ECB. Emerging market bonds had a very good year despite the sell-off after the US presidential election. The divergence between different emerging markets was large. Brazil recovered a bit from its crisis, resulting in a sharp appreciation of the real. Meanwhile problems in Turkey intensified due to the failed coup and the reaction of the government.
Aegon Americas, EUR 649 million (December 31, 2015: EUR 757 million) by Aegon the Netherlands, and EUR 19 million (December 31, 2015: EUR 21 million) by Aegon UK. Residential mortgage-backed securities are securitizations of underlying pools of non-commercial mortgages on real estate. The underlying residential mortgages have varying credit characteristics and are pooled together and sold in tranches. The following table shows the breakdown of Aegon USA’s RMBS available-for-sale (AFS) portfolio.
A significant part of Aegon USA's RMBS holdings are rated < BBB, as the issuances took place before the United States housing downturn that started in 2007.
varies greatly based on the significantly diverse characteristics of the current collateral pool for each security. Loan-to- value, loan size, and borrower credit history are some of the key characteristics used to determine the level of assumption that is utilized. Defaults were estimated by identifying the loans that are in various delinquency buckets and defaulting a certain percentage of them over the near-term and long-term. Assumed defaults on delinquent loans are dependent on the specific security’s collateral attributes and historical performance.
Loss severity assumptions were determined by obtaining historical rates from broader market data and by adjusting those rates for vintage, specific pool performance, collateral type, mortgage insurance and estimated loan modifications. Prepayments were estimated by examining historical averages of prepayment activity on the underlying collateral. Quantitative ranges of significant assumptions within Aegon’s modeling process for Prime Jumbo, Alt-A, Negative Amortization and subprime RMBS are as follows: prepayment assumptions range from approximately 0% to 15% with a weighted average of approximately 4.6% (December 31, 2015: 5.2%), assumed defaults on delinquent loans range from 50% to 95% with a weighted average of approximately 79.4% (December 31, 2015: 85.8%), assumed defaults on current loans are dependent on the specific security's collateral attributes and historical performance, while loss severity assumptions range from approximately 24% to 75%, with a weighted average of approximately 57.6%
Once the entire pool is modeled, the results are closely analyzed by Aegon’s asset specialists to determine whether or not Aegon’s particular tranche or holding is at risk for not collecting all contractual cash flows taking into account the seniority and other terms of the tranches held.
The total gross unrealized loss on available-for-sale RMBS of Aegon Americas, Aegon the Netherlands and Aegon UK amounted to
EUR 83 million (December 31, 2015: 155 million), of which EUR 78 million (December 31, 2015: EUR 147 million) relates to positions of Aegon USA, and the total net unrealized gain on available-for-sale RMBS was EUR 210 million (December 31, 2015: EUR 159 million), including a EUR 199 million (December 31, 2015: EUR 145 million) net unrealized gain relating to positions of Aegon
(December 31, 2015: EUR 78 million) by Aegon the Netherlands. CMBS are securitizations of underlying pools of mortgages on commercial real estate. The underlying mortgages have varying risk characteristics and are pooled together and sold in different rated tranches. The company’s CMBS include conduit, large loan, single borrower, commercial real estate collateralized debt obligations
(December 31, 2015: EUR 39 million). The total net unrealized gain on the available-for-sale CMBS as of December 31, 2016, is
The percentage of delinquencies increased during the year; however, this was a result of a declining outstanding balance of CMBS.
Commercial real estate valuation increases have slowed as we have reached peak levels. Liquidity remains reasonable for the CMBS
The tables below summarize the credit quality of Aegon USA’s available-for-sale (AFS) CMBS portfolio. Additionally, Aegon USA has no investments in CMBS (December 31, 2015: EUR 1 million), which are classified as fair value through profit or loss.
The fair values of Aegon USA’s available-for-sale (AFS) CMBS instruments were determined as follows: Level II Level III Total 2016 Level II Level III Total 2015
Asset-backed securities Aegon Americas, Aegon the Netherlands and Aegon UK hold EUR 6,188 million (December 31, 2015: EUR 7,592 million) of AFS ABS
Additionally, Aegon Americas has investments in ABS of EUR 13 million (December 31, 2015: EUR 12 million), which are classified as fair value through profit or loss. ABS are securitizations of underlying pools of credit card receivables, auto financing loans, small
EUR 54 million as of December 31, 2016 (December 31, 2015: EUR 85 million). Aegon USA has EUR 44 million (December 31, 2015: EUR 55 million) of this gross unrealized loss and Aegon the Netherlands EUR 10 million (December 31, 2015: EUR 29 million). In the
The European ABS market experienced a volatile year. Macroeconomic concerns about a slowdown in global economic growth affected the market throughout the first half of the year. Performance recovered more than their initial losses after the ramifications of Brexit turned out to be less severe in the short term. As fundamental performance continues to improve, most asset classes within European
ABS market are trading at their tightest levels since the financial crisis and record issuance levels are met with strong demand.
is as follows: ABS US, NL and UK AAA AA A BBB <BBB
CDOs backed by ABS, Corp. bonds, Bank loans 2,108 790 368 134 94 3,493 3,504
The Banking sub-sector in Aegon’s portfolio is relatively large, diverse, and of high quality. Aegon Americas, Aegon the Netherlands and
Unrealized loss by credit quality The table below shows the composition by credit quality of debt securities, available-for-sale, in an unrealized loss position held by
The unrealized loss improved during 2016 due to tightening credit spreads, offset slightly by rising interest rates.
Realized gains and losses on debt securities of Aegon Americas, Aegon the Netherlands and Aegon UK The following table provides the realized gains and losses on the debt securities of Aegon Americas, Aegon the Netherlands and
Impairment losses and recoveries The composition of Aegon Americas, Aegon the Netherlands and Aegon UK’s bond impairment losses and recoveries by issuer for the periods ended December 31, 2016, and December 31, 2015, is presented in the table below. Those issuers with impairments or recoveries above EUR 25 million are specifically noted.
Net (impairments)‍ and recoveries Net impairments for the twelve months ended December 31, 2016, totalled EUR 11 million (twelve months ended December 31, 2015: EUR 77 million net recoveries).
For the twelve months ended December 31, 2016, Aegon recognized EUR 42 million (twelve months ended December 31, 2015: EUR 110 million) in recoveries on previously impaired securities. In each case where a recovery was taken on structured securities, improvements in underlying cash flows for the security were documented and modeling results improved significantly. Recoveries on non-structured securities were supported by documented credit events combined with significant market value improvements.
Debt securities - carried at fair value 58 9 7 73 51 3 53 108
As of December 31, 2016, there are EUR 207 million of gross unrealized gains and EUR 13 million of gross unrealized losses in the equity portfolio of Aegon (December 31, 2015: EUR 216 million of gross unrealized gains and EUR 13 million of gross unrealized losses). There are no securities held by Aegon with an unrealized loss above EUR 5 million. The table below represents the unrealized gains and losses on share positions held by Aegon Americas, Aegon the Netherlands and Aegon UK.
The composition of shares by industry sector in an unrealized loss position held by Aegon Americas, Aegon the Netherlands and
Aegon UK at December 31, 2016, and December 31, 2015 is presented in the following table.
The sensitivity analysis of net income and shareholders’ equity to changes in equity prices is presented in the table below.
The sensitivity of shareholders’ equity and net income to changes in equity markets reflects changes in the market value of Aegon’s portfolio, changes in DPAC amortization, contributions to pension plans for Aegon’s employees and the strengthening of the guaranteed minimum benefits, when applicable. The results of equity sensitivity tests are non-linear. The main reason for this is due to equity options sold to clients that are embedded in some of these products and that more severe scenarios could cause accelerated
Maturity analysis – gross undiscounted contractual cash flows (for non-derivatives) On demand < 1 yr amount 1 < 5 yrs amount 5 < 10 yrs amount > 10 yrs amount Total amount
Investment contracts for account of policyholders 1) 32,786 3,261 - - 282 36,329 1 Excluding investment contracts with discretionary participating features.
Insurance contracts for account of policyholders - 7,719 32,577 33,490 114,545 188,331
Investment contracts for account of policyholders 292 10,328 25,850 22,867 63,798 123,136
Insurance contracts for account of policyholders - 7,205 30,668 31,314 97,230 166,417
Portugal) are separate operating segments which under IFRS 8 cannot be aggregated, therefore further details will be provided for these operating segments in this segment note. The change in segment reporting does not have an impact on the consolidated statement of financial position, the consolidated income statement and results of operations or the consolidated cash flow statement of Aegon N.V.
This segment reporting is based on the businesses as presented in internal reports that are regularly reviewed by the Executive Board which is regarded as the chief operating decision maker.
Aegon believes that its performance measure underlying earnings before tax provides meaningful information about the underlying results of Aegon’s business, including insight into the financial measures that Aegon’s senior management uses in managing the business. Among other things, Aegon’s senior management is compensated based in part on Aegon’s results against targets using underlying earnings before tax. While many other insurers in Aegon’s peer group present substantially similar performance measures, the performance measures presented in this document may nevertheless differ from the performance measures presented by other insurers. There is no standardized meaning to these measures under IFRS-EU or any other recognized set of accounting standards.
historic assumptions applied in determining the Company’s financial results. The impact of such updates could be either positive or negative on the Company’s financial results. Since 2015, management already reported the impact of model updates in other income /
For segment reporting purposes, the impact of this change in measurement for assumption updates on full year 2015 would have been an increase in Aegon Group consolidated underlying earnings before tax of EUR 77 million and a decrease in fair value items of
EUR 151 million, resulting in an increase in other income / (charges) of EUR 74 million (2014: EUR 141 million increase in consolidated underlying earnings before tax, EUR 4 million increase in fair value items, EUR 5 million increase in run-off earnings, resulting in a decrease in other income / (charges) of EUR 151 million). There is no impact on net income in any of the reporting periods.
Americas, assumption changes and model updates largely offset each other. The main items were the refinement of modelling of crediting rates on indexed universal life policies and management actions, which together offset lower lapse assumptions on certain secondary guarantee universal life insurance blocks. A review of expenses led to an update of the expense assumption in VA Europe leading to a loss of DAC recoverability resulting in a EUR 31 million adverse impact. In the Netherlands, model and assumption updates in the guarantee provision resulted in a benefit of EUR 56 million.
(2014: EUR 352 million charge) to income before tax. Assumption updates resulted in a net EUR 74 million gain (2014: EUR 147 million charge) to income before tax. Model updates had an adverse impact on income before tax of EUR 205 million
Fair value items Fair value items include the over- or underperformance of investments and guarantees held at fair value for which the expected long-term return is included in underlying earnings before tax.
In addition, hedge ineffectiveness on hedge transactions, fair value changes on economic hedges without natural offset in earnings and for which no hedge accounting is applied and fair value movements on real estate are included under fair value items.
In addition, certain products offered by Aegon Americas contain guarantees and are reported on a fair value basis and the total return annuities and guarantees on variable annuities. The earnings on these products are impacted by movements in equity markets and risk-free interest rates. Short-term developments in the financial markets may therefore cause volatility in earnings. Included in underlying earnings before tax 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
In the Consolidated income statement, these restructuring charges are included in operating expenses. Actuarial assumption and model updates are recorded in ‘Policyholder claims and benefits’ in the Consolidated income statement.
The following table presents Aegon’s segment results after reflecting the voluntary changes in accounting policies (as presented in
Note 2.1.2) that came into effect as of January 1, 2016 and the impact of the change in the measurement of actuarial and economic assumption updates implemented in 2016 as described in the paragraph ‘Change in measurement of Performance measure’ above.
Realized gains / (losses) on investments (13) 189 153 - (1) 342 8 3 - - 340 (6) 334
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives 10 (783) (571) (406)
�� Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives is reported as part of the respective line in Note 10 and reflects the over- or underperformance of investments and guarantees held at fair value for which the expected long-term return is included in underlying earnings before tax.
�� Net foreign currency gains and (losses) are reported as part of the respective line in Note 10. �� Change in valuation of liabilities for insurance contracts is reported as part of the respective line in Note 12. �� Change in valuation of liabilities for investment contracts is reported as part of the respective line in Note 12. �� Policyholder claims and benefits - Other are reported as part of the ‘Other’ line in note 12 and is related to policyholder tax. �� Commissions and expenses include: 1) Restructuring charges of EUR 54 million (2015: EUR 59 million charge, 2014: EUR 134 million charge) which are reported as part of Employee and Administration expenses lines in Note 14; 2) Amortization of deferred expenses of EUR 137 million gain (2015: gain of EUR 126 million, 2014: charge of EUR 24 million) which is reported as part of the respective line in Note 14. This is offset against realized gains and losses and impairments on financial investments; 3)
EUR 59 million charge (2015: EUR 24 million gain, 2014: EUR 66 million charge) as shown in Note 15; 2) Impairment charges and reversals on non-financial assets and receivables of EUR 38 million charge (2015: EUR 1,274 million charge; 2014: EUR 13 million charge) reported as part of the respective line in Note 15. �� There are no interest charges and related fees that are classified for segment reporting purposes as non-underlying earnings.
VOBA and future servicing rights 761 32 177 59 - 269 32 - - 2 1,065
Impairment charges / (reversals) on non- financial assets and receivables - 2 1,274 - - 1,275 - - - - 1,275
Impairment charges / (reversals) on financial assets, excluding receivables (11) 12 - 42 23 77 - - - - 66
Of which Aegon’s share of employees in joint ventures and associates 545 - - - 33 33 6,780 141 - 7,499
Insurance contracts for account of policyholders 75,328 26,275 18,112 1,126 89 45,601 - - - - 120,929
Investment contracts for account of policyholders 32,013 3,160 49,309 292 - 52,761 - - - - 84,774
Insurance contracts for account of policyholders 71,322 25,830 14,219 1,219 89 41,357 - - - - 112,679
Investments for account of policyholders 107,341 27,985 66,786 1,418 88 96,276 - - - (7) 203,610
Total investments on balance sheet 200,387 82,283 69,021 2,401 834 154,540 5,328 90 85 (7) 360,423
Financial assets at fair value through profit or loss 105,121 28,119 70,054 1,493 88 99,753 21 9 124 (8) 205,020
Total premiums paid to reinsurers 3,176 2,979 3,011 - Accident and health insurance 238 268 291
Premium income Life insurance includes EUR 5,255 million (2015: EUR 3,575 million) of premiums related to insurance policies upgraded to the retirement platform in the UK.
Included in interest income is EUR 230 million (2015: EUR 223 million; 2014: EUR 265 million) in respect of interest income accrued on impaired financial assets. The interest income on financial assets that are not carried at fair value through profit or loss amounted to EUR 5,642 million (2015: EUR 5,951 million; 2014: EUR 5,498 million).
Investment income from financial assets held for general account: 2016 2015 2014
Financial assets designated at fair value through profit or loss 80 115 127 8 Fee and commission income
Change in technical provisions (26) 309 98 10 Results from financial transactions
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives (42) (35) 192
Realized gains and losses on financial investments comprise: 2016 2015 2014
Net fair value change on economic hedges where no hedge accounting is applied 969 (598) 3,650
Net fair value change on bifurcated embedded derivatives (565) 614 (2,073)
Fair value change on hedged items in a fair value hedge 231 (66) 724
Net fair value change on for account of policyholder financial assets at fair value through profit or loss comprise: 2016 2015 2014
The change of the net fair value change on for account of policyholder financial assets at fair value through profit or loss in 2016 compared to 2015 is mainly driven by equity markets and interest rates movements. Net fair value changes on for account of policyholder financial assets at fair value through profit or loss are offset by changes in technical provisions reported as part of the lines Change in valuation of liabilities for insurance contracts and Change in valuation of liabilities for investment contracts in note 12
transaction led to a net gain of EUR 10 million (GBP 7 million) and was recorded as an associate in the books of Aegon. The sale of
Change in valuation of liabilities for insurance contracts 16,193 7,880 17,273
Profit appropriated to policyholders 45 29 15 14 Commissions and expenses
Long-term incentive plans Senior managers within Aegon, not classified as ‘Identified Staff’, have been granted the conditional right to receive Aegon shares if certain performance indicators are met and depending on continued employment of the individual employee to whom the rights have been granted. The shares were conditionally granted at the beginning of the year at the volume weighted average price (VWAP) on the
The performance indicators apply over a performance period of one year and consist of financial and non-financial targets set by the
Supervisory Board or the local remuneration committees. Following the performance year, shares are allocated based on actual performance. A vesting period of two years applies after which the shares are transferred to the individual employees. In specific circumstances Aegon’s Supervisory Board will reclaim variable compensation that has already been paid out or vested.
Variable compensation Identified Staff Members of the Executive Board and the Management Board as well as other selected jobholders have been defined as ‘Identified
Supervisory Board or the local remuneration committees and personal/strategic targets. The conditional grant of variable compensation is also dependent on continued employment of the individual employee to whom the rights have been granted. An ex-post assessment is applicable to determine whether allocated (unvested) variable compensation should become unconditional or should be adjusted. In addition, in specific circumstances Aegon’s Supervisory Board will reclaim variable compensation that has already been paid out or vested. For members of the Executive Board and the Management Board all variable compensation has vested after three years following the performance period. At vesting, the variable compensation is transferred to the individual employees.
Additional holding periods of up to three years may apply for vested shares. Members of the Executive Board and the members of the
Below an overview is provided of shares provided in active plans for Long-term incentive and Variable compensation Identified Staff.
Number of shares conditionally granted 2) 18,506 4,075,460 9,195,284 5,735,046 5,306,037 5,178,633 6,809,814 36,318,780
Number of shares conditionally granted 2) - - - - - 6,809,814 6,809,814
1 Performance year for both Long-term incentive plans and Variable compensation Identified Staff. 2 Number of shares conditionally granted based on the at target number of grants made that could increase or decrease subject to the actual performance attained. 3 This value is the volume weighted average price (VWAP) of Aegon on the Euronext Amsterdam stock exchange for the period December 15 to January 15.
Share appreciation rights and share options Senior executives of Aegon companies, as well as other Aegon employees, have been offered both share appreciation rights (SARs) and share options. These share appreciation rights and share options have been granted at an exercise price equal to the market price of the shares at the date of the grant. The rights and options granted in 2006 – 2008 vest after three years and could only be exercised during the four years after the vesting date. Vesting and exercisability depend on continuing employment of the individual employee to whom the rights and options have been granted. Option plans are settled in equity, while stock appreciation rights are settled in cash or provide the employee with the choice of settlement.
No SARs and share options were granted after 2008. With regard to the SARs and options granted before 2009, no share options were exercised and no SARs were paid during 2014, 2015 and 2016. Similarly, no cash is received from exercise of share options during 2014, 2015, and 2016. As of 2015 all outstanding share appreciation rights and share options have expired.
The exposure from the issued SARs and share options was economically hedged by part of the position in treasury shares. There have been no modifications to the plans during the financial year.
Share options The following tables present the movements in number of share options.
In 2015, impairment charges and reversals on non-financial assets and receivables include a charge of EUR 1,274 million mainly related to deferred acquisition costs in the UK. Recoverability of capitalized deferred policy acquisition costs was affected by the restructuring of the organization.
Impairment charges on financial assets, excluding receivables, from: 2016 2015 2014
For the sale of Canada refer to note 51 Business combinations.
Income tax calculated using weighted average applicable statutory rates 288 (87) 414
Difference due to the effects of: Non-taxable income (128) 46 (110)
The weighted average applicable statutory tax rate for 2016 is 35.7% (2015: 13.7%; 2014: 28.1%). The increase in the weighted average applicable statutory tax rate compared to prior years is caused by the increase of profits in higher taxed countries.1
Non-taxable income in 2015 is negatively impacted by the non-deductible loss on the sale of Aegon’s Canadian life insurance business.
Hungary, the corporate income tax rate will decrease from 19% to 9% as from January 1, 2017. The minor impact of this tax rate change is included in change in tax rate/base.
As in previous years, Other mainly consists of tax effects of the UK life company that have no direct correlation to the IFRS-EU result and also consists of the effect of the various tax rates, other than the statutory tax rate, that are applicable to income of the
Items that may be reclassified subsequently to profit and loss: Gains / losses on revaluation of available-for-sale investments (187) 810 (1,752)
Gains / losses transferred to the income statement on disposal and impairment of availablefor -sale investments 427 124 148
Total income tax recognised directly in retained earnings 41 46 47 19 Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the net income attributable to owners, after deduction of coupons on perpetual securities and non-cumulative subordinated notes by the weighted average number of common shares, excluding common shares purchased by the
Company and held as treasury shares (refer to note 32.1 Share capital – par value and 32.3 Treasury shares respectively).
Weighted average number of common shares outstanding (in million) 2,048 2,101 2,094
Basic earnings per common share (EUR per share) 0.22 (0.31) 0.49
Basic earnings per common share B (EUR per share) 0.01 (0.01) 0.01
Interim dividend 2016 The interim dividend 2016 was paid in cash or stock at the election of the shareholder. Approximately 58% of holders of common shares elected to receive the cash dividend. The remaining 42% have opted for stock dividend. The cash dividend amounted to
To neutralize the dilutive effect of the 2015 final dividend paid in shares, Aegon executed a program to repurchase 29,258,662 common shares. Between July 4, 2016, and August 12, 2016, these common shares were repurchased at an average price of
EUR 3.5054 per share. These shares will be held as treasury shares and will be used to cover future stock dividends.
Interim dividend 2015 The interim dividend 2015 was paid in cash or stock at the election of the shareholder. Approximately 57% of holders of common shares elected to receive the cash dividend. The remaining 43% have opted for stock dividend. The cash dividend amounted to
Final dividend 2014 The Annual General Meeting of Shareholders on May 20, 2015, approved a final dividend over 2014 of EUR 0.12 per common share payable in either cash or stock, related to the second half of 2014. Approximately 58% of shareholders elected to receive cash dividend. The remaining 42% opted for stock dividend. The final dividend was payable as of June 19, 2015. The stock dividend amounted to one new Aegon common share for every 55 common shares held. The stock dividend and cash dividend are approximately equal in value. Dividend paid on common shares B amounted to 1/40th of the dividend paid on common shares.
To neutralize the dilutive effect of the 2014 final dividend paid in shares, Aegon executed a program to repurchase 16,279,933 common shares. Between June 17, 2015, and July 14, 2015, these common shares were repurchased at an average price of
EUR 0.11 per common share, the stock dividend amounted to one new Aegon common share for every 58 common shares held.
EUR 63 million (2015: EUR 49 million). These deposits are therefore not freely available.
EUR 23 million (2015: EUR 200 million positive; 2014: EUR 231 million positive).
Analysis of cash flows 2016 compared to 2015 Net cash flows from operating activities
Net cash flows from investing activities decreased by EUR 1,693 million to a EUR 1,078 million outflow (2015: EUR 615 million inflow). The decrease is mainly driven by a net cash outflow related to the sale of Aegon’s UK annuity portfolio and the commercial non-life insurance business in Aegon Nederland (refer to note 51 Business combinations).
Net cash flows from financing activities decreased by EUR 3,500 million to a EUR 2,785 million outflow (2014: EUR 715 million inflow). The decrease is mainly a result of proceeds and repayments of borrowings (refer to note 39 Borrowings).
22 Assets and liabilities held for sale Assets and liabilities held for sale include disposal groups whose carrying amount will be recovered principally through a sale transaction expected within the next year rather than through continuing operations. This relates to businesses for which a sale is agreed upon or a sale is highly probable at the reporting date, but for which the transaction has not yet fully closed.
Financial assets at fair value through profit or loss (FVTPL) 5,142 5,816
Money market and other short-term investments 6,776 317 - 7,093 7,093
Money market and other short-term investments 7,141 303 - 7,444 7,444
In 2016, 78% of the value of Aegon’s properties, both for general account and for account of policyholders, were appraised
Of the investments in real estate EUR 743 million (2015: EUR 840 million) is held by Aegon Americas and EUR 1,238 million
Rental income of EUR 60 million (2015: EUR 72 million; 2014: EUR 70 million) is reported as part of investment income in the income statement. Direct operating expenses relating to investments in real estate for account of policyholder amounted to EUR 5 million in 2016 (2015: EUR 7 million, 2014: EUR 6 million). There are no restrictions on the realizability of investment property or the remittance of income and proceeds of disposal.
Derivatives designated as Net foreign investment hedges 104 82 123 77
Aegon the Netherlands partially hedges the risk of future longevity increases in the Netherlands related to a part of its insurance liabilities. These longevity derivatives are constructed to pay out if the mortality rates in future years have decreased more than a pre-determined percentage compared with the base scenario at the moment of signing the contract. To further implement the strategy of reducing longevity risk, Aegon the Netherlands implemented an additional longevity hedge in 2016. The longevity transactions are used to enhance Aegon’s risk-return profile and to improve capital efficiency.
The above mentioned transactions are used to enhance Aegon’s risk-return profile and to improve capital efficiency.
Use of derivatives Derivatives not designated in a hedge - general account
Derivatives not designated in a hedge – general account 2016 2015 2016 2015
Another strategy used is to synthetically replicate corporate and government credit exposures with credit derivatives. This involves the purchase of high quality, low risk assets and the sale of credit derivatives. The table above provides a breakdown to credit quality of these credit derivatives.
Derivatives designated as fair value hedges Aegon’s fair value hedges consist mainly of interest rate swaps, swaptions, equity and fixed income total return swaps, equity options, equity futures, bond futures and variance swaps that are used to protect against changes in the fair value of interest rate and equity sensitive instruments or liabilities. Gains and losses on derivatives designated under fair value hedge accounting are recognized in the income statement. The effective portion of the fair value change on the hedged item is also recognized in the income statement.
For the years ended December 31, 2016, 2015, and 2014, Aegon recognized gains and (losses) related to the ineffectiveness portion of designated fair value hedges of EUR 26 million, EUR (17) million and EUR 45 million respectively. No portion of derivatives was excluded when assessing hedge effectiveness.
Fair value adjustments for these interest rate swaps are deferred and recorded in equity until the occurrence of the forecasted
In addition, Aegon also makes use of cross currency swaps to convert variable or fixed foreign currency cash flows into fixed cash flows in local currencies. The cash flows from these hedging instruments are expected to occur over the next 20 years. These agreements involve the exchange of the underlying principal amounts.
For the year ended December 31, 2016, Aegon recognized a gain of EUR 5 million of hedge ineffectiveness on cash flow hedges
(2015: EUR 4 million gain; 2014: EUR 8 million loss). In 2016, EUR 37 million loss was reclassified from equity into investment income
Aegon uses derivatives to swap the currency exposure of the debt instrument to the appropriate functional currency. This policy will ensure that total capital will reflect currency movements without distorting debt to shareholders’ equity ratios. Aegon utilizes various financial instruments as designated hedging instruments of its foreign investments. These instruments include long-term and short-term borrowings, short-term debts to credit institutions, cross currency swap contracts and forward foreign exchange contracts.
Non-current financial liabilities excluding trade payables and other provisions 476 426 292 154
A reconciliation of the summarized financial information to the carrying amount of the joint ventures is as follows: AMVEST Other Joint ventures
Net assets of joint venture as presented above 2,266 1,888 1,009 1,026
Net assets of joint venture excluding goodwill 2,266 1,888 626 663
Group. Refer to note 52 Group companies for a listing of the investments in associates and the Group’s percentage holding.
La Mondiale for EUR 350 million was announced on November 24, 2014. Proceeds from the sale were added to Aegon’s excess capital buffer.
Of the reinsurance assets EUR 15 million is current (2015: EUR 18 million).
Gross premium and deposits – existing and new business 13,108 897 14,005
Movements during the year in reinsurance assets relating to non-life insurance: 2016 2015
Gross premium and deposits – existing and new business 111 126
The assets arising from reinsurance contracts related to the exit of a business per December 31, 2016 and 2015 relate to the sale of
TARe consists of a series of reinsurance agreements between various statutory insurance entities and SCOR for the US
Furthermore, in 2016, Aegon entered into several reinsurance agreements as part of the sale of the Aegon UK annuity portfolio.
DPAC for insurance contracts and investment contracts with discretionary participation features 10,882 10,457
In the following table a breakdown is provided of DPAC balances by line of business and reporting segment: A m er ic as
H ol di ng s an d ot he r ac ti vi ti es
Individual savings and retirement products 1,911 - - - - - - - - 1,911
Real estate held for own use and equipment 30.1 572 575 30.1 Real estate held for own use and equipment
General account real estate held for own use are mainly held by Aegon USA and Aegon the Netherlands, with relatively smaller holdings at Aegon Hungary and Aegon Spain. The carrying value under a historical cost model amounted to EUR 350 million (2015: EUR 358 million).
Equipment is generally depreciated over a period of three to five years.
The movements in the provision for doubtful debts during the year were as follows: Additions charged to earnings (5) (14)
In 2015, impairment losses include a charge of EUR 191 million resulting from the premium deficiency due to the restructuring of the business and operations in the UK.
A geographical summary of the cash-generating units to which the goodwill is allocated is as follows: Central & Eastern Europe 36 39
A geographical summary of the lines of business to which the VOBA is allocated is as follows: VOBA Americas
Individual savings and retirement products 189 - - - - - - - 189 32 Shareholders’ equity Issued share capital and reserves attributable to shareholders of Aegon N.V.
In 2016, following each distribution of stock dividend, Aegon completed a share buyback program to neutralize the dilutive effect of the 2015 final dividend and 2016 interim dividend paid in shares, and repurchased a total of 60,023,886 common shares.
All 83,116,535 common shares repurchased under this program were cancelled in September 2016.
Furthermore, in June 2016, Aegon repurchased 17,324,960 common shares B from Vereniging Aegon to keep the voting rights of
In 2014, Aegon issued 14,488,648 common shares with a par value of EUR 0.12 in respect of the final dividend for 2013 which was paid in June 2014. In September 2014, Aegon distributed to its shareholders 16,319,939 common shares as interim dividend 2014 in the form of stock. This last stock dividend distribution was paid from treasury shares (note 32.3 Treasury shares) and no common shares were issued as a result. In 2014, following each distribution of stock dividend, Aegon completed a share buyback program to neutralize the dilutive effect of the 2013 final dividend and 2014 interim dividend paid in shares, and repurchased a total of 30,808,587 common shares.
Under the terms of the 1983 Amended Merger Agreement, dated May 2013, Vereniging Aegon has a call option relating to common shares B. Vereniging Aegon may exercise its call option to keep or restore its total stake at 32.6%, irrespective of the circumstances which cause the total shareholding to be or become lower than 32.6%.
Transactions in 2016: Purchase: transactions, average price EUR 4.81 83,117 400
Transactions in 2015: Sale: 1 transaction, price EUR 7.24 (7,628) (47)
Net (gains) / losses transferred to income statement (2,122) - 78 (2,044)
The closing balances of the revaluation reserve for available-for-sale investments relate to the following instruments: Revaluation reserve for available-for-sale investments 3,418 4,546 6,741
The cash flow hedging reserve includes (un)realized gains and losses on the effective portions of hedging instruments, net of tax.
Shares granted / Share options cost incurred - - 26 - 26
Shares vested / Share options forfeited - - (53) - (53)
The securities have been issued at par. The securities have subordination provisions, rank junior to all other liabilities and senior to shareholders’ equity only. The conditions of the securities contain certain provisions for optional and required coupon payment deferral and mandatory coupon payment events. Although the securities have no stated maturity, Aegon has the right to call the securities for redemption at par for the first time on the coupon date in the years as specified, or on any coupon payment date thereafter.
Year of next call 2016 2015 2014 1 The coupon of the EUR 136 million bonds was originally set at 7.25% until October 14, 2008. Subsequently, the coupon has been reset at 5.185% until
October 14, 2018. 2 The coupon of the EUR 203 million bonds was originally set at 7.125% until March 4, 2011. Subsequently, the coupon has been reset at 4.26% until March 4, 2021. 3 The coupon of the EUR 114 million bonds was originally set at 8% until June 8, 2005. Subsequently, the coupon has been reset at 4.156% until 2015 and 4 If the bonds are not called on the respective call dates and after consecutive period of ten years, the coupons will be reset at the then prevailing effective yield of ten-year Dutch government securities plus a spread of 85 basis points.
Non-cumulative subordinated notes Coupon rate Coupon date Year of next call 2016 2015 2014
EUR 271 million (2015: EUR 271 million), subordinated borrowings amounted to EUR 72 million (2015: EUR 65 million) and a deferred tax liability amounting to EUR 106 million (2015: EUR 105 million).
These securities are subordinated and rank senior to the junior perpetual capital securities, equally with the perpetual cumulative subordinated bonds and non-cumulative subordinated notes, and junior to all other liabilities. The conditions of the securities contain certain provisions for optional and required deferral of interest payments. There have been no defaults or breaches of conditions during the period.
USD 225 million 1) 7.65% Semi-annually, December 1 1996 2026 n.a. 109 111
Followed by a second tranche with the same counterparty in 2016, covering close to EUR 3 billion of underlying reserves.
Non-life insurance - Unearned premiums and unexpired risks 5,822 5,202 - Incurred but not reported claims 1,018 1,002
Transfer (to) / from insurance contracts for account of policyholders 1 1,046
Transfers to disposal groups 1) (8,190) 1 Linked to the sale of Aegon UK’s annuity portfolio, reported in Assets held for sale, refer to note 22 Assets and liabilities held for sale and note 51 Business combinations.
In the Netherlands, decreasing interest rates led to a deficiency in the liability adequacy test of EUR 1,567 million recorded in the line shadow accounting adjustments in 2016. This deficiency is recognized in the revaluation reserve as shadow loss recognition is applied.
Loss recognized as a result of liability adequacy testing - 16
Gross premium and deposits – existing and new business 1,700 1,609
Gross premium and deposits – existing and new business 12,931 14,407
Transfer (to) / from investment contracts for account of policyholders (808) 911
The following table provides information on the liabilities for financial guarantees for minimum benefits, net of present value of the expected future premiums that are received to cover these guarantees: United States 1)
Aegon Americas mitigates the exposure from the elective guaranteed minimum withdrawal benefit rider issued with a ceding company’s variable annuity contracts. The rider is essentially a return of premium guarantee, which is payable over a period of at least 14 years from the date that the policyholder elects to start withdrawals. At contract inception, the guaranteed remaining balance is equal to the premium payment. The periodic withdrawal is paid by the ceding company until the account value is insufficient to cover additional withdrawals. Once the account value is exhausted, Aegon pays the periodic withdrawals until the guaranteed remaining balance is exhausted. At December 31, 2016, the reinsured account value was EUR 2.4 billion (2015: EUR 2.5 billion) and the guaranteed remaining balance was EUR 1.5 billion (2015: EUR 1.7 billion).
The GMWB rider Aegon assumed from the ceding company is accounted for as a derivative and is carried in Aegon’s statement of financial position at fair value. At December 31, 2016, the contract had a value of EUR 50 million (2015: EUR 69 million). Aegon entered into a derivative program to mitigate the overall exposure to equity market and interest rate risks associated with the reinsurance contract. This program involves selling equity futures contracts (S&P 500, Midcap, Russell 2000, and the MCSI EAFE index in accordance with Aegon’s exposure) to mitigate the effect of equity market movement on the reinsurance contract and the purchase of over-the-counter interest rate swaps to mitigate the effect of movements in interest rates on the reinsurance contracts.
b. Total return annuities Total Return Annuity (TRA) is an annuity product in the United States which provides customers with a pass-through of the total return on an underlying portfolio of investment securities (typically a mix of corporate and convertible bonds) subject to a cumulative minimum guarantee. Both the assets and liabilities are carried at fair value, however, due to the minimum guarantee not all of the changes in the market value of the asset will be offset in the valuation of the liability. This product exists for the fixed annuity line of business and represents a closed block.
The traditional group pension contracts offered by Aegon in the Netherlands include large group insurance contracts that have an individually determined asset investment strategy underlying the pension contract. The guarantee given is that the profit sharing is the maximum of 0% and the realized return on an asset portfolio specified in the policy conditions, adjusted for technical interest rates ranging from 3% to 4%. If the adjusted return is negative, the 0% minimum is effective, but the loss in any given year is carried forward to be offset against any future surpluses within the contract period. In general, a guarantee is given for the life of the underlying
Net amount at risk 5) 5,017 4,205 1 Guaranteed minimum investment return in the Netherlands.
Guarantee reserves increased EUR 863 million in 2016 (2015: decrease of EUR 1,526 million).
Capital funding On December 9, 2016 Aegon issued senior unsecured notes of EUR 500 million, due December 8, 2023. The notes were issued under
A detailed composition of capital funding is included in the following table: (sorted at maturity) Coupon rate Coupon date Issue / Maturity 2016 2015
USD 500 million Senior Notes 1), 2) 5.75% Semi-annually 2005 / 20 526 530
EUR 500 million Senior Unsecured Notes 1.00% December 8 2016 / 23 495 -
GBP 400 million Senior Unsecured Notes 6.625% Semi-annually 2009 / 39 462 536 1 Measured at fair value. 2 Issued by subsidiaries of, and guaranteed by, Aegon N.V.
Operational funding During 2016, Aegon redeemed EUR 450 million of ECB LTRO, EUR 225 million of ECB MRO, EUR 737 million of regular borrowings and repurchased the mortgage loans from SAECURE 9 and SAECURE 10 for EUR 1,658 million.
Revolving Loan Facility Warehouse Mortgage Loans 1) Floating Monthly - / 2017-19 399 481
EUR 450 million ECB LTRO 1) Floating At Maturity 2015 / 16 - 450
EUR 842 million ‘SAECURE 9’ RMBS Note 1) Floating Quarterly 2010 / 16 - 564
EUR 1,365 million ‘SAECURE 12’ RMBS Note 1), 2) Floating Quarterly 2012 / 17 1,030 1,140
EUR 750 million ‘SAECURE 13’ RMBS Note 1), 3) Floating Quarterly 2013 / 18 862 962
EUR 1,443 million ‘SAECURE 15’ RMBS Note 1), 5) Floating Quarterly 2014 / 20 1,284 1,376
EUR 500 million Conditional Pass-Through Covered Bond 1), 7) 0.250% Annual 2016 / 23 495 -
USD 292 million Senior Secured Note1) Floating Quarterly 2012 / 23 - 264
USD 550 million Floating Rate Guaranteed Note 8), 10) Floating Quarterly 2007 / 37 450 437
FHLB Secured borrowings 1) Floating Quarterly 2016 / 46 2,839 1 Issued by a subsidiary of Aegon N.V. 2 The first optional redemption date is 30 October 2017; the legal maturity date is 30 July 2092. Notes are fully collateralized by mortgage loans which are part of
Aegon’s general account investments. 3 The first optional redemption date is 28 February 2018; the legal maturity date is 30 November 2093. Notes are fully collateralized by mortgage loans which are part of Aegon’s general account investments.
Other Included in borrowings is EUR 610 million relating to borrowings measured at fair value (2015: EUR 617 million). For the year 2016,
The difference between the contractually required payment at maturity date and the carrying amount of the borrowings amounted to
The amounts recognized in the statement of financial position are determined as follows: Retirement benefit plans
Present value of wholly unfunded obligations 1) 3,412 314 3,726 2,973 296 3,269 1 Assets held by Aegon the Netherlands of EUR 2,796 million (2015: EUR 2,635 million) that are backing retirement benefits, do not meet the definition of plan assets and as such were not deducted in calculating this amount. Instead, these assets are recognized as general account assets. Consequently, the return on these assets does not form part of the calculation of defined benefit expenses.
The fair value of Aegon’s own transferable financial instruments included in plan assets and the fair value of other assets used by
Aegon included in plan assets was nil in both 2016 and 2015.
Net interest on the net defined benefit liability (asset) 110 10 121
Movements during the year of the present value of the defined benefit obligations 2016 2015
Remeasurements of the defined benefit obligations: - Actuarial gains and losses arising from changes in demographic assumptions (211) (12)
- Actuarial gains and losses arising from changes in financial assumptions 894 (315)
Defined benefit plans are mainly operated by Aegon USA, Aegon the Netherlands and Aegon UK. The following sections contain a general description of the plans in each of these subsidiaries and a summary of the principal actuarial assumptions applied in determining the value of defined benefit plans.
Code, including all requirements for minimum funding levels. The defined benefit plans are governed by the Board of Managers of
Aegon USA maintains minimum required funding levels as set forth by the Internal Revenue Code. If contributions are required, the funding would be provided from the Company’s general account assets. Pension plan contributions were not required for Aegon USA
Aegon USA provides health care benefits to retired employees through continuation of coverage in unfunded plans. The postretirement health care benefits under the Plans are administered by Transamerica Corporation, which has delegated the claims administration to third-party administrators. Aegon USA maintains two plans which provide continuation of coverage for retiree medical benefits. For each plan, Aegon USA has the fiduciary responsibility to administer the plan in accordance with its terms, and decides questions related to eligibility and determines plan provisions and benefit amounts.
The principal actuarial assumptions that apply for the year ended December 31 are as follows: Actuarial assumptions used to determine defined benefit obligations at year-end 2016 2015
Health care trend rate 7.25% 8.00% 1 U.S. Society of Actuaries RP2014 mortality table with Scale MP2016. 2 U.S. Society of Actuaries RP2014 mortality table with Scale MP2015.
The principal actuarial assumptions have an effect on the amounts reported for the defined benefit obligation. A change as indicated in the table below in the principal actuarial assumptions would have the following effects on the defined benefit obligation per year-end: Estimated approximate effects on the defined benefit obligation
Financial actuarial assumptions 100 basis points increase in discount rate (440) (428)
100 basis points decrease in discount rate 546 530 100 basis points increase in salary increase rate 42 50 100 basis points decrease in salary increase rate (37) (43)
100 basis points increase in health care trend rate 16 17 100 basis points decrease in health care trend rate (14) (15)
Pw). Insurers are subject to prudential supervision pursuant to the Financial Supervision Act (Wet op het financieel toezicht / Wft).
Aegon Nederland also has a post-retirement medical plan that contributes to the health care coverage of employees and beneficiaries after retirement. For this plan, Aegon Nederland has the responsibility to administer the plan in accordance with its terms, and decides on questions related to eligibility and determines plan provisions and benefit amounts. In addition, Aegon Nederland has the obligation to interpret the provisions of the plans, and to comply with any statutory reporting and disclosure requirements. Finally, Aegon
The weighted average duration of the other post-employment benefit plans is 10.8 years (2015: 10.8 years).
45.20% of Curve 2016 54.28% of Curve 2015 1 Based on prospective mortality table of the Dutch Actuarial Society with minor methodology adjustments. 2 Based on Dutch Consumer Price Index
Financial actuarial assumptions 100 basis points increase in discount rate (545) (442)
25 basis points increase in indexation 170 136 25 basis points decrease in indexation (158) (127)
The pension scheme Trustees are required to carry out triennial valuations on the scheme’s funding position, with the latest valuation being as at March 31, 2016. As part of this triennial valuation process, a schedule of contributions is agreed between the Trustees and
EUR 298 million at December 31, 2016 (2015: EUR 298 million).
Target allocation of plan assets for retirement benefit plans for the next annual period is: Equity instruments 35%
In 2016, there were considerable movements in the net deferred tax schedule. The major components consists of: �� The increase of deferred tax liability primarily relates to an increase of unrealized profits in respect of financial assets mainly driven by tightening credit spread.
For the following amounts, arranged by loss carry forward periods, the deferred corporate income tax asset is not recognized: Gross amounts 1)‍
Deferred corporate income tax assets in respect of deductible temporary differences are recognized to the extent that the realization of the related tax benefit through future taxable profits is probable. For the following amounts relating to Available-for-sale financial assets, Defined benefit plans and Other items the recognition of the deferred corporate income tax asset is dependent on future taxable profits in excess of the profits arising from the reversal of existing taxable temporary differences: Gross amounts Deferred tax assets
Deferred corporate income tax asset dependent on the realization of capital profits - 558 - 195
Aegon did not recognize deferred corporate income tax assets in respect of deductible temporary differences relating to Financial assets and Other items for the amount of gross EUR 70 million; tax EUR 13 million (2015: gross EUR 46 million; tax EUR 9 million).
The increase in payables due to brokers and agents compared to prior year is driven by a change in netting. This also affected other receivables (refer to note 30.2 Receivables).
46 Capital management and solvency The company’s overall capital management strategy is based on adequate solvency capital, capital quality and the use of leverage.
For the insurance and reinsurance undertakings of Aegon in the EU, the European Solvency I directives as implemented in the relevant member states were applicable up to December 31, 2015. As from January 1, 2016 the new Solvency II framework was introduced.
The introduction of Solvency II and the implementation of its requirements warranted interpretation and confirmation from supervisory authorities.
In 2015 Aegon was required to maintain a minimum solvency margin based on applicable local regulations. Aegon’s Insurance Group
Directive ratio (IGD ratio) was 220% at the end of 2015. This IGD ratio was the last to be reported and filed as Aegon’s capitalization is measured on a Solvency II basis as of January 1, 2016. The calculation of the IGD ratio was based on Solvency I capital requirements for entities within the EU (Pillar 1 for Aegon UK), and local regulatory solvency measurements for non-EU entities. Specifically, for the IGD
ratio excluded the available and required capital of the UK with-profits funds.
Management of capital Disciplined risk and capital management support Aegon’s decisions in deploying the capital that is generated in Aegon’s businesses and that is provided for by Aegon’s investors. Aegon balances the funding of new business growth with the funding required to ensure that Aegon’s obligations towards policyholders are always adequately met, and with providing for a sustainable dividend to
Aegon’s goal for both its operating units and for the Aegon group as a whole is to maintain a strong financial position and to be able to sustain losses from adverse business and market conditions. The company’s overall capital management strategy is based on adequate solvency capital, capital quality, and the use of leverage.
Capital adequacy Until 31 December 2015, the Solvency I regulatory capital requirements continued to play a dominant role in the management of
Aegon’s capital. The introduction of Solvency II on January 1, 2016, meant a change in the regulatory capital requirements in
Minimum solvency requirements Insurance laws and regulations in local regulatory jurisdictions often contain minimum regulatory capital requirements. For insurance companies in the European Union, Solvency II formally defines a lower capital requirement, the Minimum Capital Requirement (MCR).
The table below shows the Tiers in which Aegon’s capital is divided: Available own funds
At December 31, 2016, Tier 1 capital accounted for 80% of own funds, including EUR 3,309 million of junior perpetual capital securities and EUR 508 million of perpetual cumulative subordinated bonds which are both grandfathered restricted Tier 1 capital.
IFRS-EU equity compares to Solvency II own funds as follows: Shareholders’ Equity 20,913
IFRS adjustments for Other Equity instruments and non controlling interests 3,821
Standard Formula basis) in the Group Solvency II results. The revaluation difference stemming from this category amounted to
Examples of these adjustments are the adjustment for subordinated liabilities, ring-fenced fund, treasury shares and foreseeable dividend (if applicable).
Fungibility restrictions are limitations of the available own funds for Aegon Group enforced by Supervisory Authorities. For Aegon
Group, these limitations refer to certain charitable trusts in the Americas for which the local Supervisory Authority could limit the upstream of capital to the Group as well as Aegon Bank which is under a different regulatory regime but under the same Supervisory
Capital leverage Aegon’s total capitalization reflects the capital employed in insurance activities and consists of shareholders’ capital and total gross financial leverage. Aegon’s gross financial leverage ratio is calculated by dividing total financial leverage by total capitalization.
Aegon defines total financial leverage as debt or debt-like funding issued for general corporate purposes and for capitalizing Aegon’s business units. Total financial leverage includes hybrid instruments, subordinated and senior debt. Aegon’s total capitalization consists of the following components: �� Shareholders’ equity excluding revaluation reserves and the remeasurement of defined benefit plans, based on IFRS as adopted by the EU; �� Non-controlling interests and share options not yet exercised; and �� Total financial leverage.
On December 31, 2016, Aegon’s total capitalization was EUR 24.8 billion (EUR 24.9 billion on December 31, 2015), its gross financial leverage ratio was 29.8% (28.4% on December 31, 2015) and its fixed charge coverage was 7.2x (6.5x on December 31, 2015).
Aegon targets a gross financial leverage ratio of 26-30% and a fixed charge coverage of 6-8x. The following table shows the composition of the total capitalization and the calculation of the gross financial leverage ratio: Total shareholders’ equity - based on IFRS as adopted by the EU 2 20,913 22,684
Non-controlling interests, share options and incentive plans not yet exercised 33, SOFP 2) 88 77
In 2016, Aegon introduced a non-financial leverage policy. The non-financial leverage policy classifies short-term debt as either financial leverage or non-financial leverage. As from 2016 all short-term debt is assessed accordingly.
Aegon N.V. is subject to certain financial covenants in some of its financial agreements (such as issued debentures, credit facilities and
The ability of the holding company to meet its cash obligations depends on the amount of liquid assets on its balance sheet and on the ability of the subsidiaries to pay dividends to the holding company. In order to ensure the holding company's ability to fulfil its cash obligations and in order to maintain sufficient management flexibility to manage capital and liquidity in support of Aegon’s operating units and external dividend stability, it is the Company's policy that the holding excess capital position is managed to a target range of
Revalued amounts Real estate held for own use - - 332 332
Note that the investment contracts for account of policyholders previously reported as Level I have been reclassified to Level II, as the value of these liabilities is directly derived from the fair value of the linked investments for account of policyholders.
The comparative numbers have been adjusted accordingly. These reclassifications had no effect on net income, shareholders’ equity or earnings per share.
Revalued amounts Real estate held for own use - - 338 338
Liabilities carried at fair value Investment contracts for account of policyholders 2) - 40,209 156 40,365
Transfers are identified based on transaction volume and frequency, which are indicative of an active market.
N et e xc ha ng e di ff er en ce
To ta l u nr ea liz ed g ai ns an d (l os se s) f or t he pe rio d re co rd ed in t he
fo r in st ru m en ts he ld a t D
Investments in real estate for policyholders 1,022 (26) - 81 (260) - (131) - - - - 686 22
Investments for account of policyholders 1,956 126 - 486 (773) - 33 - - (83) - 1,745 85
Investments in real estate for policyholders 1,101 67 - 280 (488) - 60 - - - - 1,022 59
During 2016, Aegon transferred certain financial instruments from Level II to Level III of the fair value hierarchy. The reason for the change in level was that the market liquidity for these securities decreased, which led to a change in market observability of prices.
Valuation techniques and significant unobservable inputs The table below presents information about the significant unobservable inputs used for recurring fair value measurements for certain
Tax credit investments Discounted cash flow Discount rate 676 5.6% 785 7.4%
Investment funds Net asset value 3) n.a. 45 n.a. 97 n.a.
Investment funds Net asset value 3) n.a. 1,252 n.a. 1,260 n.a.
Policyholder assets, and their returns, belong to policyholders and do not impact Aegon’s net income or equity. The effect on total assets is offset by the effect on total liabilities. Derivatives exclude derivatives for account of policyholders amounting to EUR 4 million (2015: EUR 113).
Other loans - held at amortized cost 2,441 - 2,292 148 2,441
Investment contracts - held at amortized cost 19,217 - 8,951 10,797 19,748
Assets Mortgage loans - held at amortized cost 33,214 - - 37,648 37,648
Private loans - held at amortized cost 2,847 - 79 3,086 3,165
Liabilities Subordinated borrowings - held at amortized cost 759 681 147 - 828
Trust pass-through securities - held at amortized cost 157 - 146 - 146
Valuations of corporate bonds are monitored and reviewed on a monthly basis. The pricing hierarchy is dependent on the possibility of corroboration of market prices when available. If no market prices are available, valuations are determined by a discounted cash flow methodology using an internally calculated yield. The yield is comprised of a credit spread over a given benchmark. In all cases the benchmark is an observable input. The credit spread contains both observable and unobservable inputs. Aegon starts by taking an observable credit spread from a similar bond of the given issuer, and then adjust this spread based on unobservable inputs. These unobservable inputs may include subordination, liquidity and maturity differences. The weighted average credit spread used in valuation of corporate bonds has increased to 3.1% (December 31, 2015: 2.8%).
assumptions (unobservable inputs), liquidity and credit risk (market observable inputs). An increase in expense spread, prepayment rates and/or prepayment assumptions, would decrease the fair value of the mortgage loan portfolio.
Fair values for over-the-counter (OTC) derivative financial instruments represent amounts estimated to be received from or paid to a third party in settlement of these instruments. These derivatives are valued using pricing models based on the net present value of estimated future cash flows, directly observed prices from exchange-traded derivatives, other OTC trades, or external pricing services.
Aegon extrapolates yield curves beyond market observable maturities. The discount rates converge linearly in 10 years to an Ultimate
Forward Rate of 4.25% from the last liquid point. The uniform last liquid point for all Aegon’s major currencies (EUR, USD and GBP) is set at 30 years.
International Valuation Standards, Uniform Standards of Professional Appraisal Practice or guidelines issued by the Investment
Derivatives with negative values not designated as hedges 7,926 - 9,852 -
together with related financial assets and financial derivatives (note 39 Borrowings).
Mortgage loans commitments represent undrawn mortgage loan facility provided and outstanding proposals on mortgages. The sale of mortgage loans relates to pre-announced redemptions on mortgage loans. Private loans represents deals on Aegon’s portfolio of private placement securities that Aegon has committed to, but have not yet settled and funded. Other commitments include future purchases of interests in investment funds and limited partnerships. In 2016 the other commitments increased due to a higher level of new limited partnership commitments and higher investments in tax credits.
Share of contingent liabilities incurred in relation to interests in joint ventures 40 27
United States. Standby letters of credit amounts reflected above are the liquidity commitment notional amounts. In addition to the guarantees shown in the table, guarantees have been given for fulfillment of contractual obligations such as investment mandates related to investment funds.
‘AA’ financial strength rating and capital sufficient to comply with the requirements of the countries in which its branches are located.
Company, to the extent that the assets in the captive (TRRI) are not sufficient to cover reinsurance obligations. As of December 31, 2016, this amounted to EUR 2,002 million (2015 EUR: 1,842 million).
LLC and Commonwealth General Corporation with respect to bonds, capital trust pass-through securities and notes issued under commercial paper programs amounted to EUR 633 million (2015: EUR 615 million); and �� Due and punctual payment of any amounts owed to third parties by the consolidated group company Aegon Derivatives N.V. in connection with derivative transactions. Aegon Derivatives N.V. only enters into derivative transactions with counterparties with which ISDA master netting agreements, including collateral support annex agreements, have been agreed. Net (credit) exposure on derivative transactions with these counterparties was therefore limited as of December 31, 2016.
Legal and arbitration proceedings, regulatory investigations and actions Aegon faces significant risks of litigation as well as regulatory investigations and actions relating to its and its subsidiaries’ insurance, pensions, securities, investment management, investment advisory and annuities businesses as well as Aegon’s corporate compliance, including compliance with employment, sanctions, anti-corruption and tax regulations.
Proceedings in which Aegon is involved Aegon and other US insurers have been sued for charging fees on products offered in 401(k) platforms which allegedly were higher than fees charged on other products available in the market. The principal case is currently on interlocutory appeal. US insurers, including Aegon’s subsidiaries, have also been named in class action litigation relating to increases in monthly deductions made to universal life products. Plaintiffs generally allege that the rates were increased to recoup past losses rather than to cover the future costs of providing insurance coverage. At this time it is impracticable for Aegon to quantify a range or maximum liability or the timing of the financial impact, if any, of these matters, as the potential financial impacts are dependent both on the outcomes of court proceedings and future developments in financial markets and mortality. If decided adversely to Aegon, these claims could have a material adverse effect on Aegon’s business, results of operations, and financial position.
West Virginia. Aegon subsidiaries, like other major US insurers, entered into resolutions with state treasurers and insurance regulators regarding unclaimed property and claims settlement practices. As of 2016, EUR 1.5 million remained in provisions, which is management’s best estimate of the still-outstanding exposure. The final amount may vary based on subsequent regulatory review.
In Poland, owners of unit-linked policies filed claims in civil court against Aegon over fees payable upon purchase or surrender of the product. For reasons of commercial necessity as well as at the instigation of the regulatory authorities, Aegon decided to modify the fee structure. Aegon faces a significant number of cases in which plaintiffs claim that these fees are not contractually supported. As of 2016, a provision of EUR 24 million exists, which represents management’s best estimate of the exposure. The final amount may vary based on regulatory developments and the outcome of litigation.
since, with the principal goal of achieving an equitable resolution. Aegon expects the claims and litigation on unit linked products to continue for the foreseeable future. Developments in similar cases against other Dutch insurers currently before regulators and courts may also affect Aegon. In March 2014, consumer interest group Vereniging Woekerpolis.nl filed a claim against Aegon in court.
Supreme Court ruled on a case involving a securities leasing product sold by one of Aegon’s competitors. It decided that the financial institution was liable if a broker (‘remisier’) that advised on the sale of the institution’s products was not properly licensed. In July 2016, consumer interest group Platform Aandelenlease filed a class action claim against Aegon Bank regarding securities leasing product
In the normal course of business Aegon is involved in the following transactions: �� Transferred financial assets that are not derecognized in their entirety: �� Securities lending; whereby Aegon legally (but not economically) transfers assets and receives cash and non-cash collateral.
�� Transferred financial assets that are derecognized in their entirety and Aegon does not have a continuing involvement (normal sale); �� Transferred financial assets that are derecognized in their entirety, but where Aegon has a continuing involvement; �� Collateral accepted in the case of securities lending, reverse repurchase agreement and derivative transactions; and �� Collateral pledged in the case of (contingent) liabilities, repurchase agreements, securities borrowing and derivative transactions.
49.1 Transferred financial assets that have not been derecognized in their entirety The following table reflects the carrying amount of financial assets that have been transferred to another party in such a way that part or all of the transferred financial assets do not qualify for derecognition. Furthermore, it reflects the carrying amounts of the associated liabilities.
Investments for account of policyholders Carrying amount of transferred assets 226 5,298 20 194
Aegon retains substantially all risks and rewards of those transferred assets, this includes credit risk, settlement risk, country risk and market risk. The assets are transferred in return for cash collateral or other financial assets. Non-cash collateral is not recognized in the statement of financial position. Cash collateral is recorded on the statement of financial position as an asset and an offsetting liability is established for the same amount as Aegon is obligated to return this amount upon termination of the lending arrangement. Cash collateral is usually invested in pre-designated high quality investments. The sum of cash and non-cash collateral is typically greater than the market value of the related securities loaned. Refer to note 49.3 Assets accepted and note 49.4 Assets pledged for an analysis of collateral accepted and pledged in relation to securities lending and repurchase agreements.
The following tables present the fair value of the assets received in relation to securities lending and reverse repurchase activities: Securities lending 2016 2015
As part of Aegon’s mortgage loan funding program in the Netherlands, EUR 6.8 billion (2015: EUR 8.3 billion) has been pledged as security for notes issued (note 39 Borrowings). In addition, in order to trade derivatives on the various exchanges, Aegon posts margin as collateral. The amount of collateral pledged for derivative transactions was EUR 2,688 million (2015: EUR 1,166 million).
These updates had no effect on net income, shareholders’ equity or earnings per share.
On September 25, 2015, Aegon announced that it has acquired Mercer’s US defined contribution record-keeping business.
On December 31, 2015, Aegon completed the acquisition after obtaining regulatory approval. The total purchase price amounted to EUR 70 million (USD 78 million), consisting of EUR 64 million (USD 71 million) cash and EUR 6 million (USD 7 million) contingent consideration. Cash position of Mercer amounts to nil on acquisition date.
On May 13, 2016, Aegon completed the sale of certain assets of Transamerica Financial Advisors, a full service independent brokerdealer and registered investment adviser, following regulatory approval. The consideration received for the sale consisted of
USD 49 million (EUR 44 million) cash and USD 14 million (EUR 13 million) of contingent consideration which is subject to a 12 month earn-out period. The transaction resulted in a pre tax gain of USD 58 million (EUR 52 million) recorded in the second quarter of 2016.
GBP 6 billion of the portfolio to Rothesay Life. On May 23, 2016 Aegon announced the sale of around GBP 3 billion of the portfolio to
On March 3, 2015, Aegon completed the sale of its 35% share in La Mondiale Participations following the granting of approval by the French Competition Authority (Autorité de la Concurrence). The agreement to sell Aegon’s stake in La Mondiale Participations to
On July 31, 2015, Aegon completed the sale of its Canadian life insurance business following regulatory approval. The agreement to sell Aegon’s Canadian life insurance business for an amount of CAD 600 million (EUR 428 million) was announced on October 16, 2014. The transaction resulted in a book loss of CAD 1,054 million (EUR 751 million) recorded and presented as part of ‘other charges', please refer to Note 17 Other charges. Aegon used the proceeds of this transaction for the redemption of the USD 500 million 4.625%
On September 1, 2015, Aegon completed the sale of Clark Consulting following regulatory approval. The agreement to sell
52 Group companies Subsidiaries The principle subsidiaries of the parent company Aegon N.V. are listed by geographical segment. All are wholly owned, directly or indirectly, unless stated otherwise, and are involved in insurance or reinsurance business, asset management or services related to these activities. The voting power in these subsidiaries held by Aegon is equal to the shareholdings.
Spain & Portugal �� Aegon España S.A.U., Madrid; �� Aegon Administracion y Servicios A.I.E., Madrid; �� Aegon Activos A.V., S.A., Madrid.
Americas �� Mongeral Aegon, Seguros e Previdencia S.A., Rio de Janeiro (Brazil), (50%).
Europe The Netherlands �� N.V. Levensverzekering-Maatschappij ‘De Hoop', The Hague, (33.3%).
On June 6, 2016 Aegon N.V. repurchased 17,324,960 Common Shares B from Vereniging Aegon for the amount of EUR 1,968,332, being 1/40th of the Value Weight Average Price of the common shares of the 5 trading days preceding this transaction. The repurchase of common shares B was executed to align the aggregate shareholding of Vereniging Aegon in Aegon N.V. with its special cause voting rights of 32.6%.
On May 19, 2016 Aegon N.V. repurchased 13,450,835 Common Shares from Vereniging Aegon for the amount of EUR 58 million being the Value Weight Average Price of the common shares of the 5 trading days preceding this transaction, as part of the EUR 400 million
Share Buy Back program, initiated by Aegon N.V. in January 2016 to neutralize the dilutive effect of the cancellation of Aegon N.V.’s preferred shares in 2013. Also the amount of EUR 58 million is 14.5% of EUR 400 million, which percentage is equal to the percentage of shares held by Vereniging Aegon in the total number of outstanding and voting shares Aegon N.V. at the time of this transaction.
In August 2016 the Management Board was expanded with four positions. Positions added were CEO Asset Management, Chief
expenses related to variable compensation amounted to EUR 6.0 million (2015: EUR 5.0 million; 2014: EUR 5.6 million) and
Mr. Button has not received any severance payments. Previously allocated but not yet paid out variable compensation for Mr. Button will vest according to the regular and agreed schedule and conditions (including customary claw back provisions).
Under the current remuneration structure, rewards are paid out over a number of years, or in the case of shares, vest over a number of years. This remuneration structure has made it more relevant to present rewards earned during a certain performance year instead of what was received in a certain year.
Total fixed compensation 2,202 2,145 1,907 1 Mr. Button stepped down as CFO and member of Aegon’s Executive Board on December 1, 2016. Fixed compensation is disclosed for the period in the year 2016 that Mr. Button has been part of the Executive Board and are reflective of his time with Aegon until December 1, 2016. In his position as CFO and member of Aegon’s Executive Board Mr. Button earned in 2016 an annual base salary of USD 1.1 million (2015: USD 1.1 million; 2014: USD 1.0 million). Amounts in the table are based on USD, converted to EUR, based on annual average exchange rate and reflective of time in service.
Mr. Button has been part of the Executive Board and are reflective of his time with Aegon until December 1, 2016. Amounts are based on USD, converted to EUR, based on annual average exchange rates.
(2015: EUR 995, 2014: EUR 719). The vesting conditions and applicable holding periods for the awards of Mr. Button remain nevertheless unchanged.
Over the performance year 2016, Mr. Wynaendts was awarded EUR 1,044 in total conditional variable compensation. Mr. Button was awarded EUR 747.
Variable compensation is split 50/50 in a cash payment and an allocation of shares. Of the variable compensation related to performance year 2016, 40% is payable in 2017. Accordingly, Mr. Wynaendts and Mr. Button will receive a cash payment of
EUR 209 and EUR 149 respectively. The number of shares to be made available in 2017 relating to performance year 2016 is 40,722 and 29,614 for Mr. Wynaendts and Mr. Button respectively. The vested shares, less the number of shares to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the company holds a withholding obligation in connection with the vesting of the shares, are subject to a three year retention (holding) period, before they are at the disposal of the Executive Board members.
The remaining part of variable compensation for the performance year 2016 (60%), for Mr. Wynaendts EUR 313 and 61,083 shares and for Mr. Button EUR 224 and 44,424 shares, is to be paid out in equal portions in 2018, 2019 and 2020, subject to ex-post assessments, which may result in downward adjustments and may be subject to additional conditions being met. Any payout will be split 50/50 in a cash payment and an allocation of shares vesting. The vested shares, less the number of shares to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the company holds a withholding obligation in connection with the vesting of the shares, are subject to a three year retention (holding) period, before they are at the disposal of the Executive Board members.
Over the performance year 2015, Mr. Wynaendts was awarded EUR 923 in total conditional variable compensation. Mr. Button was awarded EUR 784.
EUR 183 and EUR 120 respectively. The number of shares made available in 2015 relating to performance year 2014 was 27,105 and 17,302 for Mr. Wynaendts and Mr. Button respectively. The vested shares, less the number of shares to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the company holds a withholding obligation in connection with the vesting of the shares, are subject to a three year retention (holding) period, before they are at the disposal of the Executive Board members.
Variable compensation is split 50/50 in a cash payment and an allocation of shares. Of the variable compensation related to performance year 2013, 40% was payable in 2014. Accordingly, Mr. Nooitgedagt received a cash payment of EUR 87. The number of shares to be made available in 2014 related to performance year 2013 is 17,650. Of the remaining 60%, EUR 130 and 26,478 shares is to be paid out in future years and subject to ex-post assessments, which may result in downward adjustments. In each of the years 2015, 2016 and 2017, equal portions of the deferred variable compensation over 2013 may be made available. Any payout will be split 50/50 in cash payment and an allocation of shares vesting. The vested shares, less the number of shares to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the company holds a withholding obligation in connection with the vesting of the shares, are subject to a three year retention (holding) period, before they are at the disposal of the Executive Board members.
Total other benefits 917 679 734 1 The additional employer wage tax is not included in the overall IFRS-EU expenses.
1 Mr. Button stepped down as CFO and member of Aegon’s Executive Board on December 1, 2016. Other benefits are disclosed for the period that Mr. Button has been part of the Executive Board and are reflective of his time with Aegon December 1, 2016.
Other benefits include non-monetary benefits (e.g. company car), social security contributions by the employer, and tax expenses borne by the Group. For Mr. Button, these benefits also include expenses related to his expatriation and commuter assignment from the
These charges are subject to Dutch VAT, which is an expense for Aegon. The amount of VAT liable over 2016 is EUR 587 (2015: EUR 529, 2014: EUR 444). As a result of the termination of the Board membership of Mr. Button the Dutch government imposes a tax-levy. This additional employer wage tax is currently estimated at EUR 1,3941. The estimate is inclusive of previously allocated but not yet paid out variable compensation which will vest according to the regular and agreed schedule and conditions. A number of benefits previously granted will be forfeited by Mr. Button in 2017. The forfeited amount is currently estimated to be 1,175. The total remuneration for the members of the Executive Board over 2016 was EUR 7.3 million (2015: EUR 6.0 million; 2014: EUR 6.1 million).
Total expenses recognized under IFRS-EU accounting treatment in the income statement for Mr. Wynaendts related to 2016 was
Interests in Aegon N.V. held by active members of the Executive Board Shares held in Aegon at December 31, 2016 by Mr. Wynaendts amount to 401,948 (2015: 346,301). Mr. Button stepped down as CFO
Ben J. Noteboom (as of May 20, 2015) 109,000 69,250 -
Corien M. Wortmann-Kool (as of May 21, 2014) 90,000 96,000 55,250
Kornelis J. Storm (up to May 21, 2014) - - 33,750
Leo M. van Wijk (up to May 20, 2015) - 38,625 86,000
Irving W. Bailey, II (up to May 20, 2016) - 31,389
54 Events after the reporting period On January 1, 2017, Aegon completed the acquisition of Cofunds, following regulatory approval.
Notes to the financial statements 1 General information Aegon N.V., incorporated and domiciled in the Netherlands, is a public limited liability company organized under Dutch law and recorded in the Commercial Register of The Hague registered under number 27076669 and with its registered address at Aegonplein 50, 2591 TV, The Hague, the Netherlands. Aegon N.V. serves as the holding company for the Aegon Group and has listings of its common shares in Amsterdam and New York.
Book 2 of the Netherlands Civil Code. Based on article 2:362.8 of the Netherlands Civil Code, the valuation principles applied are based on International Financial Reporting Standards as adopted by the EU (IFRS-EU), as used for the preparation of the consolidated financial statements of the Group.
At the reporting date, monetary assets, monetary liabilities and own equity instruments in foreign currencies are translated to the functional currency at the closing rate of exchange prevailing on that date. Non-monetary items carried at cost are translated using the exchange rate at the date of the transaction, while assets carried at fair value are translated at the exchange rate when the fair value was determined.
2.3 Offsetting of assets and liabilities Financial assets and liabilities are offset in the statement of financial position when Aegon N.V. has a legally enforceable right to offset and has the intention to settle the asset and liability on a net basis or simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterpart.
2.4 Investments The group companies are stated at their net asset value, determined on the basis of IFRS-EU as applied in the consolidated financial statements of the Group. For details on the accounting policies applied for the group companies refer to the consolidated financial statements.
Other investments are financial assets 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. They are initially recognized at fair value excluding interest accrued to date plus, in the case of a financial asset not at fair value through profit or loss, any directly attributable incremental transaction costs.
Available-for-sale assets are recorded at fair value with unrealized changes in fair value recognized in equity.
market, the fair value is the bid price at the reporting date. In the absence of an active market, fair value is estimated by using present value based or other valuation techniques. Where discounting techniques are applied, the discount rate is based on current market rates applicable to financial instruments with similar characteristics. The valuation techniques that include unobservable inputs can result in a different outcome than the actual transaction price at which the asset was acquired. Such differences are not recognized in the income statement immediately but are deferred. They are released over time to the income statement in line with the change in factors
(including time) that market participants would consider in setting a price for the asset. Interest accrued to date is not included in the fair value of the financial asset.
(backing insurance liabilities, investment liabilities or equity based on asset liability management considerations) are not included in cash and cash equivalents but are presented as investment or investment for account of policyholders.
2.8 Impairment of assets An asset is impaired if the carrying amount exceeds the amount that would be recovered through its use or sale. Tangible, intangible and financial assets, if not held at fair value through profit or loss, are tested for impairment when there are indications that the asset may be impaired. Irrespective of the indications, goodwill and other intangible assets that are not amortized are tested at least annually.
potentially unfavorable conditions for Aegon. Compound instruments are separated into liability components and equity components.
Other In addition, results from financial transactions include net foreign currency gains/(losses) and net fair value change on borrowings and other financial liabilities.
2.13 Interest charges and related fees Interest charges and related fees includes interest expense on subordinated and long-term borrowings. Interest expense on these borrowings carried at amortized cost is recognized in profit or loss using the effective interest method 2.14 Contingent assets and liabilities Contingent assets are disclosed in the notes if the inflow of economic benefits is probable, but not virtually certain. When the inflow of economic benefits becomes virtually certain, the asset is no longer contingent and its recognition is appropriate.
2.15 Events after the reporting period The financial statements are adjusted to reflect events that occurred between the reporting date and the date when the financial statements are authorized for issue, provided they give evidence of conditions that existed at the reporting date.
10 Receivables Receivables from group companies and other receivables have a maturity of less than one year. Other receivables include an income tax receivable of EUR 219 million (2015: EUR 63 million).
In 2016, Vereniging Aegon decided not to exercise its option rights to purchase common shares B, since its special cause voting rights at the time of the issuance of shares in connection with the Long Term Incentive Plans for senior management already exceeded 32.6%
due to the execution of the EUR 400 million Share Buyback program. As a consequence, such issuance of shares would not result in dilution of Vereniging Aegon’s voting rights.
The weighted average number of EUR 0.12 common shares for 2016 was 2,047,503,660 (2015: 2,102,813,138).
Foreign currency translation differences and movement in foreign investment hedging reserves - - - 16 52 - - - - 68
Coupons and premium on convertible core capital securities and coupon on perpetual securities, net of tax - - - - - - (133) - - (133)
Remeasurement of defined benefit plans of group companies - - - 165 - - - - - 165
1 Refer to note 2.1.2 Voluntary changes in accounting policies of the consolidated financial statements of Aegon N.V. for details about these changes.
The treasury shares B are held by Aegon N.V. and entail 17,324,960 shares with a total amount of EUR 2. There were no treasury shares B in 2015.
USD 250 million floating LIBOR rate 1) Quarterly, December 15 2017 212 212
Perpetual cumulative subordinated bonds Coupon rate Coupon date Year of next call 2016 2015 1 The coupon of the EUR 136 million bonds was originally set at 7.25% until October 14, 2008. Subsequently, the coupon has been reset at 5.185%
until October 14, 2018. 2 The coupon of the EUR 203 million bonds was originally set at 7.125% until March 4, 2011. Subsequently, the coupon has been reset at 4.26%
Non-cumulative subordinated notes Coupon rate Coupon date, as of Year of next call 2016 2015
The subordinated notes bear interest at a fixed rate of 8.00% and have been priced at 100% of their principal amount.
The conditions of the securities contain certain provisions for optional and required deferral of interest payments. There have been no defaults or breaches of conditions during the period.
17 Other liabilities Loans from and payables to group companies have a maturity of less than one year. Other includes derivatives with negative fair values of EUR 233 million (2015: EUR 149 million).
EUR 3,720 million (2015: EUR 3,750 million); as of that date no amounts had been drawn, or were due under these facilities.
Other letter of credit arrangements for subsidiaries amounted to EUR 104 million (2015: EUR 235 million); as of that date no amounts had been drawn, or were due under these facilities; �� Due and punctual payment of payables due under letter of credit agreements or guarantees provided for subsidiaries of
LLC and Commonwealth General Corporation with respect to bonds, capital trust pass-through securities and notes issued under commercial paper programs amounted to EUR 633 million (2015: EUR 615 million); and �� Due and punctual payment of any amounts owed to third parties by the consolidated group company Aegon Derivatives N.V. in connection with derivative transactions. Aegon Derivatives N.V. only enters into derivative transactions with counterparties with which ISDA master netting agreements including collateral support annex agreements have been agreed; net (credit) exposure on derivative transactions with these counterparties was therefore limited as of December 31, 2016.
21 Events after the reporting period On January 1, 2017, Aegon completed the acquisition of Cofunds, following regulatory approval.
If the proposed dividend is approved by shareholders, Aegon shares will be quoted ex-dividend on May 22, 2017, for the shares listed on the New York Stock Exchange and on May 23, 2017, for shares listed on Euronext. The record date for the dividend will be May 24, 2017. Shareholders can elect to receive a dividend in cash or in shares during the dividend election period, which will run from May 30, 2017 up to and including June 16, 2017. The dividend will be payable as of June 23, 2017.
In order to reflect the prevailing market price of Aegon N.V. common shares fully within the indication provided, the number of dividend coupons that give entitlement to a new common share of EUR 0.12 (nominal value) will be determined on June 16, 2017 after 5.30 p.m. (CET), based on the average share price on Euronext Amsterdam in the five trading days from June 12, 2017 up to and including June 16, 2017.
Report on the financial statements 2016 Our opinion In our opinion: �� the consolidated financial statements give a true and fair view of the financial position of Aegon N.V. and its subsidiaries as at December 31, 2016, and of its results and its cash flows for the year then ended in accordance with International Financial
Reporting Standards as adopted by the European Union (IFRS-EU) and with Part 9 of Book 2 of the Dutch Civil Code. �� the stand-alone financial statements give a true and fair view of the financial position of Aegon N.V. as at December 31, 2016 and of its results for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code.
What we have audited We have audited the accompanying financial statements 2016 of Aegon N.V., The Hague, the Netherlands (‘the Company’).
The consolidated financial statements comprise: �� the consolidated statement of financial position as at December 31, 2016; �� the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended; and �� the notes, comprising a summary of significant accounting policies and other explanatory information.
The basis for our opinion We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the section ‘Our responsibilities for the audit of the financial statements’ of our report.
Independence We are independent of Aegon N.V. in accordance with the ‘Verordening inzake de onafhankelijkheid van accountants bij assuranceopdrachten ’ (ViO) and other relevant independence requirements in the Netherlands. Furthermore we have complied with the
Our audit approach Overview and context Aegon N.V. is a provider of life insurance, pensions and asset management. The Aegon Group comprises of several components and therefore we considered our group audit scope and approach as set out in the scope of our group audit section. Aegon’s main operating units are separate legal entities and operate under the laws of their respective countries. Aegon has operations in, amongst others the
United States, Mexico and Brazil, the Netherlands, the United Kingdom, Central & Eastern Europe and Spain & Portugal and Asia.
Independent auditor’s report Independent auditor’s report Independent auditor’s report Independent auditor’s report
In particular, we looked at where management made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. In Note 3 and 47 of the financial statements the Company describes the areas of judgment in applying accounting policies and the key sources of estimation uncertainty.
As in all of our audits, we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by management that may represent a risk of material misstatement due to fraud. Furthermore, we addressed information technology general controls (‘ITGCs’), that are the policies and procedures used by the Company to ensure information technology (‘IT’) operates as intended and provides reliable data for financial reporting purposes, where relevant for our audit.
The outlines of our audit approach were as follows: Materiality � Overall materiality: EUR 65 million which represents circa 5% of a three year average of income before tax.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overal group materiality EUR 65 million (2015: EUR 65 million).
How we determined it Circa 5% of a three year average of income before tax including normalizing 2016 and 2015 income before tax excluding the realized loss from the sale of the UK annuities business in 2016 and the sale of the Canadian operations in 2015, respectively.
Component materiality To each component in our audit scope based on our judgement, we allocate materiality that is less than our overall group materiality. The range of materiality allocated across components was based on the relative size of the component. The allocated materiality was between EUR 20 million and EUR 60 million.
For example, certain items, such as related party transactions, management remuneration disclosures and going concern disclosures are subject to lower materiality levels when planning and executing our audit procedures as they are of particular interest to the reader of the financial statements and may otherwise not be subject to audit procedures in the context of the Group as a whole.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above EUR 4 million
The scope of our group audit Our engagement consists of review procedures on the Q1 2016, Q2 2016 and Q3 2016 condensed consolidated interim financial statements and the 2016 year-end audit as discussed herein. Aegon N.V. is the parent of a group of entities. The Group is structured predominately along geographical lines referred to as ‘regional units’. The financial information of the Group is included in the consolidated financial statements of the Company.
Taken together, and excluding our group analytical procedures, our audit coverage as defined in percentages in the table below is based on the full scope audits performed as well as the audit procedures of specific account balances as described above.
Where the work was performed by component auditors, we determined the level of the involvement of the group audit team we needed to have in the audit work at those regional units. This determination was made in order for us to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the Group financial statements as a whole. In addition to issuing written instructions to each of the component teams, we developed an oversight strategy for each regional unit based on its significance and/or risk characteristics to the Group. These strategies included procedures such as regular meetings and discussions with component auditors to challenge and review significant audit matters and judgements within the component team audit files, extensive reporting to the Group team on a quarterly basis and regular site visits to attend closing meetings and/or local board meetings.
Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements. We have communicated the key audit matters to the Audit Committee and Supervisory Board, but they are not a comprehensive reflection of all matters that we discussed. We described the key audit matters and included a summary of the audit procedures we performed on those matters.
Due to the nature of the insurance industry and economic environment the following key audit matters are consistent with the prior year.
EUR 240.5 billion at December 31, 2016 representing 59.9% of the Group’s total liabilities. This is an area that involves significant judgement over uncertain future outcomes, including primarily the timing and ultimate full settlement of long term policyholder liabilities, and therefore we considered it a key matter for our audit.
Consistent with the insurance industry, the Company uses valuation models to support the calculations of the insurance contract liabilities. The complexity of the models may give rise to errors as a result of inadequate/incomplete data or the design or application of the models. Economic assumptions such as investment return and interest rates and actuarial assumptions such as mortality, morbidity and customer behavior are key inputs used to estimate these long-term liabilities. Significant judgement is applied in setting these assumptions.
In 2016, management changed the segment measurement of underlying earnings before tax by including the impact from assumption updates as part of ‘Other income/(charges)’ rather than as part of underlying earnings before tax.
Netherlands and guarantees associated with universal life and annuities along with long term care in the Americas.
We assessed the design and tested the operating effectiveness of internal controls over the actuarial process including management's determination and approval process for setting of economic and actuarial assumptions. We assessed the Company's validation of certain models considered higher risk by the Company as a result of complexity and/or magnitude. We also assessed and tested the internal controls over the Company's actuarial analyses including estimated versus actual results and experience studies.
Company’s segment measurement following the change in treatment to record assumption updates in ‘Other income/
DPAC and VOBA Refer to Note 2.6 ‘Summary of significant accounting policiesintangible assets’, Note 2.13 ‘Summary of significant accounting policies-deferred expenses’ and Notes 29 ‘Deferred expenses’ and 31 ‘Intangible assets’. DPAC and VOBA represent EUR 12.3 billion or 2.9% of total assets and involve significant judgement in the measurement and assessment of recoverability of these assets.
For this reason, they are considered key matters for our audit.
The areas that involved significant audit effort and judgement were the valuation of illiquid instruments. These instruments are valued based on models and assumptions that are not observable by third parties which are generally considered model based level
We assessed the design and tested the operating effectiveness of internal controls over the investments’ valuation and impairment process including management’s determination and approval of assumptions and methodologies used in modelbased calculations, controls over data integrity and change management for internally operated valuation models and management’s review of valuations provided by external experts or data vendors.
We compared assumptions used against appropriate benchmarks and pricing sources, investigated significant differences and performed our own independent valuations, using valuation statements, independent broker quotes and underlying financial data, where applicable.
We also assessed whether the Group’s disclosures in the consolidated financial statements in relation to the valuation of investments are compliant with the relevant accounting requirements.
The insurance industry continues to face consumer activism and regulatory scrutiny over product design and selling practices. The
Depending on the actual legal position and expectations from management, claims, including litigation related, are either provided for as a liability or reflected as contingent liabilities in the notes to the financial statements. The Company uses external legal experts where applicable to evaluate its legal positions.
Given the uncertainty and judgement in this area we determined this as a key audit matter.
We also assessed the completeness and adequacy of the related disclosures to determine they were in accordance with IFRS-EU.
Sale of the UK Annuity Portfolio in Two Parts Refer to Note 51 ‘Business combinations’.
Due to the non-routine nature of the transaction, we took a more substantive approach with respect to this key audit matter.
We assessed and challenged the assumptions used to calculate the expected fee income and ensured the spreadsheet calculation of the reinsurance asset is in line with the updated accounting policy.
We assessed the reasonableness of the gross annuity liabilities at the date of sale by looking at the movements in the liabilities since prior year.
We confirmed that the calculation of the reinsurance asset is in line with the methodology and we assessed supporting evidence of management’s interpretation of the underlying reinsurance treaties.
Our assessments also included challenging, as necessary, specified economic and actuarial assumptions considering management’s rationale for the actuarial judgements applied along with comparison to applicable industry experiences.
Report on the other information included in the annual report In addition to the financial statements and our auditor’s report thereon, the annual report contains other information that consists of: �� the directors’ report, consisting of strategic information and business overview; �� the other information pursuant to Part 9 of Book 2 of the Dutch Civil Code; �� the governance section; �� other financial information; �� additional information.
Based on the procedures performed as set out below, we conclude that the other information: �� is consistent with the financial statements and does not contain material misstatements; �� contains all information that is required by Part 9 of Book 2 of the Dutch Civil Code.
Civil Code; and for the preparation of the directors’ report in accordance with Part 9 of Book 2 of the Dutch Civil Code; and for �� such internal control as the the management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.
A more detailed description of our responsibilities is set out in the appendix to our report.
The auditor's responsibilities for the audit of the financial statements We have exercised professional judgement and have maintained professional scepticism throughout the audit in accordance with Dutch
From the matters communicated with the Supervisory Board, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest.
The relevant provisions read as follows: 1. The General Meeting of Shareholders will adopt the Annual Accounts; 2. If the adopted profit and loss account shows a profit, the Supervisory Board may decide, upon the proposal of the Executive Board, to set aside part of the profit to augment and/or form reserves; 3. The profits remaining after application of 2 above shall be put at the disposal of the General Meeting of Shareholders.
Major shareholders General As of December 31, 2016, Aegon’s total authorized share capital consisted of 6,000,000,000 common shares with a par value of
All of Aegon’s common shares and common shares B are fully paid and not subject to calls for additional payments of any kind. All of
Aegon’s common shares are registered shares. Holders of shares of New York registry hold their common shares in the registered form issued by Aegon’s New York transfer agent on Aegon’s behalf. Shares of New York registry and shares of Netherlands registry are exchangeable on a one-to-one basis and are entitled to the same rights, except that cash dividends are paid in US dollars on shares of
The voting rights pertaining to the preferred shares were adjusted accordingly to 25/12 vote per preferred share. However, in
May 2003, Aegon N.V. and Vereniging Aegon entered into a Preferred Shares Voting Agreement, pursuant to which Vereniging Aegon agreed to exercise one vote only per preferred share, except in the event of a ‘Special Cause', as defined below.
In the years 2003 through 2012, 118,093,000 class B preferred shares were issued under these option rights and in 2013 purchased in aggregate 12,691,745 common shares B under its call option right.
Company at the time of issuance) to mitigate dilution caused by Aegon’s issuance of shares on May 21, 2014, in connection with the
May 21, 2015, in connection with the Long Term Incentive Plans for senior management. And on November 13, 2015, and with effect of November 13, 2015, Vereniging Aegon exercised its options rights to purchase in aggregate 760 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by a correction to Aegon’s issuance of shares on May 21, 2015, in connection with the Long Term Incentive
Plans for senior management. On May 19, 2016 Aegon N.V. repurchased 13,450,835 Common Shares from Vereniging Aegon for the amount of EUR 58,000,000, being the Value Weight Average Price of the common shares of the 5 trading days preceding this transaction, as part of the EUR 400 million Share Buy Back program, initiated by Aegon N.V. in January 2016 to neutralize the dilutive effect of the cancellation of Aegon N.V.’s preferred shares in 2013. On June 6, 2016 Aegon N.V. repurchased 17,324,960 Common
Shares B from Vereniging Aegon for the amount of EUR 1,968,332, being 1/40th of the Value Weight Average Price of the common shares of the 5 trading days preceding this transaction. The repurchase of common shares B was executed to align the aggregate shareholding of Vereniging Aegon in Aegon N.V. with its special cause voting rights of 32.6%.
Committee. This requirement does not apply in the event of a hostile change of control at the General Meeting of Shareholders of
Aegon N.V., in which event Vereniging Aegon may amend its Articles of Association without the cooperation of Aegon N.V. Furthermore, the two members of the Executive Board of Aegon N.V., who are also members of the Executive Committee, have no voting rights on several decisions that relate to Aegon N.V., as set out in the Articles of Association of Vereniging Aegon.
Based on its last filing with the Dutch Autoriteit Financiële Markten as at September 22, 2016, Dodge & Cox International Stock Fund stated to hold 134,654,439 common shares, which represent 5.1% of the capital issued and 5.1% of the votes as at December 31, 2016. On March 20, 2017, Dodge & Cox’s filing with the US Securities and Exchange Commission (SEC) shows that Dodge & Cox holds 258,658,681 common shares, representing 9.7% of the issued capital, and has voting rights for 252,734,642 shares, representing 9.5% of the votes as at December 31, 2016. The SEC filing also shows that of this number of shares Dodge & Cox International Stock
The filing of Franklin Resources, Inc. (FRI), a US based investment management firm, with the SEC as at February 8, 2017, shows that
FRI holds 150,157,500 common shares, representing 5.6% of the issued capital, and has voting rights for 139,607,593 shares, representing 5.2% of the votes as at December 31, 2016.
As at December 31, 2016 Amounts in million EUR Cost1) Fair value Book value
Other investments at fair value through profit or loss 2,535 2,536 2,536
Other financial information Schedule I Other financial information Schedule I Schedule I
Net increase / (decrease) in cash and cash equivalents 570 (346) 29
The non-U.S. based subsidiaries of Aegon N.V. operate in compliance with applicable laws and regulations of the various jurisdictions where they operate, including applicable international laws and regulations.
The customers are UK-based employees of a British registered charity that appears on the SDN List with the identifier [SDGT], and the charity makes contributions to the pensions. The customers are not SDNs and the charity does not own, benefit from, or have control over, the pensions. All payments from the charity have been paid in UK Pounds from a UK bank account. The pensions are managed in line with applicable legislation and regulation in the UK and the charity is not subject to sanctions in the UK or EU. Consequently, the pensions remain active although the relationships are under close ongoing review. Individual Personal Pension #1 has a current value of
GBP 7,820.61 as at January 23, 2017, and regular monthly contributions of GBP 69.41 are being received into this policy. Individual
Personal Pension #2 has a current value of GBP 3,563.97as at January 23, 2017, and regular monthly contributions of GBP 18.61
(gross) are being received into this policy. Individual Personal Pension #3 has a current value of GBP 168,152.37as at January 23, 2017, and regular monthly contributions of GBP 527.91 (gross) are being received into this policy. Individual Personal Pension #4 has a current value of GBP 7,753.44 as at January 23 2017, and no further contributions are being received into this policy. Individual
Aegon Levensverzekering N.V. maintained a limited number of individual personal pensions and individual life investment linked insurance policies which were in-force during 2016 where the beneficiary of the pension policy and the beneficiary/payer of the individual life investment linked insurance policy is a party subject to relevant U.S. sanctions.
The individual life investment linked insurance policy has a current value of EUR 59,981 as at January 1st, 2017, and regular monthly contributions of EUR 198.60 are being received into this policy. All contributions have been paid in Euros from a Dutch bank account.
February 1, 2023. The related annual net profit arising from this contract, which is difficult to calculate with precision, is estimated to be EUR 500 per year.
Risk factors Aegon faces a number of risks, some of which may arise from internal factors, such as inadequate compliance systems and operational change management. Others, may arise from external factors, such as developments in financial markets, the business and/or political environment, economic trends, politics and regulations. These risks, whether internal or external, may affect the Company’s operations, its earnings, the value of its investments, or the sale of certain products and services. The market price of Aegon securities could decline due to any of the risks described in this section and investors could lose (part of) their investments. Additional risks of which
Aegon is not presently aware could also affect its operations and share price. The business of a multinational insurance company such as Aegon is inherently exposed to risks that may only become apparent with the benefit of hindsight. The next two sections provide a description of risk factors relating to Aegon’s businesses and Aegon’s securities, including its common shares. The order in which the risk factors are presented is not indicative of their likelihood of occurrence or the potential magnitude of their financial consequences.
Such conditions may result in reduced demand for Aegon’s products as well as impairments and reductions in the value of the assets in
Aegon’s general account, separate account, and company pension schemes, among other assets. Aegon may also experience a higher incidence of claims and unexpected policyholder behavior such as unfavorable changes in lapse rates. Aegon’s policyholders may choose to defer or stop paying insurance premiums, which may impact Aegon’s businesses, results of operations, cash flows and financial condition, and Aegon cannot predict definitively whether or when such actions may occur.
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.
Aegon and its customers run the risk that the market value of its equity investments declines. Exposure to equity markets exists in both assets and liabilities. Asset exposure exists through direct equity investment where Aegon bears all or most of the volatility in returns and investment performance risk. Equity market exposure is also present in policyholders’ accounts for insurance and investment contracts (such as variable annuities, unit-linked products and mutual funds) where funds are invested in equities. Although most of the risk remains with the policyholder, guarantees within certain products may transfer some or all of this risk to Aegon. Lower investment returns also reduce the asset management fee that Aegon earns on the asset balance in these products and prolonged investment under-performance may cause existing customers to withdraw funds and potential customers not to grant investment mandates.
Some of Aegon’s insurance and investment contract businesses have minimum return or accumulation guarantees, which require Aegon to establish reserves to fund these future guaranteed benefits when equity market returns do not meet or exceed these guarantee levels. Aegon’s reported results under International Financial Reporting Standards (IFRS-EU), as adopted by the European Union, are also at risk if returns are not sufficient to allow amortization of DPAC, which may impact the reported net income as well as shareholders’ equity. Volatile or poor market conditions may also significantly reduce the demand for some of Aegon’s savings and investment products, which may lead to lower sales and net income. Deteriorating general economic conditions may again result in significant decreases in the value of Aegon’s equity investments.
These cash payments to policyholders also result in a decrease in total invested assets and net income. Early withdrawals may also require accelerated amortization of DPAC, which in turn reduces net income. Hedging against interest rate movements may change these effects significantly. Hedging programs are in place that are designed to manage the risks within the limits as defined as part of the financial risk management policies within Aegon group’s risk strategy. The actual impact of the hedging programs is dependent on the effectiveness of the design of those programs as well as real time movements of financial markets. If hedging programs are not effective, Aegon’s results of operation, cash flow and financial position could be materially and adversely affected.
Aegon manages its investments and derivative portfolio, considering a variety of factors, including the relationship between the expected duration of its assets and liabilities. However, if interest rates remain at current levels or decline further, the yield earned upon reinvesting interest payments from current investments, or from their sale or maturation, may decline. Reinvestment at lower yields may reduce the spread between interest earned on investments and interest credited to some of Aegon’s products and accordingly net income may decline. In addition, borrowers may prepay or redeem fixed maturity investments or mortgage loans in
In general, if interest rates rise, there will be unrealized losses on assets carried at fair value that will be recorded in other comprehensive income (available-for-sale investments) or as negative income (investments at fair value through profit or loss) under
IFRS-EU. This is inconsistent with the IFRS-EU 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.
The sensitivity of Aegon’s net income and shareholders’ equity to a change in interest rates is provided in the notes to the consolidated statements, note 4 Financial risks, section ‘Interest rate risk’.
To the extent these expected dividends are not hedged or actual dividends vary from expected, Aegon’s net income and shareholders’
Aegon makes use of (syndicated) credit facilities to support repayment of amounts outstanding under Aegon’s commercial paper programs and to serve as additional sources of liquidity. An inability to access these credit facilities, for example due to non-compliance with conditions for borrowing or the default of a facility provider under stressed market circumstances, could have an adverse effect on
Aegon’s ability to meet liquidity needs and to comply with contractual and other requirements.
Underwriting risk Underwriting risk relates to the products sold by Aegon insurance entities. The underwriting process requires, among others, the setting of assumptions. Aegon’s reported results of operations and financial condition may be affected by differences between actual claims experience and underwriting and reserve assumptions both due to incurred gains/ losses and from potential changes in best estimate assumptions that are used to value insurance liabilities.
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 provisions for insurance liabilities. If actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, Aegon’s income would be reduced. Furthermore, if less favorable claims experience became sustained, Aegon may be required to change its best estimate assumptions with respect to future experience, potentially increasing liabilities, which may reduce Aegon’s income. In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force have been recorded as assets on the balance sheet and are being amortized into income over time. If the assumptions relating to the future profitability of these policies (such as future claims, investment income and expenses) are not realized, the amortization of these costs may be accelerated and may require write-offs should there be an expectation of unrecoverability. This may have a materially adverse effect on Aegon’s results of operations and financial condition.
Certain of our products have guarantees that may adversely affect our results, financial condition or liquidity.
Further, unexpected policyholder behavior may cause our hedging to be less effective. The above factors could have a material adverse effect on our results of operations, financial condition or liquidity.
Aegon is exposed to changes in the fair value of Aegon’s investments, the impact of interest rate, equity markets and credit spread changes, currency fluctuations and changes in mortality and longevity. Aegon uses common financial derivative instruments, such as swaps, options, futures and forward contracts to hedge some of the exposures related to both investments backing insurance products and company borrowings. This is a more pronounced risk to Aegon in view of the stresses suffered by financial institutions and the volatility of interest rate, credit and equity markets. Aegon may not be able to manage the risks associated with these activities successfully through the use of derivatives. In addition, a counterparty may fail to honor the terms of its derivatives contracts with
Aegon’s ability to manage risks through derivatives may be negatively affected by the Dodd-Frank Act and legislative initiatives of the
European Commission (EMIR and MIFIR), which provide for regulation of OTC derivatives markets. These regulations include mandatory trading of certain types of OTC derivative transactions on regulated trading venues and mandatory clearing of certain types of transactions through a central clearing organization. These regulations may limit Aegon’s ability to customize derivative transactions for its needs. Aegon may experience additional collateral requirements and costs associated with derivative transactions through these or other regulatory or taxation changes.
Aegon uses econometric, financial and actuarial models to measure and manage multiple types of risk, to price products and to establish and assess key valuations and report financial results. All these functions are critical to Aegon’s operations. If these models, their underlying methodologies, assumptions and estimates, or their implementation and monitoring prove to be inaccurate, this could have a significant adverse effect on Aegon’s business, financial condition and results.
There may be increased regulatory requirements, resulting in more stringent supervision of insurers at the group or statutory company level by regulatory authorities in the jurisdictions in which Aegon’s subsidiaries are domiciled and operate. Aegon cannot predict specific proposals that might be adopted, or what impact, if any, such proposals or, if enacted, such laws, may have on its businesses, results of operations, or financial condition.The European Union (which has already adopted Solvency II), the National Association of Insurance
other jurisdictions in which Aegon’s subsidiaries operate may increase their capital requirements, or rating agencies may incorporate higher capital thresholds into their quantitative analyses, thus requiring additional capital for Aegon’s insurance subsidiaries.
Some of Aegon’s competitors, who are headquartered outside the European economic area may not be subject to Solvency II
requirements and may thereby be better able to compete against Aegon, particularly in Aegon’s businesses in the United States and
Asia. In particular, the manner in which Aegon’s United States and Asia insurance businesses are taken into account in the Solvency II
EIOPA on January 27, 2016 regarding the application of a combination of accounting methods for the group solvency calculation has offered important additional guidance to Aegon that may help to determine its group solvency position under Solvency II. As is generally the case with respect to the interpretation of regulatory requirements, in the future this guidance may change, which may have, depending on the nature of the change, a significant effect on the outcome of the group solvency calculation.
Aegon utilizes affiliated captive insurance companies to manage risks of various insurance policies, including universal life with secondary guarantees, level term life insurance and variable annuity policies. Through these structures, Aegon finances certain required regulatory reserves at a lower cost. To the extent that state insurance departments restrict Aegon’s use of captives and regulatory reserve requirements remain unchanged this could increase costs, limit the ability to write these products in the future or lead to increased prices to consumers on those products. The NAIC continues to consider changes to corporate governance and insurers’ use of captives. Due to the uncertainty of the proposals it is not possible to provide an estimate of the effects at this time.
As a further example, Aegon and the Aegon Group may be impacted by further changes to the capital adequacy requirements it is subject to as a result of the development of the Common Framework for the Supervision of Internationally Active Insurance Groups
(ComFrame), which is a set of international regulatory standards focusing on the effective group-wide supervision of internationally active insurance groups, and particular requirements or standards that may be imposed on global systemically important insurers
Aegon’s ability to provide guarantees, may increase the cost to Aegon of offering certain products, which could require Aegon to raise prices on those products, reduce the amount of risk Aegon takes on or stop offering certain products. Furthermore, Aegon may consider structural and other business alternatives in light of its G-SII designation, of which the impact on shareholders cannot be predicted.
Regulatory restrictions and failure to comply with regulations may impact Aegon’s ability to do business, its financial position or financial results.
(or a change in outlook indicating the potential for such a downgrade) of Aegon or any of its rated insurance subsidiaries may, among other things, materially increase the number of policy surrenders and withdrawals by policyholders of cash values from their policies.
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 to accelerate amortization of deferred policy acquisition costs (DPAC), reducing net income.
Aegon has experienced downgrades and negative changes to its outlook in the recent past, and may experience rating and outlook changes in the future. For example, in April 2016 Moody’s placed Aegon N.V.’s holding company rating on negative outlook and in
(e.g. policyholders), not holders of Aegon capital securities. Changes in existing laws and regulations may affect the way in which Aegon conducts its businesses, profitability of its businesses and the products offered. Additionally, the laws or regulations adopted or amended from time to time may be more restrictive or may result in higher costs than currently the case, such as with regard to the calculation of capital needs, treatment of own funds, rules or guidance with respect to the modelling of insurance, investment and other risks.
For example, in July 2010, the US Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which provides for comprehensive changes to the regulation of financial services in the United States by granting existing and newly-created government agencies and bodies (for example the Federal Reserve Board, Commodity Futures Trading Commission,
HLA is the second step in the IAIS project to develop group-wide global capital standards. The third step is the development of a risk based group-wide global Insurance Capital Standard (ICS), due to be completed by 2019 and to be applied to IAIGs. The development of the ICS will be informed by the work on the BCR. When finalized, the ICS will replace the BCR as foundation of the HLA. The IAIS
indicates that, because of the interlinkage between the BCR and HLA, the calibration may be modified depending on the HLA
requirements. The IAIS currently expects that the HLA will initially be based on the BCR, but will be later based on the ICS. The exact timing of the transition from BCR to ICS will depend on the adoption of the ICS by the IAIS and time needed to develop and implement the framework in the relevant jurisdictions. The internationally developed BCR and HLA currently are calculated using different (criteria and) methodologies than EU Solvency II capital requirements. Only after the calibration of the BCR and HLA has been completed will
An important effect of the Dodd-Frank Act on Aegon USA is the derivatives reform aspect, which aims to increase transparency of derivatives use and reduce systemic risk. Aegon USA entities are considered to fall into Category 2 under the regulations and are therefore required to clear derivative transactions. In addition, Aegon USA has reporting, initial margin and variation margin obligations under the Dodd-Frank Act and associated regulations. However, Aegon cannot predict how the regulations (and any potential amendments thereto) will further affect financial markets generally or Aegon’s business, financial condition or results of operations.
The new US administration recently announced a review of the Dodd-Frank Act that may result in changes to the regulations.
Solvency II has become effective in EU member states as per January 1, 2016. Due to the fact that the Solvency II framework is new, the interpretation of various elements of the Solvency II framework is not yet fully clear or may change as a result of the way insurers as well as supervisory authorities interpret the new rules. This may also affect the way Aegon implements the Solvency II framework, including Aegon’s financial position under Solvency II. Pursuant to Solvency II, Aegon is required to calculate a solvency ratio (own
Group, and to the insurance and reinsurance undertakings in the Aegon Group. As the prudential supervisor, DNB will nonetheless monitor Aegon’s capital management policies. Aegon applies its own capital management policies that determine the Company's risk tolerances on the basis of self-imposed criteria. These policies may result in Aegon, at its own election, but supervised by DNB, maintaining a buffer of own funds in addition to those required in according to Solvency II requirements. Pursuant to these self-imposed criteria, Aegon currently aims to hold a buffer in excess of the 100% minimum Group Solvency Ratio of 40 to 70%, in accordance with
Aegon’s Group Capital Management Policy. The calculation of the Group Solvency Ratio in accordance with Solvency II is further described in the section Regulation and Supervision.
The United States Department of Labor (DOL) issued a ‘Conflict of Interest’ or ‘Fiduciary’ rule in April 2016 (the ‘DOL Rule’) that substantially broadens the definition of ‘fiduciary’ with respect to retirement savings and investment plans and products (‘qualified assets’). The final rule would, with limited exemptions and carve-outs, make agents and brokers who provide recommendations on qualified assets, subject to a best interest/fiduciary standard.
If implemented as promulgated in April 2016, the DOL Rule could have a material adverse impact from a prospective sales perspective both as to Aegon Americas’ retirement plan and annuity businesses, and could create other challenges to the operating model of these businesses. On February 3, 2017, the US President called for a review of the DOL Rule that may result in changes to the regulations.
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. Similarly, in December 2013, the Polish parliament approved legislation to overhaul the existing state pension system, which was a reason for Aegon to write down its intangible assets.
The possible abandonment of the euro currency by one or more members of the European Monetary Union may affect Aegon’s results of operations in the future.
(De Nederlandsche Bank N.V., DNB) and the Dutch Minister of Finance to intervene in situations where an institution, including a financial group such as Aegon, faces financial difficulties or where there is a serious and immediate risk to the stability of the Dutch financial system caused by an institution in difficulty. The Dutch Intervention Act has been amended in respect of, inter alia, banks as a result of the entry into force of the EU Directive on the recovery and resolution of credit institutions and investments firms, which was approved by the European Parliament on 15 April 2014 and of which the final text was published in the Official Journal of the
European Union on 12 June 2014 (the Bank Recovery and Resolution Directive). The Bank Recovery and Resolution Directive also contains provisions that apply to mixed financial holding companies such as Aegon N.V., including the right of bail-in of creditors. Under the Dutch Intervention Act, substantial powers have been granted to DNB and the Dutch Minister of Finance enabling them to deal with ailing Dutch insurance companies as well as holding companies of insurance companies and financial conglomerates prior to insolvency.
(d) immediate interventions by the Dutch Minister of Finance concerning an ailing insurance company, and (e) public ownership
(nationalisation) of (i) all or part of the business of an ailing insurance company or (ii) all or part of the shares or other securities issued by an ailing insurance company or its holding company. The Dutch Intervention Act also contains measures that limit the ability of counterparties to invoke contractual rights (such as contractual rights to terminate or to invoke a right of set-off or to require security to be posted) if the right to exercise such rights is triggered by intervention of DNB or the Dutch Minister of Finance based on the Dutch
Intervention Act or by a circumstance which is the consequence of such intervention. There is a risk that the exercise of powers by DNB
Act and the Bank Recovery and Resolution Directive aim to ensure that financial public support will only be used as a last resort after having assessed and exploited, to the maximum extent practicable, the resolution tools, including the bail-in tool. The Dutch Ministry of
Aegon subsidiaries regularly receive inquiries from local regulators and policyholder advocates in various jurisdictions, including the
United States, the Netherlands, and the United Kingdom. Regulators may seek fines or penalties, or changes to the way Aegon operates. In some cases, Aegon subsidiaries have modified business practices in response to inquiries. For example, in 2014 the
employment relationships, Aegon is defending a suit in the state of Georgia filed by self-employed independent insurance agents associated with one of Aegon’s financial marketing units who have claimed that they are, in fact, employees of the organization.
nl filed a claim against Aegon in court. The claim related to a range of unit linked products that Aegon sold in the past, including Aegon products involved in earlier litigation. Lawsuits have also been brought against providers of securities leasing products (‘aandelenlease producten’). Although sales of securities leasing products ended more than a decade ago, litigation relating to these products has resurfaced. In 2016, the Dutch Supreme Court ruled on a case involving a securities leasing product sold by one of Aegon’s competitors.
Aegon decided to modify the fee structure. Aegon faces a significant number of cases in Poland in which plaintiffs claim that these fees are not contractually supported.
Aegon’s risk management policies and processes may leave the company exposed to unidentified or unanticipated risk events, adversely affecting our businesses, results and financial condition.
Changes in accounting standards may affect Aegon’s reported results, shareholders’ equity and dividend.
The objective of the amendment is to address the temporary accounting consequences of the different effective dates of IFRS 9 and the forthcoming insurance contracts Standard. The amendments permit entities whose predominant activities are connected with insurance, to defer the application of IFRS 9 until 2021 (the ‘temporary exemption’); and permit all issuers of insurance contracts to recognize in other comprehensive income, rather than profit or loss, the volatility that could arise when IFRS 9 is applied before the new insurance contracts Standard is issued (the ‘overlay approach’). Aegon has decided to make use of the ‘temporary exemption’
to defer the application of IFRS 9 until 2021, as it meets the underlying qualifying criteria for doing so. As Aegon is able to defer the application of IFRS 9 until 2021, the full impact of the standard is not yet clear, however an initial impact assessment resulted in the expectation that it will have a significant impact on shareholders’ equity, net result and/or other comprehensive income and disclosures. An implementation project will be combined with the implementation of the new insurance contracts Standard which is expected to be issued by the IASB in the first half-year of 2017.
Further details on IFRS 9 are provided in note 2.1.2 Future adoption of new IFRS-EU accounting standards of the consolidated financial statements. During 2016, the IASB continued deliberations on its Exposure Draft Insurance Contracts that was published by the IASB in
June 2013. The IASB's project to replace IFRS 4 Insurance Contracts is at an advanced stage and a final standard may be published by the IASB mid 2017. However, the standard will not become effective before 2021. The proposed changes in the accounting for insurance contracts will have a significant impact on Aegon.
expense. Policymakers both at international level (OECD and EU) and national level (such as the US, UK and the Netherlands) have been or are (further) considering tax law changes that may impact the deductibility of interest expenses for companies.
The default of a major market participant may disrupt the markets and may affect our business, financial condition, liquidity, operations and prospects.
The failure of a sufficiently large and influential financial institution, or other market participant including a government issuer, may disrupt securities markets or clearance and settlement systems in Aegon’s markets. This may cause market declines or volatility.
Such a failure may lead to a chain of defaults that may adversely affect Aegon and Aegon’s contract counterparties. In addition, such a failure may impact future product sales as a potential result of reduced confidence in the insurance industry. The default of one or more large international financial institutions, which may result in disruption or termination of their cash, custodial or and administrative services, may also have a material adverse impact on Aegon’s ability to run effective treasury and asset management operations.
Even the perceived lack of creditworthiness of a government or financial institution (or a default by any such entity) may lead to market- wide liquidity problems and losses or defaults by Aegon or by other institutions. This risk is sometimes referred to as ‘systemic
risk’ and may adversely affect financial intermediaries, such as clearing members or futures commissions merchants, clearing houses, banks, securities firms and exchanges with whom Aegon interacts on a daily basis and financial instruments of government in which
Aegon invests. Systemic risk could have a material adverse effect on our ability to raise new funding and on our business, financial condition, results of operations, liquidity and/or prospects. In addition, such distress or failure could impact future product sales as a potential result of reduced confidence in the financial services industry.
With differences in interpretation of these regulations by local regulators on how the guidelines need to be applied, as well as to the question of whether they apply to insurance industries at all, these restrictions create an uncertain playing field and may adversely affect Aegon’s ability to compete for qualified employees, as well as Aegon’s ability to exchange employees between regions.
Under the terms of the reinsurance agreements, the reinsurer agrees to reimburse for the ceded amount in the event a covered claim is paid. However, Aegon’s insurance subsidiaries remain liable to their policyholders for ceded insurance if any reinsurer fails to meet the obligations assumed by it. A bankruptcy or insolvency or inability of any of Aegon’s reinsurance counterparties to satisfy its obligations may have a materially adverse effect on Aegon’s financial position and results of operations. Refer to Schedule IV of this Annual Report for a table showing life insurance in force amounts and premiums on a direct, assumed and ceded basis.
voting percentages of existing shareholders. There can be no assurance that Aegon will successfully identify suitable acquisition candidates or that Aegon will properly value acquisitions made. Aegon is unable to predict whether or when any prospective acquisition candidate will become available, or the likelihood that any acquisition will be completed once negotiations have commenced.
Further, employee error, unethical behavior and/or misconduct may be difficult to prevent under all circumstances and may result in significant losses.
Aegon’s management maintains a well-controlled environment and sound (conduct) policies and practices to control these risks and keep operational risk at appropriate levels. Notwithstanding these control measures, however, operational risk is part of the business environment in which Aegon operates, and is inherent in Aegon’s size and complexity, as well as Aegon’s geographic diversity, and the scope of the businesses Aegon operates. Aegon’s risk management activities cannot anticipate every circumstance, and economic and financial outcome, or the specifics and timing of such outcomes. Furthermore, if the contractual arrangements put in place with any third-party service providers are terminated, including contractual arrangements with providers of information technology,
administrative or investment management services, Aegon may not be able to find an alternative provider on a timely basis or on equivalent terms. Aegon may incur significant losses due to these types of risks.
Pursuant to applicable laws, various government agencies and independent administrative bodies have established rules protecting the privacy and security of personal information. A number of Aegon’s subsidiaries are also subject to contractual restrictions with respect to the information of our clients and business partners. Aegon, and numerous of its systems, employees and business partners have access to, and routinely process, the personal information of consumers. Aegon relies on various processes and controls to protect the confidentiality of personal information and other confidential information that is accessible to, or in the possession of, Aegon, its systems, employees and business partners. It is possible that an Aegon employee, business partner or system could, intentionally or unintentionally, inappropriately disclose or misuse personal or confidential information. Aegon’s data or data in its possession could also be the subject of a cybersecurity attack. If Aegon fails to maintain adequate controls or if Aegon or its business partners fail to comply with policies and procedures, misappropriation or intentional or unintentional inappropriate disclosure or misuse of personal information or other confidential information could occur. Such control inadequacies or non-compliance could materially damage
Aegon N.V. and Vereniging Aegon entered into an agreement to simplify the capital structure of Aegon and to cancel all of Aegon’s preferred shares, of which Vereniging Aegon was the sole owner. The execution of this agreement was approved by the General
Vereniging Aegon will no longer be able to exercise more votes than is proportionate to the financial rights represented by its shares.
This means that in the absence of a Special Cause Vereniging Aegon may cast one vote for every common share it holds and one vote only for every 40 common shares B. A Special Cause includes the acquisition of a 15% interest in Aegon N.V., a tender offer for Aegon
N.V. shares or a proposed business combination by any person or group or persons, whether individually or as a group, other than in a transaction approved by the Executive Board and the Supervisory Board. Accordingly, at December 31, 2016, the voting power of
York are quoted in US dollars, fluctuations in exchange rates between the euro and the US dollar may affect the value of Aegon’s common shares. In addition, Aegon declares cash dividends in euros, but pays cash dividends, if any, on Aegon’s shares of New York registry in US dollars based on an exchange rate set the business day following the shareholder meeting approving the dividend.
Property, plant and equipment In the United States, Aegon owns many of the buildings that the company uses in the normal course of its business, primarily as offices.
Aegon owns 16 offices located throughout the United States with a total square footage of 2 million. Aegon also leases space for various offices located throughout the United States under long-term leases with a total square footage of 1 million. Aegon’s principal offices are located in Little Rock, AR; Los Angeles, CA; Denver, CO; Cedar Rapids, IA; St. Petersburg, FL; Atlanta, GA; Louisville, KY; Baltimore, MD; Harrison, NY; Exton, PA; and Plano, TX.
Employees and labor relations At the end of 2016, Aegon had 29,380 employees. Approximately 41% are employed in the Americas, 35% in Europe, 19% in Asia and 5% in Asset Management. Note that employees of the Holding are included in Europe.
See note 14 Commissions and expenses of the Notes to the consolidated financial statements of this Annual Report for a description of employee expenses.
Employees and labor relations Employees and labor relations Employees and labor relations
The offer and listing The offer and listing The offer and listing
Shareholders (Annual General Meeting or extraordinary General Meeting) may only pass a resolution to amend the Articles of
For admittance to and voting at the meeting, shareholders must produce evidence of their shareholding as of the record date.
Material contracts Material contracts Material contracts Exchange controls Exchange controls Exchange controls
Aegon common shares, but does not purport to be a comprehensive description of all Netherlands tax considerations that may be relevant. This section is intended as general information only and each prospective investor should consult a professional tax adviser with respect to the tax consequences of an investment in Aegon common shares.
(Wet inkomstenbelasting 2001); vi. Entities which are resident in Aruba, Curacao or Sint Maarten that have an enterprise which is carried on through a permanent establishment or a permanent representative on Bonaire, Sint Eustatius or Saba, to which permanent establishment or permanent representative the Aegon common shares are attributable; vii. Holders of Aegon common shares which are not considered the beneficial owner (uiteindelijk gerechtigde) of these shares or of the benefits derived from or realised in respect of the Aegon common shares; and viii. Individuals to whom Aegon common shares or the income therefrom are attributable to employment activities which are taxed as employment income in the Netherlands.
Aegon is required to withhold 15% Netherlands dividend withholding tax in respect of dividends paid on its common shares. Netherlands dividend withholding tax will be withheld from the gross dividends paid on the Aegon common shares. In the Netherlands Dividend
If a holder of Aegon common shares is a resident, or deemed to be a resident of the Netherlands for Netherlands corporate or individual income tax purposes, Netherlands dividend withholding tax which is withheld with respect to proceeds from Aegon common shares will generally be creditable for Netherlands corporate income tax or Netherlands income tax purposes.
A refund of Netherlands withholding dividend tax is available to an entity resident in another EU member state, Norway, Iceland, or
Furthermore, a similar refund of Netherlands dividend withholding tax may be available to an entitiy resident in another country, under the additional conditions that (i) the Aegon common shares are considered portfolio investments for purposes of article 63 (taking into account article 64) of the Treaty on the functioning of the European Union and (ii) the Netherlands can exchange information with this other country in line with the international standards for the exchange of information.
EU member state, Norway, Iceland or Liechtenstein if (i) this holder of Aegon common shares is not subject to Netherlands individual income tax or Netherlands corporate income tax with respect to the income from the Aegon common shares and (ii) such Netherlands dividend withholding tax is higher than the Netherlands individual income tax or Netherlands corporate income tax would have been had this holder of Aegon common shares been tax resident in the Netherlands, after taking into account a possible refund based on the Netherlands Dividend Withholding Tax Act 1965 (Wet op de dividendbelasting 1965) or a refund based on a treaty for the avoidance of double taxation with respect to taxes on income, and (iii) no credit based on a treaty for the avoidance of double taxation with respect to taxes on income is granted in the state in which the holder of Aegon common shares is tax resident, for the full amount of Netherlands dividend withholding tax withheld. Furthermore, a similar refund of Netherlands dividend withholding tax may be available to a holder of Aegon common shares resident in another country, under the additional conditions that (i) the Aegon common shares are considered portfolio investments for purposes of article 63 (taking into account article 64) of the Treaty on the functioning of the European Union and (ii) the Netherlands can exchange information with this other country in line with the international standards for the exchange of information.
Aegon must pay to the Dutch tax authorities all Netherlands dividend withholding tax it withholds on dividends it distributed with respect to the Aegon common shares. Provided certain conditions are met, Aegon may apply a reduction with respect to the withholding tax that it has to pay to the Dutch tax authorities. This reduction can be applied if Aegon distributes dividends that stem from dividends Aegon itself has received from certain qualifying non-Netherlands subsidiaries, provided these dividends received by
The reduction is applied to the Netherlands dividend withholding tax that Aegon must pay to the Netherlands tax authorities and not to the amount of the Netherlands dividend withholding tax that Aegon must withhold. The reduction is equal to the lesser of: i. 3% of the amount of the dividends distributed by Aegon that are subject to Netherlands dividend withholding tax; and ii. 3% of the gross amount of the dividends received during a certain period from the qualifying non-Netherlands subsidiaries.
Netherlands Corporate Income Tax Act 1969 (Wet op de vennootschapsbelasting 1969).
If an individual is a resident or deemed to be a resident of the Netherlands for Netherlands individual income tax purposes, income derived from Aegon common shares and gains realized upon the redemption or disposal of Aegon common shares are taxable at progressive rates (at up to a maximum rate of 52%) under the Netherlands Income Tax Act 2001 (Wet inkomstenbelasting 2001) if: i. The individual is an entrepreneur (ondernemer) and has an enterprise to which Aegon common shares are attributable or the individual has, other than as a shareholder, a co-entitlement to the net worth of an enterprise (medegerechtigde), to which enterprise Aegon common shares are attributable; or ii. Such income or gains qualify as income from miscellaneous activities (resultaat uit overige werkzaamheden), which includes but is not limited to activities with respect to Aegon common shares that exceed regular, active portfolio management (normaal, actief vermogensbeheer).
Aegon common shares must be determined on the basis of a deemed return on income from savings and investments (sparen en beleggen), rather than on the basis of income actually received or gains actually realized. This deemed return on income from savings and investments is fixed at percentage of the individual's yield basis (rendementsgrondslag) at the beginning of the calendar year
If a person is neither a resident nor is deemed to be a resident of the Netherlands for Netherlands corporate or individual income tax purposes, such person is not subject to Netherlands income tax in respect of income derived from Aegon common shares and gains realized upon the redemption or disposal of Aegon common shares, except if: i. The person is not an individual and (1) has an enterprise that is, in whole or in part, carried on through a permanent establishment or a permanent representative in the Netherlands to which permanent establishment or a permanent representative Aegon common shares are attributable, or (2) is, other than by way of securities, entitled to a share in the profits of an enterprise or a co-entitlement to the net worth of an enterprise, which is effectively managed in the Netherlands and to which enterprise Aegon common shares are attributable. This income and these gains are subject to Netherlands corporate income tax at up to a maximum rate of 25%; Annual Report 2016
ii. The person is an individual that (1) has an enterprise or an interest in an enterprise that is, in whole or in part, carried on through a permanent establishment or a permanent representative in the Netherlands to which permanent establishment or permanent representative Aegon common shares are attributable, or (2) realises income or gains with respect to Aegon common shares that qualify as income from miscellaneous activities (resultaat uit overige werkzaamheden) in the Netherlands which include activities with respect to Aegon common shares that exceed regular, active portfolio management (normaal, actief vermogensbeheer), or (3) is, other than by way of securities, entitled to a share in the profits of an enterprise that is effectively managed in the
Netherlands Gift and Inheritance Tax Act 1956, However, inheritance tax will be due in the case of a gift of Aegon common shares by, or on behalf of, a holder who at the date of the gift was neither a resident nor deemed to be a resident of the Netherlands for the purposes of the Netherlands Gift and Inheritance Tax Act 1956, but such holder dies within 180 days after the date of the gift, and at the time of his or her death is a resident or deemed to be a resident of the Netherlands for the purposes of the Netherlands Gift and
Inheritance Tax Act 1956. A gift made under a condition precedent is deemed to be made at the time the condition precedent is fulfilled.
However, the FTT proposal remains subject to negotiation between participating Member States and is subject to legal challenge. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional EU Member States may decide to participate. Prospective holders of Aegon common shares are advised to seek their own professional advice in relation to the FTT.
Tax consequences to US holders Distributions The gross amount of any distribution (including any amounts withheld in respect of Dutch withholding tax) actually or constructively received by a US holder with respect to common shares will be taxable to the US holder as a dividend to the extent of Aegon’s current and accumulated earnings and profits as determined under US Federal income tax principles. Such dividends will not qualify for the dividends received deduction otherwise allowable to corporations. Distributions in excess of current and accumulated earnings and profits are treated under US tax law as non-taxable return of capital to the extent of the US holder’s adjusted tax basis in the common shares. Distributions in excess of earnings and profits and such adjusted tax basis will generally be taxable to the US holder as capital gain from the sale or exchange of property. However, Aegon does not maintain calculations of its earnings and profits under US Federal income tax principles. Therefore, US holders of Aegon shares will generally be taxed on all distributions as dividends, even if some portion of the distributions might otherwise be treated as a non-taxable return of capital or as capital gain if the amount of
Only dividends received from US corporations or from a ‘qualified foreign corporation’ and on shares held by an individual US holder for a minimum holding period (generally, 61 days during the 121-day period beginning 60 days before the ex-dividend date) can qualify for this reduced rate. Aegon is eligible for benefits under the comprehensive income tax treaty between the Netherlands and the US; therefore, Aegon should be considered a ‘qualified foreign corporation’ for this purpose. Accordingly, dividends paid by Aegon to individual US holders on shares held for the minimum holding period may qualify for a reduced income tax rate. Each US holder should consult their tax advisor regarding the applicable tax rate.
Distributions paid in currency other than US dollars (a ‘foreign currency’), including the amount of any withholding tax thereon, must be included in the gross income of a US holder in an amount equal to the US dollar value of the foreign currency calculated by reference to the exchange rate in effect on the date of receipt. This is the case regardless of whether the foreign currency is converted into
Aegon generally will constitute ‘passive category income’, or, in the case of certain US holders, ‘financial services income’, which is treated as general category income. Each US holder should consult their tax advisor regarding the availability of the foreign tax credit under their particular circumstances.
The amount of the qualified dividend income paid by Aegon to a US holder that is subject to the reduced dividend income tax rate and that is taken into account for purposes of calculating the US holder's US foreign tax credit limitation must be reduced by the ‘rate differential portion’ of such dividend (which, assuming a US holder is in the highest income tax bracket, would generally require a reduction of the dividend amount by approximately 49.49% under current law). Each US holder should consult their tax advisor regarding the implications of the rules relating to qualified dividend income on the calculation of US foreign tax credits under their particular circumstances.
Audit-related fees consist of fees billed for audit-related services including assurance and related services that are reasonably related to the performance of the audit or review of Aegon’s financial statements or that are traditionally performed by the independent auditor. Audit-related services include, among others, assurance services to report on internal controls for third parties, due diligence services pertaining to potential business acquisitions/dispositions; accounting consultations related to accounting, financial reporting or disclosure matters not classified as ‘Audit services'; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; financial audits of employee benefit plans; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements.
Audit Committee. All other audit, audit-related, tax and other services must receive specific pre-approval from the Audit Committee.
3 On January 13, 2016, a share buyback program of EUR 400 million worth of common shares in 2016 was announced. The first tranche of EUR 200 million was completed on March 31, 2016. The second tranche of EUR 200 million was completed on May 19, 2016.
Additional information Purchases of equity securities by the issuer and affiliated purchasers
New premium production accident and health insurance 262 199 198 201 860 307 228 212 213 960
New premium production general insurance 24 27 20 23 94 22 20 18 25 84
Quarterly results – unaudited Quarterly results – unaudited Quarterly results – unaudited
Alt-A mortgages relates to a type of US residential mortgage which are securitized home equity loans. Typical Alt-A borrower has a credit score high enough to obtain an: ‘A'standing. Alt-A
Binomial option pricing model uses a binomial lattice that represents possible paths that might be followed by the underlying asset's price over the life of the option, for a given number of time steps between valuation date and option expiration. Each node in the lattice represents a possible price of the underlying asset, at a particular point in time. The valuation process is iterative; it starts at each final node and then works backwards through the lattice to the first node, which is the valuation date, where the calculated result is the value of the option.
Constructive obligation is an obligation that derives from an entity’s actions whereby an established pattern of past practice, published policies or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certain responsibilities, and as a result, the entity has created a valid expectation on the part of those other parties that it will discharge those responsibilities.
Deduction & Aggregation is the alternate method for calculating group solvency that aggregates an entity without allowing for diversification between the entity that is aggregated using D&A and those that are aggregated using Accounting
Deferred Policy Acquisition Cost (DPAC) – are the variable costs related to the acquisition or renewal of insurance contracts and investment contracts with discretionary participation features.
investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the investor’s share of net assets of the investee. The profit or loss of the investor includes the investor’s share of the profit or loss of the investee.
Financial instrument is any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity.
Fixed charge coverage is a measure of Aegon’s ability to service its debt and is measuring the ratio of underlying earnings before tax to Fixed Charges (interest expenses, coupons on perpetual securities and preferred dividend).
Loss absorbing capacity of deferred taxes is a loss compensating effect of taxes taken into account in the solvency capital requirement.
Matching adjustment will adjust the discount rate applied in the valuation of predictable liabilities which are cashflow matched using fixed income assets. The predictability of the portfolio means that matching assets can be held to maturity and that the insurer is consequently not exposed to price movements, only to the risk of default.
Onerous contracts are contracts in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.
Renewal of a contract is when a policyholder takes whatever action is required, typically payment of a premium, in order to maintain benefits under the contract.
Risk Based Capital Company Action Level is designed primarily for US regulators to identify poorly capitalized companies whose continued operations may be hazardous to policyholders. The insurer’s RBC solvency ratio is determined as its ‘total adjusted capital’ divided by ‘authorized control level risk based capital.
(ACL)’ However, it is industry and rating agency convention to complete and communicate the RBC solvency ratio relative to the
‘Company Action Level Risk Based Capital’, which is twice the authorized control level.
Solvency capital requirement is the level of capital an insurance company must hold in excess of its Technical Provisions under Solvency II.
Standard Formula is a risk-based approach to the calculation of an insurers solvency capital requirement, prescribed by the regulator.
Readers are cautioned not to place undue reliance on these forward-looking statements, which merely reflect company expectations at the time of writing. Actual results may differ materially from expectations conveyed in forward-looking statements due to changes caused by various risks and uncertainties. Such risks and uncertainties include but are not limited to the following: �� Changes in general economic conditions, particularly in the
EUR/USD and EUR/GBP exchange rates; �� Changes in the availability of, and costs associated with, liquidity sources such as bank and capital markets funding, as well as conditions in the credit markets in general such as changes in borrower and counterparty creditworthiness; �� Increasing levels of competition in the United States, the
Netherlands, the United Kingdom and emerging markets; �� Changes in laws and regulations, particularly those affecting
International Association of Insurance Supervisors or changes to such standards that may have an impact on regional (such as EU), national or US federal or state level financial regulation or the application thereof to Aegon, including the designation of Aegon by the Financial Stability Board as a Global Systemically Important Insurer (G-SII); �� Changes in customer behavior and public opinion in general related to, among other things, the type of products Aegon sells, including legal, regulatory or commercial necessity to meet changing customer expectations; �� Acts of God, acts of terrorism, acts of war and pandemics; �� Changes in the policies of central banks and/or governments; �� Lowering of one or more of Aegon’s debt ratings issued by recognized rating organizations and the adverse impact such action may have on Aegon’s ability to raise capital and on its liquidity and financial condition; �� Lowering of one or more of insurer financial strength ratings of Aegon’s insurance subsidiaries and the adverse impact such action may have on the premium writings, policy retention, profitability and liquidity of its insurance subsidiaries; Disclaimer Disclaimer Disclaimer
and other regulations in other jurisdictions affecting the capital Aegon is required to maintain; �� Litigation or regulatory action that could require Aegon to pay significant damages or change the way Aegon does business; �� As Aegon’s operations support complex transactions and are highly dependent on the proper functioning of information technology, a computer system failure or security breach may disrupt Aegon’s business, damage its reputation and adversely affect its results of operations, financial condition and cash flows; �� Customer responsiveness to both new products and distribution channels; �� Competitive, legal, regulatory, or tax changes that affect profitability, the distribution cost of or demand for
Aegon in applying such regulations and policies, voluntarily or otherwise, which may affect Aegon’s reported results and shareholders’ equity; �� Aegon’s projected results are highly sensitive to complex mathematical models of financial markets, mortality, longevity, and other dynamic systems subject to shocks and unpredictable volatility. Should assumptions to these models later prove incorrect, or should errors in those models escape the controls in place to detect them, future performance will vary from projected results; �� The impact of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including