Financial statements of Aegon N.V. Income statement of Aegon N.V. 290 Statement of financial position of Aegon N.V. 291 Notes to the financial statements 292
Other information Independent auditor’s report 305 Proposal for profit appropriation 306 Major shareholders 307
Strategic information Introduction 3 Letter of the CEO 4 Composition of the Executive Board and the Management Board 6
Governance Report of the Supervisory Board 106 Members of the Supervisory Board 111 Remuneration Policy and Report 113 Corporate governance 120 Differences between Dutch and US company laws 125 Code of ethics 126 Controls and procedures 127 1Annual Report 2012
About this report This report serves as Aegon’s Annual Report prepared in accordance with International Financial Reporting Standards, as adopted by the European Union (IFRS), and with Part 9 of Book 2 of the Dutch Civil Code for the year ended December 31, 2012, for Aegon N.V. (the company) and its subsidiaries (collectively known as Aegon). This report presents the Consolidated Financial
Presentation of certain information Aegon N.V. is referred to in this document as “Aegon,” or “the company.” Aegon N.V. together with its member companies are referred to as the “Aegon Group.” For such purposes,
“member companies” means, in relation to Aegon N.V., those companies that are required to be consolidated in accordance with legislative requirements of the Netherlands relating to consolidated accounts.
Union; “USD,” and “US dollar” when referring to the lawful currency of the United States of America; “GBP”, “UK pound”
and “pound sterling” when referring to the lawful currency of the United Kingdom; “CAD” and “Canadian dollar” when referring to the lawful currency of Canada; “PLN” when referring to the lawful currency of Poland; “CNY” when referring to the lawful currency of the People’s Republic of China; “RON” when referring to the lawful currency of Romania; “HUF” when referring to the lawful currency of Hungary; “TRY” when referring to the lawful currency of Turkey and “CZK” when referring to the lawful currency of Czech Republic.
Faced with lingering uncertainty over the current economic environment, individuals and families seek broader options in managing their finances and planning for retirement - not only with regard to the solutions available, but in how they access them. At the same time, both our current and future customers increasingly demand new ways of interacting with us, and with the ease that online technology makes possible in their many other commercial and social interactions. They also bring greater scrutiny to the products and services we provide - and are readily aware of alternatives available elsewhere. They expect higher levels of service, clearer communications and the assurance that the products we provide them actually address the specific needs they have identified. We believe these circumstances present a tremendous opportunity for Aegon, but they require that we change the way we think about and manage our business.
Ensuring that our ability to keep the promises we make to our customers is never in doubt, we have substantially improved
Policy to ensure that as a substantial investor we also take environmental, economic, social and governance factors into account - in addition to financial performance - when making decisions to invest in other companies.
Alex Wynaendts began his career in 1984 with ABN AMRO Bank, working in Amsterdam and London in the Dutch bank’s capital markets, asset management, corporate finance and private banking operations. In 1997, Mr. Wynaendts joined Aegon as
Senior Vice President for Group Business Development. Since 2003, he has been a member of Aegon’s Executive Board, overseeing the company’s international growth strategy. In
Board and Chief Financial Officer in April 2009. Mr. Nooitgedagt will retire at the end of his current term (May 2013), in line with
Adrian Grace built his career at GE Capital, where he held a variety of business development roles including periods based in the US and Far East. Mr. Grace also held managing director roles at Sage Group, HBoS and Barclays Insurance, and is a member of the Board of Scottish Financial Enterprise and the Association of
Tom Grondin began his career working in various positions in Canadian insurance companies. In 1997 he moved to the
United States to take up a position at Tillinghast-Towers Perrin as a consultant. Mr. Grondin joined Aegon in 2000 as Director of Product Development and Risk Management and was later promoted to Chief Actuary of Aegon USA’s Institutional
Aegon’s strategy Aegon is an international provider of life insurance, pensions and asset management products, with businesses in more than 20 markets in the Americas, Europe and Asia and EUR 458 billion in revenue-generating investments. Aegon employs over 24,000 people, who serve millions of customers across the globe.
Aegon’s ambition is to become a leader in all its chosen markets by 2015. This means becoming the most recommended life and pensions provider among customers, the preferred partner among distributors, and the employer of choice for both current and prospective employees. Aegon is focused on reshaping its business, forging new direct relationships and earning customers’ trust.
These actions have enabled Aegon to achieve a solid financial position and deal effectively with the persistent market uncertainty, while reshaping its businesses to better serve the developing and varied needs of its customers seeking long-term financial security. During 2012, Aegon continued its divestment of non-core businesses, while capturing new business opportunities and further strengthening business prospects in its main markets. This includes increasing earnings generated from fee-based business (versus earnings derived from spread business dependent on interest rate spreads) as one of the key elements of the company’s strategy to reduce its exposure to financial markets.
United States and the prospect of the “fiscal cliff.” This refers to automatic austerity measures of roughly 5% of the Gross
(ECB). The positive sentiment proved to be short-lived. Toward the summer, the eurocrisis deepened as financial market pressures intensified, especially with respect to Spain, and to a lesser extent to Italy. The deepening of the crisis necessitated additional policy measures at national and European level.
European Council started negotiations on the banking union and agreed on broadening of the European Stability Mechanism
(ESM) mandate. Mario Draghi, the president of the ECB, pledged to do “whatever it takes” to save the euro and the
The combination of measures resulted in a significant easing of market pressures.
Despite the difficult economic environment and a drop over the second quarter of 2012, the main equity markets ended the year higher than at the beginning of the year.
The easing of financial market conditions is a welcome development. However, the continuing fragile economic environment, the large degree of uncertainty and, especially the low interest rate environment, remain challenges going forward. It would be helpful if, in 2013, further progress is made in resolving the broad range of macroeconomic difficulties and the outlook for economic growth improves.
These conditions notwithstanding, there are several factors creating significant growth potential for Aegon’s businesses: �� People are living longer, healthier lives. In many countries, people are spending longer in retirement than before, and there is a growing demand for life insurance, private pensions and long-term investment products.
�� Customer behavior is changing. Customers are more aware of financial risk and consequently demand simpler, more transparent products with clear financial guarantees. At the same time, public trust in the financial sector has diminished.
Governments are introducing new regulations to protect consumers while there is increasing pressure for the industry to become more customer-centric.
Netherlands) will lead to changes in business models across the industry.
Economic growth and political reform have opened up new markets in Central & Eastern Europe, Asia and Latin America.
In these markets, a new and ambitious middle class is emerging, creating an increased demand for life insurance, pensions and asset management products and services.
Given that these fast-growing markets have the lowest life insurance penetration, the potential in these markets is substantial. China and India account for 40% of the world’s population, but currently only 8% of the global life insurance market.
Aegon’s strategy Aegon’s purpose is to help people take responsibility for their financial future. The company focuses on offering understandable products and services in the protection, savings and retirement market. Aegon has successfully transformed its risk profile, strengthened its capital base and simultaneously reduced its overall cost base. As a result, Aegon is now wellpositioned to meet the rapidly changing demands of aging populations and an increasingly affluent developing world.
Simultaneously, it is transforming itself further to compete in the new environment and respond effectively to new competitors and regulation.
Retirement Choices platform in the United Kingdom, online bank Knab in the Netherlands, LifeQuote in the United States - an online platform to assess personal need and secure a preliminary pricing quote - and iHealth, the first online health product launched in India.
Deliver operational excellence - Fully leverage Aegon’s significant expertise and resources across the organization; investing in technology to drive innovation and further enable cost and operational efficiencies.
USD 100 million; in the United Kingdom costs have been reduced by 25%; in the Netherlands, Aegon will save an additional EUR 100 million.
�� To ensure that Aegon’s employees are in a position to fully understand customer needs, the company launched Customer
License Programs in several businesses, whereby noncustomer facing employees are able to engage directly with customers or experience Aegon from a customer perspective.
Aegon’s talent, the company conducted talent reviews in all its businesses in order to identify those with the highest potential in the organization and to ensure that they are fully supported in their professional development.
In particular, it provides input to discussions around appropriate measures to address long-term guarantee issues. A number of Aegon companies were requested by their national supervisory authorities to participate in the recent long-term guarantees assessment. Aegon has set up risk management processes and governance structures in line with Solvency II requirements so as to actively manage its business in a market-consistent and risk-sensitive manner. These processes and structures include product pricing, asset and liability management, capital management, and business strategy setting. Aegon is also continuing with refining its Own Risk and Solvency Assessment (ORSA). Aegon has started analyzing the reporting requirements in order to optimize its reporting process and align it with the requirements expected to be introduced by Solvency II. To ensure Aegon is not put at a competitive disadvantage in the way that Solvency II is implemented, Aegon is contributing to the discussions with European and US regulators and supervisors. The outcome of the EU-US Dialogue Project agreement at the end of 2012 - to pursue seven common objectives over the next five years - is an important step toward convergence between EU and US prudential regimes and will be the basis for equivalence recognition. In addition, Aegon is actively participating in a global initiative by the International
Aegon N.V. is a holding company. Aegon’s businesses focus on life insurance, pensions and asset management. Aegon is also active in accident, supplemental health, general insurance, and has some limited banking activities. The company’s operations are conducted through its operating subsidiaries.
Selected financial data The financial results in this Annual Report are based on Aegon’s consolidated financial statements, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS).
Dividends Aegon declared interim and final dividends on common shares for the years 2008 through 2011 in the amounts set forth in the following table. The 2012 interim dividend amounted to
The annual dividend on Aegon’s class A and class B preferred shares is calculated on the basis of the paid-in capital on the preferred shares using a rate equal to the European
Central Bank’s fixed interest percentage for basic refinancing transactions plus 1.75%, as determined on NYSE Euronext
The high and low exchange rates for the US dollar per euro for each of the last six months through February 2013 are set forth below: Closing rates Sept. 2012 Oct. 2012 Nov. 2012 Dec. 2012 Jan. 2013 Feb. 2013
�� Life & Protection 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.
�� Individual Savings & Retirement Primarily fixed and variable annuity products and retail mutual funds.
�� Employer Solutions & Pensions Includes both individual and group pensions, as well as 401(k)
plans and similar products usually sponsored by, or obtained via, an employer.
�� Pensions Individual and group pensions usually sponsored by, or obtained via, an employer.
�� Pensions Individual pensions, including self invested personal pensions and income drawdown products. Group pensions, sponsored by, or obtained via, an employer.
Europe, Asia, Spain and France as well as Aegon’s variable annuity activities in Europe and Aegon Asset Management.
�� Central & Eastern Europe Active in six countries: Czech Republic, Hungary, Poland,
�� Aegon Asset Management Asset management products, including both equity and fixed income, covering third party clients and Aegon’s own insurance companies.
Income tax from certain proportionately consolidated associates included in income before tax 6 9 (33%)
IFRS or any other recognized set of accounting standards and readers are cautioned to consider carefully the different ways in which Aegon and its peers present similar information before comparing them. Aegon believes the non-IFRS measure shown herein, when read together with Aegon’s reported IFRS financial statements, provides meaningful supplemental information for the investing public to evaluate Aegon’s businesses after eliminating the impact of current IFRS accounting policies for financial instruments and insurance contracts, which embed a number of accounting policy alternatives that companies may select in presenting their results (that is companies can use different local GAAPs) and that can make the comparability from period to period difficult.
Asia, which were previously managed by Aegon Americas, are included in the Asia line of business within the “New Markets”
The table also includes the non-IFRS financial measure: net underlying earnings. This is the after-tax equivalent of underlying earnings. The reconciliation of net underlying earnings to the most comparable IFRS measure is presented in the table above.
Aegon’s results against targets using the non-IFRS measure presented herein. While many other insurers in Aegon’s peer group present substantially similar non-IFRS measures, the non-IFRS measure presented in this document may nevertheless differ from the non-IFRS measures presented by other insurers.
Accident and health insurance premiums 1,833 220 - 188 - 2,241 - 2,241
Net income Net income increased to EUR 1,571 million driven by higher underlying earnings, more favorable results on fair value items, lower impairments and lower other charges. These were only partly offset by higher tax charges and lower realized gains.
EUR 1,787 million in 2012. This is the result of business growth, implemented cost reduction programs, the non-recurrence of certain charges in the United Kingdom, and favorable equity markets and currency movements.
Savings driven by lower funding costs on its growing mortgage portfolio more than offset lower earnings in Pensions and Nonlife mostly driven by unfavorable claim experience.
Other charges Other charges in 2012 amounted to EUR 162 million and were primarily the result of a EUR 265 million charge in the Netherlands related to the acceleration of product improvements for unit-linked insurance policies and a BOLI
stake in the joint venture with Banca Cívica (EUR 35 million).
Income tax Net income contained a tax charge of EUR 339 million in 2012
Commissions and expenses Commissions and expenses in 2012 decreased by 7% compared to 2011 to EUR 5,829 million, largely driven by lower operating expenses. Operating expenses decreased 6% compared to 2011 to EUR 3,241 million mainly as a result of the implementation of cost savings programs in the United Kingdom, the Netherlands and the Americas.
Production New life sales increased in 2012 compared to 2011 in the
Capital management Aegon’s core capital excluding revaluation reserves amounted to EUR 18.6 billion, equivalent to 76.7% of the company’s total capital base at December 31, 2012 (2011: 73.5%). This is above the company’s capital base ratio target of at least 75% by the end of 2012.
The revaluation reserves increased EUR 2.6 billion during the year to EUR 6.1 billion, mainly a reflection of lower interest rates and credit spreads. Shareholders’ equity per common share, excluding preference capital and revaluation reserves, amounted to EUR 8.47 at December 31, 2012 (2011: EUR 8.19).
Gross deposits (on and off balance) Amounts in EUR millions 2011 2010 %
Net income Net income in 2011 of EUR 872 million was lower than net income in 2010 (2010: EUR 1,760 million), primarily the result of lower underlying earnings before tax, less gains on investments and a significant decline in results on fair value items.
EUR 1,522 million in 2011 from EUR 1,833 million in 2010.
Pensions increased as a result of continued strong growth of the business.
The increase is primarily the result of higher underlying earnings before tax from Aegon Asset Management.
The significant decline compared to 2010 was driven mainly by lower results from fair value items in the Americas as Aegon lowered its interest rate assumptions which negatively impacted results during the third quarter with EUR 168 million. In addition, lower interest rates, spread widening and volatile equity markets also negatively affected results on fair value items. Less favorable results on fair value movements in the Netherlands also contributed to the decline.
Impairment charges Impairment charges improved from the 2010 level of EUR 452 million and amounted to EUR 388 million in 2011. In the United States, impairments were mostly linked to residential mortgage-backed securities. Impairments in the United Kingdom related primarily to exchange offers on specific holdings of European banks and in Central & Eastern
Americas, a charge of EUR 37 million related to increased reserves in connection with the company’s use of the US Social
EUR 92 million and a write-down of intangible assets related to the distribution businesses led to a charge of EUR 75 million.
EUR 86 million. In New Markets, charges of EUR 17 million related to the Hungarian bank tax are included, offset by a benefit of EUR 37 million related to a settlement of legal claims by Aegon Asset Management.
Run-off businesses As of 2011, Aegon’s run-off line of businesses comprises of the institutional spread-based business, structured settlement pay-out annuities, BOLI/COLI and life reinsurance. The results of run-off businesses improved to EUR 28 million as a result of lower amortization yield paid on internally transferred assets related to the institutional spread-based business and favorable mortality results in the pay-out annuities block of business.
(including a tax charge of EUR 9 million related to profits of associates). Deviation from the nominal tax rate is largely the result of tax credits which primarily relate to low income housing and renewable energy in the United States (EUR 67 million), tax benefits related to utilization of losses for which previously no deferred tax asset was recognized (EUR 62 million), benefits from a tax rate reduction in the United Kingdom (EUR 48 million)
Shareholders’ equity increased to EUR 21 billion, mainly as a result of the appreciation of the US dollar against the euro - reflected in the foreign currency translation reserves - and a significant increase in the revaluation reserves during the year.
Risk Based Capital (RBC) ratio in the United States amounted to approximately 450%, the IGD ratio in the Netherlands amounted to approximately 195%, while the Pillar I ratio in the United
In June 2011, Aegon completed the repurchase of convertible core capital securities from the Dutch State with a final payment of EUR 1.125 billion to repurchase 187.5 million of convertible core capital securities for EUR 750 million and EUR 375 million in premium. With this payment, Aegon fulfilled its key objective of repurchasing all of the EUR 3 billion core capital securities issued to the Dutch State at the height of the financial crisis in 2008. Aegon has paid to the Dutch State a total amount of
EUR 4.1 billion, which included EUR 1.1 billion in premium and interest payments.
Income before tax (excluding income tax from certain proportionately consolidated associates) 1,634 915 79% 1,273 658 93%
Results 2012 Americas Aegon’s businesses in the Americas1 continued to perform well in 2012. Sales of life, accident and health insurance all increased over 2011 on expanded distribution capabilities. Variable annuity, pension and retail mutual fund balances increased while fixed annuity balances continued to decline, a direct result of Aegon’s efforts to grow its fee-based earnings.
Gains on investments of USD 225 million were realized as a result of normal trading activity. Net impairments amounted to USD 151 million, down from USD 349 million in 2011, and continue to be primarily caused by mortgage related securities.
Commissions and expenses Commissions and expenses decreased by 12% to EUR 4,341 million in 2012, mainly due to lower amortization of deferred policy acquisition costs. Operating expenses decreased by 3% to
USD 1,887 million, as cost savings and lower expenses related to the divestment of the life reinsurance business were only partly offset by higher performance related employee expenses, an increase in employee benefit expenses and costs to support growth.
Income before tax (excluding income tax from certain proportionately consolidated associates) 915 1,392 (34%) 658 1,054 (38%)
Of which Income tax from certain proportionately consolidated associates included in income before
Results 2011 Americas Aegon’s business in the Americas performed well during 2011. Consistent with Aegon’s strategy, earnings from fee-based businesses grew compared with the previous year. During the year, Aegon divested its life reinsurance activities as the company sharpened its focus on its core businesses. Aegon continued to pursue further efficiencies by building scale and achieving scalability in its businesses to capture the full benefits of organizational integration, a process that started in 2009. The company has also adapted and revised products to better respond to ever changing market conditions.
In the third quarter of 2011, to reflect the low interest rate environment, Aegon lowered its long-term assumption for 10-year US Treasury yields by 50 basis points to 4.75% (graded uniformly from current yields over the next five years) and lowered the 90-day rate to 0.2% for the next two years followed by a three year grade to 3%. No change was made to the longterm credit spread or default assumptions.
In addition, Aegon lowered its assumed return for separate account bond fund returns by 200 basis points to 4% over the next five years, followed by a return of 6% thereafter. The bond fund return is a gross assumption from which asset management and policy fees are deducted to determine the policyholder return. In total, these assumption changes led to a charge of
USD 666 million. Increased earnings from variable annuities of USD 358 million and retail mutual funds of USD 22 million in 2011 were offset by lower earnings from fixed annuities of USD 286 million as a result of declining asset balances as this product was de-emphasized. Variable annuity underlying earnings before tax increased as a result of continued inflows and higher asset balances and included a benefit related to updated assumptions for revenue sharing with third-party fund managers.
�� Earnings from Aegon Canada decreased slightly compared to 2010 to USD 51 million, while earnings from Aegon’s joint-ventures in Brazil and Mexico declined to USD 1 million.
Operating expenses increased 1% to USD 2 billion, as cost savings were offset by growth of the business and merit increases.
Gross deposits increased 15% to USD 32 billion. The increase was driven by strong pension and variable annuity sales and only partly offset by lower retail mutual fund deposits.
Aegon USA Aegon USA is one of the leading1 life insurance organizations in the United States and is the largest of Aegon’s operating units. Aegon USA administers millions of policies and employs approximately 11,000 people. Aegon USA companies can trace their roots back as far as the mid-19th century. Aegon
insurance business: Transamerica. Aegon USA’s main offices are in Cedar Rapids, Iowa, and Baltimore, Maryland, with affiliated companies’ offices located throughout the United States.
Like other Aegon companies around the world, Aegon USA uses a variety of distribution channels to ensure customers can access the products in a way that best suits their needs. Aegon USA has long-standing relations with banks across the United States, and also distributes products and services through other channels: agents, broker-dealers, specialized financial advisers, the internet as well as direct and worksite marketing.
Aegon Brazil In 2009, Aegon acquired a 50% interest in Mongeral Aegon S.A.
Seguros e Previdência, Brazil’s sixth largest independent life insurer. At December 31, 2012, Aegon Brazil had approximately 400 employees.
Aegon USA’s operating companies by various distribution methods and sales channels. The business structure is designed to enable Aegon USA to manage and improve the efficiency of the organization and operating processes, to identify business synergies and to pursue cross-selling opportunities. Coordinated support services complement operations by providing functional support in systems technology, investment management, regulatory compliance, and various corporate functions.
Overview sales and distribution channels Aegon USA Aegon USA uses a variety of sales and distribution channels in the United States. These include: �� Independent and career agents
Aegon Canada Aegon Canada uses a variety of distribution channels which promote, and process business of, independent financial advisers.
Overview business lines Aegon USA Life & Protection Life & Protection offers a comprehensive portfolio of products tailored to meet the diverse needs of its key stakeholders: families and individuals, business clients and distributors.
Life & Protection (L&P), the largest of the Aegon USA divisions, serves customers in a broad range of market segments.
Whole (permanent) life insurance provides life-long death benefit protection as long as required premiums are paid, while accumulating tabular cash values based on statutory requirements. Premiums are generally fixed and usually payable over the life of the policy.
distribution channels include affinity markets, agency group, brokerage, international markets, and broker-dealer.
a variety of direct response marketing channels, including mail, phone, digital, direct response TV and point-of-sale.
Network, ORBA Financial Management and several independent marketing organizations. This group provides life insurance, health insurance and securities products, as well as marketing services to closely tied distribution groups serving the middle income and small business markets.
The Direct Marketing group makes its products and direct response marketing expertise available through brokers and alliances with financial institutions, retailers, telecommunications providers, insurance companies and other database owners in
Europe and Latin America. The High-Net-Worth unit offers life insurance products underwritten by Transamerica Life (Bermuda)
These products are tailored to meet both individual and business needs of affluent customers who reside in Asia, Europe, and
Commission (SEC) Registered Investment Adviser with approximately 5,000 Registered Representatives. TFA focuses on creating, growing and protecting wealth through a range of financial products and services.
Variable annuities are sold to individuals and retirement plans in the United States. Variable annuities allow a policyholder to provide for their financial future on a tax-deferred basis and to participate in equity or bond market performance. Variable annuities allow a policyholder to select payout options designed to help meet the policyholder’s need for income upon maturity; this includes lump sum payment, income for life or for a period of time.
Premiums paid on variable annuity contracts are invested in underlying funds chosen by the policyholder, including bond and equity funds as well as various types of asset-allocation funds.
Certain variable annuity contracts also provide guaranteed minimum death benefits and guaranteed minimum income benefits. Under a guaranteed minimum death benefit, the beneficiaries receive the greater of the account balance or the guaranteed amount upon the death of the insured. The guaranteed minimum income benefit feature (which is no longer offered on new business since 2003) provides for minimum payments if the policyholder elects to convert to an immediate payout annuity. The guaranteed amount is calculated using the total deposits made by the policyholder, less any withdrawals and sometimes includes a roll-up or step-up feature that 33Annual Report 2012
These guaranteed benefits subject the company to both interest rate and market risk. Poor market performance may cause the guaranteed benefits to exceed the policyholder account value.
Aegon’s fee business comprises products that generate fee income by providing management, administrative or risk services related to off-balance sheet assets. Fee income is mainly sensitive to withdrawals and equity market movements.
Surrender charges in early policy years serve as a deterrent to early duration lapses. Fixed annuities sold in the United States contain significant interest rate and longevity risks created by guaranteed annuity options, and most also offer waiver of account value surrender charges upon the death of the insured.
Besides the minimum interest rate guarantee, certain fixed deferred annuity products also offer a bailout provision. Under the bailout provision, if the crediting rate falls below the bailout rate, policyholders can surrender their contracts without incurring any surrender charges.
Sales and distribution Aegon USA underwrites fixed and variable annuities through its various life insurance companies. Transamerica Capital Inc.
(TCI), the underwriting and wholesaling broker-dealer, distributes variable annuities and mutual funds through major wirehouse firms, regional broker-dealers, independent financial planners and a large bank network. TCI serves these distribution channels through company-owned and external wholesalers.
Starting in late 2009, Aegon USA reduced its sales of fixed annuities in response to lower market interest rates and lower investment returns available in that environment. Similar market conditions continued in 2010 and continue to restrict sales of fixed annuities. As a result, Aegon USA decided to de-emphasize the sale of fixed annuities.
�� 457(b) - a type of deferred compensation plan sponsored by governmental and certain non-governmental employers in the
�� Defined contribution - a plan in which the contributions made to the plan by the employee and/or employer are allocated to the employee’s individual account under the plan. Examples of defined contribution plans include 401(k) plans, 403(b)
Life products include universal life insurance, whole life insurance and term life insurance. Supplemental health products include dental, accident, critical illness, cancer treatment, hospital indemnity and short-term disability policies. Some of these plans provide lump sum or specified income payments when hospitalized, disabled or diagnosed with a critical illness.
Sales and distribution Transamerica Retirement Solutions provides a comprehensive and customized approach to retirement plan management, catering to the mid- to large-sized defined contribution, defined benefit and non-qualified deferred compensation retirement plans market. Transamerica Retirement Solutions’ clients are generally organizations with 250 to 100,000 employees and between USD 15 million and USD 2 billion in retirement assets.
existing benefit plans. As of January 2013, this division became part of Life & Protection.
Whether participants have experienced a lay-off, a job change or a planned retirement, Transamerica Retirement Solutions has a phone-based team of salaried retirement counselors who can help clearly explain the choices available so the participant can confidently take the next step. Employees providing these services are registered representatives and investment adviser representatives of TFA. In addition to serving those in transition,
Solutions offers an array of advisory services, brokerage products, annuities and access to other insurance related products and resources. Each “plan for retirement” can be as simple or as detailed as necessary, depending on the goals and needs of the individual.
Latin America Aegon’s business in Latin America comprises the 50% interest in Mongeral Aegon S.A. Seguros e Previdência, a Brazilian independent life insurer and the 49% interest in Seguros Argos
Run-off businesses Institutional spread based business This business was put into run-off during 2009. The primary products included guaranteed investment contracts (GICs), funding agreements (FAs) and medium term notes (MTNs).
dollars via swap agreements to eliminate currency risk. Credited interest on floating-rate contracts predominately resets on a monthly basis to various market indices. The term of the contract can be fixed, generally from six months up to ten years, or it can have an indefinite maturity. Market-indexed contracts provide a
MTNs that are backed by FAs. The proceeds of each note series were used to purchase a FA from an Aegon insurance company, which was used to secure that particular series of notes. The payment terms of any particular series substantially matched the payment terms of the FA that secured that series.
no longer issues these contracts, but continues to administer the closed block of business. These contracts were typically purchased as a result of a lawsuit or a claim and the injured party receives special tax treatment. Rather than paying the injured party a lump sum, the payments were structured as a lifetime annuity with mortality risk, a period certain annuity, or a combination of both.
United States. BOLI/COLI helps institutional customers fund long-term employee benefits such as executive compensation and post-retirement medical plans. The corporation insures key employees and is the owner and beneficiary of the policies.
Life reinsurance In August 2011, Aegon completed the divestment of its life reinsurance business, Transamerica Reinsurance, to SCOR, a global reinsurance company based in France. Under the agreement, Aegon divested its global life reinsurance activities with the exception of select blocks of business. The retained businesses comprise mainly variable annuity guarantee business.
In the United States, the Life & Protection division faces competition from a variety of carriers. Top competitors include AIG, Genworth, John Hancock, Hartford, USAA, Lincoln
National, American General, and MetLife. In Canada, the primary competitors are Power Corporation (London Life, Canada Life,
Maintaining an effective wholesaling force, focusing on strategic business relationships and developing products with features, benefits and pricing believed to be attractive in that market place, Aegon USA actively competes in the variable annuity marketplace. The market has shown a continued interest in guaranteed lifetime withdrawal products, and there is strong competition among providers. Aegon USA’s primary competitors in the variable annuity market are MetLife, Prudential, Lincoln
The top five competitors in the mutual fund market are generally considered to be: American Funds, Fidelity, PIMCO, Franklin
The pension market continues to evolve rapidly and is facing growing regulatory compliance pressures, continuing demand for technological innovation, pricing pressures, and provider consolidation. Aegon USA’s ability to achieve greater economies of scale in operations will be assisted if growth in key market segments continues, technology improves, and if process management increases efficiency.
In the defined contribution market, Aegon USA’s main competitors are Fidelity, T. Rowe Price, Vanguard, Schwab,
Commissioners (NAIC). The RBC Model Act (Model Act) provides for various actions should an insurer’s adjusted capital, based on statutory accounting principles, fall below certain prescribed levels (defined in terms of its risk-based capital). The adjusted capital levels of the Aegon USA insurance companies currently exceed all of the regulatory action levels as defined by the
Model Act. Any modifications of these adjusted capital levels by the regulators or rating agency capital models may impact
revised the Model Standard Valuation Law (SVL) and completed a new Valuation Manual, which together established Principles-
Protection Act (Dodd-Frank Act), enacted in 2010, established the Federal Insurance Office (FIO). A FIO director was appointed in June of 2011. While the FIO does not have any direct regulatory authority over US insurers, it does have certain authority to represent the US government in establishing international regulatory standards for insurers, and to represent the US insurance industry in international matters. The Dodd-
Bureau, which has the authority to regulate the marketing practices of credit insurance as well as other financial products sold through banks. The Federal Reserve Board has also established certain disclosures relating to credit insurance sold in connection with a bank loan. The activities of the FIO and other federal agencies under the Dodd-Frank Act will likely have 1 Source: Reports from LIMRA International and the Stable Value Investment Association’s Stable Value and Funding Agreement Products as of the first three quarters of 2012.
Additionally, proposals to place restrictions on direct mail are considered by the US Congress and states from time to time.
Aegon USA, and new proposals, if enacted, will likely also directly impact direct mail efforts. Finally, proposed Federal
Reserve Board disclosures regarding credit insurance provided in connection with a loan, if enacted as proposed, would adversely impact the market for credit insurance.
Many supplemental health insurance products, such as Medigap, offered by the Transamerica companies, are subject to both federal and state regulation as health insurance. The Patient
Company Act). Separate account interests under certain annuity contracts and insurance policies issued by the insurance companies are also registered under the Securities Act of 1933, as amended (the Securities Act).
Some of Aegon USA’s investment advisory activities are subject to federal and state securities laws and regulations. Mutual funds managed, issued and distributed by Aegon USA companies are registered under the Securities Act, and the Investment
USA’s separate investment accounts that fund retail variable annuity contracts and retail variable life insurance products issued by Aegon USA companies are registered both under the
Securities Act and the Investment Company Act. Institutional products such as group annuity contracts, guaranteed investment contracts, and funding agreements are sold to tax qualified pension plans or to other sophisticated investors and are exempt from registration under both Acts. On July 21, 2010, the SEC proposed a framework to replace the requirements of
Advisers Act of 1940. Aegon USA insurance companies and other subsidiaries also own or manage other investment vehicles that are exempt from registration under the Securities Act and the Investment Company Act but may be subject to other requirements of those laws, such as anti-fraud provisions and the terms of applicable exemptions. The Dodd-Frank
Act reforms the regulatory structure of the financial services industry in the United States, including providing for additional oversight of “systemically significant” companies. In accordance with the Dodd-Frank Act requirements, the SEC studied and recommended a harmonized standard of care for brokerdealers, investment advisers and persons associated with these firms who are providing personalized investment advice. The
SEC has indicated that it intends to seek comments on the costs and benefits of regulations establishing a harmonized standard of care; however, it has not set a date for enactment of those regulations. Legislation was introduced in the House of
Representatives in the 112th congress that would establish a self-regulatory organization for the examination of investment advisers; however, no action was taken on the legislation at the end of that congress. Further proposals could come in this area 39Annual Report 2012
in 2013. The impact of regulations resulting from these studies cannot be predicted at this time.
companies have paid or been informed that the regulators may seek restitution, fines or other monetary penalties or changes in the way that business is conducted. The impact of any such fines or other monetary penalties is not expected to have a material impact on Aegon USA’s financial position, net income or cash flow. Over the years, there has been an increase in litigation across the industry, new legislation, regulations, and regulatory initiatives aimed at curbing alleged improper annuity sales to seniors. As many of the estimated 77 million baby boomers are reaching the age of 60, the industry will likely see an increase in senior issues presented in various legal arenas. In addition, certain industry practices in respect of market conduct have been the subject of investigations by various state regulators.
With the significant decline in financial markets in late 2008 and early 2009, management expects there will be further regulation and litigation which could increase costs and limit Aegon USA’s ability to operate.
Some Aegon USA companies offer products and services to individual retirement accounts (IRAs), pension and welfare benefit plans that are subject to the federal Employment
businesses. DOL has issued regulations defining the nature of fees to be paid for investment advice in these plans, as well as requiring increased fee disclosure from defined contribution plan service providers and to plan participants. The DOL has indicated that it will re-propose regulations regarding the scope of an “investment advice fiduciary” in IRAs and defined contribution plans, as well as further define the nature of a plan sponsor’s obligations regarding certain plan participants’
Implementation of these and other regulations in the manner proposed could increase the cost and administrative burdens of the Aegon USA companies.
Finally, both the US Treasury Department has published, and the DOL have or are expected to offer, guidance addressing some of the administrative burdens of offering annuities both as an investment option in a retirement savings plan or as a distribution from that plan. This guidance, the legislative proposals, and additional, anticipated regulatory guidance, are expected to significantly reduce the administrative burden of offering annuities within a retirement savings plan or as a distribution option from the plan.
In addition, current discussions on major tax reform initiatives further increase the risk of changes to the tax incentives for short- and long-term savings products, as well as to the taxation of life insurers. These changes, if enacted, would directly impact the cost and competitiveness of life insurance, annuity and pension products sold to ensure Americans’
Aegon USA companies administer and provide both asset management services and products used to fund defined contribution plans, individual retirement accounts, 529 plans and other savings vehicles. Changes to defined benefit plans by sponsors in reaction to the financial economic environment and the enactment of funding relief provisions may impact the services Aegon USA companies provide to these plans. In addition, legislative and regulatory proposals are considered from time to time which relate to the disclosure and nature of fees paid by defined contribution plan sponsors and their participants. Other proposals that may be considered relate to the nature of education, advice or other services Aegon USA
Aegon USA companies also provide plans used to administer benefits distributed upon termination of defined benefit plans.
Any proposals that seek to either restrict fees and services to, or investment advice in, employer plans or change the manner in which Aegon USA companies may charge for such services inconsistent with business practices, will adversely impact the Aegon USA companies that provide administration and investment services and products to employment based plans.
(c) increasing the top individual income tax rates to 39.6% and capital gains rates to 20%. Other provisions of ATRA, such as the phase-out of personal exemptions and limitations on itemized deductions, as well as the new 3.8% tax on net investment income (enacted by the Patient Protection and Affordable Care
Act and first effective in 2013), will further increase the marginal income tax rate of certain high income households. Making the estate tax permanent will facilitate estate planning for
The key investment strategy for traditional insurance-linked portfolios is asset liability management, whereby predominately high-quality investment assets are matched in an optimal way to the corresponding insurance liability. This strategy takes into account currency, yield and maturity characteristics.
Interest rate scenario testing is a continual process and the analysis of the expected values and variability for four critical risk measures (capital charges, cash flows, present value of profits, and interest rate spreads) forms the foundation for modifying investment strategies, adjusting asset duration and mix, and exploring hedging opportunities. On the liability side, Aegon USA
has some offsetting risks, some liabilities perform better in rising interest rate environments while others tend to perform well in falling interest rate environments. The amount of offset can vary depending on the absolute level of interest rates and the magnitude and timing of interest rate changes, but it generally provides some level of diversification. On the asset side, hedging instruments are continuously studied to determine whether their cost is commensurate to the risk reduction they offer.
Aegon USA Aegon USA reinsures part of its life insurance exposure with third-party reinsurers under traditional indemnity, quota share reinsurance treaties, as well as excess-of-loss contracts. Aegon
Results 2012 the Netherlands Amounts in EUR millions 2012 2011 %
Share in underlying earnings before tax of associates - 1 -
Higher underlying earnings before tax in the Netherlands were driven by improved Life & Savings earnings and lower operating expenses following implemented cost reduction initiatives in 2011. Aegon’s business in the Netherlands has already realized EUR 89 million of the targeted EUR 100 million reduction in operating expenses. Net income was impacted by a one-off charge of EUR 265 million related to the acceleration of product improvement for unit-linked insurance products.
Pension and Non-life. Recurring charges for Corporate Center expenses amounted to EUR 16 million.
�� Underlying earnings before tax from Aegon’s Life & Savings operations in the Netherlands increased to EUR 262 million, up 42% compared to 2011. This increase was driven by cost savings, a higher contribution from Aegon’s growing mortgage portfolio on lower funding costs, the non-recurrence of certain expenses and a benefit in the fourth quarter resulting from updated mortality tables of EUR 24 million.
�� Underlying earnings before tax from the Pension business declined to EUR 66 million as the benefit of cost savings and the wind up of several contracts were more than offset by lower interest income, the non-recurrence of an employee benefit release in 2011 and a charge in 2012 of
Aegon is on track to reduce operating expenses by EUR 100 million in comparison to the cost base for 2010, of which the majority has been achieved in 2012. Over the years, Aegon has implemented cost savings of EUR 89 million.
EUR 21 million, down from EUR 27 million in 2011. Sales in income insurance products were negatively impacted by strong competition and price increases to maintain margins. General insurance production amounted to EUR 30 million, up 11% for the year, resulting from successful new distribution initiatives.
Results 2011 the Netherlands Amounts in EUR millions 2011 2010 %
Share in underlying earnings before tax of associates 1 (3) -
Net income Net income from Aegon’s businesses in the Netherlands decreased to EUR 419 million. This decrease was mainly a result of a decline in fair value items, primarily guarantees net of related hedges, to EUR 156 million and other charges of
�� Earnings from the Pension business declined to EUR 98 million.
In 2011, Aegon initiated actions to make its business in the
Gross deposits decreased 14% to EUR 2.0 billion. The decline is a combination of less competitive interest rates on savings accounts offered and the transfer of third-party pension deposits to Aegon Asset Management as of the second quarter 2011.
1 Source: Verzekerd van Cijfers 2012, published by the Dutch Association of Insurers.
Overview sales and distribution channels Aegon the Netherlands sells its products through several different channels. Corporate & Institutional Clients, part of the
The intermediary channel, used by all business lines, focuses on independent agents and retail sales organizations in the
In 2012, Aegon launched online bank Knab, in line with its drive to actively embrace technology and meet the evolving needs of its customers.
Overview business lines Life & Savings Aegon the Netherlands provides a variety of individual savings products, mortgage loans and a range of life insurance and personal protection products and services, including traditional, universal and term life. Based on underlying earnings before tax, Life & Savings is the largest line of business in Aegon the Netherlands.
This category includes various products that accumulate a cash value. Premiums are paid at inception or over the term of the contract.
The accumulation products pay benefits on the policy maturity date, subject to survival of the insured. In addition, most policies also pay death benefits in the event of the death of the insured during the term of the contract. The death benefits may be stipulated in the policy or depend on the gross premiums paid to date. Premiums and amounts insured are established at inception of the contract. The amount insured can be increased as a result of profit sharing, if provided for under the terms and conditions of the product.
Minimum interest guarantees exist for all generations of accumulation products written, except for universal life type products for which premiums are invested solely in equity funds. Older generations contain a 4% guarantee; in 1999 the guarantee decreased to 3%.
Bonuses are either paid in cash (mainly in the pension business, as described in the following section) or used to increase the sum insured. For one common form of profit sharing, the bonus levels are set by reference to external indices that are based on predefined portfolios of Dutch government bonds. The bonds included in the portfolios have different remaining maturities and interest rates. Together they are considered an approximation of the long-term rate of return on Dutch high quality financial investments.
Different types of residential mortgage loans are offered: interest-only, savings and unit-linked. Customers may also combine the different types in their own mortgage loan.
Investment contracts are investment products that offer indexlinked returns and generate fee income on the performance of the investments.
Separate account group contracts are large group contracts that have an individually determined asset investment underlying the pension contract. Any applicable guarantee usually consists of profit sharing being the minimum of the actuarial interest of either 3% or 4% or the realized return (on an amortized cost basis). If profit sharing turns into a loss, the minimum guarantee becomes effective, but the loss in any given year is carried forward to be offset against any future surpluses during the contract period. In general, the guarantee is dependent on the life of the insured so that their pension benefit is guaranteed.
guarantee on the benefits paid. The longevity risk therefore lies with Aegon the Netherlands. Non-guaranteed separate account group contracts provide little guarantee on the benefits. Aegon the Netherlands has the option not to renew a contract at the end of the contract period.
For most large companies and some small and medium-sized enterprises, Aegon the Netherlands provides defined benefit products for which profit sharing is based upon a predefined benchmark. Benefits for these products are guaranteed. Premium levels are fixed over the contract period and the longevity risk lies with Aegon the Netherlands. Minimum interest guarantees are given for nominal benefits, based on 3% actuarial interest
For small and medium-sized enterprises, Aegon the Netherlands provides defined contribution products with single and recurring premiums. Profit sharing is based on investment returns on specified funds. Premium levels are not fixed over the contract period. Minimum interest guarantees are given for nominal benefits, based on 0% (4% on policies sold before the end of 1999 and 3% on policies sold in the period 1999 - 2011).
Corporate & Institutional Clients and Aegon’s intermediary channel. Customers range from individuals to company and industry pension funds and large, medium-sized and small corporations. Aegon the Netherlands is one of the country’s leading providers of pensions1.
Non-life Non-life consists of general insurance and accident & health insurance.
Netherlands, comprising both pensions and life insurance, is very concentrated. The top six companies account for approximately 90% of premium income in the Netherlands2. In the pensions market, Aegon the Netherlands ranks first, based on gross premium income in 2011. In the individual life insurance market
Aegon the Netherlands takes sixth place2, based on gross premium income 2011. Combined, in total life, Aegon the
In the savings segment, Aegon the Netherlands holds approximately 1.7%3 of the savings of Dutch households and is small compared to banks like Rabobank, ING, ABN AMRO,
Several changes in regulations in recent years have limited opportunities in the Dutch insurance market, especially in the life insurance market (for example, company savings plans and premiums of certain products are no longer tax deductible).
In the pension segment, opportunities will come from pension funds, who will insure the whole or part of the fund instead of keeping these risks themselves as pension funds face pressure on their coverage ratios as well as increased regulatory and governance requirements.
Regulations pertaining to the supervision of financial institutions are referred to as “Wet op het financieel toezicht” (Supervision of the Financial System Act). This law pertains equally to banking and insurance operations and introduced a greater degree of consistency in both requirements and supervision.
principle. This means that an insurance company that has a license issued by the regulatory authorities in its home country is allowed to conduct business, either directly or through a branch, in any country of the European Union. Separate licenses are required for each of the insurance company’s branches in which it conducts business. The regulatory body that issued the license
(in this case DNB) is responsible for monitoring the solvency of the insurer.
Under Dutch law a company is not permitted to conduct both life insurance and non-life insurance business within one legal entity, nor is a company allowed to carry out both insurance and banking business within the same legal entity.
income statement, extensive actuarial information, and detailed information on the investments of the insurance company. DNB’s regulatory reporting is based on a single entity focus and is designed to highlight risk assessment and risk management.
The following insurance entities of Aegon the Netherlands are subject to the supervision of DNB: �� Aegon Levensverzekering N.V.
Financial supervision credit institutions Aegon Bank N.V. falls under the supervision of DNB and must file monthly regulatory reports and an audited Annual Report.
Credit institutions are required to maintain solvency and liquidity ratios in line with the requirements of the Wet op het financieel toezicht. The “Wet op het financieel toezicht” incorporates the requirements of Directive 2006/48/EC, Directive 2006/49/
Basel accord for prudential supervision of credit institutions and investment firms. Based on these rules, credit institutions in the Netherlands are required to maintain a minimum total capital ratio (BIS ratio), currently 8%, pursuant to guidance issued by
DNB. The level of capital is subject to certain requirements and is reviewed against its on- and off-balance sheet assets, with these assets being weighted according to their risk level. The Basel III
accord, the new regulatory framework for the banking sector, has been finalised and is currently being translated into European legislation through the CRD IV framework. When finalized, the CRD IV framework will be implemented in the Netherlands through the “Wet op het financieel toezicht”.
Asset liability management Aegon the Netherlands Risk & Capital Committee, who meet at least on a quarterly basis, determines and monitors the investment strategy. The focus of these meetings is, among other activities, to ensure an optimal strategic asset allocation, to decide on interest rate hedging strategies to reduce interest rate risks, and to decide on the need for securitizations of residential mortgage portfolios to improve the liquidity and funding position of Aegon the Netherlands.
The payout is maximized at another (higher) predetermined percentage compared to the base scenario. This transaction was the first transaction in Continental Europe to be based on population data and it is the first longevity swap to be targeted directly to capital markets.
Netherlands reinsures part of its insurance exposure with thirdparty reinsurers under traditional indemnity, and “excess of loss” contracts. Reinsurance helps Aegon manage, mitigate and diversify its insurance risks and limit the maximum loss it may incur on risks that exceed policy retention limits.
Aegon the Netherlands has ended this reinsurance contract and therefore retains the full death and disability risk.
contract is in place with a retention level of EUR 3 million for each separate risk and EUR 20 million for each event. For car insurance, Aegon the Netherlands has reinsurance in place on a similar basis with a retention level of EUR 2.5 million for each event.
Income before tax on shareholders return 123 (97) - 152 (112) -
Net income Net income improved to GBP 137 million driven by higher underlying earnings before tax, higher realized gains on investments, and the absence of impairment charges and restructuring charges. Results on fair value items amounted to a loss of GBP 26 million, driven by losses on hedges as a result of higher equity markets. Realized gains on investments amounted to GBP 68 million and were mainly the result of switching from gilts into high quality credits. There were no impairments during the year. A reduction in the corporate tax rate in the United
United Kingdom increased to GBP 85 million in 2012, driven by a strong improvement in underlying earnings before tax from pensions compared to 2011. Underlying earnings before tax included recurring charges for Corporate Center expenses of
Commissions and expenses Commissions and expenses declined by 18% in 2012 compared to 2011 mainly due to lower operating expenses. Operating expenses declined 33% to GBP 273 million, following the implementation of a cost reduction program in the United
Income tax on shareholders return 52 53 (2%) 60 62 (3%)
Net income Net income amounted to a loss of GBP 45 million, mainly as a result of lower underlying earnings before tax and charges of GBP 75 million relating to the restructuring of Aegon’s operations in the United Kingdom. Results on fair value items improved to a small loss of GBP 5 million. Higher impairment charges of GBP 55 million, related primarily to exchange offers on specific holdings of European banks, were partly offset by gains on investments of GBP 44 million as a result of shifts from corporate bonds into gilts in order to de-risk the credit portfolio.
�� Pensions recorded a loss of GBP 75 million, reflecting a charge of GBP 79 million related to the customer redress program. Expenses related to the execution of this program amounted to GBP 36 million during 2011. This was partly offset by a curtailment gain of GBP 38 million as a result of changes to the employee pension plan in the fourth quarter.
Commissions and expenses Commissions and expenses increased by 5% in 2011. Operating expenses amounted to GBP 409 million, as cost savings were offset by charges related to the restructuring program, as well as investments in the new proposition development and expenses relating to the execution of the customer redress program.
Production New life sales decreased 19% to GBP 738 million during the year as a result of an anticipated decrease in sales of individual pensions and new group pension schemes following reductions in the commission levels paid to advisors on these products.
“platform” proposition, Aegon Retirement Choices (ARC), which it believes will enable it to achieve growth in the at-retirement market. Following this successful launch, Aegon UK added a workplace solution to its platform proposition in July 2012. The
ARC is a technology driven delivery system for pensions, individual savings accounts (ISAs), investment bonds and other tax wrappers. It provides access to a wide range of investments and is focused on providing income solutions to customers who are planning their retirement. It allows customers to plan for the future, prepare for retirement, take an income and adapt to changing circumstances while in retirement.
As the UK market develops following the regulatory changes brought about by the Retail Distribution Review and by pensions reform, Aegon UK is well placed to provide advisers and customers with appropriate, transparent and affordable retirement solutions that address the needs of a market in which increasing longevity, evolving retirement patterns and investment risk are key challenges.
Overview sales and distribution channels Aegon UK’s principal means of distribution is through the intermediated financial advice channel, which is the main sales route for long-term savings, protection and retirement products in the United Kingdom. These advisers provide their customers with access to various types of products depending on their regulatory status. They also advise them on the best solution to suit their financial needs.
“whole of market” or “independent”, depending on whether they were either restricted in the number of providers they dealt with or were free to advise on all available products. The Retail
Overview business lines Aegon UK has three business lines: �� Life
Life The Aegon UK life business comprises primarily individual protection and individual annuities. The protection business provides insurance for individuals against death or serious illness, as well as providing business protection. Annuities are used to convert savings accumulated as part of a pension plan into a regular income throughout retirement.
Aegon UK offers a range of products for individual customers, including life cover, critical illness and income protection.
�� Self-invested personal pensions (SIPPs), which provide a range of pre- and post-retirement investment options for high-net-worth customers, including insured funds and real estate.
As an alternative to annuities, Aegon UK also offers “Income for life”, a retirement solution which bridges the gap between annuities and income drawdown products. It offers customers a guaranteed income for life, plus continued control over their investments up to age 75.
One of Aegon UK’s largest product lines is providing pension plans for companies. Aegon UK offers group pension solutions on- and off-platform, depending on the needs of the employer and employee. In the United Kingdom, pensions reform
The move away from “defined benefit” (DB) arrangements, which provide a guaranteed percentage of salary on retirement, toward “defined contribution” (DC) plans has continued to accelerate in recent years. DC plans are similar to personal pensions with contributions being paid into a plan owned by individual employees and then invested. Generally, at retirement, employees can choose to take a percentage of tax-free cash from their pension plan, using the remainder either to purchase an annuity or to invest it in a separate drawdown policy.
Aegon UK also offers two types of investment bonds designed for customers residing in the United Kingdom: the onshore bond and offshore contracts1.
Offshore contracts offer considerable tax advantages and a wide choice of investment options.
Aegon UK also provides financial advice directly to both individuals and companies.
Origen is a financial adviser firm with strong positions in both the corporate and high-net-worth individual markets. It promotes its services through a variety of different sales channels, including face-to-face, media and worksite marketing, as well as accessing customers through professional contacts with accountants and lawyers.
The financial adviser market in the United Kingdom is fragmented, with a large number of relatively small firms. The removal of polarization rules in the advice market in 2005 has led to advisers choosing to operate on a multi-tied, single-tied, whole of market, or independent basis. More recently, there has been consolidation in this market due to financial pressures and preparations for the Financial Services Authority Retail
Services Authority under the United Kingdom’s Financial Services and Markets Act 2000.
Services Authority as “Approved Persons”. As such, they are subject to rigorous pre-appointment checks on their integrity and competence, and are subject to ongoing supervision throughout their mandate as “Approved Persons” and for a limited period afterwards.
With-Profits Forum, a sub committee of the Board of Aegon UK.
Assets are purchased to provide a close expected match to liability outflows, with regular reporting to the MIC on the capital implications of any mismatching.
The with-profit fund has a target range for the percentage of its assets that are invested in equities. These ranges may be varied. Within the target ranges, there is a policy of holding an appropriate mix of asset classes to reduce risk.
Policy conditions may state specific points at which a market value reduction will not apply.
As mentioned above, the “free assets” (that is assets which, as yet, have not been distributed to policyholders) help meet the cost of guarantees and provide a buffer to deal with adverse events. Aegon UK has an exposure only once these “free assets”
This helps avoid a tontine effect building up in the fund, as the number of with-profit policyholders declines.
Income tax from certain proportionately consolidated associates included in income before tax 3 8 (63%)
Underlying earnings before tax In New Markets, Aegon’s underlying earnings before tax increased 10% to EUR 274 million in 2012. Higher underlying earnings before tax from Aegon Asset Management and Asia offset lower earnings from Spain, Central & Eastern Europe and
�� Underlying earnings before tax from Central & Eastern Europe were lower than in 2011 at EUR 85 million in 2012, driven mainly by the negative impact of the pension legislation changes in Poland and lower mortgage margins in Hungary.
�� Underlying earnings before tax from Aegon’s operations in Asia improved to EUR 19 million in 2012 compared to an underlying loss before tax of EUR 4 million in 2011 as higher investment income during 2012 and a EUR 15 million higher gain related to updated mortality assumptions more than offset the negative impact of several small charges and higher expenses related to business development.
�� Underlying earnings before tax from Spain & France decreased 22% to EUR 69 million in 2012 due to the divestment of the joint venture with Banca Cívica in the fourth quarter of 2012 and as underlying earnings before tax from
�� Underlying earnings before tax from Variable Annuities Europe amounted to nil which was mainly the result of project spending to position the company for future growth.
Commissions and expenses Commission and expenses increased 5% to EUR 870 million in 2012. Operating expenses increased 6% to EUR 613 million in 2012. This was the result of higher costs in Asia and Variable
Production New life sales declined 19% to EUR 253 million in 2012.
�� In Central & Eastern Europe, new life sales increased 4% to
�� In 2012, new life sales in Spain declined to EUR 86 million as the inclusion of Caixa Sabadell Vida was more than offset by lower production at other joint venture partners in Spain, the exclusion of new life sales from CAM and the divestment of
Net income Net income from Aegon’s operations in New Markets declined 6% to EUR 111 million as higher underlying earnings before tax and lower other charges were more than offset by lower results on fair value items and higher impairment charges.
EUR 37 million following a settlement of a legal case in
�� Earnings from Central & Eastern Europe remained level at EUR 96 million as the negative impact from changes in pension legislation in Hungary and Poland was offset by growth of the life business and improved claim experience.
The results for the regional office in Asia have been included since the first quarter of 2011, following the implementation of the new operational structure for the Asian operations.
Commissions and expenses Commissions and expenses declined by 1% in 2011. Operating expenses declined 2% to EUR 577 million in 2011, as a result of lower operating expenses in Aegon Asset Management and incurred cost savings in Central & Eastern Europe.
EUR 143 million, as the inclusion of Caixa Sabadell Vida offset lower production at one of Aegon’s distribution partners in Spain.
Gross deposits in New Markets amounted to EUR 6.6 billion, a decline of 28% compared to 2010. The decline was mainly driven by lower gross deposits in Aegon Asset Management.
Overview Central & Eastern Europe Aegon has operations in six Central & Eastern European countries: the Czech Republic, Hungary, Poland, Romania, Slovakia and Turkey. Aegon first entered the Central & Eastern European market in 1992 when the Group bought a majority stake in Hungary’s former state-owned insurance company, Állami Biztosító. Hungary is Aegon’s leading business in the region and a springboard for further expansion. The expansion in the region continued in 2012. At the end of the year, the acquisition of Fidem Life, Ukraine’s fifth largest life insurance company was in progress.
Romania and Turkey, retail banks. Through tied agents, brokers and call centers, Aegon sells primarily life and non-life insurance.
Overview business lines Life Aegon companies in CEE offer a range of life insurance and personal protection products. This range includes traditional life, as well as unit-linked products. Unit-linked products cover all types of life insurance, including pension, endowment and savings. In Poland, Aegon is one of the leading1 providers of unit-linked products, offering around 243 different investment funds. In Hungary, Aegon’s unit-linked market position is similar2.
Traditional general account life insurance is a marginal product for most of the region’s businesses, except for Hungary, Poland and Turkey. It includes mainly index life products that are not unit-linked but have guaranteed interest rates. Group life and preferred life are also part of traditional life insurance.
The main guarantee in Hungary is variable crediting rates with minimum interest guarantees between 0% and 4% for universal life type products, plus 100% participation in actual interest earned. Traditional non-profit-share products have 5.5% technical interest rates, but this is an insignificant block of business. Profit-share products have a 2-4% technical interest rate and 85% participation in excess interest. The average minimum interest guarantee is about 3%. In Hungary, a small part of the current new business provides a minimum interest guarantee of 2%.
In Poland, an insurance fund with guaranteed rate reset on a quarterly and annual basis, is offered on unit-linked products.
Similar products are sold in the Czech Republic and Slovakia with a declared interest guarantee of 2% and 2.5% respectively, that is further increased provided certain conditions are fulfilled by the clients. In Slovakia, the minimum interest rate on universal life products was 3% up to the end of 2006 and since then it has been 2.5%. The universal life products in the Czech Republic have a guaranteed interest rate of 2.4%.
The profit-share product portfolio in Turkey has a guaranteed interest rate of 9% for Turkish lira products that are closed to new business and 2% for those introduced since 2010. For USD
and EUR denominated products, the guaranteed interest rate is 2.5% for the old portfolio and varies between 2% and 3.75%
in case of new products introduced after the acquisition of the company in 2008. A minimum of 85% of the interest income in excess of guaranteed return is credited to policyholders’ funds in Turkey.
In 2008, Aegon established Aegon Life Insurance Company in Romania. In 2009, Aegon Life Insurance Company began selling unit-linked, term life and endowment insurance policies in Romania.
At that point, the Romanian life insurance portfolio was taken over by Aegon Poland Life Insurance Company’s branch operating in Romania.
Based on gross written premium, Hungary has a share of around 60%, Poland has a share of around 30%, while Turkey has a share of around 10% in the traditional general account life insurance portfolio of the CEE region. The majority of the unitlinked portfolio (around 70%) was written in Poland, around 20% of the portfolio was written in Hungary and there are also some smaller unit-linked portfolios in the Czech Republic,
One of the most significant changes was enacted in September 2011. It opened up the possibility for debtors, with mortgage loans denominated in foreign currencies, to redeem the outstanding loan amount at a fixed, below market exchange rate.
Through 2012 the program, aimed at alleviating the financial burden of debtors having mortgage loans denominated in foreign currency, continued. The most significant measure was to allow debtors to fix the exchange rate to be applied for their monthly installments at a below market exchange rate for a maximum period of five years. The financial loss resulting from this program (that is the difference between the fixed and the current market exchange rates) is partially borne by the Hungarian State and partially by the financial institutions, whereas the loss from the initial change, in September 2011, was fully borne by the financial institutions.
Pensions In the past, Aegon’s pension business in CEE experienced considerable growth. This was mainly due to the region’s strong economic growth experienced before the financial turmoil, and to the widespread reform of the pension system in many countries.
In four of the six CEE countries in which Aegon has businesses,
Aegon entered the mandatory private pension plans market: Hungary, Slovakia, Poland and Romania in the past. Additionally,
Aegon has voluntary pension plans in three countries: Hungary, the Czech Republic and Turkey.
Aegon’s mandatory private pension funds in Poland and Slovakia, as well as the voluntary pension fund in Hungary, are among the largest1 in their countries in terms of both membership and assets under management. As of December 2012, Aegon had a total of 1.7 million pension fund members in the CEE region.
Since 2009, a series of legislative changes, slowing business growth, have been implemented in the region’s country units.
The most significant impact has been in Hungary, but changes have also slowed down business growth in the other CEE country units where Aegon has a presence.
Further legislative changes, enacted in Hungary at the end of 2011, require that all contributions deducted from the monthly wages of members are transferred to the state driven pension system (Pillar I). Members can transfer contributions to the private (formerly mandatory) pension funds only on a voluntary basis. Additionally, members had the option of returning to the state driven pension system until the end of March 2012.
On May 31, 2012, the delegate general meeting agreed to terminate the private pension fund without any legal successor in Hungary. The liquidation process started on July 1, 2012.
Poland, the contribution level payable into the private pension fund was significantly cut back. Also, according to the law, as of 2012 new members can no longer be actively recruited into private pension funds by the management companies.
Aegon announced its withdrawal from the voluntary pension business in Slovakia in 2011, and expects to exit the market in 2013.
1 Sources: Polish Financial Supervision Authority, www.knf.gov.pl; the Association of Pension Fund Management Companies, Slovakia, www.adss.sk; Hungarian Financial Supervision Authority, www.pszaf.hu.
In accordance with legislative changes that took place in Turkey during 2012, the maximum chargeable level of entrance fees, administration fees and asset management fees reduces as of 2013. Also, as of 2013, the pension contribution will not be subject to tax incentives any more, but members will have 25%
Competition Aegon is among the biggest players in the life insurance market in Hungary. In 2012, based on the first nine months’ total premium income, it is the fourth largest1 in Hungary. In terms of regular life premium income Aegon is the second largest1 in the same period. Also based on the first nine months’ premium income, Aegon is the fourth largest1 on the Hungarian non-life insurance market. Aegon is also a significant market player in the
Polish market, ranked fifth for unit-linked products2 in September 2012 based on gross written premiums. As Aegon Slovakia was incorporated in 2003, Aegon Czech Republic in 2004 and
In Hungary’s voluntary pension fund market, Aegon was ranked third both in terms of the number of members and in terms of its managed assets in September 20123. In terms of managed assets Aegon was ranked fifth in the Slovakian private pension market and fourth in terms of number of members in 20124.
In Poland, Aegon is ranked seventh in terms of the number of members and eighth in terms of its managed assets in December 20125. As of December 31, 2012, in the Romanian mandatory private pension market, Aegon was ranked eighth, both in terms of net assets under management and number of members6.
The above-mentioned authorities promote consumer protection and have the right to investigate prudential activities and conduct, financial position and solvency, and compliance with all relevant laws.
Pension Funds (XCVI. 1993). Although, for Aegon, these activities are outsourced to Aegon Hungary Pension Fund Management
In Romania, the private pension system is regulated and supervised by the Private Pension System Supervisory
Commission (CSSPP) and the mandatory pension system is subject to Act 411/2004 on Privately Administered Pension
Funds, as primary legislation, complemented by individual regulations, as secondary legislation. In Poland, this activity is supervised by the KNF and is governed by the Organization and Operation of Pension Funds Act as of August 28 1997. In the Czech Republic, the voluntary pension funds fall under the supervision of the Czech National Bank and are regulated by
Insurance. In Turkey, the voluntary pension funds fall under the supervision of the Undersecretariat of Treasury and the companies are subject to Individual Retirement Saving and
Enterprises (CXII. 1996) regulates the foundation, operation and reporting obligations of all the country’s financial institutions
(including Aegon Hungary Mortgage Finance Company). In addition, Aegon Hungary Mortgage Finance Company falls under the supervision of the HFSA.
Reinsurance ceded Aegon takes out reinsurance for both its life and its non-life businesses in CEE. This strategy is aimed at mitigating insurance risk. Aegon’s companies in the region work only through large multinational reinsurers, which have well-established operations in the region in accordance with the Aegon Reinsurance Use
A- by S&P and for long-tail business CEE accepts a minimum of
are non-proportional excess of loss programs, except for the life reinsurance treaties, which are done on surplus and quota-share basis (including various riders).
Ltd (Aegon-CNOOC) began operations in 2003. The joint venture is licensed to sell both life insurance and accident and health products in the provinces of mainland China. Since 2003 Aegon-
CNOOC has been steadily extending its network of offices and business in China. Its spread of locations give the joint venture access to a potential market of more than 555 million people, most of them in the booming coastal provinces of eastern China.
Aegon is also present in India through its agreement in 2006 to form a new life insurance partnership with Religare Enterprises
Limited and Bennett, Coleman & Company Limited. This partnership began operations as Aegon Religare Life Insurance
Co. Ltd (Aegon Religare) in 2008. By December 31, 2012, Aegon
The shareholders in the joint venture also agreed to jointly establish a reinsurance company, SA Reinsurance Ltd (SARe), to allow Aegon and Sony Life greater flexibility in the pricing and product design of its variable annuity products. SARe launched in 2010 and is based in Bermuda with the purpose of hedging the guarantees of Aegon Sony Life’s annuities.
Wholly-owned subsidiaries A new organizational structure was adopted for Aegon’s operations in Asia from 2011, with all Asian based insurance businesses being managed as one regional division headquartered in Hong Kong. From 2012, Aegon Direct and
ADAMS is an independent direct marketing (DM) company with operations in six Asia countries. It was established in Australia in 1998 and since then set up operations in Japan, Hong Kong,
Overview sales and distribution Banks are becoming increasingly important in Asia as a way to distribute pensions, life insurance and other long-term savings and investment products. For this reason, Aegon has been striving in recent years to extend its bank distribution agreements in the region.
By 2010, Aegon Religare had built a widespread agency network however there has been some consolidation during 2012, as of December 2012 there were in excess of 5,900 agents.
In addition to agency distribution there has also been an increase in Direct to Customer (DTC) distribution such as digital sales platforms and the use of the direct sales force channel. There was a significant increase in the number of sales generated online in 2012 compared with the previous year and Aegon
Planner began operations in 2009 and six regional banks now 71Annual Report 2012
in 2010 and intends to add further bank partners in the future.
ADAMS is one of the largest DM services companies in Asia by both geographic footprint and premium. ADAMS is a specialist in direct and affinity marketing, offering services to business partners across the DM value chain. In particular they have developed significant capabilities in customer analytics and data management, integrated marketing and operational execution.
ADAMS has made a major strategic change to reduce their reliance on customer base owners through the development of a DTC business model enabling closer ties with customers.
At the end of 2012, Aegon Religare had several term plans, traditional individual participating products, traditional pension participating products, unit-linked plans and health products.
USD term plans in 2012. However, there is a renewed drive to create innovative products due to more providers entering the high-net-worth market, and a new range of products is due for launch in 2013. With increased local IT capability to design and manufacture product and customer interaction interfaces in mind, the new product suite will benefit both customers and the company in the current challenging economic environment.
Individual savings and retirement Aegon Sony Life sells variable annuities. It provides a guaranteed life time withdrawal benefit (GLWB) with rollup function during deferral period by 3% per annum and a guaranteed minimum accumulation benefit (GMAB). In August 2012, the
GLWB product with guaranteed death benefit more than single premium was launched.
Aegon Religare is currently selling a health product with the same features as a defined benefit product (which pays the benefits specified for the respective category of hospitalization, surgery or critical illness irrespective of the actual expense incurred by the policyholder). In May 2012, Aegon Religare launched Health Plan in line with the company’s focus on digital channels, and it is currently sold by all channels of the joint venture including agency, direct and business alliances.
Life based in Suzhou, Jiangsu Province; Zhu Jiang Life based in Guangzhou, Guangdong Province, Hong Kang Life based in
Beijing, Ji Xiang life based in Changsha, Hunan Province) and one foreign life company (Pramerica Fosun Life based in Shanghai).
China, for example, Li An Life started a tele-marketing channel in March 2012. More and more companies kicked off e-business
(for example AVIVA-COFCO Life started its e-sales channel in August 2012) and are exploring successful models in this field (for example Guo Hua Life partnered with www.taobao.
In addition, Guo Hua Life entered into a strategic co-operation agreement with China Telecom’s E-business Company to leverage
China Telecom’s technology and channel advantages to reach a vast number of potential customers); China Pacific Insurance
China cooperated with Easy Life (a multimedia terminal provider in China) to use the insurance distribution self-service machines along Shanghai’s Metro Network to sell insurance products.
(April - March), linked new business saw a significant drop of 67% to INR 174 billion in 2011-12 from INR 536 billion in 2010-11. The decline in linked business contributions has been offset by the growth in non linked business collections by 33% to INR 966 billion in 2011-12 from INR 728 billion in 2010-2011. The total premium underwritten by the life insurance sector in 2011-2012 was INR 2,870 billion as against
The agency force continues to be an important distribution channel. Life insurers with banking partners are able to scale up distribution platforms which are gradually picking up volumes.
The fall can be attributed to the drop in new business premium collection by nearly 35.5% on a year over year basis from INR
2.59 billion to INR 1.67 billion which has been offset by the growth in renewal premium collection by 40.2% to around INR
Aegon Religare has been making steady progress in the vastly competitive Indian insurance market by striving to drive growth through launching innovative products and building upon the proprietary channels (for example Agency and DTC) and strategic tie-ups with third party distributors. Being a pioneer in the country for online protection products, Aegon is focusing on this model to offer competitively priced products with better and more innovative features.
In the DTC space market participants serve customers through their preferred channels, for insurers this has mostly manifested itself in the tactical deployment of different media such as Direct
Response TV, product micro-sites, health portals, social media platforms and mobile applications.
As of December 31, 2012, TLB recorded total production of approximately USD 26.7 million (2011: USD 32.4 million).
Regulation and supervision China - Aegon-CNOOC The insurance industry in China is regulated by the China
Insurance Regulatory Commission (CIRC). In 2012, according to the guidelines of “enhancing services, reinforcing regulation, preventing risks and promoting development”, and insisting in safeguarding the legitimate rights and interests of policyholders, the CIRC required all the insurance companies to strengthen the risk prevention, bring anti-fraud work into a comprehensive risk management system and enhance accountability mechanisms.
In addition, to tighten insurance companies’ internal controls and improve the ability to perform their duties, the CIRC has formulated the “Insurance Inspection and Audit Guidelines”, which enabled inspection and audit to play an active role in risk prevention.
With regard to life insurance, CIRC has written “The Guidelines on Identifying Misleading Sales Behaviors for Life Insurance
For asset management risk, CIRC strictly prohibits insurance funds borrowing or lending. CIRC paid particular attention to non-compliant acts concerning deposits and securities, interest transfer and insider trading.
India - Aegon Religare The Indian life insurance companies are regulated by the IRDA.
The IRDA regulates, promotes and encourages orderly growth of insurance and reinsurance business in India. Established by the
Government of India, it safeguards the interests of the insurance policy holders of the country.
During 2012, the IRDA updated existing and released new regulatory guidelines. Among these changes, the significant ones are: the guidelines on pension products pertaining to the guaranteed amount on maturity resulting in a non-zero return, guidelines with respect to disclosure requirements for issuance of capital, guidelines on data to be submitted for bancassurance channels, declaration of bonus for the participating business, up to 12 years since commencement of operations, even if the life fund is in deficit, draft guidelines on traditional and linked products, draft guidelines on licensing of bancassurance entities and draft amendments to investment regulations.
Japan - Aegon Sony Life The Financial Services Agency (FSA) in Japan is the government agency supervising all insurance companies in the country. All new products or major amendments require a filing with, and approval from, the FSA. General policy provisions, statements of business procedure, pricing and valuation all require approval from the FSA. The FSA also has the right to do on and off site inspections. Relevant regulations for insurance operation include, among others, the Insurance Business Law and related enforcement/notice, the Insurance Act and the Financial
Asset liability management China - Aegon-CNOOC A monthly asset liability management meeting is held to monitor duration and liquidity management. The duration of liabilities and assets are calculated separately by block and the duration gap is analyzed. Considering the payment structure and term of insurance liabilities, Aegon-CNOOC usually purchases corporate bonds, government bonds, bank deposits or other fixed income assets to match this liability while operating funds are invested in the short-term bond, money-market fund and bond repurchase markets in order to achieve higher investment returns.
The respective Risk & Capital Committees of Aegon-CNOOC meet every quarter to manage and monitor asset and liability matching using the result of stress-test scenarios based on the Economic
Japan - Aegon Sony Life and SARe Aegon Sony Life reinsures (cedes) 100% of its guarantees on the variable annuities to SARe. SARe has a comprehensive hedging program in place that covers all the major risk dimensions.
Investment Management LLC. Comprehensive risk management procedures have been defined to ensure implementation of appropriate risk management activities in accordance with
In reinsuring various minimum variable annuity guarantees, SARe accepts certain market and policyholder behavior risks. SARe will cover payments under the guarantees to the extent that benefits to the policyholder exceed the variable annuity account value.
Yen (SARe’s functional currency), therefore the resulting currency exposure is hedged with foreign currency forwards. The hedging program requires a daily determination of risk exposures and regular monitoring of and trading on the markets when open.
Hong Kong and Singapore - TLB The assets are currently managed by Aegon USA Investment
General Re and Munich Re in quota share. The group products are mainly reinsured by Hannover Re. Aegon-CNOOC reviews the reinsurance structure regularly and adjusts it based on the claim experience and its risk acceptance capability.
Munich Re, Swiss Re and RGA Re sharing mortality and morbidity risks through surplus and quota share arrangements on a risk premium basis.
On December 19, 2012, Aegon reached an agreement to enter into a strategic partnership with Banco Santander, Spain’s largest financial group, to distribute both protection and general insurance products through the group’s network of over 4,600 bank branches. Subject to regulatory approval, the transaction is expected to close during the first half of 2013. Under the terms of the agreement, Aegon will acquire a 51% stake in both a life insurance company as well as in a non-life insurance company.
On February 4, 2013, Aegon reached an agreement to exit its partnership with Unnim. Subject to regulatory approval the transaction is expected to close during the second quarter of 2013.
Organizational structure Aegon Spain’s main subsidiaries and affiliates are: �� Aegon España S.A. de Seguros y Reaseguros.
Overview sales and distribution channels The difficult economic situation in Spain continued throughout 2012 and Aegon expect this to continue during 2013.
A structural reform program has been implemented in Spain and this included reform of the financial sector. This reform resulted in the restructuring of the banking sector and triggered a wave of mergers and acquisitions aimed at consolidation.
Aegon Spain distibutes its produts across the country through the branches of its partners: Caja de Ahorros del Mediterráneo,
Cajatres and Liberbank. Each of these entities has been subject to the restructuring process in Spain’s financial sector.
(CAM) goes back to 2004. CAM has a network of more than 843 branches across Spain. Aegon and CAM, respectively, have a 49.99% and 50.01% interest in CAM/Aegon Holding
Currently Aegon is in an arbitration with CAM to exit the partnership. Aegon is of the opinion that, in 2010, a change in control occurred in CAM, Aegon’s partner in Caja Mediterráneo
CAM and Aegon, to exit the partnership. The arbitration process aims to determine the occurrence of a change in control and the corresponding date, which will determine the exit price. Aegon expects to recover at least the book value as at December 31, 2012. The exact figure will depend on the outcome of the arbitration process. A final verdict from the arbitrators is expected to be released in the first half of 2013.
Aegon and Caja Badajoz set up a 50/50 joint company to sell life insurance and pensions. Caja Badajoz has a network of 200 branches, primarily in the western region of Extremadura, which adjoins Spain’s border with Portugal. In 2011, Caja Badajoz
Unnim Vida Aegon entered into an agreement with the newly formed company Unnim when it was created in 2010 following the merger of three Spanish savings banks. This merger included
(FROB) and following regulatory approval, the BBVA Group acquired Unnim in July 2012. On February 4, 2013, Aegon reached an agreement with BBVA to exit its partnership with
Spain offers pensions as well as both traditional life and unitlinked variable life products, a market traditionally dominated by the country’s retail banks.
Reinsurance ceded Aegon Spain has a “one Aegon reinsurance management policy”, meaning that its joint ventures and its own business are treated as a whole, with the same economic conditions, same reinsurers panel but individual profit shares without losses carried forward by each entity belonging to Aegon Spain. The main contract for mortality and morbidity provides proportional reinsurance protection both for its individual risk policies and for its group risk policies. With this approach, Aegon Spain is seeking to optimize the cost of the reinsurance coverage, sharing the profits and not the losses, while it is achieving a prudential diversification of its insurance risk by limiting the maximum possible losses on risks that exceed retention levels. Maximum retention levels vary by product and by nature of the risk being reinsured. Generally, however, the retention limit is between
Spain has several reinsurers on its panel and regularly monitors the creditworthiness of each of its reinsurers. Further protection is taken out through funds that are withheld for investment by the ceding company where appropriate.
La Mondiale via the acquisition of a 20% interest in La Mondiale
Participations offers a wide range of life insurance, pension, savings, investment and asset management services to both corporations and individual retail customers via its three subsidiaries: Arial Assurance, La Mondiale Partenaire and
Overview sales and distribution channels Aegon Ireland does not employ a (direct) sales force, but works with the sales forces of Aegon companies in the
ARC platform (an online sevice that allows financial advisers to manage their clients’ investment portfolios), banks, IFAs and partnerships with major third parties such as HSBC, National
In France, one product, Terre d’Avenir, is sold by AG2R La
In the Netherland’s, distribution of Aegon Variabele Lijfrente is through Aegon’s local banking and IFA channels.
International bonds Offshore Wealth Management products are open-ended, unit-linked, life insurance products. They offer a wide range of investment choices, allowing investment into an almost unlimited range of external assets, such as collective investment schemes, unit trusts and open-ended investment companies
Alternatively, clients can request the appointment of a specialist fund manager to select the underlying funds on an advisory or discretionary basis.
Any surrender charges collected are typically applied to recoup deferred acquisition costs.
Continued difficult economic and financial conditions meant that new product launches were limited. Aegon’s main competitors in
The Central Bank of Ireland has sole responsibility for the prudential supervision and regulation of Aegon Ireland. As a consequence Aegon Ireland’s entire business, its state of solvency, the establishment and maintenance of technical reserves, the quality of its corporate governance, risk management and internal control systems are all subject to monitoring and supervision by the Central Bank of Ireland.
Overview Aegon Asset Management Aegon Asset Management was launched at the beginning of October 2009 and brings together asset management businesses from around the world. As of January 1, 2010, Aegon reports results from Aegon Asset Management separately within the “New Markets” segment.
Organizational structure Aegon Asset Management is situated within the Netherlands, the United Kingdom, the United States, Canada, Central &
Management competes with external asset managers in an open architecture structure.
Aegon Asset Management also interacts directly with third party customers. Third party customers are split into two categories: Retail (primarily investing via collective investment schemes)
�� General account business consists of funds which are held on the balance sheet of Aegon insurance affiliates for the purposes of meeting liabilities to policyholders, typically where the insurer has given the policyholder a guarantee.
�� Unit-linked business generally consists of funds on the insurers balance sheet where the policyholder return is determined by the investment return of the fund (hence this business is for the risk of policyholders rather than Aegon).
Competition Aegon Asset Management competes with other asset management companies for open architecture unit-linked business and third party business. Aegon Asset Management’s competitors include global asset managers and local specialists in the countries where it is active. Generally, there are different competitors for different types of asset class or different styles of management. In 2012, the twin concerns of weak global growth and the debt crisis crippling many developed economies
Aegon Asset Management’s underlying operating entities are regulated by their local regulators, including the AFM and DNB
�� Measuring and monitoring risk exposures and actively maintaining oversight of the company’s overall risk and solvency positions.
�� Continuity: Ensure a high likelihood that Aegon will meet policyholder obligations, even under extreme events.
�� Risk balance: Manage the concentration of risk and encourage risk diversification within Aegon.
Aegon’s risk governance framework Aegon has a strong culture of risk management, based on a clear, well-defined governance framework. The goals of this framework are: �� To minimize ambiguity by clearly defining responsibilities and reporting procedures for decision makers.
�� To manage risk, including by avoiding an over-concentration of risk in particular areas.
is the body appointed by the EB for overseeing proper execution of the risk governance framework, as well as monitoring compliance with the risk tolerance and Group Risk policies. The
Aegon’s strategic goals. The MB discusses and sponsors enterprise risk management in particular risk governance, risk tolerance, and material changes in risk methodology and risk policies.
The GRCC focuses on managing Aegon’s overall solvency position, while ensuring that risk-taking is within the risk tolerance statements and Group Risk policies. The GRCC informs the MB about any identified or near breaches of overall tolerance levels, as well as any potential threats to the company’s solvency, liquidity or operations. Risk & Capital Committees
Group Risk is responsible for development and oversight of compliance with the risk governance framework, risk methodology, risk tolerances and risk policies. This involves identifying risk, particularly operational and emerging risk, as well as reviewing risk assessments carried out by business units.
The third line of defense provides independent assurance and challenge regarding the effectiveness and integrity of enterprise risk management across the company, the audit functions.
The effects of the global crisis that began in 2008 continued to be felt throughout 2012 and were exacerbated by the European debt crisis. Equity markets increased but remained volatile.
During the year, Aegon carried out regular sensitivity analyses to verify that the impact of different economic and business scenarios would not overwhelm the company’s earnings and capital position. These plans also cover extreme event scenarios, such as a depression precipitated by a Spanish exit from the eurozone.
Aegon took a number of specific steps to reduce its exposure to credit risk: �� Further restructuring of Aegon USA’s investment portfolio increasing the allocation to US Treasury bonds and entering fixed annuity coinsurance deals.
�� Continuing to minimize exposure to peripheral European countries in Aegon’s general account investment portfolio.
Interest rate risk Similar to 2011, interest rates continued to decline especially in the second half of 2012 from already low levels. Falling rates particularly impacted investment income and value of financial guarantees included in certain policies. Aegon took several de-risking initiatives to reduce exposure to movements in interest rates. For example, Aegon USA implemented a hedge to protect against low interest rates and rapidly rising interest rates. A number of interest rate sensitive products were repriced and product features adjusted to decrease interest rate risk.
Currency exchange rate risk 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 business units, thus mitigating currency risk. Aegon does hedge cash flows from operating subsidiaries as part of its broader capital and liquidity management.
Liquidity risk Aegon has a strong liquidity management strategy in place. Aegon considers extreme liquidity stress scenarios, including the possibility of prolonged “frozen” capital markets, an immediate and permanent rise in interest rates, and policyholders withdrawing liabilities at the earliest conceivable date. In addition, the company has highly developed liquidity stress planning in place. In 2012, Aegon retained its significant holdings of cash and highly liquid assets as a precaution against potential adverse market developments.
Underwriting risk Aegon’s earnings depend, to a significant degree, on the extent to which claims experience is consistent with assumptions used to price products and establish technical liabilities. Changes in, among other things, morbidity, mortality, longevity trends and policyholder behavior could have a considerable impact on
Aegon’s income. While Aegon believes it has the capacity to take on more underwriting risk to capitalize on growth opportunities in its main life insurance and pension markets, Aegon continues to reduce concentration exposure to underwriting risks. For example, Aegon the Netherlands reduced longevity risk via a longevity swap transaction.
Risk factors Aegon faces a number of risks, some of which 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 next two sections describe risks relating to Aegon’s businesses and risks relating to Aegon’s common shares.
(refer to pages 334-335) and the risks of Aegon’s businesses described elsewhere in this Annual Report.
Annual Report could also adversely affect Aegon’s businesses and operations, and the following risk factors should not be considered a complete list of potential risks that may affect
Risks related to the global financial markets and general economic conditions Disruptions in the global financial markets and general economic conditions have affected, continue to affect and could have a materially adverse effect on Aegon’s businesses, results of operations, cash flows and financial condition.
European Monetary Union (refer to note 2 to the consolidated financial statements for details about Aegon’s exposure to
Monetary Fund have prepared rescue packages for some of the affected countries. Furthermore, the European Union is in the process of establishing a European Banking Supervision body which would allow for direct intervention by the ECB. Aegon cannot predict with any certainty whether these packages or other rescue plans will be successful or the effect that they may have on the future viability of the euro currency or the European
European Union and elsewhere to address any of the foregoing could impact Aegon’s businesses. Aegon cannot predict with certainty the effect that these or other government actions and actions by the ECB or the Federal Reserve may have on the financial markets or on Aegon’s businesses, results of operations, cash flows and financial condition.
In the United States, the uncertainty regarding significant mandated tax increases and government spending cuts beginning in January 2013, (the “Fiscal Cliff”) poses a serious risk for the
Credit risk is the risk of loss resulting from the default by, or failure to meet contractual obligations of issuers and counterparties. For general account products, Aegon typically bears the risk for investment performance equaling the return of principal and interest. Aegon is exposed to credit risk on its general account fixed-income portfolio (debt securities, mortgages and private placements), over-the-counter (OTC)
Dutch government bonds, US Treasury, agency and state bonds, as well as other government issued securities. There continues to be uncertainty regarding the ability of certain European nations (in particular Greece, Ireland, Italy, Portugal and Spain)
Further excessive defaults or other reductions in the value of these securities and loans could have a materially adverse effect on Aegon’s businesses, results of operations, cash flows and financial condition.
Equity market risk A decline in equity markets may adversely affect Aegon’s profitability and shareholders’ equity, sales of savings and investment products and the amount of assets under management.
Interest rate risk Interest rate volatility or sustained low interest rate levels may adversely affect Aegon’s profitability and shareholders’
under IFRS. This is inconsistent with the IFRS accounting on much of Aegon’s liabilities, where corresponding economic gains from higher interest rates do not affect shareholders’ equity or income in the shorter term. Over time, the short-term reduction in shareholder equity and income due to rising interest rates would be offset in later years, all else being equal.
in large part upon the ability to manage interest rate spreads, credit spread risk and other risks inherent in the investment portfolio. Aegon may not be able to successfully manage interest rate spreads, credit spread risk and other risks in the investment portfolio or the potential negative impact of those risks. Investment income from general account fixed income investments for the years 2010, 2011 and 2012 was EUR 6.0 billion, EUR 5.6 billion and EUR 5.8 billion, respectively. The value of the related general account fixed income investment portfolio at the end of the years 2010, 2011 and 2012 was EUR
The possible abandonment of the euro currency by one or more members of the European Monetary Union may affect
Union or the exit of one or more European Union member states from the European Monetary Union, are impossible to predict with certainty, and any such events could have a materially adverse effect on Aegon’s financial condition and results of operations in the future.
Liquidity risk is inherent in much of Aegon’s businesses. Each asset purchased and liability sold has liquidity characteristics that are unique. Some liabilities can be surrendered while some assets, such as privately placed loans, mortgage loans, real estate and limited partnership interests, are to some degree illiquid. Aegon continued to maintain its reserves of cash and liquid assets in 2012. In depressed markets Aegon may be unable to sell or buy significant volumes of assets at quoted prices.
Aegon’s earnings depend significantly upon the extent to which actual claims experience is consistent with the assumptions used in setting the prices for Aegon’s products and establishing the technical liabilities for expected claims. If actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, Aegon’s income would be reduced. Furthermore, if the less favorable claims experience were expected to be a sustained trend, Aegon may be required to increase liabilities for other related products, which could reduce
This could have a materially adverse effect on Aegon’s results of operations and financial condition.
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. In addition, some policies have embedded options which at times are more valuable to the client if they stay (lower lapses) or leave (higher lapses) which can result in losses to Aegon’s businesses. Aegon sells certain types of policies that are at risk if mortality or morbidity increases, such as term life insurance and accident insurance. Aegon also sells certain other types of policies such as annuity products that are at risk if mortality decreases (longevity risk). For example, certain current products as well as products sold in previous years based on standard longevity assumptions have become less profitable or unprofitable as longevity assumptions increase, which may result in Aegon incurring losses. If the trend towards increased longevity persists, Aegon’s annuity products may continue to experience adverse effects because the period of time over which benefit payments are made becomes longer as life expectancies increase. Aegon is also at risk if expenses are higher than assumed.
The valuation of many of Aegon’s financial instruments is based on methodologies, estimations and assumptions that are subject to different interpretations and could result in changes to investment valuations that may have a materially adverse effect on Aegon’s results of operations and financial condition.
In addition, the determination of the amount of allowances and impairments taken on Aegon’s investments is subjective and could materially impact Aegon’s results of operations or financial position.
United States to establish additional statutory reserves for term life insurance policies with long-term premium guarantees.
Valuation of Life Insurance Policies Regulation, commonly known as Regulation AXXX, or AG38, requires insurers to establish additional statutory reserves for certain universal life insurance policies with secondary guarantees. Virtually all of Aegon’s newly issued term and universal life insurance products in the
United States are now affected by Regulations XXX and AXXX, respectively.
In response to the NAIC regulations, Aegon has implemented reinsurance and capital management actions to mitigate their impact. However, for a variety of reasons, Aegon may not be able to implement actions to mitigate the impact of Regulation XXX
market. In addition, the NAIC is reviewing internal captive reinsurance, the vehicle used in many capital management actions.
Aegon may not be able to comply fully with, or obtain appropriate exemptions from, the wide variety of laws and regulations applicable to insurance companies and insurance holding companies. Failure to comply with or to obtain appropriate exemptions under any applicable laws could result in restrictions on Aegon’s ability to do business in one or more of the jurisdictions in which Aegon operates and could result in fines and other sanctions, which may have a materially adverse effect on Aegon’s businesses, financial position or results of operations.
Certain jurisdictions are questioning the use of gender-based distinctions in the insurance industry. This will likely limit or impede Aegon’s ability to continue to make certain genderbased distinctions in the pricing of financial products such as life insurance, annuities and certain other types of products Aegon sells. On March 1, 2011, the European Court of Justice (ECJ)
delivered a judgment in the Test Achats case which relates to the ability of an insurance company to use gender as a rating factor when pricing risk. The ECJ has ruled that using gender as a rating factor when pricing risk is invalid. However, the ECJ has granted a transitional period for relief for implementation. The effect of this is that, as from December 21, 2012, it is unlawful to use gender-related factors for determining premiums and benefits under insurance policies. This decision may have a materially adverse effect on Aegon’s businesses, financial position and results of operations.
A downgrade in Aegon’s ratings may increase policy surrenders and withdrawals, adversely affect relationships with distributors and negatively affect Aegon’s results.
These withdrawals may require the sale of invested assets, including illiquid assets, at a price that may result in realized investment losses. These cash payments to policyholders would result in a decrease in total invested assets and a decrease in net income. Among other things, early withdrawals may also cause
Aegon cannot predict what actions rating agencies may take, or what actions Aegon may take in response to the actions of rating agencies, which could adversely affect Aegon’s businesses. As with other companies in the financial services industry, Aegon’s ratings could be downgraded at any time and without notice by any rating agency.
frameworks applicable to Aegon’s businesses in the countries in which it operates.
For example, in July 2010, the US Congress passed the Dodd-
Securities and Exchange Commission) authority to promulgate new financial regulations applicable to systemically important non-bank financial institutions. The primary impact to Aegon
II directive, see page 11, Aegon may be required to increase its statutory reserves and/or hold higher amounts of statutory capital for some of its products, which will decrease Aegon’s returns on these products unless Aegon increases its prices.
Changes in pension and employee benefit regulation, social security regulation, financial services regulation, taxation and the regulation of securities products and transactions may adversely affect Aegon’s ability to sell new policies or claims exposure on existing policies. For example, in Hungary, the mandatory pension business has been nationalized and therefore Aegon in Hungary has liquidated its mandatory pension business.
In general, changes in laws and regulations may materially increase Aegon’s direct and indirect compliance and other expenses of doing business and have a materially adverse effect on Aegon’s businesses, results of operations or financial condition.
Aegon faces significant risks of litigation and regulatory investigations and actions in connection with Aegon’s activities as an insurer, securities issuer, employer, investment adviser, investor and taxpayer among others.
Insurance companies are increasingly and routinely the subject of litigation, investigation and regulatory activity by various governmental and enforcement authorities, individual claimants and policyholder advocate groups, involving wideranging subjects such as transparency issues and the charges included in products, employment or third party relationships, adequacy of operational processes, environmental matters, anti-competition and intellectual property infringement. For example, unclaimed property administrators and state insurance regulators are performing unclaimed property examinations of the life insurance industry in the U.S., including certain of our subsidiaries. These are in some cases multi-state examinations that include the collective action of many of the states. Additionally, some states are conducting separate examinations or instituting separate enforcement actions in regard to unclaimed property laws and related claims practices.
As other insurers in the United States have recently done, Aegon
Americas identified certain additional internal processes that it has implemented or is in the process of implementing. Aegon
Americas increased certain reserves related to this matter by approximately EUR 37 million during the fourth quarter of 2011. No additional reserve increase was recorded in 2012.
Aegon’s processes to manage unclaimed property are generally adequate, with industry practices changing and regulatory interpretations evolving, it is uncertain what the further impact of any such inquiry could be for Aegon and other market participants. Aegon estimates that the adverse financial impact may range from EUR 0 to EUR 150 million before tax.
In addition, insurance companies are generally the subject of litigation, investigations and regulatory activity concerning common industry practices such as the disclosure of contingent costs, commissions and premiums and other issues relating to the transparency relating to certain products and services.
movements. As a result, such returns may prove to be volatile and occasionally disappointing. This from time to time results in disputes that lead to litigation and complaints to regulatory bodies. Complaints like these may then lead to inquiries or investigations, regardless of their merit.
Aegon cannot predict at this time the effect litigation, investigations, and actions will have on the insurance industry or Aegon’s business. Lawsuits, including class actions and regulatory actions, may be difficult to assess or quantify, may seek recovery of very large and/or indeterminable amounts, including bad faith, punitive and treble damages, and their existence and magnitude may remain unknown for substantial periods of time. Claimants may allege damages that are not quantifiable or supportable and may bear little relationship to their actual economic losses, or amounts they ultimately receive, if any.
The Supreme Court is not obliged to follow the advice of the
Certain of the products Aegon sells are complex and involve significant investment risks that may be assumed by Aegon’s customers. Aegon has received claims from certain current and former customers, and groups representing customers, in respect of certain products. Certain claims remain under review and may lead to disputes in the future. Aegon has in the past agreed to make payments, in some cases substantial, or adjustments to policy terms to settle those claims or disputes if Aegon believed it was appropriate to do so. In 2010, Aegon Americas had a onetime provision of EUR 95 million for settlement of a dispute with a bank related to an employer owned life insurance policy. While
from 70% to at least 75%; as at December 31, 2012, this ratio was 76.7%.
Division (IMD); the following two portfolios have been put into run-off: �� Americas spread-based business, with a total account balance of EUR 5,618 million as at December 31, 2012; �� Americas payout annuities, with a total account balance of
�� The bulk annuity business in the United Kingdom has been put into run-off.
Aegon’s ability to manage risks through derivatives may be negatively affected by the Dodd-Frank Act and legislative initiatives of the European Commission, which provide for a new framework of regulation of OTC derivatives markets. These new regulations, including the proposed regulation of OTC
by the European Commission on September 15, 2010, as well as the new regulation on markets in financial instruments (MIFIR)
Aegon’s ability to make payments on debt obligations and pay some operating expenses is dependent upon the receipt of dividends from subsidiaries. Some of these subsidiaries have regulatory restrictions that can limit the payment of dividends.
Since 2005, Aegon’s financial statements have been prepared and presented in accordance with IFRS. Certain recent changes and any future changes in these accounting principles may have a significant impact on Aegon’s reported results, financial condition and shareholders’ equity. This includes the level and volatility of reported results and shareholders’ equity. One of the standards that has been revised is IAS 19 Employee Benefits.
Purpose Entities. IFRS 10 establishes a single control model that applies to all group entities, including special purpose entities.
A change in the DRD, including the possible elimination of this deduction, could reduce Aegon’s consolidated net income.
Any changes in tax laws, interpretation of tax laws, later jurisprudence or case law, or the introduction of new taxes or tax laws in all countries in which Aegon operates or invests, affecting
Aegon’s ability or that of Aegon’s competitors to pursue such opportunities may be limited due to lower earnings, reserve increases, capital requirements or a lack of access to debt capital markets and other sources of financing. Such conditions may also lead to changes by Aegon or Aegon’s competitors in product offerings and product pricing that could affect Aegon and
Additionally, the competitive landscape in which Aegon operates 95Annual Report 2012
may be further affected by government-sponsored programs or actions taken in response to the severe dislocations in financial markets which occurred in 2008 and 2009, as well as the
Aegon UK are Swiss Re, Munich Re, Pacific Re and XL Re. The major reinsurer for life insurance for Aegon The Netherlands is Swiss Re, while the non-life reinsurance is diversified across several providers including Lloyds market syndicates. The major reinsurers of Aegon Hungary for non- life are Swiss Re, Munich
Re and Hannover Re and for life insurance Munich Re and RGA.
Aegon may be forced to incur additional expenses for reinsurance or may not be able to obtain sufficient reinsurance on acceptable terms, which could adversely affect Aegon’s ability to write future business.
In recent years, Aegon has made a number of acquisitions and divestitures around the world and it is possible that Aegon may make further acquisitions and divestitures in the future. Growth by acquisition involves risks that could adversely affect Aegon’s operating results and financial condition. These include: the potential diversion of financial and management resources from existing operations; difficulties in assimilating the operations, technologies, products and personnel of the acquired company; significant delays in completing the integration of acquired companies; the potential loss of key employees or customers of the acquired company; potential losses from unanticipated litigation; and tax and accounting issues. In addition, expansion into new and emerging markets may involve heightened political, legal and regulatory risks, such as discriminatory regulation, nationalization or expropriation of assets, price controls and exchange controls.
Aegon’s operating results and financial position can be adversely affected by volatile natural and man-made disasters such as hurricanes, windstorms, earthquakes, terrorism, riots, fires and explosions, pandemic disease and other catastrophes.
Aegon regularly develops new financial products to remain competitive in its markets and to meet the expectations of its clients. If clients do not achieve expected returns on those products, Aegon may be confronted with legal claims, pressure groups and negative publicity.
Any resulting proceedings in which Aegon would have to enforce and protect its intellectual property, or defend itself against a claim of infringement of a third party’s intellectual property, may require significant effort and resources and may not prove successful. As a result of any proceeding in which Aegon would have to enforce and protect its intellectual property, Aegon may lose intellectual property protection, which could have a materially adverse effect on Aegon’s businesses, results of operation, financial condition and Aegon’s ability to compete.
As a result of any proceeding in which Aegon would have to defend itself against a claim of infringement of a third party’s intellectual property, Aegon may be required to pay damages and provide injunctive relief, which could have a materially adverse effect on Aegon’s businesses, results of operations and financial condition.
Inadequate or failed processes or systems, human factors or external events could adversely affect Aegon’s profitability, reputation or operational effectiveness.
Aegon’s information technology or communications systems may result in a materially adverse effect on Aegon’s results of operations and corporate reputation.
While systems and processes are designed to support complex transactions and avoid systems failure, fraud, information security failures, processing errors and breaches of regulation, any failure could lead to a materially adverse effect on Aegon’s results of operations and corporate reputation. In addition,
Aegon uses computer systems to store, retrieve, evaluate and utilize customer and company data and information. Aegon’s businesses are highly dependent on its ability to access these systems to perform necessary business functions such as providing customer support, administering variable products, making changes to existing policies, filing and paying claims, managing Aegon’s investment portfolios and producing financial statements. While Aegon has policies, procedures, automation and backup plans designed to prevent or limit the effect of failure, Aegon’s computer systems may be vulnerable to disruptions or breaches as a result of natural disasters, manmade disasters, criminal activity, pandemics or other events beyond Aegon’s control. The failure of Aegon’s computer systems for any reason could disrupt Aegon’s operations, result in the loss of customers and may adversely affect Aegon’s businesses, results of operations and financial condition.
Aegon retains confidential information on its computer systems, including customer information and proprietary business information. Any compromise of the security of Aegon’s computer systems that results in the disclosure of personally identifiable customer information could damage Argon’s reputation, expose Aegon to litigation, increase regulatory scrutiny and require Aegon to incur significant technical, legal and other expenses.
The United States and the Netherlands do not currently have a treaty providing for the reciprocal recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Judgments of US courts, including those predicated on the civil liability provisions of the US federal securities laws, may not be enforceable in Dutch courts.
�� Actual or anticipated fluctuations in Aegon’s revenues or operating results.
�� Sales of blocks of Aegon’s shares by significant shareholders, including Vereniging Aegon.
�� Potential litigation involving Aegon or the insurance industry in general.
�� News or analyst reports related to markets or industries in which Aegon operates.
The high and low prices of Aegon’s common shares on NYSE
Euronext Amsterdam were EUR 5.68 and EUR 2.68 respectively in 2011 and EUR 4.89 and EUR 3.05 respectively in 2012. The high and low sales prices of Aegon’s common shares on NYSE
New York were USD 8.03 and USD 3.62 respectively in 2011 and
In February 2013, Aegon and Vereniging Aegon reached an agreement to exchange, subject to approval by the Annual
Aegon entered into an equity repurchase facility and a back-up credit facility. On February 9, 2010, both facilities were replaced by a three year term and revolving facilities agreement with a consortium of banks. In the context of its agreement with Aegon, on February 9, 2013 Vereniging Aegon extended this agreement until December 31, 2013. At the same time, Vereniging
Aegon entered into a new three year term and revolving facilities agreement with the same consortium of banks. This agreement will only become effective and replace the extended agreement if on May 15th, 2013 the annual General Meeting of Shareholders approves the agreement between Aegon and
Vereniging Aegon. Under both respective agreements, Aegon’s common shares in the possession of Vereniging Aegon are pledged to the consortium of banks. If Vereniging Aegon were to default under the facilities agreement in force at that time, the lenders may dispose of Aegon’s common shares held by them as collateral in order to satisfy amounts outstanding.
“Major Shareholders” for a description of the agreement reached between Aegon and Vereniging Aegon in February 2013, the sales of common shares by significant shareholders or by lenders to Vereniging Aegon, or the public perception that an offering or such sales may occur, could have an adverse effect on the market price of Aegon’s common shares.
Prior to September 2002, Vereniging Aegon beneficially owned approximately 52% of the voting shares and thus held voting control over Aegon. In September 2002, Vereniging Aegon reduced its beneficial ownership to approximately 33% of the voting shares (excluding issued common shares held in treasury by Aegon). Pursuant to the Amended 1983 Merger Agreement between Aegon and Vereniging Aegon, in case of an issuance of shares by Aegon, Vereniging Aegon may purchase as many class B preferred shares as would enable it to prevent or offset a dilution to below its actual percentage of the voting shares, unless Vereniging Aegon as a result of exercising these option rights would increase its voting power to more than 33%. The option granted to Vereniging Aegon permits it to purchase class B preferred shares up to a maximum of the non-issued part of the class B preferred shares included from time to time in Aegon’s authorized capital if necessary to prevent or offset such dilution.
dividend in the form of stock in June and September 2012.
Aegon pursuant to which Vereniging Aegon has voluntarily waived its right to cast 25/12 votes per class A or class B
Vereniging Aegon’s voting power, based on the December 31, 2012, numbers of outstanding and voting shares, is reduced to approximately 22.06% of the votes exercisable in the General
Aegon’s preferred shares for cash and common shares (see also the section “Major Shareholders” for a description of the agreement reached).
Amsterdam are quoted in euros and Aegon’s common shares listed on NYSE Euronext New York are quoted in US dollars, fluctuations in exchange rates between the euro and the US
Any market that develops for convertible securities or other securities that permit or require Aegon to satisfy obligations by issuing common shares that Aegon has issued or may issue in the future would be likely to influence, and be influenced by, the market for Aegon’s common shares.
Aegon’s common shares received at maturity. Aegon’s common shares could also be depressed by the acceleration of any convertible securities (or other such securities) that Aegon has issued by investors who view such convertible securities (or other such securities) as a more attractive means of participation in Aegon’s equity. Negative results could also be produced by hedging or arbitrage trading activity that may develop involving such convertible securities (or other such securities) and Aegon’s common shares. Any such developments could negatively affect the value of Aegon’s common shares.
Guiding principles Aegon has a number of guiding principles, which determine its approach to capital and liquidity management: �� Ensure Aegon’s businesses and operating units have strong capital adequacy.
�� Ensure sufficient liquidity by enforcing strong liquidity risk policies for both business units and the Holding.
Improving risk profile Aegon has continued to take measures to improve its risk-return profile by reducing its exposure to world financial markets, resulting in lower overall capital requirements. These measures include, for instance, the continued run-off of Aegon’s spreadbased institutional business in the United States and hedging the interest rate and equity risk from guarantees in the Netherlands.
Capital adequacy Capital adequacy is managed at the company, country and operating unit level, 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.
Capital leverage Aegon places limits on the amount of non-core capital in its total capital base, excluding revaluation reserves. Currently, the company’s aim is to ensure that core capital comprises at least 70% of the capital base, excluding revaluation reserves, and that perpetual capital securities and dated subordinated and senior debt account for no more than 25% and 5% respectively.
At the end of 2012, Aegon’s total capital base, excluding revaluation reserves, consisted of 76.7% core capital and 20.3%
Aegon maintains backup credit facilities with international lenders to support outstanding amounts under these commercial paper programs. The company’s principal arrangement is a
Operational debt relates primarily to financing Aegon’s mortgage portfolios through securitizations and warehouse facilities, and the funding of US Regulation XXX and Guideline AXXX
Liquidity management Strategic importance Liquidity management is a fundamental building block of Aegon’s overall financial planning and capital allocation processes.
Aegon maintains a liquidity policy that requires all operating units to project their sources and uses of liquidity over a two year period under normal and severe business and market scenarios.
Aegon’s excess liquidity is invested in highly liquid, shortterm assets in accordance with the company’s internal risk management policies. Aegon believes its working capital, backed by its external funding programs and facilities, is ample for the company’s present requirements.
Aegon uses cash flows from its operating subsidiaries to pay holding expenses, including funding costs. The remaining 103Annual Report 2012
cash flow is available to execute Aegon’s strategy and to fund dividends on its shares. When determining whether to declare or propose a dividend, Aegon’s Executive Board balances prudence with offering an attractive return to shareholders.
This is particularly important during adverse economic and/or financial market conditions. Also, Aegon’s operating subsidiaries are subject to local insurance regulations which could restrict dividends to be paid to the holding company. There is no requirement or assurance that Aegon will declare and pay any dividends.
Aegon’s internal audit function assists the Executive Board in maintaining effective controls by independently and objectively evaluating the adequacy and effectiveness of the organization’s internal control and risk management systems. Criteria established under “Internal Control - Integrated Framework”, the
The risk management function develops and monitors compliance with risk policies and risk frameworks. This also involves the facilitation of risk identification (especially for operational and emerging risks) and reviewing risk assessments performed by the businesses. The risk management function is responsible for identifying risk management best practices and working with management to ensure that Aegon adheres to these practices.
Finally, the compliance function plays a key role in monitoring the company’s adherence to external rules and regulations and internal policies. On the basis of the above, Aegon’s Executive
�� Aegon’s risk management and control systems functioned properly in 2012.
�� There are no indications to suggest that Aegon’s risk management and control systems will not continue to function properly in 2013.
Act (Wet op het Financieel Toezicht), the Executive Board confirms that, to the best of its knowledge, the financial statements prepared in accordance with applicable accounting standards give a true and fair view of the assets, liabilities, financial condition and profit or loss of the company and the undertakings included in the consolidation as a whole and that the Report of the Executive Board includes a fair view of the development and performance of the business during the financial year and the position at balance sheet date of the company and the undertakings included in the consolidation as a whole, together with a description of the principal risks and uncertainties the company faces.
The Hague, March 20, 2013 The Executive Board of Aegon N.V.
The Supervisory Board is entrusted with the task of supervising and advising the Executive Board on its management of the company, as well as overseeing Aegon’s strategy and the general course of its businesses.
Oversight and advice In performing their duties, the members of the Supervisory
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 itself. In addition, the Supervisory Board determines the remuneration of individual members of the Executive Board in line with the Remuneration Policy as adopted at the company’s
Governance Code are to be found on pages 120 to 124 of this
Supervisory Board meetings Attendance In 2012, the Supervisory Board held a total of seven regular
One member did not attend one meeting, due to the rescheduling of that particular meeting, which lead to a conflict with another meeting he had to attend. All Board meetings were immediately preceded or followed by Executive Meetings. These are meetings of the Supervisory Board which are not attended by members of the Executive or Management Boards.
In accordance with Aegon’s Supervisory Board Rules, all regular meetings in 2012 were preceded by preparatory meetings, held prior to the Board meetings, attended by the Chairman and the
Audit Committee, as well as by the Chief Executive Officer and
Activities In 2012, discussions within Aegon’s Supervisory Board focused on the following issues, among others: �� Strategy, including sustainability.
�� Annual and quarterly results and the Embedded Value Report 2011.
Highlights 2011 was marked by the repurchase of the capital support
Board and Executive and Management Boards discussed the impact of these factors on Aegon and how Aegon could best respond. As an example, the Supervisory Board discussed with management the consequences of the ban on commissions in the United Kingdom and the development of a new online at-retirement and workplace savings platform. 2012 also saw the launch of Knab, an online retail wealth advisory platform in the Netherlands.
accelerate the growth of the business or allow expansion in new markets. As an example the Board approved the joint venture with Banco Santander in Spain and the acquisition of Fidem Life in Ukraine.
At the same time Aegon continued to restructure its businesses to ensure that the company remains competitive in the new environment. The Board was kept apprised on a regular basis of the progress of these restructurings.
The Supervisory Board and its Risk Committee received regular updates on the eurocrisis and Aegon’s preparedness to withstand its consequences. As in 2011 and previous years, the Board and management focused on maintaining a strong capital position, which was evidenced by EUR 2.0 billion excess capital at
At meetings in November and December, the Board and the Audit
Board and management had extensive discussions on Aegon’s strategy in view of the changing environment in which Aegon operates and the impact these changes have on the business in the medium-term. The Board agreed with management on the strategic direction which has been developed by management on the basis of the core themes formulated in 2011: employing technology to get much closer to Aegon’s end customers, pursuing growth in new markets, providing products and services across the customer’s life cycle, developing new distribution models and rebalancing risk. The Board appreciates the commitment of management to ensuring that all employees understand the strategic direction of the company and most importantly, their role in bringing about the strategic transformation that this work intends. This was the result of a broad engagement program whereby management discussed the strategy and its local implications at various levels of the organization. During the strategy sessions, the Board received updates and discussed the initiatives necessary to execute the strategy, such as the use of new technologies in Aegon’s distribution channels. Gaining trust from its customers by capitalizing on developments in digital technology, which will enable Aegon to get closer to its customers, is a key element of the strategy. The Board also expressed its support for the integration of sustainability into the strategy, making clear that it should not be viewed in isolation, but as a fundamental part of the strategy and in the management of day-to-day business.
Results and budget On February 16, 2012, the Supervisory Board convened to discuss the results of the fourth quarter of 2011. In March 2012, the Supervisory Board reviewed and adopted Aegon’s 2011 Annual Report, the consolidated financial statements of Aegon N.V. and the financial statements of Aegon N.V.
The Board noted with satisfaction that Aegon completed the implementation of the financial transformation and could now fully address the strategic transformation by focusing on the application of digital technology, growing the accumulation and
The Board supported the Group Plan and approved the budget for 2013. The Board also approved the 2013 Capital Plan and authorized the Executive Board to provide for Aegon’s funding needs as budgeted.
Human Resources provided an update on the main developments during 2012: the roll-out of the strategy story to all employees worldwide, actions in the field of talent management and succession planning, performance management and the follow up on the Global Employee Survey in 2011.
Legal and compliance During 2012, the Supervisory Board and the Audit Committee discussed with management, the General Counsel and the Group
Appointments to the Supervisory Board and the Executive Board In March, the Supervisory Board decided that shareholders would be asked to approve the reappointments of Mr. Irving W. Bailey,
II, Mr. Robert J. Routs, Mr. Ben van der Veer and Mr. Dirk P.M.
Board. This proposal was accepted by shareholders at their annual General Meeting in May 2012. In November, the Board decided to propose to shareholders the appointment of Mr.
Darryl D. Button as CFO for a term of four years as from May 15, 2013, following the retirement of Mr. Jan Nooitgedagt.
US regulatory topics during their offsite meeting in Baltimore, where they met with senior management of Aegon Americas and its three business units.
Supervisory Board Committees The Supervisory Board requires its four Committees to prepare specific issues for decision-making by the Board. Each of these
The Audit Committee The Audit Committee held seven meetings in 2012, one of which was a combined meeting with the Supervisory Board’s Risk
Committee. One of the meetings was held in Baltimore at the offices of Aegon Americas and dedicated to the three business lines of the US business: Life & Protection, Individual Savings &
Audit Committee. In 2012, discussions focused on the following topics: the quarterly results, the annual accounts and the audit process, Aegon’s 2011 Embedded Value Report and annual value of new business figures, actuarial analyses, accounting principles as defined by IFRS, financial reports filed with the Securities and
issues. The latter two topics were discussed in the combined Risk
Committee to the Supervisory Board that shareholders be asked to reappoint Ernst & Young for the 2012 financial year.
At the advice of the Audit Committee, the Supervisory Board decided to put the audit of Aegon’s accounts to tender for 2014 and following. This was communicated to the shareholders at the annual General Meeting of Shareholders on May 16, 2012. In February 2013, it was announced that the Board will propose to shareholders to appoint Ernst & Young as the company’s independent auditor for the annual accounts 2013 and PwC as the company’s independent auditor for the annual accounts 2014 through 2016, at the annual General Meeting of
Committee during 2012 and provided quarterly updates on the activities of the internal audit function, among others providing details on the progress of internal audits. During the meetings, the Audit Committee held private sessions with the internal auditor, as well as with the external auditor, to discuss their findings. Members of the Executive Board were not present at these sessions.
Committee confirmed that Mr. Shemaya Levy and Mr. Ben van der
The Risk Committee The Risk Committee convened five times in 2012. The members of Aegon’s Executive Board and the company’s Chief Risk Officer attended these meetings, while representatives of Aegon Asset
Enterprise Risk Management (ERM) framework. The Committee also advised the Supervisory Board with respect to the company’s risk management strategy and policies. Consequently, the Committee regularly reviews the company’s ERM framework, its risk exposure and compliance with company risk policies.
The Committee performed a number of “deep dives”, for example into interest rate risk, policy behavior, risk structuring and transfer and liquidity risk management.
The Nominating Committee Aegon’s Nominating Committee held four meetings in 2012.
Supervisory Board and its Committees, as well as existing and upcoming vacancies. The Committee also advised the Supervisory
Supervisory Board will have regard to gender diversity in view of the requirement to aim for a balanced composition of the
The Compensation Committee The Compensation Committee held seven meetings in 2012, and the CEO attended some of these meetings. The range of topics in scope for the Compensation Committee has increased in recent years as a result of new regulations promulgated by the
and the Guidelines on Remuneration Policies and Practices issued by the Committee of European Banking Supervisors. CRD III is implemented by way of the Decree on Sound Remuneration 109Annual Report 2012
Policy (Regeling Beheerst Beloningsbeleid Wft 2011-Rbb) as issued by DNB. In 2011, shareholders approved the amended
In 2012, the Compensation Committee oversaw the application and implementation of Aegon’s Global Remuneration
Committee discussed the results of a review by the Internal Audit
Other topics on the agenda of the Compensation Committee were the 2012 targets for the Executive Board members and the scenario analysis of payout levels under the Executive Board
Board prior to his retirement in April 2002. Mr. Storm joined the Supervisory Board in July 2002. In April 2010, shareholders reappointed Mr. Storm for a term of four years.
In 2012, the terms of Mr. Robert J. Routs, Mr. Irving W. Bailey II,
The current term of Mr. Shemaya Levy will expire in 2013. On advice from the Nominating Committee, the Supervisory Board has decided to nominate Mr. Levy for reappointment as member of the Board for a further term of four years by the shareholders at the General Meeting of Shareholders.
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. In 2013, no member comes up for reappointment. The appointment schedule for members of the Executive Board is included in the company’s
Acknowledgement Throughout 2012, Aegon continued to build upon the progress achieved in recent years to create a more efficient, coordinated and responsive organization. A broad range of actions were implemented in the course of the year reflecting Aegon’s commitment to delivering on its strategic priorities of creating greater operational efficiencies and pursuing its essential objective of getting closer to customers in order to serve their diverse and developing needs. The members of the Supervisory
Robert J. Routs is a former Executive Director for Downstream at the energy company Royal Dutch Shell. He was appointed to Aegon’s Supervisory Board in 2008 and became Chairman in 2010. His current term as a member of the Aegon Supervisory
Board in 2004. His current and last term will end in 2016.
Computer Sciences Corp. and Hospira, Inc. as well as a senior adviser to Chrysalis Ventures Inc. (not listed).
Aegon’s Supervisory Board in 2005 and his current term will end in 2013. He is also a member of the Supervisory Board of TNT
Express N.V. and the Board of Directors of PKC Group Oyj and
Aegon N.V. He was appointed to Aegon’s Supervisory Board in 2002 and his current and last term will end in 2014. He is also
Supervisory Board in 2008 and his current term will end in 2016.
He is also a member of the Supervisory Board of TomTom N.V.
and Reed Elsevier NV, as well as a non-executive member of the
Mr. Verbeek was appointed to Aegon’s Supervisory Board in 2008. His current term ends in 2016. He is also Chairman of the
Supervisory Board of Robeco Groep N.V. (not listed) as well as a member of the Supervisory Board of Aon Groep Nederland B.V.
Officer of Aon Corporation. Furthermore, he is Chairman of the Benelux Advisory Board of Leonardo & Co. B.V. (not listed), member of the Advisory Boards of CVC Europe (not listed) and
Board in 2003, and his current and last term will end in 2015.
He is also Deputy Chief Executive Officer and Vice-Chairman of the Board of Directors of Air France-KLM S.A. Furthermore, he is Vice-Chairman of the Supervisory Board of Randstad Holding
N.V. and Ajax N.V. as well as Chairman of the Governing Board of Skyteam.
Shemaya Levy (Chair) Irving W. Bailey, II (Chair) Robert J. Routs (Chair) Leo M. van Wijk (Chair)
Dirk P.M. Verbeek Dirk P.M. Verbeek Kornelis J. Storm Robert J. Routs
Remuneration Policy and Report The Aegon Group Global Remuneration Principles provide the foundation for remuneration policies and practices throughout the Group. They have been rolled out for regional and/or local application.
Group remuneration, consistent with the principle of “pay for performance”; avoiding any “pay-for-non-performance”.
�� Aegon remuneration is fairness-driven by: promoting fairness and consistency in Aegon’s remuneration policies and practices, with balanced proportions in the remuneration packages, across the different echelons within Aegon Group and regional units (internally equitable); avoiding, among others, any discrimination on nationality, race, gender, religion, sexual orientation, and/or cultural beliefs in Aegon’s remuneration structures (internally equitable); creating global alignment in the total compensation of all “Identified Staff”
Board. The policies define specific terms and conditions for the employment of various groups of staff. In addition, all steps in the remuneration process - as well as the involvement of Human
Role of Risk Management and Compliance It is recognized that variable compensation may have an impact upon risk taking behaviors and as such may undermine effective risk management. This can lead to excessive risk taking, which can materially impact financial soundness. To avoid such unwarranted effect of the Aegon Remuneration Framework and practices, both the Risk Management and Compliance function are involved in the design and execution of the remuneration policies and practices.
1 Staff whose professional activities may materially influence Aegon’s business performance and risk profile.
2 Senior Staff in Control Function positions (Compliance, Risk and Audit) at Group or country/regional unit level.
In addition, the Risk Management and Compliance functions, together with the Human Resources and Finance functions are responsible for the execution of the various ex-ante and ex-post measures that have been introduced by Aegon to ensure the
Retribution measures that are applied after payout or where it concerns allocated but deferred payments (before vesting of these payments) to ensure sustainability of performance, are considered ex-post measures.
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 company’s Compensation Committee1 They are approved at the General Meeting of Shareholders.
Fees and entitlements Members of the Supervisory Board are entitled to the following: �� A base fee for membership of the Supervisory Board itself. No separate attendance fees are paid to members for attendance at the regular Supervisory Board meetings.
�� An attendance fee for each extra Board meeting, attended in person or by video or telephone conference.
�� A committee fee for members on each of the Supervisory
�� An attendance fee for each Committee meeting attended in person or through video and/or telephone conferencing.
Under the current policy, members of the Supervisory Board are entitled to the following fees: 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.
Fee for membership of a Supervisory Board committee EUR / year Chairman of the Audit Committee 10,000
Compensation and Risk - may be found on pages 111 and 112.
Supervisory Board Remuneration Report 2012 Members of Aegon’s Supervisory Board received the following payments (in EUR) in 2012: Robert J. Routs (Chairman) 109,250 101,250
Remuneration Policy (Regeling beheerst beloningsbeleid WFt 2011-Rbb) by DNB. It was adopted at the General Meeting of Shareholders on May 12, 2011. The Policy will remain in force until such time as the Supervisory Board proposes changes or amendments.
Remuneration Policies to ensure they remain in line with prevailing international standards. This review is based partly on information provided by Aegon’s external adviser, Towers
Review of the Remuneration Policy Aegon’s Executive Board Remuneration Policy is reviewed every year by the Compensation Committee. The Policy applies to all members of Aegon’s Executive Board.
Framework and sets out terms and conditions for members of the company’s Executive Board.
Board members’ remuneration, consistent with the principle of “pay for performance”.
Remuneration Policy in force since the beginning of 2010, effective as of performance year 2011. This Executive Board
Companies included in the peer group have been chosen according to the following criteria: �� Industry (preferably life insurance).
In 2012, the peer group comprised the following companies: Aviva, Axa, CNP Assurances, Generali, ING Group, Legal & General,
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 NYSE
to determine the long-term effect of level and structure of compensation granted to members of the Executive Board. The
Supervisory Board (Compensation Committee) has discussed and endorsed the 2012 total compensation for the Executive Board.
commitment to the company’s business strategy, risk tolerance and long-term performance. Variable compensation is based on a number of individual and company performance indicators, regularly evaluated by experts in the company’s Finance, Risk,
For 2012, the performance period for variable compensation is one year. By implementing deferral, and additional holding periods, Aegon believes the long-term interests of the Executive
Board member are aligned with the interests of Aegon and its stakeholders.
Euronext Amsterdam stock exchange for the period December 15 through January 15. After the performance year, the company shall assess the realized performance on the performance indicators and a comparison will be made between the minimum, target and maximum levels of the performance indicators and the realized performance. Subsequently, the amount of conditional variable compensation that can be allocated will be established. Variable compensation will be allocated once accounts for the financial year in question have been adopted by the company’s shareholders and after an ex-ante assessment.
The allocated variable compensation consists of equal parts of cash and shares of which 40% will be paid out (or vest) following the performance year, and 60% that will be deferred. This deferred portion will remain conditional until it vests.
Group financial IFRS based 30% Group underlying earnings after tax, return on equity.
Group financial risk adjusted based 30% Group market consistent value of new business 2012, group pre-tax return on required capital 2012.
Each year a one-year target will be set for each performance indicator.
Ex-post assessment and discretionary adjustments The Supervisory Board uses its judgement in the assessment of the outcome of personal/strategic targets to make sure that, taken together, they form a fair reflection of the overall performance of the Board member over the performance period.
In addition, the Supervisory Board will apply an ex-post risk assessment to deferred payouts of variable compensation in order to determine whether allocated (that is, unvested)
variable compensation should become unconditional (meaning it will vest) or should be adjusted. This ex-post assessment will be based on informed judgment by the Supervisory Board, taking into account significant and exceptional circumstances that are not (sufficiently) reflected in the initially applied performance indicators.
Malus and claw-back provision Where variable compensation has been based upon incorrect data (including non-achievement of performance indicators on hindsight), or in the case of material financial restatements or individual gross misconduct, Aegon’s Supervisory Board will have the right to reduce deferred variable compensation payments (in either cash and/or shares) not yet paid out or vested and /or reclaim variable compensation that has already been paid out or vested.
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.
Meeting of Shareholders on May 15, 2013 variable compensation for Executive Board members is set in cash and shares, based on both their individual and the company’s performance. Targets for the performance indicators have been set in line with the agreed variable compensation targets and 2012 company budgets.
Forty percent of variable compensation related to performance year 2012 is payable in 2013. This will be split 50/50 in a cash payment and in an allocation of shares.
Mr. Wynaendts and Mr. Nooitgedagt are eligible to receive in 2013 a cash payment of EUR 203,536 and EUR 139,859 respectively.
(with the exception of shares sold to meet income tax obligations). With regard to vested shares, a retention (holding)
period is applicable for a further three years, before they are at the disposal of the Executive Board members.
is to be paid out in future years, subject to ex-post assessments, that may result in downward adjustments and may be subject to additional conditions being met. In each of the years 2014, 2015 and 2016, 20% of the total variable compensation may be made available. Any payout will be split 50/50 in a cash payment and an allocation of shares (vesting). After vesting a retention
Impact of ex-ante and ex-post assessment on attribution of variable compensation No variable compensation from previous years payable in 2012, which has been subject to the claw-back provision, has been reclaimed in 2012.
Corporate governance Aegon is a public company under Dutch law, and is governed by three corporate bodies: the General Meeting of Shareholders, the Executive Board and the Supervisory Board. As a company based and registered in the Netherlands, Aegon is subject to the Dutch Corporate Governance Code1.
EUR 100 million in market value will not be effective until the law has changed.
3 For further information, please refer to page 122 for a description of Special control rights.
Meetings are convened by public notice. And when deemed necessary, the Supervisory or Executive Board has the authority to convene an extraordinary General Meeting of Shareholders.
Shareholders, to speak and vote, either in person or by proxy granted in writing. This includes electronically submitted proxies.
Record date The record date is used to determine shareholders’ entitlements with regard to their participation and voting rights. In accordance with the Dutch law, the record date is 28 days before the day of the General Meeting of Shareholders.
Aegon’s Executive Board is charged with the overall management of the company and is therefore 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.
Executive Board contain provisions entitling them to severance payments, should their employment be terminated as a result of a merger or takeover2. The company’s Remuneration Policy for the Executive Board limits exit arrangements to a maximum of one year’s fixed salary3.
Executive Board, as well as the overall course of the company’s business and corporate strategy. In its deliberations, the
Aegon stakeholders. The Supervisory Board operates according to the principles of collective responsibility and accountability.
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: �� 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 decides to make an exception. Supervisory Board members’ remuneration is determined by the General Meeting of Shareholders.
Aegon’s ownership structure and exercise of control As a publicly listed company, Aegon is required to provide the following detailed information regarding any structures or measures that may hinder or prevent a third party from acquiring the company or exercising effective control over it.
A. Capital of the company Aegon has authorized capital of EUR 610 million, divided into 3 billion common shares, each with a par value of EUR 0.12 and one billion class A and class B preferred shares, each with a par value of EUR 0.25.
At the end of 2012, a total of 1,972,029,595 common shares and 329,773,000 preferred shares had been issued. These represented respectively 74.16% and 25.84% of Aegon’s total issued and fully paid-up capital.
Depository receipts for Aegon shares are not issued with the company’s cooperation.
The voting rights attached to preferred shares are subject to restrictions, as described hereunder under “Special control rights”. Under these restrictions each share carries one vote.
The capital contribution on class A preferred shares is a reflection of the market value of Aegon’s common shares at the time the contribution was made. In addition, preferred shares carry the right to a preferred dividend on the paid-in amount.
B. Significant shareholdings On December 31, 2012, Vereniging Aegon, Aegon’s largest shareholder, held a total of 171,974,055 common shares; 211,680,000 class A preferred shares and 118,093,000 class B
2 Employment contracts for members of Aegon’s Executive Board are available on Aegon’s website (aegon.com).
Agreement1, 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 cause may include: �� The acquisition by a third party of an interest in Aegon N.V.
As a result of both this and the existence of certain qualified majority voting requirements specified in Aegon’s Articles of
Vereniging Aegon’s share of the company’s voting capital represented 22.06% at December 31, 2012.
Vereniging Aegon to cancel all of Aegon’s preferred shares, of which Vereniging Aegon is the sole owner. Under the agreement, all of Aegon’s preferred shares will be exchanged for cash and common shares. To effectuate the agreement, Aegon’s
For more information on Vereniging Aegon and the proposed new capital structure, please refer to pages 307 to 309 of the consolidated financial statements in this Annual Report, or the website of Vereniging Aegon, www.verenigingaegon.nl.
To Aegon’s knowledge, only one other party holds a capital and voting interest in Aegon N.V in excess of 5%. According to its filing with the United States Securities and Exchange
E. Suspending or dismissing Board members Members of Aegon’s Supervisory and Executive Boards may be suspended or dismissed by the General Meeting of Shareholders with a two-thirds majority of votes cast, representing at least one half of Aegon’s issued capital, unless the suspension or dismissal has first been proposed by the company’s Supervisory
G. Issue and repurchase of shares New shares may be issued up to the maximum of the company’s authorized capital, following a resolution adopted by the General
Shareholders usually authorize the Executive Board to purchase 1 The 1983 Merger Agreement, as amended, is published on Aegon’s website (aegon.com).
I. Shareholder agreements Aegon has no knowledge of any agreement between shareholders that might restrict the transfer of shares or the voting rights pertaining to them.
For further details, please see note 14 of the notes to Aegon’s consolidated financial statements of this Annual Report. Under the terms of existing share option plans Aegon cannot influence the exercise of granted rights.
Dutch Corporate Governance Code As a company based in the Netherlands, Aegon adheres to the
The Code also promotes transparency in decision-making and helps strengthen the principles of good governance. The original
Governance Code requires that the maximum compensation in the event of dismissal should be one year’s salary - or two years’ salary for cases where one year’s salary would be manifestly unreasonable, such as a member who is dismissed in his or her first term of office.
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.com.
Code IV.1.1 The Dutch Corporate Governance Code states that the General
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
Differences between Dutch and US company laws Dutch company law is different from US law in the following respects: Aegon, like most large Dutch public companies, has a two-tier governance system involving an Executive Board and a
Shareholders. The number of the Executive Board members and the terms of their employment are determined by the
Board. Members of the Supervisory Board are appointed for a four-year term and may be dismissed by the General Meeting of
Based on the assessment, management has concluded that, in all material aspects, the internal control over financial reporting was effective as at December 31, 2012. They have reviewed the results of its work with the Audit Committee of the Supervisory
The effectiveness of internal control over financial reporting as of December 31, 2012, was audited by Ernst & Young, an independent registered public accounting firm, as stated in their report included under item C below.
C. Attestation report of the independent registered public accounting firm Report of independent registered public accounting firm The Supervisory Board, the Executive Board and shareholders of Aegon N.V. We have audited Aegon N.V.’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Aegon N.V.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s
Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Aegon N.V., and our report dated March 20, 2013, expressed an unqualified opinion thereon.
The Hague, the Netherlands, March 20, 2013 Ernst & Young Accountants LLP
D. Changes in internal controls over financial reporting There have been no changes in internal controls over financial reporting during the period covered by this Annual Report that have materially affected, or reasonably likely to affect, Aegon’s internal controls over financial reporting.
Aegon N.V. 135 Consolidated cash flow statement of Aegon N.V. 138 Exchange rates for main schedules 139
Financial statements of Aegon N.V. Income statement of Aegon N.V. 290 Statement of financial position of Aegon N.V. 291
Other financial information Schedule I 310 Schedule II 311 Schedule III 313 Schedule IV 314 Schedule V 314
Earnings per share (EUR per share) 19 Basic earnings per share 0.69 (0.06) 0.76
Total comprehensive income attributable to: Equity holders of Aegon N.V. 4,073 3,758 5,394
Other comprehensive income: Gains / (losses) on revaluation of available-for-sale investments - - 4,221 - - 4,221 - 4,221
Changes in revaluation reserve real estate held for own use - - (5) - - (5) - (5)
Changes in cash flow hedging reserve - - (92) - - (92) - (92)
Dividends paid on common shares - (148) - - - (148) - (148)
Issuance of non-cumulative subordinated notes - - - - 271 271 - 271
Share options and share-based incentive plans - - - - 27 27 - 27
Other comprehensive income: Gains / (losses) on revaluation of available-for-sale investments - - 3,113 - - - 3,113 - 3,113
Changes in revaluation reserve real estate held for own use - - 3 - - - 3 - 3
Changes in cash flow hedging reserve - - 1,058 - - - 1,058 - 1,058
Total other comprehensive income / (Loss) - 4 2,506 379 - - 2,889 - 2,889
Total comprehensive income / (loss) for 2011 - 873 2,506 379 - - 3,758 3 3,761
Coupons and premiums on convertible core capital securities - (750) - - - - (750) - (750)
Changes in revaluation reserve real estate held for own use - - 4 - - - 4 - 4
Changes in cash flow hedging reserve - - 373 - - - 373 - 373
Movements in foreign currency translation and net foreign investment hedging reserves - - - 1,054 - - 1,054 - 1,054
Total other comprehensive income / (Loss) - 7 2,667 961 - - 3,635 - 3,635
Total comprehensive income / (loss) for 2011 - 1,766 2,667 961 - - 5,394 1 5,395
Insurance and investment liabilities for account of policyholders 11,042 (154) 14,274
Purchase of individual intangible assets (other than VOBA and future servicing rights) (38) (18) (20)
Purchase of equipment and real estate for own use (65) (72) (116)
Acquisition of subsidiaries and associates, net of cash (126) (99) (31)
Disposal of subsidiaries and associates, net of cash 286 823 (158)
Proceeds from TRUPS 1, subordinated loans and borrowings 6,693 5,627 7,551
Repayment of TRUPS 1, subordinated loans and borrowings (3,886) (4,342) (6,577)
Coupons and premium on convertible core capital securities - (750) (63)
Net increase / (decrease) in cash and cash equivalents 2 1,707 2,545 1,104
Net cash and cash equivalents at the beginning of the year 7,826 5,174 4,013
Net cash and cash equivalents at the end of the year 29 9,560 7,826 5,174 1 Trust pass-through securities. 2 Included in net increase / (decrease) in cash and cash equivalents are interest received (2012: EUR 7,345, 2011: EUR 7,407 million and 2010: EUR 8,167 million)
The consolidated financial statements are no longer prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, as Aegon applies fair value hedge accounting for portfolio hedges of interest rate risk (macro hedging) under the EU ‘carve out’ of IFRS. The methodology for fair value hedge accounting under the EU ‘carve out’ is not allowed by International Financial Reporting Standards as issued by the IASB. This change in basis of presentation has to be applied retrospectively, however as Aegon started to use macro hedging under the EU ‘carve out’ as of October 1, 2012 no adjustments to the comparative information have been made. If Aegon would not have applied the EU ‘carve out’ for its macro fair value hedge accounting, net income of 2012 and shareholders’ equity per December 31, 2012 would have been EUR 39 million lower. By applying macro hedging under the EU ‘carve out’, the consolidated income statement reflects the economic substance of Aegon’s hedge programs more appropriately. Details are provided in note 2.10 and note 24.
The consolidated financial statements have been prepared in accordance with the historical cost convention as modified by the revaluation of investment properties and those financial instruments (including derivatives) and financial liabilities that have been measured at fair value. Information on the standards and interpretations that were adopted in 2012 is provided below in paragraph 2.1.1. Certain amounts in prior years have been reclassified to conform to the current year presentation. These reclassifications had no effect on net income, shareholders’ equity or earnings per share. The consolidated financial statements are presented in euro and all values are rounded to the nearest million except when otherwise indicated.
March 20, 2013. The financial statements are put to the annual General Meeting of Shareholders on May 15, 2013 for adoption.
The amendments to IFRS 7 are effective for annual periods beginning on or after July 1, 2011 and require the disclosure of transfers of financial assets including the possible effects of any risks that may remain with the entity that transferred the assets. The amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period. Aegon has included these new disclosures in note 50.
In addition, the following new standards, amendments to existing standards and interpretations are mandatory for the first time for the financial year beginning January 1, 2012 but are not currently relevant or do not have impact for the Group: �� IAS 12 Income Taxes - Recovery of Tax Assets; �� IFRS 1 First Time Adoption - Severe Hyperinflation and Removal of Fixed Dates for First Time Adopters.
The amendments to IFRS 7 are effective for annual periods beginning on or after January 1, 2013. The amendments enable users of the financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with the entity’s recognized financial assets and recognized financial liabilities, on the entity’s financial position. The amendment affects disclosure only and has therefore no impact on Aegon’s financial position or performance.
IASB decided to reopen IFRS 9 in order to consider interaction with the insurance project as well as the US FASB’s classification and measurement model for financial instruments. IFRS 9 is expected to have a significant impact on the Group’s financial statements because it will likely result in a reclassification and re-measurement 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 IFRS 9 are completed and issued.
The standard applies to financial years beginning on or after January 1, 2013, and identifies the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. In addition, the IASB has issued amendments to IFRS 10 on transition guidance and investment entities which are currently not yet endorsed. Aegon expects the impact of the standard on its comparative numbers at the date of adoption to be EUR 125 million (post tax) negative on shareholders’ equity and EUR 30 million (post tax) negative on net income.
The standard applies to financial years beginning on or after January 1, 2013, and provides a definition of joint arrangements by focusing on the rights and obligations of the arrangement rather than its legal form. The standard requires a single method to account for interests in jointly controlled entities. Aegon has assessed the impact of this standard and concludes that all joint arrangements
The standard applies to financial years beginning on or after January 1, 2013, and provides disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, structured entities and other off balance sheet vehicles. This standard affects disclosure only and has therefore no impact on Aegon’s financial position or performance.
IAS 1 Financial Statement Presentation - Presentation of Items of Other Comprehensive Income
The amended standard applies to financial years beginning on, or after, January 1, 2013. The amendments eliminate the option to defer the recognition of actuarial gains and losses, known as the “corridor method”. The amendments streamline the presentation of changes in assets and liabilities arising from defined benefit plans, including requiring actuarial gains and losses to be presented in other comprehensive income. The revised standard also requires the expected return on plan assets to be replaced by the discount rate used to determine the defined benefit liability. The discount rate shall be determined by reference to market yields at the end of the reporting period on high quality corporate bonds. And, furthermore, the revised standard enhances the disclosure requirements for defined benefit plans, providing information about the characteristics of defined benefit plans and the risks that entities are exposed to through participation in those plans.
As per December 31, 2012, Aegon estimates the adverse impact on other comprehensive income of removing the corridor at the date of adoption to be approximately EUR 1.1 billion (post tax), consisting of the unrecognized actuarial gains and losses as per that date. Aegon estimates the positive impact on net income of its comparative numbers at the date of adoption to be approximately
EUR 0.1 billion (post tax). The impact is a consequence of removing the amortization of actuarial gains and losses outside the corridor partially offset by replacing the expected return on plan assets by the discount rate used to determine the defined benefit liability.
(IGD) ratio of approximately 15 percentage points at the date of adoption.
January 1, 2013. As this amendment does not change the presentation of the separate financial statements, Aegon does not expect any impact on the financial position or performance of the company.
As a consequence of the new IFRS 11 and IFRS 12, IAS 28 has been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The amendment becomes effective for annual periods beginning on or after January 1, 2013. Aegon expects the impact of IAS 28 on the Group’s financial statements to be insignificant.
IAS 32 Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities
The amendments to IAS 32 Financial Instruments: Presentation, clarify the application of the offsetting requirements. The amendments are effective for annual periods beginning on or after January 1, 2014, with earlier application permitted. Aegon is currently assessing the impact of this standard.
The IASB issued, in May 2012, a number of minor amendments to five different standards and interpretations. These amendments, which are effective from January 1, 2013, deal with minor changes to the wordings used in the individual standards and seek to remove editorial and other inconsistencies in the literature. Aegon expects that the improvements project does not result in any changes to the classification, measurement or presentation of any items in the financial statements.
The following amendments to the existing standard and interpretation, published prior to January 1, 2013, were not early adopted by the Group as these amendments to existing standard and interpretation are not relevant for the Group: �� IFRS 1 First Time Adoption - Government Loans; �� IFRIC 20 - Stripping Costs in the Production Phase of a Surface Mine.
2.3 Basis of consolidation a. Subsidiaries 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.
Special purpose entities are consolidated if, in substance, the activities of the entity are conducted on behalf of the Group, the Group has the decision-power to obtain control of the entity or has delegated these powers through an autopilot, the Group can obtain the majority of the entity’s benefits or the Group retains the majority of the residual risks related to the entity or its assets.
The subsidiary’s assets, liabilities and contingent liabilities are measured at fair value on the acquisition date and are subsequently accounted for in accordance with the Group’s accounting principles, which is consistent with IFRS. Intra-group transactions, including
The excess of the consideration paid to acquire the interest and the fair value of any interest already owned, over the Group’s share in the net fair value of assets, liabilities and contingent liabilities acquired is recognized as goodwill. Negative goodwill is recognized directly in the income statement. If the fair value of the assets, liabilities and contingent liabilities acquired in the business combination has been determined provisionally, adjustments to these values resulting from the emergence of new evidence within twelve months after the acquisition date are made against goodwill. Contingent consideration is discounted and the unwinding is recognized in the income statement as an interest expense. Any changes in the estimated value of contingent consideration given in a business combination prior to the adoption of IFRS 3 (as revised in 2008) are recognized in goodwill. Any changes in the estimated value of contingent consideration given in a business combination after the adoption of IFRS 3 (as revised in 2008) are recognized in the income statement.
are recorded in other comprehensive income. Any difference between consideration paid or received and the proportionate share in net assets is accounted for in equity attributable to shareholders of Aegon N.V.
Exchange differences on monetary items are recognized in the income statement when they arise, except when they are deferred in other comprehensive income as a result of a qualifying cash flow or net investment hedge. Exchange differences on non-monetary items carried at fair value are recognized in other comprehensive income or the income statement, consistently with other gains and losses on these items.
2.5 Segment reporting Aegon’s operating segments are based on the businesses as presented in internal reports that are regularly reviewed by the Executive
The comparative figures, affecting the Aegon Americas and New Markets segment, regarding the underlying earnings have been revised as follows: Reported Reclassification Revised
IFRS accounting policies for financial instruments and insurance contracts, which embed a number of accounting policy alternatives that companies may select in presenting their results (i.e. companies can use different local GAAPs to measure the insurance contract liability) and that can make the comparability from period to period difficult.
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 Netherlands and Variable Annuities Europe (included in New Markets) are excluded from underlying earnings, and the long-term expected return for these guarantees is set at zero.
Fair value items Fair value items include the over- or underperformance of investments and guarantees held at fair value for which the expected longterm return is included in underlying earnings. Changes to these long-term return assumptions are also included in the fair value items.
Other charges include restructuring charges that are considered other charges for segment reporting purposes because they are outside the normal course of business. In the consolidated income statement, these charges are included in operating expenses.
Bank-Owned and Corporate-Owned Life Insurance (BOLI/COLI) business and life reinsurance business in the United States. Aegon has other blocks of business for which sales have been discontinued and of which the earnings are included in underlying earnings.
2.8 Investments Investments comprise financial assets, excluding derivatives, as well as investments in real estate.
a. Financial assets, excluding derivatives Financial assets are recognized on the trade date when the Group becomes a party to the contractual provisions of the instrument and are classified for accounting purposes depending on the characteristics of the instruments and the purpose for which they were purchased.
A security that has been received under a borrowing or reverse repurchase agreement is not recognized as an asset. A receivable is recognized for any related cash (collateral) paid by Aegon. The difference between sale and repurchase price is treated as investment income. If the Group subsequently sells that security, a liability to repurchase the asset is recognized and initially measured at fair value.
All property is initially recognized at cost. Such cost includes the cost of replacing part of the real estate and borrowing cost for longterm construction projects if recognition criteria are met. Subsequently, investments in real estate are measured at fair value with the changes in fair value recognized in the income statement. Real estate held for own use is carried at its revalued amount, which is the fair value at the date of revaluation less subsequent accumulated depreciation and impairment losses. Depreciation is calculated on a straight line basis over the useful life of a building. Land is not depreciated. On revaluation the accumulated depreciation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount. Increases in the net carrying amount are recognized in the related revaluation reserve in shareholders’ equity and are released to other comprehensive income over the remaining useful life of the property.
Hedge accounting is discontinued prospectively for hedges that are no longer considered effective. When hedge accounting is discontinued for a fair value hedge, the derivative continues to be carried on the statement of financial position with changes in its fair
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. The Group’s share in losses is recognized until the investment in the associate’s equity and any other long-term interest that are part of the net investment are reduced to nil, unless guarantees exist.
2.13 Deferred expenses a. Deferred policy acquisition costs (‘DPAC’) DPAC relates to all insurance contracts and investment contracts with discretionary participation features and represents mainly 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 margins. For products sold in the United States and Canada with amortization based on 153Annual Report 2012
For all products, DPAC, in conjunction with VOBA where appropriate, is assessed for recoverability at least annually on a country-bycountry basis and is considered in the liability adequacy test for each reporting period. If appropriate, the assumptions included in the determination of estimated gross profits are adjusted. The portion of DPAC that is determined not to be recoverable is charged to the income statement.
2.16 Impairment of assets 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.
b. Impairment of debt instruments Debt instruments are impaired if there is objective evidence that a credit 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.
Group after deducting all of its liabilities and the Group 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 Group has issued perpetual securities.
Aegon has the option to defer coupon payments at its discretion. The perpetual capital securities are classified as equity rather than debt, are measured at par and those that are denominated in US dollars are translated into euro using historical exchange rates.
2.18 Trust pass-through securities, subordinated borrowings and other borrowings A financial instrument issued by the Group is classified as a liability if the contractual obligation must be settled in cash or another financial asset or through the exchange of financial assets and liabilities at potentially unfavorable conditions for the Group.
Trust pass-through securities, subordinated borrowings 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.
Insurance contracts are contracts under which the Group accepts a significant risk - other than a financial risk - from a policyholder by agreeing to compensate the beneficiary on the occurrence of an uncertain future event by which he or she will be adversely affected.