b. Translation of foreign currency operations On consolidation, the financial statements of group entities with a foreign functional currency are translated to euro, the currency in which the consolidated financial statements are presented. Assets and liabilities are translated at the closing rates on the reporting date. Income, expenses and capital transactions (such as dividends) are translated at average exchange rates or at the prevailing rates on the transaction date, if more appropriate. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are translated at the closing rates on the reporting date.
The resulting exchange differences are recognized in the 'foreign currency translation reserve', which is part of shareholders’
Software and other intangible assets are carried at cost less accumulated depreciation and impairment losses. Depreciation of the asset is over its useful life as the future economic benefits emerge and is recognized in the income statement as an expense. The depreciation period and pattern are reviewed at each reporting date, with any changes recognized in the income statement.
2.8 Investments for account of policyholders Investments held for account of policyholders consist of investments in financial assets as well as investments in real estate.
To qualify for hedge accounting, the hedge relationship is designated and formally documented at inception, detailing the particular risk management objective and strategy for the hedge (which includes the item and risk that is being hedged), the derivative that is being used and how hedge effectiveness is being assessed. A derivative has to be highly effective in accomplishing the objective of offsetting either changes in fair value or cash flows for the risk being hedged. The effectiveness of the hedging relationship is evaluated on a prospective and retrospective basis using qualitative and quantitative measures of correlation. Qualitative methods may include comparison of critical terms of the derivative to the hedged item. Quantitative methods include a comparison of the changes in the fair value or discounted cash flow of the hedging instrument to the hedged item. A hedging relationship is considered highly effective if the results of the hedging instrument are within a ratio of 80% to 125% of the results of the hedged item.
On disposal of an interest in an associate, the difference between the net proceeds and the carrying amount is recognized in the income statement and gains and losses previously recorded directly in the revaluation reserve are reversed and recorded through the income statement.
Reinsurance assets are measured consistently with the assumptions associated with the underlying insurance contracts and in accordance with the terms of each reinsurance contract. They are subject to impairment testing and are derecognized when the contractual rights are extinguished or expire or when the contract is transferred to another party.
DPAC are deferred to the extent that they are recoverable and are subsequently amortized based on factors such as expected gross profit margins. For products sold in the United States with amortization based on expected gross profit margins or revenues, the amortization period and pattern are reviewed at each reporting date and any change in estimates is recognized in the income
statement. Estimates include, but are not limited to: an economic perspective in terms of future returns on bond and equity instruments, mortality, morbidity and lapse assumptions, maintenance expenses and expected inflation rates.
For products sold in the United States, when unrealized gains or losses arise on available-for-sale assets backing the insurance liabilities, DPAC is adjusted to equal the effect that the realization of the gains or losses (through sale or impairment) would have had on its measurement. This is recognized directly in the related revaluation reserve in shareholders’ equity.
The allocation is based on the level at which goodwill is monitored internally and cannot be larger than an operating segment. When impairing a cash-generating unit, any goodwill allocated to the unit is first written-off and recognized in the income statement. The remaining impairment loss is allocated on a pro rata basis among the other assets, on condition that the resulting carrying amounts do not fall below the individual assets’ recoverable amounts.
decreases and that decrease can be objectively related to a credit event occurring after the impairment was recognized. For debt instruments carried at amortized cost, the carrying amount after reversal cannot exceed what the amortized cost would have been at the reversal date, had the impairment not been recognized.
2.17 Equity Financial instruments that are issued by the Group are classified as equity if they represent a residual interest in the assets of the
Treasury shares are shares issued by Aegon N.V. that are held by Aegon, one of its subsidiaries or by another entity controlled by Aegon.
2.19 Insurance contracts Insurance contracts are accounted for under IFRS 4 Insurance Contracts. In accordance with this standard, Aegon continues to apply the existing accounting policies that were applied prior to the adoption of IFRS-EU with certain modifications allowed by IFRS 4 for standards effective subsequent to adoption. Aegon applies, in general, non-uniform accounting policies for insurance liabilities and insurance related intangible assets to the extent that it was allowed under Dutch Accounting Principles. As a result, specific methodologies applied may differ between Aegon’s operations as they may reflect local regulatory requirements and local practices for specific product features in these local markets. At the time of IFRS-EU adoption, Aegon was applying US GAAP for its United States operations whereas in the Netherlands and the United Kingdom, Aegon was applying Dutch Accounting Principles. Since adoption of IFRS-EU, Aegon has considered new and amended standards in those GAAPs which have become effective subsequent to the date of transition to IFRS-EU. If any changes are made to current accounting policies for insurance contracts, these will be in accordance with IFRS 4.
Certain life insurance contracts, issued by the Group, contain guaranteed minimum benefits. Bifurcated guaranteed minimum benefits are classified as derivatives.
liabilities, the corresponding adjustment is recognized through other comprehensive income in the revaluation reserve, together with the unrealized gain or loss.
Some profit sharing schemes issued by the Group entitle the policyholder to a bonus which is based on the actual total return on specific assets held. To the extent that the bonus relates to gains or losses on available-for-sale investments for which the unrealized gains or losses are recognized in the revaluation reserve in shareholders' equity, shadow accounting is applied. This means that the increase in the liability is also charged to shareholders' equity to offset the unrealized gains rather than to the income statement.
Discounting of liabilities is generally applied when there is a high level of certainty concerning the amount and settlement term of the cash outflows.
2.20 Investment contracts Aegon conducts its operations through the following reporting segments: Contracts issued by the Group that do not transfer significant insurance risk, but do transfer financial risk from the policyholder to the
b. Post-employment benefits The Group has issued defined contribution plans and defined benefit plans. A plan is classified as a defined contribution plan when the
(either vested or unvested) are recognized in the income statement at the date when the plan improvement occurs.
Deducted from current year service cost are discretionary employee contributions and employee contributions that are linked to service (those which are independent of the number of years of service). Net interest on the net defined benefit liability (asset)
shall be determined by multiplying the net defined benefit liability (asset) by the applicable discount rate. Net interest on the net defined benefit liability (asset) comprises interest income on plan assets and interest cost on the defined benefit obligation. Whereby interest income on plan assets is a component of the return on plan assets and is determined by multiplying the fair value of the plan assets by the applicable discount rate. The difference between the interest income on plan assets and the actual return on plan assets is included in the remeasurement of the net defined benefit liability (asset).
Gains or losses on curtailments or settlements of a defined benefit plan comprise of the difference between: �� The present value of the defined benefit obligation being settled, as determined on the date of settlement; and �� The settlement price, including any plan assets transferred and any payments made directly by Aegon in connection with the settlement.
Aegon recognizes (in the income statement) gains or losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs.
2.25 Contingent assets and liabilities Contingent assets are disclosed in the notes if the inflow of economic benefits is probable, but not virtually certain. When the inflow of economic benefits becomes virtually certain, the asset is no longer contingent and its recognition is appropriate.
(including mortgage loan fee business) and from sales activities are recognized as revenue over the period in which the services are performed or for sales activities where services have been rendered.
Valuation of assets and liabilities arising from life insurance contracts The liability for life insurance contracts with guaranteed or fixed account terms is either based on current assumptions, on the assumptions established at inception of the contract, reflecting the best estimates at the time increased with a margin for adverse deviation or on the valuation assumptions (historical cost), without risk margin. All contracts are subject to liability adequacy testing which reflects management’s current estimates of future cash flows (including investment returns). To the extent that the liability is based on current assumptions, a change in assumptions will have an immediate impact on the income statement. Also, if a change in assumption results in not passing the liability adequacy test, the entire deficiency is recognized in the income statement. To the extent that the deficiency relates to unrealized gains and losses on available-for-sale investments, the additional liability is recognized in the revaluation reserve in shareholders' equity.
DPAC or VOBA unlocking. The difference between the original DPAC or VOBA amortization schedule and the revised schedule, which
is based on actual and estimates of future gross profits, is recognized in the income statement as an expense or a benefit in the period of determination.
For the years 2015 through 2017, Aegon kept its long-term equity market return assumption for the estimated gross profits on variable life and variable annuity products in the Americas at 8%. During the three year period, the long-term assumption for 10year US Treasury yields was 4.25% and the uniform grading period was 10 years. The long term credit spread assumption on our most common corporate bonds is 114bps. The 90-day Treasury yield was 1.39%, 0.51% and 0.16% at December 31, 2017, 2016 and 2015, respectively. During 2016 and 2017 the 90-day Treasury yield was assumed to have a uniform grading over 10 years to 2.5%. In 2015, the 90-day Treasury yield was assumed to remain level for six months followed by a 9.5 year grade to 2.5%. On a quarterly basis, the estimated gross profits are updated for the difference between the estimated market return and the actual market return.
Any reasonably possible changes in the other assumptions Aegon uses to determine EGP margins (i.e. maintenance expenses, inflation and disability) would reduce net income by less than EUR 15 million (per assumption change) (2016: EUR 12 million).
The assets and liabilities categorization within the fair value hierarchy is based on the lowest input that is significant to the fair value measurement.
However, certain assets and liabilities are valued on the basis of valuation techniques that feature one or more significant market inputs that are unobservable and, for such assets and liabilities, the derivation of fair value is more judgmental. An instrument is classified in its entirety as valued using significant unobservable inputs (Level III) if, in the opinion of management, a significant proportion of the instrument’s carrying amount is driven by unobservable inputs. 'Unobservable' in this context means that there is little or no current market data available from which to determine the price at which an at arm’s length transaction would be likely to occur. It generally does not mean that there is no market data available at all upon which to base a determination of fair value. Additional information is provided in the table headed 'Effect of changes in significant unobservable assumptions to reasonably possible alternatives' in note 47 Fair Value. While Aegon believes its valuation techniques are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain instruments (both financial and non-financial) could result in a different estimate of fair value at the reporting date.
4 Financial risks General As an insurance group, Aegon is exposed to a variety of risks. Aegon’s largest exposures are to changes in financial markets (e.g.
Group's financial resources. Operating within this policy framework, Aegon employs risk management programs including asset liability management (ALM) processes and models and hedging programs (which are largely conducted via the use of financial derivative instruments). These risk management programs are in place in each country unit and are not only used to manage risk in each unit, but are also part of the Group's overall risk strategy.
Each sensitivity analysis reflects the extent to which the shock tested would affect management's critical accounting estimates and judgment in applying Aegon’s accounting policies. Market-consistent assumptions underlying the measurement of non-listed assets and liabilities are adjusted to reflect the shock tested. The shock may also affect the measurement of assets and liabilities based on assumptions that are not observable in the market. For example, a shock in interest rates may lead to changes in the amortization schedule of DPAC or to increased impairment losses on equity investments. Although management's short-term assumptions may change if there is a reasonably possible change in a risk factor, long-term assumptions will generally not be revised unless there is evidence that the movement is permanent. This fact is reflected in the sensitivity analyses.
Nor are the results of the sensitivities intended to be an accurate prediction of Aegon’s future shareholders' equity or earnings.
Concentration risk for financial risks are measured and managed at the following levels: �� Concentration per risk type: Risk exposures are measured per risk type as part of Aegon’s internal economic framework. A risk tolerance framework is in place which sets risk limits per risk type to target desired risk balance and promote diversification across risk types; �� Concentration per counterparty: Risk exposure is measured and risk limits are in place per counterparty as part of the Counterparty
�� Concentration per sector, geography and asset class: Aegon’s investment strategy is translated in investment mandates for its internal and external asset managers. Through these investment mandates limits on sector, geography and asset class are set.
Group's presentation currency. Aegon holds the remainder of its capital base (perpetual capital securities, subordinated and senior debt) in various currencies in amounts that are targeted to correspond to the book value of the country units. This balancing mitigates currency translation impacts on shareholders' equity and leverage ratios. Aegon does not hedge the income streams from the main non-euro units and, as a result, earnings may fluctuate due to currency translation. As Aegon has significant business segments in the
Information on Aegon’s three year historical net income/(loss) and shareholders' equity in functional currency are shown in the table below: Net income Americas (in USD) 1,762 618 (261)
Increase by 15% of GBP currencies relative to the euro 21 321
Interest rate risk Aegon bears interest rate risk with many of its products. In cases where cash flows are highly predictable, investing in assets that closely match the cash flow profile of the liabilities can offset this risk. For some Aegon country units, local capital markets are not well developed, which prevents the complete matching of assets and liabilities for those businesses. For some products, cash flows are less predictable as a result of policyholder actions that can be affected by the level of interest rates.
Therefore, higher interest rates are not considered a long-term risk to the Group. However, a long sustained period of low interest rates will erode net income due to lower returns earned on reinvestments and due to lower long term returns from decreased overall portfolio yields.
Parallel movement of yield curve Estimated approximate effects on net income Estimated approximate effects on shareholders' equity
The estimated effect on net income due to movements of the yield curve has increased compared to 2016 due to changes in the hedging strategy on guarantee provisions by Aegon the Netherlands. The hedge strategy targets minimal mismatch according to the
Aegon economic framework which aligns with Solvency II Own Funds and stabilize Solvency II ratio volatility. The IFRS impact of the changed hedge strategy has led to increased sensitivity of net income.
Debt securities - carried at amortized cost - - - 14 - - - 14 - (14)
Mortgage loans - carried at amortized cost 33,930 2,437 - 379 49,756 - - 52,573 19,271 628
Debt securities - carried at fair value 103,169 - - 392 - - - 392 - 102,777
Money market and other short-term investments - carried at fair value 7,093 - 815 - - - - 815 27 6,306
Mortgage loans - carried at amortized cost 34,206 2,319 - 760 49,448 - - 52,527 19,198 876
Other financial assets - carried at fair value 3,425 - - - - - - - - 3,425
The collateral related to the reinsurance assets include assets in trust that are held by the reinsurer for the benefit of Aegon. The assets in trust can be accessed to pay policyholder benefits in the event the reinsurers fail to perform under the terms of their contract.
Aegon manages credit risk exposure by individual counterparty, sector and asset class, including cash positions. Normally, Aegon mitigates credit risk in derivative contracts by entering into credit support agreement, where practical, and in ISDA master netting agreements for most of Aegon’s legal entities to facilitate Aegon’s right to offset credit risk exposure. Main counterparties to these transactions are investment banks which are typically rated 'A' or higher. The credit support agreement will normally dictate the threshold over which collateral needs to be pledged by Aegon or its counterparty. Transactions requiring Aegon or its counterparty to post collateral are typically the result of derivative trades, comprised mostly of interest rate swaps, equity swaps, currency swaps and credit swaps. Collateral received is mainly cash (USD and EUR). The credit support agreements that outline the acceptable collateral require high quality instruments to be posted. Over the last three years, there was no default with any derivatives counterparty. The credit risk associated with financial assets subject to a master netting agreement is eliminated only to the extent that financial liabilities due to the same counterparty will be settled after the assets are realized. Eligible derivative transactions are
traded via Central Clearing Houses as required by EMIR and the Dodd-Frank act. Credit risk in these transactions is mitigated through posting of initial and variation margins.
Aegon operates a Credit Name Limit Policy (CNLP) under which limits are placed on the aggregate exposure that it has to any one counterparty. Limits are placed on the exposure at both group level and individual country units. The limits also vary by a rating system, which is a composite of the main rating agencies (S&P, Moody's and Fitch) and Aegon’s internal rating of the counterparty. If an exposure exceeds the stated limit, then the exposure must be reduced to the limit for the country unit and rating category as soon as possible. Exceptions to these limits can only be made after explicit approval from Aegon’s Group Risk and Capital Committee (GRCC).
Barclays and Citigroup. Aegon had large government exposures, the largest being in the USA, the Netherlands and Germany. Highly rated government bonds and government exposure domestically issued and owned in local currency are excluded from the Credit Name
Past due and / or impaired assets 35 1,145 299 41 - - 82 1 - - 381 43
The following table shows the credit quality of the gross positions in the statement of financial position for general account reinsurance assets specifically: Carrying value 2017 Carrying value 2016
Credit risk concentrations – debt securities and money market investments 2017 Americas
Asset-backed securities (ABSs) - CDOs backed by ABS, Corp. bonds, Bank loans 751 1,529 - - - 1,529 47 - 2,327 3 1 Includes investments of Holding and other activities.
Credit risk concentrations – Credit rating 2017 2) Government bonds Corporate bonds RMBSs CMBSs
1 Includes investments of Holding and other activities. 2 CNLP Ratings are used and are the lower of the Barclay’s Rating and the Internal Rating with the Barclay’s rating being a blended rating of S&P, Fitch, and
The fair value of Aegon the Netherlands mortgage loan portfolio as per December 31, 2017, amounted to EUR 30,926 million
An insolvency by one of the Monolines could create significant market price volatility for the affected holdings. Of the EUR 264 million indirect exposure on the Monoline insurers, 31% relates to Municipal Bond Insurance Association, Inc. (MBIA), 13% to Ambac Financial
Of which held by Aegon Americas, NL and UK 74,672 6,665 (464) 80,873 68,385 12,488
Unrealized bond losses by sector The composition by industry category of Aegon’s available-for-sale (AFS) debt securities, money market investments and other in an unrealized loss position at December 31, 2017, and December 31, 2016, is presented in the following table: Unrealized losses - debt securities, money market investments and other
As of December 31, 2017, there are EUR 6,665 million (December 31, 2016: EUR 7,739 million) of gross unrealized gains and
Financial and credit market conditions were stronger during 2017. Developed-world growth showed continued signs of acceleration, allowing policy makers to slow or even reverse accommodative credit market conditions. Emerging Market economies have stabilized and improved somewhat with more stable commodities prices. Global equity markets produced very strong returns. The US dollar weakened after strengthening significantly in 2016. The US Federal Reserve tightened the Fed Funds rate by 50 basis points in the first half of 2017, and by another 25 basis points in December, reflecting strong labor market conditions. Long-term US Treasury rates, after rising sharply late in 2016, fell very modestly. Corporate default rates remained low due to readily available access to funding and to healthy corporate balance sheet fundamentals. Credit spreads tightened. Oil prices rose slightly, after having weakened in the first half of 2017. Tighter credit spreads and lower US treasury rates increased the market values of fixed income holdings.
The Eurozone has experienced a period of strong growth. Consumption was supported by the rapid decline in unemployment, while investments grew strongly due to a supportive global economic backdrop. Spain and Germany were the fastest growing large economies. Inflation pressures were again absent. Wage growth did pick up slightly, but not enough to push inflation above the target of the European Central Bank. The central bank therefore maintained its accommodative stance, but did decide to taper its purchase program further from EUR 60 billion to EUR 30 billion per month. Growth in the UK slowed down, due to uncertainty surrounding Brexit. The French elections resulted in a victory for Mr. Macron, who is likely to pursue a pro-European course. Catalonian politicians tried to gain independence from Spain via a referendum. However, so far their efforts did not result in more autonomy.
Aegon’s RMBS asset specialists utilize widely recognized industry modeling software to perform a loan-by-loan, bottom-up approach to modeling. Key assumptions used in the models are projected defaults, loss severities, and prepayments. Each of these key assumptions varies greatly based on the significantly diverse characteristics of the current collateral pool for each security. Loanto - 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 29% with a weighted average of approximately 5.5% (December 31, 2016: 4.6%), assumed defaults on delinquent loans range from 51% to 88% with a weighted average of approximately 77.6% (December 31, 2016: 79.4%), 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 58.3% (December
Once the entire pool is modeled, the results are closely analyzed by Aegon’s asset specialists to determine whether or not
The housing market showed further improvement in Europe in 2017. Housing prices rose and affordability remained high. Economic growth continues to pick up and supports the positive trend in the labour market. This is clearly beneficial for consumer risk in general and retail mortgages in particular. A general theme in Europe is that mostly legacy collateral gets securitised, while a large part of the funding for new origination is obtained outside the structured credit market. As a result the underlying collateral in most of our holdings is deleveraging, loan-to-values decline and prepayment speeds are increasing. The improving fundamentals, the deleveraging of the collateral, the negative net supply (together with increasing demand) and the shortening of our ABS holdings resulted in tightening of credit spreads.
CMBS market; however, credit spreads on legacy subordinate CMBS tranches remain at wide levels.
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, 2016: EUR nil), which are classified as fair value through profit or loss.
CMBS by quality AAA AA A BBB <BBB Total amortized cost Total fair value
There are no individual issuers rated below investment grade in the CMBS sector which have unrealized loss position greater than
The fair values of Aegon USA's available-for-sale (AFS) CMBS instruments were determined as follows: Level II Level III Total 2017 Level II Level III Total 2016
instruments of which EUR 2,429 million (December 31, 2016: EUR 3,377 million) is held by Aegon USA, EUR 1,799 million (December 31, 2016: EUR 2,714 million) by Aegon the Netherlands and EUR 88 million (December 31, 2016 EUR 97 million) by Aegon UK.
UK is as follows: ABS US, NL and UK AAA AA A BBB <BBB Total amortized cost Total fair value
There were no individual issuers rated below investment grade in this ABS sector which has unrealized loss position greater than
Corporate - Financial sector The Corporate - Financial sector is further subdivided into banking, brokerage, insurance, REIT's and Financial - Other sub-sectors.
Level II Level III Total 2017 Level II Level III Total 2016
The Banking sub-sector in Aegon’s portfolio is relatively large, diverse, and of high quality. Aegon Americas, Aegon the Netherlands and Aegon UK hold EUR 6,793 million (December 31, 2016: EUR 8,527 million) of AFS bonds issued by banks. In aggregate, the gross unrealized loss on these bonds amounted to EUR 39 million (December 31, 2016: EUR 135 million) and the net unrealized gain on these bonds amounted to EUR 323 million (December 31, 2016: EUR 188 million).
Within the Banking sub-sector, Aegon holds EUR 629 million (December 31, 2016: EUR 750 million) of deeply subordinated securities with deferrable coupons that have an associated unrealized loss of EUR 10 million (December 31, 2016: EUR 93 million).
Government bonds Aegon Americas, Aegon the Netherlands and Aegon UK's government issued available-for-sale debt securities include emerging market government bonds, US Treasury bonds, agency and state bonds. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2017.
Unrealized loss by maturity The table below shows the composition by maturity of all available-for-sale debt securities in an unrealized loss position held by Aegon
Unrealized loss by credit quality The table below shows the composition by credit quality of debt securities, available-for-sale, in an unrealized loss position held by Aegon Americas, Aegon the Netherlands and Aegon UK.
Aging and severity unrealized losses The table below provides the length of time a below investment grade security has been in an unrealized loss and the percentage of carrying value (CV) to amortized cost in Aegon Americas, Aegon the Netherlands and Aegon UK.
UK for the twelve months ended December 31, 2017, and December 31, 2016. Gross realised gains in 2017 decreased compared to 2016 due to the sale of the UK annuity portfolio in 2016.
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, 2017, and December 31, 2016, 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, 2017, totalled EUR 0 million (twelve months ended December 31, 2016: EUR 11 million net recoveries).
For the twelve months ended December 31, 2017, Aegon recognized EUR 16 million (twelve months ended December 31, 2016: EUR 42 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.
Past due but not impaired assets months months > 1 year Total months months > 1 year Total
Debt securities - carried at fair value 49 14 28 91 58 9 7 73
Significant or prolonged decline is generally defined within Aegon as an unrealized loss position for more than six months or a fair value of less than 80% of the cost price of the investment. Additionally, as part of an ongoing process, internal equity analysts actively monitor earnings releases, company fundamentals, new developments and industry trends for any signs of possible impairment.
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, 2017, and December 31, 2016 is presented in the following table.
Impairment losses on shares The table below provides the length of time the shares held by Aegon Americas, Aegon the Netherlands and Aegon UK were below cost prior to their impairment in 2017 and 2016.
Sensitivity analysis of net income and shareholders’ equity to equity markets Immediate change of
Aegon held EUR 34,393 million of general account investments in cash, money market products and government bonds that are readily saleable or redeemable on demand (2016: EUR 35,841 million). The Group expects to meet its obligations, even in a stressed liquidity event, from operating cash flows and the proceeds of maturing assets as well as these highly liquid assets. Further, the Group has access to back-up credit facilities, as disclosed in note 39 Borrowings, amounting to EUR 3,367 million which were unused at the end of the reporting period (2016: EUR 3,885 million).
is determined by reference to the conditions existing at the reporting date. For example, when the amount payable varies with changes in an index, the amount disclosed may be based on the level of the index at the reporting date.
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
Investment contracts for account of policyholders 292 10,328 25,850 22,867 63,798 123,136 1 The liability amount in the consolidated financial statements reflects the discounting for interest as well as adjustments for the timing of other factors as described above. As a result, the sum of the cash benefit payments shown for all years in the table exceeds the corresponding liability amounts included in notes 36 Insurance contracts and 37 Investments contracts.
Maturity analysis relating to derivatives 1) (Contractual cash flows) 2016 On demand < 1 yr amount 1 < 5 yrs amount 5 < 10 yrs amount > 10 yrs amount
Board which is regarded as the chief operating decision maker. All reportable segments are involved in insurance or reinsurance business, asset management or services related to these activities. The reportable segments are: �� Americas: one operating segment which covers business units in the United States, Brazil and Mexico, including any of the units’
For Europe, the underlying businesses (the Netherlands, United Kingdom including VA Europe, Central & Eastern Europe, Spain &
Aegon’s segment information is prepared by consolidating on a proportionate basis Aegon’s joint ventures and associated companies.
Performance Measure A non-IFRS-EU performance measure of reporting segments utilized by the Company is underlying earnings before tax. Underlying earnings before tax reflects Aegon’s profit from underlying business operations and excludes components that relate to accounting mismatches that are dependent on market volatility, updates to best estimate actuarial and economic assumptions and model updates or events that are considered outside the normal course of business.
The reconciliation from underlying earnings before tax to income before tax, being the most comparable IFRS-EU measure, is presented in the tables in this note.
Impact from assumption and model updates In 2017 a charge of EUR 276 million (2016: EUR 118 million charge) has been recorded in other income/ (charges) in respect of assumption changes and model updates. The impact is mainly attributable to Aegon’s business in the Americas and the Netherlands.
Assumption changes and model updates in the Americas led to a net negative impact of EUR 402 million and were mainly driven by a charge of EUR 303 million (USD 343 million) from the conversion of the largest block of universal life business to a new model. The model allows for modeling policyholder behavior and other assumptions on a policy by policy basis, whereas in the previous model this was done at a cohort level. A model change in fixed annuities discount rate, resulted in a charge of EUR 44 million (USD 50 million)
The fair value movements of certain guarantees and the fair value change of derivatives that hedge certain risks on these guarantees of Aegon’s businesses in the Netherlands, VA Europe (included in United Kingdom) and Japan are excluded from underlying earnings before tax, and the long-term expected return for these guarantees is set at zero. In addition, fair value items include market related results on our loyalty bonus reserves in the United Kingdom. The value of these reserves are directly related to policyholder investments which value is directly impacted by movements in equity and bond markets.
Holding and other activities include certain issued bonds that are held at fair value through profit or loss (FVTPL). The interest rate risk on these bonds is hedged using swaps. The fair value movement resulting from changes in Aegon’s credit spread used in the valuation of these bonds are excluded from underlying earnings before tax and reported under fair value items.
Run-off businesses Includes underlying results of business units where management has decided to exit the market and to run -off the existing block of business. This line includes results related to the run-off of the institutional spread-based business, structured settlements blocks of business, the life reinsurance business and the bank-owned and corporate-owned life insurance (BOLI/COLI) business in the United
Realized gains / (losses) on investments 157 184 62 1 - 248 4 3 - - 413 (5) 408
Jo in t ve nt ur es a nd as so ci at es el im in at io ns
Elimination of share in earnings of joint ventures and associates 61 48 34
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives 10 (437) (783) (571)
Gains and (losses) on investments in real estate 10 193 70 145
Change in valuation of liabilities for insurance contracts 12 (254) (144) (602)
H ol di ng a nd o th er ac ti vi ti es
Impairment charges / (reversals) on non- financial assets and receivables (2) 3 - - - 2 - - - - -
Amortization of deferred expenses, VOBA and future servicing rights 761 32 177 59 - 269 32 - - 2 1,065
Impairment charges / (reversals) on financial assets, excluding receivables 35 12 - (1) - 10 1 5 7 - 59
Amortization of deferred expenses, VOBA and future servicing rights 731 39 377 80 - 496 34 - - - 1,261
Financial assets at fair value through profit or loss 107,511 29,147 62,310 1,363 105 92,925 21 20 57 (6) 200,528
Total premiums paid to reinsurers 3,431 3,176 2,979 - Accident and health insurance 205 238 268
Investment income from financial assets held for general account: 2017 2016 2015
Included in fee and commission income is EUR 190 million of fees on trust and fiduciary activities (2016: EUR 55 million; 2015: EUR 56 million). The increase of EUR 134 million in 2017 compared to 2016 was mainly driven by the acquisition of Cofunds in UK
Income from reinsurance ceded is generated from reinsurance activities directly related to premiums paid to reinsurers in note 6, therefore both should be viewed concurrently.
Realized gains and losses on financial investments comprise: 2017 2016 2015
Net fair value change on bifurcated embedded derivatives (1,231) (565) 614
Fair value change on hedging instruments in a fair value hedge 121 (204) 49
Net fair value change on for account of policyholder financial assets at fair value through profit or loss increased in 2017 compared to 2016, mainly from favorable equity markets results, which were partly offset by losses from 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 Policyholder claims and benefits.
(GBP 14 million) related to the completion of the Part VII transfer of annuities reinsured to Legal & General in 2016 was included. For more details refer to note 51 Business combinations.
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 Clark Consulting led to a book gain of EUR 7 million (USD 8 million). Please see also note 51 Business combinations for more details.
Change in valuation of liabilities for insurance contracts 22,741 16,193 7,880
Policyholder claims and benefits includes claims and benefits in excess of account value for products for which deposit accounting is applied and the change in valuation of liabilities for insurance and investment contracts. The lines Change in valuation of liabilities for insurance contracts and Change in valuation of liabilities for investment contracts reflect changes in technical provisions resulting from net fair value changes on for account of policyholder financial assets included in note 10 Results from financial transactions of EUR 20,524 million (2016: EUR 15,121 million, 2015: EUR (110) million). In addition, the line Change in valuation of liabilities for insurance contracts includes an increase of technical provisions for life insurance contracts of EUR 601 million (2016: increase of EUR 2,349 million, 2015: increase of EUR 3,410 million).
An amount of EUR 46 million is included in employee expenses relating to defined contributions (2016: EUR 46 million; 2015: EUR 51 million).
Variable compensation Identified Staff Members of the Executive Board and the Management Board as well as other selected jobholders have been defined as 'Identified
Staff' in accordance with the rules applicable to them and their interpretation by relevant supervisory authorities. Of these, the Dutch 2015 Act on compensation in the financial sector (Wet beloningsbeleid financiële ondernemingen Wft) and the Dutch 2014 Decree on sound remuneration policy (Regeling beheerst beloningsbeleid 2014) are prominent examples. The rules have been adopted in Aegon’s Global Remuneration Framework. After the performance period, and based on the framework, variable compensation, if any, is partially made available and partly deferred. Variable compensation is paid in both cash and in Aegon N.V. shares. The shares were conditionally granted at the beginning of the year at the volume weighted average price (VWAP) on the Euronext stock exchange in Amsterdam during the period between December 15 preceding a plan year and January 15 of the plan year. The performance indicators apply over a performance period of one year and consist of Group and/or reporting unit targets (both financial and nonfinancial ) set by the 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 Management Board who are based in the Netherlands are not entitled to execute any transactions regarding the shares for a period of three years following vesting (with the exception of shares withheld or sold 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).
In compliance with regulations under Dutch law, no transactions regarding the shares may be exercised in closed periods.
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 6,722,418 43,041,198
Number of shares conditionally granted 2) - - - - - - 6,809,814 - 6,809,814
Number of shares conditionally granted 2) - - - - - - - 6,722,418 6,722,418
For the vested tranches from 2016 onwards Aegon introduced a net settlement option for participants to meet income tax obligations.
This means that Aegon will not sell shares on the market, but hold these shares within Aegon and settle directly with the tax authorities in cash rather than selling shares first. The net settlement option does not change the share based payment right of the participants, therefore there is no incremental fair value, nor a related recognition of incremental fair value.
Refer to note 53 Related party transactions for detailed information on conditional shares granted to the Executive Board.
Impairment reversals on financial assets, excluding receivables, from: 2017 2016 2015
The interest charges accrued on financial assets and liabilities that are not carried at fair value through profit or loss amounted to EUR 162 million (2016: EUR 176 million; 2015: EUR 269 million).
Other charges in 2017 of EUR 235 million mainly relate to the book loss of EUR 105 million (USD 119 million) regarding the divestment of a block of life reinsurance business in the Americas and a charge of EUR 85 million (USD 100 million), regarding a provision in anticipation of a possible settlement in connection with an investigation by the SEC, refer to Note 48 Commitments and contingencies. In addition, an impairment of deferred transaction costs of EUR 36 million (GBP 32 million) was recorded as a result of the sale of Aegon Ireland plc, which is subject to customary regulatory approvals. For more details on the divestment of a block of US reinsurance run off business and Aegon Ireland plc. refer to note 51 Business combinations.
Other charges in 2016 of EUR 700 million mainly relate to the book loss on the sale of the UK annuity portfolio (EUR 682 million) and charges related to claims and litigations regarding fees payable upon purchase or surrender of unit-linked policies in the Polish Life insurance portfolio (EUR 19 million). For more details on the sale of the UK annuity portfolio refer to note 22 Assets and Liabilities held for sale and note 51 Business combinations. In note 40 Provisions more details are provided on the Polish claims and litigations.
Deferred tax 43 Origination / (reversal) of temporary differences 363 148 (197)
Changes in deferred tax assets as a result of recognition / write off of previously not recognized / recognized tax losses, tax credits and deductible temporary differences (45) (54) (8)
Income tax for the period (income) / charge 32 219 (111)
The weighted average applicable statutory tax rate for 2017 is 29.7% (2016: 35.7%; 2015: 13.7%). The decrease in the weighted average applicable statutory tax rate compared to 2016 is caused by relatively more income before tax in the Netherlands and the UK versus income before tax in the US. The weighted average applicable statutory tax rate in 2015 was impacted by a disproportional loss in the UK.
Non-taxable income in 2017 includes the tax exempt sale proceeds of the Dutch Unirobe Meeùs Group. Non-taxable income in 2015 was negatively impacted by the non-deductible loss on the sale of Aegon’s Canadian life insurance business.
Tax credits in 2017 increased by US foreign tax credits. Tax credits in 2015 includes tax benefits related to solar investments in the US.
Items that will not be reclassified to profit and loss: Changes in revaluation reserve real estate held for own use 9 (3) (2)
Items that may be reclassified subsequently to profit and loss: Gains / losses on revaluation of available-for-sale investments (134) (187) 810
Gains / losses transferred to the income statement on disposal and impairment of availablefor -sale investments 441 427 124
The income tax related to components of OCI includes a deferred tax benefit of EUR 479 million caused by the decrease of the
Net income / (loss) attributable to common shareholders 2,214 449 (659)
Net income / (loss) attributable to common shareholders B 16 3 (5)
Weighted average number of common shares outstanding (in million) 2,042 2,048 2,101
Basic earnings per common share (EUR per share) 1.08 0.22 (0.31)
Basic earnings per common share B (EUR per share) 0.03 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 EUR 0.13 per common share, the stock dividend amounted to one new Aegon common share for every 28 common shares held. The stock dividend and cash dividend are approximately equal in value. The interim dividend was payable as of September 16, 2016. The interim dividend 2016 for common shares B amounted to 1/40th of the dividend paid on common shares.
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
The interim dividend 2015 for common shares B amounted to 1/40th of the dividend paid on common shares.
The weighted effective interest rate on short-term deposits was 0.32% negative (2016: 0.17% negative) and these deposits have an average maturity of 31 days (2016: 23 days).
Aegon Bank N.V. to place 1% of their deposits with agreed maturity or the savings accounts (without restrictions to withdraw their money) in an account with the Dutch Central Bank. This deposit is renewed every 42-49 days, based on an updated valuation of total assets. The interest received on this deposit is equal to the ECB deposit rate (which was -40bp throughout 2017). The year-end minimum required balance on deposit by the Dutch Central Bank was EUR 67 million (2016: EUR 63 million). These deposits are therefore not freely available.
The increase is mainly a result of proceeds and repayments of borrowings (refer to the table below and note 39 Borrowings).
Assets held to hedge Trust pass-through securities 22 - - (4) - - - (2) 15 22 Assets and liabilities held for sale Assets and liabilities held for sale include disposal groups whose carrying amount will be recovered principally through a sale transaction expected within the next year rather than through continuing operations. This relates to businesses for which a sale is agreed upon or a sale is highly probable at the reporting date, but for which the transaction has not yet fully closed. As of December 31, 2017, this relates to the assets and liabilities of Aegon Ireland plc.
Aegon Ireland plc., also referred to as VA Europe, is included in the UK segment (note 5 Segment information). For more information related to the sale transaction, refer to note 51 Business combinations.
As of December 31, 2017, there are no unrealized gains relating to non-current assets and disposal groups classified as held for sale included in other comprehensive income.
Fair value measurement The fair value hierarchy of financial assets and liabilities (measured at fair value), which are presented as held for sale is included below.
Liabilities carried at fair value Investment contracts for account of policyholders - 3,518 - 3,518
Total liabilities at fair value - 3,559 33 3,592 23 Investments Investments for general account comprise financial assets, excluding derivatives, as well as investments in real estate.
Of the debt securities, money market and other short-term investments, mortgage loans and private loans EUR 13,784 million is current (2016: EUR 15,762 million).
Loan allowance Movement on the loan allowance account during the year were as follows: Addition charged to income statement (50) (23)
Net exchange differences (89) 19 95% of the value of Aegon’s properties, both for general account and for account of policyholders, were appraised (2016: 78%), of which 99% was performed by independent external appraisers (2016: 98%).
Transfers from other headings mainly reflect the properties that were foreclosed during the year. The associated mortgage loans were previously reported as part of investments.
Refer to note 48 Commitments and contingencies for a summary of contractual obligations to purchase investment property or for repairs, maintenance or enhancements.
The decrease in investments for account of policyholders compared to December 31, 2016 is mainly caused by the reclassification to held for sale of Aegon Ireland plc. and negative foreign exchange rates translation adjustments. Refer to note 51 Business combinations for the sale of Aegon Ireland plc.
Derivatives designated as Net foreign investment hedges 57 104 57 123
See note 47 Fair value for details on fair value measurement of derivatives.
Derivatives not designated in a hedge – general account 2017 2016 2017 2016
In all cases, these are in accordance with internal risk guidelines and are closely monitored for continuing compliance.
Bifurcated embedded derivatives that are not closely related to the host contracts have been bifurcated and recorded at fair value in the consolidated statement of financial position. These bifurcated embedded derivatives are embedded in various institutional products, modified coinsurance and unit-linked insurance contracts in the form of guarantees for minimum benefits. Please refer to note 38 Guarantees in insurance contracts for more disclosures about these guarantees.
Aegon has entered into interest rate swap agreements that effectively convert certain fixed-rate assets and liabilities to a floating-rate basis (generally to six months or less LIBOR). These hedges are used for portfolio management to better match assets to liabilities or to protect the value of the hedged item from interest rate movements. These agreements involve the payment or receipt of fixedrate interest amounts in exchange for floating-rate interest amounts over the life of the agreement without the exchange of the underlying principal amounts. Some of the arrangements use forward starting swaps to better match the duration of assets and liabilities.
Derivatives designated as cash flow hedges Aegon has entered primarily into interest rate swap agreements that effectively convert certain variable-rate assets and liabilities to a fixed-rate basis in order to match the cash flows of the assets and liabilities within Aegon’s portfolio more closely. These agreements involve the payment or receipt of variable-rate interest amounts in exchange for fixed-rate interest amounts over the life of the agreement without the exchange of the underlying principal amounts. Aegon hedges its exposure to the variability of future cash flows from the interest rate movements for terms up to 28 years for hedges converting existing floating-rate assets and liabilities to fixedrate assets.
December 31, 2017, EUR 248 million of Aegon’s cash flow hedges were discontinued, due to the divestment of the payout annuity and
BOLI/COLI businesses. Refer to note 51 Business combinations for more details regarding this divestment. Outside of this transaction no other of Aegon’s cash flow hedges were discontinued as it was highly probable that the original forecasted transactions would occur by the end of the originally specified time period documented at the inception of the hedging relationship. Aegon projects investment needs many years into the future in order to support the insurance liabilities and pay all contractual obligations arising from the policies in force today.
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 19 years. These agreements involve the exchange of the underlying principal amounts.
(2016: EUR 37 million loss, 2015: EUR 13 million loss). The amount of deferred gains or losses to be reclassified from equity into net income during the next 12 months is expected to be EUR 63 million gain.
The periods when the cash flows are expected to occur are as follows: < 1 year 1 – 5 years 5 – 10 years > 10 years 2017 Total
< 1 year 1 – 5 years 5 – 10 years > 10 years 2016 Total
Share in changes in joint ventures equity (note 32.6) (15) 9
Net assets of joint venture as presented above 2,673 2,266 960 1,009
Net assets of joint venture excluding goodwill 2,673 2,266 587 626
Group share of net assets of joint venture, excluding goodwill 1,008 877 312 338
The following table includes the summarized financial information of the joint ventures based on the Group’s relative holding.
Movements during the year in reinsurance assets relating to non-life insurance: 2017 2016
The divestment of the payout annuity and BOLI/COLI business in the Americas resulted in a write off of deferred policy acquisition costs of EUR 205 million. In addition, deferred policy acquisition costs are predominantly impacted by unfavorable currency translation adjustments.
In the following table a breakdown is provided of DPAC balances by line of business and reporting segment: Americas The
Individual savings and retirement products 1,743 - - - - - - 1,743
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 319 million (2016: EUR 350 million).
30% of the value of the general account real estate held for own use was last revalued in 2017 (2016: 35%), based on market value appraisals by qualified internal and external appraisers. 95% of the appraisals in 2017 were performed by independent external appraisers (2016: 97%).
None of the equipment is held for lease (2016: none). Equipment has not been pledged as security for liabilities, nor are there any restrictions on title. Depreciation expenses have been recorded in Commissions and expenses in the income statement. Equipment is generally depreciated over a period of three to five years.
Non-current 30 44 1 Certain amounts within Receivables in 2016 have been reclassified to conform to the current year presentation as certain accounts were previously not mapped correctly to the line items disclosed in this note. These reclassifications are not considered material as these reclassifications had no effect on net income, shareholders’ equity and earnings per share, nor on the total of receivables of EUR 8,530 reported in 2016. The reclassifications have been made to the line items Receivables from policyholders, Receivables from brokers and agents, Receivables from reinsurers, Cash outstanding from assets sold, Trade receivables, Cash collateral and Other.
The movements in the provision for doubtful debts during the year were as follows: Additions charged to earnings (6) (5)
With the exception of goodwill, all intangible assets have a finite useful life and are amortized accordingly. VOBA and future servicing rights are amortized over the term of the related insurance contracts, which can vary significantly depending on the maturity of the acquired portfolio. VOBA currently recognized is amortized over an average period of 24 years, with an average remaining amortization period of 7 years (2016: 8 years). Future servicing rights are amortized over an average period up to 30 years, of which 14 years remain at December 31, 2017 (2016: 9 years). Software is generally depreciated over an average period of 5 years. At December 31, 2017, the remaining average amortization period was 4 years (2016: 3 years).
Refer to note 51 Business combinations on the acquisitions of Cofunds Ltd and Nordea second-pillar pension fund. As well as the divestments of the payout annuity and BOLI/COLI business, and Unirobe Meeùs Groep.
Goodwill in Aegon USA is allocated to groups of cash-generating units including variable annuities, fixed annuities and the retirement plans cash-generating unit. Value in use calculations of Aegon USA have been actuarially determined based on business plans covering a period of typically three years and pre-tax risk adjusted discount rates. The value in use tests in the USA for the group of annuities cash-generating units remain unchanged from prior year except for the impact of currency translation adjustments (2017: EUR 121 million: 2016: EUR 131 million) and the retirement plans cash-generating unit (2017: EUR 52 million: 2016: EUR 57 million).
The tests assume business plans covering a period of three years further extrapolated to ten years, where the new business levels for years 4-10 assumed a 0% growth rate (2016: 0%). The pre-tax adjusted discount rate was 17% for annuities and 18% for retirement plans as determined at date of acquisition.
To determine the recoverable amounts of the cash generating units of Aegon Central & Eastern Europe (CEE), value in use was calculated, and compared to the carrying amounts. Value in use has been determined based on a business plan covering a period of typically 3 years, that, in certain instances was further extrapolated to 20 years where the new business levels for years 4-20 assumed a growth rate based on the business plan of the third year, prudentially decreased by 20% (2016: 20%). Other key assumptions used for the calculation were pre-tax risk adjusted discount rate of 8.3%-14.6% (2016: 7.4%-15.9%), new business contribution, renewals, asset fees, investment return, persistency and expenses. Operating assumptions are best estimate assumptions and based on historical data where available. Economic assumptions are based on observable market data and projections of future trends.
For Aegon UK, goodwill was allocated to one cash-generating unit – Cofunds Ltd., whose value in use EUR 263 million exceeded its carrying value. This was determined using a management approved business plan spanning 3 years and terminal growth rate prudentially assumed at 3%. Other key assumptions were post-tax discount rate of 10.8% and pre-tax discount rate of 11.8% used to adjust cash flows forecast.
In May 2017, Aegon issued a total of 1,979,260 common shares B with a par value of EUR 0.12 to compensate for the dilution of Vereniging Aegon’s shareholding caused by the allocation of shares with senior management on May 19, 2017, in connection with the Long Term Incentive Plans for senior management.
In December 2017, Aegon completed a share buyback program to neutralize the dilutive effect of the 2016 final dividend and 2017 interim dividend paid in shares, and repurchased a total of 51,864,626 common shares.
In September 2016, Aegon distributed to its shareholders 30,765,224 common shares as interim dividend 2016 in the form of stock.
Furthermore, in 2015, Aegon issued a total of 3,696,440 common shares B with a par value of EUR 0.12 to compensate for the dilution of Vereniging Aegon’s shareholding caused by the issuance of shares on January 1, 2015 and May 21, 2015, in connection with the Long Term Incentive Plans for senior management.
Vereniging Aegon, based in The Hague, the Netherlands, holds all of the issued and outstanding common shares B.
The closing balances of the revaluation reserve for available-for-sale investments relate to the following instruments: Revaluation reserve for available-for-sale investments 3,450 3,418 4,546
Movement in foreign currency translation and net foreign investment hedging reserves 1,687 (181) - 1,505
USD 250 million floating LIBOR rate 1) Quarterly, December 15 2018 212 212 212
Year of next call 2017 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% 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.
The securities are subordinated and rank senior to the junior perpetual capital securities, equally with the perpetual cumulative subordinated bonds and fixed floating subordinated notes, and junior to all other liabilities. The conditions of the securities contain certain provisions for optional and required cancellation of interest payments. The securities have a stated maturity of 30 years, however, Aegon has the right to call the securities for redemption at par on any coupon payment date. In 2017 Aegon had this right for the first time, but it was not exercised.
Subordinated borrowings include a liability of EUR 69 million (2016: EUR 72 million) relating to the USD 525 million non-cumulative subordinated notes issued on February 7, 2012. The liability component of the non-cumulative subordinated notes is related to the
The fair value of these loans amounted to EUR 953 million (2016: EUR 844 million).
USD 190 million 1) 7.625% Semi-annually, November 15 1997 2037 n.a. 41 47 1 Issued by a subsidiary of, and guaranteed by Aegon N.V.
The fair value of these loans amounted to EUR 137 million (2016: EUR 141 million).
rates, mortality rates and morbidity rates, compared to Aegon’s best estimate assumptions. Increases in mortality rates lead to an increase in the level of benefits and claims. These underwriting sensitivities were run using a permanent shock applied to all of Aegon’s products, both products exposed to an increase and products exposed to a decrease in the rates. From the table below we can see that the mortality sensitivity has the largest impact and in aggregate, Aegon is exposed to a decrease in mortality rates.
Aegon the Netherlands partially hedges the risk of future longevity increases in the Netherlands related to a part of its insurance liabilities. Over the past years Aegon the Netherlands has initiated a number of transactions to hedge this risk via both longevity index derivatives and reinsurance contracts.
Non-life insurance - Unearned premiums and unexpired risks 5,447 5,822 - Incurred but not reported claims 830 1,018
Loss recognized as a result of liability adequacy testing 843 -
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.
Gross premium and deposits – existing and new business 12,144 12,931
For 2016 the sale of Aegon UK's annuity portfolio was included here. Refer to note 22 Assets and liabilities held for sale and note 51 Business combinations.
The value of investment contracts for general account decreased in 2017 mainly due to a paydown of USD 2 billion to the Federal
Home Loan Bank visible under "other" relating to advances on spread products, and due to net exchange differences.
Investment contracts with discretionary participation features 278 355 37.2 Investment contracts for account of policyholders
a. Financial guarantees In the United States and in the United Kingdom, a guaranteed minimum withdrawal benefit (GMWB) is offered directly on some variable annuity products Aegon issues and is also assumed from a ceding company. Additionally, Aegon offers guarantees on variable
The decrease of incurred guarantee benefits mainly relates to equity markets rising, fair value movements due to increasing interest rates and tightening of treasury swaps spreads.
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, 2017, the reinsured account value was 2.0 billion (2016: EUR 2.4 billion) and the guaranteed remaining balance was EUR 1.2 billion (2016: EUR 1.5 billion).
Aegon the Netherlands provides guarantees to its customers on expiry date for certain insurance contracts. In order to mitigate the risks related to the guarantees Aegon the Netherlands has setup a hedging program. Aegon the Netherlands does not use reinsurance in order to mitigate risks related to insurance contracts with a guarantee component. The net amount at risk represents the sum of the
positive differences between the discounted maximum amount payable under the guarantees and the account value, which is the actual fund value of the policyholder.
c. Life contingent guarantees in the United States Certain variable insurance contracts in the United States also provide guaranteed minimum death benefits (GMDB) and guaranteed minimum income benefits (GMIB). Under a GMDB, the beneficiaries receive the greater of the account balance or the guaranteed amount upon the death of the insured. The net amount at risk for GMDB contracts is defined as the current GMDB in excess of the capital account balance at the reporting date.
The additional liability for guaranteed minimum benefits that are not bifurcated are determined each period by estimating the expected value of benefits in excess of the projected account balance and recognizing the excess over the accumulation period based on total expected assessments. The estimates are reviewed regularly and any resulting adjustment to the additional liability is recognized in the income statement. The benefits used in calculating the liabilities are based on the average benefits payable over a range of stochastic scenarios. Where applicable, the calculation of the liability incorporates a percentage of the potential annuitizations that may be elected by the contract holder.
The following table provides information on the liabilities for guarantees that are included in the valuation of the host contracts, net of the present value of the expected future premiums that are received to cover these guarantees: Incurred guarantee benefits 3) (823) 801
Guarantees valued at fair value contributed a net loss before tax of EUR 75 million (2016: loss of EUR 61 million) to earnings. The main drivers of this loss before tax are a fair value loss on hedges related to the guarantee reserves of EUR 1.417 million (2016: EUR 325 million gain) and a loss of EUR 243 million related to increasing own credit spread (2016: EUR 404 million gain), partly offset by a gain of EUR 1.147 million related to a increase in equity markets (2016: EUR 671 million gain) positive results related to increases in risk free rates of EUR 169 million (2016: EUR 1.159 million loss) and DPAC offset, a gain of EUR 81 million related to decreases in equity volatilities (2016: EUR 7 million gain) and other contributed a gain of EUR 205 million (2016: EUR 279 million loss).
GBP 250 million Medium-Term Notes 6.125% December 15 1999 / 31 279 291
GBP 400 million Senior Unsecured Notes 6.625% Semi-annually 2009 / 39 445 462 1 Measured at fair value. 2 Issued by subsidiaries of, and guaranteed by, Aegon N.V.
Operational funding During 2017, the operational funding increased EUR 0.6 billion due to new FHLB advances of EUR 1.3 billion and two covered bond issuances in the Netherlands of EUR 0.5 billion in June and November 2017. This was partly offset by the redemption of Seacure
12 in the Netherlands of EUR 1.0 billion and the redemption of operational funding of EUR 0.4 billion supporting a captive insurance company, which was dissolved following the divestment of a block of life reinsurance business in the Americas. Next to this there was a decrease of EUR 0.5 billion as result of foreign exchange impacts on the US dollar positions as a result of the strengthening of the euro.
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. In addition, Aegon entered into a USD 3 billion new liquidity program from the Federal Home Loan Bank and issued a EUR 500 million covered bond.
Revolving Loan Facility Warehouse Mortgage Loans 1) Floating Monthly - / 2018-20 729 423
EUR 1,443 million "SAECURE 15" RMBS Note 1), 5) Floating Quarterly 2014 / 20 1,164 1,284
EUR 500 million Conditional Pass-Through Covered Bond 1), 7) 0.250% Annual 2016 / 23 496 495
USD 1.54 billion Variable Funding Surplus Note 10), 11) Floating Quarterly 2006 / 36 1,322 1,505
4 The first optional redemption date is 30 January 2019; the legal maturity date is 30 January 2092. Notes are fully collateralized by mortgage loans which are part of Aegon’s general account investments.
5 The first optional redemption date is 30 January 2020; the legal maturity date is 30 January 2092. Notes are fully collateralized by mortgage loans which are part of Aegon’s general account investments.
6 The maturity date is 1 December 2020; the extended due for payment date is 1 December 2052. 7 The maturity date is 25 May 2023; the extended due for payment date is 25 May 2055. 8 The maturity date is 27 June 2027; the extended due for payment date is 27 June 2059. 9 The maturity date is 21 November 2024; the extended due for payment date is 21 November 2056. 10 Outstanding amounts can vary up to the maximum stated nominal amount. 11 This debenture is issued by a wholly owned captive that is consolidated in the Aegon N.V. consolidated financial statements. A guarantee has been provided by
Other Included in borrowings is EUR 536 million relating to borrowings measured at fair value (2016: EUR 610 million). For the year 2017,
The difference between the contractually required payment at maturity date and the carrying amount of the borrowings amounted to EUR 9 million (2016: EUR 39 million).
Floating-rate - Expiring within one year 197 463 - Expiring beyond one year 3,170 3,422
The remaining provisions mainly consist of litigation provisions of EUR 92 million (2016: EUR 11 million) including EUR 85 million in anticipation of a possible settlement in connection with an investigation by the SEC, refer to Note 48 Commitments and contingencies, restructuring provisions of EUR 27 million (2016: EUR 39 million), provisions regarding fees payable upon purchase and surrender of unit-linked policies in the Polish Life Insurance portfolio of EUR 20 million (2016: EUR 24 million) and other provisions of EUR 71 million (2016: EUR 74 million) including the remaining provision related to the harbor workers’ former pension fund Optas.
Present value of wholly or partly funded obligations 4,389 - 4,389 4,834 - 4,834
Present value of wholly unfunded obligations 1) 2,890 293 3,183 3,412 314 3,726 1 As all pension obligations are insured at subsidiary Aegon Levensverzekering almost all assets held by Aegon Nederland backing retirement benefits of EUR
2,457 million (2016: EUR 2,796 million) 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.
Net interest on the net defined benefit liability (asset) 119 10 129
- Actuarial gains and losses arising from changes in financial assumptions 29 894
Code, including all requirements for minimum funding levels. The defined benefit plans are governed by the Board of Managers of Transamerica Corporation. The Board of Managers has the full power and discretion to administer the plan and to apply all of its provisions, including such responsibilities as, but not limited to, developing the investment policy and managing assets for the plan, maintaining required funding levels for the plan, deciding questions related to eligibility and benefit amounts, resolving disputes that may arise from plan participants and for complying with the plan provisions, and legal requirements related to the plan and its operation. The benefits are based on years of service and the employee’s eligible annual compensation. The plans provide benefits based on a traditional final average formula or a cash balance formula (which defines the accrued benefit in terms of a stated account balance), depending on the age and service of the plan participant. The defined benefit plans have a deficit of EUR 629 million at December 31, 2017 (2016: EUR 742 million deficit).
benefits. The plans are unfunded and are not qualified under the Internal Revenue Code. The supplemental retirement plans are governed by either Transamerica Corporation, or the Compensation Committee of the Board of Directors of Transamerica Corporation.
USA funds the benefit payments of the post-retirement health care plans from its general account assets. The post-retirement health benefit liability amounted to EUR 227 million (2016: EUR 246 million).
Health care trend rate 7.40% 7.25% 1 U.S. Society of Actuaries RP2014 mortality table with Scale MP2017. 2 U.S. Society of Actuaries RP2014 mortality table with Scale MP2016.
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: Annual Report 2017
Financial actuarial assumptions 100 basis points increase in discount rate (402) (440)
100 basis points increase in health care trend rate 15 16 100 basis points decrease in health care trend rate (13) (14)
Target allocation of plan assets for retirement benefit plans for the next annual period is: Equity instruments 22-30%
Pension Act (Pensioenwet / Pw). Insurers are subject to prudential supervision pursuant to the Financial Supervision Act (Wet op het financieel toezicht / Wft).
as defined by IFRS The average remaining duration of the defined benefits obligation is 19.6 years (2016: 19.7 years).
eliminated. This resulted in an increase of the ‘insurance contracts for risk of policy holders’ and ‘investments for account of policy holders’ of EUR 442 million.
Nederland reviews the terms of the plans and makes changes to the plans if and when appropriate. The liabilities related to these other post-employment benefit plans are fully unfunded and amount to EUR 65 million at December 31, 2017 (2016: EUR 68 million).
The weighted average duration of the other post-employment benefit plans is 11.9 years (2016: 10.8 years).
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 2017 2016
These tables are regularly assessed against the most recent mortality trends. 3 Based on Dutch Consumer Price Index.
100 basis points decrease in discount rate 605 732 100 basis points increase in salary increase rate 4 19 100 basis points decrease in salary increase rate (4) (19)
25 basis points increase in indexation 140 170 25 basis points decrease in indexation (128) (158)
Financial actuarial assumptions 100 basis points increase in discount rate (299) (371)
100 basis points decrease in discount rate 412 513 100 basis points increase in price inflation 169 213 100 basis points decrease in price inflation (248) (289)
Target allocation of plan assets for retirement benefit plans for the next annual period is: Equity instruments 29%
Transfers to disposal groups relates to the Aegon Ireland plc. business which is classified as held for sale per year-end 2017 and as a result the deferred gains are no longer included in the 2017 ending balance.
In su ra nc e an d in ve st m en t co nt ra ct s
a nd o th er in ta ng ib le a ss et s
Transfer to current income tax - 16 - - - - - 16
The transfer to current income tax relates to transfers from deferred to current tax, in relation to own equity instruments.
Transfer to/from other headings in 2017 includes transfers between two reporting segments.
Deferred corporate income tax assets are recognized for tax losses carried forward to the extent that the realization of the related tax benefit through future taxable profits is probable. For an amount of gross EUR 85 million; tax EUR 15 million (2016: gross
For the following amounts, arranged by loss carry forward periods, the deferred corporate income tax asset is not recognized: Gross amounts1)
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 retaining bonds and similar investments until the earlier of market recovery or maturity1) - 816 - 286
Non-current 216 877 1 Certain amounts within Other liabilities in 2016 have been reclassified to conform to the current year presentation as certain accounts were previously not mapped correctly to the line items disclosed in this note. These reclassifications are not considered material as these reclassifications had no effect on net income, shareholders’ equity and earnings per share, nor on the total of other liabilities of EUR 16,978 reported in 2016. Reclassifications affected all items, except for Commercial paper and Bank overdrafts.
This methodology is consistent with EIOPA’s guidance on group solvency calculation in the context of equivalence, and in line with methods applied by other European peer companies. As a consequence, this adjustment improves the comparability to capital positions of European insurance groups with substantial insurance activities in the US. The impact on Available Own Funds in 2016 is included in the table in the Capital quality section below. Aegon manages its available capital on the new basis.
Capital adequacy The capitalization of the Aegon Group and its operating units is managed in relation to the most stringent of local regulatory requirements, rating agency requirements and/or self-imposed criteria. Aegon manages its Solvency II capital in relation to the required capital. Under Aegon’s capital management framework the own funds are managed such that the Group Solvency II ratio remains within the target range of 150% – 200% even in an adverse event. This target range was updated in the second quarter of 2017
(previous target range: 140% – 170%) in line with a revision of Aegon’s group capital management policy and the methodology change mentioned above.
The below table provides the composition of Aegon’s available own funds across Tiers: Available own funds
Under the revised methodology Aegon’s own funds reduced by EUR 2.2 billion at December 31, 2016. This is reflected through eliminating deferred tax balances recorded in Tier 3 for an amount of EUR 0.9 billion and Tier 2 for an amount of EUR 0.7 billion and eliminating unrestricted Tier 1 of EUR 0.6 billion.
EUR 3,047 million of junior perpetual capital securities (2016: EUR 3,309 million) and EUR 493 million of perpetual cumulative subordinated bonds (2016: EUR 508 million) which are both classified as grandfathered restricted Tier 1 capital.
The grandfathered restricted Tier 1 and Tier 2 capital instruments are grandfathered such that they are considered as capital under the
Solvency II framework for up to 10 years as from January 1, 2016. For the terms and conditions of these grandfathered instruments refer to note 33 and note 34 to the consolidated financial statements.
IFRS-EU equity compares to Solvency II own funds as follows: IFRS adjustments for Other Equity instruments and non controlling interests 3,813 3,821 3,821
Available own funds 15,628 15,957 18,119 1 The own funds information is based on the revised method which was confirmed by the DNB in 2017. 2 Amongst others, this contains the exclusion of Aegon Bank. 3 This includes the transferability restriction related to the new RBC CAL conversion methodology. 4 The 2016 comparative numbers are the final numbers as disclosed in Aegon’s 2016 Solvency and Financial Condition Report.
The Solvency II revaluations of EUR 5,701 million negative (2016: EUR 5,634 million negative) stem from the difference in valuation between IFRS-EU and Solvency II frameworks, which can be grouped into three categories: �� Items that are not recognized under Solvency II. The most relevant examples of this category for Aegon include Goodwill, DPAC and other intangible assets (EUR 2,019 million, 2016: EUR 2,118 million); �� Items that have a different valuation treatment between IFRS-EU and Solvency II. Solvency II is a market consistent framework hence all assets and liabilities are to be presented at fair value while IFRS-EU also includes other valuation treatments in addition to fair value. The most relevant examples of this category for Aegon Group include Loans and Mortgages, Reinsurance Recoverables,
Deferred tax assets balances and Technical provisions. The revaluation difference stemming from this category amounted to EUR
(1,701) million (2016: EUR (1,924) million) compared to the IFRS-EU Statement of Financial Position; �� The Net Asset Value of subsidiaries that are included under the Deduction & Aggregation method (on provisional equivalence or
Standard Formula basis) in the Group Solvency II results. The revaluation difference stemming from this category amounted to EUR
Fungibility restrictions limit the availability of own funds on Aegon Group level as prescribed by Supervisory Authorities. These limitations refer to charitable trusts in the Americas for which the local Supervisory Authority could limit the upstream of capital to the
Finally, Transferability restrictions reflect the restrictions on US Life Companies DTA and capping of Tier 1 unrestricted own funds as a consequence of the new RBC CAL conversion methodology as described above.
Gross financial leverage ratio 28.6% 29.8% 1 Other equity instruments that are denominated in foreign currencies are, for purpose of calculating hybrid leverage, revalued to the period-end exchange rate. 2 Non-controlling interests are disclosed in the statement of financial position. 3 Senior debt for the gross financial leverage calculation also contains swaps for an amount of EUR 31 million (2016: EUR 28 million).
Aegon N.V. is subject to financial covenants as included in a number of its financial agreements (such as issued debentures, credit facilities and ISDA agreements). Under these financial covenants, an event of default may occur if and when any financial indebtedness of any member of the Group is not paid when due, or not paid within any applicable grace period. The financial agreements may also include a cross-default provision which may be triggered if and when any financial indebtedness of any member of the Group is declared to be or otherwise becomes due and payable prior to its specified maturity as a result of an event of default.
All financial agreements are periodically monitored to assess the likelihood of a breach of any financial covenant and the likelihood thereof in the near future. No breach of any such covenant occurred during 2017.
Aegon N.V. is subject to legal restrictions with regard to the amount of dividends it can pay to its shareholders. Under Dutch law, the amount that is available to pay dividends consists of total shareholders' equity less the issued and outstanding capital and the reserves required by law. The revaluation account and legal reserves, foreign currency translation reserve (FCTR) and other reserves, cannot be freely distributed. In case of negative balances for individual reserves legally to be retained, no distributions can be made out of retained earnings to the level of these negative amounts. Total distributable items under Dutch law amounted to EUR 13,749 million as at December 31, 2017 (2016: EUR 11,996 million). The following table shows the composition of the total distributable items: Equity attributable to shareholders 20,573 20,913
1 Distributable items under Dutch law; note that Solvency II ratio also possibly restricts the distribution of dividends. 2 Statutory reserves contains legal reserves FCTR, group companies and revaluation account consists of positive revaluations only.
The ability of Aegon’s subsidiaries, principally insurance companies, to pay dividends to the holding company is constrained by the requirement for these subsidiaries to remain adequately capitalized to the levels set by local insurance regulations and governed by local insurance supervisory authorities. Based on the capitalization level of the local subsidiary, local insurance supervisors are able to restrict and/or prohibit the transfer of dividends to the holding company. In addition, the ability of subsidiaries to pay dividends to the holding company can be constrained by the requirement for these subsidiaries to hold sufficient shareholders'
47 Fair value The estimated fair values of Aegon’s assets and liabilities correspond with the amounts that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available, Aegon uses quoted market prices in active markets to determine the fair value of investments and derivatives. In the absence of an active market, the fair value of investments in financial assets is estimated by using other market observable data, such as corroborated external quotes and present value or other valuation techniques. An active market is one in which transactions are taking place regularly on an arm’s length basis. Fair value is not determined based upon a forced liquidation or distressed sale.
Revalued amounts Real estate held for own use - - 307 307
Investments for account of policyholders 1,726 11 - 671 (622) - (27) - 32 (8) - 1,784 30
Liabilities carried at fair value Investment contracts 1 Includes impairments and movements related to fair value hedges. Gains and losses are recorded in the line item Results from financial transactions of the income statement.
II Tr an sf er s to d is po sa l gr ou ps
Other investments at fair value 1,265 (44) - 178 (277) - 35 - 419 (321) - 1,257 (42)
Total assets at fair value 11,954 (420) 113 1,821 (1,527) (429) (49) - 1,077 (3,264) - 9,275 (159)
During 2017, 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.
EUR 588 million (2016: EUR 1,077 million). Since the transfer, all such assets have been valued using valuation models incorporating significant non market-observable inputs or uncorroborated broker quotes.
Similarly, during 2017, Aegon transferred EUR 454 million (full year 2016: EUR 3,266 million) of financial instruments from Level
Available-for-sale Shares Net asset value 3) n.a. 231 n.a. 262 n.a.
Other investments at fair value Tax credit investments Discounted cash flow Discount rate 528 5.8% 676 5.6% Investment funds Net asset value 3) n.a. 31 n.a. 45 n.a. Other Other n.a. 24 n.a. 32 n.a.
Fair value through profit or loss Shares Other n.a. 604 n.a. 50 n.a. Debt securities Other n.a. 4 n.a. 6 n.a.
Derivatives Longevity swap Discounted cash flow Mortality 24 n.a. 27 n.a. Longevity swap
Liabilities carried at fair value Derivatives Embedded derivatives in insurance contracts Discounted cash flow Own credit spread 1,831
Total liabilities at fair value 1,845 2,467 1 Other in the table above (column Valuation technique) includes investments for which the fair value is uncorroborated and no broker quote is received. 2 Not applicable (n.a.) has been included when no significant unobservable assumption has been identified. 3 Net asset value is considered the best approximation to the fair value of these financial instruments. 4 Investments for account of policyholders are excluded from the table above and from the disclosure regarding reasonably possible alternative assumptions.
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 3 million (2016: EUR 4).
For reference purposes, the valuation techniques included in the table above are described in more detail on the following pages.
Assets Mortgage loans - held at amortized cost 33,930 - - 38,076 38,076
Trust pass-through securities - held at amortized cost 133 - 137 - 137
Investment contracts - held at amortized cost 16,665 - 9,676 7,356 17,031
Periodically, Aegon performs an analysis of the inputs obtained from third-party pricing services and brokers to ensure that the inputs are reasonable and produce a reasonable estimate of fair value. Aegon’s asset specialists and investment valuation specialists consider both qualitative and quantitative factors as part of this analysis. Several examples of analytical procedures performed include, but are not limited to, recent transactional activity for similar debt securities, review of pricing statistics and trends and consideration of recent relevant market events. Other controls and procedures over pricing received from indices, third-party pricing services, or brokers include validation checks such as exception reports which highlight significant price changes, stale prices or unpriced securities. Additionally,
Aegon’s portfolio of private placement securities (held at fair value under the classification of available-for-sale or fair value through profit or loss) is valued using a matrix pricing methodology. The pricing matrix is obtained from a third-party service provider and indicates current spreads for securities based on weighted average life, credit rating, and industry sector. Each month, Aegon’s asset specialists review the matrix to ensure the spreads are reasonable by comparing them to observed spreads for similar bonds traded in the market. Other inputs to the valuation include coupon rate, the current interest rate curve used for discounting and a liquidity premium to account for the illiquid nature of these securities. The liquidity premiums are determined based upon the pricing of recent transactions in the private placements market; comparing the value of the privately offered security to a similar public security. The impact of the liquidity premium for private placement securities to the overall valuation is insignificant.
Valuations of RMBS, CMBS and ABS are monitored and reviewed on a monthly basis. Valuations per asset type are based on a pricing hierarchy which uses a waterfall approach that starts with market prices from indices and follows with third-party pricing services or brokers. The pricing hierarchy is dependent on the possibilities of corroboration of the market prices. If no market prices are available,
When available, Aegon uses quoted market prices in active markets to determine the fair value of its government debt investments.
Fair values for exchange-traded derivatives, principally futures and certain options, are based on quoted market prices in active markets. 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. Most valuations are derived from swap and volatility matrices, which are constructed for applicable indices and currencies using current market data from many industry standard sources. Option pricing is based on industry standard valuation models and current market levels, where applicable. The pricing of complex or illiquid instruments is based on internal models or an independent third party. For long-dated illiquid contracts, extrapolation methods are applied to observed market data in order to estimate inputs and assumptions that are not directly observable. To value OTC derivatives, management uses observed market information, other trades in the market and dealer prices.
Some OTC derivatives are so-called longevity derivatives. The payout of longevity derivatives is linked to publicly available mortality tables. The derivatives are measured using the present value of the best estimate of expected payouts of the derivative plus a risk margin. The best estimate of expected payouts is determined using best estimate of mortality developments. Aegon determined the risk margin by stressing the best estimate mortality developments to quantify the risk and applying a cost-of-capital methodology.
Changes in the fair value of derivatives attributable to changes in counterparty credit risk were not significant.
Guaranteed minimum withdrawal benefits (GMWB) in the United States and United Kingdom which are offered on some variable annuity products and are also assumed from a ceding company; minimum investment return guarantees on insurance products offered in the
Real estate Valuations of both investments in real estate and real estate held for own use are conducted in full by independent external appraisers at least every three to five years and reviewed at least once a year by qualified internal appraisers to ensure the value correctly reflects the fair value at the reporting date. Appraisals are different for each specific local market, but are based on market guidelines such as International Valuation Standards, Uniform Standards of Professional Appraisal Practice or guidelines issued by the Investment Property Databank. Valuations are mostly based on active market prices, adjusted for any difference in the nature, location or condition of the specific property. If such information is not available, other valuation methods are applied, considering the value that the property’s net earning power will support, the value indicated by recent sales of comparable properties and the current cost of reproducing or replacing the property. Discount rates used in the valuation of real estate reflect the risk embedded in the projected cash flows for the asset being valued. Capitalization rates represent the income rate for a real estate property that reflects the relationship between a single year’s net operating income expectancy and the total property price or value. For property held for own use, appraisers consider the present value of the future rental income cash flows that could be achieved had the real estate been rented to a third party.
A variety of factors are considered, including time value, volatility, policyholder behavior, servicing costs and fair values of similar instruments.
Aegon includes own credit spread based on Aegon’s credit default swap curve.
Derivatives with negative values not designated as hedges 6,484 - 7,926 -
Total financial liabilities at fair value through profit or loss 6,484 37,705 7,926 43,413
Guarantees include those guarantees associated with the sale of investments in low-income housing tax credit partnerships in the
Inc. (TRRI), an affiliated captive reinsurer, for the cash payments required fulfilling reinsurance payments to Transamerica Life Insurance
Company, to the extent that the assets in the captive (TRRI) are not sufficient to cover reinsurance obligations. As of December 31, 2017, this amounted to EUR 1,793 million (2016 EUR: 2,002 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 585 million (2016: EUR 633 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, 2017.
Proceedings in which Aegon is involved The SEC is conducting a formal investigation related to certain investment strategies offered through mutual funds, variable products and separately managed accounts. These strategies used quantitative models developed by one of the former portfolio managers of Aegon’s US investment management business units. Among other things, the investigation relates to the operation of and/or the existence of errors in the quantitative models in question and related disclosures. The funds and strategies under review were subadvised, advised or marketed by Aegon’s US group companies. The models are no longer being used, although some of the funds are still being offered. The quantitative strategies are no longer being offered. Aegon is cooperating fully with the investigation.
(EUR 40 million). Government investigations, including this one, may result in the institution of administrative, injunctive or other proceedings and/or the imposition of monetary fines, penalties and/or disgorgement, as well as other remedies, sanctions, damages and restitutionary amounts. While Aegon is unable to predict what actions, if any, might be taken and is unable to predict the costs to or other impact on Aegon of any such action, there can be no assurances that this matter or other government investigations will not have a material and adverse effect on Aegon’s reputation, financial position, results of operations or liquidity.
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. In February 2018, the US Court of Appeals for the Ninth Circuit reversed the District Court’s order denying Transamerica companies’ motion to dismiss and directed the District Court to grant the motion to dismiss and vacated class certification. Plaintiffs may appeal. US insurers, including Aegon subsidiary Transamerica Life Insurance
insurance industry in the United States, including certain of Aegon’s subsidiaries. Aegon subsidiaries, like other major US insurers, entered into resolutions with state treasurers and insurance regulators regarding unclaimed property and claims settlement practices.
As of 2017, USD 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.
Aegon’s US operations also face employment-related lawsuits from time to time. Aegon recently defended a suit 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. The court granted Aegon’s motion to only allow individual claims to move forward and cease collective action proceedings in this case. Management believes that the potential direct financial exposure in this case is not material. This lawsuit was resolved favorably to Aegon.
Aegon expects the claims and litigation on unit linked products to continue for the foreseeable future. At this time, Aegon is unable to estimate the range or potential maximum liability. There can be no assurances that these matters, in the aggregate, will not ultimately result in a material adverse effect on Aegon’s business, results of operations and financial position.
In July 2016, consumer interest group Platform Aandelenlease filed a claim against Aegon Bank regarding securities leasing product
retains the contractual rights to receive the cash flows of the transferred financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients in that arrangement.
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. The transferred assets are not derecognized. The obligation to repay the cash collateral is recognized as a liability. The non-cash collateral is not recognized in the statement of financial position; and
�� Repurchase activities; whereby Aegon receives cash for the transferred assets. The financial assets are legally (but not economically) transferred, but are not derecognized. The obligation to repay the cash received is recognized as a liability.
Available-for-sale financial assets Financial assets at fair value through profit or loss
Non-cash collateral that can be sold or repledged in the absence of default 1,550 991
On May 3, 2016, Aegon announced it has agreed to buy BlackRock’s UK defined contribution (DC) platform and administration business.
On August 11, 2016 Aegon announced the acquisition of Cofunds from Legal & General for GBP 140 million (EUR 164 million). The purchase of the Cofunds Ltd business is done through a sale and purchase agreement to acquire all the shares and platform assets.
On January 1, 2017 Aegon completed the acquisition of Cofunds, following regulatory approval.
On June 4, 2015 Aegon completed a strategic asset management partnership with La Banque Postale. Under the terms of the agreement, Aegon has acquired a 25% stake in La Banque Postale Asset Management (LBPAM) for a consideration of EUR 117 million.
On August 9, 2017, Aegon agreed to sell Aegon Ireland plc. The sales price will amount to 81% of the Solvency II Own Funds of Aegon Ireland at the end of 2017. This transaction further optimizes its portfolio of businesses. As the transaction is contingent on certain closing and market conditions until closing of the transaction, the book loss is uncertain. This divestment is expected to have an immaterial impact on income before tax and underlying earnings before tax going forward. The transaction is subject to customary regulatory approvals and is expected to close in the first half of 2018.
On November 1, 2017, Aegon completed the sale of Unirobe Meeùs Groep (UMG), an independent financial advisory group, for a total consideration of EUR 295 million. The divestment led to a book gain of EUR 208 million, which was reported in Other income in the fourth quarter. As a consequence of this transaction annual income before tax and underlying earnings before tax will decrease by approximately EUR 20 million going forward from the 2017 level.
On December 28, 2017, Aegon agreed to divest a block of life reinsurance business and to dissolve a related captive insurance company. Under the terms of the agreement, Aegon’s Transamerica life subsidiaries reinsured approximately USD 750 million of liabilities. The transaction covers approximately half of the life reinsurance business that Transamerica retained after it divested the vast majority of its life reinsurance business to SCOR in 2011.
In the second quarter of 2016 Aegon sold its UK annuity portfolio in two parts. On April 11, 2016 Aegon announced the sale of around
Income into the income statement. Taking into account the results of the sale of the related bonds leads to abovementioned result on the transaction of GBP 530 million. The related net cash outflow amounted to GBP 647 million (EUR 831 million). Expenses related to the transaction, including cost of sale, amount to GBP 13 million (EUR 16 million).
French Competition Authority (Autorité de la Concurrence). The agreement to sell Aegon’s stake in La Mondiale Participations to La
The results of the Canadian operations reflect amounts previously recorded in Other Comprehensive Income that were reclassified into the income statement including CAD 178 million (EUR 127 million) release of the foreign currency translation reserve, CAD
(EUR 7 million). The cash and cash equivalents included at the time of the sales amounted to USD 13 million (EUR 12 million).
(EUR 10 million). 7IM was recorded as an associate in the books of Aegon.
Insurance Co.); �� Aegon Towarzystwo Ubezpieczeń na Życie Spółka Akcyjna, Warsaw (Aegon Poland Life); �� Aegon Powszechne Towarzystwo Emerytaine Spólka Akcyjna, Warsaw (Aegon Poland Pension Fund Management Co.); �� Aegon Emeklilik ve Hayat A.Ş., Istanbul (Aegon Turkey); �� Aegon Pensii Societate de Administrare a Fondurilor de Pensii Private S.A., Cluj (Aegon Romania Pension Administrator Co.); �� Aegon Pojištovna, a.s., Prague (Aegon Czech Life); �� Aegon Životná poist'ovňa, a.s., Bratislava (Aegon Slovakia Life); �� Aegon, d.s.s., a.s., Bratislava (Aegon Slovakia Pension Management Co.).
ZrtA), Budapest (Hungary); �� Aegon Investment Management B.V, The Hague (The Netherlands).
Spain & Portugal �� Santander Generales Seguros y Reaseguros, S.A., Madrid (Spain), (51%); �� Aegon Santander Portugal Vida – Companhia de Seguros de Vida S.A., Lisbon (Portugal), (51%); �� Aegon Santander Portugal Não Vida – Companhia de Seguros S.A., Lisbon (Portugal), (51%); �� Santander Vida Seguros y Reaseguros, S.A., Madrid (Spain), (51%); �� Liberbank Vida y Pensiones, Seguros y Reaseguros, S.A., Oviedo (Spain), (50%).
Investments in associates The principal investments in associates are listed by geographical segment. The voting power in these associates is equal to the shareholdings.
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, based on 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.
On 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
to mitigate dilution caused by issuance of shares on January 1, 2015, in connection with the Long Term Incentive Plans for senior management.
Officer, Global Head HR and General Counsel. In April 2017, the members of the Management Board decreased by one due to the retirement of the CEO of Aegon Central & Eastern Europe.
The total remuneration for the members of the Management Board over 2017 was EUR 19.8 million (2016: EUR 18.6 million; 2015: EUR 15.2 million), consisting of EUR 7.4 million (2016: EUR 7.0 million; 2015: EUR 6.3 million) fixed compensation, EUR 7.8 million variable compensation awards (2016: EUR 6.4 million; 2015: EUR 4.9 million), EUR 0.9 million (2016: EUR 1.9 million; 2015: EUR 1.6 million) other benefits and EUR 3.7 million (2016: EUR 3.4 million; 2015: EUR 2.5 million) pension premiums. Amounts are reflective of time spent on the Management Board.
Expenses as recognized under IFRS-EU in the income statement for variable compensation and pensions differ from the variable compensation awards and pension premiums paid due to the accounting treatment under respectively IFRS 2 and IAS 19.
Total fixed compensation 1,829 2,202 2,145 1 Mr. Rider was appointed as CFO and member of Aegon’s Executive Board per May 19, 2017. Fixed compensation is disclosed for the period that Mr. Rider has been part of the Executive Board. The base salary of Mr Rider is EUR 900 on an annualized basis.
Mr. Rider has been part of the Executive Board. 2 Mr. Button stepped down as CFO and member of Aegon’s Executive Board on December 1, 2016. Conditional variable compensation is disclosed for the period that 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. Expenses recognized under IFRS-EU accounting treatment in the income statement for Mr. Button for 2016 amount to EUR 1,237 (2015 EUR 995).
Expenses recognized under IFRS-EU accounting treatment in the income statement for conditionally awarded cash and shares differ from the awards. For the performance year 2017 and previous performance years, expenses under IFRS-EU for Mr. Wynaendts amounted to EUR 1,092 (2016: EUR 956; 2015: EUR 900). For Mr. Rider the expenses under IFRS-EU amounted to EUR 293.
Over the performance year 2017, Mr. Wynaendts was awarded EUR 1,147 in total conditional variable compensation. Mr. Rider was awarded EUR 499.
The remaining part of variable compensation for the performance year 2017 (60%), for Mr. Wynaendts EUR 344 and 65,598 shares and for Mr. Rider EUR 150 and 28,522 shares, is to be paid out in equal portions in 2019, 2020 and 2021, subject to expost 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
The remaining part of variable compensation for the performance year 2015 (60%), for Mr. Wynaendts EUR 277 and 45,330 shares and for Mr. Button EUR 235 and 35,433 shares, is to be paid out in equal portions in 2017, 2018 and 2019, 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
period, before they are at the disposal of the Executive Board members.
Jan J. Nooitgedagt 1 The number of shares is based on a volume weighted average price of EUR 4.727. After vesting a 3 year holding period applies to shares vested. 2 The number of shares is based on a volume weighted average price of EUR 3.126. After vesting a 3 year holding period applies to shares vested. 3 The number of shares is based on a volume weighted average price of EUR 4.917. After vesting a 3 year holding period applies to shares vested. 4 The number of shares is based on a volume weighted average price of EUR 6.739. After vesting a 3 year holding period applies to shares vested. 5 The number of shares is based on a volume weighted average price of EUR 6.106. After vesting a 3 year holding period applies to shares vested. 6 The number of shares is based on a volume weighted average price of EUR 5.128 After vesting a 3 year holding period applies to shares vested. 7 The number of shares is based on a volume weighted average price of EUR 5.246 After vesting a 3 year holding period applies to shares vested. 8 During the vesting period, dividend payments on these shares are deposited in blocked savings accounts on behalf of the executive members.
Total other benefits 224 917 679 1 Mr. Rider was appointed as CFO and member of Aegon’s Executive Board per May 19, 2017. Other benefits are disclosed for the period that Mr. Rider has been part of the Executive Board.
Pension contributions Pension contributions reflect the expenses related to the pension accrual over the financial year disclosed in the table, excluding back service charges.
Mr. Wynaendts to the Aegon pension funds reflect the increase to his fixed salary in 2016 as well as the current low interest rates.
Total The total amount of remuneration, consisting of the fixed compensation, conditional variable compensation awards, other benefits and pension contributions, for Mr. Wynaendts related to 2017 was EUR 4,683 (2016: EUR 4,538; 2015: EUR 3,446) and for Mr. Rider
As a result of the termination of the Board membership of Mr. Button in 2016, an additional Dutch employer wage tax was estimated at EUR 1,394 in 2016. In 2017 it turned out that based on the actual situation and the expected value of the deferred compensations no additional Dutch employer wage tax will be due.
and member of Aegon’s Executive Board per May 19, 2017. Mr. Rider held no shares on December 31, 2017. The shares held in Aegon mentioned above do not exceed 1% of total outstanding share capital at the reporting date. At the reporting date no loans with Aegon or outstanding balances such as guarantees or advanced payments exist for either Mr. Wynaendts or Mr. Rider.
Leo M. van Wijk (up to May 20, 2015) - - 38,625
Irving W. Bailey, II (up to May 20, 2016) - 53,625 135,000
Aegon’s Supervisory Board members are entitled to the following: �� A base fee for membership of the Supervisory Board. No separate attendance fees are paid to members for attendance at the regular Supervisory Board meetings (2017: 7 meetings; 2016: 8 meetings; 2015: 7 meetings); �� An attendance fee of EUR 3,000 for each extra Board meeting attended, be it in person or by video and/or telephone conference; �� A committee fee for members on each of the Supervisory Board’s Committees; �� An attendance fee for each Committee meeting attended, be it in person or through video and/or telephone conference; and �� An additional fee for attending meetings that require intercontinental travel between the Supervisory Board member's home location and the meeting location.
Not included in the table above is a premium for state health insurance paid on behalf of Dutch Supervisory Board members. There are no outstanding balances such as loans, guarantees or advanced payments
Consultancy Services (TCS) to administer the company’s US insurance and annuity business lines. The agreement is expected to be completed by the second quarter of 2018.
Notes to the financial statements 1 General information 312 2 Summary of significant accounting policies 312 3 Investment income 312 4 Results from financial transactions 312 5 Commissions and expenses 313 6 Interest charges and related fees 313 7 Income tax 313 8 Shares in group companies 313 9 Loans to group companies 314 11 Other assets 314 12 Share capital 314 13 Shareholders’ equity 316 14 Other equity instruments 319 15 Subordinated borrowings 320 16 Long-term borrowings 320 17 Other liabilities 321 18 Commitments and contingencies 321 19 Number of employees 321 20 Auditor’s remuneration 321 21 Events after the reporting period 322 22 Proposal for profit appropriation 322
Aegon N.V. (or 'the Company') and its subsidiaries ('Aegon' or 'the Group') have life insurance and pensions operations in more than 20 countries in the Americas, Europe and Asia and are also active in savings and asset management operations, accident and health insurance, general insurance and to a limited extent banking operations. Headquarters are located in The Hague, the
The group companies are stated at their net asset value, determined on the basis of the consolidated accounting policies 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.
A reference is made to Note 2 Summary of significant accounting policies of the consolidated financial statements for the description of the accounting policies applied.
Net fair value change on borrowings and other financial liabilities - 2
Reconciliation between standard and effective tax Income before tax (43) (121)
Differences due to the effect of: Non deductible expenses (11) (6)
For a list of names and locations of the most important group companies, refer to note 52 Group companies of the consolidated financial statements of the Group. The legally required list of participations as set forth in article 379 of Book 2 of the Netherlands
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 130 million (2016: EUR 219 million).
11 Other assets Other assets include derivatives with positive fair values of EUR 70 million (2016: EUR 135 million).
On December 19, 2017, Aegon N.V. repurchased 13,042,592 common shares B from Vereniging Aegon for the amount of EUR 1,725,169.73 based on 1/40th of the Value Weight Average Price of the common shares of the five 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% following the completion of the Share Buy Back Program, initiated by Aegon N.V.
On May 19, 2017, Vereniging Aegon exercised its options rights to purchase in aggregate 1,979,260 common shares B at fair value of a common share B (based on 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused the issuance of shares on May 19, 2017, in connection with the Long Term Incentive Plans for senior management.
The following table shows the movement during the year in the number of common shares and common shares B: Common shares Common shares B
Coupons and premium on convertible core capital securities and coupon on perpetual securities, net of tax - - - - - - (131) - - (131)
Repurchased and sold own shares - - - - - - 4 - - 4
R em ea su re m en t of de fi ne d be ne fi t pl an s of g ro up co m pa ni es
Remeasurement of defined benefit plans of group companies - - - (304) - - - - - (304)
Repurchased and sold own shares - - - - - - (9) - - (9)
Certain of Aegon’s subsidiaries, principally insurance companies, are subject to restrictions on the amounts of funds they may transfer in the form of cash dividends or otherwise to their parent companies. There can be no assurance that these restrictions will not limit or restrict Aegon in its ability to pay dividends in the future.
On the reporting date, Aegon N.V., and its subsidiaries held 65,650,650 of its own common shares (2016: 48,780,045) with a nominal value of EUR 0.12 each. Most of the shares have been purchased to neutralize the dilution effect of issued share dividend and to hedge share based payment plans for executives and employees. Aegon N.V. held 15,345,680 of its own common shares B
As part of their insurance and investment operations, subsidiaries within the Group also hold Aegon N.V. common shares, both for their own account and for account of policyholders. These shares have been treated as treasury shares and are included at their consideration paid or received.
Shares vested / Share options forfeited - - (30) - (30)
USD 250 million floating LIBOR rate 1) Quarterly, December 15 2018 212 212
USD 500 million floating CMS rate 2) Quarterly, July 15 2018 402 402
EUR 950 million floating DSL rate 3) Quarterly, July 15 2018 950 950 1 The coupon of the USD 250 million junior perpetual capital securities is reset each quarter based on the then prevailing three-month LIBOR yield plus a spread of 87.5 basis points, with a minimum of 4%.
On February 7, 2012, Aegon issued USD 525 million in aggregate principal amount of 8.00% non-cumulative subordinated notes, due 2042, in an underwritten public offering in the United States registered with the US Securities and Exchange Commission. The subordinated notes bear interest at a fixed rate of 8.00% and have been priced at 100% of their principal amount. Any cancelled interest payments will not be cumulative.
The securities are subordinated and rank senior to the junior perpetual capital securities, equally with the perpetual cumulative subordinated bonds and fixed floating subordinated notes, and junior to all other liabilities. The conditions of the securities contain certain provisions for optional and required cancellation of interest payments. The securities have a stated maturity of 30 years, however, Aegon has the right to call the securities for redemption at par for the first time on the first coupon date in August 2017, or on any coupon payment date thereafter.
These notes are recognized as a compound instrument due to the nature of this financial instrument. Compound instruments are separated into an equity component and a liability component. At December 31, 2017, the equity component amounted to EUR 271 million (2016: EUR 271 million), subordinated borrowings amounted to EUR 69 million (2016: EUR 72 million) and a deferred tax liability amounting to EUR 92 million (2016: EUR 106 million).
Subordinated borrowings include a liability of EUR 69 million (2016: EUR 72 million) relating to the USD 525 million non-cumulative subordinated notes issued on February 7, 2012. The liability component of the non-cumulative subordinated notes is related to the redemption amount. For further information on the non-cumulative subordinated notes and their subordination refer to note 14 Other equity instruments.
to 6.625% per annum. The market value of the long-term borrowings amounted to EUR 2,198 million (2016: EUR 2,221 million).
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 97 million (2016: EUR 233 million).
18 Commitments and contingencies Aegon N.V. has guaranteed and is severally liable for the following: �� Due and punctual payment of payables due under letter of credit agreements applied for by Aegon N.V. as co-applicant with its captive insurance companies that are subsidiaries of Transamerica Corporation and Commonwealth General Corporation.
Other letter of credit arrangements for subsidiaries amounted to EUR 55 million (2016: EUR 104 million); as of that date no amounts had been drawn, or were due under these facilities; �� Due and punctual payment of payables due under letter of credit agreements or guarantees provided for subsidiaries of Transamerica Corporation at December 31, 2017 amounted to EUR 3,079 million (2016: EUR 3,563 million) as of that date no amounts had been drawn, or were due under letter of credit facilities. The guarantees partly related to debt amounted to EUR 1,322 million (2016: EUR 1,505 million) and is included in the Operational funding table in note 39 Borrowings of the consolidated financial statements of the Group in the line 'USD 1.54 billion Variable Funding Surplus Note'; �� Due and punctual payment of payables by the consolidated group companies Transamerica Corporation, Aegon Funding Company
LLC and Commonwealth General Corporation with respect to bonds, capital trust pass-through securities and notes issued under commercial paper programs amounted to EUR 585 million (2016: EUR 633 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, 2017.
Netherlands. In addition, the total remuneration for 2016 did not yet include the fees for the audit of the 2016 Solvency II figures, as these fees were invoiced in and booked in 2017.
22 Proposal for profit appropriation At the Annual General Meeting of Shareholders on May 18, 2018, the Executive Board will, absent unforeseen circumstances, propose a final dividend for 2017 of EUR 0.14 per common share and EUR 0.0035 per common share B. The final dividend will be paid in cash or stock at the election of the shareholder. The value of the stock dividend will be approximately equal to the cash dividend.
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 15, 2018 after 5.30 p.m. (CET), based on the average share price on Euronext Amsterdam in the five trading days from June 11, 2018 up to and including June 15, 2018.
Independent auditor’s report To: the Annual General Meeting of Shareholders and Supervisory Board of Aegon N.V.
What we have audited We have audited the accompanying financial statements 2017 of Aegon N.V., The Hague (‘the Company’). The financial statements include the consolidated financial statements of Aegon N.V. and its subsidiaries (together: ‘the Group’) and the stand-alone financial statements.
The consolidated financial statements comprise: �� the consolidated statement of financial position as at December 31, 2017; �� the consolidated income statement, the consolidated statements of comprehensive income and changes in equity and the consolidated cash flow statement; and �� the notes, comprising a summary of significant accounting policies and other explanatory information.
Our audit approach Overview and context Aegon N.V. is a provider of life insurance, pensions and asset management services. The Group is comprised of several components.
Aegon’s main operating units are separate legal entities and operate under the laws of their respective countries. Aegon has operations in the United States, Mexico and Brazil, the Netherlands, the United Kingdom, Central & Eastern Europe, Spain & Portugal and Asia.
Volatility in the results of the Group year over year affected the way in which we determined our group materiality, as set out in the section ‘Materiality’ below.
For determining the risks of material misstatement in the financial statements, in particular, we considered where management made important judgments, 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 Group describes the areas of judgment in applying accounting policies and the key sources of estimation uncertainty. Given the significant estimation uncertainty the valuation of insurance contracts and insurance contracts for account of policyholders including the design and application of complex (actuarial)
valuation models, valuation of deferred policy acquisition costs (DPAC) and value of business acquired (VOBA), determining the fair value of ‘hard to value’ financial instruments and uncertainties in policyholder claims and litigation, we considered these to be key audit matters as set out in the key audit matter section of this report. The US Tax Cuts and Jobs Act (the ‘US Tax Reform’) came into law on December 22, 2017, which had a significant impact on Aegon’s net income and shareholders’ equity. This warranted our specific attention and therefore we identified the US Tax Reform as key audit matter.
Materiality The scope of our audit is influenced by the application of materiality which is further explained in the section ‘Our responsibilities for the audit of the financial statements’.
We also take misstatements and/or possible misstatements into account that, in our judgment, are material for qualitative reasons. For example, certain items, such as related party transactions and management remuneration 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.
‘regional units’. The financial information of this group is included in the consolidated financial statements of Aegon N.V.
In total, 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.
The key audit matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon. We do not provide separate opinions on these matters or on specific elements of the financial statements. Any comments or observations we make on the results of our procedures should be read in this context.
The Group has insurance contracts stated at EUR 110.8 billion and insurance contracts for account of policyholders stated at EUR 122.2 billion at December 31, 2017 representing 62.6%
Where applicable, we assessed the amortization calculations performed including the appropriateness of the assumptions used in determining the estimated gross profits and the extent of the associated adjustment necessary to the DPAC and
The areas that involved significant audit effort and judgment were the valuation of illiquid instruments. These instruments are valued based on models and assumptions that are not observable by third parties and for which valuation is in some instances provided by external experts or data vendors. These investments are generally considered model based level II and level III as included in Note 47 ‘Fair value’. Those investments have a higher potential risk to be affected by error or management bias. Therefore these areas are considered a key matter for our audit. Our focus considered both the positions that are presented at fair value on the balance sheet and those positions carried at amortized cost on the balance sheet but for which fair value is required to be disclosed.
We used our valuation specialists to assist us in performing our audit procedures.
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. Also retrospective testing on significate estimates and assumptions was performed.
We also assessed whether the Group’s disclosures in the consolidated financial statements in relation to the valuation of investments are in accordance with IFRS-EU.
Uncertainties in policyholder claims and litigation Refer to Note 48 ‘Commitments and contingencies’.
We have read the internal position papers prepared by the Group.
We also obtained lawyers’ letters to the extent considered necessary for our audit. For all (potentially) material claims we tested the underlying facts and circumstances considered relevant for the legal advisors to come to their assessments and assessed the best estimate of outflows as determined by the
US tax reform Refer to Note 18 ‘Income tax and Note 43 ‘Deferred tax’
‘US Tax Reform’) into law on December 22, 2017. This tax reform has provisions that apply to all corporations as well as a number of specific provisions for US insurance companies.
Given the significance of its impact, it warranted our specific attention and we identified the US Tax Reform as a key audit matter. In the United States, the corporate income tax rate will decrease from 35% to 21%. As required by IAS 12, changes in tax law are recorded when enacted, which resulted in a revaluation of Aegon’s net deferred tax liabilities in the fourth quarter of 2017. As a result, shareholders’ equity increased by EUR 1.034 million, of which EUR 554 million was recognized in the income tax line in the income statement, and the remainder directly in OCI.
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 the information that is required by Part 9 of Book 2 of the Dutch Civil Code.
The scope of such procedures was substantially less than the scope of those performed in our audit of the financial statements.
Supervisory Board for the years 2017 to 2018 following the passing of a resolution by the shareholders at the annual meeting held on May 19, 2017 representing a total period of uninterrupted engagement appointment of 4 years.
Responsibilities for the financial statements and the audit Responsibilities of the Executive Board and the Supervisory Board for the financial statements The Executive Board is responsible for: �� the preparation and fair presentation of the financial statements in accordance with IFRS -EU and with Part 9 of Book 2 of the
Considering our ultimate responsibility for the opinion on the company’s consolidated financial statements we are responsible for the direction, supervision and performance of the group audit. In this context, we have determined the nature and extent of the audit procedures for components of the group to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole. Determining factors are the geographic structure of the group, the significance and/or risk profile of group entities or activities, the accounting processes and controls, and the industry in which the group operates. On this basis, we selected group entities for which an audit or review of financial information or specific balances was considered necessary.
Profit appropriation Appropriation of profit will be determined in accordance with the articles 31 and 32 of the Articles of Association of Aegon N.V.
The Executive Board, subject to the approval of the Supervisory Board, shall make a proposal for that purpose. A proposal to pay a dividend shall be dealt with as a separate agenda item at the General Meeting of Shareholders; 4. The Executive Board may, subject to the approval of the Supervisory Board, make one or more interim distributions to the holders of common shares and common shares B; 5. Distributions are made in accordance with the principle set forth in article 4 of the Articles of Association of Aegon N.V. that the financial rights attaching to a common share B are one-fortieth (1/40th) of the financial rights attaching to a common share; 6. The Executive Board may, subject to the approval of the Supervisory Board, decide that a distribution on common shares and common shares B shall not take place as a cash payment but as a payment in common shares, or decide that holders of common shares and common shares B shall have the option to receive a distribution as a cash payment and/or as a payment in common shares, out of the profit and/or at the expense of reserves, provided that the Executive Board is designated by the General Meeting to issue shares. Subject to the approval of the Supervisory Board, the Executive Board shall also determine the conditions applicable to the aforementioned choices; and 7. The Company’s policy on reserves and dividends shall be determined and can be amended by the Supervisory Board, upon the proposal of the Executive Board. The adoption and thereafter each amendment of the policy on reserves and dividends shall be discussed and accounted for at the General Meeting of Shareholders under a separate agenda item.
Executive Board and the Supervisory Board. If, in its sole discretion, Vereniging Aegon determines that a Special Cause has occurred,
The simplified capital structure also included an amendment to the 1983 Amended Merger Agreement between Aegon N.V. and
In the years 2003 through 2012, 118,093,000 class B preferred shares were issued under these option rights and in the years 2013 and 2014 Vereniging Aegon purchased in aggregate 15,012,025 common shares B under its call option right.
On January 1, 2015, Vereniging Aegon exercised its options rights to purchase in aggregate 9,680 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)
On May 21, 2015, Vereniging Aegon exercised its options rights to purchase in aggregate 3,686,000 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 Aegon’s issuance of shares on 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 June 6, 2016, Aegon N.V. repurchased 17,324,960 Common Shares B from Vereniging Aegon for the amount of EUR 1,968,332, based on 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 June 23, 2017, Vereniging Aegon exercised its options rights to purchase in aggregate 13,042,612 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 Aegon’s issuance of shares on June 23, 2017, being the final dividend 2016 in the form of stock dividend.
Exercise option right common shares B - May 2017 - 1,979,260
Exercise option right common shares B - June 2017 - 13,042,612
At December 31, 2017, the General Meeting of Members of Vereniging Aegon consisted of eighteen members. The majority of the voting rights is with the sixteen members who are not employees or former employees of Aegon N.V. or one of the Aegon Group companies, nor current or former members of the Supervisory Board or the Executive Board of Aegon N.V. The other two members are from the Executive Board of Aegon N.V.
Vereniging Aegon has an Executive Committee consisting of eight members, six of whom are not, nor have ever been, related to Aegon, including the Chairman and the Vice-Chairman. The other two members are also member of the Executive Board of Aegon
N.V. Resolutions of the Executive Committee, other than regarding the amendment of the Articles of Association of Vereniging
Fund stated to hold 134,654,439 common shares, which represent 5.2% of the issued and outstanding capital and of the votes as at
Based on its filing with the Dutch Autoriteit Financiële Markten as at June 10, 2015, Franklin Resources, Inc (FRI). stated to hold 81,510,408 shares, representing 3.1% of the issued and outstanding capital and of the votes as of December 31, 2017. On February 20, 2018, the filing of Franklin Resources, Inc. (FRI), a US based investment management firm, with the SEC shows that FRI holds 156,591,360 common shares and voting rights, representing 6.0% of the issued and outstanding capital, as at December 31, 2017.
As at December 31, 2017 Amounts in million EUR Cost1) Fair value Book value
Dividends and capital repayments of subsidiaries, associates and joint ventures 700 895 -
Issuance, repurchase and coupons of non-cumulative subordinated notes (37) (38) (38)
Management, Central & Eastern Europe and Spain & Portugal. Capital contributions of EUR 1.1 billion were paid to Aegon’s businesses, mainly to the Netherlands.
Aegon received EUR 1.1 billion of dividends from its business units during 2016 from the Americas, asset management, Central &
Aegon received EUR 1.1 billion of dividends from its business units during 2015, almost all of which from the Americas. Aegon spent
The numbers included in Schedule III are based on IFRS-EU and excludes the proportionate share in Aegon’s joint ventures and
Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 requires Aegon to disclose whether Aegon N.V. or any of its affiliates has engaged during the calendar year in certain Iran-related activities, including any transaction or dealing with the
Government of Iran that is not conducted pursuant to a specific authorization of the U.S. government. The amounts in this section are reported in EUR 1 or GBP 1.
based subsidiaries of Aegon N.V. do operate in compliance with applicable laws and regulations of the various jurisdictions where they conduct business. Aegon UK had an Individual Personal Pension (“IPP”) for a UK customer until March 2017 when the benefits were transferred externally to another pension provider. The customer is a UK-based employee of an Iranian bank which appears on OFAC’s Specially Designated Nationals (“SDN”) and Blocked Persons List with the identifiers of [SDGT], [IRAN], and [IFSR]. The last contribution to the pension was in November 2016. The customer is not a SDN; the Iranian bank did not own, benefit from, or have any control over the pension. All payments from the Iranian bank were made in UK Pounds from a UK bank account. Her Majesty’s Treasury
Aegon UK also has six UK resident customers who have one active IPP and are UK-based employees of a British registered charity that appears on the SDN List with the identifier [SDGT]; the charity makes contributions to the pensions. The customers are not SDNs; the charity does not own, benefit from, or have control over the pensions. All payments have been paid in UK Pounds from a UK
The related annual net profit arising from these contracts, which is difficult to calculate with precision, is estimated to be no greater than GBP 8,040.
The individual life investment linked insurance policy has a value of EUR 65,323 as at January 1, 2018, and regular monthly contributions of EUR 198.60 are being received; all contributions have been paid in Euros from a Dutch bank account. The policy is managed in line with applicable legislation and regulation in the Netherlands; the individual is not subject to sanctions in the
Netherlands or EU. The end date of this policy is 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) the value 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.
Disruptions in the global financial markets and general economic conditions may affect, and could have materially adverse effects on Aegon’s businesses, results of operations, cash flows and financial condition.
Aegon operates. The global financial crisis has shown that financial markets can experience extreme volatility and disruption.
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 with any certainty whether or when such actions may occur.
Declines in value and defaults in Aegon’s debt securities, private placements and mortgage loan portfolios held in Aegon’s general and separate accounts, or the failure of certain counterparties, may adversely affect Aegon’s profitability and shareholders’ equity.
For general account products, Aegon typically bears the risk for investment performance equalling the return of principal and interest.
Aegon is exposed to credit risk on its general account fixed-income portfolio (debt securities, mortgages and private placements), over-the-counter (OTC) derivatives and reinsurance contracts. In addition, financial institutions acting as a counterparty on derivatives may not fulfil their obligations. Default by issuers and counterparties on their financial obligations may be due to, among other things, bankruptcy, lack of liquidity, market downturns or operational failures, and the collateral or security they provide may prove inadequate to cover their obligations at the time of the default.
Aegon’s investment portfolio contains, among other investments, Dutch government bonds, US Treasury, agency and state bonds, other government issued securities and corporate bonds. Especially in a weak economic environment Aegon may incur significant investment impairments due to defaults and overall declines in the capital markets. Further, excessive defaults or other reductions in the value of these securities and loans may have a materially adverse effect on Aegon’s businesses, results of operations, cash flows and financial condition.
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. Hedging of exposures may change those effects significantly and equity hedges are used extensively to manage the equity market risk of variable annuity investment guarantees. 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 real time market movements of equity markets.
These cash payments to policyholders also result in a decrease in total invested assets and net income. Early withdrawals may also require accelerated amortization of DPAC, which in turn reduces net income. Hedging against interest rate movements may change these effects significantly. Hedging programs are in place that are designed to manage the risks within the limits defined as part of the financial risk management policies within Aegon group’s risk strategy. The actual impact of the hedging programs is dependent on the effectiveness of the design of those programs as well as real time movements of financial markets. If hedging programs are not effective, Aegon’s results of operation, cash flow and financial position could be materially and adversely affected.
During periods of decreasing interest rates or sustained low interest rates, as experienced in recent years, Aegon may not be able to preserve margins due to the existence of minimum interest rate guarantees and minimum guaranteed crediting rates provided in policies. Also, investment earnings may be lower because the interest earnings on new fixed-income investments are likely to have declined with the market interest rates. A prolonged low interest rate environment may also result in a lengthening of maturities of the policyholder liabilities from initial estimates, primarily due to lower policy lapses.
Depending on economic developments going forward, interest rates at the shorter end of the curve may remain at low or even negative levels for a prolonged period. In such an environment, an anchored expectation of low inflation or deflation could further push down the longer end of the interest rate curve which could have significant implications for Aegon’s operations and financial results.
Fluctuations in currency exchange rates may affect Aegon’s reported results of operations.
As an international group, Aegon is subject to foreign currency translation risk. Foreign currency exposure also exists when policies are denominated in currencies other than Aegon’s functional currency. Currency risk in the investment portfolios backing insurance and investment liabilities are managed using asset liability matching principles. Assets allocated to equity are kept in local currencies to the extent shareholders’ equity is required to satisfy regulatory and Aegon’s self-imposed capital requirements. Therefore, currency exchange rate fluctuations may affect the level of Aegon’s consolidated shareholders’ equity as a result of translation of the equity of Aegon’s subsidiaries into euro, Aegon’s reporting currency. Aegon holds the remainder of its capital base (capital securities, subordinated and senior debt) in various currencies in amounts that are targeted to correspond to the book value of Aegon’s business units. This balancing is intended to mitigate currency translation impacts on equity and leverage ratios. Aegon may also hedge the foreign exchange component of expected dividends from its principal business units that maintain their equity in currencies other than the euro
The sensitivity of Aegon’s net income and shareholders’ equity to foreign exchange translation risk is provided in the notes to the financial statements, note 4 Financial risks, section “Currency exchange risks”.
Illiquidity of certain investment assets may prevent Aegon from selling investments at fair prices in a timely manner.
Aegon must maintain sufficient liquidity to meet short term cash demand under normal circumstances, as well as in crisis situations.
events, including greatly reduced liquidity in capital markets, if these conditions were to persist for an extended period of time, Aegon may need to sell assets substantially below prices at which they are currently recorded to meet its insurance obligations.
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 the extent to which the established technical provisions for insurance liabilities prove to be sufficient. If actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities,
The sensitivity of Aegon’s net income and shareholders’ equity to changes in various underwriting risks is provided in the notes to the consolidated financial statements, note 36 “Insurance contracts”.
Among other things, changes in assumptions, estimations, judgments or in actual experience may require Aegon to accelerate the amortization of DPAC and value of business acquired, establish a valuation allowance against deferred income tax assets, or to recognize impairment of other assets, any of which may materially adversely affect Aegon’s results and financial condition.
There can be no assurance that the use of Models will result in effective investment decisions for an investment product. Additionally, if investment products offered by Aegon’s affiliates experience Model errors or use erroneous Data, this could result in regulatory actions and/or litigation brought against Aegon and/or its affiliates.
II Directive, which became effective on January 1, 2016, and which imposes, among other things, substantially greater quantitative and qualitative capital requirements on some of Aegon’s businesses and at the Group level, as well as supervisory and disclosure requirements, and may impact the structure, business strategies, and profitability of Aegon’s insurance subsidiaries and of the
Group. Although the Solvency II Directive became effective on January 1, 2016, the requirements remain subject to change, for instance through reviews by the European Commission of the Solvency II requirements, which are currently taking place. 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 the United States and Asia. In particular, the manner in which
In the United States, the National Association of Insurance Commissioners (NAIC) has taken an initiative to better align the Risk-Based
Furthermore, the NAIC Model Regulation entitled ‘Valuation of Life Insurance Policies,’ commonly known as Regulation XXX, requires insurers in the United States to establish additional statutory reserves for term life insurance policies with long-term premium guarantees. In addition, Actuarial Guideline XXXVIII, commonly known as AG38, intended to clarify the regulation on valuation of life insurance policies, requires insurers to establish additional statutory reserves for certain universal life insurance policies with secondary guarantees. Virtually all of Aegon’s newly issued term and universal life insurance products in the United States are affected by Regulation XXX and AG38, respectively.
Subsequently, the NAIC adopted regulations to monitor and provide transparency for insurer-affiliated captive reinsurers. Captive reinsurance structures have been used to manage ‘economically redundant’ reserves for term and secondary guarantee universal life policies. It is anticipated that after the enactment of US principle-based reserves, effective January 1, 2017 for new business, new captive reinsurance structures may not be required for these term and secondary guarantee universal life products. The new reserves requirements for US life insurance products are intended by regulators to represent a more economically supported view of the resources required to honor the promises to policyholders. For existing business held in a captive, Aegon may continue to be subject to the risks of adverse publicity and changes in regulations related to captive reinsurance.
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 Insurance Capital Standard (ICS) as part of the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame) (a set of international regulatory standards focusing on the effective group-wide supervision of internationally active insurance groups (IAIGs)). Since November 3, 2015 Aegon is classified as a Global Systematically
Important Insurer (G-SII). While the qualification is reviewed by the Financial Stability Board (FSB) yearly, the FSB, in consultation with the International Association of Insurance Supervisors (IAIS) and national authorities, decided not to publish a new list of G-SIIs for 2017. The policy measures set out in the FSB’s 2016 communication on G-SIIs will continue to apply to the firms listed in the 2016 communication. Continued enhancement of the Entity Based Approach (EBA) for the assessment of systemic risk has been suspended in favour of an Activities Based Approach to managing systemic risk. In this respect, the development of ComFrame as well as any additional requirements or standards applicable to either systemic entities or activities could lead to enhanced capital requirements applicable to IAIGs. This could adversely affect Aegon’s ability to compete with other insurers that are not subject to those capital requirements. These requirements may lead Aegon to engage in transactions that affect capital, repurchase own shares or constrain
Aegon may not be able to comply fully with, or obtain appropriate exemptions from, the wide variety of laws and regulations applicable to insurance companies, holding companies, groups of insurance companies and/or other financial undertakings and/or financial conglomerates. Failure to comply with or to obtain appropriate exemptions under any applicable laws may result in restrictions on Aegon’s ability to do business in one or more of the jurisdictions in which Aegon operates and may result in fines and other sanctions, which may have a materially adverse effect on Aegon’s businesses, financial position or results of operations.
II. Pursuant to Solvency II, Aegon is required to calculate a solvency ratio (own funds divided by the required solvency, the latter referred to as the Group SCR), for the Aegon Group at the level of Aegon which should be at least equal to 100%. Under Solvency I,
EU supervisors usually required insurance and reinsurance undertakings to maintain a substantial percentage of own funds above the statutory minimum requirements. Under Solvency II, the DNB leaves the decision as to whether to hold a buffer of own funds in excess of the Group SCR or the SCR to the Aegon Group and the insurance and reinsurance undertakings in the Aegon Group. As the prudential supervisor, the DNB nonetheless monitors 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 result in Aegon, at its own election, but supervised by the DNB, maintaining a buffer of own funds in addition to those required according to Solvency II requirements.
Aegon’s maximum risk tolerance for capital adequacy in the operating units is to maintain capitalization ratios above at least 100%
promulgation or enactment, respectively, of an enhanced standard of care could similarly have a material adverse impact on Aegon
will propose changes to the rule later this year. The final results of the review and the impact on Aegon USA’s retirement plan and annuity business will not be known until after the changes to the rule are finalized by 2018-2019.
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.
In general, changes in laws and regulations may materially increase Aegon’s direct and indirect compliance costs and other ongoing business expenses and have a materially adverse effect on Aegon’s businesses, results of operations or financial condition.
On June 23, 2016 the United Kingdom voted in a national referendum to withdraw from the European Union. With the negotiations underway, the implications of ‘Brexit’ remain unclear, with respect to the European integration process, the relationship between the
UK and the European Union, and the impact on economies and businesses. Aegon could be adversely impacted by related market developments such as increased exchange rate movements of the UK pound versus the euro and higher financial market volatility in general due to increased uncertainty, any of which could reduce the value or results of Aegon’s operations in the United Kingdom.
Aegon could also be adversely impacted should ‘Brexit’ result in the UK moving away from agreed and implemented EU legislation like, but not limited to, Solvency II regulations.
More countries could potentially follow the UK in leaving the European Union. This could also result in the mentioned possible abandonment of the euro currency by one or more countries. The topic could be raised in elections and referenda. Any uncertainty, volatility or negative impacts created by these political events could have a material adverse effect on Aegon’s results of operations, cash flows or financial position.
In June 2012, the Dutch Intervention Act (Wet bijzondere maatregelen financiële ondernemingen) came into force in the Netherlands, with retroactive effect from 20 January 2012. The Dutch Intervention Act grants far-reaching powers to the Dutch Central Bank
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
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 the 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. The measures allow them to commence proceedings which may lead to (a) the transfer of all or part of the business of an ailing insurance company to a private sector purchaser, (b) the transfer of all or part of the business of an ailing insurance company to a ‘bridge entity’, (c) the transfer of the shares in an ailing insurance company to a private sector purchaser or a
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, or any perceived exercise of powers, by the DNB or the Dutch Minister of Finance under the Dutch Intervention
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.
or the imposition of monetary fines, penalties and/or disgorgement as well as other remedies, sanctions, damages and restitutionary amounts. While we are unable to predict what actions, if any, might be taken and are unable to predict the costs to or other impact on us of any such action, there can be no assurances that this matter or other government investigations will not have a material and adverse effect on Aegon’s reputation, financial position, results of operations or liquidity.
In addition, insurance companies and their affiliated regulated entities are routinely subject to litigation, investigation and governmental review concerning product fees and costs, including transparency and adequacy of disclosure of initial costs, ongoing costs, and costs due on policy surrender as well as changes to costs over time. Disputes and investigations initiated by governmental entities and private parties may lead to orders or settlements including payments or changes to business practices even if Aegon believes the underlying claims are without merit. 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. Several US insurers, including an Aegon subsidiary, have also been named in class actions as well as individual litigation relating to increases in monthly deduction rates on universal life products. Plaintiffs generally allege that the increases were made to recoup past losses rather than to cover the future costs of providing insurance coverage. The class action against Aegon’s subsidiary is pending in the US federal district court for the Central District of California. In the first phase of one of the individual cases against Aegon’s subsidiary to reach trial, the jury found that the increase was improper. That case and others remain ongoing. In the Netherlands, unit linked products
Many of Aegon’s products are affected by fluctuations in equity markets as well as interest rate movements, which may prove to be volatile or disappointing to customers. Significant investment risks are often borne by the customer.
Aegon’s risk management policies and processes may leave the Company exposed to unidentified or unanticipated risk events, adversely affecting its businesses, results and financial condition.
Aegon’s ability to make payments on debt obligations and pay some operating expenses is dependent upon the receipt of dividends from subsidiaries. Some of these subsidiaries have regulatory restrictions that can limit the payment of dividends. In addition, local regulators, acting to represent the interests of local policyholders, are taking an increasingly restrictive stance with respect to permitting dividend payments, which may affect Aegon’s ability to satisfy its debt obligations or pay its operating expenses.
Since 2005, Aegon’s financial statements have been prepared and presented in accordance with IFRS-EU. Any future changes in these accounting standards may have a significant impact on Aegon’s reported results, financial condition and shareholders’ equity.
This includes the level and volatility of reported results and shareholders’ equity. New accounting standards that are likely to have a significant impact on Aegon’s reported results, financial condition and shareholders’ equity include but are not limited to IFRS 9 –
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 both IFRS 9 and
IFRS 17 is not yet clear. Initial impact assessments on both standards resulted in the expectation that it will have a significant impact on reported results, shareholders’ equity and disclosures.
Further details are provided in the notes to the consolidated financial statements, note 2 “Summary of significant accounting policies”.
Competition in Aegon’s business segments is based on service, product features, price, commission structure, financial strength, claims paying ability, ratings and name recognition. Aegon faces intense competition from a large number of other insurers, as well as noninsurance financial services companies such as banks, broker-dealers and asset managers, for individual customers, employers, other group customers, agents and other distributors of insurance and investment products. Consolidation in the global financial services industry can enhance the competitive position of some of Aegon’s competitors by broadening the range of their products and services, and increasing their distribution channels and their access to capital. In addition, development of alternative distribution channels for certain types of insurance and securities products, including through the internet, may result in increasing competition as well as pressure on margins for certain types of products. Traditional distribution channels are also challenged by the ban on sales- based commissions in some countries. These competitive pressures may result in increased pricing pressures on a number of products and services, particularly as competitors seek to win market share. This may harm Aegon’s ability to maintain or increase profitability
New technologies are transforming the insurance industry. New technologies include, but are not limited to, communication channels, robotization, artificial intelligence, data analytics and blockchain. These technologies are changing the way insurance is sold. They are also changing the way insurers manage their businesses and the skills they need in their workforces. Furthermore, the new technologies are influencing customer demands. They want speed, ease of use and accessibility. Technology makes it easier to move into new markets. This increases competition, not just among peers, but also from new competitors and disruptors. Inability to – quickly enough
– adapt and apply these new technologies may impact Aegon’s competitive position, its ability to maintain profitability and adversely affect Aegon’s future financial condition and results of operations.
Although Aegon distributes its products through a wide variety of distribution channels, Aegon’s ability to market its products could be affected if key relationships would be interrupted. Distributors may elect to reduce or terminate their distribution relationship with
Aegon due to adverse developments in its business. Further, key distribution partners may also merge, change their business models in ways that affect how Aegon’s products are sold, or new distribution channels could emerge and adversely impact the effectiveness of its current distribution efforts.
‘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 governments which Aegon holds. Systemic risk could have a material adverse effect on Aegon’s ability to raise new funding and on its 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.
As a global financial services enterprise, Aegon relies, to a considerable extent, on the quality of local management and personnel in the various countries in which Aegon operates. The success of Aegon’s operations is dependent, among other things, on Aegon’s ability to attract and retain highly qualified professional personnel. Competition for key personnel in most countries in which Aegon operates is intense. Aegon’s ability to attract and retain key personnel, in particular senior officers, experienced portfolio managers, mutual fund managers and sales executives, is very much dependent on the competitiveness of the compensation package for employees in the market in which it competes. As a part of the governmental response in Europe and, to a certain extent, the United States to the financial crisis in 2008, there have been various legislative initiatives that have sought to give guidance or regulate the structure of remuneration for personnel, in particular senior management, with a focus on performance- related remuneration and limiting severance payments. 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 transfer employees between regions.
Aegon’s acquisitions may result in additional indebtedness, costs, contingent liabilities and impairment expenses related to goodwill and other intangible assets. In addition, they may divert management’s attention and other resources. Divestitures of existing operations may result in Aegon assuming or retaining certain contingent liabilities. All of these may adversely affect
Aegon and its clients. If its business continuity plans have not included effective contingencies for such events, Aegon may experience business disruption and damage to corporate reputation and financial condition for a substantial period of time.
As a result of any proceeding in which Aegon would have to enforce and protect its intellectual property, Aegon may lose intellectual property protection, which may have a materially adverse effect on Aegon’s businesses, results of operation, financial condition and
Further, employee error, unethical behavior and/or misconduct may be difficult to detect and 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.
Aegon experiences technological or other problems with transition from Aegon or its other third party providers, Aegon may not realize productivity improvements or cost efficiencies and may experience operational difficulties, increased costs and a loss of business that may have an adverse effect upon on Aegon’s operations or financial condition.
While systems and processes are intended to support complex transactions and avoid systems failure, fraud, information security failures, processing errors and breaches of regulation, any failure may lead to a materially adverse effect on Aegon’s results of operations and corporate reputation. In addition, Aegon must commit significant resources to maintain and enhance its existing systems in order to keep pace with industry standards and customer preferences. If Aegon fails to keep up-to-date information systems, Aegon may not be able to rely on information for product pricing, risk management and underwriting decisions. In addition, even though back-up and recovery systems and contingency plans are in place, Aegon cannot assure investors that interruptions, failures or breaches in security of these processes and systems will not occur, or if they do occur, that they can be adequately addressed. The occurrence of any of these events may have a materially adverse effect on Aegon’s businesses, results of operations and financial condition.
Cyber risk is predominantly determined by the risk of malicious outside forces using public networks to attack the Company’s systems, but also includes inside threats, both malicious and accidental. In recent years this risk has increased sharply due to a number of developments in how information systems are used by companies such as Aegon, but also by society in general. Threats have increased as hackers get more organised and employ more sophisticated techniques. At the same time companies increasingly unlock information systems through the internet to customers and business partners expanding the attack surface hackers can exploit.
Aegon and its significant shareholders may offer additional common shares in the future, and these and other sales may adversely affect the market price of the outstanding common shares.
In 2016, Vereniging Aegon entered into a three year term and revolving facilities agreement with a consortium of banks. Under this agreement, Aegon’s common shares in the possession of Vereniging Aegon are pledged to the consortium of banks. If Vereniging
As of December 31, 2017, there were 2,095,648,244 common shares and 585,022,160 common shares B issued. Of these, Vereniging
Agreement, resulting in a right for Vereniging Aegon, upon issuance of shares by Aegon, to purchase as many class B preferred shares existing at that time as would enable it to prevent or offset a dilution to below its actual voting power percentage of 33%.
In 2013, 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
The simplified capital structure included an amendment to the 1983 Amended Merger Agreement between Aegon N.V. and Vereniging
Currency fluctuations may adversely affect the trading prices of Aegon’s common shares and the value of any cash distributions made.
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.
Nederland N.V., including the right to make non-binding recommendations for appointments to its Supervisory Board and the right to enter objections against proposals for appointments to that Supervisory Board.
A break-down of the number of employees is provided below: Central & Eastern Europe 2,337 2,317 2,470
Of which Aegon’s share of employees in joint ventures and associates 6,497 5,944 7,499
Dividend policy Under Dutch law and Aegon’s Articles of Association, holders of Aegon’s common shares are entitled to dividends paid out of the profits remaining, if any, after the creation of a reserve account. Aegon’s Executive Board may determine the dividend payment date and the dividend record date for the common shares, which may vary for the various kinds of registered shares. Aegon’s Executive
Aegon’s Executive Board will also take capital position, financial flexibility, leverage ratios and strategic considerations into account when declaring or proposing dividends on common shares.
Description of Aegon’s capital stock Aegon has two types of shares: common shares (par value EUR 0.12) and common shares B (par value EUR 0.12).
Dutch law determines that the record date is 28 days prior to the General Meeting of Shareholders. Shareholders must notify Aegon of their intention to attend the meeting.
Exchange controls There are no legislative or other legal provisions currently in force in the Netherlands or arising under Aegon’s Articles of Association restricting remittances to holders of Aegon’s securities that are not resident in the Netherlands. Cash dividends payable in euros on Aegon’s common shares may be officially transferred from the Netherlands and converted into any other convertible currency.
Generally speaking, a shareholding is considered to qualify as a participation for the participation exemption if it represents an interest of 5% or more of the nominal paid-up share capital; iv. Holders of Aegon common shares holding a substantial interest (aanmerkelijk belang) or deemed substantial interest (fictief aanmerkelijk belang) in Aegon and holders of Aegon common shares of whom a certain related person holds a substantial interest in Aegon. Generally speaking, a substantial interest in Aegon arises if a person, alone or, where such person is an individual, together with his or her partner (statutory defined term), directly or indirectly, holds or is deemed to hold (i) an interest of 5% or more of the total of capital issued by Aegon or 5% or more of the issued capital of a certain class of Aegon shares, (ii) rights to acquire, directly or indirectly, such interest or (iii) certain profit-sharing rights in Aegon; v. Persons to whom the Aegon common shares and the income from the Aegon common shares are attributed based on the separated private assets (afgezonderd particulier vermogen) provisions of the Netherlands Income Tax Act 2001 (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
A refund of Netherlands withholding dividend tax is available to an entity resident in another EU member state, Norway, Iceland, or Liechtenstein if (i) this entity is not subject to corporate income tax there and (ii) this entity would not be subject to Netherlands corporate income tax, if this entity would be tax resident in the Netherlands for corporate income tax purposes and (iii) this entity is not comparable to an investment institution (fiscale beleggingsinstelling) or exempt investment institution (vrijgestelde beleggingsinstelling). Furthermore, a similar refund of Netherlands dividend withholding tax may be available to an entity 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, and (iv) this holder of Aegon common shares does not have a similar function as an investment institution (fiscale beleggingsinstelling) or exempt investment institution (vrijgestelde beleggingsinstelling). 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.
Beneficial owner A recipient of proceeds from Aegon common shares will not be entitled to any exemption, reduction, refund or credit of Netherlands dividend withholding tax if such recipient is not considered to be the beneficial owner of such proceeds. The recipient will not be considered the beneficial owner of these proceeds, if, in connection with such proceeds, the recipient has paid a consideration as part of a series of transactions in respect of which it is likely: �� That the proceeds have in whole or in part accumulated, directly or indirectly, to a person or legal entity that would: (i) as opposed to the recipient paying the consideration, not be entitled to an exemption from dividend withholding tax; or (ii) in comparison to the recipient paying the consideration, to a lesser extent be entitled to a reduction or refund of dividend withholding tax; and �� That such person or legal entity has, directly or indirectly, retained or acquired an interest in Aegon common shares or in profitsharing certificates or loans, comparable to the interest it had in similar instruments prior to the series of transactions being initiated.
Netherlands dividend withholding tax upon redistribution of foreign dividends 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 Aegon are exempt from Netherlands corporate income tax and were subject to a withholding tax of at least 5% upon distribution to Aegon. 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.
If a holder of Aegon common shares is a resident or deemed to be a resident of the Netherlands for Netherlands corporate income tax purposes and is fully subject to Netherlands corporate income tax or is only subject to Netherlands corporate income tax in respect of an enterprise to which Aegon common shares are attributable, income derived from Aegon common shares and gains realized upon the redemption or disposal of Aegon common shares are generally taxable in the Netherlands (at up to a maximum rate of 25%) under the 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 51,95%) 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).
If neither condition (i) nor condition (ii) above applies to the holder of the Aegon common shares, taxable income with regard to the
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 and to which enterprise Aegon common shares are attributable. Income and gains derived from Aegon common shares as specified under (1) and (2) by an individual are subject to individual income tax at up to a maximum rate of 51,95%. Income derived from a share in the profits of an enterprise as specified under (3) that is not already included under (1) or (2) will be taxed on the basis of a deemed return on income from savings and investments (as described above under 'Residents of the Netherlands'). The fair market value of the share in the profits of the enterprise (which includes Aegon common shares) will be part of the individual's Netherlands yield basis.
Netherlands. A holder of any other nationality is deemed to be a resident of the Netherlands for the purposes of the Netherlands Gift and Inheritance Tax Act 1956 if he or she has been resident in the Netherlands and makes a gift within a twelve-month period after leaving the Netherlands. The same twelve-month rule may apply to entities that have transferred their seat of residence out of the
Other taxes and duties No registration tax, customs duty, transfer tax, stamp duty, capital tax or any other similar documentary tax or duty will be payable in the Netherlands by a holder of Aegon common shares in respect of or in connection with the subscription, issue, placement, allotment, delivery or transfer of the Aegon common shares.
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.
'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 45.95% 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.
Passive foreign investment company considerations Based on the nature of Aegon’s gross income, the average value of Aegon’s gross assets, and the active conduct of Aegon’s insurance business, Aegon does not believe that it could be classified as a Passive Foreign Investment Company (PFIC). If Aegon were treated as a
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a US holder or a non-US holder generally may be claimed as a credit against such holder's US Federal income tax liability provided that the required information is furnished to the US Internal Revenue Service (IRS). Investors should consult their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining an exemption. Non-US holders should consult their tax advisors concerning the applicability of the information reporting and backup withholding rules.