I am pleased that we increased our full year 2017 dividend to 27 euro cents, and that by paying a sustainable and growing dividend we will be able to meet our target to return
Aegon defines its stakeholders as: any individual or organization affected, or likely to be affected, by its business or that may, in turn, affect the environment in which we operate. Aegon recognizes five main stakeholder groups: �� Customers (individual customers, group and corporate clients); �� Employees (full-time and part-time employees, tied agents, trade unions and other employee representative groups); �� Investors (institutional and retail investors); �� Business partners (distributors, joint venture partners, outsourcing partners, reinsurers, and suppliers of goods and services); and �� Wider community (charities, community groups and other
Aegon uses returns on these investments, in addition to insurance profits, to pay customer claims and benefits, and to meet its obligations with regard to salaries, taxes, payments to suppliers and intermediaries. Customers also make withdrawals from pensions and savings.
Risks Low interest rates bring lower returns on investments, and have a negative impact on Aegon’s earnings, revenue and capital position. Low rates may also deter savers.
Risks Complex regulation may push up operating costs, or require changes to pricing, product development, data protection, even to the way Aegon manages its risk and capital. New regulation may also affect customer behavior, reducing demand for certain products and services.
This helps the Company manage its business responsibly, protect long-term value creation, and take the best possible decisions for both itself and its stakeholders. As part of this overall approach, Aegon embeds social, environmental and financial considerations, where possible, in both formal procedures and other internal systems and processes. Doing so helps Aegon reduce risk, and ensure better business performance and more inclusive decision-making.
issues are incorporated into Aegon decision-making processes, as well as the measurement of outcomes, policies and metrics: Social and environmental issues
Accident & health Products offering supplemental health, accidental death and dismemberment insurance, critical illness, cancer treatment, credit/disability, income protection, travel and long-term care insurance.
EUR 170 million fair value gains in the United States in 2017 were driven by positive results on hedging programs and the outperformance of real estate investments. These positive results on hedging programs were the result of favorable equity market movements and reflect changes made to the macro equity hedge program throughout 2017 to a 100% option-based program. Fair value losses in Europe amounted to EUR 194 million, as gains on real estate investments in the Netherlands were more than offset by a fair value loss on the guarantee provision in the
Income tax Income tax amounted to a charge of EUR 76 million in 2017, and included a EUR 554 million one-time benefit from US tax reform driven by a reduction in net deferred tax liabilities.
Expense savings were more than offset by higher expenses associated with the acquisitions of Cofunds and BlackRock’s defined contribution business in the United Kingdom.
Run-off businesses 54 88 (39) Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 836 (601) n.m. Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 31 33 (6)
Included in the loss on hedging programs in the United States is the loss on fair value hedges without accounting match in the
On December 31, 2016, Aegon’s estimated Solvency II ratio amounted to 157%. The RBC ratio in the United States decreased from 460% at year-end 2015 to ~440% on December 31, 2016 which primarily reflects dividends upstreamed to the holding. In the Netherlands, the estimated Solvency II ratio at the end of 2016 amounted to 135%. The estimated
Total net deposits / (outflows) (33,931) (1,964) n.m. (30,051) (1,774) n.m.
USD 101 million in 2015 due to lower average account balances. �� Latin America contributed USD 1 million to underlying earnings before tax in 2016.
is structured in such a way as to provide relevant customer solutions that are easy to understand, and that address the full range of customers' financial protection and savings needs at every stage of life as they save, invest, protect and create retirement income. Moreover, Aegon USA's structure enables it to leverage Transamerica's brand strength, expertise and capabilities in order to fulfill Aegon’s purpose of helping people achieve a lifetime of financial security.
that may credit interest based, in part, on the percentage change in the value of the selected index account option(s) at the start and end of the crediting period. A fixed account option is also available. Additional guarantees, also referred to as riders, can be added to fixed-index annuities, including GLBs. Aegon USA's fixed-index annuity is distributed through third-party or affiliated broker-dealers and/or insurance agencies.
Latin America Aegon’s businesses in Latin America are comprised of a 50%
Mongeral Aegon, which already serves over 2 million customers nationwide through over 4,000 brokers
Life reinsurance In August 2011, Aegon completed the effective divestment of its life reinsurance business with the exception of certain selected blocks of business. The retained businesses comprise primarily variable annuity guarantee business.
Recent regulatory enhancements include increased reporting of holding company activities, increased transparency and uniformity for certain captive reinsurance transactions, and requirements for companies to conduct an Own Risk and Solvency Assessment (ORSA). Aegon USA is subject to NAIC Actuarial Guidelines 48 and 49, which became fully effective in 2015 and 2016 respectively, and is also subject to Principle-based reserving requirements for life insurance, which became effective in 2017.
is a leading provider, as well as expand the safe harbor for automatic enrollment in plans, and reduce the burden of offering annuities either as an in-plan investment option or as the form of distribution from a plan. In addition, both the Treasury and the DOL have published, in final and proposed forms respectively, guidance to facilitate the offering of guaranteed lifetime income products. Furthermore, many states have sought to open their plans to non-government workers who do not have access to an employer retirement savings plan.
There can be no assurance that the Tax Cuts and Jobs Act will not have a material adverse impact on Aegon’s businesses, results of operations, and financial position.
Other income of EUR 336 million in 2017 included a gain on the sale of UMG in the Netherlands, while the sale of the majority of the UK annuity portfolio was the main driver behind
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 7 6 19
Defined benefit group contracts or defined benefit subscriptions both provide a guarantee on the benefits paid. The longevity risk therefore lies with Aegon the Netherlands.
Various legal and regulatory changes have had an impact on demand for insurance products in the Dutch market.
Financial supervision of insurance companies Insurance supervision in EU member states is based on
(a capital conservation buffer and a counter-cyclical buffer), a new liquidity framework (liquidity coverage ratio and net stable funding ratio and a leverage ratio. The leverage ratio is defined as Tier-1 capital divided by a measure of non-risk weighted assets. If Basel III is followed under CRD IV, the leverage ratio may not fall below 3%, although uncertainty still remains as to the exact percentage and the scope of the leverage ratio under
On August 9, 2017, Aegon announced the sale of Aegon Ireland plc to AGER Bermuda Holding Ltd., the holding company of the
UK's core pension expertise. The modernization of the Cofunds business by migrating it on to Aegon’s market-leading technology will see Aegon UK emerge with a market-leading position among intermediary platforms.
Aegon Ireland offshore investment bonds are offered exclusively in the UK. They are not actively marketed, and are distributed through the ARC proposition, other third-party propositions, banks and financial advisors.
In addition, Aegon UK offers a range of protection products for small- to medium-sized companies that wish to insure key personnel. This is a key market for Aegon, and the Company currently protects 400,000 customers.
Aegon was ranked third in terms of both the number of participants and managed assets in 2016 in the voluntary pension fund market in Hungary14. In December 2017, Aegon was ranked fifth in terms of managed assets and fourth in terms of number of participants in the Slovakian private pension market15. Based on May 2017 data, Aegon combined with Nordea was ranked fourth in terms of both the number of participants and managed assets in Poland16. In November 2017, Aegon was the fourth largest provider in the Romanian mandatory private pension market, both in terms of net assets under management and number of participants17.
Santander Generales for general insurance products. Aegon Spain and Banco Santander are both shareholders of these entities: Aegon Spain's share in each entity is 51%; and Banco Santander
Catalonian political situation In 2017, Spain experienced considerable political tension following the request for independence by the Regional
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 2 3 (38) 2 3 (37)
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (2) (3) 38 (2) (3) 37
Life products, Term Life products are also marketed to high-networth consumers, with protection offered at a guaranteed level rate for up to 30 years.
Aegon Insights Aegon Insights primarily worked with local insurers to develop marketing and distribution solutions tailored to the needs of specific markets and customers. With changes in consumer preferences, the focus is on exploring opportunities in the emerging digital distribution landscape. Revenue is primarily generated through reinsurance arrangements and fee income from marketing services and product distribution. During 2017,
made several regulatory changes to ensure that the industry focused on protection products rather than high guarantee savings products. The CIRC also strengthened the regulation with regards to mis-selling, corporate governance, related party transactions, the use of insurance fund, product design, customer service and innovative business risks.
Kong was until June 26, 2017, regulated by the Office of the Commissioner of Insurance (OCI). Changes to the Insurance
Results 2016 Aegon Asset Management Net income in 2016 decreased compared with 2015 to EUR 97 million as a result of lower underlying earnings before tax compared with 2015. Lower underlying earnings before tax in 2016 compared with 2015 was mainly the result of lower underlying earnings before tax in 2016 compared with 2015 from Aegon’s Chinese asset management joint venture AIFMC due to the normalization of performance fees. Gross flows in other third-party asset management increased by 37% to EUR 46 billion in 2016 compared with 2015, mainly driven by higher gross inflows in the US, the Netherlands and Strategic partnerships.
In order to assess all risks, a consistent methodology for measuring risks is required. Aegon’s methodology for this is documented in a manual and maintained up-to-date. The risk metrics are embedded in Aegon’s key reports and are used for decision making.
Risk control A system of effective controls is required to mitigate the risks identified. In Aegon’s ERM framework risk control includes risk governance, risk policies, internal control framework, model validation, risk embedding, risk culture and compliance.
Medium to high – Underwriting risk is Aegon’s core business and meets customer needs.
Aegon created and updated several policies with a specific focus on conduct risks (e.g. update of the Pricing and Product
Committee (SBRC); �� The Executive Board and the Management Board; �� The Group Risk & Capital Committee (GRCC) and its subcommittees; and �� The Regional Risk & Capital Committees.
The impact on Available Own Funds in 2016 is included in the table in the Capital quality section below. Aegon will manage its available capital on the new basis. Aegon Bank is excluded from the Group Solvency ratio, as required by the Group Solvency II
Aegon United Kingdom (Solvency II ratio) 176% 156% 1 The Solvency II ratios are estimates, are not final until filed with the regulator and are subject to supervisory review. 2 Refer to section ‘Internal capital management framework’ for Aegon’s capitalization target ranges. 3 The 2016 comparative numbers are the final numbers as disclosed in Aegon’s 2016 Solvency and Financial Condition Report.
Capitalization management actions >200% SCR Opportunity >450% RBC >190% SCR >185% SCR Accelerate capital redeployment and/or additional dividends.
The minimum regulatory capital requirements, as viewed by Aegon, for its main operating units and the capitalization levels as at December 31, 2017, are included in the following table: Capital requirements Minimum capital requirement Actual capitalization Excess over minimum capital requirement
(EIOPA) guidance on group solvency calculation with regards to equivalence and in line wth methods applied by other European peer compnaies. Furthermore, Aegon applied a revised method to allocate centrally issued subordinated debt between the
EUR 500 million senior unsecured notes at -16 basis points yield on August 30, 2017, offset the redemption of EUR 500 million 3% senior unsecured notes on July 18, 2017.
Regulation and Supervision Individual regulated Aegon companies are each subject to prudential supervision in their respective home countries.
Capital Requirement (SCR). Insurance and reinsurance companies are allowed to: (a) use a standard formula to calculate their
(such as policies and procedures), a risk governance system and an effective assessment of the risk and solvency position of the Company (including a prospective assessment of risks), through the Own Risk and Solvency Assessment (ORSA) process.
breach of the MCR); and ultimately, the revocation of an insurance or reinsurance license (a measure that relates to
Aegon uses a combination of the two aggregation methods defined within the Solvency II framework to calculate the
States, Aegon uses the Deduction and Aggregation method, with local regulatory requirements to translate these into the
IAIS will proceed with the development of ICS version 2.0 informed by field tests in 2018 and 2019. The implementation of ICS version 2.0 will be conducted in two phases – a fiveyear monitoring phase, where all IAIGs will submit mandatory
US - EU Covered Agreement On January 13, 2017, the European Commission and the
Risk Committee meeting that Dona Young and Bob Dineen were unable to attend, and the Audit Committee deep dive meeting in October which Bob Dineen was unable to attend. An overview of Supervisory Board members' attendance by meeting is provided in the table below.
Board’s effectiveness; �� Human resources, including talent development, results of the global employee survey, cultural change and the risks of cultural behavior within the Company; �� Annual and quarterly results, dividends and the
DNB) in the first half of 2017 for their annual meeting to discuss issues with regards to strategy, risk management and compliance.
In 2016 and 2017 a self-assessment was undertaken by the Board. This Board review assessed the collective performance and effectiveness of the Board and its Committees, and the performance of the Chairman. In doing so, it addressed the composition, competencies, expertise and profile of the
Solvency II reporting and controls, information technology, remuneration, model management, vendor management and outsourcing, capital management and liquidity, and the remediation of outstanding issues; �� Reviewed the internal control framework, among others with respect to the Sarbanes Oxley Act; and �� Discussed the internal control statement with the
ORSA report and the consequences and actions following the designation of Aegon as a G-SII in November 2015. In addition, the Risk Committee dedicated time to wider developments in the geopolitical environment and financial markets in 2017.
Governance Committee was as follows: �� Robert J. Routs (chair); �� Ben van der Veer; �� Dirk P.M. Verbeek; and �� Corien M. Wortmann-Kool.
Governance Committee discussed the Company’s responsible business strategy. In addition, the Nomination and Governance
Board noted that Aegon continued to make progress in order to ensure proper succession planning is in place. The Supervisory
Board actively searches for female candidates. It also instructs external search firms to present female candidates. While this has had a positive effect, the requirement has not yet been fully met. More information on diversity within the Board is available in the Supervisory Board Composition and Competency Overview as published on aegon.com.
Identified Staff and Heads of Group Control functions; and �� Preparing the information provided to shareholders on remuneration policies and practices, including the
In 2017, the Remuneration Committee oversaw the further application, implementation and approval of Aegon’s Group
In addition, the Remuneration Committee discussed possible developments with regards to regulations pertaining to remuneration and discussed the new Dutch Corporate
Human Resources, Risk Management, Compliance and Audit are involved in all steps of the process.
The GRF includes separate remuneration policies for three specific groups of employees. This is in recognition of the fact that these employees' roles and responsibilities require specific risk mitigating measures and governance processes. These remuneration policies are for: (i) the Executive Board; (ii) material risk takers (Identified Staff); and (iii) Control Staff. Given the rationale for having a separate policy for material risk takers and the risk mitigating measures that are applied to the remuneration of these individuals, Risk Management is involved in deciding which positions are deemed 'Identified Staff'. Furthermore, where exceptions to the policies are requested to reflect local practices or regulations, Risk Management and Compliance are involved in order to ensure such exceptions do not undermine effective risk management and that sufficient mitigating measures are undertaken.
CEO expense) versus the expense of the CEO pay elements based on costs recognized under IFRS. For 2017 this ratio is 41.7 (2016: 41.9; 2015: 44.0). The committee is conscious of the significant difference in the geographical footprint of the
(including the long-term value creation objective embedded therein) and focussed on the role of the Executive. The targets support the achievement of the operational- and financialgoals to which the Company has committed itself. Performance is assessed following the year. Pay-out of variable compensation is based on the assessed performance.
In addition, the Supervisory Board applies an ex-post risk assessment to deferred payouts of variable compensation to determine whether allocated (that is, unvested) variable compensation should become unconditional (meaning it vests) or should be adjusted. This ex-post assessment is based on informed judgment by the Supervisory Board, taking into account significant and exceptional circumstances that are not (sufficiently) reflected in the initially applied performance indicators.
Executive Board Remuneration Report At the end of December 2017, Aegon’s Executive Board had two members: �� Alex Wynaendts, Chief Executive Officer and Chairman of the Executive Board. Mr. Wynaendts was appointed as a member of the Executive Board in 2003 for four years, and re-appointed in 2007, 2011 and most recently in 2015.
Mr. Wynaendts’ current term ends at the General Meeting of Shareholders 2019. �� Matthew J. Rider, Chief Financial Officer and member of the Executive Board, was appointed as a member of the
Company did not provide any loans to or issue guarantees in the favor of either of the members of the Executive Board.
Management Board, which has ten members, including the members of the Executive Board. Aegon’s Management Board is composed of Alex Wynaendts, Matthew J. Rider, Mark Bloom,
In the event of a Special Cause, Vereniging Aegon may cast one vote for every common share and one vote for every common share B.
A Special Cause may include: �� The acquisition by a third party of an interest in Aegon N.V.
These regulations require that Aegon’s CEO (the Chairman of the Executive Board) and CFO report on and certify the effectiveness of Aegon’s internal controls over financial reporting on an annual basis. Furthermore, external auditors are required to provide an opinion on the effectiveness of Aegon’s internal controls over financial reporting. The SOX 404 statement by the Executive Board is stated below, followed by the report of the external auditor.
Notes to the consolidated financial statements 1 General information 154 2 Summary of significant accounting policies 154 3 Critical accounting estimates and judgment in applying accounting policies 176 4 Financial risks 178 5 Segment information 205 6 Premium income and premiums paid to reinsurers 216 7 Investment income 216 8 Fee and commission income 217 9 Income from reinsurance ceded 217 10 Results from financial transactions 217 11 Other income 219 12 Policyholder claims and benefits 219 13 Profit sharing and rebates 219 14 Commissions and expenses 219 15 Impairment charges / (reversals) 221 16 Interest charges and related fees 222 17 Other charges 222 18 Income tax 223 19 Earnings per share 224 20 Dividend per common share 225 21 Cash and cash equivalents 226 22 Assets and liabilities held for sale 228 24 Investments for account of policyholders 232 26 Investments in joint ventures 236 27 Investments in associates 237 28 Reinsurance assets 238 29 Deferred expenses 239 30 Other assets and receivables 240 31 Intangible assets 243 32 Shareholders’ equity 245 33 Other equity instruments 251 34 Subordinated borrowings 252 35 Trust pass-through securities 253 36 Insurance contracts 253 37 Investment contracts 256 38 Guarantees in insurance contracts 257 41 Defined benefit plans 263 42 Deferred gains 270 43 Deferred tax 270 44 Other liabilities 272 46 Capital management and solvency 273 47 Fair value 277 48 Commitments and contingencies 290 49 Transfers of financial assets 294 50 Offsetting, enforceable master netting arrangements and similar agreements 296 51 Business combinations 297 52 Group companies 300 53 Related party transactions 302 54 Events after the reporting period 308
Income tax relating to items that may be reclassified - - 874 - 76 - 951 - 951
Dividends paid on common shares (142) (296) - - - - (439) - (439)
Remeasurements of defined benefit plans - - - 240 - - 240 - 240
Movements in foreign currency translation and net foreign investment hedging reserves - - - (86) 1,505 - 1,419 - 1,419
Coupons on non-cumulative subordinated notes - (28) - - - - (28) - (28)
Share options and incentive plans - (7) - - - (27) (33) - (33)
7,118 million) dividends received (2017: EUR 1,292 million, 2016: EUR 1,387 million and 2015: EUR 1,384 million) and interest paid (2017: EUR 311 million, 2016: EUR 300 million and 2015: EUR 350 million). All included in operating activities except for dividend received from joint ventures and associates (2017: EUR 129 million, 2016: EUR 203 million and 2015: EUR 76 million).
IFRS 17 Insurance contract January 1, 2021 Not yet No See below for comments
The IASB issued the complete version of IFRS 9 Financial Instruments in July 2014, which was endorsed by the European Union in November 2016. IFRS 9 combines classification and measurement, the expected credit loss impairment model and hedge accounting.
In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers. This new standard was endorsed by the European
Subsidiaries are deconsolidated when control ceases to exist. Any difference between the net proceeds plus the fair value of any retained interest and the carrying amount of the subsidiary including non-controlling interests is recognized in the income statement.
Non-cumulative subordinated notes are identified as a compound instrument due to the nature of this financial instrument. For these non-cumulative subordinated notes, Aegon has an unconditional right to avoid delivering cash or another financial asset to settle the coupon payments. The redemption of the principal is however not at the discretion of Aegon and therefore Aegon has a contractual obligation to settle the redemption in cash or another financial asset or through the exchange of financial assets and liabilities at potentially unfavorable conditions for Aegon. Compound instruments are separated into liability components and equity components. The liability component for the non-cumulative subordinated notes is equal to the present value of the redemption amount and carried at amortized cost using the effective interest rate method. The unwinding of the discount of this component is recognized in the income statement. The liability component is derecognized when the Group’s obligation under the contract expires, is discharged or is cancelled. At initial recognition the equity component is assigned the residual amount after deducting the liability component from the fair value of the instrument as a whole. The equity component in US dollars is translated into euro using historical exchange rates.
c. Share-based payments The Group has issued share-based plans that entitle employees to receive equity instruments issued by the Group or cash payments based on the price of Aegon N.V. common shares. Some plans provide employees of the Group with the choice of settlement.
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.
Assumptions are reviewed periodically, typically in the third quarter, based on historical experience, observable market data, including market transactions such as acquisitions and reinsurance transactions, anticipated trends and legislative changes. Similarly, the models and systems used for determining our liabilities are reviewed periodically and, if deemed necessary, updated based on emerging best practices and available technology.
Results of Aegon’s sensitivity analyses are presented throughout this section to show the estimated sensitivity of net income and shareholders' equity to various scenarios. For each type of market risk, the analysis shows how net income and shareholders' equity would have been affected by changes in the relevant risk variable that were reasonably possible at the reporting date. For each sensitivity test the impact of a reasonably possible change in a single factor is shown. Management action is taken into account to the extent that it is part of Aegon’s regular policies and procedures, such as established hedging programs. However, incidental management actions that would require a change in policies and procedures are not considered.
Decrease by 15% of GBP currencies relative to the euro (16) (216)
Further information on the related reinsurance transactions is included in note 28 Reinsurance assets.
Total held by Aegon Americas, NL and UK 12,488 (464) 20,993 (1,217)
These factors have contributed to continued credit spread tightening across the asset class.
The table below provides the length of time an available-for-sale security has been below cost and the respective unrealized loss.
Equity market risk and other investments risk Fluctuations in the equity, real estate and capital markets have affected Aegon’s profitability, capital position and sales of equity related products in the past and may continue to do so. Exposure to equity, real estate and capital markets exists in both assets and liabilities. Asset exposure exists through direct equity investment, where Aegon bears all or most of the volatility in returns and investment performance risk. Equity market exposure is also present in insurance and investment contracts for policyholders where funds are invested in equities, backing variable annuities, unit-linked products and mutual funds. Although most of the risk remains with the policyholder, lower investment returns can reduce the asset management fee earned by Aegon on the asset balance in these products. In addition, some of this business has minimum return or accumulation guarantees.
Holding and other activities Total 2017 1 Common shares in Holding and other activities includes the elimination of treasury shares in the general account for an amount of EUR nil million.
Realized gains and losses on financial investments 10 431 327 349
Net fair value change on investments in real estate for account of policyholders 38 (26) 67
Income tax calculated using weighted average applicable statutory rates 710 288 (87)
Total income tax recognised directly in retained earnings 58 41 46
Certain derivatives are used to add risk by selling protection in the form of single name and index based credit default swaps. Another strategy used is to synthetically replicate corporate and government credit exposures with credit derivatives. This involves the purchase of high quality, low risk assets and the sale of credit derivatives. The table above provides a breakdown to credit quality of these credit derivatives.
Current financial liabilities excluding trade payables and other provisions - - 30 60
Real estate held for own use and equipment 30.1 530 572
In June 2017, Aegon distributed to its shareholders who elected stock dividend a total number of 26,916,371 common shares in respect to the final dividend for 2016. This stock dividend distribution was paid from treasury shares (note 32.3 Treasury shares).
In June 2015, Aegon distributed to its shareholders who elected stock dividend a total number of 16,279,933 common shares in respect to the final dividend for 2014. This stock dividend distribution was fully paid from treasury shares (note 32.3 Treasury shares).
Transactions in 2015: As part of their insurance and investment operations, subsidiaries within the Group also hold Aegon N.V. common shares, both for their own account and for account of policyholders. These shares have been treated as treasury shares and are (de)recognized at the consideration paid or received.
Coupon rate Coupon date Year of issue Year of maturity Year of next call 2017 2016
Aegon is unable to fully recover upfront expenses in selling a product despite the presence of commission recoveries or surrender charges and fees. There are also products where Aegon is at risk if lapses decrease, for example where this would result in a higher utilization rate of product guarantees. 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.
Gross premium and deposits – existing and new business 6,498 6,356
Gross premium and deposits – existing and new business 5,393 1,313 6,706
EUR 500 million Conditional Pass-Through Covered Bond 1), 8) 0.750% Annual 2017 / 27 486 -
Aegon N.V. - refer to note 48 Commitments and contingencies. 12 This debenture was issued by a wholly owned captive that was consolidated in the Aegon N.V. consolidated financial statements. It was repaid on
Remeasurements of defined benefit plans (233) 10 (224) 388 5 392
The weighted average duration of the defined benefit obligation is 13.2 years (2016: 13.3 years).
The contributions to the retirement benefit plan of Aegon Nederland are paid by both the employees and the employer, with the employer contribution being variable1. The benefits covered are retirement benefits, disability, death and survivor pension and are based on an average wage system. The defined benefit plans were unfunded by EUR 2,628 million at December 31, 2017. (2016: EUR 3,121 million). The defined benefit plans are largely backed by investment, although these assets do not qualify as ‘plan assets’
The carrying amounts disclosed reasonably approximate the fair values at year-end, given the predominantly current nature of the other liabilities.
Tier 3 capital as of December 31, 2017 is comprised of deferred tax assets balances related to Solvency II entities.
Examples include the adjustments for subordinated liabilities, ring-fenced fund, treasury shares and foreseeable dividend (if applicable).
Aegon’s total capitalization comprises the following components: �� Shareholders’ equity excluding revaluation reserves and the remeasurement of defined benefit plans, based on IFRS as adopted by the EU; �� Non-controlling interests and share options not yet exercised; and �� Total financial leverage.
Non-controlling interests, share options and incentive plans not yet exercised 33, SOFP 2) 81 88
Fair value hierarchy The table below provides an analysis of assets and liabilities recorded at fair value on a recurring basis by level of the fair value hierarchy: Level I Level II Level III Total 2017
Note that the investment contracts for account of policyholders previously reported as Level I have been reclassified to Level II, as the value of these liabilities is directly derived from the fair value of the linked investments for account of policyholders. The comparative numbers have been adjusted accordingly. These reclassifications had no effect on net income, shareholders’ equity or earnings per share.
Investment funds: Real estate funds, private equity funds and hedge funds The fair values of investments held in non-quoted investment funds are determined by management after taking into consideration information provided by the fund managers. Aegon reviews the valuations each month and performs analytical procedures and trending analyses to ensure the fair values are appropriate. The net asset value is considered the best valuation method that approximates the fair value of the funds.
Aegon’s valuation policy utilizes a pricing hierarchy which dictates that publicly available prices are initially sought from indices and third-party pricing services. In the event that pricing is not available from these sources, 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/
Valuations of corporate bonds are monitored and reviewed on a monthly basis. The pricing hierarchy is dependent on the possibility of corroboration of market prices when available. If no market prices are available, valuations are determined by a discounted cash flow methodology using an internally calculated yield. The yield is comprised of a credit spread over a given benchmark. In all cases the benchmark is an observable input. The credit spread contains both observable and unobservable inputs. Aegon starts by taking an observable credit spread from a similar bond of the given issuer, and then adjust this spread based on unobservable inputs. These unobservable inputs may include subordination, liquidity and maturity differences. The weighted average credit spread used in valuation of corporate bonds has decreased to 2.6% (December 31, 2016: 3.1%).
The expected returns are based on risk-free rates. Aegon added a premium to reflect the credit spread as required. The credit spread is set by using the Credit default swap (CDS) spreads of a reference portfolio of life insurance companies (including Aegon), adjusted to reflect the subordination of senior debt holders at the holding company level to the position of policyholders at the operating
Aegon has defended and will continue to defend itself vigorously when it believes claims are without merit. Aegon has also settled and will seek to settle certain claims, including through policy modifications, as it believes appropriate. While Aegon intends to resist claims, there can be no assurance that claims brought against Aegon will not have a material adverse impact on its businesses, results of operations, and financial position.
Consument & Markt). Aegon completed the sale on July 1, 2016, which resulted in a gain of EUR 11 million.
United Kingdom �� Aegon Investment Solutions Ltd., Edinburgh; �� Scottish Equitable plc, Edinburgh; �� Cofunds Limited, London.
Asset Management �� Aegon Asset Management Holding B.V., The Hague (The Netherlands); �� Aegon Custody B.V., The Hague (The Netherlands); �� Aegon Asset Management Pan-Europe B.V., The Hague (The Netherlands); �� Kames Capital plc, Edinburgh (United Kingdom); �� TKP Investments B.V., Groningen (The Netherlands); �� Aegon USA Investment Management, LLC, Cedar Rapids (United States); �� Aegon USA Realty Advisors, LLC, Des Moines (United States); �� Aegon Magyarország Befektetési Alapkezelő Zártkörűen Működő Részvénytársaság (Aegon Hungary Asset Management Company
1,725,169.73 based on 1/40th of the Value Weight Average Price of the common shares of the five trading days preceding this transaction. The repurchase of common shares B was executed to align the aggregate shareholding of Vereniging Aegon in Aegon
Variable compensation is split 50/50 in a cash payment and an allocation of shares. Of the variable compensation related to performance year 2016, 40% is payable in 2017. Accordingly, Mr. Wynaendts and Mr. Button will receive a cash payment of EUR 209 and EUR 149 respectively. The number of shares to be made available in 2017 relating to performance year 2016 is 40,722 and 29,614 for Mr. Wynaendts and Mr. Button respectively. The vested shares, less the number of shares to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the
Total pension contributions 1,894 2,006 1,434 1 The increase to the base pay of Mr. Wynaendts in 2016, resulted in a backservice liability of EUR 1,361 in 2016 which is expensed over 2016 - 2019
The amounts as presented in the table are the pension contributions in the related book year. The 2017 and 2016 contributions for
Under IFRS-EU, the service cost as recognized in the income statement related to the defined benefit obligation of Mr. Wynaendts amounted to EUR 1,733 (2016: EUR 1,666; 2015: EUR 1,962). Service cost for Mr. Rider amounted to EUR 175 (2016: nil; 2015: nil).
The interest rate exposure on some of these securities has been swapped to a three-month LIBOR and/or EURIBOR based yield.
Non-cumulative subordinated notes Coupon rate Coupon date, as of Year of next call 2017 2016
21 Events after the reporting period There were no events after the reporting period.
Independence We are independent of Aegon N.V. in accordance with the European Regulation on specific requirements regarding statutory audit of public interest entities, the ‘Wet toezicht accountantsorganisaties’ (Wta, Audit firms supervision act), the ‘Verordening inzake de onafhankelijkheid van accountants bij assuranceopdrachten’ (ViO – Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence requirements in the Netherlands. Furthermore, we have complied with the
We tailored the scope of our audit to ensure that we performed sufficient work to be able to give an opinion on the financial statements as a whole. The units, supported by local finance, risk management, actuarial and tax functions, maintain their own accounting records and controls and report to the Group finance team in The Hague, the Netherlands, through an integrated consolidation system. In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed at each of the units by us, the Group engagement team, or component auditors operating under our instructions.
DPAC amounts to EUR 9.7 billion and VOBA to EUR 1.2 billion or a total 2.7% of total assets and involve significant judgment in the measurement and assessment of recoverability of these assets. For this reason, they are considered key matters for our audit. The recoverability is based in part on the outcome of the liability adequacy test in which adequacy of the insurance liabilities is determined and projected future cash flows and, if determined to be insufficient, would trigger a write-down of the asset. The DPAC and VOBA associated with the investment and retirement business in Aegon Americas, which represents 84.7%
and VOBA asset for these lines of business is based on projected future gross profits, which is determined based on assumptions such as mortality, morbidity and customer behaviour.
We also considered the adequacy of the disclosures in the consolidated financial statements to determine whether they were in accordance with IFRS-EU.
The insurance industry continues to face consumer activism and regulatory scrutiny over product design and selling practices.
The Group uses external legal experts where applicable to evaluate its legal positions. Given the uncertainty and judgment in this area in terms of valuation and presentation / disclosure we determined this as a key audit matter.
Remeasurement of defined benefit plans of group companies 13 (1,669) (1,820)
Aegon’s ability to pay dividends. Furthermore, such requirements may constrain Aegon’s ability to provide guarantees and increase the cost to Aegon of offering certain products resulting in price increases, discontinuance of offering of certain products or reducing the amount of risk Aegon takes on. Aegon may consider structural and other business alternatives in light of its G-SII designation, of which the impact on shareholders cannot be predicted.
Insurance companies and their affiliated regulated entities are routinely the subject of litigation, investigation and regulatory activity by various governmental and enforcement authorities, individual claimants and policyholder advocate groups, involving issues such as, but not limited to, employment or distribution relationships; operational and internal controls and processes; disclosures; environmental matters; competition and antitrust matters; data privacy; information security; intellectual property; and anti-money laundering, anti-bribery and economic sanctions compliance. For example with respect to employment relationships, Aegon recently faced a suit in the state of Georgia filed by self-employed independent insurance agents associated with one of Aegon’s financial marketing units who claimed to be employees of the organization. This lawsuit was resolved favorably to Aegon. The SEC is conducting a formal investigation related to certain investment strategies offered through mutual funds, variable products and separately managed accounts. These strategies used quantitative models developed by one of the former portfolio managers of Aegon’s US investment management business unit. Among other things, the investigation relates to the operation of and/or the existence of errors in the quantitative models in question and related disclosures. The funds and strategies under review were sub-advised, advised or marketed by Aegon’s US group companies. The models are no longer being used although some of the funds are still being offered. The quantitative management strategies are no longer being offered. Aegon is cooperating fully with the investigation. Aegon believes that the investigation will come to a conclusion in 2018, and has taken a provision in anticipation of a possible settlement with the SEC.
The case is now pending at the court of appeal of The Hague. There can be no assurances that this matter will not ultimately result in a material adverse effect on Aegon’s business, results of operations and financial position. In Poland, owners of unit-linked policies continue to file claims in civil court against Aegon over fees payable upon purchase or surrender of the product. Plaintiffs claim that these fees are not contractually supported. For reasons of commercial necessity as well as at the instigation of regulatory authorities,
Aegon’s reputation and adversely affect Aegon’s results of operations, financial condition and cash flows.
All of Aegon’s employees in the Netherlands, other than senior management, are covered by the collective labor agreement of Aegon
Generally, gift tax (schenkbelasting) or inheritance tax (erfbelasting) will be due in the Netherlands in respect of the acquisition of Aegon common shares by way of a gift by, or on behalf of, or on the death of, a holder of Aegon common shares that is a resident or deemed to be a resident of the Netherlands for the purposes of the Netherlands Gift and Inheritance Tax Act 1956 (Successiewet 1956) at the time of the gift or his or her death. A gift made under a condition precedent is for the purposes of the Netherlands Gift and Inheritance Tax Act 1956 deemed to be made at the time the condition precedent is fulfilled and is subject to gift tax if the donor is, or is deemed to be, a resident of the Netherlands at that time.
US holder's foreign tax deduction or credit as described above. Investors are urged to consult their tax advisors regarding the general creditability or deductibility of Dutch withholding taxes.
Principal accountant fees and services PricewaterhouseCoopers Accountants N.V. (PwC) has served as Aegon’s independent public accountant for each of the years in the three-year period ended December 31, 2017, for which audited financial statements appear in this Annual Report.
Gross deposits (on and off balance sheet) 33,969 34,835 40,691 34,917 144,412 30,078 22,953 24,669 22,625 100,325
Control Level (ACL) - the level regulators are permitted to seize control of a company. It is a requirement and the most pertinent for measuring risk-based capital (RBC).
20. On February 15, 2018, Aegon announced that Dirk Verbeek, member of the Supervisory Board, decided to step down after 10 years of service, at the General Meeting of Shareholders on May 18, 2018.
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