Results of operations 16 �� Worldwide 16 �� Americas 24 �� Europe 40 �� Asia 70 �� Aegon Asset Management 80
‘member companies’ means, in relation to Aegon N.V., those companies required to be consolidated in accordance with the Netherlands legislative requirements relating to consolidated accounts.
In 2016, we made further progress in transforming our company and in delivering on our targets, despite a challenging macro-economic environment.
Senior Vice President for Group Business Development. He was appointed as a member of Aegon’s Executive Board in 2003, overseeing the Company’s international growth strategy.
From 2008 to 2011, Mr. Button also took on the responsibilities of Chairman and executive management of Aegon’s Canadian operations, before joining Aegon’s Corporate Center in 2012 as Executive Vice President and Head of the Corporate Financial
Company, specializing in financial institutions. After several years as a partner there, she joined F&C Asset Management in 2007 as a member of the Management Committee. In 2009, she joined
August 2016. Ms. Mahieu is a former Board member of Duisenberg
Management as CEO in 2010, and has been a member of
Aegon’s brand promise with being a trusted partner for financial solutions that are relevant, simple, rewarding, and convenient; and developing long-term customer relationships by providing guidance and advice, and identifying additional financial security needs at every stage of customers lives.
The financial results in this Annual Report are based on Aegon’s consolidated financial statements, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS-EU).
Mutual funds Wide range of specialized mutual funds, including asset allocation, US equity, global/international equity, alternative investments, hybrid allocation, fixed income and target date funds.
Dividends from and capital contributions to business units Aegon received EUR 1.1 billion of dividends from its business units during 2015, almost all of which from the Americas. Aegon spent EUR 0.3 billion on capital contributions and acquisitions in 2015 in Asia, Central & Eastern Europe, Asset Management and
�� Accident & Health underlying earnings before tax declined by 22% in 2015 compared with 2014 to USD 165 million, which was mainly the result of adverse morbidity. �� Underlying earnings before tax from Mutual Funds increased by 6% in 2015 to USD 50 million compared with 2014, mainly driven by favorable markets.
USD 109 million in 2014 due to lower account balances from net outflows. �� Latin America contributed USD 1 million to underlying earnings before tax in 2015.
To further capture growth prospects in Brazil, Mongeral Aegon and Bancoob (Banco Cooperativo do Brasil) established Sicoob
World Financial Group Insurance Agency of Canada Inc., in addition to an affiliated securities dealer. On July 31, 2015, Aegon completed the sale of its Canadian life insurance and asset management business.
Brokerage Aegon USA offers protection products (life insurance and long-term care) through third-party distribution outlets known as ‘Brokerage General Agents’ or ‘Independent Wholesale
Tools are provided to help plan participants monitor their retirement accounts and engage in behavior to stay on track towards a funded retirement. Managed Advice® is an option that plan sponsors can make available to participants that provides investment and savings advice to participants.
Nearly all the liabilities represented by the fixed-rate contracts were effectively converted to a floating-rate via swap agreements when the contracts were issued. Contracts issued in foreign currencies were converted at issuance to US dollars through swap agreements when the contracts were issued to eliminate currency risk.
The proceeds of each note series were used to purchase a funding agreement from an Aegon USA insurance company, which was used to secure that particular series of notes.
Financial and Prudential Financial. In the emerging market segment and the multiple employer plan segment, Aegon USA’s main competitors are Fidelity, Voya Financial, John Hancock,
Commissioners (NAIC), a non-regulatory association that works to achieve uniformity and efficiency of insurance regulation across the United States and US jurisdictions.
Investment-grade fixed income securities are the main vehicle for ALM, and Aegon USA's investment personnel are highly skilled and experienced in these investments.
Introduction Europe The Results 2016 Europe cover the following operating segments: The Netherlands, United Kingdom (including VA
Net income for Spain & Portugal Net income from Aegon’s businesses in Spain & Portugal amounted to a loss of EUR 2 million in 2016 as underlying earnings before tax of EUR 8 million were more than offset by income tax of EUR 8 million, losses on fair value items of
Net income for the Netherlands Net income from Aegon’s businesses in the Netherlands amounted to EUR 661 million in 2015, largely driven by underlying earnings before tax of EUR 537 million. Realized gains on investments totaled EUR 306 million in 2015, and were mainly the result of portfolio rebalancing in the low rate environment. Results on fair value items amounted to a gain of EUR 7 million in 2015, as positive revaluations on real estate more than offset fair value losses on the guarantee portfolio and fair value losses on interest rate hedges. Impairment charges amounted to EUR 20 million in 2015 and were primarily related to the consumer loan portfolio.
Other income of EUR 27 million in 2015 mainly related to assumption changes and model updates.
Underlying earnings before tax for Central & Eastern Europe Underlying earnings before tax from Central & Eastern Europe decreased to EUR 37 million in 2015 compared with
Production for the Netherlands Gross deposits almost doubled in 2015 to EUR 5.1 billion compared with 2014, mainly driven by the growth of Knab,
Aegon the Netherlands also uses specific distribution channels to help customers access its products and services. The Pensions business line includes sales and account management, which serves large corporations and financial institutions, such as company and industry pension funds. In 2016, Aegon TKP launched Stap general pension fund (Stap Algemeen Pensioenfonds), a solution for pension funds that no longer wish to continue on an individual basis due to the current high legal requirements and costs. Aegon Bank uses the direct channel, primarily for savings, whereas Aegon
Investment contracts are investment products that offer returns and generate fee income from the performance of the investments.
Sales and distribution Most of Aegon the Netherlands’ pensions are sold through sales and account management and Aegon’s intermediary channel. Customers include individuals, company and industry pension funds, and small, medium and large corporations.
Several regulatory changes have had an impact on demand for insurance products in the Dutch market – notably in the life insurance market where the tax deductibility of certain products has been reduced, which has also caused a shift to bank saving products (‘banksparen’). Furthermore, low economic growth and financial market volatility have made customers more reluctant to commit to long-term contracts. These changes have increased competition, resulting in a greater focus on competitive pricing, improved customer service and retention, and product innovation.
Resolution Mechanism (the SRM Regulation) form the European framework for recovery and resolution for (among others) ailing banks, certain investment firms and their holding companies.
Aegon the Netherlands’ Risk & Capital Committee, which meets every month, determines and monitors the balance sheet and profit and loss account. The focus of these meetings is, among other activities, to ensure an optimal strategic asset allocation, to determine hedging strategies to reduce interest rate and equity risks, to manage and possibly hedge actuarial risks, and to decide on the need for securitizations of residential mortgage portfolios in order to improve the liquidity and funding position of Aegon the Netherlands.
In addition, in April 2015, the government removed all restrictions on individuals being able to access their pension pots, thereby significantly increasing the flexibility with which individuals can use their pension savings. Individuals are now no longer restricted to buying an annuity or entering drawdown, and can choose to withdraw some of their money and take flexible income through drawdown, or secure income via an annuity or guaranteed product. This development has had a substantial impact on the at retirement market, with a large reduction in annuity sales and an increase in the purchase of income drawdown products, in addition to supporting a shift from traditional products to platforms better able to support the delivery of flexible solutions to customers.
The PRA is responsible for the prudential regulation of deposit takers, insurers and major investment firms. The FCA is responsible for regulating firms’ conduct in retail and wholesale markets. It is also responsible for the prudential regulation of those firms that do not come under the PRA's remit.
The results of the with-profits fund's investment performance are distributed to policyholders through a system of bonuses that depends on: �� The guarantees under the policy, including previous annual bonus additions; and �� The investment returns on the underlying assets, with an allowance for ‘smoothing’ to reduce volatility. Although smoothing means that investment profits are spread from one year to the next, the aim is to pay out all of the investment profits earned by the fund over the long term. For early withdrawals, there are other measures to ensure that a fair share of total fund growth is received. A market value reduction may be applied to certain funds where, for cohorts of similar contracts, the face value of the benefits is greater than the value of the underlying assets. Policy conditions may state specific points for which a market value reduction will not apply.
On June 21, 2016, Aegon announced that it had signed an agreement with Nordea to take over the management of
4 Source: Insurance Association of Turkey, Webpage visited February 9, 2017. 5 Source: MNB, Aranykönyv 2015, Webpage visited February 9, 2017. 6 Source: ADSS, Webpage visited February 9, 2017. 7 Source: KNF,
Hungary, based on the first nine months’ standardized premium income, and the third largest provider in the non-life insurance market3. In Turkey, Aegon was ranked nineth based on written premium at the end of November4. Aegon is a less significant market participant in Poland, Slovakia, the Czech Republic and Romania.
Reinsurance ceded Aegon takes out reinsurance for its life and non-life businesses in Central & Eastern Europe, the aim of which is to mitigate insurance risk. In accordance with Aegon’s Reinsurance Use Policy, Aegon’s companies in the region only work through large multinational reinsurers that have well-established operations in the region.
Aegon companies in Spain, including joint ventures with third parties. Aegon Spain has a long-term agreement to distribute both protection and general insurance products through Banco
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 16 (31) - 14 (27) -
Accident and health insurance premiums 115 117 (2%) 104 105 (1%)
Net income Net loss in 2016 amounted to USD 14 million. Net losses improved from a loss of USD 33 million in 2015 mainly due to the non-recurrence of one-time charges in 2015 of USD 68 million primarily the result of a more detailed approach to modeled reinsurance premiums. Fair value losses increased compared with 2015 due to hedging as a result of the variable annuity business in Japan. The non-recurrence of charges and fair value losses were partially offset by higher income tax compared with 2015 due to the strong performance of Asia's high net worth business out of Hong Kong and Singapore and limited tax benefits on losses in Strategic partnerships.
�� In the high net worth businesses in Hong Kong and Singapore, new life sales were down 42% to USD 88 million in 2016 compared with USD 151 million in 2015. This decrease was mainly the result of lower sales of universal life products as
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 3 (3) - 3 (2) -
New premium production in Asia's accident & health and general businesses remained stable in 2015 compared with 2014 at
In China, Aegon THTF’s agency and broker channels primarily sell whole-life critical illness products, while the agency channel also offers participating endowment products. Regular premium critical illness, participating endowment and single premium universal life are the key products offered in the bancassurance channel. Telemarketers largely sell return of premium products, while the e-sales channel is currently focused on offering protection products. Aegon THTF also offers non-life products
In Japan, Aegon Sony Life sells variable annuities in JPY, USD and
Japan: Aegon Sony Life There are eight active companies in Japan's variable annuities market. In 2016, Aegon Sony Life was ranked second in the market behind Dai-ichi Frontier.
For TLB and Japan, Deduction & Aggregation is applied using available and required capital as per the local capital regime.
Hong Kong and Singapore: TLB TLB uses third-party mortality reinsurance for its universal life and traditional policies. Mortality reinsurance takes the form of yearly-renewable term excess-of-retention or quota-share arrangements. This is typically arranged through a pool of reinsurers, such as Munich Re and Swiss Re. In October 2016,
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (19) (8) (145%)
�� Underlying earnings before tax from Strategic partnerships increased to EUR 65 million in 2015 compared with
Underwriting risk Underwriting risk relates to the products sold by Aegon’s insurance entities. It is the risk of incurring losses when actual experience deviates from Aegon’s best estimate assumptions on mortality, morbidity, policyholder behavior, P&C claims and expenses. Aegon has a preference to selectively grow underwriting risk, but this needs to go hand-in-hand with a strong underwriting process. Aegon’s earnings depend, to a significant degree, on the extent to which claims experience is consistent with assumptions used to price products and establish technical liabilities. Changes in, among other things, morbidity, mortality, longevity trends and policyholder behavior may have a considerable impact on the
Aegon prioritizes its commitment of significant resources to protect and continually strengthen its existing security control environment and preventive tooling to minimize impact and exposure as new cyber threats and exposures emerge.
Level (ACL), the level at which regulators are permitted to seize control of the Company. At the end of 2016, the combined risk-based capital ratio of Aegon’s life insurance subsidiaries in the United States was estimated to be 440% of the CAL
framework. Numbers and ratios related to Solvency II of Aegon the Netherlands represent Aegon’s estimate. Assumptions underlying Aegon’s factor for the loss absorbing capacity of deferred taxes will be reviewed following new guidance from the
When Solvency II became effective at January 1, 2016, Aegon UK
Rating agency ratings Aegon’s objective is to maintain a very strong financial strength rating in its main operating units, and this plays an important role in determining the Company's overall capital management strategy. Aegon maintains strong financial strength ratings from leading international rating agencies for its main operating units, and a strong credit rating for Aegon N.V.
The capital management zones and the management interventions connected to these zones are set consistently throughout the Group, and illustrated in the table below.
In practice – and for upstreaming purposes – Aegon manages the capitalization of its operating units towards the capitalization target ranges as identified in Aegon’s capital framework, that are in excess of the minimum regulatory requirements contained in the applicable regulations and in excess of the minimum requirements as mentioned in the table above.
Aegon’s Tier 3 capital under the Solvency II framework consists of Aegon’s deferred tax asset position under Solvency II.
As a result of applying the restrictions to the available own funds, there was an overflow from Tier 1 restricted own funds to Tier 2 in the eligible own funds per December 31, 2016.
Aegon’s use of leverage Aegon uses leverage in order to lower the cost of capital that supports businesses in the Aegon group, thereby contributing to a more effective use of capital and realizing capital efficiencies.
The Company's principal arrangement is a EUR 2 billion syndicated revolving credit facility that matures in 2019, and an additional LOC facility of USD 2.6 billion, which matures in 2021. In addition, Aegon also maintains various shorter-dated bilateral backup liquidity, and committed and uncommitted
Groups Directive (IGD) framework, better reflect the actual risk profile of insurance and reinsurance companies and insurance groups. The Solvency II approach to prudential supervision can be described as a ‘total balance sheet-approach,’ and takes material risks to which insurance companies are exposed into account in addition to the correlation between these risks.
Supervisory Board Committees The Supervisory Board has four Committees that discuss specific issues in depth and prepare items about which the full Board makes decisions. The Committees report verbally about their discussions to the full Supervisory Board at Supervisory Board meetings. Supervisory Board members receive all minutes of the Committee meetings. Committee meetings are open to all members of the Board, regardless of membership of the
The Supervisory Board also takes diversity into account in view of its aim to have a balanced Executive and Management Board composition.
of the Executive and Management Board does not yet meet the
In addition, the Risk Management and Compliance functions, together with the Human Resources and Finance functions, are responsible for the execution of the various measures that ensure the GRF and associated practices are aligned with the defined risk tolerances and behaviors. The risk mitigating measures are taken prior to the payout of compensation to individual employees
After the performance year, the Company assesses the realized performance against the performance indicators and compares the minimum, target and maximum levels of the performance indicators with the realized performance. The amount of conditional variable compensation that can be allocated is then established. Variable compensation is allocated once the accounts for the financial year in question have been adopted by the Company's general meeting of shareholders and after an ex-ante assessment.
Group non financial business indicators Objectives measuring corporate responsibility, strategy implementation and sustainability
Executive Board. Mr. Wynaendts was appointed as a member of the Executive Board in 2003 for four years, and reappointed in 2007 and 2011. At the General Meeting of
Consolidated statement of comprehensive income of Aegon N.V. Consolidated statement of comprehensive income of Aegon N.V.
Total equity and liabilities 425,935 415,729 424,547 1 Amounts have been restated to reflect the voluntary changes in accounting policies for deferred cost of reinsurance that was adopted by Aegon effective
Net purchase of investments for account of policyholders 5,160 4,371 (1,788)
Impact of changes in accounting policies on the statement of changes in equity Note
2.1.3 Future adoption of new IFRS-EU accounting standards The following standards, amendments to existing standards and interpretations, published prior to January 1, 2017, were not early adopted by the Group, but will be applied in future years: �� IFRS 9 Financial Instruments, including the separate amendment Applying IFRS 9 Financial Instruments with IFRS 4 Insurance
IFRIC and SIC interpretations regarding revenue unless the contracts are within the scope of other standards (for example, financial instruments, insurance contracts or lease contracts). The standard outlines the principles an entity shall apply to measure and recognize revenue and the related cash flows. The core principle is that an entity will recognize revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. In April 2016, the IASB issued amendments to IFRS 15 to address several implementation issues discussed by the Transition Resource Group (TRG).
The resulting exchange differences are recognized in the ‘foreign currency translation reserve', which is part of shareholders’ equity. On disposal of a foreign entity the related cumulative exchange differences included in the reserve are recognized in the income statement.
Revenues 2.5 Offsetting of assets and liabilities Financial assets and liabilities are offset in the statement of financial position when the Group has a legally enforceable right to offset and has the intention to settle the asset and liability on a net basis or simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterpart.
For share option plans that are equity-settled, the expense recognized is based on the fair value on the grant date of the share options, which does not reflect any performance conditions other than conditions linked to the price of the Group’s shares. For long-term share-based plans where employees are granted the conditional right to receive Aegon shares if certain performance indicators are met and depending on continued employment of the individual employee, expenses recognized are based on the fair value on the grant date of the shares. The fair value is measured at the market price of the entities shares, adjusted to take into account the terms and conditions upon which the shares were granted. For example, where the employee is not entitled to receive dividends during the vesting period, this factor is taken into account when estimating the fair value of the shares granted. For the determination of factors such as expected dividends, market observable data has been considered.
Name Limit Policy; and �� Concentration per sector, geography and asset class: Aegon’s investment strategy is translated in investment mandates for its internal and external asset managers. Through these investment mandates limits on sector, geography and asset class are set.
Therefore, higher interest rates are not considered a long-term risk to the Group. However, a long sustained period of low interest rates will erode net income due to lower returns earned on reinvestments.
The estimated approximate effect on shareholders’ equity at December 31, 2016 was EUR 1.8 billion lower compared to 2015 due to the fact that over the course of the year the Netherlands adjusted their interest rate hedge to improve the stability of the capital ratio. Previously the interest rate hedging program focused on stabilizing the IFRS net income. Next to this the UK Annuity portfolio was sold, which led to a reduction of the UK shareholders’ equity and thus also to lower interest rate sensitivity (please refer to note 51 business combinations).
(Stichting Waarborgfonds Eigen Woning) through the Dutch Mortgage loan Guarantee program (NHG). These guarantees cover all principal losses, missed interest payments and foreclosure costs incurred upon termination and settlement of defaulted mortgage loans when lender-specific terms and conditions of the guarantee are met. When not fully met, the trust may pay claims in part or in full, depending on the severity of the breach of terms and conditions. For each specific loan, the guarantee amortizes in line with an equivalent annuity mortgage loan. When the remaining loan balance at default does not exceed the amortized guarantee, it covers the full loss under its terms and conditions. Any loan balance in excess of this decreasing guarantee profile serves as a first loss position for the lender. For NHG-backed mortgage loans originated after January 1st 2014, a 10% lender-incurred haircut applies on realized losses on each defaulted loan.
The credit risk associated with financial assets subject to a master netting agreement is eliminated only to the extent that financial liabilities due to the same counterparty will be settled after the assets are realized. Eligible derivative transactions are traded via
Asset-backed securities (ABSs) - CDOs backed by ABS, Corp. bonds, Bank loans 959 2,055 - - - 2,055 28 - 3,041 7 1 Includes investments of Holding and other activities.
Corporate - Energy industry sector The Corporate – Energy Industry sector encompasses various sub-sectors including integrated oil and gas producers, independent oil and gas producers, midstream processing and transport, oil field services and drilling, and refining. The majority of the gross unrealized loss relates to oilfield services and drilling, as well as refining companies. Lower oil and natural gas prices have reduced cash flow for upstream oil and gas producers. Oil field service and drilling companies have been pressured by reduced capital spending by their
Holding and other activities Total 2016 1 Common shares in Holding and other activities includes the elimination of treasury shares in the general account for an amount of EUR nill million.
Estimated cash benefit payments are based on mortality, morbidity and lapse assumptions based on Aegon’s historical experience, modified for recently observed trends. Actual payment obligations may differ if experience varies from these assumptions. The cash benefit payments are presented on an undiscounted basis and are before deduction of tax and before reinsurance.
Investment contracts for account of policyholders 255 11,489 28,422 26,050 64,509 130,725 1 The liability amount in the consolidated financial statements reflects the discounting for interest as well as adjustments for the timing of other factors as described above. As a result, the sum of the cash benefit payments shown for all years in the table exceeds the corresponding liability amounts included in notes 36 Insurance contracts and 37 Investments contracts.
Maturity analysis relating to derivatives 1) (Contractual cash flows) 2015 On demand
5 Segment information As disclosed in note 2.4 Segment reporting Aegon adopted refinements to its segment reporting. The following is reported from 2016 onwards: �� Americas: one operating segment which covers business units in the United States, Brazil and Mexico, including any of the units’
Central & Eastern Europe, Spain & Portugal; �� Asia: one operating segment which covers businesses operating in Hong Kong, Singapore, China, Japan, India and Indonesia including any of the units’ activities located outside these countries; �� Asset Management: one operating segment which covers business activities from Aegon Asset Management; �� Holding and other activities: one operating segment which includes financing, reinsurance activities, employee and other administrative expenses of holding companies.
(charges) rather than as part of underlying earnings before tax or fair value items. Following this change all management best estimate assumptions, both actuarial and economic, will continue to be reflected in underlying earnings. However, updates to these assumptions, often representing the present value of multiple performance years, either retrospectively or prospectively, will not. Actuarial assumption updates result from experience studies or market observable data (e.g. third party expert judgments), which are usually performed on an annual basis. These experience studies and judgments may or may not result in resetting management’s expectations in regard to actuarial assumptions (e.g. mortality rates, lapse rates, expenses, management actions etc.), deviating from initial or
Gains and (losses) on investments in real estate 70 145 (4)
Net fair value change on for account of policyholder financial assets at fair value through profit or loss 15,121 (110) 11,226
Included in administration expenses is an amount of EUR 89 million of depreciation that relates to equipment, software and real estate held for own use (2015: EUR 84 million; 2014: EUR 78 million). Minimum lease payments recognized as expense amounted to
Number of shares conditionally granted 2) - - - - - 5,178,633 - 5,178,633
Refer to note 47 Fair value for a further description of the method used to estimate the fair value and a description of the significant assumptions. The volatility is derived from quotations from external market sources and the expected dividend yield is derived from quotations from external market sources and the binomial option pricing model.
Impairment charges and reversals on non-financial assets and receivables 36 1,275 21
EUR 0.13 per common share, the stock dividend amounted to one new Aegon common share for every 28 common shares held.
Aegon repurchased common shares to neutralize the dilutive effect of the 2014 interim dividend paid in shares. Aegon executed a program to repurchase 16,319,939 common shares. Between September 17, 2014, and October 15, 2014, these common shares were repurchased at an average price of EUR 6.4919 per share. These shares are held as treasury shares and will be used to cover future stock dividends.
Net cash and cash equivalents at December 31, 2016, are negatively impacted by effects of changes in exchange rates of
Loan allowance Movement on the loan allowance account during the year were as follows: Addition charged to income statement (23) (37)
Refer to note 49 Transfers of financial assets for a discussion of collateral received and paid.
Certain derivatives are used to add risk by selling protection in the form of single name and index based credit default swaps.
35% of the value of the general account real estate held for own use was last revalued in 2016 (2015: 43%), based on market value appraisals by qualified internal and external appraisers. 97% of the appraisals in 2016 were performed by independent external appraisers (2015: 98%).
Aegon also executed a EUR 400 million share buyback program in which 83,116,535 common shares were repurchased. These common shares have been repurchased as part of a program to neutralize the dilutive effect of the cancellation of the preferred shares in 2013.
Transactions in 2014: Sale: 1 transaction, price EUR 6.33 (4,788) (41)
Movement in foreign currency translation and net foreign investment hedging reserves 1,962 (224) - 1,738
Trust pass-through securities are securities through which the holder participates in a trust. The assets of these trusts consist of junior subordinated deferrable interest debentures issued by Transamerica Corporation. The trust pass-through securities carry provisions with regard to deferral of distributions for extension periods up to a maximum of 10 consecutive semi-annual periods. The trust passthrough securities are subordinated to all other unsubordinated borrowings and liabilities of Transamerica Corporation. There were no defaults or breaches of conditions during the period.
Sources of underwriting risk include policyholder behavior (such as lapses or surrender of policies), policy claims (such as mortality, longevity and morbidity) and expenses. For some product lines, Aegon is at risk if policy lapses increase as sometimes Aegon is unable to fully recover upfront expenses in selling a product despite the presence of commission recoveries or surrender charges and fees. For mortality and morbidity risk, Aegon sells certain types of policies that are at risk if mortality or morbidity increases, such as term life insurance and accident insurance, and sells certain types of policies that are at risk if mortality decreases (longevity risk) such as annuity products. Aegon is also at risk if expenses are higher than assumed by management.
The increase in the impact on the sensitivity of shareholders’ equity for a 10% increase in mortality and for a 10% decrease in mortality is mainly due to Aegon the Netherlands, driven by a liability adequacy test deficit after the shock in 2016 where in 2015 there was still headroom in this test.
The fixed annuities product balance as of December 31, 2016, amounted to EUR 328 million (2015: EUR 365 million).
The GMIB feature provides for minimum payments if the contract holder elects to convert to an immediate payout annuity. The guaranteed amount is calculated using the total deposits made by the contract holder, 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.
Remeasurements of defined benefit plans 388 5 392 (209) (25) (234)
has the fiduciary obligation to interpret the provisions of the plans, and to comply with any statutory reporting and disclosure requirements. Finally, Aegon USA reviews the terms of the plans and makes changes to the plans if and when appropriate. Aegon USA
Target allocation of plan assets for retirement benefit plans for the next annual period is: Equity instruments 15-55%
Aegon the Netherlands Aegon Nederland has a number of defined benefit plans and a small number of defined contribution plans. The defined benefit plans are subject to Dutch Pension regulations and governed by the Executive Board of Aegon Nederland. The Executive Board has the full power and discretion to administer the plan including developing investment policy and managing assets for the plans (although these assets do not qualify as ‘plan assets’ as defined by IFRS), deciding questions related to eligibility and benefit amounts, and any disputes that may arise from plan participants and for complying with the plan provisions, and legal requirements related to the plan and its operation. Aegon Nederland runs, in principle, full actuarial and investment risk regarding the defined benefit plans. A part of this risk can be attributed to plan participants by lowering indexation or by increasing employee contributions. Furthermore, the specific statutory requirements governing the administration of group pension schemes have been laid down in the Pension Act (Pensioenwet /
Aegon UK Aegon UK operated a defined benefit pension scheme providing benefits for staff based on final pensionable salary and years of service. The scheme closed to new entrants a number of years ago and closed to future accrual on March 31, 2013. Aegon UK now offers a defined contribution pension scheme to all employees.
Price inflation 3.37% 3.10% 1 Club Vita tables Scheme memberhsip CMI 2014 1.5%/1.25% p.a. 2 SAPS S1NA light -2 years CMI 2014 1.50%-1.25% p.a.
Financial actuarial assumptions 100 basis points increase in discount rate (371) (341)
Not recognized deferred tax assets 1 The gross value of state tax loss carry forward is not summarized in the disclosure, due to the fact that the United States files in different state jurisdictions with various applicable tax rates and apportionment rules.
Tier 3 capital as of December 31, 2016 comprised of deferred tax asset balances under Solvency II. These balances were mostly related to Aegon Americas and stem from differences between statutory and tax reserve valuation methodologies and the tax deferral of various statutory expenses.
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
Similarly, during 2016, Aegon transferred EUR 3,266 million (full year 2015: EUR 619 million) of financial instruments from Level III to other levels of the fair value hierarchy. The change in level was mainly the result of a return of activity in the market for these securities and that for these securities the fair value could be determined using observable market transactions or corroborated broker quotes for the same or similar instruments.
Discounted cash flow Credit spread 221 1.30% - 3.37% (3.08%) 219 1.5% - 3.8% (2.8%)
States government. The redemption value of the shares is fixed at par and they can only be redeemed by the FHLB.
49.2 Transferred financial assets that are derecognized in their entirety, but where Aegon has continuing involvement Aegon has no transferred financial assets with continuing involvement that are derecognized in their entirely as per year-end 49.3 Assets accepted Aegon receives collateral related to securities lending, reverse repurchase activities and derivative transactions. Non-cash collateral is not recognized in the statement of financial position. To the extent that cash is paid for reverse repurchase agreements, a receivable is recognized for the corresponding amount.
On August 11, 2016 Aegon announced the acquisition of Cofunds from Legal & General for GBP 140 million (EUR 164 million).
(2015: EUR 4.9 million; 2014: EUR 5.2 million), EUR 1.9 million (2015: EUR 1.6 million; 2014: EUR 2.0 million) other benefits and
Management Board over 2016 were EUR 18.7 million (2015: EUR 16.8 million; 2014: EUR 15.1 million). The amount is reflective of time spent on the Management Board.
December 31, 2015: 162,469). The shares held in Aegon mentioned above do not exceed 1% of total outstanding share capital at the reporting date.
There are no outstanding balances such as loans, guarantees or advanced payments
Fair value is defined as the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction 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). For quoted financial assets for which there is an active
The following table shows the movement during the year in the number of common shares B: Number of common shares B (thousands) 2016 2015
At December 31, 2016, the letter of credit arrangements utilized by captives to provide collateral to affiliates amounted to
In our view, due to their significance and/or risk characteristics, the individually significant regional units of the Americas, the United Kingdom and the Netherlands required a full-scope audit of their financial information. Specific audit procedures on certain account balances and classes of transactions were also performed in relation to, amongst others, Central and Eastern Europe,
We considered the appropriateness of actuarial judgements used in the models, which may vary depending on the product and/or the specifications of the product, and also the compliance of the models with the applicable accounting standards. Furthermore, we performed audit procedures over models and model updates to determine the models and systems were calculating the insurance contracts liabilities accurately and completely.
Report on other legal and regulatory requirements Our appointment We were appointed as auditors of Aegon N.V. by the Supervisory Board for the years 2014 to 2016 following the passing of a resolution by the shareholders at the annual meeting held on May 15, 2013 representing a total period of uninterrupted engagement appointment of 3 years.
We communicate with the Supervisory Board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
Ennia N.V. merged into Aegon N.V. Vereniging AGO initially received approximately 49% of the common shares (reduced gradually to less than 40%) and all of the preferred shares in Aegon N.V., giving it voting majority in Aegon N.V. At that time, Vereniging AGO
Aegon UK has a UK resident customer for whom one active Individual Personal Pension is held. The customer is a UK-based employee of an Iranian bank which appears on OFAC’s Specially Designated Nationals and Blocked Persons List with the identifiers of [SDGT],
Risks related to the global financial markets and general economic conditions Disruptions in the global financial markets and general economic conditions may affect, and could have materially adverse effects on Aegon’s businesses, results of operations, cash flows and financial condition.
Netherlands separate account products can include guarantees which protect policyholders against some or all of the downside risks in their separate account portfolio. Reduced separate account values also decrease fee income and may accelerate DPAC amortization.
Currency exchange rate risk Fluctuations in currency exchange rates may affect Aegon’s reported results of operations.
certain investments and other assets is subjective and based on assumptions, estimations and judgments that may not reflect or correspond to our actual experience any of which may materially impact Aegon’s results of operations or financial position.
Inaccuracies in econometric, financial or actuarial models, or differing interpretations of underlying methodologies, assumptions and estimates, could have a significant adverse effect on Aegon’s business, results of operations and financial condition.
Aegon be able to determine whether or not these requirements will result in more binding capital constraints than existing requirements, including Solvency II.
funds divided by the required solvency, the latter referred to as the Group SCR), for the Aegon Group at the level of Aegon which should be at least equal to 100%. Under Solvency I, EU supervisors usually required insurance and reinsurance undertakings to maintain a substantial percentage of own funds above the statutory minimum requirements. Under Solvency II, Aegon expects that DNB will leave the decision as to whether to hold a buffer of own funds in excess of the Group SCR or the SCR as the case may be to the Aegon
On June 23, 2016 the United Kingdom voted in a national referendum to withdraw from the European Union. The United Kingdom is expected to formally serve notice to the European Council of its desire to withdraw but there remains uncertainty regarding this process. The implications of such a ‘Brexit’ remain unclear, with respect to the European integration process, the relationship between the UK and the European Union, and the impact on economies and businesses. Aegon could be adversely impacted by related market developments such as increased exchange rate movements of the GBP versus the Euro and higher financial market volatility in general due to increased uncertainty, any of which could reduce the value or results of Aegon’s operations in the United Kingdom. Aegon could also be adversely impacted should a ‘Brexit’ result in the UK moving away from agreed and implemented EU legislation like, but not limited to, Solvency II regulations.
Finance is expected to publish a proposal of law in the first half of 2017 on recovery and resolution of insurers, and potentially other entities belonging to insurance groups, based in the Netherlands. If and when formally adopted, this act will replace and complement the provisions of the Dutch Intervention Act. The risks related to this new act are comparable to the risks described before in relation to the Dutch Intervention Act.
federal district court for the Central District of California. In the Netherlands, unit linked products (‘beleggingsverzekeringen’) have been controversial and the target of litigation since 2005. Allegations include excessive cost, inadequate disclosure, and failure to perform as illustrated. Consumer groups have formed to address these issues and initiate mass claims against insurers. Regulators as well as the Dutch Parliament have been involved ever since, with the principal goal of achieving an equitable resolution. Aegon expects the claims and litigation on unit linked products to continue for the foreseeable future. Developments in similar cases against other Dutch insurers currently before regulators and courts may also affect Aegon. In March 2014, consumer interest group Vereniging Woekerpolis.
As a global financial services enterprise, 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 regularly develops new financial products to remain competitive in its markets and to meet the expectations of its customers. If customers do not achieve expected returns on those products, Aegon may be confronted with legal claims, advocate groups and negative publicity.
Aegon were to default under the facilities agreement in force at that time, the lenders may dispose of Aegon’s common shares held by them as collateral in order to satisfy amounts outstanding.
If a holder of Aegon common shares is a resident of a country other than the Netherlands and if a treaty for the avoidance of double taxation with respect to taxes on income is in effect between the Netherlands and that country, and such holder is a resident for the purposes of such treaty, such holder may, depending on the terms of that particular treaty, qualify for full or partial relief at source or for a refund in whole or in part of the Netherlands dividend witholding tax.
Generally, gift tax (schenkbelasting) or inheritance tax (erfbelasting) will be due in the Netherlands in respect of the acquisition of
For the purposes of this section, a ‘US holder’ is a beneficial owner of common shares that is, for US Federal income tax purposes: �� A citizen or individual resident of the United States; �� A corporation created or organized in or under the laws of the United States or any state of the United States (including the District of Columbia); �� An estate, the income of which is subject to US Federal income taxation regardless of its source; or �� A trust, if a court within the United States is able to exercise primary supervision over its administration and one or more US persons have the authority to control all of the substantial decisions of such trust.
United Kingdom, because those businesses operate and are managed primarily in those currencies. None of this information is a substitute for or superior to financial information about Aegon presented in EUR, which is the currency of Aegon’s primary financial statements.