On behalf of our management team, I wish to thank our talented and dedicated colleagues around the world who each day commit themselves to delivering on our promises, improving our operations and making a positive difference in the communities in which they work and live. They have been responsible for changing Aegon for the better during these past several years and continue to be our greatest advantage in competing successfully in the new environment which is redefining our business.
Officer of Aegon N.V. in August 2003 and a member of Aegon’s
Netherlands as a member of the Board. Three years later, Mr. Keim was appointed CEO. In June 2008, he became CEO of Aegon the
�� Distribution patterns are changing due to new technology and changes in the regulatory environment. Customers are increasingly using the internet and social media to identify, research and purchase financial products. In some countries, this has led to the emergence of new competitors using online distribution models, or non-traditional suppliers such as supermarkets and retailers. Established providers are under increasing pressure to reduce costs and adapt their distribution mix. Tighter government regulation to reduce commission-based selling (for example the Retail Distribution
Aegon has to get much closer to the people who depend on its products and services. A key element of Aegon’s strategy is to get closer to its customers by utilizing technology and investing in innovative capabilities to address customer needs at every stage of the life cycle. Bringing established protection and saving products to new and emerging markets in Central &
Eastern Europe, Asia and Latin America, as well as continuing to develop Aegon’s products to meet changing customer needs remains to be one of the company’s most immediate and important goals.
�� As part of its global approach for identifying and supporting
The company encourages product innovation and fosters an entrepreneurial spirit within its businesses. New products and services are developed by local business units with a continuous focus on helping people take responsibility for their financial future. Aegon uses a multi-brand, multichannel distribution approach to meet its customers’ needs.
EUR 0.10 per common share. The interim dividend was paid in cash or stock at the election of the shareholder. The interim dividend was payable as of September 14, 2012. At the General
Aegon’s businesses including insight into the financial measures that senior management uses in managing the businesses.
In the United Kingdom, underlying earnings before tax increased to EUR 105 million. This improvement in earnings compared to 2011 was driven by the implementation of the cost reduction program and the non-recurrence of charges and execution expenses related to a program to correct historical issues within customer policy records, partly offset by the benefit of changes to employee benefit plans recorded in 2011. Earnings were negatively impacted in 2012 by additional DAC amortization related to adverse persistency and investments in new propositions in the pension business.
(EUR 51 million). These benefits were partly offset by charges for non recognition and impairment of deferred tax assets
USD 1,771 million. Earnings from Life & Protection decreased mainly as a result of unfavorable persistency and lower spreads.
In New Markets, Aegon reported underlying earnings before tax of EUR 249 million, an increase of 2% compared to 2010.
Europe impairments were largely attributable to new legislation in Hungary, related to Swiss franc denominated mortgages, affecting the mortgage portfolio.
Other charges Other charges amounted to EUR 267 million, an improvement compared to charges of EUR 309 million in 2010. In the
�� Life & Protection underlying earnings before tax decreased by 11% to USD 647 million, mostly the result of the nonrecurrence of favorable items in 2011.
�� Underlying earnings before tax from Canada decreased to USD 40 million in 2012. In Latin America underlying earnings before tax increased to USD 12 million driven by improvements in both Brazil and Mexico.
Underlying earnings before tax Underlying earnings before tax amounted to USD 1,771 million, a decline of 5% compared with 2010.
Aegon USA’s primary insurance subsidiaries are: �� Transamerica Life Insurance Company
International Markets Transamerica also sells its producs both in the United States and abraod through direct marketing and abroad to high-net-worth individuals through international brokers and bankassurances.
This benefit guarantees a policyholder can 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 covers a range of different retirement plans, including: �� 401(k) - a type of deferred compensation plan sponsored by a corporation (including subchapter S), self-employed individual, sole proprietorship, partnership or non-profit organization.
Transamerica Retirement Solutions offers fully bundled and partially bundled retirement plan solutions to small and mid-sized employers. These plans are predominantly supported by a group variable annuity product, where plan assets are invested primarily in separate account investment choices, including bond and equity investment choices, and cash equivalent choices. A fixed account cash vehicle may also be available on most plans. The investment choices are selected by the client or by the client’s financial adviser.
Overview business lines Canada Life & Protection Transamerica Life Canada (TLC) is a leading provider of life insurance products to Canadian consumers. By working through a variety of distribution channels, TLC has acquired a national network of thousands of independent advisers. These advisers provide middle market Canadians with the individual life insurance and protection products they need to help them take responsibility for their financial future.
Payout annuities Payout annuities are a form of an immediate annuity. Aegon USA
Aegon USA is able to leverage its long-term relationships built with many institutions to offer them such product lines as variable annuities, life insurance, mutual funds, and 401(k)
Insurance companies are subject to a mandatory audit every three to five years by their domestic regulatory authorities, and every year by their independent auditors. In addition, examinations by non-domestic state insurance departments are conducted, on a targeted, random or cyclical basis. Some state Attorneys General have also commenced investigations into certain insurers’ business practices. Within the insurance industry, substantial liability has been incurred by insurance companies based on their past sales, marketing and operational practices. Aegon USA continues its focus on these compliance issues, and costs can increase as a result of these activities.
USA insurance companies are subject to regulation under the federal securities laws administered by the SEC and under certain state securities laws. The SEC conducts regular examinations of the insurance companies’ variable life insurance and variable annuity operations, and occasionally makes requests for information from these insurers in connection with examinations of affiliate and third party broker-dealers, investment advisers and investment companies. The SEC and other governmental regulatory authorities, including state securities administrators, may institute administrative or judicial proceedings that may result in censure, fines, issuance of cease-and-desist orders or other sanctions. Sales of variable insurance and annuity products are regulated by the SEC and the FINRA. The SEC, FINRA and other regulators have from time to time investigated certain sales practices involving variable annuities and transactions in which an existing variable annuity is replaced by, or exchanged for, a new variable annuity. Certain separate accounts of Aegon
Rule 12b-1 of the Investment Company Act with respect to how mutual funds and underlying funds of separate accounts collect and pay fees to cover the costs of selling and marketing their shares. The proposed changes are subject to public comment and, following any enactment, would be phased in over several years. The impact of these proposals cannot be predicated at this time.
Administration. The ATRA provisions that are most significant for the Aegon USA companies’ business include those (a) on the estate tax (keeping the unified estate and gift tax exemption threshold of USD 5 million (adjusted for inflation after 2011)
Annuity insurance includes products in the accumulation phase and in the payout phase. Payout commences at a date determined in the policy and usually continues until death of the insured or the beneficiary. Premiums are paid at inception of the policy or during the accumulation phase of the policy. The contracts contain minimum guarantees of 3% or 4%. Interest rebates are given on both single and regular premium annuity insurance, and may be based on a portfolio of Dutch government bonds, although other calculation bases are also applied. There are also profit sharing schemes set by reference to external indices that are based on pre-defined portfolios of Dutch government bonds.
Furthermore, low economic growth and the volatility of financial markets have created uncertainty among customers and a reluctance to commit to long-term contracts. These changed legal and market conditions have augmented competition.
shareholders’ equity equal to or greater than 18% of gross written premiums per year or 23% of the three-year average of gross claims.
This longevity derivative accomplishes the objective of retaining some risk around the best estimate of the insurance liabilities of Aegon the Netherlands, while being protected for significant mortality improvements and thus lowering the amount of required capital for solvency purposes.
Gross deposits (on and off balance) 2012 2011 % 2012 2011 %
1 The onshore bond is provided by Scottish Equitable plc. The offshore contracts are offered by Aegon Ireland plc and are reported separately in the New Markets segment, rather than as part of the UK segment.
Aegon offers a range of pension and investment products which provide valuable guarantees for the At-Retirement market. There is an onshore bond which provides a guaranteed income for 20 years, a guaranteed version of the income drawdown pension which provides a guaranteed income for life (the guaranteed element of both of these products is reinsured to Aegon Ireland plc) and an offshore investment plan which also provides a guaranteed income for life (offered by Aegon Ireland plc).
Positive Solutions, meanwhile, brings together around 900 individual partners in one of the largest adviser networks in the
Net income Net income from Aegon’s operations in New Markets increased to EUR 249 million, driven by strong underlying earnings, the gains on the divestments of the Banca Cívica joint venture
Results 2011 New Markets Aegon’s operations in New Markets reported higher underlying earnings before tax in 2011, driven primarily by growth of Aegon Asset Management. In Central & Eastern Europe, the company’s shift in focus from pensions to life insurance was successful, both in terms of new life sales and underlying earnings before tax. Underlying earnings before tax from operations in Asia were negative as the company continued to invest in growth in these emerging markets. The contribution from Spain and France remained level compared with 2010.
(VA) Europe. Impairment charges increased to EUR (61) million and were mainly driven by increased mortgage impairments in
�� New life sales in Spain & France remained level at
Through online channels, Aegon sells mainly household and car insurance. Banks and loan centers are used to sell predominantly life insurance, mortgages, mutual funds and household insurance.
Insurance Company. In the last three years, the mortgage lending shifted toward lending in Hungarian forint.
Regulation and supervision In the CEE, insurance companies can be licensed only for separate businesses; that is, a single company can conduct either life insurance or non-life insurance but not both together.
State supervision and oversight of the insurance industry is conducted by the following bodies and institutions: �� Hungarian Financial Supervisory Authority (HFSA)
Religare had a pan-India distribution network with 70 branches, across 57 cities and 23 states and had issued more than 287,000 policies.
com and generated more than RMB 100 million in premiums by selling single-pay universal life products over a 4-day campaign in December 2012, which received encouragement from CIRC.
During the period from January to December 2012, the total premium collected by Aegon Religare decreased by 2.16% to around INR 4.52 billion as against INR 4.62 billion in 2011.
Hong Kong and Singapore - TLB TLB has a third party mortality reinsurance in place for its universal life and traditional policies. The mortality reinsurance takes the form of yearly renewable term excess-of-retention or quota-share arrangements, and is typically arranged through a pool of reinsurers, which generally are the leading providers in the reinsurance industry.
Overview business lines Aegon Spain focuses primarily on retail customers. It offers both life insurance and accident and health cover. In particular, Aegon
In the United Kingdom, MetLife is the market leader where it is the favored provider due to its total variable annuity market solution covering also pensions and onshore bonds. In France,
International bonds The UK offshore bond market remains highly competitive. Aegon has a 6% market share1 placing it in sixth place. The top three providers by market share are Standard Life, AXA Wealth and
and Institutional (primarily companies and pension funds with separate requirements). These are serviced by a dedicated sales/
Group CRO on risk model validation issues. The MVC assists the ERMC in the monitoring of compliance with the internal and external model development and validation standards and relevant regulatory standards.
Monetary Union nor the impact on Aegon’s businesses, results of operations, cash flows and financial condition if such rescue packages are not successful. Aegon also cannot predict with certainty the effect a sovereign default may have on Aegon’s businesses, results of operations, cash flows and financial condition, although the effect of such events may be material and adverse. (Refer to note 4 “Financial and insurance risks” for a summary of Aegon’s sovereign exposure.)
US economy and consumer confidence. In the event that the US
Aegon to establish reserves to fund these future guaranteed benefits when equity market returns do not meet or exceed these guarantee levels. Aegon’s reported results under International
For the Americas segment, which primarily conducts its business in US dollars, total revenues and net income in 2012 amounted to EUR 13.2 billion and EUR 1,025 million, respectively.
Monetary Union. The effects on the European and global economy of a potential dissolution of the European Monetary
Aegon and other US industry participants have been named in lawsuits alleging, among other things, that asset-based fees charged for investment products offered on 401(k) platforms were higher than those generally available in the market. In the
Failure to manage tax risks could lead to increased tax charges, including financial or operating penalties. This tax risk could have a direct materially adverse effect on Aegon’s profits and financial condition.
The US Congress has, from time to time, considered possible legislation that could make Aegon’s products less attractive to consumers, including legislation that would reduce or eliminate the deferral of taxation on the accretion of value within certain annuities and life insurance products. This could have an impact on insurance products and sales in the United States.
Aegon’s insurance subsidiaries cede premiums to other insurers under various agreements that cover individual risks, group risks or defined blocks of business, on a co-insurance, yearly renewable term, excess or catastrophe excess basis. The purpose of these reinsurance agreements is to spread the risk and minimize the effect of losses. The amount of each risk retained depends on an evaluation of the specific risk, which is subject, in certain circumstances, to maximum limits based on the characteristics of coverage. Under the terms of the reinsurance agreements, the reinsurer agrees to reimburse for the ceded amount in the event the claim is paid. However, Aegon’s insurance subsidiaries remain liable to their policyholders with respect to ceded insurance if any reinsurer fails to meet the obligations assumed by it. A bankruptcy or insolvency or inability of Aegon’s reinsurance counterparties to satisfy its obligations could have a materially adverse effect on Aegon’s financial position and results of operations. Refer to Schedule IV of this Annual Report for a table showing life insurance in force amounts on a direct, assumed and ceded basis for 2010, 2011 and 2012.
In accordance with industry practices, Aegon reinsures a portion of its life insurance exposure with unaffiliated insurance companies under traditional indemnity reinsurance arrangements. In 2012, approximately 66% of Aegon’s total direct and assumed (for which Aegon acts as a reinsurer for others) life insurance in force was ceded to other insurers. The major reinsurers of Aegon USA and Aegon Canada are SCOR SE
Aegon retroceded to them. A bankruptcy or insolvency or inability of SCOR to satisfy its obligations could have a material adverse effect on Aegon’s financial position and results of operations. In addition, Aegon agreed to satisfy significant collateral funding obligations of SCOR in connection with the policies Aegon retroceded to it. Satisfying such funding obligations could limit Aegon’s ability to upstream cash to the Group level, pay dividends or make acquisitions.
There can be no assurance that Aegon will successfully identify suitable acquisition candidates or that Aegon will properly value acquisitions made. Aegon is unable to predict whether or when any prospective acquisition candidate will become available or the likelihood that any acquisition will be completed once negotiations have commenced.
If its business continuity plans have not included effective contingencies for such events, Aegon could experience business disruption and damage to corporate reputation and financial condition for a substantial period of time.
Aegon may face claims from customers and negative publicity if Aegon’s products result in losses or fail to result in expected gains, regardless of the suitability of products for customers or the adequacy of the disclosure provided to customers by Aegon and by the intermediaries who distribute Aegon’s products. New products that are less well understood and that have less of a historical performance track record may be more likely to be the subject of such claims. Any such claims could have a materially adverse effect on Aegon’s results of operations, corporate reputation and financial condition.
Aegon in the United States may not be able to require Aegon to pay the amount of the judgment unless a competent court in the Netherlands gives binding effect to the judgment. It may, however, be possible for a US investor to bring an original action in a Dutch court to enforce liabilities against Aegon, Aegon’s affiliates, directors, officers or any expert named therein who resides outside the United States, based upon the US federal securities laws.
II - Risks relating to Aegon’s common shares Aegon’s share price could be volatile and could drop unexpectedly, making it difficult for investors to resell
See also the section “Major Shareholders” for a description of the agreement reached.
In 2003, Aegon implemented certain changes to its corporate governance structure and the relationship with Vereniging
�� 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.
require Aegon to satisfy Aegon’s obligations by issuing common shares) that Aegon may issue could influence the market price for Aegon’s common shares.
At December 31, 2012, Aegon had EUR 413 million outstanding under these programs.
Operational leverage Although operational leverage is not considered part of Aegon’s capital base, it is an important source of liquidity and funding.
Annual Report and in the Corporate Governance Statement as published on aegon.com.
The Board discussed the business model of this innovative banking concept with the leadership team and it was given a live demonstration of its services and features. Also in June, the
Management attended the meetings on certain occasions to provide insight into the developments of Aegon’s general account. The Risk Committee assists the Supervisory Board and Audit Committee in overseeing the activities of Aegon’s
Mr. Darryl D. Button to the Executive Board. The Committee discussed the diversity of the Executive Board. Aegon’s Executive
Department on the implementation process of the remuneration policies in the US, the Netherlands, the United Kingdom and
Composition of the Supervisory Board and Executive Board Supervisory Board All members of the Supervisory Board are considered independent under the terms of the Dutch Corporate Governance
Executive Board There were no changes in the composition of Aegon’s Executive
Annual accounts This Annual Report includes the annual accounts for 2012, prepared by the Executive Board, discussed by both the Audit
Leo M. van Wijk (1946, Dutch) Chairman of the Compensation Committee
Ben van der Veer Ben van der Veer Karla M.H. Peijs Karla M.H. Peijs
Role of the Compensation Committee The Compensation Committee of Aegon’s Supervisory Board has overall responsibility for the company’s Remuneration Policies, including the Executive Board Remuneration Policy. Members of the Committee are drawn from the Supervisory Board.
At an aggregate level, payments are made as follows: �� 50% of the maximum variable compensation if the threshold target is reached.
C. Special control rights Under the Preferred Shares Voting Rights Agreement2,
D. Board appointments The General Meeting of Shareholders appoints members of both the Supervisory and Executive Boards, following nominations by the Supervisory Board. Providing at least two candidates are nominated, these nominations are binding. The General
Code. In these few instances, Aegon adheres, as far as possible, to the spirit of the Code.
Code II.2.8 For members of the Executive Board, the Dutch Corporate
CEO Alex Wynaendts, contains a more favorable severance payment arrangement should his employment be terminated as a result of a merger or takeover. Details of Executive Board members’ employment contracts may be found on Aegon’s corporate website, aegon.com.
December 31, 2012 and 2011, the related consolidated income statements, statements of comprehensive income, statements of changes in equity, and cash flow statements for each of the three years in the period ended December 31, 2012, of
Additional information Supervision 315 Property, plants and equipment 315 Employees and labor relations 315 Dividend policy 316 The offer and listing 317 Additional company information 318 Material contracts 319 European Commission approval of State support 320 Exchange controls 320 Taxation 320 Glossary 328 Quarterly results - unaudited 333 Disclaimer 334 131Annual Report 2012
(Gains) / losses transferred to the income statement on disposal and impairment of availablefor -sale investments (465) (513) (203)
1 Issued capital and reserves attributable to equity holders of Aegon N.V.
Net purchase of investments for account of policyholders 960 (1,577) (1,522)
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.
2.9 Investments for account of policyholders Investments held for account of policyholders consist of investments in financial assets, excluding derivatives, as well as investments in real estate. Investment return on these assets is passed on to the policyholder. Also included are the assets held by consolidated investment funds that are backing liabilities towards third parties. Investments for account of policyholders are valued at fair value through profit or loss.
2.12 Reinsurance assets Reinsurance contracts are contracts entered into by the Group in order to receive compensation for losses on contracts written by the
Group (outgoing reinsurance). For contracts transferring sufficient insurance risk, a reinsurance asset is recognized for the expected future benefits, less expected future reinsurance premiums. Reinsurance contracts with insufficient insurance risk transfer are accounted for as investment or service contracts, depending on the nature of the agreement.
2.14 Other assets and receivables Other assets include trade and other receivables, prepaid expenses, equipment and real estate held for own use. Trade and other receivables are initially recognized at fair value and are subsequently measured at amortized cost. Equipment is initially carried at cost, depreciated on a straight line basis over its useful life to its residual value and is subject to impairment testing. The accounting for real estate held for own use is described in note 2.8.
Depending on local accounting principles, the liability may include amounts for future services on contracts where the policy administration charges are higher in the initial years than in subsequent years. In establishing the liability, guaranteed minimum benefits issued to the policyholder are measured as described in note 2.19 c or, if bifurcated from the host contract, as described in note 2.10.
Surrender rates depend on product features, policy duration and external circumstances such as the interest rate environment and competitor and policyholder behavior. For policies with account value guarantees based on equity market movements, a dynamic lapse assumption is utilized to reflect policyholder behavior based on whether the guarantee is in the money. Credible own experience, as well as industry published data, are used in establishing assumptions. Lapse experience is correlated to mortality and morbidity levels, as higher or lower levels of surrenders may indicate future claims will be higher or lower than anticipated. Such correlations are accounted for in the mortality and morbidity assumptions based on the emerging analysis of experience.
Shares When available, Aegon uses quoted market prices in active markets to determine the fair value of its shares. Fair values for unquoted shares are estimated using observations of the price/earnings or price/cash flow ratios of quoted companies considered comparable to the companies being valued. Valuations are adjusted to account for company-specific issues and the lack of liquidity inherent in an unquoted investment. Illiquidity adjustments are generally based on available market evidence. In addition, a variety of other factors are reviewed by management, including, but not limited to, current operating performance, changes in market outlook and the third-party financing environment.
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 an illiquidity premium to account for the illiquid nature of these securities. The illiquidity 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 illiquidity premium for private placement securities to the overall valuation is insignificant.
December 31, 2012 and 25.7% at December 31, 2011. Correlations of market returns across underlying indices are based on historical market returns and their inter-relationships over a number of years preceding the valuation date. These assumptions are reviewed at each valuation date, and updated based on historical experience and observable market data, including market transactions such as acquisitions and reinsurance transactions.
c. Other mainly consists of tax credits that are measured at fair value using an internal model. The most significant unobservable input for valuation of these tax credits is the discount rate. Aegon adjusted the discount rate by 50 basis points up or down for this input.
Valuation of defined benefit plans The liabilities or assets recognized in the statement of financial position in respect of defined benefit plans is the difference between the present value of the projected defined benefit obligation at the balance sheet date and the fair value of plan assets, together with adjustments for unrecognized actuarial gains or losses and past service costs. The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity that approximate the terms of the related pension liability. Actuarial assumptions used in the measurement of the liability include the discount rate, the expected return on plan assets, estimated future salary increases and estimated future pension increases. To the extent that actual experience deviates from these assumptions, the valuation of defined benefit plans and the level of pension expenses recognized in the future may be affected.
Aegon manages risk at local level where business is transacted, based on principles and policies established at the Group level. Aegon’s integrated approach to risk management involves common measurement of risk and scope of risk coverage to allow for aggregation of the Group’s risk position.
United Kingdom, the principal sources of exposure from currency fluctuations are from the differences between the US dollar and the euro and between the UK pound and the euro. Aegon may experience significant changes in net income and shareholders’ equity because of these fluctuations.
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). The policy is reviewed regularly.
Asset Backed Securities (ABSs) - CDOs backed by ABS, Corp. Bonds, Bank loans 507 781 - - 1,287 18 1 Includes investments of Holding and other activities.
Residential mortgage backed securities (RMBSs) 5,031 1,300 527 302 7,160 1,127
As of December 31, 2012, there are EUR 10,670 million of gross unrealized gains and EUR 1,341 million of gross unrealized losses in the AFS debt securities portfolio of Aegon Americas, Aegon The Netherlands and Aegon UK. No one issuer represents more than 4%
Total fair value 1 Reported as part of asset backed securities in the table on page 187.
Aegon USA’s portfolio of securitized exposure to negative amortization mortgages is primarily invested in super-senior securities. The tables below summarize the credit quality and the vintage year of the available-for-sale negative amortization mortgages of Aegon
EUR 86 million at December 31, 2012, fully owned by Aegon USA. Reverse mortgages are loans in which a senior homeowner borrows to release the equity available in his home. No repayment is required until the borrower dies or sells the home. At time of origination, the loan is structured so that the home value will exceed the loan amount at liquidation, taking into account the rate at which interest is accruing, expected home price movements, and the expected length of the loan.
There is one individual issuer rated below investment grade in this ABS sector which has unrealized loss position greater than
The value of Aegon’s investments in deeply subordinated securities in the financial services sector may be significantly impacted if issuers of certain securities with optional deferral features exercise the option to defer coupon payments or are required to defer as a condition of receiving government aid. The deeply subordinated securities issued by non-US Banks are broadly referred to as capital securities which can be categorized as Tier 1 or Upper Tier 2. Capital securities categorized as “Tier 1” are typically perpetual with a non-cumulative coupon that can be deferred under certain conditions. Capital securities categorized as “Upper Tier 2” are generally perpetual with a cumulative coupon that is deferrable under certain conditions. The deeply subordinated securities issued by US Banks can be categorized as Trust Preferred or Hybrid. Capital securities categorized as trust preferred typically have an original maturity of 30 years with call features after 10 years with a cumulative coupon that is deferrable under certain conditions. Capital securities categorized as hybrid typically have an original maturity of more than 30 years, may be perpetual and are generally subordinate to traditional trust preferred securities.
There are four individual issuers rated below investment grade in the banking sub-sector which have unrealized losses greater than
Royal Bank of Scotland Group PLC Banking 49 (30) BB+ / BB- > 24 months
Off balance sheet investments third parties 100,725 - 10 57,217 - - 157,952
Net fair value change on free standing derivatives 448 2,334 747
The change in valuation of liabilities for insurance and investment contracts include gains of EUR 105 million (2011: loss of
January 15 of a plan year. The performance indicators apply over a vesting period of three years (2010 - 2012) and consist of financial and non-financial targets set by the Supervisory Board or the local remuneration committees. After the vesting period, the shares are transferred to the individual employees. Members of the Executive Board and the Management Board are not entitled to execute any transactions regarding the shares for a period of two years following vesting.
Variable Compensation Identified Staff Members of the Executive Board and the Management Board as well as other selected Senior Managers have been defined as
Impairment charges on financial assets, excluding receivables, from: 2012 2011 2010
Deferred tax 43 Origination / (reversal) of temporary differences 138 232 108
Different tax rates on overseas earnings in the reconciliation between standard and effective income tax consists of results on intercompany reinsurance transactions between Ireland and the US. Losses in the US are deductible at 35% and gains in Ireland are taxed at 12.5%.
Impairment losses recorded in 2011 on goodwill and VOBA related to the distribution business in the Netherlands.
In 2012, Aegon The Netherlands entered into a derivative to partially hedge its longevity risk. The derivative, with a notional amount of EUR 12 billion, becomes in the money if - in 2032 - realized mortality rates are more than 7.5% lower than pre-defined mortality tables. The derivative is measured at fair value through profit or loss in accordance with IAS 39. The value of the longevity derivative is calculated using an internal model as there is no active market for this type of derivatives. For more details refer to the paragraph on underwriting risk included in note 4.
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 fixed-rate interest amounts in exchange for floating-rate interest amounts over the life of the agreement without the exchange of the underlying principal amounts. Some of the arrangements use forward starting swaps to better match the duration of assets and liabilities.
The periods when the cash flows are expected to occur are as follows: < 1 year 1 - 5 years 5 - 10 years > 10 years 2012 Total
On August 30, 2010, Aegon repurchased 125 million of convertible core capital securities. The total payment to the Dutch government amounted to EUR 563 million and included a premium for repurchase amounting to EUR 52 million and accrued interest from May 25, 2010 of EUR 11 million.
USD 1.5 billion Variable Funding Surplus Note1, 5 Floating Quarterly 2007 / 37 - 126
Present value of wholly unfunded obligations 248 271 256 224 231
Expected return on plan assets (159) - (159) (160) - (160)
Best estimate of contributions expected for the next annual period 90
Aegon USA also sponsors supplemental retirement plans to provide senior management with benefits in excess of normal pension benefits. These plans are unfunded and non-qualified under the Internal Revenue Service Code. The unfunded amount related to these plans, for which a liability has been recorded, is EUR 208 million (2011: EUR 208 million).
December 31, 2012, the contract had a value of EUR 90 million (2011: EUR 145 million). Aegon entered into a derivative program to mitigate the overall exposure to equity market and interest rate risks associated with the reinsurance contract. This program involves
Since the price of these guarantees is not quoted in any market, the fair value of these guarantees is computed using valuation models which use observable market data supplemented with the Group’s assumptions on developments in future interest rates, volatility in equity prices and other risks inherent in financial markets. All the assumptions used as part of this valuation model are calibrated against actual historical developments. Since many of the assumptions are unobservable and are considered to be significant inputs to the liability valuation, the liability has been reflected within Level III of the fair value hierarchy. Refer to note 3 for more details on
Aegon N.V. is subject to legal restrictions on 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 less the reserves required by law. The revaluation account and legal reserves, foreign currency translation reserve and other, 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 reserves under Dutch law amount to EUR 10,052 million at December 31, 2012
Inc, pursuant to which it will pay obligations to policy holders to the extent that assets held by Transamerica Life Insurance Company, a US life insurance subsidiary under a reinsurance are not sufficient to pay policyholder obligations.
LLC and Commonwealth General Corporation with respect to bonds, capital trust pass-through securities and notes issued under commercial paper programs (EUR 507 million; 2011: EUR 656 million), as well as payables with respect to certain derivative transactions of Transamerica Corporation (nominal amount EUR 1,963 million; 2011: EUR 2,207 million); �� 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 at December 31, 2012.
Refer to note 25 for further details on investments in associates.
On August 30, 2010, Aegon repurchased 125 million of the convertible core capital securities. The total payment to the Dutch government on August 30, 2010 amounted to EUR 563 million and included a premium for repurchase amounting to EUR 52 million and accrued interest from May 25, 2010 of EUR 11 million. This repurchase was in line with Aegon’s agreement with Vereniging Aegon and Vereniging Aegon’s agreement with the Dutch government as amended in August 2010.
In the Netherlands, Aegon employees may make use of financing and insurance facilities for prices which are equivalent to the price available for agents. The benefit for Aegon employees is equivalent to the margin made by agents.
(2011: EUR 3.5 million) fixed compensation, EUR 6.2 million (2011: EUR 3.7 million) variable compensation, EUR 0.6 million
Variable compensation is split 50/50 in a cash payment and an allocation of shares. Of the variable compensation related to performance year 2012 40% is payable in 2013. Accordingly, Mr. Wynaendts and Mr. Nooitgedagt will receive a cash payment of
and Jan J. Nooitgedagt (EUR 173). The increased costs for pensions further contributed to a rise in overall costs. The resulting total amount of remuneration expenses for Alexander R. Wynaendts related to 2012 is EUR 3,717 (2011: EUR 2,544) and for
December 31, 2012 and of its result and for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code.
6. The Executive Board may, subject to the approval of the Supervisory Board, decide that a distribution on common shares shall not take place as a cash payment but as a payment in common shares, or decide that holders of common shares shall have the option to receive a distribution as a cash payment and/or as a payment in common shares, 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
Net income attributable to equity holders of Aegon N.V. 1,570 869
preferred shares and 118,093,000 class B preferred shares issued. Of the issued common shares, 26,981,154 common shares were held by Aegon N.V. as treasury shares and 1,732,576 treasury shares were held by its subsidiaries.
Aegon’s Supervisory Board will propose to approve the new capital structure at the Annual General Meeting of Shareholders on May 15, 2013. This proposal is to contain the following of steps: �� Repayment of EUR 400 million in share premium on preferred shares A.
�� Amendment of the Articles of Association of Aegon N.V. to convert the share capital and to reflect the new composition of that share capital. The Aegon preferred shares A and B will be converted into a combination of common shares and common shares
�� Amendment of the 1983 Merger Agreement (Vereniging Aegon Call Option) to ensure that the Association can always maintain its special cause voting rights at 32.6% in the future.
Americas, 20% in the Netherlands, 12% in the United Kingdom and 20% in New Markets.
Under Dutch law, members of the Central Works Council responsible for Aegon in the Netherlands are elected by Aegon
Aegon uses the cash flows from the operating subsidiaries to pay holding expenses, including funding costs. The remaining cash flow is available to execute Aegon’s strategy and to fund dividends on Aegon’s shares, subject to maintaining the holding company targeted excess capital. Depending on circumstances, future prospects and other considerations, Aegon’s Executive Board may elect to deviate from this target. 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.
Under normal circumstances, Aegon would expect to declare an interim dividend when announcing Aegon’s second quarter results and to propose a final dividend at the annual General Meeting of Shareholders for approval. Dividends would normally be paid in cash or stock at the election of the shareholder. The relative value of cash and stock dividends may vary. Stock dividends paid may, subject to capital management and other considerations, be repurchased in order to limit dilution.
Special Conditions Governing Changes in the Capital There are no conditions more stringent than what is required by law.
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 of 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 beneficial interest in Aegon common shares is 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 a resident of 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.
Dividend Tax Withholding requirement Aegon is required to withhold 15% Netherlands dividend tax in respect of dividends paid on its common shares. In the Netherlands
Backup Withholding and Information Reporting Backup withholding and information reporting requirements may apply to certain payments on the common shares and to proceeds of a sale or redemption of the common shares to US holders made within the United States. Aegon, its agent, a broker, or any paying agent, as the case may be, may be required to withhold tax from any payment that is subject to backup withholding if a US holder fails to furnish the US holder’s taxpayer identification number, fails to certify that such US holder is not subject to backup withholding, or 325Annual Report 2012
Maximum number of shares that may yet be purchased under the plans or programs at end of month 1 The shares have been purchased as part of a share purchase program, to neutralize the dilution effect of issued stock dividends and to hedge Aegon’s obligations under its employee stock appreciation plans and other agent related incentive programs. Excluding Aegon shares purchased by index funds controlled by Aegon. Such purchases are made to the extent necessary to maintain a basket of securities within the relevant fund reflecting the underlying index.
Constructive obligation is an obligation that derives from an entity’s actions whereby an established pattern of past practice, published policies or a sufficiently specific current statement,
Quarterly results - unaudited Quarterly results - unaudited 333Annual Report 2012
�� Changes in the performance of financial markets, including emerging markets, such as with regard to: �� The frequency and severity of defaults by issuers in Aegon’s fixed income investment portfolios; �� The effects of corporate bankruptcies and/or accounting restatements on the financial markets and the resulting decline in the value of equity and debt securities Aegon holds; and