In the United States, we have brought nearly all of our businesses together under the well-recognized
United Kingdom for instance, Aegon's new pension platform, known as Aegon Retirement Choices, is demonstrating early success. We recognize that consumers increasingly research and wish to purchase financial services products online, as they do many other products and services. Consequently, we are committed to enabling our current and future customers to interact with us in the ways they choose. In the Netherlands, we launched new digital channels aimed at specific customer segments more likely to purchase life insurance and retirement solutions through digital rather than traditional channels.
January 1, 2013. His current responsibilities include managing the Risk and Compliance functions. In this role, Mr. Grondin is responsible for development and oversight of Aegon’s Enterprise
Állami Biztosító was privatized and acquired by Aegon. Between 1992 and 2009, Mr. Kepecs was the CEO of Aegon Hungary.
Aegon is an international provider of life insurance, pensions and asset management products, with businesses in more than 25 markets in the Americas, Europe and Asia, and just over EUR 475 billion in revenue-generating investments. Aegon employs nearly 27,000 people, and has millions of customers across the globe.
Italy remained in recession. Meanwhile, the UK economy showed stronger growth. In the Netherlands, the economy contracted.
To ensure that Aegon is not disadvantaged competitively by the implementation of Solvency II, or related wider international developments, Aegon contributes to discussions with European and International regulators and supervisors. For example, Aegon is participating in the EU-US dialogue and global initiatives by the International Association of Insurance Supervisors (IAIS) to establish a common framework for the supervision of internationally active insurance groups (ComFrame) and develop a basic international capital standard.
The Netherlands • Life & Savings Products with mortality, morbidity, and longevity risks, including traditional and universal life, as well as employer, endowment, term, whole life insurance products, mortgages, saving deposits, and annuity products.
Run-off businesses 14 2 Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 979 1,933 (49%)
EUR 118 million in the guarantee portfolio in the Netherlands, which is mainly the result of the tightening of Aegon’s credit spread and model refinements.
Aegon Asset Management, which benefitted from higher asset balances were more than offset by lower earnings in
Americas, EUR 0.5 billion from the Netherlands and EUR 0.1 billion from Aegon Asset Management and Central & Eastern Europe.
Capital contributions of EUR 0.5 billion were paid to Aegon’s operating units, including EUR 0.4 billion to the United Kingdom.
Capital management Aegon’s core capital excluding revaluation reserves and excluding remeasurement amounted to EUR 18.5 billion, equivalent to 76.7% of the company’s total capital base, at December 31, 2012 (2011: 73.5%). This is above the company’s capital base ratio target of at least 75% by the end of 2012.
Accident and health insurance premiums 2,372 2,356 1% 1,787 1,833 (3%)
Net income Net income from Aegon’s businesses in the Americas increased to USD 1,357 million in 2012. Better results from fair value items, lower impairments and higher realized gains on investments more than offset lower underlying earnings, lower earnings from run-off businesses and higher taxes.
Aegon USA’s primary insurance subsidiaries are: �� Transamerica Life Insurance Company; �� Transamerica Financial Life Insurance Company; �� Transamerica Advisors Life Insurance Company; �� Transamerica Advisors Life Insurance Company of New York; �� Monumental Life Insurance Company; �� Stonebridge Life Insurance Company; �� Stonebridge Casualty Insurance Company; �� Western Reserve Life Assurance Co. of Ohio.
Aegon Canada Transamerica Life Canada (TLC) provides life insurance products to Canadian consumers. By working through a variety of distribution channels, TLC has acquired a national network of thousands of independent advisors. These advisors provide middle market Canadians with individual life insurance and protection products. Canadian Premier offers simplified life, group creditor and accident and sickness coverage. Distribution channels include: �� Independent and career agents; �� Independent managing general agencies; �� Agencies owned by Transamerica Life Canada; �� Bank-owned national broker-dealers and mutual fund dealers; �� Bank and credit union affinity partners.
charges as well as various types of rider fees for providing guarantees and benefits. Generally, surrender charges are not a large form of revenue as policyholder surrender rates are typically lower when a surrender charge penalty remains.
A guaranteed minimum withdrawal benefit is offered on some variable annuity products Aegon USA has either issued or assumed from a ceding company. This benefit guarantees a policyholder may withdraw a certain percentage of the account value, starting at a certain age or duration, for either a fixed period or the life of the policyholder.
Aegon USA addresses equity market, interest rate and market volatility risks through product design, including robust analysis of the underlying funds allowed within a product, and by using hedging strategies. Variable annuity products also contain policyholder behavior risk, mortality risk, and in the case of income riders, longevity risks, which are handled similarly to those in fixed annuities.
Single premium group annuities (Terminal Funding) is a nonparticipating group annuity product. This product is commonly used for an insurance company takeover of a terminating defined benefit pension plan. The company receives a single deposit from the contract holder and in return guarantees the payment of benefits to participants. Usually these annuity payments are paid monthly for the life of the participant or participant and spouse, commencing immediately for retired participants or at some date in the future for deferred participants.
Transamerica Retirement Solutions also offers single premium group annuities in the United States, which are used by companies to decrease the liability of their defined benefit plans.
In the United States, the Life & Protection division faces competition from a variety of carriers. Leading competitors include AIG, Genworth, John Hancock, Lincoln National, MetLife, and USAA. In Canada, the primary competitors are Industrial-
in terms of its risk-based capital. The adjusted capital levels of the Aegon USA insurance companies currently exceed all of the regulatory action levels as defined by the Model Act. Any modification of these adjusted capital levels by the regulators or rating agency capital models may impact Aegon USA. Previously, states adopted conservative reserving requirements for term and universal life products. These continue to cause capital strain for the life insurance industry and, in volatile market conditions, funding for these reserves is challenging.
EUR 265 million before tax related to the acceleration of product improvements for unit-linked insurance products. Realized gains on investments totaled EUR 138 million for the year and were mainly the result of asset liability management related trading activity and selective de-risking. Results on fair value items amounted to a gain of EUR 123 million and impairments amounted to EUR 29 million.
EUR 24 million. �� Underlying earnings before tax from the Pension business declined to EUR 67 million as the benefit of cost savings and the wind up of several contracts were more than offset by lower interest income, the non-recurrence of a employee benefit release in 2011 and a charge in 2012 of
Investment contracts are investment products that offer indexlinked returns and generate fee income from the performance of the investments.
have an individually determined asset investment underlying the pension contract. A guarantee usually consists of profit sharing, and is the highest of either the market interest rate or the contractual interest rate, 3% or 4%. If profit sharing turns into a loss, the minimum guarantee becomes effective, but the loss in any given year is carried forward to be offset against future surpluses. In general, the guarantee is dependent on the life of the insured so that their pension benefit is guaranteed. Large group contracts also receive part of the technical results for mortality risk and disability risk. The contract period is typically five years and the tariffs, cost loadings and risk premiums are generally fixed over this period.
Aegon the Netherlands offers disability and sick leave products to employers that cover sick leave payments to employees not covered by social security and for which the employer bears the risk.
Regulation and supervision Two bodies are responsible for the supervision of financial institutions in the Netherlands: �� De Nederlandsche Bank (the Dutch Central Bank) or DNB; �� Autoriteit Financiële Markten (the Dutch Authority for the
Financial supervision of credit institutions Aegon Bank N.V. is under DNB supervision and required to file monthly regulatory reports and an audited Annual Report.
Netherlands, while offering protection for significant future mortality improvements, thus lowering the required capital for solvency II purposes.
Commissions and expenses Commissions and expenses increased 6% compared to 2012 as a consequence of higher operating expenses. Operating expenses increased 22% compared to 2012 to GBP 328 million, as expenses related to investments in technology and business transformation costs of GBP 64 million were incurred. Excluding these costs, expenses were 2% lower compared to 2012.
GBP 51 million related to in-sourcing the platform servicing and development as well as other restructuring costs. The loss on fair value items was GBP 14 million, mainly driven by equity hedges to protect the capital position. Realized gains on investments and impairment charges amounted to GBP 41 million and GBP
GBP 25 million, mainly driven by the non-recurrence of charges and execution expenses related to a program to correct historical issues within customer policy records recorded in the previous year and the implementation of the cost reduction program. These positives were partly offset by the effect from adverse persistency, which the UK insurance industry is experiencing as a result of the implementation of the Retail Distribution Review, the sale of Guardian in 2011 and by a benefit as a result of changes to the employee pension plan in 2011. �� Distribution amounted to an underlying loss before tax of
Overview of United Kingdom In the United Kingdom, Aegon is a major provider of corporate and individual pensions, protection products, annuities, and savings products such as Individual Savings Accounts (ISAs). Aegon UK has some two million customers, approximately 2,400 employees, and GBP 57.3 billion in revenue-generating investments. Aegon UK’s main offices are in Edinburgh and London.
Aegon UK offers three propositions to customers through the platform, all of which use the same core technology, product wrappers (for example, pensions, ISAs, savings schemes), investments and client services. The propositions are: �� At Retirement - a wrap solution offered to retail customers via Independent Financial Advisers (IFAs); �� Workplace Savings - a wrap solution offered to corporate customers via banks such as Barclays, employee benefit consultants such as Mercer, and other accounts; �� Aegon One Retirement - a standalone pension solution.
Asset liability management Asset liability management (ALM) is overseen by the Aegon UK
New premium production from accident and health insurance business increased 2% to EUR 43 million compared to 2012, mainly driven by the direct marketing unit in Asia. New premium production from Aegon’s general insurance business was up 39% to EUR 35 million compared to 2012, driven by the inclusion of the joint venture with Santander and growth in
Other income / (charges) 113 7 Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 370 172 115%
Asia improved to EUR 19 million in 2012 compared to an underlying loss before tax of EUR 4 million in 2011 as higher investment income during 2012 and a EUR 15 million higher gain related to updated mortality assumptions more than offset the negative impact of several small charges and higher expenses related to business development. �� Underlying earnings before tax from Spain and France decreased 22% to EUR 69 million in 2012 due to the divestment of the joint venture with Banca Cívica in the fourth quarter of 2012 and as underlying earnings before tax from
and EUR denominated products, the guaranteed interest rate is 2.5% for the old portfolio, and varies between 2% and 3.75%
The liquidation process began on July 1, 2012, and was completed in 2013.
Organizational structure �� Aegon-CNOOC Life Insurance Co. Ltd. (50%); �� Aegon Religare Life Insurance Co. Ltd. (26%); �� Aegon Sony Life Insurance Co. Ltd (50%); �� SA Reinsurance Ltd (50%); �� Transamerica Life Bermuda; �� Aegon Direct and Affinity Marketing Services; �� Aegon Asia B.V.
At the end of 2013, Aegon Religare had a number of term plans, traditional individual participating products, traditional pension participating products, unit-linked plans, and health products.
Overview of Spain Aegon entered the Spanish market in 1980 with the purchase of local insurer Seguros Galicia. In recent years, Aegon’s activities in Spain have developed through distribution partnerships with Spanish banks.
Overview of France Aegon is present in the French insurance market, the second largest in Europe, through a partnership agreement with AG2R La Mondiale.
Offshore bonds Offshore Wealth Management products are open-ended unit-linked life insurance products. They offer a wide range of investment choices, allowing investment into a very large range of external assets, such as collective investment schemes, unit trusts, and open-ended investment companies (OEICs), together with internal unit-linked funds managed by Aegon Ireland and cash deposits.
The MB oversees a broad range of strategic and operational issues. While the EB remains Aegon’s statutory executive body, the MB provides vital support and expertise in safeguarding
The responsibilities and prerogatives of the RCCs are set out in their respective charters and are similar in content to those of the GRCC, but are tailored to local circumstances. Group Risk is responsible for the development, maintenance and oversight of compliance with the ERM framework, including risk strategy, risk governance, risk tolerance, risk methodology and risk policies.
Liquidity risk Aegon has put in place a strong liquidity management strategy.
The risk management function develops and monitors compliance with risk policies and risk frameworks. This also involves the facilitation of risk identification and reviewing risk assessments performed by the businesses. The risk management function is responsible for identifying good practices in risk management and working with management to ensure that
The Board is grateful for her many years of service to Aegon and the Board.
Management Boards attended the Supervisory Board meetings held in 2013. At the request of the Supervisory Board, other company executives also attended the meetings to provide updates. Representatives from Aegon’s external auditors EY
This transaction resulted in a simplified capital structure, while enabling the Company to maintain a high-quality capital base under expected upcoming European solvency requirements.
In 2012 and early 2013 the Board discussed the merits of the transaction extensively, taking into account the interests of both
Strategy sessions The Supervisory Board’s annual strategy offsite meeting was held in Baltimore and Washington in June. The Board reviewed progress on the execution of the strategy for the three business units in the Americas – Life & Protection, Employee Services
Plan 2014-2016, including the budget for 2014. The plan protects the company’s strategy execution, strong capital position and disciplined cost management, and gives a key role to technology and innovation to increase the frequency and quality of contact with customers. The Board supported the Group Plan and approved the budget for 2014. The Board also approved the 2014 Capital Plan and authorized the Executive Board to support
Secretary, interviewed each member of the Board on the basis of a completed written questionnaire. The review assessed the collective performance of the Board and its Committees, and the performance of the Chairman. The Supervisory Board met to review the results in the absence of management. The
Auditor. Representatives from Aegon’s external auditor EY also attended these meetings. Members of Aegon’s Group Risk, Group
The Nominating Committee Aegon’s Nominating Committee held six meetings in 2013.
In addition, the legislation intends to harmonize existing remuneration rules applicable to financial services companies in the Netherlands. The most striking feature of the proposal is the introduction of a bonus cap of 20% of fixed pay on variable remuneration across the financial industry in the Netherlands.
Acknowledgement The members of the Supervisory Board express their appreciation to the Executive and Management Boards for their contributions to the achievement of Aegon’s strategic goals. Additionally, the Board members wish to thank Aegon’s employees for their dedication in putting our customers first and serving them with integrity and transparency in everything they do.
Human Resources, Risk, Compliance and Audit, are governed by the GRF and its underlying policies.
Variable compensation, comprising both cash and shares, is conditionally granted at the beginning of each performance period. The number of conditionally granted shares is calculated using the fair value of one Aegon share at the beginning of that period. This fair value is equal to the average price on the NYSE
Aegon is incorporated and based in the Netherlands. As a company established in the Netherlands, Aegon is to comply with the Dutch law and is subject to the Dutch Corporate Governance Code1.
Aegon’s aims, strategy and associated risk profile, as well as overseeing any relevant sustainability issues and the development of the company’s earnings. Each member has duties related to his or her specific area of expertise.
The most recent version of the Code came into force on January 1, 2009. It is the responsibility of both the Supervisory Board and the Executive Board to oversee Aegon’s overall corporate governance structure. Any substantial change to this structure is submitted to the General Meeting of Shareholders for discussion.
Generally, Aegon applies the best practice provisions set out in the Code. A detailed explanation is given below for those instances where Aegon does not fully apply the best practice provisions of the Code. In these few instances, Aegon adheres, as much as is possible, to the spirit of the Code.
In making its assessment management used the criteria established in ‘Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the
B. Management’s Annual Report on internal control over financial reporting The directors and management of Aegon are responsible for establishing and maintaining adequate internal control over financial reporting. Aegon’s internal control over financial reporting is a process designed under the supervision of Aegon’s principal executive and financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of its published financial statements. Internal control over financial reporting includes policies and procedures that: �� Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; �� Provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with the generally accepted accounting principles; �� Provide reasonable assurance that receipts and expenditures are being made only in accordance with the authorizations of management and directors of the company; �� Provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on Aegon’s financial statements would be prevented or detected in a timely manner.
In our opinion, Aegon N.V. maintained, in all material respects, effective internal control over financial reporting as of
Income tax relating to items that may be reclassified 1,286 (1,051) (1,166)
Total other comprehensive income / (loss) ­ (4) (3,075) 379 (732) ­ (3,431) (5) (3,437)
Total comprehensive income / (loss) for 2011 ­ 888 2,506 (432) 379 ­ ­ 3,341 3 3,344
Consolidated cash flow statement of Aegon N.V. For the year ended December 31
Disposal of investments (other than money market investments) 31,176 33,742 34,924
Purchase of equipment and real estate for own use (66) (63) (72)
IFRS 11 replaces IAS 31, “Interests in Joint Ventures” and SIC-13, “Jointly-Controlled Entities — Non-Monetary Contributions by
Income before share in profit / (loss) of joint ventures, associates and tax 1,878 (40) 65 1,903 887 22 909
Insurance and investment liabilities for account of policyholders 11,042 (241) - 10,801 (154) - (154)
IAS 36 Impairment of Assets – Recoverable Amounts Disclosures for Non-Financial Assets
Aegon early adopted IFRS 10, “Consolidated Financial Statements” on January 1, 2013. Aegon also early adopted IFRS 11,
Notes to the consolidated financial statements of Aegon N.V. Note 2 those investments. The effect of the change in accounting policies on the financial position, comprehensive income and the cash flows of Aegon at January 1, 2012 and December 31, 2012 are summarized together with the impact of IFRS 11 in note 2.1.2. In accordance with the transitional provisions of IFRS 10, comparative numbers of 2011 are not restated.
The carrying amount is subsequently adjusted to reflect the change in the Group’s share in the net assets of the joint venture and is subject to impairment testing. The net assets are determined based on the Group’s accounting policies. Any gains and losses recorded in other comprehensive income by the joint venture are reflected in other reserves in shareholders’ equity, while the share in the joint
Trust pass-through securities, subordinated borrowings and other borrowings are initially recognized at their fair value including directly attributable transaction costs and are subsequently carried at amortized cost using the effective interest rate method, with
2.22 Assets and liabilities relating to employee benefits Changes in accounting policy Aegon adopted IAS 19 - Employee Benefits, on January 1, 2013. This resulted in the Group changing its accounting policy for the assets and liabilities relating to employee benefits.
shall be determined by multiplying the net defined benefit liability (asset) by the applicable discount rate. Net interest on the net
2.29 Policyholder claims and benefits Policyholder claims and benefits consist of claims and benefits paid to policyholders, including benefit claims in excess of account value for products for which deposit accounting is applied and the change in the valuation of liabilities for insurance and investment contracts. It includes internal and external claims handling costs that are directly related to the processing and settlement of claims.
The change is expected to decrease shareholders’ equity at the date of adoption (January 1, 2014), by between EUR 0.8 and 0.9 billion.
Canada amounted to EUR 2.3 billion at December 31, 2013 (2012: EUR 2.1 billion).
In addition, IFRS requires that the assessment also consider Aegon’s relationships with other parties (who may be acting on Aegon’s behalf) and the possibility that the investee contains deemed separate entities that should be assessed for control separately.
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 in its entirety is classified 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 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” below. 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)
Notes to the consolidated financial statements of Aegon N.V. Note 3 at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability). Therefore, unobservable inputs reflect Aegon’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). These inputs are developed based on the best information available.
Aegon's portfolio of debt securities can be subdivided in Residential mortgage-backed securities (RMBS), Commercial mortgagebacked securities (CMBS), Asset backed securities (ABS), Corporate bonds and Sovereign debt. Below relevant details in the valuation methodology for these specific types of debt securities are described.
Aegon uses internal models to determine fair value. Significant inputs included in the internal models are generally determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles. Market standard models may be used to model the specific collateral composition and cash flow structure of each transaction. The most significant unobservable input is illiquidity premium which is embedded in the discount rate.
Other investments at fair value Tax credit investments 696 Discounted cash flow Discount rate 8.2% Other 126 Net asset value n.a. n.a.
Revalued amounts Real estate held for own use 129 Direct capitalization technique Capitalization rate 6.50% - 9.50% (7.98%)
c. Tax credit investments are measured at fair value using an internal model. The most significant unobservable input for valuation of these tax credits is the discount rate. Increasing or decreasing the discount rate would result in respectively a lower or higher valuation. Aegon adjusted the discount rate by 50 basis points up or down for this input.
To manage its risk exposure, Aegon has risk policies in place. Many of these policies are group-wide while others are specific to the unique situation of local businesses. The Group level policies limit the Group’s exposure to major risks such as equity, interest rates, credit, underwriting and currency. The limits in these policies in aggregate remain within the Group’s overall tolerance for risk and the Group’s financial resources. Operating within this policy framework, Aegon employs risk management programs including asset liability management (ALM) processes and models, hedging programs (which are largely conducted via the use of derivatives) and insurance programs (which are largely conducted through the use of reinsurance). 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.
Money market and other short-term investments - carried at fair value 9,771 - 718 - - - - 718 17 9,070
Within tri-party repo’s Aegon invests under short term reverse repurchase agreements and the counterparty posts collateral to a third party custodian. The collateral posted is typically high-quality short term securities and is only accessible to Aegon in the event the counterparty defaults.
Trust (Stichting Waarborgfonds Eigen Woningen). The guarantee encompasses the remaining debt for these mortgage loans (being the remainder of the mortgage loan minus the forced sale auction value).
The collateral included in the other column represents the policyholders account value for policy loans. The excess of the account value over the loan value is included in the surplus collateral column. For further information on the policy loans refer to note 22.1.
Past due and / or impaired assets 172 1,506 557 266 - 30 162 8 891 1,810 2,701 1 Includes investments of Holding and other activities
The fair value of Aegon the Netherlands mortgage loan portfolio as per December 31, 2013 amounts to EUR 26,114 million
Financial and credit market conditions were generally stronger in 2013. Developed-world growth remains below potential, frustrating attempts to generate a strong recovery. The credit crisis that began as a result of the subprime mortgage loan crisis continues to evolve into concerns about governmental borrowing and debt levels across much of the world. European sovereign debt, after coming under pressure in the first half of the year, rallied in the second half of 2013, though concerns for default risk in the peripheral European countries persist. High governmental debt levels remain a concern in the U.S. as well, including those of state and local governments.
(2012: EUR 438 million) by Aegon UK and EUR 82 million (2012: EUR 9 million) by Aegon the Netherlands. CMBS are securitizations of underlying pools of mortgages on commercial real estate. The underlying mortgages have varying risk characteristics and are pooled together and sold in different rated tranches. The company’s CMBS include conduit, large loan, single borrower, commercial real estate collateral debt obligations (CRE CDOs), collateral debt obligations (CDOs), government agency, and franchise loan receivable trusts.
The total gross unrealized loss on AFS CMBS of Aegon Americas, Aegon the Netherlands and Aegon UK amounts to EUR 91 million
Bank SA was created subsequent to the restructuring of Dexia SA. Dexia’s reliance on short-term wholesale funding caused a nearcollapse as funding markets froze in 2008 and 2009. Capital injections from Belgium, France and Luxembourg along with guarantees on Dexia’s funding provided sufficient access to funding markets until the Sovereign debt crisis in 2011 put too much strain on Dexia’s large funding needs. In November 2011, a new restructuring plan was put in place for Dexia SA and 100% of Dexia Bank Belgium was sold to the Belgian state. Aegon’s bonds now form part of the capital structure of that entity which was rebranded as Belfius Bank SA
Below investment grade carrying value of securi­ ties with gross unrealized losses Investment grade unrealized loss
As of December 31, 2013, there are EUR 309 million of gross unrealized gains and EUR 11 million of gross unrealized losses in the equity portfolio of Aegon (2012: EUR 262 million of gross unrealized gains and EUR 18 million of gross unrealized losses).
Notes to the consolidated financial statements of Aegon N.V. Note 4
Notes to the consolidated financial statements of Aegon N.V. Note 5
IFRS measures presented in this document may nevertheless differ from the non-IFRS measures presented by other insurers. There is no standardized meaning to these measures under IFRS or any other recognized set of accounting standards. Readers are cautioned to consider carefully the different ways in which Aegon and its peers present similar information before comparing them.
Gains and (losses) on investments in real estate 10 (49) (9) (49)
Ineffective portion of hedge transactions for which hedge accounting is applied 10 9 11 13
Realized gains and (losses) on repurchased debt 10 - 7 4
Impairment charges/(reversals) on financial assets, excluding receivables 122 22 - 25 4 173
Variable compensation Identified Staff Members of the Executive Board and the Management Board as well as other selected jobholders have been defined as “Identified
Following the 2012 performance year 13,343,782 shares were allocated to participants in the 2012 Long Term Incentive Plan and the 2012 Variable Compensation Plan for Identified Staff. The shares were granted using the share price of EUR 3.126. As per
EUR 239 million (2012: EUR 392 million; 2011: EUR 284 million).
Income tax calculated using weighted average applicable statutory rates 311 599 286
Basic earnings per common share (EUR per share) 0.29 0.70 (0.05)
Amortization / depreciation through income statement - 109 19 15 1 145
The Polish government enacted into legislation its pension reform proposal. The outcome adversely impacts Aegon’s Polish pension business growth and profitability from current in-force business. As a result, Aegon impaired intangibles related to this business: goodwill (EUR 53 million); future servicing rights (EUR 110 million); and DPAC write offs (EUR 29 million). The DPAC write offs are included in the deferred expenses (note 29).
Total investments for general account 135,409 145,021 1 Refer to note 50 for a summary of all financial assets and financial liabilities at fair value through profit or loss.
Credit derivative disclosure by quality Notional Fair value Notional Fair value
All joint ventures are unlisted and are accounted for using the equity method and are considered to be non-current. The investments in joint ventures include interest in insurance companies that are required to maintain a minimum solvency margin based on local directives. Such restrictions can affect the ability of these joint ventures to transfer funds in the form of cash dividends, or repayment of loans or advances, and therefore, there can be no assurance that these restrictions will not become a limitation in the future. There are no unrecognized shares of losses in joint ventures. The financial statements of all joint ventures have the same reporting date as the Group. Refer to note 55 for a listing of the investments in joint ventures and the Group’s percentage holding. In 2012 the category
Amounts due from reinsurers in respect of claims already paid by the Group on the contracts that are reinsured are included in other assets and receivables (refer to note 30).
Notes to the consolidated financial statements of Aegon N.V. Note 29
During 2012, new borrowing and the 8.00% non-cumulative subordinated borrowings of USD 525 million were issued.
On March 1, 2011, Aegon completed the issue of 173,604,912 common shares of Aegon N.V. with a par value of EUR 0.12.
Notes to the consolidated financial statements of Aegon N.V. Note 33 32.6 Other reserves
Gross premium and deposits – existing and new business 7,234 6,369
EUR 500 million Unsecured Notes 15) 3% July 18 2012 / 17 498 498
Aegon’s general account investments. 5 Outstanding amounts can vary up to the maximum stated nominal amount.
Aegon’s general account investments. 10 The first optional redemption date is October 2017; the legal maturity date is July 2092. Notes are fully collateralized by mortgage loans which are part of
The contributions to the retirement benefit plan of Aegon the Netherlands are paid by both the employees and the employer, with the employer contribution being variable. The benefits covered are retirement benefits, disability, death and survivor pension and are based on an average salary system. Employees earning more than EUR 45,978 per year (as at January 1, 2013) have an option to contribute to a defined contribution plan for the excess salary. However, the cost for the company remains the same. The defined benefit plans were unfunded by EUR 2,119 million at December 31, 2013 (2012: EUR 2,191 million). As the assets held by Aegon the Netherlands for retirement benefits do not meet the definition of plan assets, they were not deducted in calculating this amount.
Notes to the consolidated financial statements of Aegon N.V. Note 45
EUR 1,753 million; tax EUR 438 million (2012: gross EUR 1,754 million; tax EUR 438 million).
48 Guarantees in insurance contracts For financial reporting purposes Aegon distinguishes between the following types of minimum guarantees: �� Financial guarantees: these guarantees are treated as bifurcated embedded derivatives, valued at fair value and presented as derivatives (refer to note 2.9 and note 3); �� Total return annuities: these guarantees are not bifurcated from their host contracts because they are presented and valued at fair value together with the underlying insurance contracts (refer to note 2.19); �� Life contingent guarantees in the United States: these guarantees are not bifurcated from their host contracts, presented and valued in accordance with insurance accounting (ASC 944, Financial Services - Insurance) together with the underlying insurance contracts (refer to note 2.19); and �� Minimum investment return guarantees in the Netherlands: these guarantees are not bifurcated from their host contracts, valued at fair value and presented together with the underlying insurance contracts (refer to note 2.19 and note 3).
Aegon N.V. is subject to certain financial covenants in some 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.
Association of Insurance Commissioners have adopted risk-based capital (RBC) requirements for insurance companies. Risk-based capital calculations measure the ratio of a company’s statutory capital, which is measured on a prudent regulatory accounting basis, to a minimum capital amount determined by the risk-based capital formula. The risk-based capital formula measures exposures to investment risk, insurance risk, market risk, and general business risk. The formula applies a covariance calculation to determine the appropriate risk-based capital. Life reinsurance is treated as life insurance. The most pertinent risk-based capital measure is the company action level (CAL) risk-based capital. This is the highest regulatory intervention level and is the level at which a company has to submit a plan to its state regulators. The CAL is 200% of the authorized control level (ACL), the level at which regulators are permitted to seize control of the company. At the end of 2013 the combined risk-based capital ratio of Aegon’s life insurance subsidiaries in the United States was approximately 440% of the CAL risk-based capital.
�� Collateral accepted in the case of securities lending, reverse repurchase agreement and derivative transactions. �� Collateral pledged in the case of (contingent) liabilities, repurchase agreements, securities borrowing and derivative transactions.
The above items are conducted under terms that are usual and customary to standard securities lending activities, as well as requirements determined by exchanges where the bank acts as intermediary.
Notes to the consolidated financial statements of Aegon N.V. Note 55 55 Group companies Subsidiaries The principle subsidiaries of the parent company Aegon N.V. are listed by geographical segment. All are wholly owned, directly or indirectly, unless stated otherwise, and are involved in insurance or reinsurance business, asset management or services related to these activities. The voting power in these subsidiaries held by Aegon is equal to the shareholdings.
Notes to the financial statements 1 General information Aegon N.V., incorporated and domiciled in the Netherlands, is a public limited liability company organized under Dutch law and recorded in the Commercial Register of The Hague under its registered address at Aegonplein 50, 2591 TV, The Hague, the Netherlands. Aegon
2.8 Impairment of assets An asset is impaired if the carrying amount exceeds the amount that would be recovered through its use or sale. Tangible, intangible and financial assets, if not held at fair value through profit or loss, are tested for impairment when there are indications that the asset may be impaired. Irrespective of the indications, goodwill and other intangible assets that are not amortized are tested at least annually. For assets denominated in a foreign currency, a decline in the foreign exchange rates is considered an indication of impairment.
Remeasurement of defined benefit plans of group companies - - - (106) - - - - - (106)
USD 250 million floating LIBOR rate 1) Quarterly, December 15 2014 212 212
The securities have been issued at par. The securities have subordination provisions and rank junior to all other liabilities. The conditions of the securities contain certain provisions for optional and required coupon payment deferral and mandatory coupon payment events.
On February 10, 2014 Aegon called for the redemption of the USD 550 million in junior perpetual capital securities with a coupon of 6.875% issued in 2006. The redemption is effective March 15, 2014, when the principal amount of USD 550 million was repaid with accrued interest.
Risk factors Aegon faces a number of risks, some of which may arise from internal factors, such as inadequate compliance systems. Others, such as movements in interest rates or unexpected changes in longevity or mortality trends, are external in nature. Aegon’s most significant risk is to changes in financial markets, related particularly to movements in interest rates, equity and credit markets. These risks, whether internal or external, may affect the company´s operations, its earnings, its share price, the value of its investments, or the sale of certain products and services. The next two sections describe risks relating to Aegon’s businesses and risks relating to Aegon's common shares.
Aegon’s investment portfolio among other investments contains Dutch government bonds, US Treasury, agency and state bonds, as well as other government issued securities. There continues to be uncertainty regarding the ability of certain European nations (in particular Greece, Ireland, Italy, Portugal and Spain) to satisfy their financial obligations. Due to the 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.
The sensitivity of Aegon’s net income and shareholders’ equity to a change in interest rates is provided in Note 4 to the consolidated financial statements on page 176.
To the extent these expected dividends are not hedged or actual dividends vary from expected, Aegon’s net income and shareholders´
As a global financial services enterprise with a decentralized management structure, Aegon relies, to a considerable extent, on the quality of local management 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,
Judgments of US courts may not be enforceable against Aegon in Dutch courts.
The high and low prices of Aegon’s common shares on NYSE Euronext Amsterdam were EUR 4.89 and EUR 3.05 respectively in 2012 and EUR 6.86 and EUR 4.42 respectively in 2013. The high and low sales prices of Aegon's common shares on NYSE New York were USD 6.47 and USD 3.92 respectively in 2012 and USD 9.48 and USD 5.76 respectively in 2013. All share prices are closing prices.
Consequently, Vereniging Aegon may have substantial influence on the outcome of corporate actions requiring shareholder approval, including: �� Adopting amendments to the Articles of Association; �� Adopting the annual accounts; �� Approving a consolidation or liquidation; �� Approving a tender offer, merger, sale of all or substantially all of the assets, or other business combination; �� In particular, during the periods when Vereniging Aegon is entitled to exercise its increased voting rights, it will generally have sufficient voting power to veto certain decisions presented to the General Meeting of Shareholders, including any proposal relating to the following matters: �� Rejecting binding Supervisory Board nominations for membership to the Supervisory Board and Executive Board; �� Appointing an Executive Board or Supervisory Board member other than pursuant to Supervisory Board nomination; �� Suspending or removing an Executive Board or Supervisory Board member other than pursuant to a Supervisory Board proposal.
Aegon’s common shares. In addition, Aegon declares cash dividends in euros, but pays cash dividends, if any, on Aegon's shares of New
Residents of the Netherlands If a holder of Aegon common shares is a resident of the Netherlands, or deemed to be a resident of the Netherlands for Netherlands corporate or individual income tax purposes, dividend tax which is withheld with respect to proceeds from Aegon common shares will generally be creditable for Netherlands corporate income tax or Netherlands income tax purposes.
Principal accountant fees and services Ernst & Young Accountants has served as Aegon’s independent public accountant for each of the fiscal years in the three-year period ended December 31, 2013, for which audited financial statements appear in this Annual Report.
Total number of shares purchased as part of publicly announced plans or programs2)
Equity volatility is the relative rate at which the price of equity changes.
Cautionary note regarding non-IFRS measures This document includes the non-IFRS financial measures: underlying earnings before tax, income tax and income before tax. These non-IFRS measures are calculated by consolidating on a proportionate basis Aegon’s joint ventures and associated companies. The reconciliation of these measures to the most comparable IFRS measures is provided in note 5 ‘Segment information’ of this report.