In the latter case, the anticipated future investment returns are set by management on a countrywide basis, considering available market information and economic indicators. A significant assumption related to estimated gross profits on variable annuities and variable life insurance products in the United States and some of the smaller countries, is the annual long-term growth rate of the underlying assets. The reconsideration of this assumption may affect the original DPAC or VOBA amortization schedule, referred to as DPAC or VOBA unlocking. The difference between the original DPAC or VOBA amortization schedule and the revised schedule, which is based on actual and estimates of future gross profits, is recognized in the income statement as an expense or a benefit in the period of determination.
Assumptions are reviewed periodically, historically in the third quarter, but now in the second quarter for the US and Asia and in the fourth quarter for Europe, based on historical experience, observable market data, including market transactions such as acquisitions and reinsurance transactions, anticipated trends and legislative changes. Similarly, the models and systems used for determining our liabilities are reviewed periodically and, if deemed necessary, updated based on emerging best practices and available technology.
EUR 148 million (2017: EUR 130 million). The DPAC and VOBA balances for these products in the United States amounted to EUR 2.6 billion at December 31, 2018 (2017: EUR 2.7 billion).
A relative increase of 10% to the mortality assumption was used, dependent on product and characteristics of the block of business, would reduce net income by approximately EUR 207 million (2017: EUR 265 million). A relative 20% increase in the lapse rate assumption would increase net income by approximately EUR 89 million (2017: EUR 78 million).
Sensitivity on long term care products (LTC) in the United States
(2017: EUR 17 million). The GPV margin is the amount by which the IFRS reserve exceeds the GPV liability.
A 5% increase in the incidence rates with regard to Aegon’s long term care products would result in a GPV increase of approximately
Removing the morbidity improvement, which is a component of the incidence assumption, would result in a GPV increase of approximately EUR 500 million, of which EUR 425 million relates to the loss recognition block.
Reducing mortality 10% would result in a GPV increase of approximately EUR 85 million. Increasing mortality 10% would result in a GPV decrease of approximately EUR 85 million.
However, certain assets and liabilities are valued on the basis of valuation techniques that feature one or more significant market inputs that are unobservable and, for such assets and liabilities, the derivation of fair value is more judgmental. An instrument is classified in its entirety as valued using significant unobservable inputs (Level III) if, in the opinion of management, a significant proportion of the instrument’s carrying amount is driven by unobservable inputs. 'Unobservable' in this context means that there is little or no current market data available from which to determine the price at which an at arm’s length transaction would be likely to occur. It generally does not mean that there is no market data available at all upon which to base a determination of fair value.
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 financial derivative instruments). These risk management programs are in place in each country unit and are not only used to manage risk in each unit, but are also part of the Group's overall risk strategy.
sensitivity test the impact of a reasonably possible change in a single factor is shown. Management action is taken into account to the extent that it is part of Aegon’s regular policies and procedures, such as established hedging programs. However, incidental management actions that would require a change in policies and procedures are not considered.
The analysis does not take into account the impact of future new business, which is an important component of Aegon’s future earnings. It also does not consider all methods available to management to respond to changes in the financial environment, such as changing investment portfolio allocations or adjusting premiums and crediting rates. Furthermore, the results of the analyses cannot be extrapolated for wider variations since effects do not tend to be linear.
is exposed to credit risk on its general account fixed-income portfolio (debt securities, mortgages and private placements), over-thecounter derivatives and reinsurance contracts. Some issuers have defaulted on their financial obligations for various reasons, including bankruptcy, lack of liquidity, downturns in the economy, downturns in real estate values, operational failure and fraud. During financial downturns, Aegon can incur defaults or other reductions in the value of these securities and loans, which could have a materially adverse effect on Aegon’s business, results of operations and financial condition. Investments for account of policyholders are excluded as the policyholder bears the credit risk associated with the investments.
Surplus collateral (or overcollater alization ) Net exposure Debt securities – carried
Money market and other short-term investments – carried at fair value 6,307 - 484 - - - - 484 29 5,852
Mortgage loans – carried at amortized cost 36,639 2,535 - 136 57,009 - - 59,680 23,589 548
Private loans – carried at amortized cost 4,103 45 - - - - - 45 - 4,058
Debt securities – carried at fair value 84,344 - - 242 - - - 242 - 84,102
Mortgage loans – carried at amortized cost 33,930 2,437 - 379 49,756 - - 52,573 19,271 628
Other loans – carried at amortized cost 2,164 - - - - - 1,886 1,886 1,195 1,473
Other financial assets – carried at fair value 2,586 - - - - - - - - 2,586
Several bonds in Aegon’s Americas's portfolio are guaranteed by monoline insurers. This is shown in the table above in the column
'Letters of credit/guarantees'. Further information on the monoline insurers is provided below under 'Monoline insurers'.
Aegon manages credit risk exposure by individual counterparty, sector and asset class, including cash positions. Normally, Aegon mitigates credit risk in derivative contracts by entering into credit support agreement, where practical, and in ISDA master netting agreements for most of Aegon’s legal entities to facilitate Aegon’s right to offset credit risk exposure. Main counterparties to these transactions are investment banks which are typically rated 'A' or higher. The credit support agreement will normally dictate the threshold over which collateral needs to be pledged by Aegon or its counterparty. Transactions requiring Aegon or its counterparty to post collateral are typically the result of derivative trades, comprised mostly of interest rate swaps, equity swaps, currency swaps and credit swaps. Collateral received is mainly cash (USD and EUR). The credit support agreements that outline the acceptable collateral require high quality instruments to be posted. Over the last three years, there was no default with any derivatives counterparty. The credit risk associated with financial assets subject to a master netting agreement is eliminated only to the extent that financial liabilities due to the same counterparty will be settled after the assets are realized. Eligible derivative transactions are traded via Central Clearing Houses as required by EMIR and the Dodd-Frank act. Credit risk in these transactions is mitigated through posting of initial and variation margins.
At December 31, 2018 Aegon’s largest corporate credit exposures are to Wilton Re Holdings Ltd, American United Mutual
Association of Insurance Commissioners (NAIC which is for US only) and internal ratings. The rating used is the lower of the external rating and the internal rating.
Past due and/or impaired assets - 27 - - 385 1,399 1,784 1 Includes investments of Holding and other activities.
The following table shows the credit quality of the gross positions in the statement of financial position for general account reinsurance assets specifically: Carrying value 2018 Carrying value 2017
The tables that follow present specific credit risk concentration information for general account financial assets.
Credit risk concentrations – debt securities and money market investments 2018 Americas
Assets not rated 1,391 1,391 1 Includes investments of Holding and other activities. 2 CNLP Ratings are used and are the lower of the Barclay’s Rating and the Internal Rating with the Barclay’s rating being a blended rating of S&P, Fitch, and
Asset-backed securities (ABSs) – CDOs backed by ABS, Corp. bonds, Bank loans 751 1,529 - - - 1,529 47 - 2,327 3 1 Includes investments of Holding and other activities.
Asset Management Total 20171 1 Includes investments of Holding and other activities.
Of which past due and/or impaired assets 1 Includes investments of Holding and other activities.
EUR 1 million of net recoveries (2017: EUR 19 million net impairments) on this portfolio. In 2018, there were no foreclosures (2017: EUR 0 million) and no impairments or recoveries associatied with foreclosed loans (2017: EUR 0 million).
The fair value of Aegon the Netherlands mortgage loan portfolio as per December 31, 2018, amounted to EUR 31,686 million
Aegon invests primarily in senior notes of RMBSs, CMBSs and ABSs. Additional information on credit ratings for Aegon’s investments in RMBSs, CMBSs and ABSs are disclosed in the sections that describe per category of debt securities the composition and impairment assessments. The composition of the RMBSs, CMBSs and ABSs portfolios of Aegon are widely dispersed looking at the individual amount per entity, therefore Aegon only has non-controlling interests in individual unconsolidated structured entities. Furthermore these investments are not originated by Aegon.
Monoline insurers EUR 178 million (2017: EUR 264 million) of the bonds in Aegon Americas's and Asia's portfolios are insured by Monoline insurers.
An insolvency by one of the Monolines could create significant market price volatility for the affected holdings. Of the EUR 178 million indirect exposure on the Monoline insurers, 15% relates to Municipal Bond Insurance Association, Inc. (MBIA), 13% to Ambac Financial
Group, inc. (AMBAC), and 52% to Assured Guaranty Corporation (AGC) (2017: 31% related to MBIA, 13% to AMBAC, and 43% to AGC).
Unrealized bond losses by sector The composition by industry category of Aegon’s available-for-sale (AFS) debt securities, money market investments and other in an unrealized loss position at December 31, 2018, and December 31, 2017, is presented in the following table: Unrealized losses – debt securities, money market investments and other
Total held by Aegon Americas and NL 24,528 (1,352) 12,179 (462)
EUR 1,352 million (December 31, 2017: EUR 462 million) of gross unrealized losses in the AFS debt securities, money markets and other portfolio of Aegon Americas and Aegon the Netherlands.
Wider credit spreads and higher U.S. treasury rates decreased the market values of fixed income holdings.
Economic growth in the Eurozone slowed down in 2018, but is still performing above trend. Unemployment is on a downward trend and wage inflation is slowly increasing in several (Northern) European countries due to the tight labor markets. In an aggregate level, the EU has a relatively strong fiscal and external position. However, on a country basis, large differences exist. The Italian government wanted to increase its budget deficit in 2019. The ensuing argument with the EU resulted in lower confidence, wider sovereign spreads and lower investments. The Italian economy therefore came to a standstill in the second half of 2018. Also the inability of the UK and the EU to reach a Brexit deal dented confidence and investments. Especially in more recent data it has become apparent that the UK economy is negatively impacted. The EU is a relatively open economy. The trade conflict between the US and China and weaker
Impairment of financial assets Aegon regularly monitors industry sectors and individual debt securities for indicators of impairment. These indicators may include one or more of the following: 1) deteriorating market to book ratio, 2) increasing industry risk factors, 3) deteriorating financial condition of the issuer, 4) covenant violations by the issuer, 5) high probability of bankruptcy of the issuer, or 6) downgrades by internationally recognized credit rating agency. Additionally, for asset-backed securities, cash flow trends and underlying levels of collateral are monitored. A security is impaired if there is objective evidence that a loss event has occurred after the initial recognition of the asset that has a negative impact on the estimated future cash flows.
Residential mortgage-backed securities Aegon Americas and Aegon the Netherlands hold EUR 2,497 million (December 31, 2017: EUR 3,541 million) of residential mortgagebacked securities available-for-sale (RMBS), of which EUR 2,102 million (December 31, 2017: EUR 2,985 million) is held by Aegon
AFS RMBS by quality AAA AA A BBB <BBB Total amortized cost Total fair value
A significant part of Aegon America's RMBS holdings are rated < BBB, as the issuances took place before the United States housing downturn that started in 2007.
Additionally, Aegon Americas has investments in RMBS of EUR 35 million (December 31, 2017: EUR 40 million), which are classified as fair value through profit or loss.
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, Negative Amortization and subprime RMBS are as follows: prepayment assumptions range from approximately 0% to 25% with a weighted average of approximately 5.4% (December 31, 2017: 5.5%),
assumed defaults on delinquent loans range from 0% to 100% with a weighted average of approximately 78.9% (December 31, 2017: 77.6%), assumed defaults on current loans are dependent on the specific security's collateral attributes and historical performance, while loss severity assumptions range from approximately 24% to 103%, with a weighted average of approximately 57.0% (December
Aegon’s particular tranche or holding is at risk for not collecting all contractual cash flows taking into account the seniority and other terms of the tranches held.
The total gross unrealized loss on available-for-sale RMBS of Aegon Americas and Aegon the Netherlands amounted to EUR 30 million
(December 31, 2017: EUR 29 million), of which EUR 29 million (December 31, 2017: EUR 29 million) relates to positions of Aegon
In general, the European housing market showed further improvement in the second half of 2018 barring some signs of stress in the UK housing market although this is mostly concentrated in the London metropolitan area. House prices are increasing and affordability remains high given the low level of interest rates. Although economic growth picked up, markets are expecting (global)
growth to slow. Unemployment levels meanwhile continue to drop which is clearly beneficial for consumer risk in general and retail mortgages in particular. While the net supply in the European RMBS markets is still negative, primary markets are very active. While
The total gross unrealized loss on available-for-sale CMBS of Aegon Americas amounted to EUR 44 million as of December 31, 2018 (December 31, 2017: EUR 22 million). The total net unrealized gain on the available-for-sale CMBS as of December 31, 2018, is EUR 17 million (December 31, 2017: EUR 36 million), of which EUR 17 million (December 31, 2017: EUR 36 million)
relates to positions of Aegon Americas. CMBS fundamentals remain stable. Commercial real estate valuation increases have slowed.
The delinquency rate continues to fall as distressed legacy loan resolutions outpace new defaults and positive net supply increases the total outstanding balance. Liquidity remains reasonable for the CMBS market. Lower prices in the US CMBS sector since the start of the year are mostly driven by broader market moves from higher interest rates.
The tables below summarize the credit quality of Aegon Americas' available-for-sale (AFS) CMBS portfolio. Additionally, as of
December 31, 2018, Aegon Americas has no investments in CMBS (December 31, 2017: EUR nil), which are classified as fair value through profit or loss.
Aegon does not consider the underlying investments to be impaired as of December 31, 2018.
The fair values of Aegon Americas' available-for-sale (AFS) CMBS instruments were determined as follows: Level II Level III Total 2018 Level II Level III Total 2017
The total gross unrealized loss on available-for-sale ABS of Aegon Americas and Aegon the Netherlands amounted to EUR 52 million as of December 31, 2018 (December 31, 2017: EUR 14 million). Aegon Americas has EUR 18 million (December 31, 2017: EUR 12 million) of this gross unrealized loss and Aegon the Netherlands EUR 34 million (December 31, 2017: EUR 2 million).
CDOs backed by ABS, Corp. bonds, Bank loans 1,535 479 216 146 46 2,423 2,386
CDOs backed by ABS, Corp. bonds, Bank loans 1,467 407 224 120 46 2,265 2,281
Bank regulators continue to implement a wide array of reforms designed to strengthen capital levels, reduce balance sheet risk and improve liquidity in an ongoing effort to reduce systemic risk and harmonize global bank regulation. Both regulators and central governments are adopting new bank guidelines designed to improve ‘resolvability’ in an attempt to ensure that banks can ‘fail’ in an orderly manner without the use of taxpayer money. While most banks already meet new capital and liquidity requirements, well ahead of regulatory deadlines, they are now in the process of issuing loss absorbing securities and altering their legal, financial and operating structures. Bank balance sheet repair and risk reduction is expected to continue. Globally, risk concentrations on bank balance sheets continue to exist but confidence in the sector has increased materially since the financial crisis. Aegon evaluated the near-term
Within the Banking sub-sector, Aegon Americas and Aegon the Netherlands hold EUR 456 million (December 31, 2017: EUR 627 million) of deeply subordinated securities with deferrable coupons that have an associated unrealized loss of EUR 42 million
Retail REITs. Most of the Other REITs unrealized losses are related to long-term private placement investments, which have been negatively impacted by market price volatility despite otherwise stable credit fundamentals. Within Retail REITs, credit fundamentals are bifurcated by asset quality. Retail REITs with strong locations continue to experience tenant demand and are able to grow rents and maintain healthy occupancy. In contrast, operating performance in secondary locations has be mixed due to the over-retailed environment and competitive pressures from e-commerce. Despite these challenges, immediate liquidity remains more than adequate to address near term funding obligations. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2018.
Manufacturing, credit fundamentals are generally stable. Two large issuers have experienced some idiosyncratic issues that have led to deteriorating credit profiles, which has contributed to the unrealized losses. Despite these issues, immediate liquidity remains adequate for near term obligations. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2018.
Within the Consumer Cyclical sub-sector, Aegon Americas and Aegon the Netherlands hold EUR 2,637 million (December 31, 2017: EUR 2,657 million) of AFS bonds, of which EUR 2,428 million (December 31, 2017: EUR 2,494 million) is held by Aegon Americas and
EUR 209 million (December 31, 2017: EUR 163 million) by Aegon the Netherlands. In aggregate, the gross unrealized loss on these bonds amounted to EUR 75 million (December 31, 2017: EUR 10 million) and the net unrealized gain on these bonds amounted to EUR 52 million (December 31, 2017: EUR 245 million).
The Consumer Cyclical sub-sector encompasses various industries ranging from retailers to home construction. The more significant of these sub-sectors from an unrealized loss perspective are automotive and retailers.
Within the automotive sector, North American sales have been driven by continued demand for high-margin full-size pickups and SUVs.
Within the retail sector, fundamentals are largely positive with modest top line growth, inventory levels aligned with demand, and rational promotional levels. Unrealized losses are driven by price volatility and would not be deemed fundamentally driven.
Americas and EUR 253 million (December 31, 2017: EUR 281 million) by Aegon the Netherlands. In aggregate, the gross unrealized loss on these bonds amounted to EUR 182 million (December 31, 2017: EUR 35 million) and the net unrealized gain on these bonds amounted to EUR 99 million (December 31, 2017: EUR 529 million).
M&A risk in pharmaceuticals is modestly increasing as some key issuers face patent cliffs in the next 5 years, including Abbvie. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2018.
The Energy sub-sector encompasses various industries including integrated oil and gas producers, independent oil and gas producers, midstream processing and transport, oil field services and drilling, and refining. Lower oil prices have reduced cash flow for upstream producers. Oil field service and drilling companies have been pressured by reduced capital spending by their upstream client base and margin compression from price concessions and new capacity additions. While refiners have seen positive impacts from lower feedstock
costs, margins have softened due to high refined product inventory levels. Commodity price pressure has been the result of strong non-
The Technology sector can be further divided into hardware, software, semiconductors, IT services, memory, and payment processors.
The majority of the gross unrealized losses are related to interest rates moving higher, causing long duration bond prices to move lower.
Within the Transportation sub-sector, Aegon Americas and Aegon the Netherlands hold EUR 1,720 million (December 31, 2017: EUR 1,787 million) of AFS bonds, of which EUR 1,549 million (December 31, 2017: EUR 1,597 million) is held by Aegon Americas and
EUR 171 million (December 31, 2017: EUR 191 million) by Aegon the Netherlands. In aggregate, the gross unrealized loss on these bonds amounted to EUR 70 million (December 31, 2017: EUR 9 million) and the net unrealized gain on these bonds amounted to EUR 2 million (December 31, 2017: EUR 117 million).
Within the Communications sub-sector, Aegon Americas and Aegon the Netherlands hold EUR 2,566 million (December 31, 2017: EUR 2,690 million) of AFS bonds, of which EUR 2,484 million (December 31, 2017: EUR 2,600 million) is held by Aegon Americas and EUR 82 million (December 31, 2017: EUR 90 million) by Aegon the Netherlands. In aggregate, the gross unrealized loss on these bonds amounted to EUR 68 million (December 31, 2017: EUR 21 million) and the net unrealized gain on these bonds amounted to EUR 90 million (December 31, 2017: EUR 279 million).
Merger and acquisition speculation and activity created volatility in each of the sub-sectors during the year. In addition, several issuers in the communications sector are among the largest issuers in the market and were negatively impacted by the sell-off in liquid securities as we saw an increase in market price volatility and higher treasury yields. On a fundamental basis, the competitive environment in the wireless market remains challenging. The wireline market continues to see a gradual secular decline, whereas
cable continues to benefit from the demand for broadband. Media continues to be impacted by consumers viewing content on digital platforms as well as intense competition from non-traditional content providers. Aegon evaluated the near-term prospects of the issuers in relation to the severity and duration of the unrealized loss and does not consider those investments impaired as of
Within the Electric sub-sector, Aegon Americas and Aegon the Netherlands hold EUR 3,178 million (December 31, 2017: EUR 3,098 million) of AFS bonds, of which EUR 3,121 million (December 31, 2017: EUR 3,013 million) is held by Aegon Americas and EUR 57 million (December 31, 2017: EUR 85 million) by Aegon the Netherlands. In aggregate, the gross unrealized loss on these bonds amounted to EUR 64 million (December 31, 2017: EUR 13 million) and the net unrealized gain on these bonds amounted to EUR 128 million (December 31, 2017: EUR 343 million).
Regulated electric utilities, which account for the majority of debt issuance in the sector, continue to produce predictable cash flow and credit trends have been stable for most companies operating in the United States, although, M&A has continued in the sector with some adding incremental leverage. The low natural gas price environment has generally been beneficial for regulated utilities because it has had the effect of decreasing the fuel component on customer’s bills. Lower all in cost to the customer generally enables increases in other operating costs to be passed through with less regulatory lag. It should also be noted that utilities operating in California, particularly PG&E Corp, generated unrealized losses due to potential exposure to the recent wildfires
Unregulated merchant power generators operating in the United States continue to be negatively impacted by low natural gas prices and the corresponding low electricity prices as well as reduced customer usage. These companies have experienced margin pressure for their coal and nuclear generation assets. Absent a recovery in electricity prices, credit fundamentals are unlikely to improve significantly, however, capacity auctions have shown improvement and most companies have taken actions to navigate this difficult environment including consolidation, cost cutting, expanding retail operations and de-levering balance sheets. AEGON evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2018.
Government bonds Aegon Americas and Aegon the Netherlands' government issued available-for-sale debt securities include emerging market government bonds, US Treasury bonds, agency and state bonds. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2018.
Unrealized loss by credit quality The table below shows the composition by credit quality of debt securities, available-for-sale, in an unrealized loss position held by Aegon Americas and Aegon the Netherlands.
The unrealized loss increased during 2018 due mainly to widening credit spreads and increasing US Treasury rates.
There are no individual issuers rated below investment grade which has an unrealized loss greater than EUR 25 million.
December 31, 2018, and December 31, 2017, is presented in the table below. Those issuers with impairments or recoveries above
Impairments: Other (none individually greater than EUR 25 million) (24) (16)
Aegon manages interest rate risk closely, taking into account all of the complexity regarding policyholder behavior and management action. Aegon employs sophisticated interest rate measurement techniques and actively uses derivatives and other risk mitigation tools to closely manage its interest rate risk exposure. Aegon operates an Interest Rate Risk policy that limits the amount of interest rate risk to which the Group is exposed. All derivative use is governed by Aegon’s Derivative Use Policy. A detailed description on the use of derivatives within Aegon is included in note 25 Derivatives.
The sensitivity analysis in the table below shows an estimate of the effect of a parallel shift in the yield curves on net income and shareholders' equity arising from the impact on general account investments and offset due to liabilities from insurance and investment contracts. In general, increases in interest rates are beneficial to Aegon. However, timing and valuation differences between assets and liabilities may cause short-term reductions in net income as rates rise. The rising interest rates would also cause the fair value of the available-for-sale bond portfolio to decline and the level of unrealized gains could become too low to support recoverability of the full deferred tax asset triggering an allowance charge to income. The offsetting economic gain on the insurance and investment contracts is however not fully reflected in the sensitivities because many of these liabilities are not measured at fair value. The short to medium term reduction in net income due to rising interest rates would be offset by higher net income in later years, all else being equal. Therefore, higher interest rates are not considered a long-term risk to the Group. However, a long sustained period of low interest rates will erode net income due to lower returns earned on reinvestments and due to lower long term returns from decreased overall portfolio yields.
Sensitivity analysis of net income and shareholders' equity to translation risk
Increase by 15% of USD currencies relative to the euro 1 1,909
Increase by 15% of GBP currencies relative to the euro 4 269
Increase by 15% of non-euro currencies relative to the euro 20 2,301
Decrease by 15% of USD currencies relative to the euro 3 (1,389)
Decrease by 15% of GBP currencies relative to the euro (2) (179)
Aegon held EUR 32,116 million of general account investments in cash, money market products and government bonds that are readily saleable or redeemable on demand (2017: EUR 34,393 million). The Group expects to meet its obligations, even in a stressed liquidity event, from operating cash flows and the proceeds of maturing assets as well as these highly liquid assets. Further, the Group has access to back-up credit facilities, as disclosed in note 39 Borrowings, amounting to EUR 3,680 million which were unused at the end of the reporting period (2017: EUR 3,367 million).
Maturity analysis – gross undiscounted contractual cash flows (for non-derivatives) On demand
Investment contracts for account of policyholders1 29,360 19,670 20 26 91 49,166
Investment contracts for account of policyholders1 33,738 2,605 1 1 133 36,478
and expenses, partially offset by the expected gross premiums, fees and charges relating to the existing business in force. Estimated cash benefit payments are based on mortality, morbidity and lapse assumptions based on Aegon’s historical experience, modified for recently observed trends. Actual payment obligations may differ if experience varies from these assumptions. The cash benefit payments are presented on an undiscounted basis and are before deduction of tax and before reinsurance.
Financial liabilities relating to insurance and investment contracts 1 On demand
Board which is regarded as the chief operating decision maker. All reportable segments are involved in insurance or reinsurance business, asset management or services related to these activities. The reportable segments are:  Americas: one operating segment which covers business units in the United States, Brazil and Mexico, including any of the units’
Variable and Fixed annuities lines of business, Universal Life model update using results from AXIS model and a Variable Annuities (WB)
ultimate forward rate from 4.25% to 3.65%. This was partly offset by EUR 108 million gains driven by the TKP/UL model conversion.
During 2017 Aegon implemented actuarial assumption and model updates resulting in a net EUR 276 million charge (2016: EUR 118 million charge) to income before tax.
In addition, certain products offered by Aegon Americas contain guarantees and are reported on a fair value basis and the total return annuities and guarantees on variable annuities. The earnings on these products are impacted by movements in equity markets and riskfree interest rates. Short-term developments in the financial markets may therefore cause volatility in earnings. Included in underlying earnings before tax is management's best estimate expected return on these products. Any over- or underperformance compared to management’s expected return is excluded from underlying earnings before tax.
Impairment charges/reversals Impairment charges/reversals include impairments on available-for-sale debt securities, shares including the effect of deferred policyholder acquisition costs, mortgage loans and other loan portfolios at amortized cost, joint ventures and associates. Impairment reversals include reversals on available-for-sale debt securities. For Aegon the Netherlands, the expected impairments on alternative assets classes (e.g. illiquid investments – including consumer loans and catastrophe bonds – and residential real estate) are allocated to underlying earnings in order to present management's best estimate investment return in underlying earnings. Deviations from the expected impairments are presented as part of impairment charges/(reversals) in non-underlying earnings.
Other income or charges Other income or charges includes the following:  items which cannot be directly allocated to a specific line of business;  the impact of actuarial and economic assumption and model updates used to support calculations of our liabilities for insurance and investment contracts sold to policyholders and related assets; and  items that are outside the normal course of business, including restructuring charges.
Run-off businesses Run-off businesses includes results of business units where management in earlier years has decided to exit the market and to run -off the existing block of business. This line only includes results related to the run-off of the remaining institutional spread-based business, structured settlements blocks of business, the life reinsurance business and the bank-owned and corporate-owned life insurance (BOLI/COLI) business in the United States. Aegon has other blocks of business for which sales have been discontinued and of which the earnings are included in underlying earnings before tax.
Realized gains/(losses) on investments 157 184 62 1 - 248 4 3 - - 413 (5) 408
Realized gains/(losses) on investments (13) 189 153 - (1) 342 8 3 - - 340 (6) 334
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives 10 (295) (437) (783)
Net fair value change on borrowings and other financial liabilities 10 6 - -
Gains and (losses) on investments in real estate 10 261 193 70
 Net fair value change of derivatives is reported as part of the respective line in Note 10 and includes: 1) the overor underperformance of derivatives of EUR 3 million gain (2017: EUR 9 million gain, 2016: EUR 8 million gain) for which the expected long-term return is included in underlying earnings before tax; 2) Net fair value change on economic hedges where no hedge accounting is applied of EUR 32 million loss (2017: EUR 278 million loss, 2016: EUR 121 million loss); 3) Ineffective portion of hedge transactions to which hedge accounting is applied of EUR 7 million loss (2017: EUR 7 million loss, 2016: EUR 31 million gain).
 There are no interest charges and related fees that are classified for segment reporting purposes as non-underlying earnings.
VOBA and future servicing rights 852 25 119 52 - 196 24 - - - 1,072
Impairment charges/(reversals) on non- financial assets and receivables (2) 3 - - - 2 - - - - -
Impairment charges/(reversals) on financial assets, excluding receivables 35 12 - (1) - 10 1 5 7 - 59
Insurance contracts for account of policyholders 68,126 23,855 24,086 919 103 48,963 24 - - - 117,113
Investment contracts for account of policyholders 27,217 2,101 50,532 169 - 52,802 79 - - - 80,097
Investments for account of policyholders 95,343 23,767 73,958 1,088 99 98,912 103 - - (5) 194,353
Total investments on balance sheet 166,399 81,904 76,072 2,021 826 160,823 5,823 181 157 (5) 333,377
Investments for account of policyholders 102,964 26,697 62,961 1,343 105 91,105 - - - (6) 194,063
Total investments on balance sheet 176,434 81,040 64,972 2,398 825 149,235 5,326 157 91 (6) 331,236
Total premium income 19,316 22,826 23,453 - Accident and health insurance 1,979 2,511 2,609
Premium income decreased by EUR 3,510 million in 2018 (2017: EUR 627 million) mainly driven by a reduction of upgraded Life insurance policies to the retirement platform in the UK, which represents EUR 3,439 million (2017: EUR 5,139 million; 2016: EUR 5,255 million) of total premium income Life insurance.
Investment income from financial assets held for general account: 2018 2017 2016
Financial assets designated at fair value through profit or loss 212 148 80 8 Fee and commission income
Income from reinsurance ceded decreased by EUR 549 million compared to 2017, mainly due to the completion of the part VII
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives (79) 232 (42)
Net fair value change on borrowings and other financial liabilities 29 10 21
Realized gains and losses on financial investments comprise: 2018 2017 2016
Fair value change on hedged items in a fair value hedge 23 (127) 231
Net fair value change on for account of policyholder financial assets at fair value through profit or loss comprise: 2018 2017 2016
Net fair value change on for account of policyholder financial assets at fair value through profit or loss decreased in 2018 compared to 2017, mainly from unfavorable credit and equity markets. Net fair value changes on for account of policyholder financial assets at fair value through profit or loss are offset by changes in technical provisions reported as part of the lines Change in valuation of liabilities for insurance contracts and Change in valuation of liabilities for investment contracts in note 12 Policyholder claims and benefits.
(GBP 14 million) related to the completion of the Part VII transfer of annuities reinsured to Legal & General in 2016 was included.
An insurance business transfer scheme under Part VII of the United Kingdom Financial Services and Markets Act 2000 allows an insurer to transfer policies as at a fixed time and date to another insurer, along with related contracts with other parties. For more details refer to note 51 Business combinations.
Change in valuation of liabilities for insurance contracts (2,639) 22,741 16,193
Included in administration expenses is an amount of EUR 80 million of depreciation that relates to equipment, software and real estate held for own use (2017: EUR 105 million; 2016: EUR 89 million). Minimum lease payments recognized as expense amounted to EUR 84 million (2017: EUR 89 million; 2016: EUR 89 million).
Aegon’s Supervisory Board can reclaim variable compensation that has already been allocated (but still unvested) or vested (claw back).
Once allocated, the deferred parts of the variable compensation award are subject to a vesting period of three years from the moment of allocation. Before each vesting moment, the Supervisory Board can decide to adjust an award downwards based on the annual ex-post risk assessment, which takes into account significant and exceptional circumstances which were not (sufficiently) reflected in the initial performance assessment.
Number of shares conditionally granted 2 5,306,037 5,178,633 6,809,814 6,722,418 6,513,984 30,530,886 1 Performance year for both Long-term incentive plans and Variable compensation Identified Staff 2 Number of shares conditionally granted based on the at target number of grants made that could increase or decrease subject to the actual performance attained
Number of shares conditionally granted 2 - - - - 6,513,984 6,513,984
1 Performance year for both Long-term incentive plans and Variable compensation Identified Staff. 2 Number of shares conditionally granted based on the at target number of grants made that could increase or decrease subject to the actual performance attained.
3 This value is the volume weighted average price (VWAP) of Aegon on the Euronext Amsterdam stock exchange for the period December 15 to January 15. 4 Per 2017 shares allocated as sign-on are not allocated anymore to the plan years in which the vesting takes place. Instead, we now create and allocate specific sign-on shares in the calendar year of commencement.
Aegon applies a net settlement option for participants in order to meet their income tax obligations when their shares vest. This means that Aegon will not sell shares on the market, but hold these shares within Aegon and settle directly with the tax authorities in cash rather than selling shares first.
Impairment charges on financial assets, excluding receivables, from: 2018 2017 2016
Other charges in 2018 of EUR 375 million include the gross settlement amount of a litigation regarding certain monthly deduction rate adjustments on universal life insurance policies and other related plaintiff and administration fees. The settlement relates to a block of around 70,000 universal life policies on which Transamerica raised the monthly deduction rates in 2015 and 2016. These adjustments were necessitated by, among other factors, low long-term interest rates and changes in future mortality experience, and were in accordance with the contractual terms of the policies. Nonetheless, the increases were challenged by policyholders in several court cases. To remove the uncertainty of ongoing litigation for Aegon and its customers, the decision was made to settle with the plaintiffs. In January 2019, a court approved the aforementioned settlement with universal life policyholders. Over 99% of affected policyholders participated in the settlement. While less than 1% of policyholders opted out of the settlement, they represented approximately 43% of the value of the settlement fund. The settlement fund was reduced proportionally for opt outs, although
(EUR 140 million). Included in the charge is a release of the technical provision (USD 38 million) and a reduction of the amortization of other intangible assets (USD 6 million).
Income tax calculated using weighted average applicable statutory tax rates 185 710 288
Changes in deferred tax assets as a result of recognition/write off of previously not recognized/recognized tax losses, tax credits and deductible temporary differences (35) (45) (54)
Tax effect of (profit)/losses from joint ventures and associates (9) (7) (7)
Changes in tax rate/base in 2016 was heavily impacted by the release of profits from other comprehensive income (OCI) to income statement in the United Kingdom. These profits were taxed in the past against high historic tax rates and were released from
In the Netherlands, the corporate income tax rate will decrease from 25% to 22.55% as from January 1, 2020 and will further decrease to 20.5% as from January 1, 2021. The beneficial impact of this tax rate change is included in the 2018 change in tax rate/
Tax credits in 2018 and 2017 increased by US foreign tax credits. Tax credits include tax benefits from US investments that provide affordable housing to individuals and families that meet median household income requirements and from investing in solar energy.
Adjustments to prior years in 2016 included a one-time tax benefit in the US caused by the revised tax deduction for dividends received on prior filed tax returns.
Items that will not be reclassified to profit and loss: Changes in revaluation reserve real estate held for own use 7 9 (3)
Items that may be reclassified subsequently to profit and loss: Gains/losses on revaluation of available-for-sale investments 530 (134) (187)
Total income tax related to components of other comprehensive income 485 785 311
Total income tax recognized directly in retained earnings 26 58 41
Net income/(loss) attributable to owners for basic earnings per share calculation 631 2,230 453
Weighted average number of common shares outstanding (in million) 2,036 2,042 2,048
Weighted average number of common shares B outstanding (in million) 571 575 575
Basic earnings per common share (EUR per share) 0.31 1.08 0.22
Basic earnings per common share B (EUR per share) 0.01 0.03 0.01
Diluted earnings per share The diluted earnings per share equaled the basic earnings per share for all years disclosed since there were no outstanding share options which were considered dilutive.
20 Dividend per common share Final dividend 2018 At the Annual General Meeting of Shareholders on May 17, 2019, the Supervisory Board will, absent unforeseen circumstances, propose a final dividend for the year 2018 of EUR 0.15 per common share. After taking into account the interim dividend 2018 of EUR 0.14 per common share, this will result in a total 2018 dividend of EUR 0.29 per common share. With respect to the common shares B, each of which has financial rights attached to it of 1/40th of a common share, the proposed final dividend will be EUR
Interim dividend 2018 The interim dividend 2018 was paid in cash or stock at the election of the shareholder. Approximately 56% of holders of common shares elected to receive the cash dividend. The remaining 44% have opted for stock dividend. The cash dividend amounted to EUR 0.14 per common share, the stock dividend amounted to one new Aegon common share for every 37 common shares held.
The stock dividend amounted to one new Aegon common share for every 39 common shares held. The stock dividend and cash dividend are approximately equal.
To neutralize the dilutive effect of the 2017 final dividend paid in shares, Aegon executed a program to repurchase 21,954,140 common shares. Between July 2, 2018, and August 10, 2018, these common shares were repurchased at an average price of EUR 5.34 per share. These shares will be held as treasury shares and will be used to cover future stock dividends.
Final dividend 2016 The Annual General Meeting of Shareholders on May 19, 2017, approved a final dividend over 2016 of EUR 0.13 per common share payable in either cash or stock, related to the second half of 2016. Approximately 54% of holders of common shares elected to receive the cash dividend. The remaining 46% have opted for stock dividend. The final dividend was payable as of June 23, 2017. The stock dividend amounted to one new Aegon common share for every 35 common shares held. The stock dividend and cash dividend are approximately equal in value. Dividend paid on common shares B amounted to 1/40th of the dividend paid on common shares.
The interim dividend 2016 for common shares B amounted to 1/40th of the dividend paid on common shares.
Refer to note 49 Transfer of financial assets for details on collateral received and paid. Investment of cash collateral received is restricted through limitations on credit worthiness, duration, approved investment categories and borrower limits. EUR 2 million
(2017: EUR 7 million) of the cash collateral received is included in cash and cash equivalents and the remainder is included in other asset classes as that collateral is typically reinvested. Aegon earns a share of the spread between the collateral earnings and the rebate paid to the borrower of the securities. Income from securities lending programs was approximately EUR 8 million
The weighted effective interest rate on short-term deposits in 2018 was 0.39% negative (2017: 0.32% negative) and these deposits have an average maturity of 28 days (2017: 31 days).
Cash classified as Assets held for sale 22 - 260 -
Bank overdrafts classified as Liabilities held for sale - (1) -
in an account with the Dutch Central Bank. This deposit is renewed 12 times per year, based on an updated valuation of total assets.
Total net cash flow from operating activities decreased slightly by EUR 36 million to a EUR 517 million inflow (2017: EUR 553 million inflow). The main movements are the inflow from results from financial transactions (refer to note 10 Result from financial transactions) offset by cash outflows regarding insurance and investment liabilities for account of policyholder (refer to note 36 Insurance contracts and note 37 Investment contracts).
Net cash flows from investing activities increased by EUR 758 million to a EUR 438 million outflow (2017: EUR 1,196 million outflow). The total consideration paid for acquisitions, including cash in acquired entities, was EUR 89 million. The total consideration received for disposals, excluding transferred assets and reinsurance assets from reinsurance transactions, was EUR 214 million. Total consideration received in cash and cash equivalents amounted to EUR 202 million, as an earn-out of EUR 2 million was part of the total consideration. Transferred cash and cash equivalents amounts to an outflow of EUR 416 million as a result of reinsurance transactions and disposal of entities over which control is lost. The outflow in 2018 is mainly driven by the acquisition of Robidus, the divestment of Aegon Ireland plc and the divestment of the last substantial block of US Life reinsurance business (refer to note 51 Business combinations).
Net cash flow from financing activities decreased by EUR 2,914 million to a EUR 2,395 million outfow (2017: EUR 519 million inflow).
Net cash flows from investing activities decreased by EUR 118 million to a EUR 1,196 million outflow (2016: EUR 1,078 million outflow). The total consideration paid for acquisitions, including cash in acquired entities, was EUR 52 million. The total consideration received for disposals, excluding transferred assets and reinsurance assets from reinsurance transactions, was EUR 299 million. Total consideration received in cash and cash equivalents amounted to EUR 306 million, as an earn-out of EUR 7 million was part of the total consideration. Transferred cash and cash equivalents amounts to an outflow of EUR 1,361 million as a result of reinsurance transactions and disposals of entities over which control is lost. The decrease is mainly driven by the aquisition of Cofunds Ltd., the divestment of the payout annuity business and Bank Owned Life Insurance/Corporate Owned Life Insurance business (BOLI/COLI)
and the sale of Unirobe Meeùs Groep (UMG) (refer to note 51 Business combinations).
lo ss es in in co m e st at em en t
Assets held to hedge Trust pass-through securities 22 - - (4) - - - (2) 15 22 Assets and liabilities held for sale Assets and liabilities held for sale include disposal groups whose carrying amount will be recovered principally through a sale transaction expected within the next year rather than through continuing operations. This relates to businesses for which a sale is agreed upon or a sale is highly probable at the reporting date, but for which the transaction has not yet fully closed. As of December 31, 2018, there are no assets or liabilities held for sale.
As of December 31, 2018, there are no unrealized gains relating to non-current assets and disposal groups classified as held for sale included in other comprehensive income.
Money market and other short-term investments 6,690 119 - 6,809 6,809
Refer to note 47 Fair value for further detail on fair value measurement.
Loan allowance Movement on the loan allowance account during the year were as follows: Addition charged to income statement (35) (50)
Rental income of EUR 82 million (2017: EUR 71 million; 2016: EUR 69 million) is reported as part of investment income in the income statement. Direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the period amounted to EUR 63 million (2017: EUR 71 million; 2016: EUR 79 million). In 2018, EUR 2 million of direct operating expenses is related to investment properties that did not generate rental income during the period (2017: EUR 1 million; 2016: 1 million).
24 Investments for account of policyholders Investments for account of policyholders comprise financial assets at fair value through profit or loss, excluding derivatives, and investments in real estate.
Included in investments for account of policyholders is the BlackRock Part VII transfer1 in the United Kingdom, completed on July 1, 2018. This transaction has transferred GBP 16.3 billion (EUR 18.4 billion) of unit linked defined contribution assets and liabilities into the Group’s portfolio. Refer to note 37 Investments contracts for account of policyholders for the impact on liabilities.
The resulting increase in investments for account of policyholders above is offset by increased withdrawals and unfavorable equity markets performance in 2018. Refer to note 10 Results from financial transactions for further details on the impact of fair value changes.
Derivatives for general account Derivatives not designated in a hedge 6,737 5,045 6,367 6,407
Derivatives designated as Net foreign investment hedges 115 57 114 57
Derivatives for account of policyholders Derivatives not designated in a hedge 278 349 56 76 1 Refer to note 47 Fair value for a summary of all financial assets and financial liabilities at fair value through profit or loss.
The fair value of derivatives on the asset and liability side of the consolidated statement of financial position increased during 2018 mainy due to market movements, changes in interest rates and changes in the credit spread, as well as purchases, disposals and maturities. Refer to note 47 Fair value for details on fair value measurement of derivatives.
Aegon has entered into cross-currency interest rate swap agreements that effectively convert certain foreign currency fixed-rate and floating-rate assets and liabilities to US dollar floating-rate assets and liabilities. These agreements involve the exchange of the underlying principal amounts.
For the years ended December 31, 2018, 2017 and 2016, Aegon recognized gains and (losses) related to the ineffectiveness portion of designated fair value hedges of EUR (9) million, EUR (6) million and EUR 26 million respectively. No portion of derivatives was excluded when assessing hedge effectiveness.
For the year ended December 31, 2018, Aegon the Netherlands recognized EUR 31 million positive fair value changes on mortgage loans using fair value hedge accounting under the EU carve out version of IAS 39 in the income statement (2017: EUR 142 million negative). This amount was offset by EUR 45 million negative fair value changes recognized on the derivatives used as hedging instrument (2017: EUR 133 million positive). During 2016 Aegon the Netherlands changed their risk management policy and decided to take on more interest rate risk, in order to economically offset the interest rate risk on the insurance liabilities. This has resulted in a de-designation for some of the fair value hedge accounting portfolios. The cumulative base adjustment of EUR 53 million per year-end 2018 (2017: EUR 67 million) is amortized over the weighted average duration (7 to 13 years) of the mortgage portfolios to which hedge-accounting was applied at the date of de-designation.
Net foreign investment hedges Aegon funds its investments in insurance subsidiaries with a mixture of debt and equity. Aegon aims to denominate debt funding in the same currency as the functional currency of the investment. Investments outside the eurozone, the United States and the United
Summarized statement of financial position Cash and cash equivalents 132 109 511 342
Net assets of joint venture as presented above 2,848 2,673 1,057 960
Net assets of joint venture excluding goodwill 2,848 2,673 681 587
Group share of net assets of joint venture, excluding goodwill 1,001 1,008 352 312
Aegon’s group share of net assets of joint ventures, as presented in the table above, is less than Aegon’s share of the net assets as presented in the summarized financial information on a 100% basis, due to the inclusion of third parties in the joint ventures.
Of the reinsurance assets EUR 12 million is current (2017: EUR 13 million).
Gross premium and deposits – existing and new business 2,038 3 2,041
Movements during the year in reinsurance assets relating to non-life insurance: 2018 2017
The assets arising from reinsurance contracts related to the exit of a business per December 31, 2018 and 2017 relate to the divestment in 2017 of the payout annuity, BOLI/COLI business and a block of reinsurance business in the US and the sale of Aegon’s life reinsurance business from Transamerica Reinsurance (TARe) to SCOR. The divestment of TARe consists of a series
of reinsurance agreements between various statutory insurance entities and SCOR for the US domestic business. For more details on the divestment of this business refer to note 51 Business combinations.
DPAC for insurance contracts and investment contracts with discretionary participation features 10,457 9,688
Deferred expenses are predominantly impacted by regular amortizations, adjustments for differences between projections versus realizations of deferral schemes and changes in foreign exchange rates.
Real estate held for own use and equipment 30.1 498 530
Net book value General account real estate held for own use Equipment Total
The movements in the provision for doubtful debts during the year were as follows: Additions charged to earnings (7) (6)
2018. For details of the acquisition, refer to note 51 Business combinations.
Goodwill The goodwill balance has been allocated across the cash-generating units which are expected to benefit from the synergies inherent in the goodwill. Goodwill is tested for impairment both annually and when there are specific indicators of a potential impairment.
A geographical summary of the cash-generating units to which the goodwill is allocated is as follows: Central & Eastern Europe 30 34
Goodwill in Aegon Americas is allocated to groups of cash-generating units including variable annuities, fixed annuities and the retirement plans cash-generating unit. Value in use calculations of Aegon Americas have been actuarially determined based on business plans covering a period of typically three years and pre-tax risk adjusted discount rates. Based on the value in use tests, goodwill in the Americas for the group of annuities cash-generating units (2018: EUR 127 million: 2017: EUR 121 million) and the retirement plans cash-generating unit (2018: EUR 55 million: 2017: EUR 52 million) remain unchanged from prior year except for the impact of currency translation adjustments. The value in use tests assume business plans covering a period of three years further extrapolated to ten years, where the new business levels for years 4-10 assumed a 0% growth rate (2017: 0%). The pre-tax adjusted discount rate was 17% for annuities and 18% for retirement plans.
To determine the recoverable amounts of the cash generating units of Aegon Central & Eastern Europe (CEE), value in use was calculated, and compared to the carrying amounts. Value in use has been determined based on a business plan covering a period of typically 3 years, that, in certain instances was further extrapolated to 20 years where the new business levels for years 4-20 assumed a growth rate based on the business plan of the third year, prudentially decreased by 20% (2017: 20%). Other key assumptions used for the calculation were pre-tax risk adjusted discount rate of ranging between 9.1%-14.0% (2017: 8.3%-14.6%), new business contribution, renewals, asset fees, investment return, persistency and expenses. Operating assumptions are best estimate assumptions and based on historical data where available. Economic assumptions are based on observable market data and projections of future trends.
For Aegon UK, goodwill that was provisionally allocated to the cash-generating unit – Cofunds Ltd., is now allocated to Aegon UK, whose value in use exceeded its carrying value. Assessment of value in use at this level is considered to reflect the expected benefit flowing to Aegon UK from the synergies arising from the acquisition of Cofunds. The value in use of Scottish Equitable plc (SE plc)
For Aegon Netherlands, goodwill was allocated to Robidus – a cash generating unit whose value in use exceeds its carrying value.
Issuance of common shares with a par value of EUR 0.12 1,507
On May 18, 2018, Vereniging Aegon exercised its options rights to purchase in aggregate 1,489,200 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time
Furthermore, in June 2017, Aegon issued to Vereniging Aegon 13,042,612 common shares B with a par value of EUR 0.12 to compensate for the dilution of Vereniging Aegon’s shareholding caused by the distribution of the final dividend 2016 in shares.
In June 2016 and December 2017, Aegon repurchased from Vereniging Aegon 17,324,960 and 13,042,592 common shares
32.3 Treasury shares On the reporting date, Aegon N.V. and its subsidiaries held 62,562,070 (2017: 65,650,650) of its own common shares and 13,856,480
The closing balances of the revaluation reserve for available-for-sale investments relate to the following instruments: Revaluation reserve for available-for-sale investments 1,936 3,450 3,418
Movement in foreign currency translation and net foreign investment hedging reserves 25 65 - 91
USD 250 million floating LIBOR rate 1 Quarterly, December 15 2019 212 212 212
Refer to note 34 Subordinated borrowings for details of the component classified as subordinated borrowings.
The subordinated debt securities of USD 800 million issued on April 11, 2018 have a fixed coupon of 5.5% until the first call date and floating thereafter with a margin including a 100 basis points step-up. The securities are first callable on April 11, 2028 and maturing on April 11, 2048.
The fair value of these loans amounted to EUR 1,355 million (2017: EUR 953 million).
Coupon rate Coupon date Year of issue Year of maturity Year of next call 2018 2017
The fair value of these loans amounted to EUR 128 million (2017: EUR 137 million).
Aegon is unable to fully recover upfront expenses in selling a product despite the presence of commission recoveries or surrender charges and fees. There are also products where Aegon is at risk if lapses decrease, for example where this would result in a higher utilization rate of product guarantees. For mortality and morbidity risk, Aegon sells certain types of policies that are at risk if mortality or morbidity increases, such as term life insurance and accident insurance, Aegon also sells certain types of policies that are at risk if mortality decreases (longevity risk) such as annuity products. Aegon is also at risk if expenses are higher than the expenses assumed beforehand by management and that were priced into the products.
Aegon monitors and manages its underwriting risk by underwriting risk type. Attribution analysis is performed on earnings and reserve movements in order to understand the source of any material variation in actual results from what was expected. Aegon’s units also perform experience studies for underwriting risk assumptions, comparing Aegon’s experience to industry experience as well as combining Aegon’s experience and industry experience based on the depth of the history of each source to Aegon’s underwriting assumptions. Where policy charges are flexible in products, Aegon uses these analyses as the basis for modifying these charges, with
Loss recognized as a result of liability adequacy testing 49 843
Gross premium and deposits – existing and new business 1,441 1,625
Included in Transfers to disposal groups for 2017 is the sale of Aegon Ireland plc. business which is classified as held for sale per yearend 2017. As a result, the Insurance contracts for account of policyholders are no longer included in the 2017 ending balance. Refer to note 22 Assets and liabilities held for sale and note 51 Business combinations.
Other in 2017 reflects the reclassification of the pension contract relating to the personnel of Unirobe Meeùs Groep (UMG) from defined benefit plans to insurance contracts for account of policy holders following the sale of UMG in November 2017.
Investment contracts with discretionary participation features 223 278 37.2 Investment contracts for account of policyholders
Gross premium and deposits – existing and new business 6,432 1,279 7,711
The value of investment contracts for account of policyholders increased in 2018 mainly due to the completion of BlackRock Part VII
In the Netherlands, individual variable unit-linked products have a minimum benefit guarantee if premiums are invested in certain funds. The sum insured at maturity or upon the death of the beneficiary has a minimum guaranteed return (in the range of 3% to 4%)
United Kingdom Total 3 1 Guaranteed minimum accumulation and withdrawal benefits.
Aegon Americas mitigates the exposure from the elective guaranteed minimum withdrawal benefit rider issued with a ceding company’s variable annuity contracts. The rider is essentially a return of premium guarantee, which is payable over a period of at least 14 years from the date that the policyholder elects to start withdrawals. At contract inception, the guaranteed remaining balance is equal to the premium payment. The periodic withdrawal is paid by the ceding company until the account value is insufficient to cover additional withdrawals. Once the account value is exhausted, Aegon pays the periodic withdrawals until the guaranteed remaining balance is exhausted. At December 31, 2018, the reinsured account value was EUR 1.7 billion (2017: EUR 2.0 billion) and the guaranteed remaining balance was EUR 1.1 billion (2017: EUR 1.2 billion).
Midcap, Russell 2000, and the MCSI EAFE index in accordance with Aegon’s exposure) to mitigate the effect of equity market movement on the reinsurance contract and the purchase of interest rate swaps, treasury futures and treasury forwards to mitigate the effect of movements in interest rates on the reinsurance contracts.
Aegon the Netherlands provides guarantees to its customers on expiry date for certain insurance contracts. In order to mitigate the risks related to the guarantees Aegon the Netherlands has setup a hedging program. Aegon the Netherlands does not use
reinsurance in order to mitigate risks related to insurance contracts with a guarantee component. The net amount at risk represents the sum of the positive differences between the discounted maximum amount payable under the guarantees and the account value, which is the actual fund value of the policyholder.
The following table provides information on the liabilities for guarantees for minimum benefits that are included in the valuation of the host contracts: GMDB 1 GMIB 2 Total 4 GMDB 1 GMIB 2 Total 4
The traditional group pension contracts offered by Aegon in the Netherlands include large group insurance contracts that have an individually determined asset investment strategy underlying the pension contract. The guarantee given is that the profit sharing is the maximum of 0% and the realized return on an asset portfolio specified in the policy conditions, adjusted for technical interest rates ranging from 3% to 4%. If the adjusted return is negative, the 0% minimum is effective, but the loss in any given year is carried forward to be offset against any future surpluses within the contract period. In general, a guarantee is given for the life of the underlying employees so that their pension benefit is guaranteed. Large group contracts also share technical results (mortality risk and disability risk). The contract period is typically five years and the premiums are fixed over this period.
The following table provides information on the liabilities for guarantees that are included in the valuation of the host contracts, net of the present value of the expected future premiums that are received to cover these guarantees: Incurred guarantee benefits 3 344 (823)
For equity volatility, Aegon uses a term structure assumption with market-based implied volatility inputs for the first five years and a long-term forward rate assumption of 25% thereafter. The volume of observable option trading from which volatilities are derived generally declines as the contracts’ term increases, therefore, the volatility curve grades from implied volatilities for five years to the ultimate rate. The resulting volatility assumption in year 20 for the S&P 500 index (expressed as a spot rate) was 23.3% at December 31, 2018, and 23.1% at December 31, 2017. Correlations of market returns across underlying indices are based on historical market returns and their inter-relationships over a number of years preceding the valuation date. Assumptions regarding policyholder behavior, such as lapses, included in the models are derived in the same way as the assumptions used to measure insurance liabilities.
Guarantees valued at fair value contributed a net loss before tax of EUR 56 million (2017: loss of EUR 75 million) to earnings.
The main drivers of this loss before tax are a loss of EUR 532 million related to a decrease in equity markets (2017: EUR 1,147 million gain) a loss of EUR 8 million related to increases in equity volatility (2017: EUR 81 million gain) and other contributed a loss of EUR 233 million (2017: EUR 205 million gain), partly offset by a fair value gain on hedges related to the guarantee reserves of EUR 527 million (2017: EUR 1,417 million loss), a gain of EUR 148 million related to widening own credit spread (2017: EUR 243 million loss) and positive results related to increases in risk free rates of EUR 32 million (2017: EUR 169 million gain) and
Guarantee reserves increased by EUR 1,081 million in 2018 (2017: decrease of EUR 1,121 million) to EUR 7,708 million (2017: EUR 6,627 million).
Capital funding During 2018, capital funding decreased by EUR 0.5 billion related to the repayment of EUR 500 million senior unsecured notes with a coupon rate of 0%.
A detailed composition of capital funding is included in the following table: (sorted at maturity) Coupon rate Coupon date Issue/
GBP 250 million Medium-Term Notes 6.125% December 15 1999/31 277 279
GBP 400 million Senior Unsecured Notes 6.625% Semi-annually 2009/39 440 445 1 Measured at fair value. 2 Issued by subsidiaries of, and guaranteed by, Aegon N.V.
16’ consists of EUR 875 million of class A notes with an expected weighted average life of 4.1 years and a coupon of 3 month
12' in the Netherlands of EUR 1.0 billion and the redemption of operational funding of EUR 0.4 billion supporting a captive insurance company, which was dissolved following the divestment of a block of life reinsurance business in the Americas. Next to this there was a decrease of EUR 0.5 billion as result of foreign exchange impacts on the US dollar positions as a result of the strengthening of the euro.
EUR 1,443 million "SAECURE 15" RMBS Note 1, 4 Floating Quarterly 2014/20 1,038 1,164
EUR 875 million "SAECURE 16" RMBS Note 1, 5 Floating Quarterly 2018/23 875 -
EUR 750 million Conditional Pass-Through Covered Bond 1, 6 0.267% Annual 2015/20 748 747
EUR 500 million Conditional Pass-Through Covered Bond 1, 7 0.250% Annual 2016/23 497 496
EUR 500 million Conditional Pass-Through Covered Bond 1, 8 0.750% Annual 2017/27 488 486
USD 1.54 billion Variable Funding Surplus Note 10, 11 Floating Quarterly 2006/36 1,388 1,322
FHLB Secured borrowings 1 Floating Quarterly 2016/46 3,495 4,160 1 Issued by a subsidiary of Aegon N.V.
4 The first optional redemption date is January 30, 2020; the final maturity date is January 30, 2092. Notes are fully collateralized by mortgage loans which are part of Aegon’s general account investments.
5 The first optional redemption date is October 30, 2023; the final legal maturity date is October 30, 2091. Notes are fully collateralized by mortgage loans which are part of Aegon’s general account investments.
The difference between the contractually required payment at maturity date and the carrying amount of the borrowings amounted to EUR (8) million (2017: EUR 9 million).
(2017: EUR 20 million) and other provisions of EUR 76 million (2017: EUR 71 million) including the remaining provision related to the harbor workers’ former pension fund Optas.
Remeasurements of defined benefit plans 157 (23) 134 (233) 10 (224)
Other in 2017 reflects the reclassification of the pension contract relating to the personnel of Unirobe Meeùs Groep (UMG) from defined benefit plans to insurance contracts for account of policyholders following the sale of UMG in November 2017.
Fair value of plan assets (3,525) - (3,525) (3,622) - (3,622)
Net interest on the net defined benefit liability (asset) 87 8 96 99 10 109
Net interest on the net defined benefit liability (asset) 123 11 134
Code, including all requirements for minimum funding levels. The defined benefit plans are governed by the Board of Managers of Transamerica Corporation. The Board of Managers has the full power and discretion to administer the plan and to apply all of its provisions, including such responsibilities as, but not limited to, developing the investment policy and managing assets for the plan, maintaining required funding levels for the plan, deciding questions related to eligibility and benefit amounts, resolving disputes that may arise from plan participants and for complying with the plan provisions, and legal requirements related to the plan and its operation. The benefits are based on years of service and the employee’s eligible annual compensation. The plans provide benefits based on a traditional final average formula or a cash balance formula (which defines the accrued benefit in terms of a stated account balance), depending on the age and service of the plan participant. The defined benefit plans have a deficit of EUR 450 million at December 31, 2018 (2017: EUR 629 million deficit).
USA funds the benefit payments of the post-retirement health care plans from its general account assets. The post-retirement health benefit liability amounted to EUR 210 million (2017: EUR 227 million).
The weighted average duration of the defined benefit obligation is 12.2 years (2017: 13.2 years).
Financial actuarial assumptions 100 basis points increase in discount rate (351) (402)
100 basis points decrease in discount rate 430 498 100 basis points increase in salary increase rate 29 38 100 basis points decrease in salary increase rate (26) (33)
100 basis points increase in health care trend rate 12 15 100 basis points decrease in health care trend rate (11) (13)
Aegon the Netherlands Aegon the Nederlands has a number of defined benefit plans and a small number of defined contribution plans. The defined benefit plans are subject to Dutch Pension regulations and governed by the Board of Directors of Aegon the Netherlands. The Board of Directors has the full power and discretion to administer the plan including developing investment policy and managing assets for the plans (although these assets do not qualify as ‘plan assets’ as defined by IFRS), deciding questions related to eligibility and benefit amounts, and any disputes that may arise from plan participants and for complying with the plan provisions, and legal requirements related to the plan and its operation. Aegon the Netherlands runs, in principle, full actuarial and investment risk regarding the defined benefit plans. This includes the risks of low interest rates, low returns and increased longevity. A part of this risk can be attributed to plan participants by lowering indexation or by increasing employee contributions.
EUR 2,628 million). The defined benefit plans are largely backed by investment, although these assets do not qualify as ‘plan assets’
The liabilities related to these other post-employment benefit plans are fully unfunded and amount to EUR 65 million at December 31, 2018 (2017: EUR 65 million). The weighted average duration of the other post-employment benefit plans is 11.7 years
Plan amendments As per December 31, 2017 Aegon the Nederlands has accounted for a plan amendment as from January 1, 2018 which concerns the increase of its retirement age of its pension plan from 67 to 68 years. There were no plan amendments during 2018.
Financial actuarial assumptions 100 basis points increase in discount rate (534) (447)
25 basis points increase in indexation 167 140 25 basis points decrease in indexation (152) (128)
The pension scheme Trustees are required to carry out triennial valuations on the scheme’s funding position, with the latest valuation being as at March 31, 2016. As part of this triennial valuation process, a schedule of contributions is agreed between the Trustees and Aegon UK in accordance with UK pensions legislation and guidance issued by the Pensions Regulator in the UK. The schedule of contributions includes deficit reduction contributions to clear any scheme deficit. Under IAS 19, the defined benefit plan has a deficit of EUR 51 million at December 31, 2018 (2017: EUR 137 million deficit). During 2018 EUR 55 million (2017: EUR 87 million)
Financial actuarial assumptions 100 basis points increase in discount rate (235) (299)
The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined
D ef in ed b en ef it pl an s
Transfer to/from other headings - (3) - (6) - - 9 -
Transfer to current income tax - - - - - - (73) (73)
EUR 1,034 million, EUR 554 million through profit and loss and EUR 479 million through other comprehensive income (refer to note 18) is the main cause for the total decrease in the deferred tax liability in 2017 of EUR 1,197 million.
EUR 85 million; tax EUR 15 million) the realization of the deferred tax asset is dependent on the projection of future taxable profits from existing business in excess of the profits arising from the reversal of existing taxable temporary differences.
For the following amounts, arranged by loss carry forward periods, the deferred corporate income tax asset is not recognized: Gross amounts1 Not recognized deferred tax assets 1 The gross value of state tax loss carry forward is not summarized in the disclosure, due to the fact that the United States files in different state jurisdictions with various applicable tax rates and apportionment rules
(2017: gross EUR 261 million; tax EUR 46 million) relating to Defined benefit plans and Other items the recognition of the deferred corporate income tax asset is dependent on future taxable profits in excess of the profits arising from the reversal of existing taxable temporary differences.
Capital (SCR) and reducing own funds by a 100% RBC Company Action Level requirement to reflect transferability restrictions.
During 2018, the Aegon Group and all of its regulated entities that are subject to capital requirements on a solo-level continued to comply with the 100% Solvency II ratio. Aegon Group and all of its regulated entities are continued to be compliant with externally imposed legal capital requirements.
Capital quality Aegon’s capital consists of 3 Tiers as an indication of its quality, with Tier 1 capital ranking highest. It is to be noted that the Group own funds do not include any contingent liability potentially arising from unit-linked products sold, issued or advised on by Aegon in the Netherlands in the past as the potential liability cannot be reliably quantified at this point. Further, the available own funds is an estimate, has not been filed with the regulator and is subject to supervisory review.
As at December 31, 2018, Tier 2 capital accounted for 8% of own funds (2017: 8%), including EUR 716 million of subordinated liabilities, which are issued during 2018 and classified as Solvency II compliant Tier 2 capital. EUR 771 million of fixed floating subordinated notes (2017: EUR 772 million) which are classified as grandfathered Tier 2 capital. Changes in Tier 2 capital compared to previous year is mainly related to the issuance of new capital instruments and the redemptions of existing grandfathered Tier 2 capital instruments (non-cumulative subordinated notes).
The grandfathered restricted Tier 1 and Tier 2 capital instruments are grandfathered such that they are considered as capital under the Solvency II framework for up to 10 years as from January 1, 2016. For the terms and conditions of these grandfathered instruments refer to note 33 and note 34 to the consolidated financial statements.
It is to be noted that the difference between the amounts mentioned above for junior perpetual capital securities and perpetual cumulative subordinated bonds, and those in note 33 and note 34 to the consolidated financial statements, stem from valuation differences between Solvency II (market value) and IFRS-EU rules (refer to note 2.17 and 2.18).
Tier 3 capital as of December 31, 2018 is comprised of deferred tax assets balances related to Solvency II entities.
The Solvency II revaluations and reclassification of EUR 6,936 million negative (2017: EUR 10,453 million negative) mainly stem from the difference in valuation and presentation between IFRS-EU and Solvency II frameworks, and the redemption of non-cumulative subordinated notes. The change in Solvency II revaluations per December 31, 2018 compared to December 31, 2017 is mainly driven by rising interest rates and widening credit spreads during 2018, reducing the revaluation reserves in Aegon US. In addition, Aegon exercised its right to redeem the USD 525 million 8% non-cumulative subordinated notes. The Solvency II revaluations and reclassification can be grouped into three categories:  Items that are not recognized under Solvency II. The most relevant examples of this category for Aegon include Goodwill, DPAC and other intangible assets (EUR 2,024 million negative, 2017: EUR 2,019 million negative);  Items that have a different valuation treatment between IFRS-EU and Solvency II. Solvency II is a market consistent framework hence all assets and liabilities are to be presented at fair value while IFRS-EU also includes other valuation treatments in addition to fair value. The most relevant examples of this category for Aegon Group include Loans and Mortgages, Reinsurance Recoverables,
Deferred tax assets balances and Technical provisions. The revaluation difference stemming from this category amounted to EUR 2,446 million positive (2017: EUR 2,595 million positive) compared to the IFRS-EU Statement of Financial Position;  The Net Asset Value of subsidiaries that are included under the Deduction & Aggregation method (on provisional equivalence or Standard Formula basis) in the Group Solvency II results. The revaluation difference stemming from this category amounted to EUR 4,095 million negative (2017: EUR 6,791 million negative) compared to the IFRS-EU Statement of Financial Position;  Reclassification of subordinated liabilities of EUR 3,262 million negative (2017: EUR 4,237 negative). In 2018, the accounting treatment of subordinated liabilities which were grandfathered by the Dutch Central Bank have changed on the Solvency II balance sheet. These subordinated liabilities include Junior Perpetual Capital Securities (JPCS), Perpetual capital subordinated loans (PCSL), and Fixed Floating Security Notes (FFSN). Under IFRS, JPCS and PCSL are presented as Shareholder’s equity, FFSN is presented as liabilities. Previously, they were all reported as equity instruments under Solvency II. From 2018 these grandfathered instruments are reported as subordinated liabilities in the Solvency II balance sheet and no longer included in the excess of assets over liabilities.
Aegon’s total capitalization comprises the following components:  Shareholders’ equity excluding revaluation reserves based on IFRS as adopted by the EU;  Non-controlling interests and share options not yet exercised; and  Total financial leverage.
Non-controlling interests, share options and incentive plans not yet exercised 33, SOFP 2 80 81
1 Distributable items under Dutch law; note that Solvency II ratios also possibly restricts the distribution of dividends. 2 Statutory reserves contains legal reserves of both FCTR and group companies and the positive revaluations of the revaluation account.
(e.g. general economic conditions, capital market risks, underwriting risk factors, changes in government regulations, and legal and arbitrational proceedings). To mitigate the impact of such factors on the ability to pay dividends, the subsidiaries hold additional capital in excess of the levels required by local insurance regulations, as reflected in Aegon’s target capitalization ranges.
Revalued amounts Real estate held for own use - - 263 263
Liabilities carried at fair value Investment contracts for account of policyholders 2 - 36,950 219 37,169
A cq ui si ti on s th ro ug h bu si ne ss c om bi na ti on s
Other investments at fair value 583 - - (83) (38) 125 (102) (21) 25 3 - - - 493 -
L fo r i ns tr um en ts h el d at
Investment funds Net asset value 3 n.a. 24 n.a. 31 n.a.
Total liabilities at fair value 2,489 1,845 1 Other in the table above (column Valuation technique) includes investments for which the fair value is uncorroborated and no broker quote is received. 2 Not applicable (n.a.) has been included when the unobservable inputs are not developed by the Group and are not reasonably available. 3 Net asset value is considered the best approximation to the fair value of these financial instruments. 4 Investments for account of policyholders are excluded from the table above and from the disclosure regarding reasonably possible alternative assumptions.
The table below presents the impact on a fair value measurement of a change in the own credit spread by 20 basis points included in the discount rate.
Financial liabilities carried at fair value Embedded derivatives in insurance contracts 2,484 131 (126) 1,831 125 (120)
Assets Mortgage loans – held at amortized cost 36,639 - 1 39,757 39,758
Private loans – held at amortized cost 4,103 - 42 4,452 4,494
Other loans – held at amortized cost 2,310 13 2,064 233 2,310
Assets Mortgage loans – held at amortized cost 33,930 - - 38,076 38,076
Private loans – held at amortized cost 3,642 - 64 4,117 4,181
Borrowings – held at amortized cost 13,099 2,116 28 11,355 13,499
Available-for-sale shares include shares in a Federal Home Loan Bank (FHLB) for an amount of EUR 176 million (2017: EUR 204 million), which are reported as part of the line-item Net asset value. A FHLB has implicit financial support from the United
Third-party pricing services will often determine prices using recently reported trades for identical or similar securities. The third-party pricing service makes adjustments for the elapsed time from the trade date to the reporting date to take into account available market information. Lacking recently reported trades, third-party pricing services and brokers will use modeling techniques to determine a security price where expected future cash flows are developed based on the performance of the underlying collateral and discounted using an estimated market rate.
When Aegon cannot make use of quoted market prices, market prices from indices or quotes from third-party pricing services or brokers are used.
The fair values of investments held in non-quoted investment funds are determined by management after taking into consideration information provided by the fund managers. Aegon reviews the valuations each month and performs analytical procedures and trending
Derivatives with positive values not designated as hedges 7,015 - 5,394 -
Total financial liabilities at fair value through profit or loss 6,424 50,383 6,484 37,705
48 Commitments and contingencies Investments contracted In the normal course of business, the Group has committed itself through purchase and sale transactions of investments, mostly to be executed in the course of 2019. The amounts represent the future outflow and inflow, respectively, of cash related to these investment transactions that are not reflected in the consolidated statement of financial position.
The operating lease obligations relate mainly to office space leased from third parties.
Share of contingent liabilities incurred in relation to interests in joint ventures 49 39
Contractual obligations In April 2018, affiliates of Transamerica Corporation entered into a series of agreements with affiliates of Tata Consultancy Services
Limited (‘TCS’) to administer the Company’s US life insurance, voluntary benefits, and annuity business lines. The collaboration enables Transamerica to accelerate the enhancement of its digital capabilities and the modernization of its platforms to service its customers in all lines of business. Over the course of the multi-year contract, Transamerica will pay more than USD 2 billion to TCS.
These revenues represent compensation for administering Transamerica’s over 10 million policies and are driven by both new business and policies already in force. In addition, this commitment includes remaining transition and conversion charges of approximately
Transamerica – subject to certain limitations – agrees to compensate TCS, on a specified schedule, for early termination.
In November 2018, Aegon UK entered into an agreement with Atos BPS Ltd (Atos) to service and administer its Existing Business (non-
Platform customers). This collaboration builds on the relationship we already have with Atos for our award-winning Protection business and is expected to be effective as of mid-2019. The agreement is a 15-year contract under which Aegon UK will pay Atos to administer around 1.4 million customers, with payments driven by the volume of policies being administered.
At December 31, 2018, the letter of credit arrangements utilized by captives to provide collateral to affiliates amounted to EUR 3,469 million (2017: EUR 3,025 million); as of that date no amounts had been drawn, or were due under these facilities.
Other letter of credit arrangements for subsidiaries amounted to EUR 60 million (2017: EUR 55 million); as of that date no amounts had been drawn, or were due under these facilities;  Due and punctual payment of payables due under letter of credit agreements or guarantees provided for subsidiaries of Transamerica Corporation at December 31, 2018 amounted to EUR 3,164 million (2017: EUR 3,079 million). As of that date no amounts had been drawn, or were due under letter of credit facilities. The guarantees partly related to debt amounted to EUR 1,388 million (2017: EUR 1,322 million) and is included in the Operational funding table in note 39 Borrowings of the consolidated financial statements of the Group in the line 'USD 1.54 billion Variable Funding Surplus Note'; Integrated Annual Report 2018 CONTENTS
Legal and arbitration proceedings, regulatory investigations and actions Aegon faces significant risks of litigation as well as regulatory investigations and actions relating to its and its subsidiaries’ insurance, pensions, retirement administration, securities, investment management, investment advisory and annuities businesses as well as Aegon’s corporate compliance, including compliance with employment, sanctions, anti-corruption and tax regulations.
Insurance companies and their affiliated regulated entities are routinely subject to litigation, investigation and regulatory activity by various governmental and enforcement authorities, individual claimants and policyholder advocate groups involving issues such as, but not limited to, product fees and costs, including transparency and adequacy of disclosure of initial costs, ongoing costs, and costs due on policy surrender as well as changes to costs over time; employment or distribution relationships; operational and internal controls and processes; environmental matters; competition and antitrust matters; data privacy; information security; intellectual property; and anti-money laundering, anti-bribery and economic sanctions compliance.
Government and regulatory investigations may result in the institution of administrative, injunctive or other proceedings and/
Over 99% of affected policyholders participated in the settlement. While less than 1% of policyholders opted out, they represent approximately 43% of the value of the settlement fund. The settlement fund was reduced proportionally for opt outs, although Aegon continues to hold a provision for these policyholders. Resolution of this class action is expected to end a number of other related cases, including several other class actions. At this time it is impracticable for Aegon to quantify a range or maximum liability or the timing of the financial impact, if any, of the remaining MDR increase related litigation, as the potential financial impacts are dependent both on the outcomes of court proceedings and future developments in financial markets and mortality. If decided adversely to Aegon, these claims could have a material adverse effect on Aegon’s business, results of operations, and financial position.
Unclaimed property administrators and state insurance regulators performed examinations and multi-state examinations of the life insurance industry in the United States, including certain of Aegon’s subsidiaries. Aegon subsidiaries, like other major US insurers, entered into resolutions with state treasurers and insurance regulators regarding unclaimed property and claims settlement practices.
As of 2018, there was a provision of USD 31 million for unclaimed property obligations, which is management's best estimate of the still-outstanding exposure. The final amount may vary based on subsequent regulatory review.
In Poland, owners of unit-linked policies continue to file claims in civil court against Aegon over fees payable upon purchase or surrender of the product. Plaintiffs claim that these fees are not contractually supported. Aegon faces a significant number of these cases. For reasons of commercial necessity as well as at the instigation of the regulatory authorities, Aegon decided to modify the fee structure. As of 2018, a provision of EUR 17 million remains, which represents management's best estimate of the exposure. The final amount may vary based on regulatory developments and the outcome of litigation.
Cash collateral is usually invested in pre-designated high quality investments. The sum of cash and non-cash collateral is typically greater than the market value of the related securities loaned. Refer to note 49.3 Assets accepted and note 49.4 Assets pledged for an analysis of collateral accepted and pledged in relation to securities lending and repurchase agreements.
49.2 Transferred financial assets that are derecognized in their entirety, but where Aegon has continuing involvement Aegon has no transferred financial assets with continuing involvement that are derecognized in their entirety as per year-end 49.3 Assets accepted Aegon receives collateral related to securities lending, reverse repurchase activities and derivative transactions. Non-cash collateral is not recognized in the statement of financial position. To the extent that cash is paid for reverse repurchase agreements, a receivable is recognized for the corresponding amount.
The following tables present the fair value of the assets received in relation to securities lending and reverse repurchase activities: Securities lending 2018 2017
Non-cash collateral that can be sold or repledged in the absence of default 1,740 4,166
Aegon posts margin as collateral. The amount of collateral pledged for derivative transactions was EUR 1,399 million (2017: EUR 2,234 million).
Related amounts not set off in the statements of financial position Net amount
The line Derivatives includes derivatives for general account and for account of policyholder.
On July 1, 2018, the legal transfer of the BlackRock Life Limited’s Defined Contribution and investment platform business to Scottish
Ltd. business was done through a sale and purchase agreement to acquire all the shares and platform assets. The total consideration of the acquisition amounted to GBP 147 million (EUR 171 million). The fair value of the net assets amounted to GBP 99 million
Under the purchase agreement, Aegon will acquire approximately GBP 12 billion (EUR 15 billion) of assets and 350,000 customers from BlackRock, which serves institutional and retail clients. The transaction was subject to a Part VII transfer of the underlying assets and liabilities to Aegon, which was subject to regulatory and court approval, and has closed in 2018.
On April 3, 2018, Aegon completed the sale of Aegon Ireland plc to Athora Holding Ltd. agreed to on August 9, 2017. The net proceeds of the transaction amounted to GBP 177 million (EUR 202 million). The divestment led to a book loss of GBP 81 million
(EUR 93 million), reported in note 17 Other charges. This divestment had no material impact on underlying earnings before tax going forward. Upon disposal, an amount of GBP 31 million (EUR 36 million) related to the foreign currency translation and net foreign investment hedging reserve has been reclassified from Other Comprehensive Income into the income statement.
The business consists mainly of unit linked life insurance coverage, term life products and pension services. Based on the book value as of December 31, 2018, the book gain is expected to amount to approximately EUR 80 million and will be reported in Other income upon completion. As a consequence of this transaction, annual income before tax and underlying earnings before tax will decrease.
In 2018, the underlying earnings before tax of the combined operations amounted to EUR 17 million. The transaction has closed early 2019.
On May 13, 2016, Aegon completed the sale of certain assets of Transamerica Financial Advisors, a full service independent broker-dealer and registered investment adviser, following regulatory approval. The consideration received for the sale consisted of USD 49 million (EUR 44 million) cash and USD 14 million (EUR 13 million) of contingent consideration which is subject to a 12 month earn-out period. The transaction resulted in a pre tax gain of USD 58 million (EUR 52 million) recorded in the second quarter of 2016.
Central & Eastern Europe  Aegon Magyarország Általános Biztosító Zártkörűen Működő Részvénytársaság, Budapest (Aegon Hungary Composite
Joint ventures The principal joint ventures are listed by geographical segment. The voting power in these joint ventures is equal to the shareholdings.
Asset Management  Aegon Industrial Fund Management Co., Ltd, Shanghai (China) (49%).
On May 18, 2018, Vereniging Aegon exercised its options rights to purchase in aggregate 1,489,200 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance)
to mitigate dilution caused the issuance of shares on May 18, 2018, in connection with the Long Term Incentive Plans for senior management.
October 2017 to neutralize the dilutive effect of the distribution of final dividend 2016 in stock and interim dividend 2017 in stock.
Board, the CEOs of Aegon USA, Aegon Continental Europe, Aegon UK, Aegon Asset Management, the Chief Risk Officer, the Chief
Technology Officer, the Global Head HR and the General Counsel. In April 2017, the Management Board decreased in size by one member as a result of the retirement of the CEO of Aegon Central & Eastern Europe.
IFRS-EU expenses related to variable compensation amounted to EUR 6.9 million (2017: EUR 6.3 million; 2016: EUR 6.0 million)
and EUR 4.3 million (2017: EUR 3.7 million; 2016: EUR 3.2 million) for pensions. Total IFRS-EU expenses for the members
Remuneration of members of the Executive Board The information below reflects the compensation and various related expenses for members of the Executive Board. Mr. Rider was appointed to the Executive Board for a term of four years by the shareholders on May 19, 2017 as CFO. Amounts and numbers are disclosed for the period Mr. Rider has been part of the Executive Board. Under the current remuneration structure, certain compensation elements are paid out over a number of years, or in the case of shares, vest over a number of years. This remuneration structure has made it more relevant to present compensation and benefit amounts allocated during a certain performance year instead of what was received in a certain year.
Total conditional variable compensation awards 1,822 1,646 1,791 1 Mr. Rider was appointed as CFO and member of Aegon’s Executive Board per May 19, 2017. Conditional variable compensation is disclosed for the period that
The amounts in the table represent the conditional variable compensation awards earned during the related performance year. Expenses recognized under IFRS-EU accounting treatment in the income statement for conditionally awarded cash and shares differ from the awards. For the performance year 2018 and previous performance years, expenses under IFRS-EU for Mr.
Over the performance year 2018, Mr. Wynaendts was awarded EUR 1,062 in total conditional variable compensation. Mr. Rider was awarded EUR 760.
The variable compensation award is split 50/50 in cash payments and an allocation of shares. Of the variable compensation related to performance year 2018, 40% is payable in 2018. Accordingly, Mr. Wynaendts and Mr. Rider will receive a cash payment of EUR 212 and EUR 152 respectively. The number of shares to be made available in 2019 relating to performance year 2018 is 39,314 and 28,110 for Mr. Wynaendts and Mr. Rider respectively. The vested shares, minus the number of shares to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the company holds a withholding obligation in connection with the vesting of the shares, are subject to a three year holding period, before they are at the disposal of the Executive Board members.
The variable compensation award is split 50/50 in cash payments and an allocation of shares. Of the variable compensation related to performance year 2016, 40% is payable in 2017. Accordingly, Mr. Wynaendts and Mr. Button will receive a cash payment of EUR 209 and EUR 149 respectively. The number of shares to be made available in 2017 relating to performance year 2016 is 40,722 and 29,614 for Mr. Wynaendts and Mr. Button respectively. The vested shares, minus the number of shares to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the Company holds a withholding obligation in connection with the vesting of the shares, are subject to a three year retention (holding)
The table below illustrates all the conditionally awarded cash and shares of the members of the Executive Board, and the years in which each component will be paid out and/or vest, subject to the conditions as mentioned: Integrated Annual Report 2018 CONTENTS
2 The number of shares is based on a volume weighted average price of EUR 4.917. After vesting a 3 year holding period applies to shares vested. 3 The number of shares is based on a volume weighted average price of EUR 6.739. After vesting a 3 year holding period applies to shares vested. 4 The number of shares is based on a volume weighted average price of EUR 6.106. After vesting a 3 year holding period applies to shares vested. 5 The number of shares is based on a volume weighted average price of EUR 5.128. After vesting a 3 year holding period applies to shares vested. 6 The number of shares is based on a volume weighted average price of EUR 5.246. After vesting a 3 year holding period applies to shares vested. 7 The number of shares is based on a volume weighted average price of EUR 5.405. After vesting a 3 year holding period applies to shares vested. 8 During the vesting period, dividend payments on these shares are deposited in blocked savings accounts on behalf of the executive members. For active members of the Executive Board 50% of the shares vested in 2012 and 50% vested in 2016.
2 Mr. Rider was appointed as CFO and member of Aegon’s Executive Board per May 19, 2017. Pension contributions are disclosed for the period that Mr. Rider has been part of the Executive Board.
Mr. Button has been part of the Executive Board and are reflective of his time with Aegon until December 1, 2016. Expenses recognized under IFRS-EU accounting treatment in the income statement for Mr. Button for 2016 amount to EUR 375 (2015: EUR 215).
Pension contributions reflect the expenses related to the pension accrual over the financial year disclosed in the table, excluding back service charges.
Total The total amount of remuneration, consisting of the fixed compensation, conditional variable compensation awards, other benefits and pension contributions, for Mr. Wynaendts related to 2018 was EUR 5,015 (2017: EUR 4,683; 2016: EUR 4,538)
EUR 7.1 million (2017: EUR 6.0 million; 2016: EUR 7.3 million). Total expenses recognized under IFRS-EU accounting treatment in the income statement for Mr. Wynaendts related to 2018 was EUR 4,403 (2017: EUR 4,258; 2016: EUR 4,086) and for Mr. Rider
EUR 1,887 (2017: 1,088; 2016: nil). Total IFRS-EU expenses for the members of the Executive Board over 2018 was EUR 6.3 million
Not included in the table above is a premium for state health insurance paid on behalf of Dutch Supervisory Board members. There are no outstanding balances such as loans, guarantees or advanced payments.
54 Events after the reporting period On January 8, 2019, Aegon announced the completion of the sale of its businesses in Czech Republic and Slovakia. The businesses consists mainly of unit linked life insurance coverage, term life products and pension services. The proceeds of the sale amount to EUR 155 million and the book gain amounts to approximately EUR 80 million. As a consequence of the transaction, annual income before tax and underlying earnings before tax will decrease. In 2018, the underlying earnings before tax of the combined operations amounted to EUR 17 million.
A reference is made to Note 2 Significant accounting policies of the consolidated financial statements for the description of the accounting policies applied.
Results from financial transactions comprise: Net fair value change of derivatives (8) 56
Net fair value change on borrowings and other financial liabilities 4 -
Net fair value change of derivatives mostly comprises of Fair value changes on derivatives that are designated as economic hedges for which no hedge accounting is applied.
Reconciliation between standard and effective tax Income before tax (124) (43)
Tax on income on Dutch corporate income tax rate 31 11
Aegon N.V., together with certain of its subsidiaries, is part of a tax grouping for Dutch corporate income tax purposes. The members of the fiscal unit are jointly and severally liable for any taxes receivable or payable by the Dutch tax grouping.
11 Other current assets Other current assets include derivatives with positive fair values of EUR 134 million (2017: EUR 70 million).
On December 19, 2017, Aegon N.V. repurchased 13,042,592 common shares B from Vereniging Aegon for the amount of EUR
Long-term incentive plans For detailed information on the Long Term Incentive Plans refer to note 14 Commissions and expenses to the consolidated financial statements of the Group.
Board remuneration Detailed information on remuneration of active and retired members of the Executive Board including their share plans, remuneration of active and retired members of the Supervisory Board along with information about shares held in Aegon by the members of the Boards is included in note 53 Related party transactions to the consolidated financial statements of the Group.
Le ga l r es er ve s gr ou p co m pa ni es
Foreign currency translation differences and movement in foreign investment hedging reserves - - - (1,717) - - 102 - - (1,615)
Repurchased and sold own shares - - - - - 4 - - - 4
Transactions in 2018: Sale: 1 transaction, average price EUR 0.11 (1,489) -
USD 500 million floating CMS rate 2 Quarterly, July 15 2019 402 402
EUR 950 million floating DSL rate 3 Quarterly, July 15 2019 950 950
EUR 200 million 6.0% Annually, July 21 Called in 2018 - 200 1 The coupon of the USD 250 million junior perpetual capital securities is reset each quarter based on the then prevailing three-month LIBOR yield plus a spread of 87.5 basis points, with a minimum of 4%. 2 The coupon of the USD 500 million junior perpetual capital securities is reset each quarter based on the then prevailing ten-year US dollar interest rate swap yield plus a spread of ten basis points, with a maximum of 8.5%. 3 The coupon of the EUR 950 million junior perpetual capital securities is reset each quarter based on the then prevailing ten-year Dutch government bond yield plus a spread of ten basis points, with a maximum of 8%.
Perpetual cumulative subordinated bonds Coupon rate Coupon date Year of next call 2018 2017 1 The coupon of the EUR 203 million bonds was originally set at 7.125% until March 4, 2011. Subsequently, the coupon has been reset at 4.26% until March 4, 2021.
3 The coupon of the EUR 136 million bonds was originally set at 7.25% until October 14, 2008. Subsequently, the coupon has been reset at 5.185% until
Non-cumulative subordinated notes Coupon rate Coupon date, as of Year of next call 2018 2017
USD 525 million 8% Quarterly, February 15 Called in 2018 - 271
The securities were subordinated and ranked senior to the junior perpetual capital securities, equally with the perpetual cumulative subordinated bonds and fixed floating subordinated notes, and junior to all other liabilities. The conditions of the securities contained certain provisions for optional and required cancellation of interest payments.
Refer to note 15 Subordinated borrowings for details of the component classified as subordinated borrowings.
In 2017, subordinated borrowings included a liability of EUR 69 million relating to the USD 525 million non-cumulative subordinated notes issued on February 7, 2012. The liability component of the non-cumulative subordinated notes related to the redemption amount was derecognised subsequent to Aegon exercising its redemption rights in May 2018.
to 6.625% per annum. The market value of the long-term borrowings amounted to EUR 1,649 million (2017: EUR 2,198 million).
Other letter of credit arrangements for subsidiaries amounted to EUR 60 million (2017: EUR 55 million); as of that date no amounts had been drawn, or were due under these facilities;  Due and punctual payment of payables due under letter of credit agreements or guarantees provided for subsidiaries of Transamerica Corporation at December 31, 2018 amounted to EUR 3,164 million (2017: EUR 3,079 million) as of that date no amounts had been drawn, or were due under letter of credit facilities. The guarantees partly related to debt amounted to EUR 1,388 million (2017: EUR 1,322 million) and is included in the Operational funding table in note 39 Borrowings of the consolidated financial statements of the Group in the line 'USD 1.54 billion Variable Funding Surplus Note';  Due and punctual payment of payables by the consolidated group companies Transamerica Corporation, Aegon Funding Company
LLC and Commonwealth General Corporation with respect to bonds, capital trust pass-through securities and notes issued under commercial paper programs amounted to EUR 614 million (2017: EUR 585 million); and  Due and punctual payment of any amounts owed to third parties by the consolidated group company Aegon Derivatives N.V.
19 Number of employees There were no employees employed by Aegon N.V. in 2018 (2017: nil).
21 Events after the reporting period On January 8, 2019, Aegon announced the completion of the sale of its businesses in Czech Republic and Slovakia. The businesses consists mainly of unit linked life insurance coverage, term life products and pension services. The proceeds of the sale amount to EUR 155 million and the book gain amounts to approximately EUR 80 million. As a consequence of the transaction, annual income before tax and underlying earnings before tax will decrease. In 2018, the underlying earnings before tax of the combined operations amounted to EUR 17 million.
In order to reflect the prevailing market price of Aegon N.V. common shares fully within the indication provided, the number of dividend coupons that give entitlement to a new common share of EUR 0.12 (nominal value) will be determined on June 14, 2019 after 5.30 p.m. (CET), based on the average share price on Euronext Amsterdam in the five trading days from June 10, 2019 up to and including June 14, 2019.
What we have audited We have audited the accompanying financial statements 2018 of Aegon N.V., Den Haag (‘the Company’). The financial statements include the consolidated financial statements of Aegon N.V. together with its subsidiaries (‘the Group’) and the (stand-alone)
The financial statements comprise:  the statement of financial position as at December 31, 2018;  the income statement for 2018; and  the notes to the financial statements, comprising the accounting policies applied and other explanatory information.
The financial reporting framework applied in the preparation of the financial statements is IFRS-EU and the relevant provisions of Part 9 of Book 2 of the Dutch Civil Code for the consolidated financial statements and Part 9 of Book 2 of the Dutch Civil Code for the stand-alone financial statements.
Our audit approach Overview and context Aegon N.V. is a provider of mainly life insurance, pensions and asset management services. The Group is comprised of several components. Aegon’s main operating units are separate legal entities and operate under the laws of their respective countries.
Aegon has the following operating segments: Americas, which covers business units in the United States, Brazil, Mexico and Canada; Independent auditor’s report Independent auditor’s report Independent auditor’s report Independent auditor’s report
Volatility in the year over year results of the Group affected the way in which we determined our group materiality, as set out in the section ‘Materiality’.
In Note 3 ‘Critical accounting estimates and judgment in applying accounting policies’, the Group describes the areas of judgment in applying accounting policies and the key sources of estimation uncertainty. Given the significant estimation uncertainty and the related higher inherent risks of material misstatement in the valuation of assets and liabilities arising from insurance contracts and insurance contracts for account of policyholders and the fair value of ‘hard to value’ financial instruments, we considered these matters as key audit matters as set out in the section ‘Key audit matters’ of this report. Furthermore, we identified uncertainties in policyholder claims and litigation and the implications of outsourcing activities on internal controls as key audit matters.
We ensured that the audit teams both at group (consolidation) and at component levels included the appropriate skills and competences which are needed for the audit of a complex financial conglomerate, such as Aegon N.V. This included industry expertise in life and non-life insurance, banking and asset management. We therefore included specialists and experts in the areas of risk assurance (IT), tax services, actuarial services, global human resource services and valuation services for certain type of assets
The outline of our audit approach was as follows: Materiality  Overall materiality: EUR 78 million.
 Audit coverage: 95% of consolidated revenue, 97% of consolidated total assets and 98% of consolidated profit before tax.
Key audit matters  Valuation of assets and liabilities arising from insurance contracts and insurance contracts for account of policyholders.
We evaluated the income before tax amounts for 2018 and prior years noting significant fluctuations from year to year. As a result, we used the average of 2018, 2017 and 2016 income before tax for purposes of determining our group materiality, consistent with prior years. Using an average helps to maintain an appropriate and consistent materiality level giving more considerations to the users’ view of the scale of the financial position and operations rather than volatile circumstances.
We evaluated whether significant unusual or infrequent one-off transactions occurred during these years. During 2018 and 2017, there were a number of one-off transactions, but these were not so significant that it warranted normalization of income before tax. For 2016, the income before tax has been normalized for the realized loss from the sale of the UK annuities business.
The scope of our group audit Aegon N.V. is the parent company of a group of entities. The Group is structured predominately along geographical lines referred to as ‘regional units’. The financial information of this Group is included in the consolidated financial statements of Aegon N.V.
We tailored the scope of our audit to ensure that we performed sufficient work to be able to give an opinion on the financial statements as a whole, taking into account the management structure of the Group, the nature of operations of its components, the accounting processes and controls, and the markets in which the components of the Group operate. In establishing the overall
Group audit strategy and plan, we determined the type of work required to be performed at the component level by each component auditor.
Additionally, we selected Central & Eastern Europe, Spain & Portugal, Asia, Asset Management and Holding for audit procedures to achieve appropriate coverage on financial line items in the consolidated financial statements.
The group engagement team performed the audit work for Holding. For the other components we used component auditors who are familiar with the local laws and regulations to perform the audit work. Where component auditors performed the work, we determined the level of involvement we needed to have in their audit work to be able to conclude whether we had obtained sufficient audit evidence as a basis for our opinion on the consolidated financial statements as a whole.
We issued instructions to the component audit teams in our audit scope. These instructions included amongst others our risk analysis, materiality and scope of the work. We explained to the component audit teams the structure of the Group, the main developments that are relevant for the component auditors, the risks identified, the materiality levels to be applied and our global audit approach. We had individual calls with each of the in-scope component audit teams during the year including upon the conclusion of their work. During these calls, we discussed the risk analysis, significant accounting and audit issues identified by the component auditors, the reports of the component auditors, the findings of their procedures and other matters, which could be of relevance for the consolidated financial statements.
In addition, we developed an oversight strategy for each component based on its significance and/or risk characteristics to the Group.
This strategy included procedures such as regular meetings and discussions with component auditors to challenge and review significant audit matters and judgment within the component team audit files including the review of selected working papers.
We addressed the key audit matters in the context of our audit of the financial statements as a whole, and in forming our opinion thereon. We do not provide separate opinions on these matters or on specific elements of the financial statements. Any comments or observations we made on the results of our procedures should be read in this context.
Key audit matter Valuation of assets and liabilities arising from insurance contracts and insurance contracts for account of policyholders. Refer to Note 2 ‘Significant accounting policies- Note 2.6 ’Intangible assets’, Note 2.13 ‘Deferred expenses’, Note 2.19 ‘Insurance contracts’, Note 29 ‘Deferred expenses’, Note 31 ‘Intangible assets’ and Note 36 ‘Insurance contracts’.
of the Group’s total liabilities. This area involves the use of complex valuation models and significant judgment over uncertain future outcomes, including the timing and ultimate full settlement of long-term policyholder liabilities, and as a result, is more subject to material misstatement. Therefore, we considered this area a key matter for our audit.
In addition, the Group recorded insurance contract assets in respect of DPAC for EUR 10.5 billion (2017: EUR 9.7 billion) and VOBA
To assess the adequacy of the liabilities for insurance contracts and the recoverability of DPAC and VOBA, at each reporting date,
We assessed the design and tested the operating effectiveness of internal controls over the actuarial process that were relevant for the purpose of our audit, including management’s determination and approval process for setting economic and actuarial assumptions as well as controls over Aegon’s actuarial analyses including estimated versus actual results and experience studies. We assessed the Group’s model validation procedures in respect of models which are considered medium and higher risk as a result of complexity and/or magnitude. Our procedures did not identify significant deficiencies.
The Group’s investment portfolio including net derivative assets totalling EUR 334 billion (2017: EUR 330 billion) represents 85%
Our audit work and observations We assessed the design and tested the operating effectiveness of internal controls over the investments’ valuation and impairment process including management’s determination and approval of assumptions and methodologies used in model-based calculations, controls over data integrity and change management for internally operated valuation models and management’s review of valuations provided by external experts or data vendors. Based on this work we found that we, to the extent relevant for our audit, could rely on these controls.
We performed substantive audit procedures to supplement procedures over internal control testing. We either performed an independent valuation or we assessed the appropriateness of the models and assumptions used that drive the valuation.
We assessed pricing models and the underlying methodologies against industry practice and valuation guidelines. We compared assumptions used against appropriate benchmarks and pricing sources, investigated significant valuations using valuation statements, independent broker quotes and underlying financial data, where applicable. In addition, retrospective testing was performed to assess the quality of previous estimates and assumptions. Based on our procedures we considered that the valuation of these investments was within the bandwidth that we consider as acceptable.
The Group has encountered claims and litigations in this respect. Depending on the actual legal position and expectations from management, claims, including litigation related, are either provided for as a liability or reflected as contingent liabilities in the notes to the financial statements based on the criteria as outlined in IAS 37. The Group uses external legal experts where applicable to evaluate its legal positions. Given the uncertainty and judgment in this area in terms of valuation and presentation and disclosure, this area is subject to the risk of understatement of recorded liabilities and incomplete disclosure of contingent liabilities. Therefore, we determined this as a key audit matter.
Our audit work and observations We gained an understanding of the policyholders’ claims and litigations through discussions with management including general legal counsel. We have read the internal position papers prepared by the Group. We also obtained lawyers’ letters to the extent considered necessary for our audit. For all (potential) material claims, we tested the underlying facts and circumstances considered and assessed the best estimate of outflows as determined by the Group. We tested that the Group has properly reflected the claims and litigations in either the provisions or the contingent liabilities by assessing these against the criteria in IAS 37. In this respect we assessed whether the Group has a present obligation (legal or constructive) as a result of a past event, if it is probable (i.e. more likely than not) that
In 2018, the Group outsourced a large part of the policy administration of its insurance and annuity business lines in Americas to a third-party, to meet its objective on cost savings and improving customer services and development. Given the recent growth in outsourced services globally, a critical element to the successful execution of the Group’s processes is to adequately design the appropriate monitoring controls and governance over these outsourced services. The third-party is required to report on the design, existence and operating effectiveness of its internal control framework regarding the outsourced services. An external auditor validates the service provider reports. In addition, the Group implemented monitoring controls to assess the reliability of the outsourced activities on a continuous basis.
We evaluated the scope of the service provider’s auditor’s report to determine whether all applicable services have been included.
Based on the procedures performed as set out below, we conclude that this other information:  is consistent with the financial statements and does not contain material misstatements; and  contains the information that is required by Part 9 of Book 2 of the Dutch Civil Code.
Report on other legal and regulatory requirements Our appointment We were initially appointed as auditors of Aegon N.V. by the Supervisory Board for the years 2014 to 2016 following the passing of a resolution by the shareholders at the annual meeting held on 15 May 2013. We were reappointed as auditors of Aegon N.V.
of the European Regulation on specific requirements regarding statutory audit of public interest entities.
Civil Code; and for �� such internal control as the Executive Board determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.
Our responsibilities for the audit of the financial statements Our responsibility is to plan and perform an audit engagement in a manner that allows us to obtain sufficient and appropriate audit evidence to provide a basis for our opinion. Our audit opinion aims to provide reasonable assurance about whether the financial statements are free from material misstatement. Reasonable assurance is a high but not absolute level of assurance, which makes it possible that we may not detect all misstatements. Misstatements may arise due to fraud or error. They are considered to be material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
Appendix to our auditor’s report on the financial statements 2018 of Aegon N.V. In addition to what is included in our auditor’s report, we have further set out in this appendix our responsibilities for the audit of the financial statements and explained what an audit involves.
We communicate with the Supervisory Board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. In this respect, we also issue an additional report to the audit committee in accordance with Article 11 of the EU Regulation on specific requirements regarding statutory audit of public-interest entities. The information included in this additional report is consistent with our audit opinion in this auditor’s report.
The relevant provisions are as follows: 1. The General Meeting of Shareholders will adopt the Annual Accounts; 2. If the adopted profit and loss account shows a profit, the Supervisory Board may decide, upon the proposal of the Executive Board, to set aside part of the profit to augment and/or form reserves; 3. The profits remaining after application of 2 above shall be put at the disposal of the General Meeting of Shareholders. The Executive
Major shareholders General As of December 31, 2018, Aegon’s total authorized share capital consisted of 6,000,000,000 common shares with a par value of EUR 0.12 per share and 3,000,000,000 common shares B with a par value of EUR 0.12 per share. At the same date, there were 2,095.648,244 common shares and 585,022,160 common shares B issued. Of the issued common shares, 61,418,167 common shares and 13,856,480 common shares B were held by Aegon as treasury shares and 1,143,903 treasury shares were held by its subsidiaries.
As of December 31, 2018, 251 million common shares were held in the form of New York Registry shares. As of December 31, 2018, there were approximately 16,231 record holders of Aegon’s New York Registry shares resident in the United States.
and Ennia N.V. merged into Aegon N.V. Vereniging AGO initially received approximately 49% of the common shares (reduced gradually to less than 40%) and all of the preferred shares in Aegon N.V., giving it voting majority in Aegon N.V. At that time, Vereniging AGO
Aegon contributed these as additional paid-in capital on the then existing Aegon N.V. preferred shares. As a result of this capital restructuring, Vereniging Aegon’s beneficial ownership interest in Aegon N.V.’s common shares decreased from approximately 37% to approximately 12% and its beneficial ownership interest in Aegon N.V.’s voting shares decreased from approximately 52%
In the years 2003 through 2012, 118,093,000 class B preferred shares were issued under these option rights and in the years 2013 through 2015 Vereniging Aegon purchased in aggregate 18,708,465 common shares B under its call option right.
58,000,000, being the Value Weight Average Price of the common shares of the five trading days preceding this transaction, as part of the EUR 400 million Share Buy Back program, initiated by Aegon N.V. in January 2016 to neutralize the dilutive effect of the cancellation of Aegon N.V.’s preferred shares in 2013.
On December 19, 2017, Aegon N.V. repurchased 13,042,592 Common Shares B from Vereniging Aegon for the amount of EUR
Exercise option right common shares B – May 2018 - 1,489,200
Accordingly, at December 31, 2018, the voting power of Vereniging Aegon under normal circumstances amounted to approximately 14.33%, based on the number of outstanding and voting shares (excluding issued common shares held in treasury by Aegon N.V.).
Meeting of Shareholders of Aegon N.V., in which event Vereniging Aegon may amend its Articles of Association without the cooperation of Aegon N.V. Furthermore, the two members of the Executive Board of Aegon N.V., who are also members of the Executive Committee, have no voting rights on several decisions that relate to Aegon N.V., as set out in the Articles of Association of Vereniging Aegon.
Based on its last filing with the Dutch Autoriteit Financiële Markten as at June 20, 2018, Dodge & Cox International Stock Fund stated to hold 131,792,024 common shares, which represent 4.9% of the issued capital and votes as at December 31, 2018.
On February 14, 2019, Dodge & Cox’s filing with the US Securities and Exchange Commission (SEC) shows that Dodge & Cox holds 237,992,105 common shares, representing 8.9% of the issued and outstanding capital as at December 31, 2018, and has voting rights for 232,925,689 shares, representing 8.7% of the votes as at December 31, 2018.
Other financial information Schedules to the financial statements Index to schedules Schedule I—Summary of Investments other than Investments in Related Parties as at December 31, 2018
Schedule II—Statement of Financial Position as of December 31, 2018 and 2017
Schedule II—Income Statement (Loss) for the years ended December 31, 2018, 2017 and 2016
Schedule II—Condensed Cash Flow Statement for the years ended December 31, 2018, 2017 and 2016
Schedule II—Dividends from and Capital Contributions to Business Units for the years ended December 31, 2018, 2017 and 2016
Schedule IV—Reinsurance for the years ended December 31, 2018, 2017 and 2016
Other financial information Other financial information Schedule I Schedule I Schedule I
Condensed income statement of Aegon N.V. For the year ended December 31
Dividends from and capital contributions to business units Aegon received EUR 1.4 billion of dividends from its business units during 2018, mainly from Americas, the Netherlands, United Kingdom,
Asset Management, Central & Eastern Europe and Spain & Portugal. Aegon spent EUR 0.1 billion on capital contributions.
Aegon received EUR 1.1 billion of dividends from its business units during 2016 from the Americas, asset management,
Amounts in million EUR Net investment income Benefits, claims and losses
Amortization of deferred policy acquisition costs Other operating expenses Premiums written
Aegon in the US Transamerica is one of the leading life insurance organizations in the United States, and the largest of Aegon’s operating units worldwide. Its businesses in the US serve customers in all fifty states and the District of Columbia, and employ approximately 7,500 people. Most Aegon companies in the United States operate under the Transamerica brand, which stands for the pursuit of financial and physical well-being: Wealth + Health. Its companies have existed since the mid-19th century, and its primary offices are in Cedar
Aegon employs a variety of distribution channels to help customers access its products and services as suits their needs. These include
Workplace and Individual, Brokerage, Closely-Affiliated, and the Transamerica Advice Center distribution channels.
(Banco Cooperativo do Brasil) established Sicoob Seguradora de Vida e Previdência, a life insurance and pensions company dedicated to providing life insurance and pension products within the Sicoob system. As of December 2018, Aegon Brazil had 550 employees.
Corporation, which is the holding company for the US operations. Business is conducted through its various subsidiaries. The use of the term 'Aegon USA' throughout this business overview refers to the operating subsidiaries and joint ventures in the United States and Latin America, collectively or individually, through which Aegon conducts business. Aegon USA has operating licenses in every
Aegon USA is a functionally organized firm that aims to meet customers' needs and create a consistent, positive experience for customers, business partners and employees. Aegon USA is structured in such a way as to provide relevant customer solutions that are easy to understand, and that address the full range of customers' financial protection and savings needs at every stage of life as they save, invest, protect and create retirement income. Moreover, Aegon USA's structure enables it to leverage Transamerica's brand strength, expertise and capabilities in order to fulfill Aegon’s purpose of helping people achieve a lifetime of financial security.
The business lines operated through one or more of Aegon USA's life insurance companies include: life insurance, accident & health insurance, mutual funds, variable annuities, fixed annuities, retirement plans, stable value solutions, and Latin America. The business
On January 11, 2018, Transamerica announced that it had entered into an agreement with Tata Consultancy Services (TCS)
With a transfer of over 2,000 Transamerica employees, TCS will support the administration of Transamerica's life insurance, annuity, supplemental health insurance and workplace voluntary benefits products (both for inforce and new business based on a transition timeline), taking on over 10 million policies.
This benefit was offset by the impact of tax reform on the RBC ratio in the second half of 2018.
In addition, Aegon USA offers annuities, investments (mutual funds and Exchange Traded Funds (ETF)), life insurance and long-term care insurance products through partnerships with independent broker-dealers (banks, wirehouses, and independent financial planners).
While Aegon USA’s wholesalers are dedicated to one business line, they work closely together to refer financial professionals across
Aegon USA’s multiple business lines in order to create deeper partnerships with these professionals and become even more relevant in the financial lives of customers.
Brokerage Aegon USA offers protection products (life insurance, supplemental health insurance and long-term care insurance products) through third-party distribution outlets known as 'Brokerage General Agents' or 'Independent Marketing Organizations'. These are typically non-registered products sold through independent insurance agents. This channel offers life insurance (term life, universal life, variable universal life, index universal life and whole life insurance), long-term care insurance and supplemental health products and services through approximately 51,000 independent brokerage distributors and financial institutions that target the affluent, emerging affluent and middle markets. These products are designed for family protection, business needs and legacy planning.
Closely-Affiliated One of Aegon USA’s closely-affiliated distribution groups, 'Transamerica Financial Network,' provides advice and guidance to individuals to meet their protection and investment needs. With over 50,000 licensed associates on the World Financial Group platform, approximately 3,300 of whom are registered representatives of a broker-dealer and/or investment advisers (with Transamerica
Financial Advisors Inc.), together with 1,700 agents and directors (Transamerica Agency Network), Transamerica Financial Network offers insurance, annuities, mutual funds, retirement plans and managed accounts to individuals. This channel provides the same life and health products as the brokerage channel, with a focus on the middle and emerging affluent markets.
over 250 licensed advisors and educators, the Advice Center provides IRAs, annuities, life insurance, and Managed Advice to retirement plan participants, helping these customers achieve a lifetime of financial security.
Term life insurance Term life insurance provides protection for a stated period of time. Benefits are paid to policy beneficiaries in the event of the death of the insured during a specified period. Living benefit riders that provide accelerated benefits for critical illnesses or chronic conditions are available on term insurance.
Universal life insurance Universal life insurance is flexible permanent life insurance that offers death benefit protection together with the potential for cash value accumulation. After the first few years, there is usually no set premium. The policyholder can adjust the frequency and amount of premium payments, as long as sufficient premiums are paid to cover charges in the month that follows, which are called "monthly deductions". In determining the monthly deduction rate to apply to a specific policy plan, Aegon USA may take a wide number of factors into account that impact the cost of providing the insurance, including but not limited to: interest rates, investment earnings, mortality, persistency, premium funding levels, capital and reserve requirements, taxes, and other expenses associated with such a plan.
'secondary guarantees.' These maintain life insurance coverage when cash value is insufficient, as long as the customer pays a specified minimum premium.
Index universal life insurance Index Universal Life (IUL) insurance provides permanent death benefit protection and cash value accumulation with flexible premium payments. What distinguishes it from other types of permanent life insurance is the way in which interest earnings are credited.
Net premiums may be allocated to either a fixed account or indexed accounts. Indexed accounts credit interest based in part on the performance of one or more market indices. The credited interest is based on the index, but with a floor and a cap. IUL offers both market-paced growth potential in the indexed accounts and downside protection. It is an appealing alternative to regular Universal
Supplemental health insurance Supplemental health insurance products include accidental death and dismemberment, accidental injury, cancer, critical illness, disability, hospital indemnity, Medicare Supplement, retiree medical, and supplemental medical expense indemnity. Medicare Part
D prescription drug plan coverage previously offered by Aegon USA was discontinued at the end of 2018.
Long-term care insurance Long-term care (LTC) insurance products provide benefits to policyholders that require qualified LTC services as they are unable to perform two or more specific activities of daily living or develop a severe cognitive impairment. LTC insurance helps protect against the high cost of LTC services, and it may also help families better manage the financial, health and safety issues associated with LTC.
The LTC product is offered as a standalone product or as a rider to certain life insurance products.
Fixed annuities Fixed annuities allow the policyholder to accumulate assets for retirement on a tax-deferred basis through periodic interest crediting and principal protection. Aegon USA has de-emphasized traditional fixed deferred annuities, and is not actively marketing new sales.
The traditional fixed deferred annuity book is, according to plan, continuing to reduce over time. Aegon USA actively offers a fixedindex annuity that may credit interest based, in part, on the percentage change in the value of the selected index account option(s)
Transamerica Retirement Solutions is a top ten defined contribution record-keeper in the United States based on plan participants.
Plan sponsors have access to a wide array of investment options. Depending on the product chosen by the plan sponsor, unrestricted access to the entire universe of publicly-available investments can be offered. Certain smaller plans have access to an array of hundreds of investment choices from more than 40 investment advisory companies.
Latin America Aegon’s businesses in Latin America are comprised of a 50% interest in Mongeral Aegon Seguros e Previdência S.A., a Brazilian independent life insurer, and a joint venture with Administradora Akaan S.A. de C.V., which created and operates Akaan
Cooperativo do Brasil) established Sicoob Seguradora de Vida e Previdência, a life insurance and pensions company dedicated to providing life insurance and pension products via the Sicoob system. The joint venture began operations on March 1, 2017, and distributes products through Sicoob, the largest cooperative financial system in the country, with over 3.2 million associates and 2,340 points of service. Bancoob is a private commercial bank owned by the credit cooperative entities affiliated with the Sicoob system. This agreement represents a key expansion of distribution for Mongeral Aegon, which already serves over 2 million customers nationwide through over 4,000 brokers.
In addition to the wide variety of investment products, Akaan Transamerica offers integrated investment solutions for individuals and companies based on their financial needs.
Owned/Corporate Owned Life Insurance business (BOLI/COLI) to Wilton Re. The transaction was in line with the Company's stated strategic objective to reduce the amount of capital allocated to its run-off businesses.
Payout annuities are a form of immediate annuity purchased to provide periodic payments on an agreed schedule, in general to provide settlements of legal claims, product liability, pension payouts or other payment structured settlement. New sales of payout annuities were discontinued in 2003. BOLI/COLI products are purchased as an efficient way for banks and corporations to finance long-term employee benefit liabilities. The bank or corporation insures key employees, and is the owner and beneficiary of the policies. New sales of BOLI/COLI were discontinued in 2010.
GICs and funding agreements are spread-based products issued on a fixed-rate or floating-rate basis. They provide customers with a guarantee of principal and a specified rate of return. Contracts issued in foreign currencies were converted at issuance to US dollars through swap agreements when the contracts were issued to eliminate currency risk.
The proceeds of each note series were used to purchase a funding agreement from an Aegon USA insurance company, which was
Competition The US marketplace is highly competitive. Aegon USA's competitors include other large insurance carriers, in addition to certain banks, securities brokerage firms, investment advisors, and other financial intermediaries marketing insurance products, annuities and mutual funds. Aegon USA leverages long-term relationships with many institutions to offer them product lines such as life insurance, variable annuities, mutual funds, defined contribution and defined benefit retirement plans.
Financial, and John Hancock. Mutual of Omaha is the primary competitor for sales of individual long-term care insurance through the brokerage channel. Competitors for supplemental health include a wide range of companies and company types based on the nature of the coverage including Aflac, Allstate, MetLife, and Unum and Colonial Life.
In the market for synthetic GICs, Transamerica’s largest competitors are Prudential Financial, MetLife, Voya and AIG.
State Insurance Regulation Aegon USA's largest insurance companies are domiciled in the State of Iowa, and the Iowa Insurance Division exercises principal regulatory jurisdiction over those companies. This regulation includes implementation and enforcement of standards of solvency, adequacy of reserves and capital, and reinsurance.
The Aegon USA insurance companies are licensed as insurers and are regulated in each US state and jurisdiction in which they conduct insurance business. The extent of such regulation varies, but has a shared purpose in terms of the protection of policy and contract
holders. The insurance regulators in each state carry out their mission by providing oversight in the broad areas of market conduct and financial solvency regulation.
Recent regulatory enhancements include increased reporting of holding company activities, increased transparency and uniformity for certain captive reinsurance transactions, and requirements for companies to conduct an Own Risk and Solvency Assessment (ORSA).
Emerging state issues that may impact Aegon USA include consideration of changes to accounting and actuarial requirements for variable annuities (VA), which may reduce insurers' needs and abilities to deploy and cede specified risks to variable annuity captives.
Aegon USA uses a captive for certain variable annuity business in order to facilitate effective hedging. Other current initiatives include a project to update capital charges for asset default risk, longevity risk and operational risk. A project to develop a group capital calculation is underway in the NAIC that could impact how captives are treated from a capital perspective. Long-term care is currently regulated by states as health insurance, although both state regulators and federal agencies are examining the current environment for the long-term care industry, which may lead to a more predictable regulatory regime for premium adjustments, and facilitate the development of new and innovative products. In 2017, the NAIC approved amendments to the Life and Health Insurance Guaranty
In addition to financial services products, the Patient Protection and Affordable Care Act (ACA), enacted in 2011, changed the regulation of a number of supplemental health insurance products. Efforts to completely repeal the ACA have been ineffective, and states remain skeptical about broadening supplemental health insurance products. Aegon USA anticipates little by way of regulation that will affect its supplemental products, with the exception of IRS taxation of pre-tax group products.
proposed rule’) would require broker-dealers and associated persons to adhere to a best interest standard in providing advice, as well as to mitigate, or eliminate in certain cases, conflicts of interest. The SEC proposed rule would also require additional disclosures to customers. In addition, some states, including New York and Nevada, have enacted or proposed an enhanced standard of care for insurance agents and securities brokers registered in their states. Finally, the NAIC has proposed the addition of a best interest standard of care for the sale of variable annuities in its model law. The likelihood or impact of any proposed regulation cannot be determined at this time.
The financial services industry continues to operate under heightened scrutiny and increased regulation in various jurisdictions. Such scrutiny and regulations have included matters relating to conflicts of interest, cash and non-cash compensation arrangements, suitability of sales (especially to seniors), misleading sales practices, unclaimed property reporting, revenue sharing, investment management and valuation issues involving mutual funds and life insurance separate accounts and their underlying funds, sales, investments and oversight processes related to retail investors saving for retirement, variable annuity buyout offers, and share classes in mutual funds and variable annuities. Aegon USA, like other businesses in the financial services industry, is routinely examined and receives requests for information from the SEC, FINRA, state regulators and others in connection with examinations and investigations of its own companies and third-party or unaffiliated insurers, broker-dealers, investment advisers, investment companies and service providers relating to certain historical and current practices with respect to these and other matters. Some of those inquiries have led to investigations, which remain open, or have resulted in fines, corrective actions or restitution. Aegon USA continues to cooperate with these regulatory agencies. In certain instances, Aegon USA modified business practices in response to those inquiries or findings.
Certain Aegon USA companies have paid, or have been informed that the regulators may seek, restitution, disgorgement, fines or other monetary penalties or changes in the way that business is conducted. The impact of any such fines or other monetary penalties is not expected to have a material impact on Aegon USA's financial position.
ERISA) and the federal Internal Revenue Code of 1986, as amended (the 'Code') for which the US Department of Labor (DOL) and the US Department of the Treasury ('Treasury') have regulatory jurisdiction, respectively.
(including by adding a new limitation on the deductibility of business interest expense) and moved the US to a partial territorial system of international business taxation. In addition, the new law introduced a 'base erosion anti-abuse tax (BEAT),' which may be imposed on companies that make significant deductible payments to their non-US affiliates. With respect to life insurance, pension and annuity contracts, among other changes, the Tax Cuts and Jobs Act reduced the tax deduction for life insurance reserves, limited the dividends received deduction for separate account products such as variable annuities, and increased the capitalization rates of acquisition costs for life insurance products and extended the amortization period for such deferred acquisition costs. It did not, however, make any significant changes to the tax incentives for life insurance, pensions or other retirement savings products.
The impact of the tax law changes do not significantly favor one life insurance product or structure to the detriment of another.
Aegon USA expects a recurring annual benefit to net underlying earnings from the tax rate reduction to 21%, with only small offsets for other permanent items, such as the limited dividends received deduction. Similarly, Aegon USA expects a recurring annual benefit to capital generation from the lower tax rate, with only partial offsets for the other permanent items and the timing provisions that generally accelerate taxable income, the increased capitalization and slower amortization of deferred acquisition costs. However, these benefits are more than offset by the increase in required capital arising from the lower corporate tax rate. Thus, the overall impact of the Tax Cuts and Jobs Act on Aegon USA’s businesses and results of operations should be slightly negative.
In recent years, Aegon the Netherlands has invested heavily in its direct online channel to achieve an enhanced digital self-service.
Aegon usually distributes most of its products and services through intermediaries. Its own advisory channel, Aegon Advies B.V., is growing rapidly, as is the frequency with which advice is provided to customers. Distribution channels such as online and the contact centers generate leads for Aegon Advies B.V..
Overview – the Netherlands  The Netherlands  The Netherlands  The Netherlands
Overview of business lines Life Pensions Aegon the Netherlands provides full-service pension solutions, administration-only services and life or disability insurances to company and industry pension funds, large companies and owners of small and medium-sized companies and employees.
Aegon the Netherlands also offers products for small and medium-sized companies, both defined benefit and defined contribution products on a subscription basis. These products reduce complexity and enable Aegon to adapt the tariffs, cost loadings and risk premiums annually. In addition, customers have the opportunity to decide on an annual basis as to whether they wish to continue with their subscription.
The defined benefit subscription product is an all-in product with guaranteed benefits. The expected profit for the customer and anticipated investment returns are taken into account in the pricing of the product, and customers may contribute funds for future pension increases to a separate account. For the defined contribution subscription product all investment risk and longevity risk is borne by the policyholders. The product is managed in a separate business entity (as described below), rather than on Aegon
Accumulation products pay benefits on the policy maturity date, subject to survival of the insured. Most policies also pay death benefits should the insured pass away during the term of the contract. Death benefits may be stipulated in the policy or depend on the gross premiums paid to date. Premiums and amounts insured are established at inception of the contract. The amount insured can be increased as a result of profit sharing, if provided for under the terms and conditions of the product.
Minimum interest guarantees exist for all generations of accumulation products written, except for universal life products, for which premiums are invested solely in equity funds. Older generation products contained a 4% guarantee when sold. In 1999, the guarantee for new products decreased to 3%; and in 2013, the guarantee on new products was reduced to 0%.
Term and whole life insurance Term life insurance pays out death benefits should the insured pass away during the term of the contract. Whole life insurance pays out death benefits in the event of death, regardless of when this occurs. Premiums and amounts insured are established at inception of the contract and are guaranteed. The amount insured may be adjusted at the request of the policyholder. Term life insurance policies do not include profit-sharing mechanisms. Part of the whole life insurance portfolio has profit-sharing features, which are based on external indexes or the return of related assets.
Aegon accident and health products are distributed mainly through the intermediary channel. Some of these products are a natural fit with pension products, and are therefore also promoted to pension intermediaries.
Aegon Bank focuses on the 'income' and 'housing' markets, together with seeking to reinforce the Aegon Netherlands-wide pensions offering. Customers are increasingly having to make provision for their current and future income and wealth since the government changed the rules for pension provisions.
The bank offers simple and high quality products. These include both savings products focused on security, and investment products focused on a suitable risk/return profile that fits the customer's need and risk appetite. Processes are designed in such a way as to provide the maximum benefit to customers, and customer service is based on the principles of easy access, speed, first time right, convenience, insight and understanding.
Aegon Bank's focus is on customers whose income and wealth is in the middle-market, in line with Aegon the Netherlands's target group. Products are distributed directly to Aegon’s customers. For more complex 'advice' products, independent financial advisers continue to be a very important distribution channel for Aegon Bank. Aegon Bank's activities mainly focus on 'Banksparen' products'.
PPI Aegon the Netherlands has two regulated pension premium institutions (PPIs): Aegon PPI B.V.; and Cappital Premiepensioeninstelling
B.V., which will be merged and operate under the combined entity Aegon Cappital B.V. in 2019. These PPIs are low-cost providers of defined contribution pension schemes offered through intermediary advisors. Together they form the largest pension premium institution in the Netherlands, and therefore benefit considerably from economies of scale. The low interest rate environment and aging society is expected to result in a continued shift in customer preference for defined contribution schemes.
Life AG, for which the PPI’s act as an intermediary. All other positive or negative risks, such as investment risk and longevity risk, are attributed to the participants in the scheme.
Aegon PPI offers defined contribution pension schemes in a standardized subscription based model to small and medium enterprises.
The focus is on creating value through easy-to-use products, for a good price, and easy (online) onboarding, thereby creating offering excellent customer service and achieving a high net promoter score NPS (NPS)with customers with excellent service.
(a separate legal entity), together with TKPI B.V.. Stap is a pension pooling vehicle that enables separate financial administration for multiple pension plans from multiple employers. This vehicle enables smaller pension schemes to benefit from economies of scale and to comply with complex pension regulations, meaning that a greater percentage of the employees' pension premium is invested, and that employers and participants receive the same high quality of service as a traditional pension plan. The fiduciary investments for
Stap are carried out by TKP Investments B.V. which has merged with Aegon Investment Management B.V. as per January 1, 2019.
The company has been a key player in the total life market for many years, and was ranked second in 2017 based on gross premium income. The life insurance market in the Netherlands comprises pensions and life insurance. The top five companies in the Netherlands by gross premium income accounted for almost 85% (Individual Life and Pension) of total premium income in 2017 in the insurance market. Following the merger of NN group and Delta Lloyd, Aegon the Netherlands is the second largest insurance company in the pensions market. Aegon the Netherlands is one of many insurers in the non-life market, where in 2017, ten companies accounted for 80% of the total premium income. In terms of premium income, Aegon the Netherlands' non-life market share is around 3%, making it the ninth largest company in the market.
Aegon the Netherlands' share is growing in the market for Dutch household savings. In 2017, its market share was approximately 3%, which is relatively small in comparison to banks such as Rabobank, ING and ABN AMRO.
In the pensions market, pension funds have faced pressure on their coverage ratios, in addition to increased regulatory and administrative requirements. In response, they have sought to reduce risks by insuring all or parts of their business. This represents an opportunity for pension insurers, and Aegon is one of the leading providers of these solutions.
The Dutch supervisory authorities have a number of formal tools to exercise their supervisory tasks. These tools include the authority to request information, if this is necessary for the purpose of prudential supervision, and the power to issue formal instructions to financial institutions, to impose fines, or to publish sanctions. The DNB, as prudential supervisory authority, can, under certain circumstances, require a recovery plan, a short-term financing plan, appoint a trustee, draw up a transfer plan or (ultimately) withdraw the license of a financial institution.
The following insurance entities of Aegon the Netherlands are subject to prudential supervision of the DNB:  Aegon Levensverzekering N.V.;  Aegon Schadeverzekering N.V.;  Aegon Spaarkas N.V.; and  Optas Pensioenen N.V.
(with the exception of reinsurance), nor to carry out both insurance and banking activities within the same legal entity. Within Aegon the Netherlands, Aegon Levensverzekering N.V., Aegon Spaarkas N.V. and Optas Pensioenen N.V. conduct life insurance activities.
Solvency II Aegon the Netherlands uses a PIM to calculate the solvency position of its insurance activities under Solvency II. The calculation includes the use of the volatility adjustment (VA), but does not include the use of any transitional measures. In 2018 the Dynamic
IV framework. As at December 31, 2018, the factor of LAC DT is set at 75%, unchanged from 2017. The Solvency II capital ratio of the Group and Aegon the Netherlands does not include any contingent liability potentially arising from unit-linked products sold, issued or advised on by Aegon in the Netherlands in the past, as the potential liability cannot be reliably quantified at this point.
The R&R Act introduces a requirement for Dutch insurance companies and reinsurance companies, such as the Dutch insurance and reinsurance subsidiaries in the Aegon Group, to draw up and maintain an ex ante recovery plan, that should allow these entities, when faced with financial problems, to take measures to recover their solvency ratio and continue to operate in going concern.
In addition, the Dutch Central Bank, in its capacity as national resolution authority in gone concern circumstances (as opposed to its role as supervisory authority in going concern) is required to draw up and maintain a resolution plan, which should provide for the orderly resolution of the Dutch insurance and reinsurance entities in the group, or the group, to avoid unnecessary damage to policyholders and beneficiaries and to provide an alternative to ordinary bankruptcy proceedings.
The R&R Act allows DNB to intervene in situations where a Dutch insurer or reinsurer, where it is failing or is likely to fail, as defined in the R&R Act. The powers under the R&R Act may also extend to the level of the Group and to entities, other than in insurance or reinsurance entities in the Netherlands, that are part of the group, such as Aegon N.V.. The powers include the transfer of the undertaking to a third party, the transfer to a bridge institution and the transfer of certain specific assets and/or liabilities.
In addition, a bail-in tool is introduced, that allows for the write-off or conversion of rights of creditors, including policyholders and beneficiaries, while respecting the principle that they should not be worse off through resolution, including the application of the bail-in tool, than they would in ordinary insolvency proceedings.
CRD IV and the CRR are the European Union's translation of the Basel III accord for prudential supervision of credit institutions and investment firms. The CRR is binding for all EU member states and became effective on January 1, 2014. CRD IV is an EU directive, and is required to be implemented into local legislation. CRD IV has been implemented in the Netherlands by means of amending the Financial Supervision Act (Wet op het financieel toezicht, the 'Wft') on August 1, 2014. The application in full of all measures under
CRD IV (including any national implementation thereof in the Netherlands) has to be completed before January 1, 2019.
The CRR has been applied across all EU member states since January 1, 2014. The CRD IV and CRR frameworks include requirements with respect to capital adequacy, and introduce requirements with respect to increased capital against derivative positions, the introduction of two supplementary buffers (a capital conservation buffer and a counter-cyclical buffer), a new liquidity framework
(liquidity coverage ratio and net stable funding ratio and a leverage ratio. The leverage ratio is defined as Tier-1 capital divided by a measure of non-risk weighted assets. If Basel III is followed under CRD IV, the leverage ratio may not fall below 3%, although uncertainty still remains as to the exact percentage and the scope of the leverage ratio under CRD IV. With respect to the percentage, the Dutch government has announced that it wishes to implement a leverage ratio of at least 4% for large Dutch banks, which does not apply to Aegon Bank N.V.. The ultimate aim of Basel III/CRD IV is to reduce leverage in order to bring institutions' unweighted assets more in line with their Tier-1 capital. The capital requirements include qualitative in addition to quantitative requirements.
Capital of the highest quality, Common Equity Tier 1, forms a substantial part of the capital of a credit institution. Additional Tier 1 capital forms the rest of the Tier 1 capital. In addition, the capital of a credit institution may be composed of Tier 2 capital, which is of a lesser quality than Tier 1 capital.
EU Directive 2014/59/EU (the Banking Recovery and Resolution Directive, BRRD) and Regulation 806/2014 on the Single Resolution
Regulation that deal with recovery and resolution entered into force on January 1, 2016.
Were Aegon Bank N.V. to fail or be likely to fail and the other resolution conditions were also met, the national resolution authority would be able to place Aegon Bank N.V. under resolution. As part of the resolution scheme to be adopted by the national resolution authority it may decide to apply certain resolution tools and exercise its powers pursuant to the implemented BRRD in order to give effect to such resolution tools. In addition, the SRM Regulation and the BRRD Implementation Act introduce the bail-in tool which gives the national resolution authority the power to write down or convert into equity certain debt and other liabilities of the institution.
Organizational structure Aegon UK plc is Aegon’s holding company in the United Kingdom. It was registered as a public limited company at the beginning of December 1998. The leading operating subsidiaries, which all operate under the Aegon brand, are:  Aegon Investment Solutions Ltd.;  Scottish Equitable plc;  Cofunds Ltd.
Since 2016, Aegon UK has completed the divestment of its own annuity portfolio to Rothesay Life and Legal & General. These transactions were consistent with its ambition to free up capital from non-core businesses, and its capital position improved as a result of the transactions. Aegon UK has approximately GBP 0.7 billion annuity liabilities remaining through an inward reinsurance transaction.
In 2016, Aegon UK announced an agreement to acquire BlackRock's UK defined contribution (DC) platform and administration business, strengthening its position as a leading player in the UK workplace market, adding Master Trust and Investment Only capability, as well as assets under administration of around GBP 16 billion. This transaction finalized in July 2018.
On January 1, 2017, Aegon UK completed the acquisition of Cofunds. The transaction demonstrates Aegon’s commitment to the retail platform market. Intermediaries that use Cofunds have been upgraded to an enhanced version of Aegon’s platform, with approximately 79,000 customers upgraded in December 2017 and approximately 400,000 customers in May 2018. In addition, Aegon UK has also completed the re-platorming of the institutional business acquired as part of the Cofunds transaction.
On April 3, 2018, Aegon completed the sale of Aegon Ireland plc to Athora Holding Ltd., the holding company of the European operations of Athene Holding Ltd. Aegon Ireland provided both unit linked guarantees and offshore bond product in the UK.
The combination of the acquisitions and Aegon’s program to upgrade existing customers to the digital solutions platform have enabled
Aegon to create the largest UK platform with approximately GBP 128 billion assets under administration, and provide broad expertise across the savings, investments and pensions markets.
UK's customer capability, which offers employees and advisor clients a market-leading portal to view and manage their money. Aegon
UK's award-winning platform supports these channels in an integrated way, making it easier for customers to move between products and channels. In addition, Aegon offers an institutional trading platform that underpins other UK retail platforms.
Aegon Retirement Choices (ARC) helps advisors and their customers save for the long term and manage the transition from work to retirement. ARC uses leading-edge digital technology to deliver an intuitive method of saving for the long term, including retirement, taking income in retirement, such as the on-platform drawdown product, and dealing with changing circumstances. It also provides valuable online reporting and lifestyle tools that enable advisors to demonstrate their professionalism and display their charges for advice in a transparent way. In addition to the Self Invested Pension Plan – which provides a range of pre-and post-retirement
Overview – United Kingdom  United Kingdom  United Kingdom  United Kingdom
The acquisition of Cofunds made Aegon UK the UK's leading 'fund supermarket', adding approximately GBP 80 billion of assets, predominantly in ISAs and GIAs, complementing Aegon UK's core pension expertise. The modernization of the Cofunds business by migrating it on to Aegon’s market-leading technology has seen Aegon UK emerge with a market-leading position among intermediary platforms.
Customer capability Aegon’s digital retirement planning service is designed to help customers understand how 'on track' they are for the retirement they want, and to support them in taking action. Answering a few simple questions gives customers a Retiready score out of 100, showing how ready they are for retirement.
Retiready is focused on both existing Aegon UK customers that no longer have an advisor and members of group pension schemes.
As part of the Cofunds migration, Aegon UK is redeveloping its digital customer portal. This aims to offer an industry-leading customer experience, with the service then being rolled out to all customers.
Aegon UK also participates in the institutional market in 2 distinct areas where capability is provided to other parties who provide policy administration to the end client:  An institutional trading platform which powers 28 of the UK’s leading end customer platforms (e.g. SEI, AJ Bell) and manages a total of GBP 52 billion assets; and  An investment only proposition for pension schemes which provides access to insured funds for c160 clients representing
The Existing Business is responsible for older products that are no longer actively marketed to new customers. However, new assets are accumulated as customers pay into existing policies, or as new employees join older workplace schemes. These propositions include older style group pensions, individual pensions and with-profits policies. In November 2018 Aegon UK announced an extension to its partnership with Atos with a 15 year contract to service and administer the Existing Business. This builds on the existing relationship which has seen Atos successfully administer 450,000 Digital Solutions protection policies since 2016.
Savings, Investments & Pensions Aegon UK provides a full range of personal and corporate pensions and saving-related products. These include:  Individual Saving Accounts;  General Investment Account;  Flexible personal pensions;  Self-invested personal pensions;  Group personal pensions;  Group Self-invested personal pensions;  Mastertrust;  Investment Only capability for workplace pension schemes; and  Institutional Trading Platform.
Protection products Aegon UK offers a range of products for individual customers, including life cover, critical illness and income protection available through financial advisers. The target market is wealthier customers over the age of 40, where Aegon UK's underwriting expertise helps it to provide a customer-centric proposition. This also provides a strong overlap with the target customers for Aegon Retirement
Competition There are a diverse range of competitors in the markets in which Aegon UK operates, and market dynamics are continuing to evolve. While competition can be seen partly in terms of product features and benefits, it is also increasingly played out in terms of establishing Aegon UK's proposition as the primary or secondary 'platform' used by intermediaries to manage their clients assets, or as a preferred partner for EBCs advising corporate clients.
Aegon UK's competitors include traditional insurance companies, investment platforms and asset managers, with a key competitive dimension being the degree to which companies see their growth coming from extending into distribution or asset management versus building scale in administration.
Since the introduction of Solvency II on January 1, 2016, Aegon has been using a Partial Internal Model (PIM) to calculate the solvency position of its insurance activities in the United Kingdom. The internal model was approved in December 2015, by the PRA as part of the Internal Model Application Process, with an additional Major Model Change approved in July 2017, which added Currency Risk and Operational Risk into the Internal Model.
In addition, Aegon uses the matching adjustment in the calculation of the technical provisions for its annuities, and uses the volatility adjustment in the calculation of the technical provisions for the With-Profits business with investment guarantees. Following the sale of the majority of its annuity business in 2016, Aegon no longer uses the transitional measures on technical provisions.
The information required by the legislation is published on Aegon’s websites.
Overview of Central & Eastern Europe In 2018 Aegon had operations in the Central & Eastern European (CEE) countries of the Czech Republic, Hungary, Poland, Romania, Slovakia, and Turkey. It 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. In line with its strategic objective to optimize its portfolio and capital allocation across its businesses, in 2018 Aegon agreed to sell its subsidiaries in Czech Republic and Slovakia. The transaction was subject to customary regulatory approvals and was closed on January 8, 2019.
Organizational structure Aegon’s main subsidiaries in Central & Eastern Europe are:  Aegon Magyarország Általános Biztosító Zártkörűen Működő Részvénytársaság (Aegon Hungary Composite Insurance Co.);  Aegon Towarzystwo Ubezpieczeń na Życie Spółka Akcyjna (Aegon Poland Life);  Aegon Powszechne Towarzystwo Emerytalne Spółka Akcyjna (Aegon Poland Pension Fund Management Co.);  Aegon Emeklilik ve Hayat A.Ş. (Aegon Turkey).;  Aegon Pensii Societate de Administrare a Fondurilor de Pensii Private S.A (Aegon Romania Pension Administrator Co.).
Overview of sales and distribution channels Aegon operates through a number of different sales channels in Central & Eastern Europe. Aegon Hungary Insurance is a composite insurance entity and owns several subsidiaries that also operate in the financial services sector. The Group's products are therefore marketed via a broad range of channels, the most important of which are tied agents and insurance brokers, in addition to bank partners, call centers, key account managers and its online channel. In Poland, unit-linked and different types of traditional life insurance products are distributed by tied agents and broker partners, while in Romania these types of products are distributed mainly by bank partners. In Turkey, the most important sales channels are insurance brokers and tied agents, in addition to bank partners, which distribute savings and term life insurance products. In the Czech Republic and in Slovakia, which were sold in January 2019,
Aegon distributed mostly unit-linked and term life insurance policies with the help of broker sales partners.
Overview of business lines Life & Savings Aegon’s companies in Central & Eastern Europe offer a range of life insurance and personal protection products. These include traditional life and unit-linked products, the latter of which cover all types of life insurance, including pension, endowment and savings.
In Poland, Aegon focuses on unit-linked as well as traditional life products. In line with local regulatory and market developments, the products marketed have been modified in recent years.
In both the Czech Republic and Slovakia, Aegon focused on the unit-linked segment, in addition to offering term life products and offering a wide range of riders that cover, among others, accidental death, disability, critical illness risks, and providing a daily hospitalization allowance to insured clients.
Also in Hungary, up until the end of September 2018 Aegon Hungary Home Savings and Loan Association provided a saving product combined with a preferential loan option, which is subsidized by the state during the saving period. In accordance with Aegon’s strategy on October 1, 2018 Aegon Hungary Home Savings and Loan Association suspended its sales activities.
As a further step to rationalize Aegon’s geographical footprint and focus its resources on its key markets, on August 16, 2018, Aegon announced it had agreed to sell its life insurance business lines in the Czech Republic and Slovakia to NN Group. This transaction was subject to customary regulatory approvals, and was closed on January 8, 2019.
In the voluntary pension market, Aegon was active in Hungary, Turkey and Romania.
On September 1, 2017 Aegon took over the management of Nordea's Pillar 2 pension fund in Poland. The deal brought economies of scale and helped further improve the quality of services that Aegon provides to its customers. The merger of the two funds created the fourth largest Pillar 2 pension fund in the market.
Aegon’s private pension business in Slovakia, together with its life insurance operation in the market, was sold to NN Group on January 8, 2019.
Aegon was ranked third in terms of both the number of participants and managed assets in 2017 in the voluntary pension fund market in Hungary. Aegon was ranked fifth in terms of managed assets in December 2018 and also fifth in terms of number of participants in November 2018 in the Slovakian private pension market. Based on November 2018 data, Aegon was ranked fourth in terms of both the number of participants and managed assets in Poland. In September 2018, Aegon was the fourth largest provider in the Romanian mandatory private pension market, both in terms of net assets under management and number of participants.
State supervision and oversight of the insurance industry is conducted by the following bodies and institutions:  The Central Bank of Hungary (MNB);  National Bank of Slovakia (NBS);  Czech National Bank (CNB);  Polish Financial Supervisory Authority (KNF);  Authority for Financial Supervision (ASF) (Romania); and  Undersecretariat of Treasury (Turkey).
The authorities mentioned above promote consumer protection and have the right to investigate prudential activities and conduct, financial position and solvency, and compliance with all relevant laws.
These self-regulatory groups are the main forums for discussion among insurance companies. Their specialized departments (for example, actuarial, financial, and legal) meet periodically.
Solvency II The Solvency IIinsurance solvency regime, became effective in European Economic Area (EEA) countries on January 1, 2016.
Act (XCVI. 1993). Activity in this area is also supervised by the MNB. Slovakia's pension market is regulated by the Pension Asset
Bank of Slovakia (NBS). In Romania, the private and voluntary pension system is regulated and supervised by the Authority for
(as secondary legislation). In Poland, this activity is supervised by the KNF and governed by the Organization and Operation of Pension
In Hungary, the Credit Institutions and Financial Enterprises Act (2013) stipulates the foundation, operation and reporting obligations of the country's financial institutions. Just like Aegon Hungary Composite Insurance Company, Aegon Hungary Home Savings and
Loan Association is also under the supervision of MNB, as was Aegon Hungary Mortgage Finance Company before it was sold to and renamed by Intrum.
Overview of Spain & Portugal Aegon entered the Spanish insurance market in 1980. In recent years, Aegon’s activities in Spain have developed through distribution partnerships with Spanish banks.
Overview of sales and distribution channels Aegon Spain´s subsidiaries and affiliates distribute their insurance products nationwide through partner branches and its own sales network. The main distribution channel in the Spanish market is bancassurance, which accounts for 69% of life sales, with brokers and direct customers accounting for 23% and 8% of the total respectively. Overall, the bancassurance channel accounts for 26%
Aegon Spain and Banco Santander Since June 4, 2013, Aegon Spain and Banco Santander S.A. have partnered to distribute a number of insurance products in Spain. Banco
On December 28, 2016, Aegon Spain and Banco Santander further extended their partnership agreement to distribute health insurance products developed by Santander Vida, with sales commencing in 2017. Furthermore, Santander Generales began offering funeral insurance on July 7, 2017.
Since December 31, 2014, Aegon Spain and Banco Santander Totta, S.A., a Portuguese insurance company that is part of the Santander
International group, have partnered to distribute a number of insurance products. The partnership concerns the distribution of pure life risk and general insurance products (accident, home and commercial multi-risk insurance, and health) through over 500 branches nationwide – the largest network of its kind in the country. These products are developed through two insurance entities: Aegon
Spain and Banco Santander Totta, S.A. are both shareholders of these entities: Aegon Spain has a 51% share in each entity and Banco
On July 2, 2018, Aegon Spain and Banco Santander signed an agreement to further expand its successful partnership in Spain.
The expansion covers term life and selected lines of non-life insurance following Banco Santander’s acquisition of the Banco
Popular franchise in 2017 as well as the acquisition of the term life portfolio of Banco Popular. The transaction will close following the acquisition of the former insurance partner business by Banco Santander.
Castilla La Mancha and Extremadura). Liberbank Vida y Pensiones, Seguros y Reaseguros, S.A. currently distributes its products through nearly 475 Liberbank, S.A. branches. Aegon Spain and Liberbank S.A. are both shareholders of Liberbank Vida y Pensiones, Seguros y Reaseguros, S.A.. Aegon’s share in this entity is 50%, and Liberbank, S.A. owns the remaining 50%.
Protection business includes primarily life, accident and disability cover, and products can be complemented with critical illness, income protection and other riders. Customers' saving needs are serviced by Aegon Spain through its targeted offering of universal life, unitlinked and pension funds. Both savings and protection products are distributed through the channels mentioned above. In addition,
General insurance Aegon Spain has been offering general insurance products since 2013 through its joint venture with Banco Santander. The offering focuses mainly on household protection and funeral insurance products.
Santander's network of branches. Medical expense coverage for doctor visits, diagnoses, hospitalization, dental and other health covers are offered through a broad network of medical partners across the country.
The gross premium written contribution in 2018 for each of Aegon Spain's business lines was 51% for life insurance, 23% for accident and health insurance, and 26% for general insurance.
Madrileña leads the non-life insurance market with a 14% market share, followed by Mapfre with a 14% market share, and Allianz with a 7% market share. The non-life market is more fragmented than the life one. Aegon Spain's multi-risk business line is responsible for non-life and has a market share of less than 1%.
(DGSFP), the regulatory authority for the Spanish insurance industry. Spanish regulations incorporate all requirements from the relevant
The regulatory authority for the Portuguese insurance industry is the Autoridade de Supervisão de Seguros e Fundos de Pensões (ASF).
Aegon has been operating in India through its joint venture life insurance company, Aegon Life Insurance Co. Ltd (Aegon Life), since 2008, and its current joint venture partner is Bennett, Coleman & Co. Ltd. (BCCL). The joint venture follows a digitally focused direct-toconsumer strategy.
Aegon and Sony Life also jointly established a reinsurance company, SA Reinsurance Ltd. (SARe), to provide Aegon Sony Life with greater flexibility in the pricing and design of its annuity products. Launched in 2010 and based in Bermuda, SARe manages the guaranteed benefit risks of Aegon Sony Life's products.
Wholly-owned subsidiaries The Transamerica companies have over 100 years of history. This long tradition continues in Asia when Transamerica opened its first sales office in Shanghai over 80 years ago in 1933. Transamerica Life (Bermuda) Ltd. (TLB) was established in 2005 and its full-service branches opened in Hong Kong and Singapore in 2006.
Aegon also makes investments in digital distribution platforms in the Asia region to expand distribution capabilities.
Competition China: Aegon THTF As of November 30, 2018, there were 91 life insurance companies in the market, including 63 domestic life companies and 28 foreign life insurers. Based on total premium income, Aegon THTF ranked fifty-fifth among life insurance companies and fifteenth among foreign life companies in China. Aegon THTF's market share among foreign-invested companies was 1.64% in terms of total premium.
India: Aegon Life There were 24 licensed life insurers in India at the end of December 2018. While the state-owned Life Insurance Corporation of India continues to maintain a dominant share of new business premiums (April 2018 to December 2018), private sector companies have shown double-digit growth to obtain more than 58% of the individual recurring new business premiums written. Aegon Life India ranked twenty-third according to individual recurring premiums (April 2017 to December 2018).
Hong Kong and Singapore: TLB TLB's main competitors in Hong Kong and Singapore have traditionally been the global providers in the high-net-worth market, such as HSBC Life, Manulife Bermuda, and Sun Life Bermuda. The local subsidiaries of both Sun Life and Manulife, in addition to domestic
The FSA published the "Principles for Customer-Oriented Business Conduct" to help accumulation of personal financial assets.
Hong Kong, Singapore and Bermuda: TLB TLB is incorporated in Bermuda and regulated by the Bermuda Monetary Authority, the integrated regulator of the financial services sector in Bermuda. TLB's Asia branches are registered and licensed in Hong Kong and Singapore. The insurance industry in Hong
consultancy business licensing rules, insurance laws, and personal data protection laws. In addition, various regulators also keep oversight of activities undertaken by entities licensed by Aegon Insights. These regulators include the FSA in the Japan, the Office of Insurance Commission in Thailand, the Australian Securities & Investments Commission in Australia, and the Confederation of Insurance Brokers in Hong Kong. Aegon Insights keeps abreast of all relevant changes or proposed changes to regulations in all of its markets.
It has offices in the United States, the Netherlands, the United Kingdom, Hong Kong, Japan, Germany, Hungary and Spain. It operates under 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 and balance sheet 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 UK-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 on balance sheet solutions for the pension market.
General account business consists of funds held on the balance sheet of Aegon insurance companies to meet policyholder liabilities typically when the insurer has given the policyholder a guarantee. These assets are managed to match the insurers' liabilities. As a rule, general account assets are managed in a closed architecture structure, and the main asset classes are fixed income and mortgage loans. Furthermore, Aegon Asset Management manages Aegon’s general account derivatives book of Aegon the Netherlands.
Aegon Asset Management employs a full range of asset classes, and manages the funds against objectives, targets and risk profiles agreed with clients. Aegon Asset Management offers both absolute and relative return products. Via its brand TKPI, Aegon Asset
Management offers fiduciary services and manager selection propositions targeted at institutional investors.
Dutch-based entities, the Financial Conduct Authority (FCA) for Kames Capital, and the Securities & Exchange Commission (SEC)
Kames Capital plc and TKP Investments B.V.) have decided in principle to pay external research costs by their own means.
Aegon faces numerous risks, some of which may arise from internal factors, such as inadequate compliance systems and operational change management. Others may arise from external factors, such as developments in financial markets, the business and/or political environment, economic trends, politics and regulations. These risks, whether internal or external, may materially and adversely affect the Company´s operations, its earnings, the value of its investments, the sale of certain products and services or its ability to fulfil its obligations in respect of securities issued or guaranteed by it. The market price of Aegon securities could decline due to any of the risks described in this section and investors could lose some or all of the value of their investments. Additional risks of which Aegon is not presently aware could also materially and adversely affect its operations and share price. The business of an international financial services group such as Aegon is inherently exposed to risks that may only become apparent with the benefit of hindsight. The next two sections provide a description of risk factors relating to Aegon’s businesses and Aegon’s securities, including its common shares, of which Aegon is aware and that it considers material. The order in which the risk factors are presented is not indicative of their likelihood of occurrence or the potential magnitude of their financial consequences.
Risks relating to Aegon’s business The following covers risk factors that may affect Aegon’s businesses and operations, as well as risk factors that are particularly relevant to Aegon in periods of significant economic uncertainty. Additional risks to which Aegon is subject include, but are not limited to, the factors mentioned under 'Forward-looking statements', and the risks of Aegon’s businesses described elsewhere in this
Any disruptions or downturns in the global financial markets or general economic conditions may result in reduced demand for
Aegon’s products as well as impairments and reductions in the value of the assets in Aegon’s general account, separate account, and company pension schemes, among other assets. Aegon may also experience a higher incidence of claims and unexpected policyholder behavior such as unfavorable changes in lapse rates. Aegon’s policyholders may choose to defer or stop paying insurance premiums, which may impact Aegon’s businesses, results of operations, cash flows and financial condition, and Aegon cannot predict with any certainty if or when such actions may occur.
Aegon is exposed to credit risk on its general account fixed-income portfolio (debt securities, mortgages and private placements), over-the-counter (OTC) derivatives and reinsurance contracts. In addition, financial institutions acting as a counterparty on derivatives may not fulfil their obligations. Default by issuers and counterparties on their financial obligations may be due to, among other things, bankruptcy, lack of liquidity, market downturns or operational failures, and the collateral or security they provide may prove inadequate to cover their obligations at the time of the default. Losses in excess of predicted losses due to any such default or series of defaults by issuers or counterparties may have a material adverse effect on Aegon’s results of operations and financial position.
Aegon and its customers run the risk that the market value of its equity investments declines. Exposure to equity markets exists in both assets and liabilities. Asset exposure exists through direct equity investment where Aegon bears all or most of the volatility in returns and investment performance risk. Equity market exposure is also present in policyholders’ accounts for insurance and investment contracts (such as variable annuities, unit-linked products and mutual funds) where funds are invested in equities.
Some of Aegon’s insurance and investment contract businesses have minimum return or accumulation guarantees, which require
Aegon is exposed to interest rate risk as both its assets and liabilities are sensitive to movements in long- and short-term interest rates as well as to changes in the volatility of interest rates.
The sensitivity of Aegon’s net income and shareholders’ equity to a change in interest rates is provided in the notes to the consolidated statements, note 4 Financial risks, section “Interest rate risk” of Aegon’s Annual Report 2018.
These cash payments to policyholders also result in a decrease in total invested assets and net income. Early withdrawals may also require accelerated amortization of DPAC, which in turn reduces net income. Hedging against interest rate movements may change these effects significantly. Hedging programs are in place that are designed to manage the risks within the limits defined as part of the financial risk management policies within Aegon Group's risk strategy. The actual impact of the hedging programs is dependent on the effectiveness of the design of those programs as well as real time movements of financial markets. If hedging programs are not effective, Aegon’s results of operation, cash flow and financial position could be materially and adversely affected.
Increased withdrawals and the need to post margin in relation to interest rate swaps when rates rise rapidly will put a strain on Aegon’s available liquidity. Aegon’s liquidity risk strategy tests this scenario to ensure that there is sufficient liquidity available now to withstand a rapid rise in rates.
The reform and expected replacement of IBORs (Interbank Offered Rates) such as Euribor, Eonia and LIBOR with alternative benchmark rates introduces a number of risks for Aegon, its clients, and the financial services industry more widely. This includes, but is not limited to:  Legal risks, as changes required to documentation for new and existing transactions may be required;  Financial risks, arising from any changes in the valuation of financial instruments linked to benchmark rates;  Pricing risks, as changes to benchmark indices could impact pricing mechanisms on some instruments;  Operational risks, due to the potential requirement to adapt informational technology systems, trade reporting infrastructure and operational processes; and  Conduct risks, relating to communication with potential impact on customers, and engagement during the transition period.
Any security Aegon issues in significant volume may be issued at higher financing costs if funding conditions are impaired.
Aegon may need to sell assets substantially below prices at which they are currently recorded to meet its insurance obligations.
Many of Aegon’s derivatives transactions require Aegon to grant collateral against declines in the fair value of these contracts.
Aegon may be required to change its best estimate assumptions with respect to future experience, potentially increasing the technical