 2014 Antonio Carlos de Almeida Braga Innovation in
content website; �� Aegon Hungary received the award for Financial Institution of the year from Figuelo magazine; �� Aegon Czech Republic received two bronze awards in the
‘Insurance innovator’ categories; �� Aegon’s joint venture in India, Aegon Religare Life Insurance, won the Marketing Campaign of the Year at the Global
Social Media Insurance Monitor. The jury recognized that social media was strategically integrated into Aegon’s business and that the stimulating daily content was both customer centric and effective; and �� Knab, Aegon’s innovative online bank, was awarded the Gouden Stier (‘Golden Bull’) for the best new investment concept for making investing simple, convenient and accessible.
Deliver operational excellence Aegon improved efficiency, supported intermediaries and expanded distribution through traditional channels by: �� Creating a new ‘Investments & Retirement’ division in the US, combining the Individual Savings & Retirement and Employer
governance framework; �� Implementing a tablet-based sales process in Turkey, which will reduce operational costs in addition to improving customer experience; and �� Expense savings create room to invest in Aegon’s businesses and accelerate the execution of its strategy.
Empower employees Aegon strengthened employee engagement and improved the working environment by: �� Enhancing employee communication with the launch of
University) and a number of local talent programs; �� Organizing a program of meetings and events with senior staff and employees to raise understanding of the link between Aegon’s ‘Purpose and Performance’; �� Improving career development by launching an Employee
‘Workday’, which will give managers and employees direct access to relevant HR data; �� Adapting Aegon’s Remuneration Framework for implementation in 2015 in order to have a stronger focus on relevant targets for employees; and �� Using the Employee Net Promoter Score (eNPS) methodology to ensure that Aegon employees are the best promoters of
The US economy grew steadily after the first quarter of 2014, reaching annual growth of 2.4%2 – driven by increasing investments by the corporate sector and positive financial conditions. Unemployment declined steadily, while real wages remained flat. Growth is expected to accelerate to around 3%
In Europe, growth remained low in 2014. Several factors including tight lending conditions and fiscal contraction continue to slow economic development3. Growth reached 0.8% for the eurozone in 2014, and is expected to increase slightly to 1.3%
in 2015. Economic growth in Germany and France rose modestly, at 1.45% and 0.4% respectively. While the Netherlands and Spain came out of recession, Italy’s economy continued to contract, albeit at a lower pace. In the UK, output increased by 2.6%. While all economies in the eurozone are expected to show positive growth in 2015, the growth rate is expected to remain low.
Economic development4 in Central & Eastern Europe remained patchy. While growth continued to be weak in Southeast Europe, development in Hungary, Poland and Turkey remained strong.
Yields for 10-year US, UK, German and Japanese government bonds declined during 2014. At the end of the year, German and
1 Source: For economic figures in this sections (Market conditions) see the IMF World Economic Outlook Database, October 2014. 2 Source: US Department of Commerce.
Customers’ needs are changing Rising retirement population will drive demand: with 11% of the world’s population currently aged over 60 years – and projected to be 14% in 2020 and 25% in 2050 – the need for long-term protection and savings/de-accumulation will continue to grow.
Reduced safety net: the withdrawal of traditional providers of retirement security such as governments and employers is leading to an increased demand for individualized saving products.
The rise of Big Data: organizations can maximize business value and efficiency and improve customer service by harvesting increasingly large volumes of data.
Markets are developing differently and becoming more volatile The economy will continue to develop at different speeds across the markets in which Aegon operates: financial services will grow faster in emerging markets (growing wealth, low life insurance penetration and increasing longevity), but with less certainty regarding government policy relating to financial services.
This uncertainty will be a key contributory factor to continued market volatility.
Increase in regulations and the demand for responsible behavior The increasing importance of sustainability and good governance: growing stakeholder pressure is leading to increased focus on the long-term economic, environmental and social performance and impact of companies such as Aegon.
Aegon N.V. is an international life insurance, pensions and asset management company domiciled in the Netherlands, with public limited liability company status under Dutch law.
Application of the accounting policies in the preparation of the financial statements requires management to apply judgment involving assumptions and estimates concerning future results or other developments, including the likelihood, timing or amount of future transactions or events. There can be no assurance that actual results will not differ materially from those estimates.
A summary of historical financial data is provided in the table below. It is important to read this summary in conjunction with the consolidated financial statements and related notes
Selected consolidated income statement information In EUR million (except per share amount) 2014 2013 1) 2012 1) 2011 1) 2010 1)
1 As described in note 2.1.2 amounts have been retrospectively restated for the voluntary change in accounting policy on deferred policy acquisition costs and the use of prospective mortality tables. 2 Excluded from the income statements prepared in accordance with IFRS are receipts related to investment-type annuity products and investment contracts.
Board will, absent unforeseen circumstances, propose a final dividend of EUR 0.12 per common share (at each shareholders option in cash or in stock), which will bring the total dividend for 2014 to EUR 0.23. Proposed dividend for the year and proposed final dividend 2014 per common share B are EUR 0.00575 and
EUR 0.003 respectively. Dividends in US dollars are calculated based on the foreign exchange reference rate as published each working day at 14:15 hours by the European Central Bank on the business day following the announcement of the interim dividend or on the business day following the General Meeting of
Year Interim Final Total Interim Final Total 1 Paid at each shareholder’s option in cash or in stock. 2 Proposed.
Exchange rates Fluctuations in the exchange rate between the euro and the
US dollar will affect the dollar equivalent of the euro price of
The high and low exchange rates for the US dollar per euro for each of the last six months through February 2015 are set forth below: Closing rates Sept. 2014 Oct. 2014 Nov. 2014 Dec. 2014 Jan. 2015 Feb. 2015
The average exchange rates for the US dollar per euro for the five years ended December 31, 2014, calculated by using the average of the exchange rates on the last day of each month during the period, are set forth below: Year ended December 31, Average rate 1)
�� United States - Investments & Retirement �� Individual Savings & Retirement
Primarily variable annuity products and retail mutual funds. Currently fixed annuities are not actively sold. �� Employer Solutions & Pensions
Offers administrative, compliance, investment and participant services for pension plans, including 401(k)
�� Canada Term and permanent life insurance, critical illness insurance and segregated funds. On October 16, 2014, Aegon announced its agreement to sell its Canadian operations to Wilton Re, subject to regulatory approval.
Products with mortality, morbidity, and longevity risks, including traditional and universal life, in addition to employer, endowment, term, whole life insurance products, mortgages, annuity products and saving deposits, including banking products.
�� Pensions Individual pensions, including self-invested personal pensions and income drawdown products. Group pensions, sponsored by, or obtained via, an employer. Also includes the tied-agent distribution business.
Europe, Asia, Spain and Portugal, in addition to Aegon’s variable annuity activities in Europe and Aegon Asset Management.
�� Asia Joint ventures in China and India selling (term) life insurance and savings products, and in Japan selling variable annuities.
Transamerica brand in Hong Kong and Singapore. Direct and affinity products marketed throughout Asia by Aegon Direct &
�� Aegon Asset Management Asset management products, including equity and fixed income, covering third-party clients, insurance-linked solutions, and
IFRS or any other recognized set of accounting standards and readers are cautioned to consider carefully the different ways in which Aegon and its peers present similar information before comparing them. Aegon believes the non-IFRS measures shown herein, when read together with Aegon’s reported IFRS financial statements, provide meaningful supplemental information for the investing public to evaluate Aegon’s businesses after eliminating the impact of current IFRS accounting policies for financial instruments and insurance contracts, which embed a number of accounting policy alternatives that companies may select in presenting their results (that is, companies may use different local generally accepted accounting principles - GAAPs), and this may make the comparability difficult from period to period.
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (10) (8) (25%)
Commissions and expenses 5,892 5,873 of which operating expenses 3,312 3,273 1%
Mexico, Spain, Portugal, China and Japan and Aegon’s associates in India, Brazil, the Netherlands, United Kingdom and Mexico.
Accident and health insurance premiums 1,874 233 56 163 - 2,326 (11) 2,316
Results 2014 worldwide Aegon’s net income in 2014 amounted to EUR 1,186 million. Underlying earnings before tax amounted to EUR 1,865 million. Furthermore, results in 2014 were impacted by a loss of EUR 807 million on fair value items, which was driven by losses on hedging programs and the impact of assumption changes and model updates, and other charges of EUR 240 million. This was partly offset by realized gains of EUR 697 million, and net impairment charges of EUR 34 million.
Underlying earnings before tax growth in 2014 was driven by higher investment income, improved margins on savings, a EUR 45 million employee benefit reserve release resulting from legislation changes in the Netherlands, and improvement in non-life.
The 32% increase compared with 2013 was primarily the result of improved persistency. �� Underlying earnings before tax from New Markets declined 14% to EUR 196 million compared with 2013. A 21%
increase in underlying earnings before tax, compared with 2013, from Aegon Asset Management due to higher thirdparty balances was more than offset by lower underlying earnings before tax in Asia, which was mostly due to charges for actuarial assumption changes and model updates. �� Total holding costs increased 22% to EUR 138 million in 2014 compared with 2013. This was mainly as a result of higher net interest costs following a debt issuance to refinance a perpetual security for which the cost was previously accounted for directly through shareholders’ equity.
related to the agreement with the harbor workers’ former pension fund Optas, a provision taken for the closed block of
United Kingdom (EUR 35 million), a provision for the modification of unit-linked policies in Poland (EUR 23 million), and a change in the valuation of fixed assets in Aegon’s Canadian business in anticipation of its divestment (EUR 15 million).
Income tax Income tax amounted to EUR 272 million. The effective tax rate on underlying earnings for 2014 was 24%. The effective tax rate on total income was 19%. This was mostly driven by the combined effects of negative fair value items taxed at nominal rates, the reversal of the tax charge in Americas in 2013 related to hedging losses, tax credits and tax exempt items.
Commissions and expenses Commissions and expenses increased slightly in 2014 compared with 2013 to EUR 5,892 million. Operating expenses increased 1% in 2014 compared with 2013 to EUR 3,312 million.
This was mainly because the benefit of an employee benefit reserve release in the Netherlands (EUR 45 million) was more than offset by a provision and expenses related to implementing the upcoming fee cap on pensions in the United Kingdom, and higher expenses to support growth in the United States and the Netherlands.
~215%. The Pillar I ratio in the United Kingdom, including the with-profit fund, was approximately 140% at the end of 2014 reflecting the negative impact of de-risking of the asset portfolio in preparation for Solvency II.
This transaction will result in a book loss of EUR 0.8 billion at closing and is expected to close in the first half of 2015, subject to regulatory approval.
On November 24, 2014, Aegon announced the sale of its 35% share in La Mondiale Participations to La Mondiale for
Dividends from and capital contributions to business units Aegon received EUR 1.1 billion of dividends from its business units during 2014, almost all of which from the Americas. Capital contributions of EUR 0.1 billion were paid to Aegon’s businesses in New Markets.
Number of employees, including agent employees 12,256 4,282 2,400 7,651 302 26,891
Underlying earning before tax by line of business Amounts in EUR millions 2013 2012 %
Results 2013 worldwide Aegon’s 2013 net income amounted to EUR 857 million. Underlying earnings before tax amounted to EUR 1,968 million. Furthermore, results in 2013 were impacted by a loss of EUR 1,294 million on fair value items driven by accounting losses on the hedging programs and long-term economic assumption changes. This was partly offset by lower impairment charges and lower other charges since 2012 included a charge of EUR 265 million in relation to the acceleration of product improvements for unit-linked insurance policies.
Underlying earnings before tax Aegon’s underlying earnings before tax in 2013 decreased 1%
to EUR 1,968 million compared to EUR 1,982 million in 2012.
�� In the Netherlands, underlying earnings before tax decreased 18% to EUR 454 million. Improvement in non-life was more than offset by lower Pension earnings, driven mostly by the non-recurring benefit in 2012 from renewals of contracts and
Life & Savings, due mostly to reduced policy charges on unitlinked products of EUR 28 million as part of the acceleration of product improvements to unit-linked insurance policies. �� Underlying earnings before tax in the United Kingdom amounted to EUR 87 million in 2013, a decline of 3%
Distribution Review and investment in technology. �� Underlying earnings before tax from New Markets declined 15% to EUR 227 million. Higher earnings in Asia and
Aegon changed its long-term equity market return assumption for the estimated gross profit in variable life and variable annuity products in the Americas from 9% to 8%. In total, these assumption changes led to a negative impact on earnings of
The loss on fair value hedges in the Americas was mainly driven by the loss on the equity macro hedges, which have been set up to protect Aegon’s capital position, as a result of strong US equity market performance in 2013. Aegon restructured its equity hedges as the equity collar hedge expired at the end of the year.
EUR 122 million in 2013, mostly due to recoveries on investments in subprime residential mortgage-backed securities in the United States.
Aegon’s use of the U.S. Social Security Administration’s death master-file and a EUR 25 million charge in the Netherlands following the Koersplan court verdict and restructuring charges mainly in the Americas and the United Kingdom (EUR 108 million in total). These charges were partly offset by gains from the sale of joint ventures with Unnim and CAM of EUR 102 million and
EUR 74 million respectively, and gains from the recapture of certain reinsurance contracts amounting to EUR 200 million in the Americas.
Income tax Income tax amounted to EUR 164 million. The effective tax rate on total income was 16%, driven mostly by the combined effects of negative fair value items taxed at nominal rates, tax credits and tax exempt items. There was also a tax charge of
Commissions and expenses Commissions and expenses in 2013 increased 1% compared to 2012 to EUR 5,873 million. Operating expenses increased 3% to
EUR 3,273 million, driven mainly by higher sales and employee performance related expenses due to growth in the Americas, restructuring costs in the Americas and United Kingdom, and higher investments in technology to support future growth.
Capital management The 2013 gross leverage ratio, which is calculated by dividing the total gross financial leverage by the total capitalization, was 33.3%.
Company Action Level (CAL) risk-based capital. The IGD ratio in the Netherlands, excluding Aegon Bank, was approximately 240%. The Pillar I ratio in the United Kingdom, including the
On February 10, 2014, Aegon called for the redemption of the
March 15, 2014, when the principal amount of USD 550 million was repaid with accrued interest.
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 889 655 36% 669 493 36%
New premium production accident and health insurance 1,193 902 32% 898 680 32%
�� Individual Savings & Retirement underlying earnings before tax increased 35% to USD 891 million compared to 2013.
USD 4,446 million compared with 2013. Operating expenses decreased 2% in 2014 to USD 1,871 million compared with 2013, mainly as the benefit of lower restructuring costs more than offset higher expenses driven by growth of the business.
New premium production accident and health insurance 902 905 - 680 705 (4%)
Results 2013 Americas Net income of USD 540 million for the year 2013 was negatively impacted by long-term economic assumption changes and losses on equity macro hedges, which have been put in place to protect Aegon’s capital position. Underlying earnings before tax increased to USD 1,744 million in 2013, mainly driven by higher earnings from variable annuities and pensions. New life sales decreased, primarily due to focus on profitability of universal life products, while gross deposits increased.
Net income Net income for the Americas decreased to USD 540 million in 2013. Higher underlying earnings, other income as well as lower impairments were more than offset by the increase of the loss on fair value items. Results on fair value items amounted to a loss of USD 1,300 million, which were primarily the result of long-term economic assumption changes of USD 514 million and the loss on equity hedges of USD 804 million, which was primarily caused by rising equity markets. Realized gains on investments amounted to USD 145 million, while impairment charges improved to USD 58 million. Other income was
USD 95 million, mainly related to gains of USD 265 million on the recapture of certain reinsurance contracts being partly offset by increased accruals of USD 94 million in connection with the
USD 1,744 million as higher earnings in variable annuities and pensions from business growth and favorable equity markets more than offset lower earnings in fixed annuities. �� Life & Protection underlying earnings before tax increased 3% to USD 719 million, as growth of the business was partially offset by the negative impact of lower reinvestment rates due to the low interest rate environment. �� Underlying earnings before tax from Individual Savings &
USD 4 million, primarily as a result of actuarial assumption changes and model refinements. In Latin America underlying earnings before tax were down to USD 9 million.
Commissions and expenses Commissions and expenses increased by 2% to USD
4,394 million in 2013 compared with 2012. Operating expenses increased by 5%, to USD 1,911 million, primarily the result of higher sales and employee performance related expenses, investments to expand Aegon’s digital capabilities and restructuring costs.
Production New life sales decreased 8% to USD 615 million in 2013, as lower universal life sales due to product withdrawals and product redesign were only partly offset by higher sales of term life products. New premium production for accident & health insurance was stable compared to 2012 and amounted to USD 902 million. This was the result of strong sales of the Medicare part D prescription plan product, which was introduced in 2012, being offset by the loss of two distribution partners for travel insurance and the termination of certain affinity marketing partnerships.
Aegon USA Aegon USA is one of the leading1 life insurance organizations in the United States, and the largest of Aegon’s operating units worldwide. It administers millions of policies and employs almost 10,000 people. Many of the Aegon USA’s companies operate under the Transamerica brand, one of the best known names2 in the United States insurance business. Its companies have existed since the mid-19th century, and its main offices are in
Cedar Rapids, Iowa, and Baltimore, Maryland – with affiliated companies’ offices located throughout the United States.
provides a wide range of life insurance, pensions, long-term savings and investment products.
Aegon Mexico In 2006, Aegon acquired a 49% interest in Seguros Argos S.A.
de C.V. to create Akaan-Aegon S.A.P.I. de C.V. to explore financial service opportunities. This organization is in the startup process and will initially focus on third-party asset management.
Organizational structure Aegon USA Aegon USA was founded in 1989 when Aegon brought all of its operating companies in the United States together under a single financial services holding company: Aegon USA, LLC. Business is conducted through its various subsidiaries. The use of the term
Aegon USA’s primary insurance subsidiaries are: �� Transamerica Life Insurance Company; �� Transamerica Financial Life Insurance Company; �� Transamerica Advisors Life Insurance Company; �� Transamerica Premier Life Insurance Company; �� Stonebridge Life Insurance Company; and �� Transamerica Casualty Insurance Company.
which guarantee continuation of the life insurance if the customer consistently pays an agreed minimum amount of premium each year.
The premium amount for variable universal life insurance is flexible and may be changed by the consumer as required, although these changes can result in a change in the coverage amount. The investment feature usually includes ‘sub-accounts,’
The L&P division is organized by distribution channel to better align with consumers. It is supported by a shared services platform. Each channel has primary target market segments on which it focuses. The L&P distribution channels fall into four main categories: affinity, agency, brokerage and worksite.
These products are designed for family protection, business needs, and estate and legacy planning.
Employee Benefits (TEB). TEB offers life and supplemental health insurance products through employers, labor unions and trade associations. TEB’s comprehensive portfolio includes universal life, whole life and term life insurance, in addition to accident, critical illness, cancer, hospital indemnity, medical expense indemnity, short-term disability, and dental policies.
A number of these products provide insureds with lump sum or specified income payments if hospitalized, disabled or diagnosed with a critical illness. Others pay benefits for specific medical expenses and treatments, or cover deductibles, co-payments and co-insurance amounts not covered by other health insurance.
The Investments & Retirement (I&R) division administers and distributes these products through a variety of channels, including wirehouse firms, banks, regional broker-dealers, independent financial planners, and direct to consumer.
Aegon USA’s operations provide various investment products and administrative services, individual and group variable annuities, mutual funds, collective investment trusts, and asset allocation services.
The operations in the United States provide fund managers with oversight for the Transamerica mutual funds. Aegon USA
‘manager of managers’ fund platform. Fund managers can include those affiliated with Transamerica. TAM earns investment management fees on investment products managed by these affiliated and unaffiliated sub-advisors. TAM pays these affiliated and unaffiliated sub-advisors a fee.
Premiums paid on variable annuity contracts are invested in underlying funds chosen by the policyholder, including bond and equity funds, and types of asset-allocation funds. A fixed interest account is available on most products, and the underlying funds are selected by the policyholder – within certain boundaries –
based on his or her preferred level of risk. The vast majority of assets and liabilities related to this product are legally segregated in separate accounts of the insurance company for the benefit of variable annuity policyholders. These separate accounts are classified as investments for the account of policyholders on
Aegon’s statement of financial position. Variable annuity contracts contain riders, such as guaranteed minimum death, maturity, withdrawal, accumulation or income benefits.
The account value of variable annuities reflects the performance of the underlying funds. Aegon USA earns mortality and expense charges, in addition to various types of rider fees, for providing guarantees and benefits. In general, surrender charges are not a large form of revenue as policyholder surrender rates are typically lower when a surrender charge penalty remains. Collected surrender charges are typically used to recoup unamortized deferred acquisition costs.
A guaranteed minimum withdrawal benefit is offered on a number of variable annuity products that Aegon USA has either issued or assumed from a ceding company. This benefit guarantees that a policyholder may withdraw a certain percentage of the income base, starting at a certain age or duration, for either a fixed period or the life of the policyholder.
Certain variable annuity contracts also provide guaranteed minimum death benefits and guaranteed minimum income benefits. Under a guaranteed minimum death benefit, upon the death of the insured the beneficiaries receive either the account balance or the guaranteed amount upon the death of the insured
These guaranteed benefits subject the Company to interest rate risk, market risk, and policyholder behavior risk. Poor market performance may cause the guaranteed benefits to exceed the policyholder account value.
Fixed annuities include deferred annuities, fixed index annuities, and immediate annuities. These product lines have been de-emphasized due to the low interest rate environment.
A fixed annuity exposes Aegon to interest rate risk, in addition to behavior and mortality risk. The insurer’s interest rate risk may be mitigated through product design, close Asset Liability
Management (ALM) and hedging, although the effects of policyholder behavior cannot be fully mitigated. Immediate annuities have lower behavior risks than deferred annuities, but contain interest rate risk, and longevity risk if annuity payments are life contingent.
The policyholder may surrender the annuity prior to maturity and receive the cash value less surrender charges. Fixed annuities have a specified crediting rate that may be reset periodically at the Company’s discretion after an initial guarantee period. Fixed annuity contracts in the United States also offer guaranteed minimum surrender values and payout options. Fixed annuities
have a maturity date at which benefits must be used, or the contract surrendered. This date normally corresponds to the annuitant’s age, up to a maximum of 95 years. Upon maturity of the annuity, the policyholder’s payout options include a lump sum payment, income for life, or payment for a specified period of time.
Minimum interest rate guarantees exist in all generations of fixed annuity products, as they are required by state non-forfeiture regulations. The average minimum interest rate guarantees and the average current credited rate of the in-force fixed annuity block are approximately 2.62% and 2.92% respectively (as of the fourth quarter 2014). Equity indexed annuities offer additional returns that are index-linked to published stock market indices and proprietary indices, with a minimum cash value equal to a percentage of the premium increased at a minimum fixed or variable rate. Equity indexed annuities make up a small fraction of the in-force business. Certain fixed annuity products also offer a bailout provision. Under the bailout provision, if the crediting rate falls below the bailout rate, policyholders may surrender their contracts without incurring any surrender charges.
Aegon USA underwrites fixed and variable annuities through its various life insurance companies. Transamerica Capital Inc.
From late 2009, Aegon USA reduced its sales of fixed annuities in response to lower market interest rates and lower investment returns. Similar market conditions continue to restrict sales of fixed annuities and, as a result, Aegon USA has de-emphasized their sale.
TFA include mutual funds, variable life insurance, variable annuities and other securities.
Aegon USA offers retirement plans, pension plans, and pensionrelated products and services to employers, in addition to step-by-step guidance to people that are transitioning to, or living in, retirement related to five key areas: lifestyle, investments, health care, protection and income.
Aegon USA covers a range of different retirement plans, including: �� 401(k) - a type of deferred compensation plan sponsored by a corporation (including subchapter S), self-employed individual, sole proprietorship, partnership or non-profit organization; �� 403(b) - a type of deferred compensation plan for certain employees of tax-exempt organizations and certain members of the clergy; �� 457(b) - a type of deferred compensation plan sponsored by governmental and certain non-governmental employers in the
In the institutional market, Transamerica Retirement Solutions offers a wide array of investment options designed to create a fully customized investment line-up for clients, and a personalized retirement funding strategy for their retirement plan participants. Transamerica Retirement Solutions’ open architecture investment platform provides access to a broad range of investment options, including institutional and retail mutual funds, registered or non-registered variable annuities, and a collective investment trust. The investment options offered in each plan are selected by the client or the client’s financial advisor.
In the emerging market, Transamerica Retirement Solutions offers fully bundled and partially bundled retirement plan solutions to small and mid-sized employers. These plans are predominantly supported by a group variable annuity product, where plan assets are invested primarily in separate account
Single premium group annuities (Terminal Funding) is a nonparticipating group annuity product. This product is commonly used for an insurance company takeover of a terminating defined benefit pension plan. The Company receives a single deposit from the contract holder and in return guarantees the payment of benefits to participants. Usually these annuity payments are paid monthly for the life of the participant or participant and spouse, commencing immediately for retired participants or at some date in the future for deferred participants.
Transamerica Retirement Solutions provides pre-retirees guidance and support to transition to and through retirement.
Transamerica Retirement Solutions offers a variety of solutions, including Individual Retirement Accounts (IRAs), advisory services, annuities and access to other insurance related products and resources. Each ‘plan for retirement’ can be tailored to the goals and needs of the individual.
Aegon’s insurance activities include pension product distribution, individual and group life insurance products, and administrative services. Seguros Argos’s primary product is a 20-year term life insurance product. Both insurance companies distribute their products in the worksite market. Aegon is also a 50% owner of a joint venture with Adminstradora Akaan S.A. de C.V. to create
Run-off businesses Institutional spread-based business This business was put into run-off in 2009. The primary products included Guaranteed Investment Contracts (GICs), Funding
Medium-term notes Before 2009, Aegon USA utilized consolidated special purpose entities to issue MTNs that are backed by FAs. The proceeds of each note series were used to purchase an FA from an Aegon insurance company, which was used to secure that particular series of notes. The payment terms of any particular series substantially matched the payment terms of the FA that secured that series.
In the emerging market segment and the multiple employer plan segment, Aegon USA’s main competitors are American
In the single premium group annuity market, Aegon USA’s main competitors are John Hancock, Mass Mutual, MetLife, Mutual of Omaha, and Prudential.
Regulators in each of those states and jurisdictions have broad powers to grant or revoke licenses to transact business, regulate trade and marketing practices, license agents, approve policy forms and certain premium rates, set reserve and capital requirements, determine the form and content of required financial reports, examine the insurance companies, prescribe the
type and amount of investments permitted, levy fines and seek restitution, fines, sanctions or other monetary penalties for failure to comply with applicable regulations. The international businesses of Aegon USA are governed by the laws and regulations of the countries in which they transact business, maintain offices or otherwise have a business presence.
Within the insurance industry, substantial liability has been incurred by insurance companies based on their past sales, marketing and operational practices. Aegon USA continues to focus on these compliance issues, and costs may increase as a result of these regulatory activities.
State insurance regulators have risk-based capital (RBC) standards for life insurance companies, established by the National
System Regulatory (Holding Company) Act to enhance disclosure to regulators about risk exposure insurer’s face from within their holding company system. Pre-existing insurance holding company statutes and the regulations of each insurer’s domiciliary state in the United States already impose various limitations on investments in affiliates, and require prior approval of the payment of dividends above certain threshold levels by the licensed insurer to Aegon or its affiliates. The 2010 revisions to the Holding Company Act also authorized supervisory colleges, and at the end of 2014 the NAIC added a framework in that model for determining the group-wide supervisor of internationally active insurance groups. In response to international developments, the NAIC also passed a new Own
Risk and Solvency Protection Model Act and Guidance Manual, to come into effect in 2015. The NAIC passed a revised Model
Standard Valuation Law (SVL) and Valuation Manual, which together established Principles-Based Reserving (PBR) in 2012.
PBR to be effective in any state, the effective date of PBR is expected to be 2016 or later. The NAIC adopted a conceptual framework for regulation of captives in 2014. The final changes to the use of captives on the Company cannot be predicted at this time. NAIC also passed a new model on corporate governance standards in late 2014.
Although historically the federal government of the United States has not regulated the insurance business, many federal laws impact the insurance business in a variety of ways. US federal and state privacy laws and regulations impose restrictions on financial institutions’ use, disclosure, and security of customer information, including obligations in the event of data security breaches. Congress is considering proposals intended to assist in combating cyber-threats. Proposals designed to assist the federal government in combating cyber-threats could impose additional obligations on companies to provide information relative to the effort. At this time, it is uncertain what impact, if any, these proposals may have on insurers.
While the FIO has no direct regulatory authority over US insurers, it does have certain authority to represent the US government in establishing international regulatory standards for insurers, and to represent the US insurance industry in international matters.
Federal Reserve with the authority to develop insurance-centric capital standards for insurer SIFIs. Finally, the International
The extent to which these developments or the activities of the
These existing restrictions have an adverse impact on the telemarketing efforts of Aegon USA, and new proposals, if enacted, will likely have a further impact on mail efforts.
Aegon USA companies, such as Medigap, are subject to both federal and state regulation as health insurance. The Patient
USA’s insurance companies are subject to regulation under the federal securities laws administered by the Securities and Exchange Commission (SEC) and certain state securities laws. The SEC conducts regular examinations of the insurance companies’ variable life insurance and variable annuity operations, and on occasion makes requests for information from these insurers in connection with examinations of affiliate and third-party broker-dealers, investment advisors and investment companies. The SEC and other governmental regulatory authorities, including state securities administrators, may institute administrative or judicial proceedings that may result in censure, fines, issuance of cease-and-desist orders, or other sanctions against insurance companies or their distributors.
Investment Company Act). Separate account interests under certain annuity contracts and insurance policies issued by the insurance companies are also registered under the Securities Act of 1933, as amended (the Securities Act). Aegon USA insurance companies and other subsidiaries also own or manage other investment vehicles that are exempt from registration under the
Securities Act and the Investment Company Act but may be subject to other requirements of those laws, such as anti-fraud provisions and the terms of applicable exemptions.
A number of Aegon USA companies are registered as brokerdealers with the SEC under the Securities Exchange Act of 1934, as amended (the Securities Exchange Act), and are regulated by the FINRA. A number of Aegon USA companies are also registered as investment advisors under the Investment Advisers
Act of 1940. In accordance with Dodd-Frank Act requirements, the SEC studied and recommended a harmonized standard of care for broker-dealers, investment advisors and persons associated with firms that provide personalized investment advice. The SEC has solicited comments on the costs and benefits of regulations to establish a harmonized standard of care. It has not, however, set a date for proposal of those regulations. Legislation has been proposed in prior congresses that would establish a self-regulatory organization for the examination of investment advisors – although no action was taken on the legislation. Finally, the SEC has reformed the regulation of institutional money market funds by requiring those funds to price and transact their shares at a market value floating net asset value per share (NAV). The SEC has also provided money market fund boards with the discretion to stem heavy redemptions by, among other tools, imposing liquidity fees and gates in the fund’s best interests. The SEC has set a twoyear period for compliance. The impact of these requirements and any future regulations regarding investment advisors, money market funds, or other investment products cannot be predicted at this time.
The financial services industry – which includes businesses engaged in issuing, administering, and selling fixed and variable insurance products, mutual funds, and other securities, and also includes broker-dealers – continues to operate under heightened scrutiny and increased regulation in various jurisdictions. Such scrutiny and regulations have included matters relating to socalled producer compensation arrangements, suitability of sales
have led to investigations, which remain open, or have resulted in fines, corrective actions or restitution. Aegon USA companies continue to cooperate with these regulatory agencies. In certain instances, Aegon USA companies modified business practices in response to those inquiries or findings. Certain Aegon USA
USA businesses. The DOL has issued regulations defining the nature of fees to be paid for investment advice in these plans, in addition to requiring increased fee disclosure from defined contribution plan service providers and to plan participants.
Finally, both the US Treasury Department and the DOL have published, in final and proposed forms respectively, guidance to facilitate the offering of guaranteed lifetime income products
(for example annuities), both as an investment option in a retirement savings plan or as a distribution from that plan. US
Although the insurance business is regulated at a state level, the US federal tax treatment of life insurers, life insurance, pension and annuity products is governed by the US federal tax code. Provisions that increase the taxation of life insurers, as well as remove or decrease the value of tax incentives for life insurance, pensions and annuity products – considered alone and relative to other investment vehicles – have been proposed in the Executive Administration’s annual budget for the US
Executive Administration budget proposals, legislative proposals and discussion drafts must be enacted by Congress before they become law. The risk of tax law changes is heightened when additional revenue is sought to reduce the federal deficit or to pay for other tax law changes, such as lower tax rates. In addition, tax reform initiatives of the type contemplated by discussion drafts of comprehensive federal tax reform legislation further increase the risk of both increased taxation of life insurers and of decreased tax incentives for short- and long-term savings products. These changes, if enacted, would have a direct impact on the cost and competitiveness of life insurance, annuity and pension products sold to ensure Americans’ financial and retirement security.
The likelihood of enactment of any such legislation cannot be predicted with any certainty at this time.
Many details of the Dodd-Frank Act were left to study or regulation. The impact of the Dodd-Frank Act on Aegon USA, or the life insurance market in general, cannot therefore be fully determined until the regulations implementing the Dodd-Frank
Aegon Canada Transamerica Life Canada (TLC) and Canadian Premier Life (CPL)
TLC’s ability to continue to conduct its insurance business depends upon the maintenance of its licenses at both the federal and provincial/territorial levels. It is also governed by policy statements and guidelines established by the Canadian Life &
The key investment strategy for traditional general account insurance is asset liability management (ALM), whereby predominately high-quality investment assets are matched in an optimal way to the corresponding insurance liability.
review strategies, define risk measures, define and review asset liability management studies, examine risk-hedging techniques, including the use of derivatives, and analyze the potential use of new asset classes. The primary method for analyzing interest rate sensitivity is the economic capital risk measure. Under this measure the sensitivity of assets relative to liabilities is calculated in a market consistent manner and presented as the risk of loss in a 1 in 200-year event. Another methodology used to analyze risk is cash flow testing. Cash flow testing analysis is performed using computer simulations, which model assets and liabilities under projected interest rate scenarios and commonly used stress-test interest rate scenarios. Cash flow testing is run using defined scenarios and is a real world simulation. It takes into account various forms of management action such as reinvestment and sales decisions, along with spreads and defaults on Aegon’s assets, which is not the case in a market consistent framework.
USA’s overall risk and limit the maximum loss on risks that exceed policy retention levels. The maximum retention limits vary by product and class of risk up to USD 15 million.
Aegon USA reinsures part of its life insurance exposure with both third-party reinsurers under quota share (traditional indemnity)
Aegon Canada In the normal course of business, Transamerica Life Canada reinsures part of its mortality and morbidity risk with third-party reinsurers that are registered with Canada’s Office of the
Superintendent of Financial Institutions. The maximum life insurance exposure retained is CAD 1.25 million per life insured.
Share in underlying earnings before tax of associates 1 2 (50%)
2014 net income increased to EUR 491 million compared with 2013 due mostly to higher underlying earnings before tax and higher realized gains. Growth in underlying earnings was mostly driven by higher investment income and an employee pension-related reserve release. Higher new life sales were driven by increased pension production and higher gross deposits were driven by growth of online bank Knab.
Solvency II. Results on fair value items amounted to a loss of
EUR 207 million, primarily related to model updates and hedging programs. In 2014, impairment charges declined by more than half, compared with 2013, to EUR 12 million as a result of lower mortgage arrears. Other charges of EUR 113 million were mostly due to a EUR 95 million provision for the Optas agreement.
Underlying earnings before tax Underlying earnings before tax in 2014 increased 23% to
EUR 14 million was more than offset by lower investment income, mostly due to a reduced mortgage allocation to the investment portfolio. �� Non-life underlying earnings before tax improved to
Results 2013 the Netherlands 2013 net income decreased to EUR 389 million. Realized gains on investments and higher underlying earnings before tax, which is partly offset by a loss on fair value items (compared to a gain in 2012). The increase in underlying earnings before tax was mostly driven by improved Pensions earnings and lower operating expenses following implemented cost reduction initiatives.
Koersplan (compared to a charge of EUR 265 million related to the acceleration of product improvements for unit-linked insurance products in 2012).
Netherlands decreased 18% to EUR 454 million compared with 2012 due to lower earnings in Life & Savings and lower earnings in Pensions. �� Earnings from Life & Savings declined 11% to
EUR 28 million from reduced policy charges on unit-linked products, as part of the acceleration of product improvements for unit-linked insurance policies.
�� Earnings from Pensions decreased 28% to EUR 206 million mainly drive by the non-recurring benefit from the wind-up of several contracts and an employee benefit release.
This was primarily driven by a continued focus on cost control.
Overview of the Netherlands Aegon has operated in the Netherlands for more than 170 years, and has become the country’s leading1 provider of life insurance and pensions, with approximately 4,700 employees. Aegon the Netherlands is headquartered in The Hague, has offices in Leeuwarden and Groningen, and owns the Unirobe Meeùs Group, one of the largest2 intermediaries in the Netherlands.
Aegon the Netherlands’ primary subsidiaries are: �� Aegon Bank N.V.; �� Aegon Levensverzekering N.V.; �� Aegon Schadeverzekering N.V.; �� Aegon Spaarkas N.V.; �� Optas Pensioenen N.V.; �� Aegon Hypotheken B.V.; �� TKP Pensioen B.V.; �� Unirobe Meeùs Groep B.V.; �� Aegon PPI B.V.; and �� Stichting CAPPITAL Premiepensioeninstelling.
Overview of sales and distribution channels Aegon the Netherlands sells through several channels. The
Pensions business line includes sales and account management, which serves large corporations and financial institutions, such as company and industry pension funds. In general, all business lines use the intermediary channel, which focuses on independent agents and retail sales organizations in the
Netherlands. Aegon Bank uses the direct channel, primarily for savings, and Aegon Schadeverzekering has strategic partnerships for the sale of its products, and uses an online channel. Aegon the Netherlands launched online bank Knab in 2012 and online insurer Kroodle in 2013. Furthermore, Aegon the Netherlands has made significant investments in its direct online channel, which is starting to generate results.
1 Source: DNB/CVS Reports 2013. 2 Source: AM 2013 Jaarboek, published by Assurantie Magazine. 3 Source: Tracking Report Motivaction+.
These products have a minimum benefit guarantee, except for premiums invested in equity funds. The initial guarantee period is ten years.
Tontine plans are unit-linked contracts with a specific bonus structure. At the end of the year in which the insured dies, the policy balance is distributed to surviving policyholders that belong to the same tontine series, rather than to the policyholder’s estate. A death benefit is paid to the dependents in the event that the policyholder dies before the policy matures. Tontine policyholders may invest premiums in a number of Aegon funds.
Mortgage loans are partly funded by issuing residential mortgage-backed securities in SAECURE - Aegon’s Dutch residential mortgage-backed securities program. During 2014,
The amount saved is available for specific purposes after a certain time period.
Separate account group contracts are large group contracts that have an individually determined asset investment underlying the pension contract. A guarantee usually consists of profit sharing, and is the highest of either the market interest rate, or the
The contract period is typically five years and the tariffs, cost loadings and risk premiums are generally fixed over this period.
Defined benefit group contracts provide a guarantee on the benefits paid. The longevity risk therefore lies with Aegon the Netherlands.
Aegon also offers customers an all-in defined benefit product with guaranteed benefits. The expected profit for the customer and anticipated investment returns are taken into account in the pricing of the product. Customers may contribute funds for future pension increases to a separate account. Aegon the
Customers include individuals, company and industry pension funds, and small, medium and large corporations. Aegon the
For the majority of company and industry customers, Aegon the Netherlands provides a full range of pension products and services. In addition, TKP Pensioen specializes in pension administration for company and industry pension funds, and furthermore provides defined contribution plans to corporate and institutional clients. Aegon PPI2 offers defined contribution plans for small and medium companies, and
Aegon the Netherlands offers general insurance products in the corporate and retail markets. These include house, inventory, car, fire and travel insurance.
Sales and distribution Aegon the Netherlands offers non-life insurance products primarily through the Aegon intermediary channel, together with through the direct channel Aegon Online and strategic partnerships, such as with local retailer Kruidvat. Aegon also uses the co-assurance market for the corporate sector, and sales and account management provides products for larger corporations in the Netherlands.
Aegon the Netherlands, through which it offers financial advice to customers, including the sale of insurance, pensions, mortgage loans, financing, and savings and investment products.
Netherlands is one of a number of smaller insurers in the non-life market. Aegon the Netherlands’ non-life market share is around 2,7%1, measured by premium income.
In the mortgage loans market, Aegon the Netherlands’ market share is growing and the company now holds a market share of approximately 11% based on new sales2. Rabobank, ING and
In the pension market, pension funds face pressure on their coverage ratios, in addition to increased regulatory and governance requirements. In response, these funds are seeking to reduce risk exposure by insuring the whole or part of their business. This is an opportunity for pension insurers, and Aegon is one of the leading providers of these solutions.
The PPI market is set to grow significantly due to the shift from defined benefit plans to defined contribution plans, and demand for more transparent and cost-efficient pension products. As a result, significant economies of scale will be required to service this market effectively, and the number of providers is expected to shrink within a few years. Aegon the Netherlands has identified this market as an opportunity for growth and plans to invest in building a leadership position.
Under Dutch law, a company is neither permitted to conduct both life insurance and non-life insurance business within a single legal entity, nor to carry out both insurance and banking business within the same legal entity.
income statement, extensive actuarial information, and detailed information on the insurance company’s investments. DNB’s regulatory reporting is based on a single entity focus, and is designed to highlight risk assessment and risk management.
1 Source: Verbond van Verzekeraars (ytd December 2014) 2 Source: Kadaster (ytd October 2014) 3 Source: DNB Statistisch Bulletin
necessary and may conduct an audit at any time. It can also make recommendations for improvements and publish these recommendations if the insurance company in question does not follow them. Finally, DNB can appoint a trustee for an insurance company or, ultimately, withdraw the insurance company’s license.
The following insurance entities of Aegon the Netherlands are subject to the supervision of DNB: �� Aegon Levensverzekering N.V.; �� Aegon Schadeverzekering N.V.; �� Aegon Spaarkas N.V.; and �� Optas Pensioenen N.V.
directives. At present, this level is approximately 4% of general account technical provision or, if no interest guarantees are provided, approximately 1% of technical provisions with investments for the account of policyholders and an additional 0.3% charge for value at risk.
Criteria (TSC) for medium and large Dutch life insurance companies, effective as of January 1, 2014 and an own risk assessment (‘Eigen Risico Beoordeling’ or ERB) by all Dutch insurance companies. Both the TSC and ERB are being used as proxies for the ability of insurance companies (going forward)
to comply with the applicable solvency requirements. As such, the TSC and ERB also serve as indications as to the ability to pay dividend or redeem capital. If an insurance undertaking in the
By calculating the TSC, insurers will in effect be prepared for the
Act. In particular, DNB could intervene by withholding consent to pay dividend or repay capital and/or require a recovery plan
Basel accord for prudential supervision of credit institutions and investment firms. Based on these rules, credit institutions in the
Netherlands are required to maintain a minimum total capital ratio (BIS ratio), currently 8%, pursuant to guidance issued by
accord, the new regulatory framework for the banking sector, has been finalized and is translated into European Union legislation through the CRD IV framework. The CRD IV framework is implemented in the Netherlands in the Financial Supervision
Asset liability management Aegon the Netherlands’ Risk & Capital Committee, which meets every two months, determines and monitors the balance sheet and profit and loss. The focus of these meetings is, among other activities, to ensure an optimal strategic asset allocation, to decide on interest rate hedging strategies to reduce interest rate and equity risks, to manage and possibly hedge actuarial risks, and to decide on the need for securitizations of residential mortgage portfolios in order to improve the liquidity and funding position of Aegon the Netherlands.
Most of the liabilities of Aegon the Netherlands, insurance or otherwise, are nominal and long-term. Scenarios and optimization analyses are conducted for fixed income, equities and real estate asset classes. The result is an asset allocation and hedges representing the desired risk-return profile.
In 2012, Aegon the Netherlands partially offset the risk of future longevity increases related to a part of its insurance liabilities by buying a longevity index derivative from Deutsche Bank.
Netherlands reinsures part of its insurance exposure with third-party reinsurers under traditional indemnity, and ‘excess of loss’ contracts. Reinsurance helps Aegon manage, mitigate and diversify its insurance risks, and limit the maximum loss it may incur.
Aegon the Netherlands has ended this reinsurance contract, and therefore retains the full mortality and disability risk.
For non-life, Aegon the Netherlands reinsures its property, marine and motor third-party liability business only. For property insurance, an ‘excess of loss’ contract is in place with a retention level of EUR 3 million for each separate risk and EUR 20 million for each windstorm event. For motor third-party liability insurance, Aegon the Netherlands has reinsurance in place with a retention level of EUR 2.5 million for each event.
Results 2014 United Kingdom Net income in 2014 more than doubled to GBP 143 million compared with 2013, mostly due to higher underlying earnings before tax, higher realized gains and lower impairments. Growth in underlying earnings before tax compared with 2013 was mostly driven by improved persistency. New life sales declined by 9% to GBP 783 million compared with 2013, driven by lower traditional pensions production. Platform assets more than doubled to GBP 2.7 billion by the end of 2014 compared to the end of 2013.
Results on fair value items amounted to a loss of GBP 12 million.
Platform assets reached GBP 2.7 billion by the end of 2014, more than doubling compared with the end of 2013. Gross deposits of GBP 227 million in 2014 were mainly driven by the addition of new customers as the platform gained additional traction in the market.
Income tax on shareholders return 56 (2) - 66 (2) -
Gross deposits (on and off balance) 2013 2012 % 2013 2012 %
Results 2013 United Kingdom 2013 net income of GBP 65 million is 40% lower than 2012 due to the impact of business transformation costs, higher impairment charges and lower underlying earnings before tax as the positive impact of higher equity markets was more than offset by adverse persistency related to the Retail Distribution Review (RDR) and investments in technology. New life sales increased by 13% to GBP 860 million due to higher sales in group pensions and strong platform growth. Platform assets reached GBP 1.3 billion by the end of 2013.
The result was impacted by a GBP 18 million book loss on the sale of Positive Solutions and business transformation costs of
GBP 51 million related to in-sourcing the platform servicing and development as well as other restructuring costs. The loss on fair value items was GBP 14 million, mainly driven by equity hedges to protect the capital position. Realized gains on investments and impairment charges amounted to GBP 41 million and
GBP 79 million related to a reduction in the corporate tax rate.
�� Earnings from Life increased 25% to GBP 85 million compared to 2012, driven by improved mortality in annuities, lower operating expenses and a GBP 8 million benefit from reserving changes for annuity products. �� Earnings from Pensions declined to a loss of GBP 10 million compared to 2012. Adverse persistency amounted to
GBP 19 million, which the UK insurance industry experienced as a result of the implementation of RDR. Earnings benefited from the favorable impact of higher equity markets. This was offset by GBP 13 million of expenses related to creating a digital capability for the non-advised client group in order to facilitate the upgrade to the platform.
Kingdom: at-retirement and workplace savings, and has a long history of expertise in both. Aegon UK is increasingly focused on leveraging its award-winning online platform1, most recently enhanced with an engaging Retiready digital access service and a direct-to-consumer (D2C) proposition.
Overview of sales and distribution channels Retiready In April 2014, Aegon launched its Retiready digital access service, which is designed to help customers understand their readiness for retirement and help guide them to improve the likelihood that they achieve their desired retirement outcome.
A critical feature of Retiready is the capability to support customers whether they want advice or not.
Innovative platform Aegon’s broad proposition offering across the individual retail market, workplace savings market and D2C market is all supported by a single technology solution with Aegon’s award winning platform at its core. This capability creates a strong and flexible technology base able to realize significant synergies and efficiencies.
Channels Aegon markets and sells the following propositions into three channels: Retail advisor channel �� ‘Full-wrap’ service, Aegon Retirement Choices, which includes multiple wrapper choices, fully open architecture fund platform and digital advisor/customer self-service access; �� One Retirement, a standalone pension accumulation and drawdown product designed to be a single point solution for customers with more basic needs; and �� Self-directed solution, through Retiready, for those customers without a financial advisor.
Direct channel �� Retiready digital access capability offering direct customers the ability to purchase SIPP and ISA.
Overview of business lines Aegon UK has two business lines: �� Life; and �� Pensions.
UK has deployed leading-edge technology to the platform, delivering an intuitive method of saving for retirement through the workplace, taking income in retirement, and dealing with changing circumstances. It also provides valuable online reporting and lifestyle tools that enable advisors to demonstrate their professionalism and display their charges for advice in a transparent way. Professionalism and transparency are key principles of the Retail Distribution Review, which came into effect on January 1, 2013. In addition to the SIPPs – which provide a range of pre- and post-retirement investment options for high-net-worth customers, including insured funds and real estate – the platform also offers ISAs and GIAs.
Changes in workplace pensions including charge caps and a commission ban will also be introduced by the Department of
Work and Pensions (DWP) from April 2015. These significant changes pose a challenge for the industry. Aegon is well prepared to make changes in order to support customers and advisors through this period.
Aegon UK provides a wide range of personal pensions and associated products and services. These include: �� Flexible personal pensions; �� Self-invested personal pensions; �� Transfers from other retirement plans; and �� Phased retirement options and income drawdown.
As an alternative to annuities, Aegon UK also offers ‘Income for Life’, a retirement solution that bridges the gap between annuities and income drawdown products. It offers customers a guaranteed income for life, plus continued control over their investments until the age of 75.
Aegon UK offers offshore investment bonds. An offshore bond is traditionally marketed to high-net-worth individuals. Offshore contracts offer considerable tax advantages and a wide choice of investment options. Aegon UK also offers GIAs and ISAs through its platform.
Aegon UK offers a range of investment products that provide valuable guarantees for the at-retirement market. There is an offshore investment plan, which provides a guaranteed income for life, and an offshore bond, which provides capital guarantees
Sales and distribution Investment products, together with individual and corporate pensions, are widely distributed through independent financial advisors, tied distribution and, more recently, through partnerships with banks. Aegon UK also maintains close relations with a number of specialist advisors in these markets.
Financial supervision of insurance companies The European Union Insurance Directives referred to collectively as Solvency I are incorporated into UK law. The Directives are based on the ‘home country control’ principle: an insurance company with a license issued by the regulatory authorities in its home country is allowed to conduct business in any country of the European Union, either directly or through a branch.
Separate licenses are required for each branch of the insurance company where it conducts business. The regulatory body that issued the license (the PRA in the UK) is responsible for monitoring the solvency of the insurer.
is not permitted to conduct both life insurance and non-life insurance business within one legal entity, nor is a company allowed to carry out both insurance and banking business within the same legal entity.
EU directives. At present, this level is approximately 4% of general account technical provision. The PRA also requires that all life insurance firms conduct an annual Individual Capital
Solvency II will be effective from January 1, 2016, and will replace the existing solvency regime at that time. The Solvency
Capital Requirement under Solvency II (SCR) also requires firms to withstand a 1 in 200 shock on a 1-year value at risk basis. The underlying technical provisions will, however, be calculated in line with the Solvency II requirements rather than the firms internal view as part of the ICA.
The PRA will continue to require firms to maintain adequate capital under Solvency I and under the ICA while preparing for the transition to Solvency II. In anticipation of Solvency II, 1 The offshore bond is offered by Aegon Ireland plc. and is reported separately in the New Markets segment, rather than as part of the UK segment.
Asset liability management Asset liability management (ALM) is overseen by Aegon UK’s
These reports allow the investment strategy for the with-profit funds to be discussed, and are summarized for the With-Profits
The MIC monitors the performance of the investment managers against fund benchmarks.
(otherwise called ‘with-profit funds’). These funds contain free assets that have not yet been fully distributed to individual policyholders. Free assets help meet the cost of guarantees and provide a buffer to protect the fund from the impact of adverse events. Aegon UK has an exposure only once these assets have been exhausted. As outlined below, Aegon UK believes this exposure to be low.
Assurance Society were transferred to Scottish Equitable plc on December 31, 1993. Aegon UK has no financial interest in
Management of the with-profit fund Aegon UK’s with-profit fund has an investment strategy that reflects the nature of the underlying guarantees. The fund can invest in a variety of different asset types. The main categories are United Kingdom and overseas equities, United Kingdom fixed interest securities, and cash. The with-profit fund has a target range for the percentage of its assets that are invested in equities, and this range may be varied. Within these target ranges, there is a policy of holding an appropriate mix of asset classes to reduce risk.
are distributed to policyholders through a system of bonuses that depends on: �� The guarantees under the policy, including previous annual bonus additions; and �� The investment returns on the underlying assets, with an allowance for ‘smoothing’ to reduce volatility. Although smoothing means that investment profits are spread from one year to the next, the aim is to pay out all of the investment profits earned by the fund over the long term.
As the Scottish Equitable with-profit fund is now closed to new business with investment guarantees, the free assets are being distributed gradually to with-profit policyholders through the bonus system outlined above. This includes ensuring that any surpluses in the with-profit fund from other (historic) business lines can be distributed to existing with-profit policyholders at a suitable rate, helping to prevent a tontine effect as the number of with-profit policyholders declines.
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 8 5 60%
Poland following product changes. �� Underlying earnings before tax from Asia decreased significantly to EUR (17) million, compared with
Europe amounted to EUR 10 million in 2014, mainly resulting from growth of the business. �� Underlying earnings before tax from Aegon Asset
New premium production from accident & health insurance business decreased 21% in 2014 to EUR 34 million compared with 2013, mainly a result of lower sales of the direct marketing activities in Asia. New premium production from Aegon’s general insurance business was up 29% to EUR 45 million compared with 2013, driven by the successful sales campaigns of the joint venture with Banco Santander in Spain.
Aegon Asset Management increased 49% in 2014 to EUR 19 billion compared with 2013, mainly driven by strong growth in retail sales in China and the United Kingdom. Gross deposits in Asia declined to EUR 526 million in 2014 compared with 2013 as a result of lower sales of variable annuities in Japan.
Europe decreased in 2014 compared with 2013, while the gross deposits in Spain & France were higher.
Underlying earnings before tax by business / country Central & Eastern Europe 57 84 (32%)
Other income / (charges) (33) 113 Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 158 362 (56%)
Underlying earnings before tax In New Markets, underlying earnings before tax in 2013 declined 15% to EUR 227 million compared to 2012, as increases in Asia and Variable Annuities Europe were more than offset by declines in
Central & Eastern Europe, Spain and Aegon Asset Management. �� Earnings from Central & Eastern Europe declined 32% to
Additionally, earnings were impacted by investments related to the inclusion of the business in Ukraine. �� Results from Asia increased 183% to EUR 34 million compared to 2012, driven mainly by actuarial assumption changes and model refinements of EUR 22 million. The positive impact of growth of the business and cost savings was offset by higher non-deferred acquisition costs driven by strong growth in variable annuities production in Japan where
EUR 95 million, as the positive impact of higher third-party asset balances was more than offset by the loss of earnings from the sale of hedge fund manager Prisma in the fourth quarter of 2012.
EUR 999 million compared to 2012. Operating expenses increased 7% to EUR 656 million. The increase in operating expenses was the result of higher costs in Asia and Variable
Annuities Europe driven by investments to support future growth, the inclusion of the business in Ukraine and the introduction of the insurance tax in Hungary. The increase in commissions is driven by higher sales in Asia compared to 2012.
Management increased 31% to EUR 13 billion, mainly driven by strong growth in institutional sales in the United States and the Netherlands and retail sales in the United Kingdom.
Overview of Central & Eastern Europe Aegon has operations in the Central & Eastern European (CEE) countries of the Czech Republic, Hungary, Poland, Romania, Slovakia, Turkey and Ukraine. Aegon first entered the Central & Eastern European market in 1992 with the purchase of a majority stake in Hungary’s former state-owned insurance company, Állami Biztosító. Aegon Hungary is Aegon’s leading business in Central & Eastern Europe and the springboard for its further expansion in the region.
Traditional general account life insurance consists mainly of index life products that are not unit-linked but have guaranteed interest rates, in addition to group life and preferred term life products.
Preferred life is an individual term life insurance product that offers insurance protection. The product distinguishes between smoker and non-smoker status, and uses standard and preferred pricing dependent on the respective health of clients.
In Hungary, Aegon offers a wide range of life insurance products, including term life products, whole life products, group life insurance, accidental life and traditional saving type products besides unlit-linked policies, frequently accompanied by riders.
Aegon is also a significant market player in Hungary2 in the unitlinked segment.
In Turkey, Aegon provides only traditional life insurance products, the most important of which are pure term life with several riders, term life with premium refund on maturity, and saving-type endowment products. Aegon’s insurance portfolio is growing significantly in Turkey due to the country’s high growth rate.
Aegon entered the Ukrainian life insurance market in February 2013 by acquiring Fidem Life, a life insurance company selling mainly endowment traditional life products. The company was subsequently renamed ‘Aegon Life Ukraine’. Due to the unstable political and economical climate the business develops slowly.
Aegon Poland Life Insurance Company. The Romanian branch sells unit-linked, term life and endowment insurance policies.
In April, 2014, Aegon Poland Life’s branch took over Eureko 1 Source: www.knf.gov.pl. 2 Source: www.mabisz.hu.
Curia (Supreme Court), financial institutions have to reimburse unilateral fee and interest increases they made in the past under the loan agreements to the debtors. The settlement with debtors is expected to be undertaken and completed in 2015.
In the formerly mandatory private pension market, Aegon was active in Slovakia, Poland, and Romania, in 2013 having exited
The changes to pension legislation enacted in Hungary at the end of 2010 had a very significant impact on the private
Following the changes mentioned above, on May 31, 2012, the delegate general meeting agreed to terminate the Aegon private pension fund without any legal successor in Hungary.
In Poland, in accordance with legislative changes enacted in 2011, the contribution level payable into the private pension fund was reduced significantly. As of 2012, new members may no longer be actively recruited into private pension funds by pension management companies. Also, in accordance with the legislative changes that came into force on January 31, 2014, the Polish treasury bonds, treasury bills and other state-backed debt instruments, representing around 50% of the value of the managed pension fund, had to be transferred back to the Social
Insurance Institution (ZUS) of Poland. Furthermore, as a result of the changes, membership for the purpose of paying future contributions became voluntary. Members were required to make this decision by the end of June, 2014. In total, 9% of Aegon’s private pension fund members decided to continue paying contribution into the private fund, while 91% pay contribution 1 Source: Polish Financial Supervision Authority. 2 Source: The Association of Pension Fund Management Companies, Slovakia. 3 Source: 4 Source: The Central Bank of Hungary. 5 Source: www.knf.gov.pl.
into the state fund managed by ZUS. In addition, ZUS will provide the retirement benefits to members, requiring the management companies to gradually transfer the remaining assets of the members to ZUS, commencing 10 years before a member reaches retirement age. As a result, Aegon wrote off the intangible assets on its balance sheet in 2013, resulting in a loss of EUR 192 million before tax.
September 2012, there has been a significant reduction in the contribution rate payable into private pension funds in Slovakia.
Non-life Aegon Hungary offers non-life cover (household, car insurance, and some wealth industrial risk). Aegon is the leading2 insurance company in the Hungarian household market. In recent years, margins on non-life insurance in Hungary have been attractive.
Aegon is not a significant participant in Turkey, where it acquired its business in 2008.
In Hungary’s voluntary pension fund market, Aegon was ranked third5 for both the number of its members and its managed assets in 2012. For managed assets, in 2014 Aegon was ranked fifth6 in the Slovakian private pension market. In Poland, Aegon was ranked tenth3 for number of members and managed assets as at September 2014. In 2014, Aegon ranked fourth7 in the
Romanian mandatory private pension market, both for net assets under management and number of members.
State supervision and oversight of the insurance industry is conducted by the following bodies and institutions: �� The Central Bank of Hungary (MNB); �� National Bank of Slovakia (NBS); �� Czech National Bank (CNB); �� Polish Financial Supervisory Authority (KNF); �� Authority for Financial Supervision (ASF) (Romania); �� Undersecretariat of Treasury (Turkey); and �� National Commission for State Regulation of Ukrainian
4 Source: uainsur.com. 5 Source: The Central Bank of Hungary. 6 Source: The Association of Pension Fund Management Companies, Slovakia.
In addition to legal regulation, insurance companies are subject to a number of self-regulatory groups in their respective countries. These self-regulatory groups are the main forums for discussion among insurance companies. Their specialized departments (for example, actuarial, financial, and legal)
In Hungary, the foundation and operations of voluntary pension funds are regulated by the country’s Voluntary Mutual Pension
Funds Act (XCVI. 1993). Activity in this area is also supervised by the MNB. Slovakia’s pension market is regulated by the Pension
(43/2004). The private pension business is under the supervision of the National Bank of Slovakia (NBS). In Romania, the private pension system is regulated and supervised by the Authority for Financial Supervision (ASF), and the mandatory pension system is subject to the Privately Administered Pension Funds
Organization and Operation of Pension Funds Act. In Turkey, the voluntary pension funds are under the supervision of the Undersecretariat of the Treasury, and the companies are subject to Individual Retirement Saving and Investment System
Act (2013) regulates the foundation, operation and reporting obligations of the country’s financial institutions (including
Aegon Hungary Mortgage Finance Company is under the supervision of the MNB, in exactly the same way as Aegon
Capital Committee that meets on a quarterly basis. Aegon CEE’s asset liability management focuses on asset liability duration and liquidity. The performance of the portfolios against benchmarks is also evaluated during the Committee’s meetings.
Policy. For short-tail business, Aegon CEE accepts reinsurance companies with a minimum Standard & Poor’s (S&P) rating of A-.
For long-tail business Aegon CEE accepts reinsurance companies with a minimum S&P rating of AA-. The credit standing of the reinsurance partners is strictly monitored, discussed on a monthly basis by the Global Reinsurance Use Committee, and assessed on a quarterly basis by the Risk & Capital Committee.
(with retention levels for each event indicated in parentheses) are: �� Property catastrophe excess of loss treaty (EUR 16.2 million retention); �� Motor third-party liability excess of loss treaty
Joint ventures In 2002, Aegon signed a joint venture agreement with China
Wholly-owned subsidiaries In 2011, a new organizational structure was adopted by Aegon’s operations in Asia, whereby all of Aegon’s Asia-based insurance businesses became managed as one regional division headquartered in Hong Kong.
TLB distributes its products through relationships with private and priority banks, local and international brokers, and intermediaries.
Overview of business lines Life and savings Aegon provides a broad range of life insurance products through its life insurance businesses in China and India. These include unit-linked, universal life, and traditional life products.
In China, Aegon-CNOOC’s agency and broker channels primarily sell regular premium endowment with high sum assured protection and critical illness products. Regular premium participating endowment and single-pay universal life are both
key products for the bancassurance channel. Telemarketers largely sell return of premium products. The e-sales channel is currently focused on selling protection products.
Non-life Aegon-CNOOC offers non-life products (primarily consisting of short-term accident and short-term health products) through all channels. Non-life sales are, however, concentrated in the group channel where the main products are group medical policies.
Competition China - Aegon-CNOOC As of July 31, 2014, there were 71 life insurance companies in the market, including 43 domestic life companies and 28 foreign life insurers. Based on total premium income, Aegon-CNOOC
ranked forty-sixth among life insurance companies and thirteenth among foreign life companies in China. Aegon-CNOOC’s market share among foreign-invested companies was 2.0%1.
(January 2014 to August 2014), and the remainder is made up of private sector companies.
The surrender payment rate of these products is higher than interest on a savings account, and the commission rate incentivizes strong sales by the bancassurance representatives.
There is a strong need in Japan for individual annuity products for self-support after retirement. Demographic change (falling birth rate and aging population) is particularly acute in Japan, and the current public pension scheme appears unsustainable.
Guaranteed minimum accumulation benefit remains the main product in the variable annuities market. There are eight active companies in Japan’s variable annuities market. Aegon Sony Life had the second3 largest market share in 2014, a position it has held since early 2013.
Hong Kong and Singapore - TLB TLB’s main competitors in Hong Kong and Singapore are local and global providers in the high-net-worth market, such as
Traditional direct marketing remains a viable channel in Asia, particularly in many emerging markets. As these markets mature, market participants must increasingly expand their capabilities in order to employ their customers’ preferred channels. For insurers, this primarily involves developing the use of media such as Direct
Regulation and supervision China - Aegon-CNOOC On August 13, 2014, the State Council published a number of statements on ‘Accelerating the Development of a Modern
1 Source: Market data in this paragraph: China Insurance Regulatory Commission (CIRC). 2 Source: Insurance Regulatory and Development Authority of India (IDRA). 3 Source: Internal data.
during 2014 include: the setting up of repositories to facilitate dematerializing of physical policy documents; implementing a requirement to have policy documents in local languages; guidelines with respect to improving persistency; and regulations on web aggregators and insurance brokers.
Japan - Aegon Sony Life The Financial Services Agency (FSA) is the government agency that supervises all insurance companies in Japan. New products and major product amendments are filed with, and approved by, the FSA. In addition, general policy provisions, statements of business procedure, pricing and valuation are all approved by the FSA.
Monetary Authority, the integrated regulator of the financial services sector in Bermuda. TLB’s Asia branches are located in
equity funds are invested in mutual funds, convertible bonds, stocks, money market fund and bond repurchase in order to achieve higher investment returns.
meet quarterly to manage and monitor all types of risks that
Aegon-CNOOC faces. Financial risks, in addition to operational risks, are monitored and discussed in the meeting.
Regular reviews of risk and capital requirements are conducted by the committee members of the RCC and RMC. Monthly reviews are performed to ensure appropriate ALM for the closed block of business under traditional products. At the end of each quarter, the ALM report is tabled at the RCC meeting.
Committee (IC). Regular reviews of risk and capital matters are conducted by RCC members. Members of the IC focus particularly on the areas of investment performance and mismatch risk.
Management in the United States in a pool of assets backing similar liabilities. Asset Liability Management is performed as part of asset portfolio management.
Reinsurance ceded China - Aegon-CNOOC Aegon-CNOOC shares its morbidity and mortality risk with international and national reinsurers. The mortality risk of individual products is shared through a surplus reinsurance structure. Most of the individual morbidity risks are taken by
Hong Kong and Singapore - TLB TLB uses third-party mortality reinsurance for its universal life and traditional policies. Mortality reinsurance takes the form of yearly-renewable term excess-of-retention or quota-share arrangements. This is typically arranged through a pool of reinsurers – in general, the leading providers in the reinsurance industry.
Overview of Spain Aegon entered the Spanish insurance market in 1980 with the purchase of local insurer Seguros Galicia. In recent years, Aegon’s activities in Spain have developed through distribution partnerships with Spanish banks.
Until 2010, Aegon Spain Holding (hereinafter, Aegon Spain), through its subsidiary Aegon España S.A.U. de Seguros y
Aegon companies in Spain, including joint ventures with third parties. In addition, Aegon Spain operates through partnerships with the financial services organizations Banco Santander and
– a process that affected Aegon Spain’s banking partners to varying degrees. The economic outlook for the next 12 months is more favorable due to these measures, which will continue to affect Aegon Spain’s banking partners in different ways. The main distribution channel in the Spanish market is bancassurance, which accounts for 70% of life sales, in comparison with 23% for brokers and 7% for direct customers.
Aegon Spain and Banco Santander In December 2012, Aegon Spain and Banco Santander formed a partnership to distribute certain insurance products. This became fully operational in June 2013, following regulatory approval.
Totta Seguros – a Portuguese insurance company belonging to Santander international group – concerns the distribution of certain insurance products. This became fully operational in December 2014, following regulatory approval.
Liberbank Vida y Pensiones Liberbank, S.A. was created from a combination of the banking assets and liabilities of Cajastur, Caja Extremadura and Caja
On December 31, 2014 Cantabria Vida y Pensiones (Aegon’s partner until 2014) was merged by absorption by Liberbank
Distribution Aegon Spain distributes life insurance, general insurance, health and pension products. It uses two main distribution channels: bancassurance, which comprises 56% of the total; and its own network of brokers and agents. Aegon Spain’s sales network is focused on individual life and health insurance in urban and rural areas.
General insurance Aegon Spain first offered general insurance products through its joint venture with Banco Santander in 2013. The offering focuses mainly on household protection products, distributed through the banking network of partner Banco Santander.
Health Health insurance is offered by Aegon España through both its own network of brokers and agents and direct channels.
Medical expense coverage for doctor visits, diagnose, hospitalization, dental and other health covers are offered through a broad network of medical partners across Spain.
Aegon Spain’s business lines was 60% for life insurance, 18% for accident and health insurance, and 22% for general insurance.
Spain’s traditional life, unit-linked variable life and pension products, the major competitors are retail bank-owned insurance companies. The life market 1 is dominated by Grupo Caixa, with a 22.2% market share, and Mapfre, with a 10.6% market share, followed by Santander Seguros, with a 7.6% market share.
The local regulations for investments require the appropriate matching of investments and technical provisions, and also establish different levels of restrictions on the type of assets in which the insurance company may invest.
Asset liability management Aegon Spain’s approach to asset liability management is to make projections of asset and liability cash flows, calculate their present values using a market yield curve, and compute the main parameters affecting these cash flows, such as duration and convexity. The goal is to lock in the spread by matching the duration of assets to the duration of liabilities.
Reinsurance ceded Aegon Spain has a ‘one Aegon’ reinsurance management policy, meaning that both its joint ventures and own business are treated as a whole, with the same economic conditions and reinsurers panel, but with individual profit shares without losses carried forward by each entity belonging to Aegon Spain. The main contract for mortality and morbidity provides proportional reinsurance protection for both its individual risk and group risk policies. With this approach, Aegon Spain seeks to optimize the cost of reinsurance coverage, sharing the profits and not the losses, while achieving prudential diversification of its insurance risk by limiting the maximum possible losses on risks that exceed retention levels. Maximum retention levels vary by product and by nature of the risk being reinsured, although the retention limit is in general between EUR 30,000 and EUR 60,000 per life insured. Aegon Spain remains contingently liable for the amount ceded should the reinsurance company fail to meet its obligations.
Organizational structure Variable Annuities Europe’s legal entity is Aegon Ireland plc. Its main office is located in Dublin, Ireland, with a branch office in
In Germany, Aegon Ireland has its own branch office in Frankfurt and employs a direct sales and customer service team.
Variable annuities Aegon Ireland is a specialist provider of variable annuity products in three European markets – the UK, Germany and France – with different operating models for each market.
Variable annuities are advised products distributed primarily through financial advisers and banks.
Overview of business lines Variable annuities Variable annuity products are essentially unit-linked life and pension insurance products with guarantees. They typically offer a range of investment fund options linked to equities and fixed interest investments. Some options enable the policyholder to select assets in fixed proportions. Increasingly, however, investment fund options aim to control fund volatility around certain target levels. In each case, an appropriate guarantee charge is set according to fund risk or fixed equity content.
The guarantees offered may take several different forms: a minimum level of future lifetime income (immediate or deferred), an income for a defined term, or a minimum return of capital at the end of a defined period. Optional or integrated minimum death benefits are also usually offered. Charges for the guarantees are applied to the policyholder’s account value, and vary according to the guarantee and the fund choice.
Offshore bonds Offshore bond products are open-ended unit-linked life insurance products. They offer a wide range of investment choices, making it possible to invest in a wide range of external assets, such as collective investment schemes, unit trusts, and open-ended
investment companies (OEICs), together with internal unit-linked funds managed by Aegon Ireland, and cash deposits.
The assets related to this product are segregated for the benefit of policyholders in separate accounts of the insurance company.
Offshore bond products enable customers to make regular withdrawals from their policy, provided there is sufficient value in the underlying fund. The death benefit is typically 100.1%
of the surrender value of the policy on the death of the last life assured. Offshore bond products do not have explicit guarantees.
Competition Variable annuities There was no significant change between 2013 and 2014 in the competitive environment for variable annuities in Europe, with the ongoing challenging economic and financial conditions limiting new product launches.
In Germany, several competitors offer variable annuity type products, but they are generally not essential to their overall offering. The main competitors for variable annuity business are Canada Life and Swiss Life. Other providers include Allianz,
Offshore bonds The UK offshore bond market remains highly competitive. In the third quarter of 2014, Aegon has a year-to-date market share of 5.34%, placing it sixth 1. The top three providers by market share were Standard Life, Axa Wealth and Legal & General respectively.
Aegon Ireland operates on an FOE basis in Germany (with a branch office in Frankfurt) and on an FOS basis in the
(contracts linked to investment funds) and Class I (life insurance and contracts to pay annuities on human life), excluding contracts written in Class II (contracts of insurance to provide a sum on marriage or on the birth of a child). Aegon Ireland must comply with the general good provisions that apply to insurers selling such policies in each jurisdiction.
Central Bank of Ireland. Aegon Ireland is required to submit annual returns to the Central Bank of Ireland, and is subject to annual review meetings and themed visits. The Central Bank of
Overview of Aegon Asset Management Aegon Asset Management is an active investment manager that uses its investment expertise to help clients around the world take responsibility for their financial future.
Organizational structure Aegon Asset Management operates in the United States, the Netherlands, the United Kingdom, Canada, Central & Eastern
Europe, Spain, Hong Kong and mainland China. It has three main brands: �� Aegon Asset Management specializes in providing clients with a range of high-quality investment solutions across asset classes, including fixed income, equities, real estate, absolute return, liability-driven, and multi-asset solutions.
A long and successful history of partnership with Aegon’s insurance businesses has enabled Aegon Asset Management to establish experienced investment teams, a solid asset base and proven long-term records; �� Kames Capital is a United Kingdom-based asset management company that provides fixed income, equities, real estate and multi-asset solutions to both UK and international clients; and �� TKP Investments is a Netherlands-based fiduciary manager that is recognized for its manager selection and tailored advice to the Dutch pension market.
Aegon Asset Management is managed by an international board with both global and local roles and responsibilities.
Overview of business lines Aegon Asset Management manages significant funds on behalf of Aegon insurance companies. Asset inflows are derived from insurance company sales invested in the general account or insurance funds, depending on the product sold. Aegon Asset
Asset Management Holding B.V., is regulated by DNB (the Dutch central bank) as a financial holding company according to the
Aegon Asset Management’s underlying operating entities are regulated by their local regulators, including the AFM (Autoriteit
(Financial Conduct Authority) for United Kingdom based entities, the SEC (Securities & Exchange Commission) for United States based entities, and the CSRS (Chinese Securities Regulatory
Objectives of risk management Aegon’s risk strategy provides direction for the targeted Aegon risk profile while supporting the Aegon business strategy.
Company’s low tolerance for operational risk. This helps to improve operational excellence and ensures that the
Governance structure Aegon’s risk management framework is represented across all levels of the organization. This ensures a coherent and integrated approach to risk management throughout the
Committee (SBRC); �� The Executive Board (EB) and the Management Board (MB); and �� The Enterprise Risk Management Committee (ERMC) and the
Additionally, there are working groups and regional committees that support the ERMC and GRCC.
Aegon’s Executive Board has overall responsibility for risk management. The Executive Board adopts the risk strategy, risk governance, risk tolerance and material changes in risk
(CRO) attends Executive Board meetings and has a direct reporting line to the Supervisory Board to discuss enterprise risk management and related matters, and is a member of the
Management framework development work from temporary working groups comprising subject matter experts who represent the Company’s businesses. These working groups are established by the Enterprise Risk Management Committee, including their membership, scope of work and deliverables.
informs the Management Board about any identified or near breaches of overall tolerance levels, in addition to any potential threats to the Company´s solvency, liquidity or operations. Risk
Group Risk is responsible for development and oversight of compliance with the risk governance framework, risk methodology, risk tolerances and risk policies. This involves identifying risk, particularly operational and emerging risk, in addition to reviewing risk assessments carried out by business units. Group Risk also identifies best risk management practices, facilitates implementation thereof and helps ensure there is consistency in the application of these practices across the Company. In addition, Group Risk performs risk and scenario analyses, either at its own initiative or at the request of management.
The Company’s first line of defense, including the business and support functions, has direct responsibility for managing and taking risk in accordance with defined risk strategy, risk tolerance and risk policies. The second line of defense, including the risk management function, facilitates and oversees the effectiveness and integrity of enterprise risk management across the Company.
Risk management in 2014 As part of the Company’s ERM Framework, Aegon undertakes regular sensitivity analyses to verify that the impact of different economic and business scenarios on earnings and the capital position are within the risk tolerances set. These analyses cover a variety of ‘extreme’ event scenarios, which have been constructed to test our exposure to identified critical market events or conditions that would present an extraordinary business challenge. These scenarios include events such as economic depression and inflation.
Equity market risk and other investment risks Equity markets trended upwards in 2014, with a correction in the third quarter. During 2014, Aegon continued to progress its program of hedging equity risk at its UK pension business, variable annuities, US and Dutch operations to protect the
The US business has a macro hedge in place to protect the business capital position of variable annuities from fluctuations in equity markets. As a result of a mismatch between US
Kingdom and the eurozone decreased by 143 bps, 126 bps and 130 bps to respectively 2.80%, 2.30% and 1.52%. In the United
States, interest rate hedges were put in place in the first half of 2014 by implementing forward starting swaps. Also in 2014, the existing interest rate programs remained in place for hedging guarantees for Aegon’s operations in the Netherlands, long-term care business in the United States and for the variable annuities businesses in the United States, Ireland and Asia.
In 2014, Aegon made several significant updates to assumptions, including an update to US mortality assumptions. Please refer to note 3 Critical accounting estimates and judgment in applying accounting policies for more information.
Others, such as movements in interest rates or unexpected changes in longevity or mortality trends, are external in nature.
The most significant risk Aegon faces is that of changes in financial markets, particularly movements in interest rates, equity and credit markets. These risks, whether internal or external, may affect the Company’s operations, earnings, share price, value of its investments, or the sale of certain products and services. A description of risks relating to Aegon’s businesses and risks relating to Aegon’s common shares can be found on pages 325-341 of this Annual Report.
Aegon believes these guiding principles together strengthen the Company’s ability to withstand adverse market conditions, enhance its financial flexibility and serve the long-term interests of both the Company and its stakeholders.
Governance Aegon’s Corporate Treasury department manages and coordinates capital and liquidity management strategies and processes. The department acts under the direction of the Group Risk & Capital Committee.
These priorities include the shift of capital to markets that offer higher growth and return prospects, and the shift from spread business to fee business. In addition, the Company is improving its risk profile by further reducing total financial leverage.
Disciplined risk and capital management supports Aegon’s aim to pay a sustainable dividend to its shareholders.
Improving risk profile Aegon continues to take measures to improve its risk-return profile and lower overall capital requirements. These measures include, for instance, the continued run-off of Aegon’s spreadbased institutional business in the United States, the strategic growth in fee-based earnings and extensive asset-liability management and hedging programs. Examples of these programs include hedging the interest rate and equity risk from guarantees in the Netherlands, and hedging the capital position in the Americas against adverse equity and interest rate movements. In addition, Aegon ranks among a limited number of insurance companies actively involved in hedging longevity risk.
Capital requirements and leverage Aegon’s goal for all business units is to maintain a strong financial position in order to be able to withstand losses from adverse business and market conditions. The Company’s overall capital management strategy is based on managing capital adequacy, capital quality and the use of leverage.
Capital adequacy Capital adequacy is managed at the Company, country and business unit and legal entity level within the organization.
on December 31, 2014, down from 212% at the end of 2013, as the negative impact of net redemptions of capital securities and a lower IGD ratio in the Netherlands was only partly offset by a stronger RBC ratio in the Americas.
Solvency II will impact the capitalization levels used to assess capital adequacy of Aegon’s business units. Although Solvency II
Aegon’s gross financial leverage ratio is calculated by dividing total financial leverage by total capitalization. Aegon defines total financial leverage as debt or debt-like funding issued for general corporate purposes and for capitalizing Aegon’s business units. Total financial leverage includes hybrid instruments, subordinated and senior debt. Aegon’s total capitalization consists of the following components: �� Shareholders’ equity excluding revaluation reserves and the remeasurement of defined benefit plans; �� Non-controlling interests and share options not yet exercised; and �� Total financial leverage.
at December 31, 2013) and its fixed charge coverage was 6.5x
(5.2x at December 31, 2013). Aegon targets a gross financial leverage ratio of 26-30% and a fixed charge coverage of 6.08. 0x, and expects continued deleveraging in 2015 with the proceeds from the sale of the Canadian life insurance business in support of Aegon’s commitment to these targets.
Ratings Aegon’s objective is to continue to be capitalized to maintain an
AA financial strength rating in it’s operating units, and this plays an important role in determining the Company’s overall capital management strategy. Aegon maintains strong financial strength ratings from leading international rating agencies for its main operating subsidiaries, and a strong credit rating for Aegon N.V.
As of December 31, 2014, Aegon had EUR 107 million and
reserves) and universal life insurance with secondary guarantees (subject to Regulation AXXX reserves) to support lower-risk statutory reserves at a lower cost for policyholders and shareholders; �� Managing variable annuity hedging programs; �� Managing and segregating risks; and �� Monetizing embedded value.
Aegon N.V. and at the business unit level. Aegon maintains a liquidity policy that requires all business units to project their sources and uses of liquidity over a two-year period under normal and severe business and market scenarios. This policy ensures that liquidity is measured and managed consistently across the
Aegon’s insurance subsidiaries to transfer funds to the holding company is constrained by the need for these subsidiaries to remain adequately capitalized at the levels set by local insurance regulations and as administered by local insurance regulatory authorities.
Aegon’s liquidity position As of December 31, 2014, Aegon N.V. held a balance of
EUR 1.2 billion in excess capital at group level, compared with
Aegon’s liquidity is invested in highly liquid assets, in accordance with the Company’s internal risk management policies. Aegon believes its working capital, backed by its external funding programs and facilities, is ample for the
Aegon uses cash flows from its operating subsidiaries to pay holding expenses, including funding costs. The remaining cash flow is available to execute Aegon’s strategy and to fund dividends on its shares. When determining whether to declare or propose a dividend, Aegon’s Executive Board balances prudence with offering an attractive return to shareholders. This is particularly important during adverse economic and/or financial market conditions. Furthermore,
Board concerning the effectiveness of the Company’s internal control framework. Based on risk assessments performed, the
Supervisory Board and its Risk Committee. Aegon’s risk management function monitors and controls Aegon’s solvency position, and ensures that risk taking is within Aegon’s risk tolerance levels. The Executive Board is informed of any risks that threaten the Company’s economic/statutory solvency, reputation, reliability of financial reporting, or operations.
Act (Wet op het financieel toezicht), the Executive Board confirms that, to the best of its knowledge, the financial statements prepared in accordance with applicable accounting standards: give a true and fair view of the assets, liabilities, financial condition and profit or loss of the Company and the undertakings included in the consolidation as a whole; and that the Report of the Executive Board includes a fair view of the development and performance of the business during the financial year, the position at balance sheet date of the Company and the undertakings included in the consolidation as a whole, together with a description of the principal risks and uncertainties that the Company faces.
An overview of the composition of the Supervisory Board in 2014 can be found on pages 98 and 99. In 2014, a number of changes took place. Mr. Antony Burgmans stepped down from the Board as per April 1, 2014, in order to comply with the requirements of the Dutch Act on Management and Supervision (‘Wet bestuur en toezicht’). Mr. Kornelis J. Storm resigned as member of the
Supervisory Board meetings Attendance In 2014, the Supervisory Board held a total of seven regular (faceto -face) meetings and six additional conference call meetings.
Rules, regular Board meetings were preceded by preparatory conference call meetings. These were attended by the Chairman and Vice-Chairman of the Supervisory Board, the Chairman of the Audit Committee, the Chairman of the Risk Committee, and the CEO and CFO who sit on the Company’s Executive Board.
Members of Aegon’s Executive and Management Boards were present at most of the Supervisory Board meetings held in 2014. At the request of the Supervisory Board, other Company executives also attended the meetings to provide reports and updates on specific topics. Representatives from Aegon’s external auditors PwC also took part in the discussions on the
The Board received updates from senior management and from external experts on Aegon’s Information Security Program.
Aegon’s strategic objectives, and the challenges the Company is facing. Aegon’s IT strategy and the strategic alignment of the current portfolio, together with the role Mergers & Acquisitions
(M&A) can play, were also discussed. Part of the meeting included discussions regarding how the market sees Aegon and how it compares with competitors.
Solvency Assessment (ORSA), group supervision, supervisory review processes, and reporting and disclosure requirements.
Building Public Trust award for integrated reporting for Aegon’s 2013 Integrated Review. Throughout 2014, the Board regularly discussed aspects of Aegon’s approach to sustainability for various business issues. Further details of Aegon’s sustainability vision and progress are available in the Aegon Review 2014.
Recognizing the importance of succession planning and talent management, the Board received updates from Aegon’s Head of Global HR on progress made in achieving the objectives of the Talent Agenda: attracting new staff with a wide range of different skills and experience, identifying sufficient qualified succession candidates, and strengthening the talent pipeline for future succession. The Board also received and discussed the results of the annual Global Employee Survey.
During the year, the Board discussed various M&A transactions and divestitures. It approved the decision to enter into exclusive talks with La Banque Postale to form an asset management partnership in France, and the divestitures of the equity stake in La Mondiale Participations in France and the Canadian life insurance business.
The Board was pleased that Aegon announced in April that it had reached agreement with BPVH – a foundation representing
Results and budget In its meeting of February 19, 2014, the Supervisory Board convened to discuss the results of the fourth quarter of 2013.
Group Plan and approved the budget for 2015. The Board also approved the 2015 Capital Plan and authorized the Executive
De Nederlandsche Bank (DNB, the Dutch Central Bank) and monitored management engagement with regulators in the
As discussed with the Supervisory Board, Aegon has developed a Recovery and Crisis Management Plan, the aim of which is to help give direction to management during a crisis situation. The
Aegon formulated its Recovery and Crisis Management Plan in accordance with DNB guidelines, ensuring that the plan is also well aligned with its internal Enterprise Risk Management
Educational sessions and Board review The Board and its Committees received updates and presentations on topics ranging from Solvency II and investor relations, to developments in information security and reinsurance. The Audit Committee, joined by several other members of the Board, held a meeting that focused on the business and strategy in the Netherlands, also addressing the product suite and IT, financial and risk management topics.
In February 2015, the Supervisory Board reviewed the performance of individual members of the Management Board.
No transaction with a potential or actual conflict of interest was reported by members of the Board in 2014.
As on December 31, 2014, the composition of the Committees is as follows: Audit Committee: Ben van der Veer (Chair), Irving W. Bailey II,
Committee meetings are open to all members of the Board, regardless of membership of the Committees. The Chairman aims to attend all meetings in whole or in part.
The Audit Committee The Audit Committee held seven meetings in 2014, one of which was a combined meeting with the Risk Committee of the Supervisory Board. One meeting focused on Aegon’s
The Committee discussed and approved the external auditor’s engagement letter and the audit plan for 2014. Throughout 2014, business unit managers provided various topic updates to the Audit Committee. The combined meeting with the Risk
Management on operational risk issues such as fraud and general compliance issues. In addition, the Committee reviewed quarterly legal updates.
The Committee confirmed that all of its members qualify as independent by the Rule 10A-3 of the SEC and it also confirmed that Mr. Ben van der Veer qualifies as a financial expert within the terms and conditions of both the Dutch
Corporate Governance Code and the Sarbanes Oxley Act in the United States.
The Risk Committee The Risk Committee assists the Supervisory Board and Audit
The Risk Committee convened five times in 2014, including the combined meeting with the Audit Committee. During the annual strategy offsite meeting in London, the Committee members met with the Chief Risk Officer of Aegon UK.
The CEO and/or the Global Head of Human Resources attended these meetings in whole or in part.
In 2014, the members of the Committee reviewed and interviewed a number of candidates for upcoming vacancies.
Annual General Meeting of Shareholders in 2015. The Board is of the opinion that with this proposed appointment its composition will continue to meet the requirements of the
During the year, the Committee reviewed the composition of the Executive Board and Management Board and the functioning of their members. Acknowledging the importance of good succession planning, the Committee also discussed with the
Board is an important issue for Aegon. The Executive Board consists of two members. Selection and appointment is based on expertise, skills and relevant experience. The Supervisory
Board also takes gender diversity into account in view of its aim of a balanced Executive Board composition.
The Board is aware that its current composition does not meet the ‘balanced composition’ requirement under Dutch law (at least 30% of the seats should be filled by women and at least 30% by men). As a result of the appointment of Ms. Corien M. Wortmann-Kool in 2014, the gap with the
The Compensation Committee The Compensation Committee held six meetings in 2014, which were attended in whole or in part by the CEO. Other regular attendees were the Global Head of Human Resources and
Requirements Directive III and IV (CRD III and IV) – and the
Guidelines on Remuneration Policies and Practices issued by the Committee of European Banking Supervisors/European
In 2014, the Compensation Committee oversaw the application and implementation of Aegon’s Global Remuneration Framework and the various policies and related procedures, including the
Remuneration Policy for Identified Staff. This included setting the 2014 targets, allocating the 2013 variable compensation, the scenario analysis of payout levels under the Executive
The Dutch Government intends to use this new legislation to introduce a broad set of rules to ensure that financial services companies conduct sound remuneration policies and avoid payment of excessive variable remuneration. In addition, the legislation intends to harmonize existing remuneration rules applicable to financial services companies in the Netherlands.
The most important feature of the legislation is the introduction of a bonus cap of 20% of fixed pay on variable remuneration across the financial industry in the Netherlands. The
The new legislation has been adopted by the Dutch Senate on
During meetings in August and November, the Committee supported early proposals for amending Aegon’s Remuneration
Annual Accounts This Annual Report includes the Annual Accounts for 2014, prepared by the Executive Board, discussed by both the Audit
Acknowledgement The members of the Supervisory Board are grateful for the work undertaken by members of the Executive and Management
Board members wish to thank Aegon’s employees for their hard work and dedication serving millions of Aegon customers across the world.
The Board also expresses its thanks to Aegon’s business partners and many valued customers for their continued confidence in the Company.
Finally, the Board thanks Aegon’s investors for their continued confidence and trust in the Company.
Robert J. Routs Chairman of the Supervisory Board of Aegon N.V.
Chairman of the Nominating Committee Member of the Compensation Committee Robert J. Routs is a former Executive Director for Downstream at Royal Dutch Shell. He was appointed to Aegon’s Supervisory
Board in 2008 and became Chairman in 2010. His current term as a member of the Aegon Supervisory Board ends in 2016.
DSM N.V. and sits on the Board of Directors at ATCO Ltd.,
Robert Dineen (1949, American) Member of the Audit Committee Member of the Risk Committee Robert Dineen was Vice Chairman of Lincoln Financial Network
Lincoln Financial Group (LFG), before retiring in 2013. Before joining Lincoln Financial Group, Mr. Dineen was Senior Vice
Shemaya Levy (1947, French) Chairman of the Risk Committee Member of the Nominating Committee Shemaya Levy is retired Executive Vice President and Chief
Ben van der Veer (1951, Dutch) Chairman of the Audit Committee Member of the Nominating Committee Ben van der Veer is former Chairman of the Board of
Supervisory Board in 2008 and his current term will end in 2016. In addition, he is a member of the Supervisory Board of TomTom N.V. and Royal Imtech N.V., and a non-executive member of the Boards of Reed Elsevier N.V. and Reed Elsevier
PLC. He is also a member of the Supervisory Board of Royal
Dirk P.M. Verbeek (1950, Dutch) Member of the Audit Committee Member of the Risk Committee Dirk P.M. Verbeek is Vice President Emeritus of Aon Group.
B.V. (not listed). Furthermore, he is advisor to the President and
Leo M. van Wijk (1946, Dutch) Chairman of the Compensation Committee Member of the Nominating Committee Leo M. van Wijk is former President and CEO of KLM Royal
Mr. Van Wijk is also member of the Board of Directors of Air
Aegon’s Supervisory Board in May 2014 and her current term will end in 2018. Ms. Wortmann-Kool is also a member of the
Board of Save the Children Netherlands. Ms. Wortmann-Kool was appointed Chairman of the Board of Stichting Pensioenfonds
The Phoenix Companies, which was an insurance and asset management at the time of her tenure. She was appointed to Aegon’s Supervisory Board in 2013 and her current term ends in 2017. Ms. Young is also member of the Board of
Principles are as follows: �� Aegon remuneration is employee-oriented by: fostering a sense of value and appreciation in each individual employee; promoting the short- and long-term interests and well-being of all Aegon staff via fair compensation, pension and/or other benefits; supporting employees’ career development; and supporting the (international) mobility of its staff; �� Aegon remuneration is performance-related by: establishing a clear link between pay and performance by aligning objectives and target setting with performance evaluation and remuneration; reflecting individual as well as collective performance in line with the long-term interests of Aegon; enhancing the transparency and simplicity of Aegon Group remuneration, consistent with the principle of pay for performance; avoiding any pay for non-performance; �� Aegon remuneration is fairness-driven by: promoting fairness and consistency in Aegon’s remuneration policies and practices, with remuneration packages that are well balanced across the different echelons within Aegon Group and business units (internally equitable); avoiding any discrimination in Aegon’s remuneration structures, including, among others, discrimination based on nationality, race, gender, religion, sexual orientation, and/or cultural beliefs
(internally equitable); creating global alignment in the total compensation of all Identified Staff (internally equitable); aiming at controlled market competitive remuneration, by providing total compensation packages in line with an appropriately established peer group at regional unit, country and/or functional level (externally equitable); and �� Aegon remuneration is risk-prudent by: aligning business objectives with risk management requirements in the target setting practices throughout the Aegon Group; giving an incentive to appropriate risk-taking behavior while discouraging the taking of excessive risks; protecting the risk alignment effects imbedded in the remuneration arrangements of individual staff against any personal strategies or insurance to counter them.
Aegon staff, contains the guiding principles to support sound and effective remuneration policies and practices by ensuring consistency throughout the Aegon Group. The GRF is designed in accordance with relevant rules, guidelines and interpretations, for instance the 2010 Guidelines on Remuneration Policies and
Practices by the Committee of European Banking Supervisors (CEBS, now the European Banking Authority, EBA) and the Decree on
Human Resources, Risk Management, Compliance and Audit, are governed by the GRF and its underlying policies.
Aegon remuneration practices in comparison with its competitors in the local labor market. This is because insurance firms outside the Netherlands are not subject to these European (banking)
Given the rationale for having a separate policy for material risk takers and the risk mitigating measures that are applied to the remuneration of these individuals, Risk Management is involved in deciding which positions are deemed ‘Identified
This means that the aim is for total remuneration for experienced and competent employees to be consistent with compensation levels in the market in which Aegon operates and competes for employees. Total compensation typically consists of base salaries and – where in line with local market practices – variable compensation. Market survey information from reputable sources is used to provide information on competitive compensation levels and practices.
Supervisory Board Remuneration Policy 2014 Aegon’s Remuneration Policy for members of its Supervisory
Supervisory Board do not receive any performance or equityrelated compensation, and do not accrue pension rights with the Company. These measures are designed to ensure the independence of Supervisory Board members and strengthen the overall effectiveness of Aegon’s corporate governance.
1 In accordance with the Dutch Regulation on Sound Remuneration, the annual disclosure of Identified Staff remuneration can be found on Aegon’s corporate website.
Under the current policy, approved by shareholders on May 15, 2013, members of the Supervisory Board are entitled to the following payments: Base fee for membership of the Supervisory Board EUR / year Chairman 80,000
Information on members of the Supervisory Board and the composition of Aegon’s four committees - Audit, Nominating,
Framework and sets out terms and conditions for members of the Company’s Executive Board.
The Executive Board Remuneration Policy was prepared in accordance with the Dutch Corporate Governance Code and the Decree on Sound Remuneration Policy (Regeling beheerst beloningsbeleid (Rbb) Wft 2011, which was succeeded by Rbb
Each year, Aegon’s Compensation Committee reviews Aegon’s remuneration policies to ensure they remain in line with prevailing international standards. This review is based partly on information provided by Aegon’s external adviser, Towers
Ensuring pay remains competitive The Company regularly compares its levels of executive remuneration with those of other, comparable companies.
Companies included in the peer group are chosen according to the following criteria: �� Industry (preferably life insurance); �� Size (companies with similar assets, revenue and market capitalization); �� Geographic scope (preferably companies operating globally); and �� Location (companies based in Europe).
In addition, to monitor alignment with the general industry in the
Netherlands, a reference group has been established, comprising the 12 leading companies listed on Euronext Amsterdam, excluding financial services providers. The Supervisory Board regularly reviews the composition of these two groups to ensure that they continue to provide a reliable and suitable basis for comparison.
Board determines a maximum total compensation, reflecting the specific roles and responsibilities of the individual. Each year, the Supervisory Board reviews total compensation levels to ensure they remain competitive and provide proper, risk-based incentives to members of Aegon’s Executive Board. At present, the Executive Board Target Direct Compensation (defined as base salary plus variable compensation) is below the median of the international market. To ensure Executive Board members are compensated in accordance with the desired market positioning, the alignment to the desired market position needs to be addressed over time, in accordance with applicable rules, regulations and codes.
Supervisory Board (Compensation Committee) has discussed and endorsed the 2014 total compensation for the Executive Board.
commitment to the Company’s business strategy, risk tolerance and long-term performance. Variable compensation is based on a number of individual and company performance indicators that are regularly evaluated by experts in the
Performance is assessed by Aegon’s Compensation Committee and validated by the full Supervisory Board.
For 2014, the performance period for variable compensation was one year. By implementing deferral and additional holding periods, Aegon believes that the long-term interests of Executive
Board members are aligned with the interests of Aegon and its stakeholders.
Variable compensation, comprising both cash and shares, is conditionally granted at the beginning of each performance period. The number of conditionally granted shares is calculated using the value of one Aegon share at the beginning of this period. This value is equal to the average price on the Euronext
January 15. After the performance year, the Company assesses the realized performance against the performance indicators and compares the minimum, target and maximum levels of the performance indicators with the realized performance.
The amount of conditional variable compensation that can be allocated is then established. Variable compensation is allocated once accounts for the financial year in question have been adopted by the Company’s shareholders and after an ex-ante assessment.
Variable compensation 2014 Variable compensation is initially granted based on performance, as measured against Aegon group targets and personal objectives. These objectives represent a mix of financial and non-financial measures, providing an accurate and reliable reflection of corporate and individual performance. The mix of group measures versus personal performance measures is 75%-25%.
Group financial risk adjusted based 30% Group market consistent value of new business 2014, group pre-tax return on required capital 2014
Group sustainability / Strategy 15% Objective measuring corporate responsibility and Strategy
(including non-achievement of performance indicators in hindsight), or in the event of material financial restatements or individual gross misconduct, Aegon’s Supervisory Board has the right to reclaim variable compensation that has already been paid out or vested.
contractual agreements, local practices and comparable arrangements at other multinationals. Aegon does not grant
Mr. Button was appointed after the new law on governance and supervision (‘Wet Bestuur en Toezicht’) came in to force in January 2013. An Engagement Agreement was therefore agreed between him and Aegon N.V., rather than a contract of employment. His employment by Transamerica Life Insurance therefore continues while he is seconded on an expatriate assignment to the Netherlands.
Executive Board Remuneration Report At the end of December 2014, Aegon’s Executive Board had two members: �� Alexander R. Wynaendts, Chief Executive Officer and
Board for four years at the annual General Meeting of shareholders on May 15, 2013.
Fixed compensation The fixed compensation of Mr. Wynaendts was increased in 2014, to further align his compensation towards the desired market position. The fixed compensation of the CFO remained unchanged in 2014.
Forty percent of variable compensation related to performance year 2014 is payable in 2015. This is split 50/50 in a cash payment and in an allocation of shares.
For 2015, Mr. Wynaendts and Mr. Button are eligible to receive a cash payment of EUR 182,657 and EUR 120,048 respectively.
Mr. Wynaendts and 17,302 for Mr. Button. With regard to vested shares (with the exception of shares sold to meet income tax obligations), a retention (holding) period of a further three years is applicable before they are at the disposal of the Executive
The remaining part of variable compensation for the performance year 2014 (60% of the total, which for Mr. Wynaendts equates to EUR 273,986 and 40,656 shares, and for Mr. Button equates to EUR 180,072 and 25,956 shares) is to be paid out in future years, subject to ex-post assessments, which may result in downward adjustments and be subject to meeting additional conditions. In each of the years 2016, 2017 and 2018, 20%
No circumstances have been identified to lower payout of the deferred payment from prior performance years that vest in 2015 (the so called ‘ex-post assessment’) or to lower the payout of the up-front payment of the 2014 performance year variable compensation that vests in 2015 (the so called
Aegon is incorporated and based in the Netherlands. As a company established in the Netherlands, Aegon must comply with Dutch law and is subject to the Dutch Corporate Governance Code1.
Netherlands, North America and the United Kingdom. Aegon’s largest shareholder is Vereniging Aegon, a Dutch association with a special purpose, to protect the broader interests of the
In the absence of a Special Cause, Vereniging Aegon2 also casts one vote for every 40 common shares B it holds.
Executive Board, in addition to the Company’s business and corporate strategy. The Supervisory Board must take into account the interests of all Aegon stakeholders. The Supervisory
Aegon’s aims, strategy and associated risk profile, as well as overseeing any relevant sustainability issues and the development of the Company’s earnings. Each member has duties related to his or her specific area of expertise.
The number of Executive Board members and their terms of employment are determined by the Company’s Supervisory
The Company’s Remuneration Policy for the Executive Board limits exit arrangements to a maximum of one year of salary.
The capital of the Company Aegon has authorized capital of EUR 1,080 million, divided into 6 billion common shares and 3 billion common shares B, each with a par value of EUR 0.12. As of December, 31 2014, a total of 2,145,947,511 common shares and 581,325,720 common shares B had been issued.
Company’s largest shareholder. The nominal value of the common shares B is equal to the nominal par value of a common share. This means that common shares B also carry one vote per share. The voting rights attached to common shares B are subject to restrictions, however, under which Vereniging Aegon may cast one vote for every 40 common shares B it holds in the absence of a Special Cause 3.
Significant shareholdings On December 31, 2014, Vereniging Aegon, Aegon’s largest shareholder, held a total of 292,687,444 common shares and 581,325,720 common shares B.
Under the terms of the 1983 Merger Agreement4 as amended in
May 2013, Vereniging Aegon has the option to acquire additional common shares B. Vereniging Aegon may exercise its call option to keep or restore its total stake to 32.6% of the voting rights, irrespective of the circumstances that caused the total shareholding to be or become lower than 32.6%.
2 For an overview of the members of the Executive Board and of the Management Board, please refer to pages 6 and 7. 3 For further information, please see here under for the description of special control rights. 4 The 1983 Merger Agreements, as amended in May 2013, is published on Aegon’s corporate website.
To Aegon’s knowledge, there are two other parties which hold a capital and voting interest in Aegon N.V. in the excess of 3%.
Cox International Stock Fund stated to hold 83,320,454 common shares and voting rights which represents 3.1% of the capital issued as at December 31, 2014. On February 13, 2015, Dodge
�� A proposed business combination by any person or group of persons, whether acting individually or as a group, other than in a transaction approved by the Company’s Executive and
If Vereniging Aegon, acting at its sole discretion, determines that a Special Cause has arisen, it must notify the General Meeting of
Issue and repurchase of shares New shares may be issued up to the maximum of the Company’s authorized capital, following a resolution adopted by the General
Meeting of Shareholders. Shares may also be issued following a resolution of the Executive Board, providing, and to the extent that, the Board has been authorized to do so by the General
Shareholders usually authorize the Executive Board to purchase the Company’s shares under terms and conditions determined by the General Meeting.
Common shares B can only be transferred with the prior approval of Aegon’s Supervisory Board2.
Significant agreements and potential change of control Aegon is not party to any significant agreements that would take effect, alter or terminate as a result of a change of control following a public offer for the outstanding shares of the Company, other than those customary in financial markets
1 The Voting Rights Agreement is published on Aegon’s corporate website. 2 For more details, please refer to clause 14A of Aegon’s Articles of Association.
Appointing, suspending or dismissing Board members The General Meeting of Shareholders appoints members of both the Supervisory and Executive Boards, following nominations by the Supervisory Board. Providing at least two candidates are nominated, these nominations are binding. The General
Dutch Corporate Governance Code Aegon, as a company based in the Netherlands, adheres to the
Dutch Corporate Governance Code and supports its principles for sound and responsible corporate governance. Aegon regards the Code as an effective means to help ensure that the interests of all stakeholders are duly represented and taken into account. The most recent version of the Code came into force on
Aegon’s position on Code II.2.8 Aegon is committed to applying this best practice provision to all new Executive Board appointments. This best practice provision is also embedded in the Company´s Remuneration Policy for the
Alexander R. Wynaendts, which already existed prior to the code coming into force in 2003, contains more favorable severance payment terms should his employment be terminated as a result of a merger or takeover. As a result of a change in Dutch
Corporate law, with effect of January 1, 2013, new members of the Executive Board will not be employees of the Company but will enter into engagement agreements with the Company regarding their position as member of the Executive Board.
On the Annual General Meeting of 2015 it will be proposed to reappoint Mr. Wynaendts for another term of four years.
If the shareholder resolves to reappoint Mr. Wynaendts, his employment agreement will be terminated and an engagement agreement will be entered into between Mr. Wynaendts and the
CEO and CFO from participating in discussions and decisionmaking related to Vereniging Aegon. For this reason, a protocol authorizes the CEO and CFO to continue their activities regarding
United States. The Remuneration Policy as regards the members of the Executive Board is adopted by the General Meeting of
The Supervisory Board performs supervisory and advisory functions only and its members are outsiders that are not employed by the Company. The Supervisory Board has the duty to supervise the performance of the Executive Board, the
1 As a result of a change in Dutch Corporate law, with effect of January 1, 2013, new members of the Executive Board will not be employees of the Company but will enter into engagement agreements with the Company regarding their position as member of the Executive Board. Mr. Button works for the Company on the basis of an engagement agreement. Mr. Wynaendts, who was appointed before this law came into effect, is still an employee of the Company. The reappointment of Mr. Wynaendts for another term of four years will be proposed at the 2015 annual General Meeting of Shareholders. If the shareholder resolves to reappoint Mr. Wynaendts, his employment agreement will be terminated and an engagement agreement will be entered into between Mr. Wynaendts and the Company.
Controls and procedures A. Disclosure controls and procedures As of the end of the period covered by this Annual Report,
Aegon’s management carried out an evaluation, under the supervision and with the participation of its Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and operation of Aegon’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation,
B. Management’s Annual Report on internal control over financial reporting The directors and management of Aegon are responsible for establishing and maintaining adequate Aegon’s internal control over financial reporting is a process designed under the supervision officers to provide reasonable assurance regarding the reliability of financial reporting and statements. Internal control over financial reporting includes policies and procedures that: �� Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; �� Provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with the generally accepted accounting principles; �� Provide reasonable assurance that receipts and expenditures are being made only in accordance with the authorizations of management and directors of the Company; and �� Provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on Aegon’s financial statements would be prevented or detected in a timely manner.
The effectiveness of internal control over financial reporting as of December 31, 2014, was audited by PricewaterhouseCoopers
Accountants N.V., an independent registered public accounting firm, as stated in their report included under item C below.
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
D. Changes in internal controls over financial reporting There have been no changes in internal controls over financial reporting during the period covered by this Annual Report that have materially affected, or are reasonably likely to affect,
Notes to the consolidated financial statements 1 General information 129 2 Summary of significant accounting policies 129 3 Critical accounting estimates and judgment in applying accounting policies 153 4 Financial risks 157 5 Segment information 184 6 Premium income and premiums paid to reinsurers 192 7 Investment income 192 8 Fee and commission income 193 9 Income from reinsurance ceded 193 10 Results from financial transactions 193 11 Other income 194 12 Policyholder claims and benefits 195 13 Profit sharing and rebates 195 14 Commissions and expenses 195 15 Impairment charges / (reversals) 198 16 Interest charges and related fees 199 17 Other charges 199 18 Income tax 200 19 Earnings per share 201 20 Dividend per common share 202 21 Intangible assets 203 23 Investments for account of policyholders 207 25 Investments in joint ventures 211 26 Investments in associates 213 27 Reinsurance assets 215 28 Deferred expenses 216 29 Assets and liabilities held for sale 217 30 Other assets and receivables 218 31 Cash and cash equivalents 220 32 Shareholders’ equity 222 33 Other equity instruments 228 34 Subordinated borrowings 230 35 Trust pass-through securities 230 36 Insurance contracts 230 37 Investment contracts 234 38 Guarantees in insurance contracts 235 41 Defined benefit plans 242 42 Deferred revenue liabilities 248 43 Deferred tax 249 44 Other liabilities 251 46 Capital and solvency 251 47 Fair value 253 48 Commitments and contingencies 266 49 Transfers of financial assets 270 50 Offsetting, enforceable master netting arrangements and similar agreements 273 51 Business combinations 274 52 Group companies 275 53 Related party transactions 276 54 Events after the balance sheet date 283
Financial statements of Aegon N.V. Income statement of Aegon N.V. 286
Purchases of equity securities by the issuer and affiliated purchasers 354
Amounts in EUR million (except per share data) Note 2014 2013 1) 2012 1)
Income before share in profit / (loss) of joint ventures, associates and tax 1,368 992 2,042
Income tax relating to items that will not be reclassified 333 (201) 38
Movement in foreign currency translation and net foreign investment hedging reserves 1,668 (727) (129)
Issued capital and reserves attributable to equity holders of Aegon N.V. 28,120 22,616 26,094
Total equity and liabilities 424,902 351,767 363,102 1 Amounts for 2013 have been restated for the voluntary changes in accounting policies for deferred policy acquisition costs and longevity reserving. Refer to note 2.1.2 Voluntary changes in accounting policies for details about these changes.
Consolidated statement of changes in equity of Aegon N.V. For the year ended December 31, 2014
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments - - (702) - - - (702) - (702)
Total other comprehensive income / (loss) - (4) 5,285 (905) 1,701 - 6,077 (1) 6,075
Total comprehensive income / (loss) for 2014 - 1,182 5,285 (905) 1,701 - 7,262 (1) 7,262
Dividends paid on common shares (104) (266) - - - - (370) - (370)
Share options and share-based incentive plans - 7 - - - (4) 3 - 3 1 Issued capital and reserves attributable to equity holders of Aegon N.V.
Consolidated statement of changes in equity of Aegon N.V. For the year ended December 31, 2013
Other comprehensive income: Items that will not be reclassified to profit or loss: Changes in revaluation reserve real estate held for own use - - (6) - - - (6) - (6)
Remeasurements of defined benefit plans - - - 562 - - 562 - 562
Changes in cash flow hedging reserve - - (555) - - - (555) - (555)
Movements in foreign currency translation and net foreign investment hedging reserves - - - 19 (746) - (727) - (727)
Total comprehensive income / (loss) for 2013 - 851 (3,093) 379 (675) - (2,538) (3) (2,541)
Repurchased and sold own shares (400) (1) - - - - (401) - (401)
Coupons on non-cumulative subordinated notes - (21) - - - - (21) - (21)
Remeasurements of defined benefit plans - - - (149) - - (149) - (149)
Income tax relating to items that will not be reclassified - - 1 37 - - 38 - 38
Changes in cash flow hedging reserve - - (86) - - - (86) - (86)
Income tax relating to items that may be reclassified - (6) (1,055) - 3 - (1,058) - (1,058)
Transfer from / to other headings - (19) 19 - - - - - -
Total other comprehensive income / (loss) - (25) 2,600 (106) (83) - 2,386 (2) 2,384
Total comprehensive income / (loss) for 2012 - 1,646 2,600 (106) (83) - 4,057 (1) 4,056
Cost of issuance of non-cumulative subordinated notes (net of tax) - (10) - - - - (10) - (10)
Share options and share-based incentive plans - - - - - 27 27 - 27 1 Issued capital and reserves attributable to equity holders of Aegon N.V. 2 Refer to note 2.1.2 Voluntary changes in accounting policies for details about these changes.
Insurance and investment liabilities for account of policyholders 12,302 18,787 10,801
Purchase of investments (other than money market investments) (36,577) (34,100) (32,018)
Disposal of investments (other than money market investments) 33,846 31,176 33,742
Net purchase of investments for account of policyholders (1,788) (1,395) 1,197
Cash flow movements on operating items not reflected in income (1,843) (3,180) 2,049
Purchase of equipment and real estate for own use (77) (66) (63)
Acquisition of subsidiaries, joint ventures and associates, net of cash (95) (291) (23)
Disposal of subsidiaries, joint ventures and associates, net of cash 42 811 276
Proceeds from TRUPS 1), subordinated loans and borrowings 3,862 1,056 4,610
Repayment of TRUPS 1), subordinated loans and borrowings (1,307) (2,283) (1,663)
Net cash and cash equivalents at the beginning of the year 5,652 9,497 7,717
Net cash and cash equivalents at the end of the year 31 10,649 5,652 9,497 1 Trust pass-through securities. 2 Included in net increase / (decrease) in cash and cash equivalents are interest received (2014: EUR 6,711 million, 2013: EUR 6,731 million, and 2012: EUR 8,091 million) dividends received (2014: EUR 1,342 million, 2013: EUR 1,021 million, and 2012: EUR 1,069 million) and interest paid (2014: EUR 320 million, 2013: EUR 347 million, and 2012: EUR 1,261 million).
3 Amounts for 2013 and 2012 have been restated for the voluntary changes in accounting policies for deferred policy acquisition costs and longevity reserving. Refer to note 2.1.2 Voluntary changes in accounting policies for details about these changes.
2 Summary of significant accounting policies 2.1 Basis of presentation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS) and with Part 9 of Book 2 of the Netherlands Civil Code.
The consolidated financial statements have been prepared in accordance with the historical cost convention as modified by the revaluation of investment properties and those financial instruments (including derivatives) and financial liabilities that have been measured at fair value. Information on the standards and interpretations that were adopted in 2014 is provided below in note 2.1.1
Adoption of new IFRS accounting standards. Aegon also adopted voluntary changes in accounting policies, effective January 1, 2014, disclosed in note 2.1.2 Voluntary changes in accounting policies. The consolidated financial statements are presented in euro and all values are rounded to the nearest million unless otherwise stated. The consequence is that the rounded amounts may not add up to the rounded total in all cases. All ratios and variances are calculated using the underlying amount rather than the rounded amount.
(macro hedging) under the European Union (EU) ‘carve out’ of IFRS. Details are provided in note 2.9 Derivatives and note 24 Derivatives.
The above new standards, amendments to existing standards and interpretations have been endorsed by the European Union.
Aegon has early adopted IFRS 10 “Consolidated Financial Statements”, IFRS 11 “Joint Arrangements” and IFRS 12 “Disclosure of
Interests in Other Entities” in the consolidated financial statements of 2013. The effect of these changes in accounting policies are included in the consolidated financial statements of 2013.
2.1.2 Voluntary changes in accounting policies Aegon adopted voluntary changes in accounting policies, effective January 1, 2014, which are applied retrospectively for all periods presented. Changes to these policies relate to deferred policy acquisition costs and how Aegon accounts for longevity trends in the Netherlands. In the paragraphs below, details are provided for these changes in accounting policies.
As of January 1, 2014, Aegon amended its policy to determine the insurance contract liability of Aegon the Netherlands to account for longevity risk assumed by Aegon. This change will provide more current information about the financial effects of changes in life expectancy of the insured population. It will supply users of the financial statements with more relevant decision making information on the insurance contract liability and will improve transparency on the longevity risks assumed by Aegon.
Coupons on other equity instruments (167) - - (167) (195) - - (195)
Weighted average number of common shares B outstanding (in million) 366 - - 366 - - - 1 As reported in Aegon’s 2013 Annual Report dated March 19, 2014.
Movement in foreign currency translation and net foreign investment hedging reserves (784) 57 - (727) (110) (19) - (129)
Income tax relating to items that may be reclassified 1,286 8 - 1,295 (1,051) (7) - (1,058)
Net effect other comprehensive income for the period 39 - (11) -
Impact of changes in accounting policies on the consolidated statement of financial position Assets
1 As reported in Aegon’s 2013 Annual Report dated March 19, 2014.
The IASB issued the final version of IFRS 9 Financial Instruments in July 2014. IFRS 9 combines classification and measurement, the expected credit loss impairment model and hedge accounting. The standard will eventually replace IAS 39 and all previous versions of IFRS 9. Application is required for annual periods beginning or after January 1, 2018. Under the Classification and Measurement component financial assets are measured at amortized cost, fair value through profit or loss or fair value through other comprehensive income, based on both the entity’s business model for managing the financial assets and the financial asset’s contractual cash flow characteristics. The classification and measurement of financial liabilities is unchanged from existing requirements apart from own credit risk. For financial liabilities that are measured at fair value through profit or loss, the changes which are attributable to the change in an entity’s own credit risk are presented in other comprehensive income, unless doing so would enlarge or create an accounting mismatch. For the impairment component, the IASB included requirements for a credit loss allowance or provision which should be based on expected losses rather than incurred losses. On November 19, 2013, the IASB issued a new version of
Notes to the consolidated financial statements of Aegon N.V. Note 2 and recognize revenue and the related cash flows. The core principle is that an entity will recognize revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. IFRS 15 will be effective for the Group on January 1, 2017, using either of two methods: a full retrospective approach with certain practical expedients or a modified retrospective approach with the cumulative effect of initially applying this standard recognized at the date of initial application with certain additional disclosures. Aegon is evaluating the impact that adoption of this standard is expected to have on the Group’s financial statements. The full impact will only be clear after full assessment of the standard.
The following amendments to the existing standards and interpretations, published prior to January 1, 2015, which are not yet effective for or early adopted by the Group, will not significantly impact the financial position or financial statements: �� IFRS 10, IFRS 12 and IAS 28 - Investment Entities: Applying the Consolidation Exception1; �� IFRS 10 and IAS 28 - Amendment Sale or Contribution of Assets between an Investor and its Associate or Joint Venture1; �� IFRS 11 Joint Arrangements - Amendment Accounting for Acquisition of Interests in Joint Operations1; �� IFRS 14 Regulatory Deferral Accounts1; �� IAS 1 - Amendment Disclosure Initiative1; �� IAS 19 Employee Benefits - Amendment Employee Contributions; �� IAS 27 Separate Financial Statements - Amendment Equity method in Separate Financial Statements1; �� IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortization1; �� Annual improvements 2010-2012 Cycle; �� Annual improvements 2011-2013 Cycle; and �� Annual improvements 2012-2014 Cycle1.
The excess of the consideration paid to acquire the interest and the fair value of any interest already owned, over the Group’s share in the net fair value of assets, liabilities and contingent liabilities acquired is recognized as goodwill. Negative goodwill is recognized directly in the income statement. If the fair value of the assets, liabilities and contingent liabilities acquired in the business combination has been determined provisionally, adjustments to these values resulting from the emergence of new evidence within 12 months after the acquisition date are made against goodwill. Contingent consideration is discounted and the unwinding is recognized in the income statement as an interest expense. Any changes in the estimated value of contingent consideration given in a business combination are recognized in the income statement.
The identifiable assets, liabilities and contingent liabilities are stated at fair value when control is obtained.
Transactions with non-controlling interests are accounted for as transactions with equity holders. Therefore disposals to noncontrolling interests and acquisitions from non-controlling interests, not resulting in losing or gaining control of the subsidiary are 1 Not yet endorsed by the European Union.
recorded in other comprehensive income. Any difference between consideration paid or received and the proportionate share in net assets is accounted for in equity attributable to shareholders of Aegon N.V.
On consolidation of an investment fund, a liability is recognized to the extent that the Group is legally obliged to buy back participations held by third parties. The liability is presented in the consolidated financial statements as investment contracts for account of policyholders. Where no repurchase obligation exists, the participations held by third parties are presented as noncontrolling interests in equity. The assets allocated to participations held by third parties or by the Group on behalf of policyholders are presented in the consolidated financial statements as investments for account of policyholders.
A structured entity is defined in IFRS 12 as “An entity that has been designed so that voting rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements.” In these instances the tests and indicators to assess control provided by IFRS 10 have more focus on the purpose and design of the investee (with relation to the relevant activities that most significantly affect the structured entity) and the exposure to variable returns, which for structured entities lies in interests through e.g. derivatives, and will not be focused on entities that are controlled by voting rights.
Structured entities that are consolidated include certain mortgage backed securitization deals, where Aegon was involved in the design of the structured entities and also has the ability to use its power to affect the amount of the investee’s returns. Other factors that contributed to the conclusion that consolidation of these entities was required include that fact that Aegon fully services the investees and can therefore influence the defaults of the mortgage portfolios and the fact that in these cases the majority of risks are maintained by Aegon.
Disposal groups are classified as held for sale if they are available for immediate sale in their present condition, subject only to the customary sales terms of such assets and disposal groups and their sale is considered highly probable; management must be committed to the sale, which is expected to occur within one year from the date of classification as held for sale.
At the balance sheet date, monetary assets and monetary liabilities in foreign currencies and own equity instruments in foreign currencies are translated to the functional currency at the closing rate of exchange prevailing on that date. Non-monetary items carried at cost are translated using the exchange rate at the date of the transaction, while assets carried at fair value are translated at the exchange rate when the fair value was determined.
2.6 Intangible assets a. Goodwill Goodwill is recognized as an intangible asset for interests in subsidiaries and joint ventures acquired after January 1, 2004, and is measured as the positive difference between the acquisition cost and the Group’s interest in the net fair value of the entity’s identifiable assets, liabilities and contingent liabilities. Subsequently, goodwill is carried at cost less accumulated impairment charges.
VOBA is amortized over the useful life of the acquired contracts, based on either the expected future premiums or the expected gross profit margins. The amortization period and pattern are reviewed at each reporting date; any change in estimates is recorded in the income statement. For all products, VOBA, in conjunction with deferred policy acquisition costs (DPAC) where appropriate, is assessed for recoverability at least annually on a country-by-country basis and the portion determined not to be recoverable is charged to the income statement. VOBA is considered in the liability adequacy test for each reporting period.
equity. VOBA is derecognized when the related contracts are settled or disposed off.
The present value of the future servicing rights is amortized over the servicing period as the fees from services emerge and is subject to impairment testing. It is derecognized when the related contracts are settled or disposed off.
2.9 Derivatives a. Definition Derivatives are financial instruments of which the value changes in response to an underlying variable, that require little or no net initial investment and are settled at a future date.
Assets and liabilities may include derivative-like terms and conditions. With the exception of features embedded in contracts held at fair value through profit or loss, embedded derivatives that are not considered closely related to the host contract are bifurcated, carried at fair value and presented as derivatives. In assessing whether a derivative-like feature is closely related to the contract in which it is embedded, the Group considers the similarity of the characteristics of the embedded derivative and the host contract.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognized in the profit and loss account, together with fair value adjustments to the hedged item attributable to the hedged risk. If the hedge relationship no longer meets the criteria for hedge accounting, the cumulative adjustment of the hedged item is, in the case of interest bearing instruments, amortized through the profit and loss account over the remaining term of the original hedge or recognized directly when the hedged item is derecognized.
of IFRS. The EU ‘carve out’ macro hedging enables a group of derivatives (or proportions thereof) to be viewed in combination and jointly designated as the hedging instrument and removes some of the limitations in fair value hedge accounting. Under the EU ‘carve out’, ineffectiveness in fair value hedge accounting only arises when the revised projection of the amount of cash flows in scheduled
time buckets falls below the designated amount of that bucket. Aegon applies fair value hedge accounting for portfolio hedges of interest rate risk (macro hedging) under the EU ‘carve out’ to mortgage loans. Changes in the fair value of the derivatives are recognized in the profit and loss account, together with the fair value adjustment on the mortgages (hedged items) insofar as attributable to interest rate risk (the hedged risk).
Hedge accounting is discontinued prospectively for hedges that are no longer considered effective. When hedge accounting is discontinued for a fair value hedge, the derivative continues to be carried on the statement of financial position with changes in its fair value recognized in the income statement. When hedge accounting is discontinued for a cash flow hedge because the cash flow is no longer expected to occur, the accumulated gain or loss in shareholders’ equity is recognized immediately in the income statement. In other situations where hedge accounting is discontinued for a cash flow hedge, including those where the derivative is sold, terminated or exercised, accumulated gains or losses in shareholders’ equity are amortized into the income statement when the income statement is impacted by the variability of the cash flow from the hedged item.
Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has rather than the legal structure of the joint arrangement. Aegon has assessed the nature of its joint arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method.
Aegon is not relieved of its legal liabilities when entering into reinsurance transactions, therefore the reserves relating to the underlying insurance contracts will continue to be reported on the consolidated statement of financial position during the run-off period of the underlying business.
For all products, DPAC, in conjunction with VOBA where appropriate, is assessed for recoverability at least annually on a countryby -country basis as part of the liability adequacy test for each reporting period. If appropriate, the assumptions included in the determination of estimated gross profits are adjusted. The portion of DPAC that is determined not to be recoverable is charged to the income statement.
For products sold in the United States, when unrealized gains or losses arise on available-for-sale assets, DPAC is adjusted to equal the effect that the realization of the gains or losses (through sale or impairment) would have had on its measurement.
DPAC is derecognized when the related contracts are settled or disposed off.
b. Deferred cost of reinsurance A deferred cost of reinsurance is established when Aegon enters into a reinsurance transaction. Aegon is not relieved of its legal liabilities, so the reserves relating to the underlying reinsured contracts will continue to be reported in the consolidated statement of financial position during the run-off period of the underlying business.
2.14 Other assets and receivables Other assets include trade and other receivables, prepaid expenses, equipment and real estate held for own use. Trade and other receivables are initially recognized at fair value and are subsequently measured at amortized cost. Equipment is initially carried at cost, depreciated on a straight line basis over its useful life to its residual value and is subject to impairment testing. The accounting for real estate held for own use is described in note 2.7 Investments.
For debt instruments classified as available-for-sale, the asset is impaired to its fair value. Any unrealized loss previously recognized in other comprehensive income is taken to the income statement in the impairment loss. After impairment the interest accretion on debt instruments that are classified as available-for-sale is based on the rate of return that would be required by the market for similar rated instruments at the date of impairment.
2.19 Insurance contracts Insurance contracts are accounted for under IFRS 4 Insurance Contracts. In accordance with this standard, Aegon continues to apply the existing accounting policies that were applied prior to the adoption of IFRS, with certain modifications allowed by IFRS 4 for standards effective subsequent to adoption. Aegon applies, in general, non-uniform accounting policies for insurance liabilities and intangible assets to the extent that it was allowed under Dutch Accounting Principles. As a result, specific methodologies applied may differ between Aegon’s operations as they may reflect local regulatory requirements and local practices for specific product features in these local markets. At the time of IFRS adoption, Aegon was applying US GAAP for its United States operations whereas in the Netherlands and the United Kingdom, Aegon was applying Dutch Accounting Principles. Since adoption of IFRS, Aegon has considered new and amended standards in those GAAP’s which have become effective subsequent to the date of transition to IFRS.
Insurance liabilities are recognized when the contract is entered into and the premiums are charged. The liability is derecognized when the contract expires, is discharged, disposed or cancelled.
a. Life insurance contracts Life insurance contracts are insurance contracts with life-contingent benefits. The measurement of the liability for life insurance contracts varies depending on the nature of the product.
Terms and conditions, including participation features and expected lapse rates, are considered when establishing the insurance liabilities. Where the Group has discretion over the amount or timing of the bonuses distributed resulting from participation features, a liability is recognized equal to the amount that is available at the balance sheet date for future distribution to policyholders.
In the Netherlands, an additional liability is established for guaranteed minimum investment returns on group pension plans with profit sharing and on traditional insurance contracts, with profit sharing based on an external interest index, that are not bifurcated.
Notes to the consolidated financial statements of Aegon N.V. Note 2 e. Non-life insurance contracts Non-life insurance contracts are insurance contracts where the insured event is not life-contingent. For non-life products the insurance liability generally includes reserves for unearned premiums, unexpired risk, inadequate premium levels and outstanding claims and benefits. No catastrophe or equalization reserves are included in the measurement of the liability.
All tests performed within the Group are based on current estimates of all contractual future cash flows, including related cash flows from policyholder options and guarantees. A number of valuation methods are applied, including discounted cash flow methods, option pricing models and stochastic modeling. Aggregation levels are set either on geographical jurisdiction or at the level of portfolio of contracts that are subject to broadly similar risks and managed together as a single portfolio. Specifically, in the Netherlands and the UK the liability adequacy test is performed on a consolidated basis for all life and non-life business, whereas in the Americas it is performed at the level of the portfolio of contracts. To the extent that the tests involve discounting of future cash flows, the interest rate applied is based on market rates or is based on management’s expectation of the future return on investments. These future returns on investments take into account management’s best estimate related to the actual investments and, where applicable, reinvestments of these investments at maturity. Aegon the Netherlands, as required locally, adjusts the outcome of the liability adequacy test for the difference between the fair value and the book value of the assets that are measured at amortized cost in the balance sheet.
To the extent that the account balances are insufficient to meet future benefits and expenses, any resulting deficiency is recognized in the income statement, initially by impairing the DPAC and VOBA and subsequently by establishing an insurance liability for the remaining loss, unless shadow loss recognition has taken place. In the Netherlands, in situations where market interest rates for the valuation of debt securities leads to a change in the revaluation reserve, and where the result of using the same assumptions for the liabilities could lead to a deficiency in the liability adequacy test that should be recognized in the income statement, shadow loss recognition is applied. Shadow loss recognition is applied to the extent that the deficiency of the insurance liabilities relates to the revaluation of debt securities as a result of movements in interest rates, the addition to the insurance liabilities is then off set against the revaluation reserve.
b. Investment contracts without discretionary participation features At inception, investment contracts without discretionary features are carried at amortized cost.
The defined benefit obligation is based on the terms and conditions of the plan applicable on the balance sheet date. In measuring the defined benefit obligation the Group uses the projected unit credit method and actuarial assumptions that represent the best estimate of future variables. The benefits are discounted using an interest rate based on the market yield for high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity that approximate the terms of the related pension liability. Actuarial assumptions used in the measurement of the liability include the discount rate, estimated future salary increases, mortality rates and price inflation. To the extent that actual experience deviates from these assumptions, the valuation of defined benefit plans and the level of pension expenses recognized in the future may be affected.
Remeasurements of the net defined benefit liability (asset) shall not be reclassified to profit or loss in a subsequent period.
Within the Group only discretionary employee contributions and employee contributions linked to service but independent of the number of years of service exist, which are deducted from the current year service cost. Net interest on the net defined benefit liability (asset) shall be determined by multiplying the net defined benefit liability (asset) by the applicable discount rate. Net interest on the net defined benefit liability (asset) comprises interest income on plan assets and interest cost on the defined benefit obligation.
Whereby interest income on plan assets is a component of the return on plan assets and is determined by multiplying the fair value of the plan assets by the applicable discount rate. The difference between the interest income on plan assets and the actual return on plan assets is included in the remeasurement of the net defined benefit liability (asset).
2.24 Tax assets and liabilities a. Current tax assets and liabilities Tax assets and liabilities for current and prior periods are measured at the amount that is expected to be received from or paid to the taxation authorities, using the tax rates that have been enacted or substantively enacted by the reporting date.
b. Deferred tax assets and liabilities Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the carrying value of an item and its tax value, with the exception of differences arising from the initial recognition of goodwill and of assets and liabilities that do not impact taxable or accounting profits. A tax asset is recognized for tax loss carryforwards to the extent that it is probable at the reporting date that future taxable profits will be available against which the unused tax losses and unused tax credits can be utilized.
Deferred tax liabilities relating to investments in subsidiaries, associates and joint ventures are not recognized if the Group is able to control the timing of the reversal of the temporary difference and it is probable that the difference will not be reversed in the foreseeable future.
Notes to the consolidated financial statements of Aegon N.V. Note 2 2.25 Contingent assets and liabilities Contingent assets are disclosed in the notes if the inflow of economic benefits is probable, but not virtually certain. When the inflow of economic benefits becomes virtually certain, the asset is no longer contingent and its recognition is appropriate.
2.28 Fee and commission income Fees and commissions from investment management services and mutual funds, and from sales activities are recognized as revenue over the period in which the services are performed or for sales activities where services have been rendered.
It includes internal and external claims handling costs that are directly related to the processing and settlement of claims. Amounts receivable in respect of salvage and subrogation are also considered.
Notes to the consolidated financial statements of Aegon N.V. Note 3 relates to unrealized gains and losses on available-for-sale investments, the additional liability is recognized in the revaluation reserve in equity.
DPAC and VOBA assets respectively, and are amortized to the income statement over time. If the assumptions relating to the future profitability of these policies are not realized, the amortization of these costs could be accelerated and may even require write-offs due to unrecoverability.
Investment assumptions are prescribed by the local regulator, market observable or based on management’s future expectations.
Assumptions on future expenses are based on the current level of expenses, adjusted for expected expense inflation if appropriate.
Surrender rates depend on product features, policy duration and external circumstances such as the interest rate environment and competitor and policyholder behavior. For policies with account value guarantees based on equity market movements, a dynamic lapse assumption is utilized to reflect policyholder behavior based on whether the guarantee is in the money. Own experience, as well as industry published data, are used in establishing assumptions.
Treasury yields by 50 basis points to 4.25% and extended the uniform grading period from 5 years to 10 years. Aegon also changed its assumed returns for US separate account bond fund to 4% over the next 10 years and 6% thereafter from its previous assumptions of 4% over the next 5 years and 6% thereafter. In addition, Aegon changed its long-term equity market return assumption for the estimated gross profit in variable life and variable annuity products in the Americas from 9% to 8%. In total, these assumption changes led to a negative impact on earnings of EUR 405 million in the third quarter of 2013. Both the assumptions for the bond fund and that for the long-term equity market are gross assumptions from which asset management and policy fees are deducted to determine the policyholder return. The 90-day Treasury yield was 0.07% at December 31, 2013, and was assumed to remain level for the next two years followed by an eight year grade to 2.5%.
Sensitivity on variable annuities and variable life insurance products in the United States
For the fixed annuities and fixed universal life insurance products, the estimated gross profits (EGP) calculations include a net interest rate margin, which Aegon assumes will remain practically stable under any reasonably likely interest rate scenario.
A relative increase ranging from 5% to 10% to the mortality assumption, dependent on the block of business, would reduce net income by approximately EUR 63 million (2013: EUR 105 million). A relative 20% increase in the lapse rate assumption would increase net income by approximately EUR 71 million (2013: EUR 18 million).
While Aegon believes its valuation techniques are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain instruments (both financial and non-financial) could result in a different estimate of fair value at the reporting date.
4 Financial risks General As an insurance group, Aegon is exposed to a variety of risks. Aegon’s largest exposures are to changes in financial markets (e.g. foreign currency, interest rate, credit and equity market risks) that affect the value of the investments, liabilities from products that Aegon sells, deferred expenses and value of business acquired. Other risks include insurance related risks, such as changes in mortality and morbidity, which are discussed in note 36 Insurance contracts. Aegon manages risk at local level where business is transacted, based on principles and policies established at the Group level. Aegon’s integrated approach to risk management involves common measurement of risk and scope of risk coverage to allow for aggregation of the Group’s risk position.
To manage its risk exposure, Aegon has risk policies in place. Many of these policies are group-wide while others are specific to the unique situation of local businesses. The Group level policies limit the Group’s exposure to major risks such as equity, interest rates, credit, and currency. The limits in these policies in aggregate remain within the Group’s overall tolerance for risk and the Group’s financial resources. Operating within this policy framework, Aegon employs risk management programs including asset liability management (ALM) processes and models and hedging programs (which are largely conducted via the use of derivatives).
Aegon operates a Derivative Use Policy to govern its usage of derivatives. These policies establish the control, authorization, execution and monitoring requirements of the usage of such instruments. In addition, these policies stipulate necessary mitigation of credit risk created through these derivatives management tools. For derivatives, credit risk is normally mitigated by requirements to post collateral via credit support annex agreements.
The accounting mismatch inherent in IFRS is also apparent in the reported sensitivities. A change in interest rates has an immediate impact on the carrying amount of assets measured at fair value. However, the shock will not have a similar effect on the carrying amount of the related insurance liabilities that are measured based on locked-in assumptions or on management’s long-term expectations. Consequently, the different measurement bases for assets and liabilities lead to increased volatility in IFRS net income and shareholders’ equity. Aegon has classified a significant part of its investment portfolio as ‘available-for-sale’, which is one of the main reasons why the economic shocks tested have a different impact on net income than on shareholders’ equity. Unrealized gains and losses on these assets are not recognized in the income statement but are booked directly to the revaluation reserves in shareholders’ equity, unless impaired. As a result, economic sensitivities predominantly impact shareholders’ equity but leave net income unaffected. The effect of movements of the revaluation reserve on capitalization ratios and capital adequacy are minimal.
Nor are the results of the sensitivities intended to be an accurate prediction of Aegon’s future shareholders’ equity or earnings.
Concentration risk for financial risks are measured and managed at the following levels: �� Concentration per risk type: Risk exposures are measured per risk type as part of Aegon’s internal economic framework.
Increase by 15% of USD currencies relative to the euro 79 1,434
Increase by 15% of GBP currencies relative to the euro 31 484
Increase by 15% of non-euro currencies relative to the euro 178 2,398
Decrease by 15% of non-euro currencies relative to the euro (178) (2,398)
Increase by 15% of non-euro currencies relative to the euro 61 1,951
Decrease by 15% of non-euro currencies relative to the euro (61) (1,950) 1 The effect of currency exchange movements is reflected as a one-time shift up or down in the value of the non-euro currencies relative to the euro on December 31.
Several bonds in Aegon USA’s portfolio are insured by monoline insurers. Further information on the monoline insurers is provided in the section ‘Additional information on credit risk, unrealized losses and impairments’.
Within tri-party repos Aegon invests under short-term reverse repurchase agreements and the counterparty posts collateral to a third party custodian. The collateral posted is typically high-quality, short-term securities and is only accessible to Aegon in the event the counterparty defaults.
Guarantees that have been received regarding mortgage loans that fulfill certain criteria of the Dutch mortgage loan guarantee (NHG)
are presented in the letters of credit/guarantees column. These specific mortgage loans are partly guaranteed by a Dutch government trust (Stichting Waarborgfonds Eigen Woningen). The guarantee encompasses the remaining debt for these mortgage loans (being the remainder of the mortgage loan minus the forced sale auction value).
The master netting agreements column in the table relates to derivative liability positions which are used in Aegon’s credit risk management. The offset in the master netting agreements column includes balances where there is a legally enforceable right of offset, but no intention to settle these balances on a net basis under normal circumstances. As a result, there is a net exposure for credit risk management purposes. However, as there is no intention to settle these balances on a net basis, they do not qualify for net presentation for accounting purposes.
The collateral included in the other column represents the policyholders account value for policy loans. The excess of the account value over the loan value is included in the surplus collateral column. For further information on the policy loans refer to note 22.1
Aegon may also mitigate credit risk in reinsurance contracts by including down-grade clauses that allow the recapture of business, retaining ownership of assets required to support liabilities ceded or by requiring the reinsurer to hold assets in trust. For the resulting net credit risk exposure, Aegon employs deterministic and stochastic credit risk modeling in order to assess the Group’s credit risk profile, associated earnings and capital implications due to various credit loss scenarios.
At December 31, 2014, there were three violations of the Credit Name Limit Policy at Group level. One of these violations is expected to resolve due to the sale of the Canadian operations, subject to regulatory approval. For the other two exposures, it is being investigated if these exposures can be reduced. At December 31, 2013, there was one violation of the Credit Name Limit Policy at
Group level. This violation has been resolved in 2014 through reducing the exposure.
At December 31, 2014, Aegon’s largest corporate credit exposures are to Berkshire Hathaway, American United Mutual Insurance,
Wells Fargo, BNP Paribas and Citigroup. Aegon had large investments in sovereign backed assets, the largest being in the USA, the Netherlands, Germany, UK and Austria. Highly rated sovereign assets (AAA rated by 3 rating agencies) and domestically issued and owned in local currency sovereign exposures are excluded from the Credit Name Limit Policy.
Past due and / or impaired assets 79 1,497 638 160 - 26 160 28 877 1,711 2,588 1 Includes investments of Holding and other activities. 2 Based on methodology adopted in 2014.
Past due and / or impaired assets - - - - - - - - - - 1 Reflects difference in classification of the methodology operated in 2014 compared to the methodology operated in 2013.
Credit risk concentrations – debt securities and money market investments 2014 Americas
Asset-backed securities (ABSs) - CDOs backed by ABS, Corp. bonds, Bank loans 562 1,379 - - 1,941 43 1 Includes investments of Holding and other activities.
The fair value of Aegon Americas commercial and agricultural mortgage loan portfolio as per December 31, 2014, amounted to
(net of recoveries) (2013: EUR 11 million) on this portfolio. In 2014, Aegon Americas foreclosed upon, or recovered EUR 16 million
(2013: EUR 73 million) of real estate. The 2014 additional impairments associated with these loans at the time of foreclosure amounted to EUR 1 million (2013: impairment recoveries of EUR 4 million).
(2013: EUR 26,114 million). The LTV amounted to approximately 95% (2013: 99%). A significant part of the portfolio (60%; 2013: 58%) is government guaranteed. Of the portfolio, 0.9% (2013: 1.2%) is in delinquency (defined as 60 days in arrears).
Impairments in 2014 amounted to EUR 4 million (2013: EUR 22 million). Historical defaults of the portfolio have been between 2 and 9 basis points per year.
Aegon’s investments in unconsolidated structured entities such as RMBSs, CMBSs and ABSs are presented in the line item ‘Investments’
of the statement of financial position. The composition of the structured entities portfolios of Aegon are widely dispersed looking at the individual amount per entity. This is shown in the following table together with the number of individual entities: Number of entities
For the most significant structured entities the following table presents the maximum exposure to loss excluding government guarantees for Aegon by type of structured security and by seniority of interest. Also shown are the amounts of losses that in each case would be absorbed first by investors whose interests rank junior to those of Aegon. If Aegon has interests in multiple tranches of one individual structured entity, Aegon’s maximum exposure to loss is excluded from the amount shown as potential losses borne by more junior interests. In each case, the amounts shown reflect the fair value of those interests as at the reporting date. Furthermore, the table presents a comparison of Aegon’s interest with the total assets of those unconsolidated structured entities. The amount shown as total assets is based on the most current available information.
For unconsolidated structured entities in which Aegon has an interest at reporting date, the following table presents total income received from those interests. The Investments column reflects the carrying values recognized in the statement of financial position of Aegon’s interests in unconsolidated structured entities. Aegon did not recognize other interests in unconsolidated structured entities such as commitments, guarantees, provisions, derivative instruments or other liabilities.
Bonds insured by monoline insurers Amortized cost Fair value Amortized cost Fair value 1 For 2013, the credit classification is restated for the change in rating methodology.
Additional information on credit risk, unrealized losses and impairments Debt instruments The amortized cost and fair value of debt securities, money market investments and other, included in Aegon’s available-for-sale (AFS)
Of which held by Aegon Americas, NL and UK 94,409 11,656 (743) 105,323 93,142 12,181
Total held by Aegon Americas, NL and UK 12,011 (713) 22,293 (1,575)
In spite of improving US economic conditions, developed-world growth remains below potential, lessening the chance for a strong recovery. European sovereign debt yields have fallen materially in anticipation of further loosening of monetary policy in the European
Reserve maintained a Fed Funds rate near zero, but ended purchases under its quantitative easing program. US Treasury rates fell over the course of the year. Corporate default rates have remained low due largely to readily available access to funding and strong corporate balance sheet fundamentals. However, credit spreads widened significantly during the second half of 2014, ending the year wider than beginning levels for most asset types. Commodity prices were significantly lower, led by a dramatic fall in the price of oil, due to excess supply. The decrease in US Treasury rates caused the market values of fixed income holdings to increase relative to their carrying values.
(S&P, Moody’s and Fitch) and Aegon’s internal rating of the counterparty.
(December 31, 2013: EUR 19 million) by Aegon UK. Residential mortgage-backed securities are securitizations of underlying pools of non-commercial mortgages on real estate. The underlying residential mortgages have varying credit characteristics and are pooled together and sold in tranches. The following table shows the breakdown of Aegon USA’s RMBS available-for-sale portfolio.
Additionally, Aegon USA has investments in RMBS of EUR 88 million (December 31, 2013: EUR 60 million), which are classified as fair value through profit or loss.
Total fair value 1 Reported as part of asset-backed securities in the table on page 169.
Total fair value 1 For 2013, the credit classification is restated for the change in rating methodology. 2 Reported as part of asset-backed securities in the table on page 170.
Loss severity assumptions were determined by obtaining historical rates from broader market data and by adjusting those rates for vintage, specific pool performance, collateral type, mortgage insurance and estimated loan modifications. Prepayments were estimated by examining historical averages of prepayment activity on the underlying collateral. Quantitative ranges of significant assumptions within Aegon’s modeling process for Prime jumbo, Alt-A and Negative amortization RMBS are as follows: prepayment assumptions range from approximately 0.5% to 36% with a weighted average of approximately 4.8% (December 31, 2013: 4.8%), assumed defaults on delinquent loans range from 50% to 100% with a weighted average of approximately 86.3% (December 31, 2013: 84.3%), assumed defaults on current loans are dependent on the specific security’s collateral attributes and historical performance, while loss severity assumptions range from approximately 13.9% to 75%, with a weighted average of approximately 54.7% (December 31, 2013: 54.5%). Additionally, quantitative ranges of significant assumptions within Aegon’s modeling process for the RMBS subprime mortgage portfolio are as follows: prepayment assumptions range from approximately 2% to 15% with a weighted average of approximately 6.2% (December 31, 2013: 5.2%), assumed defaults on delinquent loans range from 60% to 100% with a weighted average of approximately 89.9% (December 31, 2013: 87.2%), assumed defaults on current loans are dependent on the specific security’s collateral attributes and historical performance, while loss severity assumptions range from approximately 39% to 103%, with a weighted average of approximately 73.3% (December 31, 2013: 72.6%).
The total gross unrealized loss on AFS RMBS of Aegon Americas, Aegon the Netherlands and Aegon UK amounted to EUR 145 million
(December 31, 2013: 210 million), of which EUR 142 million (December 31, 2013: EUR 190 million) relates to positions of Aegon USA, and the total net unrealized gain on available-for-sale RMBS was EUR 309 million (December 31, 2013: EUR 229 million), including a EUR 269 million (December 31, 2013: EUR 192 million) net unrealized gain relating to positions of Aegon USA. The housing market in the United States has continued to improve as evidenced by rising home prices and sales volume. The pace of improvement has slowed considerably in the second half of 2014, and is expected to continue to moderate in the coming years. The positive trends in the housing market have led to improvements in borrower delinquencies and prepayment rates as well as liquidation timelines.
RMBS sectors. The improving housing market and underlying loan credit performance led to credit spread tightening across the asset class during 2014.
The fair values of Aegon USA’s RMBS instruments were determined as follows: Level II Level III Total 2014 Level II Level III Total 2013
tranches. The company’s CMBS include conduit, large loan, single borrower, commercial real estate collateralized debt obligations
(CRE CDOs), collateralized debt obligations (CDOs), government agency, and franchise loan receivable trusts.