in the United States can trace their roots back to the midnineteenth century. Today,
is a leading provider of life insurance and pensions, and also has a strong presence in both the asset management and financial advice market.
The Netherlands AEGON’s history in the Netherlands goes back more than 150 years. Today,
New Markets In the past few years, AEGON has significantly expanded its international presence outside its three established markets. In particular, AEGON
Throughout their working lives and into retirement, millions of people around the world rely on AEGON to help them secure their long-term financial futures. As an international life insurance, pension and asset management company, AEGON has businesses in over twenty markets in the Americas, Europe and
AEGON does this by encouraging innovation and by growing its businesses profitably and sustainably. AEGON’s ambition is to be a leader in all its chosen markets by 2015.
1,048 Life 500 Individual savings and retirement products 469 Pensions 79 Life reinsurance 53 Non-life 50 Associates 46 Asset management 10 Distribution
Underlying earnings before tax by line of business 2010 In EUR million
Other information auditor’s report 243 Proposal for profi t appropriation 244 Major shareholders
Additional information 246 Quarterly results 247 Glossary 252 Forward-looking statements 8 Our strategy 16 AEGON and the investment community 2 Letter of the CEO
24 AEGON worldwide 28 AEGON lines of business 30 Americas 33 The Netherlands 36 United Kingdom 39 New markets 42 AEGON milestones of 2010 44 Risk management 48 Capital and liquidity management 53 In control statement 56 Report of the
Positioning AEGON for the future In line with our decision to sharpen our focus on our core business, we have restructured and refocused our businesses in the United States, the Netherlands and the United Kingdom. First and foremost in this transformation process was our decision to initiate a thorough portfolio review to determine which businesses were supportive of AEGON’s long-term growth prospects, and which were not. This subsequently led to putting into run-off or exiting a number of businesses, including among others, our institutional markets division, as well as our bank-owned and corporate-owned life insurance business in the United States, the sale of our funeral insurance business in the Netherlands, and the sale of AEGON’s third party pension administration and employee benefits software businesses in the United
Kingdom. We are confident that by shifting to a more fee-based income model (as evidenced by our focus on growing AEGON’s strong position in pensions), AEGON
will be less dependent on spread-generated income and consequently, less vulnerable to the fluctuations of financial markets.
operational and cost efficiencies necessary to create a more streamlined organization, better positioned to deliver added value to customers, business partners and of course, our shareholders. In this regard, we continued to reduce costs in our main operating units during the course of 2010, consolidated a number of our operations in the United States, and are implementing a broad restructuring program in the United Kingdom to achieve a 25% cost reduction by the end of 2011.
Recognizing the promising demographic and market developments throughout Asia, we have established a new organizational structure to support our ambitions in
Looking ahead with confi dence Among the most important achievements over the past year has been our progress towards completing full repayment to the Dutch State by the end of June 2011.
Following the early repayment of EUR 1 billion last year, we repaid an additional EUR 500 million in August 2010, and in February 2011, we raised EUR 900 million of equity in the market to support this key priority. The remaining amount needed to complete repayment will be generated from internal resources – retained earnings and proceeds from potential disposals. The decision to raise additional equity in the market further supports our key objective of maintaining a strong capital buffer and a strong balance sheet for AEGON.
The crisis has reminded us that this is necessary and prudent given the continued uncertainties of the general market environment.
Along with AEGON’s full-year 2010 results we also announced specific medium-term targets in terms of increased underlying earnings, cash flow generation and return on equity. Each of these ambitious targets supports our aim to ensure sustainable and growing dividend payments to shareholders - further evidence that AEGON has turned the corner of the financial crisis and is determined to deliver the long-term value that shareholders have every reason to expect.
operates, we provide simple, easy-to-understand products and services that serve the full range of customer needs and circumstances.
AEGON is a company with broad capabilities and resources. We are grateful to our many employees around the world whose hard work and dedication have enabled AEGON to emerge stronger from the financial crisis and better able to respond to our customers with quality, need specific products and services. We are more determined than ever to put our competitive advantages to work for the long-term benefit of those who have placed their trust in AEGON.
AEGON’s Management Board works alongside the Executive Board, and helps oversee operational issues and the implementation of the company’s strategy. Board members are drawn from AEGON’s country and operating units, and have both regional and global responsibilities, ensuring that AEGON is managed as an integrated, international business.
Jan Nooitgedagt has worked in Europe’s financial services sector for over thirty years. Formerly with PWC, he joined
Investment Advisors, and as head of the company’s annuity and mutual fund businesses. In January 2009, he was named President of AEGON Americas and became President and CEO of
Van Dien. Mr. Keim has also worked for aircraft maker Fokker Aircraft and
Swiss Life in the Netherlands as a member of the Board. Three years later,
Mr. Keim was appointed CEO. In June 2008, he became CEO of AEGON
Állami Biztosító. In 1990, he was appointed CEO, two years before
CEO three years later. Mr. Thoresen will resign as of April 1, 2011.
FOCUS ON THE FUTURE Graduation is one of life’s greatest milestones – representing clear achievement and the potential for a lifetime of personal and professional accomplishment. Making sure you can make possible such an important milestone for a family member takes careful planning. We make it our business to assist our customers at every stage of life’s many possibilities.
In June 2010, AEGON announced that it would sharpen its focus on its core businesses – life insurance, pensions and asset management - and achieve a greater geographical balance by reallocating capital to the growth markets of Spain, Central & Eastern Europe,
Asia and Latin America, which offer higher growth and returns over the long term. In addition, the company is increasing efficiency by encouraging innovation, and focusing even more on providing products and services that serve its customers’ changing needs.
AEGON made significant progress with each of these priorities during 2010.
AEGON is one of the world’s leading providers of life insurance, pensions and asset management, with businesses in more than twenty countries in the Americas, Europe and Asia. AEGON employs approximately 27,500 people, serving about 40 million customers and managing some EUR 413 billion in revenue-generating investments.
� Direct more capital to markets offering higher returns and strong growth.
Spain and Latin America. This will have the effect of reducing the relative weight of the US businesses within AEGON in the years ahead.
� AEGON is taking measures to improve the company’s risk-return profi le. The company has conducted a thorough review of its businesses to ensure they meet requirements in terms of cash fl ow, return on capital and earnings growth. In addition, the company is working to ensure that it continues to provide products that correspond to the life cycle needs of
� Sale in April 2010 of AEGON’s funeral insurance business in the Netherlands.
� 2010 saw the fi rst full year of operations of AEGON’s partnerships in Brazil and Japan and further growth of business in China and India.
Improving risk-return profi le Improving the company’s risk-return profi le is a key part of AEGON’s long-term strategy. Steps taken in recent years have lessened the company’s exposure to fluctuations in world financial markets. These steps have included: � Reducing AEGON’s exposure to equity markets.
businesses. This is achieved through delivering operational excellence, improved customer loyalty, and stronger employee engagement. AEGON expects its focus on increasing returns to support an improvement in the company’s overall return on equity over the medium term and to improve normalized cash flows from their current level of between EUR 1 billion and
Restructuring AEGON’s US and UK businesses During 2010, AEGON announced a restructuring of some of its operations in both the United States and the
United Kingdom. This was part of broader efforts to reduce costs, improve returns and increase the company’s focus on its core businesses – life insurance, pensions and asset management.
� Improve knowledge of customer requirements, and use this knowledge to drive innovation.
� By the end of 2011, AEGON expects a 25% reduction in run-rate of costs in its UK life insurance and pension business.
� AEGON has withdrawn from the UK bulk annuities market and sold its third party pension administration and employee benefi ts software businesses.
� The company is further streamlining its management and organizational structure in the United Kingdom –
AEGON’s stakeholders As regards sustainability, AEGON has four main stakeholder groups besides the company’s shareholders. AEGON has framed a business ambition for each group, and in each case the company is implementing a number of initiatives to help achieve that ambition by 2015.
� Customers. Business ambition: to become the most recommended fi nancial services company.
Measures: company-wide principles for market conduct, company-wide loyalty programs and rolling out a system for measuring customer satisfaction.
� Employees. Business ambition: to become the most preferred company by current and prospective employees. Measures: a more global approach to human resources, based on talent and performance management, launch of global survey to measure employee engagement.
� Wider community. Business ambition: to become the most respected and trusted fi nancial services company for society. Measures: global responsible investment policy, more targeted approach to corporate donations, company-wide program to manage resources more effectively.
AEGON’s sustainability reporting AEGON’s annual Stakeholder Review helps to determine which issues are material to the company’s businesses, performance and strategy. The findings are included in an annual Sustainability – Report to
AEGON and its stakeholders of various economic, business and social issues.
Stakeholders are audited by Ernst & Young, the company’s external auditor.
Project, which encourages companies to be open about their greenhouse gas emissions.
Governance In October 2010, AEGON appointed Mr. Marc van Weede as its first global head of Sustainability. In addition, each of AEGON’s country and business units has assigned responsibility for sustainability to a senior manager, who oversees the implementation of local policies and initiatives. Questions of strategy and policy in this area are subject to approval by AEGON’s
United States � AEGON is discontinuing sales of executive nonqualifi ed benefi t plans and associated Bank-Owned and Corporate-Owned Life Insurance (BOLI-COLI) in the United States. Most of this business’ operations are located in Dallas, Texas.
United States. In addition, some back offi ce activities in Cedar Rapids, Iowa, will be consolidated or outsourced.
� These measures will result in the loss of between 400 and 500 jobs over the next years, equivalent to approximately 5% of AEGON’s US workforce.
Optimize ONE AEGON Key to AEGON’s long-term strategy is to manage AEGON
as one company. This goal has been part of AEGON’s strategy since mid-2008, and is aimed at ensuring the company makes the most of its worldwide resources. In the past two years, AEGON has taken a more integrated approach to areas such as asset management, human resources, risk and capital, and sustainability. AEGON
expects this approach will bring greater efficiency and a better transfer of knowledge and best practice within the organization. As part of this approach, AEGON’s objective is to standardize best practice in a number of areas, including product innovation, distribution, brand management, underwriting, risk management and IT
Steps AEGON is taking � Using expertise in the United States to support new variable annuity products in the United Kingdom, the Netherlands, France and Japan.
� Integration of Asian operations as one regional division headquartered in Hong Kong.
� Move towards a more coordinated approach to underwriting and risk and capital management.
Asia In 2010 AEGON announced a new organizational structure for its operations in Asia under the leadership of a newly-established CEO position for Asia. Whereas a number of AEGON’s businesses in Asia had previously been managed from the United States, under the new structure all Asian based insurance businesses will be managed as one regional division headquartered in Hong Kong.
The aim of the integration is to leverage product and distribution expertise, capture efficiencies, and pursue organic growth of AEGON’s franchise in Asia. The integration, which will be carried out during 2011, is in line with AEGON’s strategy to achieve a greater geographical balance in favor of those regions and markets that offer higher growth and returns in the longer-term. Mr. Douglas Henck, a US citizen who has held a number of senior management positions in the international insurance world over the last 25 years, mostly in Asia, has been appointed CEO of AEGON Asia.
Netherlands and the United Kingdom. Together, these markets account for more than three-quarters of
Brazil and Mexico in Latin America. AEGON is also one of the leading providers of life insurance in Spain and has a partnership in France with insurance and pension specialist AG2R La Mondiale.
saw improved sales on variable annuities and mutual funds as equity markets further improved.
Global interest rates were under pressure during the first nine months of 2010, following concerns about sovereign debt in a number of peripheral European countries.
Spanish market and intends to maintain its current share of the bancassurance market there.
Despite the improvement in 2010, market conditions remain uncertain with growth still hampered by high unemployment numbers and household debt levels.
Long-term industry trends The financial crisis that began in 2008 brought a shift in financial market and economic conditions. AEGON
initially focused on short-term measures designed to combat the effects of the financial crisis. The company transformed its approach, strengthening its balance sheet, lowering costs and significantly improving its overall risk profile. These measures enabled AEGON to emerge from the financial crisis in a sound financial position.
Western Europe, are under pressure to reform pensions systems. At the same time, individuals are increasingly relying on private sector providers to help them fi nance their retirement.
Economic growth and political reform have opened up new markets in Central & Eastern Europe, Asia and
India account for 40% of the world’s population, but currently only 7% of the global life insurance market.
� Customer behavior is also changing. Customers are more aware of fi nancial risk and they want clear, simpler products with greater guarantees. At the same time, public trust in the fi nancial sector has diminished. In response, governments are introducing new regulations to protect consumers. In 2010, the United States, the United Kingdom and the Netherlands all brought forward new fi nancial sector legislation. The industry also faces the challenge of further reforms to fi nancial regulations and capital adequacy requirements.
August 2010. AEGON is committed to repurchasing the remaining amount in full by the end of June 2011, market conditions permitting. As part of the European
The net effect of these measures was to improve the total premium payable on the remaining EUR 2 billion from 50% to approximately 40%.
August 2010 EUR 500 million Following the European Commission’s approval, a further EUR 500 million was repaid. Accrued interest and premium payments on this repayment amounted to an additional EUR 63 million.
Core capital securities In August 2010, the European Commission approved the support of EUR 3 billion of core capital obtained from the Dutch State through Vereniging AEGON
� Increase the equity hedge on the company’s variable annuity in-force book in the United States and commit to continue pricing new variable annuity products on a market consistent basis worldwide and in line with AEGON’s pricing policy.
� Implement measures to further improve the quality of the company’s capital base, primarily by increasing the core capital to at least 75% of total capital by the end of 2012.
AEGON does not expect these measures to affect the company’s ability to grow its core business profitably.
� In the Netherlands, AEGON will not pursue a topthree price leadership position in either the residential mortgage or internet savings market.
� AEGON will request Standard & Poor’s to no longer publish a fi nancial strength rating for the company’s Dutch life insurance unit 2.
1 For full details, please refer to the decision of the European Commission of August 17, 2010, published in the Offi cial Journal of the European Union (C/290/2010 2 Standard & Poor’s has subsequently complied with this request.
Corporate Governance Code. A copy of this policy is available on AEGON’s website (www.aegon.com).
Investor conferences During the year, AEGON hosted two Analyst & Investor conferences, one in London and the other in New York.
In total, these two events attracted approximately 110 insurance sector analysts and investors. Presentations by members of AEGON’s Management Board focused largely on long-term strategy and the performance of both the company and its operating units. In June,
CEO Alex Wynaendts provided an update of AEGON’s long-term strategy and set out a new ambition for the company: to become a leader in all its chosen markets by 2015. At the same conference, Mr. Wynaendts also outlined plans to restructure AEGON’s UK operations and explore strategic options for Transamerica Re, the company’s life reinsurance business. In addition to
AEGON’s Analyst & Investor conferences, senior executives also speak at events organized by brokers and other companies. In 2010, members of the Executive
Road shows Members of AEGON’s Investor Relations team also regularly visit institutional investors to discuss AEGON’s strategy and performance. Institutional investors include pension funds, investment firms and other financial institutions. In 2010, AEGON held road shows in North
Annual General Meeting of Shareholders AEGON held its annual General Meeting of Shareholders on April 29, 2010 in The Hague. At the meeting, more than 100 holders of common and preferred shares were present or represented, together accounting for 59.5%
AEGON has thousands of shareholders and bondholders around the world. The company’s investor relations program is aimed at ensuring investors have the information they need to make sound investment decisions.
� New Markets (which encompasses AEGON’s operations in Asia, Central & Eastern Europe, Spain, France,
Shareholding structure AEGON’s common shares are mostly held by institutional shareholders such as pension or investment funds.
Securities and Exchange Commission on February 10, 2011, US-based investment management firm Dodge &
New York. These listings give AEGON access to international capital markets and are a vital part of the company’s overall corporate and financial management strategies. AEGON delisted its common shares from the
Tokyo Stock Exchange in March 2010 because the volume traded did not justify the related expense. In addition, AEGON is also active on world debt markets, and uses its strong credit rating to issue debt instruments in various currencies.
Dividend policy AEGON recognizes the importance of a clear, stable and coherent dividend policy. Dividend payments to shareholders depend on the company’s cash flow and capital position. The dividend is composed of two separate payments: � An interim dividend, announced at the same time as the company’s second quarter results in August.
� A fi nal dividend, proposed in February or March and voted on at the annual General Meeting of
during the first few months of the year, however, it declined during the second and third quarter, mostly because investors were anticipating a European debt crisis. Overall, AEGON’s share price on the Amsterdam
Price/earnings 1 2006 -2007 based on adjusted data. 2 Not measurable.
Announcement of fi rst quarter 2011 results and 2010 Embedded Value Report
FOCUS ON CONTINUITY A great-grandmother and her great-granddaughter spend precious time together. People today are spending more years in retirement than ever before. We make it our business to help make possible the financial security our customers need to enjoy fully life’s simpler moments. Helping customers achieve peace of mind is both AEGON’s mission and our promise.
Sales overall increased, demonstrated by an increase of 5% in new life sales to 2.2 billion, while gross deposits for 2010 increased significantly compared to the previous year to EUR 32.6 billion. We also achieved a reduction of 2% in operating expenses in 2010, excluding restructuring charges and currency effects. This was the result of strict expense management in our established markets while continuing to invest in our new markets.
One of your priorities during the last two years has been to improve AEGON’s risk-return profile. Could you outline the steps taken so far?
Indeed, one of AEGON’s keys strategic priorities continues to be to improve its risk-return profile. We have reduced our exposure to equity and credit markets and are shifting our focus from spread to fee-based business, particularly in the United States and the Netherlands.
AEGON is today a different company from what it was a few years ago. The financial crisis accelerated key aspects of our strategy. We have sharpened our focus on our core businesses of life insurance, pensions and asset management.
AEGON’s balance sheet can withstand volatile market conditions. It is important for our customers to know that AEGON will deliver on its promises even under stressed circumstances. At the end of 2010, AEGON’s excess capital was EUR 3.8 billion above AA capital adequacy requirements. This is also important because it will enable us to fund part of the repurchase of core capital from the Dutch State.
We are committed to completing full repurchase by the end of June 2011. Our successful equity offering in
Europe is moving toward a new regulatory framework for insurers, Solvency II. How are you preparing for that?
AEGON is today a different company from what it was a few years ago. The financial crisis accelerated key aspects of our strategy. We have sharpened our focus on our core businesses of life insurance, pensions and asset management, we have improved our risk-return profile.
These include specific targets for growth of underlying earnings before tax, return on equity, improved operational cash flows and an increase in fee business as a percentage of our total business. We also intend to resume dividend payments in May 2012.
Overview During 2010, both AEGON’s underlying earnings and net income improved considerably. The increases were the result of business growth, cost savings, further improvements in financial markets and strengthening of the dollar against the euro. Sales increased in most countries, while gross deposits also increased. AEGON’s capital position improved during the year, with core capital of EUR 18.7 billion at year-end 2010.
EUR 204 million in 2009. The improvement was driven by higher underlying earnings, a turnaround in fair value results, higher realized gains on investments and considerably lower impairments. These positive effects were partly offset by higher losses for the run-off businesses and tax charges, where 2009 had included tax benefits.
ADMS is present in Australia, Brazil, France, Germany, Hong Kong, India, Italy,
Impairments totaled EUR 452 million, a significant improvement in 2010 that reflected better market conditions. This was the lowest level of impairments in three years, but is still above AEGON’s long-term expectations. Impairments were primarily related to
EUR 3.4 billion. The results of expense savings in AEGON’s main operations in the United States, the Netherlands and the United Kingdom were more than offset by restructuring charges, project related costs (e.g.
Sales and deposits AEGON’s new life sales in 2010 increased 5% compared with 2009 to EUR 2.2 billion. Sales across the company showed improvements during the year. Spain was an exception, as a consequence of continued weak economic conditions that affected one of AEGON’s joint venture partners.
Value of new business AEGON’s value of new business declined 28% to
to EUR 413 billion during the year. The increase was due to new business growth, stronger financial markets and the positive effects of currency movements.
EUR 1.3 billion in new business and upstreamed EUR 1.3 billion to the holding company. AEGON’s solvency ratio under the EU Insurance Group Directive remained strong and amounted to 198% 1 at year-end 2010.
Products with mortality, morbidity and longevity risks, including traditional and universal life, as well as endowment, term and whole life insurance products. Accident and health business, including accidental death and dismemberment insurance, critical illness, cancer treatment, disability, income protection and long-term care insurance.
Products with mortality, morbidity and longevity risks, including traditional and universal life, as well as endowment, term, whole life insurance products, mortgages and annuity products.
Individual and group pensions, usually sponsored by, or obtained via, an employer.
Accident and health care products, such as accidental death and dismemberment cover, critical illness, cancer treatment, disability, income protection and long-term care insurance.
Japan. Products include life insurance in China and India and variable annuities in Japan.
Asset management products, including both equity and fixed income, covering third party clients and AEGON’s own insurance companies.
General insurance, including mainly automotive, liability and household insurance and fire protection.
In the Americas, AEGON has taken steps to realign the organization and this new structure is delivering positive results. Refocusing distribution and consolidating administrative functions will enable the company to reduce operating expenses while continuing to grow the business.
During the year, AEGON announced that it would explore strategic options regarding its life reinsurance business,
Transamerica Reinsurance. This followed the restructuring process started in 2009 and the company’s announcement in 2010 that it would sharpen its focus on its core businesses. AEGON also decided to discontinue its small bank BOLI and COLI businesses in the
Gross deposits – excluding run-off businesses – increased 3% to USD 27.8 billion in 2010. Continued strong growth in variable annuity, retail mutual fund and pension deposits was offset by a decline in fixed annuity deposits as sales of this product are de-emphasized.
One of AEGON’s chosen markets and key growth drivers, the company’s retirement businesses in the United States, experienced a record year with more than USD 8 billion of net deposits for 2010. Total net deposits, excluding the run-off businesses, declined to USD 1.6 billion during the year, mainly due to the decision to de-emphasize sales of fixed annuities and stable value solutions outflows.
USD 304 million. The decline was due mostly to lower life reinsurance sales and lower fixed annuity deposits.
Underlying earnings by lines of business In EUR million 186 Life and savings 153 Pensions 33 Non-life 16 Distribution
During the fourth quarter the company announced a reorganization of its banking activities. This is part of
AEGON’s strategy to focus on its core businesses, positioning the company for sustainable growth.
EUR 186 million as improved margins on savings account balances were only partly offset by a loss of earnings due to the sale of the funeral insurance business.
Net income Net income from AEGON’s businesses in the Netherlands almost tripled to EUR 711 million. This sharp increase was the result of a significant improvement in the performance of fair value items and lower impairments, somewhat offset by fewer realized gains on investments compared with 2009.
EUR 73 billion mainly as a result of improved market conditions.
Earnings overview AEGON The Netherlands In EUR million 2010 2009 %
Share in underlying earnings before tax of associates (3) (1) (200)
As part of AEGON’s strategy to focus on its core businesses, AEGON The Netherlands sold its funeral business and announced a reorganization of its banking activities.
Underlying earnings by lines of business In GBP million 60 Life 6 Pensions
In 2010, AEGON started implementing a new operating model in the United Kingdom in order to reduce costs in the life and pensions business by 25% by the end of 2011. The company is on track and focuses for future growth on the At Retirement and Workplace Savings markets, where AEGON has leading positions.
Workplace Savings markets, where AEGON has leading positions. The company has set a target for a reduction in operating expenses of GBP 80 to GBP 85 million annually, of this, savings of GBP 33 million had already been enacted by the end of 2010.
Benefits from further business growth and improved market conditions were more than offset by the transfer of asset management activities to AEGON Asset
Management, higher deferred policy acquisition costs amortization and expenses relating to AEGON’s customer redress program.
AEGON began to implement a program to identify and correct historical issues within its customer policy records in May 2009. The first priority has been to deal with issues that resulted in financial detriment to customers, and to return those affected to the financial position they would have been in had the issue not occurred. The program to determine the full scope of customer redress continues. In 2010, AEGON UK received a fine of GBP 2.8 million from the FSA due to system and control failings, some of which have led to customer detriment. AEGON is on track to pay out the majority of the customer detriment by the end of 2011. 2010 results included a GBP 25 million customer redress charge
United Kingdom # 3 Group pensions # 3 Individual pensions # 6 Annuities # 8 Individual protection
AEGON decided in 2010 not to include these rewrites as part of new business reporting. The company believes that the exclusion of such rewrites provides a clearer indication of new premium secured.
Value of new business In 2010, the value of new business in the United Kingdom declined significantly to GBP 56 million as a result of
(8) Individual savings and retirement products 46 Asset management 48 Associates 20 Non-life 18 Pensions
Spain and France, Variable Annuities Europe and the first-time inclusion of AEGON Asset Management were partly offset by lower earnings from Central & Eastern
Spain and France and Variable Annuities Europe, as well as the inclusion of AEGON Asset Management, which added EUR 46 million in earnings to New Markets.
Earnings from Central & Eastern Europe decreased, while in Asia losses were higher as a result of continued investments in growth of the business.
In Central & Eastern Europe, the life and pensions operations performed in-line with 2009. However, the non-life business reported lower earnings due to higher claims relating to storms and floods in Hungary.
Earnings from Spain and France increased due to a higher contribution from La Mondiale Participations,
Variable Annuities Europe turned to profit during the year and contributed EUR 11 million as a result of continued growth of the business.
Assets have been transferred to the Hungarian State during the first quarter of 2011. In Poland, the government has announced plans to reduce contributions to private pension funds. AEGON expects these measures to have an impact on underlying earnings of approximately
Net income In 2010, New Markets turned a net profit of EUR 91 million.
Gross deposits rose to EUR 9.1 billion, mainly as a result of strong growth in AEGON Asset Management.
The main reason for the 2010 net deposits of EUR 3.9 billion was new asset management mandates, but all units contributed and experienced net inflows.
AEGON Religare introduces iTerm Plan, the most affordable insurance available in India and also the only one designed exclusively for online distribution.
AEGON shares delisted from the Tokyo Stock Exchange because the volume of shares traded did not justify the related expense. AEGON continues to be listed on Euronext Amsterdam, the New York Stock Exchange and the London Stock Exchange.
AEGON sells its Dutch funeral insurance business to Dutch investment firm Egeria for
EUR 212 million. The sale was part of an ongoing review of AEGON’s businesses around the world.
AEGON’s focus on its three core activities: life insurance, pensions and asset management.
AEGON announces restructuring and re-focus of its businesses in the United Kingdom and its decision to explore all strategic options for the company’s life reinsurance business,
Transamerica Re, which include finding a suitable buyer for the business.
Sarah Russell appointed CEO of Global Asset Management, effective August 1, 2010. Ms. Russell will lead AEGON
Carla Mahieu appointed global Head of Human Resources, effective September 1, 2010.
Ms. Mahieu will support AEGON’s efforts to attract, develop and retain the best talent in the international insurance, pension and asset management industry.
The European Commission approves the capital support obtained from the Dutch State through Vereniging AEGON at the height of the financial crisis in 2008. Alongside the company’s long-term strategy, it is a key priority for AEGON to repurchase the capital. In line with this, AEGON
AEGON UK announces significant enhancements to its flagship unit-linked guarantee product,
AEGON Secure Lifetime Income (ASLI). The enhancements offer improved benefits for customers and complement AEGON’s focus on the At Retirement market in the United Kingdom.
Transamerica Retirement Services announces a unique service, Total Plan Management, a new systematic plan management program to help financial advisors, third party administrators and plan sponsors better administer employer-sponsored retirement plans.
AEGON Spain launches PPA Evolution, a product designed for a generation that is starting to save regularly.
AEGON announces restructuring of some of its United States operations, as part of its plans to pursue further operational and cost efficiencies by consolidating its operations there. It also announces that it will wind down its executive non-qualified benefit plans and related Bank-Owned and Corporate-Owned Life Insurance (BOLI/COLI) business.
AEGON Religare Life Insurance announces the launch of its fixed-benefit health insurance plan, AEGON Religare
Health Plan. This plan offers customers a number of unmatched benefits, including coverage of all surgeries.
AEGON-CNOOC launches its PAR Endowment with living benefit. The product is designed for customers who need long-term saving for a well-planned retirement combined with life insurance.
� Establishing risk tolerances and supporting policies limiting the level of exposure to a particular risk or combination of risks.
� Measuring and monitoring risk exposures and actively maintaining oversight over the company’s overall risk and solvency positions.
Objectives of risk management AEGON must, at all times, maintain a solvency and liquidity position such that no plausible scenario would cause the company to default on its obligations to policyholders. To accomplish this, AEGON has established a number of basic objectives for its risk management strategy: � Financial strength: Ensure AEGON meets long-term obligations to policyholders. AEGON uses three measures to determine its approach to fi nancial strength: � the company’s internal Excess Capital Requirement; � the European Union’s Insurance Group Directive capital ratio; � and an internal view, based on the company’s economic requirements.
Types of risk As an international provider of life insurance, pensions and asset management products, AEGON faces a number of risks, including underwriting, operational and financial. Some of these risks may arise from internal factors, such as inadequate compliance systems. Others, such as movements in interest rates or unexpected changes in longevity or mortality trends, are external in nature. AEGON’s most significant risk is to changes in financial markets, related particularly to movements in interest rates, equity and credit markets. These risks, whether internal or external, may affect the company’s operations, its earnings, its share price, the value of its investments, or the sale of certain products and services.
The effects of the global crisis that began in 2008 continued to be felt throughout 2010. Equity markets increased but remained volatile. Interest rates, already at historic lows, declined during the year, improving in the fourth quarter but ending at levels lower than the end of the previous year. After initially narrowing during the first part of the year, credit spreads later widened, reverting to levels seen at the start of 2010. General economic and business conditions remained difficult.
1 Please note that the information here is intended as an overview only. A more detailed explanation of credit risk, equity and other investment risk, interest rate risk, currency exchange rate risk, liquidity risk, underwriting risk and operational risk, as well as other company-wide risk management policies may be found in the consolidated fi nancial statements, note 4. Further information on sensitivity analyses may also be found on these pages.
Interest rate risk Interest rates continued to decline for most of 2010 from already low levels. Falling rates particularly impacted investment income and margins on financial guarantees included in certain policies. AEGON took several de-risking initiatives to reduce exposure to movements in interest rates. In the United States, a number of interest rate sensitive products were repriced and product features adjusted to decrease interest rate risk. Fixed annuity sales in the United States, meanwhile, were de-emphasized. In addition, in the United Kingdom, steps were taken to direct investments to lower risk long-dated UK government bonds.
As an international company, AEGON is exposed to movements in currency rates. However, AEGON does not consider this exposure to be material. The company holds its capital base in various currencies in amounts that correspond to the book value of individual country units, thus mitigating currency risk. AEGON does hedge cash flows from operating subsidiaries as part of its broader capital and liquidity management.
Operational risk Like other companies, AEGON faces risks resulting from operational failures or external events, such as changes in regulations, acts from personnel and natural or man-made disasters. AEGON’s systems and processes are designed to support complex products and transactions and to avoid such issues as system failures, financial crime and breaches of security. AEGON is constantly working on analyses studying such operational risks and regularly develops contingency plans to deal with them.
The goals of this framework are as follows: � To minimize ambiguity by clearly defi ning responsibilities and reporting procedures for decision makers.
� To institute a proper system of checks and balances by ensuring that senior management is aware at all times of material risk exposure.
AEGON’s risk management governance structure has three basic layers: � The Supervisory Board (and the Supervisory Board
AEGON’s Executive Board has overall responsibility for risk management. The Board adopts the risk governance framework and determines the company’s overall risk tolerance and company-wide risk policies.
This Committee reports to the full Supervisory Board on a quarterly basis or more frequently, if required. Details of members of the Supervisory Board’s Risk Committee can be found on page 63 of this Annual Report. It is the responsibility of the Executive Board to inform the
Supervisory Board should any risks directly threaten the solvency, liquidity or operations of the company.
Risk and Capital Committees The Executive Board Risk Committee (EBRC) also supervises the work of AEGON’s Group Risk & Capital
Committee (GRCC). The GRCC is responsible for managing AEGON’s overall balance sheet position, while ensuring that risk-taking is within overall tolerance levels and risk policies, and that the company’s capital position is sufficient to support both the company’s business objectives and capital requirements. The Management
Risk and capital Committees (RCCs) have also been established at each of AEGON’s regions and operating units. The responsibilities and prerogatives of the RCCs are set out in their respective charters and are similar in content to those of the GRCC, but tailored to local circumstances. AEGON’s regional and operating unit
AEGON’s risk management staff structure is fully integrated. Operating unit CROs have a direct reporting line into AEGON’s Chief Risk Officer or one of the regional CROs that report directly into AEGON’s Chief
The company’s first line of defense has direct responsibility for managing and taking risk in accordance with defined risk tolerances and risk policies, i.e.
� Ensure suffi cient liquidity to meet obligations at a reasonable cost to the company.
� Ensure AEGON’s continued access to international money and capital markets on competitive terms and thereby reduce the company’s overall cost of capital.
Governance Since October 2009, AEGON has been subject to group supervision by the Dutch Central Bank in accordance with the requirements of the European Union’s Financial
Conglomerate Directive. AEGON’s Corporate Treasury manages and coordinates capital and liquidity management strategies and processes. The department acts under the authority of the Group Risk & Capital
Core capital from the Dutch State In December 2008, AEGON secured EUR 3 billion in core capital from the Dutch State through the issuance of convertible core capital securities. The core capital was part of a broader program of support for banks and insurance companies in the Netherlands during the recent financial crisis (see the Strategy section of this report on pages 14 to 15 for more detail).
Releasing capital In the thirty months from June 2008 to December 2010,
AEGON released a total of EUR 6.7 billion in capital from its businesses, well above the company’s initial target of
EUR 4 to EUR 5 billion. In combination with other measures (see the Strategy section of this report on pages 9 to 15), this capital release program ensured
AEGON could withstand the sharp deterioration in economic and market conditions during the global financial crisis.
Asia, Spain and Central & Eastern Europe, as well as specific, high-growth segments in the company’s more established markets – the United States, the Netherlands and the United Kingdom. To achieve this goal, AEGON
has put a number of measures in place over the past year: � Discontinuation of sales of executive non-qualifi ed benefi t plans and associated Bank-Owned and
� In the United States, AEGON is also shifting its focus from spread-based to fee-based products, expanding its pension business, running off its spread-based institutional business, as well as de-emphasizing fi xed annuities.
Capital adequacy Capital adequacy is managed at company-wide, country and operating unit levels, as well as at the level of individual legal entities within the organization. As a matter of policy, AEGON maintains operating companies’
capital adequacy at whichever is higher of the following: � Regulatory requirements.
AEGON’s Insurance Group Directive ratio – a common measure of capital adequacy in the European Union –
Standard & Poor’s risk factors, which led to a rise in capital requirements in 2010. As a result, capital adequacy requirements in the Americas rose by an estimated USD 1.8 billion during the year.
AEGON’s capital base consisted of 75% core capital and 19% perpetual capital securities. Dated subordinated and
rules on capital for insurers. Solvency II is expected to come into force on January 1, 2013.
In addition to a risk-based approach, the proposed framework for Solvency II is intended to create a more harmonized European framework of prudential regulation of insurers and reinsurers. The main aims of Solvency II include: � The introduction of more sophisticated, comprehensive and risk-sensitive solvency requirements, enabling a better coverage of the risks run by a particular insurer.
� Improved transparency through more extensive disclosure of information (among other measures), thus providing rating agencies, policyholders, brokers, and investors a better understanding of how individual insurance companies are run, the risks they take and how they allocate their capital; the aim is to allow market discipline to help ensure the soundness and stability of insurers.
� Effi cient allocation of capital across the industry, resulting in reduced costs for consumers.
� Increased competition between insurance companies, leading to improved product development and pricing.
AEGON has been managing its business using economic value metrics for a number of years, in addition to using more traditional measures such as embedded value and IFRS earnings. AEGON is working hard with European regulators and supervisors to see that Solvency II is implemented in a way that will ensure the company’s ability to remain competitive. A significant amount of AEGON’s business is located in the United States, where the company competes against US domestic companies that are not subject to Solvency II requirements.
senior debt accounted for the remaining 6%. AEGON’s goal is to further improve the quality of its capital base by increasing the proportion of core capital to at least 75% by the end of 2012.
These include perpetual cumulative capital securities and junior perpetual capital securities, as well as other equity reserves. At the end of 2010, these equity securities totaled EUR 4.7 billion.
Ratings Throughout the recent financial crisis, AEGON’s aim has been to maintain excess capital over and above the amount required to maintain an AA financial strength rating. This remains the company’s objective, and plays an important role in determining overall capital management strategy. In 2010, AEGON maintained strong financial strength ratings from leading international rating agencies for its operating subsidiaries and a strong credit rating for the holding.
Sources and uses of liquidity AEGON’s subsidiaries are primarily engaged in the life insurance business, which is a long-term business with relatively illiquid liabilities and generally matching assets. Liquidity consists of both liquid assets held in investment portfolios, as well as inflows generated by premium payments and customer deposits. These are used primarily to purchase investments, as well as to fund benefit payments to policyholders, policy surrenders, operating expenses, and to pay dividends to
At AEGON N.V., liquidity is sourced from internal payments by operating companies and accessing capital and money markets. Liquidity is coordinated centrally and managed both at AEGON N.V. and at country unit levels. AEGON’s liquidity position remained strong throughout 2010.
Stress tests Liquidity is measured and stress-tested consistently across the company, and a liquidity stress management plan is maintained at Corporate Treasury and at individual country units. Stress tests combine a “severe surrender” scenario with an “impaired asset” scenario.
AEGON’s liquidity position in 2010 At the end of 2010, AEGON N.V. held EUR 1.7 billion in excess capital compared with EUR 1.4 billion last year.
Debt funding and back-up facilities Most of AEGON’s debt is issued by AEGON N.V., the parent company. A limited number of other AEGON
companies may also issue debt securities, but for the most part these securities are guaranteed by AEGON N.V.
AEGON also has access to domestic and international money markets through its USD 4.5 billion commercial paper programs. At the end of 2010, AEGON had
US Regulation XXX and Guideline AXXX redundant reserves. Despite volatile market conditions, AEGON
program and managed by AEGON Levensverzekering N.V., the company’s life insurance unit in the Netherlands.
(COSO), are used by AEGON’s Internal Audit to analyze and make recommendations to the Executive Board concerning the effectiveness of internal controls over
Executive Board is informed of any risks that threaten the economic/statutory solvency, reputation or operations of the company.
(especially for operational and emerging risks) and reviewing risk assessments performed by operating units. The risk management function is responsible for identifying risk management best practices and working with management to ensure that AEGON adheres to these practices.
� AEGON’s risk management and control systems provide reasonable assurance that the company’s fi nancial reporting does not contain any material inaccuracies.
� There are no indications to suggest that AEGON’s risk management and control systems will not continue to function properly in 2011.
FOCUS ON DIRECTION Tug of war was once encouraged by royal rulers in Egypt and China. As any parent knows, it is also a game that is played between every generation of parents and their children. Which way to go?
Board are guided by the interests of AEGON and the company’s stakeholders. The Supervisory Board is a separate corporate body, independent of the Executive
Board. The Supervisory Board currently consists of ten members (for further details on the individual members of AEGON’s Supervisory Board, please see pages 61 to 63).
General Meeting of Shareholders concerning all appointments and reappointments and dismissals from both the Executive Board and the Supervisory Board itself. In addition, the Supervisory Board determines the remuneration of individual members of the Executive
Supervisory Board meetings and activities Attendance In 2010, the Supervisory Board held a total of seven regular meetings and several additional conference call meetings. No members of the Supervisory Board were frequently absent from these meetings. All regular meetings were either preceded or followed by closed meetings not attended by members of the Executive or
Meetings of the Supervisory Board’s committees were usually held before the meetings of the full Supervisory
Boards attended all Supervisory Board meetings held in 2010. Other company executives also attended the meetings at the request of the Supervisory Board to update it on various subjects. Representatives from
Ernst & Young, AEGON’s external auditor, attended the discussions on the company’s results.
Highlights During the year 2010, one of the key priorities for the company was to obtain approval from the European
State in 2008. Management and the Board frequently discussed developments with regard to this issue. The process required to obtain clearance proved extensive, and was concluded in August. The Board agreed with management to repay EUR 500 million in August 2010 and agreed to repurchased the remainder of the core capital by the end of June 2011, market conditions permitting. Full repayment of the core capital received from the Dutch state remains a priority of the company.
Board meeting. During 2010, the Board met with senior managers from operations around the world: the
The Board and management also discussed the consolidation of the savings banks in Spain and
AEGON’s position as joint venture partner with some of the Cajas involved.
On February 24, 2010, the Supervisory Board convened to discuss the results of the fourth quarter of 2009, which were released on the next day. In March 2010, the
Supervisory Board discussed AEGON’s audited annual results for 2009. The Board also reviewed and approved the company’s annual accounts for 2009 and decided to pay a dividend of 4.25% on the outstanding preferred shares. At meetings in May, August and November, the
Supervisory Board reviewed AEGON’s first, second and third quarter results, as well as disclosures on Value of
Board confirmed that no interim dividend will be declared, in line with the agreement with the European
Board met with the Director of the Dutch Central Bank to discuss the company’s capital position and strategy.
Appointments to the Supervisory and Executive Boards In February, the Supervisory Board agreed that share holders would be asked to approve the reappointment of Mr. K.J. Storm for a new term of four years as a member of the Supervisory Board. There were no new appointments of members of the Executive
Legal and compliance The Board was regularly updated on operational issues that had surfaced in the company’s administration of policies in the United Kingdom. It noted that AEGON UK
Committee discussed various issues of compliance, regulatory and legal issues in Europe, the United States and Asia.
The Supervisory Board carried out an extensive board evaluation review during the second half of 2010 on the basis of written questionnaires and interviews. The review assessed the performance of individual members, as well as the collective performance of the Board and its Committees. The review of the Chairman was carried out by the Vice Chairman, who collected input from all other Supervisory Board members. The results were consolidated and discussed in a meeting in the absence of management. This year’s assessment did not involve any external consultant. There were no major findings.
The Board discussed the composition and the size of the Board and compiled an inventory of the topics
The Audit Committee The Audit Committee held seven meetings in 2010, one of which was a combined meeting with the Supervisory
In 2010, discussions focused on the following topics: the quarterly results, the annual accounts and the audit process, AEGON’s 2009 Embedded Value Report and annual VNB figures, actuarial analyses, accounting principles as defined by International Financial
Reporting Standards (IFRS), financial reports filed with the Securities and Exchange Commission, capital updates, internal control systems and compliance, the external auditor’s engagement letter and the audit plan for 2010, tax planning and IT applications. During most meetings closed sessions were held with the internal and external auditors in the absence of management.
Code. The assessment resulted in a recommendation by the Audit Committee to the Supervisory Board that shareholders be asked to reappoint Ernst & Young for the 2010 financial year. The Committee also confirmed that Shemaya Levy and Ben van der Veer qualify as financial experts within the terms and conditions of both the Dutch Corporate Governance Code and the Sarbanes
Audit Committee during 2010 and provided quarterly updates on his activities. During the meetings, the
auditor, as well as with the external auditor, to discuss their findings. Members of the Executive Board were not present at these sessions.
The Nominating Committee AEGON’s Nominating Committee held five meetings in 2010. The Chief Executive Officer attended all meetings.
During the year, the Nominating Committee discussed the composition of the Supervisory Board and its committees, as well as existing and forthcoming vacancies. It also advised the Supervisory Board on the nominations for one reappointment at the shareholders’
meeting on April 29, 2010. The Committee agreed on an updated Supervisory Board profile, which was approved by the full Board on May 11, 2010. In addition, the
Head of HR. The CEO also discussed changes in senior management within the company worldwide with the
Supervisory Board meetings above the seven regular scheduled meetings, which members attended either in person or by video or telephone conference. They also approved attendance fees for Committee meetings, when attended by video or telephone conference.
Executive Board members and the scenario analysis of payout levels under the Executive Board Remuneration
Policy. In the second half of 2010, the Committee discussed developments regarding executive remuneration, such as the Dutch Insurance Code, the
Composition of the Supervisory Board All members of the Supervisory Board are considered independent under the terms of the Dutch Corporate
Committee, the Supervisory Board has decided to nominate these persons for reappointment as members of the Board for further terms of four years each by the
Meeting of Shareholders. Taking into account the changes detailed above and the resignation of Mrs.
Governance Code, members of the Executive Board are appointed by shareholders for a term of four years, with the possibility of reappointment for subsequent four-year terms.
Annual accounts This Annual Report includes the annual accounts for 2010, prepared by the Executive Board, discussed by both the Audit Committee and the Supervisory Board, and submitted to shareholders for adoption. The
Acknowledgement The year 2010 was a challenging period for AEGON, and we expect the coming years to be equally demanding.
Robert J. Routs Chairman of the Supervisory Board of AEGON N.V.
Supervisory and Executive Boards would like to express their gratitude for her years of dedicated service to the company in several roles, and they extend their best wishes to her.
Robert J. Routs is a former Executive Director for Downstream at the energy company
Supervisory Board ends in 2012. Mr. Routs serves as a member of the Supervisory Boards of
Ltd, A.P. Møller - Mærsk A/S, UPM-Kymmene Corp. and AECOM Technology Corporation.
Irving W. Bailey II is currently a senior advisor to Chrysalis Ventures. He is a retired Chairman and Chief Executive Officer of Providian Corp., a former Managing Director of Chrysalis
Antony Burgmans is a retired Chairman of Unilever N.V. and Unilever PLC. He was appointed to AEGON’s Supervisory Board in 2007. His current term will end in 2011. Mr. Burgmans is also a member of the Supervisory Boards of Akzo Nobel N.V., SHV Holdings N.V. (not listed) and
Public Administration and a former Chairman of both the Dutch Financial Markets
Wilgenhaege Vermogensbeheer B.V. He is a member of the Advisory Board of the
Group. He was appointed to AEGON’s Supervisory Board in 2005 and his current term will end in 2013. He is also a non-executive director of the Safran Group, as well as a member of the Supervisory Boards of the Segula Technologies Group and TNT N.V.
Karla M.H. Peijs is Queen’s Commissioner for the Province of Zeeland in the Netherlands.
(not listed) and of Pon Holdings B.V. (not listed) and a non-executive director of Unilever N.V.
Ben van der Veer is a former Chairman of the Board of Management of KPMG N.V.
N.V. and non-executive Director at Reed Elsevier PLC. He is also a member of the Supervisory
Dirk P.M. Verbeek is Vice President Emeritus of Aon Group and advisor to the President and Chief Executive Officer of Aon Corporation. Mr. Verbeek was appointed to AEGON’s
Supervisory Board in 2008. His current term ends in 2012. He is also Chairman of the
Board of Aon Groep Nederland B.V. (not listed). He is Chairman of the Benelux Advisory
Board of Leonardo & Co. B.V., member of the Advisory Boards of CVC Europe and OVG
Leo M. van Wijk is Vice Chairman of Air France-KLM S.A. and former President and Chief
Supervisory Board in 2003. His current term will end in 2011. Mr. Van Wijk is also a member of the Supervisory Board of Randstad Holding N.V. and Chairman of Skyteam.
AEGON’s Remuneration Policies to ensure they remain in line with prevailing international standards. This review is based partly on information provided by AEGON’s external advisor, Towers Watson. Towers Watson does
AEGON’s Remuneration Policy with regard to members of its Supervisory Board is aimed at ensuring fair compensation, and protecting the independence of the
Board’s members. Terms and conditions for members of the Supervisory Board are part of AEGON’s broader remuneration policy, and are the responsibility of the
� An attendance fee for each Committee meeting attended in person or through video and telephone conferencing facilities.
AEGON’s Supervisory Board do not receive any performance or equity-related compensation, and do not accrue pension rights with the company. These measures are designed to ensure the independence of
Supervisory Boards. The Compensation Committee may recommend changes to the two Policies to the
Supervisory Board. Any material changes must also be referred to the General Meeting of Shareholders for adoption. In 2010, AEGON introduced a new
1 Members of the Compensation Committee are as follows: Leo M. van Wijk (Chairman), Irving W. Bailey II, Karla M. H. Peijs and Robert J. Routs.
2 For meetings in excess of the seven regular scheduled meetings.
Information on members of the Supervisory Board and the composition of AEGON’s four Committees – Audit,
In April 2010, the General Meeting of Shareholders adopted these adjustments to the Remuneration Policy with regard to members of the Supervisory Board.
Leo M. van Wijk 71,096 54,500 1 Please note that Mr. Routs was appointed Chairman of the Supervisory Board in April 2010, succeeding Dudley G. Eustace. Mr. Stevens stepped down from AEGON’s Supervisory Board in April 2009.
Executive Board members’ remuneration, consistent with the principle of “pay for performance”.
Dutch State through Vereniging AEGON in December 2008 at the height of the global financial crisis, or until such time as the Supervisory Board proposes changes or amendments.
Board, and is used as a framework to determine remuneration for members of the company’s
Zurich Financial Services. In addition, to monitor alignment with the general industry in the Netherlands, a reference group has been established, comprising the twelve leading companies listed on Euronext Amsterdam, excluding financial services providers. The Supervisory
Board will regularly review the composition of these two groups to ensure they continue to provide a reliable basis for comparison.
Supervisory Board determines a maximum total compensation, reflecting the specific roles and responsibilities of the individual. In 2010, the Supervisory
Each year, the Supervisory Board will review total compensation levels to ensure they remain competitive and provide proper, risk-based incentives to members of
Executive Board. The analysis was executed for the first time in 2010, based on information provided by AEGON’s external advisor, Towers Watson.
In addition, AEGON’s system of variable compensation deliberately places emphasis on the company’s longterm performance and its aim of creating sustainable, profitable growth. Variable compensation is based on a number of performance indicators, regularly evaluated by experts in the company’s Finance, Risk, Audit, Human
(partly) vest only if the pre-agreed performance targets are met and if the Executive Board member remains in continuous employment. At the end of three years, the vested shares are restricted for a further period of two years (with the exception of shares sold to meet income tax obligations).
Variable compensation is based on both company and individual performance. This performance is determined using a mix of financial and non-financial indicators.
Profi table growth 37.5% Value of new business, adjusted for risk
At an aggregate level, payments are made as follows: � 50% of the maximum short-term incentive compensation if the threshold target is reached.
Shareholder returns 35% Relative total shareholder return as measured against peers 1
Long-term incentive compensation is based on performance over a three-year period during which the terms and conditions of the long-term incentive compensation plan remain unchanged. A three-year target is set for each indicator. At the end of the threeyear period, a comparison is made between the targets and actual performance, and long-term incentive compensation is calculated accordingly. At an aggregate level, payments are made as follows: � 50% of the maximum long-term incentive compensation if the threshold target is reached.
Discretionary adjustments AEGON’s Supervisory Board may make adjustments to variable compensation payments as follows: � Should the Supervisory Board decide that AEGON’s short or long-term business is being affected by signifi cant and exceptional circumstances, not refl ected in the performance indicators, it may request the company’s Compensation Committee to consider possible adjustments.
If its analysis confi rms the Supervisory Board’s initial assessment, the Committee will then bring forward a proposal to the Supervisory Board to adjust either short or long-term incentive compensation.
Pension arrangements Members of AEGON’s Executive Board are offered pension arrangements and retirement benefits in line with local practice in their countries of residence and in line with those provided to executives at other multinational companies in those countries. Benefits are similarly offered consistent with Executive Board members’ contractual agreements, local practices and comparable arrangements at other multinationals.
AEGON does not grant Executive Board members personal loans, guarantees or the like, unless in the normal course of business and on terms applicable to all employees, and only with the approval of the company’s
1 In 2010, the peer group comprises the following companies: Aviva, AXA, Generali, Hartford Financial Services Group, Legal & General, Manulife Financial, MetLife, Principal Financial Group, Prudential Financial, Prudential Plc, Sun Life Financial, and Zurich Financial Services.
years, and may then be reappointed for successive mandates also of four years.
Members of the Executive Board may terminate their employment with a notice period of three months.
Remuneration Policy. These discussions were continued in the beginning of 2011 and will lead to a proposal to amend the Executive Board Remuneration Policy in 2011.
� Jan J. Nooitgedagt, Chief Financial Offi cer and member of the Executive Board. Mr. Nooitgedagt was appointed member of the Executive Board in 2009 for four years.
Executive Board with a base salary based on their qualifications, experience and expertise. Amounts paid in 2010 increased marginally as compared to 2009 due to annual salary adjustments in the AEGON Nederland N.V.
1 For comparison, please note that, under the agreement between the Dutch government and the country’s fi nancial sector, no variable compensation was paid to members of the Executive Board for the year 2009. Furthermore, no variable compensation was paid to members of the Executive Board over 2008.
The 2010 targets for each of these indicators have been set in alignment with the company budgets. Subject to adoption of the annual accounts at the annual General
EUR 233,000 respectively 1. However, in consultation with the Supervisory Board, the Executive Board has decided to forego short-term variable compensation over AEGON’s performance during 2010, given that the company had not completed full repayment of capital support to the Dutch State during the year.
Long-term variable compensation 2010-2012 Long-term variable compensation for members of the Executive Board is paid in shares, based on the company’s performance against four three-year indicators, earnings, return on capital, shareholder returns and the Dow Jones Sustainability Index score.
Targets for these indicators have been set in alignment with the company budgets. Actual performance is being measured over the period 2010-2012. The conditional number of shares that were made available under the 2010-2012 long-term incentive compensation plan are 104,515 and 76,891 for Mr. Wynaendts and
Mr. Nooitgedagt respectively 2. Following the evaluation of the company’s performance by the Supervisory Board at the end of the 2010-2012 performance period, the conditional shares may vest in 2013. Any vested shares under this plan shall subsequently be held for another two years.
In 2010, Mr. Nooitgedagt received a contribution to his pension benefits of EUR 181,984.
AEGON’s largest shareholder is Vereniging AEGON, an association established to protect the broader interests of the company and its stakeholders.
General Meeting of Shareholders A General Meeting of Shareholders is held at least once a year. Its main function is to decide matters such as the adoption of annual accounts, the approval of dividend payments and appointments to AEGON’s
Supervisory and Executive Boards. Meetings are convened by public notice. When deemed necessary, the
Supervisory or Executive Board has the authority to convene an extraordinary General Meeting of
Agenda Those shareholders who alone or jointly represent at least 1% of AEGON’s issued capital or block of shares worth at least EUR 50 million 2 may request items be added to the agenda of these meetings. In according with AEGON’s Articles of Association, such requests will be granted, providing they are received in writing at least 60 days before the meeting and unless important interests of the company dictate otherwise.
Meeting, to speak and vote, either in person or by proxy granted in writing. This includes electronically submitted proxies. All shareholders wishing to take part must
provide proof of their identity and shareholding, and must notify the company ahead of time of their intention to attend the meeting.
Executive Board AEGON’s Executive Board currently has two members: Alexander R. Wynaendts, who is Chairman of the
management of the company and, as such, is responsible for achieving the company’s aims, strategy and associated risk profile, as well as overseeing any relevant sustainability issues and the development of the company’s earnings. Each member has duties related to his or her specific area of expertise. The number of Executive Board members and their terms of employment are determined by the company’s
Management Board AEGON’s Executive Board is assisted in its work by the company’s Management Board, which comprises six members, including the members of the
Executive Board contains provisions entitling them to severance payments, should their employment be terminated as a result of a merger or takeover 2.
Dutch State in 2008, severance payments for the members of the Executive Board are limited to a maximum of one year’s fixed salary. The company’s
Board itself. At present, AEGON’s Supervisory Board consists of ten non-executive members, one of whom is a former member of AEGON’s Executive Board.
Committees The Supervisory Board also oversees the activities of several Committees. These Committees are composed exclusively of Supervisory Board members and deal with specific issues related to AEGON’s financial accounts, risk management strategy, executive remuneration and appointments. These Committees are: � The Audit Committee
Composition of the Board AEGON endeavors to ensure that the composition of the company’s Supervisory Board is well balanced. A profile has been drawn up outlining the required qualifications of its members. Supervisory Board members are no longer eligible for appointment after the age of 70, unless the Board itself decides to make an exception.
1 For further details, please see page 4 to 5. 2 Employment contracts for members of AEGON’s Executive Board are available on AEGON’s website (www.aegon.com). 3 See page 66 to 69 for the Remuneration Policy Executive Board. The Policy is also available on AEGON’s website (www.aegon.com).
Signifi cant shareholdings On December 31, 2010, Vereniging AEGON, AEGON’s largest shareholder, held a total of 171,974,055 common shares, 211,680,000 class A preferred shares and 69,030,000 class B preferred shares. In the case of new common shares being issued, Vereniging AEGON has the option, under the terms of the 1983 Merger Agreement 1, to acquire additional class B preferred shares to prevent a dilution of its voting rights, unless, by exercising this option, the association increases its share of voting right to more than 33%.
Vereniging AEGON has voluntarily waived its right to cast 25/12 votes per preferred share, except in the event of a “special cause” These “special causes” may include: � The acquisition by a third party of an interest in
� A proposed business combination by any person or group of persons, whether acting individually or as a group, other than in a transaction approved by the company’s Executive and Supervisory Boards.
Vereniging AEGON retains full voting rights on its preferred shares for a period limited to six months.
As a result of both this and the existence of certain qualified majority voting requirements specified in
AEGON’s share of the company’s voting capital represented 22.8% at December 31, 2010. For more information on Vereniging AEGON, please refer to the
AEGON’s largest shareholder, may, in effect, block any hostile attempt to replace the company’s Executive or
Executive Board to issue new shares is usually presented at AEGON’s annual General Meeting of Shareholders.
1 The 1983 Merger Agreement, as amended, is published on AEGON’s website www.aegon.com.
where AEGON does not fully apply the best practice provisions of the Code. In these few instances, AEGON
adheres, as far as possible, to the spirit of the Code.
Alex Wynaendts’ employment agreement have been waived and exit arrangements limited to a maximum of one year’s fixed salary. As a result, AEGON is currently in compliance with this provision. Details of Executive
Board members’ employment contracts may be found on AEGON’s corporate website.
Code II.3.3 The Code recommends that a member of the Executive Board should not take part in discussions or decision-making related to a subject or a transaction in which he or she has a confl ict of interest.
AEGON’s position on Code II.3.3. AEGON’s CEO and CFO are members of the Executive
Vereniging AEGON. This may be construed as a conflict of interest. However, under Vereniging AEGON’s Articles of Association, AEGON’s CEO and CFO are specifically excluded from voting on issues directly related to
Board holds the view that, given the historic relationship between AEGON and Vereniging AEGON, it would not be in the company’s best interests to prevent them participating in discussions and decision-making related to Vereniging AEGON. For this reason, a protocol has been drawn up authorizing the CEO and CFO to continue their existing practice with respect to their dealings with
Vereniging AEGON. The text of this protocol is available on AEGON’s website.
AEGON’s position on Code IV.1.1. AEGON’s Articles of Association provide for a larger majority and a higher quorum than those advocated by the Code. Given that the company has no specific anti-takeover measures, the current system is deemed appropriate within the context of the 1983 Merger
Supervisory Board has decided that, in the absence of any hostile action, it will only make nominations for appointment of members to the Executive and
Corporate Governance Statement Generally, AEGON applies the best practice provisions set out in the Code. For an extensive review of AEGON’s compliance with the Code, please refer to the Corporate
A number of documents relating to corporate governance may be found on AEGON’s website
� The New York Stock Exchange Listing Standards 75ANNUAL REPORT 2010 OUR GOVERNANCE CORPORATE GOVERNANCE
FOCUS ON FAMILY A wedding day is one of life’s most treasured occasions, representing the beginning of a promising yet unpredictable future. We make it our business to help young couples and families plan for life’s many adventures – wherever they lead and whatever they bring.
NOTE 47 Summary of total financial assets and financial liabilities at fair value through profit or loss 212
� CONSOLIDATED BALANCE SHEET OF AEGON N.V. AS AT DECEMBER 31
� CONSOLIDATED INCOME STATEMENT OF AEGON N.V. FOR THE YEAR ENDED DECEMBER 31
Share in profi t / (loss) of associates 41 23 24
Net income / (loss) attributable to: Equity holders of AEGON N.V. 1,759 204 (1,082)
� CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME OF AEGON N.V. FOR THE YEAR ENDED DECEMBER 31
Other comprehensive income: Gains / (losses) on revaluation of available-for-sale investments 3,873 7,860 (11,139)
(Gains) / losses transferred to the income statement on disposal and impairment of available-for-sale investments (203) 640 718
Aggregate tax effect of items recognized in other comprehensive income / (loss) (1,409) (2,315) 2,876
Other comprehensive income / (loss) for the period 3,627 5,364 (6,828)
(Gains) / losses transferred to income statement on disposal and impairment of available for-saleinvestments
Movements in foreign currency translation and net foreign investment hedging reserves
� CONSOLIDATED STATEMENT OF CHANGES IN EQUITY OF AEGON N.V. FOR THE YEAR ENDED DECEMBER 31, 2009
(Gains) / losses transferred to income statement on disposal and impairment of available for-sale-
Changes in cash fl ow hedging reserve – – (731) – – – (731) – (731)
Coupons and premium on convertible core capital securities – (148) – – – – (148) – (148)
Movements in foreign currency translation and net foreign investment hedging reserves – – – (82) – – (82) – (82)
Insurance and investment liabilities for account of policyholders 14,274 18,925 (24,556)
Disposal of investments (other than money market investments) 45,446 50,875 51,055
Cash fl ow movements on operating items not refl ected in income 4,787 (8,565) (10,380)
Acquisition of subsidiaries and associates, net of cash (31) (202) (461)
Proceeds from TRUPS 1, subordinated loans and borrowings 7,551 6,926 4,876
Repayment of TRUPS 1, subordinated loans and borrowings (6,577) (4,529) (5,134)
Coupons and premium on convertible core capital securities (63) (273) –
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS 2 1,104 (5,574) 2,386
NET CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 14 5,174 4,013 9,506 1 Trust pass-through securities. 2 Included in net increase / (decrease) in cash and cash equivalents are interest received (2010: EUR 8,167 million, 2009: EUR 7,778 million and 2008: EUR 8,614 million) dividends received (2010: EUR 635 million, 2009: EUR 816 million and 2008: EUR 925 million) and interest paid (2010: EUR 380 million, 2009: EUR 510 million and 2008: EUR 356 million).
AEGON N.V. (or ‘the Company’), its subsidiaries and its proportionally consolidated joint ventures (AEGON or
equity or earnings per share. The consolidated financial statements are presented in euros and all values are rounded to the nearest million except when otherwise indicated.
The consolidated financial statements of AEGON N.V. were approved by the Executive Board and by the Supervisory Board on March 23, 2011. The financial statements are put to the
Annual General Meeting of Shareholders on May 12, 2011 for adoption. The shareholders’ meeting can decide not to adopt the financial statements but cannot amend them.
New standards become effective on the date specified by IFRS, but may allow companies to opt for an earlier adoption date.
IAS 27 (revised) ‘Consolidated and separate fi nancial statements’ and consequential amendments to IAS
The revised IAS 27, applicable prospectively to all new transactions undertaken with non-controlling interest (minority interest) after January 1, 2010, requires the recording of the effect of all transactions in equity if there is no change in control. Where an interest is disposed and control (or significant influence or joint control) is lost, any remaining interest in the entity is re-measured to fair value and a gain or loss is recognized in profit and loss. In the past, the effect of transactions with non-controlling interests were accounted for as partial acquisitions and disposals and reflected either as goodwill or within the profit and loss account. The adoption of
IAS 27 (revised) had no impact during the current period as there were no transactions with non-controlling interests and no disposals where an interest in an entity was retained after the loss of control (or significant influence or joint control) of that entity.
The IASB issued, in April 2009, a number of minor amendments to IFRS which resulted from the IASB’s 2009 annual improvements project. These amendments, which were effective either from July 1, 2009 or January 1, 2010, deal with minor changes to the wordings used in the individual standards and seek to remove editorial and other inconsistencies in the literature. AEGON adopted all the relevant changes from the improvements project to its accounting policies.
The following standards, amendments to existing standards and interpretations, published prior to January 1, 2011, were not early adopted by the Group and will be applied in future years: � IFRS 9 Financial Instruments 1.
IFRS 9 Financial Instruments addresses classification and measurement of financial assets, is available for early adoption immediately but mandatory only for accounting periods beginning on or after January 1, 2013. IFRS 9 replaces the multiple classification and measurement models in IAS 39 with a single model that has only two classification categories: amortized cost and fair value. IFRS 9 represents the first stage in the IASB’s planned replacement of IAS 39. IFRS 9 is expected to have a significant impact on the Group’s financial statements because it will likely result in a reclassification and remeasurement of AEGON’s financial assets. However the full impact of IFRS 9 will only be clear after the remaining stages of the IASB’s project on IAS 39 are completed and issued.
Starting January 1, 2010, AEGON introduced a new reporting format for segment reporting that aligns with changes implemented in the way AEGON manages its businesses. Refer to section 2.5 Segment reporting for details about this change.
The change in operating segments had no impact on equity or net income. The comparative segment information presented in note 5 has been adjusted to make the information consistent with the current period figures.
The consolidated financial statements include the financial statements of AEGON N.V. and its subsidiaries. Subsidiaries are entities over which AEGON has direct or indirect power to govern the financial and operating policies so as to obtain benefits from its activities (‘control’). The assessment of control is based on the substance of the relationship between the
Group and the entity and, among other things, considers existing and potential voting rights that are currently exercisable and convertible.
Investment funds managed by the Group in which the Group holds an interest are consolidated in the financial statements if the Group can govern the financial and operating policies of the fund. In assessing control all interests held by the Group in the fund are considered, regardless of whether the financial risk related to the investment is borne by the Group or by the policyholders.
On consolidation of an investment fund, a liability is recognized to the extent that the Group is legally obliged to buy back participations held by third parties. The liability is presented in the consolidated financial statements as investment contracts for account of policyholders. Where this is not the case, other participations held by third parties are presented as minority interests in equity. The assets allocated to participations held by third parties or by the Group on behalf of policyholders are presented in the consolidated financial statements as investments for account of policyholders.
At the balance sheet date monetary assets and monetary liabilities in foreign currencies are retranslated to the functional currency at the closing rate of exchange prevailing on that date.
In addition, AEGON made the following other changes: � The use of ’operating earnings’ is discontinued to further simplify AEGON’s reporting and to focus on the key performance indicator ’underlying earnings’.
business of AEGON Americas. AEGON believes that excluding the earnings of these blocks of business enhances the comparability from period to period of AEGON’s key earnings measure, underlying earnings.
Mexico. AEGON believes that the non-IFRS measures provide meaningful information about the underlying operating results of its business including insight into the financial measures that senior management uses in managing AEGON’s business.
Among other things senior management is compensated based in part on AEGON's results against targets using the non-IFRS
GAAPs) and that can make the comparability from period to period difficult. The reconciliation of this measure to the most comparable IFRS measures is shown in the table Segment reporting on page 150.
Underlying earnings exclude any over- or underperformance compared to management’s long-term expected return on assets.
In addition, certain products offered by AEGON Americas contain guarantees and are reported on a fair value basis, including the segregated funds offered by AEGON Canada and the total return annuities and guarantees on variable annuities of AEGON USA. The earnings on these products are impacted by movements in equity markets and risk free interest rates.
Short-term developments in the financial markets may therefore cause volatility in earnings. Included in underlying earnings is a long-term expected return on these products and excluded is any over- or underperformance compared to management’s expected return. The fair value movements of certain guarantees and the fair value change of derivatives that hedge certain risks on these guarantees of AEGON The
Markets) are excluded from underlying earnings, the long-term expected return for these guarantees is set at zero.
Fair value items include the ‘over’ or ‘under’ performance of investments and guarantees held at fair value for which the expected long-term return is included in underlying earnings, the gains (losses) on real estate and hedge ineffectiveness.
In addition, hedge ineffectiveness on hedge transactions, fair value changes on economic hedges without natural offset in earnings and for which no hedge accounting is applied and fair value movements on real estate are included under
Also items that are outside the normal course of business are included under this heading.
Other charges include restructuring charges that are considered other charges for segment reporting purposes because these are outside the normal course of business.
In the IFRS financial statements, these charges are included in commissions and expenses or impairment charges.
Includes results of business units where management has decided to exit the market and to run-off the existing block of business. Currently, this line includes the run-off of the institutional spread-based business and structured settlements blocks of business in the United States. AEGON has other blocks of businesses for which sales have been discontinued of which the earnings are included in underlying earnings.
Earnings from the Company’s associates in insurance companies in Spain, India, Brazil and Mexico are reported on an underlying earnings basis. Other associates are included on a net income basis.
When calculating the effective interest rate, all contractual terms are considered. Possible future credit losses are not taken into account. Charges and interest paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts are included in the calculation.
96 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 2.8 - 2.10
The Group develops property itself with the intention to hold it as investments in real estate. During the construction phase both the land and the building are presented as investments in real estate and carried at fair value unless this cannot be determined reliably in which case the real estate is valued at directly attributable costs, including borrowing costs. This represents a change in accounting policy which has been applied with effect from January 1, 2009. In prior years, such real estate was included in ‘Other assets and receivables’, carried at cost and not depreciated. When the construction phase was completed, the properties were transferred to investments in real estate at their carrying value and only then
Group considers the similarity of the characteristics of the embedded derivative and the host contract. Embedded derivatives that transfer significant insurance risk are accounted for as insurance contracts.
To qualify for hedge accounting, the hedge relationship is designated and formally documented at inception, detailing the particular risk management objective and strategy for the hedge (which includes the item and risk that is being hedged), the derivative that is being used and how hedge effectiveness is being assessed. A derivative has to be effective in accomplishing the objective of offsetting either changes in fair value or cash flows for the risk being hedged. The effectiveness of the hedging relationship is evaluated on a prospective and retrospective basis using qualitative and quantitative measures of correlation.
Fair value hedges are hedges of a change in the fair value of an unrecognized firm commitment or an asset or liability (being hedged item) that is not held at fair value through profit or loss.
The hedged item is remeasured to fair value in respect of the hedged risk and any resulting adjustment is recorded in the income statement.
98 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 2.10 - 2.16 released to the income statement to coincide with the hedged transaction, except when the hedged transaction is an acquisition of a non-financial asset or liability. In this case, the amount in shareholders’ equity is included in the initial cost of the asset or liability.
The carrying amount is subsequently adjusted to reflect the change in the Group’s share in the net assets of the associate and is subject to impairment testing. The net assets are determined based on the Group’s accounting policies. Any gains and losses recorded in other comprehensive income by the associate are reflected in other reserves in shareholders’ equity, while the share in the associate’s net income is recognized as a separate line item in the consolidated income statement.
DPAC relates to all insurance contracts and investment contracts with discretionary participation features and represents the variable costs that are related to the acquisition or renewal of these contracts.
Acquisition costs are deferred to the extent that they are recoverable and are subsequently amortized based on either the expected future premiums or the expected gross profit
The rebate can be subject to additional conditions concerning actual returns or the continuation of the policy for a specified number of years.
An asset is impaired if the carrying amount exceeds the amount that would be recovered through its use or sale. For tangible and intangible assets, financial assets and reinsurance assets, if not held at fair value through profit or loss, the recoverable amount of the asset is estimated when there are indications that the asset may be impaired. Irrespective of the indications, goodwill and other intangible assets with an indefinite useful life that are not amortized, are tested at least annually.
100 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 2.17 - 2.19 continuing use and ultimate disposal of the asset and reflects its known inherent risks and uncertainties.
Debt instruments are 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. A specific security is considered to be impaired when it is determined that it is probable that not all amounts due (both principal and interest) will be collected as scheduled.
Individually significant loans and other receivables are first assessed separately. All non-impaired assets measured at amortized cost are then grouped by credit risk characteristics and collectively tested for impairment.
For debt instruments classified as available-for-sale, the asset is impaired to its fair value. Any unrealized gain or loss previously recognized in other comprehensive income is taken to the income statement in the impairment loss. After impairment the interest accretion on debt instruments that are classified as available-for-sale is based on the rate of return that would be required by the market for similar rated instruments at the date of impairment.
Impairment losses recognized for debt instruments can be reversed if in subsequent periods the amount of the impairment loss decreases and that decrease can be objectively related to a credit event occurring after the impairment was recognized.
For debt instruments carried at amortized cost, the carrying amount after reversal cannot exceed its amortized cost at the reversal date.
In addition to common shares and preferred shares, the Group has issued perpetual securities and convertible core capital securities. Perpetual securities have no final maturity date, repayment is at the discretion of AEGON and for junior perpetual capital securities AEGON has the option to defer coupon payments at its discretion. Convertible core capital securities can be converted into ordinary shares of AEGON, through a predetermined formula, or repaid at the discretion of AEGON and coupon payments are payable only if AEGON
pays dividends on ordinary shares. Both the perpetual and convertible core capital securities are classified as equity rather than debt, are measured at par and those that are denominated in US dollars are translated using historical exchange rates.
liability for non-cumulative dividends payable is not recognized until the dividends have been declared and approved.
Group. They are deducted from Group equity, regardless of the objective of the transaction. No gain or loss is recognized in the income statement on the purchase, sale, issue or cancellation of the instruments. If sold, the difference between the carrying amount and the proceeds is reflected in retained earnings. The consideration paid or received is recognized directly in shareholders’ equity. All treasury shares are eliminated in the calculation of earnings per share and dividend per common share.
Trust pass-through securities and other borrowings are initially recognized at their fair value including directly attributable transaction costs and are subsequently carried at amortized cost using the effective interest rate method, with the exception of specific borrowings that are designated as at fair value through profit or loss to eliminate, or significantly reduce, an accounting mismatch, or specific borrowings which are carried as at fair value through the profit and loss as part of a fair value hedge relationship. The liability is derecognized when the
Group’s obligation under the contract expires, is discharged or is cancelled.
applies non-uniform accounting policies for insurance liabilities and related deferred acquisition costs and intangible assets, as was allowed under Dutch Accounting Principles. As a result, specific methodologies applied may differ between our operations as they may reflect local regulatory requirements and local practices for specific product features in these local markets. In the United States we apply US GAAP and in the
Insurance assets and liabilities are valued in accordance with the accounting principles that were applied by the Group prior to the transition to IFRS, as further described in the following paragraphs. In order to reflect the specific nature of the products written, subsidiaries are allowed to apply local accounting principles to the measurement of insurance contracts. All valuation methods used by the subsidiaries are based on the general principle that the carrying amount of the net liability must be sufficient to meet any reasonably foreseeable obligation resulting from the insurance contracts.
Some products, such as traditional life insurance products in continental Europe and products in the United States, for which account terms are fixed and guaranteed, are measured using the net premium method. The liability is determined as the sum of the discounted value of the expected benefits and future administration expenses directly related to the contract, less the discounted value of the expected theoretical premiums that would be required to meet the future cash outflows based on the valuation assumptions used. The liability is either based on current assumptions or calculated using the assumptions established at the time the contract was issued, in which case a margin for risk and adverse deviation is generally included.
The liability for the insurance contracts for account of policyholders is measured at the policyholder account balance.
Contracts with unit-denominated payments are measured at current unit values, which reflect the fair values of the assets of the fund. If applicable, the liability representing the nominal value of the policyholder unit account is amortized over the term of the contract so that interest on actuarial funding is at an expected rate of return.
The Group issues life insurance contracts, which, do not expose the Group to interest risk as the account terms are not fixed or guaranteed or because the return on the investments held is passed on to the policyholder. Certain of these contracts, however, may contain guaranteed minimum benefits. An additional liability for life insurance is established for guaranteed minimum benefits that are not bifurcated. Bifurcated guaranteed minimum benefits are classified as derivatives.
In the United States, the additional liability for guaranteed minimum benefits that are not bifurcated is determined each period by estimating the expected value of benefits in excess of the projected account balance and recognizing the excess over the accumulation period based on total expected assessments. The estimates are reviewed regularly and any resulting adjustment to the additional liability is recognized in the income statement. The benefits used in calculating the liabilities are based on the average benefits payable over a range of stochastic scenarios. Where applicable, the calculation of the liability incorporates a percentage of the potential annuitizations that may be elected by the contract holder.
Investment contract liabilities are recognized when the contract is entered into and are derecognized when the contract expires, is discharged or is cancelled.
Investment contracts for account of policyholders are designated as at fair value through profit or loss. Contracts with unit-denominated payments are measured at current unit values, which reflect the fair values of the assets of the fund.
With the exception of insurance contracts and investment contracts with discretionary participation features for which potential future losses are already considered in establishing the liability, a provision is recognized for onerous contracts in which the unavoidable costs of meeting the resulting obligations exceed the expected future economic benefits.
The contribution payable to a defined contribution plan for services provided is recognized as an expense in the income statement. An asset is recognized to the extent that the contribution paid exceeds the amount due for services provided.
equity, as the services are rendered. During this period the cumulative expense recognized at the reporting date reflects management’s best estimate of the number of shares expected to vest ultimately.
The carrying amount is not discounted and reflects the Group’s expectations concerning the manner of recovery or settlement.
Deferred tax assets and liabilities are recognised in correlation to the underlying transaction either in profit and loss, other comprehensive income or directly in equity.
Contingent assets are disclosed in the notes if the inflow of economic benefits is probable, but not virtually certain.
In addition, results from financial transactions include gains / losses on real estate (general account and account of policyholder), net foreign currency gains / (losses) and net fair value change on borrowings and other financial liabilities and realized gains on repurchased debt.
Interest charges and related fees includes interest expense on trust pass-through securities and other borrowings. Interest expense on trust pass-through securities and other borrowings carried at amortized cost is recognized in profit or loss using the effective interest method.
108 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 3
Application of the accounting policies in the preparation of the financial statements requires management to apply judgment involving assumptions and estimates concerning future results or other developments, including the likelihood, timing or amount of future transactions or events. There can be no assurance that actual results will not differ materially from those estimates. Accounting policies that are critical to the financial statement presentation and that require complex estimates or significant judgment are described in the following sections.
Some insurance contracts without a guaranteed or fixed contract term contain guaranteed minimum benefits. Depending on the nature of the guarantee, it may either be bifurcated and presented as a derivative or be reflected in the value of the insurance liability in accordance with local accounting principles.
Given the dynamic and complex nature of these guarantees, stochastic techniques under a variety of market return scenarios are often used for measurement purposes. Such models require management to make numerous estimates based on historical experience and market expectations. Changes in these estimates will immediately affect the income statement.
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 country units, is the annual long-term growth rate of the underlying assets.
As equity markets do not move in a systematic manner, assumptions as to the long-term growth rate are made after considering the effects of short-term variances from the longterm assumptions (a reversion to the mean assumption) and the effects of hedging. 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 estimates of actual and future gross profits, is recognized in the income statement as an expense or a benefit in the period of determination.
(2009: 6%); and the gross short- and long-term growth rate for money market funds of 3.5% (2009: 3.5%).
Credible own experience, as well as industry published data, are used in establishing assumptions. Lapse experience is correlated to mortality and morbidity levels, as higher or lower levels of surrenders may indicate future claims will be higher or lower than anticipated. Such correlations are accounted for in the mortality and morbidity assumptions based on the emerging analysis of experience.
110 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 3
The fair value of floating interest rate mortgages, policy loans and private placements used for disclosure purposes is assumed to be approximated by their carrying amount adjusted for changes in credit risk. Credit risk adjustments are based on market observable credit spreads if available, or management’s estimate if not market observable.
Certain guarantees for minimum benefits in insurance and investment contracts are carried at fair value. These guarantees include guaranteed minimum withdrawal benefits (GMWB) in the United States which are offered on some AEGON variable annuity products and are also assumed from a ceding company; minimum interest rate guarantees on insurance products offered in The Netherlands, including group pension and traditional products; Variable annuities sold in Europe; and guaranteed minimum accumulation benefits on segregated funds sold in Canada.
The expected returns are based on risk-free rates. The credit spread is set by using the credit default swap (CDS) spreads of a reference portfolio of life insurance companies (including
AEGON), adjusted to reflect the subordination of senior debt holders at the holding company level to the position of policyholders at the operating company level (who have priority in payments to other creditors). Because CDS spreads for
112 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 3 are derived in the same way as the assumptions used to measure insurance liabilities.
Since many of the assumptions are unobservable and are considered to be significant inputs to the liability valuation, the liability included in future policy benefits has been reflected within Level III of the fair value hierarchy. Refer to note 45 for more details about AEGON’s guarantees.
Because of the dynamic and complex nature of these cash flows, stochastic or similar techniques under a variety of market return scenarios are often used. A variety of factors are considered, including expected market rates of return, market volatility, correlations of market returns, discount rates and actuarial assumptions.
Level I that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices of identical or similar assets and liabilities)
using valuation techniques for which any signifi cant input is not based on observable market data.
The table below shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy:
114 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 3
Borrowings 1 The investments for account of policyholders included in the table above represents those investments carried at fair value through profi t or loss. 2 Borrowings included in the table above contain those borrowings that are carried at fair value through profi t or loss. Total borrowings on the balance sheet also contain borrowings carried at amortized cost that are not included in the above schedule.
Investment contracts for account of policyholders (521) (18) – (24) 430 – (45) – – (178) –
Money market and other short-term instruments 61 – – – (51) – – – – 10 –
Investments for account of policyholders 3,344 (196) – 480 (840) – (12) – – 2,776 (25)
During 2010, AEGON transferred certain financial instruments from Levels I and II to Level III of the fair value hierarchy.
Similarly, during 2010, AEGON transferred certain financial instruments from Level III to other levels of the fair value hierarchy. The recorded amount of the total assets transferred was EUR 1,600 million (2009: EUR 2,575 million). The change in level was mainly the result of a return of activity in the market for these securities.
The total net amount of gains recognized in the income statement on Level III financial instruments amount to
Other investments at fair value c 1,205 177 (177) 1,080 136 (136)
Financial liabilities carried at fair value 1 Investments for account of policyholders are excluded from the reasonably possible alternative assumptions disclosure. Policyholder assets, and their returns, belong to policyholders and do not impact AEGON’s net income or equity. The effect on total assets is offset by the effect on total liabilities.
In order to determine reasonably possible alternative assumptions, AEGON adjusted key unobservable models inputs as follows: a. Available-for-sale shares include shares in the Federal
The RMBS models incorporate external loan-level analytics to identify the riskiest securities. Once the entire pool is modelled, the results are analyzed by internal asset specialists to determine whether or not a 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.
AEGON impaired its particular tranche to fair value where it would not be able to receive all contractual cashflows.
ABS, CMBS and RMBS noted on exception reports are specifically addressed by research and credit analysts who evaluate the unrealized losses based upon current market conditions, changes in credit spreads specific to the asset class, fundamentals related to the issuer and, if applicable, the available protection of the monoline wrapper. AEGON impairs a particular tranche to fair value where it would not be able to receive all contractual cash flows. The impairment analysis is therefore based on a combination of models and analyst reviews of market events on individual securities.
As at the reporting date, AEGON performed stress testing on each security within its subprime mortgage portfolio. The stress testing revealed a significant reduction in the level of protection provided by the subordination for all fixed rate and senior floating rate mortgage products. Factors included in the analysis depend upon the type of collateral but for subprime mortgages they include delinquencies, prepayment assumptions, the percentage of borrowers with mortgage insurance, the percentage of borrowers in states more at risk for declining home values (Florida, California, etc.) and credit enhancements.
More detailed cash flow modeling was performed on issuances identified through stress testing as being most at risk for payment interruption, such as issuances with a disproportionate number of borrowers from states experiencing significant declines in home values. Key assumptions used in the models are projected defaults, loss severities and prepayments. Each of these key assumptions varies greatly based on the significantly diverse characteristics of the current collateral pool for each security. Loan-to-value, loan size and borrower credit history are some of the key characteristics used to determine the level of assumption that is utilized. Defaults were estimated by identifying the loans that are in various delinquency buckets and defaulting a certain percentage of them over the near-term and long-term. Assumed defaults on delinquent loans are dependent on the specific security’s collateral attributes and historical performance. Loss severity assumptions were determined by observing historical rates from broader market data, while being adjusted for 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. Once the entire pool is modelled, the results are analyzed by the internal asset specialist to determine whether or not particular tranches or holdings are at risk for not collecting all contractual cash flows taking into account the seniority and other terms of the tranches held.
Impairment testing requires the determination of the value in use or fair value less costs for each of AEGON’s identified cash generating units.
The valuation utilized the best available information, including assumptions and projections considered reasonable and supportable by management. The assumptions used in the valuation involve significant judgments and estimates. Refer note 6 for more details.
AEGON will receive the tax benefits. Since there is no absolute assurance that these assets will ultimately be realized, management reviews AEGON’s deferred tax positions periodically to determine if it is more likely than not that the assets will be realized. Periodic reviews include, among other things, the nature and amount of the taxable income and deductible expenses, the expected timing when certain assets will be used or liabilities will be required to be reported and the reliability of historical profitability of businesses expected to provide future earnings. Furthermore, management considers tax-planning strategies it can utilize to increase the likelihood that the tax assets will be realized. These strategies are also considered in the periodic reviews.
120 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 4
Provisions are established for contingent liabilities when it is probable that a past event has given rise to a present obligation or loss and the amount can be reasonably estimated.
Results of AEGON’s sensitivity analyses are presented throughout this section to show the estimated sensitivity of net income and shareholders’ equity to various scenarios. For each type of market risk, the analysis shows how net income and shareholders’ equity would have been affected by changes in the relevant risk variable that were reasonably possible at the reporting date. For each sensitivity test the impact of a reasonably possible change in a single factor is shown. The
The accounting mismatch inherent in IFRS is also apparent in the reported sensitivities. A change in interest rates has an immediate impact on the carrying amount of assets measured at fair value. However the shock will not have a similar effect on the carrying amount of the related insurance liabilities that are measured based on prudent assumptions or on management’s long-term expectations. Consequently, the different measurement bases for assets and liabilities lead to increased volatility in IFRS net income and shareholders’ equity. AEGON has classified a significant part of its investment portfolio as
equity, unless impaired. As a result, economic sensitivities predominantly impact shareholders’ equity but leave net income unaffected. The effect of movements of the revaluation reserve on capitalization ratios and capital adequacy are minimal.
The sensitivities do not reflect what the net income for the period would have been if risk variables had been different because the analysis is based on the exposures in existence at the reporting date rather than on those that actually occurred during the year. Nor are the results of the sensitivities intended to be an accurate prediction of AEGON’s future shareholders’
equity or earnings. 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. No risk management process can clearly predict future results.
As an international group, AEGON is subject to foreign currency translation risk. Foreign currency exposure exists when policies are denominated in currencies other than the issuer’s functional currency. Currency risk in the investment portfolios backing insurance and investment liabilities is managed using asset liability matching principles. Assets allocated to equity are kept in local currencies to the extent shareholders’ equity is required to satisfy regulatory and self-imposed capital requirements. Therefore, currency exchange rate fluctuations will affect the level of shareholders’ equity as a result of translation of subsidiaries into euro, the Group’s presentation currency. AEGON holds the remainder of its capital base
(convertible core capital securities, perpetual capital securities, subordinated and senior debt) in various currencies in amounts that are targeted to correspond to the book value of the country units. This balancing mitigates currency translation impacts on shareholders’ equity and leverage ratios. AEGON
122 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 4
AEGON operates a Currency Risk Policy under which direct currency speculation or program trading by country units is not allowed unless explicit approval has been granted by the Group
The exchange rates for US dollar and UK pound per euro for each of the last five year-ends are set forth in the table below: AEGON Group companies’ foreign currency exposure from monetary assets and liabilities denominated in foreign currencies is not material.
The estimated approximate effects on net income and shareholders’ equity of movements in the exchange rates of
1 The effect of currency exchange movements is refl ected as a one-time shift up or down in the value of the non-euro currencies relative to the euro on December 31.
AEGON bears interest rate risk with many of its products. In cases where cash flows are highly predictable, investing in assets that closely match the cashflow profile of the liabilities can offset this risk. For some AEGON country units, local capital markets are not well developed, which prevents the complete matching of assets and liabilities for those businesses. For some products, cash flows are less predictable as a result of policyholder actions that can be affected by the level of interest rates.
This activity may result in cash payments by AEGON requiring the sale of invested assets at a time when the prices of those assets are adversely affected by the increase in market interest rates; this may result in realized investment losses. These cash payments to policyholders result in a decrease in total invested assets and a decrease in net income. Among other things, early withdrawals may also require accelerated amortization of DPAC, which in turn reduces net income.
Mortgages and redeemable bonds in the investment portfolio are more likely to be repaid as borrowers seek to borrow at lower interest rates and AEGON may be required to reinvest the proceeds in securities bearing lower interest rates. Accordingly, net income declines as a result of a decrease in the spread between returns on the investment portfolio and the interest rates either credited to policyholders or assumed in reserves.
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
124 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 4
The sensitivity analysis in the table below shows an estimate of the effect of a parallel shift in the risk free yield curves on net income and shareholders’ equity. Increases in interest rates have a negative effect on shareholders’ equity and net income in the current year because it results in unrealized losses on investments that are carried at fair value. 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 would 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.
Over time, the short-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, rising interest rates are not considered a long-term risk to the Group.
The sensitivity analysis reflects the assets and liabilities held at year end. This does not necessarily reflect the risk exposure during the year as significant events do not necessarily occur on January 1.
In August 2007, the Canadian asset backed commercial paper markets froze, which ultimately resulted in a restructuring of the Asset Backed Commercial Paper (ABCP) into long term asset backed notes. The restructuring required AEGON to restructure its EUR 113 million notional liquidity facility agreement backing the original ABCP. To restructure the liquidity facility, AEGON entered into swaps (the “Swaps”) that are linked to three collaterilized debt obligations comprising the assets within the liquidity facility backed ABCP (the “CDO”). The three CDOs are as follows: � 15%-30% tranche of a bespoke CDO (EUR 957 million notional) maturing 6/20/2013
� 30%-60% tranche of the CDX.IG.6 index (EUR 766 million notional) maturing 6/20/2016
� 30%-60% tranche of the CDX.IG.7 index (EUR 287 million notional) maturing 12/20/2016
AEGON has issued the Swaps under an ISDA Master Agreement requiring collateralization of the Swap’s market value. The amount of collateral to be posted by AEGON is subject to a threshold of EUR 15 million, provided AEGON maintains it current credit rating.
ABCP and from additional funding sources negotiated as part of the ABCP restructuring (the “Margin”). The market value of the
Margin, then AEGON will recognize a loss on its Swaps. AEGON
126 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 4 directly into the reference CDO while taking ownership of a proportionate share of the Margin.
Normally, AEGON mitigates credit risk in derivative contracts by entering into collateral agreements, where practical, and in
ISDA master netting agreements for each of AEGON’s legal entities to facilitate AEGON’s right to offset credit risk exposure.
Main counterparties to these transactions are investment banks 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.
(S&P, Moody’s and Fitch) and AEGON’s internal rating of the counterparty. If an exposure exceeds the stated limit, then the exposure must be reduced to the limit for the country unit and rating category as soon as possible. Exceptions to these limits can only be made after explicit approval from AEGON’s
At December 31, 2010, there were two violations of the Credit
Name Limit Policy at the group level, both of which have received exemption from GRCC.
AEGON Group level long-term counterparty exposure limits at the end of 2010 are as follows: Credit rating In EUR million Group Limit
AEGON’s major country units, excluding reinsurance assets, are presented in the table that follows, organized by rating category and split by assets that are valued at fair value and assets that are valued at amortized cost. Disclosure of ratings follows a hierarchy of S&P, Moody’s, Fitch, internal and National
ABSs – Collateralized Bond Obligations (CBOs) 692 754 – – 1,446 43
or impaired assets 1 Includes investments of Holding and other activities.
(2009: EUR 9,338 million). The loan to value (LTV) amounts to is in delinquency (defined as 60 days in arrears). In 2010 we recognized impairments of EUR 67 million on this portfolio.
The fair value of AEGON The Netherlands mortgage portfolio as per December 31, 2010 amounts to EUR 14,668 million
Historical defaults of the portfolio have been between 2 and 9 basis points per year.
Portugal, Italy, Ireland, Greece and Spain. The table below provides the amortized cost and fair value of our exposure to central government of these countries.
Commercial mortgage backed securities (CMBS) 6,725 5,514 1 Exposures include past due and impaired assets.
The fair values of these instruments were determined as follows: Level II Level III Total 2010 Level II Level III
holds EUR 1,448 million (2009: EUR 1,319 million). The unrealized loss on the AEGON USA Housing related ABS securities amounts to EUR 312 million (2009: EUR 629 million).
AEGON USA does not currently invest in or originate whole loan residential mortgages. AEGON USA categorizes asset backed securities issued by a securitization trust as having subprime mortgage exposure when the average credit score of the underlying mortgage borrowers in a securitization trust is below FICO score 660 at issuance. AEGON USA also categorizes asset backed securities issued by a securitization trust with second lien mortgages as subprime mortgage exposure, even though a significant percentage of second lien mortgage borrowers may not necessarily have credit scores below FICO
score 660 at issuance. As of December 31, 2010, the amortized cost of investments backed by subprime mortgage loans was
Total subprime mortgages - Fixed rate 415 184 32 15 148 794 189
AT DECEMBER 31, 2010 538 312 49 94 617 1,610 583 1 Second lien collateral primarily composed of loans to prime and Alt-A borrowers.
132 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 4
Total subprime mortgages - Fixed rate 588 44 28 9 199 868 212
Total subprime mortgages - Floating rate 118 120 2 35 243 518 63
AT DECEMBER 31, 2009 763 176 47 106 713 1,805 638 1 Second lien collateral primarily composed of loans to prime and Alt-A borrowers.
did not consider those securities to be impaired. Refer to note 3 for details on the pricing process.
The unrealized loss on RMBS is EUR 457 million which relates to positions of AEGON USA. The pace of deterioration continued in early 2009, but began to stabilize in late 2009 and continued to stabilize in 2010. Even with the stabilization, fundamentals in RMBS securities continue to be weak which impacts the magnitude of the unrealized loss. Delinquencies and severities in property liquidations remain at an elevated level.
SNR 2 MEZZ 3 SSUP 4 Total amortized cost Total fair value
Reverse mortgage fl oaters 350 – – – – 350 292
134 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 4
SSNR 1 SNR 2 MEZZ 3 SSUP 4 Total amortized cost Total fair value
Reverse mortgage fl oaters – 350 – – 350 292 1 SSNR – super senior 2 SNR – senior 3 MEZZ – mezzanine 4 SSUP – senior support
EUR 701 million at December 31, 2010 (2009: EUR 667 million).
GSEs. The typical Alt-A borrower has a credit score high enough to obtain an ’A‘ standing, which is especially important since the score must compensate for the lack of other necessary documentation related to borrower income and / or assets.
(also known as option ARMs) are loans whereby the payment made by the borrower is less than the accrued interest due and the difference is added to the loan balance. When the accrued balance of the loan reaches the negative amortization limit
136 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 4
of non-housing related ABS, net unrealized losses on this portfolio amount to EUR 204 million at December 31, 2010
(2009: EUR 496 million). These are securitizations of underlying pools of credit cards receivables, auto financing loans, small business loans, bank loans and other receivables. The underlying assets have varying credit ratings and are pooled together and sold in tranches. See the table below for the breakdown of the non housing ABS exposure of AEGON USA.
AEGON’s small business loan ABS portfolio is concentrated in senior note classes (99% of par value). In addition to credit enhancement provided by the excess spread, reserve account, and over-collateralization, AEGON’s positions are also supported by subordinated note classes. AEGON’s small business loan ABS portfolio is also primarily secured by commercial real estate (99% of par value), with the original
The unrealized losses are a function of decreased liquidity and increased credit spreads in the market. Over 98% of the securities in an unrealized loss in this section are rated investment grade. Where ratings have declined to below investment grade, the individual bonds have been modeled to determine if cash flow models indicate a credit event will impact future cash flows and resulting impairments have been taken.
138 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 4
The ‘Hybrid’ category is comprised of capital securities issued by financial services entities which typically have an original maturity of more than 30 years and may be perpetual.
In addition, Hybrids have other features that may not be consistent across issues such as a cumulative or noncumulative coupon, capital replacement and an alternative payment mechanism, and could also be subordinate to the traditional Trust Preferred in the Group’s capital structure.
Expected claims against the monolines amount to EUR 122 million (2009: EUR 160 million), although an insolvency by one of the monolines could create significant market price volatility for the affected holdings.
The following table breaks down bonds in AEGON USA’s portfolio that are insured by monoline insurers. The disclosure by rating follows a hierarchy of S&P, Moody’s, Fitch, internal and NAIC.
related to MBIA, 29% to AMBAC, 9% to FGIC and 14% to FSA).
Of the remaining 16% (2009: 13%), no individual monoline insurer represents more than 10% of the total wrapped portfolio.
EUR 377 million (2009: EUR 165 million) collateral and other credit enhancements are held related to financial assets that were past due or individually impaired.
Past due but not impaired assets 0-6 months 6-12 months > 1 year Total 0-6 months 6-12 months > 1 year Total
Debt securities - carried at fair value 73 57 15 145 19 – 1 20
Other fi nancial assets – carried at fair value 36 41
Fluctuations in the equity, real estate and capital markets have affected AEGON’s profitability, capital position and sales of equity related products in the past and may continue to do so. Exposure to equity, real estate and capital markets exists in both assets and liabilities. Asset exposure exists through direct equity investment, where AEGON bears all or most of the volatility in returns and investment performance risk.
The general account equity, real estate and other non-fixed-income portfolio of AEGON is as follows: Equity, real estate and non-fi xed income exposure Americas
Changes in sensitivities between 2009 and 2010 arise mainly as a result of additional equity hedges during 2010 which reduces the impact of market movements. Also, the guarantees contracts that expose AEGON to equity risk are less in the money decreasing the sensitivity on DPAC amortization.
AEGON holds EUR 29,922 million of general account investments in cash, money market products and sovereign
(2009: EUR 28,389 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 described in note 23, amounting to
Investment contracts for account of policyholders 1 Borrowings include debentures and other loans, short term deposits, bank overdrafts and commercial paper; refer to note 23 for more details. 2 Excluding investment contracts with discretionary participating features.
The projected cash benefit payments in the table below are based on management’s best estimates of the expected gross benefits 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 comparable with AEGON’s historical experience, modified for recently observed trends.
144 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 4
Insurance contracts for account of policyholders – 5,617 23,853 21,096 72,824 123,390
Investment contracts for account of policyholders 90 5,778 20,447 19,837 83,020 129,172
Investment contracts for account of policyholders 77 3,698 16,464 19,853 79,368 119,460 1 The projected cash benefi t payments are based on management’s best estimates of the expected gross benefi ts and expenses partially offset by the expected gross premiums, fees and charges relating to the existing business in force. Estimated cash benefi t payments are based on mortality, morbidity and lapse assumptions comparable with AEGON’s historical experience, modifi ed for recent observed trends. Actual payment obligations may differ if experience varies from these assumptions. The cash benefi t payments are presented on an undiscounted basis and are before deduction of tax and before reinsurance. The liability amount in the consolidated fi nancial statement refl ects the discounting for interest as well as adjustments for the timing of other factors as described above. As a result, the sum of the cash benefi t payments shown for all years in the table exceeds the corresponding liability amounts included in notes 19, 20 and 22.
(Contractual cash fl ows) 2010 On demand amount 1 < 5 yrs amount 5 < 10 yrs amount > 10 yrs amount
AEGON’s earnings depend significantly upon the extent to which actual claims experience differs from the assumptions used in setting the prices for products and establishing the technical liabilities and liabilities for claims. To the extent that actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, income would be reduced. Furthermore, if these higher claims were part of a permanent trend, AEGON may be required to increase liabilities, which could reduce income. In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force have been recorded as assets on the balance sheet and are being amortized into income over time. If the assumptions relating to the future profitability of these policies
Sources of underwriting risk include policy lapses and policy claims (such as mortality and morbidity). In general, AEGON is at risk if policy lapses increase as sometimes AEGON is unable to fully recover up front expenses in selling a product despite the presence of commission recoveries or surrender charges and fees. For mortality and morbidity risk, AEGON sells certain types of policies that are at risk if mortality or morbidity increases, such as term life insurance and accident insurance, and sells certain types of policies that are at risk if mortality decreases (longevity risk) such as annuity products. AEGON is also at risk if expenses are higher than assumed by management.
AEGON monitors and manages its underwriting risk by underwriting risk type. Attribution analysis is performed on earnings and reserve movements in order to understand the source of any material variation in actual results from what was expected. AEGON’s units also perform experience studies for underwriting risk assumptions, comparing AEGON’s experience to industry experience as well as combining AEGON’s experience and industry experience based on the depth of the history of each source to AEGON’s underwriting assumptions.
The impact on net income and shareholders’ equity of sales transactions of investments required to meet the higher cash outflow is reflected in the sensitivities.
A change in actual experience with mortality or morbidity rates may not lead to a change in the assumptions underlying the measurement of the insurance liabilities as management may recognize that the change is temporary. Life insurers are also exposed to longevity risk. Increased life expectation above our assumed life expectation at the time of underwriting negatively impacts our results. Refer to note 2.19 for a discussion on how longevity assumptions are accounted for.
The European Commission approved the plan on August 17, 2010. As part of the process to conclude the European
Central Bank before being permitted to repurchase the remaining core capital securities. In determining whether to approve a request for repurchase, the Dutch Central Bank considers certain criteria including the adequacy of AEGON’s excess capital. There is no limit on the duration of such consultations or certainty as to the outcome of such consultations. If AEGON is unable to meet its interest obligations or is unsuccessful in repurchasing the capital,
Run-off businesses (165) – – – – – (165) – (165)
Run-off businesses (13) – – – – – (13) – (13)
Realized gains and (losses) on fi nancial investments 34 564 475 99
Gains and (losses) on investments in real estate 34 135 (179) (48)
Fair value changes on economic hedges for which no hedge accounting is applied 34 (119) 152 (46)
Ineffective portion of hedge transactions for which hedge accounting is applied 34 (1) (41) 50
Impairment charges / (reversals) on fi nancial assets, excluding receivables 456 11 36 22 – 525
Investments for account of policyholders 59,353 23,058 57,693 6,138 – (5) 146,237
152 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 5
Investment contracts for account of policyholders 12,882 2 41,593 2,944 – – 57,421
154 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 6
156 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 7 - 7.1
Amortization and depreciation through the income statement is included in ‘Commissions and expenses’. None of the intangible assets have titles that are restricted or have been pledged as security for liabilities.
Impairments of goodwill and future servicing rights related to the wind-down of small bank Bank-Owned Life
business in the Americas and unfavourable pension legislation changes in Hungary. Of additions to goodwill in 2009 of EUR 6 million, an amount of EUR 3 million, EUR 1 million and EUR 2 million relates to acquisitions in Romania, United States and the
Value in use calculations have been actuarially determined based on business plans covering a period of typically 5 years and pre-tax risk adjusted discount rates. The value in use test in the USA for the Individual savings & retirement cash generating unit (EUR 109 million) assumes business plans covering a period of 5 years further extrapolated to 10 years where the new business levels for years 6-10 assumed a 5% growth rate, pre-tax risk adjusted discount rate of 17% (2009: 17%).
All the cash-generating units tested showed that the recoverable amounts were higher than their carrying values, including goodwill. A reasonably possible change in any key assumption is not expected to cause the carrying value of the cash-generating units to exceed its recoverable amount.
The fair value less cost to sell for our business in AEGON Spain were based on business plans covering a period of 5 years, pre-tax risk adjusted discount rate of 11% and assumptions for future premiums, commissions, inflation, persistency, mortality, morbidity and future investment returns in line with AEGON’s
With the exception of goodwill, all intangible assets have a finite useful life and are amortized accordingly. VOBA and future servicing rights are amortized over the term of the related insurance contracts, which can vary significantly depending on the maturity of the acquired portfolio. The VOBA
Financial assets at fair value through profi t or loss (FVTPL)
Money market and other short-term investments 10,141 659 – – 10,800 10,800
Deposits with fi nancial institutions – – – 748 748 748
Of the debt securities, money market and other short-term investments, mortgages and private loans EUR 16,841 million is current (2009: EUR 23,788 million).
As part of the AEGON Levensverzekering N.V. funding program the Company regularly enters into securitization contracts for its mortgage loans. At December 31, 2010 securitization contracts named SAECURE 3, SAECURE 4, SAECURE 5 and
AEGON Levensverzekering N.V. entered into a fixed-to-floating swap agreement with the contract parties agreed to pay the floating rate (EURIBOR based) and receive the fixed rate (yield from the mortgage receivables). After a period of seven years, the interest of the notes issued by the special purpose entity in respect of this transaction will step-up, together with a similar step-up in the fixed-to-floating swap agreement. At that same time, the special purpose entity has the right to call the notes.
At December 31, 2010 the market value of these securitized mortgage loans (off balance) is EUR 3.1 billion (2009: 3.9 billion).
Movement on the loan allowance account during the year were as follows: Addition charged to income statement (114) (132)
Refer to note 49 for a discussion of collateral received and paid.
Rental income of EUR 100 million (2009: EUR 86 million; 2008: EUR 96 million) is reported as part of investment income in the income statement. EUR 3 million (2009: 7 million; 2008: nil) is attributable to rent on foreclosed real estate. Direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the period amounted to EUR 72 million (2009: EUR 65 million; 2008: EUR 53 million). EUR 9 million (2009: EUR 2 million; 2008: EUR 1 million) of direct operating expenses is related to investment property that did not generate rental income during the period.
Total investments for account of policyholders at fair value through profi t or loss, excluding derivatives
Refer to note 48 for a summary of contractual obligations to purchase investment property or for repairs, maintenance or enhancements.
AEGON utilizes derivative instruments as a part of its asset liability risk management practices. The derivatives held for risk management purposes are classified as economic hedges to the extent that they do not qualify for hedge accounting, or that AEGON has elected not to apply hedge accounting.
162 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 10
These hedges are used for portfolio management to better match assets to liabilities or to protect the value of the hedged item from interest rate movements. These agreements involve the payment or receipt of fixed-rate interest amounts in exchange for floating-rate interest amounts over the life of the agreement without the exchange of the underlying principal amounts. Some of the arrangements use forward starting swaps to better match the duration of assets and liabilities.
AEGON has entered primarily into interest rate swap agreements that effectively convert certain variable-rate assets and liabilities to a fixed-rate basis in order to match the cash flows of the assets and liabilities within AEGON’s portfolio more closely. These agreements involve the payment or receipt of variable-rate interest amounts in exchange for fixed-rate interest amounts over the life of the agreement without the exchange of the underlying principal amounts. AEGON is hedging its exposure to the variability of future cash flows from the interest rate movements for terms up to 31 years for hedges converting existing floating-rate assets and liabilities to fixed-rate assets.
December 31, 2010, the contracts for which cash flow hedge accounting was terminated resulted in deferred gains of EUR 57 million that are recognized directly in equity to be reclassified into net income during the period when the cash flows occur of the underlying hedged items. For the same year, none of
AEGON’s cash flow hedges were discontinued, as it was probable that the original forecasted transactions would occur by the end of the originally specified time period documented at the inception of the hedging relationship.
In addition, AEGON also makes use of cross currency swaps to convert variable or fixed foreign currency cash flows into fixed cash flows in local currencies. The cash flows from these hedging instruments are expected to occur over the next 16 years. These agreements involve the exchange of the underlying principal amounts.
For the year ended December 31, 2010, AEGON recognized a gain of EUR 6 million of hedge ineffectiveness on cash flow hedges. In 2009 and 2008 gains of EUR 10 million and EUR 12 million respectively of hedge ineffectiveness were recorded in the income statement. In 2010 EUR (8) million was released from equity into investment income (2009: EUR (117) million, 2008: EUR 306 million). The amount of deferred gains or losses to be reclassified from equity into net income during the next twelve months is expected to be EUR 10 million.
The periods when the cash flows are expected to occur are as follows: < 1 year years 2010 Total
When the debt funding of investments is not in the functional currency of the investment, AEGON uses derivatives to swap the currency exposure of the debt instrument to the appropriate functional currency. This policy will ensure that total capital will reflect currency movements without distorting debt to shareholders’ equity ratios. AEGON utilizes various financial instruments as designated hedging instruments of its foreign investments. These instruments include long-term and short-term borrowings, short-term debts to credit institutions, cross currency swap contracts and forward foreign exchange contracts.
Amounts due from reinsurers in respect of claims already paid by the Group on the contracts that are reinsured are included in other assets and receivables (refer to note 13).
Gross premium and deposits – existing and new business 1,010 66 1,076
Changes to valuation of expected future benefi ts (34) – (34)
Real estate held for own use and equipment 13.1 574 548
5% of the value of the general account real estate held for own use was last revalued in 2010 (2009: 54%), based on market value appraisals by qualified internal and external appraisers. 81% of the appraisals in 2010 were performed by independent external appraisers (2009: 98%).
General account real estate held for own use has not been pledged as security for liabilities, nor are there any restrictions on title. Depreciation expenses are charged in ‘Commissions and expenses’ in the income statement. The useful lives of buildings range between 40 and 50 years.
Carrying amounts disclosed reasonably approximate the fair values at year end.
The movements in the provision for doubtful debts during the year were as follows: Additions charged to earnings (8) (21)
The weighted effective interest rate on short-term deposits was 0.44% (2009: 0.49%) and these deposits have an average maturity of 4.75 days (2009: 4.27 days).
EUR 1 billion of capital. As part of the issuance 157.8 million ordinary shares with a par value of EUR 0.12 were issued and 32.7 million treasury shares were reissued. The shares were issued at EUR 5.25 per share. Expenses relating to this share issuance amounting to EUR 14 million have been charged to retained earnings. On October 1, 2009 Vereniging AEGON used its right to purchase preferred shares B for an amount of
After the transaction Vereniging AEGON holds 22.8% of the voting rights in AEGON N.V.
Vereniging AEGON as a result of exercising these option rights would increase its voting power to more than 33 percent. Class
B preferred shares will then be issued at par value (EUR 0.25), unless a higher issue price is agreed. In the years 2003 through 2007, 35,170,000 class B preferred shares were issued under these option rights. In 2008, no option rights were exercised.
With regard to granted share appreciation rights and option rights and their valuation refer to note 38.
Transactions in 2009: Sale: 1 transaction, price EUR 5.25 – (32,654) –
Transactions in 2008: Purchase: 10 transactions, average price EUR 8.32 – – 26,300
The revaluation accounts for both available-for-sale investments and for real estate held for own use include unrealized gains and losses on these investments, net of tax.
174 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 15.5 - 16
The closing balances of the revaluation reserve for availablefor -sale investments relate to the following instruments: REVALUATION RESERVE FOR AVAILABLE-FOR-SALE INVESTMENTS 493 (1,928) (7,864)
The cash flow hedging reserve is made up of (un)realized gains and losses on the effective portions of hedging instruments, net of tax. The amounts are recognized in the income statement at the moment of realization of the hedged position to offset the gain or loss from the hedged cash flow. No amounts have been released from equity to be included in the initial measurement of non-financial assets or liabilities.
Movement in foreign currency translation and net foreign investment hedging reserves 1,308 (262) – 1,046
Movement in foreign currency translation and net foreign investment hedging reserves (362) 280 – (82)
On December 1, 2008, AEGON’s core capital was increased through a transaction with the State of the Netherlands in view of the ongoing uncertainty regarding the financial and economic environment during the year. Vereniging AEGON received a senior loan of EUR 3 billion which was invested in AEGON against issuance of 750 million non-voting convertible core capital securities at EUR 4.00 per security. The newly issued securities rank equal to common shares (pari passu), but carry no voting rights. This structure was designed to avoid dilution of voting rights of existing shareholders. The proceeds from the convertible core capital securities may only be used for general corporate purposes in the ordinary course of business; investments in subsidiaries chargeable to the additional capital in excess of EUR 300 million outside the European Union require prior approval from the Dutch Central Bank.
On November 30, 2009, AEGON repurchased 250 million of convertible core capital securities. The total payment to the
Dutch government amounted to EUR 1.15 billion. Under the terms of AEGON’s agreement with the Dutch government, the premium for repurchase amounted to EUR 108 million based on the volume weighted average share price of AEGON shares of
November 27. The amount repurchased includes accrued interest from May 22, 2009 of EUR 44 million.
Dutch government amounted to EUR 563 million and included a premium for repurchase amounting to EUR 52 million and accrued interest from May 25, 2010 of EUR 11 million.
USD 225 million 2 7.65% Semi–annually, December 1 1996 2026 n.a. 91 82
USD 190 million 2 7.625% Semi–annually, November 15 1997 2037 n.a. 38 35 1 Issued by a subsidiary of AEGON N.V. 2 Issued by a subsidiary of, and guaranteed by AEGON N.V.
Trust pass-through securities are securities through which the holders participate in a trust. The assets of these trusts consist of junior subordinated deferrable interest debentures issued by
Transamerica Corporation and Clark Consulting Inc. The trust pass-through securities carry provisions with regard to deferral of distributions for extension periods up to a maximum of ten consecutive semi-annual periods. The trust pass-through securities are subordinated to all other unsubordinated borrowings and liabilities. There were no defaults or breaches of conditions during the period.
The fair value of these loans amounts to EUR 117 million (2009: EUR 88 million).
Non-life insurance - Unearned premiums and unexpired risks 3,209 2,890 - Incurred but not reported claims 702 721
Gross premium and deposits – existing and new business 6,850 10,298
Losses recognized as a result of liability adequacy testing 7 6
180 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 20 - 21
Gross premium and deposits – existing and new business 6,475 5,760
1 Refer to note 47 for a summary of all fi nancial assets and fi nancial liabilities at fair value through profi t or loss.
182 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 22 - 23
USD 500 million Senior Unsecured Notes 4.625% Semi–annually 2009 / 15 372 345
GBP 250 million Medium-Term Notes 6.125% December 15 1999 / 31 286 277
184 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 24 - 25
Floating-rate - Expiring within one year 318 330 - Expiring beyond one year 2,245 2,082
The amounts recognized in the balance sheet are determined as follows: Present value of wholly or partly funded obligations 2,925 2,545 2,144 2,357 2,487
Present value of wholly unfunded obligations 1,952 1,831 1,644 1,622 1,768
Present value of wholly or partly funded obligations 3 3 4 4 4
Present value of wholly unfunded obligations 256 224 231 224 247
Present value of wholly or partly funded obligations 2,928 2,548 2,148 2,361 2,491
1 Assets held by AEGON The Netherlands backing retirement benefi ts do not meet the defi nition of plan assets and as such were not deducted in calculating this amount. Instead, these assets are recognized as general account assets. Consequently, the return on these assets also does not form part of the calculation of defi ned benefi t expenses.
186 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 25
Expected return on plan assets (162) – (162) (133) – (133)
Movements during the year of the present value of the defi ned benefi t obligations: 2010 2009
Breakdown of plan assets for retirement benefi t plans: 2010 2009
188 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 25
RATES: Assumed medical cost trend rates have an effect on the amounts reported for the health care plans. A one-percentage change in assumed medical cost trend rates would have the following effects: Aggregate of current service cost and interest cost components of net periodic post-employment medical costs 2 (1) 2 (1)
AEGON USA also sponsors supplemental retirement plans to provide senior management with benefits in excess of normal pension benefits. These plans are unfunded and non-qualified under the Internal Revenue Service Code. The unfunded amount related to these plans, for which a liability has been recorded, is EUR 184 million (2009: EUR 192 million).
The principal actuarial assumptions that apply for the year ended December 31, 2010 are as follows: Assumed health care trend rates: Health care cost trend rate assumed for next year 7.50% 8.00%
Year that the rate reaches the rate that it is assumed to remain at 2020 2013
AEGON The Netherlands for retirement benefits do not meet the definition of plan assets and as such were not deducted in calculating this amount. Instead, these assets are recognized as general account assets. Consequently, the return on these assets do not form part of the calculation of defined benefit expenses.
190 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 26 - 27
AEGON The Netherlands also has a post-retirement medical plan that contributes to the health care coverage of employees and beneficiaries after retirement. The liability related to this plan amounted to EUR 46 million at December 31, 2010
Assumptions used to determine benefit obligations at year-end: Discount rate 5.25% 5.30%
Assumptions used to determine net periodic benefits costs for the year ended December 31, 2010: Discount rate 5.30% 5.75%
Health care cost trend rate assumed for next year 0.00–2.00% 1.50–2.00%
Rate that the cost trend rate gradually declines to 0.00–2.00% 1.50–2.00%
For each asset class, a long-term return assumption is derived taking into account market conditions, historical returns (both absolute returns and returns relative to other asset classes) and general forecasts for future returns. Government bonds are taken as providing the return with the least risk. The expected long-term rate of return is calculated as a weighted average of these assumed rates, taking account of the long-term strategic allocation of funds across the different classes adopted by the trustees of the scheme.
Assumptions used to determine net periodic benefit costs for the year ended December 31, 2010: Discount rate 5.70% 6.00%
(2009: gross EUR 178 million; tax EUR 60 million) the realization of the deferred tax asset is dependent on the projection of future taxable profits from existing business in excess of the profits arising from the reversal of existing taxable temporary differences.
Deferred corporate income tax assets in respect of deductible temporary differences are recognized to the extent that the realization of the related tax benefit through future taxable profits is probable. For the following amounts relating to available for sale financial assets 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: Gross amounts Deferred tax assets
Deferred corporate income tax asset dependent on the realization of capital profi ts 914 811 320 284
EUR 31 million; tax EUR 8 million (2009: gross EUR 32 million; tax EUR 8 million).
194 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 28 - 31
Refer to note 38 for a description of share appreciation rights and related expenses.
Investment income from fi nancial assets held for general account: 2010 2009 2008
196 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 32 - 34
Included in fee and commission income is EUR 109 million of fees on trust and fiduciary activities (2009: EUR 103 million; 2008: EUR 85 million). EUR 3 million of fees were recognized on financial assets and liabilities that are not carried at fair value with changes in the fair value recognized in the income statement (2009: EUR 4 million; 2008: EUR 25 million).
Net fair value change of general account fi nancial investments at fair value through profi t or loss, other than derivatives 257 193 (1,261)
The ineffective portion of hedge transactions to which hedge accounting is applied comprises: 2010 2009 2008
Fair value change on hedging instruments in a fair value hedge 146 127 (164)
Net fair value change on for account of policyholder fi nancial assets at fair value through profi t or loss comprise: 2010 2009 2008
Investments for account of policyholders comprise of financial assets and investments in real estate. Refer to note 8 for further information. Financial assets for account of policyholders are classified as at fair value through profit or loss.
Investment income on investments for account of policyholders is included in investment income. Refer to note 31 for further information.
Gains / losses on separate accounts and investment funds 6,013 8,043 (14,020)
EUR 60 million of gains (2009: gains of EUR 60 million; 2008: losses of EUR 17 million) related to policyholder tax and other charges that are classified for segment reporting purposes as non underlying earnings.
EUR 7 million (2009: EUR 6 million; 2008: EUR 6 million).
EUR (27) million (2009: EUR 78 million; 2008: EUR 14 million)
AEGON employees, have been offered both share appreciation rights and share options. These share appreciation rights and share options have been granted at an exercise price equal to the market price of the shares at the date of the grant. The rights and options granted in 2004 - 2008 vest after three years and can only be exercised during the four years after the vesting date. The rights and options granted in 2003 vest after two years and can only be exercised during the five years after the vesting date. Vesting and exercisability depend on continuing employment of the individual employee to whom the rights and options have been granted. Option plans are settled in equity, whilst stock appreciation rights are settled in cash or provide the employee with the choice of settlement.
In 2010, AEGON implemented a new Long Term Incentive Plan which replaces the option plan, share appreciation plans, share plans or similar plans relating to AEGON shares. Members of the
Long Term Incentive Plan of which 52,314 shares were subsequently forfeited.
(2009: EUR 10 million and 2008: EUR 19 million) and are recognized in the income statement as part of ‘Commissions and expenses’.
At December 31, 2010, the total compensation cost related to non-vested awards not yet recognized is estimated at
No share appreciation rights and share options were granted in 2009 and 2010. The breakdown of the share appreciation rights and share options granted in 2008 is as follows: senior executives 4,747,500, other employees 5,822,700.
Impairment charges on non-fi nancial assets and receivables 2 1 Impairment charges / (reversals) on fi nancial assets, excluding receivables, are excluded from underlying earnings before tax for segment reporting (refer to note 5).
Impairment reversals on fi nancial assets, excluding receivables, from: 2010 2009 2008
EUR 95 million for the settlement of a dispute related to a
Subsequent to the disruption in the credit market, which affected the investment value of the policy’s underlying assets, a suit was filed alleging that the policy terms were not sufficiently fulfilled by AEGON. Additionally, other charges include a bank tax charged by the Hungarian government of
In 2009, other charges included a loss of EUR 385 million resulting from the sale of AEGON Taiwan. The proceeds from the sale amounted to EUR 11 million. The value of the assets and liabilities sold amounted to EUR 4,457 million and EUR 4,159 million respectively.
INCOME TAX FOR THE PERIOD (INCOME) / CHARGE 154 (668) 21
204 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 43
Income tax calculated using weighted average applicable statutory rates 566 (200) (423)
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 (218) (47) (3)
Tax effect of (profi t) / losses from associates 1 – (2)
In Canada, the federal corporate income tax rate decreased from 19% in 2009 to 18% in 2010. The rate will further decrease to 15% in 2012. In the United Kingdom, the corporate income tax rate will decrease from 28% to 27% as per April 1, 2011.
In the Netherlands, the corporate income tax rate will decrease from 25.5% to 25% as per January 1, 2011. In the
Czech Republic, the corporate income tax rate decreased from 20% in 2009 to 19% in 2010. The Hungarian corporate income tax rate increased from 16% in 2009 to 19% in 2010. The solidarity tax (4%) ceased to exist in 2010.
AEGON’s consolidated result, while losses in the United States are deductible at 35% and gains in Ireland are taxed at 12.5%.
Coupons and premium on convertible core capital securities – (148) –
206 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 44 - 45
� Total return annuities: these guarantees are not bifurcated from their host contracts because they are valued at fair value and presented as part of insurance contracts (refer to note 2.19).
In the United States and the United Kingdom, a guaranteed minimum withdrawal benefit (GMWB) is offered directly on some variable annuity products AEGON issues and is also assumed from a ceding company. Variable annuities allow a customer to provide for the future on a tax-deferred basis and to participate in equity or bond market performance. Variable annuities allow a customer to select payout options designed to help meet the customer’s need for income upon maturity, including lump sum payment or income for life or for a period of time. This benefit guarantees that a policyholder can withdraw a certain percentage of the account value, starting at a certain age or duration, for either a fixed period or during the life of the policyholder.
Paid guarantee benefi ts – (623) – – (623) – (235) – – (235)
In addition, AEGON reinsures the elective guaranteed minimum withdrawal benefit rider issued with a ceding company’s variable annuity contracts. The rider is essentially a return of premium guarantee, which is payable over a period of at least fourteen 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, 2010, the reinsured account value was EUR 4.2 billion (2009: EUR 4.5 billion) and the guaranteed remaining balance was EUR 3.5 billion (2009: EUR 4.0 billion).
The reinsurance contract is accounted for as a derivative and is carried in AEGON’s balance sheet at fair value. At December 31, 2010, the contract had a value of EUR 71 million (2009: EUR 90 million). AEGON entered into a derivative program to mitigate the overall exposure to equity market and interest rate risks associated with the reinsurance contract. This program involves selling S&P 500 futures contracts to mitigate the effect of equity market movement on the reinsurance contract and the purchase of over-the-counter interest rate swaps to mitigate the effect of movements in interest rates on the reinsurance contracts.
States which provides customers with a pass-through of the total return on an underlying portfolio of investment securities
Certain variable insurance contracts in the United States also provide guaranteed minimum death benefits (GMDB) and guaranteed minimum income benefits (GMIB). Under a GMDB, the beneficiaries receive the greater of the account balance or the guaranteed amount upon the death of the insured. The net amount at risk for GMDB contracts is defined as the current
208 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 45
The GMIB feature provides for minimum payments if the contractholder elects to convert to an immediate payout annuity. The guaranteed amount is calculated using the total deposits made by the contractholder, less any withdrawals and sometimes includes a roll-up or step-up feature that increases the value of the guarantee with interest or with increases in the account value.
The estimates are reviewed regularly and any resulting adjustment to the additional liability is recognized in the income statement. The benefits used in calculating the liabilities are based on the average benefits payable over a range of stochastic scenarios. Where applicable, the calculation of the liability incorporates a percentage of the potential annuitizations that may be elected by the contractholder.
Average attained age of contractholders 66 66 66 66 1 Guaranteed minimum death benefi t in the United States.
4 Balances are included in the insurance liabilities on the face of the balance sheet; refer to note 19. 5 The net amount at risk is defi ned as the present value of the minimum guaranteed annuity payments available to the contract holder determined in accordance with the terms of the contract in excess of the current account balance.
Since the price of these guarantees is not quoted in any market, the fair value of these guarantees is computed using valuation models which use observable market data supplemented with the Group’s assumptions on developments in future interest rates, volatility in equity prices and other risks inherent in financial markets. All the assumptions used as part of this valuation model are calibrated against actual historical developments observed in the markets. Since many of the assumptions are unobservable and are considered to be significant inputs to the liability valuation, the liability has been reflected within Level III of the fair value hierarchy. Refer to note 3 for more details on AEGON’s fair value hierarchy.
holders at the holding company level to the position of policyholders at the operating company level (who have priority in payments to other creditors). Because CDS spreads for United
States life insurers differed significantly from those for European life insurers, AEGON’s assumptions reflect these differences in the valuation. If the credit spreads were 20 basis points higher or lower respectively, and holding all other variables constant in the valuation model, 2010 income before tax would have been
EUR 158 million and EUR 173 million higher or lower respectively
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 24.8% at December 31, 2010 and 25.3% at December 31, 2009.
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.
210 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 46
AEGON utilizes different risk management strategies to mitigate the financial impact of the valuation of these guarantees on the results, including asset and liability management and derivative hedging strategies to hedge certain aspects of the market risks embedded in these guarantees.
AEGON’s capital base reflects the capital employed in insurance activities and consists of shareholders’ equity, convertible core capital securities, perpetual capital securities and dated subordinated debt and senior debt. AEGON targets its capital base to comprise at least 70% core capital (excluding the revaluation reserves), and targets 25% perpetual capital securities (consisting of junior perpetual capital securities and perpetual cumulative subordinated bonds) and 5% dated subordinated and senior debt related to insurance activities.
Shareholders’ equity increased by EUR 5,046 million due to the change in the revaluation reserve of EUR 2,667 million, net income attributable to equity holders of AEGON N.V. of
EUR 1,759 million and a number of other effects, including preferred dividend paid (EUR 90 million).
Group equity consists of core capital plus Other equity instruments (see note 17) such as the junior perpetual capital securities and the perpetual cumulative subordinated bonds as well as other equity reserves. Group equity was EUR 23,425 million at December 31, 2010, compared to EUR 18,883 million at December 31, 2009.
Borrowings not related to capital funding of insurance activities consists of operational funding including US regulation XXX and guideline AXXX redundant reserves. In the ordinary course of business, AEGON N.V. may at times have borrowings, which are offset by cash and cash equivalents available for future capital management activities, such as funding capital contributions in its subsidiaries, redemption of borrowings or payment of dividends to its shareholders.
The total capital base is a non-IFRS measure, as IFRS does not permit separate presentation of borrowings based on the deployment of the proceeds.
Insurance, reinsurance, investment management and banking companies are required to maintain a minimum solvency margin based on applicable local regulations. For managing AEGON’s capital, the life insurance and life reinsurance regulations in the
European Union (EU) and the United States are of main importance. AEGON’s Insurance Group Directive ratio (IGD ratio)
was 198%. The calculation of the IGD ratio is based on Solvency I
solvency surplus calculation the local regulator only allows the available capital number of the With-profit funds included in overall local available capital to be equal to the amount of
For the insurance and reinsurance undertakings of AEGON in the EU, the European Solvency I directives are applicable, as implemented in the relevant member states. Solvency I allows member states to require solvency standards, exceeding the minimum requirements set by the Solvency I directives. For life insurance companies, the Solvency I capital requirement is by and large the sum of 4% of insurance and investment liabilities for general account and 1% of insurance and investment liabilities for account policyholders if no guaranteed investment returns are given. At the end of 2010, AEGON The Netherlands consolidated solvency capital ratio based on IFRS was approximately 200%.
(excluding With-profit funds). In the local solvency surplus calculation for regulatory filings, the local regulator (FSA) only allows the available capital number of the With-profits funds included in overall available capital to be equal to the amount of
OPTAS N.V., an indirect subsidiary of AEGON N.V., holds statutory reserves of EUR 895 million (2009: EUR 861 million)
which are restricted. Included in AEGON N.V.’s legal reserves is an amount of EUR 355 million (2009: EUR 321 million) related to
Derivatives with positive values not designated as hedges 5,231 – 4,103 –
Total fi nancial assets at fair value through profi t or loss 5,533 150,113 4,727 129,249
Investments for general account backing insurance and investment liabilities that are carried at fair value with changes in the fair value recognized in the income statement are designated at fair value through profit or loss. The Group elected to designate these investments for account of policyholders at fair value through profit or loss, a classification of financial assets as available-for sale would result in accumulation of unrealized gains and losses in a revaluation reserve within equity whilst changes to the liability would be reflected in net income (accounting mismatch).
Investments held for account of policyholders comprise assets that are linked to various insurance and investment contracts for which the financial risks are borne by the customer. Under the Group’s accounting policies, these insurance and investment liabilities are measured at the fair value of the linked assets with changes in the fair value recognized in the income statement. To avoid an accounting mismatch, the linked assets have been designated as at fair value through profit or loss.
In addition, the investment for account of policyholders include with profit assets, where an insurer manages these assets
Guarantees include those given on account of asset management commitments and guarantees associated with the sale of investments in low-income housing tax credit partnerships in the United States. Standby letters of credit amounts reflected above, are the liquidity commitment notional amounts.
AEGON Derivatives N.V. in connection with derivative transactions. AEGON Derivatives N.V. only enters into derivative transactions with counterparties with which ISDA
master netting agreements including collateral support annex agreements have been agreed; net (credit) exposure on derivative transactions with these counterparties was therefore limited as at December 31, 2010.
AEGON is involved in litigation in the ordinary course of business, including litigation where compensatory or punitive damages and mass or class relief are sought. In particular, certain current and former customers, and groups representing customers, have initiated litigation and certain groups are encouraging others to bring lawsuits in respect of certain products. The products involved in the Netherlands include securities leasing products and unit-linked products (so called
The operating lease obligations relate mainly to office space leased from third parties. The total of future minimum sublease payments expected to be received on non-cancelable subleases is EUR 11 million.
AEGON receives collateral related to securities lending and reverse repurchase activities. Non-cash collateral is not recognized in the balance sheet.
AEGON is obligated to return this amount upon termination of the lending arrangement. 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.
EUR 459 million of the financial assets and other assets were pledged as collateral for liabilities and contingent liabilities for account of policyholders in 2010 (2009: EUR 235 million).
An additional earn-out payment of EUR 11 million will be payable if certain targets are met in the future.
Terrassa Vida y Pensiones, a Spanish life insurance, pension and health company. The total purchase price amounted to
Polish pension fund company PTE Skarbiec-Emerytura SA. The total purchase price amounted to EUR 139 million. Since the acquisition date, the company has attributed EUR 1 million to net income in 2008. If the acquisition had been as of January 1, 2008, contribution to net income and total revenues would amount to respectively EUR 4 million and EUR 14 million. As a result of the acquisition, assets and liabilities were recognized for EUR 156 million and EUR 17 million respectively, including a cash position of EUR 4 million. Goodwill of EUR 39 million reflects the future new business and potential synergies with existing business.
The total purchase consideration amounted EUR 22 million. As a result of the acquisition, assets and liabilities were recognized for EUR 28 million and EUR 6 million respectively, including
Egeria for EUR 212 million. The actual proceeds from the sale amounted to EUR 162 million, the remainder was upstreamed as a dividend prior to the sale. The value of the assets and liabilities sold amounted to EUR 1,084 million and EUR 933 million respectively. The assets included an amount of EUR 320 million of cash. Included in the gain are unrealized gains in an amount of EUR 22 million, reflecting revaluation reserves which were recycled through the income statement. In 2009, AEGON’s funeral insurance business generated EUR 70 million in gross written premiums.
218 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 51
� AEGON Sony Life Insurance Cy, Tokyo (Japan), life insurance company (50%)
Capital Partners LP (‘Prisma LP’) which serves as an investment manager for certain of AEGON’s hedge fund investments as well as for other third parties, and Prisma is paid management fees for these services. The remaining 42% limited partnership interest is owned by unrelated entities made up of various employees and individuals. Prisma GP LLC is the general partner with a 1% interest and is responsible for day-to-day activities. A management board with seven voting members
and one independent member appointed collectively by the other six voting members) must approve certain actions, including restructuring transactions, hiring senior management and the annual operating budget. As a result, notwithstanding
AEGON’s 57% economic interest, the Company can not exercise voting control since AEGON only appoints three out of the seven board members, AEGON cannot remove the majority of the management board members and AEGON does not have other arrangements, contractual or otherwise, that would give
On August 30, 2010, AEGON repurchased 125 million of the convertible core capital securities. The total payment to the
Dutch government on August 30, 2010 amounted to EUR 563 million and included a premium for repurchase amounting to
EUR 52 million and accrued interest from May 25, 2010 of EUR 11 million. This repurchase was in line with AEGON’s agreement with
Vereniging AEGON . The Commission gave its approval for the state support, but imposed a number of behavioral constraints on the Company, which will remain in place until the support is fully repaid. To secure the European Commission’s approval,
AEGON committed itself not to pay any dividend to common shareholders until the convertible core capital securities have been fully repurchased. Dividend payment on preference shares will remain possible. Vereniging AEGON will use income from the non-voting securities to service the loan from the Dutch government.
EUR 108 million based on the volume weighted average share price of AEGON shares of EUR 4.8315 during the five trading days from November 23 until November 27. The amount repurchased includes accrued interest from May 22, 2009 of
On October 1, 2009, Vereniging AEGON exercised its option rights to purchase in aggregate 33,860,000 class B preferred shares at par value to correct dilution caused by AEGON’s
employees. Certain post-employment insurance benefits are provided to employees in the form of insurance policies issued by affiliated insurance subsidiaries.
Board over 2010 was EUR 9.9 million (2009: EUR 9.3 million), consisting of EUR 5.7 million (2009: EUR 4.3 million) salary and other short term benefits, EUR 1.7 million
(2009: EUR 0.6 million) cash performance payments, EUR 1.2 million (2009: EUR 4.0 million) pension premiums, EUR 1.3 million
(2009: EUR 0.3 million) other long-term benefits. No sharebased incentives were paid in 2010 (2009: EUR 0.1 million).
Additional information on the remuneration and share-based compensation of members of the Executive Board and the
Remuneration of active and retired members of the Executive Board Amounts in EUR thousands
1 The share appreciation rights were granted before becoming a member of the Executive Board.
Remuneration of active and retired members of the Supervisory Board In EUR 2010 2009 2008
Arthur W.H. Docters van Leeuwen (as of April 22, 2009) 84,000 72,000 7,000
O. John Olcay (up to April 23, 2008) – – 22,054
Dudley G. Eustace (up to April 29, 2010) 37,815 80,750 77,000
AEGON’s Supervisory Board members are entitled to the following: (1) A base fee for membership of the Supervisory
Board meetings; (3) A committee fee for members on each of the Supervisory Board’s Committees.; (4) An attendance fee for each Committee meeting attended in person or through videoand telephone conferencing facilities
Supervisory Board on April 22, 2009, as compensation for attending Board meetings.
Ben van der Veer (as of October 1, 2008) 1,407 1,407 1,407
Dirk P.M. Verbeek (as of April 23, 2008) 982 982 n.a.
The proceeds of EUR 903 million were used to fund part of the repurchase the convertible core capital securities described below.
The new shares have been listed on Euronext Amsterdam, the principal market for AEGON’s common shares.
On March 15, 2011, Vereniging AEGON exercised its option rights to purchase 41,042,000 class B preferred shares at par value in order to avoid dilution of its voting rights following the issuance of 10% new common shares completed on March 1, 2011.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
In our opinion, the consolidated financial statements give a true and fair view of the balance sheet of AEGON N.V. as at
Standards as issued by the IASB , as adopted by the European
Union and with Part 9 of Book 2 of the Dutch Civil Code.
Executive Board, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of this Code, and whether the information as required under Section 2:392 sub 1 at b-h has been annexed. Further we report that the Report of the Executive Board, to the extent we can assess, is consistent with the consolidated financial statements as required by
We have audited the accompanying consolidated financial statements 2010 of AEGON N.V., The Hague (as set out on pages 80 to 224, and comprise the consolidated balance sheet as at
Dutch Civil Code. Furthermore management is responsible for such internal control as it determines is necessary to enable the preparation of the consolidated Financial statements that are free from material misstatement, whether due to fraud or error.
Before profi t appropriation, amounts in EUR million Note 2010 2009
� INCOME STATEMENT OF AEGON N.V. FOR THE YEAR ENDED DECEMBER 31
The Hague. AEGON N.V. serves as the holding company for the AEGON Group and has listings of its common shares in
Part 9 of Book 2 of the Netherlands Civil Code. Based on article 2:362.8 of the Netherlands Civil Code, the valuation principles applied are based on International Financial Reporting
Standards (IFRS), as used for the preparation of the consolidated financial statements of the Group.
At the balance sheet date monetary assets, monetary liabilities and own equity instruments in foreign currencies are translated at the prevailing exchange rate. Non-monetary items carried at cost are translated using the exchange rate at the date of the transaction, whilst assets carried at fair value are translated at the exchange rate when the fair value was determined.
Available-for-sale assets are recorded at fair value with unrealized changes in fair value recognized in other comprehensive income.
All changes in fair value are recognized in the income statement, unless the derivative has been designated as a hedging instrument in a cash flow hedge or a hedge of a net foreign investment. Derivatives with positive fair values are reported as other assets and derivatives with negative values are reported as other liabilities.
Financial instruments that are issued by the Company are classified as equity if they represent a residual interest in the assets of the Company after deducting all of its liabilities and the Company has an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation. In addition to common shares and preferred shares, the Company has issued perpetual securities and convertible core capital securities. Perpetual securities have no final maturity date, repayment is at the discretion of AEGON and for junior perpetual capital securities AEGON has the option to defer coupon payments at its discretion. Convertible core capital securities can be converted into ordinary shares of
AEGON, through a predetermined formula, or repaid at the discretion of AEGON and coupon payments are payable only if
AEGON pays dividends on ordinary shares. Both the perpetual and convertible core capital securities are classified as equity rather than debt, are measured at par and those that are denominated in US dollars are translated using historical exchange rates.
Other borrowings are initially recognized at their fair value including directly attributable transaction costs and are subsequently carried at amortized cost using the effective interest rate method, with the exception of specific borrowings that are designated as at fair value through profit or loss to eliminate, or significantly reduce, an accounting mismatch, or specific borrowings which are carried as at fair value through the profit and loss as part of a fair value hedge relationship.
The liability is derecognized when the Company’s obligation under the contract expires or is discharged or cancelled.
The amount recognized as a provision is the best estimate of the expenditure required to settle the present obligation at the balance sheet date considering all its inherent risks and uncertainties, as well as the time value of money. The unwinding of the effect of discounting is recorded in the income statement as an interest expense.
Net income / (loss) for the fi nancial year 1,843 253
For a list of names and locations of the most important group companies, refer to note 51 of the consolidated financial statements of the Group. The legally required list of participations as set forth in article 379 of Book 2 of the Netherlands Civil Code has been registered with the
232 NOTES TO THE FINANCIAL STATEMENTS OF AEGON N.V. NOTE 4 - 8
234 NOTES TO THE FINANCIAL STATEMENTS OF AEGON N.V. NOTE 9
The shares repurchased by AEGON, although included in the issued and outstanding number of shares, are excluded from the calculation of the weighted average number of shares.
For detailed information on the long-term incentive plan, share appreciation rights and share options granted to senior executives and other AEGON employees, refer to note 38 to the consolidated financial statements of the Group.
Total net income / (loss) – – – – – 204 – 1,555 1,759
Foreign currency translation differences and movement in foreign investment hedging reserves – – – 995 – – – – 995
Transfer to legal reserve – – (125) – 2,214 (2,114) – – (25)
236 NOTES TO THE FINANCIAL STATEMENTS OF AEGON N.V. NOTE 10
Reclassifi cation – – – – 212 (212) – – –
Net loss 2008 retained – – – – – (1,082) – 1,082 –
Foreign currency translation differences and movement in foreign investment hedging reserves – – 38 (144) – – – – (106)
Transfer to legal reserve – – 87 – 849 (909) – – 27
Repurchased and sold own shares – – – – – (27) 31 – 4
Coupons and premium on convertible core capital securities and coupon on perpetual securities, net of tax – – – – – (330) – – (330)
The balance of the revaluation account, which includes revaluation reserves for real estate and investments that do not have a frequent market listing, consists for EUR 5,970 million
The revaluation account and legal reserves, foreign currency translation reserve and other, can not be freely distributed.
by AEGON (2009: EUR 321 million). In 2009, the acquired negative goodwill related to OPTAS (EUR 212 million) has been reclassified to the legal reserves in respect of group companies.
On the balance sheet date AEGON N.V. and its subsidiaries held 29,245,571 of its own common shares with a face value of
EUR 0.12 each. Most of the shares have been purchased to neutralize the dilution effect of issued share dividend and to hedge share appreciation rights and stock options granted to executives and employees. Movements in the number of repurchased own shares held by AEGON N.V. were as follows: Transactions in 2010: Sale: 1 transaction, price EUR 4.75 (51,609) –
On December 1, 2008, AEGON’s core capital was increased through a transaction with the Dutch State in view of the ongoing uncertainty regarding the financial and economic environment during the year. Vereniging AEGON received a senior loan of EUR 3 billion which was invested in AEGON
Dutch State amounted to EUR 1.15 billon. Under the terms of
AEGON’s agreement with the Dutch State, the premium for repayment amounted to EUR 108 million based on the volume weighted average share price of AEGON shares of EUR 4.8315 during the five trading days from November 23 until November 27. The amount repaid includes accrued interest from May 22, 2009, of EUR 44 million.
Dutch State amounted to EUR 563 million and included a premium for repayment amounting to EUR 52 million and accrued interest from May 25, 2010, of EUR 11 million.
USD 500 million fl oating CMS rate 3 Quarterly, July 15 2014 402 402 402 1 The coupon of the USD 250 million junior perpetual capital securities is reset each quarter based on the then prevailing three-month LIBOR yield plus a spread of 87.5 basis points, with a minimum of 4%.
The interest rate exposure on some of these securities has been swapped to a three-month LIBOR and/or EURIBOR related yield.
October 14, 2018. 4 If the bonds are not called on the respective call dates and after consecutive period of ten years, the coupons will be reset at the then prevailing effective yield of ten-year Dutch government securities plus a spread of 85 basis points.
The repayment periods of borrowings vary from within one year up to a maximum of 29 years. The interest rates vary from 4.125 to 9.000% per annum. The market value of the long-term borrowings amounts to EUR 3,377 million
During Q2 2009 AEGON issued senior unsecured notes with a nominal value of EUR 1 billion due April 29, 2012. The notes, issued at a price of 99.673, carry a coupon of 7%.
GBP 400 million in senior unsecured notes, due December 16, 2039. These notes were issued under the Company’s
240 NOTES TO THE FINANCIAL STATEMENTS OF AEGON N.V. NOTE 13 - 17
Loans from and payables to group companies have a maturity of less than one year. Other includes derivatives with negative fair values of EUR 313 million (2009: EUR 255 million) and income tax payable for EUR 146 million (2009: EUR 30 million).
AEGON N.V. has entered into a contingent capital agreement in order to enable its subsidiary Scottish Equitable Plc. to maintain capital in excess of the minimum capital requirements. The agreement is secured by GBP 200 million in assets, which have been allocated to Scottish Equitable. In the event Scottish
Equitable’s solvency capital would fall below the minimum capital requirement, AEGON N.V. has agreed to replenish solvency capital up to the amount of assets remaining in the secured account. The agreement expires when certain conditions have been triggered. These conditions are: 1)
will cause AFA to have a tangible net worth of at least 3% of its total liabilities under financial guaranty policies which it issues up to a maximum of EUR 3 billion.
� Due and punctual payment of any amounts owed to third parties by the consolidated group company AEGON
AEGON Derivatives N.V. only enters into derivative transactions with counterparties with which ISDA master netting agreements including collateral support annex agreements have been agreed; net (credit) exposure on derivative transactions with these counterparties was therefore limited as at December 31, 2010.
On March 1, 2011, AEGON completed the sale of 173,604,912 new common shares of AEGON N.V. with a nominal value of EUR 0.12.
The shares were sold at a price of EUR 5.20 per share. The proceeds of EUR 903 million were used to fund part of the repurchase of the convertible core capital securities described below.
On March 15, 2011, AEGON repurchased EUR 750 million in principal amount of convertible core capital securities from the Dutch State. The total payment to the Dutch State amounted to EUR 1.125 billion of which EUR 750 million related to the repurchase of 187.5 million convertible core capital securities and EUR 375 million related to the premium attached to this repurchase.
Our responsibility is to express an opinion on the company financial statements based on our audit. We conducted our audit in accordance with Dutch law, including the Dutch
Standards on Auditing. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the company financial statements are free from material misstatement.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the company financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the company financial statements.
Pursuant to the legal requirement under Section 2:393 sub 5 at e and f of the Dutch Civil Code, we have no deficiencies to report as a result of our examination whether the Report of the
Executive Board, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of this Code, and whether the information as required under Section 2:392 sub 1 at b-h has been annexed. Further we report that the Report of the Executive Board, to the extent we can assess, is consistent with the company financial statements as required by Section 2:391 sub 4 of the Dutch Civil Code.
PROPOSAL FOR PROFIT APPROPRIATION Appropriation of profit will be determined in accordance with the articles 31 and 32 of the Articles of Incorporation of AEGON N.V. The relevant provisions read as follows: 1. The General Meeting of Shareholders shall adopt the annual accounts.
Company rests with the Executive Board subject to approval by the Supervisory Board.
Supervisory Board, decide that a distribution on common shares shall not take place as a cash payment but as a payment in common shares, or decide that holders of common shares shall have the option to receive a distribution as a cash payment and/or as a payment in common shares, in all cases out of the profi t and/or at the expense of reserves. Subject to the approval of the Supervisory Board, the Executive Board shall also determine the conditions applicable to the aforementioned choices.
7. The Company’s policy on reserves and dividends shall be determined and can be amended by the Supervisory Board, upon the proposal of the Executive Board. The adoption and thereafter each amendment of the policy on reserves and dividends shall be discussed and accounted for at the General
It was decided not to declare the final dividend for 2009 and the interim 2010. As part of the approval granted by the
European Commission in August 2010, AEGON committed itself not to pay any dividend to common shareholders until the
Vereniging AEGON is the continuation of the former mutual insurer AGO. In 1978, AGO demutualized and Vereniging AGO
Vereniging AGO initially received approximately 49% of the common shares (which was 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
In September 2002, AEGON N.V. effected a non-dilutive capital restructuring whereby Vereniging AEGON sold 350,000,000 of its common shares, of which 143,600,000 common shares were sold directly by Vereniging AEGON in a secondary offering outside the United States and 206,400,000 common shares were purchased by AEGON N.V. from Vereniging AEGON.
EUR 0.12 held by Vereniging AEGON were converted into 211,680,000 new class A preferred shares with nominal value of EUR 0.25 and the paid-in capital on the preferred shares was increased by EUR 120,000 to EUR 52,920,000. The voting rights pertaining to the new preferred shares (the class A preferred shares as well as the class B preferred shares which may be issued to Vereniging AEGON under the option agreement as described in the following sections) were adjusted accordingly to 25/12 vote per preferred share.
AEGON N.V. shares or a proposed business combination by any person or group of persons whether individually or as a group, other than in a transaction approved by the Executive Board and the Supervisory Board. If, in its sole discretion, Vereniging
to prevent or correct dilution to below its actual percentage of voting shares, unless Vereniging AEGON as a result of exercising these option rights would increase its voting power to more than 33%. Class B preferred shares will then be issued at par value (EUR 0.25), unless a higher issue price is agreed. In the years 2003 through 2008, 35,170,000 class B preferred shares were issued under these option rights. In 2009,