AEGON’s aim is to be a leading force in global financial services.
+254% Fixed annuity deposits rose 254% in 2008 to just over
EUR 837 million in new business in 2008 – an important indicator of the company’s future profitability.
6 Management Board 8 Strategy 13 The financial community 16 Financial calendar 18 AEGON Group 28 Americas 32 The Netherlands 36 United Kingdom 40 Other countries 44 Risk and capital management 54 In control statement 56 Report of the Supervisory Board 62 Members of the Supervisory Board 65 Remuneration 72 Corporate governance 79 Corporate responsibility
Central to AEGON’s strategy is our focus on releasing capital from our businesses. In June, we announced our aim to release between EUR 4 billion to EUR 5 billion in capital by 2012. We accelerated our actions in the second half of 2008 given worsening market conditions.
Board works alongside the Executive Board and oversees a broad range of strategic and operational issues. While the
insurance, pensions and investments; AEGON serves local needs, using global resources – ��
operates, realizing benefits of scale; AEGON wants to strengthen its international presence ��
rate risk was reduced and guarantees lowered; AEGON also stepped up its hedging program and matching of ��
AEGON has shareholders and bondholders around the world. The company’s investor relations program is aimed at ensuring investors have the information they need to make sound investment decisions.
Solutions and Origen. In both countries AEGON companies sell and distribute a wide range of insurance products and other financial services.
“This wasn’t an easy year by any means. But we have taken the first, important steps toward improving AEGON The Netherlands’ profitability, and toward ensuring that, by placing the customer at the center of everything we do, we are focused on the right priorities in 2009 and beyond.”
AEGON’s value of new business from its Dutch operations declined 16% to EUR 43 million in 2008. The internal rate of return rose slightly to 10.8%, up from 10.7% in 2007.
Pensions and Asset management declined, however, due to lower market levels and in particular because of lower fund-related charges. Earnings from AEGON’s Distribution business in the United Kingdom saw an improvement, as a result of cost containment and a release of incentive payment reserves.
Lower underlying earnings, underperformance of fair value items, losses on investments and higher impairment charges are the main drivers of the reduction in net income from GBP 183 million to GBP 64 million. The fair value increases of guarantees embedded in ‘5-for-Live’
As an insurance company, AEGON manages risk on behalf of its customers and other stakeholders. As a result, the company is exposed to a variety of operational and financial risks. AEGON’s risk management and control systems are designed to ensure that these risks are managed as effectively and efficiently as possible.
its companies’ capital adequacy levels at whichever is the higher of local regulatory requirements, the relevant local Standard & Poor’s requirements for very strong capitalization and any additional self-imposed economic requirements; Maintain solvency even under extreme event ��
The Committee reports to the full Supervisory Board on a quarterly basis or more frequently, if required. Details of members of the Supervisory Board’s Risk Committee may be found on pages 56 to 58. It is the responsibility of the Executive Board to update the Supervisory Board, should any risks directly threaten the solvency or operations of the company.
AEGON manages capital adequacy at the level of its country units and their operating companies. The goal is to ensure that AEGON companies maintain their strong financial strength, now and into the future, even after sustaining losses from severely adverse business and market conditions. AEGON maintains its companies’
compared with 190% at the end of 2007. This ratio takes into account Solvency 1 capital requirements based on
AEGON’s funding strategy continues to be based on ensuring excellent access to international capital markets, while minimizing the cost of capital. AEGON’s focus on a well established fixed income investor base is supported by an active investor relations program designed to keep investors informed about AEGON’s strategy and results.
AEGON companies, whose securities are guaranteed by AEGON N.V., have issued debt securities.
Program. Access to the US markets is facilitated by a separate US shelf registration. AEGON N.V.’s and
Insurance products enjoy certain tax advantages, particularly in the United States and the Netherlands, which permit the tax-deferred accumulation of earnings on the premiums paid by the holders of annuities and life insurance products under certain conditions and within certain limits. Changes in tax law could have an effect on
AEGON’s enterprise risk management framework under supervision of the Supervisory Board Risk Committee.
The Supervisory Board is entrusted with the task of supervising and advising the Executive Board on its management of the company as well as overseeing AEGON’s strategy and the general course of its affairs.
In performing their duties, members of the Supervisory Board are guided by the interests of AEGON and its businesses, and take into account the interests of the company’s stakeholders. The Supervisory
Boards attended all Supervisory Board meetings held in 2008. AEGON’s Director for Group Finance &
Policy were discussed, but no final decisions were made in 2008. The Committee noted that material amendments to the Remuneration Policy are subject to approval by shareholders.
During that time, he has served the company with great distinction. As Chief
Canadian Utilities and the business school INSEAD. Mr. Routs is also a member of The Economic Development Board of the Singapore International Advisory Council.
Antony Burgmans is a retired Chairman of Unilever N.V. and Unilever plc. He was appointed to AEGON’s Supervisory
Mr. Verbeek is retired Chairman and CEO of Aon International Executive Committee and a retired member of the
The Committee may recommend changes in the policy to the Supervisory Board. Any material changes must be referred to the General Meeting of Shareholders for adoption. AEGON’s current Remuneration Policy was adopted by the company’s shareholders at the annual
The table below gives a target breakdown for each of these three components. Over the long term, AEGON’s aim is to ensure that compensation for new members of the company’s Executive Board matches these targets as closely as possible. Current members of the Executive
and document its findings. The committee may then put forward a proposal to the Supervisory Board assuming, of course, that the committee’s conclusions coincide in principle with those of the Supervisory Board; To reflect such exceptional circumstances, variable ��
Mr. Shepard retired as Chief Executive Officer and Chairman of AEGON’s Executive Board in April 2008. He also received a bonus * linked to AEGON’s net income for 2007. This amounted to EUR 2,551,000, a decrease of 9% compared with the previous financial year. This decrease was due to a decline in AEGON’s overall net income.
AEGON’s Executive Board is charged with the overall management of the company. Each member has duties related to his or her specific areas of expertise. The number of Executive Board members and their terms of employment are determined by AEGON’s Supervisory
However, the existing employment contracts with current members of the Board are not in line with this provision particularly with regard to severance payment arrangements. The employment contracts of Executive
The EUR 3 billion of core capital significantly strengthened AEGON’s financial position and ensured the company entered 2009 with a sound capital buffer against possible further declines in world credit and equity markets.
EUR 130 million. This, in effect, gives AEGON the right to repay EUR 1 billion of the loan in the first year should financial market conditions improve sufficiently. After the first year the securities may be repurchased at any time at 150% of their issue value (EUR 6.00 per security)
As part of the transaction, the Supervisory Board committed to nominate two representatives, as proposed by the Dutch State, to the General Meeting of
Purchase of equipment and real estate for own use (85) (81) (71)
neT CAsH AnD CAsH eqUiVALenTs AT THe enD OF THe yeAR 14 9,506 7,385 12,391
(Gains) / losses transferred to income statement on disposal and impairment – – 25 – – 25 – 25
Issued capital and reserves attributable to equity holders of AEGON N.V. 1
EUR USD GBP CAD PLN CNY RON HUF NTD CZK SKK 1 EUR – 1.3917 0.9525 1.6998 4.1535 9.4956 4.0225 266.7000 45.6690 26.8750 30.1260 1 USD 0.719 – 0.684 1.221 2.984 6.823 2.890 191.636 32.815 19.311 21.647 1 GBP 1.050 1.461 – 1.785 4.361 9.969 4.223 280.000 47.946 28.215 31.628 1 CAD 0.588 0.819 0.560 – 2.444 5.586 2.366 156.901 26.867 15.811 17.723 1 PLN 0.241 0.335 0.229 0.409 – 2.286 0.968 64.211 10.995 6.470 7.253 1 CNY 0.105 0.147 0.100 0.179 0.437 – 0.424 28.087 4.809 2.830 3.173 1 RON 0.249 0.346 0.237 0.423 1.033 2.361 – 66.302 11.353 6.681 7.489 100 HUF 0.375 0.522 0.357 0.637 1.557 3.560 1.508 – 17.124 10.077 11.296 100 NTD 2.190 3.047 2.086 3.722 9.095 20.792 8.808 583.985 – 58.847 65.966 100 CZK 3.721 5.178 3.544 6.325 15.455 35.332 14.967 992.372 169.931 – 112.097 100 SKK 3.319 4.620 3.162 5.642 13.787 31.520 13.352 885.282 151.593 89.209 –
New standards become effective on the date specified by IFRS, but may allow companies to opt for an earlier adoption date. In 2008, the following new standards issued by the IASB and
IFRIC 12 Service concession arrangements is mandatory for accounting periods beginning on or after January 1, 2008, but is not relevant to the Group’s operations.
January 1, 2009 and will not impact equity or net income as
Share option plans that can be settled in either shares or cash at the discretion of the employee are accounted for as a compound financial instrument, which includes a debt component and an equity component.
Credit ratings are an important consideration in the valuation of securities and are included in the internal process for determining AEGON’s view of the risk associated with each security. However, AEGON does not rely solely on external credit ratings and there is an internal process, based on market observable inputs, for determining AEGON’s view of the risks associated with each security.
The fair values of these guarantees are calculated as the present value of future expected payments to policyholders less the present value of assessed rider fees attributable to the guarantees. Given the long-term nature of these guarantees which are unlike instruments available in financial markets, their fair values are determined by using complex valuation techniques. Because of the dynamic and complex nature of these cash flows, AEGON uses stochastic techniques under a variety of market return scenarios. A variety of factors are considered, including expected market rates of return, equity and interest rate volatility, correlations of market returns, discount rates and actuarial assumptions.
As at the reporting date, AEGON performed stress testing on each security within its subprime mortgage portfolio. The stress testing revealed a significant reduction in the margin of safety for all fixed rate and senior floating rate mortgage products.
dollar and the euro and between the UK pound and the euro.
In cases where cash flows are highly predictable, investing in assets that closely match the cashflow profile of the liabilities can offset this risk. For some AEGON country units, local capital markets are not well developed, which prevents the complete matching of assets and liabilities for those businesses. For some products, cash flows are less predictable as a result of policyholder actions that can be affected by the level of interest rates.
Parallel movement of yield curve Estimated approximate effects on net income Estimated approximate effects on equity
AEGON’s investments in Alt-A mortgages are in the form of mortgage backed securities. AEGON's Alt-A investments are primarily backed by loans with fixed interest rates for the entire term of the loan. Additionally, one-third (2007: one-third) of the
(2007: EUR 1.5 billion), unrealized losses on this portfolio amount to EUR 974 million at December 31, 2008
Lehman Brothers and UBS origination platform (‘LBUBS’) deal shelf which is collateralized by diversified mortgages. The unrealized losses are primarily a function of the overall size of
CDOs backed by ABS, corp bonds, bank loans 624 196 11 36 14 881 591
auto financing loans, small business loans, bank loans and other receivables. The underlying assets have varying credit ratings and are pooled together and sold in tranches.
AEGON USA also has direct exposure of EUR 37 million (2007: EUR 126 million) via holdings in monoline insurers and derivative counterparty exposure where monoline insurers are AEGON’s counterparty. Of AEGON’s direct exposure 34% relates to xL, 14% to MBIA and 29% to AMBAC (2007: 33% related to xL, 19% to MBIA, 17% to AMBAC and 14% to CIFG). There are no other individual monoline insurers that represent more than 10% (2007: 10%) of the total direct exposure.
The sensitivity analysis of net income and equity to changes in equity prices is presented in the table that follows. The sensitivity of shareholders’ equity and net income to changes in equity and real estate markets reflects changes in the market value of
AEGON’s portfolio, changes in DPAC amortization, contributions to pension plans for AEGON’s employees and the strengthening of the guaranteed minimum benefits, when applicable. The results of equity sensitivity tests are non-linear. The main reason for this is due to equity options sold to clients that are embedded in some of these products and that more severe scenarios could cause accelerated DPAC amortization and guaranteed minimum benefits provisioning, while moderate scenarios may not. Changes in sensitivities between 2007 and 2008 arise as a result of the impact of guarantees contracts in the money that exposes AEGON to more direct equity risk and the impact of lower equity markets on DPAC amortization.
The difference between fair value movement on certain guarantees and the fair value changes of derivatives that hedge certain risks of these 1 guarantees, amounting to EUR 325 million, are as of financial year 2008 reclassified from Gains and losses on investments to Operating earnings.
Investment contracts for account of policyholders 9,621 4 35,861 128 – – 45,614 summarized assets and liabilities per geographical segment Americas
EUR 6 million, EUR 30 million and EUR 39 million relates to acquisition in Hungary, Turkey and Poland respectively. Refer to note 52 for further information on the business combinations entered into by AEGON in 2007 and 2008. An initial allocation of goodwill provisionally allocated for the acquisitions in Spain,
Refer to note 49 for a summary of all financial assets and financial liabilities at fair value through profit or loss.1
EUR 104 million. In August 2007, the Canadian asset backed commercial paper market experienced a disruption, which
included Canadian government intervention and subsequent market litigation, resulting in AEGON and the counterparty negotiating settlement terms for the facility agreement. Per these terms, AEGON holds embedded contingent options, which reflects potential exposure to underlying senior tranches of synthetic CDOs with a notional of EUR 1.7 billion when losses exceed the fair value of collateral assigned by the counterparty
Gross premium and deposits – existing and new business 239 282
Costs deferred / rebates granted during the year 1,803 88 42
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 15 - 15.1
Deferred tax assets comprise temporary differences on: 2008 2007 Real estate (296) (2)
Refer to note 40 for a description of share appreciation rights and related expenses.
net income attributable to common shareholders for diluted earnings per share calculation (1,383) 2,291 2,946
The following table provides information on the liabilities for financial guarantees for minimum benefits: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 47
Amounts in EUR million GMDB 1 GMIB 2 Total 4 GMDB 1 GMIB 2 Total 4
of the shares of Clark Inc., a public company specializing in the sale of corporate-owned life insurance, bank-owned life insurance and other benefit programs. The total purchase price was EUR 263 million, consisting of EUR 207 million cash consideration, EUR 36 million of Clark debt assumed by AEGON
Remuneration of active and retired members of the executive board Amounts in EUR thousands
For each of the members of the Executive Board, the shares held in AEGON, as shown in the above table, do not exceed 1%
Share repurchase program: various transactions, average price EUR 13.41 – 74,569,902
A proposal to pay a dividend shall be dealt with as a separate agenda item at the General Meeting of Shareholders.
Association as effected on September 13, 2005, this requirement does not apply in the event of a hostile change of control at the
Are available to be used only to pay or fund employee benefits and are not available to the reporting entity’s own creditors.
AEGON undertakes no obligation to publicly update or revise any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which merely reflect company expectations at the time of writing. Actual results may differ materially from expectations conveyed in forward-looking statements due to changes caused by various risks and uncertainties. Such risks and uncertainties include but are not limited to the following: Changes in general economic conditions, particularly in the ��