222 Balance sheet 223 Income statement 224 Notes to the fi nancial statements of
AEGON completes sale of life insurance operations in Taiwan, further lowering its long-term interest rate exposure and capital requirements.
Mark Mullin is named member of the Management Board and CEO for
Our determined focus has enabled AEGON to emerge from the crisis with a stronger financial position, greater operational and cost efficiencies, reduced exposure to the volatility of financial markets, and importantly, the continued confidence of its customers, business partners and many stakeholders around the world. The fundamentals of AEGON’s business remain sound and we are well-positioned for the future.
United States within our Institutional Markets Division; the withdrawal from the employee benefit market
Member of the Management Board, responsible for the United Kingdom, India and variable annuities in Europe
Equitable in 1988 and worked as a manager and executive at UK insurers
Member of the Management Board, responsible for the Americas and Asia-Pacific
“We are working to reorganize our businesses to be more responsive to the needs of our customers. The result has been that our customers have stayed with us. At the same time, we have attracted new customers who in today’s environment are even more discerning about the companies they rely on to provide them financial security. The financial crisis has led us to think differently about our obligation to provide customers with simple, need-specific products, delivered through costefficient and value-added channels.”
AEGON has a clear, well-defined policy with regard to communications between the company and its investors.
“There’s no doubt the insurance industry is going through a period of change. It’s not just the effects of the financial crisis. Proposed changes in rules governing capital will also have far-reaching consequences.
AEGON’s new life sales remained strong, despite difficult market conditions, totaling EUR 2.0 billion in 2009.
This amount was partly offset by impairments and the adverse effect of credit rating downgrades on the company’s bond portfolio. AEGON’s solvency ratio under the EU Insurance Group Directive improved to 204% 1.
Over the years, AEGON UK has built up a reputation as one of the United Kingdom’s leading providers of pensions.
AEGON’s Other Countries operations reported a sharp increase in underlying earnings in 2009, largely because of further growth in Central & Eastern Europe and an improved performance by the company’s joint ventures in Spain. A one-off charge of EUR 385 million relating to
AEGON maintains back-up credit facilities to support outstanding amounts under its commercial paper programs. The company’s principal arrangement is a
Capital quality � – AEGON stipulates that at least 70% of its capital base must be composed of core capital, which is of higher quality than other capital securities.
ratio in accordance with the regulatory requirements of the Dutch Central
Board in maintaining effective controls by independently and objectively evaluating the adequacy and effectiveness of the organization’s internal control and risk management systems. Criteria established under
Responsibilities in respect of the fi nancial statements and the Annual Report
The Board agreed with management that the company’s key priority for the medium term should be to repay the remaining EUR 2 billion in capital support received from the Dutch State in December 2008 as soon as it is feasible and responsible to do so.
Supervisory Board reviewed AEGON’s first, second and third quarter results as well as disclosures on VNB. At the August meeting, the Board decided not to declare an interim dividend given the uncertain economic outlook and the company’s ongoing efforts to preserve capital.
Code, the Board also discussed sustainability issues relevant to AEGON’s businesses, ranging from customer complaints to human resources and the environment.
During 2009, the Supervisory Board discussed various issues of compliance, particularly with regard to equitylinked insurance policies in the Netherlands as well as to other regulatory and legal issues in Europe, the
Supervisory Board on payments under this plan to be made in 2009. In its assessment, the Committee made use of the advice of external independent advisors from Towers Watson. Details of payments made under the plan are set out in the Remuneration Report on pages 69-70. During the year, the
Nominating Committees, and his considerable experience and good counsel have, over the years, proved an immense benefit to the company and its senior management.
Mr. Eustace was appointed by shareholders for an additional one-year term in April 2009. He will be succeeded as Chairman of the Supervisory Board by
A schedule for all members of the Executive Board is included in the company’s Executive Board Rules and posted on AEGON’s corporate website, www.aegon.com.
The table below gives a target breakdown for each of these three components: Executive Board position
of their variable compensation if AEGON matches the pre-set performance targets.
Members of the Executive Board are offered pensions and other benefits in line with local practices in their countries of residence. Executive Board members may also receive other benefits based on their contracts of employment, local practices and comparable arrangements for executives at other similar multinational companies. AEGON, however, does not grant Executive Board members personal loans, financial guarantees or the like, unless in the normal course of business and on terms applicable to all personnel. All such arrangements must have the prior approval of the
AEGON has a long-term 2009-2011 plan, under which variable compensation, in the form of shares, will be granted in 2012, subject to pre-determined performance objectives being met.
2 For further details on how AEGON’s corporate governance practices differ from those required of US companies under New York Stock Exchange standards, please refer to the Corporate Governance section of AEGON’s website at www.aegon.com.
regards the Code as an effective means of helping ensure that the interests of all stakeholders are duly represented and taken into account. The Code also promotes transparency in decision-making and helps strengthen the principles of good governance.
Shareholders on April 22, 2009, it was therefore decided to reappoint Mr. Eustace for one more year.
of Shareholders on May 9, 2003. Qualified majority voting provisions were included to give AEGON
Net income / (loss) attributable to: Equity holders of AEGON N.V. 204 (1,082) 2,551
(IFRS), as adopted by the European Union (EU), with IFRS as issued by the International Accounting Standards Board (IASB)
New standards become effective on the date specified by IFRS, but may allow companies to opt for an earlier adoption date. In 2009, the following new standards issued by the IASB and
The revised standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with non-owner changes in equity presented separately.
Amendment to IFRS 7 ‘Financial Instruments: Improving disclosures about Financial Instruments’
The amendment increases the disclosure requirements about fair value measurement and amends the disclosure about liquidity risk. The amendment introduces a three-level hierarchy for fair value measurement disclosures about financial instruments and requires some specific quantitative disclosures for those instruments classified in the lowest level in the hierarchy. These disclosures will help to improve comparability between entities about the effects of fair value measurements.
Group’s operations: Amendments to IAS 39 � Financial Instruments – Eligible hedged items; IFRIC 17 � Distributions of non-cash assets to owners; IFRIC 18 � Transfers of assets from customers; IFRS 1 (revised) � First time adoption of IFRS – additional exemptions; 1
Amendment to IAS 32 � Classifi cation of Rights Issues; 1
Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary.
Non-monetary items carried at cost are translated using the exchange rate at the date of the transaction, whilst assets carried at fair value are translated at the exchange rate when the fair value was determined.
Netherlands and AEGON UK are carried at fair value and managed on a total return basis, with no offsetting changes in the valuation of related liabilities. These includes assets such as hedge funds, private equities, real estate limited partnerships, convertible bonds and structured products. Underlying earnings exclude any over- or underperformance compared to management’s long-term expected return on assets. Based on current holdings and asset returns, the long-term expected return on an annual basis is 8-10%, depending on asset class, including cash income and market value changes. The expected earnings from these asset classes are net of DPAC where applicable.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 2.6 - 2.8
Hedge accounting is discontinued prospectively for hedges that are no longer considered effective. When hedge accounting is discontinued for a fair value hedge, the derivative continues to be carried on the balance sheet with changes in its fair value recognized in the income statement. When hedge accounting is discontinued for a cash flow hedge because the cash flow is no longer expected to occur, the accumulated gain or loss in shareholders’ equity is recognized immediately in the income statement. In other situations where hedge accounting is discontinued for a cash flow hedge, including those where the derivative is sold, terminated or exercised, accumulated gains
For similar changes in unrealized gains and losses, shadow accounting is applied. If an unrealized gain or loss triggers a shadow accounting adjustment to VOBA, DPAC or the insurance liabilities, the corresponding adjustment is recognized through other comprehensive income in the revaluation reserve, together with the unrealized gain or loss.
Depending on the nature of the guarantee, it may either be bifurcated and presented as a derivative or be reflected in the value of the insurance liability in accordance with local accounting principles. Given the dynamic and complex nature of these guarantees, stochastic techniques under a variety of market return scenarios are often used for measurement purposes. Such models require management to make numerous estimates based on historical experience and market expectations. Changes in these estimates will immediately affect the income statement.
(a reversion to the mean assumption). The reconsideration of this assumption may affect the original DPAC or VOBA
RMBS, CMBS and CDO securities) are determined by management after taking into consideration several sources of data. AEGON’s valuation policy dictates that publicly available prices are initially sought from several third party pricing services. In the event that pricing is not available from these services, those securities are submitted to brokers to obtain quotes. The majority of brokers’ quotes are non-binding. As part of the pricing process AEGON assesses the appropriateness of each quote (i.e., as to whether the quote is based on observable market transactions or not) to determine the most appropriate estimate of fair value. Lastly, securities are priced using internal cash flow modeling techniques. These valuation methodologies commonly use the following inputs: reported trades, bids, offers, issuer spreads, benchmark yields, estimated prepayment speeds, and / or estimated cash flows. Only pricing services and brokers with a substantial presence in the market and with appropriate experience and expertise are used.
Other investments at fair value 812 (138) (21) 225 (34) (2) – – 842 –
f. Derivatives that depend on the yield were stressed using an increase or decrease of the yield by 100 basis points.
In August 2007, the Canadian asset backed commercial paper market experienced a disruption, which included Canadian government intervention and subsequent market litigation.
EUR 1,319 million (2008: EUR 1,752 million). The unrealized loss on the AEGON USA ABS-Housing securities amounts to EUR
EUR 722 million of Negative Amortization mortgages (2008: EUR 711 million), net unrealized losses on this portfolio amount to EUR 640 million at December 31, 2009 (2008: EUR 942 million). Negative amortization mortgages (also known as option ARMs) are loans whereby the payment made by the borrower is less than the accrued interest due and the difference is added to the loan balance. When the accrued balance of the loan reaches the negative amortization limit
The rating that is provided by the rating agencies on these guaranteed bonds is the higher of the guarantor’s rating or the rating of the underlying bond itself.
MBIA, 25% to AMBAC, 19% to FGIC and 15% to FSA).
Ineffective portion of hedge transactions for which hedge accounting is applied 36 (41) 50 16
Investments in real estate 496 2,084 – – – – 2,580
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 7 - 7.1
EUR 342 million at December 31, 2009). These embedded options were marked to market at December 31, 2009
Real estate held for own use and equipment 13.1 548 540
Shareholders and retain its right to exercise the full voting power of 25/12 vote per preferred share for a limited period of six months.
The cash flow hedging reserve is made up of (un)realized gains and losses on the effective portions of hedging instruments, net of tax. The amounts are recognized in the income statement at the moment of realization of the hedged position to offset the instruments, net of tax. The amounts are recognized in the income statement at the moment of realization of the hedged position to offset the gain or loss from the net foreign investment.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 21 - 22
Changes in deferred tax assets as a result of recognition / write off of previously not recognized / recognized tax losses, tax credits and deductible temporary differences (47) (3) 27
Republic the corporate tax rate decreased from 21% in 2008 to 20% in 2009. The rate will further decrease to 19% in 2010. In
Funds”. Segregated funds are similar to variable annuities, except that they include a capital protection guarantee for mortality and maturity benefits (guaranteed minimum accumulation benefits). The initial guarantee period is ten years. The ten-year period may be reset at the contractholder’s option for certain products to lock-in market gains. The reset feature cannot be exercised in the final decade of the contract and for many products can only be exercised a limited number of times per year.
The reset feature cannot be exercised in the final decade of the contract and for many products can only be exercised a limited number of times per year. The management expense ratio charged to the funds is not guaranteed and can be increased at management’s discretion. The sum insured at maturity or upon the death of the beneficiary has a minimum guaranteed return
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 46 - 47
Paid guarantee benefi ts – (235) – – (235) – (11) – – (11)
The guaranteed amount is calculated using the total deposits made by the contractholder, less any withdrawals and sometimes includes a roll-up or step-up feature that increases the value of the guarantee with interest or with increases in the account value.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 47
AEGON utilizes different risk management strategies to mitigate the financial impact of the valuation of these guarantees on the results including asset and liability management and derivative hedging strategies to hedge certain aspects of the market risks embedded in these guarantees. Guarantees valued at fair value contributed a net loss before tax of EUR 76 million (2008: loss of EUR 675 million) to operating earnings. This net loss is attributable to a decrease in the total guarantee reserves of
equity increased by EUR 6,109 million due a share issuance of
Securities and the Perpetual Cumulative Capital Securities as well as other equity reserves. Group equity was
Derivatives with negative values not designated as hedges 4,618 – 5,800 –
EUR 8.3 billion separate account assets, EUR 1.8 billion general account investments and EUR 149 million cash and cash equivalents. Total liabilities are EUR 9.9 billion and comprise separate account liabilities of EUR 8.3 billion and insurance contract liabilities of EUR 1.7 billion. Goodwill amounted to
Mr. Shepard retired as CEO and Chairman of AEGON’s Executive Board in April 2008. He earned an annual base salary of USD 1 million.7 2007 salaries for Messrs. Wynaendts and Streppel included customary Dutch employee benefi ts for profi t sharing and tax deferred savings scheme.8
Karla M.H. Peijs (as of April 25, 2007) 60,000 50,417 30,718
Willem F.C. Stevens (up to April 22, 2009) 20,762 73,000 71,750
The financial statements have been prepared in accordance with accounting principles in the Netherlands as embodied in
The fair value of an asset is the amount for which it could be exchanged between knowledgeable, willing parties in an arm’s length transaction. For quoted financial assets for which there is an active market, the fair value is the bid price at the balance sheet date. In the absence of an active market, fair value is estimated by using present value based or other valuation techniques. Where discounting techniques are applied, the discount rate is based on current market rates applicable to financial instruments with similar characteristics. The valuation techniques that include non-market observable inputs can result in a different outcome than the actual transaction price at which the asset was acquired. Such differences are not recognized in the income statement immediately but are deferred.
For a list of names and locations of the most important group companies, refer to note 53 to the consolidated financial statements of the Group. The legally required list of participations as set forth in article 379 of Book 2 of the
Refer to note 47 to the consolidated financial statements of the
The interest rate exposure on some of these securities has been swapped to a three-month LIBOR and / or EURIBOR
NOTES TO THE FINANCIAL STATEMENTS OF AEGON N.V. NOTE 12 - 13
Defined benefit plans are post-employment benefit plans other than defined contribution plans.
The performance of a specifi ed pool of contracts or a •