| | Our employees are critical stakeholders as their labor, insight and innovation is central to Aegon’s overall value proposition. As such, we invest in their personal and professional development, and seek to encourage a spirit of lifelong learning. Aegon has administered its Analytics for Leaders training to more than 1,000 senior employees around the world. The program combines analytics and leadership training so that our senior leaders gain fluency in analytic techniques and, most importantly, have guidance about how to apply data analytics in theday-to-day management of their teams. We are especially interested in helping executives understand the ways in which leveraging data can create new options for better decision-making. 1 | The UN Sustainable Development Goals were formally adopted in September 2015. There are 17 SDGs in total, covering hunger, poverty, health, the environment, housing etc. For each SDG, there is a series of specific goals, targets and indicators. For more information, see https://www.un.org/sustainabledevelopment/ sustainable-development-goals/
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Employee engagement Our goal is that all Aegon employees will form a worldwide community of talented and driven individuals who are deeply engaged with our purpose to help people achieve a lifetime of financial security. We measure employee engagement annually, and our latest survey was carried out in the fourth quarter of 2019 with the company-wide employee engagement score being 67, slightly up from 2018. An engaged workforce can only be effective if it is a healthy and happy community. To promote health and welfare of our employees we: | ◆ | | Seek opportunities for their career development; |
| ◆ | | Use a new performance management process that has a stronger focus on development; |
| ◆ | | Promote greater diversity within an inclusive workplace; and |
| ◆ | | Foster training and development to equip our employees with future-ready capabilities. |
We offer extensive training and career development. Our programs include online courses, seminars and lectures. We provide specialized training in areas including products and sales, new regulations, risk management, responsible investment, and information security and data privacy. We also offer leadership training and awareness programs in diversity, health and safety. All employees have access to our Global Learning Catalogues and are encouraged to use it to help shape their development journeys. In 2019, we spent a total of EUR 17 million on training and development, equivalent to over EUR 700 for each employee. In 2019, our employee turnover rate improved to 32%, down from 33% in 2018. Elevated turnover rates include the transfer of selected operational activities to our strategic partners TCS, LTCG and Atos. Inclusion and diversity As Aegon is a global company, we understand the importance of embedding inclusion and diversity in who we are and everything we do. In July 2019, Aegon updated its Statement on Inclusion & Diversity to create a truly safe and inclusive working environment. Inclusion and diversity, andnon-discrimination are built into our Code of Conduct. In the Netherlands, our latest collective labor agreement stipulates equal pay for men and women performing the same functions. We monitor our business for potential pay disparities and found that so far, we have achieved parity among employees with identical job functions. Similarly, a pay equality analysis was undertaken in 2019 by Transamerica which did not identify any significant areas of concern. We have initiatives to support gender diversity. In the Netherlands, for example, we are signatories to the Talent to the Top program, which works to increase the number of women in senior management. Two of our current six Supervisory Board | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | 33 | | | | Aegon: A partner to the world | | | | | | | | | | |
members are women – in line with Dutch government objectives. We seek to identify one or more women candidates for each open position. In February 2019, Aegon UK signed the UK’s HM Treasury Women in Finance Charter, wherein we committed to a gender target of 33% female representation in ourCEO-2 population by the end of 2021. On top of this, we made an additional commitment that all candidate shortlists for appointments to the Board andCEO-2 population will contain at least 33% from each gender. In the US, we have a dedicated team focusing on creating more diversity in terms of both ethnic backgrounds and genders. In August 2019, Transamerica was named to the Diversity Best Practices Inclusion Index by Diversity Best Practices. Transamerica was one of only 80 organizations that earned a score of 60% or higher. Aegon has mentoring programs and supports company-wide groups like Aegon Proud and Young Aegon. We are also members of external organizations, like Women in Financial Services and Workplace Pride. Aegon was awarded the Workplace Pride ‘Ambassador’ certificate in November 2019 for our ongoing efforts to set the tone for the financial services industry. The certificate also recognizes how Aegon shows a positive and direct impact on the lives of LGBT people through policies and practices both within the organization and the communities we work in. In the latest US Corporate Equality Index, we were ranked as one of the best places to work for LGBT employees. In 2019, we rolled out unconscious bias training for all employees worldwide. Aegon is also a member of the Agora Network, a foundation that convenes talents with roots from all over the world. Agora facilitates the exchange of knowledge, experiences and networks. In this way, the foundation inspires organizations to benefit from the power of all their constituent backgrounds and perspectives. To ensure that action on inclusion and diversity ambitions continues to gain momentum, targets have been included in the global CEO’s objectives and this approach has been replicated in other markets; for example, Aegon UK has included Inclusion & Diversity targets in the objectives of all senior leaders for 2020. Partners and suppliers Aegon enables the businesses of its partners and suppliers. Brokers and financial advisors who work in partnership with Aegon can build sustainable financial services practices of their own as they draw on our insights and products to serve their customers. The relationship is symbiotic as this network of independent financial intermediaries brings insurance and investment assets to Aegon, along with market intelligence that helps us to create and distribute targeted offerings to the end customer. We seek long-term strategic supplier partnerships where we believe a third-party possesses superior capabilities or can deliver better quality of service to our customers at a lower cost. Across our major business units, we recently entered a number of multi-year strategic partnership agreements with TCS, Atos, LTCG and a number of other trusted partners. We also seek to develop strong business relationships with suppliers and aim to use suppliers that serve our communities well. We currently have over 650 suppliers who are subject to our minimum supplier standards; as such, they have agreed to our Supplier Sustainability Declaration. We monitor our key partners regularly using astate-of-the-art procurement risk management system, and our procurement function measures the value we create via long-term relationships with our suppliers. Investors In 2019, we delivered a total of EUR 899 million to Aegon investors. Of this, EUR 611 million was in dividends to shareholders and the remaining EUR 288 million was delivered to Aegon bondholders. Our shareholders receive regular dividends, subject to customary approvals. An interim dividend is generally paid following half-year results. Final dividends are generally paid after approval by Aegon’s General Meeting of Shareholders in May, where shareholders are asked to approve the total dividends for the preceding financial year. Shareholders can opt for payment of dividends in cash or stock and we generally engage in share buyback programs to neutralize the effects of stock elections on the total outstanding shares, if our capital position allows. 
| | | | | | | | | | Last year, Aegon was the first company in the Netherlands to make agreements with the trade unions in its collective labor agreement on equal pay for men and women. Through AnalitiQs, we conducted a study of gender pay disparity with Aegon the Netherlands and the Group Corporate Center and found zero divergence in pay for men and women performing the same jobs, when accounting for age, work experience, and length of service. We are committed to improving on that result worldwide and recognize that for some women, having a shorter tenure or work history is the direct result of unaddressed inequalities throughout history. | | |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | 34 | | | | Aegon: A partner to the world | | | | | | | | | | |
Payment of dividends depends ultimately on the Company’s capital position and capital generation. Before deciding on dividends, management will also assess prospects for financial performance. Our goal is to deliver sustainable dividend growth for our shareholders over time. Since 2012, we have increased dividends every year by either one or two cents – equivalent to a 48% increase over seven years. Shareholders may also derive (or lose) value from the performance of our shares. In 2019, Aegon’s stock price increased by 0.3%. The European insurance sector in general performed better with the Stoxx Europe 600 Insurance index ending the year up by 24.4%. We believe the reasons for the relative underperformance include the lower interest rates in the US – to which we are more exposed than other European insurers - and the regulatory overhang from the upcoming Solvency II 2020 review, potentially impacting insurers with longer dated liabilities. Our total shareholder return for the year came to 8% (this measure considers payment of dividends as well as share price performance). Society Community investment We support local communities through charitable donations and volunteer work. The goals of our charitable and community investment programs are to: | ◆ | | Serve and strengthen the communities where we do business; |
| ◆ | | Engage and motivate employees; |
| ◆ | | Promote Aegon’s Responsible Business vision to all stakeholders. |
We have created a thematically driven community program and donations framework that reflects Aegon’s purpose and values. We support two keys themes: | ◆ | | Financial security and education, which includes promoting financial literacy and later life employment solutions; |
| ◆ | | Well-being and longevity, which includes promotion of physical fitness, mental vitality, disease prevention and support for livable communities. |
This brings us closer to our customers and gives our employees an opportunity to share their knowledge and expertise. In 2019, we donated a total of EUR 9.0 million mostly covering our key themes of financial security and education, and well-being and longevity. In the Netherlands for instance, we are part of aFrom debt to opportunity program; that works with 7,000in-debt families across the country. In the US, our donations are channeled through the Aegon Transamerica Foundation. This foundation donates at least 5% of its assets each year. In the UK, local donation decisions are taken by our employee Charity Committee. Volunteer work We also encourage our employees to volunteer, and the vast majority of our staff worldwide can claim paid time-off to work on local community projects. In 2019, Aegon employees volunteered approximately 19,500 hours – equivalent of EUR 0.9 million, based on their average salaries. Through our businesses, we support more than 500 local charities and good causes. Among the largest recipients in 2019 were United Way and Habitat for Humanity in the US, the VUMC Alzheimer Center in the Netherlands, and Sick Kids Friends Foundation and the Teenage Cancer Trust in the UK. Human rights Aegon is committed to the UN Universal Declaration of Human Rights and the core standards of the International Labor Organization. This is explicitly incorporated in numerous policies, such as the Code of Conduct (applicable to all Aegon employees across the globe), the Statement on Inclusion & Diversity, the Human Rights Policy and the Aegon Operational Risk Taxonomy. Aegon faces the most potential risks in indirect business relationships, which is why human rights are core to the Responsible Investment and Sustainable Procurement policies. Responsible tax We are firmly committed to making a valuable economic and social contribution to the communities in which we operate, both through our own tax payments and through collection and payments of third-party taxes. We seek to pay ‘fair taxes’, which for us means paying the right amounts of tax in the right places. It is our policy to allocate profits where value is created through our commercial business activities. For us, tax follows business, which means that our decisions are taken for business reasons and not for tax advantages. Following discussion with stakeholders, we published our Global Tax Policy online. This policy outlines Aegon’s approach to responsible tax, which seeks to align the long-term interests of all our customers, employees, business partners, investors, and wider society. We also hold regular meetings with NGOs to discuss Aegon’s tax strategy and policy. We strive to work together with tax authorities in a constructive and transparent manner. Our Horizontal Monitoring Agreement with the Dutch tax authorities shows our commitment to this principle. This includes public discussion and disclosure of policies and principles, as well as the overall governance and oversight of our tax position. Aegon Global Tax focusses on tax technology in setting its strategic targets. We believe that technology could be an effective means of achieving process efficiency and automated control. In the Netherlands, a proof of concept for a tax data management system and automated tax reporting is in | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | 35 | | | | Aegon: A partner to the world | | | | | | | | | | |
Taxes borne by Aegon, 2019 (in EUR million) 
| 1 | Includes state and withholding tax |
| 2 | Related to company’s own personnel (including social security tax) |
Taxes collected on behalf of others, 2019 (in EUR million) 
| 3 | Includes dividends, interest, royalties and others |
| 4 | Policyholders (including social security tax) |
For a breakdown of corporate income tax by country/region, please see page 404. Some numbers may not add up due to rounding. the process of being built. We strive for this technology to make tax compliance such as preparation of Dutch corporate income tax and value added tax returns more automatic. Disclosures are provided in our financial statements and cover tax payments in our main markets. We provide country-by-country tax reporting in a transparent and accurate manner to the tax authorities. We also provide details of our total tax contribution company-wide and by region in the charts above. Taxes borne are a cost of business and affect our financial results. Taxes collected are not a direct cost of business but are collected on behalf of governments from others. The reported numbers are on cash payment or accrual basis. Aegon’s tax function maintains an adequate staff of qualified and trained tax professionals to provide timely and high-quality tax support to our commercial decision-makers. In this regard, proper governance and procedures are in place to ensure that: | ◆ | | the tax team understands and is engaged in the tax effects of day-to-day business operations and involved in all significant business developments, investments and transactions; |
| ◆ | | the tax consequences are considered as part of every major business decision; and |
| ◆ | | Aegon’s tax control framework is constantly evolving to a higher maturity level. |
The Aegon Global Tax team is continuously trained on tax law, jurisprudence and/or other relevant developments. To ensure that tax dilemmas are dealt with in accordance with our Global Tax Policy, compliance with the Global Tax Policy is part of a quarterly attestation and our Global Tax training program. The Tax Risk Oversight Committee has been established to have a final say on dilemmas that have been escalated to it. Aegon’s tax function reports regularly to the Executive Board and Management Board on day-to-day operations and the status and effectiveness of the function. At least once a year, the tax function reports to the Supervisory Board’s Audit Committee. | | | | | | | | |  | | Annual Report on Form 20F2018 | |  |
| | | 40 | | How we safeguard long-term value creationLetter from our Supervisory Board Chairman | | | | | | Aegon Annual Report on Form 20-F2019 | | |
During 2018, Aegon’s Supervisory Board focused on how senior management continued to execute its strategy and transform the company. Aegon is now well positioned for growth from a capital, control, management, people and technology perspective. This gives us confidence for the future.
I was honored to be appointed Chair of Aegon’s Supervisory Board in May 2018. Our Board consists of people from a diverse range of backgrounds, nationalities and specialisms, with an equally diverse range of perspectives. What we share, is a common desire to support management in meeting its objectives.
A key objective has been the significant transformation Aegon has undergone in recent years, both in terms of what it does and where it does it. In particular, we are impressed by Aegon’s embrace of new digital technology, and its new capital allocation model. Now that Aegon’s transformation is largely complete, the Supervisory Board looks forward to shifting its focus to supporting the company’s growth agenda.
Beyond the horizon
From regulatory requirements to customer demands, the financial services landscape has never changed so fast and
as fundamentally as over the last decade. This process of change is only likely to accelerate in the years to come. For this reason, when it comes to strategy, our role as a Supervisory Board is to look beyond ‘the here and now’ and to focus on what lies beyond the horizon. What will, for instance, the industry look like a decade from now? What are the opportunities and risks? Above all, how can Aegon ensure that it first and foremost continues to grow as a responsible business dedicated to its purpose of helping people achieve a lifetime of financial security? By posing these questions we are able to assess how future-focused and prepared the company is, which in turn supports long-term thinking and long-term value creation, as set out in this report.
How we engage with Aegon’s long-term strategy is crucial to this task. Indeed, while regular meetings with senior management are critical to what we do, Supervisory Board visits to Aegon’s various
| | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 41 | | How we safeguard long-term value creationLetter from our Supervisory Board Chairman | | | | | | |
business units can prove every bit as illuminating, offering a ‘shop floor’ rather than purely a ‘board room’ perspective. For instance, such visits are an opportunity to witness how Aegon is embracing the latest digital technologies and data analytics, as well as talking to the people leading these initiatives from the ground up.
Public trust
No business operates in a vacuum and the Supervisory Board is both very aware of and attuned to discussions and debates regarding the role of financial services in society. The relationship between financial institutions and the public should, of course, be a positive one. Yet while the industry plays an important and laudable role providing people with financial security and helping businesses and economies to grow, it has yet to fully regain trust following the financial crisis, nor redress the apathy many still feel towards it.
The Supervisory Board is working with the Management Board to examine how Aegon can be part of the solution. Moreover, it is impressed with how Aegon’s purpose continues to not only provide the basis for putting customers first in all that it does, but also the inspiration to raise awareness about financial matters – such as the need to start saving early, and the consequences of moving away from traditional pension systems. Simple changes that can have hugely positive effects on millions of people’s lives.
Aegon also takes its responsibility to assist policy makers to deliver the right legislation that keeps pace with changes in society and continues to meet customers’ needs. The company can only do so because of the dedication and expertise of its people. I would, therefore, like to say a big thank you to Aegon staff across all businesses and regions.
I would like also to express my gratitude to my Supervisory Board colleagues for their contribution and support in 2018. I invite you all to look at the Report of the Supervisory Board, starting from page 51, for a comprehensive overview of our activities during 2018. We look forward to working with the Management Board in the year ahead to help them meet their targets and achieve Aegon’s purpose.
William Connelly
Supervisory Board Chairman
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 42 | | How we safeguard long-term value creationCorporate governance | | | | | | |
Corporate governance
Aegon is incorporated and based in the Netherlands. As a company established and listed in the Netherlands, Aegon must comply with Dutch law and is subject to the Dutch Corporate Governance Code. Aegon is governed by three corporate bodies: | ◆ | | General Meeting of Shareholders |
Aegon also has a Management Board. This works in unison with the Executive Board, and helps to oversee operational issues and the implementation of Aegon’s strategy. Aegon’s corporate governance structure is the responsibility of both the Supervisory Board and the Executive Board. Any substantive change to this structure is submitted to the General Meeting of Shareholders for discussion. The shareholders Listing and shareholder base Aegon’s common shares are listed on Euronext Amsterdam and the New York Stock Exchange. Aegon has institutional and retail shareholders around the world. More than three-quarters of shareholders are located in Aegon’s three main markets, the Netherlands, United States and the United Kingdom. Aegon’s largest shareholder is Vereniging Aegon, a Dutch association with a special purpose to protect the broader interests of the Company and its stakeholders. General Meeting of Shareholders A General Meeting of Shareholders is held at least once a year and, if deemed necessary, the Supervisory or Executive Board of the Company is able to convene an Extraordinary General Meeting of Shareholders. The main function of the General Meeting of Shareholders is to decide on matters such as the adoption of annual accounts, the approval of dividend payments and (re)appointments to the Supervisory Board and Executive Board of Aegon. Convocation General Meetings of Shareholders are convened by public notice at least 42 days before the meeting. The convocation states the time and location of the meeting, the record date, the agenda items, and the procedures for admittance to the meeting and representation at the meeting by means of a written proxy. Those shareholders who alone or jointly represent at least 1% of Aegon’s issued capital or a block of shares worth at least EUR 100 million may request items be added to the agenda of a General Meeting of Shareholders. In accordance with Aegon’s Articles of Association, such a request will be granted if it is received in writing at least 60 days before the meeting, and if there are no important interests of the Company that dictate otherwise. Record date The record date is used to determine shareholders’ entitlements with regard to their participation and voting rights. In accordance with Dutch law, the record date is 28 days before the day of the General Meeting of Shareholders. Attendance Every shareholder is entitled to attend the General Meeting to speak and vote, either in person or by proxy granted in writing. This includes proxies submitted electronically. All shareholders wishing to take part must provide proof of their identity and shareholding, and must notify the Company ahead of time of their intention to attend the meeting. Aegon also solicits proxies from New York registry shareholders in line with common practice in the United States. Voting at the General Meeting At the General Meeting, each common share carries one vote. In the absence of a Special Cause, Vereniging Aegon casts one vote for every 40 common shares B it holds. Supervisory Board Aegon’s Supervisory Board oversees the management of the Executive Board, in addition to the Company’s business and corporate strategy. The Supervisory Board must take into account the interests of all Aegon stakeholders. The Supervisory Board operates according to the principles of collective responsibility and accountability. Composition of the Supervisory Board Members of the Supervisory Board are appointed by the General Meeting of Shareholders, following nomination by the Supervisory Board itself. Aegon aims to ensure that the composition of the Company’s Supervisory Board is in line with Aegon’s diversity policy for the Supervisory Board, Executive Board and Management Board and is as such well-balanced in terms of professional background, geography, gender and other relevant aspects of the diversity policy. A profile, which is published on aegon.com, has been established that outlines the required qualifications of its members. Supervisory Board members are appointed for a four-year term, and may then be reappointed for another four-year period. Subsequently, thea Supervisory Board member can be reappointed again for a period of two years, and then extended by two | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
years at the most. Supervisory Board members are no longer eligible for (re)appointment after reaching the age of 70, unless the Supervisory Board decides to make an exception. Remuneration of the Supervisory Board members is determined | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 43 | | How we safeguard long-term value creationCorporate governance | | | | | | |
by the General Meeting of Shareholders. In 2018,2019, no transactions were concluded between the Company and any of the Supervisory Board members. Furthermore, the Company did not provide loans or issue guarantees to any members of the Supervisory Board. At present, Aegon’s Supervisory Board consists of sevensix members, all of whom qualify as independent in accordance with the Dutch Corporate Governance Code. During the Annual General Meeting of Shareholders on May 15, 2020, it will be proposed to the shareholders to appoint Thomas Wellauer and Caroline Ramsay as members of the Supervisory Board. Committees The Supervisory Board also oversees the activities of its committees. These committees are composed exclusively of Supervisory Board members and deal with specific issues related to Aegon’s financial accounts, risk management, executive remuneration and appointments. These committees are the: | ◆ | | Remuneration Committee; and |
| ◆ | | Nomination and Governance Committee. |
Executive Board Aegon’s Executive Board is charged with the overall management of the Company and is therefore responsible for achieving Aegon’s aims and developing the strategy and its associated risk profile, in addition to overseeing any relevant sustainability issues and the development of the Company’s earnings. Each member has duties related to his or her specific area of expertise. Aegon’s Articles of Association determine that for certain decisions the Executive Board must seek prior approval from the Supervisory Board and/or the approval of the General Meeting of Shareholders. In addition, the Supervisory Board may also subject other Executive Board decisions to its prior approval. Composition of the Executive Board Aegon’s Executive Board consists of Alexander R. Wynaendts, who is Chief Executive Officer (CEO) and Chairman of the Executive Board, and Matthew J. Rider, who is Chief Financial Officer (CFO), and member of the Executive Board. During the Annual General Meeting of Shareholders on May 15, 2020, it will be proposed to the shareholders to appoint Lard Friese as member to the Executive Board and succeed Alex Wynaendts as CEO. Following his appointment, Mr. Wynaendts will resign as member of the Executive Board and Mr. Friese will succeed Mr. Wynaendts as Chief Executive Officer of the Company. The number of Executive Board members and their terms of employment are determined by the Company’s Supervisory Board. Executive Board members are appointed by the General Meeting of Shareholders for a four-year term, following nomination by the Supervisory Board. The members of the Executive Board have an engagement agreement with the Company rather than an employment contract. The Company’s Remuneration Policy for the Executive Board limits exit arrangements to a maximum of one year of the fixed component of the salary. In 2018,2019, no transactions were concluded between the Company and either member of the Executive Board. Furthermore, the Company did not provide any loans to or issue guarantees in favor of either of the members of the Executive Board. Management Board Aegon’s Executive Board is assisted in its work by the Company’s Management Board, which has ten11 members, including the members of the Executive Board. Aegon’s Management Board is composed of Alex Wynaendts, Matthew J. Rider, Mark Bloom, Maarten Edixhoven, Adrian Grace, Allegra van Hövell-Patrizi, Marco Keim, Onno van Klinken, Carla Mahieu, Mark Mullin and Sarah Russell.Bas NieuweWeme. Mike Holliday-Williams will be appointed to the Management Board, and succeed Adrian Grace who will retire from the company on March 31, 2020. Aegon’s Management Board works in unison with the Executive Board, and helps oversee operational issues and the implementation of Aegon’s strategy. Members are drawn from Aegon’s business units and from Aegon’s global functions. The members have both regional and global responsibilities. This ensures that Aegon is managed as an integrated international business. While the Executive Board is Aegon’s sole statutory executive body, the Management Board provides vital support and expertise in pursuit of the Company’s strategic objectives. In the relationrelationship between the ManagementSupervisory Board and the SupervisoryManagement Board, the CEO shall be the first contact for the Supervisory Board and its Chairman. In addition thereto, and in connection with how the contacts between the Supervisory Board and the Management Board committee have been given shape,Further, the members of the Management BoardBoards will act in accordance with the provisions provided therefore in the Management Board Charter, the Executive Board Charter and the Supervisory Board Charter. Capital, significant shareholders and exercise of control As a publicly-listed company, Aegon is required to provide the following detailed information regarding any structures or measures that may hinder or prevent a third party from acquiring the Company or exercising effective control over it. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
The capital of the Company Aegon has an authorized capital of EUR 1,080 million, divided into 6 billion common shares and 3 billion common shares B, each with a nominal value of EUR 0.12. As of December 31, 2018,2019, a total of 2,095,648,2442,105,138,885 common shares and 585,022,160 common shares B had been issued. Depository receipts for Aegon shares are not issued with the Company’s cooperation. Each common share carries one vote. There are no restrictions on the exercise of voting rights by holders of common shares. All commonissued and outstanding shares B are held by Vereniging Aegon, the Company’s largest shareholder. The nominal value of the common shares B is equal to the nominal value of a common share. This means that common shares B also carry one vote per share. However, the voting rights attached to common shares B are subject to restrictions as laid down in the Voting Rights Agreement, under which Vereniging Aegon may cast | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 44 | | How we safeguard long-term value creationCorporate governance | | | | | | |
one vote for every 40 common shares B it holds in the absence of a Special Cause. The financial rights attached to a common share B areone-fortieth (1/40th)40th) of the financial rights attached to a common share. The rights attached to the shares of both classes are otherwise identical. For the purpose of the issuance of shares, reduction of issued capital, the sale and transfer of common shares B or otherwise, the value or the price of a common share B is determined asone-fortieth (1/40th40th ) of the value of a common share. For such purposes, no account is taken of the difference between common shares and common shares B in terms of the proportion between financial rights and voting rights. Significant shareholdings On December 31, 2018,2019, Vereniging Aegon, Aegon’s largest shareholder, held a total of 279,236,609288,702,769 common shares and 571,165,680559,712,240 common shares B. Under the terms of the 1983 Merger Agreement as amended in May 2013, Vereniging Aegon has the option to acquire additional common shares B. Vereniging Aegon may exercise its call option to keep or restore its total stake to 32.6% of the voting rights, irrespective of the circumstances that caused the total shareholding to be or become lower than 32.6%. During 2018, one transaction was2019, two transactions were concluded between Aegon N.V. and Vereniging Aegon under or in connection with the 1983 Merger Agreement.Aegon. All requirements determined by Best Practice 2.7.5 of the Dutch Corporate Governance Code were complied with in the execution of these transactions. On December 23, 2019, Aegon N.V. repurchased 13,227,120 common shares B from Vereniging Aegon for the amount of EUR 1,384,046 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 holding of voting shares by Vereniging Aegon in Aegon N.V. with its special cause voting rights of 32.6%. On May 18, 2018,17, 2019, Vereniging Aegon exercised its options rights to purchase in aggregate 1,489,2001,773,680 common shares B at fair value (1/40th40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by Aegon’s issuance of shares on May 18, 201817, 2019 in connection with the Long Term Incentive Plans for senior management. In this section below where reference is made to any filings with the Dutch Autoriteit Financiële Markten or the SEC the terms ‘capital issued’ and ‘votes’ are used as defined in the Wet op het Financieel Toezicht. To Aegon’s knowledge based on the filings made with the Dutch Autoriteit Financiële Markten, Dodge & Cox International Stock Fund, BlackRock, Inc. and Franklin Resources, Inc. each hold a capital or voting interest in Aegon of 3% or more. Based on its last filing with the Dutch Autoriteit Financiële Markten as at June 20, 2018, Dodge & Cox International Stock Fund stated to hold 131,792,024 common shares, which represent 4.9% of the issued capital and votes as at December 31, 2018. 2019. On February 14, 2019,13, 2020, Dodge & Cox’s filing with the US Securities and Exchange Commission (SEC) shows that Dodge & Cox holds 237,992,105235,569,910 common shares, representing 8.9%9.1% of the issued and outstanding capital as at December 31, 2018,2019, and has voting rights for 232,925,689230,578,490 shares, representing 8.7%8.9% of the votes as at December 31, 2018.2019. Based on its filing with the Dutch Autoriteit Financiële Markten as at March 27, 2018,November 14, 2019, BlackRock, Inc. stated to hold 112,661,670116,325,180 shares, representing 4.2%4.3% of the issued capital as at December 31, 20182019 and 131,979,873136,885,389 voting rights, representing 4.9%5.1% of the votesissued capital as at December 31, 2018. 2019. On February 4, 2019,5, 2020, BlackRock, Inc.’s filing with the US Securities and Exchange Commission (SEC) shows that BlackRock holds 122,040,092149,073,955 common shares, representing 4.6%5.7% of the issued and outstanding capital as at December 31, 2018,2019, and has voting rights for 106,522,921129,834,767 shares, representing 4.0%5.0% of the votes as at December 31, 2018.2019. Based on its filing with the Dutch Autoriteit Financiële Markten as at June 10, 2015, Franklin Resources, Inc. (FRI), a US based investment management firm, stated to hold 81,510,408 shares, representing 3.0% of the issued capital and of the votes as of December 31, 2018. On January 25, 2019, the filing of Franklin Resources, Inc. (FRI), a US based investment management firm, with the SEC shows that FRI holds 61,141,668 common shares and voting rights, representing 2.3% of the issued and outstanding capital, as at December 31, 2018.2019. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
Special control rights As a matter of Dutch corporate law, the common shares and the common shares B offer equal full voting rights, as they have equal nominal value (EUR 0.12). The Voting Rights Agreement entered into between Vereniging Aegon and Aegon provides that under normal circumstances, i.e. except in the event of a Special Cause, Vereniging Aegon is not allowed to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in the absence of a Special Cause, Vereniging Aegon may cast one vote for every common share it holds and one vote only for every 40 common shares B it holds. 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. amounting to 15% or more; |
| ◆ | | A tender offer for Aegon N.V. shares; or |
| ◆ | | A proposed business combination by any person or group of persons, whether acting individually or as a group, other than in a transaction approved by the Company’s Executive and Supervisory Boards. |
If Vereniging Aegon, acting at its sole discretion, determines that a Special Cause has arisen, it must notify the General Meeting of Shareholders. In this event, Vereniging Aegon retains full voting rights on its common shares B for a period limited to six months. Vereniging Aegon would, for that limited period, command 32.6% of the votes at a General Meeting of Shareholders. Issue and repurchase of shares New shares may be issued up to the maximum of the Company’s authorized capital, following a resolution adopted by the General Meeting of Shareholders. Shares may | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 45 | | How we safeguard long-term value creationCorporate governance | | | | | | |
also be issued following a resolution of the Executive Board, subject to approval by the Supervisory Board, providing, and to the extent that, the Board has been authorized to do so by the General Meeting of Shareholders. A resolution authorizing the Executive Board to issue new shares is usually presented at Aegon’s Annual General Meeting of Shareholders. Aegon is entitled to acquire its own fullypaid-up shares, providing it acts within existing statutory restrictions. Shareholders usually authorize the Executive Board to purchase the Company’s shares under terms and conditions determined by the General Meeting. Transfer of shares There are no restrictions on the transfer of common shares. Common shares B can only be transferred with the prior approval of Aegon’s Supervisory Board. Aegon has no knowledge of any agreement between shareholders that might restrict the transfer of shares or the voting rights pertaining to them. Significant agreements and potential change of control Aegon is not party to any significant agreements that would take effect, alter or terminate as a result of a change of control following a public offer for the outstanding shares of the Company, other than those customary in financial markets (for example, financial arrangements, loans and joint venture agreements). Share plan Senior executives at Aegon companies and some other employees are entitled to variable compensation of which part is granted in the form of shares. For further details, please see the remuneration reportRemuneration Report on page 5954 and note 5350 of the notes to Aegon’s consolidated financial statements of this Annual Report. Under the terms of existing share plans the vesting of granted rights is predefined. The shares shall vest as soon as possible in accordance with payroll requirements of the relevant subsidiary after the adoption of the Company’s Annual Report at the Annual General Meetings of Shareholders in the year of vesting of these shares. Appointing, suspending or dismissing Board members The General Meeting of Shareholders appoints members of both the Supervisory and Executive Boards, following nominations by the Supervisory Board. These nominations are binding providing at least two candidates are nominated. The General Meeting of Shareholders may cancel the binding nature of these nominations with a majority oftwo-thirds of votes cast, representing at least one half of Aegon’s issued capital. The General Meeting may, in addition, bring forward a resolution to appoint someone not nominated by the Supervisory Board. Such a resolution also requiresatwo-thirds majority of votes cast, representing at least one half of Aegon’s issued capital. Members of Aegon’s Supervisory and Executive Boards may be suspended or dismissed by the General Meeting of Shareholders withatwo-thirds majority of votes cast, representing at least one half of Aegon’s issued capital, unless the suspension or dismissal has first been proposed by the Company’s Supervisory Board. A member of the Executive Board may also be suspended by the Supervisory Board, although the General Meeting of Shareholders has the power to annul this suspension. Amending the Articles of Association The General Meeting of Shareholders may, with an absolute majority of votes cast, pass a resolution to amend Aegon’s Articles of Association or to dissolve the Company, in accordance with a proposal made by the Executive Board and approved by the Supervisory Board. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
Dutch Corporate Governance CodeSupervisory Board
As a company basedAegon’s Supervisory Board oversees the management of the Executive Board, in the Netherlands, Aegon adheresaddition to the Dutch Corporate Governance Code.Company’s business and corporate strategy. The version of the code applicable to the financial year 2018 is the version that cameSupervisory Board must take into force on January 1, 2017. Aegon endorses the Code and strongly supports its principles for sound and responsible corporate governance and long-term value creation. Aegon regards the Code as an effective means to help ensure thataccount the interests of all stakeholders are duly representedAegon stakeholders. The Supervisory Board operates according to the principles of collective responsibility and taken into account. It is the responsibilityaccountability.
Composition of both the Supervisory Board and the Executive Board to oversee Aegon’s overall corporate governance structure. In general, Aegon applies the best practice provisions set out in the Code. There is one best practice provision with which Aegon does not fully apply. In this case, Aegon adheres, as much as is possible, to the spiritMembers of the Code.
Best Practice 4.3.3
The Dutch Corporate Governance Code recommends thatSupervisory Board are appointed by the General Meeting of Shareholders, may cancelfollowing nomination by the binding natureSupervisory Board itself. Aegon aims to ensure that the composition of nominationsthe Company’s Supervisory Board is in line with Aegon’s diversity policy for appointments of members of the Supervisory Board, Executive Board and Management Board and is as such well-balanced in terms of professional background, geography, gender and other relevant aspects of the diversity policy. A profile, which is published on aegon.com, has been established that outlines the required qualifications of its members. Supervisory Board with an absolute majority of votes and a limited quorum.
Aegon’s position on Best Practice 4.3.3
Aegon’s Articles of Association providemembers are appointed for a larger majorityfour-year term, and may then be reappointed for another four-year period. Subsequently, a higher quorum than those advocated by the Code. Given that the Company has no specific anti-takeover measures, the current system is deemed appropriate within the context of the 1983 Merger Agreement under which Aegon was formed. However, to mitigate any possible negative effects stemming from this, the Supervisory Board has decided that, in the absencemember can be reappointed again for a period of any hostile action, it will only make nominations for the appointment of members to the Executivetwo years, and Supervisory Boards that arenon-binding in nature.
Corporate Governance Statement
For an extensive review of Aegon’s compliance with the Dutch Corporate Governance Code, please refer to the Corporate Governance Statement on Aegon’s corporate website.then extended by two
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| | | | | 4637 | | How we safeguard long-term value creationDifferences between Dutch and US company laws | | Corporate governance | | | | | | | | | | | | |
Differences between Dutch and US company laws
Dutch company law is different from US law in
years at the following respects: Aegon, like most large Dutch public companies, has atwo-tier governance system comprising an Executivemost. Supervisory Board and a Supervisory Board. The Executive Board is the executive body. Its members are not Aegon employees and haveno longer eligible for (re)appointment after reaching the age of 70, unless the Supervisory Board decides to make an engagement agreement with the Company. Membersexception. Remuneration of the ExecutiveSupervisory Board are appointed and dismissed by the General Meeting of Shareholders, as inside directors are in the United States. The Remuneration Policy as regards the members of the Executive Board is adopteddetermined by the General Meeting of Shareholders. The numberIn 2019, no transactions were concluded between the Company and any of the Executive Board members and the terms of their engagement are determined by the Supervisory Board withinmembers. Furthermore, the scopeCompany did not provide loans or issue guarantees to any members of the adopted Remuneration Policy. TheSupervisory Board. At present, Aegon’s Supervisory Board performs supervisoryconsists of six members, all of whom qualify as independent in accordance with the Dutch Corporate Governance Code. During the Annual General Meeting of Shareholders on May 15, 2020, it will be proposed to the shareholders to appoint Thomas Wellauer and advisory functions only, and itsCaroline Ramsay as members are outsiders that are not employed by the Company. The Supervisory Board has the duty to supervise the performance of the Executive Board, the Company’s general course of affairs and the business connected with it. Supervisory Board.
Committees The Supervisory Board also assistsoversees the Executive Board by giving advice. Other powersactivities of the Supervisory Board include the prior approval of certain important resolutions of the Executive Board. Members of the Supervisory Boardits committees. These committees are appointed for a four-year term and may be dismissed by the General Meeting of Shareholders. The remunerationcomposed exclusively of Supervisory Board members and deal with specific issues related to Aegon’s financial accounts, risk management, executive remuneration and appointments. These committees are the: | ◆ | | Remuneration Committee; and |
| ◆ | | Nomination and Governance Committee. |
Executive Board Aegon’s Executive Board is fixed bycharged with the General Meeting of Shareholders. Resolutions entailing a significant change in the identity or characteroverall management of the Company and is therefore responsible for achieving Aegon’s aims and developing the strategy and its associated risk profile, in addition to overseeing any relevant sustainability issues and the development of the Company’s earnings. Each member has duties related to his or its business requireher specific area of expertise. Aegon’s Articles of Association determine that for certain decisions the Executive Board must seek prior approval from the Supervisory Board and/or the approval of the General Meeting of Shareholders. In addition, the Supervisory Board may also subject other Executive Board decisions to its prior approval. Composition of the Executive Board Aegon’s Executive Board consists of Alexander R. Wynaendts, who is Chief Executive Officer (CEO) and Chairman of the Executive Board, and Matthew J. Rider, who is Chief Financial Officer (CFO), and member of the Executive Board. During the Annual General Meeting of Shareholders on May 15, 2020, it will be proposed to the shareholders to appoint Lard Friese as member to the Executive Board and succeed Alex Wynaendts as CEO. Following his appointment, Mr. Wynaendts will resign as member of the Executive Board and Mr. Friese will succeed Mr. Wynaendts as Chief Executive Officer of the Company. The number of Executive Board members and their terms of employment are determined by the Company’s Supervisory Board. Executive Board members are appointed by the General Meeting of Shareholders for a four-year term, following nomination by the Supervisory Board. The members of the Executive Board have an engagement agreement with the Company rather than an employment contract. The Company’s Remuneration Policy for the Executive Board limits exit arrangements to a maximum of one year of the fixed component of the salary. In 2019, no transactions were concluded between the Company and either member of the Executive Board. Furthermore, the Company did not provide any loans to or issue guarantees in favor of either of the members of the Executive Board. Management Board Aegon’s Executive Board is assisted in its work by the Company’s Management Board, which has 11 members, including the members of the Executive Board. Aegon’s Management Board is composed of Alex Wynaendts, Matthew Rider, Mark Bloom, Maarten Edixhoven, Adrian Grace, Allegra van Hövell-Patrizi, Marco Keim, Onno van Klinken, Carla Mahieu, Mark Mullin and Bas NieuweWeme. Mike Holliday-Williams will be appointed to the Management Board, and succeed Adrian Grace who will retire from the company on March 31, 2020. Aegon’s Management Board works in unison with the Executive Board, and helps oversee operational issues and the implementation of Aegon’s strategy. Members are drawn from Aegon’s business units and from Aegon’s global functions. The members have both regional and global responsibilities. This ensures that Aegon is managed as an integrated international business. While the Executive Board is Aegon’s sole statutory executive body, the Management Board provides vital support and expertise in pursuit of the Company’s strategic objectives. In the relationship between the Supervisory Board and the Management Board, the CEO shall be the first contact for the Supervisory Board and its Chairman. Further, the members of the Boards will act in accordance with the provisions provided therefore in the Management Board Charter, the Executive Board Charter and the Supervisory Board Charter. Capital, significant shareholders and exercise of control As a publicly-listed company, Aegon is required to provide the following detailed information regarding any structures or measures that may hinder or prevent a third party from acquiring the Company or exercising effective control over it. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | 4738 | | How we safeguard long-term value creationComposition of our Boards | | Corporate governance | | | | | | | | | | |
Composition of our Boards
Members of the
Executive Board
Alexander R. Wynaendts (1960, Dutch)
CEO and Chairman of the Executive and Management Boards of Aegon N.V.
Alex Wynaendts began his career in 1984 with ABN AMRO Bank, working in Amsterdam and London in the Dutch bank’s capital markets, asset management, corporate finance and private banking operations. In 1997, Mr. Wynaendts joined Aegon as 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. In April 2007, Mr. Wynaendts was named Aegon’s Chief Operating Officer. A year later, he became CEO and Chairman of Aegon’s Executive Board and Management Board. His current term of office ends in 2019.
Mr. Wynaendts has been an Independent Director of the Board of AirFrance-KLM S.A. since May 2016 and the Chairman of the Supervisory Board of Puissance B.V. (not listed) since May 2017.
Matthew J. Rider (1963, American)
CFO and member of the Executive and Management Boards of Aegon N.V.
Matt Rider began his career at Banner Life Insurance Company and held various management positions at Transamerica, Merrill Lynch Insurance Group and ING before joining Aegon. From 2010 to 2013, he was Chief Administration Officer and a member of the Management Board at ING Insurance,
based in the Netherlands. In this role he was responsible for all of ING’s insurance and asset management operations, and specifically for Finance and Risk Management. Mr. Rider joined Aegon on January 1, 2017 and was appointed as CFO and member of the Executive Board of Aegon at the Annual General Meeting of Shareholders of Aegon N.V. of May 19, 2017.
Members of the Management Board
Alexander R. Wynaendts: see above
Matthew J. Rider: see above
Mark Bloom (1964, American)
Global Chief Technology Officer and member of the Management Board of Aegon N.V.
Mark Bloom has over 30 years’ experience in information technology. He joined Aegon from Citi in February 2016, where he served as Global Head of Consumer Digital and Operations Technology, responsible for digital, data and operations technology solutions and innovations. Prior
to that, he held a number of technology leadership positions in financial services and the aerospace industry. As Global Chief Technology Officer at Aegon, Mr. Bloom is responsible for leading the Company’s technology and innovation activities, including leveraging technology to drive efficiency and enhancing the customer experience. Mr. Bloom was appointed as a member of Aegon’s Management Board in August 2016.
Adrian Grace (1963, British)
CEO of Aegon UK and member of the Management Board of Aegon N.V.
Adrian Grace held various roles at GE capital, Sage Group Inc., before joining Barclays Bank as Chief Executive of the Insurance Business in 2004, and HBOS as Managing Director of Commercial Businesses in 2007. He joined Aegon
UK in 2009, and was appointed CEO of Aegon UK in 2011 and as a member of the Management Board of Aegon in 2012. Mr. Grace is anon-executive Director at Clydesdale Bank and a member of the Financial Conduct Authority practitioners’ panel. He was member of the Board of Scottish Financial Enterprise until June 2013.
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Allegra van Hövell-Patrizi (1974, ItalianThe capital of the Company
Aegon has an authorized capital of EUR 1,080 million, divided into 6 billion common shares and Belgian)3 billion common shares B, each with a nominal value of EUR 0.12. As of December 31, 2019, a total of 2,105,138,885 common shares and 585,022,160 common shares B had been issued. Depository receipts for Aegon shares are not issued with the Company’s cooperation. Each common share carries one vote. There are no restrictions on the exercise of voting rights by holders of common shares. All issued and outstanding shares B are held by Vereniging Aegon, the Company’s largest shareholder. The nominal value of the common shares B is equal to the nominal value of a common share. This means that common shares B also carry one vote per share. However, the voting rights attached to common shares B are subject to restrictions as laid down in the Voting Rights Agreement, under which Vereniging Aegon may cast one vote for every 40 common shares B it holds in the absence of a Special Cause. The financial rights attached to a common share B areone-fortieth (1/40th) of the financial rights attached to a common share. The rights attached to the shares of both classes are otherwise identical. For the purpose of the issuance of shares, reduction of issued capital, the sale and transfer of common shares B or otherwise, the value or the price of a common share B is determined asone-fortieth (1/40th ) of the value of a common share. For such purposes, no account is taken of the difference between common shares and common shares B in terms of the proportion between financial rights and voting rights. Significant shareholdings Chief Risk OfficerOn December 31, 2019, Vereniging Aegon, Aegon’s largest shareholder, held a total of 288,702,769 common shares and 559,712,240 common shares B.
Under the terms of the 1983 Merger Agreement as amended in May 2013, Vereniging Aegon has the option to acquire additional common shares B. Vereniging Aegon may exercise its call option to keep or restore its total stake to 32.6% of the voting rights, irrespective of the circumstances that caused the total shareholding to be or become lower than 32.6%. During 2019, two transactions were concluded between Aegon N.V. and member of the Management Board of Aegon N.V. Allegra van Hövell-Patrizi began her career in 1996 at McKinsey & 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 Prudential plc where she was part of the CEO Office
and then later became Group Risk Director, and a member of the Group Executive Risk Committee, as well as the PUSL Board (within the Prudential plc Group). Ms. van Hövell-Patrizi joined Aegon at the end of 2015. She was appointed Chief Risk Officer of Aegon N.V. and a member of Aegon’s Management Board in January 2016. Ms. van Hövell-Patrizi is a member of the Supervisory Board of LeasePlan (not listed) since 2018.
Marco Keim (1962, Dutch)
Head of Aegon Continental Europe and member of the Management Board of Aegon N.V.
Marco Keim began his career with accountancy firm Coopers & Lybrand/Van Dien, before moving to the aircraft manufacturer Fokker Aircraft and NS Reizigers, partVereniging Aegon. All requirements determined by Best Practice 2.7.5 of the Dutch railway company, NS Group. In 1999, he joined Swiss LifeCorporate Governance Code were complied with in the execution of these transactions.
On December 23, 2019, Aegon N.V. repurchased 13,227,120 common shares B from Vereniging Aegon for the amount of EUR 1,384,046 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 holding of voting shares by Vereniging Aegon in Aegon N.V. with its special cause voting rights of 32.6%. On May 17, 2019, Vereniging Aegon exercised its options rights to purchase in aggregate 1,773,680 common shares B at fair value (1/40th of the market value of a common share in the Netherlands as a Membercapital of the Board, and was appointed CEO three years later. Mr. Keim was appointed CEO of Aegon the Netherlands and member of Aegon’s Management Board in June 2008, and Head of Aegon Continental Europe in January 2017. Mr. Keim is a member of the Supervisory Board of Eneco Holding N.V.. Onno van Klinken (1969, Dutch)
General Counsel and member of the Management Board of Aegon N.V.
Onno van Klinken has over 25 years’ experience providing legal advice to a range of companies and leading Executive Board offices. Mr. Van Klinken started his career at Allen & Overy, and previously worked for Aegon between 2002 and 2006. He then served as Corporate Secretary for Royal Numico, before it was acquired by Groupe Danone. His next position was as General Counsel for the Dutch global mail and express
group TNT, where he served from 2008 until the legal demerger of the group in 2011. This was followed by General Counsel positions at D.E. Master Blenders 1753 and Corio N.V.. Mr. Van Klinken rejoined Aegon in 2014 as General Counsel responsible for Group Legal, Regulatory Compliance, the Executive Board Office, and Government and Policy Affairs. Mr. Van Klinken has been a member of Aegon’s Management Board since August 2016. Mr. Van Klinken was appointed member of the Board of Stichting Continuïteit SBM Offshore in December 2016.
Carla Mahieu (1959, Dutch)
Global Head Human Resources and member of the Management Board of Aegon N.V.
Carla Mahieu started her career in 1984 at Royal Dutch Shell, where she held various management positions within Human Resources, Communications and Corporate Strategy. Following several years as a consultant – during which time she worked for Spencer Stuart, among other companies – Ms. Mahieu was
appointed Senior Vice President Corporate Human Resource Management at Royal Philips Electronics in 2003. Ms. Mahieu joined Aegon in 2010 as Global Head Human Resources, and has been a member of Aegon’s Management Board since August 2016. Ms. Mahieu has been a member of the Supervisory Board of the Royal BAM Group since 2011, and the Supervisory Board of VodafoneZiggo Group B.V. since 2017.
Mark Mullin (1963, American)
CEO of Aegon Americas and member of the Management Board of Aegon N.V.
Mark Mullin has spent more than 20 years with Aegon in various management positions in both the United States and Europe. Mr. Mullin served as President and CEO of one of Aegon’s US subsidiaries, Diversified Investment Advisors, and as head of the Company’s US annuity and mutual fund businesses.
He was named President of Aegon Americas in 2009, and became President and CEO of Aegon Americas and a member of Aegon’s Management Board in 2010. Mr. Mullin was appointed Chairman of the Board of Directors of the American Council of Life Insurers for the period October 2017-October 2018 and remains a member of the Board of Directors and Executive Committee through October 2019.
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| | | 49 | | How we safeguard long-term value creationComposition of our Boards | | | | | | |
Sarah Russell (1962, Australian)
CEO of Aegon Asset Management and member of the Management Board of Aegon N.V.
Sarah Russell has over 25 years’ experience in international finance and asset management.Ms. Russell began her career at Toronto Dominion in Melbourne before joining ABN AMRO in 1994. She moved to the Netherlands in 2000, where she held a number of various roles, leading to her appointment as CEO of ABN AMRO’s asset management operations. Ms. Russell joined Aegon Asset Management as CEO in 2010, and has been
a member of Aegon’s Management Board since August 2016. Ms. Russell has been anon-executive director of Nordea Bank Abp and its predecessors since 2010, holds a Supervisory Board member position at the Nederlandse Investeringsinstelling, and is Vice Chairman of the Supervisory Board of La Banque Postale Asset Management. Ms. Russell is also a Board member of the American Chamber of Commerce, the Netherlands since May 2017.
Members of the Supervisory Board
Robert J. Routs (1946, Dutch)
Chairman of the Supervisory Board until May 18, 2018
Chairman of the Nomination and Governance Committee until May 18, 2018
Member of the Remuneration Committee until May 18, 2018
Robert J. Routs is a former Executive Director for Downstream at the energy company Royal Dutch Shell. He was appointed to Aegon’s Supervisory Board in April 2008 and became Chairman in April 2010. Mr. Routs wasre-appointed as a member of the Supervisory Board during the 2016 Annual General Meeting of Shareholders. Following a ten year tenure, Mr. Routs retired as per May 18, 2018.
William L. Connelly (1958, French)
Chairman of the Supervisory Board
Chairman of the Nomination and Governance Committee
Member of the Remuneration Committee
William L. Connelly is a former member of the Management Board of ING Bank, where he was responsible for ING’s corporate, financial institutions and financial markets activities. He started his career at Chase Manhattan Bank, fulfilling senior roles in commercial and investment banking in France, the Netherlands, Spain, the United Kingdom and the United States. He was appointed to Aegon’s Supervisory Board in 2017 and became Chairman in May 2018 and his current term ends in 2021. He is also chairman of the Supervisory Board Nomination and Governance Committee and member of the Supervisory Board Remuneration Committee. Mr. Connelly is also an independent director at the Board of Directors of Société Générale.
Robert W. Dineen (1949, American)
Member of the Remuneration Committee
Member of the Risk Committee
Robert W. Dineen was Vice Chairman of Lincoln Financial Network (LFN) and a member of the Senior Management Committee of Lincoln Financial Group (LFG), before retiring in 2013. Before joining Lincoln Financial Group, Mr. Dineen was Senior Vice President and head of Merrill Lynch’s Managed Asset Group. He was appointed to Aegon’s Supervisory Board in May 2014, and
his current term ends in 2022. He is a member of the Supervisory Board Remuneration Committee and the Supervisory Board Risk Committee.
Mr. Dineen was thenon-executive Chairman of the Board of Aretec Inc (not listed,US-based) and was a member of Lincoln New York Life Company Board.
Mark A. Ellman (1957, American)
Member of the Audit Committee
Member of the Risk Committee
Mark A. Ellman is a former Vice Chairman Global Origination of Bank of America/Merrill Lynch. Before joining Bank of Amercia/ Merrill Lynch, he held various roles in the US insurance industry. These mostly entailed working in corporate finance at large US financial institutions, where he was engaged in M&A advice and transactions, together with equity and debt raisings for insurance companies. He was a founding partner of Barrett Ellman Stoddard Capital Partners. Mr. Ellman was appointed to Aegon’s Supervisory Board in 2017, and his current term ends in 2021. He is a member of the Supervisory Board Audit Committee and the Supervisory Board Risk Committee.
Mr. Ellman was anon-executive director of Aegon USA from 2012 to 2017.
Ben J. Noteboom (1958, Dutch)
Chairman of the Remuneration Committee
Member of the Risk Committee
Ben J. Noteboom worked for Randstad Holding N.V. from 1993 until 2014, where he was appointed member of the Executive Committee in 2001 and became CEO in 2003. Before joining Randstad, Mr. Noteboom worked for Dow Chemical in several international management functions between 1984 and 1993. He started his career in 1982 at Zurel as management assistant. He was appointed to Aegon’s Supervisory Board in May 2015, and his current term ends in 2019. He is Chairman of the Supervisory Board Remuneration Committee and a member of the Supervisory Board Risk Committee.
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 50 | | How we safeguard long-term value creationComposition of our Boards | | | | | | |
Mr. Noteboom is also a member of the Supervisory Board of Royal Ahold Delhaize N.V., Wolters Kluwer N.V. and Chairman of the Supervisory Board of Royal Vopak N.V. In addition, Mr. Noteboom is a member of the Board of Directors of VUmc Cancer Center Amsterdam and the Chairman of Stichting Prioriteit Ordina Groep.
Ben van der Veer (1951, Dutch)
Chairman of the Audit Committee
Member of the Nomination and Governance Committee
Ben van der Veer is former Chairman of the Board of Management of KPMG N.V. Mr. Van der Veer retired from KPMG on September 30, 2008, and was appointed to Aegon’s Supervisory Board in October 2008. Mr. Van der Veer wasre-appointed as a member of the Supervisory Board during the 2016 Annual General Meeting of Shareholders, and his third and final term ends in 2020. He is Chairman of the Supervisory Board Audit Committee and a member of the Supervisory Board Nomination and Governance Committee.
Mr. Van der Veer is anon-executive member of the Board of Directors of RELX PLC. He is also a member of the Supervisory Board of Royal FrieslandCampina N.V. (not listed), and member of the Supervisory Board of Royal Vopak N.V. since April 2018. Mr Van der Veer was a former member of the Supervisory Board of Royal Imtech N.V., TomTom N.V., and Siemens Nederland N.V. (not listed).
Dirk P.M. Verbeek (1950, Dutch)
Member of the Risk Committee until May 18, 2018
Member of the Nomination and Governance Committee until May 18, 2018
Dirk P.M. Verbeek is a former Executive Board member and former vice president Emeritus of Aon Group. Mr Verbeek is a member of the Advisory Council of OVG Real Estate (not listed). Mr. Verbeek was appointed to Aegon’s Supervisory Board in 2008. He was a member of the Supervisory Board Risk Committee and the Supervisory Board Nomination and Governance Committee. Mr. Verbeek retired from the Supervisory Board as per May 18, 2018.
Corien M. Wortmann-Kool (1959, Dutch)
Vice Chairman of the Supervisory Board
Member of the Audit Committee
Member of the Nomination and Governance Committee
Corien M. Wortmann-Kool is Chairman of the Board of Stichting Pensioenfonds ABP, the Dutch public sector collective pension fund. Ms. Wortmann-Kool is a former Member of the European Parliament and Vice President on Financial, Economic and Environmental affairs for the EPP Group (European People’s Party). She was appointed to Aegon’s Supervisory Board in May 2014, and her current term ends in 2022. She is Vice Chairman of the Supervisory Board, and a member of the Supervisory Board Audit Committee and the Supervisory Board Nomination and Governance Committee.
Ms. Wortmann-Kool is also a member of the Supervisory Board of Het Kadaster (not listed), member of the Advisory Council of the Centraal Bureau voor de Statistiek, Chairman of the Board of Trustees of Save the Children Netherlands and member of De Autoriteit Financiële Markten Capital Markets Advisory Committee. She was a member of the Supervisory Board ofMercedes-Benz Netherlands (not listed) until 2014, vice president of the European People’s Party until March 2018 and member of the Advisory Council of the Centraal Bureau voor de Statistiek until June 2018.
Dona D. Young (1954, American)
Member of the Audit Committee
Chairman of the Risk Committee
Member of the Nomination and Governance Committee
Dona D. Young is an executive/board consultant and retired Chairman, President and Chief Executive Officer of The Phoenix Companies, which was an insurance and asset management company at the time of her tenure. She was appointedissuance) to mitigate dilution caused by Aegon’s Supervisory Boardissuance of shares on May 17, 2019 in 2013,connection with the Long Term Incentive Plans for senior management.
In this section below where reference is made to any filings with the Dutch Autoriteit Financiële Markten or the SEC the terms ‘capital issued’ and her current term will end‘votes’ are used as defined in 2021.the Wet op het Financieel Toezicht. She is ChairmanTo Aegon’s knowledge based on the filings made with the Dutch Autoriteit Financiële Markten, Dodge & Cox International Stock Fund, BlackRock, Inc. and Franklin Resources, Inc. each hold a capital or voting interest in Aegon of 3% or more.
Based on its last filing with the Dutch Autoriteit Financiële Markten as at June 20, 2018, Dodge & Cox International Stock Fund stated to hold 131,792,024 common shares, which represent 4.9% of the Supervisory Board Risk Committee, memberissued capital as at December 31, 2019. On February 13, 2020, Dodge & Cox’s filing with the US Securities and Exchange Commission (SEC) shows that Dodge & Cox holds 235,569,910 common shares, representing 9.1% of the Supervisory Board Audit Committeeissued and memberoutstanding capital as at December 31, 2019, and has voting rights for 230,578,490 shares, representing 8.9% of the Supervisory Board Nomination and Governance Committee.votes as at December 31, 2019. Ms. Young is member and Lead DirectorBased on its filing with the Dutch Autoriteit Financiële Markten as at November 14, 2019, BlackRock, Inc. stated to hold 116,325,180 shares, representing 4.3% of the Board of Directors of Foot Locker, Inc. Furthermore, Ms. Young is Chairissued capital as at December 31, 2019 and 136,885,389 voting rights, representing 5.1% of the Audit Committeeissued capital as at December 31, 2019.
On February 5, 2020, BlackRock, Inc.’s filing with the US Securities and Exchange Commission (SEC) shows that BlackRock holds 149,073,955 common shares, representing 5.7% of the Board of Trustees of Save the Children US (not listed),issued and memberoutstanding capital as at December 31, 2019, and has voting rights for 129,834,767 shares, representing 5.0% of the Boardvotes as at December 31, 2019. Based on its filing with the Dutch Autoriteit Financiële Markten as at June 10, 2015, Franklin Resources, Inc. (FRI), a US based investment management firm, stated to hold 81,510,408 shares, representing 3.0% of Save the Children International and Save the Children Association.issued capital as at December 31, 2019. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | 5139 | | How we safeguard long-term value creation Report of the Supervisory Board | | Corporate governance | | | | | | | | | | | | |
Report of the Supervisory Board
The Supervisory Board is entrusted with supervising and advising the Executive Board on management of the Company, and overseeing Aegon’s strategy and the general course of its businesses.
OversightSpecial control rights
As a matter of Dutch corporate law, the common shares and advicethe common shares B offer equal full voting rights, as they have equal nominal value (EUR 0.12). The Voting Rights Agreement entered into between Vereniging Aegon and Aegon provides that under normal circumstances, i.e. except in the event of a Special Cause, Vereniging Aegon is not allowed to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in the absence of a Special Cause, Vereniging Aegon may cast one vote for every common share it holds and one vote only for every 40 common shares B it holds. 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. amounting to 15% or more; |
| ◆ | | A tender offer for Aegon N.V. shares; or |
| ◆ | | A proposed business combination by any person or group of persons, whether acting individually or as a group, other than in a transaction approved by the Company’s Executive and Supervisory Boards. |
If Vereniging Aegon, acting at its sole discretion, determines that a Special Cause has arisen, it must notify the General Meeting of Shareholders. In this event, Vereniging Aegon retains full voting rights on its common shares B for a period limited to six months. Vereniging Aegon would, for that limited period, command 32.6% of the votes at a General Meeting of Shareholders. Issue and repurchase of shares The Supervisory Board isNew shares may be issued up to the maximum of the Company’s authorized capital, following a separate independent corporate body, consistingresolution adopted by the General Meeting of seven members on December 31, 2018. The Supervisory Board is charged with the supervisionShareholders. Shares may also be issued following a resolution of the Executive Board, subject to approval by the Supervisory Board, providing, and to the extent that, the Board has been authorized to do so by the General Meeting of Shareholders. A resolution authorizing the general courseExecutive Board to issue new shares is usually presented at Aegon’s Annual General Meeting of affairsShareholders.
Aegon is entitled to acquire its own fullypaid-up shares, providing it acts within existing statutory restrictions. Shareholders usually authorize the Executive Board to purchase the Company’s shares under terms and strategyconditions determined by the General Meeting. Transfer of shares There are no restrictions on the transfer of common shares. Common shares B can only be transferred with the prior approval of Aegon’s Supervisory Board. Aegon has no knowledge of any agreement between shareholders that might restrict the transfer of shares or the voting rights pertaining to them. Significant agreements and potential change of control Aegon is not party to any significant agreements that would take effect, alter or terminate as a result of a change of control following a public offer for the outstanding shares of the Company, other than those customary in financial markets (for example, financial arrangements, loans and joint venture agreements). Share plan Senior executives at Aegon companies and some other employees are entitled to variable compensation of its businesses. In performing their duties,which part is granted in the form of shares. For further details, please see the Remuneration Report on page 54 and note 50 of the notes to Aegon’s consolidated financial statements of this Annual Report. Under the terms of existing share plans the vesting of granted rights is predefined. The shares shall vest as soon as possible in accordance with payroll requirements of the relevant subsidiary after the adoption of the Company’s Annual Report at the Annual General Meetings of Shareholders in the year of vesting of these shares. Appointing, suspending or dismissing Board members The General Meeting of Shareholders appoints members of both the Supervisory Board are guidedand Executive Boards, following nominations by the interestsSupervisory Board. These nominations are binding providing at least two candidates are nominated. The General Meeting of Aegon andShareholders may cancel the Company’s stakeholders. binding nature of these nominations with a majority oftwo-thirds of votes cast, representing at least one half of Aegon’s issued capital. The duties ofGeneral Meeting may, in addition, bring forward a resolution to appoint someone not nominated by the Supervisory Board with regard to the activitiesBoard. Such a resolution also requiresa two-thirds majority of membersvotes cast, representing at least one half of theAegon’s issued capital. Members of Aegon’s Supervisory and Executive Board are published in the Supervisory Board Charter, which is published on Aegon’s corporate website, aegon.com. The Supervisory Board makes recommendations toBoards may be suspended or dismissed by the General Meeting of Shareholders concerning all appointments and reappointmentswitha two-thirds majority of votes cast, representing at least one half of Aegon’s issued capital, unless the suspension or dismissal has first been proposed by the Company’s Supervisory Board. A member of the Executive Board may also be suspended by the Supervisory Board, although the General Meeting of Shareholders has the power to and dismissals from, bothannul this suspension. Amending the Articles of Association The General Meeting of Shareholders may, with an absolute majority of votes cast, pass a resolution to amend Aegon’s Articles of Association or to dissolve the Company, in accordance with a proposal made by the Executive Board and approved by the Supervisory Board. In addition, the Supervisory Board determines the remuneration of individual members of the Executive Board in line with the Remuneration Policy adopted at the Company’s General Meeting of Shareholders. Overall accountability for Aegon’s remuneration governance also resides with the Supervisory Board, which is advised by its Remuneration Committee. This includes the responsibility for designing, approving and maintaining the Aegon Group Global Remuneration Framework, including the remuneration policies for the Executive Board and Heads of Group Control functions.
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
Corporate governance
Details of Aegon’s corporate governance structure and a summary of how the Company complies with the Dutch Corporate Governance Code can be found on pages42-46 of this Annual Report and in the Corporate Governance Statement published on aegon.com.
Composition of the Supervisory Board and Executive Board
Supervisory Board Aegon’s Supervisory Board oversees the management of the Executive Board, in addition to the Company’s business and corporate strategy. The Supervisory Board must take into account the interests of all Aegon stakeholders. The Supervisory Board operates according to the principles of collective responsibility and accountability. Composition of the Supervisory Board Members of the Supervisory Board are appointed by the General Meeting of Shareholders, following nomination by the Supervisory Board itself. Aegon aims to ensure that the composition of the Company’s Supervisory Board is in line with Aegon’s diversity policy for the Supervisory Board, Executive Board and Management Board and is as such well-balanced in terms of professional background, geography, gender and other relevant aspects of the diversity policy. A profile, which is published on aegon.com, has been established that outlines the required qualifications of its members. Supervisory Board members are appointed for a four-year term, and may then be reappointed for another four-year period. Subsequently, a Supervisory Board member can be reappointed again for a period of two years, and then extended by two | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
years at the most. Supervisory Board members are no longer eligible for (re)appointment after reaching the age of 70, unless the Supervisory Board decides to make an exception. Remuneration of the Supervisory Board members is determined by the General Meeting of Shareholders. In 2019, no transactions were concluded between the Company and any of the Supervisory Board members. Furthermore, the Company did not provide loans or issue guarantees to any members of the Supervisory Board. At present, Aegon’s Supervisory Board consists of six members, all of whom qualify as independent in accordance with the Dutch Corporate Governance Code. During the Annual General Meeting of Shareholders on May 15, 2020, it will be proposed to the shareholders to appoint Thomas Wellauer and Caroline Ramsay as members of the Supervisory Board. Committees The Supervisory Board also oversees the activities of its committees. These committees are composed exclusively of Supervisory Board members and deal with specific issues related to Aegon’s financial accounts, risk management, executive remuneration and appointments. These committees are the: | ◆ | | Remuneration Committee; and |
| ◆ | | Nomination and Governance Committee. |
Executive Board Aegon’s Executive Board is charged with the overall management of the Company and is therefore responsible for achieving Aegon’s aims and developing the strategy and its associated risk profile, in addition to overseeing any relevant sustainability issues and the development of the Company’s earnings. Each member has duties related to his or her specific area of expertise. Aegon’s Articles of Association determine that for certain decisions the Executive Board must seek prior approval from the Supervisory Board and/or the approval of the General Meeting of Shareholders. In addition, the Supervisory Board may also subject other Executive Board decisions to its prior approval. Composition of the Executive Board Aegon’s Executive Board consists of Alexander R. Wynaendts, who is Chief Executive Officer (CEO) and Chairman of the Executive Board, and Matthew J. Rider, who is Chief Financial Officer (CFO), and member of the Executive Board. During the Annual General Meeting of Shareholders on May 15, 2020, it will be proposed to the shareholders to appoint Lard Friese as member to the Executive Board and succeed Alex Wynaendts as CEO. Following his appointment, Mr. Wynaendts will resign as member of the Executive Board and Mr. Friese will succeed Mr. Wynaendts as Chief Executive Officer of the Company. The number of Executive Board members and their terms of employment are determined by the Company’s Supervisory Board. Executive Board members are appointed by the General Meeting of Shareholders for a four-year term, following nomination by the Supervisory Board. The members of the Executive Board have an engagement agreement with the Company rather than an employment contract. The Company’s Remuneration Policy for the Executive Board limits exit arrangements to a maximum of one year of the fixed component of the salary. In 2019, no transactions were concluded between the Company and either member of the Executive Board. Furthermore, the Company did not provide any loans to or issue guarantees in favor of either of the members of the Executive Board. Management Board Aegon’s Executive Board is assisted in its work by the Company’s Management Board, which has 11 members, including the members of the Executive Board. Aegon’s Management Board is composed of Alex Wynaendts, Matthew Rider, Mark Bloom, Maarten Edixhoven, Adrian Grace, Allegra van Hövell-Patrizi, Marco Keim, Onno van Klinken, Carla Mahieu, Mark Mullin and Bas NieuweWeme. Mike Holliday-Williams will be appointed to the Management Board, and succeed Adrian Grace who will retire from the company on March 31, 2020. Aegon’s Management Board works in unison with the Executive Board, and helps oversee operational issues and the implementation of Aegon’s strategy. Members are drawn from Aegon’s business units and from Aegon’s global functions. The members have both regional and global responsibilities. This ensures that Aegon is managed as an integrated international business. While the Executive Board is Aegon’s sole statutory executive body, the Management Board provides vital support and expertise in pursuit of the Company’s strategic objectives. In the relationship between the Supervisory Board and the Management Board, the CEO shall be the first contact for the Supervisory Board and its Chairman. Further, the members of the Boards will act in accordance with the provisions provided therefore in the Management Board Charter, the Executive Board Charter and the Supervisory Board Charter. Capital, significant shareholders and exercise of control As a publicly-listed company, Aegon is required to provide the following detailed information regarding any structures or measures that may hinder or prevent a third party from acquiring the Company or exercising effective control over it. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
The capital of the Company Aegon has an authorized capital of EUR 1,080 million, divided into 6 billion common shares and 3 billion common shares B, each with a nominal value of EUR 0.12. As of December 31, 2019, a total of 2,105,138,885 common shares and 585,022,160 common shares B had been issued. Depository receipts for Aegon shares are not issued with the Company’s cooperation. Each common share carries one vote. There are no restrictions on the exercise of voting rights by holders of common shares. All issued and outstanding shares B are held by Vereniging Aegon, the Company’s largest shareholder. The nominal value of the common shares B is equal to the nominal value of a common share. This means that common shares B also carry one vote per share. However, the voting rights attached to common shares B are subject to restrictions as laid down in the Voting Rights Agreement, under which Vereniging Aegon may cast one vote for every 40 common shares B it holds in the absence of a Special Cause. The financial rights attached to a common share B areone-fortieth (1/40th) of the financial rights attached to a common share. The rights attached to the shares of both classes are otherwise identical. For the purpose of the issuance of shares, reduction of issued capital, the sale and transfer of common shares B or otherwise, the value or the price of a common share B is determined asone-fortieth (1/40th ) of the value of a common share. For such purposes, no account is taken of the difference between common shares and common shares B in terms of the proportion between financial rights and voting rights. Significant shareholdings On December 31, 2019, Vereniging Aegon, Aegon’s largest shareholder, held a total of 288,702,769 common shares and 559,712,240 common shares B. Under the terms of the 1983 Merger Agreement as amended in May 2013, Vereniging Aegon has the option to acquire additional common shares B. Vereniging Aegon may exercise its call option to keep or restore its total stake to 32.6% of the voting rights, irrespective of the circumstances that caused the total shareholding to be or become lower than 32.6%. During 2019, two transactions were concluded between Aegon N.V. and Vereniging Aegon. All requirements determined by Best Practice 2.7.5 of the Dutch Corporate Governance Code were complied with in the execution of these transactions. On December 23, 2019, Aegon N.V. repurchased 13,227,120 common shares B from Vereniging Aegon for the amount of EUR 1,384,046 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 holding of voting shares by Vereniging Aegon in Aegon N.V. with its special cause voting rights of 32.6%. On May 17, 2019, Vereniging Aegon exercised its options rights to purchase in aggregate 1,773,680 common shares B at fair value (1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by Aegon’s issuance of shares on May 17, 2019 in connection with the Long Term Incentive Plans for senior management. In this section below where reference is made to any filings with the Dutch Autoriteit Financiële Markten or the SEC the terms ‘capital issued’ and ‘votes’ are used as defined in the Wet op het Financieel Toezicht. To Aegon’s knowledge based on the filings made with the Dutch Autoriteit Financiële Markten, Dodge & Cox International Stock Fund, BlackRock, Inc. and Franklin Resources, Inc. each hold a capital or voting interest in Aegon of 3% or more. Based on its last filing with the Dutch Autoriteit Financiële Markten as at June 20, 2018, Dodge & Cox International Stock Fund stated to hold 131,792,024 common shares, which represent 4.9% of the issued capital as at December 31, 2019. On February 13, 2020, Dodge & Cox’s filing with the US Securities and Exchange Commission (SEC) shows that Dodge & Cox holds 235,569,910 common shares, representing 9.1% of the issued and outstanding capital as at December 31, 2019, and has voting rights for 230,578,490 shares, representing 8.9% of the votes as at December 31, 2019. Based on its filing with the Dutch Autoriteit Financiële Markten as at November 14, 2019, BlackRock, Inc. stated to hold 116,325,180 shares, representing 4.3% of the issued capital as at December 31, 2019 and 136,885,389 voting rights, representing 5.1% of the issued capital as at December 31, 2019. On February 5, 2020, BlackRock, Inc.’s filing with the US Securities and Exchange Commission (SEC) shows that BlackRock holds 149,073,955 common shares, representing 5.7% of the issued and outstanding capital as at December 31, 2019, and has voting rights for 129,834,767 shares, representing 5.0% of the votes as at December 31, 2019. Based on its filing with the Dutch Autoriteit Financiële Markten as at June 10, 2015, Franklin Resources, Inc. (FRI), a US based investment management firm, stated to hold 81,510,408 shares, representing 3.0% of the issued capital as at December 31, 2019. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
Special control rights As a matter of Dutch corporate law, the common shares and the common shares B offer equal full voting rights, as they have equal nominal value (EUR 0.12). The Voting Rights Agreement entered into between Vereniging Aegon and Aegon provides that under normal circumstances, i.e. except in the event of a Special Cause, Vereniging Aegon is not allowed to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in the absence of a Special Cause, Vereniging Aegon may cast one vote for every common share it holds and one vote only for every 40 common shares B it holds. 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. amounting to 15% or more; |
| ◆ | | A tender offer for Aegon N.V. shares; or |
| ◆ | | A proposed business combination by any person or group of persons, whether acting individually or as a group, other than in a transaction approved by the Company’s Executive and Supervisory Boards. |
If Vereniging Aegon, acting at its sole discretion, determines that a Special Cause has arisen, it must notify the General Meeting of Shareholders. In this event, Vereniging Aegon retains full voting rights on its common shares B for a period limited to six months. Vereniging Aegon would, for that limited period, command 32.6% of the votes at a General Meeting of Shareholders. Issue and repurchase of shares New shares may be issued up to the maximum of the Company’s authorized capital, following a resolution adopted by the General Meeting of Shareholders. Shares may also be issued following a resolution of the Executive Board, subject to approval by the Supervisory Board, providing, and to the extent that, the Board has been authorized to do so by the General Meeting of Shareholders. A resolution authorizing the Executive Board to issue new shares is usually presented at Aegon’s Annual General Meeting of Shareholders. Aegon is entitled to acquire its own fullypaid-up shares, providing it acts within existing statutory restrictions. Shareholders usually authorize the Executive Board to purchase the Company’s shares under terms and conditions determined by the General Meeting. Transfer of shares There are no restrictions on the transfer of common shares. Common shares B can only be transferred with the prior approval of Aegon’s Supervisory Board. Aegon has no knowledge of any agreement between shareholders that might restrict the transfer of shares or the voting rights pertaining to them. Significant agreements and potential change of control Aegon is not party to any significant agreements that would take effect, alter or terminate as a result of a change of control following a public offer for the outstanding shares of the Company, other than those customary in financial markets (for example, financial arrangements, loans and joint venture agreements). Share plan Senior executives at Aegon companies and some other employees are entitled to variable compensation of which part is granted in the form of shares. For further details, please see the Remuneration Report on page 54 and note 50 of the notes to Aegon’s consolidated financial statements of this Annual Report. Under the terms of existing share plans the vesting of granted rights is predefined. The shares shall vest as soon as possible in accordance with payroll requirements of the relevant subsidiary after the adoption of the Company’s Annual Report at the Annual General Meetings of Shareholders in the year of vesting of these shares. Appointing, suspending or dismissing Board members The General Meeting of Shareholders appoints members of both the Supervisory and Executive Boards, following nominations by the Supervisory Board. These nominations are binding providing at least two candidates are nominated. The General Meeting of Shareholders may cancel the binding nature of these nominations with a majority oftwo-thirds of votes cast, representing at least one half of Aegon’s issued capital. The General Meeting may, in addition, bring forward a resolution to appoint someone not nominated by the Supervisory Board. Such a resolution also requiresa two-thirds majority of votes cast, representing at least one half of Aegon’s issued capital. Members of Aegon’s Supervisory and Executive Boards may be suspended or dismissed by the General Meeting of Shareholders witha two-thirds majority of votes cast, representing at least one half of Aegon’s issued capital, unless the suspension or dismissal has first been proposed by the Company’s Supervisory Board. A member of the Executive Board may also be suspended by the Supervisory Board, although the General Meeting of Shareholders has the power to annul this suspension. Amending the Articles of Association The General Meeting of Shareholders may, with an absolute majority of votes cast, pass a resolution to amend Aegon’s Articles of Association or to dissolve the Company, in accordance with a proposal made by the Executive Board and approved by the Supervisory Board. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
Dutch Corporate Governance Code As a company based in the Netherlands, Aegon adheres to the Dutch Corporate Governance Code. The version of the code applicable to the financial year 2019 is the version that came into force on January 1, 2017. Aegon endorses the Code and strongly supports its principles for sound and responsible corporate governance and long-term value creation. Aegon regards the Code as an effective means to help ensure that the interests of all stakeholders are duly represented and taken into account. It is the responsibility of both the Supervisory Board and the Executive Board to oversee Aegon’s overall corporate governance structure. In general, Aegon applies the best practice provisions set out in the Code. There is one best practice provision with which Aegon does not fully apply. In this case, Aegon adheres, as much as is possible, to the spirit of the Code. Best Practice 4.3.3 The Dutch Corporate Governance Code recommends that the General Meeting of Shareholders may cancel the binding nature of nominations for appointments of members of the Executive Board and Supervisory Board with an absolute majority of votes and a limited quorum. Aegon’s position on Best Practice 4.3.3 Aegon’s Articles of Association provide for a larger majority and a higher quorum than those advocated by the Code. Given that the Company has no specific anti-takeover measures, the current system is deemed appropriate within the context of the 1983 Merger Agreement under which Aegon was formed. However, to mitigate any possible negative effects stemming from this, the Supervisory Board has decided that, in the absence of any hostile action, it will only make nominations for the appointment of members to the Executive and Supervisory Boards that arenon-binding in nature. Corporate Governance Statement For an extensive review of Aegon’s compliance with the Dutch Corporate Governance Code, please refer to the Corporate Governance Statement on Aegon’s corporate website. Differences between Dutch and US company laws Dutch company law is different from US law in the following respects: Aegon, like most large Dutch public companies, hasa two-tier governance system comprising an Executive Board and a Supervisory Board. The Executive Board is the executive body. Its members are not Aegon employees and have an engagement agreement with the Company. Members of the Executive Board are appointed and dismissed by the General Meeting of Shareholders, as inside directors are in the United States. The Remuneration Policy as regards the members of the Executive Board is adopted by the General Meeting of Shareholders. The number of the Executive Board members and the terms of their engagement are determined by the��Supervisory Board within the scope of the adopted Remuneration Policy. The Supervisory Board performs supervisory and advisory functions only, and its members are outsiders that are not employed by the Company. The Supervisory Board has the duty to supervise the performance of the Executive Board, the Company’s general course of affairs and the business connected with it. The Supervisory Board also assists the Executive Board by giving advice. Other powers of the Supervisory Board include the prior approval of certain important resolutions of the Executive Board. Members of the Supervisory Board are appointed for a four-year term and may be dismissed by the General Meeting of Shareholders. The remuneration of Supervisory Board members is fixed by the General Meeting of Shareholders. Resolutions entailing a significant change in the identity or character of the Company or its business require the approval of the General Meeting of Shareholders. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | 41 | | | | Composition of the Boards | | | | | | | | | | |
Composition of the Boards Members of the Executive Board Alexander R. Wynaendts (1960, Dutch)1 CEO and Chairman of the Executive and Management Boards of Aegon N.V. Alex Wynaendts began his career in 1984 with ABN AMRO Bank, working in Amsterdam and London in the Dutch bank’s capital markets, asset management, corporate finance and private banking operations. In 1997, Mr. Wynaendts joined Aegon as 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. In April 2007, Mr. Wynaendts was named Aegon’s Chief Operating Officer. A year later, he became CEO and Chairman of Aegon’s Executive Board and Management Board. Mr. Wynaendts has been appointed as Independent Director of the Board of AirFrance-KLM S.A. since May 2016, as Independent Director of the Board of Citigroup Inc. since September 2019 and as Chairman of the Supervisory Board of Puissance B.V. (not listed) since May 2017. Matthew J. Rider (1963, American) CFO and member of the Executive and Management Boards of Aegon N.V. Matt Rider began his career at Banner Life Insurance Company and held various management positions at Transamerica, Merrill Lynch Insurance Group and ING before joining Aegon. From 2010 to 2013, he was Chief Administration Officer and a member of the Management Board at ING Insurance, based in the Netherlands. In this role he was responsible for all of ING’s insurance and asset management operations, and specifically for Finance and Risk Management. Mr. Rider joined Aegon on January 1, 2017, and was appointed as CFO and member of the Executive Board of Aegon at the Annual General Meeting of Shareholders of Aegon N.V. of May 19, 2017. Members of the Management Board Alexander R. Wynaendts: see above Matthew J. Rider: see above Mark Bloom (1964, American) Global Chief Technology Officer and member of the Management Board of Aegon N.V. Mark Bloom has over 30 years’ experience in information technology. He joined Aegon from Citi in February 2016, where he served as Global Head of Consumer Digital and Operations Technology, responsible for digital, data and operations technology solutions and innovations. Prior to that, he held a number of technology leadership positions in financial services and the aerospace industry. As Global Chief Technology Officer at Aegon, Mr. Bloom is responsible for leading the Company’s technology and innovation activities, including leveraging technology to drive efficiency and enhancing the customer experience. Mr. Bloom was appointed as a member of Aegon’s Management Board in August 2016. Mr. Bloom is a member of the Board of Directors of Freddie Mac since November 2019. | 1 | On August 12, 2019, Aegon announced that its Supervisory Board intends to propose the appointment of Mr. Lard Friese as CEO to the Annual General Meeting in 2020. |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | 42 | | | | Composition of the Boards | | | | | | | | | | |
Maarten Edixhoven (1971, Dutch) CEO of Aegon the Netherlands and member of the Management Board of Aegon N.V. Maarten Edixhoven has over 25 years of experience in the financial services industry. He was head of corporate compliance at ING Group N.V. from 1995 to 2010, and served as a director of ING the Netherlands and Nationale Nederlanden in the period 2004 to 2008. Mr. Edixhoven was appointed CEO of Dutch life insurance company Zwitserleven in 2010 and held that position prior to joining Aegon the Netherlands as a board member in 2014. He was appointed CEO of the Dutch business in January 2017. He is also a board member at both the Dutch Association of Insurers and the Confederation of Netherlands Industry and Employers. Mr. Edixhoven was appointed member of Aegon N.V.’s Management Board in October 2019. Adrian Grace (1963, British)1 CEO of Aegon UK and member of the Management Board of Aegon N.V. Adrian Grace held various roles at GE Capital and Sage Group Inc. before joining Barclays Bank as Chief Executive of the Insurance Business in 2004, and HBOS as Managing Director of Commercial Businesses in 2007. He joined Aegon UK in 2009, and was appointed CEO of Aegon UK in 2011 and as a member of the Management Board of Aegon in 2012. Mr. Grace isa non-executive Director at Clydesdale Bank and a member of the Financial Conduct Authority practitioners’ panel. He was member of the Board of Scottish Financial Enterprise until June 2013. Allegra van Hövell-Patrizi (1974, Italian and Belgian) Chief Risk Officer of Aegon N.V. and member of the Management Board of Aegon N.V. Allegra van Hövell-Patrizi began her career in 1996 at McKinsey & 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 Prudential plc where she was part of the CEO Office and then later became Group Risk Director, and a member of the Group Executive Risk Committee, as well as the PUSL Board (within the Prudential plc Group). Ms. van Hövell-Patrizi joined Aegon at the end of 2015. She was appointed Chief Risk Officer of Aegon N.V. and a member of Aegon’s Management Board in January 2016. Ms. van Hövell-Patrizi is a member of the Supervisory Board of LeasePlan (not listed) since 2018. Marco Keim (1962, Dutch) CEO Aegon International and member of the Management Board of Aegon N.V. Marco Keim began his career with accountancy firm Coopers & Lybrand/Van Dien, before moving to the aircraft manufacturer Fokker Aircraft and NS Reizigers, part of the Dutch railway company, NS Group. In 1999, he joined Swiss Life in the Netherlands as a Member of the Board, and was appointed CEO three years later. Mr. Keim was appointed CEO of Aegon the Netherlands and member of Aegon’s Management Board in June 2008. From 2017 to 2020, Mr. Keim headed Aegon’s operations on mainland Europe. Since January 2020, Mr. Keim is responsible for Aegon’s business in Southern and Eastern Europe as well as Asia. Mr. Keim is a member of the Supervisory Board of Eneco Holding N.V.. | 1 | On September 10, 2019, Aegon announced that Mr. Grace would retire from the company on March 31, 2020. Mr. Mike Holliday-Williams has been appointed as the successor of Mr. Grace. |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | 43 | | | | Composition of the Boards | | | | | | | | | | |
Onno van Klinken (1969, Dutch) General Counsel and member of the Management Board of Aegon N.V. Onno van Klinken has over 25 years’ experience providing legal advice to a range of companies and leading Executive Board offices. Mr. Van Klinken started his career at Allen & Overy, and previously worked for Aegon between 2002 and 2006. He then served as Corporate Secretary for Royal Numico, before it was acquired by Groupe Danone. His next position was as General Counsel for the Dutch global mail and express group TNT, where he served from 2008 until the legal demerger of the group in 2011. This was followed by General Counsel positions at D.E. Master Blenders 1753 and Corio N.V.. Mr. Van Klinken rejoined Aegon in 2014 as General Counsel responsible for Group Legal, Regulatory Compliance, the Executive Board Office, and Government and Policy Affairs. Mr. Van Klinken has been a member of Aegon’s Management Board since August 2016. Mr. Van Klinken was appointed member of the Board of Stichting Continuïteit SBM Offshore in December 2016. Carla Mahieu (1959, Dutch) Global Head Human Resources and member of the Management Board of Aegon N.V. Carla Mahieu started her career in 1984 at Royal Dutch Shell, where she held various management positions within Human Resources, Communications and Corporate Strategy. Following several years as a consultant – during which time she worked for Spencer Stuart, among other companies – Ms. Mahieu was appointed Senior Vice President Corporate Human Resource Management at Royal Philips Electronics in 2003. Ms. Mahieu joined Aegon in 2010 as Global Head Human Resources, and has been a member of Aegon’s Management Board since August 2016. Ms. Mahieu has been a member of the Supervisory Board of the Royal BAM Group since 2011, and the Supervisory Board of VodafoneZiggo Group B.V. since 2017. Mark Mullin (1963, American) CEO of Aegon Americas and member of the Management Board of Aegon N.V. Mark Mullin has spent more than 20 years with Aegon in various management positions in both the United States and Europe. Mr. Mullin served as President and CEO of one of Aegon’s US subsidiaries, Diversified Investment Advisors, and as head of the Company’s US annuity and mutual fund businesses. He was named President of Aegon Americas in 2009, and became President and CEO of Aegon Americas and a member of Aegon’s Management Board in 2010. Mr. Mullin was appointed Chairman of the Board of Directors of the American Council of Life Insurers for the period October 2017-October 2018 and was a member of the Board of Directors and Executive Committee through October 2019. Bas NieuweWeme (1972, Dutch) Global CEO of Aegon Asset Management and member of the Management Board of Aegon N.V. Bas NieuweWeme was appointed Global CEO of Aegon Asset Management and Member of the Aegon N.V. Management Board in June 2019. Having obtained a Master of Laws (2000) and an Executive MBA in 2007, Mr. NieuweWeme has worked in global investment management for 20 years. The majority of this time was spent in various management positions within ING Investment Management Americas and Voya Investment Management. In 2016, he was named Global Head of the Client Advisory Group and a member of the management team at PGIM Fixed Income and Global Head of the Institutional Relationship Group at PGIM, Prudential Financial’s global investment management business. He serves as vice-chairman of the supervisory board of La Banque Postal Asset Management. He is also a member of the Board of Directors of The Netherlands-America Foundation (NAF) and a member of the Leadership Council of AmeriCares,a non-profit disaster relief and global health organization. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | 44 | | | | Composition of the Boards | | | | | | | | | | |
Members of the Supervisory Board William L. Connelly (1958, French) Chairman of the Supervisory Board Chairman of the Nomination and Governance Committee Member of the Remuneration Committee Mr. Connelly started his career at Chase Manhattan Bank, fulfilling senior roles in commercial and investment banking in France, the Netherlands, Spain, the United Kingdom and the United States. He was appointed to Aegon’s Supervisory Board in 2017 and became Chairman in May 2018 and his current term ends in 2021. He is also chairman of the Supervisory Board Nomination and Governance Committee and member of the Supervisory Board Remuneration Committee. Mr. Connelly is also an independent director at the Board of Directors of Société Générale, an independentnon-executive director at the Board of Directors of Self Trade Bank SA (not listed) and an independent director at Amadeus IT Group S.A.. Robert W. Dineen (1949, American) Member of the Remuneration Committee Member of the Risk Committee Robert W. Dineen was Vice Chairman of Lincoln Financial Network (LFN) and a member of the Senior Management Committee of Lincoln Financial Group (LFG), before retiring in 2013. Before joining Lincoln Financial Group, Mr. Dineen was Senior Vice President and head of Merrill Lynch’s Managed Asset Group. Mr. Dineen wasthe non-executive Chairman of the Board of Aretec Inc. (not listed,US-based) and was a member of Lincoln New York Life Company Board. He was appointed to Aegon’s Supervisory Board in May 2014, and stepped down as per October 11, 2019. Mark A. Ellman (1957, American) Member of the Audit Committee Member of the Risk Committee Mark A. Ellman is a former Vice Chairman Global Origination of Bank of America/Merrill Lynch. Before joining Bank of Amercia/ Merrill Lynch, he held various roles in the US insurance industry. These mostly entailed working in corporate finance at large US financial institutions, where he was engaged in M&A advice and transactions, together with equity and debt raisings for insurance companies. He was a founding partner of Barrett Ellman Stoddard Capital Partners. Mr. Ellman was appointed to Aegon’s Supervisory Board in 2017, and his current term ends in 2021. He is a member of the Supervisory Board Audit Committee and the Supervisory Board Risk Committee. Mr. Ellman wasa non-executive director of Aegon USA from 2012 to 2017. Ben J. Noteboom (1958, Dutch) Chairman of the Remuneration Committee Member of the Risk Committee Ben J. Noteboom worked for Randstad Holding N.V. from 1993 until 2014, where he was appointed member of the Executive Committee in 2001 and became CEO in 2003. Before joining Randstad, Mr. Noteboom worked for Dow Chemical in several international management functions between 1984 and 1993. He started his career in 1982 at Zurel as management assistant. He was appointed to Aegon’s Supervisory Board in May 2015, and his current term ends in 2023. He is Chairman of the Supervisory Board Remuneration Committee and a member of the Supervisory Board Risk Committee. Mr. Noteboom is also a member of the Supervisory Board of Royal Ahold Delhaize N.V. and Chairman of the Supervisory Board of Royal Vopak N.V. In addition, Mr. Noteboom is a member of the Board of Directors of VUmc Cancer Center Amsterdam and the Chairman of Stichting Prioriteit Ordina Groep. Mr. Noteboom is a former member of the Supervisory Board of Wolters Kluwer N.V.. Ben van der Veer (1951, Dutch) Chairman of the Audit Committee Member of the Nomination and Governance Committee Ben van der Veer is former Chairman of the Board of Management of KPMG N.V. Mr. Van der Veer retired from KPMG on September 30, 2008, and was appointed to Aegon’s Supervisory Board in October 2008. Mr. Van der Veer wasre-appointed as a member of the Supervisory Board during the 2016 Annual General Meeting of Shareholders, and his third and final term ends in 2020. He is Chairman of the Supervisory Board Audit Committee and a member of the Supervisory Board Nomination and Governance Committee. Mr. Van der Veer is a member of the Supervisory Board of Royal Vopak N.V. and member of the Board of the Stichting Continuiteit Heijmans (not listed). Mr. Van der Veer is a former member of the Supervisory Board of Royal Imtech N.V., TomTom N.V., Siemens Nederland N.V. (not listed) and a formernon-executive member of the Board of Directors of RELX PLC and a former member of the Supervisory Board of Royal FrieslandCampina N.V. (not listed). | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | 45 | | | | Composition of the Boards | | | | | | | | | | |
Corien M. Wortmann-Kool (1959, Dutch) Vice Chairman of the Supervisory Board Member of the Audit Committee Member of the Nomination and Governance Committee Corien M. Wortmann-Kool is Chairman of the Board of Stichting Pensioenfonds ABP, the Dutch public sector collective pension fund. Ms. Wortmann-Kool is a former Member of the European Parliament and Vice President on Financial, Economic and Environmental affairs for the EPP Group (European People’s Party). She was appointed to Aegon’s Supervisory Board in May 2014, and her current term ends in 2022. She is Vice Chairman of the Supervisory Board, and a member of the Supervisory Board Audit Committee and the Supervisory Board Nomination and Governance Committee. Ms. Wortmann-Kool is also a member of the Supervisory Board of Het Kadaster (not listed), Chairman of the Board of Trustees of Save the Children Netherlands and member of De Autoriteit Financiële Markten Capital Markets Advisory Committee. She was vice president of the European People’s Party until March 2018 and member of the Advisory Council of the Centraal Bureau voor de Statistiek until June 2018. Dona D. Young (1954, American) Member of the Audit Committee Chairman of the Risk Committee Member of the Nomination and Governance Committee Dona D. Young is an executive/board consultant and retired Chairman, President and Chief Executive Officer of The Phoenix Companies, which was an insurance and asset management company at the time of her tenure. She was appointed to Aegon’s Supervisory Board in 2013, and her current term will end in 2021. She is Chairman of the Supervisory Board Risk Committee, member of the Supervisory Board Audit Committee and member of the Supervisory Board Nomination and Governance Committee. Ms. Young is member and Lead Director of the Board of Directors of Foot Locker, Inc.. Furthermore, Ms. Young is a member of the Audit Committee of the Board of Trustees of Save the Children US (not listed), and member of the Board of Save the Children International and Save the Children Association and serves as an independent member of the Advisory Board of Spahn and Rose (not listed). Ms. Young is a member of the Board of the National Association of Corporate Directors. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | 46 | | | | Report of the Supervisory Board | | | | | | | | | | |
Report of the Supervisory Board The Supervisory Board is entrusted with supervising and advising the Executive Board on management of the Company, and overseeing Aegon’s strategy and the general course of its businesses. Oversight and advice The Supervisory Board is a separate independent corporate body, consisting of six members on December 31, 2019. The Supervisory Board is charged with the supervision of the Executive Board, of the general course of affairs and strategy of the Company, and of its businesses. In performing their duties, members of the Supervisory Board are guided by the interests of Aegon and the Company’s stakeholders. The duties of the Supervisory Board with regard to the activities of members of the Executive Board are published in the Supervisory Board Charter, which is published on Aegon’s corporate website, aegon.com. The Supervisory Board makes recommendations to the General Meeting of Shareholders concerning all appointments and reappointments to, and dismissals from, both the Executive Board and the Supervisory Board. In addition, the Supervisory Board determines the remuneration of individual members of the Executive Board in line with the Remuneration Policy adopted at the Company’s General Meeting of Shareholders. Overall accountability for Aegon’s remuneration governance also resides with the Supervisory Board, which is advised by its Remuneration Committee. This includes the responsibility for designing, approving and maintaining the Aegon Group Global Remuneration Framework, including the remuneration policies for the Executive Board and Heads of Group Control functions. Corporate governance Details of Aegon’s corporate governance structure and a summary of how the Company complies with the Dutch Corporate Governance Code can be found on pages36-40 of this Annual Report and in the Corporate Governance Statement published on aegon.com. Composition of the Supervisory Board and Executive Board Supervisory Board The composition of the Supervisory Board is discussed regularly in Board meetings and in particular by the Nomination and Governance Committee. An overview of the composition of the Supervisory Board in 20182019 can be found on pages49-50.44-45. All members of the Supervisory Board are considered independent under the terms of best practice provisions 2.1.7, 2.1.8 and 2.1.9 of the Dutch Corporate Governance Code. There were a number of changeswas one change to the Supervisory Board in 2018. Following2019: after having been aten-year term, Rob Routs member of the Supervisory Board for five years, Mr. Robert Dineen stepped down as Chairman and member of the Board at the Annual General Meetingon October 11, 2019, in light of Shareholders on May 18, 2018. In addition, Dirk Verbeek stepped down after 10 years’ service at the Annual General Meetinghis appointment asNon-Executive Chairman of Shareholders on May 18, 2018.a US investment manager. The Board benefitted from Mr. Routs’ and Mr. Verbeek’sDineen’s knowledge and contributions. The Supervisory Board elected William Connelly as its new Chairman following the Annual General Meeting of May 18, 2018.contributions during his terms. On May 18, 2018,17, 2019, shareholders approved the reappointment of Corien Wortmann-Kool and Robert Dineenreappointed Mr. Ben Noteboom for an additional four-year term. TheDuring the Annual General Meeting on May 15, 2020, the Supervisory Board is in the process of selecting new candidates for appointment, and will propose any such candidate(s) in due course for approval to the Company’s shareholders.shareholder to appoint Mr. Thomas Wellauer and Ms. Caroline Ramsay as members to the Supervisory Board for a four-year term. In compliance with the Dutch Corporate Governance Code, members of the Supervisory Board are appointed by shareholders for a term of four years. The option exists to reappoint members for one additional four-year term. A Supervisory Board member can then subsequently be reappointed again for a period of two years, which reappointment may be extended by at most two years. For a reappointment after an eight-year period, reasons will be provided in the report of the Supervisory Board. The retirement schedule and other information about members of the Supervisory Board are available on aegon.com. Executive Board The Executive Board consists of Alexander R. Wynaendts, Chief Executive Officer (CEO) and Chairman of the Executive Board, and Matthew J. Rider, Chief Financial Officer (CFO). Members of the Executive Board are appointed by shareholders for a term of four years, with the option of reappointment for additional four-year terms. The appointment schedule and other information about members of the Executive Board are available on aegon.com. During the Annual General Meeting on May 15, 2020, it will be proposed to the shareholders to appoint Mr. Lard Friese as member to the Executive Board. Following his appointment, Mr Wynaendts will resign as member of the Executive Board and Mr Friese will succeed Mr. Wynaendts as Chief Executive Officer of the Company. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | 47 | | | | Report of the Supervisory Board | | | | | | | | | | |
Board meetings Attendance In 2018,2019, the Supervisory Board had seven regular(face-to-face) meetings: four related to the quarterly results; one to the annual report; and two to strategy (including the budget and Medium Term Plan). Supervisory Board Committee meetings were usually held the day before the meetings of the full Supervisory Board. All regular boardSupervisory Board meetings were attended by all Board | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 52 | | How we safeguard long-term value creation Report of the Supervisory Board | | | | | | |
members. All committee meetings were attended by all committee members.members, except for one Risk Committee meeting that Ben Noteboom was unable to attend. Next to the Supervisory Board and Supervisory Board Committee meetings, additional meetings have taken place in relation to the succession of Alex Wynaendts as member of the Executive Board and Chief Executive Officer. An overview of Supervisory Board members’ attendance by meeting is provided in the table below. | | | | | | | | | | | | | | | | | | | | | | | | | | Name | | Regular SB meeting | | | Audit Committee | | | Risk Committee | | | RemunerationAudit
Committee | | | Nomination &
Governance
Risk Committee | | | Combined
Audit & Risk
Committee | | Remuneration | | Nomination & Governance | | Additional NGC mtgs. / calls | | Additional SB mtgs. / calls | | Rob Routs1 | | | 3/3 | | | | - | | | | - | | | | 3/3 | | | | 3/3 | | | | - | | BillWilliam Connelly1 | | | 7/7 | | - | | - | | - | | 6/6 | | 6/6 | | 4/4 | | | 3/3 | | Bob Dineen1) | | 5/5 | | - | | 3/3 | | - | | 4/4 | | - | | - | | | 2/2 | 6/6 | Mark Ellman | | 7/7 | | 5/5 | | 4/4 | | 1/1 | | - | | - | | - | | | 3/3 | | Bob Dineen1 | Ben Noteboom | | 7/7 | | - | | 3/4 | | 1/1 | | 6/6 | | - | | - | | | 3/3 | | Ben van der Veer | | 7/7 | | 5/5 | | - | | 1/1 | | - | | 6/6 | | 4/4 | | | | 4/4 | | | | 3/3 | | | | - | | | | 1/1 | | Mark Ellman | Corien Wortmann | | 7/7 | | 5/5 | | - | | 1/1 | | - | | 6/6 | | | | 4/4 | | | | - | | | | - | | | | 1/13/3 | | Ben Noteboom | Dona Young | | 7/7 | | 5/5 | | 4/4 | | 1/1 | | - | | 6/6 | | 4/4 | | | | 6/6 | | | | - | | | | 1/1 | | Ben van der Veer | | | 7/7 | | | | 6/6 | | | | - | | | | - | | | | 8/8 | | | | 1/1 | | Dirk Verbeek1 | | | 3/3 | | | | - | | | | 2/2 | | | | - | | | | 3/3 | | | | - | | Corien Wortmann | | | 7/7 | | | | 6/6 | | | | - | | | | - | | | | 8/8 | | | | 1/1 | | Dona Young1 | | | 7/7 | | | | 6/6 | | | | 4/4 | | | | - | | | | 5/5 | | | | 1/1 | |
| 1 | Where a Supervisory Board member retired from the SB, stepped down from a Committee or was appointed throughout the year, only meetings during his/his / her tenure are taken into account. |
MembersBased on the agenda topics, members of the Executive Board and Management Board attended the Supervisory Board meetings held in 2018 when relevant with regard to the meeting agenda. At2019. Also, at the request of the Supervisory Board, other Company executives also attended the meetings to provide reports and updates on specific topics. Representatives from Aegon’s external auditor PwC attended the March 20182019 Supervisory Board meeting on Aegon’s 20172018 Annual Report. PwC also attended all 20182019 Audit Committee meetings in full except for the October deep dive meeting in Edinburgh, the UK, focused on Aegon UK and the combined Supervisory Board Audit and Risk Committee in December. Regular Board meetings were preceded or followed by meetings attended only by the members of the Supervisory Board and the CEO.Chief Executive Officer. Furthermore, the Supervisory Board held meetings without the presence of Executive Board or Management Board members.
Highlights and activities Key topics discussed during the 20182019 Supervisory Board meetings were Aegon’s quarterly results and semi-annual and annual reporting, Aegon’s strategy, the main business risks, IT, regulatory developments, acquisitions and divestments and human resources items. Quarterly results were discussed on the basis of feedback from the Audit Committee. The full-year results reported in this Annual Report were discussed in the March 20192020 meeting in the presence of the external auditor PwC. At the Supervisory Board meeting in December 2018,2019, the budget for 20192020 was approved and the Medium Term Plan was discussed. The Supervisory Board regularly discussed the long-term value creation strategy with the Executive Board and the Management Board, and closely monitored its execution, the risks involved in its execution, and any opportunities to further enhance the strategy where necessary. Every year during the Supervisory Board strategy meeting, the strategy is discussed as part of the annual strategy process. Plans and projects were discussed during executive sessions and in regular meetings, together with the strategic focus for all operating segments. Furthermore, digitizationthe focus on execution and the cultural transformationmodernization of the business were additional important strategic priorities that were discussed during the Supervisory Board meetings. Acquisitions and divestments were regularly discussed in the context of the execution of the strategy. The Supervisory Board supports the active management of the business portfolio withadd-on acquisitions, the sale of underperforming businesses and the disposals of entities no longer consistent with Aegon’s strategy. During the year, the Board discussed various M&A and balance sheet transactions, including but not limited to the acquisitionsale of Robidusits 50% stake in the Netherlands,variable annuity joint ventures in Japan and the divestmentreinsurance of part of the businesseslongevity exposure in Czech Republic, Slovakia and Ireland and the divestment of the last block of US life reinsurance business to SCOR Global Life.Netherlands.
In recognition of the importance of succession planning and talent management, the Board received updates from Aegon’s Global Head Human Resources on progress made towards achieving the objectives of Aegon’s talent agenda: continuing to attract new staff with a wide range of different skills and experience; identifying sufficiently qualified succession candidates; and strengthening the talent pipeline for future succession. The Board also received and discussed the results of the annual global employee survey. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 53 | | How we safeguard long-term value creation Report of the Supervisory Board | | | | | | |
In 2018,2019, Supervisory Board discussions included the following topics:
| ◆ | | Strategy, including Aegon’s long-term value creation, its responsible business strategy and business reviews; |
| ◆ | | Acquisitions, divestments, and the strategic direction of Aegon’s businesses including the organizational transformation throughout the business, such as the strategic partnership to outsource administration of the majority of Transamerica’s insurance and annuity business, and the decision made by Aegon UK to extend the partnership with Atos forfocus on execution and modernization, which included strategic administration services.partnerships; |
| ◆ | | Executive Board and senior management succession planning; |
| ◆ | | Executive remuneration, including the risks of the remuneration framework; |
| ◆ | | Composition of the Supervisory Board, including the Board’s effectiveness; |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | 48 | | | | Report of the Supervisory Board | | | | | | | | | | |
| ◆ | | Human resources, including talent development, results of the global employee survey and cultural change and the risks of cultural behavior within the Company;behavior; |
| ◆ | | Annual and quarterly results, dividends and the Company’s Medium Term Plan, including the 20192020 budget, capital and funding plan; |
| ◆ | | Capital generation and Solvency II capital position, including regulatory capital reports and actions following the changes in the US Capital Framework for Variable Annuities resulting in the merger of two US legal entities;2019 market and interest rate developments; |
| ◆ | | Enterprise risk management, cybersecurity and information security risks, and the risks related to the execution of the strategy within the Company; |
| ◆ | | Investor relations, including shareholder listing, market analysis and roadshow feedback; |
| ◆ | | Legal, regulatory and compliance issues, including Aegon’s engagement with regulators, and the settlement with the SEC and the settlement in relation to the universal life litigation in the US;regulators; |
| ◆ | | Highlighted topics by Supervisory Board Committees; |
| ◆ | | Regulatory changes at both a regional and global level; |
| ◆ | | Customer due diligence processes; |
| ◆ | | Tax policy and tax developments; and |
| ◆ | | Technology, including the technology strategy, technological developments and innovations, and how they can be used to enhance customer centricity.innovations. |
Results and budget In February 2018,2019, the Supervisory Board convened to discuss the fourth quarter 20172018 results. In March 2018,2019, the Supervisory Board reviewed and adopted Aegon’s 20172018 Annual Report, the Consolidated Financial Statements of Aegon N.V., and the Financial Statements of Aegon N.V., and the Annual Review of 2017.N.V.. In May, August and November, the Supervisory Board reviewed Aegon’s first, second and third quarter 20182019 results respectively. In December 2018,2019, the Supervisory Board and Management Board reviewed the Company’s Medium Term Plan, including the budget and capital plan for 2019.2020. The Boards took note of the uncertainties and challenges in the coming years as described in the Plan. These included, among others: increased regulatory requirements, lowlower interest rates and lower equity markets, market volatility, digital developments, and the changing distribution landscape.project risk. The Board discussed Aegon’s free cash flowcapital generation and capital projections, together with the continued focus on cost efficiency. The Plan provides for a continuation of investments in digital capabilities to increase customer connectivity. The Supervisory Board supported the Medium Term Plan and approved the budget for 2019.2020. The Board also approved the 20192020 funding plan and authorized the Executive Board to execute on the funding plan in 2019.2020. Legal, compliance and regulatory affairs In 2018,2019, the Supervisory Board and the Audit Committee discussed a number of compliance, regulatory and legal topics relating to the Americas, Europe, Asia, and Asset Management with management, the Global Head of Group Legal & Regulatory Compliance and the Global Head of Operational and Conduct Risk Management. In particular, the Board discussed the consequencesstate of the Legal and actions resulting from being designated as a Global Systematically Important Insurer(G-SII)Compliance functions, General Data Protection Regulation developments, Compliance risks, Fraud and the settlement with the US SecuritiesFinancial crime including know your customer and Exchange Commission (SEC) with regards to the operationultimate beneficial owner requirements, and implementation of asset management quantitative models by Aegon’s US asset management operations, and related disclosures. The Board furthermore discussed the settlement that resolved litigation challenging certain monthly deduction rate adjustments on universal life insurance policies in the United States.whistle-blower reports. An overview of the topics discussed in the field of Risk Management can be found in the Audit Committee and Risk Committee sections below. TheIn 2019, the Chairs of the Supervisory Board, Audit Committee and Risk Committee visited the group supervisor, (Dutchthe Dutch Central Bank DNB) in the first half of 2018(DNB), for their regular annual meeting.
Educational sessions The Board and its Committees received updates and presentations on topics including developments in acquisitions and divestments, corporate governance and regulatory compliance, roles and responsibilities of the Board and the management and remuneration regulations for the insurance sector, responsible business and information technology. In addition to these updates and presentations fromprovided by the Company, the members of the Supervisory Board gathered general information on industry developments by participating in networks, reading independent reports and sharing knowledge with other Board members within and outside Aegon. The Board visited local offices and liaised with employees in Asia,Spain, the UKNetherlands and the US and was furthermore in particular informed on the strategic direction of Aegon’s activities in Europe, Asia and Asset Management and on the transformation processes within the Company.US. In addition, the Board was updated on the IFRS 9 and IFRS 17 developments, around the General Data Protection RegulationSolvency II landscape, including the EIOPA 2020 review of the Solvency II Directive, capital generation under Solvency II and on the AssetIFRS margin analysis. Board review The Supervisory Board undertakes a Board effectiveness review on an annual basis and Liabilityan external assessment takes place at least once every three years. In the first quarter of 2019, such external assessment of the Supervisory Board was conducted. The assessment was based on document analyses, a survey completed by Supervisory Board members, Management Board members and the Company Secretary and interviews with all these persons. The Board review assessed the functioning of the Board as a whole, the composition, processes and information, the functioning of the Committees and the interaction within the Company.Board and with the Executive and Management Board. The Audit Committee furthermore held a meeting dedicated to Aegon UK developments.results of the assessment were discussed in May 2019 and the Supervisory Board acted on the observations and recommendations that were then discussed and were listed in the assessment report. Outside the presence of the Executive Board, the Supervisory Board reviewed the performance (results) of the individual members of the Executive and Management Boards over the preceding calendar year in February 2019. The performance of the members of the Executive and Management Boards was also discussed regularly during the year. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | 5449 | | How we safeguard long-term value creation | | Report of the Supervisory Board | | | | | | | | | | | | |
Board review
The Supervisory Board undertakes a Board review on an annual basis, and an external assessment takes place at least once every three years. At the end of 2017, a self-assessment was undertaken by the Board and the results of this self-assessment were discussed at the beginning of 2018. Over 2018, an external assessment of the Supervisory Board will be conducted. The results of this assessment and the priorities andfollow-up will be discussed in the beginning of 2019. In the assessment each member of the Board will be interviewed on the basis of a completed questionnaire. The Board review assesses the collective performance and effectiveness of the Board and its Committees, and the performance of the Chairman and the individual members of the Board. In doing so, it addresses the composition, competencies, expertise and profile of the Board, the meeting processes and procedures, the mutual interaction, dynamics and communication in the Board, and the Board’s key areas of supervision. The questionnaire further addresses events from which lessons can be learned, and reviews the mutual interaction between the Supervisory Board and the Executive Board and Management Board. With regard to this mutual interaction, the 2018 Supervisory Board review also includes input from the Management Board. In 2018, the Supervisory Board acted on the priorities andfollow-ups that were listed following the self-assessment over 2017.
The performance of the members of the Executive and Management Board was discussed regularly during 2018. The Supervisory Board reviewed the performance of individual members of the Executive and Management Board over the preceding calendar year in February 2018. In addition, the Supervisory Board discussed the cooperation and communication between the Supervisory Board and Management Board in 2018.
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, and they are discussed in full at Supervisory Board meetings. Supervisory Board members receive all minutes of the Committee meetings. These meetings are open to all members of the Board, regardless of membership of the Committees. All Committee reports were prepared by the respective Committees and approved by the Supervisory Board. These reports provide an overview of the responsibilities and activities of the Committees. The four Committees are the: | ◆ | | Nomination and Governance Committee; and |
| ◆ | | Remuneration Committee. |
The Risk Committee is responsible for supervising the activities of, and advising the Supervisory Board’s Audit Committee with respect to, the Company’s enterprise risk management framework and internal control systems. The Audit Committee primarily relies on the Risk Committee for these topics, as stated in the Dutch Corporate Governance Code. The Audit Committee Composition On December 31, 2018,2019, the composition of the Audit Committee was as follows: | ◆ | | Ben van der Veer (chair); |
| ◆ | | Corien M. Wortmann-Kool; and |
The members of the Audit Committee meet all relevant independence and experience requirements of financial administration and accounting for listed companies. The Committee confirmed that all of its members qualified as independent according to Rule10A-3 of the SEC, and it also confirmed that the Chairman of the Audit Committee, Ben van der Veer, qualified as a financial expert according to the Sarbanes OxleySarbanes-Oxley Act in the United States and his competence in accounting and auditing according to the Audit Committee Decree 2016 (‘Besluit instelling auditcommissie’), section 2(3). Role and responsibilities As Aegon has both an Audit Committee and a Risk Committee, the risk management responsibilities stated in the Dutch Corporate Governance Code are assigned to the Risk Committee. With regard to the oversight of the operation of the risk management framework and risk control systems, including supervising the enforcement of relevant legislation and regulations, the Audit Committee operates in close coordination with the Risk Committee as established by the Board. Certain Board members participate in both committees and a combined meeting of the Audit and Risk Committees is scheduled on an annual basis. The main role and responsibilities of the Audit Committee are to assist and advise the Supervisory Board in fulfilling its oversight responsibilities regarding: | ◆ | | The integrity of the consolidated interim and full-year financial statements and financial reporting processes; |
| ◆ | | Internal control systems and the effectiveness of the internal audit process; and |
| ◆ | | The performance of the external auditors and the effectiveness of the external audit process, including monitoring the independence and objectivity of PwC. |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 55 | | How we safeguard long-term value creation Report of the Supervisory Board | | | | | | |
The Audit Committee reports to the Supervisory Board on its activities, identifying any matters about which it considers action or improvements are needed, and making recommendations as to the steps to be taken. For more information about the functioning of the Audit Committee, please see the Audit Committee Charter on aegon.com. Committee meetings In 2018,2019, the Audit Committee held sevensix meetings, one of which was a combined meeting with the Risk Committee of the Supervisory Board in December 2018. As part of regular deep-dive sessions, a separate meeting took place in October in the UK dedicated to Aegon’s business in the UK. Topics for discussion included the developments within Aegon UK in general, the capital generation, operational management including outsourcing and the digital solutions and integration initiatives within Aegon UK.2019. Audit Committee meetings were attended by the members of the Audit Committee, Aegon’s Chief Financial Officer, the Head of Corporate Financial Center, the Chief Risk Officer, the Chief Internal Auditor, and partners of PwC, Aegon’s external auditor. Members of Aegon’s Group Risk, Group Legal, &Group Regulatory Compliance, Investor Relations, Group Tax, Human Resources, Actuarial and Business departments regularly attended Audit Committee meetings. Aside from the Audit Committee meetings, additional sessions were held with internal and external auditors, without members of the Executive Board or senior management present. Financial Reporting In discharging their responsibilities with regards to the 20182019 interim and full year financial statements, the Audit Committee: | ◆ | | Reviewed and discussed the management letter and follow up actions with PwC, Internal Audit, the Executive and the Management Board;Board, Internal Audit and PWC; |
| ◆ | | Discussed PwC’s quarterlyinterim reports leading to a review opinion on the interim financial statements; |
| ◆ | | Received presentations on various topics by local business unit managers and chief financial officers; and |
| ◆ | | Reviewed and discussed areas of significant judgments in the preparation of the financial statements, including, in particular: Solvency II, investment valuation and impairments, economic and actuarial assumption setting, and model validations. |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | 50 | | | | Report of the Supervisory Board | | | | | | | | | | |
The Audit Committee was satisfied with the explanations provided by PwC,the Executive and Management Board, Internal Audit and Executive and Management Board,PwC, and conclusions reached. Recurring items on the Audit Committee agenda in 20182019 were Solvency II developments, controls, capital and liquidity, legal and compliance updates, and preparations for IFRS 9 and IFRS 17. Other items included the capital and funding plans and the performance review of the internal audit function. Risk management and internal controls With respect to their oversight of internal controls (provided they did not pertain to the work and responsibilities of the Risk Committee) the Audit Committee: | ◆ | | Reviewed and approved the internal and external audit plans for 20182019 and monitored execution, including progress in respect of recommendations made; |
| ◆ | | Discussed quarterly updates on the activities of the internal audit function, together with details of progress on internal audits with the internal auditor. Areas of focus in 20182019 included the Internal Audit strategy, audit planning process, Internal Audit charter, quality assurance reviews, issue tracking and resolution, control environment, Information Security, Solvency II, third party management and outsourcing,administration partnerships, General Data Protection Regulation, performance management and integrity; |
◆ | | Contributed to the appointment process of the new Global Head of Internal Audit; |
| ◆ | | Reviewed the internal control framework, among others with respect to the Sarbanes OxleySarbanes-Oxley Act; and |
| ◆ | | Discussed the internal control statement with the Executive Board. |
In addition, the Committee reviewed quarterly legal and compliance updates. External audit effectiveness The Audit Committee discussed and approved the external auditor’s engagement letter for 2018 and contributed to the appointment process of the new lead partner(s).2019. Aegon has well-established policies on audit effectiveness and independence of auditors that set out, among other things: | ◆ | | The review and evaluation of the external auditor and the lead partner of the external audit team on at least an annual basis; |
| ◆ | | Non-audit services performed by the external auditor; |
| ◆ | | Rotations of the external auditor and lead partner; and |
| ◆ | | Discussions about planning and staffing of the external audit activities. |
For more information about the policies relating to the effectiveness and independence of the external auditor, please see AnnexAnnexes A, B and C of the Audit Committee Charter on aegon.com. The Risk Committee Composition On December 31, 2018,2019, the composition of the Risk Committee was as follows: | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 56 | | How we safeguard long-term value creation Report of the Supervisory Board | | | | | | |
Role and responsibilities The main role and responsibilities of the Risk Committee are to assist and advise the Supervisory Board in fulfilling its oversight responsibilities regarding the effectiveness of the design, operation and appropriateness of both the Enterprise Risk Management (ERM) framework and the internal control systems of the Company and the subsidiaries and affiliates that comprise the Aegon Group. This includes: | ◆ | | Risk strategy, risk tolerance and risk governance; |
| ◆ | | Product development and pricing; |
| ◆ | | Risk responses and internal control effectiveness; |
Furthermore, the Risk Committee regularly reviews risk exposures as they relate to capital, earnings, liquidity and compliance with risk policies. The Company’s risk management is an important topic for the Supervisory Board. For more information about the functioning of the Risk Committee, please see the Risk Committee Charter on aegon.com. Committee meetings The Risk Committee works closely together with the Audit Committee and has an annual combined meeting, which in 20182019 was held in December. This combined meeting focused on the Group integratedGlobal Risk development plan, third party & affiliate management, model validations, Cloud developments and the market risk reporting,impact on the preparations for IFRS 9 and IFRS 17, the evaluation of internal controls, cyber security and information security.budget plan. The Risk Committee convened five times in 2018,2019, including the combined meeting with the Audit Committee. The Company’s Chief Executive Officer and Chief Risk Officer attend all the Committee meetings. The Chief Financial Officer had a standing invitation to attend the Committee meetings, and also attended one of the meetings in 2018.meetings. Other Management Board members and senior managers attended the meetings when relevant for the discussion. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | 51 | | | | Report of the Supervisory Board | | | | | | | | | | |
Risk management and Internal controls Recurring items on the Risk Committee agenda in 20182019 were risk exposure information, risk policy compliance monitoring, IT security and data protection and risks associated with large modernization and change programs in the company. The Risk Committee assessed the effectiveness of the design and operation of the ERM framework and internal control systems in 20182019 by: | ◆ | | Discussing the quarterly risk dashboard, including all material group level risks, with the Executive Board, membersChief Risk Officer and relevant senior managers. The material group level risks consisted of financial, actuarial and operational risks, including cybersecurity and information security risks and controls; |
| ◆ | | Assessing a quarterly modernization dashboard that outlined risks with regards to the execution of the strategic change programs in each region, and how those risks were monitored and mitigated; |
◆ | | Discussingin-depth regional programs, referred to as ‘Control Excellence’, focused on internal controls and operational risk management with the relevant CROs; |
| ◆ | | Reviewing the Group Risk appetite, which consists of the risk strategy and risk limits and tolerances; and |
| ◆ | | Reviewing the risk governance structure and risk competencies, including the skills necessary for the risk function. |
The Risk Committee also discussed several regulatory topics on a regular basis, including the DNB Focus report and the consequences and actions followingin the designationcontext of Aegon as aG-SII in November 2015.Recovery and Resolution regulation. The Risk Committee furthermore spent time on an outside in risk perception of the Group ORSA report,Risk function, reinsurance developments, Model Risk management, the strategic human resources program Future Fit and on risks and approaches in dealing with third party relations of the Company. In addition, the Risk Committee dedicated time to wider developments in the geopolitical environment, including risks associated with Brexit and financial markets in 2018,2019, and to an educational session on Asseta number of important asset and Liability Management withinliability management and hedging topics across the Company.Group. The Nomination and Governance Committee Composition On December 31, 2018,2019, the composition of the Nomination and Governance Committee was as follows: | ◆ | | William L. Connelly (chair); |
| ◆ | | Corien M. Wortmann-Kool; and |
Role and responsibilities The main role and responsibilities of the Nomination and Governance Committee are to assist and advise the Supervisory Board in fulfilling its responsibilities in the areas of Human Resources Management and Corporate Governance. This includes: | ◆ | | Board member and senior management succession planning; |
| ◆ | | Drawing up selection criteria and procedures for Board members, together with supervising the selection criteria and procedures for senior management; |
| ◆ | | Advising on and proposing nominations, appointments and reappointments; |
| ◆ | | Reviewing and updating the Supervisory Board profile and charters for the Supervisory Board and its committees; |
| ◆ | | Periodically assessing the functioning of individual members of the Supervisory Board and the Executive Board; |
| ◆ | | Overseeing the corporate governance structure of the Company, compliance with the Dutch Corporate Governance Code and any other applicable corporate governance legislation and regulations; and |
| ◆ | | Assessing and advising on the responsible business strategy as part of the corporate strategy, and overseeing the execution of the responsible business strategy. |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 57 | | How we safeguard long-term value creation Report of the Supervisory Board | | | | | | |
Committee meetings Aegon’s Nomination and Governance Committee held eightten meetings, including four conference call meetings, in 2018.2019. In addition to the committee members, these meetings were attended in whole or in part by the CEO, the Global Head Human Resources and the General Counsel. Further to the activities mentioned below, the Nomination and Governance Committee discussed the Company’s responsible business strategy.senior management team developments and governance matters and structures. The Nomination and Governance Committee also reviewed the important outside board positions of the members of the Management and Supervisory Board, and discussed specific appointments to important outside board positions where applicable. Supervisory Board related activities The Nomination and Governance Committee discussed the composition of the Supervisory Board and its Committees and governance topics.Committees. The profile of Supervisory Board members, as well as their capabilities in terms of working collectively with other members of the Supervisory Board, were debated by the Committee. Furthermore, the existing and impending vacancies in the Supervisory Board were discussed and a search process for fulfilling those vacancies was ongoing.discussed. A Supervisory Board competency overview is published on aegon.com. Executive and Management Board related activities During 2018,2019, the Nomination and Governance Committee reviewedwas actively involved in a thorough succession process to identify a successor during the compositionfinal term of CEO Alex Wynaendts, resulting in the Executive Board. Considering the appointment schedule of the Executive Board, the Nomination and Governance Committee evaluated Mr. Wynaendts’ career at Aegon and his functioning as CEO of the Company, and advisedannouncement that the Supervisory Board intends to nominatepropose the appointment of Mr. Wynaendts for reappointmentLard Friese as CEO to the shareholder. Annual General Meeting of Shareholders. Lard Friese joined the company asCEO-designate effective March 1, 2020 and will succeed Alex Wynaendts at the AGM to be held on May 15, 2020. The Nomination and Governance Committee furthermore reviewed the composition of the Management Board together withand was informed - and consulted on - the functioning and effectivenesssuccession of the Board members, both individually and as a team. Acknowledging the importance of good succession planning, the Committee discussed with the CEO and Aegon’s Global Head Human Resources the extent to which sufficient internal candidates are available to fill positions at Executive Board, Management Board vacancies and senior management level both in the eventon CEO appointments of emergency and when positions open up in the future. The CEO also discussed changes in the global senior management team with the Nomination and Governance Committee during the year. certain business units. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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The Committee was also kept appraised of major organizational changes, developments in employee engagement, talent management and international mobility. As in previous years, the Supervisory Board noted that Aegon continued to make progress in order to ensure proper succession planning is in place. The Supervisory Board was also informed about the annual Global Employee Survey, which was conducted at the end of 2018.2019. The Supervisory Board discussed the outcome of this survey in detail in the first quarter of 2019.2020. Diversity Enhancing diversity in the Executive, Management and Supervisory Board is an important issue for Aegon. Selection and appointment is based on expertise, skills and relevant experience, and the Supervisory Board takes diversity into account with a view to achieving its aim of having a balanced Supervisory, Executive and Management Board composition. In 2017, the Supervisory Board adopted a diversity policy for the Executive, Management and Supervisory Board. The Supervisory Boardpurpose of the diversity policy is aware that the currentto have a more balanced and diverse composition of the Executive and Supervisory Board, does not meet the ‘balanced composition’Executive Board and the Management Board in terms of nationality, age, gender and educational, professional and geographical background and experience of the individual members. The Committee strives to have at least 30% female or male representation in the Supervisory Board, the Executive Board and the Management Board. In the current Supervisory Board composition, there are two female members out of six members in total (meeting the recent requirement under Dutch law with regard to gender diversity (atthat at least 30% of the positions should be filled by women and at least 30% by men). FollowingFor the appointment of Corien Wortmann-Kool to the SupervisoryExecutive Board in 2014, the gap in terms of the ‘balanced composition’ was reduced, and the SupervisoryManagement Board currentlysuch balanced gender composition has two female Board members. not been met. When identifying candidates for open positions in the Executive Management and Supervisory Board,Boards, the BoardCommittee 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 and in Chapter 7 (Diversity) of the Corporate Governance Statement - as published on aegon.com. The Remuneration Committee Composition On December 31, 2018,2019, the composition of the Remuneration Committee was as follows: | ◆ | | Ben J. Noteboom (chair); and |
| ◆ | | William L. Connelly; andConnelly. |
| ◆ | | Robert W. Dineen.Up until October 11, 2019, Mr. Dineen was also a member of the Remuneration Committee. |
Role and responsibilities The main role and responsibilities of the Remuneration Committee are to advise the Supervisory Board and prepare decisions to be taken by the Board. The Committee is designated to safeguard sound remuneration policies and practices within the Company by overseeing the development and execution of these policies and practices. In order to ensure that the remuneration policies and practices take all types of risks properly into account, in addition to liquidity and capital levels, the Remuneration Committee assesses in particular the remuneration governance processes, procedures and methodologies adopted. Furthermore, the Committee ensures that the overall remuneration policy is consistent with the longer-term strategy of the Company and the longer-term interest of its shareholders, investors and other stakeholders. This includes: | ◆ | | Reviewing the Aegon Group Global Remuneration Framework and making recommendations on the remuneration policies; |
| ◆ | | Overseeing the remuneration of the Executive Board and Heads of Group Control functions; |
| ◆ | | Preparing recommendations regarding variable compensation both at the beginning and at the end of the performance year; |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 58 | | How we safeguard long-term value creation Report of the Supervisory Board | | | | | | |
◆ | | Overseeing the remuneration of the Executive Board and Heads of Group Control functions; and |
| ◆ | | Preparing the information provided to shareholders on remuneration policies and practices, including the Remuneration Report. |
Committee meetings The Remuneration Committee had six meetings in 2018.2019. In addition to the committee members, these meetings were attended in whole or in part by the CEO, the Global Head Human Resources and the General Counsel. In 2018,2019, the Remuneration Committee was actively involved in amending the remuneration policies for the Executive Board and the Supervisory Board, in order to implement the changes as required by the Shareholder Rights Directive implementation Act (and to be submitted for adoption by the shareholders to the Annual General Meeting on May 15, 2020). In this context, and to make further improvements to align the incentives of the Executive Board with those of Aegon’s shareholders, the Chair of the Remuneration Committee headed a consultation process involving major shareholders, shareholder representatives, proxy advisors and employee representatives, in order to receive feedback on the proposed changes to the remuneration policies. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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The Remuneration Committee also oversaw the further application, implementation and approval of Aegon’s Group Global Remuneration Framework and the various policies and procedures related to it, including the Remuneration Policy for Identified Staff.Material Risk Takers (Identified Staff). This included: | ◆ | | Allocating variable compensation related to 2018; |
| ◆ | | Setting the 20182019 Individual Performance Indicators for Executive Board members; |
| ◆ | | Setting the 2019 Group performance indicators and targets for remuneration purposes; |
| ◆ | | Preparing the 20192020 Group performance indicators for remuneration purposes; |
| ◆ | | Allocating variable compensation related to 2017; |
◆ | | Overseeing the scenario analysis of payoutpay-out levels under the Executive Board Remuneration Policy; andremuneration policy; |
| ◆ | | Reviewing and/or approvingtheex-ante risk assessments andex-post assessments, any exemption requests under the remuneration policies and changes to the list of Identified Staff.Material Risk Takers (Identified Staff); and |
| ◆ | | Reviewing the related Remuneration Report. |
In addition, the Remuneration Committee discussed possible(possible) developments with regards to regulations pertaining to remuneration. Annual Accounts This Annual Report includes the Annual Accounts for 2018,2019, which were prepared by the Executive Board and discussed by both the Audit Committee and the Supervisory Board. The Annual Accounts are signed by the members of the Executive Board and the Supervisory Board, and will be placed on the agenda of the 20192020 Annual General Meeting of Shareholders for adoption. The Supervisory Board recommends that shareholders adopt the annual accounts. Acknowledgement The members of the Supervisory Board are very grateful for the work undertaken by Executive and Management Boards in pursuit of Aegon’s purpose of helping people achieve a lifetime of financial security. We would like to thank Aegon’s employees for all they do to serve Aegon’s millions of customers, and furthermore we would like to express our thanks to Aegon’s business partners and loyal customers for their continued confidence in the Company. Finally, the Board wishes to thank all those who invest in Aegon for their continued trust and confidence. The Hague, the Netherlands, March 21, 2019. 18, 2020. William L. Connelly Chairman of the Supervisory Board of Aegon N.V. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | 5954 | | | | How we safeguard long-term value creationRemuneration reportReport | | | | | | | | | | | | |
Remuneration Report The 2019 Remuneration Report from our Remuneration Committee on behalf of the Supervisory Board Introduction This report has been prepared by the Remuneration Committee of the Supervisory Board, which was led by the Committee’s Chairman Ben J. Noteboom and was approved by the Supervisory Board. The Remuneration Committee restructured this report for 2019 in order to further increase its transparency and to comply with the latest rules, regulations and guidance on the (standardized) presentation of the remuneration report, including the Shareholder Rights Directive and related Dutch implementation Act. In the first chapter the Remuneration Committee presents an overview of the business and remuneration highlights in 2019 and what is expected in 2020 in relation to remuneration. This is followed by chapter two which contains a general introduction to Aegon’s Global Remuneration Framework, Human Resources Strategy, Remuneration Principles, the concepts of Total Compensation and Variable Compensation, Risk Management in relation to remuneration and remuneration of Material Risk Takers. The third chapter is the 2019 Supervisory Board Remuneration Report, which contains a summary of the Supervisory Board Remuneration Policy which applied to 2019 and the Supervisory Board remuneration over the recent years. The fourth chapter presents the proposed 2020 Supervisory Board Remuneration Policy. In chapter five, the 2019 Executive Board Remuneration Report provides a summary of the Executive Board Remuneration Policy which applied to 2019, the Executive Board remuneration over the recent years and the 2020 Executive Board performance indicators. The sixth and final chapter presents the proposed 2020 Executive Board Remuneration Policy. 1. Business and remuneration highlights This chapter presents an overview of the business and remuneration highlights in 2019 and what is expected in 2020 in relation to remuneration. 2019 Business highlights In 2019, Aegon continued its realignment for growth, launched new propositions, further improved customer service, and made important executive management appointments to guide Aegon into the next phase of development. Aegon operated in a challenging environment in 2019, with persistent low interest rates in our key markets. At the same time, we continued to execute on our strategy and we reached a number of important milestones, by simplifying Aegon’s structure and adopting an even more proactive approach to managing our portfolio of businesses. (For more detailed update, please see the ‘Letter from our CEO and the ‘Letter of Supervisory Board Chairman’ in this 2019 Integrated Annual Report.) Aegon’s underlying earnings were impacted by low interest rates while Aegon experienced net outflows in the US retirement and annuity businesses. As a result the return on equity1 of 9.5% was below our target of 10%. However, Aegon increased the normalized capital generation which, combined with a number of management actions, enabled us to maintain a strong capital position. Commercial momentum has improved with an increase in new life sales. Net deposits were lower mainly due to contract discontinuances in Retirement Plans in the Americas, despite the fact that the gross deposits were higher compared to 2018. The market consistent value of new business has been lower due to Variable Annuities in the United States, reflecting the significant decline in interest rates, which led to negative margins. This was partially offset by higher margins on workplace business in the United Kingdom. Digitally connected customers increased strongly with more mobile application users in the United States and a continued increase of platform users in the Netherlands and UK. Lastly, the relational net promotor score(r-NPS) reached a record high as a result of our NPS improvement plans and better outsourcing agreements which increased service levels. | | | | | | | | | | Business performance highlights | | 2019 | | | 2018 | | | | | Net Deposits (in EUR million) | | | (25,130 | ) | | | (4,656 | ) | | | | Normalized Capital Generation (in EUR million) | | | 1,567 | | | | 1,398 | | | | | Solvency II ratio (in %) | | | 201% | | | | 211% | | | | | Market Consistent Value of New Business (in EUR million) | | | 465 | | | | 539 | | | | | Return on equity (in %)1 | | | 9.5% | | | | 10.2% | | | | | Underlying Earnings Before Tax (in EUR million) | | | 1,973 | | | | 2,074 | | | | | New Life Sales (in EUR million) | | | 861 | | | | 820 | | | | | Relational net promotor score | | | 12 | | | | 7 | | | | | Digitally connected customers (in million) | | | 8.7 | | | | 7.7 | |
| 1 | Return on equity is calculated using shareholder’s equity based on IFRS as adopted by the EU. |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
In 2019 Aegon’s Supervisory Board consisted of seven members: William L. Connelly (Chairman), Corien M. Wortmann-Kool (Vice Chairman), Dona D. Young, Mark A. Ellman, Ben J. Noteboom, Ben van der Veer and Robert W. Dineen. At the Annual General Meeting of Shareholders on May 17, 2019 shareholders approvedthe re-appointment of Mr. Noteboom. On October 11, 2019 Aegon announced that Mr. Dineen stepped down from Supervisory Board. Aegon subsequently announced it would nominate Thomas Wellauer and Caroline Ramsay for appointment to the Supervisory Board at the at the Annual General Meeting of Shareholders on May 15, 2020. Aegon’s Executive Board consisted of two members in 2019: Alexander R. Wynaendts (Chief Executive Officer and Chairman of the Executive Board) and Matthew J. Rider (Chief Financial Officer and member of the Executive Board). Mr. Wynaendts was appointed to the Executive Board in 2003 for four years. He wasre-appointed at the Annual General Meeting of Shareholders in 2007, 2011, 2015 and most recently in 2019 for his last term. Mr. Rider was appointed as a member of the Executive Board for four years at the Annual General Meeting of Shareholders on May 19, 2017. Mr. Rider’s current term ends at the General Meeting of Shareholders 2021. Aegon’s Executive Board is assisted in its work by the Company’s Management Board, which has 11 members, including the members of the Executive Board. In 2019 Aegon’s Management Board was composed of Alex Wynaendts, Matthew Rider, Mark Bloom, Maarten Edixhoven (per October 2019), Adrian Grace, Allegra van Hövell-Patrizi, Marco Keim, Onno van Klinken, Carla Mahieu, Mark Mullin, Sarah Russell (until June 2019) and Bas NieuweWeme (per June 2019). Mike Holliday-Williams will be appointed to the Management Board and succeeds Adrian Grace who will retire from the company on March 31, 2020. On August 12, 2019 Aegon announced that it would nominate Lard Friese for appointment to the Executive Board at the Annual General Meeting of Shareholders on May 15, 2020, in order to succeed Mr. Wynaendts. If Mr. Friese is appointed by the shareholders to the Executive Board, the Supervisory Board will subsequently appoint Mr. Friese as Chief Executive Officer and Chairman of the Executive Board. In preparation of this appointment Mr. Friese joined Aegon asCEO-designate per March 1, 2020. Mr. Wynaendts is working closely together with Mr. Friese to ensure a seamless leadership transition and remains available to Aegon until September 30, 2020. Mr. Wynaendts will not be eligible for a severance payment. 2019 Remuneration reporthighlights On November 14, 2018, the Supervisory Board approved the change to the Solvency II remuneration principles as regulatory framework for remuneration per 2019. Up to 2019, Aegon applied the Dutch Regulation on Sound Remuneration Policies which was based on banking rules from the European Capital Requirements Directive. However, Solvency II is an European Directive for insurance companies. Therefore the Dutch regulator allowed insurance companies the option to switch from Dutch Regulation on Sound Remuneration Policies to the Solvency II remuneration rules from December 8, 2017 onwards. Aegon preferred this switch as the Solvency II remuneration rules are sector specific. However, as this regulatory change was too close to the start of 2018, Aegon delayed this switch to 2019. As a result, Aegon selected positions in which employees could have a material impact on the company, based on the Solvency II selection criteria in 2019. The selection of these type of positions is mandatory for most financial companies based in Europe, as a result of their sector specific European Directives (each having their own selection criteria). Under Solvency II these positions are called Material Risk Takers and are defined as ‘the administrative, management or supervisory body, persons who effectively run the undertaking or have other key functions and other categories of staff whose professional activities have a material impact on the undertaking’s risk profile’. Up to 2019 Aegon selected these type of positions under the Capital Requirements Directive (banking) selection criteria, in which these positions were called Identified Staff. Employees which have been selected as Material Risk Taker are subject to various risk assessments and stricter requirements aroundthe pay-out of variable compensation compared to other employees (for more details, see “Material Risk Takers” further below). Per 2019 Aegon revised the vesting schedule of variable compensation for Material Risk Takers, in accordance with Solvency II. These new vesting schedules were made globally consistent for the first time and were only differentiated by seniority as follows: | ◆ | | Management Board members, excluding Executive Board members1: 33.33% upfront cash / 66.67% deferred shares, cliff-vesting after 3 years. |
| ◆ | | Local Management Team members: 40% upfront cash / 60% deferred shares, cliff-vesting after 3 years. |
| ◆ | | Other Material Risk Takers: 50% upfront cash / 50% deferred shares, cliff-vesting after 3 years. |
Aegon’s shareholders approved the following changes to the Supervisory Board Remuneration Policy at the Annual | 1 | Changing the Executive Board vesting schedule requires shareholder approval. The Supervisory Board intends to ask shareholders to adopt this change at the Annual General Meeting of Shareholders on May 15, 2020. The proposal will be to apply the Management Board vesting schedule to the Executive Board as well, but with an additional holding period on the shares of 2 years afterpay-out. In the meantime, the 2019 Executive Board vesting schedule remained 40% upfront and 60% deferred, tranche-vesting during 3 years. Each upfront and deferred portion was paid 50% in cash and 50% in shares, with the shares subject to an additional holding period of 3 years. |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
General Meeting of Shareholders on May 17, 2019 with 99.53% of the votes in favor and 0.47% against: | ◆ | | The annual fixed fees for the Risk Committee membership became equal to the fixed fees for the Audit Committee membership. This increased the fixed fee for the Risk Committee Chairman from EUR 10,000 to EUR 13,000 and that of the other Risk Committee Members from EUR 5,000 to EUR 8,000. |
| ◆ | | The Committee attendance fee for all committees, except for the Audit Committee, were increased from EUR 2,000 to EUR 3,000. The Audit Committee attendance fee was already EUR 3,000. |
| ◆ | | The Intercontinental Travel fee was increased from EUR 3,000 to EUR 4,000. |
| ◆ | | A Continental Travel fee was introduced and set at EUR 2,000. |
On December 1, 2019, the Dutch Act to implement the revised European Union’s Shareholder Rights Directive came into force. As a result Aegon has revised the structure and content of this 2019 Remuneration Report compared to earlier versions in accordance with the Act’s remuneration report requirements. In 2019 Aegon paid out EUR 185 million in variable compensation and 24 employees received EUR 1 million or more in total annual compensation (i.e. the sum of fixed compensation, variable compensation and pension contributions paid in 2019). These employees worked for Aegon’s Corporate Center, Aegon Americas, Aegon UK and Aegon Asset Management. The 2019 CEOpay-ratio was 32.8 (2018: 42.2, 2017: 41.7). This ratio has been based on the IFRS CEO remuneration expenses and employee expenses in 2019, which have been audited. The expenses for the CEO’s total compensation were EUR 3.8 mln (2018: EUR 4.4 mln; 2017: EUR 4.3 mln). The average expenses for the employees’ total compensation were EUR 115,371 (2018: EUR 104,459; 2017: EUR 102,188), which were calculated by: | ◆ | | The total IFRS remuneration expenses for all employees, which are the total employee expenses (see Note 14) minus the CEO remuneration expenses: EUR 2,149 mln – EUR 3.8 mln = EUR 2,145 mln. |
| ◆ | | Divided by the number of employees in scope, which are the total number of employee minus employees in joint-ventures and associates (as their expenses are not included in Note 14) and minus the CEO: 23,757 – 5,162 – 1 = 18,594 employees. |
The Remuneration Committee took note that certain factors have influenced the CEOpay-ratio, such as the significant difference in the geographical footprint of the Company’s employee population, the way the Company was affected by restructuring and other organizational changes (e.g. the 2019 divestments in the Czech Republic and Slovakia) and the changes to the CEO’s remuneration package per June 2019. Looking ahead to 2020 At the Annual General Meeting of Shareholders on May 15, 2020, Aegon will ask its shareholders to: | ◆ | | Cast an advisory vote on this Remuneration Report, which will be an annual agenda item going forward; |
| ◆ | | Approve the proposed 2020 Supervisory Board Remuneration Policy (see chapter 4 in this report); |
| ◆ | | Approve the proposed 2020 Executive Board Remuneration Policy (see chapter 6 in this report); |
| ◆ | | Approve the appointment of Mr. Friese to the Executive Board. |
The total compensation level of Mr. Friese is at the same level as that of the incumbent CEO, Mr. Wynaendts, although structured differently. Mr. Friese’s gross Fixed Salary will become EUR 1,485,000, with an annual gross Target Variable Compensation of 80% of his Fixed Salary and a gross Pension contribution of 40% of his Fixed Salary. This means Mr. Friese will receive a higher Fixed Salary and therefore a higher Variable Compensation opportunity, but the Pension contribution will be lower compared to the incumbent CEO. When Mr. Friese was hired as CEO Designate, Aegon offereda sign-on arrangement.The sign-on is paid in cash and Aegon N.V. shares, of which a part is deferred.The pay-out of the deferred part is subject to continued employment. Aegon took note of developments which could change the applicable rules, regulations and guidance, such as the draft EIOPA opinion on the supervision of remuneration principles in the insurance and reinsurance sector and the draft Dutch Act on further remuneration measures in the financial sector. Additionally, Aegon already structured this remuneration report in line with the draft European guidelines on the standardized presentation of the remuneration report. 2. Remuneration at Aegon in general This chapter contains a general introduction to Aegon’s Global Remuneration Framework, Human Resources Strategy, Remuneration Principles, the concepts of Total Compensation and Variable Compensation, Risk Management in relation to remuneration and remuneration of Material Risk Takers. Global Remuneration Framework Aegon has a Global Remuneration Framework (GRF) which outlines the Aegon Group GlobalHuman Resources Strategy, the Aegon Group Remuneration Principles provideand the Aegon Group Remuneration Guidelines which apply to all Aegon employees, including the Executive Board members1. The GRF has been designed in accordance with relevant rules, guidelines and interpretations, such as the Dutch Financial Supervision Act, the Dutch Civil Code, the Dutch Corporate Governance Code and the Solvency II Legal Framework. | 1 | Given thetwo-tier Board structure, Aegon’s Supervisory Board members are not in scope of the GRF. They are only eligible for certain fixed fees and cost reimbursements (see Supervisory Board Remuneration below). |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
Aegon’s remuneration policies are derived from the GRF, which includes the Executive Board Remuneration Policy and local business Remuneration Policies. These policies define specific terms and conditions for the employment of our employee across the various countries and local businesses. All steps in the remuneration process are governed by the GRF and its underlying policies. Staff from Human Resources, Risk Management and Compliance are involved in all steps of the process. Human Resources Strategy In order to support the Aegon Strategy and local business objectives, the Aegon Group Human Resources Strategy contains the following remuneration related goals: | ◆ | | Attract, retain, motivate and reward a highly-qualified and diverse workforce; |
| ◆ | | Align the interests of executives, managers and all other employees with the business strategy and risk tolerance, the values and the long-term interests of Aegon; |
| ◆ | | Provide a well-balanced and performance-related compensation package to all employees, taking into account shareholder and other stakeholder interests, relevant regulations, the corporate responsibilities and Future Fit values (‘Acting as one, Customer centricity, Agility and Accountability’). |
Remuneration Principles Based on the Human Resources Strategy, Aegon has formulated the following Remuneration Principles, which are the foundation for all remuneration policies and practices throughout Aegon. They are applied regionally and/or locally. Global Remuneration Principles
The key pillars ofwithin the Aegon Group Global Remuneration Principles are as follows:Group:
| ◆ | | Aegon remuneration is employee-oriented by: fostering a sense of value and appreciation in each individual employee; promoting the short- andshort-and long-term interests and well-being of all Aegon staff via fair compensation, pension and/or other benefits; supporting employees’ career development; and supporting the (international) mobility of its staff; |
| ◆ | | Aegon remuneration is performance-related by: establishing a clear link between pay and performance by aligning objectives and target setting with performance evaluation and remuneration; reflecting individual as well as collective performance in line with Aegon’s long-term interests; enhancing the transparency and simplicity of Aegon Group remuneration, consistent with the principle of pay for performance; and avoiding any pay fornon-performance; |
| ◆ | | Aegon remuneration is fairness-driven by: promoting fairness and consistency in Aegon’s remuneration policies and practices, with remuneration packages that are well-balanced across the different echelons within Aegon and its business units; avoiding any discrimination in Aegon’s remuneration structures, including, among others, discrimination based on nationality, race, gender, religion, sexual orientation, and/or cultural beliefs; creating global alignment in the total compensation of all Identified Staff;Material Risk Takers; and aiming at controlled market competitive remuneration, by providing total compensation packages in line with an appropriately established peer group at a regional unit, country and/or functional level; |
| ◆ | | Aegon remuneration is risk-prudent by: aligning business objectives with risk management requirements in the target setting practices throughout the Aegon Group; giving an incentive to appropriate risk-taking behavior while discouraging the taking of excessive risks; and protecting the risk alignment effects embedded in the remuneration arrangements of individual staff against any personal strategies or insurance to counter them. |
These key pillars are set out in the Aegon Group Global Remuneration Framework (GRF). The GRF applies to all Aegon employees. It contains the guiding principles for remuneration and therefore supports the consistent setting of sound and effective remuneration policies throughout the Company. The GRF has been designed in accordance with relevant rules, guidelines and interpretations, for instance the Decree on Sound Remuneration Policy (Regeling beheerst beloningsbeleid (Rbb) Wft 2014)Total Compensation
Following from the DNB,Remuneration Principles, Aegon aims to offer experienced and the 2015 Act on the Remuneration Policy of Financial Undertakings (Wet beloningsbeleid financiële ondernemingen, Wbfo 2015 stb 2015, 45).
Aegon’s remuneration policies are derived from the GRF, amongcompetent employees a total compensation level which is consistent with the Executive Board Remuneration Policy. These policies define specific termsmarket in which Aegon operates and conditionscompetes for similar employees. Total compensation typically consists of fixed compensation, variable compensation (where in line with the employmentlocal market practice), pension and other benefits. Market survey information from reputable sources is used to regularly assess the competitiveness of various employee groups. All steps in the remuneration process are governed by the GRFcompensation levels and practices which Aegon offers its underlying policies. Staff from Human Resources, Risk Management, Compliance and Audit are involved in all stepsemployees.
Variable Compensation Variable compensation, if any, is capped at an appropriate level as a percentage of the process. In 2018, there was one remuneration regulation change that affected Aegon. As per December 8, 2017, the Rbb has been withdrawn for insurers. However, as this announcement was made shortly before the start of the performance year, Aegon decided not change any of its remuneration policies or processes related to this performance year and continued to apply Rbb on a voluntary basis in 2018. For this reason, Aegon’s 2018 remuneration practices and processes did not change materially compared to 2017.fixed compensation.
The Wbfo 2015Dutch Financial Supervision Act has a provision that makes it possible to offer employees up to a maximum variable compensation opportunity that is equal to the European CRD IV compensation ratio (i.e. 100% of fixed compensation). This provision was specifically created for corporate office employees of companies based in the Netherlands, which employedemploy at least 75% of their employees abroad. In 2018,2019, Aegon met this criterion and offered selected senior corporate office employees a variable compensation opportunity up to this maximum. In line with another Wbfo 2015 provision,the Dutch Financial Supervision Act, Aegon has obtained shareholder approval at the Annual General Meeting of Shareholders of May 20, 2016 to offer a maximum variable compensation opportunity up to 200% of fixed compensation to selected senior employees outside Europe in positions that, based on local market practice, could receive variable compensation that exceeds 100% of fixed compensation. Within this mandate, Aegon offered selected senior employees outside Europe such an opportunity in 2018.2019. The Company’s capital was not adversely impacted by the maximum variable compensation that could be paid out. In 2018 AegonVariable compensation for senior management is usually paid out EUR 207 million in variablecash and shares over multiple years, and is subject to further conditions being fulfilled. Variable compensation and 21 employees received EUR 1 million or more in total annual compensation (i.e. the sum of fixed and variable compensation paid/vested in 2018)already paid out may also be retrieved under certain circumstances (‘claw-back’). These employees worked for
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 60 | | How we safeguard long-term value creation Remuneration report | | | | | | |
Aegon’s Corporate Center, Aegon Americas, Aegon UK and Aegon Asset Management.
Role of Risk Management and Compliancein relation to Remuneration
Variable compensation may have an impact on risk-taking behaviors and, as such, may undermine effective risk management. The opportunity to receive high variable compensation can lead to excessive risk taking, which can | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
have a material impact on the company’s financial soundness. To avoid such undesired effects, both the Risk Management and Compliance functions are involved in the design and execution of remuneration policies and practices. The GRF includes separateadditional remuneration policiesrequirements for three specific groups of employees. This is in recognition of the fact that these employees’employee categories, as their roles and responsibilities require specifictailored risk mitigating measures and governance processes. These remuneration policiesrequirements are for: (i) the Executive Board; (ii) material risk takers (Identified Staff)Material Risk Takers); and (iii) Control Staff. Given the rationale for having a separate policy for material risk takersMaterial 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’.Material Risk Takers. 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. 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 aimed at various moments in the variable compensation process: when the targets are set, before a variable compensation award is allocated, before deferred parts of the award are paid and afterpay-out of the award (when relevant). Aegon endeavors to seek an appropriate balance ofex-ante andex-post risk assessments to ensure effectiveness in both the short- andshort-and long-term risk taking behavior of employees. General compensation practicesRemuneration of Material Risk Takers
Aegon has a pay philosophyselects Material Risk Takers for the Aegon N.V. legal entity (i.e. the holding company) based on total compensation.the Solvency II selection criteria. These positions are defined as ‘the administrative, management or supervisory body, persons who effectively run the undertaking or have other key functions and other categories of staff whose professional activities have a material impact on the undertaking’s risk profile’. Legal entities within the Aegon Group, which are directly subject to the Capital Requirements Directive, Solvency Directive, the Alternative Investment Fund Managers Directive and/or the Undertakings for the Collective Investment in Transferable Securities Directive, also select their own Material Risk Takers or ‘Identified Staff’. Their selection is based on the selection criteria of the applicable European Directive, its guidelines and local regulatory requirements (where available). In order to differentiate between the Material Risk Takers who are selected at the holding level of the company and at the various legal entities within the Group, the former are called Group Material Risk Takers and the latter Local Material Risk Takers. The Group and Local Material Risk Takers are subsequently subject to risk assessments and remuneration rules from the applicable European Directive, its guidelines and local regulatory requirements (where available). This means that the aim is for total remuneration for experienced and competent employees to be consistent with those in the markets in which Aegon operates and competes for employees. Total compensation typically consists of fixed compensation and – where in line with local market practices – variable compensation. Market survey information from reputable sources is used to provide information on competitive compensation levels and practices. Variable compensation, if any, is capped at an appropriate level as a percentage of fixed compensation. Variable compensation for senior management is usually paid out in cash and shares over multiple years, and istheir personal objectives are subject to further conditions being fulfilled. Additional holding periods may applyanex-ante risk assessment at the start of the performance year. A minimum portion of their variable compensation will be deferred and paid innon-cash instruments (such as Aegon shares or investment in own funds). Before the allocation of variable compensation they are subject to shares afteranex-ante risk assessment, while beforepay-out of any deferred variable compensation they have vested, restricting their sale for a further oneare subject to three years. Variableex-post risk assessments. Based on these risk assessments, Aegon can adjust the intended or allocated variable compensation already paid out may also be retrieved under certain circumstances (‘Claw-back’)awards downward where deemed appropriate (however never upward).
In3. 2019 Supervisory Board Remuneration Report
The 2019 Supervisory Board Remuneration Report has been prepared by the following sections more detailed information is provided on the compensation practice forRemuneration Committee of the Supervisory Board in accordance with the Dutch Civil Code (article art 2:135b) and the ExecutiveDutch Corporate Governance Code. The Remuneration Committee was led by the Committee’s Chairman Ben J. Noteboom. This report was approved by the Supervisory Board. This report contains a contains a summary of the Supervisory Board Remuneration Policy which applied to 2019, and the Supervisory Board remuneration over the recent years. Supervisory Board Remuneration Policy 2018in 2019 Aegon’s Supervisory Board Remuneration Policy is aimed at ensuring fair compensation and protecting the independence of the Board’sSupervisory Board members. Terms and conditions for members of the Supervisory Board are part of Aegon’s broader Remuneration Policy, andmembers are the responsibility of the Supervisory Board. MembersRemuneration Committee of the Supervisory Board.
The Supervisory Board members are entitled to the following: | ◆ | | A base fee for membership of the Supervisory Board. No separate attendance fees are paid to members for attendance at the regular Supervisory Board meetings; |
| ◆ | | An attendance fee for each extra Board meeting attended, be it in person or by video and/or telephone conference; |
| ◆ | | A committee fee for members on each of the Supervisory Board’s Committees; |
| ◆ | | An attendance fee for each Committee meeting attended, be it in person or through video and/or telephone conference; and |
| ◆ | | An additional fee for attending meetings that require intercontinental, continental or US interstate travel between the Supervisory Board member’s home location and the meeting location. |
Each of these fees is a fixed amount. Members of Aegon’sThe Supervisory Board members do not receive any performance or equity-related compensation, and do not accrue pension rights with the Company. These measures are designed to ensure the independence of Supervisory Board members and to strengthen the overall effectiveness of Aegon’s corporate governance. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
Under the current policy, as endorsed by shareholders at the Annual General Meeting of Shareholders on May 17, 2019, the Supervisory Board members are entitled to the following payments: | | | | | | Base fee for Supervisory Board membership | | EUR /year | | Chairman | | | 80,000 | | Vice-Chairman | | | 50,000 | | Member | | | 40,000 | | | | | | | | Fee for Supervisory Board committee membership | | EUR /year | | Chairman of the Audit or Risk Committee | | | 13,000 | | Member of the Audit or Risk Committee | | | 8,000 | | Chairman of other committees | | | 10,000 | | Member of other committees | | | 5,000 | | | | | | | | Attendance fees | | EUR | | Committee meeting | | | 3,000 | | Extra Supervisory Board meeting | | | 3,000 | | | | | | | | Travel fees | | EUR | | Intercontinental | | | 4,000 | | Continental or US interstate | | | 2,000 | |
In order for the Remuneration Committee to assess the competitiveness of the Supervisory Board fee levels, they gather benchmark data on compensation levels at comparable companies, in accordance with the applicable rules and regulations. These comparable companies form a peer group and have been selected by the following criteria: | ◆ | | Industry: preferably Life Insurance; |
| ◆ | | Size: companies with similar number of employees, assets, revenue and market capitalization; |
| ◆ | | Geographic scope: preferably the majority of revenues generated outside of the country of origin; and |
| ◆ | | Location: companies based in Europe, excluding UK wherethe non-executive directors typically have different responsibilities compared to their continental European counterparts. |
Based on these criteria the current peer group consists of the following 12 European Insurance companies: Ageas, Allianz, AXA, CNP Assurances, Assicurazioni Generali, Mapfre, Münchener RE, NN Group, Swiss Life, Swiss Re, Talanx, and Zurich Insurance Group. This peer group is slightly different from the European peer group for the Executive Board, as a result of excluding the UK companies. In addition, the following reference group of 12 companies witha two-tier board is used in order to monitor alignment with the General Industry in the Netherlands: ABN AMRO, Ahold Delhaize, Akzo Nobel, ASML, DSM, Heineken, ING Group, KPN, NN Group, Philips, Randstad and Wolters Kluwer. This reference group is equal to the Dutch reference Group for the Executive Board. The Remuneration Committee and the Supervisory Board regularly review the composition of both groups in order to ensure that they continue to provide a reliable and suitable basis for comparison. The previous update to both groups was in 2018. The Remuneration Committee may recommend changes to the fee levels of the Supervisory Board members, based on the results of a competitiveness review. These recommendations are discussed by the Supervisory Board, which can support, revise or reject them. Subsequently shareholders will be asked to adopt the proposed fee changes at the Annual General Meeting of Shareholders. Information on members of the Supervisory Board and the composition of its four committees can be found on pages44-53. Supervisory Board remuneration in recent years The table below show the fees that have been allocated and paid to the Supervisory Board members in the calendar years 2017, 2018 and 2019 in accordance with the applicable Supervisory Board remuneration policy at this time. The IFRS expenses for these fees are equal to the amounts in the table below. The general increase of 2019 fees is a result of the new fee structure and levels which were approved by shareholders at the Annual General Meeting of Shareholders on May 15, 2013, members17, 2019.The fee increase of Mr. Connelly in 2019 is the result of being the Chairman of the Supervisory Board are entitled toduring the following payments:full calendar year (appointed in per May 2018), attending more committee meetings in combination with higher committee attendance | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
fees per 2019 and receiving a continental travel fee which was not offered before 2019. Most other Supervisory Board members received more attendance fees in 2019, mainly because of a combination of attending more committee meetings and the higher committee attendance fees per 2019. | | | | | | | | | | | | | | | | | | | | | | In EUR thousand | | Year | | | Base fees | | | Attendance fees | | | Travel fees | | | Total fees | | William L. Connelly (as of May 19, 2017) | | | 2019 | | | | 95 | | | | 54 | | | | 20 | | | | 169 | | | | | 2018 | | | | 79 | | | | 34 | | | | 6 | | | | 119 | | | | | | 2017 | | | | 33 | | | | 24 | | | | 3 | | | | 60 | | Mark A. Ellman (as of May 19, 2017) | | | 2019 | | | | 56 | | | | 39 | | | | 20 | | | | 115 | | | | | 2018 | | | | 53 | | | | 29 | | | | 21 | | | | 103 | | | | | | 2017 | | | | 33 | | | | 22 | | | | 15 | | | | 70 | | Ben J. Noteboom | | | 2019 | | | | 58 | | | | 39 | | | | 6 | | | | 103 | | | | | 2018 | | | | 55 | | | | 25 | | | | 6 | | | | 86 | | | | | | 2017 | | | | 57 | | | | 42 | | | | 3 | | | | 102 | | Ben van der Veer | | | 2019 | | | | 58 | | | | 54 | | | | 6 | | | | 118 | | | | | 2018 | | | | 58 | | | | 37 | | | | 6 | | | | 101 | | | | | | 2017 | | | | 58 | | | | 45 | | | | 3 | | | | 106 | | Corien M. Wortmann - Kool | | | 2019 | | | | 63 | | | | 54 | | | | 6 | | | | 123 | | | | | 2018 | | | | 63 | | | | 37 | | | | 3 | | | | 103 | | | | | | 2017 | | | | 58 | | | | 40 | | | | 3 | | | | 101 | | Dona D. Young | | | 2019 | | | | 66 | | | | 66 | | | | 26 | | | | 158 | | | | | 2018 | | | | 61 | | | | 39 | | | | 21 | | | | 121 | | | | | | 2017 | | | | 56 | | | | 39 | | | | 21 | | | | 116 | | Robert W. Dineen (up to Oct 11, 2019) | | | 2019 | | | | 40 | | | | 27 | | | | 12 | | | | 79 | | | | | 2018 | | | | 52 | | | | 28 | | | | 21 | | | | 101 | | | | | | 2017 | | | | 53 | | | | 36 | | | | 15 | | | | 104 | | Dirk P.M. Verbeek (up to May 18, 2018) | | | 2018 | | | | 19 | | | | 10 | | | | - | | | | 29 | | | | | | 2017 | | | | 54 | | | | 46 | | | | - | | | | 100 | | Robert J. Routs (up to May 18, 2018) | | | 2018 | | | | 36 | | | | 12 | | | | - | | | | 48 | | | | | | 2017 | | | | 95 | | | | 36 | | | | 3 | | | | 134 | | Shemaya Levy (up to May 19, 2017) | | | 2017 | | | | 24 | | | | 16 | | | | - | | | | 40 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | | 2019 | | | | 436 | | | | 333 | | | | 96 | | | | 865 | | | | | 2018 | | | | 474 | | | | 251 | | | | 84 | | | | 809 | | | | | | 2017 | | | | 520 | | | | 346 | | | | 66 | | | | 932 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total including 21% VAT | | | 2019 | | | | 527 | | | | 403 | | | | 116 | | | | 1,046 | | | | | 2018 | | | | 574 | | | | 304 | | | | 102 | | | | 979 | | | | | | 2017 | | | | 630 | | | | 419 | | | | 80 | | | | 1,128 | |
The table below presents the total fees that have been paid in the last five calendar years on an annualized basis andthe year-on-year annual change in total fees. Additionally the table shows the Aegon net income, a proxy of the financial andnon-financial business performance, the inflation in the Netherlands and the average employee compensation over the same period. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | 61 | | How we safeguard long-term value creation | | Remuneration reportReport | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | In EUR thousand | | Annualized | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | William L. Connelly (as of May 19, 2017) | | Fees | | | - | | | | - | | | | 98 | | | | 119 | | | | 169 | | | | | Change | | | - | | | | - | | | | - | | | | 22% | | | | 42% | | Mark A. Ellman (as of May 19, 2017) | | Fees | | | - | | | | - | | | | 114 | | | | 103 | | | | 115 | | | | | Change | | | - | | | | - | | | | - | | | | (9% | ) | | | 12% | | Ben J. Noteboom (as of May 20, 2015) | | Fees | | | 113 | | | | 109 | | | | 102 | | | | 86 | | | | 103 | | | | | Change | | | - | | | | (3% | ) | | | (7% | ) | | | (15% | ) | | | 20% | | Ben van der Veer | | Fees | | | 115 | | | | 109 | | | | 106 | | | | 101 | | | | 118 | | | | | Change | | | - | | | | (5% | ) | | | (3% | ) | | | (5% | ) | | | 17% | | Corien M. Wortmann - Kool | | Fees | | | 96 | | | | 90 | | | | 101 | | | | 103 | | | | 123 | | | | | Change | | | - | | | | (6% | ) | | | 12% | | | | 2% | | | | 19% | | Dona D. Young | | Fees | | | 121 | | | | 113 | | | | 116 | | | | 121 | | | | 158 | | | | | Change | | | - | | | | (7% | ) | | | 2% | | | | 4% | | | | 31% | | Robert W. Dineen (up to Oct 11, 2019) | | Fees | | | 121 | | | | 115 | | | | 104 | | | | 101 | | | | 101 | | | | | Change | | | - | | | | (5% | ) | | | (10% | ) | | | (3% | ) | | | 1% | | Dirk P.M. Verbeek (up to May 18, 2018) | | Fees | | | 112 | | | | 111 | | | | 100 | | | | 76 | | | | - | | | | | Change | | | - | | | | (1% | ) | | | (10% | ) | | | (24% | ) | | | - | | Robert J. Routs (up to May 18, 2018) | | Fees | | | 143 | | | | 140 | | | | 134 | | | | 125 | | | | - | | | | | Change | | | - | | | | (2% | ) | | | (4% | ) | | | (7% | ) | | | - | | Shemaya Levy (up to May 19, 2017) | | Fees | | | 101 | | | | 95 | | | | 105 | | | | - | | | | - | | | | | Change | | | - | | | | (6% | ) | | | 11% | | | | - | | | | - | | Irving W. Bailey (up to May 20, 2016) | | Fees | | | 135 | | | | 139 | | | | - | | | | - | | | | - | | | | | Change | | | - | | | | 3% | | | | - | | | | - | | | | - | | Leo M. van Wijk (up to May 20, 2015) | | Fees | | | 100 | | | | - | | | | - | | | | - | | | | - | | | | | Change | | | - | | | | - | | | | - | | | | - | | | | - | | Aegon net income | | In EUR million | | | (431 | ) | | | 438 | | | | 2,469 | | | | 711 | | | | 1,239 | | Aegon business performance1) | | Target = 100% | | | 94% | | | | 91% | | | | 121% | | | | 106% | | | | 79% | | Inflation in the Netherlands | | Consumer Price Index | | | 0.6% | | | | 0.3% | | | | 1.4% | | | | 1.7% | | | | 2.6% | | Average employee compensation2) | | Total compensation | | | 95 | | | | 97 | | | | 102 | | | | 104 | | | | 115 | | | | | Annual change | | | - | | | | 2% | | | | 5% | | | | 2% | | | | 11% | |
| 1 | The weighted average Aegon financial andnon-financial business performance, expressed as a percentage on a performance scale with 50% as threshold, 100% as target and 150% as maximum, as used for the allocation of variable compensation in the applicable year. |
| 2 | Consistent with the CEO pay ratio calculation, the average employee compensation is based on the audited total IFRS remuneration expenses for all employees divided by the number of employees in scope for these expenses. |
All fees that have been paid to the Supervisory Board members were in accordance with the applicable Supervisory Board remuneration policy at the time, as they’ve been exclusively based on their membership of and function in the Supervisory Board, their memberships of and functions in the Supervisory Board’s committees, their attendance and travel. There were no deviations from the policy. Each quarter Aegon paid the fees that the Supervisory Board members earned during that period. This means 25% of the annual base fee for Supervisory Board membership and any Supervisory Board committee membership, taking into account their function (i.e. Chairman, Vice-Chairman or regular members) and the fees for their actual attendance and travel during that quarter. The shareholders approved the changes to the Supervisory Board Remuneration fees retroactively per January 1, 2019 at the Annual General Meeting of Shareholders on May 17, 2019. This was after the fees for the first quarter of 2019 were already paid, based on the old fees. Therefore some Supervisory Board members received a correction payment for the first quarter as part the second quarter payment. Remuneration in fixed fees contributed to Aegon’s long term performance, as it did not depend on Aegon’s results and therefore protected the Supervisory Board member’s independence when supervising the manner in which the Executive Board members implement the long-term value creation strategy. 4. Proposed 2020 Supervisory Board Remuneration Policy A. Policy A.1 Remuneration Policy This Supervisory Board Remuneration Policy (the “Policy”) outlines the terms and conditions for the remuneration of the members of the Supervisory Board of Aegon N.V. (the “SB members”), to be submitted for approval by the Shareholders of Aegon N.V. (the “Shareholders”) at the Annual General Meeting of Shareholders on May 15, 2020. This Policy replaces the Aegon N.V. Supervisory Board Remuneration Policy of 2019. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | Base fee62 | | | | Remuneration Report | | | | | | | | | | |
The Remuneration Committee of the Supervisory Board of Aegon N.V. (the “Remuneration Committee”) prepared the changes to this Policy, which were endorsed by the Supervisory Board on March 17, 2020. At the date of approval, the Policy complies with the applicable rules and regulations such as the Dutch Financial Supervision Act, the Dutch Civil Code, the Dutch Corporate Governance Code and the Solvency II Legal Framework. A.2 Policy Term This Policy will take effect from January 1, 2020. The Policy remains in place until a new or revised Policy has been adopted by the Shareholders in accordance with the applicable requirements from the Dutch Civil Code. The Supervisory Board will submit a proposal to the Shareholders to adopt a Policy at a Meeting of Shareholders (the “Shareholders’ Meeting”) at least every four years. The Policy will subsist if Shareholders reject a new or revised Policy at a Shareholders’ Meeting, even if this would be four years after the approval of this Policy. Subsequently, the Supervisory Board is required to submit a new proposal to the Shareholders to adopt a Policy at the next Shareholders’ Meeting (and if rejected again, the next Shareholders’ Meeting thereafter, etc.), while this Policy subsists. A.3 Policy Changes The Supervisory Board made the following changes to this Policy compared to the previous version, while leaving the fees unchanged: | ◆ | | Increasing transparency for all Stakeholders by clarifying how the Policy contributes to Aegon’s strategy, long-term interests and sustainability and how it takes into account Aegon’s identity, purpose, values and stakeholder environment. |
| ◆ | | Adding the option for the Supervisory Board to annually index the Supervisory Board fees (as defined in C.1 – C.5) based on economic developments in the Netherlands without requiring additional Shareholder approval. |
These changes were made in order to comply with the new Dutch Act which implemented the European Shareholder Rights Directive and (optionally) allow reasonable annual adjustment of the fees without requesting Shareholder approval each year. A.4 Policy Considerations The Policy contributes to Aegon’s strategy, long-term interests and sustainability through the remuneration of the SB members in various ways: | ◆ | | The Policy provides the Supervisory Board with the means to attract, motivate, and retain competent, diverse, and experienced SB members for the long-term. Having motivated, competent, and experienced SB members on board is essential for executing Aegon’s strategy, and safeguarding and promoting its long-term interests and sustainability. |
| ◆ | | SB members receive fixed remuneration for their responsibilities which does not depend on the Aegon results in order to protect their independence when supervising the manner in which the Executive Board members implement the long-term value creation strategy. These responsibilities are part of the membership of the Supervisory Board and its Committees and optionally the position of (Vice) Chairman of the Supervisory Board and/or its Committees. The certainty of the fixed compensation also allows SB members in their supervisory role to focus on the long-term interest and sustainability of Aegon. |
| ◆ | | EUR/year | The SB members receive fixed remuneration for their activities, such as attending Committee meetings and additional Supervisory Board meetings, in order to regularly discuss the Aegon strategy, the implementation of the strategy and the principal risks associated with it, while taking into account the broader long-term interests and sustainability of Aegon. |
Chairman
◆ | | | 80,000 | SB members are only allowed to privately own Aegon N.V. Shares if this is a long-term investment, aligning their interests with Aegon’s long-term interests. |
The Supervisory Board took Aegon’s identity, purpose, and values into account when developing the Policy and its changes: Vice-Chairman
◆ | | | 50,000 | Aegon is an international financial services group based in the Netherlands, which provides life insurance, pensions and asset management (identity). The main operations are in the US, the Netherlands, and the UK, while there is also significant presence in Southern and Eastern Europe, Asia, and Latin America. The Policy provides the Supervisory Board with the means to attract, motivate, and retain SB members from various countries, predominantly based in the Netherlands and the US. As Aegon is based in the Netherlands, the Policy considers the European Insurance peers as well as Dutch General Industry peers to be the relevant external reference for the SB member’s Remuneration. The Policy is also influenced by the European and Dutch rules and regulations on (Executive) remuneration, which apply to Aegon as a result of its identity (i.e. for being an Insurance firm in Europe and for being a listed and financial company in the Netherlands). |
Member
◆ | | Aegon’s purpose is to help people achieve a lifetime of financial security. In order to fulfill this purpose, Aegon has a strategy to which this Policy actively contributes (see above). |
40,000◆ | | The four Future Fit values ‘Acting as one, Customer centricity, Agility, and Accountability’ aim to create a company that is fit for the future: one that meets customers’ expectations, is right for our digitally-connected, data-driven world, and can adapt quickly to changing market conditions. These values are not explicitly reflected in the Policy as a result ofthe fee-based remuneration structure. However, these values are strongly incorporated in the Supervisory Board Charter. |
The Supervisory Board has not taken the internal compensation structures and levels into account asthe fee-based compensation structure for SB members is significantly different from these internal compensation structures and levels. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | Fee for membership of a Supervisory Board committee63 | | EUR/year | | Remuneration Report | Chairman of the Audit Committee
| | | 13,000 | | | Member of the Audit Committee
| | | 8,000 | | Chairman of other committees
| | | 10,000 | |
The Supervisory Board developed draft Policy changes based on the requirements of the new Dutch Act which implemented the Shareholder Rights Directive. Subsequently, the Supervisory Board actively reached out to a number of stakeholders to consult or discuss the draft Policy and its changes in order to assess its public support. The Chairman of the Remuneration Committee, together with the Investor Relations and the Compensation & Benefits team, consulted Aegon’s main Shareholders, including Vereniging Aegon, proxy advisors, and Shareholder interest groups on the draft changes. The Chairman of the Remuneration Committee discussed the draft Policy with the European Works Council, while the Chairman of the Supervisory Board discussed it with the Central Works Council in the Netherlands. All feedback was shared with the Supervisory Board. They took note that not all Stakeholder feedback was aligned, but that there were no significant conflicts either. On a more ongoing basis, the Supervisory Board and the Executives regularly discuss remuneration related topics with the supervisory authorities, legislators, and politicians. Within Aegon, constant monitoring of (social) media takes place, including sensitive topics such as remuneration, and such feedback is shared with the Supervisory Board. A.5 Policy Review and Revision Each year, the Policy will be reviewed by the Remuneration Committee. The Remuneration Committee may suggest revisions to the Policy or a new policy to the Supervisory Board. When endorsed, the Supervisory Board will submit a proposal to the Shareholders to adopt the revised or new policy at the Shareholders’ Meeting. A.6 Temporary Derogation from the Policy As determined by the Dutch Civil Code, derogation from this Policy is only allowed under exceptional circumstances and for a limited time period under the following conditions: Member of other committees
◆ | | The derogation can be from any remuneration element and/or provision in this Policy, as long as it continues to stay: |
| | 5,000◆ | | In line with the general spirit of this Policy as described in A.3; |
| ◆ | | In line with the internal and external references as defined in this Policy (see C.1), and; |
| ◆ | | Compliant with the applicable legislation and regulations. |
| ◆ | | The Supervisory Board will adopt a derogation, which includes at least the following details: |
| ◆ | | An explanation why the derogation is required in order to serve the long-term interest and sustainability of Aegon as a whole or to assure its viability; |
| ◆ | | Which remuneration element or provision is derogated from and how it affects the Supervisory Board member’s compensation levels; |
| ◆ | | An assessment which confirms that the Policy allows the proposed derogation and that it complies with the applicable rules and regulations; |
| ◆ | | The period of derogation. This period is limited to the moment the Shareholders have adopted a revised or new policy at a Shareholders’ Meeting. |
| ◆ | | The derogation and the abovementioned Supervisory Board approval details are disclosed in the next Remuneration Report. |
In case a future change in rules and regulations conflicts with (a part of) this Policy, the Supervisory Board may deviate from this Policy to ensure compliance with the new rules and regulations. The Supervisory Board will disclose the deviation in the Remuneration Report and submit a proposal to the Shareholders to adopt a revised Policy at a Shareholders’ Meeting which complies with the new rules and regulations. B. Appointment The Shareholders appoint a Supervisory Board member in accordance with the Articles of Association of Aegon N.V. and the Dutch Corporate Governance Code. C. Remuneration Structure C.1 Supervisory Board remuneration A Supervisory Board member is entitled to (i) base fees for their Supervisory Board membership (see C.2) and membership of a Committee(s) of the Supervisory Board (see C.3), (ii) an attendance fee for extra Supervisory Board meetings, be it attended in person or by video and/or telephone conference (see C.4) and (iii) an attendance fee for Committee meetings, be it attended in person or by video and/or telephone conference (see C.5). The current fees were approved by the Shareholders at the 2019 Annual General Meeting of Shareholders and have not changed in this Policy. The Supervisory Board regularly reviews the fees to ensure the structure remains competitive, taking into account external reference information such as economic developments (e.g. inflation) as well as a quantitative assessments of the competitiveness against a peer group of Insurance companies in Europe and a peer group of companies based in the Netherlands (see the Annex for the peer group selection). The Supervisory Board is allowed to annually index the fees based on economic developments in the Netherlands without Shareholder approval. For any other change to the fees or the fee structure, such as, but not limited to, a higher fee increase versus indexation, changing the scope for a fee, or introducing a new fee, the Supervisory Board has to submit a proposal to the Shareholders to amend this Policy at a Shareholders’ Meeting. C.2 Supervisory Board membership fee Base fee for Supervisory Board membership per year: | ◆ | | Vice-Chairman: EUR 50,000; |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | Attendance fees64 | | EUR | | Remuneration Report | Extra Supervisory Board meeting
| | | 3,000 | | | Audit Committee
| | | 3,000 | | Other committees
| | | 2,000 | |
C.3 Supervisory Board Committee membership fee Base fee for Supervisory Board Committee membership per year: | ◆ | | Chairman of the Audit or Risk Committee: EUR 13,000; |
| ◆ | | Member of the Audit or Risk Committee: EUR 8,000; |
| ◆ | | Chairman of other committees: EUR 10,000; |
| ◆ | | Member of other committees: EUR 5,000. |
C.4 Supervisory Board attendance fee Attendance fees per extra Supervisory Board meeting: EUR 3,000. Extra Supervisory Board meetings are meetings in addition to the minimum required regular Supervisory Board meetings as defined in the Aegon N.V. Supervisory Board Charter. C.5 Supervisory Board Committee attendance fee Attendance fees per Committee meeting: EUR 3,000. A Supervisory Board member can also receive an attendance fee for additional work outside committee meetings, which require similar effort and representation such as, but not limited to, attending meetings with shareholders and other stakeholders. D. Other Conditions Additionally, a Supervisory Board member is entitled to travel fees (see the D.1) and cost reimbursement (see the D.2). D.1 Travel fees The SB member will receive a fee to cover the time to travel for attending Supervisory Board (Committee) meetings and related meetings and events. Travel fees per travel: Intercontinental: EUR 4,000 Continental or US interstate: EUR 2,000 D.2 Cost reimbursement Aegon N.V. pays or reimburses all reasonable costs related to the attendance of Supervisory Board meetings, Supervisory Board Committee meeting, and related meetings and events in accordance with the Aegon N.V. Supervisory Board Charter. The local employee travel and reimbursement policies are used as reference. E. Verification All calculations made to determine compensation under this Policy are verified by the independent external auditor and the Supervisory Board’s Remuneration Committee. Annex The Supervisory Board assesses the competitiveness of the Supervisory BoardBoard’s remuneration structure and levels against the composition of Aegon’s four committees – Audit, Nomination and Governance, Remuneration and Risk – can be found on pages54-58.peer companies. Details on the remuneration ofFor this purpose, the Supervisory Board overselected a primary set of peer group companies according to the coursefollowing criteria:
| ◆ | | Industry: Insurance, with a preference for Life Insurance; |
| ◆ | | Size: Average Market Capitalization, Employees, Revenue and Total Assets; |
| ◆ | | Geographic scope: Preferably companies which operate globally; |
| ◆ | | Location: Headquarters based in Europe excluding UK. |
UK peer companies are excluded asthe non-executive directors typically have different responsibilities compared to their continental European counterparts. Based on these criteria, the current peer group consists of 2018 can be found inthe following 12 European Insurance companies: Ageas, Allianz, AXA, CNP Assurances, Assicurazioni Generali, Mapfre, Münchener RE, NN Group, Swiss Life, Swiss Re, Talanx, and Zurich Insurance Group. This peer group partially differs from the European peer group for the Executive Board, as a result of excluding the UK companies. In addition, the Supervisory Board Remuneration Report 2018 on page 306. Future changes
Absent unforeseen circumstances,selects a secondary peer group according the following criteria, in order to monitor alignment with the General Meeting will be asked to approve an amendment to Remuneration Policy for members of Supervisory BoardIndustry in May 2019. This amendment contains a proposal to change somethe Netherlands:
| ◆ | | Industry: General Industry and listed on the AEX; |
| ◆ | | Size: Average Market Capitalization, Employees, Revenue and Total Assets; |
| ◆ | | Location: Headquarters based in the Netherlands. |
Based on these criteria, the current secondary peer group consists of the feesfollowing 12 AEX companies: Ahold Delhaize, ING Group, Randstad, Heineken, NN Group, Philips, ABN AMRO, Akzo Nobel, ASML, DSM, KPN, and Wolters Kluwer. The last update of this peer group was in 2019, when ING, NN Group, ABN AMRO, DSM, and Wolters Kluwer were added, replacing ArcelorMittal, RELX Group, Royal Dutch Shell, Unibail-Rodamco, and Unilever. This peer group is equal to which the members can be entitled.Dutch peer group for the Executive Board. 5. 2019 Executive Board Remuneration Policy 2018Report The following section describes how the Company applies the principles of good governance relating to the remuneration of its Directors. It was2019 Executive Board Remuneration Report has been prepared by the Remuneration Committee of Aegon N.V.the Supervisory Board in accordance with the Dutch Civil Code (article art 2:135b) and the Dutch Corporate Governance Code, andCode. The Remuneration Committee was led by the Committee’s Chairman Ben J. Noteboom. This report was approved by Aegon N.V.‘sthe Supervisory Board. This report contains a contains a summary of the Executive Board Remuneration Policy which applied to 2019, the Executive Board remuneration over the recent years, and the 2020 Executive Board performance indicators. The section on remuneration over the recent years is split into a) fixed compensation 2017-2019, b) conditional variable compensation 2019, c) provisional variable compensation 2019, d) variable compensation 2017-2019, e)pay-out of allocated variable compensation, f) pension | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
contributions 2017-2019, g) benefits 2017-2019, h) total compensation in recent years. Executive Board Remuneration Policy in 2019 The Supervisory Board has the overall responsibility for Aegon’s Remuneration Policies, including the Executive Board Remuneration Policy. The Supervisory Board established the Remuneration Committee from among its members. The Executive Board Remuneration Policy that has been applied in 20182019 was adopted at the General Meeting of Shareholders on May 12, 2011. This policy has been subject to annual reviews by the Supervisory Board. Annual RemunerationThe current Policy reviewcontributes to Aegon’s strategy, long-term interests and sustainability through the remuneration of the Executives in various ways:
| ◆ | | The Policy provides the Supervisory Board with the means to attract, motivate and retain competent and experienced Executives for the long-term. Having motivated, competent and experienced Executives on board is essential for executing Aegon’s strategy and safeguarding and promoting its long-term interests and sustainability. |
| ◆ | | Aegon’s strategy is about building life-time relationships with customers, to create financial security and well-being throughout their lives. To pursue this strategy our focus is on sustainable growth through expanding our customer base, increasing efficiency, capitalizing on the advantages of being a global group and investing more in growth businesses. To support Aegon’s strategy execution, the Policy makes unadjusted and risk-adjusted financial (growth) indicators as well as personal indicators related to the Aegon strategy mandatory for the Executive. |
| ◆ | | Aegon believes it must create long-term value for its Stakeholders and the societies in which it operates. Because of the nature of our business, value created is often financial, but it may also be social, economic or environmental. The Policy directly aligns the Executive’s personal long-term interests with that of Aegon and its Shareholders by paying a significant part of the Executive’s Variable Compensation (50%) in Shares. These shares are paid partially upfront and partially deferred tranche-vesting overa 3-year period. Afterpay-out Shares are subject to an additional holding period of 3 years (even for the upfront Shares). This is combined with prohibiting the Executive in this Policy from using personal hedging strategies or insurance which could undermine this long-term alignment of interests. |
| ◆ | | Aegon is committed to doing business responsibly and in a sustainable way. The Policy makes the risk-adjusted financial performance indicators mandatory for the Executive. Additionally, variable compensation of the Executive can be adjusted downwards (i.e. malus) or clawed-back in case certain performance has not been achieved in a sustainable way, such as (but not limited to): significant risk and compliance incidents, insufficient response to such incidents and/or insufficient evidence of embedding of good standards |
| | of practice, such as sound and responsible business practices and integrity of products and services delivered. |
Aegon’s Executive Board remuneration is subject to various rules and regulations, which include the Dutch Financial Supervision Act, the Dutch Civil Code, the Dutch Corporate Governance Code and the Solvency II Legal Framework. The most prominent requirements thereof are: | ◆ | | The total variable compensation amount which is allocated to an Executive Board member for a performance year cannot exceed 100% of the fixed compensation level. |
| ◆ | | Variable compensation should be based on a mix of company and personal performance, with at least 50% weight onnon-financial performance. |
| ◆ | | A substantial portion of any variable compensation award should be paid ina non-cash instrument (e.g. Aegon N.V. shares) and should be deferred for at least 3 years. Additionally, award shares should be restricted for 5 years. Witha 3-year vesting period, this requires an additional holding period of2-years. |
| ◆ | | Aegon can claw-back any variable compensation which has been paid (cash and shares) in specific circumstances such as a material financial restatement or individual gross misconduct. |
These are also the main reasons why Aegon operates one Executive Board variable compensation plan per year, with a single variable compensation award which is subsequently split into cash and shares, rather than operating separate Short-Term Incentive (cash) and Long-Term Incentive (share) Plans. The Supervisory Board has the overall responsibility for the company’s Remuneration Policies, including the Executive Board Remuneration Policy. The Supervisory Board established the Remuneration Committee from among its members. This committee has to ensure that the remuneration policies are consistent with the longer-term strategy of the company and the longer-term interest of its shareholders, investors and other stakeholders, as well as the public at large. For this purpose, the Remuneration Committee reviews the Executive Board Remuneration Policy each year and may recommend policyPolicy changes to the Supervisory Board. When these recommendations are supported byIn that case, the Remuneration Committee will conduct scenario analyses to determine the long-term effects on the level and structure of compensation granted to each Executive Board member and reports their findings to the Supervisory Board. The Supervisory Board can subsequently decide on referring the policyproposed Policy changes are proposed to the Annual General Meeting of Shareholders for adoption.
Future changes
Compensation for individuals in the financial sector, in particular for those who could materially influence the risk profile of the organization such as the Executive Board members, continue to be a focus of political and regulatory attention. Aegon will ensure compliance if and when new remuneration regulations come into force.
Aegon took note of the implementation of the Shareholder Rights Directive in the Netherlands per 2019. This will likely require Aegon to amend the current Executive Board Remuneration Policy in the near future.
Total compensation Total compensation for Executive Board members is defined in the Executive Board Remuneration Policy as a combination of fixed compensation, variable compensation, pension and other benefits. In line with this policy, the Supervisory Board has determined a maximum total compensation level for each Executive Board member, reflecting the specific roles, responsibilities, qualifications, experience and expertise of the individual. In addition to that, the Remuneration Committee conducts regular scenario analyses to determine the long-term effect of the level and structure of compensation granted to each Executive Board member and reports their findings to the Supervisory Board. Each year, the Remuneration Committee reviews these total compensation levels of the Executive Board members to ensure they remain competitive and provide incentives in line with the Company’s risk appetite. This review takes the specific role, | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | 6266 | | How we safeguard long-term value creation | | Remuneration reportReport | | | | | | | | | | | | |
to ensure they remain competitiveresponsibilities, experience and provide properexpertise of the Executive into account as well as internal and risk-based incentives.external reference information.
| ◆ | | The internal references are the compensation structure and levels of Management Board members and the annual compensation changes of the general employee population and senior managers within Europe and the Netherlands specifically. |
| ◆ | | The external references are compensation trends in the market, economic developments (e.g. inflation) as well as a quantitative assessments of the competitiveness against a peer group of European Insurance companies and a reference group of General Industry companies based in the Netherlands. |
In order for the Remuneration Committee to assess the competitiveness, they gather benchmark data on compensation levels at comparable companies, in accordance with the applicable rules and regulations. These comparable companies form aThe European Insurance peer group and havehas been selected by the following criteria:
| ◆ | | Industry (preferably life insurance);Industry: preferably Life Insurance; |
| ◆ | | Size (companiesSize: companies with similar number of employees, assets, revenue and market capitalization);capitalization; |
| ◆ | | Geographic scope (preferablyscope: preferably the majority of revenues generated outside of the country of origin);origin; and |
| ◆ | | Location (companiesLocation: companies based in Europe).Europe. |
Based on these criteria the current peer group consists of the following 1416 European Insurance companies: Ageas, Allianz, Aviva, Axa, CNP Assurances, Assicurazioni Generali, Legal & General, Mapfre, Münchener Rückversicherung,RE, NN Group, Old Mutual, Prudential, plc., StandardRSA Insurance Group, Swiss Life Holding, Swiss Re, Talanx and Zurich Financial Services.Insurance Group. This peer group is slightly different from the European peer group for the Supervisory Board, because the UK companies are excluded from the latter as the UKnon-executive directors typically have different responsibilities compared to their continental European counterparts. In addition, athe following reference group of 12 companies is used in order to monitor alignment with the general industryGeneral Industry in the Netherlands.Netherlands: ABN AMRO, Ahold Delhaize, Akzo Nobel, ASML, DSM, Heineken, ING Group, KPN, NN Group, Philips, Randstad and Wolters Kluwer. This reference group is comprised ofequal to the 12 leading companies listed on Euronext Amsterdam, excluding financial services providers.Dutch reference Group for the Supervisory Board. The Remuneration Committee and the Supervisory Board regularly review the composition of the twoboth groups in order to ensure that they continue to provide a reliable and suitable basis for comparison. The last changeSupervisory Board updated both the European Insurance peer group and the Dutch General Industry reference group compared to these two groups astheir 2015 selections. Ageas, RSA Insurance Group, Swiss Life Holding and Talanx were added to the European Insurance peer group, while Old Mutual and Standard Life Aberdeen were removed. The peer group size increased from 14 to 16 in order to create a resultmore balanced selection around Aegon’s size data. In the Dutch General Industry reference group ABN AMRO, DSM, ING Group, NN Group and Wolters Kluwer replaced ArcelorMittal, RELX Group, Royal Dutch Shell, Unibail-Rodamco and Unilever. The Remuneration Committee may recommend changes to the compensation levels of this review was in 2015. Basedthe Executive Board members, based on the results of thethis annual competitivenesstotal compensation review and discussions with the Executive Board members regarding their remuneration level and structure, the Remuneration Committee may recommend changes to the compensation levels of the Executive Board members.structure. These recommendations are subsequently discussed by the Supervisory Board, which can approve, revise or reject them.
The Supervisory Board, based on the Remuneration Committee review, discussed and approved the 20182019 total compensation for the Executive Board. Fixed compensation The fixed compensation for the Executive Board members is paid in monthly installments. Variable compensation Aegon believes that variable compensation strengthens the commitment of Executive Board members to the Company’s objectives, business strategy, risk tolerance, long-term interests and long-term performance.sustainability. The variable compensation award is based on annual performance against a number of individualAegon and Grouppersonal performance indicators | ◆ | | These performance indicators are a mix of financial andnon-financial performance indicators withaone-year performance horizon. |
| ◆ | | The result of an individuala single performance indicator must exceed aits predefined threshold level, before this indicator contributescan contribute to the overall performance result. When an indicator result is below this threshold, the contribution of this indicator to the overall performance result is zero (i.e. a circuit breaker).zero. |
| ◆ | | In case the performance of an indicator exceeds the target, the contribution of this indicators is capped once it reaches a predefined maximum level. This means that strongly exceeding performance on one specific indicator can only contribute up to a certain level to the overall performance result (i.e. a contribution cap). |
| ◆ | | These performance indicators are regularly evaluated by experts in the company’s Finance, Risk Management, Business Control, Audit, Human Resources and Compliance departments to ensure alignment with the company’s objectives, business strategy, risk tolerance and long-term performance remains strong. |
At the start of the performance year, the Remuneration Committee draftsrecommends a recommendation on whichselection of performance indicators apply tofor each Executive Board member, as well as what theincluding its weights, threshold, target and maximum levels are per indicator.levels. This recommendation is subsequently reviewed by the Company’s Risk Management team (i.e. the firstex-ante risk assessment) before it is sendsent to the Supervisory Board. Board, to ensure that: | ◆ | | The performance indicators and weights are in line with the Policy; |
| ◆ | | The financial performance indicators are consistent with the risk tolerance statements; |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| ◆ | | The non-financial performance indicators are consistent with risk tolerance levels, regulatory requirements, reasonable stakeholder expectations and are supporting sound and responsible business practices and integrity of the products and services delivered. |
The Supervisory Board can approve, revise or reject the recommendation,recommended performance indicator selection, taking the results of the risk assessment into account. Once the Supervisory Board has approved the performance indicators for each Executive Board member, the Executive Board members are also granted their conditionalconditionally variable compensation award for that performance year. This conditional award is equal to their at target variable compensation level, which consists of 50% cash and 50% Aegon shares. The grant price for the shares is equal to the volume weighted average price on the Euronext Amsterdam stock exchange for the period December 15 to January 15 at the start of the performance year. After the completion of the performance year, the Remuneration Committee prepares a recommendation for the allocation of a variable compensation award to each Executive Board member. This recommendation is based on the results on each of the applicableselected performance indicators, relatedits threshold, target and maximum levels and anothertakes a second ex-ante risk assessment by the Company’s Risk Management team.team into account. This risk assessment looks into whether there are reasons for a downward adjustment of the intended variable compensation award. For this purpose, quantitative and qualitative measures at group, regional unit and individual level are takenaward (malus) which were not take into account yet, such as: | ◆ | | Significant risk or compliance incident(s); |
| ◆ | | Insufficient response to risk incident(s), compliance incident(s), regulatory fine(s) and/or insufficient execution of risk mitigating measures in response to these incidents; |
| ◆ | | Breaches of laws and regulations; |
| ◆ | | BreachesInsufficient evidence of internal risk policies (including compliance);embedding good standards of practice; |
| ◆ | | Significant deficiencies or material weaknesses relating to the Sarbanes-Oxley Act; and |
| ◆ | | Reputation damage due to risk events. |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 63 | | How we safeguard long-term value creation Remuneration report | | | | | | |
In this assessment possible risk mitigating behaviors are also taken into account, such as remaining within risk limits, risk reduction, risk avoidance, risk transfer and risk response by the Executive.Based on this risk-assessment, the Remuneration Committee can include a proposal to adjust an intended variable compensation in their recommendation. This adjustment can only be downwards. The Remuneration Committee sends its recommendation and the second ex-ante risk assessment to the Supervisory Board, which –- based on its informed judgement –- can approve, revise or reject the recommendation. This Supervisory Board decision includes validating that, when taken together, the results of the performance indicators represent a fair reflection of the overall performance of the Executive Board member over the performance year.
In line with the applicable rules and regulations, theThe allocated variable compensation award is subsequently split into equal parts of cash and Aegon shares, of which 40% is paid out (or vests)upfront (i.e. in the year following the performance year,year) and 60% is deferred to later years. This deferred portion remains conditional until it vests.
deferred. The deferred parts vestpart is paid in three equal tranches over athe subsequent three-year period. AfterAll shares, both upfront and deferred, are subject to anex-post risk assessment, which may lower the vesting parts, these individual parts additional three-year holding period after they are paid 50% in cash and 50% in shares. The shares are restricted for a further period of three years (with the exception of shares withheld to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the company holds a withholding obligation in connection with the vesting of the shares)1.
The variable compensation payout can be illustrated by the following example and the tablegraph below. For every 1,000 in variable compensation that is allocated following the performance year, 400 is paid out/vestedout in the year following that performance year (N in the following table)(year N). This upfront part will be paid 50% in cash (=200) and 50% in a number of shares vesting immediately (=200/200 / Aegon share price at grant = number of allocated shares). The remaining 600 is deferred and vests according to apre-defined schedule. Forpaid-out during the calculation of the conditionally grantedsubsequent three years (years N+1, N+2 and allocated shares, the company applies the share price at grant. This grant price is equal to the volume weighted average price on the Euronext Amsterdam stock exchange for the period December 15 to January 15.
Information on the expenses recognized for variable compensation and the status of awards are provided in note 53 of this report.N+3).
| 1 | With the exception of shares withheld to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the company holds a withholding obligation in connection with the pay-out of the shares. |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
All deferred cash and share portions remain conditional until they are paid. Before a deferred portion is paid, the Company’s Risk Management team executes anEx-postex-post risk assessment After the completion of the performance year, the Remuneration Committee also prepares a recommendation on which looks into whether there are reasons for a downward adjustment of deferredthe original variable compensation before it is paid or vests. This recommendation is based on theex-post risk assessment by the Company’s Risk Management team, which takes into account significant and exceptional circumstancesaward (malus) which were not (sufficiently) reflected intaken into account yet. The outstanding deferred portion can be used for correcting the initial performanceoriginally award amount accordingly. This risk assessment and/ortakes the same criteria into consideration as the secondex-ante risk assessment related(above). Based on this assessment, the Remuneration Committee subsequently preparesa pay-out recommendation of the deferred variable compensation award in scope.
Implementation of this authority is on the basis of criteria such as:
◆ | | The outcome of are-assessment of the performance against the original financial performance indicators; |
◆ | | A significant downturn in the Company’s financial performance; |
◆ | | Evidence of misbehavior or serious error by the participant; |
◆ | | A significant failure in risk management; and |
◆ | | Significant changes in the Company’s economic or regulatory capital base. |
portion (i.e. unchanged or adjusted downward). The Remuneration Committee sends its recommendation andtheex-post risk assessment to the Supervisory Board. The Supervisory Board can approve, revise or reject the recommendation. When this recommendation includes | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 64 | | How we safeguard long-term value creation Remuneration report | | | | | | |
a proposal to adjust unvested deferred variable compensation, this adjustment can only be downwards.
Claw-back provision Aegon’s Supervisory Board is obliged to claim backcan claw-back variable compensation that has already been paid out or vested where required based onto the regulations that apply from time to time, if variable compensation is based on incorrect data (includingnon-achievementExecutive in case of performance indicators in hindsight), or in the event ofa material financial restatementsrestatement or individual gross misconduct.misconduct, after considering a risk assessment by the Company’s Risk Management team which looks into whether in hindsight the paid amount should have been lower or nill. Examples of misconduct are, but not limited to, significant breach of laws and/or regulations, use of violence, either verbally or physically, involvement with fraud, corruption or bribery, significant issues due to evident dereliction of duty and/or discrimination of any kind (for example age or gender). For practical reasons the claw-back amount can beset-off or settled by any current or future obligations as permitted by law. Pension arrangements The Executive Board members are offered pension arrangements and retirement benefits. These benefits are in line with the Executive Board Remuneration Policy. Details on the From January to May 2019, Mr. Wynaendts’ pension contributions to the Executive Board over the course of 2018 can be found in note 53 on page 305. The arrangements with Mr. Wynaendts includearrangement included retirement provisions that allowallowed benefits to be taken at the end of the term. These retirement arrangements stem from pre Executive Board membership. The arrangement withFrom June 2019 onwards, Mr. RiderWynaendts received a gross allowance for pension purposes, which equaled 40% of the fixed compensation in 2019. In addition to this, Mr. Wynaendts continued to be entitled to an annual gross payment of 28% of his fixed compensation in 2019, which is similar to the arrangements for other staffpart of a grandfathered pension arrangement.
Mr. Rider’s pension contributions equaled 40% of his fixed compensation in the Netherlands and consists of aso-called career average defined benefits plan up to EUR 105,075 (2018 threshold) base salary and a defined contribution plan for the amount above EUR 105,075. Details are not disclosed due to the individual nature of such arrangement.2019 consisting of: | ◆ | | Participation in Aegon’s career average defined benefit pension plan forNL-based employees, for his fixed income up to EUR 107.593 (2019 threshold set by Dutch law); |
| ◆ | | Participation in Aegon’s defined contribution pension plan forNL-based employees, for his fixed income above EUR 107.593. |
| ◆ | | A gross allowance for pension purposes of around 15%, in order to make the sum of all pension contributions equal to 40% of his fixed compensation in 2019. |
Other benefits Other benefits includenon-monetary benefits (e.g. company car), social security contributions by the employer, and tax expenses borne by the Group.Aegon. Aegon does not grant Executive Board members personal loans, guarantees or other such arrangements, unless in the normal course of business and on terms applicable to all employees, and only with the approval of the Company’s Supervisory Board. Terms of Engagement Agreement Members of the Executive Board are appointed for four years, and may then bere-appointed for successive mandates also for a period of four years. Both Executive Board members have an EngagementBoard Agreement with Aegon N.V., rather than an employment contract. Members of the Executive Board may terminate their engagement agreementBoard Agreement with a notice period of three months. The Company may terminate the board agreement by giving six months’ notice if it wishes to terminate the agreement of Mr. Wynaendts, and by giving three months’ notice if it wishes to terminate the agreement of Mr. Rider.agreement. The arrangements with the current Executive Board members contain provisions for severance payments in the event that their agreement is terminated as a result of a merger or takeover. These arrangements do not exceed one year’s fixed remuneration. The Supervisory Board has taken appropriate steps to ensure the arrangements of Executive Board members are in line with the Executive Board Remuneration Policy. However, Mr. Wynaendts will not be entitled to a termination payment when his Board Agreement is terminated by the Company on September 30, 2020. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
Executive Board Remuneration Report 2018remuneration in recent years At the end of December 2018, Aegon’s Executive Board had two members:
◆ | | Alexander R. 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. He wasre-appointed in 2007, 2011 and most recently in 2015. In 2019 the General Meeting of Shareholders will be asked tore-appoint Mr. Wynaendts for four years. |
◆ | | Matthew J. Rider, Chief Financial Officer and member of the Executive Board, was appointed as a member of the Executive Board for four years at the Annual General Meeting of Shareholders on May 19, 2017. Mr. Rider’s current term ends at the General Meeting of Shareholders 2021. |
A. Fixed compensation 2017-2019 Mr. Wynaendts’ annual fixed compensation level increased with 2.5% from EUR 1,294,867 to EUR 1,327,239 per June 2019, which resulted in a total fixed compensationpay-out of EUR 1,313,751 in 2019. Mr. Rider’s annual fixed compensation increased with 2% in 20182.5% from EUR 918,000 to EUR 1,294,867.940,950 per June 2019, which resulted in a total fixed compensationpay-out of EUR 931,388 in 2019. The annual2017 fixed compensation offor Mr. Rider increased with 2%has been for the period as Executive Board member (per May 19, 2017). His annualized 2017 fixed compensation was EUR 900,000. The IFRS expenses for these fixed compensation amounts are equal to EUR 918,000.the amounts in the table below. | | | | | | | | | | | | | | In EUR thousand | | 2019 | | | 2018 | | | 2017 | | Alex Wynaendts | | | 1,314 | | | | 1,295 | | | | 1,269 | | Matt Rider | | | 931 | | | | 918 | | | | 560 | | Total fixed compensation | | | 2,245 | | | | 2,213 | | | | 1,829 | |
B. Conditional variable compensation 20182019 In 2018,2019, Mr. Wynaendts and Mr. Rider both had an (at target) conditionalat target variable compensation levelopportunity of 80% of their annualannualized fixed compensation which was split into equal parts of cash and shares. However, their actuallevel atyear-end. The variable compensation award dependedwas based on theirthe results on the Aegon and their personal performance indicators and related target levels, which had been approved by the Supervisory Board at the start of 2018.2019. As a result they would receive:receive the following if the performance indicator results reached the threshold (50%), target (80%) and maximum level (100%), taking into account the grant price of EUR 4.162 for the shares: | | | | | | | | | | Variable compensation opportunity 2019 | | Threshold (50%) | | Target (80%) | | Maximum (100%) | Alex Wynaendts | | Total (EUR thousand) | | 664 | | 1,062 | | 1,327 | | | in cash (EUR thousand) | | 332 | | 531 | | 664 | | | in shares | | 79,723 | | 127,557 | | 159,447 | Matt Rider | | Total (EUR thousand) | | 470 | | 753 | | 941 | | | in cash (EUR thousand) | | 235 | | 376 | | 470 | | | | in shares | | 56,520 | | 90,432 | | 113,040 |
C. Provisional variable compensation 2019 Subject to the adoption of the annual accounts at the General Meeting of Shareholders on May 15, 2020, Mr. Wynaendts has been awarded EUR 1,047,722 in conditional variable compensation for the 2019 performance year (78.9% of fixed compensation) and Mr. Rider EUR 742,786 (78.9% of fixed compensation). Each variable compensation award will be paid in the following cash and share parts, with the shares being subject to an additional holding period of three-years afterpay-out. | | | | | | | | | | | | Conditional variable compensation 2019 | | Pay-out in
2020 | | Pay-out in
2021 | | Pay-out in
2022 | | Pay-out in
2023 | Alex Wynaendts | | Cash (EUR thousand) | | 210 | | 105 | | 105 | | 105 | | | Shares | | 50,345 | | 25,174 | | 25,174 | | 25,174 | Matt Rider | | Cash (EUR thousand) | | 149 | | 74 | | 74 | | 74 | | | | Shares | | 35,693 | | 17,847 | | 17,847 | | 17,847 |
The tables below show the results on each of the Aegon and personal indicators which determined the conditional variable compensation awards of Mr. Wynaendts and Mr. Rider, followed by the indicator definitions. The Aegon performance results were scored on a performance scale which was used to fund the 2019 bonus pools within Aegon: 50% for the threshold (minimum), 100% for target level and 150% for the maximum level. The 2019 Aegon performance result on this performance scale was 79%. Converted to the performance scale that applied to the variable compensation of Mr. Wynaendts and Mr. Rider (i.e. with 80% for the target level) the 2019 Aegon performance result was 67%. For the absolute results on each of the Aegon performance indicators, see the table with the business performance highlights in the first chapter of this Remuneration Report. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
Aegon – Performance indicator results 2019 
Alex Wynaendts – Performance indicator results 2019 
Matt Rider – Performance indicator results 2019 
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | Scope | | Performance indicators | | Definition | | Aegon financial | | Net deposits | | Net deposits is the difference between gross deposits and withdrawals. If gross deposits exceed withdrawals, the result is a net inflow of customer money. If withdrawals exceed gross deposits, the result is a net outflow. Gross deposits is a sales metric and reflect amounts paid by policyholders (inflows) on insurance and investment contracts to which deposit accounting is applied. | | | | | | Normalized Capital Generation | | The movement in our capital position (on a Solvency II basis) during a period in the normal course of business net of market impacts (e.g. changes to interest rates, credit spreads, equity returns) andone-time effects. Impacts from dividends and capital injections that do not generate capital but do affect Own Fund are excluded from capital generation. | | | | | | Solvency II ratio | | The Solvency II ratio measures the solvency of an EU insurance company. The Solvency ratio is calculated by dividing eligible Own Funds by the Solvency Capital Requirement (SCR) – the amount of capital insurers must hold under the Solvency II regime. | | | | | | Market consistent value of new business | | Represents how much value the sale of new insurance policies is generating for the company. This value represents the present value of our best estimate of incoming premiums and outgoing claims, benefits and expenses related to these new sales. | | | | | | Return on equity | | The return on equity (ROE) measures the rate of return that the owners of common stock of a company receive on their shareholdings. Return on equity signifies how good the company is in generating returns on the investment it received from its shareholders. Aegon’s ROE is calculated by dividing underlying earnings after tax and after cost of leverage by average shareholders’ equity based on IFRS as adopted by the EU excluding revaluation reserve. | | | | | | Underlying earnings before taxes | | Underlying earnings before tax reflect our profit from underlying business operations and exclude components that relate to accounting mismatches that are dependent on market volatility or relate to events that are considered outside the normal course of business. | | | | | | New life sales | | New Life Sales reflect the premiums for new life insurance policies sold during the year. Aegon’s new life sales is calculated as a total of recurring premiums and 1/10 of single premiums. | | Aegonnon-financial | | Relational NPS | | The Net Promoter Score (NPS) is a customer loyalty metric based on the percentage of customers that would likely recommend our products and services to friends and family (scores 9 and 10) minus the percentage that would not be likely to do so (scores 0 to 6). The Relational NPS measures the whole scope of the client relationship: 1) the contact experience, 2) the products/prices and 3) our brands. | | | | | | Digitally connected customers | | The total number of customers who have registered, created an online account with Aegon and have logged in to this account at least once. | | Alex Wynaendts | | Control environment | | Measures the effectiveness of Aegon’s Control Environment in relation to IT CF implementation, Control Excellence and Solvency II/Solvency Capital reporting controls deficiency rectification. | | | | | | Succession planning | | Contains personal goals to further improve succession planning for the Management Board and other critical positions. | | | | | | Strategy execution capability | | Contains personal goals to further grow and accelerate the capability to execute the strategy (staffing, skills and competencies). | | | | | | Strategy execution | | Consists of five personal milestones which were key for the strategy execution in 2019. | | | | | | Cultural transformation | | Measures the personal contribution to embedding the Future Fit values in the organization (‘Acting as one, Customer centricity, Agility and Accountability’). | | Matt Rider | | Control environment | | Measures the effectiveness of Aegon’s Control Environment in relation to IT CF implementation, Control Excellence and Solvency II/Solvency Capital reporting controls deficiency rectification. | | | | | | Financial strategy execution | | Consists of five personal milestones which were key for the strategy execution within the Finance function in 2019. | | | | | | Financial transformation | | Measures the progress of four transformation processes within the Finance function. | | | | | | Succession planning | | Contains personal goals to further improve succession planning for senior management positions within the Finance function. | | | | | | Cultural transformation | | Measures the personal contribution to embedding the Future Fit values in the Finance function (‘Acting as one, Customer centricity, Agility and Accountability’). |
D. Variable compensation 2017-2019 The amounts in the first table represent the total conditional variable compensation awards allocated in relation to the performance year concerned. No circumstances have been identified to lower payout of the deferred payment from prior performance years in 2019 (the so called‘ex-post assessment’) or to lower the payout of the upfront payment of the 2018 performance year variable compensation in 2019 (the so called‘ex-ante assessment’). The 2017 variable compensation for Mr. Rider has been for the period as Executive Board member (per May 19, 2017). His annualized 2017 variable compensation was EUR 802,008. The second table contains the expenses for the conditional variable compensation awards, as recognized under the IFRS accounting treatment in the income statement. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | | | | | | In EUR thousand | | 2019 | | | 2018 | | | 2017 | | Alex Wynaendts | | | 1,048 | | | | 1,062 | | | | 1,147 | | Matt Rider | | | 743 | | | | 760 | | | | 499 | | Total conditional variable compensation | | | 1,791 | | | | 1,822 | | | | 1,646 | |
| | | | | | | | | | | | | | In EUR thousand | | 2019 | | | 2018 | | | 2017 | | Alex Wynaendts | | | 976 | | | | 962 | | | | 1,092 | | Matt Rider | | | 627 | | | | 545 | | | | 293 | | Total conditional variable compensation IFRS expenses | | | 1,604 | | | | 1,507 | | | | 1,385 | |
E.Pay-out of allocated variable compensation The following tables show for each current and former Executive Board member how much variable compensation has been paid in shares and cash respectively in 2017, 2018 and 2019 and how much conditional variable compensation is scheduled to be paid-out in the coming years. The vesting price of the share were: EUR 4.423 on May 19, 2017, EUR 5.848 on May 18, 2018 and EUR 4.287 on May 17, 2019. After vesting all shares are subject to an additional three-year holding period. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Years of vesting | | | Shares by plan year | | Grant Price 2) | | | Allocated | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | 2021 | | | 2022 | | | 2023 | | Alex Wynaendts 2013 | | | EUR 4.919 | | | | 20,981 | | | | 20,981 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | 2014 | | | EUR 6.739 | | | | 23,716 | | | | 13,552 | | | | 10,164 1) | | | | - | | | | - | | | | - | | | | - | | | | - | | 2015 | | | EUR 6.106 | | | | 45,330 | | | | 15,110 | | | | 15,110 | | | | 15,110 | | | | - | | | | - | | | | - | | | | - | | 2016 | | | EUR 5.128 | | | | 101,805 | | | | 40,722 | | | | 20,361 | | | | 20,361 | | | | 20,361 | | | | - | | | | - | | | | - | | 2017 | | | EUR 5.246 | | | | 109,330 | | | | - | | | | 43,732 | | | | 21,866 | | | | 21,866 | | | | 21,866 | | | | - | | | | - | | 2018 | | | EUR 5.405 | | | | 98,282 | | | | - | | | | - | | | | 39,314 | | | | 19,656 | | | | 19,656 | | | | 19,656 | | | | - | | 2019 | | | EUR 4.162 | | | | 125,867 | | | | - | | | | - | | | | - | | | | 50,345 | | | | 25,174 | | | | 25,174 | | | | 25,174 | | Total number of shares | | | | | | | 525,311 | | | | 90,365 | | | | 89,367 | | | | 96,651 | | | | 112,228 | | | | 66,696 | | | | 44,830 | | | | 25,174 | | Matt Rider 2017 | | | EUR 5.246 | | | | 47,539 | | | | - | | | | 19,015 | | | | 9,508 | | | | 9,508 | | | | 9,508 | | | | - | | | | - | | 2018 | | | EUR 5.405 | | | | 70,272 | | | | - | | | | - | | | | 28,110 | | | | 14,054 | | | | 14,054 | | | | 14,054 | | | | - | | 2019 | | | EUR 4.162 | | | | 89,234 | | | | - | | | | - | | | | - | | | | 35,693 | | | | 17,847 | | | | 17,847 | | | | 17,847 | | Total number of shares | | | | | | | 207,045 | | | | - | | | | 19,015 | | | | 37,618 | | | | 59,255 | | | | 41,409 | | | | 31,901 | | | | 17,847 | | Darryl Button 2013 | | | EUR 4.919 | | | | 9,572 | | | | 9,572 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | 2014 | | | EUR 6.739 | | | | 17,304 | | | | 8,652 | | | | 8,652 | | | | - | | | | - | | | | - | | | | - | | | | - | | 2015 | | | EUR 6.106 | | | | 35,433 | | | | 11,811 | | | | 11,811 | | | | 11,811 | | | | - | | | | - | | | | - | | | | - | | 2016 | | | EUR 5.128 | | | | 74,038 | | | | 29,614 | | | | 14,808 | | | | 14,808 | | | | 14,808 | | | | - | | | | - | | | | - | | Total number of shares | | | | | | | 136,347 | | | | 59,649 | | | | 35,271 | | | | 26,619 | | | | 14,808 | | | | - | | | | - | | | | - | | Jan Nooitgedagt 2013 | | | EUR 4.919 | | | | 8,826 | | | | 8,826 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Total number of shares | | | | | | | 8,826 | | | | 8,826 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| 1 | In line with the Aegon Group Global Remuneration Framework, it was agreed to adjust Mr Wynaendt’s 2014 variable compensation award downwards by 3,388 shares and EUR 22,832 to reflect the outcome of a regulatory matter relating to the company. |
| 2 | This is the volume weighted average price (VWAP) of Aegon on the Euronext Amsterdam stock exchange for the period December 15 to January 15. For instance for the 2019 plan year, this is the VWAP for the period December 15, 2018 to January 15, 2019. |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Years of vesting | | | Cash by plan year (in EUR) | | Allocated | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | 2021 | | | 2022 | | | 2023 | | Alex Wynaendts 2013 | | | 103,163 | | | | 103,163 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | 2014 | | | 159,826 | | | | 91,329 | | | | 68,497 1) | | | | - | | | | - | | | | - | | | | - | | | | - | | 2015 | | | 276,783 | | | | 92,261 | | | | 92,261 | | | | 92,261 | | | | - | | | | - | | | | - | | | | - | | 2016 | | | 522,060 | | | | 208,824 | | | | 104,412 | | | | 104,412 | | | | 104,412 | | | | - | | | | - | | | | - | | 2017 | | | 573,550 | | | | - | | | | 229,420 | | | | 114,710 | | | | 114,710 | | | | 114,710 | | | | - | | | | - | | 2018 | | | 531,219 | | | | - | | | | - | | | | 212,490 | | | | 106,243 | | | | 106,243 | | | | 106,243 | | | | - | | 2019 | | | 523,864 | | | | - | | | | - | | | | - | | | | 209,548 | | | | 104,772 | | | | 104,772 | | | | 104,772 | | Total cash | | | 2,690,465 | | | | 495,577 | | | | 494,590 | | | | 523,873 | | | | 534,913 | | | | 325,725 | | | | 211,015 | | | | 104,772 | | Matt Rider 2017 | | | 249,390 | | | | - | | | | 99,756 | | | | 49,878 | | | | 49,878 | | | | 49,878 | | | | - | | | | - | | 2018 | | | 379,823 | �� | | | - | | | | - | | | | 151,931 | | | | 75,964 | | | | 75,964 | | | | 75,964 | | | | - | | 2019 | | | 371,394 | | | | - | | | | - | | | | - | | | | 148,560 | | | | 74,278 | | | | 74,278 | | | | 74,278 | | Total cash | | | 1,000,607 | | | | - | | | | 99,756 | | | | 201,809 | | | | 274,402 | | | | 200,120 | | | | 150,242 | | | | 74,278 | | Darryl Button 2013 | | | 46,767 | | | | 46,767 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | 2014 | | | 120,048 | | | | 60,024 | | | | 60,024 | | | | - | | | | - | | | | - | | | | - | | | | - | | 2015 | | | 235,293 | | | | 78,431 | | | | 78,431 | | | | 78,431 | | | | - | | | | - | | | | - | | | | - | | 2016 | | | 373,369 | | | | 149,347 | | | | 74,674 | | | | 74,674 | | | | 74,674 | | | | - | | | | - | | | | - | | Total cash | | | 775,477 | | | | 334,569 | | | | 213,129 | | | | 153,105 | | | | 74,674 | | | | - | | | | - | | | | - | | Jan Nooitgedagt 2013 | | | 43,396 | | | | 43,396 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Total cash | | | 43,396 | | | | 43,396 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
F. Pension contributions 2017-2019 The allocated amounts in the first table represent the total pension contributions made in relation to the performance year concerned. The second table contains the expenses for pension, as recognized under the IFRS accounting treatment in the income statement. The 2017-2019 pension contributions for Mr. Wynaendts, under his defined benefit arrangement, include a back service liability which reflects the increase of his fixed compensation in 2016 and 2018, as well as the current low interest rates1. This defined benefit arrangement ran up to May 2019, when the final settlement was made. From June 2019 onwards, Mr. Wynaendts became eligible for the same pension arrangement as Mr. Rider. In this arrangement both receive pension contributions which are equal to 40% of their fixed compensation level. Mr. Wynaendts continued to be entitled to a gross payment of 28% of his fixed compensation level as part of a grandfathered pension arrangement. The 2017 pension contributions for Mr. Rider have been for the period as Executive Board member (per May 19, 2017). His annualized 2017 pension contribution was EUR 360,118. | | | | | | | | | | | | | | In EUR thousand | | 2019 | | | 2018 | | | 2017 | | Alex Wynaendts | | | 1,302 | | | | 2,463 | | | | 2,102 | | Matt Rider | | | 373 | | | | 367 | | | | 224 | | Total pension contributions | | | 1,675 | | | | 2,830 | | | | 2,326 | |
| | | | | | | | | | | | | | In EUR thousand | | 2019 | | | 2018 | | | 2017 | | Alex Wynaendts | | | 1,243 | | | | 1,952 | | | | 1,733 | | Matt Rider | | | 387 | | | | 379 | | | | 175 | | Total pension IFRS expenses | | | 1,630 | | | | 2,331 | | | | 1,908 | |
| 1 | The increase Mr. Wynaendts’ fixed compensation in 2016 and 2018 resulted in a back service liability of EUR 1,361 thousand and EUR 340 thousand respectively. The 2016 back service liability was expensed over the 2016-2019 period. |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
G. Benefits 2017-2019 Other benefits includenon-monetary benefits (e.g. company car), social security contributions by the employer, and tax expenses borne by the Company. The 2017 benefits for Mr. Rider have been for the period as Executive Board member (per May 19, 2017). His annualized 2017 benefits were EUR 95,400. The IFRS expenses for these benefits are equal to the amounts in the table below. | | | | | | | | | | | | | | In EUR thousand | | 2019 | | | 2018 | | | 2017 | | Alex Wynaendts | | | 252 | | | | 195 | | | | 165 | | Matt Rider | | | 77 | | | | 46 | | | | 59 | | Total benefits | | | 329 | | | | 240 | | | | 224 | |
H. Total Compensation in recent years The Total Compensation for Mr. Wynaendts related to 2019 was EUR 3.9 million (2018: EUR 5.0 million 2017: EUR 4.6 million) and for Mr. Rider EUR 2.1 million (2018: EUR 2.1 million; 2017: EUR 1.3 million). The total remuneration for the members of the Executive Board over 2019 was EUR 6.0 million (2018: EUR 7.1 million; 2017: EUR 6.0 million). The total expenses recognized under IFRS accounting treatment in the income statement for Mr. Wynaendts related to 2019 were EUR 3.8 million (2018: EUR 4.4 million; 2017: EUR 4.3 million) and for Mr. Rider EUR 2.0 million (2018: EUR 1.9 million; 2017: 1.1 million). Total IFRS expenses for the members of the Executive Board over 2019 were EUR 5.8 million (2018: EUR 6.3 million; 2017: EUR 5.3 million). All remuneration that has been paid and allocated to the Executive Board members was in accordance with the applicable Executive Board remuneration policy. There were no deviations from the policy. In line with the European guidelines on the standardized presentation of the remuneration report, you find the remuneration which was awarded and due to the Executives in 2019 and 2018 in the table below. The Variable Compensation amounts differ from the amounts disclosed in the tables above, as it includesthe pay-out of variable compensation in cash and shares in the 2019 and 2018 calendar years. These have been awarded for previous performance years. Also the shares are included at the value when they were paid (i.e. vested), which might differ from the initial grant price. Please note that therefore the parts of Mr. Rider’s 2017 variable compensation award, which have been paid in 2018 as ‘upfront’ and in 2019 as ‘deferred’, arepro-rated for the period as Executive Board member (per May 19, 2017). The Fixed Compensation and Pension amounts are equal to the amounts which are included in the tables above. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Fixed | | | Variable | | | One-off 3) | | | Pension | | | Total | | | Ratio Fixed/
Variable4) | | | | Salary | | | Benefits | | | Upfront 1) | | | Deferred 2) | | | | | | | | | | | | | Alex Wynaendts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2019 | | | 1,314 | | | | 252 | | | | 381 | | | | 557 | | | | - | | | | 1,302 | | | | 3,806 | | | 75% / 25% | 2018 | | | 1,295 | | | | 195 | | | | 485 | | | | 532 | | | | - | | | | 2,463 | | | | 4,969 | | | 80% / 20% | Matt Rider | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2019 | | | 931 | | | | 77 | | | | 272 | | | | 91 | | | | - | | | | 373 | | | | 1,744 | | | 79% / 21% | 2018 | | | 918 | | | | 46 | | | | 211 | | | | - | | | | - | | | | 367 | | | | 1,542 | | | 86% / 14% |
| 1 | The upfront cash and share payments of the variable compensation of the previous year. The shares are valued at their price at vesting. For example, the upfront cash and shares of the 2018 variable compensation award which were paid in 2019. |
| 2 | The deferred cash and share payments of the variable compensation of the years before the previous year. The shares are valued at their price at vesting. For example, the deferred cash and shares of the 2015-2017 variable compensation awards which were paid in 2019. |
| 3 | There were no extraordinary(non-recurring) payments or other benefits in 2019 and 2018. |
| 4 | Fixed is the sum of Salary, Benefits and Pension divided by the Total. Variable is the sum of Upfront, Deferred andOne-off divided by the Total. |
The table below presents the total compensation that has been paid in the last five calendar years on an annualized basis andthe year-on-year annual change in total compensation. Please note that therefore Mr. Rider’s 2017 total compensation level has been annualized, as well as the parts of his 2017 variable compensation award, which have been paid in the calendar years 2018 and 2019 (increasing the total 2018 and 2019 awarded and due level compared to the table above). Additionally the table show the Aegon net income, a proxy of the financial andnon-financial business performance, the vesting price of the Aegon shares, the inflation in the Netherlands and the average employee compensation over the same period. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | | | | | | | | | | | | | | | | In EUR thousand | | Annualized | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | Alex Wynaendts | | Awarded and due | | | 3,702 | | | | 4,455 | | | | 4,431 | | | | 4,969 | | | | 3,806 | | | | Change | | | - | | | | 20% | | | | (1% | ) | | | 12% | | | | (23% | ) | Matt Rider (as of May 19, 2017) | | Awarded and due | | | - | | | | - | | | | 1,357 | | | | 1,670 | | | | 1,799 | | | | Change | | | - | | | | - | | | | - | | | | 23% | | | | 8% | | Darryl Button (up to Dec 1, 2016) | | Awarded and due | | | 2,047 | | | | 2,370 | | | | - | | | | - | | | | - | | | | | Change | | | | | | | 16% | | | | - | | | | - | | | | - | | Aegon net income | | In EUR million | | | (431 | ) | | | 438 | | | | 2,469 | | | | 711 | | | | 1,239 | | Aegon business performance1) | | Target = 100% | | | 94% | | | | 91% | | | | 121% | | | | 106% | | | | 79% | | Vesting price Aegon shares | | In EUR | | | 7.243 | | | | 4.502 | | | | 4.423 | | | | 5.848 | | | | 4.287 | | Inflation in the Netherlands | | Consumer Price Index | | | 0.6% | | | | 0.3% | | | | 1.4% | | | | 1.7% | | | | 2.6% | | Average employee compensation2) | | Total compensation | | | 95 | | | | 97 | | | | 102 | | | | 104 | | | | 115 | | | | | Annual change | | | - | | | | 2% | | | | 5% | | | | 2% | | | | 11% | |
| 1 | The weighted average Aegon financial andnon-financial business performance, expressed as a percentage on a performance scale with 50% as threshold, 100% as target and 150% as maximum, as used for the allocation of variable compensation in the applicable year. |
| 2 | Consistent with the CEO pay ratio calculation, the average employee compensation is based on the audited total IFRS remuneration expenses for all employees divided by the number of employees in scope for these expenses. |
2020 Executive Board performance indicators Looking ahead to the 2020 performance years, the 2020 performance indicators for Mr. Wynaendts and Mr. Rider are presented in the tables below, including the definitions and target levels of each of the performance indicators. | | | | | | | | Alex Wynaendts | | Weight | | Performance indicators | | Performance period | Aegon financial | | 10% | | Normalized Capital Generation | | 2 years (2019-2020)1) | | | 10% | | Relative TSR | | 1 year2) | | | 10% | | Fees and Premium Based Revenues | | 1 year | | | 10% | | Normalized Consistent Value of New Business | | 1 year | | | 10% | | Return on Equity | | 1 year | AegonNon-financial | | 10% | | Relational NPS | | 1 year | | | 20% | | Strategy Execution | | 1 year | Personal | | 10% | | Sustainable Organization | | 1 year | | | 10% | | Handover to successor | | 1 year | Total | | 100% | | | | |
| | | | | | | | Matt Rider | | Weight | | Performance indicators | | Performance period | Aegon financial | | 10% | | Normalized Capital Generation | | 2 years (2019-2020)1) | | | 10% | | Relative TSR | | 1 year2) | | | 10% | | Fees and Premium Based Revenues | | 1 year | | | 10% | | Normalized Consistent Value of New Business | | 1 year | | | 10% | | Return on Equity | | 1 year | AegonNon-financial | | 10% | | Relational NPS | | 1 year | | | 10% | | Strategy Execution | | 1 year | Personal | | 10% | | Sustainable Organization | | 1 year | | | 10% | | Financial Strategy Execution | | 1 year | | | 10% | | Finance Transformation | | 1 year | Total | | 100% | | | | |
| 1 | Will become a3-year performance period from 2021 onwards. This is phased in with a2-year performance period (2019-2020) for the 2020 plan year. The 2019-2020 target is equal to the first two years of the3-year target for the 2019-2021 period which was disclosed last year. |
| 2 | Will become a3-year performance period from 2022 onwards. It is phased in with a1-year performance period (2020) for the 2020 plan year and a2-year performance period (2020-2021) for the 2021 plan year. |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | Scope | | Performance indicators | | Definition | | Aegon financial | | Normalized capital generation | | The movement in our capital position (on a Solvency II basis) during a period in the normal course of business net of market impacts (e.g. changes to interest rates, credit spreads, equity returns) andone-time effects. Impacts from dividends and capital injections that do not generate capital but do affect Own Funds are excluded from capital generation.The 2-year target is the 2019- 2020 target from the 2019-2021 target which was disclosed last year. | | | | | | Relative TSR | | Aegon position relative to 7 US and 7non-US peers when looking at Total Shareholder Return fora 1-year performance period. These peers are selected for being the most similar to Aegon based on their index listing, industry classification, 5 year monthly Beta, Market Capitalization and Total Revenue 1). The target is to be in the top 5 out of the 15 companies. | | | | | | Fees and Premium Based
Revenues | | Fees and Premium Based Revenues represent the income from Aegon’s fee businesses as well as the fees charged and the actual premium collected less the benefit premium, expense loadings and profit margins included in premiums for its life insurance and pensions business. The target is part of the approved 2020 budget. | | | | | | Market Consistent Value of New Business | | Represents how much value the sale of new insurance policies is generating for the company. This value represents the present value of our best estimate of incoming premiums and outgoing claims, benefits and expenses related to these new sales. The target is part of the approved 2020 budget. | | | | | | Return on equity | | The return on equity (ROE) measures the rate of return that the owners of common stock of a company receive on their shareholdings. Return on equity signifies how good the company is in generating returns on the investment it received from its shareholders. Aegon’s ROE is calculated by dividing underlying earnings after tax and after cost of leverage by average shareholders’ equity based on IFRS as adopted by the EU excluding revaluation reserve. The target is part of the approved 2020 budget. | | Aegonnon-financial | | Relational NPS | | The Net Promoter Score (NPS) is a customer loyalty metric based on the percentage of customers that would likely recommend our products and services to friends and family (scores 9 and 10) minus the percentage that would not be likely to do so (scores 0 to 6). The Relational NPS measures the whole scope of the client relationship: 1) the contact experience, 2) the products/prices and 3) our brands. The target is the 2019 result +3. | | | | | | Strategy execution | | Measures the execution of the three projects which are key for a successful execution of Aegon’s strategy. The targets are derived from the approved 2020 project plans. | | Alex Wynaendts | | Sustainable Organization | | Measures a combination of ESG related goals through personal goals on Employee Engagement and Inclusion & Diversity. | | | | | | Handover to successor | | Contains two personal milestones for a successful handover to the new CEO. | | | | | Matt Rider | | Sustainable Organization | | Measures a combination of ESG related goals through personal goals on Employee Engagement, governance during CEO transition and Control Environment. | | | | | | Financial Strategy Execution | | Consists of five personal milestones which are key for the strategy execution within the Finance function in 2020. | | | | | | Finance Transformation | | Measures the progress of three transformation processes within the Finance function. |
| 1 | The US peers are Axa Equitable Holdings, Principal Financial Group, Unum Group, Lincoln National Corp, Prudential Financial, Brighthouse Financial and MetLife. Thenon-US peers are Athene Holding, NN Group, Swiss Life Holding, Assicurazioni Generali, Baloise Holding, Prudential and ASR Nederland. |
6. Proposed 2020 Executive Board Remuneration Policy A. Policy A.1 Remuneration Policy This Executive Board Remuneration Policy (the “Policy”) outlines the terms and conditions for the board agreement with and remuneration of the members of the Executive Board of Aegon N.V. (the “Executives”), to be submitted for approval by the shareholders of Aegon N.V. (the “Shareholders”) at the Annual General Meeting of Shareholders on May 15, 2020. This Policy replaces the Aegon N.V. Executive Board Remuneration Policy of 2011. Remuneration of all employees of Aegon N.V. and its direct and indirect subsidiaries (“Aegon”) and the Executives is governed by the Aegon Group Global Remuneration Framework (the “Remuneration Framework”). This Policy is aligned with the current version of this Remuneration Framework, which was adopted by the Supervisory Board of Aegon N.V. (the “Supervisory Board”) on December 18, 2019. The Remuneration Committee of the Supervisory Board of Aegon N.V. (the “Remuneration Committee”) prepared the changes to this Policy, which were endorsed by the Supervisory Board on March 17, 2020. At the date of approval, the Policy complies with the applicable rules and regulations such as the Dutch | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
Financial Supervision Act, the Dutch Civil Code, the Dutch Corporate Governance Code and the Solvency II Legal Framework. A.2 Policy Term This Policy will take effect retroactively from January 1, 2020. The Policy remains in place until a new or revised Policy has been adopted by the Shareholders in accordance with the applicable requirements from the Dutch Civil Code. The Supervisory Board will submit a proposal to the Shareholders to adopt a Policy at an Annual Meeting of Shareholders (the “Shareholders’ Meeting”) at least every four years. The Policy will subsist if Shareholders reject a new or revised Policy at a Shareholders’ Meeting, even if this would be four years after the approval of this Policy. Subsequently the Supervisory Board is required to submit a new proposal to the Shareholders to adopt a Policy at the next Shareholders’ Meeting (and if rejected again, the next Shareholders’ Meeting thereafter, etc.), while this Policy subsists. A.3 Policy Changes The Supervisory Board made several material changes to this Policy compared to the previous version in order to comply with the new Dutch Act which implements the Shareholder Rights Directive and to incorporate Shareholder feedback on the previous Executive Board Remuneration Policy of 2011. The main changes in the Policy are: | ◆ | | 50% of their annual fixed compensation ifIncreased transparency by clarifying how the results of the performance indicators reached the threshold level. This would result in the allocation of EUR 323,717Policy contributes to Aegon’s strategy, long-term interests and 59,892 shares for Mr. Wynaendtssustainability and EUR 229,500how it take into account Aegon’s identity, purpose, values and 42,460 shares for Mr. Rider;Stakeholder environment. |
| ◆ | | 80% of their annual fixed compensation ifIncreased transparency with additional disclosure on the results ofremuneration elements which can be offered to the performance indicator met their target levels. This would result in the allocation of EUR 517,947 and 95,827 shares for Mr. Wynaendts and EUR 367,200 and 67,937 shares for Mr. Rider;Executive. |
| ◆ | | Up to 100% of their annual fixed compensation if the results of theThe Variable Compensation award will be based on performance indicators exceeded their target levels. This would resultfrompre-defined performance indicator categories as described in an allocation upthis Policy (see also D.1). The defined performance indicator categories are mandatory to EUR 647,434 and 119,784 shares for Mr. Wynaendts and up to EUR 459,000 and 84,921 shares for Mr. Rider;ensure that Stakeholder interests are represented. |
| ◆ | | IfAt least 20% of the performance indicators will be measured over a retrospective3-year performance period. Since 2011 indicators were measured ona 1-year performance period only, in response to regulatory changes at that time. Byre-introducing3-year performance indicators, the Executive’s compensation can be further aligned with Aegon’s long-term commitments to its Shareholders and other Stakeholders. |
| ◆ | | The portion of the Variable Compensation award that will be paid in Aegon N.V. shares (“Shares”) is increased from 50% to 66 2/3%, while the Cash portion is decreased from 50% to 33 1/3%. This changes adds further alignment between the Executive, the long-term interests of Aegon and its Shareholders. |
| ◆ | | The vesting schedule of the Variable Compensation award is changed into one upfront Cash part of 33 1/3% and one deferred Share part of 66 2/3%. The Shares cliff-vest after 3 years and are subject to an aggregated leveladditional holding period of 2 years. Previously the threshold target was not reached, no variable compensation relatedvesting schedule paid the Variable Compensation award for 40% upfront and for 60% deferred in three tranches overa 3-year period, with each upfront and deferred part split into 50:50 in Cash and Shares. All Shares were subject to 2018 wouldan additional holding period of 3 years. This change raises the restriction period of the Shares from an average 4.2 years to 5 years, adding to the alignment of the Executive with the long-term interests of Aegon and its Shareholders. This change also simplifies the remuneration structure of the Executive and increased its transparency. |
A.4 Policy Considerations The Policy contributes to Aegon’s strategy, long-term interests and sustainability through the remuneration of the Executives in various ways: | ◆ | | The Policy provides the Supervisory Board with the means to attract, motivate and retain competent and experienced Executives for the long-term. Having motivated, competent and experienced Executives on board is essential for executing Aegon’s strategy and safeguarding and promoting its long-term interests and sustainability. |
| ◆ | | Our strategy is about building life-time relationships with customers, to create financial security and well-being throughout their lives. To pursue this strategy our focus is on sustainable growth through expanding our customer base, increasing efficiency, capitalizing on the advantages of being a global group and investing more in growth businesses. The leading performance indicator categories for successful execution of this strategy are Capital, Growth and Strategy (see also D.1). To support Aegon’s strategy execution, the Policy makes these performance indicator categories mandatory for the Executive. |
| ◆ | | Aegon believes it must create long-term value for its Stakeholders and the societies in which it operates. Because of the nature of our business, value created is often financial, but it may also be made available.social, economic or environmental. The Policy directly aligns the Executive’s personal long-term interests with that of Aegon and its Shareholders by paying a significant part of the Executive’s Variable Compensation (66 2/3%) in Shares which must be held for 5 years after completion of the performance period (see also C.3.4).The pay-out in these restricted Shares is combined with prohibiting the Executive in this Policy from using personal hedging strategies or insurance which could undermine this long-term alignment of interests (see also E.2). Additionally, the Executive is aligned with the long-term interest of Aegon, its Shareholders and other Stakeholders through the use of mandatory performance indicator categories of Earnings, Shareholders and Other Stakeholders (see D.1 for more details). |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | 6578 | | How we safeguard long-term value creation | | Remuneration reportReport | | | | | | | | | | | | |
| ◆ | | Aegon is committed to doing business responsibly and in a sustainable way. Variable Compensation of the Executive can be adjusted downwards (i.e. malus) or clawed-back in case certain performance has not been achieved in a sustainable way, such as but not limited to: significant risk and compliance incidents, insufficient response to such incidents and/or insufficient evidence of embedding of good standards of practice, such as sound and responsible business practices and integrity of products and services delivered. Additionally, the Policy makes the performance indicator category Environmental, Social and Governance (“ESG”) mandatory for the Executive to support this approach of doing business (see D.1 for more details). |
In 2018,The Supervisory Board took Aegon’s identity, purpose and values into account when developing the actualPolicy and its changes:
| ◆ | | Aegon is an international financial services group based in the Netherlands which provides life insurance, pensions and asset management (identity). The main operations are in the US, the Netherlands and the UK, while there is also significant presence in Southern and Eastern Europe, Asia and Latin America. The Policy provides the Supervisory Board with the means to attract, motivate and retain Executives who are competent and experienced to run Aegon in this specific context. As the Executives are based in the Netherlands, the Policy considers the European Insurance peers as well as Dutch General Industry peers to be the relevant external reference for Executive Remuneration. The Policy is also strongly influenced by the European and Dutch rules and regulations on (Executive) remuneration which apply to Aegon. |
| ◆ | | Aegon’s purpose is to help people achieve a lifetime of financial security. In order to fulfill this purpose, Aegon has a strategy to which this Policy actively contributes (see above). |
| ◆ | | The four Future Fit values ‘Acting as one, Customer centricity, Agility and Accountability’ aim to create a company that is fit for the future: one that meets customers’ expectations, is right for our digitally-connected, data-driven world and can adapt quickly to changing market conditions. These values have most prominently been reflected in the Policy as follows: |
| ◆ | | Acting as one: At least 50% of the Executive’s variable compensation is determined by Aegon’s Group performance, in addition to the Executive’s personal performance, stressing the importance of working together. |
| ◆ | | Customer centricity: The performance indicator categories Growth and Other Stakeholders are mandatory for the Executive in order to focus on (sustainable) sales to customers and Aegon’s relationship with its customers respectively. |
| ◆ | | Agility: Aegon is active in a highly dynamic environment which requires it to respond quickly to changing conditions. Using performance indicator categories rather than specific performance indicators, provide the Executive and Supervisory Board the flexibility to agree to those performance indicators which are most relevant for the execution of the strategy at that moment. |
| ◆ | | Accountability: The Policy establishes a clear link between pay and performance by offering the Executive a Variable Compensation opportunity which is based on the results ofpre-defined performance indicators, target levels and calculation rules. This is combined with allowing the Supervisory Board to adjust the Variable Compensation award beforepay-out (malus) or claw back (part of) the paid award, if there are reasons discovered that would in hindsight justify a lower (or no) Variable Compensation award. |
The Supervisory Board took the internal compensation awardsstructures and levels into account when selecting the remuneration elements and their levels for this Policy. Aegon has employees worldwide, so the compensation structures and levels vary from country to country and strongly depend on the local market practices. Whilst the majority of Mr. Wynaendtsthe Aegon employees are located outside of Europe, predominantly in the US, the remuneration levels of the Executives are aligned with the internal compensation structures and Mr. Rider werelevels of employees in Europe (the Netherlands specifically) and external European and Dutch market references (see C.1 for more details). The Fixed Compensation level of the Executive is following the internal compensation trend line, taking into account the additional responsibilities of the Executive compared to the Aegon Management Board members and other Senior Managers. The Executive participates in collective compensation and benefit plans. The target and maximum Variable Compensation levels as well as the Pension Contribution level for the Executive are equal to that of some of the Management Board members in the Netherlands. The Executive is also subject to several collective Aegon employee plan rules, such as the Aegon Group Material Risk Taker Variable Compensation Plan and the Individual Defined Contribution pension plans for Aegon employees in the Netherlands The Supervisory Board developed draft Policy changes based on the 2018 performancerequirements of the following individualnew Dutch Act which implemented the Shareholder Rights Directive and Group performance indicators: | | | | | | | | Objectives | | Performance indicator | | Maximum % of variable compensation | | | | | | Mr. Wynaendts | | Mr. Rider | | Group financial IFRS based | | Group underlying earnings after tax and return on equity | | 15.0% | | 15.0% | | | | | | Group financial risk adjusted based | | Group market consistent value of new business, normalized capital generation andpre-tax return on economic required capital | | 17.5% | | 17.5% | | | | | | Group non financial business indicators | | Group new business strain, customer engagement, employee engagement, control environment and digitally connected customers | | 32.5% | | 32.5% | | | | | | Personal objectives | | Individual basket of strategic and personal objectives related to Aegon’s strategy | | 35.0% | | 35.0% |
Provisional allocation variable compensation 2018
Subjectshareholder feedback on the previous version. Subsequently the Supervisory Board actively consulted with a number of stakeholders to discuss the adoptiondraft Policy and its changes in order to assess its public support. The Chairman of the annual accounts atRemuneration Committee, supported by the General MeetingInvestor Relations and the Compensation & Benefits team, consulted Aegon’s main Shareholders including Vereniging Aegon, proxy advisory bodies and Shareholder interest groups on the draft changes. The Chairman of Shareholders on May 17, 2019, the variable compensation awardRemuneration Committee discussed the draft Policy with the European Works Council, while the Chairman of the Supervisory Board discussed it with the Central Works Council in the Netherlands. All feedback was shared with the Supervisory Board. They took note that while not all Stakeholder feedback was aligned, there were no significant conflicts either. The Supervisory Board revised and fine-tuned several parts of the draft Policy for Executive Board members will be allocated in cash and shares, based on resultsits final version, such as the definitions of the performance indicators listed above.
The results of the financial andnon-financial Group performance indicators led to a performance score of 54.8% (out of a maximum of 65%) for Mr. Wynaendts and 54.8% (out of 65%) for Mr. Rider. The results of their individual (strategic) performance indicators was 27.3% (out of 35%) and 28.0% (out of 35%) for Mr. Wynaendts and Mr. Rider respectively.
As a result, Mr. Wynaendts has been awarded EUR 1,062,438 in conditional variable compensation for the 2018 performance year and Mr. Rider EUR 759,645.
Of this award 20% will be paid in upfront cash and 20% in upfront shares. For Mr. Wynaendts this will be EUR 212,490 in cash and 39,314 shares, where for Mr. Rider this will be EUR 151,931 in cash and 28,110 shares.
The remaining 60% of the 2018 variable compensation will be deferred, vesting in equal tranches over a three-year period. Each of these tranches will be split equally in cash and shares (for Mr. Wynaendts EUR 318,729 and 58,968 shares in total, and for Mr. Rider EUR 227,892 and 42,162 shares in total).
Once the upfront and deferred shares have vested, they will remain subject to a three-year retention period.
Impact ofex-ante andex-post assessment on attribution of variable compensation
In line with the Aegon Group Global Remuneration Framework, it was agreed to adjust Mr Wynaendts’ 2014 variable compensation award downwards by 3,388 shares and EUR 22,832 to reflect the outcome of a regulatory matter relating to the company. No other circumstances have been identified to lower payout of the deferred payment from prior performance years that vest in 2018 (the so called‘ex-post assessment’) or to lower the payout of the upfront payment of the 2017 performance year variable compensation that vests in 2018 (the so called‘ex-ante assessment’).
Pay ratio
The Remuneration Committee has considered the ratio of the average employee pay expense (excluding CEO expense) versus the expense of the CEO pay elements based on costs recognized under IFRS. For 2018 this ratio was 42.2 (2017: 41.7; 2016: 41.9). The Remuneration Committee took note that certain factors may have influenced this ratio, such as the significant difference in the geographical footprint of the Company’s employee population, and the way the Company was affected by restructuring and other organizational changes in 2018 (e.g. major acquisitions or divestments).indicator categories.
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | 6679 | | How we safeguard long-term value creationNon-financial policies, procedures and outcomes | | Remuneration Report | | | | | | | | | | | | |
On an ongoing basis, the Supervisory Board and the Executives regularly discuss remuneration related topics with the supervisory authorities, legislators and politicians. Within Aegon constant monitoring of (social) media takes place, including sensitive topics such as remuneration, and such feedback is shared with the Supervisory Board. The Policy links the development of Share price in two ways to the Executive’s remuneration. The Executive’s Variable Compensation is partially based on a performance indicator related to Shareholders interests, for example relative Total Shareholder Return which looks at the change Share price (and dividend payments) compared to peer companies (see also D.1). Subsequently,two-thirds of the Variable Compensation award is paid in Shares. These Shares are restricted for a period of 5 years (a3-year vesting period plus an additional2-year holding period), which exposes the Executive to Share price movements during this period. The Remuneration Committee conducted a scenario analysis in relation to these Policy changes to determine the long-term effect on the remuneration structure and level of each Executive and reviewed the historical share price development. The Committee concluded that the impact of the Policy changes were reasonable and reported these findings to the Supervisory Board, who took note of these conclusions when they endorsed the Policy on March 17, 2020. A.5 Policy Review and Revision Each year, the Policy will be reviewed by the Remuneration Committee. The Remuneration Committee may suggest revisions to the Policy or a new policy to the Supervisory Board. When endorsed, the Supervisory Board will submit a proposal to the Shareholders to adopt the revised or new policy at a Shareholders’ Meeting. A.6 Temporary Derogation from the Policy As determined by the Dutch Civil Code, derogation from this Policy is only allowed under exceptional circumstances and for a limited time period under the following conditions: | ◆ | | The derogation can be from any remuneration element and/ or provision in this Policy, as long as it continues to stay: |
| ◆ | | In line with the general spirit of this Policy as described in A.4; |
| ◆ | | In line with the internal and external references as defined in this Policy (see C.1), and; |
| ◆ | | Compliant with the applicable legislation and regulations. |
| ◆ | | The Supervisory Board will adopt a derogation which includes at least the following details: |
| ◆ | | An explanation why the derogation is required in order to serve the long-term interest and sustainability of Aegon as a whole or to assure its viability; |
| ◆ | | Which remuneration element or provision is derogated from and how it affects the Executive’s compensation levels; |
| ◆ | | An assessment which confirms that the Policy allows the proposed derogation and that it complies with the applicable rules and regulations; |
| ◆ | | The period of derogation. This period is limited to the moment the Shareholders have adopted a revised or new policy at a Shareholders’ Meeting. |
| ◆ | | The derogation and the abovementioned Supervisory Board approval details are disclosed in the next Remuneration Report. |
In case a future change in rules and regulations conflicts with (a part of) this Policy, the Supervisory Board may deviate from this Policy to ensure compliance with the new rules and regulations. The Supervisory Board will disclose the deviation in the Remuneration Report and submit a proposal to the Shareholders to adopt a revised Policy at a Shareholders’ Meeting which complies with the new rules and regulations. B. Appointment The Shareholders appoint and reappoint an Executive for a maximum term of four years per (re)appointment in accordance with the Dutch Civil Code and the Articles of Association of Aegon N.V.. The Executive and Aegon N.V. enter into a board agreement for the duration of this term (the “Board Agreement”). C. Remuneration Structure C.1 Remuneration package and level The details of the Executive remuneration package are laid down in the Board Agreement. This remuneration package consists of four categories: Fixed Compensation, Variable Compensation, Pension Arrangements and Other Benefits & Arrangements. This Policy defines which remuneration elements, within each of these four categories, the Supervisory Board must or may include in the Executive’s Board Agreement. Remuneration elements which are not included in this Policy cannot be offered to Executives. The Supervisory Board determines and regularly reviews the appropriate selection of remuneration elements and their (maximum) remuneration level for the Executive to ensure the structure remains competitive and provides proper and risk-based incentives in line with Aegon’s risk appetite: The Fixed and Variable Compensation elements and their levels are reviewed at least once a year. The Pension Arrangements and Other Benefits & Arrangements and their levels are reviewed at least every four years. In their review the Supervisory Board takes the specific role, responsibilities, experience and expertise of the Executive into account as well as internal and external reference information: | ◆ | | The internal references are the compensation structure and levels of the members of the Management Board of Aegon N.V. and the annual compensation changes of the general employee population and senior managers within Europe and the Netherlands specifically. |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| ◆ | | The external references are compensation trends in the market, economic developments (e.g. inflation) as well as quantitative assessments of the competitiveness against a peer group of insurance companies in Europe and a peer group of companies based in the Netherlands (see the Annex for details of the peer group selection). |
| ◆ | | Additionally, the Remuneration Committee conducts a scenario analysis in case of a Policy change to determine the long-term effect on the remuneration structure and level of each Executive and reports their findings to the Supervisory Board. |
C.2 Fixed Compensation Executives receive a gross monthly Cash Base Fee as Fixed Compensation. This monthly fee isone-twelfth of the gross annual Cash Base Fee. The Supervisory Board may entitle Executives to other forms of Fixed Compensation: | ◆ | | A gross monthly payment of Shares as Base Fee in accordance with the Aegon Group Plan Rules for the Share Component of the Fixed Salary, which is the collective policy for all eligible Aegon employees. This Plan has been adopted by the Supervisory Board and may be amended from time to time by the Supervisory Board. |
| ◆ | | A permanent or temporary gross monthly Fixed Allowance, when the Supervisory Board considers this an appropriate alternative for other remuneration elements. The level of this gross monthly Fixed Allowance cannot fluctuate each month or year based on the Executive’s performance. Examples are a temporary Fixed Allowance for additional interim responsibilities or a permanent Fixed Allowance for expatriate arrangements in line with the internal collective International Mobility Policies and market practice. |
The total Base Fee is the calculation basis for Variable Compensation and Pension Arrangements. The Supervisory Board may increase the Base Fee level, as long as it stays in line with the internal and external references as referred to in C.1. This most commonly is an annual correction based on economic or market developments, such as inflation. As of the effective date of the Policy, the Executives receive: | ◆ | | Mr. Wynaendts (CEO): An annual gross Cash Base Fee of EUR 1,327,239 and a permanent Fixed Allowance of 2% of the annual gross Cash Base Fee. This Fixed Allowance was permanently added to the remuneration package as alternative for an indexation of the Cash Base, which was at that moment in time the preferred choice. |
| ◆ | | Mr. Rider (CFO): An annual gross Cash Base Fee of EUR 940,950. |
| ◆ | | Mr. Friese, when appointed to the Executive Board at the Annual General Meeting of Shareholders on May 15, 2020: An annual gross Cash Base Fee of EUR 1,485,000. |
C.3 Variable Compensation C.3.1 Variable Compensation level The Executive is eligible for Variable Compensation with a target level of 80% of the Executive’s annual Base Fee, with a threshold level of 50% and a maximum opportunity of 100% of their annual Base Fee. C.3.2 Variable Compensation plan rules The Executive’s Variable Compensation is subject to the Aegon Group Material Risk Taker Variable Compensation Plan, which is the collective policy for all Material Risk Takers within Aegon. These plan rules have been adopted by the Supervisory Board and may be amended from time to time by the Supervisory Board (see 3.3.7 for the main rules of this plan). C.3.3 Variable Compensation allocation The Variable Compensation award is allocated by the Supervisory Board after the completion of the performance year, based on the results ofpre-defined performance indicators, target levels and calculation rules (see D.1 - D.3 for more details), while also taking the behavior and development of the Executive into account. The Supervisory Board can adjust the calculated award downwards before allocation, based on the findings of the mandatoryEx-Ante Malus risk assessment.The Ex-Ante Malus assessment process and criteria are part of the Aegon Group Material Risk Taker Variable Compensation Plan. Guaranteed Variable Compensation can only be allocated by the Supervisory Board in accordance with the applicable rules of the Dutch Financial Supervision Act. This currently means that the Supervisory Board can only allocate a guaranteed Variable Compensation award within the first year of the appointment of an external candidate as Executive, provided that Aegon’s financial position is considered sound by the applicable standards. C.3.4 Vesting Schedule Once allocated, 33 1/3% of the Variable Compensation award will be paid for upfront in Cash as soon as reasonably practical after the completed performance year. The remaining 66 2/3% of the award will be deferred in Shares and will cliff-vest after3-years as soon as possible after the adoption of the Aegon Annual Report in the year of vesting. The number of deferred Shares is calculated in accordance with the Aegon Group Material Risk Taker Variable Compensation Plan (i.e. based on the grant price as defined in this plan). The Supervisory Board can adjust the deferred portion downwards before vesting, based on the findings of the mandatoryEx-Post Malus risk assessment.The ex-post assessment process and criteria are defined in the Material Risk Taker Variable Compensation Plan. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
C.3.5 Shareholding requirement The Shares that have been allocated to the Executive as Variable Compensation will be held for a total period of 5 years after allocation, before they are released to the Executive. This period consists ofa 3-year vesting period and an additional2-year holding period. This means the Executive has a shareholding requirement based on time (i.e. 5 years after allocation) and not based on a relative amount compared to the annual Base Fee. For reference, once the Vesting Schedule is fully phased in, at least 135% of the Executive’s gross annual Base Fee is structurally held in net Shares, assuming five years of at target Share allocation, the current income tax rate and no or moderate changes in the Annual Base Fee and Share price level. C.3.6 Claw Back The Supervisory Board has the authority tore-claim (i.e. claw back) any paid and vested Variable Compensation, in Cash or in Shares, in accordance with Dutch Financial Supervision Act and the Material Risk Taker Variable Compensation Plan, in case of but not limited to a material financial restatement or individual gross misconduct. C.3.7 Collective Variable Compensation rules At the date of the Policy approval, the main Variable Compensation Plan Rules for all Material Risk Taker (including the Executives) are: | ◆ | | The Variable Compensation is conditionally granted and the conditional right to Variable Compensation is subject to the conditions precedent: |
| ◆ | | That, unless stated otherwise or approved by the Aegon, the Executive will remain employed within the Aegon uninterruptedly until the Vesting Date of each part of the Variable Compensation; |
| ◆ | | That the performance and development, the behavior and overall contribution are assessed (see also C.3.3.); |
| ◆ | | AnEx-ante and anEx-post Malus assessment has been carried out (see also C.3.3 also C.3.4). |
| ◆ | | The grant price is the volume weighted average Share price on the Euronext stock exchange in Amsterdam, the Netherlands during the period December 15 preceding the plan year and January 15 of the plan year. |
| ◆ | | In this context, the employment of the Executive is considered to be continued uninterruptedly in the case where the Executive’s Board Agreement is terminated due to long-term ill health, disability, (early) retirement, death or reduction of work force or redundancy of the job or position of the Executive, without cause by the Participant, during the period until a vesting date and, consequently, such Executive is considered to be a Good Leaver. In addition, the Supervisory Board may, at its full discretion, declare an Executive to be a Good Leaver. |
| ◆ | | In the event of termination of the Board Agreement of a Good Leaver during the plan year, in principle, the Variable Compensation that will bepaid-out (including the number of conditionally granted Shares that will Vest) will bepro-rated to reflect the period of active service from the grant date until the termination date, subject to the final approval of the Supervisory board. |
| ◆ | | Except in the event an Executive is considered a Good Leaver, the Variable Compensation that is conditionally granted will lapse on the date that the Board Agreement of the Executive is terminated prior to a vesting date. |
| ◆ | | No dividend or interest will accrue on any part of the Variable Compensation before vesting. |
| ◆ | | Vested Shares, whether or not subject to a holding period (see C.3.5), will accrue regular dividends (if any) as from the vesting date. |
| ◆ | | In connection with any actual or potential sale or change of control or a transaction concerning the sale of a subsidiary or business unit within Aegon, the Supervisory Board will take all such actions hereunder as it may determine to be necessary or appropriate to treat the Executive equal and equitably, including without limitation the modification or waiver of applicable performance indicators, and whether to establish or fund another arrangement intended for Variable Compensation. |
C.4 Pension Arrangements The Executive is entitled to Pension contributions that equal 40% of the gross annual Base Fee. The Executive is enrolled in the applicable local employee pension plan(s). In the Netherlands this is a mandatory Individual Defined Contribution pension plan up to the applicable annual fiscal threshold on eligible earnings and an optional Individual Defined Contribution pension plan for eligible earnings exceeding this threshold. If the sum of the Defined Contributions to these plans in a calendar year is less than the pledged Pension contribution level of 40% of the gross annual Base Fee, the Executive receives the difference in an annual contribution for Pension purposes in November of that calendar year. C.5 Other Benefits & Arrangements C.5.1Sign-on andbuy-out The Supervisory Board may agree toa sign-on and/orbuy-out arrangement in order to attract an external candidate to be appointed to the Executive Board. The arrangement can only be offered on an exceptional basis within the first year of joining the company, when this is in the long-term interest of Aegon and there are circumstances that justify such an arrangement. Examples of these circumstances are but not limited to, competition in recruiting the same candidate (i.e. increased market value), competition from the candidate’s employer, differences in compensation and benefits compared to the candidate’s previous employer, loss of income by the candidate as a result | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
of anon-compete period, the candidate losing unvested variable compensation at their previous employer and losing the variable compensation opportunity of the current performance year at the previous employer. When the arrangement replaces forfeited compensation (opportunity), it should be on substantially similar terms (e.g. deferral periods) and at the moment of conversion not more generous compared to the value that was lost. Anysign-on orbuy-out arrangement will be disclosed in the Remuneration Report. C.5.2 Retention bonus The Supervisory Board may allocate a retention bonus within the rules of the Dutch Financial Supervision Act. At the time of the Policy approval, these rules require that a retention bonus: | ◆ | | Is necessary in the context of a structural organization change such as a merger, divestiture, a take-over or a major organizational internal restructuring, and; |
| ◆ | | Solely serves to retain the Executive; and |
| ◆ | | Together with the allocated Variable Compensation award do not exceed the bonus cap of 100% of the Executive’s Fixed Compensation level. |
Any retention bonus will be disclosed in the Remuneration Report. C.5.3 Other benefits The Supervisory Board may, but not limited to, offer the Executive the following other benefits: | ◆ | | A Company Car in accordance with the local Company Car policy for employees; |
| ◆ | | A driver for the Company Car for business related purposes; |
| ◆ | | Reimbursement of the Executive’s (fiscal) costs for the private use of the Company Car; |
| ◆ | | Third party tax services to ensure compliance with the applicable tax law(s); |
| ◆ | | To participate in other collective benefits which are offered to (local) Aegon employees, such as but not limited to the collective disability arrangement, collective health insurance and the Expat Policy. |
The Supervisory Board may also apply the collective (local) Aegon employee provisions regarding reimbursement of expenses, sickness-absence and disability to the Executive. The Supervisory Board will not approve any personal loans, guarantees or the like to Executives, unless in the normal course of business and on terms that collectively apply (local) Aegon employees. C.5.4 Grandfathered arrangements The Supervisory Board may respect any arrangements between Aegon and the Executive, if the terms were agreed prior to the effective date of this Policy or if the terms were agreed before the individual was appointed to the Executive Board. Mr. Wynaendts has a grandfathered arrangement, which is an additional annual contribution for Pension purposes of 28% of the gross annual Base Fee. C.5.5 Termination Fee The Supervisory Board may include a Termination Fee clause in the Executive’s Board Agreement for certain scenarios for a Fee up to or equal to the total annual Base Fee. However, there a Termination Fee is not allowed in case of: | ◆ | | Early termination of the Executive on the initiative of the Executive, unless due to imputable acts or omissions of Aegon; |
| ◆ | | Imputable acts or omissions by the Executive; or |
| ◆ | | Failure of Aegon during the appointment term of the Executive. |
D. Performance indicators for Variable Compensation D.1 Performance Indicators Each year Variable Compensation is allocated based on performance against a set of performance indicators, weights and target levels that have been agreed by the Executive with the Supervisory Board at the start of the performance year. Aegon allocates one Variable Compensation award, which is paid partially in upfront Cash and partially in deferred Shares (see also C.3.4). The performance indicators for this Cash and Share based Variable Compensation award contribute to Aegon’s strategy, long-term interests and sustainability, within Aegon’s risk tolerance. Therefore the performance indicators are: | ◆ | | A mix of financial andnon-financial performance indicators, with at least 50% weight allocated tothe non-financial performance indicators in accordance with article 1:118.3 of the Dutch Financial Supervision Act; |
| ◆ | | A mix of unadjusted financial and risk-adjusted financial performance indicators, with a maximum weight for unadjusted financial indicators as defined in the Remuneration Framework. At the time of the Policy approval, this maximum is 45% of the total indicator weight (of financial andnon-financial indicators combined); |
| ◆ | | A mix of Aegon and personal performance indicators, which can range in weight between50-80% and20-50% respectively, depending on the Aegon priorities of the performance year; |
| ◆ | | For at least 20% based on a retrospective3-year performance horizon and for the remainder based ona 1-year performance horizon, and; |
| ◆ | | At least containing one indicator from each of the following mandatory performance indicator categories: |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | Mix | | Mandatory Categories | | Examples | | Aegon financial | | Shareholders | | Relative Total Shareholder Return | | | | | | Capital | | Total Capital Generation, Normalized Capital Generation, Solvency II ratio | | | | | | Earnings | | Return on Equity, Net Underlying Earnings, Underlying Earnings Before Tax, Earnings per Share | | | | | | Growth | | Market Consistent Value of New Business, Fees and Premium based Revenues, Annualized Revenue on Net Deposits | | Aegonnon-financial | | Stakeholders | | Customer: Net Promoter Score, Number of Customers, Number of Products per Customer. Employees: Employee Training, Employee Turnover | | Aegon or personalnon-financial | | ESG | | Environment: CO2 footprint Social: Employee Engagement, Employee Diversity Governance: Risk Management | | | | | | Strategy | | Strategy Execution, Business Transformation, Succession Planning, Cultural Transformation |
These categories, and therefore the resulting Cash and Share based Variable Compensation awards, are a carefully selected mix of key focus areas, which together contribute to Aegon’s strategy, long-term interests and sustainability. The Executive is incentivized by this Policy to contribute to the Aegon strategy also through the following mandatory performance indicator categories (see also A.4): | ◆ | | Capital: In order to execute its strategy, Aegon needs strong and stable Capital adequacy levels for its current businesses and for investing in growth businesses. Sustainable capital generation allows Aegon to return capital to its shareholders, including in the form of dividends, and provides it with financial flexibility. |
| ◆ | | Growth: Measures the expansion of our customer base expressed in financial results, which is one of the key strategic focus areas. |
| ◆ | | Strategy: Contributes most directly to a successful execution of Aegon’s strategy by focusing on the execution of the most essential processes and/or projects at that moment (e.g. timing, costs and quality). |
To align the Executive to Aegon’s long-term interests, the following mandatory performance indicator categories are included in this Policy (see also A.4): | ◆ | | Shareholders: Focuses specifically on the long-term financial value creation for Shareholders, as one of the key long-term interests of Aegon. |
| ◆ | | Earnings: Positive earnings are a prerequisite for Aegon to continue operate and create value for its Stakeholders and societies in the long-term. |
| ◆ | | Other Stakeholders: Alongside the Shareholders, Aegon has a range of important Stakeholders, such as customers and employees. For Aegon’s customers long-term value creation means offering protection through our products and services, paying claims and benefits, providing returns on savings and investments and helping to build long-term financial security. For Aegon’s employees long-term value is created by paying salaries and other social benefits, providing a safe, fulfilling environment in which to work and offering training and career opportunities. |
Aegon is committed to doing business responsibly and in a sustainable way, for which the Executive is incentivized in this Policy through the ESG performance indicator category (see also A.4): | ◆ | | ESG: Ensures a focus onthe non-financial long-term value creation for Stakeholders and/or the society, related to Environment, Social and/or Governance (ESG). |
Each year the Supervisory Board will disclose the selected performance indicators and weights at the start of the performance year in the Remuneration Report of the previous year. For example, the 2019 Remuneration Report will contain the performance indicators and weights for the 2020 performance year. D.2 Target Setting At the start of the performance year, the Supervisory Board approves a minimum (threshold),at-target, and a maximum level for each of the Aegon and personal performance indicators. These levels can be quantitative or qualitative in nature. Target levels for financial indicators are directly derived from the annual Budget / MTP numbers. Other target levels should be chosen such that they are attainable and realistic, yet at the same time challenging. The minimum and maximum levels around target are based on: | ◆ | | The inherent sensitivity of the metric to economic assumptions; |
| ◆ | | Prior year experience in reaching threshold /maximum target levels; |
| ◆ | | Deviation from current year’s plan to prior year’s plan and |
| ◆ | | Absolute level of the target. |
The Supervisory Board is supported in the target setting process by business experts such as Finance, Human Resources and Risk. D.3 Calculation of Variable Compensation After completion of the performance year a comparison will be made between the predetermined target levels and the actual, realized performance. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
The following scale will be used for the Group and personal performance indicators: Performance Indicators - Target Level and Performance Measurement Scale | | | | | | | | | | | | Performance Level | | Below threshold /
minimum | | Between minimum
and target | | Target | | Between target
and maximum | | Maximum | Realized performance | | 0% | | From 50% to 80% | | 80% | | From 80% to 100% | | 100% |
When measuring the results on qualitative targets, the performance level is first established using the qualitative performance level descriptions and then matching percentages are applied. Each year Variable Compensation is allocated based on performance against the set of performance indicators, weights and target levels that have been agreed by the Executive with the Supervisory Board. The result for each performance indicator and the related Variable Compensation calculation will be disclosed in the Remuneration Report each year. E. Other Conditions E.1 Other conditions The Supervisory Board may include other conditions which are common in a board agreement. Examples are a confidentiality, a disclosure clause and other collective(non-remuneration) employee policies, such as a Code of Conduct, Insider Dealing Policy and Conflicts of Interest Policy. E.2 No hedging or insurance to undermine risk alignment The Executive is not allowed to use personal hedging strategies or insurance that could be used to undermine the risk alignment effects imbedded in their remuneration arrangements. E.3Non-compete andnon-solicit The Supervisory Board may includea non-compete anda non-solicit clause in the Executive’s Board Agreement. F. Termination and notice period F.1 Termination by operation of law The Executive’s appointment is terminated by operation of law after completion of the term for which the Executive was appointed or when Shareholders terminate the appointment of the Executive in accordance with the requirements laid down in the Dutch Civil Code and Articles of Association of Aegon N.V. For these scenarios, the Board Agreement will include a clause on the subsequent termination of the Board Agreement, which may include a notice period clause and a Termination Fee clause. F.2 Termination by Executive The Executive may terminate the Board Agreement with a three month notice period during the appointment. F.3 Termination by the Supervisory Board The Executive’s Board Agreement may be terminated by Aegon, represented by the Supervisory Board, with immediate effect and with no notice being required during the appointment, with no obligation for Aegon to pay damages and with no entitlement for the Executive to a Termination Fee, in the event of: | ◆ | | Acts or omissions of the Executive which constitute an urgent cause, imputable acts or negligence, a disturbed relationship or seriously culpable actions or neglect of the Executive in fulfilling his duties; or |
| ◆ | | Acts or omissions on the side of the Executive which constitutes gross negligent behavior of the Executive, including but not limited to a situation where any Dutch authority supervising the activities of Aegon takes the view that the Executive cannot continue in his position any longer. |
In all other cases, Aegon may terminate Executive’s Board Agreement with a six month notice period. G. Verification All calculations made to determine compensation under this Policy are verified by the independent external auditor and the Supervisory Board’s Remuneration Committee. Annex: One of the sources against which the Supervisory Board assesses the competitiveness of the Executive’s remuneration structure and levels are the peer companies. For this purpose the Supervisory Board selected a primary set of peer group companies according to the following criteria: | ◆ | | Industry: Insurance, with a preference for Life Insurance; |
| ◆ | | Size: Average Market Capitalization, Employees, Revenue and Total Assets; |
| ◆ | | Geographic scope: Preferably companies which operate globally; |
| ◆ | | Location: Headquarters based in Europe. |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
Based on these criteria, the current peer group consists of the following 16 European Insurance companies: Ageas, Allianz, Aviva, AXA, CNP Assurances, Assicurazioni Generali, Legal & General, Mapfre, Münchener Re, NN Group, Prudential, RSA Insurance Group, Swiss Life Holding, Swiss Re, Talanx and Zurich Insurance Group. The last update of this peer group was in 2020. Ageas, RSA Insurance Group, Swiss Life Holding and Talanx were added, while Old Mutual and Standard Life Aberdeen were removed. The increased peer group size (from 14 to 16) created a more balanced selection around Aegon’s size data (Average Market Capitalization, Employees, Revenue and Total Assets). This peer group partially differs from the European peer group for the Supervisory Board, as a result of excluding the UK companies wherenon-executive directors typically have different responsibilities compared to their continental European counterparts. In addition, the Supervisory Board selects a secondary peer group according the following criteria, in order to monitor alignment with the General Industry in the Netherlands: | ◆ | | Industry: General Industry and listed on the AEX; |
| ◆ | | Size: Average Market Capitalization, Employees, Revenue and Total Assets; |
| ◆ | | Location: Headquarters based in the Netherlands. |
Based on these criteria, the current secondary peer group consists of the following 12 AEX companies: Ahold Delhaize, ING Group, Randstad, Heineken, NN Group, Philips, ABN AMRO, Akzo Nobel, ASML, DSM, KPN and Wolters Kluwer. The last update of this peer group was in 2019, when ING, NN Group, ABN AMRO, DSM and Wolters Kluwer were added, replacing ArcelorMittal, RELX Group, Royal Dutch Shell, Unibail-Rodamco and Unilever. This peer group is equal to the Dutch peer group for the Supervisory Board. The Supervisory Board will annually review both peer groups and can amend these, within the above-mentioned selection criteria, to ensure they continue to provide a reliable basis for comparison. Any change to the peer group will be disclosed in the Remuneration Report. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | 86 | | | | Non-financial policies, procedures and outcomes | | | | | |
Non-financial policies, procedures and outcomes As a company, Aegon is committed to doing business responsibly. We have internal policies, procedures and frameworks setting out how decisions should be made in areas such as procurement, investment, tax, product development, remuneration and information security. We also have a Code of Conduct, which applies to all Aegon employees worldwide; this Code of Conduct contains basic principles governing our workplace, social responsibility and business conduct. The aim of these policies and procedures is to protect stakeholders by ensuring we are aware in our decision-making of all relevant financial and non- financial factors. We monitor implementation and take remedial action where necessary to ensure full compliance. We have a dedicatedNon-Financial Risk Committee, meeting monthly. The Committee’s members are drawn from Aegon’s Legal, Compliance and Risk departments, among others. The table below shows how various ESGenvironment, social and governance (ESG) risks are incorporated into Aegon’s decision-making processes, as well as the measurement of outcomes, policies and metrics:metrics. | | | | | | | Area | | Policy or guideline | | Indicators(used to monitor
compliance and/or outcomes) | | Performance 20182019 | | | | | Business conduct and ethics | | Code of Conduct • Applies to all employees worldwideworldwide. • Covers topics such as data protection, environmental responsibility, human rights and money launderinglaundering. • Also contains provisions for reporting suspected illegal and unethical behaviorbehavior. • Training on the Code is obligatory for all employeesemployees. | | • Total number of incidents of fraud involving employees, intermediaries and third parties | | • Incidents of possible fraud involving employees, intermediaries and third parties rose sharplyincreased to 3,6524,541 in 2018; this was due mainly2019. The increase is related to a sharpan increase in attempted identity theftaccount takeovers in the US;US. We are comfortable that the controls implemented in response, we have organized extensive training and deployed new fraud detection software;2018 are effective as a result, very few attempts at fraud have been successful. | | | | | | | In addition to the Code of Conduct, Aegon has separate global policies addressing prevention of financial crime (fraud, money laundering, economic sanctions, bribery and corruption). Aegon also has a Global Ethics Line, allowing employees and those outside the Company to report suspected infringements of the Code of Conduct in complete confidence. | | • Significant fines1to address cases ofmis-selling | | • Significant fines amounted to EUR 84.80.3 million; most of this amount was related to our settlement with the SEC over the use of investment models in the US; during the year, there wereAmericas, Transamerica had two other significant fines both in the US – a civil penalty relatingrelated to market conduct and a fine connected with the sale of anout-of-state hospital indemnity product.insurance products. One fine was received following a market conduct examination and another was due to a failure to supervise a distribution partner selling products outside its permissions. | | | | | | | | | | • Percentage of employees completing training on Code of Conduct.Conduct • Completion of internal risk assessment (SIRA, or Systematic Integrity Risk Assessment), and action items to address any gaps in performance.performance • Policy attestation for bribery and corruption risk (Conflict of Interest and Gift & Entertainment policies). | | • 97%95% of employees completed mandatory Code of Conduct training (down from 99%97% the previous year). • Overall there is satisfactory progress with 69% of the business unit actions completed and an additional 9% of actions progressing within the deadline. Of the Group actions, 65% are completed and 9% are progressing within deadline. Thirteen action items identified under SIRA in 2017 were completed in 2018.postponed to 2020. Carried-over actions constitutenon-material items that do not pose regulatory or compliance risks, with targeted completion for early 2020. • 88%89% compliance with Aegon bribery and corruption policies; thispolicies (up from 88% the previous year). This figure reflects business units’ compliance with specific requirements within our Conflict of Interest and Gift & Entertainment policies; where there is not full compliance, this does not indicate a breach of the policy, but areas where units have requested time to further strengthen internal governance. | | | | | Community investment | | Policy for Charitable Donations Standards
• Covers Aegon’s objectives with regard to community investment, including priority areas, selection criteria, governance and approval • Also details Aegon’s contribution to humanitarian aid | | • Total donations to charities and other good causes • Donations as % of net income • Value of employee volunteering hours granted | | • In 2018,2019, we donated a total of EUR 10.19.0 million, updown from EUR 8.910.1 million the previous year. Cash donations rosedecreased to EUR 9.38.1 million; value of volunteering was lower,higher, however, at EUR 0.70.9 million. Community investment represented 1.4%0.6% of net income, updown from 0.4%1.4% in 2017;2018; the increasedecrease was due mainly to the substantial declineincrease in net income in 2018.2019. |
CONTINUATION > | | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | 87 | | | | Non-financial policies, procedures and outcomes | | | | | | | | | | |
| | | | | | | | Area | | Policy or guideline | | Indicators(used to monitor compliance and/or outcomes) | | Performance 2019 | | Data protection | | Global Information Security Policy • Sets out Company’s approach to cyber threats and data protectionprotection. • Applies to all Aegon businessesbusinesses. | | • Percentage compliance with terms of Aegon’s Global Information Security Policy
| | • 80% compliance with Company’s Global Information Security Policy (up from 73% the previous year); most examples ofnon-compliance were not significant and took place in smaller operating units.
| | | | | | | • Supported by mandatory training in data and cyber securitysecurity. • Oversight by Global Chief Information Security Officer. | | • Total customer complaints relatedMaintenance of an internal IT Control Framework, and action items to data privacy breachesaddress gaps in performance are documented and monitored • The internal IT Control Framework is regularly mapped and updated to embed new and updated market standards • Periodic attestation to the internal IT Control Framework, with certain exceptions as applicable by country unit, for among other reasons adequate implementation timelines | | • Customer complaints relatingInstitutions like Aegon will continue to data privacy totaled 636 (up from 198); this increase isremain subject to information security attacks. • To Aegon’s knowledge, the result of heightened awareness of privacy rights following the introduction of the EU’s General Data Privacy Regulation (GDPR)security attacks and events it experienced in 2019 were not material in nature. | | | | | | | CONTINUATION > |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 67 | | How we safeguard long-term value creationNon-financial policies, proceduresInclusion and outcomes | | | | | | |
| | | | | | | Area
diversity | | Policy or guideline
| | Indicators(used to monitor
compliance and/or outcomes) | | Performance 2018
| Diversity and inclusion
| | Statement on Inclusion & Diversity andNon-Discrimination • Applies to all Aegon businesses worldwideworldwide. • Diversity also included in the Code of ConductConduct. • Diversity targets in place for Aegon’s Supervisory, Executive and Management BoardsBoards. | | • Total number of women in workforceworkforce. • Percentage of women in senior management and at Supervisory, Executive or Management Board level | | • In 2018,2019, women made up 49% of Aegon’s workforce; women, meanwhile,workforce (unchanged from 49% in the previous year). Women accounted for 33%29% of the Company’s senior management up(down from 28%33% the previous year). For details of our Supervisory, Executive and Management Board members, see pages47-50.41-45. | Environment | | Environmental Policy • Emphasizes importance of minimizing damage to the environment through the Company’s use of energy and other resources2resources. • Commits Aegon, where possible, to using renewable or sustainable sources of energyenergy. | | • Total CO2greenhouse gas (GHG) emissions from business operations | | • Gross COcarbon dioxide-equivalent (CO2e) emissions totaled 56,45859,275 metric tons, down 5.1%10% compared with 2017.2018. Net CO2e emissions totaled 17,831, down 7% compared with 2018. The decrease in emissions was due to lower energy consumption. Perconsumption and air travel. Accordingly, net emissions per employee however,were 11% lower at 1.0 metric ton, and net emissions per EUR million were 15% higher at 3.10.6 metric tons, because of a reduction during the year in Aegon’s workforce.8% lower than 2018. | | | | | • Business travel by air, consumption of gas and electricity | | • Business air travel amounted to 9289.4 million km (up 14.1%(down 17%). • Electricity consumption was 7.5% lower at 79.7 GWH; gas consumption, however, rose 16.3% to 2.1 million m3.
| | | | | • Consumption of renewable energy (as % of overall energy use) | | • UseElectricity consumption was 5.1% lower at 88.9 GWh; gas consumption, decreased 6.7% to 25.4 GWh. | | | | | | | • Renewable electricity comprised 97% of our total electricity consumption (down from 99% in 2018). The contribution of renewable energy to our overall energy consumption decreased to 24% (down from 26%)75% (from 77% the previous year). | Human rights | | Human Rights Policy • Based on the UN Declaration of Human Rights, core standards of the International Labor Organization and the principles of the UN Global CompactCompact. • Commits Aegon to upholding international human rights standards at all businesses where the Company has sufficient management control and, where possible, to ensure partners live up to the same standardsstandards. • Consideration for human rights is built into Aegon’s Sustainable Procurement and Responsible Investment policies. Other policies cover aspects of human rights; these include the Company’s Conflict of Interest, employee screening, anti-moneyEmployee Screening, Anti-money laundering, anti-fraudAnti-fraud and Gift & Entertainment policies. Aegon UK also issues a modern slavery statement (in line with the UK government’s 2015 Modern Slavery Act). • Aegon conducts a Human Rights risk assessment every two years and will be conducting this assessment again in 2020. | | Results of Aegon’s global human rights risk assessment (this assessment is conducted internally, based on external sources32); Aegon’s countries of operation are assessed for civil and political rights, corruption, human development, health coverage, business environment, illicit economy, gender equality, working conditions, Rulerule of Lawlaw and internet inclusion. | | Our 2018 assessment identified four ‘Aegon’ countries where the operating environment presents a meaningful human rights risk: China, Indonesia, India and Turkey. These risks relate essentially to local political factors. In the US, the Netherlands and the UK, Aegon faces little or no significant human rights risk. In Southern and Eastern Europe, the environment is potentially more difficult, particularly with regard to corruption. In the Americas, risk is concentrated in Brazil and Mexico; again, this relates mainly to corruption. For those countries with highest risk, Aegon has recommended preventative or remedial measures for local management43. These focus on issues where there is greatest risk and where Aegon has most influence (corruption, corporate governance, discrimination in the workplace, working conditions, freedom of association and collective bargaining). The aim, with these measures, is to ensure Aegon’s overall human rights risk remains low. |
CONTINUATION > | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | 88 | | | | Non-financial policies, procedures and outcomes | | | | | | | | | | |
| | | | | | | | Area | | Policy or guideline | | Indicators(used to monitor compliance and/or outcomes) | | Performance 2019 | | Investment | | Responsible Investment Policy • Covers all major asset classes • Sets out minimum environmental, social and environmentalgovernance (ESG) standards for Aegon’s investmentsproprietary investments. | | • Total investments delivering social and environmental benefits (impact investments)in responsible investment solutions | | • Our impact investmentsresponsible investment solutions totaled EUR 8.4 billion; most of this was invested in affordable housing, renewable energy, and international development banks.235 billion. | | | Under the policy, Aegon also excludes investment in some areas, including controversial weapons, tobacco, oil sands and certain coal mining companies. Aegon’s | | • Number and type of companies excluded from investment
| | • Aegon excludes 136 companies from investment; these exclusions relate primarily to controversial weapons, coal, oil and tar sands and tobacco.
| | | approach in this area is overseen by our Responsible Business and Investment Committee (‘RBIC’), which is chaired by a Management Board member. It is responsible for monitoring, discussing and advising the Management Board on all subjects and issues deemed relevant for the proper execution of the Responsible Investment Strategy Committee, supported by a technical committee, which manages all operational aspects.(RI) Policy. The Responsible Investment department at AAM works closely with risk management and compliance functions to ensure that RI activities are part of company reporting, compliance and risk management activities where possible. Aegon also has an extensive program of shareholder engagement with issuers, focused on ESG issues. Throughout 2019, we refreshed our company-wide Responsible Investment Policy which we put into force as of January 2020. In this policy, next to reiterating all our previous environmental commitments, we further limit our coal-related investments. | | • Number of companiesCompanies engaged with as part of Aegon’s approach to responsible investment | | • In 2018, we engaged with 360 companies as partAlmost three-quarters of our responsible investment approach; these engagements covered a range of environmental, socialaddressed corporate governance matters, including corruption, remuneration and governance issues.board structure. Social issues addressed included health & wellbeing (opioids, drug price increases and meat sourcing), human rights (UN Global Compact principles 1 & 2). Climate change (carbon emission reduction) and pollution were the most common themes discussed in engagements concerning the environment. | Occupational health and safety | | Global Health & Safety Statement • Commits Aegon to upholding high health and safety standards in its officesoffices. | | • Number of work-related injuries and illnesses | | • Our number of work-relatedWork-related injuries and illnesses totaled 163, downincreased to 184, from 167 the previous year. | | | | • Aim is to limit work-related injuries and illnesses (including stress) to an absolute minimum minimum. | | • Absentee rate | | • Our absentee rate was unchanged atdecreased to 1.8%, from 2.4%. the previous year. | Procurement | | Sustainable Procurement Policy • Sets out business conduct, social and environmental standards for suppliers of goods and other servicesservices. Aegon assesses suppliers against these standards, and requires leading suppliers to sign a Supplier Sustainability Declaration. | | • Percentage spend on goods and services covered by a Supplier Sustainability Declaration. | | • In 2018, 25%2019, 41% of our spend on goods and services was covered by a Supplier Sustainability Declaration.Declaration, up from 25% in 2018. | | | | | | | CONTINUATION > |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 68 | | How we safeguard long-term value creationNon-financial policies, procedures and outcomes | | | | | | |
| | | | | | | Area
| | Policy or guideline
| | Indicators(used to monitor
compliance and/or outcomes) | | Performance 2018
| Product development | | Pricing and Product Development Policy • Sets out market conduct principles, aimed at ensuring fair treatment of customers and reasonable distribution of returns between customers, intermediaries and shareholdersshareholders. | | • Percentage compliance with terms of Pricing and Product Development Policy | | • 90%94% compliance with requirements of Pricing & Product Development Policy (down(up from 95%90% the previous year), due to increased policy granularity. | Remuneration 3 | | Global Remuneration Framework • Details Company’s approach to pay, based on principle of ‘pay for performance’. • Variable pay for Aegon executives and other senior management is based on both financial andnon-financial performance metrics (including employee engagement and customer loyalty scores). | | • Percentage of compliance with requirements of the Global Remuneration Framework | | • 92%94% compliance with requirements of the Global Remuneration Framework (up from 92% compliance the previous year)4. | Tax | | Global Tax Policy • Based on principles of ‘fair taxes’ and ‘tax follows business’ (tax is paid at the right amount in the right places, and that decisions are taken for business reasons, not for potential tax advantages). | | • Total taxes borne by Aegon (US, Netherlands, UK, Asia and Others). • Taxes collected on behalf of others | | • EUR 620615 million paid by Aegon in tax (updown from EUR 444620 million in 2017)2018); another EUR 2.162.45 billion in taxes collected on behalf of others, downup from EUR 2.222.16 billion (decrease(increase was due to lowerhigher wage and insurance premium taxes). |
| 1 | Includes any finesfine in excess of EUR 100,000.100.000. |
| 2 | Aegon no longer collects data on water consumption. As an office-based company, our water use is not material.
|
3 | Aegon’s assessment is derived essentially from the UN Declaration of Human Rights. The assessment uses external data from (among others) Freedom House, Transparency International, UN Development Program and World Health Organization. |
| 43 | These measures include effective access to Aegon’s Global Ethics Line, raising employees’ awareness of human rights risk, ensuring basic healthcare and financial services for employees, suggesting alternative employee representation where there is no independent trade union, ensuring neutrality at times of regime change and enforcing a zero tolerance approach to corruption and discrimination in the workplace. |
| 4 | The assessment of compliance against the Global Remuneration Framework was limited to our largest business units only (Aegon NL, Aegon UK and Transamerica). |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | 6989 | | | | How we safeguard long-term value creationCode of conductConduct | | | | | | | | | | | | |
Code of Conduct Aegon’s Code of Conduct embodies the company’sCompany’s values and helps ensure that all employees act ethically and responsibly.responsibly and is available at www.aegon.com. It prescribes a mandatory set of conditions for how Aegon employees should conduct business, comply with all applicable laws and regulations, and exercise sound judgment in reaching ethical business decisions in the long-term interests of our stakeholders. Aegon’s Code of Conduct applies to all directors, officers (regardless of the contractual basis of their employment) and employees of all Aegon companies around the world, including associate companies, joint ventures and otherco-operative cooperative ventures. Every Aegon employee has to certify that they have read and understood the Code of Conduct, and agree to abide by it. Employees are also required to follow a mandatorye-learning to help embed the principles of the Code in the way they work. Reporting misconduct Employees are often the first people to witness any wrongdoing within the company. It is important that such incidents, which include incidents of internal fraud, are quickly identified and resolved to prevent or reduce any adverse effects, such as financial loss and reputational harm. Aegon is committed to createcreating and maintainmaintaining an open and supportive culture in which employees feel safe to raise concerns or report suspected or actual violations. Employees are encouraged to use the available reporting channels to report concerns of poor practice, inappropriate, unethical, fraudulent or illegal behaviour.behavior. It is also possible for employees to report violations outside the normal reporting channels if they wish to remain anonymous, or to elevate the matter to higher levels within the organization. Aegon has contracted an independent third party to provide an anonymous and confidential method to report potential misconduct. Reports can be submitted online or via toll-free telephone lines in all of the countries in which Aegon conducts business (24 hours a day, seven days a week). All reports are investigated and results are reported to the Audit Committee of the Supervisory Board. As part of an open and supportive culture Aegon will protect employees against any form of retaliation who, in good faith and with due care, report concerns of poor practice, inappropriate, unethical or illegal behaviour.behavior. Employees who believe they have experienced retaliation are encouraged to immediately bring the issue to the attention of the Group Compliance Officer. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | 7090 | | | | How we safeguard long-term value creationRegulation and supervision | | | | | | | | | | | | |
Regulation and supervision Individual regulated Aegon companies are each subject to prudential supervision in their respective home countries. (Re)insurance companies and Aegon Bank, as well as a number of the investment undertakings in the Group, are required to maintain a minimum solvency margin based on local requirements. In addition, some parts of the Group are subject to prudential requirements on a (sub)-consolidated basis, including capital and reporting requirements. Such additional requirements lead, in certain circumstances, to duplicative requirements, such as the simultaneous application of consolidated banking requirements and Solvency II group solvency requirements. Eligible capital to cover solvency requirements includes shareholders’ equity, perpetual capital securities, and dated subordinated debt. Solvency II Introduction The Solvency II framework imposes prudential requirements at group level as well as on the individual EU insurance and reinsurance companies in the Aegon Group. Insurance supervision is exercised by local supervisors on the individual insurance and reinsurance companies in the Aegon Group, and by the group supervisor at group level. The Dutch Central Bank (DNB) is Aegon’s Solvency II group supervisor. Solvency II, which came into effect in EU member states on January 1, 2016, introduced economic, risk-based capital requirements for insurance and reinsurance companies in all EU member states, as well as for groups with insurance and/or reinsurance activities in the EU. 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.account. The Solvency II framework is structured along three pillars. Pillar 1 comprises quantitative requirements (including technical provisions, valuation of assets and liabilities, solvency requirements and own fund requirements). Pillar 2 requirements include governance and risk management requirements, and requirements for effective supervision (the supervisory review process). Pillar 3 consists of disclosure and supervisory reporting requirements. These three pillars should not only be considered in isolation, but also in terms of how they interact with one another. More complex risks, for instance, require a stronger risk management and governance structure, and a more complex governance structure could lead to higher capital requirements. In addition to these requirements, which apply to individual EU insurers and reinsurers, the Solvency II framework is complemented by requirements that apply at group level (group supervision). This means that a number of requirements from the Solvency II framework that apply to the individual EU insurance and reinsurance undertakings apply, with necessary modifications, at group level. The core focus of EU insurance supervision is, however, on the supervision of individual EU insurance and reinsurance undertakings. Pillar 1 Solvency II requires EU insurance and reinsurance companies to determine technical provisions at a value that corresponds with the present exit value of their insurance and reinsurance obligations towards policyholders and other beneficiaries of insurance and reinsurance contracts. The calculation of the technical provisions should be based on market consistent information to the extent to which that information is available. The value of the technical provisions is equal to the sum of a best estimate and a risk margin. The discount rate at which technical provisions are calculated is an important element in order to determine the technical provisions. This and other parameters to determine the technical provisions may have an important effect on the amount and volatility of the own funds that insurance and reinsurance undertakings are required to maintain. The Solvency II framework contains several measures (in particular the volatility adjustment and matching adjustment) that should reduce volatility of the technical provisions and own funds in particular for insurance and reinsurance products with long-term guarantees.(the excess of assets over liabilities). Insurers and reinsurers are required to hold eligible own funds in addition to the assets held to cover the technical provisions in order to ensure that they are able to meet their obligations over the next 12 months with a probability of at least 99.5% (insurance or reinsurance company’s balance sheet ability to withstanda1-in-200-year event). The buffer that insurance and reinsurance companies are required to hold is the Solvency Capital Requirement (SCR). Insurance and reinsurance companies are allowed to: (a) use a standard formula to calculate their SCR (the rules for which are set out in detail in the Solvency II rules and guidelines); (b) use an internal model (for which the approval of the supervisory authorities is required); or (c) use a partial internal model (PIM) (which is a combination of the standard formula and an internal model, and requires approval of the supervisory authorities). An internal model is developed by the insurance or reinsurance company in question, and should better reflect the actual risk profile of the insurance or reinsurance company than the standard formula. Aegon (as a group) uses a PIM. In addition to the SCR, insurance and reinsurance companies should also calculate a Minimum Capital Requirement (MCR). This represents a lower level of financial security than the SCR, below which the level of eligible own funds held by the insurance or reinsurance company is not allowed to drop. An irreparable breach of the MCR would lead to the withdrawal of an insurance or reinsurance company’s license. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 71 | | How we safeguard long-term value creation Regulation and supervision | | | | | | |
Insurance and reinsurance companies are required to hold eligible own funds against the SCR and MCR. Own funds capital is divided | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | 91 | | | | Regulation and supervision | | | | | | | | | | |
into three tiers in accordance with the quality of the own funds. The lower tiers of own funds (tiers 2 and 3) represent a limited part of the eligible own funds, as excess lower tier capital is disregarded for purposes of calculating SCR. Furthermore, the SCR may consist of limited amounts ofoff-balance sheet own funds (‘ancillary own funds’ such as letters of creditscredit or guarantees). The MCR must be covered entirely by tier 1 and tier 2on-balance sheet items (‘basic own funds’). For the US insurance entities, Mandatory Control Level RBC authorizes the commissioner of the state of domicile to take actions necessary to place the company under regulatory control (i.e., rehabilitation or liquidation). Authorized Control Level RBC authorizes the commissioner of the state of domicile to take whatever regulatory actions considered necessary to protect the best interest of the policyholders and creditors of the insurer. Aegon considers the Authorized Control Level RBC to be a level similar to the Solvency II MCR. Company Action Level RBC requires the company to prepare and submit an RBC Plan to the commissioner of the state of domicile. Aegon considers the Company Action Level RBC to be similar to the Solvency II SCR. At 100% Solvency SCR, insurance regulators in the European Union will require management to submit a regulatory recovery plan. Pillar 2 Under Pillar 2, insurance and reinsurance companies are required to set up and maintain an adequate and effective system of governance, which includes an appropriate internal organization (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. In general, Solvency II requires insurance and reinsurance companies to maintain an effective system of governance that is proportionate to the nature, scale and complexity of the insurance or reinsurance company. A number of risks that insurance or reinsurance companies face can only be addressed through proper governance structures, rather than quantitative requirements. Management of the insurance or reinsurance company is ultimately responsible for the maintenance of an effective governance system. Insurance and reinsurance companies are required to have an adequate and transparent organizational structure, with a clear allocation and appropriate segregation of responsibilities. The system of governance should be subject to regular internal review. Solvency II requires insurance and reinsurance companies to have written policies in a number of areas (such as risk management, internal control, internal audit and outsourcing (where appropriate)). A number of key functions are required to be part of the system of governance (compliance, risk management, the actuarial function and internal audit). The persons responsible for these functions are required to be fit and proper. The Pillar 2 requirements include specific requirements relating to the risk management system. This should cover at least the following areas: underwriting and reserving, asset-liability matching, investments (in particular derivatives and similar commitments), liquidity and concentration risk management, operational risk management, deferred taxes, reinsurance and other risk mitigating techniques. Risk management relating to Solvency II is discussed in further detail in the section Risk management on page 90.109. As part of the risk management system, insurance and reinsurance undertakings are required to undertake an ORSA, which includes the overall solvency needs of the undertaking, taking into account the risk profile, risk tolerance limits and business strategy, the ongoing compliance with Solvency II capital requirements and rules regarding technical provisions, and the extent to which the risk profile of the undertaking deviates from the assumptions underlying the calculation of the SCR. Solvency II Pillar 2 requirements also include detailed requirements with respect to outsourcing, including intra group outsourcing. The Supervisory Review Process (SRP), which is part of Pillar 2, allows supervisory authorities to supervise the ongoing compliance of insurance and reinsurance undertakings with Solvency II requirements. Possible enforcement measures include: the imposition of capitaladd-ons (for instance in the event that the risk profile of the undertaking deviates from the SCR calculation or if there are weaknesses in the system of governance); the requirement to submit and execute a recovery plan (in the event of a (potential) breach of the SCR or a short-termshort term financing plan (in the event of a (threatening) breach of the MCR); and ultimately, the revocation of an insurance or reinsurance license (a measure that relates toEU-licensed insurance or reinsurance undertakings, and not to the Group as a whole, which does not have a license). Pillar 3 Solvency II has introduced new and moreincluded detailed reporting and disclosure requirements than formerly prescribed under the Solvency I framework.requirements. These requirements includenon-public supervisory reporting on a regular (usuallytri-annual) basis through regular supervisory reports (RSR), complemented by detailed quantitative reporting templates (QRTs) reported on a quarterly basis, which contain detailed financial data. In addition, it is a requirement to publish a Solvency and Financial Condition Report (SFCR) on an annual basis. Group supervision Solvency II not only imposes regulatory requirements on individual EU insurance and reinsurance undertakings; many of the requirements that apply to the individual insurance and reinsurance undertakings apply, with the necessary modifications, at group level. These requirements include group solvency requirements, group reporting and disclosure requirements, and requirements regarding the system of governance, risk management and internal control framework at group level. The group requirements do not include an MCR. Solvency | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | 92 | | | | Regulation and supervision | | | | | | | | | | |
II does however require groups to maintain eligible own funds, at least equal to a floor, as further defined in the Solvency II rules (the absolute floor of the group solvency), which can be considered to be an MCR at group level. Although capital requirement entities that are not subject to solo supervision under Solvency II (such as entities in other financial sectors,non-financial entities, and regulated andnon-regulated entities in third countries) are not directly subject to Solvency II requirements, these entities may be affected indirectly by the Solvency II group requirements. Entities in other financial sectors are, in most cases, taken into account in the group solvency calculation, applying the capital requirements of that specific financial sector (such as Basel III requirements for banks and certain investment firms) and using the Deduction and Aggregation method for inclusion of these | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 72 | | How we safeguard long-term value creation Regulation and supervision | | | | | | |
entities in the group calculation (as opposed to the Accounting Consolidation method, which is the default method under Solvency II). The difference between these two methods primarily affects the extent in which diversification can be taken into account in the group capital requirements. Under the Accounting Consolidation method the group is essentially treated as one economic unit whereas the Deduction Aggregation method requires the group to aggregate entities, rather than fully consolidate entities for the purpose of the group capital requirements. However, subject to certain conditions, entities in other financial sectors may be included in accordance with the accounting consolidation method. In particular, this may be the case when the group supervisor is satisfied as to the level of integrated management and internal control regarding these entities. Furthermore, the DNB may require groups to deduct any participation from the own funds eligible for the Group Solvency ratio. As required by the DNB, Aegon deducts its participation in Aegon Bank N.V. from Aegon’s group solvency. However, Aegon Bank N.V. is subject to Basel III requirements (as implemented in EuropeEurope) in the EU Capital Requirements Directive (CRD IV) and EU Capital Requirements Regulation (CRR) on a solo-basissolo basis and on consolidated basis, whereby consolidation takes place at the level of Aegon Bank N.V..N.V. The prudential requirements (including CRD IV and CRR) are described in more detail on page 73.90. As referred to in the ‘Capital’Capital and liquidity management’ section, Aegon uses a combination of the two aggregation methods defined within the Solvency II framework to calculate the Group Solvency ratio, the Accounting Consolidation method and the Deduction and Aggregation method. Aegon applies the Accounting Consolidation method as the default method. However, for insurance entities domiciled outside the EEA for which provisional or full equivalence applies, such as the United States, Aegon uses the Deduction and Aggregation method, with local regulatory requirements to translate these into the Group Solvency position. US insurance and reinsurance entities are included in Aegon’s group solvency calculation in accordance with local US (RBC) requirements. US insurance and reinsurance entities are included in Aegon’s group solvency calculation in accordance with local U.S. Risk-Based Capital (RBC) requirements. Until June 30, 2017, Aegon used 250% of the local Company Action Level (CAL) RBC as the SCR equivalent. Aegon received approval from the DNB to apply a revised methodology, as of July 1, 2017, that includes lowering the conversion factor from 250% to 150% RBC, and reducing the contribution to own funds by 100% of the local Company Action Level RBC requirement to reflect transferability restrictions. This methodology is subject to annual review, and the change enhances comparability with European peers. The RBC and CAL, as well as the allocation of restricted Tier 1 and Tier 2 capital instruments between the accounting consolidation and deduction and aggregation part of the Group are described in more detail in the ‘Capital and Liquidity’ section of this Annual Report. Solvency II group supervision is exercised by a combination of the supervisory authorities of the local insurance and reinsurance entities and the group supervisor. An important role in the cooperation between the supervisory authorities in the context of group supervision is played by the college of supervisors, in which the local and group supervisors are represented. This college is chaired by the group supervisor. Recent developments Solvency II Solvency II 2018 review On November 9, 2018,June 18, 2019, the European Commission published a proposal for public consultation for the amendment ofEU Regulation that contains amendments to the Solvency II Delegated Regulation. This draft proposal is the preliminaryRegulation as a result of the 2018 review of the Solvency II Framework. The consultation period ended on December 7, 2018. On March 8, 2019,framework was published in the Official Journal of the European Commission adoptedUnion. Most of the formal text foramendments have entered into force during the amendmentsecond half of 2019 and some as per January 1, 2020. The purpose of the 2018 review has been to review specific items of the SCR standard formula calculation in the Solvency II Delegated Regulation, in respectorder to achieve a more proportionate and simplified application of the 2018 reviewrequirements, removal of the Solvency II Framework. The amendments are expected to enter into force after the scrutiny period of three months, that is available to the European Parliamenttechnical inconsistencies and the European Council has ended, andremoval of unjustified constraints to financing. Amongst others, the amendments have been approved accordingly by the European Parliament and Council. Aegon is investigating the impact, if any, of these upcoming amendments. The proposals include amendments to the Solvency II standard formula calculations, such as in the counterparty default risk sub module, which might specifically impact the treatment of guarantees of Dutch mortgages under the standard formula. The changes included in the proposal may impact the Solvency II Standard Formula calculations. Furthermore, amongst others, the proposal contains amendments relatedrelate to tiering requirements for subordinated liabilities as part of own funds and LAC DT. Currently it is not yet clear when the amendments will enter into force but Aegon is monitoringLoss-Absorbing Capacity of Deferred Taxes (LAC DT), further alignment between the finalizationgroup and solo-approach to the look-through of investment fund participations, amended treatment of certain risk mitigating techniques, for the standard formula calculation, adjustments of the legislative process closely. These changes are also expected to impacttreatment of derivatives, the Standard Formula scoperecognition of local/regional government issued guarantees and the Partial Internal Model.recalibration ofnon-life premium and reserve-risk standard deviations in certainsub-modules.
Solvency II 2020 review In addition to the review of the 2018 review of the Solvency II Delegated Regulation, a more fundamental review of the Solvency II Directive has been foreseen,commenced, referred to as the Solvency II 2020 review. This includes a review, as foreseen in the directive by the end of 2020, on the impact of theso-called “long-term guarantees” package, in particular the functioning and stability of European insurance markets, the extent to which insurance and reinsurance undertakings continue to operate as long-term investors, and the availability and pricing of long-term insurance products. In this context,On February 10, 2019, the European Commission has requested EIOPA to provide, in the context of the 2020 review, by June 30, 2020, technical advice in the end of 2019, the European Commission with information on insurance liabilities (including illiquid liabilities), information on asset management of insurers and information on long-term guarantee measures and information on the market valuation of insurance liabilities.following areas: | ◆ | | Long-term guarantees (LTG) measures and measures on equity risk; |
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Furthermore, the context of the Solvency II 2020 review, EIOPA has recently launched a public call for advice on the application of disclosure and reporting requirements under Solvency II.
| ◆ | | In addition, on February 10, 2019, the European Commission has requested EIOPA to provide, in the context of the 2020 review, by June 30, 2020, technical advice in the following areas: long-term guarantees (LTG) measures and measures on equity risk; |
◆ | | Specific methods, assumptions and standard parameters used when calculating the Solvency Capital Requirement standard formula; |
| ◆ | | Rules and supervisory authorities’ practices on the calculation of the Minimum Capital Requirement; |
| ◆ | | The supervision of insurance and reinsurance undertakings in a group,group; and |
| ◆ | | Other items related to the supervision of insurance and reinsurance undertakings. |
In November 2019, EIOPA has published a substantial consultation document in the context of the Solvency II 2020 review. Through the consultation process EIOPA expects to obtain input for its technical advice to the European Commission. Earlier in 2019, separate consultations have taken place on disclosure and reporting requirements under Solvency II, insurance guarantee schemes and resolution funding. A formal legislative proposal of the European Commission on the Solvency II 2020 review will be published later in 2020. Due to the fact that the final technical advice has not yet been published and it is not clear to what extent the European Commission will take into account the advice in its proposals, the potential impact of the review is uncertain. Sustainability and Solvency II On March 8, 2018, the Commission adopted its Action Plan on Sustainable Finance in which it announced several actions to incorporate sustainable finance in the heart of the financial system. Further to this Action Plan, the Commission adopted, on May 24, 2018, a package of legislative measures on sustainable finance. The informationCommission has requested technical advice from (inter alia) EIOPA and ESMA on the delegated acts that would supplement this package amending, or, where necessary, introducing level 2 measures of, inter alia, the Solvency II Directive with the aim of incorporating sustainability risks, i.e. environmental, social and governance risks by financial market participants subject to those rules. In that context, on the request of the European Commission, EIOPA has provided, by EIOPAon September 30, 2019, an opinion to the European Commission as described above, is expected to be takenon Solvency II and sustainability. The European Commission had requested EIOPA’s views on the integration of sustainability, in particular climate-related developments, into the Solvency II framework for the valuation of assets and liabilities, investment and underwriting practices, the calibration of market and natural catastrophe risks and the use of internal models, i.e. focusing on Pillar 1 requirements. The European Commission will take the EIOPA opinion into account in the Solvency II 2020 review. No EC legislative proposals have been published so far in that context. Furthermore,In addition, EIOPA recently (end of 2018) launched consultationshas provided, on April 30, 2019, the European Commission with technical advice on the integration of sustainability risks and factors in the delegated acts under Solvency II and the Insurance Distribution Directive. At the beginning of 2019 EIOPA has launched for input for a call for evidence by the European Commission to EIOPAIDD. This advice focused primarily on integration of sustainability risksPillar 2 requirements in Solvency II.
In addition, as of January 1, 2019, amendments to the Solvency II framework entered into force, relating to Solvency II standard formula treatment of standardised, transparent and simple (STS) securitisations. Aegon will take these amended provisions into account as of first quarter 2019 (confidential) supervisory reporting and future Solvency II public disclosures.IDD.
Financial conglomerate supervision Since October 2009, Aegon has been subject to supplemental group supervision by the DNB in accordance with the requirements of the EU’s Financial Conglomerate Directive. Supplemental group supervision pursuant to the Financial Conglomerate Directive includes supplementary capital adequacy requirements for financial conglomerates and supplementary supervision on risk concentrations and intra-group transactions in the financial conglomerate. Due to the introduction of the Solvency II group supervisory requirements – which include similar, and to a large extent overlapping, requirements to those covered by Financial Conglomerates Directive – the relevance of supplemental group supervision pursuant to the Financial Conglomerates Directive has become significantly less. Recovery and resolution and systemic risk Globally systemically important insurer(G-SII)G-SII designation
On November 3, 2015, Aegon was first designated by the Financial Stability Board (FSB) as a Global Systemically Important Insurer (G-SII), based on an assessment methodology developed by the International Association of Insurance Supervisors (IAIS). TheUp until 2019, the FSB reviewsreviewed theG-SII designation annually. However, the FSB, in consultation with the IAIS and national authorities, has decided not to publish a new list ofG-SIIs for 2017 and for 2018 andor 2018. In November 2019, in recognition of the fact that the measuresHolistic Framework (see below), consistently implemented, provides an enhanced approach to assessing and mitigating systemic risk in the global insurance sector, the FSB decided to suspend the identification of global systemically important insurers(G-SIIs). In November 2022, the FSB will, continue to apply to theG-SIIs that werebased on the 2016 list. Consequently, Aegon continuesinitial years of implementation of the Holistic Framework, review the need to be designated at the timeeither discontinue orre-establish an annual identification of publication of this annual report. As a result of theG-SIIs. Due to itsG-SII designation,status, Aegon ishas been subject to an additional layer of direct supervision at group level. In accordance with these requirements, Aegon has put a specificG-SII governance structure in place to ensure theG-SII requirements are met. Within 12 months of aG-SII designation,G-SIIs were required to developsubmitted a liquidity risk management plan, a systemic risk management plan, and an ex ante recovery plan. In accordance with these requirements, Aegon submitted plansplan to DNB and to theG-SII crisis management group (CMG) that was established forestablished. Aegon and is updatinghas updated these plans on an annual basis. The CMG is required to: enter into a cross-border cooperation agreement; develop aIn addition, the Aegon Group’s Resolution Authority (the Dutch Central Bank) was made responsible for the development of Aegon’s resolution plan based on a resolution strategy (within 18 months);plan. Holistic Framework for the assessment and undertake a resolvability assessment (within 24 months). International Capital Standardsmitigation of systemic risk in the insurance sector andG-SII ComFrame
In 2013,November 2019, the IAIS announced its plan to develop a risk-based globaladopted the Holistic Framework for the assessment and mitigation of systemic risk in the insurance capital standard (ICS). This wassector. Some of the provisions of the Holistic Framework are included in response to the request by the Financial Stability Board (FSB) that the IAIS produce a work planInsurance Core Principles (that apply to create a comprehensive group wide supervisory and regulatory frameworkall insurers), while others are included in ComFrame (the Common Framework for the Supervision of Internationally Active Insurance Groups, (includingG-SIIs)or IAIGs). The Holistic Framework consists of an enhanced set of supervisory policy measures and as such, ifpowers of intervention, an annual IAIS global monitoring exercise and when adopted, might shape or influence the future regulatory framework for insurance groups such as Aegon. In 2017, for financial year 2016,G-SIIs have calculated and reported a Basic Capital Requirement (BCR) and Higher Loss Absorbing Capacity (HLAC) on a confidential basis pursuant to IAIS guidelines. On November 2, 2017, the IAIS has announced its members have reached an agreement on a unified path to convergencecollective discussion on the developmentoutcomes and appropriate supervisory responses, and an assessment of International Capital Standards (ICS) for Internationally Active Insurance Groups (IAIGs). Aegon will qualify as such. After an extended field testing period of ICS version 1.0, that ended in 2017, the IAIS will proceed with the development of ICS version 2.0 informed by field tests in 2018 and 2019. Theconsistent implementation of ICS version 2.0 will be conducted in two phases – a five-year monitoring phase, where all IAIGs will submit mandatory reference ICS, followed by an implementation phase where the ICS is envisaged to become a required capital standard. Following the announcement by IAIS members from the United States of development of an aggregation-based group capital calculation, the IAIS has further agreed to collect data during the monitoring period to assess whether the aggregation approach can be considered as outcome-equivalent for implementation of ICS in the US.
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IAIS holisticof supervisory measures. ComFrame establishes supervisory standards and guidance focusing on the effective group-wide supervision of IAIGs. ComFrame is a comprehensive and outcome-focused framework for systemic risk inthat provides supervisory minimum requirements tailored to the insurance sectorinternational activity and size of IAIGs. ComFrame builds on the Insurance Core Principles that are applicable to the supervision of all insurers.
Recently, the International Association of Insurance Supervisors (IAIS) has held a public consultation in which it proposes a holistic framework to assess and mitigate systemic risk in the insurance sector The IAIS is of the view that the implementation of the holistic framework should remove the need for an (annual)G-SII identification byIf the FSB and national authorities. The global monitoring exercise, including data collection, assessment and consideration of any insurer demonstrating a significant level and/or a trend of increasing potential (global) systemic impact from its distress or failure, will continuewould, as referred to be overseen by the IAIS and reported to the FSB.
If and when this framework would be adopted, an enhanced set of policy measures and supervisory powers of intervention would be applied in a proportionate manner to a broader set of insurers by integrating these measures into the holistic framework. According to the IAIS, a final decision on the need for an (annual)G-SII identification should, however, depend on an assessment of the consistent application of the holistic framework by supervisors and the effectiveness of the IAIS global monitoring exercise. In November 2022, based on the initial years of implementation of the holistic framework, it is recommended that the FSB reviews the need to eitherabove, discontinue or re-establish an annual identification ofG-SIIs. According to the IAIS, between 2020, when the holistic framework is implemented, and 2022, when the review takes place, it is recommended to suspend the annual identification ofG-SIIs.G-SIIs
EIOPA activities on systemic risk in after the insurance sector
During the last few years, EIOPA has published a series of reports on systemic risk in the insurance sector. Thus far, these report have not led to concrete regulatory changes, but might have an impact on the further developmentreview of the regulatory framework for insurance companiesHolistic Framework in Europe, in particular the Solvency II frameworkNovember 2022 or, alternatively, Aegon would not be identified as aG-SII, Aegon would still be subject to ComFrame and potentially the development of specific regulatory tools, aimed at systemic risk in the insurance sector, as well as EU wide regulatory initiatives respect of recovery and resolution of insurance and reinsurance companies, which is currently still developed at national level by EU member states. International Capital Standards (ICS).
US – EU Covered Agreement
On January 13, 2017, the European Commission and the US Department of the Treasury announced the signing of theUS-EU Covered Agreement on insurance and reinsurance measures. The Covered Agreement covers three areas of prudential insurance oversight: reinsurance, group supervision and exchange of information between supervisors. The impact of this agreement (or any changes madeICS, to the regulatory frameworksextent these would be implemented in the US or the EU as a result of this agreement) on Aegon is expected to be limited. Currently, insurance group supervision is only exercised at the level of Aegon N.V.,
pursuant to Solvency II, and the Covered Agreement increases the likelihood that this will continue to be the case. Also the impact of the agreed measures in the other areas covered in the agreement is expected to be limited.local legislation.
Recovery and resolution Dutch Act on Recovery & Resolution for Insurers On January 1, 2019, the Dutch Act on Recovery & Resolution for Insurers (R&R Act) came into force in the Netherlands, replacing the previously applicable intervention regime for insurance companies in the Netherlands faced with financial difficulties. The R&R Act has introduced a revised regulatory framework for recovery and resolution of Dutch insurance and reinsurance companies and provides for a range of measures to be taken by these companies and the Dutch Central Bank ex ante, in order for these insurance and reinsurance companies to be prepared for recovery in circumstances where it no longer meets the required solvency requirements and for orderly resolution, in circumstances where it is failing or is likely to fail. The R&R Act introduces a requirement for Dutch insurance companies and reinsurance companies, such as the Dutch insurance and reinsurance subsidiaries in the Aegon Group, to draw up and maintain anex ante recovery plan, that should allow these entities, when faced with financial problems, to take measures to recover their solvency ratio and continue to operate in going concern. In addition, the Dutch Central Bank, in its capacity as national resolution authority ingone concern circumstances (as opposed to its role as supervisory authority ingoing concern) is required to draw up and maintain a resolution plan, which should provide for the orderly resolution of the Dutch insurance and reinsurance entities in the group, or the group, to avoid unnecessary damage to policyholders and beneficiaries and to provide an alternative to ordinary bankruptcy proceedings. The R&R Act allows DNB to require a Dutch insurance or reinsurance company or a group in certain circumstances, to remove, ex ante, impediments to effective resolution of a Dutch insurance or reinsurance undertaking, such as the revision of financing arrangements, the reduction of exposures, the transfer of assets, the termination or limitation of business activities, or the prohibition to start certain business activities, change the legal or operational structure of the group, or securing certain critical business lines. The R&R Act allows DNB to intervene in situations where a Dutch insurer or reinsurer, where it is failing or is likely to fail, as defined in the R&R Act. The powers under the R&R Act may also extend to the level of the Group and to entities, other than in insurance or reinsurance entities in the Netherlands, that are part of the group, such as Aegon N.V.. The powers include the transfer of the undertaking to a third party, the transfer to a bridge institution and the transfer of certain specific assets and/or liabilities. In addition, abail-in tool | | | | | | | | | | | Annual Report on Form 20F2018 | | |
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is introduced, that allows for thewrite-off or conversion of rights of creditors, including policyholders and beneficiaries, while respecting the principle that they should not be worse off through resolution, including the application of thebail-in tool, than they would in ordinary insolvency proceedings. As a result of the recent adoption of the IAIS Holistic Framework, the developments with respect to the identification ofG-SIIs by the FSB and the introduction of the Dutch Act on Recovery & Resolution of Insurers, Aegon will continue to update its ex ante group recovery plan (pursuant to the Dutch Act on Recovery & Resolution of Insurers) and the liquidity risk management plan (which is not required under the Dutch Act on Recovery & Resolution of Insurers but is expected under the Holistic Framework). Similarly, the CMG, established as part of theG-SII requirements, will remain in place. In addition, the Aegon Group’s Resolution Authority (the Dutch Central Bank) remains responsible for the development of Aegon’s resolution plan, pursuant to the Dutch Act on Recovery & Resolution of Insurers and as expected for IAIGs under the Holistic Framework. Bank Recovery and Resolution Directive Furthermore, to parts of the Aegon Group, in particular Aegon Bank N.V., the framework of the EU Directive on the recovery and resolution of credit institutions and investments firms (the “Bank Recovery and Resolution Directive”) is applicable. The Bank Recovery and Resolution Directive also contains provisions that, in certain specific circumstances, where both Aegon Bank N.V. and Aegon N.V. fail or are likely to fail, could be applied to mixed financial holding companies such as Aegon N.V., including the right ofbail-in of creditors. Intervention by the Dutch Minister of Finance Lastly, under Part 6 of the Dutch Financial Supervision Act, the Dutch Minister of Finance may intervene immediately, when the stability of the financial system is threatened by the situation of a financial institution, in which case legal or statutory provisions, applicable to the financial institution, might be surpassed. The intervention measures available to the Minister of Finance, include in particular the right to expropriate assets of the financial institution, as well as securities and/or other financial instruments issued by or with the cooperation of the financial instruments. The exercise of this power may significantly impact the rights of the owners or holders of these assets, securities and/or financial instruments. Insurance Capital Standards The IAIS is developing a risk based global Insurance Capital Standard (ICS). The ICS is designed to be appropriate for IAIGs, | | | | | | | | | | | | | | | | IBOR transistion
The future of IBORs (Interbank Offered Rates) such as Euribor, Eonia and LIBOR has been a major topic on the global agenda since the G20 asked the Financial Stability Board (FSB) to undertake a fundamental review of leading interest rate benchmarks in 2013. The FSB proposed new standards to reform interest rate benchmarks and the use of transaction-based input data instead ofnon-transactionalvpanel input data. In the EU this is adopted in the new Benchmark Regulations (BMR) which stipulates that from January 2020 only BMR compliant benchmarks may be used within the EU.
Aegon recognizes that IBOR transitions potentially have implications for all reporting units, including our insurance, asset management and banking activities. Despite current uncertainties on how the transition from IBORs to alternative benchmarks will be managed, it is widely acknowledged that IBOR benchmarks impact financial products and contracts, including derivatives, corporate bonds, structured debt products, deposits and mortgages and other financial instruments like(re-)insurance, guarantees and funding.
| | Aegon is evaluating the impact of IBOR transitions on the business model and operating model of our reporting units. Furthermore, Aegon is in the process of designing an IBOR transition plan including project solutions and actions, timelines and ownership to ensure timely preparation and implementation.
Brexit
The dynamics of Brexit are complex given its multifaceted nature, and its position within the wider geopolitical context. Hence, any description of the current and forward-looking status of Brexit will to a certain extent be outdated as soon as it has been documented. To date the UK Government has not succeeded in passing the negotiated Brexit deal with the European Union through parliament and it is still not clear if a deal will be approved. Aegon is prepared for all scenarios, including aso-called ‘hard Brexit’. In this scenario the UK becomes a third country and leaves the internal market of the EU on March 30, 2019 at 00:00h (CET). The main consequences of a ‘hard Brexit’ have been identified and contingency plans are in place. These plans are updated on a continuous basis. Focus areas for Aegon have been derivatives, data transfer and cross border policies.
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covered by ComFrame. IAIS standards are not self-executing and must be adopted by local jurisdictions to be formally applicable. The IAIS’ ultimate goal, by a date yet to be determined, is a single ICS (referred to by the IAIS as group-wide prescribed capital requirement (PCR)) and that includes a common methodology by which one ICS achieves comparable (i.e. substantially the same) outcomes across jurisdictions. Ongoing work is intended to lead to improved convergence over time on the key elements of the ICS towards the ultimate goal. According to the IAIS, not prejudging the substance, the key elements include valuation, capital resources and capital requirements. In November 2019, the IAIS adopted ICS Version 2.0, which is being used during a five-year monitoring period for confidential reporting to group-wide supervisors and discussion in supervisory colleges. The ICS will not be used as a group-wide Prescribed Capital Requirement (PCR) during the monitoring period. The purpose of the five-year monitoring period is to monitor the performance of the ICS over a period of time, and not the capital adequacy of IAIGs. Therefore, ICS results will not be used as a basis to trigger supervisory action and IAIGs are not expected to manage their business to the ICS. During the monitoring period, results based on ICS version 2.0, should we voluntarily decide to prepare these, might be privately disclosed to our group supervisor. From 2025 onwards, it is envisaged that local jurisdictions will formally enact the ICS, which is described as a minimum standard. In previous years, Aegon has participated in the ICS field testing to understand the potential consequences for Aegon of the ICS, both from capital and operational perspectives. | | | | | | | | | | | How we safeguard long-term value creationAegon Annual Report on Form 20-F2019 | | |
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Capital and liquidity management Guiding principles The management of capital and liquidity is of vital importance for the Aegon Group, for its customers, investors in Aegon securities and for Aegon’s other stakeholders. In line with its risk tolerance, the goal of Aegon’s capital and liquidity management is to promote strong and stable capital adequacy levels for its businesses, in addition to maintaining adequate liquidity to ensure that the Company is able to meet its obligations. Aegon follows a number of guiding principles in terms of capital and liquidity management: | ◆ | | Promoting strong capital adequacy in Aegon’s businesses and operating units; |
| ◆ | | Managing and allocating capital efficiently in support of the strategy and in line with its risk tolerance; |
| ◆ | | Maintaining an efficient capital structure, with an emphasis on optimizing Aegon’s cost of capital; |
| ◆ | | Maintaining adequate liquidity in both the operating units and at the holdingHolding to ensure that the Company is able to meet its obligations by enforcing stringent liquidity risk policies; and |
| ◆ | | Maintaining continued access to international capital markets on competitive terms. |
Aegon believes that the combination of these guiding principles strengthenstrengthens the Company’s ability to withstand adverse market conditions, enhances its financial flexibility, and serves both the short-term and the long-term interests of the Company, its customers and other stakeholders. The management and monitoring of capital and liquidity is firmly embedded in Aegon’s ERM framework, and is in line with Aegon’s risk tolerance. Aegon’s risk tolerance focuses on capital generation, solvency and liquidity, risk balance and responsible business with effective controls. Its core aim is to assist management in carrying out Aegon’s strategy within the Group’s capital and liquidity resources. Management of capital The Company’s overall capital management strategy is based on maintaining adequate solvency capital,Own Funds levels, capital quality and the use of leverage. Capital adequacy Aegon’s goal for both its operating units and for the Aegon Group as a whole is to maintain a strong financial position and to be able to sustain losses resulting from adverse business and market conditions. The capitalizationOwn Funds levels of Aegon and its operating units is managed in accordance with the most stringent of local regulatory requirements, rating agency requirements and self-imposed criteria. Regulatory capital requirements ForEU-domiciled insurance and reinsurance entities, theThe Solvency II regulatory framework determines the regulatory
capital requirements.requirements forEU-domiciled insurance and reinsurance entities. In Aegon’sNon-EEA (European Economic Arena) regions, (re)insurance entities domiciled in third-countries deemed (provisionally) equivalent (US Lifelife insurance entities, Bermuda, Japan, Mexico and Brazil), the capital requirement is based on local capital requirements. On November 9, 2018, the European Commission (EC) has published a proposal, for public consultation, for the amendment of theFor more information about recent developments on Solvency II, Delegated Regulation in respect of the 2018 review of the Solvency II Framework that was carried out by the EC. The EC has published a formal proposal on March 8, 2019. Aegon is investigating the impact, if any, of these upcoming amendments.
Please note that numbersplease refer to section ‘Regulation and ratios related to Solvency II as disclosed in this section represent Aegon’s estimates and are subject to supervisory review. At December 31, 2018, Aegon has applied a loss absorbing capacity of deferred taxes(LAC-DT) factor in the Netherlands of 75% unchanged from 2017, while the corporate tax rate was lowered to reflect the upcoming tax rate changes in 2020 and 2021. TheLAC-DT factor will be recalibrated on a quarterly basis using the agreed methodology. In 2018 the Dynamic Volatility Adjustment (VA) model has been updated for Aegon the Netherlands, to align with the guidance from the European Insurance and Occupational Pensions Authority (EIOPA)supervision’. The Solvency II capital ratios of the Group and Aegon the Netherlands do not include any contingent liability potentially arising from unit-linked products sold, issued or advised on by Aegon in the Netherlands in the past, as the potential liability cannot be reliably quantified at this point.
On November 9, 2018, the European Commission has published a proposal, for public consultation, for the amendment of the Solvency II Delegated Regulation. This draft proposal is the preliminary result of the 2018 review of the Solvency II framework. The consultation period ended on December 7, 2018. On March 8, 2019 the European Commission has adopted the formal text for the amendment of the Solvency II Delegated Regulation in respect of the 2018 review of the Solvency II Framework. The amendments are expected to enter into force, after the scrutiny period of three months, that is available to the European Parliament and the European Council has ended, and the amendments have been approved accordingly by the European Parliament and Council. Aegon is investigating the impact, if any, of these upcoming amendments. The proposals include amendments to the Solvency II standard formula calculations, such as in the counterparty default risk sub module, which might specifically impact the treatment of guarantees of Dutch mortgages under the standard formula. These changes also impact the Standard Formula scope of the Partial Internal Model. Furthermore, amongst others, the proposal contains amendments related to tiering requirements for subordinated liabilities, as part of Own Funds and LAC DT. Currently it is not
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yet clear when the amendments will enter into force but is monitoring the finalization of the legislative process closely.
Furthermore, EIOPA has recently launched (end of 2018) consultations on the integration of sustainability risks and factors in the Solvency and the Insurance Distribution Directive. During 2019 more consultations on sustainability are expected.
In addition, as per January 1, 2019, amendments to the Solvency II framework entered into force, relating to Solvency II standard formula treatment of standardized, transparent and simple (STS) securitizations. Aegon will take these amended provisions into account as of first quarter 2019 (confidential) supervisory reporting and future Solvency II public disclosures.
Adequate capitalization To calculate its Group Solvency Ratio, Aegon applies a combination of the Group consolidation methods available under Solvency II: the Accounting Consolidation (AC) and Deduction & Aggregation (D&A) based methods. Solvency II capital requirements are mainly used for theEEA-based insurance and reinsurance entities, applying the Accounting Consolidation method. Local requirements are used for insurance and reinsurance entities in (provisionally) equivalent third-country jurisdictions. Aegon Bank is excluded from the Group Solvency ratio, as required by the Group Solvency II supervisor, the DNB. As at December 31, 2018,2019, Aegon’s estimated capital position was: | | | | | | | | December 31, 20181,2,3 | | December 31, 20172,3 | | | | Group own funds | | 17,602 | | 15,628 | | | | Group SCR | | 8,349 | | 7,774 | | | | Group Solvency II ratio | | 211% | | 201% |
| | | | | | | | | | | | December 31, 20191), 2), | | December 31, 20182) | Group own funds | | | | 18,470 | | 17,602 | Group SCR | | | | 9,173 | | 8,349 | Group Solvency II ratio | | | | 201% | | 211% |
| 1 | The Solvency II ratios are estimates and subject to supervisory review. |
| 2 | The Solvency II ratios are based on Aegon’s partial internal model.
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3 | Aegon Bank is not included in the Group Solvency II ratio. |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | 97 | | | | Capital and liquidity management | | | | | | | | | | |
Aegon Group Own Funds amounted to EUR 17,60218,470 million on December 31, 2018 (2017:2019 (2018: EUR 15,62817,602 million). The increase of EUR 1,974868 million in Own Funds since December 31, 2017,2018, is mostly driven by the normalized capital generation, by Aegon’s operating units and favorableone-time items. Theseone-items include the sale of Aegon Ireland, introduction of unit matching in Aegon UK,positive return from equity markets, and the mergerimpact of the captive US insurance entity named Firebird into Transamerica Life Insurance Company (TLIC). Thedeclining interest rates on assets and hedges. This increase was partly offset by the negative market impact primarily from the EIOPA VA narrowing from 24 bps to 7 bps, the negative impact from new business strain, the impact of the dividend paidmodel and framework changes, and the impact from framework, model and assumption changes (including the decrease in Ultimate Forward Rate (UFR) (from 4.2% to 4.05%) following revisionpayment of external dividends. The lowering of the UFR methodology by the European Insurance and Ocupational Pension Authority (EIOPA).from 4.05% to 3.90% led to a decrease in Own Funds as well. AegonAegon’s Group Partial Internal Model (PIM) Solvency Capital Requirement (SCR) amounted to EUR 8,3499,173 million on December 31, 2018 (2017:2019 (2018: EUR 7,7748,349 million). The SCR increaseincreased by EUR 575824 million is mainly due to various large offsetting actions. The SCR increased mainly due tothe negative market movements SCR for new businessdriven by higher equity markets andone-time items (mainly US Tax Reform and lower interest rates, the impacttreatment of tax changes in the Netherlands). These were largelyilliquid assets. This was partly offset by SCR release following the salenew longevity reinsurance contract of Aegon Ireland and the merger of Firebird into TLIC.Netherlands with Canada Life Reinsurance.
As a result of the above changes in Own Funds and PIM SCR, the Group Solvency II ratio improveddeclined by 10%-points to 211%201% in 2018.2019. The capitalization levels of the most relevant country units are as follows: | | | | | | | | Capitalization December 31, 20181,2 | | Capitalization December 31, 20172 | | | | Aegon USA (Life entities) (RBC CAL) | | 465% | | 472% | | | | Aegon the Netherlands (Solvency II ratio) | | 181% | | 199% | | | | Aegon United Kingdom (Solvency II ratio) | | 184% | | 176% |
| | | | | | | | | | | | Capitalization December 31, 2019 1), 2), 3) | | Capitalization December 31, 2018 2) | Aegon USA (Life entities) (RBC CAL) | | | | 470% | | 465% | Aegon the Netherlands (Solvency II ratio) | | | | 171% | | 181% | Aegon United Kingdom (Solvency II ratio) | | | | 157% | | 184% |
| 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 thebottom-end of Aegon’s capitalization target ranges.targets. |
| 3 | Note that as per 1H 2019, Aegon Bank is not included in the Aegon the Netherlands SII ratio. |
Aegon Americas In the United States, regulation of the insurance business is principally undertaken at the state level. State insurance regulators and the National Association of Insurance Commissioners have adopted RBCRisk-Based Capital (RBC) requirements for insurance companies. RBC calculations measure the ratio of a company’s statutory capital, which is measured on a prudent regulatory accounting basis, to a minimum capital amount determined by the risk-based capital formula. The RBC formula measures exposures to investment risk, insurance risk, market risk, and general business risk. The formula, as used for calculating the solvency ratio, applies a covariance diversification offset to determine the appropriate Risk-Based Capital. Life reinsurance is treated as life insurance. The most pertinent RBC measure is the CALCompany Action Level (CAL) risk-based capital requirement. This is the regulatory intervention level atbelow which a company has tomust submit a remediation plan to its state regulators. The domiciliary state regulator has the authority to require additional capital depending on the type, volume and nature of the business | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 78 | | How we safeguard long-term value creationCapital and liquidity management | | | | | | |
being conducted. The domiciliary state regulator also has the ability to require corrective actions if a company is deemed by the commissioner to pose a Hazardous Financial Condition. The CAL is set at 200% of the Authorized Control Level (ACL), the level at which regulators are permitted to seize control of the Company.a company. At the end of 2018,2019, the combined risk-based capital ratio of Aegon’s life insurance subsidiaries in the United States was estimated to be 470% (2018: 465% (2017: 472%) of the CAL risk-based capital requirement. AsThe increase is mainly due to positive capital generation as a result of January 1, 2016, underpositive earnings on inforce partly offset by negative impact from higher new business strain than last year and remittances paid from US regulated companies. Under the Solvency II requirements, the activities of Aegon Americas life insurance and reinsurance companies have been consolidated into the Aegon Group Solvency II figures through Deduction & Aggregation using available and required capital as per the local capital regimes. US insurance and reinsurance entities are included in Aegon’s group solvency calculation in accordance with local US (RBC) requirements of the top regulated entity. Aegon uses 150% of the local RBC Company Action Level as the Solvency II SCR equivalent for including the US life insurance and reinsurance entities into the Group solvency calculation. In addition, reducing own funds by a 100% RBC Company Action Level requirement to reflect transferability restrictions. The US conversion methodology is subject to annual review and approval by the DNB. Thenon-regulated US entities and the US holding companies are included in the Aegon Group Solvency II results through application of the Accounting Consolidation method under Solvency II, using Solvency II valuation and capital requirement calculations for these entities. The contribution of the Aegon Americas entities to the Group Solvency II position on December 31, 2018,2019, is estimated to be 217% (2018: 210% (2017: 199%). This ratio includes the US Life insurance and reinsurance entities as well asnon-regulated US entities and US holding companies. The Americas ratio does not include a diversification benefit between the US life companies and there is no diversification benefit between US life insurance and reinsurance entities and other group entities. Aegon the Netherlands Aegon the Netherlands uses a PIM to calculate the solvency position of its insurance activities under Solvency II. The calculation includes the use of the volatility adjustment (VA), but does not include the use of any transitional measures. In 2018, the Dynamic VA model has been updated for Aegon the Netherlands to align with the guidance from the European Insurance and Occupational Pensions Authority (EIOPA) and the updated Dynamic VA model uses an asset-only model approach to quantify required capital for spread risk. The initial internal model of Aegon the Netherlands was approved on November 26, 2015, by the supervisor, the DNB, as part of the Internal Model Application Process. The combined | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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Solvency II position of the activities of Aegon the Netherlands, includingexcluding Aegon Bank, on December 31, 2018,2019, is estimated to be 181% (2017: 199%171% (2018: 189%). ThisThe decrease of the Solvency II position is mainly driven byone-time items, including negative market impacts primarily from the EIOPA VA narrowing from 24bps to 7bps, the decrease of LAC DT and a decline of interest rates. Furthermore, the lowering of the UFR by 15 basis pointsfrom 4.05% to 4.05%, impact of tax changes3.90% led to a decrease in Own Funds, and a change in the Netherlands and changes to the assumptions regarding mortgages, mortality rates and lapses for individual life policies. Thistreatment of illiquid assets increased SCR as well. These negative impact isimpacts are partly offset by favorable market impacts mainly due to decreased interest rates combinednormalized capital generation and management actions including the longevity reinsurance transaction with an increase of the EIOPA VA, and narrowed mortgage spread. The solvency position of the banking activities is calculated using the CRR/CRD IV framework.Canada Life Reinsurance. As at December 31, 2018,2019, the factor of LAC DT is set atfactor decreased from 75% to 65%, unchanged from 2017, whilemainly as a consequence of lower interest rates, leading to a negative impact on the corporate tax rate was lowered to reflect the upcoming tax rate changes in 2020 and 2021. The upcoming decrease from the corporate tax rate in The Netherlands resulted in a change in LAC DT (Loss absorbing capacity of deferred taxes) and a change in deferred tax position.Solvency II ratio. The Solvency II capital ratio of the Group and Aegon the Netherlands does not include any contingent liability potentially arising from unit-linked products sold, issued or advised on by Aegon in the Netherlands in the past, as the potential liability cannot be reliably quantified at this point. Aegon UK Aegon UK uses a PIM to calculate the solvency position of its insurance activities under Solvency II. The calculation includes the use of both the matching adjustment and volatility adjustment (for the with-profits fund). The initial internal model of Aegon UK was approved on December 14, 2015 by the PRA as part of the Internal Model Application Process. The combined Solvency II position of the activities of Aegon in the UK on December 31, 2018,2019, is estimated to be 157% (2018: 184% (2017: 176%). This increaseThe decrease over 2019 is mainly reflects the positive expense assumption update duedriven by remittances paid to the improved price agreement with Atos, and the positive impact of management actions, which was dominated by the replacements of gilts held in the shareholder fund with a combination of interest and inflation swaps. Other management actions include the restructure of existing BlackRock and Baillie Gifford External Fund Links (EFLs) and the impact of trades to sell excess credit.Aegon N.V.. This is partly offset by a negative impact from assumption updates, mainly due to expense assumptions, market impacts, and new business strain and the completion of the Part VII transfer of BlackRock.strain. Sensitivities Aegon calculates sensitivities of its Solvency II ratios as part of its risk management framework. The following table provides an overview of the shockssensitivities (downward and upward) to certain parameters, used to assess the sensitivities, and their estimated impact on the Solvency II ratio asratio. Please note that the sensitivities listed in the tables below represent sensitivities to Aegon’s position at December 31, 2018. Aegon is mainly exposed to movements in equity,the balance sheet date for the respective years. The sensitivities reflect single shocks where other elements remain unchanged. Real world market impacts (e.g. lower interest rates credit spreads and defaults/migrations,declining equity markets) may happen simultaneously which can lead to more severe combined impacts and longevity.may not be equal to the sum of the individual sensitivities presented in the disclosure.
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 79 | | How we safeguard long-term value creationCapital and liquidity management
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Scenario | | | Group | | | US | | | NL | | | UK | | | | | | | | December
31, 2018 | | | December
31, 2017 | | | December
31, 2018 | | | December
31, 2017 | | | December
31, 2018 | | | December
31, 2017 | | | December
31,2018 | | | December
31, 2017 | | Equity markets | | | (20% | ) | | | n.a. | | | | (5% | ) | | | n.a. | | | | (10% | ) | | | n.a. | | | | (5% | ) | | | n.a. | | | | 12% | | | | | | | | | | | | Equity markets | | | 20% | | | | n.a. | | | | 10% | | | | n.a. | | | | 17% | | | | n.a. | | | | 5% | | | | n.a. | | | | (10% | ) | | | | | | | | | | | Equity markets | | | (25% | ) | | | (11% | ) | | | n.a. | | | | (23% | ) | | | n.a. | | | | (5% | ) | | | n.a | | | | (2% | ) | | | n.a. | | | | | | | | | | | | Equity markets | | | 25% | | | | 15% | | | | n.a. | | | | 34% | | | | n.a. | | | | 2% | | | | n.a | | | | (7% | ) | | | n.a. | | | | | | | | | | | | Interest rates | | | -100bps | | | | n.a. | | | | (16% | ) | | | n.a. | | | | (21% | ) | | | n.a. | | | | (11% | ) | | | n.a. | | | | (16% | ) | | | | | | | | | | | Interest rates | | | +100bps | | | | n.a. | | | | 12% | | | | n.a. | | | | 12% | | | | n.a. | | | | 8% | | | | n.a. | | | | 12% | | | | | | | | | | | | Interest rates | | | -50bps | | | | (6% | ) | | | n.a. | | | | (14% | ) | | | n.a. | | | | (1% | ) | | | n.a | | | | (4% | ) | | | n.a. | | | | | | | | | | | | Interest rates | | | +50bps | | | | 3% | | | | n.a. | | | | (0% | ) | | | n.a. | | | | 3% | | | | n.a | | | | 2% | | | | n.a. | | | | | | | | | | | | Credit spreads1 | | | +100bps | | | | n.a. | | | | (2% | ) | | | n.a. | | | | - | | | | n.a. | | | | (2% | ) | | | n.a. | | | | 13% | | | | | | | | | | | | Credit spreads1 | | | -50bps | | | | (5% | ) | | | n.a. | | | | (4% | ) | | | n.a. | | | | (7% | ) | | | n.a. | | | | (10% | ) | | | n.a. | | | | | | | | | | | | Credit spreads1 | | | +50bps | | | | 5% | | | | n.a. | | | | 2% | | | | n.a. | | | | 7% | | | | n.a. | | | | 8% | | | | n.a. | | | | | | | | | | | | US credit defaults2 | | | ~+200bps | | | | (19% | ) | | | (23% | ) | | | (35% | ) | | | (53% | ) | | | n.a. | | | | n.a | | | | n.a. | | | | n.a. | | | | | | | | | | | | Ultimate Forward Rate | | | -50bps | | | | n.a. | | | | (4% | ) | | | n.a. | | | | n.a. | | | | n.a. | | | | (12% | ) | | | n.a. | | | | n.a. | | | | | | | | | | | | Ultimate Forward Rate | | | -15bps | | | | (1% | ) | | | n.a. | | | | n.a. | | | | n.a. | | | | (3% | ) | | | n.a. | | | | n.a. | | | | n.a. | | | | | | | | | | | | Longevity shock | | | +5% | | | | (6% | ) | | | (10% | ) | | | (4% | ) | | | (9% | ) | | | (9% | ) | | | (12% | ) | | | (3% | ) | | | (3% | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Scenario | | | Group | | | US2 | | | NL | | | UK | | | | | | | | December | | | December | | | December | | | December | | | December | | | December | | | December | | | December | | | | | | | | 31, 2019 | | | 31, 2018 | | | 31, 2019 | | | 31, 2018 | | | 31, 2019 | | | 31, 2018 | | | 31, 2019 | | | 31, 2018 | | Equity markets | | | (25% | ) | | | (12% | ) | | | (11% | ) | | | (27% | ) | | | (23% | ) | | | (7% | ) | | | (5% | ) | | | (4% | ) | | | (2% | ) | Equity markets | | | 25% | | | | 12% | | | | 15% | | | | 33% | | | | 34% | | | | 2% | | | | 2% | | | | 0% | | | | (7% | ) | Interest rates | | | -50bps | | | | (4% | ) | | | (6% | ) | | | (13% | ) | | | (14% | ) | | | 2% | | | | (1% | ) | | | (2% | ) | | | (4% | ) | Interest rates | | | +50bps | | | | 4% | | | | 3% | | | | 13% | | | | (0% | ) | | | (2% | ) | | | 3% | | | | 2% | | | | 2% | | Govt spreads | | | -50bps | | | | 7% | | | | n.a. | | | | 0% | | | | n.a. | | | | 16% | | | | n.a. | | | | 5% | | | | n.a. | | Govt spreads | | | +50bps | | | | (3% | ) | | | n.a. | | | | 0% | | | | n.a. | | | | (5% | ) | | | n.a. | | | | (4% | ) | | | n.a. | | Non-govt spreads | | | -50bps | | | | (8% | ) | | | (5% | ) | | | (3% | ) | | | (4% | ) | | | (15% | ) | | | (7% | ) | | | (10% | ) | | | (10% | ) | Non-govt spreads | | | +50bps | | | | 6% | | | | 5% | | | | 4% | | | | 2% | | | | 14% | | | | 7% | | | | 5% | | | | 8% | | US Credit Defaults | | | ~200 bps | | | | (19% | ) | | | (19% | ) | | | (37% | ) | | | (35% | ) | | | n.a. | | | | n.a. | | | | n.a | | | | n.a. | | UFR | | | -15bps | | | | (2% | ) | | | (1% | ) | | | n.a. | | | | n.a. | | | | (5% | ) | | | (3% | ) | | | n.a | | | | n.a. | | Longevity | | | +5% | | | | (4% | ) | | | (6% | ) | | | (3% | ) | | | (4% | ) | | | (8% | ) | | | (9% | ) | | | (3% | ) | | | (3% | ) | Mortgage spreads | | | -50bps | | | | 6% | | | | n.a. | | | | n.a. | | | | n.a. | | | | 14% | | | | n.a. | | | | n.a | | | | n.a. | | Mortgage spreads | | | +50bps | | | | (5% | ) | | | n.a. | | | | n.a. | | | | n.a. | | | | (14% | ) | | | n.a. | | | | n.a | | | | n.a. | | EIOPA VA | | | -5bps | | | | (3% | ) | | | n.a. | | | | n.a. | | | | n.a. | | | | (9% | ) | | | n.a. | | | | n.a | | | | n.a. | | EIOPA VA | | | +5bps | | | | 3% | | | | n.a. | | | | n.a. | | | | n.a. | | | | 9% | | | | n.a. | | | | n.a | | | | n.a. | |
| 1 | Non-government bonds credit spreads.
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2 | Additional defaults for 1 year including rating migration of structured products.
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3 | Note 1: Equity marketsGovernment spreads +/- 25%, Interest rate+/-50%50bps, mortgage spreads +/- 50bps and UFR -15bpsEIOPA VA +/- 5bps sensitivities were introduced in 20182019 and therefore they are not available (n.a.) on December 31,2017.31, 2018. These new sensitivities are introduced as these are more relevant than the previous sensitivities, refer to note 2.
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42 | Note 2: Equity markets +/- 20%, Interest rateThe sensitivities applied on US includes US regulated (life) companies,+/-100%non-regulated holding companies and UFR -50bps sensitivities are not available (n.a.) in 2018 as these are replaced by new more relevant sensitivities introduced in 2018, refer to note 1.the employee pension plan.
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Equity Sensitivities The Group is exposed to the risk of a fall in equity markets driven by adverse impacts on the solvency ratio in US, NLAegon Americas, Aegon the Netherlands and UK. An increaseAegon UK, with Aegon Americas being the largest contributor. In Aegon Americas, equity sensitivities are primarily driven by the Variable Annuity business, where hedging programs need to consider a balance between targeting stable earnings and stable capital ratios. Under the new Variable Annuity framework which Aegon Americas adopted in 2019, sensitivities are mainly driven by the change in reserves, while required capital is fairly stable. In declining equity market values hasmarkets, Own Funds decrease due to higher setup of reserves for the Variable Annuity product, partly offset by payoffs on equity hedge programs. Furthermore, declining equity markets results in a positivereduction to the assets backing employee pension plan liabilities and a decrease in private equity and hedge fund investments. The asymmetry between the up and down shock is largely driven by the equity macro hedge program in Aegon Americas. The macro hedge program delivers payoffs only under extreme equity down scenarios to limit the adverse impact on the ratio for all CUsAggregated RBC ratio. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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For Aegon the Netherlands, losses in the down shock come from the private equity investments in the general account and the mismatch between the guarantee provision and associated hedge assets. For Aegon UK, under an equity down scenario, the reduction in Own Funds is offset by the reduction in SCR with the exception of UK. UK Own Funds do increase butmain exposures coming from the SCR also increases significantly resulting in a decrease in UK solvency ratio. Thenon-linearity in SCR is owing toStaff Pension scheme and the equity hedges (put options) held in the General Account which are not symmetric between an equity up and down shock. Furthermore upward equity sensitivity for US is high as reserves set up in the equity decline in the fourth quarter of 2018 would be expected to be released.unitized business. Interest Rates Sensitivities The Group is exposed to a fall in interest rates driven by higher SCR and lower Own Funds. The higher SCR is driven by Aegon the Netherlands and Aegon UK, whereas the reduction in Own Funds is driven by Aegon Americas. In Aegon Americas, a decrease in interest rates. The sensitivity towards lower interest rates is mainly causedresults in a higher setup of reserves for Variable Annuity and Universal Life products, partly offset by higher SCRs in NL and UK and lower Own Funds in the US due to additional reserves. The asymmetry in thepayoffs from interest rate movements ariseshedge programs. Own funds decrease further from theset-up of required capital onan increase in employee pension plan liabilities relative to the Fixed Annuity businessinvested assets. The opposite occurs in the US which increases in an upward interest rate sensitivity, but which is subject to a floor and therefore insensitive to a downward interest rate sensitivity. The amount of interest rate risk capital changes under the scenarios based on the extent of asset liability mismatches under different interest rate levels. In rising interest rate scenarios bonds backingscenarios. Aegon the annuity liabilities may needNetherlands is over-hedged on a Solvency II Own Funds basis leading to be sold at their lower market values in order to fund higher anticipated annuity withdrawals.Own Funds losses when rates go up and Own Funds gains when rates go down. This reduces the cash flow available to fund the remaining policyholder contracts.
Credit spread sensitivities at Group level are driven by movementsresults in Aegon NL and the EIOPA VA. NLNetherlands’ solvency ratio being exposed to rising interest rate scenario.
For Aegon UK, the main exposure to interest rates arises from the swaps in the shareholders’ funds which reflects a gain if rates go down, partly offset by the higher present value of expenses on the fee based business. The gain in Own Funds under a down interest rate scenario is offset by an increase in the SCR. Spread Sensitivities The Group is exposed tonon-government spreads narrowing, government spreads widening and mortgage spreads widening. Exposure tonon-government spreads narrowing is contributed by Aegon Americas, Aegon the Netherlands and Aegon UK driven by the impact on Own Funds. For Aegon Americas, the impact arises from a reduction in spreads since this leads to an increase tolower discount rate for valuing the liabilities (viaemployee pension plan liabilities. For Aegon the Netherlands, the impact arises from lower VA) which are onlyVolatility Adjustment increasing the liabilities, partly offset by gainsthe gain on the fixed income assets resultingmortgage portfolio. For Aegon UK,non-government spreads narrowing results in a net loss on Qwn Fundslower IAS 19 curve and hence higher pension liabilities. Exposure to government spreads sensitivities is contributed by Aegon the Netherlands and Aegon UK both of which are exposed to spreads widening due to the spread duration mismatch. Inreduction in value of their fixed income assets. Group is exposed to mortgage spreads widening, driven by Aegon the US, we have includedNetherlands, which has an adverse impact on the asset valuation. Aegon Americas credit defaults sensitivity reflects the impact of credit spreadsdefaults and rating migrations on the pension plan. Spread widening results in gains from the riseassets held in the discount rate being greater thangeneral account portfolio. Under this sensitivity, the loss on plan assets. Lower mortality ratescredit impairments reduce the value of credit exposures and increase the amount of required capital. The increase in required capital is driven by the downward ratings migration of credit instruments, partly offset by a decrease in exposure due to the impaired value of bonds under the scenario.
Longevity Sensitivities The Group is exposed to higher longevity exposed liabilities. Thedriven by Aegon Americas, Aegon the Netherlands and Aegon UK due to the higher liability values decrease Own Funds in US and NL, asvaluation since longevity is only partially hedged, and increasehedged. Higher longevity also increases the SCR.SCR requirements held by these units. Aegon the Netherlands’ sensitivity to longevity reduced marginally over the year due to two offsetting impacts – reduction in sensitivity due to the execution of the longevity reinsurance transaction with Canada Life Reinsurance, partly offset by higher longevity sensitivity due to the fall in interest rates over the year. Rating agency ratings Aegon’s objective is to maintain a very strong financial strength ratingratings 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.. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | 80100 | | How we safeguard long-term value creation | | Capital and liquidity management | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | Agency | | | | | | | | | | Aegon the | | | December 31, 20182019 | | Aegon N.V. | | | Aegon USA | | | Aegon
the Netherlands | | | Aegon UK | | | | | | | S&P Global | | | | | | | | | | | | | | | | | | | | | | Financial strength | | | - | | AA-1) | | AA- | | | | AA- | | 1) | | A+ | | | | | | | Long-term issuer | | | A- | | | | - | | - | | - | | | | - | | | | | | | Senior debt | | | A- | | | | - | | - | | - | | | | - | | | | | | | Subordinated debt | | | BBB | | | | - | | - | | - | | | | - | | | | | | | Commercial paper | | | A-2 | | | | - | | - | | - | | | | - | | | | | | | Moody’s Investors Service | | | | | | | | | | | | | | | | | | | | | | Financial strength | | | - | | | | A1 | | - | | - | | | | - | | | | | | | Long-term issuer | | | A3 | | | | - | | - | | - | | | | - | | | | | | | Senior debt | | | A3 | | | | - | | - | | - | | | | - | | | | | | | Subordinated debt | | | Baa1 | | | | - | | - | | - | | | | - | | | | | | | Commercial paper | | | P-2 | | | | - | | - | | - | | | | - | | | | | | | Fitch Ratings | | | | | | | | | | | | | | | | | | | | | | Financial strength | | | - | | | | A+ | | | | - | | | | A+ | | | | | | | Long-term issuer | | | A- | | | | - | | - | | - | | | | - | | | | | | | Senior debt | | | BBB+ | | | | - | | - | | - | | | | - | | | | | | | Subordinated debt | | | BBB- | | | | - | | - | | - | | | | - | | | | | | | Commercial paper | | | F2 | | | | - | | - | | - | | | | - | | | | | | | A.M. Best | | | | | | | | | | | | | | | | | | | | | | Financial strength | | | - | | | | A+ | | A | | - | | - |
| 1 | - | On February 21, 2020 S&P Global lowered the financial strength ratings of Aegon USA and Aegon the Netherlands fromAA- to A+. |
Internal capital management framework In managing the capital adequacy of the Group and its operating units, Aegon’s capital management framework is built on, among other things, managing capitalizations towards targetcapital in the operating units and the Group within target capital management zones. Under Aegon’s capital management framework, the target capitalization zone for Aegon Group and thebottom-end of the capitalization target range of the most relevant target capitalization zonesentities are as follows: | | | | | | Capitalization target range11) | | Aegon Group | | 150% –- 200% Solvency II Capital Ratio | | | | Aegon USA (Life entities) | | 350% – 450% RBC Company Action Level | | | | Aegon the Netherlands | | 150% – 190%155% Solvency II Capital Ratio | | | | Aegon United Kingdom | | 145% – 185% Solvency II Capital Ratio |
| 1 | Capitalization target rangestargets follow the revised capital management policy as of the second quarter of 20172019 |
| 2 | For Aegon USA (Life entities), Aegon the Netherlands and Aegon United Kingdom, this refers to thebottom-end of the capitalization target range |
Aegon the Netherlands updated its capitalization zones as a result of higher capital sensitivities arising from the adoption of the new Dynamic VA model in 2018, and the exclusion of Aegon Bank from the Solvency II capital ratio. These changes were effective per the second quarter of 2019. The Group capitalization zones remained unchanged. The frequent monitoring of actual and forecastforecasted capitalization levels of both the Aegon Group and of its underlying businesses is an important element in Aegon’s capital framework in order to actively steer and manage towards maintaining adequate capitalization levels. Aegon’s capital framework is based on several capital management zones in which escalating management actions are called for in a timely manner to ensure that there is always adequate capitalization of both the Aegon Group and its operating units. The capital management zones and the management interventions connected to these zones are set consistently throughout the Group, as illustrated in the following table.table below. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
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| | | | | | | | | | | Aegon Group | | Capitalization
management zones11) | | US Life entities | | The Netherlands | | United Kingdom | | Capitalization
management actions | >200% SCR | | Opportunity | | >450% RBC | | >190% SCR | | >185% SCR | | Accelerate capital redeployment and/or additional dividends. | 150% –- 200% SCR | | Target | | 350% – 450% RBC | | 150% – 190% SCR | | 145% – 185% SCR | | Execute capital deployment and remittancesdividends according to capital plan. | 120% –- 150% SCR | | Retention | | 300% – 350% RBC | | 130% – 150% SCR | | 130% – 145% SCR | | Re-assess capital plan and risk positions. | 100% –- 120% SCR | | Recovery | | 100% – 300% RBC | | 100% – 130% SCR | | 100% – 130% SCR | | Re-assess capital plan and risk positions. Reduce or suspend remittances.dividends. | <100% SCR | | Regulatory plan | | <100% RBC | | <100% SCR | | <100% SCR | | Suspension of dividends. Regulatory plan required. |
| 1 | Capitalization management zones follow the revised capital management policy as of the second quarter of 2017.2019. |
Aegon the Netherlands has started a process to review its capitalization zones as a result of a change in credit sensitivities and increased 1-in-10 year combined sensitivities for the Netherlands. The higher capital sensitivities arise from the adoption of a new dynamic VA model which has been adopted to align with the guidance from the European Insurance and Occupational Pensions Authority (EIOPA).
Minimum solvency requirements
Insurance laws and regulations in local regulatory jurisdictions often contain minimum regulatory capital requirements. For insurance companies in the European Union, Solvency II formally
defines a lower capital requirement: the Minimum Capital Requirement (MCR). An irreparable breach of the MCR would lead to a withdrawal of the insurance license. Similarly, for the US insurance entities, the withdrawal of the insurance license is triggered by a breach of the 100% Authorized Control Level (ACL), which is set at 50% of the CAL.
With the introduction of Solvency II for EEA countries, Aegon views these minimum regulatory capital requirements as the level at which regulators will formally require management to provide regulatory recovery plans. This is set at 100% CAL for US insurance entities, and 100% SCR for insurance companies in the European Union.
The minimum regulatory capital requirements, as viewed by Aegon for itsCapitalization levels main operating units and the
The capitalization levels asfor Aegon’s main operating units at December 31, 2018,2019, are included in the following table: | | | | | | | Capital requirements | | Minimum capitalCapital requirement | | Actual capitalization | | Excess over minimum
capital requirement | Aegon USA (Life entities)11) | | 100% Company Action Level (NAIC RBC CAL) | | 465%470% of combined RBC CAL | | EUR 6.97.3 bln | | | | 3) | Aegon the Netherlands1,21),2) | | 100% Solvency II SCR | | 181%171% Solvency II SCR | | EUR 3.12.5 bln | | | | | Aegon United Kingdom11) | | 100% Solvency II SCR | | 184%157% Solvency II SCR | | EUR 1.21.0 bln |
| 1 | Please note, this reflectsdisclosure is based on Aegon’s estimated Capitalizationcapitalization levels. |
| 2 | IncludingExcluding Aegon Bank.
|
| 3 | Please note, this amount is based on local RBC framework |
The capitalization level and shareholders’ equity of the operating units can be impacted by various factors (e.g. general economic conditions, capital markets risks, underwriting risk factors, changes in government regulations, legal and arbitrationalarbitration proceedings). To mitigate the impact of such factors on the ability of operating units to transfer funds, the operating units hold additional capital in excess of the levels of the minimum regulatory solvency requirements. 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.
These ranges are both in excess of the minimum regulatory requirements contained in the applicable regulations, and in excess of the minimum requirements stated in the table above.
Improving risk-return profile Aegon continues to take measures to improve its risk-return profile. These measures includede-emphasizing the selling of various spread based products and the strategic growth infee-based businesses. In 2016, Aegon divested its annuity business in the UK, and reinvested part of the proceeds for the acquisition of Cofunds and BlackRock’s DC business in the UK. In 2017, Aegon continued its commitment to optimize its portfolio by divesting UMG in the Netherlands and completing the sale of the majority of its USrun-off businesses. In 2018, Aegon divested its business in Ireland and the remaining USrun-off business, acquired the income protection service provider Robidus in Thethe Netherlands and expanded its business in the Netherlands and Spain. In 2019, Aegon finalized the divestment of its business in Czech Republic and Slovakia to optimize its portfolio and capital allocation across business. Aegon also announced the agreement to sell its 50% stake in variable annuity joint ventures in Japan to its partner Sony Life. The transaction with Sony Life was completed on January 29, 2020. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
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Extensive asset-liability management and hedging programs are also in place. Examples of these programs include hedging the interest rate and equity risk stemming from guarantees in the Netherlands, hedging ofthe interest rate risk and equity risk in Aegon UK, and hedging the capital position in the Americas against adverse equity and interest rate movements. In addition, Aegon is actively involved in hedging longevity risk in the Netherlands and has an active global reinsurance program in order to optimize the risk-return profile of other insurance risks. Aegon strictly monitors the risk-return profile of new business written, withdrawing products that do not meet the required hurdle rates for all stakeholders including the policyholders and shareholders. G-SII designation and International Capital Standards For more information about Aegon’sG-SII designation, the impact thereof and the status of development of the International Capital Standards, please refer to section “Regulation‘Regulation and supervision”supervision’. Capital quality Capital quality is a reflection of Aegon’s stability and ability to absorb future financial losses. Solvency II distinguishes between basic Own Funds and ancillary Own Funds. Aegon’s total Own Funds are comprised of Tier 1, Tier 2 and Tier 3 basic Own Funds. Aegon does not currently have ancillary Own Funds. Tier 1 basic Own Funds are divided into unrestricted Tier 1 itemscapital and restricted Tier 1 items.capital. The latter category contains Own Fund itemsFunds instruments subject to the restrictions of article 82 (3) of the Solvency II Delegated Regulation, which includes grandfathered Tier 1 Own Fund items.Funds instruments. Based on agreements with its supervisory authorities, Aegon applies a fungibilty and transferability restriction with respect to charitable trusts within Aegon Americas, and a restriction equal to the Own Funds of Aegon Bank. These restrictions, applied to Aegon’s basic own funds, result in Aegon’s available Own Funds. Available Own Funds Unrestricted Tier 1 capital consists of Aegon’s share capital, share premium and the reconciliation reserve. The reconciliation reserve includes deductions to account for foreseeable dividends that have been approved by the Board, but that have yet to be | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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distributed to Aegon’s shareholders, and restrictions related to Aegon’s with-profits fund in the UK for which the excess of Own Funds over its capital requirement is ring-fenced for the policyholder,policyholders, and therefore unavailable to Aegon’s shareholders. Restricted Tier 1 capital consists of Aegon’s junior perpetual capital securities, perpetual cumulative subordinated bonds, and perpetual contingent convertible security. Both junior perpetual capital securities and perpetual cumulative subordinated bonds both ofare grandfathered. Perpetual contingent convertible securities are Solvency II compliant liabilities which are grandfathered.were issued in 2019. Restricted Tier 1 capital is subject to tiering restrictions.eligibility restrictions to qualify as eligible Own Funds Aegon’s Tier 2 capital consists of the new issuance of subordinated notes by Aegon Funding Company LLC (AFC) in 2019, the Solvency II compliant subordinated liabilities that were issued during 2018, and grandfathered dated subordinated notes. Tier 2 capital is subject to tiering restrictions.eligibility restrictions to qualify as eligible Own Funds. The grandfathered restricted Tier 1 and Tier 2 capital instruments are grandfathered to count as capital under Solvency II for up to 10 years as of January 1, 2016. All call dates are listed in note 3331 ‘Other equity instruments’ and note 3432 ‘Subordinated borrowings’ to Aegon’s consolidated financial statements. Aegon’s Tier 3 capital under the Solvency II framework consists of Aegon’s deferred tax asset position under Solvency II. Eligible Own Funds Under Solvency II regulation, restrictions apply to the eligibility of restricted Tier 1, Tier 2 and Tier 3 capital, as well as the eligibility of restricted Tier 1 capital. The total of Tier 2 and Tier 3 capital may not exceed 50% of the SCR while the eligibility of Tier 3 capital is limited to 15% of SCR. Restricted Tier 1 capital may not exceed 20% of Tier 1 Own Funds. As a result, it is possible that part of the Own Funds overflows to another tier or that is not considered eligible in determining the Group Solvency II ratio. When applying the eligibility restrictions, Aegon determines its tiering limits based on: | ◆ | | EEA entities –- representing the part of the Group covered by the Accounting Consolidation based method, for which tiering limits are based on the SCR of the consolidated part of the Group, i.e. the consolidated group SCR; and |
| ◆ | | Non-EEA entities –- representing the part of the Group covered by the Deduction & Aggregation method. If a prudential regime of an equivalent or provisionally equivalent third-country applies, such as the regulatory regimes in the United States, Aegon does not initially categorize these Own Funds into tiers or define tiers that are significantly different from those established under the Solvency II Directive.States. The Own Funds brought in by the Deduction & Aggregation method are then allocated to tiers according to the principles laid out in Articles 87 to 99 of the Solvency II Directive for each individual third-country insurance undertaking. |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
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The table below shows the composition of Aegon’s available and eligible Own Funds, taking into consideration tiering restrictions. | | | | December 31, 2018 | | | December 31, 2017 | | | | | | December 31, 2019 | | | | | | December 31, 2018 | | | | | Available own funds | | | Eligible own funds | | | Available own funds | | | Eligible own funds | | | Available own funds | | | Eligible own funds | | | Available own funds | | | Eligible own funds | | Unrestricted Tier 1 | | | 12,204 | | | | 12,204 | | | | 10,428 | | | | 10,428 | | | | 12,724 | | | | 12,724 | | | | 12,204 | | | | 12,204 | | | Restricted Tier 1 | | | 3,406 | | | | 2,888 | | | | 3,540 | | | | 2,451 | | | | 2,614 | | | | 2,614 | | | | 3,406 | | | | 2,888 | | | Tier 2 | | | 1,487 | | | | 2,005 | | | | 1,213 | | | | 2,302 | | | | 2,370 | | | | 2,370 | | | | 1,487 | | | | 2,005 | | | Tier 3 | | | 505 | | | | 505 | | | | 448 | | | | 448 | | | | 762 | | | | 762 | | | | 505 | | | | 505 | | Total Tiers | | | 17,602 | | | | 17,602 | | | | 15,628 | | | | 15,628 | | | | 18,470 | | | | 18,470 | | | | 17,602 | | | | 17,602 | |
AsThe Available own funds equal to the Eligible own funds per December 31, 2019. The overflow from restricted Tier 1 to Tier 2 Own Funds is not applied anymore per year end 2019, as a result of applying the restrictions to the available Own Funds, there was an overflow from Restrictedincrease of unrestricted Tier 1 capital and the redemption of grandfathered perpetual capital securities (Tier 1 Own Funds of EUR 518 to Tier 2 in the eligible Own Funds as of December 31, 2018.Funds) during 2019.
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 and efficient use of capital and realizing capital efficiencies.capital. In managing the use of financial andnon-financial leverage throughout the Group, Aegon has implemented a Leverage Use Framework that is part of Aegon’s broader Enterprise Risk Management framework. Leverage metrics In line with the guiding principles of its capital and liquidity management, Aegon N.V. monitors and manages several leverage metrics: | ◆ | | Gross financial leverage ratio; |
| ◆ | | Fixed charge coverage; and |
| ◆ | | Various rating agency leverage metrics. |
Aegon’s gross financial leverage ratio is calculated by dividing total financial leverage by total capitalization. Aegon defines total financial leverage as debt or debt-like funding issued for general corporate purposes and for capitalizing Aegon’s business units. Total financial leverage includes hybrid instruments, | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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subordinated and senior debt. Aegon’s total capitalization consists of the following components: | ◆ | | Shareholders’ equity, excluding revaluation reserves and cash flow hedge reserves, based on IFRS as adopted by the EU; |
| ◆ | | Non-controlling interests and share optionsLong Term Incentive Plans not yet exercised;vested; and |
| ◆ | | Total financial leverage. |
Aegon’s fixed charge coverage is a measure of the Company’s ability to service its financial leverage. It is calculated as the sum of underlying earnings before tax and interest expenses on financial leverage divided by interest payments on financial leverage. The fixed charge coverage includes the impact of interest rate hedging. For further information, please refer to note 4643 ‘Capital Management and Solvency’ in the consolidated financial statements. Operational leverage Although operational leverage is not considered part of Aegon’s total capitalization, it is an important source of liquidity and funding. Operational leverage relates primarily to financing Aegon’s mortgage portfolios through securitizations, warehouse facilities, covered bonds, and the fundinguse of US Regulation XXX and Guideline AXXX redundant reserves.the Federal Home Loan Bank (FHLB) facility. Aegon enters into reinsurance agreements for risk and capital management purposes with several affiliated captive insurance companies (captives). All captives are fully consolidated for IFRS reporting and for Solvency II based on local valuations under equivalence. The captives are utilized for a number of purposes that may include: | ◆ | | Financing term life insurance (subject to Regulation XXX reserves) and universal life insurance with secondary guarantees (subject to Regulation AXXX reserves) to support lower-risk statutory reserves at a lower cost for policyholders and shareholders; |
| ◆ | | Managing and segregating risks; and |
| ◆ | | Monetizing embedded value. |
All external financing provided to captives to support statutory reserves is disclosed in note 3937 ‘Borrowings’ to the consolidated financial statements to the extent to which it has been funded. Letters of Credit (LOCs) issued by third parties provided to captives to provide collateral to affiliated insurers are disclosed in note 4845 ‘Commitments and contingencies’ to the consolidated financial statements. These LOCs have been provided by third parties for the benefit of the affiliated company whose liabilities are reinsured. Existing captive structures are continually monitored and may bere-financed to achieve financial goals. Funding andback-up facilities The majority of Aegon’s financial leverage is issued by Aegon N.V., the parent company. A limited number of other Aegon companies have also issued debt securities, but for the most part these securities are guaranteed by Aegon N.V. Aegon N.V. has regular access to international capital markets under a USD 6 billion debt issuance program. Access to the capital market in the United States is made possible by a separate shelf registration. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
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Aegon also has access to domestic and international money markets through its EUR 2.5 billion commercial paper programs. As at December 31, 2018,2019, Aegon had EUR 8258 million outstanding under these programs (2017:(2018: EUR 7282 million). To support its commercial paper programs and need for LOCs, and to enhance its liquidity position, Aegon maintains backup credit and LOC facilities with international lenders. The Company’s principal arrangements comprise a EUR 2 billion syndicated revolving credit facility and aan LOC facility of USD 2.62.2 billion. In 2018, the company refinanced itsThe syndicated revolving credit facility. The new facility matures in 2023. The LOC facility matures in 2021.2024. In addition, Aegon also maintains various shorter-dated bilateral backup liquidity facilities, and committed and uncommitted LOC facilities. Liquidity management Liquidity management is a fundamental building block of Aegon’s overall financial planning and capital allocation processes. The Company’s liquidity risk policy sets guidelines for its operating companies and the holding in order to achieve a prudent liquidity profile and to meet cash demands under extreme conditions. Liquidity is coordinated centrally and managed both at Aegon N.V. and at the operating unit level. Aegon maintains a liquidity policy that requires all business units to project and assess their sources and uses of liquidity over atwo-year period under normal and severe business and market scenarios. This policy ensures that liquidity is measured and managed consistently across the Company, and that liquidity stress management plans are in place. Sources and uses of liquidity Liquidity in Aegon’s subsidiaries Aegon’s operating units are primarily engaged in the life insurance and pensions business, which is a long-term activity with relatively illiquid liabilities and generally matching assets. Liquidity consists of liquid assets held in investment portfolios, in addition to inflows generated by premium payments and customer deposits. These are used primarily to purchase investments, as well as to fund benefit payments to policyholders, policy surrenders, operating expenses, and, if the subsidiary’s capital position allows, to pay dividends to the holding. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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After investments have been made in new business to generate organic growth, capital generated by Aegon’s operating units is available for distribution to the holding company, while maintaining a capital and liquidity position in the operating units in line with Aegon’s capital management and liquidity risk policies. In addition, the ability of Aegon’s insurance subsidiaries to transfer funds to the holding company is also constrained by the requirement for these subsidiaries to remain adequately capitalized at the levels set by local insurance regulations, and as administered by local insurance regulatory authorities. Aegon N.V. The main sources and uses of liquidity at the holding company Aegon N.V. are dividendsremittances from operating units, movements in debt, net expenses (including interest), funding operations, capital returns to shareholders, and the balance of acquisitions and divestitures. In addition, contingent internal and external liquidity programs are maintained to provide additional safeguards against extreme unexpected liquidity stresses. Aegon uses cash flows from its operating units to pay for holding expenses, including funding costs. The remaining cash flow is available to execute the Company’s strategy and to fund dividends on its shares. Aegon aims to pay out a sustainable dividend to enable equity investors to share in its performance. When determining whether to declare or propose a dividend, Aegon’s Executive Board balances prudence with offering an attractive return to shareholders. This is particularly important during adverse economic and/or financial market conditions. Furthermore, Aegon’s operating subsidiaries are subject to local insurance regulations that could restrict dividends to be paid to the holding company. There is no requirement or assurance that Aegon will declare and pay any dividends. Aegon’s holding excess cash The ability of the holding company to meet its cash obligations depends on the amount of liquid assets on its balance sheet and on the ability of the operating units to pay dividends to the holding company. In order to ensure the holding company’s ability to fulfil its cash obligations and maintain sufficient management flexibility to allocate capital and liquidity support for Aegon’s operating units and external dividend stability, it is the Company’s policy that the holding excess cash position, including Aegon’s centrally managed (unregulated) holding companies, is managed to a target range of EUR 1.0 to 1.5 billion. As at December 31, 2018,2019, Aegon held a balance of EUR 1.31.2 billion in excess cash in the holding, compared with EUR 1.41.3 billion on December 31, 2017.2018. The decrease of EUR 0.1 billion reflects the net impact of dividendsremittances from subsidiaries and capital injections in subsidiaries, divestments, acquisitions,earn-out payments, the issuance and redemptions of capital instruments and senior unsecured notes, holding expenses and capital returns to shareholders. During 20182019 Aegon exercised the right to redeem the USD 525500 million 8%non-cumulative subordinated notes (grandfathered Tier 2) and the EUR 200 million 6% perpetual capital securities with a coupon of 6.5% issued in 2005 (grandfathered Restricted Tier 1), which and the USD 1 billion perpetual capital securities with a coupon of 6.375% issued in 2005 (grandfathered Restricted Tier 1). This waspre-financed by the issuance of a EUR 500 million Restricted Tier 1 perpetual contingent convertible securities, with a fixed coupon of 5.625% until October 15, 2029; and a USD 800925 million Tier 2 subordinated debt securities, first callable on April 11, 2028, and maturing on April 11, 2048. Additionally, the1-year EUR 500 million senior unsecured notes that werewith a fixed coupon of 5.1%, which is issued in 2017, were redeemed.by Aegon Funding Company LLC (AFC). An amount of EUR 97 million was paid for the acquisition of the protection income service provider Robidus
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
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in The Netherlands. The payments in 2018 were offset by proceedsProceeds from the sale of Aegon IrelandCzech Republic and Slovakia of EUR 196131 million andwere received in 2019 as well as dividends from Aegon Americas (EUR 906801 million), Aegon NL (EUR 200 million), and Aegon UK (EUR 113251 million). Dividends from other units were largelymore than offset by capital injections and investments, amounting to a net outflow of EUR 14219 million.
During 2018,2019, payments related to the 20172018 final dividend and 20182019 interim dividend and the corresponding share buybacks amounted to EUR 577626 million and holding and funding expenses amounted to EUR 333312 million. Aegon’s liquidity is invested in accordance with the Company’s internal risk management policies. Aegon believes that its working capital, backed by its external funding programs and facilities, is ample for the Company’s present requirements. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | 86105 | | | | How we safeguard long-term value creationAsset liability management | | | | | | | | | | | | |
Asset liability management Aegon specializes in writing long-term life insurance business with key markets in the US, Europe and Asia. Its product suite includes savings and annuity products that feature a guaranteed level of benefit. Aegon also issues mortgage loans in Thethe Netherlands that are initiated using long-term insurance funds. Products are priced using a market-consistent framework, and comprehensive asset-liabilityasset liability management (ALM) programs are implemented to ensure that the assets backing policyholder benefits are invested prudently over the long term. A range of ALM techniques are used across the Group. These range in terms of sophistication and complexity from cash-flow matching (for traditional fixed annuities) to duration matching (for the universal life family)Universal Life range pf products) to derivative-based semi-static and dynamic hedges (to match variable annuities). The Enterprise Risk Management (ERM) framework includes a number of risk policies that govern ALM strategies, such as the Investment and Counterparty Risk Policy (ICRP), the Interest Rate Risk Policy (IRRP) and the Currency Risk Policy (CRP). The ICRP governs the management of investment risks associated with credit, equity, property, and alternative asset classes, interest rate and currency risk in addition to option markets, and implied volatility risk. The other policies govern interest rate and currency risk, including the risk associated with interest rate options and swaptions. As well as product-level ALM programs, subsidiary businesses are required by the ICRP to maintain overarching ALM strategies that set the direction and limits for the various individual product-level programs. Significant or complex ALM strategies are approved at group level, and all programs are subject to group risk oversight. Together with the ICRP, IRRP and CRP, which guideguides ALM strategy, a number of other ERM policies govern concentration risk, liquidity risk, use of derivatives and securities lending and repos. As Aegon uses derivatives extensively, collateral calls can be significant depending on market circumstances. Liquidity is managed at legal entity level in the first instance, and the large US and Dutch units may use external market solutions to match projected liquidity requirements with funding. The introduction of Dodd-Frank Act in the United States and the European Market Infrastructure Regulation (EMIR) derivative regulations led to Aegon transitioning a significant proportion of formerlyover-the-counter positions to clearing houses in recent years. Collateral and margin requirements increased, introducing the potential for liquidity strain, which has to be carefully managed. Market volatility can cause collateral requirements to increase rapidly, which means that it is important to have sufficient high qualityhigh-quality collateral available at all times. Regular liquidity stress testing is used to monitor required liquidity and ensure that sufficient funding is available. Americas The investment choices of Aegon USA’s companies are subject to regulation dependent upon the laws of the applicable state in which each such company is domiciled. Each state prescribes the nature, quality and percentage of various types of investments that may be made by the companies. Such laws generally permit investments in government bonds, corporate debt, preferred and common stock, real estate and mortgage loans, while limiting investment in other classes of investments. A range of ALM strategies are used at the product-group level. For traditional general account insurance, the ALM strategy is to select high-quality investment assets that are matched to the corresponding liability. This strategy takes currency, yield and maturity characteristics into consideration. Asset quality and diversification are also taken into account, together with policyholders’ reasonable expectations with regard to the sharing of excess interest. TransamericaAegon USA also writes a significant volume of variable annuity business, which is managed using sophisticated dynamic hedging techniques. Clearly-defined hedge strategies cover first order ‘delta’ and ‘rho’, together with higher order programs covering ‘gamma’ and ‘vega’ sensitivities. The ‘Distributed Earning Macro Hedge Program’ is an overlay hedge that provides additional protection for distributable earningsregulatory capital against a sharp fall in equity markets.
Aegon USA also uses various liquidity management techniques - including a contingent liquidity management facility - to ensure sufficient access to funding for collateral calls in the event of rapidly rising interest rates. Regular stress testing is used to monitor and manage liquidity risk. Europe The Netherlands Aegon the Netherlands uses fixed income instruments to match its long-term liabilities. These include high-quality sovereign and corporate bonds, together with a sizeable portfolio of Dutch residential mortgages. Cash flow matching is used to manage the asset portfolio, and a derivative-based dynamic hedge program in addition to the cash flow matching. The hedge program is rebalanced on a daily basis in order to both offset embedded guarantee sensitivities, and protect against volatility in best estimate economic cost of these guarantees. Derivatives are central to Aegon’s hedging strategy, and the derivatives market has been subject to a large number of changes in recent years. These include the introduction of the EMIR in Europe. Furthermore, counterparty risks associated with derivative contracts are mitigated by collateral, and the introduction of central clearing has increased collateral requirements and reduced counterparty risk over recent years. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | 87106 | | How we safeguard long-term value creation | | Asset liability management | | | | | | | | | | |
United Kingdom
Having disposed of the majority of its annuity portfolio, the primary role of ALM at Aegon UK is to protect Solvency II own funds. This is achieved by using options and equity and interest rate swaps to guard against fluctuations in best estimate liabilities. This year a new Solvency II unit matching program was introduced to reduce residual basis risk associated with unit-linked liabilities. Programs are also in place to match assets with the liabilities of the remaining annuity book and the staff pension scheme.
The UK with-profits business is written in the policyholder-owned fund (otherwise called the ‘with-profits fund’). The funds with the highest guaranteed rates have been closed to premiums since 1999, and all funds have been closed to new business with investment guarantees since October 2002 (except for a small increase in regular payments). The fund contains free assets that have not yet been fully distributed to individual policyholders. Free assets help meet the cost of guarantees and provide a buffer to protect the fund from the impact of adverse events. The free assets are partly invested in equity put options and interest rate swaps and swaptions. Aegon UK has an exposure
only once these assets have been exhausted. The risk of exposure has been assessed by Aegon UK as remote, based on applying the risk-based capital approach required for Solvency II reporting in the UK. As the fund is closed for new business, the free assets are gradually being distributed to the with-profit policyholders through the applicable bonus system.
Central & Eastern Europe and Spain & Portugal
Aegon has a range of ALM programs in place across life andnon-life businesses in the Central & Eastern Europe region and in Spain and Portugal. Across the CEE units, ALM focuses on asset-liability matching in terms of duration and liquidity. In Spain & Portugal, insurance liabilities are predominately long-term life benefits, and the focus of ALM is to minimize interest rate risk by duration matching.
Asia
Aegon and Sony Life jointly established a reinsurance company, SA Reinsurance Ltd. (SARe). SARe uses a sophisticated dynamic hedge program to manage guarantee risk included in variable annuity products associated with equity markets and interest rates.
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 88 | | How we safeguard long-term value creation Reinsurance ceded | | | | | | |
Reinsurance ceded
Aegon uses reinsurance to manage and diversify risk, limit volatility, improve capital positions, limit maximum losses, and sometimes to enter into strategic partnerships and gain access to reinsurer technology. While the objectives and use can vary by region due to local market considerations and product offerings, the use is coordinated and monitored globally.
In order to minimize its exposure to reinsurer defaults, Aegon regularly monitors the creditworthiness of its reinsurers, and where appropriate, arranges additional protection through letters of credit, trust agreements and overcollateralization. For certain agreements, funds are withheld for investment rather than relying on the reinsurer to meet investment expectations. Default exposure is further reduced by the use of multiple reinsurers within certain reinsurance agreements. Aegon has experienced no material reinsurance recoverability problems in recent years.
External reinsurance counterparties are in general major global reinsurers (approximately 60% of reinsurance premium) with more local reinsurers ensuring a balance between regional and global considerations. The key way in which reinsurance is used and the role that it plays by region is as follows:
Corporate Center and Blue Square Re
Global coordination takes place through Aegon Corporate Center working closely with local business units. The Global Reinsurance Use Committee (GRUC) is a global body that shares and discusses updates and matters of interest among local and global reinsurance managers. The GRUC also oversees Aegon’s Reinsurance Use Policy and facilitates approval of transactions if counterparties are notpre-approved. Reports are shared with the Global Risk and Capital Committee and Group Management Board as appropriate.
Blue Square Re is a global reinsurer 100% owned by Aegon N.V. that specializes in internal reinsurance and related consideration, and offers product and underwriting expertise to Aegon units and partners. In accepting risks from Aegon units, Blue Square Re may at times retrocede risk to external reinsurers, thereby realizing economies of scale and diversification.
Americas
Aegon Americas manages its life insurance exposure through various types of agreements with reinsurers. It relies heavily on quota-share andexcess-of-loss reinsurance arrangements. The primary purpose of these agreements is to diversify Aegon Americas’ overall risk and limit the maximum loss on risks that exceed policy retention levels. Maximum retention levels vary by product, method of underwriting, and the nature of the risk being reinsured.
Europe
The Netherlands
Aegon the Netherlands reinsures part of its insurance exposure with third-party reinsurers under traditional indemnity and ‘excess of loss’ contracts. Reinsurance helps Aegon manage, mitigate and diversify its insurance risks, and thereby limit the maximum loss it may incur. Since January 1, 2014, Aegon the Netherlands has reinsured its term life assurance through a quota-sharing contract. Fornon-life, Aegon the Netherlands only reinsures its property, general and motor third-party liability business. For property insurance, motor third-party liability insurance, and general third-party liability, ‘excess of loss’ contracts are in place.
United Kingdom Having disposed of the majority of its annuity portfolio, Aegon UK primarily uses ALM to protect Solvency II own funds. This is achieved by using equity options and interest rate and inflation swaps to guard against fluctuations in best estimate liabilities. A new Solvency II unit matching program is in place to reduce residual basis risk associated with unit-linked liabilities. Programs are also in place to match assets with the liabilities of the remaining annuity book and the staff pension scheme. The UK with-profits business is written in the policyholder-owned fund (otherwise called the ’with-profits fund’). The funds with the highest guaranteed rates have been closed to premiums since 1999, and all funds have been closed to new business with investment guarantees since October 2002 (except for a small increase in regular payments). The fund contains free assets that have not yet been fully distributed to individual policyholders. Free assets help meet the cost of guarantees and provide a buffer to protect the fund from the impact of adverse events. The free assets are partly invested in equity put options and interest rate swaps and swaptions. Aegon UK has an exposure only once these assets have been exhausted. The risk of exposure has been assessed by Aegon UK as remote, based on applying the risk-based capital approach required for Solvency II reporting in the UK. As the fund is closed for new business, the free assets are gradually being distributed to the with-profit policyholders through the applicable bonus system. Central & Eastern Europe, Spain, Portugal and Asia Aegon has a range of ALM programs in place across life andnon-life businesses in the Southern and Eastern Europe region. Across the Central & Eastern European units, ALM focuses on asset-liability matching in terms of duration and liquidity. In Spain & Portugal, insurance liabilities are predominately long-term life benefits, and the focus of ALM is to minimize interest rate risk by duration matching. Transamerica Life Bermuda (TLB) was established in 2005 with full-service branches opened in 2006 in Hong Kong and Singapore, writing universal life (UL) products and term products for the high net worth segment. TLB’s ALM strategy is to invest in predominantly investment grade fixed income assets to generate stable returns and support the UL crediting philosophy over the policy term. Derivative instruments can be used for efficient portfolio management and ALM. Assets are invested predominantly in the United States and in US dollar denominated assets to match the currency of our products. Aegon and Sony Life jointly established a reinsurance company, SA Reinsurance Ltd. (SARe) from which it subsequently divested from on January 29th, 2020. SARe used a sophisticated dynamic hedge program to manage guarantee risk included in variable annuity products associated with equity markets and interest rates. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
Reinsurance ceded Aegon uses reinsurance to manage and diversify risk, limit volatility, improve capital positions, limit maximum losses, and sometimes to enter into strategic partnerships and gain access to reinsurer technology. While the objectives and use can vary by region due to local market considerations and product offerings, the use of reinsurance is coordinated and monitored globally. In order to minimize its reinsurer defaults exposure, Aegon regularly monitors the creditworthiness of its reinsurers, and where appropriate, arranges additional protection through letters of credit, trust agreements and overcollateralization. For certain agreements, funds are withheld for investment rather than relying on the reinsurer to meet investment expectations. Default exposure is further reduced by the use of multiple reinsurers within certain reinsurance agreements. Aegon has experienced no material reinsurance recoverability problems in recent years. Aegon ceded businesses to a subsidiary of Scottish Re Group. Scottish Re US entered receivership in March 2019. The court has given the receiver a deadline of March 31, 2020 to propose a plan of rehabilitation or to notify the court that liquidation is necessary. Aegon has carried out an impairment analysis to assess the recoverability of our IFRS reserves and has concluded that they are recoverable. The reserves and receivables of Aegon to Scottish Re Group at December 31, 2019 were less than EUR 100 million. Separately, Aegon ceded business to Senior Health Insurance of Pennsylvania (SHIP). The Pennsylvania Insurance Commissioner filed an application in January 2020 with the state’s Commonwealth Court to have SHIP placed in rehabilitation. Aegon is protected by a trust account and has assessed that the trust assets are sufficient to cover the reserves and receivables to SHIP on Aegon’s balance sheet at December 31, 2019. External reinsurance counterparties are, in general, major global reinsurers (approximately 60% of reinsurance premium) with more local reinsurers ensuring a balance between regional and global considerations. The key way in which reinsurance is used and the role that it plays by region is as follows: Corporate Center Global coordination takes place through Aegon Corporate Center, working closely with local business units. The Global Reinsurance Use Committee (GRUC) is a global body that shares and discusses updates and matters of interest among local and global reinsurance managers. The GRUC also oversees Aegon’s Reinsurance Use Policy and facilitates approval of transactions if counterparties are notpre-approved. Reports are shared with the Global Risk and Capital Committee and Group Management Board as appropriate. Americas Aegon Americas manages its life insurance exposure through various types of agreements with reinsurers. It relies heavily on quota-share andexcess-of-loss reinsurance arrangements. The primary purpose of these agreements is to diversify Aegon Americas’ overall risk and limit the maximum loss on risks that exceed policy retention levels. Maximum retention levels vary by product, method of underwriting, and the nature of the risk being reinsured. Europe The Netherlands Aegon the Netherlands reinsures part of its insurance exposure with third-party reinsurers under traditional indemnity and ‘excess of loss’ contracts. Reinsurance helps Aegon manage, mitigate and diversify its insurance risks, and thereby limit the maximum loss it may incur. Since January 1, 2014, Aegon the Netherlands has reinsured its term life assurance through a quota-sharing contract. In December 2019, Aegon announced the reinsurance of about one quarter of its longevity exposure in the Netherlands. The contract commenced on December 31, 2019 and will run until the portfolio runs off. Fornon-life, Aegon the Netherlands only reinsures its property, general and motor third-party liability business. For property insurance, motor third-party liability insurance, and general third-party liability, ‘excess of loss’ contracts are in place. United Kingdom Aegon UK uses reinsurance to both manage risk and maximize financial value through returns achieved and efficient capital management.value. The degree to which reinsurance is used across the product lines varies, depending largely on the appropriateness and value of reinsurance available in the market. The protection business is significantly reinsured. A reinsurance panel is in place to provide reinsurance, predominantly on a quota share basis, across the range of benefits. A facultative reinsurance panel is also used to assist the placement of very large cases. Central &Southern and Eastern Europe
Aegon CEE uses reinsurance for its life andnon-life businesses in order to mitigate insurance risk. The majority of treaties in force for Aegon’s operations in Central & Eastern Europe arenon-proportional excess of loss programs –- except for the life reinsurance treaties –- which are made on a surplus and quota-share basis (including various riders). The most significant reinsurance programsprogram currently in force areis a property catastrophe excess of loss treaty and excess of loss treaties for other risks. Spain & Portugaltreaty.
Aegon Spain has a ’one Aegon’ reinsurance management policy. This means that both its joint ventures in Spain & Portugal and own business are treated as a whole, with similar economic conditions and a similar panel of reinsurers, while individual profit shares without losses are carried forward by each entity belonging to Aegon Spain. The main contract for mortality and | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
morbidity provides proportional reinsurance protection for both its individual risk and group risk policies. Aegon Spain thereby seeks to optimize the cost of reinsurance coverage, including through profit sharing, while achieving prudential diversification of its insurance risk by limiting the maximum possible losses on risks that exceed retention levels. Household insurance contracts for the Aegon Santander joint ventures follow the same principles, with maximum retention levels varying both by product and by the nature of the risk being reinsured. Natural catastrophe reinsurance programs are also in place to provide cover for high impact –- low frequency events. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
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Asia China: Aegon THTF Aegon THTF shares its morbidity and mortality risk with international and national reinsurers. The mortality risk of individual products is shared through a surplus reinsurance structure. Aegon THTF reviews the reinsurance structure regularly, adjusting it based on claims experience and its risk acceptance capability. India: Aegon Life Reinsurance arrangements are regulated by the Insurance Regulatory and Development Authority of India.In India, Aegon Life reinsures the mortality and morbidity risks of the policies it sells.
Japan: Aegon Sony Life and SARe
Aegon Sony Life reinsures 100% of its guarantees on variable annuities with SARe. In addition, Aegon Sony Life maintains a Surplus Relief reinsurance contract on a local statutory basis only. Surplus Relief provides relief from acquisition cost recovery risk.
Hong Kong and Singapore: Transamerica Life Bermuda (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. In October 2016, TLB entered into a reinsurance treaty to provide further protection for the local solvency position in Singapore. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | 90109 | | | | How we safeguard long-term value creationRisk management | | | | | | | | | | | | |
Risk management General As an insurance group, Aegon manages risk for the benefit of its customers and other stakeholders. As a result, the Company is exposed to a range of underwriting, operational and financial risks. Aegon’s risk management and internal control systems are designed to ensure that these risks are managed effectively and efficiently in a way that is aligned with the Company’s strategy. For Aegon, risk management involves: | ◆ | | Understanding risks that the Company faces; |
| ◆ | | Maintaining a company-wide framework through which the risk-returntrade-off associated with these risks can be assessed; |
| ◆ | | Maintaining risk tolerances and supporting policies to limit exposure to a particular risk or combination of risks; and |
| ◆ | | Monitoring risk exposures and actively maintaining oversight of the Company’s overall risk and solvency positions. |
By setting certain predefined tolerances and adhering to policies that limit the overall risk to which the Company is exposed, Aegon is able to accept risk with the knowledge of potential returns and losses. This section provides a description of Aegon’s risk management. Risks and risk management are also referred to in various other sections of Aegon’s Integrated Annual Report, as they are relevant throughout the Company, for its various activities and its financial results. Relevant sections are: Our operatingAegon’s business environment on page 17; Note14; note 4 on Financial Risks in the Notesnotes to the consolidated financial statements on page 175;184; and Risk factors on page 369.365. Enterprise Risk Management (ERM) framework Aegon’s ERM framework is designed and applied to identify and manage potential risks that may affect Aegon. This means identifying and managing individual and aggregate risks within Aegon’s risk tolerance in order to provide reasonable assurance regarding the achievement of Aegon’s objectives. The ERM framework covers the ERM components as identified by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The ERM framework applies to all of Aegon’s businesses for which it has operational control. Aegon’s businesses are required to either adopt the Group level ERM framework directly, or tailor it to local needs while meeting the requirements of the Group level ERM framework. Risk strategy, risk appetite statement and risk tolerances The formulation of the risk strategy starts with the principle that taking a risk should be based on serving a customer’s need. In terms of Aegon’s purpose statement, risk taking should be instrumental to helping people achieve a lifetime of financial security. The competence with which Aegon is able to manage the risk is assessed and Aegon’s risk preferences are formulated, taking into account Aegon’s risk capacity. The risk preferences eventually lead to a targeted risk profile that reflects the risks Aegon wants to keep on the balance sheet, and the risks Aegon would like to avoid. Aegon’s risk appetite statement and risk tolerances are established in order to assist management in carrying out Aegon’s strategy using the resources available to Aegon. Aegon’sThe risk appetite statement is linked to Aegon’s strategy and purpose as expressed in the mission statement:of helping people achieve a lifetime of financial security. Aegon’s risk appetite statement is to:emphasizes that Aegon businesses: “Fulfill our promises towards our customers and other stakeholders by delivering sustainable growing long-term free capital generation, with strong resilience in solvency and liquidity, healthy balance in exposures, and by running a responsible business with effective controls.” Following from the risk appetite statement, risk tolerances are defined on: | 1 | Capital generation, to ensure free capital generation remains sufficiently in line with projections. |
| 2 | Solvency and liquidity, to ensure that Aegon remains solvent and liquid even under adverse scenarios. |
| 3 | Risk balance, to ensure a healthy balance of risk exposures that supports delivering on targets for capital generation and return on capital. |
| 4 | 1) Capital generation, to ensure free capital generation remains sufficiently in line with projections;
2) Solvency and liquidity, to ensure that Aegon remains solvent and liquid even under adverse scenarios;
3) Risk balance, to ensure a healthy balance of risk exposures that supports delivering on targets for capital generation and return on capital;
4) Responsible business with effective controls, which acknowledges an acceptable level of operational risk and stresses a low tolerance for (lack of) actions which could lead to material adverse risk events that result in breaking promises or not meeting reasonable expectations of customers, legal breaches or reputational damage.
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The tolerances are further developed into measures, limits and thresholds that have to be complied with to remain within the tolerances. Risk identification and risk assessment Aegon has identified a risk universe that captures all known material risks to which the Company is exposed. 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 maintainedkeptup-to-date. The risk metrics are embedded in Aegon’s key reports and are used for decision making. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
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Risk response Aegon distinguishes the following risk responses: | ◆ | | When the risk exposure is within the set risk tolerance, management can accept the risk; and |
| ◆ | | When an exposure exceeds the established risk tolerance of management or if cost-benefit analysis supports further actions, management can decide to control, transfer or avoid the risk. |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
Risk monitoring and reporting Risks are monitored regularly and reported on at least a quarterly basis. The impact of key financial, underwriting and operational risk drivers on earnings and capital is shown in the quarterly risk dashboard for the various risk types both separately as well as on an aggregate basis. Risk exposures are compared with the limits as defined by Aegon’s risk tolerance statements. Reporting also includes risk policy compliance and incident and compliance reporting. Finally, the main risks derived from Aegon’s strategy andtheday-to-day business are discussed, as well as forward looking points for attention. If necessary, mitigating actions are taken and documented. 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. Risk universe and risk appetite The risk factors described in this Integrated Annual Report (see risk factors in the ‘additional’additional information’ section) generally have an impact on financial markets (e.g. interest rates and share prices), underwriting assumptions (e.g. longevity and policyholder behavior) or result in operational risk events (e.g. fraud and business disruption). Aegon’s risk universe is structured to reflect the type of risk events to which the Company is exposed. The identified risk categories are financial risk, underwriting risk and operational risk. Specific risk types are identified within these risk categories. The risk universe captures all known material risks to which Aegon is exposed. These risks, internal or external, may affect the Company’s operations, earnings, share price, value of its investments, or the sale of certain products and services. In the context of Aegon’s risk strategy, a risk appetite is set for the three identified risk categories (see table below). | | | | | | Risk category | | Description | | Appetite | | Underwriting | | The risk of incurring losses when actual experience deviates from Aegon’s best estimate assumptions on mortality, longevity, morbidity, policyholder behavior, P&C claims and expenses used to price products and establish technical provisions. | | Medium to high –- Underwriting risk is Aegon’s core business and meets customer needs. | | Financial | | The risk of incurring financial losses due to movements in financial markets and the market value of balance sheet items. Elements of financial risk are credit risk, investment risk, interest rate risk and currency risk. | | Low to medium –- Accepted where it meets customer needs and the risk return profile is acceptable. | | Operational | | Operational risk results from operational failures or external events, such as processing errors, legal and compliance issues, natural orman-made disasters, and cybercrime. | | Low –- Accepted to serve customer needs, but mitigated as much as possible. |
Most significant risks The most significant risks Aegon faces in terms of exposures and required capital are: | ◆ | | Financial markets risks (particularly related to credit, equity and interest rates), and |
| ◆ | | Underwriting risk (particularly related to longevity and policyholder behavior). |
Description of risk types Financial risk Credit risk Credit risk is the risk of economic loss due to the deterioration in the financial condition of counterparties, either through fair value losses on traded securities or through defaults on traded securities, loans and mortgages. Having a well-diversified investment portfolio means that Aegon can accept credit spread risk to earn a liquidity premium on assets that match liabilities. The focus is on high qualityhigh-quality securities with low expected defaults because Aegon has a low appetite for default risk. Equity market risk and other investment risks Aegon runs the risk that the market value of its investments changes. Investment risk affects Aegon’s direct investments in the general account, indirect investments on the account of policyholders and agreements where Aegon relies on counterparties, such as reinsurance and derivative counterparties. Aegon has a low preference for investments in equity securities via the general account. Equity investments generate an equity risk premium over the long run, but in combination with a high capital charge result in a relatively low return on capital. Aegon has experience and expertise in managing complex investment guarantees, and leverages this capability by providing customers access to a range of investment strategies and guaranteed benefits. Interest rate risk Aegon is exposed to interest rates as both its assets and liabilities are sensitive to movements in long- and short-term interest rates, as well as to changes in the volatility of interest rates. Aegon accepts interest rate risk in order to meet customer needs. However, as no spread is earned on this interest rate risk, Aegon prefers to mitigate the risk to the extent possible. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
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Currency exchange rate risk As an international company, Aegon is exposed to different currencies, and therefore to movements in currency exchange rates. Foreign currency exposure exists primarily when policies are denominated in currencies other than the issuer’s functional | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
currency. Currency risk in the investment portfolios backing insurance and investment liabilities is managed using asset liability matching principles. Assets allocated to equity are held in local currencies to the extent shareholders’ equity is required to satisfy regulatory and self-imposed capital requirements. Currency exchange rate fluctuations therefore affect the level of shareholders’ equity as a result of converting local currencies into euro, the Group’s reporting currency. The Company holds its capital base in various currencies in amounts that correspond to the book value of individual business units. Liquidity risk Aegon needs to maintain sufficient liquidity to meet short termshort-term cash demands not only under normal conditions, but also in the event of a crisis. To that end, Aegon has put a strong liquidity management strategy in place. The Company considers extreme liquidity stress scenarios, including the possibility of prolonged ‘frozen’ capital markets, an immediate and permanent rise in interest rates, and policyholders withdrawing liabilities at the earliest conceivable date. In addition, the Company has liquidity stress planning in place. Underwriting risk Underwriting risk relates to the products sold by Aegon’s insurance entities, and represents 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 must workhand-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 Company’s income. Assumptions used to price products and establish technical liabilities are reviewed on a regular basis. Please refer to note 3 ‘CriticalCritical accounting estimates and judgment in applying accounting policies’policies to the consolidated financial statement for further information. Operational risk Like other companies, Aegon faces operational risk resulting from operational failures or external events, such as processing errors, inaccuracies in used models, acts fromactions by personnel,non-compliance to laws and regulations, and natural orman-made disasters including climate change. In addition, major programs or organizational transformations may also increase potential for operational risks. Aegon’s systems and processes are designed to support complex products and transactions, and to avoid such issues as system failures, business disruption, financial crime and breaches of information security. Aegon monitors and analyses these risks on a regular basis, and where necessary revises contingency plans to deal with them. Aegon’s operational risk universe distinguishes eight risk types: Businessbusiness risk; Legal, legal, regulatory, conduct and compliance risks; Taxtax risk; Financialfinancial crime risk; Processingprocessing risk; Systemssystems and business disruption risk; Peoplepeople risk; and Facilityfacility risk. These level 1 risk types are split out into more granular level 2 risk types. The operational risk universe also covers social and environmental risks. Please refer to the chapternon-financial policies, procedures and outcomes for an overview of how various social and environmental issues are incorporated in decision making processes and policies throughout the company. CyberInformation security risk
CyberInformation security risk has been recognized by Aegon as an important operational risk. Aegon’s digital security controls and cyber threat management program, as defined within the Company’s global information security program areis intended to establish security controls that safeguard data, technology and operations, as well as activities outsourced to third parties. Aegon recognizes the need to commit significant resources to protect and continually strengthen its existing security control environment and preventative tooling as new cyber threats and exposures emerge. Evaluations and scenario testing of security controls –- including detection and response capabilities –- are performed by both internal and external experts, and identified vulnerabilities are tracked and monitored by management. This program is overseen by Aegon’s Global Chief Information Security Officer, who has a direct reporting line to the Global Chief Technology Officer, who is a member of the Management Board, in conjunction with local business unit management and information security officers. Moreover, periodic updates are provided to Aegon’s Supervisory Board. Aegon takes cybercrime very seriously, and is committed to enhancing its existing systems over time in order to provide additional protections to its systems and information.
Conduct Riskrisk Both industry-wide and within Aegon, cultural and behavioral elements of risks increasingly play a role within overall risk frameworks. Relevant in this context are, among others, the European Insurance Distribution Directive (IDD) and the General Data Protection Regulation (GDPR). Conduct risk refers to the risks inherent in behaviors, business and staff integrity and business culture, including, but not limited to, meeting the standards of Aegon’s Market Conduct Principles. EmergingFraud risk process
Aegon is committed to a strong anti-fraud program to protect its and materiality assessmentclients assets from fraudulent behavior of clients, business partners, employees or any other external entity or individual. Mandatory requirements for identifying, mitigating and monitoring internal, external and intermediary fraud risks are captured in the Group Anti-Fraud policy. Aegon Regions have implemented these requirements in local policies, processes and procedures. As part of Systematic Integrity Risk Analysis (SIRA) 2019 all regions provided insight in their local anti-fraud programs and indicated that controls with regard to internal, external and intermediary fraud are properly designed and operating effectively. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
Business environment scan In addition to the management of described risk types, Aegon performs ana business environment scan. This scan brings together the former emerging risk process and athe materiality assessment. These processes areassessment as described in the 2018 Annual Report. The aim is to identify topics, including opportunities and new and developing risks, which could have significant impact on value creation and Aegon’s financial strength, competitive position or reputation. The scan is meant to ensure ongoing appropriateness of the risk universe, to ensure completeness of Aegon’s risk assessment and to provide input for ongoing strategy development. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
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The emerging risk processbusiness environment scan is performed on ana two-yearly basis with annual basis. Aegon defines an emerging risk as follows:updates for significant changes. “A newly developing or changing risk, which is perceived to have a potential significant impactTopic identification, mapping and selection are based on Aegon’s financial strength, competitive position or reputation. Emerging Risk may not be fully understood yet or factored into terms and conditions, pricing, reserving or capital setting.”
The aim of the process is to enhance Aegon’s ERM framework by ensuring that the most significant emerging risks are identified on a timely and an ongoing basis, thus limiting the possible impact on the business. The process consists of risk identification and analysis. In the risk identification phase inputs are collected from a number of sources, including a contest among all employees,desk research, interviews with experts and the use of external sources. Intermediate decisions to perform a risk analysismanagement selection. Outcomes can be taken in case a material emerging risk is identified in the timeframe between the annually structured process through regular risk identification and monitoring. Topics that have been analysed relate toused for instance economic and financial market developments, regulatory developments, innovations and developments impacting underwriting risks.
In addition, every year Aegon performs a materiality exercise with the aim to incorporate the results intoreporting, as input for Aegon’s strategy process and reporting processes. The exercise involves both stakeholders and Aegon’s senior management. Material topics are those likely to have the most impact, over the next few years, on Aegon’s business, profits, reputation, and its ability to continue creating long-term value for stakeholders. For the identified material topics it is determined to which degree Aegon can influence and control these topics, what the risks and opportunities are and the actions takenpossiblefollow-up in anticipationterms of further analysis, tracking or response to the topic. For the material topics identified for 2018, the relevant risks are:
1. | A loss of trust from customers impacting sales, reputation and profitability.
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2. | Fines from regulators and loss of trust and business following from cyber security breaches.
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3. | Tougher competition from peers and new distributors following from new technologies and digital transformation, increasing investment needs, and job losses in certain areas as a result of further automation.
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4. | Lower investment returns due to low interest rates.
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5. | A loss of business if Aegon does not adapt quickly enough to changing customer behavior.
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The mentioned risks fall in the risk categories investment risks, mismatch risk, underwriting risks (including longevity and policyholder behaviour) and operational risks (including business risks and strategic risks).as global project. For more information toon the materiality exercisereporting refer to the section: Our operatingsection Aegon’s business environment on page 17.14.
Risk governance framework Aegon’s risk management is based on clear, well-defined risk governance. The goals of risk governance are to: | ◆ | | Define roles and responsibilities, and risk reporting procedures for decision makers; |
| ◆ | | Institute a proper system of checks and balances; |
| ◆ | | Provide a consistent framework for managing risk in line with the targeted risk profile; and |
| ◆ | | Facilitate risk diversification. |
Governance structure Aegon’s risk management framework is represented across all levels of the organization. This ensures a coherent and integrated approach to risk management throughout the Company. Similarly, Aegon has a comprehensive range of company-wide risk policies that detail specific operating guidelines and limits. These policies include legal, regulatory and internally set requirements, and are designed to keep overall risk-specific exposures to a manageable level. Any breach of policy limits or warning levels triggers remedial action or heightened monitoring. Further risk policies may be developed at a local level to cover situations specific to particular regions or business units. Aegon’s risk management governance structure has four basic layers: | ◆ | | The Supervisory Board and the Supervisory Board Risk Committee (SBRC); |
| ◆ | | The Executive Board and the Management Board; |
| ◆ | | The Group Risk & Capital Committee (GRCC) and its sub-committees; and |
| ◆ | | The Regional Risk & Capital Committees. |
The SBRC reports to the Supervisory Board on topics related to the ERM framework and the internal control system. The formal responsibility regarding the effectiveness and design, operation and appropriateness of the ERM and internal control system rests, however, with the Audit Committee of the Supervisory Board. The Audit Committee works closely together with the SBRC with regard to the oversight of and reports on the effectiveness of the ERM framework and the risk control systems of the Company. The Audit Committee relies on the findings of the SBRC. The SBRC is responsible for overseeing Aegon’s ERM framework, including risk governance and measures taken to ensure risk management is properly integrated into the Company’s broader strategy. For a description of the main roles and responsibilities of the SBRC see the section on the Risk Committee on page 9450 of the Report of the Supervisory Board in this Annual Report. It is the responsibility of the Executive Board and the Group’s Chief Risk Officer (CRO) to inform the Supervisory Board of any risk that directly threatens the solvency, liquidity or operations of the Company. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 94 | | How we safeguard long-term value creation Risk management | | | | | | |
Aegon’s Executive Board has overall responsibility for risk management. The Executive Board adopts the risk strategy, risk governance, risk tolerance and material changes in risk methodology and risk policies. The Group’s CRO has a standing invitation to attend Executive Board meetings and a direct reporting line to the Supervisory Board to discuss ERM and related matters, and is a member of the Management Board. The Management Board oversees a broad range of strategic and operational issues. While the Executive Board remains Aegon’s statutory executive body, the Management Board provides vital support and expertise in safeguarding Aegon’s strategic goals. The Management Board discusses and sponsors ERM, in particular the risk strategy, risk governance, risk tolerance and the introduction of new risk policies. The Executive Board and Management Board are supported by the GRCC.Group Risk & Capital Committee (GRCC). The GRCC is Aegon’s most senior risk committee. It is responsible for managing Aegon’s balance sheet at the global level, and is in charge of risk oversight, risk monitoring and risk management related decisions on behalf of the Executive Board in line with its charter. The GRCC ensures risk-taking is within Aegon’s risk tolerances; that the capital position is adequate to support financial strength, credit rating objectives and regulatory requirements, and that capital is properly allocated. The GRCC informs the Executive Board about any identified (near) breaches of overall tolerance levels which threaten the risk balance, as well as any potential threats to the Company’s solvency, liquidity or operations. The GRCC has threesub-committees: the ERM framework, Accounting and Actuarial Committee (ERMAAC), | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
theNon-Financial Risk Committee (NFRC) and the Model Validation Committee (MVC). The purpose of the ERMAAC is to assist the GRCC, Executive Board and Management Board with financial risk framework setting and maintenance across all group-level balance sheet bases, including policies, standards, guidelines, methodologies and assumptions. The purpose of the NFRC is to assist the GRCC, Executive Board and Management Board withnon-financial risk framework setting and maintenance, including policies, standards, guidelines and methodologies and to act as formal discussion and exchange of information platform on matters of concern regardingnon-financial risk management. The MVC is responsible for approving all model validation reports across Aegon. This is an independent committee that reports into the GRCC and Executive Board to provide information on model integrity and recommendations for further strengthening of models. Each of Aegon’s regions has a Risk & Capital Committee (RCC). The responsibilities and prerogatives of the RCCs are aligned with the GRCC and further set out in their respective charters, which are tailored to local circumstances. In addition to the four basic layers described above, Aegon has an established group-wide risk function. It is the mission of the Risk Management function to ensure the continuity of the Company through safeguarding the value of existing business, protecting Aegon’s balance sheet and reputation, and through supporting the creation of sustainable value for all stakeholders. In general, the objective of the Risk Management function is to support the Executive Board, Management Board, Supervisory Board, and regional and business unit boards in ensuring that the Company reviews, assesses, understands and manages its risk profile. Through oversight, the Risk Management function ensures the group-wide risk profile is managed in line with Aegon’s risk tolerances, and stakeholder expectations are managed under both normal business conditions and adverse conditions caused by unforeseen negative events. The following roles are important in order to realize the objective of the Risk Management function: | ◆ | | Advising on risk-related matters including risk tolerance, risk governance, risk methodology and risk policies; |
| ◆ | | Supporting and facilitating the development, incorporation, maintenance and embedding of the ERM framework and sound practices; and |
| ◆ | | Monitoring and challenging the implementation and effectiveness of ERM practices. |
In the context of these roles, the following responsibilities can be distinguished: Advising on risk-related matters | ◆ | | Bringing businesses together to facilitate information exchange, sharing best practices and working together on relevant case studies and external standards in order to develop, adopt and maintain relevant standards of practice throughout Aegon; and |
| ◆ | | Optimizing the use of capital and growth within risk/return and consumer conduct criteria. |
Supporting and facilitating | ◆ | | Developing and maintaining the global ERM framework for identifying, measuring and managing all material risks the Company is exposed to as defined in Aegon’s risk universe and protecting Aegon’s reputation; |
| ◆ | | Developing and maintaining Aegon’s risk methodology as described in the Aegon Market Consistent Reporting Manual (AMCRM); |
| ◆ | | Supporting the businesses with implementing the ERM framework, risk methodology and standards of practice where needed; |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 95 | | How we safeguard long-term value creation Risk management | | | | | | |
| ◆ | | Supporting the Management Board in ensuring the effective operation of the ERM framework and related processes, providing subject matter expertise to businesses as appropriate and facilitating information exchange on good risk practices; |
| ◆ | | Identifying and analyzing emerging risks, being input for ongoing risk strategy development and to ensure that Aegon’s risk universe remains up to date; |
| ◆ | | Designing the Solvency II PIM, including the validation thereof. Model validation ensures independent review of methodology, assumptions, data, testing, production, reporting and use of the Solvency II PIM; |
| ◆ | | Analyzing Solvency II PIM outputs and performance and reporting results to the Boards and relevant (Supervisory) Committees; |
| ◆ | | Providing subject matter expertise from the Centers of Excellence of the global Risk Management function to business areas through review of key initiatives, transactions, programs, projects, assumptions, methodologies and results across all important paradigms; |
| ◆ | | Providing assurance on the integrity of models and modelled cash flows through model validations and maintenance of model validation policies and standards; and |
| ◆ | | Promoting a strong risk management culture across Aegon, including review of performance targets and remuneration in line with the Aegon Group Global Remuneration Framework. |
Challenging and monitoring | ◆ | | Monitoring the ERM framework and overseeing compliance with group-wide risk governance requirements, risk strategy and risk tolerances, risk policies and risk methodology, which are applicable to all businesses for which Aegon has operational control; |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| ◆ | | Ensuring appropriate risk management information is prepared for use by the GRCC, the Management Board, the Executive Board and Supervisory Board; |
| ◆ | | Overseeing material risk, balance sheet and business decisions taken throughout Aegon in line with established risk governance arrangements; |
| ◆ | | Monitoring and reporting on risk exposures and advising the Boards and (Supervisory) Committees on risk management related matters, including in relation to strategic affairs such as corporate strategy, mergers and acquisitions and major projects and investments; |
| ◆ | | Monitoring that the internal modelPIM is and remains appropriate to the Company’s risk profile and informing the Management Board and the Supervisory Board abouttheon-going performance, suggesting improvements; |
| ◆ | | Monitoring risk exposures and risk policy compliance, including review of the Own Risk and Solvency Assessment (ORSA) and Recovery Plan defined triggers and early warning indicators; |
| ◆ | | Acting as independent business partner with focus on talent development, control excellence, customer conduct, capital allocation and by providing management focused risk tools or fostering debates and proactively challenging on key business developments that may create significant exposure for example through hedging and investment remits; |
| ◆ | | Providing subject matter expertiseassurance on the integrity of models through model validations and overseeing critical business initiatives to strengthen risk management activities, to improve the risk profilemaintenance of model validation policies and to resolve risk eventsstandards; and control issues noted; |
| ◆ | | Embedding robust oversight and risk management culture and processes; and |
| ◆ | | Protecting group capital for all stakeholders. |
Aegon’s Group and business unit’s risk management staff structure is fully integrated. Business unit CROs have either a direct reporting line to the Group CRO or one of the regional CROs that reports directly to the Group CRO. Internal control system Aegon has developed an internal control system that serves to facilitate its compliance with applicable laws, regulations and administrative processes, and the effectiveness and efficiency of operations with regard to its objectives, in addition to the availability and reliability of financial andnon-financial information. The overall internal control system ensures appropriate control activities for key processes and the documentation and reporting of administrative and accounting information. The internal control system is embedded through policies and frameworks such as the ERM framework, the Model Validation Framework and the Operational Risk Management (ORM) Framework, andwhich is considered widermore encompassing in scope than the ‘Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission’ (COSO, 2013), on which criteria for the internal control system are based. The internal control system has been developed in accordance with regulations that Aegon must comply with (i.e. Sarbanes-OxleySarbanes- Oxley Act and Solvency II). Aegon’s control activities should assure an adequate level of internal control over Aegon’s objectives and in particular compliance, operational and financial reporting objectives including the production of IFRS and Solvency II numbers. The objective is to provide assurance regarding the reliability, accuracy, completeness, timeliness and quality of internal and external (regulatory) reporting, the safeguarding of assets, and compliance with internal and external requirements. A key element of Aegon’s internal control system is to facilitate action planning and embed continuous improvement regarding the internal control environment throughout the organization. In 2018,2019, risk management and internal control topics were discussed by the relevant management committees and bodies, including the Management Board, the Executive Board, the Risk Committee, the Supervisory Board and the Audit Committee of the Supervisory | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 96 | | How we safeguard long-term value creation Risk management | | | | | | |
Board, and the Supervisory Board, according to their roles and responsibilities as outlined in the respective frameworks and charters. Board. No material weaknesses waswere observed, and no significant changes or major improvements were made or planned to the risk management and internal control systems following from material weaknesses.the review.
Lines of defense Aegon’s risk management structure is organized along three ‘lines of defense’ to ensure conscious risk-return decisions, and to limit the magnitude of potential losses within defined levels of certainty. The objective of this structure is to avoid surprises due to the materialization of unidentified risks, or from losses that exceed predefined risk tolerance levels and related limit structures. The Company’s first line of defense, the business and support functions, has direct responsibility for managing and taking risk in accordance with defined risk strategy, risk tolerances and risk policies. The second line of defense includes the risk management function. The risk management function facilitates and oversees the effectiveness and integrity of ERM across the Company. The third line of defense – the audit function – provide independent assurance on the effectiveness and integrity of the internal control, risk management and governance functions. IBOR transition The future of IBORs (Interbank Offered Rates) such as Euribor, Eonia and LIBOR has been a major topic on the global agenda since the G20 asked the Financial Stability Board (FSB) to undertake a fundamental review of leading interest rate benchmarks in 2013. The FSB proposed new standards to reform interest rate benchmarks and the use of transaction-based input data instead ofnon-transactional/panel input data. In the EU this is adopted in the new Benchmark Regulation (BMR) which stipulates that from January 2020 only BMR compliant benchmarks may be used within the EU. Aegon recognizes that IBOR transitions potentially have implications for all reporting units, including our insurance, asset | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
management and banking activities. Despite current uncertainties on how the transition from IBORs to alternative benchmarks will be managed, it is widely acknowledged that IBOR benchmarks impact financial products and contracts, including among others derivatives, corporate bonds, structured debt products, deposits and mortgages. The impact of the IBOR transition on the business and operating models are described in transition plans and include among others project solutions and actions, timelines and ownership to ensure timely preparation and implementation. Geopolitical environment The United Kingdom has left the European Union and is currently in a standstill transition period until the end of December 2020. Technically, this period can be extended by two years but that has to be agreed by June at the latest according to the Withdrawal Agreement between the EU and the UK. Hence, Brexit remains of special consideration this year because of the uncertainty regarding the future relationship between the EU and the UK after the transition phase expires, which could expose Aegon to similar risk characteristics of a hard Brexit scenario. Aegon hence continues to prepare itself for the worst Brexit outcome. The main consequences of a ‘hard Brexit’ have been identified and contingency plans are in place. These plans are updated on a continuous basis. Focus areas for Aegon have been derivatives, data transfer and cross border policies. | | | | | | | | | | | How we safeguard long-term value creationAegon Annual Report on Form 20-F2019 | | |
| | | | | | 116 | | | | Controls and procedures | | | | | | | | | | | | |
Controls and procedures Disclosure controls and procedures At the end of the period covered by this Annual Report, Aegon’s management carried out an evaluation, under the supervision and with the participation of its Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of Aegon’s disclosure controls and procedures (as defined in Rules13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, Aegon’s CEO and CFO concluded that, as of December 31, 2018,2019, the disclosure controls and procedures were effective. There have been no material changes in the Company’s internal controls or in other factors that could significantly affect internal controls over financial reporting subsequent to the end of the period covered by this Annual Report. Due to the listing of Aegon shares on the New York Stock Exchange, Aegon is required to comply with the US Securities and Exchange Commission regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act, or SOX 404. 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 thebelow. The report of the external auditor.auditor is included in the auditor’s report on the Annual Report on Form 20-F (page 334). Management’s Annual Report on internal control over financial reporting The directors and management of Aegon are responsible for establishing and maintaining adequate internal control over financial reporting. Aegon’s internal control over financial reporting is a process designed under the supervision of Aegon’s principal executive and financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of its published financial statements. Internal control over financial reporting includes policies and procedures that: | ◆ | | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| ◆ | | Provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles; |
| ◆ | | Provide reasonable assurance that receipts and expenditures are made only in accordance with the authorizations of management and directors of the Company; and |
| ◆ | | Provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on Aegon’s financial statements would be prevented or detected in a timely manner. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate. Management assessed the effectiveness of Aegon’s internal control over financial reporting as of December 31, 2018.2019. In making its assessment management used the criteria established in ‘Internal Control –- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission’ (COSO, 2013 framework). Based on the assessment, management concluded that, in all material aspects, the internal control over financial reporting was effective as of December 31, 2018.2019. They have reviewed the results of its work with the Audit Committee of the Supervisory Board. The effectiveness of internal control over financial reporting as of December 31, 2018,2019, was audited by PricewaterhouseCoopers Accountants N.V., an independent registered public accounting firm, as stated in their report included in the auditor’s report on the following page.Annual Report on Form 20-F (page 334). Management’s assessment of going concern The directors and management of Aegon have adopted a going concern basis, in preparing the consolidated financial statements, on the reasonable assumption that the Company is, and will be, able to continue its normal course of business in the foreseeable future. Relevant facts and circumstances relating to the consolidated financial position on December 31, 2018,2019, were assessed in order to reach the going concern assumption. The main areas assessed are financial performance, capital adequacy, financial flexibility, liquidity and access to capital markets, together with the factors likely to affect Aegon’s future development, performance and financial position. Commentary on these is set out in the ‘Capital’Capital and liquidity management’, ‘Risk management’, ‘Results of operations’ and ‘Business Overview’overview’ sections in this Annual Report. Taking into account the financial performance of the Company, its continued ability to access capital markets, the fact that its solvency and leverage ratios are well within target range, and the level of excess cash in the holding, management concluded that the going concern assumption is appropriate. The Hague, the Netherlands, March 21, 201918, 2020 The Executive Board of Aegon N.V. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
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| | | | | | | | 101120 | | | | Financial informationSelected financial data | | | | | | | | | | | |
Selected financial data 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 issued by the IASB. Application of the accounting policies in the preparation of the financial statements requires management to apply judgment involving assumptions and estimates concerning future results or other developments, including the likelihood, timing or amount of future transactions or events. There can be no assurance that actual results will not differ materially from those estimates. Accounting policies that are critical to the presentation of the financial statements and that require complex estimates or significant judgment are described in the notes to the financial statements. A summary of historical financial data is provided in the table below. It is important to read this summary in conjunction with the consolidated financial statements and related notes (see pages140-307)144-307) of of this Annual Report. | | Selected consolidated income statement information | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | In EUR million (except per share amount) | | 2018 | | | 2017 | | | 2016 | | 2015 | | 2014 | | | | 2019 | | | | | | 2018 | | | | | | 2017 | | | | | | 2016 | | | | | | 2015 | | Amounts based upon IFRS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Premium income | | | 19,316 | | | | 22,826 | | | | 23,453 | | | 22,925 | | | 19,864 | | | | 18,138 | | | | | | 19,316 | | | | | | 22,826 | | | | | | 23,453 | | | | | | 22,925 | | Investment income | | | 7,035 | | | | 7,338 | | | | 7,788 | | | 8,525 | | | 8,148 | | | | 7,531 | | | | | | 7,035 | | | | | | 7,338 | | | | | | 7,788 | | | | | | 8,525 | | Total revenues1 | | | 28,914 | | | | 32,973 | | | | 33,655 | | | 33,902 | | | 30,157 | | | Income/(loss) before tax | | | 751 | | | | 2,534 | | | | 610 | | | (514 | ) | | 916 | | | Net income/(loss) | | | 711 | | | | 2,469 | | | | 438 | | | (431 | ) | | 766 | | | Total revenues1) | | | | 28,197 | | | | | | 28,914 | | | | | | 32,973 | | | | | | 33,655 | | | | | | 33,902 | | Income/ (loss) before tax | | | | 1,457 | | | | | | 751 | | | | | | 2,534 | | | | | | 610 | | | | | | (514) | | Net income/ (loss) | | | | 1,239 | | | | | | 711 | | | | | | 2,469 | | | | | | 438 | | | | | | (431) | | | Earnings per common share | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic | | | 0.29 | | | | 1.14 | | | | 0.15 | | | (0.27 | ) | | 0.29 | | | | 0.56 | | | | | | 0.29 | | | | | | 1.14 | | | | | | 0.15 | | | | | | (0.27) | | Diluted | | | 0.29 | | | | 1.14 | | | | 0.15 | | | (0.27 | ) | | 0.29 | | | | 0.56 | | | | | | 0.29 | | | | | | 1.14 | | | | | | 0.15 | | | | | | (0.27) | | | Earnings per common share B | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Basic | | | 0.01 | | | | 0.03 | | | | - | | | (0.01 | ) | | 0.01 | | | | 0.01 | | | | | | 0.01 | | | | | | 0.03 | | | | | | - | | | | | | (0.01) | | Diluted | | | 0.01 | | | | 0.03 | | | | - | | | (0.01 | ) | | 0.01 | | | | 0.01 | | | | | | 0.01 | | | | | | 0.03 | | | | | | - | | | | | | (0.01) | | 1 Excluded from the income statements prepared in accordance with IFRS are receipts related to investment-type annuity products and investment contracts. | 1 Excluded from the income statements prepared in accordance with IFRS are receipts related to investment-type annuity products and investment contracts. | | 1 Excluded from the income statements prepared in accordance with IFRS are receipts related to investment-type annuity products and investment contracts. | | | | | Selected consolidated balance sheet information | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | In million EUR | | 2018 | | | 2017 | | | 2016 | | 2015 | | 2014 | | | | 2019 | | | | | | 20181) | | | | | | 20171) | | | | | | 20161) | | | | | | 20151) | | Amounts based upon IFRS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total assets | | | 392,633 | | | | 395,923 | | | | 425,425 | | | 415,415 | | | 424,112 | | | | 440,348 | | | | | | 392,633 | | | | | | 395,923 | | | | | | 425,425 | | | | | | 415,415 | | Insurance and investment contracts | | | 330,552 | | | | 324,362 | | | | 344,844 | | | 343,558 | | | 321,384 | | | | 371,584 | | | | | | 330,586 | | | | | | 324,392 | | | | | | 344,967 | | | | | | 343,752 | | Borrowings including subordinated and trust pass-through securities | | | 13,583 | | | | 14,532 | | | | 14,076 | | | 13,361 | | | 15,049 | | | | 11,650 | | | | | | 13,583 | | | | | | 14,532 | | | | | | 14,076 | | | | | | 13,361 | | Shareholders’ equity | | | 19,225 | | | | 20,288 | | | | 20,520 | | | 22,441 | | | 23,847 | | | | 21,850 | | | | | | 19,200 | | | | | | 20,266 | | | | | | 20,428 | | | | | | 22,296 | | | | | | | | | | | | | | | Number of common shares | | | | | | | | | | | | | In thousands | | 2018 | | | 2017 | | | 2016 | | 2015 | | 2014 | | | Balance at January 1 | | | 2,095,648 | | | | 2,074,549 | | | | 2,147,037 | | | 2,145,948 | | | 2,131,459 | | | Share issuance | | | - | | | | - | | | | - | | | | - | | | | - | | | Stock dividends | | | - | | | | 21,099 | | | | 10,629 | | | 1,089 | | | 14,489 | | | Shares withdrawn | | | - | | | | - | | | | (83,117 | ) | | | - | | | | - | | | Balance at end of period | | | 2,095,648 | | | | 2,095,648 | | | | 2,074,549 | | | 2,147,037 | | | 2,145,948 | | |
| 1 | Amounts have been restated to reflect voluntary changes in accounting policies related to liability adequacy testing that was adopted by Aegon effective January 1, 2019. Refer to note 2.1.2 Voluntary changes in accounting policies for details about this change. |
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| | | | | | | | 102121 | | Financial information | | Selected financial data | | | | | | | | | | | |
| Number of common shares | | | | | | | | | | | | | | | | | | | | | In thousands | | | | 2019 | | | | | | 2018 | | | | | | 2017 | | | | | | 2016 | | | | | | 2015 | | Balance at January 1 | | | | 2,095,648 | | | | | | 2,095,648 | | | | | | 2,074,549 | | | | | | 2,147,037 | | | | | | 2,145,948 | | Share issuance | | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | | - | | Stock dividends | | | | 9,491 | | | | | | - | | | | | | 21,099 | | | | | | 10,629 | | | | | | 1,089 | | Shares withdrawn | | | | - | | | | | | - | | | | | | - | | | | | | (83,117 | ) | | | | | - | | Balance at end of period | | | | 2,105,139 | | | | | | 2,095,648 | | | | | | 2,095,648 | | | | | | 2,074,549 | | | | | | 2,147,037 | | | | | Number of common shares B | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | In thousands | | 2018 | | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | | 2019 | | | | | | 2018 | | | | | | 2017 | | | | | | 2016 | | | | | | 2015 | | Balance at January 1 | | | 585,022 | | | | 585,022 | | | | 585,022 | | | | 581,326 | | | | 579,005 | | | | 585,022 | | | | | | 585,022 | | | | | | 585,022 | | | | | | 585,022 | | | | | | 581,326 | | Share issuance | | | - | | | | - | | | | - | | | | 3,696 | | | | 2,320 | | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | | 3,696 | | Balance at end of period | | | 585,022 | | | | 585,022 | | | | 585,022 | | | | 585,022 | | | | 581,326 | | | | 585,022 | | | | | | 585,022 | | | | | | 585,022 | | | | | | 585,022 | | | | | | 585,022 | |
Dividends Aegon declared interim and final dividends on common shares for the years 20132015 through 20172019 in the amounts set forth in the following table. The 20182019 interim dividend amounted to EUR 0.140.15 per common share and EUR 0.00350.00375 per common share B. The interim dividend was paid in cash or stock at the election of the shareholder. The interim dividend was payable as of September 21, 2018.20, 2019. At the General Meeting of Shareholders oncurrently scheduled for May 17, 2019,15, 2020, the SupervisoryExecutive Board will, in line with its earlier announcement and absent unforeseena further significant deterioration of market circumstances, propose a final dividend of EUR 0.150.16 per common share (at each shareholders option in cash or in stock), which will bring the total dividend for 2018 toand EUR 0.29. With respect to the Common Shares0.004 per common share B, each which has financial rights attached to it of 1/40th of a Common Share,common share. This will bring the proposed finaltotal dividend will befor 2019 to EUR 0.00375. After taking the interim-dividend 2018 of0.31 per common share and EUR 0.00775 per Common Share B into account, this will result in a total 2018 dividend of EUR 0.00725 per Common Sharecommon share B. Dividends in US dollars are calculated based on the foreign exchange reference rate (WM/Reuters closing spot exchange rate fixed at 5.00 pm Central European Summer Time (“CEST”(‘CEST’)) on theUS-ex dividend day. | | | | EUR per common share 1 | | USD per common share 1 | | | | | EUR per common share1) | | | USD per common share1) | | | Year | | Interim | | Final | | Total | | Interim | | Final | | Total | | | | | Interim | | | | | | Final | | | | | | Total | | | | | | Interim | | | | | | Final | | | | | | Total | | 2014 | | 0.11 | | 0.12 | | 0.23 | | 0.15 | | 0.13 | | 0.28 | | 2015 | | 0.12 | | 0.13 | | 0.25 | | 0.13 | | 0.15 | | 0.28 | | | | | 0.12 | | | | | | 0.13 | | | | | | 0.25 | | | | | | 0.13 | | | | | | 0.15 | | | | | | 0.28 | | 2016 | | 0.13 | | 0.13 | | 0.26 | | 0.15 | | 0.15 | | 0.29 | | | | | 0.13 | | | | | | 0.13 | | | | | | 0.26 | | | | | | 0.15 | | | | | | 0.15 | | | | | | 0.29 | | 2017 | | 0.13 | | 0.14 | | 0.27 | | 0.15 | | 0.16 | | 0.32 | | | | | 0.13 | | | | | | 0.14 | | | | | | 0.27 | | | | | | 0.15 | | | | | | 0.16 | | | | | | 0.32 | | 2018 | | 0.14 | | 0.15 2 | | 0.29 | | 0.16 | | | | | | | | | 0.14 | | | | | | 0.15 | | | | | | 0.29 | | | | | | 0.16 | | | | | | 0.17 | | | | | | 0.33 | | 2019 | | | | | | 0.15 | | | | | | 0.16 2) | | | | | | 0.31 | | | | | | 0.17 | | | | | | | | | |
| 1 | Paid at each shareholders’ option in cash or in stock. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 103122 | | Financial information | | Results of operations | | | | | | | | | | | |
Results of operations This Integrated Annual Report includes thenon-IFRS financial measure:measure underlying earnings before tax. The reconciliation of this measure to the most comparable IFRS measure is presented in the table below in addition to note 5 ‘Segment information’ of the consolidated financial statements. Thisnon-IFRS measure is calculated by consolidating on a proportionate basis the revenues and expenses of Aegon’s joint ventures in China, India, Japan, Mexico, the Netherlands, Portugal and Spain and Aegon’s associates in Brazil, India, Mexico,France, the Netherlands and United Kingdom. The tableinformation on the following tables also includes thenon-IFRS financial measure:measure net underlying earnings. This is theafter-tax equivalent of underlying earnings before tax. The reconciliation of net underlying earnings to the most comparable IFRS measure is presented in the table below.this section. Aegon believes that thesenon-IFRS measures provides meaningful supplemental information about the underlying operating results of Aegon’s businesses, including insight into the financial measures that senior management uses in managing the businesses. Aegon’s senior management is compensated based in part on Aegon’s results against targets using thenon-IFRS measures presented in this report. While many other insurers in Aegon’s peer group present substantially similarnon-IFRS measures, thenon-IFRS measures presented in this document may nevertheless differ from thenon-IFRS measures presented by other insurers. There is no standardized meaning to these measures under IFRS or any other recognized set of accounting standards and readers are cautioned to consider carefully the different ways in which Aegon and its peers present similar information before making a comparison. Aegon believes thenon-IFRS measures present within this report, when read together with Aegon’s reported IFRS financial statements, provide meaningful supplemental information for the investing public. This enables them to evaluate Aegon’s businesses after eliminating the impact of current IFRS accounting policies for financial instruments and insurance contracts, which embed a number of accounting policy alternatives that companies may select in presenting their results (as companies may use different local generally accepted accounting principles (GAAPs)), and this may make the comparability difficult between time periods. Change in measurement of performance measure1
Aegon has changedFor the measurement of underlying earnings before tax for its real estate investments portfolio held by Aegon the Netherlands. Previously, direct returnsdiscussion on these investments were reported as part of underlying earnings before tax and the fair value movements were reported as part of Fair value items. From January 1, 2018, fair value items include the over-or underperformanceour operating results for the real estate investmentsyear ended December 31, 2017, including certain comparative discussion on our operating results for the years ended December 31, 2017 and December 31, 2018, please refer to the section Results of Aegon the Netherlands, for which ‘management’s best estimate’ is included in underlying earnings before tax. In addition, Aegon the Netherlands startedoperations on pages 103 to record its management’s best estimate investment return on consumer loan investments (net of expected impairments) in underlying earnings before tax, where previously the gross returns were recorded in underlying earnings before tax and the impairments in the impairment line. All other alternative investments are reported similarly with ‘management’s best estimate investment return’ being included in underlying earnings before tax and the over- or underperformance in Fair value items.
For segment reporting purposes, the impact of this change in measurement on full year 2017 was an increase in Aegon Group consolidated underlying earnings before tax of EUR 37 million and a decrease in fair value items of EUR 61 million and a decrease in impairment charges of EUR 24 million. There is no impact on net income in any of the reporting periods. Comparative numbers have been restated139 in Aegon’s segment reporting note, enabling a like for like comparison. The presentation of the items in the IFRS income statement remains unchanged and continue to be part of the line ‘Investment income’.2018 Annual Report on Form20-F.
1 | Aegon has changed the measurement of underlying earnings before tax for its real estate investments portfolio held by Aegon the Netherlands. Comparative numbers have been restated accordingly. For further details please refer to page 206.
|
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 104123 | | Financial information | | Results of operations –- Worldwide | | | | | | | | | | | |
Results 20182019 worldwide | | Underlying earnings geographically | | | | | | | | | | | | | | | | | | | | | Amounts in EUR millions | | 2018 | | 2017 1 | | % | | 2019 | | | | | | 2018 | | | | | % | | Net underlying earnings | | | 1,754 | | | | 1,571 | | | 12 | | | 1,651 | | | | | | 1,754 | | | | | | (6) | | Tax on underlying earnings | | | 320 | | | 568 | | | (44) | | | 322 | | | | | | 320 | | | | | | 1 | | | Underlying earnings before tax geographically | | | | | | | | | | | | | | | | | | Americas | | | 1,216 | | | 1,381 | | | (12) | | | 1,124 | | | | | | 1,216 | | | | | | (8) | | | The Netherlands | | | 615 | | | 557 | | | 10 | | | 648 | | | | | | 615 | | | | | | 5 | | | United Kingdom | | | 128 | | | 116 | | | 10 | | | 139 | | | | | | 128 | | | | | | 9 | | Central & Eastern Europe | | | 72 | | | 67 | | | 8 | | Spain & Portugal | | | 24 | | | 4 | | | n.m. | | | Southern & Eastern Europe | | | | 88 | | | | | | 96 | | | | | | (8) | | | Europe | | | 839 | | | 744 | | | 13 | | | 875 | | | | | | 839 | | | | | | 4 | | | Asia | | | 55 | | | 49 | | | 12 | | | 62 | | | | | | 55 | | | | | | 13 | | | Asset Management | | | 151 | | | 136 | | | 12 | | | 139 | | | | | | 151 | | | | | | (8) | | | Holding and other activities | | | (188 | ) | | (170 | ) | | (10) | | | (227 | ) | | | | | (188 | ) | | | | | (21) | | Underlying earnings before tax | | | 2,074 | | | 2,140 | | | (3) | | | 1,973 | | | | | | 2,074 | | | | | | (5) | | | Fair value items | | | (291 | ) | | 81 | | | n.m. | | | (601 | ) | | | | | (291 | ) | | | | | (107) | | Gains/(losses) on investments | | | (77 | ) | | 413 | | | n.m. | | | Gains / (losses) on investments | | | | 405 | | | | | | (77 | ) | | | | | n.m. | | | Net impairments | | | (19 | ) | | (15 | ) | | (24) | | | (22 | ) | | | | | (19 | ) | | | | | (15) | | Other income/(charges) | | | (875 | ) | | (68 | ) | | n.m. | | | Other income / (charges) | | | | (281 | ) | | | | | (875 | ) | | | | | 68 | | | Run-off businesses | | | (14 | ) | | 30 | | | n.m. | | | 23 | | | | | | (14 | ) | | | | | n.m. | | | Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | | | 798 | | | 2,579 | | | (69) | | | 1,497 | | | | | | 798 | | | | | | 88 | | | Income tax from certain proportionately consolidated joint ventures and associates included inincome before tax | | | 47 | | | 44 | | | 6 | | | 40 | | | | | | 47 | | | | | | (15) | | | Income tax | | | (87 | ) | | (110 | ) | | 21 | | | (258 | ) | | | | | (87 | ) | | | | | (195) | | | Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | | | (47 | ) | | (44 | ) | | (6) | | | (40 | ) | | | | | (47 | ) | | | | | 15 | | Net income/(loss) | | | 711 | | | 2,469 | | | (71) | | Net income / (loss) | | | | 1,239 | | | | | | 711 | | | | | | 74 | | | Commissions and expenses | | | 6,673 | | | 6,309 | | | 6 | | | 6,601 | | | | | | 6,673 | | | | | | (1) | | | of which operating expenses | | | 3,786 | | | 3,878 | | | (2) | | | 3,929 | | | | | | 3,786 | | | | | | 4 | | 1 Aegon has changed the measurement of underlying earnings before tax for its real estate investments portfolio held by Aegon the Netherlands. Comparative numbers have been restated accordingly. For further details please refer to page 206. | | | | | | | | | | | | | | | | New life sales | | | | | | | | | | | | | | | | | Amounts in EUR millions | | 2018 | | 2017 | | % | | | 2019 | | | | | | 2018 | | | | | | % | | Americas | | | 420 | | | 472 | | | (11) | | | 419 | | | | | | 420 | | | | | | - | | | The Netherlands | | | 101 | | | 99 | | | 2 | | | 136 | | | | | | 101 | | | | | | 35 | | | United Kingdom | | | 40 | | | 37 | | | 8 | | | 41 | | | | | | 40 | | | | | | 3 | | Central & Eastern Europe | | | 83 | | | 88 | | | (6) | | Spain & Portugal | | | 54 | | | 48 | | | 11 | | | Southern & Eastern Europe | | | | 133 | | | | | | 137 | | | | | | (3) | | | Europe | | | 278 | | | 273 | | | 2 | | | 311 | | | | | | 278 | | | | | | 12 | | | Asia | | | 122 | | | 151 | | | (19) | | | 131 | | | | | | 122 | | | | | | 7 | | Total recurring plus 1/10 single | | | 820 | | | 896 | | | (9) | | | 861 | | | | | | 820 | | | | | | 5 | | | | | | | | | | | | | | | Amounts in EUR millions | | | | 2019 | | | | | | 2018 | | | | | | % | | New premium production accident and health insurance | | | | 230 | | | | | | 308 | | | | | | (25) | | | New premium production general insurance | | | | 129 | | | | | | 121 | | | | | | 6 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 105124 | | Financial information | | Results of operations –- Worldwide | | | | | | | | | | | |
| | Gross deposits (on and off balance) | | | | | | | | | | | | | | | | | | | | | | | Amounts in EUR millions | | 2018 | | | 2017 | | % | | 2019 | | | | | | 2018 | | | | | % | | | Americas | | | 38,279 | | | 38,543 | | | (1) | | | 40,406 | | | | | | 38,279 | | | | | | 6 | | | The Netherlands | | | 10,169 | | | 8,061 | | | 26 | | | 13,207 | | | | | | 10,169 | | | | | | 30 | | | United Kingdom | | | 13,223 | | | 17,259 | | | (23) | | | 9,749 | | | | | | 13,223 | | | | | | (26) | | Central & Eastern Europe | | | 374 | | | 323 | | | 16 | | Spain & Portugal | | | 32 | | | 36 | | | (11) | | | Southern & Eastern Europe | | | | 351 | | | | | | 406 | | | | | | (14) | | | Europe | | | 23,798 | | | 25,679 | | | (7) | | | 23,307 | | | | | | 23,798 | | | | | | (2) | | | Asia | | | 128 | | | 222 | | | (42) | | | 7 | | | | | | 128 | | | | | | (94) | | | Asset Management | | | 59,495 | | | 61,332 | | | (3) | | | 80,939 | | | | | | 59,495 | | | | | | 36 | | | Total gross deposits | | | 121,700 | | | 125,776 | | | (3) | | | 144,660 | | | | | | 121,700 | | | | | | 19 | | | | | | | | | | | | | | | | | | | | Net deposits (on and off balance) | | | | | | | | | | | | | | | | | | | | | Amounts in EUR millions | | 2018 | | | 2017 | | % | | 2019 | | | | | | 2018 | | | | | % | | | Americas | | | (14,734 | ) | | (29,713 | ) | | 50 | | | (29,371 | ) | | | | | (14,734 | ) | | | | | (99) | | | The Netherlands | | | 1,411 | | | 1,067 | | | 32 | | | 1,445 | | | | | | 1,411 | | | | | | 2 | | | United Kingdom | | | 1,225 | | | 4,665 | | | (74) | | | (3,487 | ) | | | | | 1,225 | | | | | | n.m. | | Central & Eastern Europe | | | 156 | | | 176 | | | (11) | | Spain & Portugal | | | (14 | ) | | 13 | | | n.m. | | | Southern & Eastern Europe | | | | 19 | | | | | | 143 | | | | | | (87) | | | Europe | | | 2,779 | | | 5,921 | | | (53) | | | (2,023 | ) | | | | | 2,779 | | | | | | n.m. | | | Asia | | | 7 | | | 129 | | | (95) | | | 1 | | | | | | 7 | | | | | | (83) | | | Asset Management | | | 7,526 | | | 6,913 | | | 9 | | | 6,841 | | | | | | 7,526 | | | | | | (9) | | | Total net deposits excludingrun-off businesses | | | (4,421 | ) | | (16,750 | ) | | 74 | | | (24,551 | ) | | | | | (4,421 | ) | | | | | n.m. | | | Run-off businesses | | | (234 | ) | | (338 | ) | | 31 | | | (578 | ) | | | | | (234 | ) | | | | | (147) | | Total net deposits/(outflows) | | | (4,656 | ) | | (17,088 | ) | | 73 | | Total net deposits / (outflows) | | | | (25,130 | ) | | | | | (4,656 | ) | | | | | n.m. | | | | Worldwide revenues geographically 2019 | | | | | | | | | | | |
| Worldwide revenues geographically 2018 Amounts in EUR millions | |  | | |  | | |  | | |  | | |  | | |  | | |  | | |  | | |  | |  | | |  | |  | | Amounts in EUR
millions | | | Americas | | The
Netherlands | | United
Kingdom | | Southern &
Eastern Europe | | Europe | | Asia | | Asset
Management | | Holding, other
activities and
eliminations | | Segment total | | Associates
and Joint
Ventures
eliminations | | Consolidated | | Total life insurance gross premiums | | | 7,004 | | | | 1,632 | | | | 7,509 | | | | 405 | | | | 217 | | | | 9,763 | | | | 779 | | | | - | | | | 2 | | | 17,548 | | | | (579 | ) | | 16,969 | | 7,279 | | | 1,765 | | | 6,282 | | | 552 | | | | 8,598 | | | 737 | | | | - | | | 3 | | | 16,617 | | | (691 | ) | | 15,926 | | | Accident and health insurance premiums | | | 1,571 | | | | 219 | | | | 29 | | | | 2 | | | | 100 | | | | 351 | | | | 94 | | | | - | | | | - | | | 2,015 | | | | (36 | ) | | 1,979 | | 1,416 | | | 228 | | | 28 | | | 110 | | | | 366 | | | 91 | | | | - | | | | - | | | 1,872 | | | (50 | ) | | 1,823 | | | General insurance premiums | | | - | | | | 136 | | | | - | | | | 231 | | | | 112 | | | | 479 | | | | - | | | | - | | | | - | | | 479 | | | | (112 | ) | | 367 | | | - | | | 130 | | | | - | | | 382 | | | | 512 | | | | - | | | | - | | | | - | | | 512 | | | (122 | ) | | 390 | | Total gross premiums | | | 8,575 | | | | 1,987 | | | | 7,539 | | | | 638 | | | | 429 | | | | 10,592 | | | | 873 | | | | - | | | | 2 | | | 20,042 | | | | (727 | ) | | 19,316 | | 8,694 | | | 2,123 | | | 6,309 | | | 1,044 | | | | 9,476 | | | 828 | | | | - | | | 3 | | | 19,002 | | | (864 | ) | | 18,138 | | | Investment income | | | 3,125 | | | | 2,265 | | | | 1,346 | | | | 48 | | | | 36 | | | | 3,695 | | | | 268 | | | | 5 | | | | 2 | | | 7,095 | | | | (59 | ) | | 7,035 | | 3,172 | | | 2,224 | | | 1,830 | | | 76 | | | | 4,130 | | | 303 | | | 5 | | | (15 | ) | | 7,595 | | | (64 | ) | | 7,531 | | | Fees and commission income | | | 1,826 | | | | 211 | | | | 198 | | | | 47 | | | | 16 | | | | 473 | | | | 58 | | | | 632 | | | | (206 | ) | | 2,782 | | | | (224 | ) | | 2,558 | | 1,757 | | | 237 | | | 197 | | | 50 | | | | 484 | | | 59 | | | 627 | | | (187 | ) | | 2,740 | | | (218 | ) | | 2,523 | | Other revenue | | | 5 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2 | | | | 1 | | | | 4 | | | 12 | | | | (6 | ) | | 5 | | 8 | | | | - | | | | - | | | | - | | | | - | | | 1 | | | 1 | | | 5 | | | 16 | | | (10 | ) | | 6 | | Total revenues | | | 13,530 | | | | 4,463 | | | | 9,083 | | | | 733 | | | | 480 | | | | 14,760 | | | | 1,201 | | | | 638 | | | | (199) 29,930 | | | | (1,016 | ) | | 28,914 | | 13,631 | | | 4,583 | | | 8,337 | | | 1,171 | | | | 14,091 | | | 1,191 | | | 633 | | | (194 | ) | | 29,352 | | | (1,155 | ) | | 28,197 | | | Number of employees, including agent employees | | | 8,824 | | | | 3,548 | | | | 3,135 | | | | 2,318 | | | | 519 | | | | 9,520 | | | | 6,344 | | | | 1,464 | | | | 390 | | | 26,543 | | | | | | | | 8,570 | | | | 3,582 | | | | 2,261 | | | | 2,853 | | | | 8,696 | | | | 4,540 | | | | 1,535 | | | | 416 | | | | 23,757 | | | | | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 106125 | | Financial information | | Results of operations –- Worldwide | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Worldwide revenues geographically 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amounts in EUR
millions | | Americas | | | The
Netherlands | | | United
Kingdom | | | Southern &
Eastern Europe | | | Europe | | | Asia | | | Asset
Management | | | Holding, other
activities and
eliminations | | | Segment total | | | Associates and
Joint Ventures
eliminations | | | Consolidated | | Total life insurance gross premiums | | | 7,004 | | | | 1,632 | | | | 7,509 | | | | 622 | | | | 9,763 | | | | 779 | | | | - | | | | 2 | | | | 17,548 | | | | (579 | ) | | | 16,969 | | | | | | | | | | | | | | Accident and health insurance premiums | | | 1,571 | | | | 219 | | | | 29 | | | | 102 | | | | 351 | | | | 94 | | | | - | | | | - | | | | 2,015 | | | | (36 | ) | | | 1,979 | | | | | | | | | | | | | | General insurance premiums | | | - | | | | 136 | | | | - | | | | 343 | | | | 479 | | | | - | | | | - | | | | - | | | | 479 | | | | (112 | ) | | | 367 | | Total gross premiums | | | 8,575 | | | | 1,987 | | | | 7,539 | | | | 1,067 | | | | 10,592 | | | | 873 | | | | - | | | | 2 | | | | 20,042 | | | | (727 | ) | | | 19,316 | | | | | | | | | | | | | | Investment income | | | 3,125 | | | | 2,265 | | | | 1,346 | | | | 83 | | | | 3,695 | | | | 268 | | | | 5 | | | | 2 | | | | 7,095 | | | | (59 | ) | | | 7,035 | | | | | | | | | | | | | | Fees and commission income | | | 1,826 | | | | 211 | | | | 198 | | | | 63 | | | | 473 | | | | 58 | | | | 632 | | | | (206 | ) | | | 2,782 | | | | (224 | ) | | | 2,558 | | Other revenue | | | 5 | | | | - | | | | - | | | | - | | | | - | | | | 2 | | | | 1 | | | | 4 | | | | 12 | | | | (6 | ) | | | 5 | | Total revenues | | | 13,530 | | | | 4,463 | | | | 9,083 | | | | 1,213 | | | | 14,760 | | | | 1,201 | | | | 638 | | | | (199 | ) | | | 29,930 | | | | (1,016 | ) | | | 28,914 | | | | | | | | | | | | | | Number of employees, including agent employees | | | 8,824 | | | | 3,548 | | | | 3,135 | | | | 2,837 | | | | 9,520 | | | | 6,344 | | | | 1,464 | | | | 390 | | | | 26,543 | | | | | | | | | |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 126 | | | | Results of operations - Worldwide | | | | | | | | | | |
Results 20182019 worldwide Aegon’s net income in 2018 declined2019 increased compared with 20172018 to EUR 7111,239 million. Underlying earnings before tax decreased by 3%5% compared with 20172018 to EUR 2,0741,973 million in 2018, as higher underlying earnings before tax from Europe, Asia and Asset Management were more than offset by2019, due to lower underlying earnings before tax from Americas, Asset Management and Holding and other activities. These were partly offset by higher earnings from Europe and Asia. The increase in net income in 2019 compared with 2018 was impacteddriven by fair value losses of EUR 291 million as well as EUR 875 millionhigher gains on investments and lower other charges. Net income Net income amounted to EUR 7111,239 million in 2018,2019, as underlying earnings before tax of EUR 2,0741,973 million were partly offset by fair value losses, below the average nominal tax rate, other charges, lossesnet impairments and income taxes. These items in turn offset gains on investments net impairements, lossesand gains fromrun-off businesses and income taxes.businesses. The effective tax rate amounted to 11%17%, mainly as a result ofone-time tax benefits of declining US and Dutch corporate income tax rates next to the regular tax exempt income items and the use of tax credits.credits in the United States and in the United Kingdom the own employee pension plan moving into surplus. Underlying earnings before tax Aegon’s underlying earnings before tax decreased compared with 20172018 to EUR 2,0741,973 million in 2018.2019. This was mainly driven by the Americas as a result of lower fee revenuerevenues in Variable Annuities, the negative impacts from lower rates and developments in portfolios on intangibles in the Life business, and investments in the US businesses to support growth. The other main contributor to the decrease in underlying earnings before tax was Holdings and other activities, primarily due to declining equity markets and net outflowsmore interest expenses being recorded via the income statement instead of revenue generating investments, and unfavorable mortality experiencedirectly through equity. Europe was the main offsetting reporting segment, with a 4% increase of underlying earnings before tax in the Americas, which more than offset higher earnings in Europe, Asia and Asset Management.2019 compared with 2018. | ◆ | | In the Americas, underlying earnings before tax in 20182019 decreased by 12%8% compared with 20172018 to EUR 1,2161,124 million caused by adverse currency movements, lower fee revenue duerevenues in Variable Annuities, negative impacts from lower interest rates, tighter credit spreads and portfolios on intangibles in the Life business, and investments in the business to declining equity markets and net outflows, and unfavorable mortality experience. This was partlysupport growth. These more than offset by expense reductions.the effect of favorable currency movements. |
| ◆ | | In Europe, underlying earnings before tax in 20182019 increased by 13%4% compared with 20172018 to EUR 839875 million as a result of growth in all regions.the Netherlands and the United Kingdom, more than offsetting the lower earnings from Southern & Eastern Europe due to the divestment of Aegon’s businesses in the Czech Republic and Slovakia. |
| ◆ | | In Asia, underlying earnings before tax improved by 12%7% compared with 20172018 to EUR 5562 million in 2018,2019. This was mainly as a result of higher earnings in theHigh-Net-Worth business.driven by Aegon Insights, reflecting expense savings and favorable claims experience. |
| ◆ | | Underlying earnings before tax from Asset Management increaseddecreased by 12%8% in 20182019 compared with 20172018 to EUR 151139 million. This increasedecrease was mainly driven by higherEurope and the Americas, more than offsetting an increase of underlying earnings before tax in 2018 compared with 2017 from Strategic partnerships and the Netherlands.Rest of World. |
| ◆ | | Total Holdings costs amounted to EUR 227 million in 2019 compared with EUR 188 million in 2018 compared with EUR 170 million in 2017, as a result2018. This is mainly due to the refinancing of debt. Aegon redeemed perpetual securities, for which the interest expenses on USD 800 million Tier 2 securitiesexpense was recorded directly through equity, and issued in April 2018 to replace perpetual securities. Interest expensesdated (Tier 2) instruments, for these Tier 2 securities are takenwhich the interest expense is recorded through the profit & loss statement, while the interest expenses for the perpetuals were recognized directly through equity.statement. |
Fair value items The loss from fair value items amounted to EUR 291601 million in 2018.2019. Fair value losses in Europe were the main driver, totaling EUR 866 million in 2019. This was primarily related to the Netherlands, where the liability adequacy test (LAT) showed a shortfall during 2019 which in turn was partly offset by gains on derivatives and the guarantee provision. The United Kingdom also recorded fair value losses, mainly because of hedging results. Fair value gains in the Americas amounted to EUR 613272 million in 2018, which was primarily2019, and mainly related to hedge losses, reflecting the equity market decline at the end of the year, and losses on fair value investments. Fair value gains in Europe amounted to EUR 315 million, as a result ofpositive real estate investments in the Netherlandsrevaluations and favorable equity markets leading to gains on equity hedges in the United Kingdom. Gainsmacro hedge, net of reserve movements. Losses on fair value items in Asia and at the Holding totaled EUR 8 million.million in 2019. Realized gains on investments Realized lossesgains on investments amounted to EUR 77405 million in 2018, as losses on2019, driven by Europe and the saleAmericas. In Europe these related largely to optimization of US treasuries as part of normal trading activity were more than offset bythe investment portfolio in the Netherlands. In the Americas, the realized gains on investments in the Netherlandswere driven by bond calls and the united Kingdom.prepayments, mortgage loan gains, and normal trading activity. Impairment charges Net impairments of EUR 1922 million in 2018 primarily related to an impairment of corporate bonds caused by a bankruptcy filing. Other charges
Other charges amounted to EUR 875 million in 2018. Other charges in the Americas of EUR 397 million in 20182019 mainly related to the transition and conversion charges for the TCS partnership (EUR 127 million), a EUR 140 million charge for a class action litigation settlement with universal life policyholders, a EUR 93 million book loss on the divestmentimpairments of the last remaining substantial block of life reinsurance business, EUR 33 million impactcorporate bonds resulting from assumption updates, and a EUR 27 million addition to the provision for unclaimed property. Other charges in Europe of EUR 409 million in 2018 reflect EUR 111 million model & assumption changesbankruptcy filings in the Netherlands, EUR 93 million loss onUnited States and the saleimpairment of Aegon Ireland, EUR 75 million integration expenses for Cofunds and Blackrock’s DC business, and a EUR 49 million reserve strengthening related to the residual annuity bookconsumer loans in the UK. Other charges atNetherlands. These were partly offset by recoveries for structured assets in the Holdings amounted to EUR 57 million in 2018Americas, all of which were originally impaired between 2008 and were driven by IFRS 9/17 implementation expenses for the Group.2013.
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 107127 | | Financial information | | Results of operations –- Worldwide | | | | | | | | | | | |
Other charges Other charges amounted to EUR 281 million in 2019. The Americas recorded other charges of EUR 156 million in 2019 mainly due to unfavorable impacts from model and assumption changes. Furthermore, other charges were recorded in relation to the operation of administration partnerships with TCS and LTCG, as well as following the decision to exit the Akaan Transamerica joint venture in Mexico. For Europe, the other charges totaled EUR 5 million. The main negative elements were unfavorable impacts from model and assumption changes and restructuring charges, both in the Netherlands and the United Kingdom. The main positive items were a provision release in the Netherlands following the change in pension scheme for own employees and a gain resulting from the sale of Aegon’s Czech and Slovak operations. For the Holdings, other charges amounted to EUR 95 million and resulted primarily from IFRS 9/17 implementation expenses. The other charges for Asset Management and Asia totaled EUR 25 million. Run-off businesses The results ofrun-off businesses declinedincreased compared with 20172018 to a lossgain of EUR 1423 million in 2018, following2019, driven mainly by higher income from the divestment of the majority of the remainder of these businesses in 2017.retained individual life reinsurance business. Income tax The effective tax rate amounted to 11%17%, mainly as a result of one-time tax benefits of declining US and Dutch corporate income tax rates next to the regular tax exempt income items and the use of tax credits.credits in the United States, and theone-time benefits from the own employee pension plan moving into surplus. The effective tax rate on underlying earnings before tax amounted to 15%, reflecting the lowering of the US tax rate.16%. Commissions and expenses Commissions and expenses decreased by 1% compared with 2018 to EUR 6.6 billion in 2019. Operating expenses increased by 6%4% compared with 20172018 to EUR 6.73.9 billion in 2018. Operating2019. This increase primarily reflects lower restructuring expenses decreased by 2% compared with 2017 to EUR 3.8 billion in 2018. Expense savings and the divestment of UMG in 2017being more than offset restructuring expenses associated with the acquisitions of Cofundsby investments to support growth and BlackRock’s defined contribution businesscustomer experience in the United Kingdom as well as the partnership with TCS in the United States.addition to higher IFRS 9/17 implementation expenses. Production Compared with 2017,2018, gross deposits were downup by 3%19% to EUR 121.7144.7 billion in 2018,2019, driven by lower platform deposits in the United Kingdom and lowerhigher Asset Management deposits.deposits, driven by Aegon’s Chinese joint venture Aegon Industrial Fund Management Company (AIFMC). Net outflows during 2019 amounted to EUR 4.725.1 billion as inflows in Asset Management, the United Kingdom platform and the Dutch banking business were more than offset byprimarily due to outflows in the United States mainly caused byAmericas in the Retirement Plans due to a small number of largePlan business following contract discontinuances and higher participant withdrawals. Europe exhibited net outflows resulting from the United Kingdom, more than offsetting net inflows in the Netherlands. Asset Management also recorded net inflows, primarily driven by the strategic partnership AIFMC. New life sales declinedimproved by 9%5% compared with 20172018 to EUR 820861 million in 2018, mostly2019, mainly driven by lower indexed universal lifeEurope, primarily as a result of abuy-out deal and term life productiona purchase of additional yearly pension increases by an existing customer, both in the United States.Netherlands. New premium production for accident Accident & healthHealth and property & casual insurance decreased by 52%16% in 2019 compared with 20172018 to EUR 429359 million in 2018, causedmainly driven by the previously announced strategic decision to exit the travel insurance, affinity and stop loss insurance segments.segments in the United States. Capital management During 2018,2019, shareholders’ equity decreased byincreased with EUR 1.12.6 billion to EUR 19.221.8 billion, as net income and strengthening of the US Dollar were more than offset by dividends paid to shareholders, a reduction in revaluation reservesmainly as a result of wideninglower interest rates and tighter credit spreads and highertheir impact on the revaluation reserve, in combination with retained earnings. These were partly offset by the impact of lower interest rates inon the United States.remeasurement of the defined benefit obligations. Aegon’s shareholders’ equity, excluding revaluation reserves, amounted to EUR 15.816 billion on December 31, 2018,2019, or EUR 7.707.79 per common share. As announced in our 2H 2018 earnings release on February 14, 2018, to align closer to definitions used by peers and rating agencies, Aegon has retrospectively changed its internal definition of adjusted shareholders’ equity used in calculating return on equity for the group, return on capital for its units, and the gross financial leverage ratio. Shareholders’ equity will no longer be adjusted for there-measurement of defined benefit plans. All figures in this annual report, including comparatives, are based on the new definition, unless stated otherwise. The gross leverage ratio (basedbased on IFRS as adopted by the EU)EU improved to 29.2%28.5% on December 31, 2018,2019, compared with 30.7%29.2% at the end of 2018, which was mostly the result of the maturity of EUR 500 million senior debthigher shareholders’ equity excluding revaluation reserves, in August 2018.combination with a net deleveraging during 2019. Excess cash in the holding declined in 20182019 compared with 20172018 to EUR 1.31.2 billion, as remittances from business units were more than offset by dividends to shareholders, interest payments, operating expenses and capital injections into the units, and net debt deleveraging and the repayment of unstructured senior debt.associated costs.
On December 31, 2018,2019, Aegon’s estimated Solvency II ratio amounted to 211%201%, updown from 201%211% at the end of 2017.2018. This increasedecrease was driven by unfavorable impacts from market movements and model and assumption updates, more than offsetting normalized capital generation net of dividends to shareholders.generation. The RBC ratio in the United States remained relatively stable compared with the end of 2017improved to 470% on December 31, 2019, up from 465% on December 31, 2018. This was mainly driven by retained capital generation and favorableone-time items. In the Netherlands, the estimated Solvency II ratio at the end of 20182019 amounted to 181%171%, down from 199%181% at the end of 2017.2018. The ratio was impacted by adverse market impacts, the impact of taxnotably credit spread movements, and adverse changes in required capital for illiquid investments, which more than offset normalized capital generation and the loweringeffect of the Ultimate Forward Rate.management actions. The estimated Solvency II ratio at the end of 20182019 of Aegon United Kingdom amounted to 184%157%, updown from 176%184% at the end of 2017.2018. The normalized capital generation, the positive impact from market movements, andde-risking of the investment portfolio, were only partly offsetdecrease was mainly driven by other items including remittancesremittance payments to the groupholding, including a special dividend, and the completionadverse impact of the Part VII transfer related to the acquisition of BlackRock’s defined contribution business.markets and assumption updates. The Solvency ratios as disclosed in this section represent Aegon’s estimates, are not final until filed with the regulator, and are subject to supervisory review. Dividends from and capital contributions to business units
Aegon’s business units remitted over EUR 1.3 billion to the Group during 2018, including EUR 0.9 billion from the Americas, EUR 200 million from the Netherlands and EUR 113 million from the United Kingdom. Aegon spent EUR 144 million on capital injections, while the proceeds from divestments net of acquisitions amounted to EUR 98 million.
| | | | | | | | | | | | Aegon Annual Report on Form 20F2018 | | |
| | | 108 | | Financial information20-F Results of operations – Worldwide2019 | | | |
| | | | | | | | | | | | | Underlying earnings geographically | | | | | | | | | | | | | Amounts in EUR millions | | | 2017 1 | | | | 2016 1 | | | | % | | Net underlying earnings | | | 1,571 | | | | 1,483 | | | | 4 | | Tax on underlying earnings | | | 568 | | | | 429 | | | | 30 | | Underlying earnings before tax geographically | | | | | | | | | | | | | Americas | | | 1,381 | | | | 1,249 | | | | 11 | | The Netherlands | | | 557 | | | | 534 | | | | (2 | ) | United Kingdom | | | 116 | | | | 59 | | | | 98 | | Central & Eastern Europe | | | 67 | | | | 55 | | | | 20 | | Spain & Portugal | | | 4 | | | | 8 | | | | (47 | ) | Europe | | | 744 | | | | 655 | | | | 8 | | Asia | | | 49 | | | | 21 | | | | 131 | | Asset Management | | | 136 | | | | 149 | | | | (9 | ) | Holding and other activities | | | (170 | ) | | | (162 | ) | | | (5 | ) | Underlying earnings before tax | | | 2,140 | | | | 1,913 | | | | 10 | | | | | | Fair value items | | | 81 | | | | (840 | ) | | | 91 | | Gains/(losses) on investments | | | 413 | | | | 340 | | | | 21 | | Net impairments | | | (15 | ) | | | (54 | ) | | | 59 | | Other income/(charges) | | | (68 | ) | | | (771 | ) | | | 91 | | Run-off businesses | | | 30 | | | | 54 | | | | (45 | ) | | Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | | | 2,579 | | | | 641 | | | | 192 | | Income tax from certain proportionately consolidated joint ventures and associates included inincome before tax | | | 44 | | | | 31 | | | | 45 | | Income tax | | | (110 | ) | | | (203 | ) | | | 69 | | Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | | | (44 | ) | | | (31 | ) | | | (45 | ) | Net income/(loss) | | | 2,469 | | | | 438 | | | | n.m. | | | | | | Commissions and expenses | | | 6,309 | | | | 6,696 | | | | (6 | ) | of which operating expenses | | | 3,878 | | | | 3,764 | | | | 3 | | 1 Aegon has changed the measurement of underlying earnings before tax for its real estate investments portfolio held by Aegon the Netherlands. Comparative numbers have been restated accordingly. For further details please refer to page 206. | | | | | | New life sales | | | | | | | | | | | | | Amounts in EUR millions | | | 2017 | | | | 2016 | | | | % | | Americas | | | 472 | | | | 542 | | | | (13 | ) | The Netherlands | | | 99 | | | | 111 | | | | (11 | ) | United Kingdom | | | 37 | | | | 66 | | | | (44 | ) | Central & Eastern Europe | | | 88 | | | | 83 | | | | 6 | | Spain & Portugal | | | 48 | | | | 39 | | | | 23 | | Europe | | | 273 | | | | 299 | | | | (9 | ) | Asia | | | 151 | | | | 128 | | | | 18 | | Total recurring plus 1/10 single | | | 896 | | | | 969 | | | | (8 | ) |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 109128 | | Financial information | | Results of operations –- Worldwide | | | | |
| | | | | | | | | | | Gross deposits (on and off balance) | | | | | | | | | | | Amounts in EUR millions | | | 2017 | | | | 2016 | | | % | Americas | | | 38,543 | | | | 40,881 | | | (6) | The Netherlands | | | 8,061 | | | | 6,686 | | | 21 | United Kingdom | | | 17,259 | | | | 5,791 | | | n.m. | Central & Eastern Europe | | | 323 | | | | 265 | | | 22 | Spain & Portugal | | | 36 | | | | 31 | | | 15 | Europe | | | 25,679 | | | | 12,773 | | | n.m. | Asia | | | 222 | | | | 304 | | | (27) | Asset Management | | | 61,332 | | | | 46,366 | | | 32 | Total gross deposits | | | 125,776 | | | | 100,325 | | | 25 | | | | | Net deposits (on and off balance) | | | | | | | | | | | Amounts in EUR millions | | | 2017 | | | | 2016 | | | % | Americas | | | (29,713 | ) | | | (1,015 | ) | | n.m. | The Netherlands | | | 1,067 | | | | 1,909 | | | (44) | United Kingdom | | | 4,665 | | | | (846 | ) | | n.m. | Central & Eastern Europe | | | 176 | | | | 176 | | | - | Spain & Portugal | | | 13 | | | | 20 | | | (37) | Europe | | | 5,921 | | | | 1,260 | | | n.m. | Asia | | | 129 | | | | 259 | | | (50) | Asset Management | | | 6,913 | | | | 2,964 | | | 133 | Total net deposits excludingrun-off businesses | | | (16,750 | ) | | | 3,468 | | | n.m. | Run-off businesses | | | (338 | ) | | | (759 | ) | | 55 | Total net deposits/(outflows) | | | (17,088 | ) | | | 2,709 | | | n.m. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Worldwide revenues geographically 2017 Amounts in EUR millions | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total life insurance gross premiums | | | 7,437 | | | | 1,857 | | | | 9,603 | | | | 411 | | | | 208 | | | | 12,079 | | | | 983 | | | | - | | | | (1 | ) | | | 20,498 | | | | (546 | ) | | | 19,952 | | Accident and health insurance premiums | | | 2,115 | | | | 203 | | | | 32 | | | | 1 | | | | 83 | | | | 319 | | | | 97 | | | | - | | | | - | | | | 2,531 | | | | (20 | ) | | | 2,511 | | General insurance premiums | | | - | | | | 148 | | | | - | | | | 216 | | | | 103 | | | | 467 | | | | - | | | | - | | | | - | | | | 466 | | | | (103 | ) | | | 363 | | Total gross premiums | | | 9,553 | | | | 2,208 | | | | 9,635 | | | | 628 | | | | 394 | | | | 12,865 | | | | 1,080 | | | | - | | | | (2 | ) | | | 23,496 | | | | (670 | ) | | | 22,826 | | Investment income | | | 3,368 | | | | 2,172 | | | | 1,517 | | | | 49 | | | | 37 | | | | 3,774 | | | | 246 | | | | 4 | | | | 5 | | | | 7,396 | | | | (58 | ) | | | 7,338 | | Fees and commission income | | | 1,919 | | | | 326 | | | | 235 | | | | 43 | | | | 17 | | | | 621 | | | | 63 | | | | 609 | | | | (221 | ) | | | 2,991 | | | | (189 | ) | | | 2,802 | | Other revenue | | | 5 | | | | - | | | | - | | | | - | | | | 3 | | | | 3 | | | | 1 | | | | - | | | | 4 | | | | 13 | | | | (5 | ) | | | 7 | | Total revenues | | | 14,844 | | | | 4,706 | | | | 11,387 | | | | 720 | | | | 450 | | | | 17,263 | | | | 1,390 | | | | 613 | | | | (214) | | | | 33,895 | | | | (922 | ) | | | 32,973 | | Number of employees, including agent employees | | | 10,951 | | | | 3,089 | | | | 3,435 | | | | 2,337 | | | | 610 | | | | 9,471 | | | | 6,025 | | | | 1,500 | | | | 371 | | | | 28,318 | | | | | | | | | |
| | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 110 | | Financial information Results of operations – Worldwide | | | |
Results 2017 worldwide
Aegon’s net income in 2017 improved compared with 2016 to EUR 2,469 million. Underlying earnings before tax increased by 10% compared with 2016 to EUR 2,140 million in 2017, as higher underlying earnings before tax from the Americas, Europe and Asia were only partly offset by lower Asset Management underlying earnings before tax and Holding and other activities. The net result in 2017 benefited from realized gains of EUR 413 million mainly related to normal trading in the investment portfolio, as well as a EUR 554 million benefit related to the US tax reform. Other charges amounted to EUR 68 million in 2017, as the net gain from divestments was more than offset by other items, including charges related to assumption changes and model updates.
Net income
Net income amounted to EUR 2,469 million in 2017 driven by underlying earnings before tax of EUR 2,140 million, realized gains and an effective tax rate of only 4% as a result of a benefit related to US tax reform.
Underlying earnings before tax
Aegon’s underlying earnings before tax increased compared with 2016 to EUR 2,140 million in 2017. This was mainly driven by expense reductions, an improvement in claims experience in the Americas, and higher fee revenue resulting from favorable equity market performance.
◆ | | Underlying earnings before tax from the Americas increased compared with 2016 to EUR 1,381 million in 2017. Expense reductions, an improvement in claims experience, and higher fee revenue resulting from favorable equity market performance more than offset net outflows. |
◆ | | In Europe, underlying earnings before tax in 2017 increased by 8% compared with 2016 to EUR 744 million. This was mainly driven by higher fee income in the United Kingdom compared with 2016 from favorable equity markets and net inflows. In addition, the inclusion of Cofunds in 2017 led to higher underlying earnings before tax compared with 2016. |
◆ | | In Asia, underlying earnings before tax increased in 2017 compared with 2016 to EUR 49 million as a result of increased underlying earnings before tax from the High Net Worth business, Aegon Insights and the Strategic Partnership in China. This was in part driven by lower expenses compared with 2016 as well as favorable mortality experience, favourable persistency and favorable intangible adjustments related to anticipated investment yields. |
◆ | | Underlying earnings before tax from Asset Management decreased by 9% in 2017 compared with 2016 to EUR 136 million. This decline was mainly driven by lower underlying earnings before tax from the United Kingdom due to lower management fees. |
◆ | | Total Holdings costs amounted to EUR 170 million in 2017 compared with EUR 162 million in 2016 impacted by regulatory projects. |
Fair value items
The results from fair value items amounted to a gain of EUR 81 million in 2017. 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 113 million, as gains on real estate investments in the Netherlands and the positive result from the mismatch on an IFRS basis between interest rate hedges on the mortgage portfolio and the underlying mortgages were more than offset by a fair value loss on the guarantee provision in the Netherlands, as well as negative fair value changes on equity hedges in the United Kingdom, and interest rate hedges in the Netherlands to protect Aegon’s capital position. Gains on interest rate swaps were the main driver of the EUR 24 million fair value gains in 2017 at the holding.
Realized gains on investments
Realized gains on investments amounted to EUR 413 million in 2017 and were primarily related to normal trading activity, the sale of an equity investment in the United States, and gains on bonds to optimize the general account investment portfolio in the Netherlands and the United Kingdom.
Impairment charges
Net impairments of EUR 15 million in 2017 primarily related to a single commercial mortgage loan in the United States.
Other charges
Other charges amounted to EUR 68 million in 2017. The book gains on the divestments of UMG (EUR 208 million) and the majority of therun-off businesses in the Americas (EUR 231 million) were more than offset by the loss on the divestment of an additional block of life reinsurance business in the Americas (EUR 105 million), charges related to assumption changes and model updates (EUR 276 million),
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 111 | | Financial information Results of operations – Worldwide | | | |
a provision in anticipation of a possible settlement in connection with an investigation by the US Securities and Exchange Commission at Aegon’s Asset Management business in the United States (EUR 85 million), and restructuring and integration charges.
Run-off businesses
The results ofrun-off businesses declined compared with 2016 to EUR 30 million in 2017, mainly as a result of the divestment of the majority of therun-off businesses.
Income tax
Income tax amounted to a charge of EUR 110 million in 2017, and included a EUR 554 millionone-time benefit from US tax reform driven by a reduction in net deferred tax liabilities. As a result of this benefit and the tax exempt gain on the sale of UMG, the effective tax rate on total income for 2017 amounted to 4%. The effective tax rate on underlying earnings before tax amounted to 27%.
Commissions and expenses
Commissions and expenses decreased by 6% compared with 2016 to EUR 6.3 billion in 2017, mainly driven by lower sales of life and annuity products in the United States. Operating expenses increased by 3% compared with 2016 to EUR 3.9 billion in 2017. 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.
Production
Compared with 2016, gross deposits in 2017 were up by 44% to EUR 144.4 billion, driven by higher gross deposits in Asset Management and the acquisition of Cofunds. Net outflows amounted to EUR 17.1 billion as inflows in Asset Management and the United Kingdom were more than offset by contract discontinuances from the business acquired from Mercer. These outflows were in line with the guidance provided in 2017, and are driven by the conversion of customers to the Transamerica recordkeeping platform. New life sales declined by 8% compared with 2016 to EUR 896 million in 2017, mostly driven by lower indexed universal life and term life production in the United States and the sale of the annuity business in the United Kingdom, which more than offset the increase in sales in Asia driven by the continued success of the whole life critical illness product. New premium production for accident & health and general insurance decreased by 7% compared with 2016 to EUR 885 million in 2017, mainly as product exits and lower supplemental health sales in the United States more than offset increased general insurance production supported by a portfolio acquisition in Hungary.
Capital management
During 2017, shareholders’ equity decreased by EUR 0.2 billion to EUR 20.3 billion, as net income was more than offset by a weakening of the US Dollar, dividends paid to shareholders, and
a reduction in revaluation reserves net of deferred tax liabilities. During the year, the revaluation reserves net of deferred tax liabilities decreased by EUR 0.5 billion to EUR 4.9 billion. The benefit from US tax reform in connection to the reduction in net deferred tax liabilities related to revaluation reserves was more than offset by the adverse impact from higher interest rates. Aegon’s shareholders’ equity, excluding revaluation reserves amounted to EUR 15.7 billion on December 31, 2017, or 7.66 per common share. The gross leverage ratio (based on IFRS as adopted by the EU) improved to 30.8% on December 31, 2017, compared with 32.2% at the end of 2016, which was mostly the result of retained earnings. Excess cash in the holding declined in 2017 compared with 2016 to EUR 1.4 billion, as remittances from business units were more than offset by dividends to shareholders, interest payments, operating expenses and capital injections into the units, including a EUR 1 billion injection to increase the Solvency II ratio of Aegon the Netherlands.
On December 31, 2017, Aegon’s estimated Solvency II ratio amounted to 201%, up from 157% at the end of 2016. This increase was driven by capital generation, divestments and an amendment of the conversion methodology for US Life insurance entities under Solvency II. This methodology is consistent with EIOPA’s guidance on how to calculate group solvency in the context of equivalence. It includes a conversion factor of 150% for required capital and reducing own funds by 100% RBC requirement to reflect transferability restrictions. The methodology is subject to annual review. The RBC ratio in the United States increased from 440% atyear-end 2016 to 472% on December 31, 2017. The benefit to the ratio from capital generation and the divestment of the majority of therun-off businesses more than offset remittances to the Group. In the Netherlands, the estimated Solvency II ratio at the end of 2017 amounted to 199%, up from 134% at the end of 2016. The ratio benefited from the aforementioned capital injection, model changes, derisking and the divestment of UMG. The estimated Solvency II ratio at the end of 2017 of Aegon United Kingdom amounted to 176%, up from 156% at the end of 2016. The capital generation, the completion of the Part VII transfers related to the divestment of the majority of the UK annuity book and model changes more than offset remittances to the Group.
The Solvency ratios as disclosed in this section represent
Aegon’s estimates, are not final until filed with the regulator, and are subject to supervisory review.
Dividends from and capital contributions to business units Aegon’s business units remitted over EUR 1.81.2 billion to the Group during 2017,2019, including EUR 1.4 billion809 million from the Americas EUR 176 million from Asia and EUR 167251 million from the United Kingdom. Aegon spent EUR 1.1 billion401 million on capital injections, includingearn-out payments, while the proceeds from divestments amounted to EUR 1 billion into the Netherlands.131 million. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 112129 | | Financial information | | Results of operations –- Americas | | | | | | | | | | | |
Results 20182019 Americas | | | | Amounts in USD millions | | | Amounts in EUR millions | | | | Amounts in USD millions | | | | | Amounts in EUR millions | | | | | | 2018 | | | 2017 | | % | | 2018 | | | 2017 | | % | | | 2019 | | | 2018 | | | % | | | 2019 | | | 2018 | | | | % | | Net underlying earnings | | | 1,276 | | | 1,158 | | | 10 | | | 1,080 | | | 1,026 | | | 5 | | | 1,083 | | | 1,276 | | | | (15 | ) | | 967 | | | 1,080 | | | | (10) | | Tax on underlying earnings | | | 161 | | | 401 | | | (60) | | | 136 | | | 355 | | | (62) | | | 175 | | | 161 | | | | 9 | | | 157 | | | 136 | | | | 15 | | Underlying earnings before tax by business | | | | | | | | | | | | | | | | | | | | | | | | | Life | | | 263 | | | 251 | | | 5 | | | 223 | | | 222 | | | - | | | 186 | | | 263 | | | | (30 | ) | | 166 | | | 223 | | | | (26) | | Accident & health | | | 259 | | | 284 | | | (9) | | | 220 | | | 252 | | | (13) | | Accident & Health | | | | 241 | | | 259 | | | | (7 | ) | | 215 | | | 220 | | | | (2) | | Retirement plans | | | 195 | | | 315 | | | (38) | | | 165 | | | 279 | | | (41) | | | 160 | | | 195 | | | | (18 | ) | | 143 | | | 165 | | | | (13) | | Mutual funds | | | 45 | | | 54 | | | (16) | | | 38 | | | 48 | | | (20) | | | 37 | | | 45 | | | | (17 | ) | | 33 | | | 38 | | | | (12) | | Variable annuities | | | 469 | | | 410 | | | 15 | | | 397 | | | 363 | | | 9 | | | 423 | | | 469 | | | | (10 | ) | | 378 | | | 397 | | | | (5) | | Fixed annuities | | | 114 | | | 145 | | | (22) | | | 96 | | | 129 | | | (25) | | | 110 | | | 114 | | | | (3 | ) | | 99 | | | 96 | | | | 2 | | Stable Value Solutions | | | 93 | | | 99 | | | (6) | | | 79 | | | 88 | | | (11) | | | 85 | | | 93 | | | | (8 | ) | | 76 | | | 79 | | | | (3) | | Latin America | | | (2 | ) | | 1 | | | n.m. | | | (2 | ) | | 1 | | | n.m. | | | 15 | | | (2 | ) | | | n.m. | | | 14 | | | (2 | ) | | | n.m. | | Underlying earnings before tax | | | 1,437 | | | 1,560 | | | (8) | | | 1,216 | | | 1,381 | | | (12) | | | 1,258 | | | 1,437 | | | | (12 | ) | | 1,124 | | | 1,216 | | | | (8) | | | Fair value items | | | (724 | ) | | 192 | | | n.m. | | | (613 | ) | | 170 | | | n.m. | | | 304 | | | (724 | ) | | | n.m. | | | 272 | | | (613 | ) | | | n.m. | | Gains/(losses) on investments | | | (241 | ) | | 177 | | | n.m. | | | (204 | ) | | 157 | | | n.m. | | | 140 | | | (241 | ) | | | n.m. | | | 125 | | | (204 | ) | | | n.m. | | Net impairments | | | (10 | ) | | (19 | ) | | 45 | | | (9 | ) | | (17 | ) | | 47 | | | 16 | | | (10 | ) | | | n.m. | | | 14 | | | (9 | ) | | | n.m. | | Other income/(charges) | | | (469 | ) | | (409 | ) | | (15) | | | (397 | ) | | (353 | ) | | (13) | | | (174 | ) | | (469 | ) | | | 63 | | | (156 | ) | | (397 | ) | | | 61 | | Run-off businesses | | | (16 | ) | | 33 | | | n.m. | | | (14 | ) | | 30 | | | n.m. | | | 26 | | | (16 | ) | | | n.m. | | | 23 | | | (14 | ) | | | n.m. | | | Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | | | (23 | ) | | 1,535 | | | n.m. | | | (20 | ) | | 1,369 | | | n.m. | | | 1,569 | | | (23 | ) | | | n.m. | | | 1,401 | | | (20 | ) | | | n.m. | | | Income tax from certain proportionatelyconsolidated joint ventures and associatesincluded in income before tax | | | 2 | | | 5 | | | (53) | | | 2 | | | 5 | | | (55) | | | 6 | | | 2 | | | | 134 | | | 5 | | | 2 | | | | 147 | | | Income tax | | | 84 | | | 227 | | | (63) | | | 71 | | | 198 | | | (64) | | | (246 | ) | | 84 | | | | n.m. | | | (220 | ) | | 71 | | | | n.m. | | Of which Income tax from certainproportionately consolidated joint venturesand associates included in income before tax | | | (2 | ) | | (5 | ) | | 53 | | | (2 | ) | | (5 | ) | | 55 | | | (6 | ) | | (2 | ) | | | (134 | ) | | (5 | ) | | (2 | ) | | | (147) | | Net income/(loss) | | | 61 | | | 1,762 | | | (97) | | | 51 | | | 1,567 | | | (97) | | | 1,323 | | | 61 | | | | n.m. | | | 1,182 | | | 51 | | | | n.m. | | | Life insurance gross premiums | | | 8,276 | | | 8,397 | | | (1) | | | 7,004 | | | 7,437 | | | (6) | | | 8,150 | | | 8,276 | | | | (2 | ) | | 7,279 | | | 7,004 | | | | 4 | | Accident and health insurance premiums | | | 1,856 | | | 2,388 | | | (22) | | | 1,571 | | | 2,115 | | | (26) | | | 1,585 | | | 1,856 | | | | (15 | ) | | 1,416 | | | 1,571 | | | | (10) | | Total gross premiums | | | 10,132 | | | 10,786 | | | (6) | | | 8,575 | | | 9,553 | | | (10) | | | 9,735 | | | 10,132 | | | | (4 | ) | | 8,694 | | | 8,575 | | | | 1 | | | Investment income | | | 3,693 | | | 3,803 | | | (3) | | | 3,125 | | | 3,368 | | | (7) | | | 3,552 | | | 3,693 | | | | (4 | ) | | 3,172 | | | 3,125 | | | | 2 | | Fees and commission income | | | 2,157 | | | 2,167 | | | - | | | 1,826 | | | 1,919 | | | (5) | | | 1,968 | | | 2,157 | | | | (9 | ) | | 1,757 | | | 1,826 | | | | (4) | | Other revenues | | | 6 | | | 6 | | | - | | | 5 | | | 5 | | | (5) | | | 8 | | | 6 | | | | 53 | | | 8 | | | 5 | | | | 61 | | Total revenues | | | 15,988 | | | 16,761 | | | (5) | | | 13,530 | | | 14,844 | | | (9) | | | 15,263 | | | 15,988 | | | | (5 | ) | | 13,631 | | | 13,530 | | | | 1 | | | Commissions and expenses | | | 4,776 | | | 4,071 | | | 17 | | | 4,042 | | | 3,606 | | | 12 | | | 4,320 | | | 4,776 | | | | (10 | ) | | 3,858 | | | 4,042 | | | | (5) | | of which operating expenses | | | 1,852 | | | 1,798 | | | 3 | | | 1,567 | | | 1,593 | | | (2) | | | 1,756 | | | 1,852 | | | | (5 | ) | | 1,569 | | | 1,567 | | | | - | | | | | | | | Amounts in USD millions | | | | | Amounts in EUR millions | | | New life sales | | | | 2019 | | | 2018 | | | | % | | | 2019 | | | 2018 | | | | % | | Life | | | | 396 | | | 416 | | | | (5 | ) | | 354 | | | 352 | | | | - | | Latin America | | | | 73 | | | 80 | | | | (8 | ) | | 66 | | | 67 | | | | (3) | | Total recurring plus 1/10 single | | | | 469 | | | 496 | | | | (5 | ) | | 419 | | | 420 | | | | - | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 113130 | | Financial information | | Results of operations –- Americas | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | Amounts in USD millions | | | | | Amounts in EUR millions | | | | | New life sales | | 2018 | | | 2017 | | | % | | 2018 | | | 2017 | | | | Life | | | 416 | | | | 460 | | | (9) | | | 352 | | | | 407 | | | (13) | Latin America | | | 80 | | | | 74 | | | 8 | | | 67 | | | | 65 | | | 3 | Total recurring plus 1/10 single | | | 496 | | | | 533 | | | (7) | | | 420 | | | | 472 | | | (11) | | | | | | | | | Amounts in USD millions | | | | | Amounts in EUR millions | | | | | | | 2018 | | | 2017 | | | % | | 2018 | | | 2017 | | | % | New premium production accident and health insurance | | | 312 | | | | 818 | | | (62) | | | 264 | | | | 725 | | | (64) | | | | | | | | | Amounts in USD millions | | | | | Amounts in EUR millions | | | | | Gross deposits (on and off balance) | | 2018 | | | 2017 | | | % | | 2018 | | | 2017 | | | % | Life | | | 8 | | | | 7 | | | 22 | | | 7 | | | | 6 | | | 17 | Retirement plans | | | 34,284 | | | | 34,235 | | | - | | | 29,015 | | | | 30,321 | | | (4) | Mutual funds | | | 7,029 | | | | 5,695 | | | 23 | | | 5,949 | | | | 5,043 | | | 18 | Variable annuities | | | 3,252 | | | | 3,190 | | | 2 | | | 2,752 | | | | 2,825 | | | (3) | Fixed annuities | | | 443 | | | | 317 | | | 40 | | | 375 | | | | 281 | | | 33 | Latin America | | | 214 | | | | 75 | | | 186 | | | 181 | | | | 66 | | | 173 | Total gross deposits | | | 45,231 | | | | 43,518 | | | 4 | | | 38,279 | | | | 38,543 | | | (1) | | | | | | | | | Amounts in USD millions | | | | | Amounts in EUR millions | | | | | Net deposits (on and off balance) | | 2018 | | | 2017 | | | % | | 2018 | | | 2017 | | | % | Life | | | (36 | ) | | | (33 | ) | | (9) | | | (30 | ) | | | (29 | ) | | (4) | Retirement plans | | | (12,620 | ) | | | (30,480 | ) | | 59 | | | (10,681 | ) | | | (26,995 | ) | | 60 | Mutual funds | | | (627 | ) | | | 377 | | | n.m. | | | (530 | ) | | | 334 | | | n.m. | Variable annuities | | | (3,046 | ) | | | (2,284 | ) | | (33) | | | (2,577 | ) | | | (2,023 | ) | | (27) | Fixed annuities | | | (1,245 | ) | | | (1,181 | ) | | (5) | | | (1,054 | ) | | | (1,046 | ) | | (1) | Latin America | | | 165 | | | | 52 | | | n.m. | | | 139 | | | | 46 | | | n.m. | Total net deposits excludingrun-off businesses | | | (17,409 | ) | | | (33,549 | ) | | 48 | | | (14,734 | ) | | | (29,713 | ) | | 50 | Run-off businesses | | | (277 | ) | | | (382 | ) | | 28 | | | (234 | ) | | | (338 | ) | | 31 | Total net deposits/(outflows) | | | (17,686 | ) | | | (33,931 | ) | | 48 | | | (14,968 | ) | | | (30,051 | ) | | 50 |
| | | | | | | | | | | | | | | | Weighted average rate | | Closing rate as of | | Exchange rates | | | | | | | December 31, | | | December 31, | Per 1 EUR | | | 2018 | | | 2017 | | | 2018 | | | 2017 | USD | | | 1.1816 | | | 1.1291 | | | 1.1432 | | | 1.2008 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amounts in USD millions | | | | | | | | Amounts in EUR millions | | | | | | | | | 2019 | | | 2018 | | | % | | | 2019 | | | 2018 | | | % | | New premium production accident and health insurance | | | 194 | | | | 312 | | | | (38) | | | | 174 | | | | 264 | | | | (34) | | | | | | | | | | | Amounts in USD millions | | | | | | | | Amounts in EUR millions | | | | | | Gross deposits (on and off balance) | | | 2019 | | | | 2018 | | | | % | | | | 2019 | | | | 2018 | | | | % | | Life | | | 6 | | | | 8 | | | | (20) | | | | 6 | | | | 7 | | | | (16) | | Retirement plans | | | 34,320 | | | | 34,284 | | | | - | | | | 30,651 | | | | 29,015 | | | | 6 | | Mutual funds | | | 6,137 | | | | 7,029 | | | | (13) | | | | 5,481 | | | | 5,949 | | | | (8) | | Variable annuities | | | 3,711 | | | | 3,252 | | | | 14 | | | | 3,315 | | | | 2,752 | | | | 20 | | Fixed annuities | | | 704 | | | | 443 | | | | 59 | | | | 628 | | | | 375 | | | | 68 | | Latin America | | | 364 | | | | 214 | | | | 70 | | | | 325 | | | | 181 | | | | 79 | | Total gross deposits | | | 45,242 | | | | 45,231 | | | | - | | | | 40,406 | | | | 38,279 | | | | 6 | | | | | | | | | | | Amounts in USD millions | | | | | | | | Amounts in EUR millions | | | | | | Net deposits (on and off balance) | | | 2019 | | | | 2018 | | | | % | | | | 2019 | | | | 2018 | | | | % | | Life | | | (56 | ) | | | (36 | ) | | | (57) | | | | (50 | ) | | | (30 | ) | | | (66) | | Retirement plans | | | (28,816 | ) | | | (12,620 | ) | | | (128) | | | | (25,736 | ) | | | (10,681 | ) | | | (141) | | Mutual funds | | | (317 | ) | | | (627 | ) | | | 49 | | | | (283 | ) | | | (530 | ) | | | 47 | | Variable annuities | | | (2,822 | ) | | | (3,046 | ) | | | 7 | | | | (2,521 | ) | | | (2,577 | ) | | | 2 | | Fixed annuities | | | (1,042 | ) | | | (1,245 | ) | | | 16 | | | | (931 | ) | | | (1,054 | ) | | | 12 | | Latin America | | | 167 | | | | 165 | | | | 1 | | | | 149 | | | | 139 | | | | 7 | | | Total net deposits excludingrun-off businesses | | | (32,886 | ) | | | (17,409 | ) | | | (89 | ) | | | (29,371 | ) | | | (14,734 | ) | | | (99) | | Run-off businesses | | | (647 | ) | | | (277 | ) | | | (134 | ) | | | (578 | ) | | | (234 | ) | | | (147) | | Total net deposits/(outflows) | | | (33,534 | ) | | | (17,686 | ) | | | (90 | ) | | | (29,949 | ) | | | (14,968 | ) | | | (100) | | | | | | | | | Exchange rates | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average rate | | | | Closing rate as of | | | | | | | | | | | | | | | | | | | | | December 31, | | | | December 31, | | Per 1 EUR | | | | | | | | | | | 2019 | | | | 2018 | | | | 2019 | | | | 2018 | | USD | | | | | | | | | | | 1.1197 | | | | 1.1816 | | | | 1.1225 | | | | 1.1432 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 114131 | | Financial information | | Results of operations –- Americas | | | | | | | | | | | |
Results 20182019 Americas The net income from the Americas amounted to USD 61 million1.3 billion in 2018.2019. Underlying earnings before tax in 20182019 decreased by 8%12% compared with 20172018 to USD 1.41.3 billion caused by lower fee revenue dueincome in Retirement Plans and Variable Annuities, product exits in the Health business, investments in the business to declining equity marketssupport growth and net outflowsthe impact of revenue generating investments, and unfavorable mortality experience, partly offset by expense reductions.economic movements on Life. Gross deposits increased by 4% towere stable at USD 45.2 billion in 20182019 compared with 2017,2018, as a result of increases at all business lines.higher gross deposits in Variable Annuities, Fixed Annuities, and from Latin America compensated lower gross deposits in Mutual funds. New life sales declined to USD 469 million in 2019 compared with USD 496 million in 2018 compared with USD 533 million in 2017 due to lower indexed universal life and term life sales. New premium production for accidentAccident & healthHealth insurance was down 62%38% compared with 20172018 to USD 312194 million in 2018,2019, reflecting the strategic decision to exit travel insurance, affinity and stop loss insurance segments. Net income The net income amounted to USD 61 million as1.3 billion in line with underlying earnings before tax, were largely offset by lossesas gains from fair value items and realized lossesgains on investments were offset by other charges and other charges.income taxes. Underlying earnings before tax in 20182019 decreased by 8%12% compared with 20172018 to USD 1.41.3 billion. Results on fair value items amounted to a lossgain of USD 724304 million in 2018,2019, which was primarily related to: | ◆ | | The loss ongain in fair value hedgesinvestments amounted to USD 154 million, mainly driven by a USD 181 millionmark-to-market gain from valuation updates related to accepting an offer to sell the Pyramid building complex in San Francisco, partly offset by alternative investments underperformance and the impact of credit spreads on derivatives. |
| ◆ | | Hedges without an accounting match under IFRS wasresulted in a gain of USD 558157 million. This loss was higher than anticipated, mainly due to USD 96 million lower than expecteddriven by gains as a resulton the macro hedge net of the lack of implied volatilityreserve movements, during thereflecting favorable equity market decline at the end of the year.markets. |
| ◆ | | The result on fair value hedges with an accounting match amounted to a loss of USD 79 million. |
◆ | | The results on fair value investments amounted to an underperformance of USD 152 million, mainly from lower commodity prices and equity markets, as well as widening credit spreads. This was partly offset by positive revaluations on real estate. |
Realized lossesgains on investments were USD 241140 million resulting from the sale of US treasuries as part ofbond calls and prepayments, mortgage loan gains, and normal trading activity. Net impairments amounted to gains of USD 1016 million, reflecting an impairment ofrecoveries on multiple structured assets with sustained improvements in cash flows, partly offset by corporate bonds caused by abond impairments resulting from bankruptcy filing.filings. Income before tax fromrun-off businesses in 20182019 was a lossprofit of USD 1626 million, which is in line with expectations following the divestment of the majority of the remainder of these businesses in 2017.businesses. Other charges of USD 469174 million in 20182019 mainly related to USD 150164 million transitionimpacts from unfavorable model and conversionassumption changes. These were related to charges for surrender, lapse, and mortality updates in Life, as well as expense assumption updates following changes of the organizational structure earlier in the year, and were partly offset by gains driven by updates to variable annuity and indexed universal life model and assumptions. Other charges of USD 34 million occurred in relation to the operations administration partnerships with TCS partnership,and LTCG, as well as following the decision to exit the Akaan Transamerica joint venture in Mexico. These were partly compensated by a USD 16624 million charge for a class action litigation settlement with universal life policyholders, a USD 110 million book loss ongain resulting from the divestmentrestructuring of the last remaining substantial block of life reinsurance business, USD 39 million impact from assumption updates, and a USD 32 million additionfinancing agreements related to the provision for unclaimed property.merger of two reinsurance captives. Underlying earnings before tax Underlying earnings before tax in 20182019 decreased by 8%12% compared with 20172018 to USD 1.41.3 billion caused by lower fee revenueincome in Retirement Plans and Variable Annuities due to declining equity markets and net outflows, product exits in the Accident & Health business, investments in the business to support growth and improve customer experience, and the impact of unfavorable mortality experience. This was partly offset by expense reductions.economic movements on the Life earnings. | ◆ | | Underlying earnings before tax from Life increased 5%decreased by 30% to USD 186 million in 2019 compared with USD 263 million in 2018 compared with USD 251 million in 2017.2018. This increasedecrease was largely driven by higher investment incomea negative impact from economic and lowerportfolio updates on intangibles in 2019, compared to 2018. In addition, operating expenses which were largely offset by adverse mortalityincreased in part due to costs to support growth and to improve customer experience. Mortality experience and adverse persistency.in 2019 was similar to the prior year, while persistency was better compared to 2018. |
| ◆ | | Accident & healthHealth underlying earnings before tax decreased to USD 259241 million in 20182019 compared with USD 284 million in 2017, mainly due to lower favorable morbidity experience. |
◆ | | Underlying earnings before tax from Mutual Funds declined from USD 54 million in 2017 to USD 45 million in 2018. This was caused by higher expenses as a result of changes in the expense allocation between product lines, partly offset by higher fee income from business growth. |
◆ | | Retirement Plans underlying earnings before tax were down 38% to USD 195 million in 2018 compared with USD 315 million in 2017. This was the result of lower fee income from lower asset balances, a lower investment margin, unfavorable mortality, and higher operating expenses as a result of changes in expense allocations between product lines and investment spend to support growth and improve the Workplace experience. |
◆ | | Underlying earnings before tax from Variable Annuities increased by 15% to USD 469 million in 2018 compared with USD 410 million in 2017, driven by lower operating expenses as a result of changes in expense allocations between product lines. |
◆ | | Fixed Annuity underlying earnings before tax decreased by 22% compared with 2017 to USD 114259 million in 2018, mainly due to lower investment income, reflecting the continued balance reduction.exiting affinity, accident, and travel products. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 115132 | | Financial information | | Results of operations –- Americas | | | | | | | | | | | |
| ◆ | | Retirement Plans underlying earnings before tax were down 18% to USD 160 million in 2019 compared with USD 195 million in 2018. This was the result of lower fee income from lower asset balances, a lower investment margin, and operating expenses to support growth and improve the Workplace experience. |
| ◆ | | Underlying earnings before tax from Mutual Funds declined from USD 45 million in 2018 to USD 37 million in 2019. This was caused by higher operating expenses, lower fee income following net outflows, and lower investment margin. |
| ◆ | | Underlying earnings before tax from Variable Annuities decreased by 10% to USD 423 million in 2019 compared with USD 469 million in 2018, driven by lower fee income from lower average balances. This was partly offset by lower benefits incurred due to both lower claims volume and lower average benefits. |
| ◆ | | Fixed Annuity underlying earnings before tax decreased by 3% compared with 2018 to USD 110 million in 2019, mainly due to the impact of lower interest rates. |
| ◆ | | Underlying earnings before tax from Stable Value Solutions amounted to USD 85 million in 2019 compared with USD 93 million in 2018 compared with USD 99 million in 2017 caused by margin pressure and lower asset balances.in a competitive market. |
| ◆ | | Latin America declined from USD 1 millionimproved underlying earnings before tax in 2017 to an underlyingfrom a loss before tax of USD 2 million in 2018 to a profit of USD 15 million in 2019, reflecting increased expenses.growth and a more attractive business mix with higher product margins from the Mongeral Aegon Group joint venture in Brazil. A portion of the increase was also related to the strategic decision to wind down the loss-making Akaan Transamerica joint venture in Mexico in the first half of 2019. |
Commissions and expenses Commissions and expenses increaseddecreased by 17%10% compared with 20172018 to USD 4.84.3 billion in 2018.2019. Operating expenses increaseddecreased by 3%5% compared with 20172018 to USD 1.91.8 billion in 20182019 reflecting higherlower restructuring expenses due toassociated with the transitionoperations administration partnerships, and conversion charges related tolower employee expenses. This was partly offset by expenses for modernization initiatives focused on digital and architectural capabilities as well as contractual increases in fees from the TCS partnership.operations administration partnerships. Production Gross deposits increased by 4% in 2018 compared with 2017 towere stable at USD 45.2 billion as a result of increases in all business lines, most notably2019 compared with 2018, driven by lower gross deposits in Mutual Funds,funds which were compensated by higher gross deposits in Variable Annuities, Fixed Annuities, and from Latin America. Net outflows amounted to USD 17.432.9 billion, mainly caused by Retirement Plans due to a small number of large contract discontinuances and higher participant withdrawals. Variable Annuities and Fixed Annuities saw outflows as these books mature. New life sales declined by 7%to USD 469 million in 2018 to2019 compared with USD 496 million compared with 2017, as a result ofin 2018 due to lower indexed universal life and term life sales, reflecting a loss of market share due to increased competition.while Indexed Universal Life sales were stable. New premium production for accident & health insurance was down by 62%38% compared with 20172018 to USD 312194 million in 2018, caused byreflecting the strategic decision to exit the travel insurance, affinity and stop loss insurance segments.segments, partly offset by the onboarding of a larger disability contract. | | | | | | | | | | | | Aegon Annual Report on Form 20F20-F20192018 | | |
| | | 116 | | Financial information Results of operations – Americas | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Amounts in USD millions | | | | | | Amounts in EUR millions | | | | | | | | 2017 | | | 2016 | | | % | | | 2017 | | | 2016 | | | % | | Net underlying earnings | | | 1,158 | | | | 1,059 | | | | 9 | | | | 1,026 | | | | 956 | | | | 7 | | Tax on underlying earnings | | | 401 | | | | 323 | | | | 24 | | | | 355 | | | | 292 | | | | 22 | | | Underlying earnings before tax by business | | | | | | | | | | | | | | | | | | | | | | | | | Life | | | 251 | | | | 174 | | | | 44 | | | | 222 | | | | 157 | | | | 41 | | Accident & health | | | 284 | | | | 218 | | | | 30 | | | | 252 | | | | 197 | | | | 28 | | Retirement plans | | | 315 | | | | 280 | | | | 13 | | | | 279 | | | | 253 | | | | 11 | | Mutual funds | | | 54 | | | | 50 | | | | 8 | | | | 48 | | | | 45 | | | | 6 | | Variable annuities | | | 410 | | | | 393 | | | | 4 | | | | 363 | | | | 355 | | | | 2 | | Fixed annuities | | | 145 | | | | 172 | | | | (15) | | | | 129 | | | | 155 | | | | (17) | | Stable Value Solutions | | | 99 | | | | 96 | | | | 3 | | | | 88 | | | | 87 | | | | 1 | | Latin America | | | 1 | | | | 1 | | | | 66 | | | | 1 | | | | 1 | | | | 63 | | Underlying earnings before tax | | | 1,560 | | | | 1,382 | | | | 13 | | | | 1,381 | | | | 1,249 | | | | 11 | | | | | | | | | Fair value items | | | 192 | | | | (577 | ) | | | n.m. | | | | 170 | | | | (521 | ) | | | n.m. | | Gains/(losses) on investments | | | 177 | | | | (14 | ) | | | n.m. | | | | 157 | | | | (13 | ) | | | n.m. | | Net impairments | | | (19 | ) | | | (33 | ) | | | 44 | | | | (17 | ) | | | (30 | ) | | | 45 | | Other income/(charges) | | | (409 | ) | | | (111 | ) | | | n.m. | | | | (353 | ) | | | (100 | ) | | | n.m. | | Run-off businesses | | | 33 | | | | 60 | | | | (44) | | | | 30 | | | | 54 | | | | (45) | | | Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | | | 1,535 | | | | 706 | | | | 117 | | | | 1,369 | | | | 638 | | | | 115 | | | | | | | | | Income tax from certain proportionatelyconsolidated joint ventures and associatesincluded in income before tax | | | 5 | | | | 3 | | | | 48 | | | | 5 | | | | 3 | | | | 45 | | | | | | | | | Income tax | | | 227 | | | | (88 | ) | | | n.m. | | | | 198 | | | | (80 | ) | | | n.m. | | Of which Income tax from certainproportionately consolidated joint venturesand associates included in income before tax | | | (5 | ) | | | (3 | ) | | | (48) | | | | (5 | ) | | | (3 | ) | | | (45) | | Net income/(loss) | | | 1,762 | | | | 618 | | | | 185 | | | | 1,567 | | | | 559 | | | | 181 | | | | | | | | | Life insurance gross premiums | | | 8,397 | | | | 8,150 | | | | 3 | | | | 7,437 | | | | 7,363 | | | | 1 | | Accident and health insurance premiums | | | 2,388 | | | | 2,440 | | | | (2) | | | | 2,115 | | | | 2,204 | | | | (4) | | Total gross premiums | | | 10,786 | | | | 10,590 | | | | 2 | | | | 9,553 | | | | 9,567 | | | | - | | | | | | | | | Investment income | | | 3,803 | | | | 4,114 | | | | (8) | | | | 3,368 | | | | 3,717 | | | | (9) | | Fees and commission income | | | 2,167 | | | | 1,828 | | | | 19 | | | | 1,919 | | | | 1,651 | | | | 16 | | Other revenues | | | 6 | | | | 5 | | | | 20 | | | | 5 | | | | 4 | | | | 18 | | Total revenues | | | 16,761 | | | | 16,537 | | | | 1 | | | | 14,844 | | | | 14,940 | | | | (1) | | | | | | | | | Commissions and expenses | | | 4,071 | | | �� | 4,532 | | | | (10) | | | | 3,606 | | | | 4,095 | | | | (12) | | of which operating expenses | | | 1,798 | | | | 1,834 | | | | (2) | | | | 1,593 | | | | 1,656 | | | | (4) | |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 117133 | | Financial information | | Results of operations – Americas- Europe | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Amounts in USD millions | | | | | | Amounts in EUR millions | | | | | | New life sales | | 2017 | | | 2016 | | | % | | | 2017 | | | 2016 | | | | | Life | | | 460 | | | | 547 | | | | (16) | | | | 407 | | | | 494 | | | | (18) | | Latin America | | | 74 | | | | 53 | | | | 39 | | | | 65 | | | | 48 | | | | 37 | | Total recurring plus 1/10 single | | | 533 | | | | 600 | | | | (11) | | | | 472 | | | | 542 | | | | (13) | | | | | | | | | | Amounts in USD millions | | | | | | Amounts in EUR millions | | | | | | | | 2017 | | | 2016 | | | % | | | 2017 | | | 2016 | | | % | | New premium production accident and health insurance | | | 818 | | | | 895 | | | | (9) | | | | 725 | | | | 808 | | | | (10) | | | | | | | | | | Amounts in USD millions | | | | | | Amounts in EUR millions | | | | | | Gross deposits (on and off balance) | | 2017 | | | 2016 | | | % | | | 2017 | | | 2016 | | | % | | Life | | | 7 | | | | 8 | | | | (22) | | | | 6 | | | | 8 | | | | (23) | | Retirement plans | | | 34,235 | | | | 35,137 | | | | (3) | | | | 30,321 | | | | 31,743 | | | | (4) | | Mutual funds | | | 5,695 | | | | 5,467 | | | | 4 | | | | 5,043 | | | | 4,939 | | | | 2 | | Variable annuities | | | 3,190 | | | | 4,375 | | | | (27) | | | | 2,825 | | | | 3,952 | | | | (29) | | Fixed annuities | | | 317 | | | | 254 | | | | 25 | | | | 281 | | | | 230 | | | | 22 | | Latin America | | | 75 | | | | 10 | | | | n.m. | | | | 66 | | | | 9 | | | | n.m. | | Total gross deposits | | | 43,518 | | | | 45,251 | | | | (4) | | | | 38,543 | | | | 40,881 | | | | (6) | | | | | | | | | | Amounts in USD millions | | | | | | Amounts in EUR millions | | | | | | Net deposits (on and off balance) | | 2017 | | | 2016 | | | % | | | 2017 | | | 2016 | | | % | | Life | | | (33 | ) | | | (40 | ) | | | 19 | | | | (29 | ) | | | (37 | ) | | | 21 | | Retirement plans | | | (30,480 | ) | | | 268 | | | | n.m. | | | | (26,995 | ) | | | 242 | | | | n.m. | | Mutual funds | | | 377 | | | | 38 | | | | n.m. | | | | 334 | | | | 34 | | | | n.m. | | Variable annuities | | | (2,284 | ) | | | (125 | ) | | | n.m. | | | | (2,023 | ) | | | (113 | ) | | | n.m. | | Fixed annuities | | | (1,181 | ) | | | (1,265 | ) | | | 7 | | | | (1,046 | ) | | | (1,143 | ) | | | 8 | | Latin America | | | 52 | | | | 1 | | | | n.m. | | | | 46 | | | | 1 | | | | n.m. | | Total net deposits excludingrun-off businesses | | | (33,549 | ) | | | (1,123 | ) | | | n.m. | | | | (29,713 | ) | | | (1,015 | ) | | | n.m. | | Run-off businesses | | | (382 | ) | | | (841 | ) | | | 55 | | | | (338 | ) | | | (759 | ) | | | 55 | | Total net deposits/(outflows) | | | (33,931 | ) | | | (1,964 | ) | | | n.m. | | | | (30,051 | ) | | | (1,774 | ) | | | n.m. | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average rate | | | Closing rate as of | | | Exchange rates | | | | | | | | | | | | | | | | | | | | Per 1 EUR | | | | | | | | 2017 | | | 2016 | | | December 31, 2017 | | | December 31, 2016 | | USD | | | | | | | | | | | 1.1291 | | | | 1.1069 | | | | 1.2008 | | | | 1.0548 | |
| | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 118 | | Financial information Results of operations – Americas | | | |
Results 2017 Americas
The net income from the Americas amounted to USD 1.8 billion in 2017.
Underlying earnings before tax in 2017 increased by 13% compared with 2016 to USD 1.6 billion as expense reductions, an improvement in claims experience, and higher fee revenue resulting from favorable equity market performance more than offset net outflows. Gross deposits decreased by 4% to USD 43.5 billion in 2017 compared with 2016, mainly as a result of lower variable annuity and retirement plans deposits. New life sales declined to USD 533 million in 2017 compared with 2016 due to lower indexed universal life and term life sales, partly as a result of not following competitors’ pricing changes. New premium production for accident & health insurance was down 9% to USD 0.8 billion in 2017 compared with 2016, as product exits and lower supplemental health sales more than offset higher travel sales.
Net income
The net income amounted to USD 1.8 billion in 2017, as underlying earnings before tax, gains from fair value items, realized gains, a net gain on divestments, and a benefit from US tax reform were partly offset by other charges which mainly relate to model updates and assumption changes. Underlying earnings before tax in 2017 strongly increased compared with 2016 to USD 1.6 billion. Results on fair value items amounted to a gain of USD 192 million in 2017, which was primarily related to changes to hedging programs to a 100% option based program and real estate investments. Income before tax fromrun-off businesses in 2017 almost halved compared with 2016 to USD 33 million following the divestment of the majority ofrun-off businesses in 2017, while realized gains on investments in 2017 amounted to USD 177 million. Net impairments amounted USD 19 million in 2017, primarily related to a single commercial mortgage loan. Other charges of USD 409 million in 2017 mainly related to the impact of model updates and assumption changes related to conversion of the largest block of universal life business to a new model and a provision in anticipation of a possible settlement in connection with an investigation by the US SEC (USD 51 million), which more than offset a net gain on divestments due to the sale of BOLI/ COLI and Payout annuities (USD 250 million) and life reinsurance block (USD 119 million). The benefit from US tax reform amounted to USD 626 million driven by a reduction in deferred tax liabilities.
Underlying earnings before tax
Underlying earnings before tax in 2017 increased by 13% compared with 2016 to USD 1.6 billion. Expense reductions, an improvement in claims experience, and higher fee revenue resulting from favorable equity market performance more than offset net outflows.
◆ | | Underlying earnings before tax from Life increased to USD 251 million in 2017 compared with USD 174 million in 2016. This increase was mainly driven by an improvement in mortality experience. |
◆ | | Accident & health underlying earnings before tax increased by 30% to USD 284 million in 2017 compared with USD 218 million in 2016, as an improvement in claims experience and expense savings more than offset the negative impact on underlying earnings before tax of product exits. |
◆ | | Underlying earnings before tax from Mutual Funds increased by USD 4 million in 2017 compared with 2016 to USD 54 million. Increased fee income from higher average account balances driven by equity market performance and inflows more than offset increased expenses. |
◆ | | Retirement Plans underlying earnings before tax were up 13% to USD 315 million in 2017 compared with USD 280 million in 2016, primarily driven by increased fee income compared with 2016. This was the result of higher fee revenue from higher asset balances with favorable equity market performance more than offsetting net outflows related to the conversion of the Mercer business to Aegon USA’s platform. |
◆ | | Underlying earnings before tax from Variable Annuities increased by 4% to USD 410 million in 2017 compared with USD 393 million in 2016 , primarily driven by the benefit of expense savings and increased fee income compared with 2016. This was the result of higher fee revenue from higher asset balances with favorable equity market performance more than offsetting net outflows. |
◆ | | Fixed Annuity underlying earnings before tax decreased by 15% in 2017 compared with 2016 to USD 145 million, reflecting the continued balance reduction and unfavorable adjustments of deferred acquisition costs. |
◆ | | Underlying earnings before tax from Stable Value Solutions amounted to USD 99 million in 2017 compared with USD 96 million in 2016 mainly due to lower hedging costs. |
◆ | | Latin America remained stable at USD 1 million of underlying earnings before tax in 2017. |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 119 | | Financial information Results of operations – Americas | | | |
Commissions and expenses
Commissions and expenses decreased by 10% compared with 2016 to USD 4.1 billion in 2017 mainly driven by lower sales of life and annuity products. Operating expenses decreased by 2% compared with 2016 to USD 1.8 billion in 2017 as a result of expense savings, which were partly offset by investments in business transformation and project expenses.
Production
Gross deposits decreased by 4% in 2017 compared with 2016 to USD 43.5 billion. Higher gross deposits in Mutual Funds and Latin Americas in 2017 were more than offset by a decline in variable annuity and retirement plan deposits compared with 2016. Decreased variable annuity deposits in 2017 compared with 2016 were caused by lower market demand following the implementation of the Department of Labor Fiduciary Rule, in addition to not following competitors’ pricing changes for some products and partners deciding to offer their own variable annuities solutions. Retirement plan deposits decreased in 2017
compared with 2016, as higher recurring deposits were more than offset by lower takeover deposits. Net outflows amounted to USD 33.9 billion due to contract discontinuances from the business acquired from Mercer. These outflows were in line with guidance provided in 2017, and are driven by the conversion of customers to Aegon USA’s recordkeeping platform.
New life sales declined by 11% in 2017 to USD 533 million compared with 2016, as a result of lower indexed universal life and term life sales. Universal life production was down in 2017 compared with 2016, as a result of a decline in market share in indexed universal life. Sales of term life products declined in 2017 compared with 2016 as Aegon did not lower its pricing in line with a number of its competitors. New premium production for accident & health insurance was down by 9% to USD 0.8 billion in 2017 compared with 2016, as product exits and lower supplemental health sales more than offset higher travel sales.
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 120 | | Financial information Results of operations – Europe | | | |
Introduction Europe The Results 2018results 2019 Europe cover the following operating segments: The Netherlands, United Kingdom Centraland Southern & Eastern Europe, Spain & Portugal.Europe. This segment reporting is based on the businesses as presented in internal reports that are regularly reviewed by the Executive Board which is regarded as Aegon’s chief operating decision maker. For Europe, the underlying businesses are separate operating segments which under IFRS 8 cannot be aggregated, therefore further details will be provided for these operating segments in this section. Management is of the opinion that presenting the information for the entire European area is beneficial to the users of the financial information as it aligns to how Aegon management is looking at the information following convergence in Europe from a regulatory standpoint and financial markets perspective. | | | | | | | | | | | | | | | | | | | Income statement – Underlying earnings Amounts in EUR millions | | The Netherlands | | | United Kingdom | | | Central & Eastern Europe | | | Spain & Portugal | | | Europe | 2018 | | | | | | | | | | | | | | | | | | | Net underlying earnings | | | 480 | | | | 117 | | | | 64 | | | | 13 | | | 674 | Tax on underlying earnings | | | 135 | | | | 12 | | | | 8 | | | | 10 | | | 165 | Underlying earnings before tax by product segment | | | 615 | | | | 128 | | | | 72 | | | | 24 | | | 839 | Fair value items | | | 250 | | | | 59 | | | | 4 | | | | 2 | | | 315 | Gains/(losses) on investments | | | 46 | | | | 83 | | | | 1 | | | | (1 | ) | | 129 | Net impairments | | | 6 | | | | - | | | | (1 | ) | | | - | | | 5 | Other income/(charges) | | | (132 | ) | | | (252 | ) | | | (7 | ) | | | (18 | ) | | (409) | Income/(loss) before tax (excluding income tax from certain
proportionately consolidated joint ventures and associates) | | | 784 | | | | 19 | | | | 69 | | | | 7 | | | 879 | | | | | | | Income tax | | | (136 | ) | | | 20 | | | | (8 | ) | | | (10 | ) | | (136) | Net income/(loss) | | | 648 | | | | 38 | | | | 60 | | | | (3 | ) | | 743 | | | | | | | 2018 | | | | | | | | | | | | | | | | | | | Revenues | | | | | | | | | | | | | | | | | | | Life insurance gross premiums | | | 1,632 | | | | 7,509 | | | | 405 | | | | 217 | | | 9,763 | Accident and health insurance premiums | | | 219 | | | | 29 | | | | 2 | | | | 100 | | | 351 | General insurance premiums | | | 136 | | | | - | | | | 231 | | | | 112 | | | 479 | Total gross premiums | | | 1,987 | | | | 7,539 | | | | 638 | | | | 429 | | | 10,592 | Investment income | | | 2,265 | | | | 1,346 | | | | 48 | | | | 36 | | | 3,695 | Fees and commission income | | | 211 | | | | 198 | | | | 47 | | | | 16 | | | 473 | Other revenues | | | - | | | | - | | | | - | | | | - | | | - | Total revenues | | | 4,463 | | | | 9,083 | | | | 733 | | | | 480 | | | 14,760 | | | | | | | Commissions and expenses | | | 812 | | | | 704 | | | | 265 | | | | 210 | | | 1,991 | of which operating expenses | | | 703 | | | | 521 | | | | 165 | | | | 106 | | | 1,496 |
Income statement - Underlying earnings | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2019 | | | | | | | | | | | | 2018 | | | | | | | | | Amounts in EUR millions | | The Netherlands | | �� | United
Kingdom | | | Southern & Eastern Europe | | | Europe | | | The Netherlands | | | United
Kingdom | | | Southern &
Eastern
Europe | | | Europe | | | | | | | | | | | | Net underlying earnings | | | 494 | | | | 161 | | | | 69 | | | | 723 | | | | 480 | | | | 117 | | | | 77 | | | | 674 | | | Tax on underlying earnings | | | 154 | | | | (21 | ) | | | 20 | | | | 152 | | | | 135 | | | | 12 | | | | 19 | | | | 165 | | | Underlying earnings before tax by product segment | | | 648 | | | | 139 | | | | 88 | | | | 875 | | | | 615 | | | | 128 | | | | 96 | | | | 839 | | | Fair value items | | | (741 | ) | | | (131 | ) | | | 7 | | | | (866 | ) | | | 250 | | | | 59 | | | | 6 | | | | 315 | | | Gains/(losses) on investments | | | 240 | | | | 3 | | | | 27 | | | | 271 | | | | 46 | | | | 83 | | | | - | | | | 129 | | | Net impairments | | | (26 | ) | | | - | | | | - | | | | (26 | ) | | | 6 | | | | - | | | | (1 | ) | | | 5 | | | Other income/(charges) | | | (1 | ) | | | (38 | ) | | | 33 | | | | (5 | ) | | | (132 | ) | | | (252 | ) | | | (26 | ) | | | (409 | ) | | Income / (loss) before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | | | 121 | | | | (27 | ) | | | 155 | | | | 250 | | | | 784 | | | | 19 | | | | 76 | | | | 879 | | | | | | | | | | | | Income tax | | | (27 | ) | | | (7 | ) | | | (19 | ) | | | (53 | ) | | | (136 | ) | | | 20 | | | | (19 | ) | | | (136 | ) | | Net income/(loss) | | | 94 | | | | (34 | ) | | | 136 | | | | 197 | | | | 648 | | | | 38 | | | | 57 | | | | 743 | | | | | | | | | | | | Revenues | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Life insurance gross premiums | | | 1,765 | | | | 6,282 | | | | 552 | | | | 8,598 | | | | 1,632 | | | | 7,509 | | | | 622 | | | | 9,763 | | | Accident and health insurance premiums | | | 228 | | | | 28 | | | | 110 | | | | 366 | | | | 219 | | | | 29 | | | | 102 | | | | 351 | | | General insurance premiums | | | 130 | | | | - | | | | 382 | | | | 512 | | | | 136 | | | | - | | | | 343 | | | | 479 | | | Total gross premiums | | | 2,123 | | | | 6,309 | | | | 1,044 | | | | 9,476 | | | | 1,987 | | | | 7,539 | | | | 1,067 | | | | 10,592 | | | Investment income | | | 2,224 | | | | 1,830 | | | | 76 | | | | 4,130 | | | | 2,265 | | | | 1,346 | | | | 83 | | | | 3,695 | | | Fees and commission income | | | 237 | | | | 197 | | | | 50 | | | | 484 | | | | 211 | | | | 198 | | | | 63 | | | | 473 | | | Other revenues | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | Total revenues | | | 4,583 | | | | 8,337 | | | | 1,171 | | | | 14,091 | | | | 4,463 | | | | 9,083 | | | | 1,213 | | | | 14,760 | | | | | | | | | | | | Commissions and expenses | | | 883 | | | | 707 | | | | 442 | | | | 2,032 | | | | 812 | | | | 704 | | | | 475 | | | | 1,991 | | | of which operating expenses | | | 809 | | | | 531 | | | | 248 | | | | 1,588 | | | | 703 | | | | 521 | | | | 271 | | | | 1,496 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 121134 | | Financial information | | Results of operations –- Europe | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Income statement – Underlying earnings Amounts in EUR millions | | The Netherlands 1 | | | United Kingdom | | | Central & Eastern Europe | | | Spain & Portugal | | | Europe 1 | | 2017 | | | | | | | | | | | | | | | | | | | | | Net underlying earnings | | | 427 | | | | 96 | | | | 58 | | | | (2 | ) | | | 580 | | Tax on underlying earnings | | | 130 | | | | 20 | | | | 9 | | | | 6 | | | | 164 | | Underlying earnings before tax by product segment | | | 557 | | | | 116 | | | | 67 | | | | 4 | | | | 744 | | Fair value items | | | (31 | ) | | | (82 | ) | | | - | | | | - | | | | (113 | ) | Gains/(losses) on investments | | | 184 | | | | 62 | | | | 1 | | | | - | | | | 248 | | Net impairments | | | 7 | | | | - | | | | (2 | ) | | | - | | | | 5 | | Other income/(charges) | | | 296 | | | | 40 | | | | - | | | | - | | | | 336 | | | Income/(loss) before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | | | 1,013 | | | | 137 | | | | 66 | | | | 4 | | | | 1,220 | | | | | | | | Income tax | | | (196 | ) | | | (56 | ) | | | (9 | ) | | | (6 | ) | | | (266 | ) | Net income/(loss) | | | 818 | | | | 81 | | | | 57 | | | | (2 | ) | | | 954 | | | | | | | | 2017 | | | | | | | | | | | | | | | | | | | | | Revenues | | | | | | | | | | | | | | | | | | | | | Life insurance gross premiums | | | 1,857 | | | | 9,603 | | | | 411 | | | | 208 | | | | 12,079 | | Accident and health insurance premiums | | | 203 | | | | 32 | | | | 1 | | | | 83 | | | | 319 | | General insurance premiums | | | 148 | | | | - | | | | 216 | | | | 103 | | | | 467 | | Total gross premiums | | | 2,208 | | | | 9,635 | | | | 628 | | | | 394 | | | | 12,865 | | Investment income | | | 2,172 | | | | 1,517 | | | | 49 | | | | 37 | | | | 3,774 | | Fees and commission income | | | 326 | | | | 235 | | | | 43 | | | | 17 | | | | 621 | | Other revenues | | | - | | | | - | | | | - | | | | 3 | | | | 3 | | Total revenues | | | 4,706 | | | | 11,387 | | | | 720 | | | | 450 | | | | 17,263 | | | | | | | | Commissions and expenses | | | 930 | | | | 757 | | | | 262 | | | | 192 | | | | 2,141 | | of which operating expenses | | | 818 | | | | 546 | | | | 152 | | | | 94 | | | | 1,610 | | | | | | | | Income statement – Underlying earnings Amounts in EUR millions | | The Netherlands | | | United Kingdom | | | Central & Eastern Europe | | | Spain & Portugal | | | Europe | | 2016 | | | | | | | | | | | | | | | | | | | | | Net underlying earnings | | | 414 | | | | 89 | | | | 47 | | | | (1 | ) | | | 548 | | Tax on underlying earnings | | | 119 | | | | (30 | ) | | | 9 | | | | 9 | | | | 107 | | Underlying earnings before tax by product segment | | | 534 | | | | 59 | | | | 55 | | | | 8 | | | | 655 | | Fair value items | | | (228 | ) | | | (7 | ) | | | - | | | | (1 | ) | | | (236 | ) | Gains/(losses) on investments | | | 189 | | | | 153 | | | | - | | | | (1 | ) | | | 342 | | Net impairments | | | (12 | ) | | | - | | | | 1 | | | | - | | | | (10 | ) | Other income/(charges) | | | 44 | | | | (678 | ) | | | (23 | ) | | | (0 | ) | | | (658 | ) | | Income/(loss) before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | | | 526 | | | | (474 | ) | | | 34 | | | | 6 | | | | 92 | | | | | | | | Income tax | | | (109 | ) | | | 18 | | | | (15 | ) | | | (8 | ) | | | (114 | ) | Net income/(loss) | | | 418 | | | | (456 | ) | | | 19 | | | | (2 | ) | | | (22 | ) | | | | | | | 2016 | | | | | | | | | | | | | | | | | | | | | Revenues | | | | | | | | | | | | | | | | | | | | | Life insurance gross premiums | | | 2,015 | | | | 9,888 | | | | 399 | | | | 191 | | | | 12,493 | | Accident and health insurance premiums | | | 210 | | | | 36 | | | | 1 | | | | 73 | | | | 320 | | General insurance premiums | | | 266 | | | | - | | | | 179 | | | | 92 | | | | 536 | | Total gross premiums | | | 2,491 | | | | 9,924 | | | | 578 | | | | 355 | | | | 13,348 | | Investment income | | | 2,135 | | | | 1,661 | | | | 45 | | | | 45 | | | | 3,886 | | Fees and commission income | | | 350 | | | | 95 | | | | 36 | | | | 14 | | | | 495 | | Other revenues | | | - | | | | - | | | | - | | | | 2 | | | | 2 | | Total revenues | | | 4,976 | | | | 11,680 | | | | 659 | | | | 416 | | | | 17,732 | | | | | | | | Commissions and expenses | | | 975 | | | | 667 | | | | 244 | | | | 172 | | | | 2,058 | | of which operating expenses | | | 821 | | | | 394 | | | | 143 | | | | 88 | | | | 1,445 | |
1 | Aegon has changed the measurement of underlying earnings before tax for its real estate investments portfolio held by Aegon the Netherlands. Comparative numbers have been restated accordingly. For further details please refer to page 206.
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The results of operationsResults 2019 Europe for 2017 and 2016 are based on the figures of the separate operating segments that are further disclosed on the following pages.
| | | | | | | | | | | | | Amounts in EUR millions | | | 2019 | | | | 2018 | | | | % | | Net underlying earnings | | | 723 | | | | 674 | | | | 7 | | Tax on underlying earnings | | | 152 | | | | 165 | | | | (8) | | Underlying earnings before tax by business/country | | | | | | | | | | | | | The Netherlands | | | 648 | | | | 615 | | | | 5 | | United Kingdom | | | 139 | | | | 128 | | | | 9 | | Southern & Eastern Europe | | | 88 | | | | 96 | | | | (8) | | Underlying earnings before tax | | | 875 | | | | 839 | | | | 4 | | | | | | Fair value items | | | (866 | ) | | | 315 | | | | n.m. | | Gains/(losses) on investments | | | 271 | | | | 129 | | | | 109 | | Net impairments | | | (26 | ) | | | 5 | | | | n.m. | | Other income/(charges) | | | (5 | ) | | | (409 | ) | | | 99 | | | Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | | | 250 | | | | 879 | | | | (72) | | | | | | Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | | | 14 | | | | 11 | | | | 36 | | | | | | Income tax | | | (53 | ) | | | (136 | ) | | | 61 | | Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | | | (14 | ) | | | (11 | ) | | | (36) | | Net income/(loss) | | | 197 | | | | 743 | | | | (74 | ) | | | | | Life insurance gross premiums | | | 8,598 | | | | 9,763 | | | | (12) | | Accident and health insurance premiums | | | 366 | | | | 351 | | | | 4 | | General insurance premiums | | | 512 | | | | 479 | | | | 7 | | Total gross premiums | | | 9,476 | | | | 10,592 | | | | (11 | ) | | | | | Investment income | | | 4,130 | | | | 3,695 | | | | 12 | | Fees and commission income | | | 484 | | | | 473 | | | | 2 | | Other revenues | | | - | | | | - | | | | n.m. | | Total revenues | | | 14,091 | | | | 14,760 | | | | (5 | ) | | | | | Commissions and expenses | | | 2,032 | | | | 1,991 | | | | 2 | | of which operating expenses | | | 1,588 | | | | 1,496 | | | | 6 | | | | | | New life sales | | | | | | | | | | | | | Amounts in EUR millions | | | 2019 | | | | 2018 | | | | % | | The Netherlands | | | 136 | | | | 101 | | | | 35 | | United Kingdom | | | 41 | | | | 40 | | | | 3 | | Southern & Eastern Europe | | | 133 | | | | 137 | | | | (3) | | Total recurring plus 1/10 single | | | 311 | | | | 278 | | | | 12 | | | | | | | | | | | | | | | | | | | Amounts in EUR million | | | 2019 | | | | 2018 | | | | % | | New premium production accident and health insurance | | | 48 | | | | 36 | | | | 33 | | New premium production general insurance | | | 129 | | | | 121 | | | | 7 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 122135 | | Financial information | | Results of operations –- Europe | | | | | | | | | | | |
| | | | | | | | | | | | | Gross deposits (on and off balance) | | | 2019 | | | | 2018 | | | | % | | The Netherlands | | | 13,207 | | | | 10,169 | | | | 30 | | United Kingdom | | | 9,749 | | | | 13,223 | | | | (26) | | Southern & Eastern Europe | | | 351 | | | | 406 | | | | (14) | | Total gross deposits | | | 23,307 | | | | 23,798 | | | | (2) | | | | | | | | | | | | | | | | | | | Net deposits (on and off balance) | | | 2019 | | | | 2018 | | | | % | | The Netherlands | | | 1,445 | | | | 1,411 | | | | 2 | | United Kingdom | | | (3,487 | ) | | | 1,225 | | | | n.m. | | Southern & Eastern Europe | | | 19 | | | | 143 | | | | (87) | | Total net deposits/(outflows) | | | (2,023 | ) | | | 2,779 | | | | n.m. | |
Results 2018 EuropeExchange rates
| | | | | | | | | | | | | | Amounts in EUR millions | | 2018 | | 2017 1 | | | % | | Net underlying earnings | | | 674 | | | | 580 | | | | 16 | | Tax on underlying earnings | | | 165 | | | | 164 | | | | - | | | | | | Underlying earnings before tax by business/country | | | | | | | | | | | | | The Netherlands | | | 615 | | | | 557 | | | | 10 | | United Kingdom | | | 128 | | | | 116 | | | | 10 | | Central & Eastern Europe | | | 72 | | | | 67 | | | | 8 | | Spain & Portugal | | | 24 | | | | 4 | | | | n.m. | | Underlying earnings before tax | | | 839 | | | | 744 | | | | 13 | | | | | | Fair value items | | | 315 | | | | (113 | ) | | | n.m. | | Gains/(losses) on investments | | | 129 | | | | 248 | | | | (48 | ) | Net impairments | | | 5 | | | | 5 | | | | (6 | ) | Other income/(charges) | | | (409 | ) | | | 336 | | | | n.m. | | | Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | | | 879 | | | | 1,220 | | | | (28 | ) | | | | | Income tax from certain proportionately consolidated joint ventures and associates included inincome before tax | | | 11 | | | | 6 | | | | 70 | | Income tax | | | (136 | ) | | | (266 | ) | | | 49 | | Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | | | (11 | ) | | | (6 | ) | | | (70 | ) | Net income/(loss) | | | 743 | | | | 954 | | | | (22 | ) | | | | | Life insurance gross premiums | | | 9,763 | | | | 12,079 | | | | (19 | ) | Accident and health insurance premiums | | | 351 | | | | 319 | | | | 10 | | General insurance premiums | | | 479 | | | | 467 | | | | 3 | | Total gross premiums | | | 10,592 | | | | 12,865 | | | | (18 | ) | | | | | Investment income | | | 3,695 | | | | 3,774 | | | | (2 | ) | Fees and commission income | | | 473 | | | | 621 | | | | (24 | ) | Other revenues | | | - | | | | 3 | | | | (98 | ) | Total revenues | | | 14,760 | | | | 17,263 | | | | (14 | ) | | | | | Commissions and expenses | | | 1,991 | | | | 2,141 | | | | (7 | ) | of which operating expenses | | | 1,496 | | | | 1,610 | | | | (7 | ) |
1 | Aegon has changed the measurement of underlying earnings before tax for its real estate investments portfolio held by Aegon the Netherlands. Comparative numbers have been restated accordingly. For further details please refer to page 206.
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| | | | | | | | | | | | | New life sales | | | | | | | | | | | | | Amounts in EUR millions | | | 2018 | | | | 2017 | | | | % | | The Netherlands | | | 101 | | | | 99 | | | | 2 | | United Kingdom | | | 40 | | | | 37 | | | | 8 | | Central & Eastern Europe | | | 83 | | | | 88 | | | | (6 | ) | Spain & Portugal | | | 54 | | | | 48 | | | | 11 | | Total recurring plus 1/10 single | | | 278 | | | | 273 | | | | 2 | | | | | | | | | | | | | | | | | Amounts in EUR million | | 2018 | | 2017 | | | % | | New premium production accident and health insurance | | | 36 | | | | 39 | | | | (8 | ) | New premium production general insurance | | | 121 | | | | 109 | | | | 11 | |
| | | | | | | | | | | | Weighted average rate | | Per 1 EUR | | | 2019 | | | | 2018 | | Pound sterling | | | 0.8770 | | | | 0.8844 | | Czech koruna | | | 25.6503 | | | | 25.6237 | | Hungarian forint | | | 324.7099 | | | | 318.2582 | | Polish zloty | | | 4.2966 | | | | 4.2594 | | Romanian leu | | | 4.7437 | | | | 4.6521 | | Turkish Lira | | | 6.3584 | | | | 5.6958 | | Ukrainian Hryvnia | | | 28.9514 | | | | 32.1972 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F2018 | | |
| | | 123 | | Financial information20-F Results of operations – Europe2019 | | | |
| | | | | | | | | | | Gross deposits (on and off balance) | | | 2018 | | | | 2017 | | | % | The Netherlands | | | 10,169 | | | | 8,061 | | | 26 | United Kingdom | | | 13,223 | | | | 17,259 | | | (23) | Central & Eastern Europe | | | 374 | | | | 323 | | | 16 | Spain & Portugal | | | 32 | | | | 36 | | | (11) | Total gross deposits | | | 23,798 | | | | 25,679 | | | (7) | | | | | | | | | | | | | | | | Net deposits (on and off balance) | | | 2018 | | | | 2017 | | | % | The Netherlands | | | 1,411 | | | | 1,067 | | | 32 | United Kingdom | | | 1,225 | | | | 4,665 | | | (74) | Central & Eastern Europe | | | 156 | | | | 176 | | | (11) | Spain & Portugal | | | (14 | ) | | | 13 | | | n.m. | Total net deposits/(outflows) | | | 2,779 | | | | 5,921 | | | (53) |
| | | | | | | | | | Weighted average rate | Exchange rates | | | | | | | Per 1 EUR | | | 2018 | | | 2017 | Pound sterling | | | 0.8844 | | | 0.8758 | Czech koruna | | | 25.6237 | | | 26.3165 | Hungarian forint | | | 318.2582 | | | 308.7564 | Polish zloty | | | 4.2594 | | | 4.2558 | Romanian leu | | | 4.6521 | | | 4.5665 | Turkish Lira | | | 5.6958 | | | 4.1197 | Ukrainian Hryvnia | | | 32.1972 | | | 30.2092 |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 124136 | | Financial information | | Results of operations –- Europe | | | | | | | | | | | |
Results 20182019 Europe Net income declined by 22%73% compared with 20172018 to EUR 197 million in 2019, as higher underlying earnings before tax and lower other charges were more than offset by negative fair value items, reflecting the Liability Adequacy Test (LAT) shortfall in the Netherlands. Underlying earnings before tax in 2019 increased by 4% compared with 2018 to EUR 875 million due to increases in the Netherlands and the United Kingdom. Net income Net income amounted to EUR 197 million in 2019 compared with EUR 743 million in 2018, as higher underlying earnings before tax, lower other charges and positivehigher gains on investments were offset by negative fair value items were more than offset by other charges.items. The impact from model & assumption changes in the Netherlands, restructuring charges in the United Kingdom and the loss on the sale of Aegon Ireland were the main drivers for other charges of EUR 409 million in 2018. Underlying earnings before tax in 2018 increased by 13% compared with 2017 to EUR 839 million, reflecting increases in all regions. Net income
Net income amounted to EUR 743 million in 2018 compared with EUR 954 million in 2017, as higher underlying earnings before tax and positive fair value items were more than offset by other charges. Other charges of EUR 409 million in 2018 included EUR 111 million for model & assumption changes in the Netherlands, EUR 94 million restructuring expenses in the United Kingdom and a EUR 93 million loss on the sale of Aegon Ireland, and EUR 49 million reserve strengthening in the UK related to the net residual annuity book.
Net income for the Netherlands
Net income from Aegon’s businesses in the Netherlands amounted to EUR 648 million in 2018, largely driven by underlying earnings before tax of EUR 615 million. Results on fair value items increased compared with 2017 to a gain of EUR 250 million in 2018, drivenwas caused by positive real estate revaluations. Realized gains of EUR 46 million in 2018 were the result of normal trading activityLAT shortfall in the investment portfolio. Net impairments amounted to a net recovery of EUR 6 million in 2018. Other charges amounted to EUR 132 million in 2018 and reflect EUR 111 million model & assumption changes, mainly related to updated mortality and lapse assumptions.
Net income for the United Kingdom
Net income from Aegon’s businesses in the United Kingdom amounted to EUR 38 million in 2018. The main driver was the underlying result before tax of EUR 128 million. Gains from fair value items of EUR 59 million were the result of gains on equity hedging programs as a result of lower equity markets where hedges have been set up to protect against such a decline. Realized gains amounted to EUR 83 million in 2018 and reflect optimization of the investment portfolio. Other charges amounted to EUR 252 million, mainly caused by EUR 93 million loss on the sale of Aegon Ireland, EUR 75 million integration expenses for Cofunds and Blackrock’s DC business as well as EUR 19 million transition and conversion charges related to the agreement with Atos for administration services, and a EUR 49 million reserve strengthening related to the residual annuity book.
Net income for Central & Eastern Europe
Net income from Aegon’s businesses in Central & Eastern Europe (CEE) amounted to EUR 60 million in 2018 and reflect underlying earnings before tax of EUR 72 million mainly offset by other charges of EUR 72 million and income taxes of EUR 8 million.
Net income for Spain & Portugal
Net income from Aegon’s businesses in Spain & Portugal amounted to a loss of EUR 3 million in 2018 as underlying earnings before tax of EUR 24 million were more than offset by EUR 18 million other charges, reflecting a restructuring charge in Aegon’s own business in Spain, and income tax of EUR 10 million.
Underlying earnings before tax
Underlying earnings before tax in 2018 increased by 13% compared with 2017 to EUR 839 million as a result of growth in all regions.
Underlying earnings before tax for the Netherlands,
Underlying earnings before tax for the Netherlands in 2018 increased by 10% compared with 2017 to EUR 615 million.
◆ | | Underlying earnings before tax from Life increased by 15% compared with 2017 to EUR 460 million, driven by a higher investment margin, reflecting a shift to higher-yielding assets. |
◆ | | Underlying earnings before tax fromNon-life were up by 18% compared with 2017 to EUR 40 million, due to improved disability underwriting results, reflecting higher provision releases. |
◆ | | Banking’s underlying earnings before tax increased by 32% compared with 2017 to EUR 103 million, driven by a higher net interest margin as a result of balance sheet growth and lower funding costs. This was partly offset by higher expenses in line with the bank’s growth. |
◆ | | Underlying earnings before tax from the Service business decreased by 75% compared with 2017 to EUR 11 million. The decrease was caused by the loss of earnings due to sale of UMG, and investments in new digital propositions. |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 125 | | Financial information Results of operations – Europe | | | |
Underlying earnings before tax for the United Kingdom
Underlying earnings before tax in the United Kingdom increased by 10% compared with 2017 to EUR 128 million in 2018.
◆ | | Underlying earnings before tax from Existing Business declined by 14% compared with 2017 to EUR 107 million in 2018, reflecting net outflows, including upgrades to the digital platform, and lower investment income following bond sales. |
◆ | | Underlying earnings before tax from Digital Solutions improved from a loss of EUR 8 million in 2017 to a profit of EUR 21 million in 2018. This was driven by higher fee income as a result of new business inflows and upgrades to the platform, as well as the realization of cost synergies related to the Cofunds integration. |
Underlying earnings before tax for Central & Eastern Europe
Underlying earnings before tax from Central & Eastern Europe increased to EUR 72 million in 2018, up 8% compared with 2017. This increase was primarily driven by business growth, most notably in Turkey and Hungary.
Underlying earnings before tax for Spain & Portugal
Underlying earnings before tax from Spain & Portugal increased from EUR 4 million in 2017 to EUR 24 million in 2018, driven by portfolio growth and better underwriting results in the joint ventures with Santander and lower expenses in Aegon’s own business, reflecting the restructuring program, while 2017 includedone-time expenses.
Commissions and expenses
Commissions and expenses decreased by 7% compared with 2017 to EUR 1,991 million in 2018. Operating expenses declined by 7% compared with 2017 to EUR 1,496 million in 2018.
Commissions and expenses for the Netherlands
Commissions and expenses decreased by 13% compared with 2017 to EUR 812 million in 2018. Operating expenses were down by 14% compared with 2017 to EUR 703 million in 2018, reflecting the sale of UMG in the fourth quarter of 2017 and expense savings in the insurance businesses. This was partly offset by investments in new digital propositions.
Commissions and expenses for the United Kingdom
Commissions and expenses decreased by 7% compared with 2017 to EUR 704 million in 2018. Operating expenses decreased by 5% compared with 2017 to EUR 521 million in 2018, as higher restructuring expenses were more than offset by the realization of cost synergies and the sale of Aegon Ireland.
Commissions and expenses for Central & Eastern Europe
Commissions and expenses increased by 1% compared with 2017 to EUR 265 million in 2018. Operating expenses increased by 9%
compared with 2017 to EUR 165 million in 2018, reflecting the growth of the business.
Commissions and expenses for Spain & Portugal
Commissions and expenses increased by 9% compared with 2017 to EUR 210 million in 2018. Operating expenses increased by 13% compared with 2017 to EUR 106 million in 2018, mainly reflecting the restructuring expenses for Aegon’s own business, partly offset by expense reductions and thenon-recurrence ofone-time expense items.
Production
Gross deposits decreased by 7% compared with 2017 to EUR 23.8 billion in 2018, primarily caused by lower platform flows in the United Kingdom.
New life sales increased by 2% compared with 2017 to EUR 278 million in 2018, driven by higher protection sales in the United Kingdom. New premium production for accident & health insurance decreased by 8% compared with 2017 to EUR 36 million in 2018, as 2017 includedone-time higher sales in the Netherlands following legislative changes. New premium production in property & casualty insurance increased compared with 2017 to EUR 121 million in 2018, mainly driven by growth in Hungary.
Production for the Netherlands
Gross deposits increased by 26% compared with 2017 to EUR 10.2 billion in 2018, mainly driven by the growth of Knab, Aegon’s online bank. New life sales were up by 2% compared with 2017 to EUR 101 million in 2018, as a result of higher immediate annuity sales and pension indexation premiums.
Production for the United Kingdom
Gross deposits decreased by 23% compared with 2017 to EUR 13.2 billion in 2018, due to lower retail and institutional platform flows. New life sales rose by 8% compared with 2017 to EUR 40 million in 2018, due to higher protection sales.
Production for Central & Eastern Europe
Gross deposits increased by 16% compared with 2017 to EUR 374 million in 2018, driven by higher pension deposits in Romania, Poland, Hungary and Slovakia. New life sales declined by 6% compared with 2017 to EUR 83 million in 2018, reflecting adverse currency movements.
Production for Spain & Portugal
Gross deposits decreased by 11% in 2018 compared with 2017 to EUR 32 million, driven by lower sales of savings products. New life sales in Spain & Portugal in 2017 increased by 11% compared with 2017 and amounted to EUR 54 million, driven by increasing sales through the joint venture with Banco Santander.
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 126 | | Financial information Results of operations – Europe | | | |
Results 2017 Europe
| | | | | | | | | | | | Amounts in EUR millions | | 20171 | | | 2016 1 | | | % | Net underlying earnings | | | 580 | | | | 548 | | | 6 | Tax on underlying earnings | | | 164 | | | | 107 | | | 54 | | | | | Underlying earnings before tax by business/country | | | | | | | | | | | The Netherlands | | | 557 | | | | 534 | | | 4 | United Kingdom | | | 116 | | | | 59 | | | 98 | Central & Eastern Europe | | | 67 | | | | 55 | | | 20 | Spain & Portugal | | | 4 | | | | 8 | | | (47) | Underlying earnings before tax | | | 744 | | | | 655 | | | 14 | | | | | Fair value items | | | (113 | ) | | | (236 | ) | | 52 | Gains/(losses) on investments | | | 248 | | | | 342 | | | (27) | Net impairments | | | 5 | | | | (10 | ) | | n.m. | Other income/(charges) | | | 336 | | | | (658 | ) | | n.m. | Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | | | 1,220 | | | | 92 | | | n.m. | | | | | Income tax from certain proportionately consolidated joint ventures and associates included inincome before tax | | | 6 | | | | 7 | | | (16) | Income tax | | | (266 | ) | | | (114 | ) | | (133) | Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | | | (6 | ) | | | (7 | ) | | 16 | Net income/(loss) | | | 954 | | | | (22 | ) | | n.m. | | | | | Life insurance gross premiums | | | 12,079 | | | | 12,493 | | | (3) | Accident and health insurance premiums | | | 319 | | | | 320 | | | - | General insurance premiums | | | 467 | | | | 536 | | | (13) | Total gross premiums | | | 12,865 | | | | 13,348 | | | (4) | | | | | Investment income | | | 3,774 | | | | 3,886 | | | (3) | Fees and commission income | | | 621 | | | | 495 | | | 25 | Other revenues | | | 3 | | | | 2 | | | 38 | Total revenues | | | 17,263 | | | | 17,732 | | | (3) | | | | | Commissions and expenses | | | 2,141 | | | | 2,058 | | | 4 | of which operating expenses | | | 1,610 | | | | 1,445 | | | 11 | | 1 Aegon has changed the measurement of underlying earnings before tax for its real estate investments portfolio held by Aegon the Netherlands. Comparative numbers have been restated accordingly. For further details please refer to page 206. | | | | | New life sales Amounts in EUR millions | | 2017 | | | 2016 | | | % | The Netherlands | | | 99 | | | | 111 | | | (11) | United Kingdom | | | 37 | | | | 66 | | | (44) | Central & Eastern Europe | | | 88 | | | | 83 | | | 6 | Spain & Portugal | | | 48 | | | | 39 | | | 23 | Total recurring plus 1/10 single | | | 273 | | | | 299 | | | (9) | | | | | | Amounts in EUR million | | 2017 | | | 2016 | | | % | New premium production accident and health insurance | | | 39 | | | | 34 | | | 14 | New premium production general insurance | | | 109 | | | | 94 | | | 16 |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 127 | | Financial informationResults of operations – Europe | | | |
| | | | | | | | | | | | Gross deposits (on and off balance) | | 2017 | | | 2016 | | | % | The Netherlands | | | 8,061 | | | | 6,686 | | | 21 | United Kingdom | | | 17,259 | | | | 5,791 | | | n.m. | Central & Eastern Europe | | | 323 | | | | 265 | | | 22 | Spain & Portugal | | | 36 | | | | 31 | | | 15 | Total gross deposits | | | 25,679 | | | | 12,773 | | | n.m. | | | | | | Net deposits (on and off balance) | | 2017 | | | 2016 | | | % | The Netherlands | | | 1,067 | | | | 1,909 | | | (44) | United Kingdom | | | 4,665 | | | | (846 | ) | | n.m. | Central & Eastern Europe | | | 176 | | | | 176 | | | - | Spain & Portugal | | | 13 | | | | 20 | | | (37) | Total net deposits/(outflows) | | | 5,921 | | | | 1,260 | | | n.m. | | | | | | | Weighted average rate | | | | | Exchange rates | | | | | | | | | | Per 1 EUR | | 2017 | | | | | | 2016 | Pound sterling | | | 0.8758 | | | | | | | 0.8187 | Czech koruna | | | 26.3165 | | | | | | | 27.0184 | Hungarian forint | | | 308.7564 | | | | | | | 310.9128 | Polish zloty | | | 4.2558 | | | | | | | 4.3616 | Romanian leu | | | 4.5665 | | | | | | | 4.4889 | Turkish Lira | | | 4.1197 | | | | | | | 3.3426 | Ukrainian Hryvnia | | | 30.2092 | | | | | | | 28.3029 |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 128 | | Financial information Results of operations – Europe | | | |
Results 2017 Europe
Net income improved to EUR 954 million in 2017 compared with 2016 driven by Other income and higher underlying earnings before tax. The gain on the sale of the insurance broker UMG in the Netherlands was the main driver behind Other income of EUR 336 million. Underlying earnings before tax in 2017 increased compared with 2016 to EUR 744 million. This was mainly the result of higher results in the United Kingdom, reflecting higher fee income.
Net income
Net income amounted to EUR 954 million in 2017 compared to a loss of EUR 22 million in 2016. Drivers of this improvement were Other income, improved results of fair value items and a higher underlying earnings before tax. Other income of EUR 336 million in 2017 includedgains on derivatives, 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 Other charges of EUR 658 million in 2016.guarantee provision and real estate revaluations.
Net income for the Netherlands Net income from Aegon’s businesses in the Netherlands amounted to EUR 81894 million in 2017, largely2019, driven by underlying earnings before tax of EUR 557 million. Results648 million, partly offset by negative fair value items. The result on fair value items improveddeteriorated compared with 20162018 to a gainloss of EUR 30741 million in 2017, as positive2019, caused by a EUR 1,488 million LAT shortfall, partly offset by EUR 146 million fair value gains on derivatives, a EUR 434 million gain on the guarantee provision and EUR 183 million real estate revaluations and the positive result from the mismatch on an IFRS basis between interest rate hedges, on the mortgage portfolio and the underlying mortgages were offset by losses on credit spread and interest rate hedges due to a mismatch on an IFRS basis between the valuation of hedges and liabilities.revaluations. Realized gains of EUR 184240 million in 20172019 were the result of asset-liability management adjustments and normal trading activity in the investment portfolio. Impairmentsportfolio optimization. Net impairments amounted to EUR 1726 million in 2017 and2019. Other charges were mostly driven by a loan loss provision related to growing consumer loan origination. Other income amounted to EUR 2961 million in 2017. This reflects the EUR 208 million gain on the sale of UMG2019 as charges from model and EUR 101 million positive assumption changes and model updates mainly relatedrestructuring expenses were offset by the release of a provision for future salary increases as a consequence of the transition to the guarantee provision in the Netherlands.a defined contribution plan for new pension accruals of Aegon’s own employees. Net income for the United Kingdom Net income from Aegon’s businesses in the United Kingdom amounted to a loss of EUR 8134 million in 2017.2019. The main driver was the underlying result before tax of EUR 116139 million was more than offset by negative fair value items of EUR 131 million and other charges of EUR 38 million. Losses from fair value items of EUR 82131 million were mainly caused bythe result of losses on equity hedging programshedges as a result of increasedhigher equity markets where hedges have been set up to protect againstand a decline in equity markets.lower inflation outlook. Realized gains amounted to EUR 623 million in 2017 and reflect rebalancing of the investment portfolio, and the sale of bonds to fund remittances to the Group.2019. Other incomecharges amounted to EUR 4038 million mainly driven by the net release of provisions following the completion of the Part VII transfers of the annuity portfolios sold to Rothesayas EUR 109 million integration and Legal & General. This wasrestructuring charges were partly offset by integration expenses for the acquired Cofunds and BlackRock’s defined contribution business and the impairment of intangible assetsincome related to the announced sales of Aegon Ireland.policyholder tax and aone-time provision release.
Net income for Central &Southern and Eastern Europe Net income from Aegon’s businesses in Central &Southern and Eastern Europe (CEE)(SEE) amounted to EUR 57136 million in 20172019 and reflect underlying earnings before tax of EUR 6788 million. NetGains on investments amounted to EUR 27 million and were driven by a EUR 19 million divestment gain on assets backing insurance liabilities, which was fully offset by a similar amount on other charges due to a related transaction. Other income for Spain & Portugal
Net income fromof EUR 33 million reflects a EUR 70 million gain on the sale of Aegon’s businessesoperations in the Czech Republic and Slovakia, partly offset by the aforementioned transaction in Spain & Portugal amountedand a charge related to a lossthe divestment of EUR 2 millionnon-core activities in 2017 as underlying earnings before tax of EUR 4 million were more than offset by income tax of EUR 6 million.Hungary.
Underlying earnings before tax Underlying earnings before tax in 20172019 increased by 8%4% compared with 20162018 to EUR 744 million. This was driven by higher fee income875 million as a result of growth in the Netherlands and the United Kingdom and growth in CEE.Kingdom. Underlying earnings before tax for the Netherlands Underlying earnings before tax for the Netherlands in 2017 decreased2019 increased by 2%5% compared with 20162018 to EUR 557648 million. | ◆ | | Underlying earnings before tax from Life & Savings declinedincreased by 2%8% compared with 20162018 to EUR 301497 million, reflecting lower investment income in Life, partly offsetdriven by a higher interestinvestment margin, in Savings.reflecting lower profit sharing, and lower expenses. |
| ◆ | | Underlying earnings before tax from Pensions decreasedNon-life were down by 9%23% compared with 20162018 to EUR 20931 million, mainly due to lower investment income.disability provision releases. |
| ◆ | | The results from theNon-life business increased from EUR 1 million in 2016Banking’s underlying earnings before tax declined by 1% compared with 2018 to EUR 30102 million, in 2017. The main drivers were favorable claims experience, in partas a higher net interest margin as a result of balance sheet growth was more than offset by higher expenses to ensure regulatory compliance focusing on customer due to management actions,diligence andone-time claims provision releases. anti-money laundering initiatives. |
| ◆ | | Underlying earnings before tax from the DistributionService business decreasedincreased by 64% compared with 20162018 to EUR 17 million.18 million, driven by growth of the mortgage servicing business and lower funding expenses for mortgages that remain on balance for this business. |
The decrease was causedUnderlying earnings before tax for the United Kingdom
Underlying earnings before tax in the United Kingdom increased by the sale of UMG and pressure on fee income due9% compared with 2018 to increased competition.EUR 139 million in 2019. | ◆ | | Underlying earnings before tax from Existing Business declined by 8% compared with 2018 to EUR 98 million in 2019, reflecting net outflows, including upgrades to the Digital Solutions platform, as well as higherone-time project expenses. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 129137 | | Financial information | | Results of operations –- Europe | | | | | | | | | | | |
Underlying earnings before tax for the United Kingdom
Underlying earnings before tax in the United Kingdom amounted to EUR 116 million in 2017.
| ◆ | | Underlying earnings before tax from Life increased in 2017 compared with 2016 to EUR 65 million, reflecting higher results on inflation-linked bonds and growth in the protection business. |
◆ | | Underlying earnings before tax from PensionsDigital Solutions improved from EUR 921 million in 20162018 to EUR 5141 million in 2017. This2019, was driven by higher fee income from favorable equity marketsas a result of increased assets on the platform in combination with economies of scale. This was partly offset by investment in the Aegon Platform to further increase its functionality and net inflows, as well as the inclusionease of Cofunds in 2017.use. |
Underlying earnings before tax for Central &Southern and Eastern Europe Underlying earnings before tax from Central &Southern and Eastern Europe increaseddecreased to EUR 6788 million in 2017, up from EUR 55 million2019, down 8% compared with 2018. This decrease was caused by the sale of Aegon’s businesses in 2016. This increase was primarilythe Czech Republic and Slovakia. Excluding this impact, the underlying result before tax increased 11%, driven by business growth, better underwritingan upswing in results and the acquisition of anon-life portfolio in Hungary. Underlying earnings before tax for Spain & Portugal
Underlying earnings before tax from Spain, & Portugal decreased compared with 2016 to EUR 4 million in 2017, mainly caused by higher operating expenses due to the write-down of an IT system, governance costsreflecting favorable claims experience and project relatedreduced expenses.
Commissions and expenses Commissions and expenses increased by 4%2% compared with 20162018 to EUR 2,1412,032 million in 2017.2019. Operating expenses increasedwere up by 11%6% compared with 2016 and amounted2018 to EUR 1,6101,588 million in 2017.2019. Commissions and expenses for the Netherlands Commissions and expenses decreased by 5%increased compared with 20162018 to EUR 930883 million in 2017.2019. Operating expenses were downup by 0%15% compared with 20162018 to EUR 818809 million in 2017,2019, reflecting the saleacquisition of UMG. Expense savingsRobidus in the insurance businesses were more than offset by investments in growth.September 2018, as well as higher restructuring andone-time expenses. Commissions and expenses for the United Kingdom Commissions and expenses increased by 13% in 2017compared with 2018 to EUR 757707 million in 2019. Operating expenses rose by 2% compared with 2016. Operating expenses increased by 39% in 20172018 to EUR 546531 million compared with 2016, mainly duein 2019 as expense savings were more than offset by investments in the Aegon Platform to the inclusionfurther increase its functionality and ease of Cofunds and BlackRock’s defined contribution business and integration of related activities.use. Commissions and expenses for Central &Southern and Eastern Europe Commissions and expenses decreased compared with 2018 to EUR 442 million in 2019. Operating expenses decreased by 9% compared with 2018 to EUR 248 million in 2019, driven by the sale of Aegon’s Czech and Slovak operations and expense savings, partly offset by taxes on motor insurance. Production Gross deposits decreased by 2% compared with 2018 to EUR 23.3 billion in 2019, primarily caused by lower platform flows in the United Kingdom, largely offset by higher bank and pension deposits in the Netherlands. New life sales increased by 12% compared with 2018 to EUR 311 million in 2019, driven by a pensionbuy-out in the Netherlands. New premium production for Accident & Health insurance increased by 33% compared with 2018 to EUR 48 million in 2019, resulting from higher sales in Spain following the launch of a new accidental death and disability product as well as a successful marketing campaign for health products. New premium production in general insurance increased by 7% compared with 20162018 to EUR 262129 million in 2017. Operating expenses increased by 6% compared with 2016 to EUR 152 million in 2017, reflecting the growth of the business and higher variable personnel expenses. Commissions and expenses for Spain & Portugal
Commissions and expenses increased by 12% compared with 2016 to EUR 192 million in 2017. Operating expenses increased by 7% compared with 2016 to EUR 94 million in 2017, mainly resulting from the growth of Aegon’s joint ventures with Santander and project-related expenses, severance costs and the write-down of an IT system.
Production
Gross deposits increased from EUR 12.8 billion in 2016 to EUR 25.7 billion in 2017. The increase compared with 2016 was primarily2019, driven by the higher platform salesbusiness growth in the United Kingdom.Spain.
New life sales declined by 9% compared with 2016 to EUR 273 million in 2017. The decline compared with 2016 was mainly the result of the sale of the annuity business in the United Kingdom. New premium production for general and accident & health insurance increased compared with 2016 to EUR 148 million in 2017.
Production for the Netherlands Gross deposits increased by 21%30% compared with 20162018 to EUR 8.113.2 billion in 2017, mainly2019. This was driven by the growthcontinued momentum at online bank Knab and by sales of Knab, Aegon’s online bank.new-style defined contribution products at Aegon Cappital,so-called Premium Pension Institute products. New life sales declinedwere up by 35% compared with 20162018 to EUR 99136 million in 2017, caused2019 resulting from a pensionbuy-out as well as higher sales from a purchase of additional annual pension increases by lower DB pension sales and individual life sales. Premium production for accident & health increased compared with 2016 to EUR 16 million in 2017, while property & casualty insurance production decreased compared with 2016 to EUR 15 million in 2017.an existing customer. Production for the United Kingdom Gross deposits increased fromdecreased by 26% compared with 2018 to EUR 5.89.7 billion in 2016 to EUR 17.2 billion2019 as the retail business was impacted by lower overall market activity including a slowdown in 2017 as a result of higher platform sales, reflecting the inclusion of Cofunds.defined benefit transfers, and prior service issues. New life sales decreasedrose by 3% compared with 20162018 to EUR 3741 million in 2017, mainly2019, due to the sale of the majority of the annuity business in the second half of 2016.higher protection sales. Production for Central &Southern and Eastern Europe In Central & Eastern Europe, new life sales in 2017 increasedGross deposits decreased by 14% compared with 20162018 to EUR 88 million, driven by sales growth in Turkey. For the property & casualty insurance business, there were higher sales compared with 2016 amounting to EUR 64351 million in 2017, reflecting2019, largely caused by the acquisitiondivestment of a portfolioAegon’s businesses in the Czech Republic and Slovakia as well as thenon-core activities in Hungary.
Production for Spain & Portugal
New life sales in Spain & Portugal in 2017 increaseddeclined by 23%3% compared with 2016 and amounted2018 to EUR 48 million, driven by increasing sales through the joint venture with Banco Santander. Property & casualty insurance and accident & health insurance sales increased compared with 2016 to EUR 53133 million in 2017, also as a result2019, reflecting the divestment of Aegon’s businesses in the Czech Republic and Slovakia. This was partly offset by higher sales fromproduction in Turkey and in the bancassurance joint ventures with Santander.in Spain. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 130138 | | Financial information | | Results of operations –- Asia | | | | | | | | | | | |
Results 20182019 Asia | | | | Amounts in USD millions | | | | Amounts in EUR millions | | | | | Amounts in USD millions | | | | | Amounts in EUR millions | | | | | | | 2018 | | | 2017 | | % | | | 2018 | | | 2017 | | % | | | 2019 | | | 2018 | | % | | | 2019 | | | 2018 | | % | | Net underlying earnings | | | 30 | | | 7 | | | | n.m. | | | 25 | | | 6 | | | | n.m. | | | | 45 | | | 30 | | | | 53 | | | | 40 | | | 25 | | | | 61 | | Tax on underlying earnings | | | 35 | | | 48 | | | | (27 | ) | | 30 | | | 43 | | | | (31 | ) | | | 24 | | | 35 | | | | (32) | | | | 21 | | | 30 | | | | (29) | | | Underlying earnings before tax by business/country | | | | | | | | | | | | | | Underlying earnings before tax by business / country | | | | | | | | | | | | | | High net worth businesses | | | 71 | | | 67 | | | | 7 | | | 60 | | | 59 | | | | 2 | | | | 72 | | | 71 | | | | 1 | | | | 64 | | | 60 | | | | 7 | | Aegon Insights | | | 9 | | | 10 | | | | (15 | ) | | 7 | | | 9 | | | | (18 | ) | | | 12 | | | 9 | | | | 40 | | | | 11 | | | 7 | | | | 48 | | Strategic partnerships | | | (15 | ) | | (21 | ) | | | 29 | | | (13 | ) | | (19 | ) | | | 32 | | | | (15 | ) | | (15 | ) | | | 2 | | | | (13 | ) | | (13 | ) | | | (4) | | Underlying earnings before tax | | | 65 | | | 55 | | | | 17 | | | 55 | | | 49 | | | | 12 | | | | 69 | | | 65 | | | | 7 | | | | 62 | | | 55 | | | | 13 | | | Fair value items | | | 3 | | | (1 | ) | | | n.m. | | | 3 | | | (0 | ) | | | n.m. | | | | (5 | ) | | 3 | | | | n.m. | | | | (4 | ) | | 3 | | | | n.m. | | Gains/(losses) on investments | | | (10 | ) | | 5 | | | | n.m. | | | (8 | ) | | 4 | | | | n.m. | | | Gains / (losses) on investments | | | | 10 | | | (10 | ) | | | n.m. | | | | 9 | | | (8 | ) | | | n.m. | | Net impairments | | | (7 | ) | | (1 | ) | | | n.m. | | | (5 | ) | | (1 | ) | | | n.m. | | | | - | | | (7 | ) | | | 100 | | | | - | | | (5 | ) | | | 100 | | Other income/(charges) | | | (9 | ) | | (21 | ) | | | 59 | | | (7 | ) | | (19 | ) | | | 61 | | | Other income / (charges) | | | | (21 | ) | | (9 | ) | | | (137) | | | | (18 | ) | | (7 | ) | | | (151) | | | Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | | | 43 | | | 38 | | | | 14 | | | 36 | | | 33 | | | | 9 | | | | 53 | | | 43 | | | | 25 | | | | 48 | | | 36 | | | | 32 | | | Income tax from certain proportionatelyconsolidated joint ventures and associatesincluded in income before tax | | | 15 | | | 19 | | | | (19 | ) | | 13 | | | 16 | | | | (23 | ) | | | (1 | ) | | 15 | | | | n.m. | | | | (1 | ) | | 13 | | | | n.m. | | | Income tax | | | (29 | ) | | (32 | ) | | | 7 | | | (25 | ) | | (28 | ) | | | 11 | | | | (16 | ) | | (29 | ) | | | 46 | | | | (14 | ) | | (25 | ) | | | 43 | | Of which Income tax from certainproportionately consolidated joint venturesand associates included in income before tax | | | (15 | ) | | (19 | ) | | | 19 | | | (13 | ) | | (16 | ) | | | 23 | | | | 1 | | | (15 | ) | | | n.m. | | | | 1 | | | (13 | ) | | | n.m. | | Net income/(loss) | | | 13 | | | 6 | | | | 117 | | | 11 | | | 5 | | | | 107 | | | Net income / (loss) | | | | 37 | | | 13 | | | | 182 | | | | 33 | | | 11 | | | | 197 | | | Life insurance gross premiums | | | 921 | | | 1,110 | | | | (17 | ) | | 779 | | | 983 | | | | (21 | ) | | | 826 | | | 921 | | | | (10) | | | | 737 | | | 779 | | | | (5) | | Accident and health insurance premiums | | | 111 | | | 110 | | | | 1 | | | 94 | | | 97 | | | | (4 | ) | | | 101 | | | 111 | | | | (8) | | | | 91 | | | 94 | | | | (3) | | Total gross premiums | | | 1,032 | | | 1,220 | | | | (15 | ) | | 873 | | | 1,080 | | | | (19 | ) | | | 927 | | | 1,032 | | | | (10) | | | | 828 | | | 873 | | | | (5) | | | Investment income | | | 317 | | | 277 | | | | 14 | | | 268 | | | 246 | | | | 9 | | | | 339 | | | 317 | | | | 7 | | | | 303 | | | 268 | | | | 13 | | Fees and commission income | | | 68 | | | 72 | | | | (4 | ) | | 58 | | | 63 | | | | (8 | ) | | | 66 | | | 68 | | | | (4) | | | | 59 | | | 58 | | | 1 | | Other revenues | | | 2 | | | 1 | | | | n.m. | | | 2 | | | 1 | | | | n.m. | | | | 2 | | | 2 | | | | (26) | | | | 1 | | | 2 | | | | (22) | | Total revenues | | | 1,419 | | | 1,569 | | | | (10 | ) | | 1,201 | | | 1,390 | | | | (14 | ) | | | 1,334 | | | 1,419 | | | | (6) | | | | 1,191 | | | 1,201 | | | | (1) | | | Commissions and expenses | | | 273 | | | 257 | | | | 6 | | | 231 | | | 228 | | | | 1 | | | | 281 | | | 273 | | | | 3 | | | | 251 | | | 231 | | | | 9 | | of which operating expenses | | | 187 | | | 176 | | | | 7 | | | 159 | | | 155 | | | | 2 | | | | 195 | | | 187 | | | | 4 | | | | 174 | | | 159 | | | | 10 | | | | | | | Amounts in USD millions | | | | | Amounts in EUR millions | | | | | New life sales | | | 2019 | | | 2018 | | % | | | 2019 | | | 2018 | | % | | High net worth businesses | | | | 36 | | | 53 | | | | (31) | | | | 33 | | | 45 | | | | (27) | | Strategic partnerships | | | | 110 | | | 92 | | | | 20 | | | | 98 | | | 78 | | | | 27 | | Total recurring plus 1/10 single | | | | 146 | | | 144 | | | | 2 | | | | 131 | | | 122 | | | | 7 | | | | | | | Amounts in USD millions | | | | | Amounts in EUR millions | | | | | Gross deposits (on and off balance) | | | 2019 | | | 2018 | | % | | | 2019 | | | 2018 | | % | | Strategic partnerships - China | | | | 8 | | | 3 | | | | 164 | | | | 7 | | | 3 | | | | 179 | | Strategic partnerships - Japan | | | | - | | | 148 | | | | n.m. | | | | - | | | 125 | | | | n.m. | | Total gross deposits | | | | 8 | | | 151 | | | | (95) | | | | 7 | | | 128 | | | | (94 | ) |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 131139 | | Financial information | | Results of operations –- Asia | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Amounts in USD millions | | | | | | Amounts in EUR millions | | | | | New life sales | | | 2018 | | | | 2017 | | | | % | | | | 2018 | | | | 2017 | | | | % | | High net worth businesses | | | 53 | | | | 84 | | | | (38) | | | | 45 | | | | 75 | | | | (40) | | Strategic partnerships | | | 92 | | | | 86 | | | | 7 | | | | 78 | | | | 76 | | | | 2 | | Total recurring plus 1/10 single | | | 144 | | | | 170 | | | | (15) | | | | 122 | | | | 151 | | | | (19) | | | | | | | | | | Amounts in USD millions | | | | | | Amounts in EUR millions | | | | | Gross deposits (on and off balance) | | | 2018 | | | | 2017 | | | | % | | | | 2018 | | | | 2017 | | | | % | | Strategic partnerships – China | | | 3 | | | | 3 | | | | - | | | | 3 | | | | 3 | | | | (5) | | Strategic partnerships – Japan | | | 148 | | | | 247 | | | | (40) | | | | 125 | | | | 219 | | | | (43) | | Total gross deposits | | | 151 | | | | 250 | | | | (40) | | | | 128 | | | | 222 | | | | (42) | | | | | | | | | | Amounts in USD millions | | | | | | Amounts in EUR millions | | | | | Net deposits (on and off balance) | | | 2018 | | | | 2017 | | | | % | | | | 2018 | | | | 2017 | | | | % | | Strategic partnerships – China | | | 4 | | | | - | | | | n.m. | | | | 3 | | | | - | | | | n.m. | | Strategic partnerships – Japan | | | 5 | | | | 146 | | | | (97) | | | | 4 | | | | 129 | | | | (97) | | Total net deposits/(outflows) | | | 8 | | | | 146 | | | | (94) | | | | 7 | | | | 129 | | | | (95) | | | | | | | | | | Amounts in USD millions | | | | | | Amounts in EUR millions | | | | | | | | | 2018 | | | | 2017 | | | | % | | | | 2018 | | | | 2017 | | | | % | | New premium production accident and health insurance | | | 9 | | | | 14 | | | | (34) | | | | 8 | | | | 12 | | | | (37) | |
| | | | | | | | | | | | | | Weighted average rate | | Exchange rates | | | | | | | | | Per 1 EUR | | | 2018 | | | | 2017 | | US dollar | | | 1.1816 | | | | 1.1291 | | Chinese Yuan Renminbi | | | 7.8079 | | | | 7.6520 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Amounts in USD millions | | | | | | Amounts in EUR millions | | | | | | Net deposits (on and off balance) | | 2019 | | | 2018 | | | % | | | 2019 | | | 2018 | | | % | | Strategic partnerships - China | | | 1 | | | | 4 | | | | (63) | | | | 1 | | | | 3 | | | | (61) | | Strategic partnerships - Japan | | | - | | | | 5 | | | | n.m. | | | | - | | | | 4 | | | | n.m. | | Total net deposits / (outflows) | | | 1 | | | | 8 | | | | (84) | | | | 1 | | | | 7 | | | | (83) | | | | | | | | | | Amounts in USD millions | | | | | | Amounts in EUR millions | | | | | | | | 2019 | | | 2018 | | | % | | | 2019 | | | 2018 | | | % | | New premium production accident and health insurance | | | 10 | | | | 9 | | | | 5 | | | | 9 | | | | 8 | | | | 11 | | | | | | | | Exchange rates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Weighted average rate | | Per 1 EUR | | | | | | | | | | | | | | | | | | | 2019 | | | | 2018 | | US dollar | | | | | | | | | | | | | | | | | | | 1.1197 | | | | 1.1816 | | Chinese Yuan Renminbi | | | | | | | | | | | | | | | | | | | 7.7221 | | | | 7.8079 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 132140 | | Financial information | | Results of operations –- Asia | | | | | | | | | | | |
Results 20182019 Asia Net income in 2018 increased by USD 724 million to USD 1337 million in 20182019 compared with 2017.2018. This was mainly driven by improved underlying earnings before tax.lower taxes. Underlying earnings before tax improved by USD 104 million to USD 6569 million in 20182019 compared with 2017. This was mainly driven2018. New life sales increased by improved underlying earnings before tax and lower other charges,2% to USD 146 million in 2019 compared with 2018, as higher sales in China were only partly offset by losses and impairments on investments. Gross deposits decreased to USD 151 million in 2018 compared with USD 250 million in 2017, primarily due to lower variable annuity sales in Japan as a result from a shrinking market due to the low interest rate environment. New life sales amounted to USD 144 million for 2018, and mainly related to the critical illness product in China and universal life sales from the High Net Worth business. Gross deposits decreased to USD 8 million in 2019 compared with USD 151 million in 2018 as gross deposits in Japan have no longer been reported since the signing of the agreement regarding the divestment of Aegon’s stake in its joint ventures with Sony Life in May 2019. Net income Net income improved to USD 37 million in 2019 from USD 6 million in 2017 to USD 1324 million in 2018, mainly due to increased underlying earnings beforedriven by lower taxes, reflecting a commission tax law change in the High Net Worth business and Strategic partnerships.China. Fair value gains improved fromitems were a loss of USD 15 million 2017 toin 2019, caused by hedge losses in Japan, compared with a gain of USD 3 million in 2018 due to hedging2018. Realized gains in Japan. Realized losses amounted to USD 10 million in 20182019, reflecting bond calls and prepayments, compared with a USD 510 million realized gainsloss in 2017 due to portfolio rebalancing on available for sale assets in the High Net Worth businesses to achieve higher yields.2018. Other charges improvedworsened to USD 21 million in 2019 compared with USD 9 million in 2018, compared withlargely due to a USD 219 million correction of modelled premium paying periods for a specific Accident & Health book and a USD 5 million remediation of policies sold via the telemarketing channel in 2017 as a resulttherun-off book of a lower impact of assumption changes and model updates.Aegon Insights. Income tax decreased to USD 16 million in 2019 compared with USD 29 million in 2018, compared withdriven by a commission tax law change in China, reducing the effective tax rate and also leading to aone-time USD 325 million in 2017.tax credit. Underlying earnings before tax In Asia, underlying earnings before tax improved by 17%7% in 2019 to USD 69 million compared with 2017 to USD 65 million in 2018. | ◆ | | Underlying earnings before tax from the High Net Worth businesses in Hong Kong and Singapore increased to USD 72 million in 2019, compared with USD 71 million in 2018, compared with USD 67 million in 2017.2018. This increase was mainly the result of a benefit related to higher investment yields andsurrender charges, favorable claims experience.experience and lower expenses, largely offset by the negative impact of intangible adjustments from lower interest rates. |
| ◆ | | Underlying earnings before tax in Aegon Insights decreasedincreased to USD 12 million in 2019 compared with USD 9 million in 2018, compared with USD 10 million in 2017 as lower operating expenses were more thanreflecting expense savings and favorable claims experience. This was partly offset by a reduced sizethe reduction of thein-force business, and by favorableone-time reserve and fee adjustmentsbook in 2017.line with the strategy for this business. |
| ◆ | | Losses from Strategic partnerships improved towere stable at USD 15 million in 20182019 compared with USD 21 million2018. Higher results from Aegon’s profitable joint venture in 2017 mainlyChina, driven by a resultgrowingin-force book, were offset by investments in an eBroker initiative designed to expand the business from Indonesia to Thailand. The joint ventures in India and Japan improved earnings but remained loss-making. Aegon and Sony Life closed the transaction related to the divestment of business growth and lower new business related expensesAegon’s 50% stake in the variable annuity joint ventures in Japan and India, partially offset by higher operating expenses due to higher sales in China.on January 29, 2020. |
Commissions and expenses Commissions and expenses increased to EUR 281 million in 2019 compared with EUR 273 million in 2018 compared with EUR 257 million in 2017.2018. Operating expenses increased by 7%4% to USD 195 million in 20182019 compared with 2017 to USD 187 million.2018. The increase in operating expenses was mainly drivencaused by strong salesgrowth in China and investments in the High Net Worth businesses.an eBroker initiative. Production New life sales decreasedincreased by 15% in 20182% to USD 144146 million in 2019 compared with 2017.2018. | ◆ | | In the High Net Worth businesses in Hong Kong and Singapore, new life sales were down 38%31% to USD 36 million in 2019, compared with USD 53 million in 2018, compared with USD 84 million in 2017.2018. This decrease was mainly the result of higher cost of premium financing for customers as short-term interest rates rose.continued pressure on the universal life business caused by macro uncertainties and the market shift towards whole life products. |
| ◆ | | New life sales in Strategic Partnerships were up 7%increased by 20% to USD 92110 million in 20182019 compared with 2017 due to2018, following strong sales in China that was mainly driven by the critical illness product.through a largee-commerce partner. Gross deposits in Asia declined to USD 8 million in 2019 compared with USD 151 million in 2018 compared with USD 250 millionas gross deposits in 2017 asJapan have no longer been reported since the signing in May 2019 of the divestment agreement of Aegon’s 50% stake in the variable annuity salesjoint ventures in Japan continue to be impacted by a shrinking market due to the low interest rate environment.Japan. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 133141 | | Financial information | | Results of operations – Asia- Aegon Asset Management | | | | | | | | | | | |
Results 2017 Asia2019 Aegon Asset Management | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amounts in USD millions | | | | | | Amounts in EUR millions | | | | | | | | 2017 | | | 2016 | | | % | | | 2017 | | | 2016 | | | % | | Net underlying earnings | | | 7 | | | | (7 | ) | | | n.m. | | | | 6 | | | | (6 | ) | | | n.m. | | Tax on underlying earnings | | | 48 | | | | 30 | | | | 59 | | | | 43 | | | | 27 | | | | 56 | | Underlying earnings before tax by business/country | | | | | | | | | | | | | | | | | | | | | | | | | High net worth businesses | | | 67 | | | | 61 | | | | 9 | | | | 59 | | | | 55 | | | | 6 | | Aegon Insights | | | 10 | | | | 1 | | | | n.m. | | | | 9 | | | | 1 | | | | n.m. | | Strategic partnerships | | | (21 | ) | | | (39 | ) | | | 45 | | | | (19 | ) | | | (35 | ) | | | 46 | | Underlying earnings before tax | | | 55 | | | | 23 | | | | 136 | | | | 49 | | | | 21 | | | | 131 | | | | | | | | | Fair value items | | �� | (1 | ) | | | (10 | ) | | | 95 | | | | - | | | | (9 | ) | | | 95 | | Gains/(losses) on investments | | | 5 | | | | 9 | | | | (47) | | | | 4 | | | | 8 | | | | (48) | | Net impairments | | | (1 | ) | | | (1 | ) | | | 48 | | | | (1 | ) | | | (1 | ) | | | 49 | | Other income/(charges) | | | (21 | ) | | | (6 | ) | | | n.m. | | | | (19 | ) | | | (5 | ) | | | n.m. | | | Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | | | 38 | | | | 16 | | | | 141 | | | | 33 | | | | 14 | | | | 136 | | | | | | | | | Income tax from certain proportionatelyconsolidated joint ventures and associatesincluded in income before tax | | | 19 | | | | 2 | | | | n.m. | | | | 16 | | | | 2 | | | | n.m. | | | | | | | | | Income tax | | | (32 | ) | | | (30 | ) | | | (6) | | | | (28 | ) | | | (27 | ) | | | (4) | | Of which Income tax from certainproportionately consolidated joint venturesand associates included in income before tax | | | (19 | ) | | | (2 | ) | | | n.m. | | | | (16 | ) | | | (2 | ) | | | n.m. | | Net income/(loss) | | | 6 | | | | (14 | ) | | | n.m. | | | | 5 | | | | (13 | ) | | | n.m. | | | | | | | | | Life insurance gross premiums | | | 1,110 | | | | 1,240 | | | | (11) | | | | 983 | | | | 1,121 | | | | (12) | | Accident and health insurance premiums | | | 110 | | | | 115 | | | | (5) | | | | 97 | | | | 104 | | | | (6) | | Total gross premiums | | | 1,220 | | | | 1,355 | | | | (10) | | | | 1,080 | | | | 1,225 | | | | (12) | | | | | | | | | Investment income | | | 277 | | | | 257 | | | | 8 | | | | 246 | | | | 232 | | | | 6 | | Fees and commission income | | | 72 | | | | 67 | | | | 6 | | | | 63 | | | | 61 | | | | 4 | | Total revenues | | | 1,569 | | | | 1,680 | | | | (7) | | | | 1,390 | | | | 1,517 | | | | (8) | | | | | | | | | Commissions and expenses | | | 257 | | | | 257 | | | | - | | | | 228 | | | | 232 | | | | (2) | | of which operating expenses | | | 176 | | | | 161 | | | | 9 | | | | 155 | | | | 146 | | | | 7 | |
| | | | | | | | | | | | | | Amounts in EUR millions | | 2019 | | | 2018 | | | % | | Net underlying earnings | | | 102 | | | | 113 | | | | (10) | | Tax on underlying earnings | | | 37 | | | | 39 | | | | (3) | | Underlying earnings before tax by business / country | | | | | | | | | | | | | Americas | | | 56 | | | | 62 | | | | (10) | | Europe | | | 16 | | | | 31 | | | | (47) | | Rest of World | | | (2 | ) | | | (10 | ) | | | 79 | | Strategic partnerships | | | 69 | | | | 69 | | | | - | | Underlying earnings before tax | | | 139 | | | | 151 | | | | (8) | | | | | | Fair value items | | | - | | | | - | | | | n.m. | | Gains / (losses) on investments | | | - | | | | 2 | | | | (95) | | Net impairments | | | - | | | | - | | | | n.m. | | Other income / (charges) | | | (7 | ) | | | (5 | ) | | | (52) | | | Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | | | 133 | | | | 149 | | | | (11) | | | | | | Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | | | 21 | | | | 22 | | | | (2) | | | | | | Income tax | | | (36 | ) | | | (44 | ) | | | 18 | | Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | | | (21 | ) | | | (22 | ) | | | 2 | | Net income / (loss) | | | 97 | | | | 105 | | | | (8) | | | | | | Management fees | | | 501 | | | | 492 | | | | 2 | | Performance fees | | | 22 | | | | 33 | | | | (34) | | Other | | | 62 | | | | 65 | | | | (4) | | Total revenues | | | 584 | | | | 589 | | | | (1) | | | | | | Commissions and expenses | | | 493 | | | | 488 | | | | - | | of which operating expenses | | | 445 | | | | 439 | | | | 1 | | | | | | Cost / income ratio | | | 76.1 | % | | | 74.5 | % | | | | | | | | | | | | | | | | | | | | | | | Amounts in EUR millions | | 2019 | | | 2018 | | | % | | Gross flows external third-party | | | | | | | | | | | | | Americas | | | 7,299 | | | | 9,619 | | | | (24) | | Europe | | | 8,988 | | | | 12,292 | | | | (27) | | Rest of World1) | | | 72 | | | | (72 | ) | | | n.m. | | Strategic partnerships | | | 64,580 | | | | 37,657 | | | | 71 | | Total gross flows external third-party | | | 80,939 | | | | 59,495 | | | | 36 | | | | | | Net flows external third-party | | | | | | | | | | | | | Americas | | | 1,432 | | | | 1,267 | | | | 13 | | Europe | | | 715 | | | | 3,278 | | | | (78) | | Rest of World1) | | | (352 | ) | | | (566 | ) | | | 38 | | Strategic partnerships | | | 5,046 | | | | 3,547 | | | | 42 | | Total net flows external third-party | | | 6,841 | | | | 7,526 | | | | (9) | | | | | | | 1 Rest of world include intragroup eliminations from internalsub-advised agreements | | | | | | | | | | | | |
| | | | | | | | | Exchange rates | | | | | | | | | | | | | | Weighted average rate | | | Per 1 EUR | | 2019 | | | 2018 | | US dollar | | | 1.1197 | | | | 1.1816 | | Pound sterling | | | 0.877 | | | | 0.8844 | | Hungarian forint | | | 324.7099 | | | | 318.2582 | | Chinese Yuan Renminbi | | | 7.7221 | | | | 7.8079 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F2018 | | |
| | | 134 | | Financial information20-F Results of operations – Asia2019 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | Amounts in USD millions | | | | | Amounts in EUR millions | | | | | | New life sales | | 2017 | | | 2016 | | | % | | 2017 | | | 2016 | | | % | | High net worth businesses | | | 84 | | | | 88 | | | (4) | | | 75 | | | | 79 | | | | (6 | ) | Strategic partnerships | | | 86 | | | | 54 | | | 60 | | | 76 | | | | 49 | | | | 56 | | Total recurring plus 1/10 single | | | 170 | | | | 142 | | | 20 | | | 151 | | | | 128 | | | | 18 | | | | | | | | | | Amounts in USD millions | | | | | Amounts in EUR millions | | | | | | Gross deposits (on and off balance) | | 2017 | | | 2016 | | | % | | 2017 | | | 2016 | | | % | | Strategic partnerships – China | | | 3 | | | | 7 | | | (57) | | | 3 | | | | 6 | | | | (58 | ) | Strategic partnerships – Japan | | | 247 | | | | 330 | | | (25) | | | 219 | | | | 298 | | | | (27 | ) | Total gross deposits | | | 250 | | | | 337 | | | (26) | | | 222 | | | | 304 | | | | (27 | ) | | | | | | | | | Amounts in USD millions | | | | | Amounts in EUR millions | | | | | | Net deposits (on and off balance) | | 2017 | | | 2016 | | | % | | 2017 | | | 2016 | | | % | | Strategic partnerships – China | | | - | | | | 5 | | | n.m. | | | - | | | | 4 | | | | n.m. | | Strategic partnerships – Japan | | | 146 | | | | 282 | | | (48) | | | 129 | | | | 255 | | | | (49 | ) | Total net deposits/(outflows) | | | 146 | | | | 287 | | | (49) | | | 129 | | | | 259 | | | | (50 | ) | | | | | | | | | Amounts in USD millions | | | | | Amounts in EUR millions | | | | | | | | 2017 | | | 2016 | | | % | | 2017 | | | 2016 | | | % | | New premium production accident and health insurance | | | 14 | | | | 19 | | | (27) | | | 12 | | | | 17 | | | | (28 | ) | | | | | | | | | | | | | | | | | Weighted average rate | | Exchange rates | | | | | | | | | | | | | | | | | | | Per 1 EUR | | | | | | | | | | | | | 2017 | | | | 2016 | | US dollar | | | | | | | | | | | | | 1.1291 | | | | 1.1069 | | Chinese Yuan Renminbi | | | | | | | | | | | | | 7.6520 | | | | 7.3364 | |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 135142 | | Financial information | | Results of operations – Asia- Aegon Asset Management | | | | | | | | | | | |
Results 2017 Asia2019 Aegon Asset Management Net income in 2017 amounted2019 decreased to USD 6EUR 97 million which was mainly driven by improvedcompared with EUR 105 million in 2018 as a result of lower underlying earnings before tax and aone-time tax benefit from the write-down of deferred tax liabilities as a result of US tax reform. Underlying earnings before tax improved to USD 55 million in 2017 compared with 2016 mainly due2018. Gross flows in external third-party asset management increased by 36% to higher underlying earnings before tax from the High Net Worth businesses, Aegon Insights and China. Gross deposits decreased to USD 250 millionEUR 80.9 billion in 20172019 compared with USD 337 million2018. Higher gross inflows in 2016, primarily due to sales of the recently launched foreign currency variable annuity being more thanStrategic partnerships were partly offset by lower JapaneseYen-denominated variable annuity sales. New life sales amounted to USD 170 million for 2017, mainly related toinflows in the critical illness product in ChinaAmericas and Europe. The higher gross flows were driven by the new direct sales strategy implemented in India.Chinese joint venture Aegon Industrial Fund Management Company (AIFMC). Net income Net income improved from a loss of USD 14 million in 20162019 decreased by 8% compared with 2018 to USD 6 million in 2017,EUR 97 million. This was mainly due to increaseddriven by lower underlying earnings before tax in the High Net Worth business, Aegon Insights and China. Fair value losses improved2019 compared with 2016 to USD 1 million due to lower losses on hedging of the variable annuity business in Japan. Realized gains decreased to USD 5 million in 2017 due to lower gains from normal trading activity compared with 2016. Other charges increased compared with 2016 to USD 21 million as a result of the net impact of assumption changes and model updates in 2017. Income tax increased to USD 32 million in 2017 compared with USD 30 million in 2016 as higher taxes on higher underlying earnings before tax were partially offset by aone-time tax benefit of USD 10 million from the write-down of deferred tax liabilities in Aegon Insights as a result of US tax reform.2018. Underlying earnings before tax In Asia,Underlying earnings before tax decreased by 8% in 2019 compared with 2018 to EUR 139 million. This decrease was mainly driven by lower underlying earnings before tax improved by 136%in 2019 compared with 2016 to USD 55 million2018 from Europe and the Americas. These more than offset an increase of underlying earnings before tax in 2017.2019 compared with 2018 in the Rest of World.
| ◆ | | UnderlyingAmericas underlying earnings before tax from the high net worth businesses in Hong Kong and Singapore increaseddecreased to USD 67EUR 56 million in 2017,2019, compared with USD 61EUR 62 million in 2016. This increase was2018, mainly the result of favorable mortality experience and favorable intangible adjustments related to anticipated investment yields compared with 2016.driven higher expenses, which more than offset higher management fees. |
| ◆ | | Underlying earnings before tax from Europe in Aegon Insights increased2019 decreased by EUR 15 million to USD 10EUR 16 million in 2017 compared with USD 1 million2018. The decrease can be attributed to the United Kingdom and mainly resulted from outflows. This is partly offset by an increase in 2016 due to an accident & health reserve release, an expense releaseunderlying earnings before tax in Indonesia, and lower operating expenses as a result of discontinuing2019 in the outbound telemarketing business.Netherlands, primarily driven by higher management fees, when comparing with 2018. |
| ◆ | | LossesRest of World underlying earnings before tax in 2019 improved by EUR 8 million compared with 2018 to a loss of EUR 2 million. The improvement was driven by performance fees in Southern & Eastern Europe, which more than offset higher expenses. |
| ◆ | | Underlying earnings before tax from Strategic Partnerships decreased to USD 21partnerships remained stable in 2019 at EUR 69 million in 2017 compared with USD 39 million in 2016 mainly a result of favorable persistency and lower new business related expenses. Following the strong results in China throughout 2017, Aegon THTF2018. The main contributor is now profitable.Aegon’s Chinese asset management joint venture AIFMC. |
Commissions and expenses Commissions and expenses remained stableincreased by 5 million in 20172019 to EUR 493 million compared with 2016 at USD 257 million.2018. Operating expenses increased by 9% in 20171% compared with 20162018 to USD 176 million. TheEUR 445 million in 2019. This increase in operating expenses was mainly driven by strong saleshigher expenses in China and India throughout the year and investments madeAmericas to support future growth, partially offset by lower operating expensesnew business in Aegon Insights as a resultcombination with strengthening of discontinuing the outbound telemarketing business. Production
New life sales increased by 20%US dollar versus the Euro in 2017 to USD 170 million compared with 2016.
◆ | | In the high net worth businesses in Hong Kong and Singapore, new life sales were down 4% to USD 84 million in 2017, compared with USD 88 million in 2016. This decrease was mainly the result of lower sales of universal life products due to increased competitive environment. |
◆ | | New life sales in Strategic Partnerships were up 60% to USD 86 million in 2017 compared with 2016 due to a strong increase from sales in China that was mainly driven by the critical illness product and the new direct sales strategy implemented in India during the first half of 2017. |
Gross deposits in Asia declined to USD 250 million in 2017 compared with USD 337 million in 2016. Increased inflows from foreign currency variable annuities2019. These effects were more than offset by lower Japaneseadministration expenses in all units as a consequence of strict cost discipline. The cost/ income ratio in 2019 went up by 1 percentage point compared with 2018 to 76%, as result from higher expenses and lower revenues in 2019 compared with 2018. Annualized operating expenses as a percentage of average assets under management improved to 13 basis points in 2019 compared with 14 basis points in 2018.
Yen-denominatedProduction variable annuity sales.
Gross inflows in external third-party increased by 36% in 2019 to EUR 80.9 billion compared with 2018. This was driven by increased inflows in AIFMC which were in turn supported by a new mandate, new equity funds launched and increased inflows in money market funds. These higher inflows offset lower inflows in 2019 in both the Americas and Europe compared with 2018. For Europe, this was driven by the UK, in part due to uncertainty throughout 2019 surrounding Brexit. Net external third-party inflows in 2019 decreased compared with 2018 to EUR 6.8 billion, as higher net flows in AIFMC were more than offset by lower net flows in Europe. The latter was driven by the resultUnited Kingdom. Net flows for the Americas and Rest of a pricing changeWorld remained fairly stable in order to maintain profitability by strictly adhering to Aegon’s pricing policy. New premium production in Asia’s accident & health declined by 27% in 20172019 compared with 20162018.
Assets under management Assets under management increased by EUR 36 billion in 2019 to USD 14 million as a resultEUR 352 billion compared with the end of running off2018. This was primarily driven by favorable market movements. This, in combination with net inflows in external third parties and favorable currency movements, more than offset outflows in the Aegon Insights outbound telemarketing business.general account and affiliated business | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 136143 | | Financial information Results of operations – Aegon Asset Management | | Exchange rates | | | | | | | | | | | |
Results 2018 Aegon Asset ManagementExchange rates
Exchange rates at December 31, | | | | | | | | | | | | | | Amounts in EUR millions | | 2018 | | | 2017 | | | % | | Net underlying earnings | | | 113 | | | | 94 | | | | 20 | | | | | | Tax on underlying earnings | | | 39 | | | | 42 | | | | (7 | ) | | | | | Underlying earnings before tax by business/country | | | | | | | | | | | | | Americas | | | 62 | | | | 59 | | | | 5 | | Europe | | | 31 | | | | 31 | | | | (1 | ) | Rest of World | | | (10 | ) | | | (7 | ) | | | (33 | ) | Strategic partnerships | | | 69 | | | | 53 | | | | 29 | | Underlying earnings before tax | | | 151 | | | | 136 | | | | 12 | | | | | | Fair value items | | | – | | | | – | | | | n.m. | | Gains/(losses) on investments | | | 2 | | | | 3 | | | | (40 | ) | Net impairments | | | – | | | | – | | | | n.m. | | Other income/(charges) | | | (5 | ) | | | (49 | ) | | | 91 | | | Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | | | 149 | | | | 90 | | | | 65 | | | | | | Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | | | 22 | | | | 17 | | | | 27 | | | | | | Income tax | | | (44 | ) | | | (42 | ) | | | (3 | ) | Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | | | (22 | ) | | | (17 | ) | | | (27 | ) | Net income/(loss) | | | 105 | | | | 48 | | | | 119 | | | | | | Management fees | | | 492 | | | | 473 | | | | 4 | | Performance fees | | | 33 | | | | 36 | | | | (8 | ) | Other | | | 65 | | | | 67 | | | | (4 | ) | Total revenues | | | 589 | | | | 576 | | | | 2 | | | | | | Commissions and expenses | | | 488 | | | | 481 | | | | 2 | | of which operating expenses | | | 439 | | | | 444 | | | | (1 | ) | | | | | Cost/income ratio | | | 74.5 | % | | | 77.1 | % | | | | | | | | | | | | | | | | | | | | | | Amounts in EUR millions | | | 2018 | | | | 2017 | | | | % | | Gross flows external third-party | | | | | | | | | | | | | Americas | | | 9,619 | | | | 10,567 | | | | (9 | ) | Europe | | | 12,292 | | | | 10,419 | | | | 18 | | Rest of World1 | | | (72 | ) | | | 127 | | | | n.m. | | Strategic partnerships | | | 37,657 | | | | 40,220 | | | | (6 | ) | Total gross flows external third-party | | | 59,495 | | | | 61,332 | | | | (3 | ) | | | | | Net flows external third-party | | | | | | | | | | | | | Americas | | | 1,267 | | | | 1,913 | | | | (34 | ) | The Netherlands | | | 6,648 | | | | 3,256 | | | | 104 | | United Kingdom | | | (3,370 | ) | | | (6,770 | ) | | | 50 | | Rest of World1 | | | (566 | ) | | | 167 | | | | n.m. | | Strategic partnerships | | | 3,547 | | | | 8,345 | | | | (57 | ) | Total net flows external third-party | | | 7,526 | | | | 6,913 | | | | 9 | | | | | | | 1 Rest of world include intragroup eliminations from internalsub-advised agreements | | | | | | | | | | | | |
| | | | | | | | | | | | | | Weighted average rate | | Exchange rates | | | | | | | | | | Per 1 EUR | | 2018 | | | 2017 | | US dollar | | | 1.1816 | | | | 1.1291 | | Pound sterling | | | 0.8844 | | | | 0.8758 | | Hungarian forint | | | 318.2582 | | | | 308.7564 | | Chinese Yuan Renminbi | | | 7.8079 | | | | 7.6520 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2019 | | | | | | | | | 2018 | | | | | | | | | 2017 | | | | | | | | | | EUR | | | USD | | | GBP | | | EUR | | | USD | | | GBP | | | EUR | | | USD | | | GBP | | 1 | | EUR | | | - | | | | 1.1225 | | | | 0.8473 | | | | - | | | | 1.1432 | | | | 0.8976 | | | | - | | | | 1.2008 | | | | 0.8877 | | 1 | | USD | | | 0.8909 | | | | - | | | | 0.7548 | | | | 0.8747 | | | | - | | | | 0.7852 | | | | 0.8328 | | | | - | | | | 0.7393 | | 1 | | GBP | | | 1.1802 | | | | 1.3248 | | | | - | | | | 1.1141 | | | | 1.2736 | | | | - | | | | 1.1265 | | | | 1.3527 | | | | - | | | | Weighted average exchange rates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2019 | | | | | | | | | 2018 | | | | | | | | | 2017 | | | | | | | | | | EUR | | | USD | | | GBP | | | EUR | | | USD | | | GBP | | | EUR | | | USD | | | GBP | | 1 | | EUR | | | - | | | | 1.1197 | | | | 0.8770 | | | | - | | | | 1.1816 | | | | 0.8844 | | | | - | | | | 1.1291 | | | | 0.8758 | | 1 | | USD | | | 0.8931 | | | | - | | | | 0.7832 | | | | 0.8463 | | | | - | | | | 0.7485 | | | | 0.8857 | | | | - | | | | 0.7757 | | 1 | | GBP | | | 1.1403 | | | | 1.2767 | | | | - | | | | 1.1307 | | | | 1.3360 | | | | - | | | | 1.1418 | | | | 1.2892 | | | | - | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 137144 | | Financial informationResults | | Consolidated financial statements of operations – Aegon Asset ManagementN.V. | | | | | | | | | | | |
Results 2018Consolidated income statement of Aegon Asset ManagementN.V.
Net income in 2018 increased to EUR 105 million compared with EUR 48 million in 2017 as a result of higher underlying earnings before tax compared with 2017 andFor the fact that 2017 contained a provision related to the settlement with the SEC. Gross flows in externalthird-party asset management decreased by 3% to EUR 59.5 billion in 2018 compared with 2017. Higher gross inflows in the Netherlands were more than offset by lower gross inflows in Strategic partnerships, the Americas the UK. Inflows in Strategic partnerships in 2017 included a single large mandate won by Aegon’s strategic partner LBPAM.year ended December 31
Net income
Net income in 2018 increased by 119% compared with 2017 to EUR 105 million. This was partly driven by higher underlying earnings before tax in 2018 compared with 2017. In addition, 2017 included a provision related to the settlement with the SEC totalling EUR 40 million.
Underlying earnings before tax
Underlying earnings before tax increased by 12% in 2018 compared with 2017 to EUR 151 million. This increase was mainly driven by higher underlying earnings before tax in 2018 compared with 2017 from Strategic partnerships and the Netherlands.
◆ | | Americas underlying earnings before tax increased to EUR 62 million in 2018, compared with EUR 59 million in 2017, mainly driven by higher management and origination fees, in addition to expense savings in 2018 compared with 2017. |
◆ | | Underlying earnings before tax from Europe in 2018 decreased by EUR 1 million to EUR 30 million compared with 2017, as expense savings and higher management fee income in 2018 compared with 2017 in the Netherlands were more than offset by lower management fees in the United Kingdom. |
◆ | | Rest of World underlying earnings before tax in 2018 decreased by EUR 3 million compared with 2017 to a loss of EUR 10 million. |
◆ | | Underlying earnings before tax from Strategic partnerships increased by EUR 16 million compared with 2017 to EUR 69 million in 2018. Aegon’s Chinese asset management joint venture AIFMC had higher management and performance fee income in 2018 compared with 2017. |
Commissions and expenses
Commissions and expenses increased by 2% in 2018 compared with 2017 to EUR 488 million. Operating expenses decreased by 1% in 2018 compared with 2017 to EUR 439 million. This decrease was mainly driven by lower expenses in the Americas and the United Kingdom as a result of continued strong expense control. These were partly offset by higher personnel expenses in China as a result of its strong performance. The cost/income ratio in 2018 improved by 2 percentage points compared with 2017 to 75%, as result from lower expenses and higher revenues in 2018 compared with 2017. Annualized operating expenses as a percentage of average assets under management remained stable at 14 basis points in 2018 compared with 2017.
Production
Gross inflows in externalthird-party decreased by 3% in 2018 to EUR 59.5 billion compared with 2017. Higher gross inflows in the Netherlands were more than offset by lower gross inflows in Strategic partnerships, the Americas and the UK. In addition, gross inflows in 2017 included a single large mandate won by Aegon’s strategic partner LBPAM.
Net externalthird-party inflows in 2018 increased compared with 2017 to EUR 7.5 billion, as higher net flows in the Netherlands were partly offset by net outflows in the United Kingdom and lower net inflows in Strategic partnerships and the Americas.
Assets under management
Assets under management decreased by EUR 2 billion in 2018 to EUR 316 billion compared with the start of 2018. Net inflows in externalthird-party and favorable currency movements were more than offset by outflows in the general account, outflows in affiliates, and unfavorable market movements.
| | | | | | | | | | | | | | | | | | Amounts in EUR million (except per share data) | | Note | | | 2019 | | | 2018 | | | 2017 | | Premium income | | | 6 | | | | 18,138 | | | | 19,316 | | | | 22,826 | | Investment income | | | 7 | | | | 7,531 | | | | 7,035 | | | | 7,338 | | Fee and commission income | | | 8 | | | | 2,523 | | | | 2,558 | | | | 2,802 | | Other revenues | | | | | | | 6 | | | | 5 | | | | 7 | | Total revenues | | | | | | | 28,197 | | | | 28,914 | | | | 32,973 | | | | | | | Income from reinsurance ceded | | | 9 | | | | 3,532 | | | | 3,740 | | | | 4,288 | | Results from financial transactions | | | 10 | | | | 35,386 | | | | (11,701 | ) | | | 20,250 | | Other income | | | 11 | | | | 200 | | | | 8 | | | | 540 | | Total income | | | | | | | 67,316 | | | | 20,961 | | | | 58,052 | | | | | | | Premiums paid to reinsurers | | | 6 | | | | 2,434 | | | | 2,663 | | | | 3,431 | | Policyholder claims and benefits | | | 12 | | | | 56,797 | | | | 10,557 | | | | 45,599 | | Profit sharing and rebates | | | 13 | | | | 17 | | | | 23 | | | | 23 | | Commissions and expenses | | | 14 | | | | 6,153 | | | | 6,224 | | | | 5,925 | | Impairment charges / (reversals) | | | 15 | | | | 169 | | | | 78 | | | | 42 | | Interest charges and related fees | | | 16 | | | | 513 | | | | 507 | | | | 435 | | Other charges | | | 17 | | | | 1 | | | | 375 | | | | 235 | | Total charges | | | | | | | 66,084 | | | | 20,427 | | | | 55,689 | | | | | | | | Income before share in profit / (loss) of joint ventures, associates and tax | | | | | | | 1,231 | | | | 535 | | | | 2,363 | | Share in profit / (loss) of joint ventures | | | 25 | | | | 214 | | | | 210 | | | | 161 | | Share in profit / (loss) of associates | | | 25 | | | | 12 | | | | 6 | | | | 11 | | Income / (loss) before tax | | | | | | | 1,457 | | | | 751 | | | | 2,534 | | Income tax (expense) / benefit | | | 18 | | | | (218 | ) | | | (40 | ) | | | (65 | ) | Net income / (loss) | | | | | | | 1,239 | | | | 711 | | | | 2,469 | | | | | | | Net income / (loss) attributable to: | | | | | | | | | | | | | | | | | Owners of Aegon N.V. | | | | | | | 1,239 | | | | 710 | | | | 2,469 | | Non-controlling interests | | | | | | | - | | | | 1 | | | | - | | | | | | | Earnings per share (EUR per share) | | | 19 | | | | | | | | | | | | | | Basic earnings per common share | | | | | | | 0.56 | | | | 0.29 | | | | 1.14 | | Basic earnings per common share B | | | | | | | 0.01 | | | | 0.01 | | | | 0.03 | | Diluted earnings per common share | | | | | | | 0.56 | | | | 0.29 | | | | 1.14 | | Diluted earnings per common share B | | | | | | | 0.01 | | | | 0.01 | | | | 0.03 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F20-F20192018 | | |
| | | 138 | | Financial information Results of operations – Aegon Asset Management | | | |
Results 2017 Aegon Asset Management
| | | | | | | | | | | | | | Amounts in EUR millions | | 2017 | | | 2016 | | | % | | Net underlying earnings | | | 94 | | | | 99 | | | | (5 | ) | | | | | Tax on underlying earnings | | | 42 | | | | 50 | | | | (16 | ) | | | | | Underlying earnings before tax by business/country | | | | | | | | | | | | | Americas | | | 59 | | | | 55 | | | | 6 | | Europe | | | 31 | | | | 44 | | | | (29 | ) | Rest of World | | | (7 | ) | | | (4 | ) | | | (84 | ) | Strategic partnerships | | | 53 | | | | 54 | | | | (1 | ) | Underlying earnings before tax | | | 136 | | | | 149 | | | | (9 | ) | | | | | Fair value items | | | - | | | | - | | | | n.m. | | Gains/(losses) on investments | | | 3 | | | | 3 | | | | 6 | | Net impairments | | | - | | | | (5 | ) | | | n.m. | | Other income/(charges) | | | (49 | ) | | | (2 | ) | | | n.m. | | | Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | | | 90 | | | | 145 | | | | (38 | ) | | | | | Income tax from certain proportionately consolidated joint ventures and associates included inincome before tax | | | 17 | | | | 19 | | | | (7 | ) | | | | | Income tax | | | (42 | ) | | | (48 | ) | | | 11 | | Of which Income tax from certain proportionately consolidated joint ventures and associatesincluded in income before tax | | | (17 | ) | | | (19 | ) | | | 7 | | Net income/(loss) | | | 48 | | | | 97 | | | | (51 | ) | | | | | Management fees | | | 473 | | | | 503 | | | | (6 | ) | Performance fees | | | 36 | | | | 34 | | | | 4 | | Other | | | 67 | | | | 63 | | | | 7 | | Total revenues | | | 576 | | | | 601 | | | | (4 | ) | | | | | Commissions and expenses | | | 481 | | | | 486 | | | | (1 | ) | of which operating expenses | | | 444 | | | | 451 | | | | (2 | ) | | | | | Cost/income ratio | | | 77.1% | | | | 75.1% | | | | | | | | | | Amounts in EUR millions | | | 2017 | | | | 2016 | | | | % | | Gross flows external third-party | | | | | | | | | | | | | Americas | | | 10,567 | | | | 4,536 | | | | 133 | | Europe | | | 10,419 | | | | 9,487 | | | | 10 | | Rest of World1 | | | 127 | | | | (317 | ) | | | n.m. | | Strategic partnerships | | | 40,220 | | | | 32,660 | | | | 23 | | Total gross flows external third-party | | | 61,332 | | | | 46,366 | | | | 32 | | | | | | Net flows external third-party | | | | | | | | | | | | | Americas | | | 1,913 | | | | 499 | | | | n.m. | | The Netherlands | | | 3,256 | | | | 3,669 | | | | (11 | ) | United Kingdom | | | (6,770 | ) | | | (865 | ) | | | n.m. | | Rest of World1 | | | 167 | | | | 62 | | | | 170 | | Strategic partnerships | | | 8,345 | | | | (402 | ) | | | n.m. | | Total net flows external third-party | | | 6,913 | | | | 2,964 | | | | 133 | |
1 | Rest of world include intragroup eliminations from internalsub-advised agreements
|
| | | | | | | | | | | | Weighted average rate | | Exchange rates | | | | | | | | | Per 1 EUR | | | 2017 | | | | 2016 | | US dollar | | | 1.1291 | | | | 1.1069 | | Pound sterling | | | 0.8758 | | | | 0.8187 | | Hungarian forint | | | 308.7564 | | | | 310.9128 | | Chinese Yuan Renminbi | | | 7.6520 | | | | 7.3364 | |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 139145 | | Financial informationResults | | Consolidated financial statements of operations – Aegon Asset ManagementN.V. | | | | |
Results 2017 Aegon Asset Management
Net income in 2017 decreased compared with 2016 to EUR 48 million as a result of lower underlying earnings before tax compared with 2016 and a provision taken for a potential settlement with the SEC. Lower underlying earnings before tax in 2017 compared with 2016 was mainly the result of lower management fees in the United Kingdom. Gross flows in externalthird-party asset management increased by 32% to EUR 61.3 billion in 2017 compared with 2016, mainly driven by higher gross inflows in the US, the Netherlands and Strategic partnerships.
Net income
Net income in 2017 declined 51% compared with 2016 to EUR 48 million. This was partly driven by lower underlying earnings before tax in 2017 compared with 2016.
In addition, Aegon has taken a provision in anticipation of a possible settlement in connection with a previously disclosed investigation by the US Securities and Exchange Commission (SEC). The investigation relates to the operation or existence of errors in the quantitative models in question and disclosures regarding these matters. Aegon had discovered these errors in its asset management operations in the United States. The Company notified the SEC and cooperated fully with the investigation. Following the discovery of the errors, Aegon concluded a comprehensive and detailed review.
As a result of recent discussions, Aegon has taken a provision through Other charges in the fourth quarter of 2017 for a potential settlement. This amount is partly recorded in the Americas and partly in Asset Management (EUR 40 million). Aegon believes that the investigation will come to a conclusion in 2018.
Underlying earnings before tax
Underlying earnings before tax decreased by 9% in 2017 compared with 2016 to EUR 136 million. This decline was mainly driven by lower underlying earnings before tax in 2017 compared with 2016 from the United Kingdom due to lower management fees.
◆ | | Americas underlying earnings before tax increased to EUR 59 million in 2017, compared with EUR 55 million in 2016, as lower expenses more than offset lower management fee income in 2017 compared with 2016. |
◆ | | Underlying earnings before tax from Europe in 2017 decreased by EUR 13 million to EUR 31 million compared with 2016, as higher management fee income in the Netherlands was more than offset by lower management fees in the United Kingdom and higher expenses in the Netherlands in 2018 compared with 2017. |
◆ | | Rest of World underlying earnings before tax in 2017 decreased by EUR 3 million compared with 2016 to a loss of EUR 7 million. |
◆ | | Underlying earnings before tax from Strategic partnerships decreased by EUR 1 million compared with 2016 to EUR 53 million in 2017. Aegon’s Chinese asset management joint venture AIFMC had lower performance fee income in 2017 compared with 2016. This was partly offset by higher underlying earnings before tax from French joint venture La Banque Postale Asset Management in 2017 compared with 2016. |
Commissions and expenses
Commissions and expenses declined in 2017 compared with 2016 to EUR 481 million. Operating expenses decreased by 2% in 2017 compared with 2016 to EUR 444 million. This decrease was mainly driven by lower expenses in the Americas and the United Kingdom as a result of continued strong expense control and favorable currency movements. These were partly offset by restructuring charges and higherone-time expenses in the Netherlands. The cost/income ratio in 2017 increased by 2 percentage points to 77% compared with 2016, as lower expenses were more than offset by lower revenues in 2017 compared with 2016. Annualized operating expenses as a percentage of average assets under management increased in 2017 compared with 2016 by 1 basis point to 14 basis points.
Production
Gross inflows in externalthird-party increased by 32% in 2017 to EUR 61.3 billion compared with 2016. This was mainly the result of higher gross flows in Strategic partnerships in 2017 compared with 2016, and higher gross flows in the US and the Netherlands.
Net externalthird-party inflows in 2017 increased compared with 2016 to EUR 6.9 billion, as higher net flows in Strategic partnerships and the Americas were partly offset by net outflows in the United Kingdom and lower net inflows in the Netherlands.
Assets under management
Assets under management decreased by EUR 14 billion in 2017 to EUR 318 billion compared with the start of 2017. Favorable market movements and net inflows in externalthird-party were more than offset by outflows in the general account, primarily resulting from the divestment of the majority of the run-off businesses in the US, outflows in affiliates, and unfavorable currency movements.
| | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 140 | | Consolidated financial statements of Aegon N.V. Exchange rates | | | |
Exchange rates
Exchange rates at December 31,
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | | | | | | | | 2017 | | | | | | | | | 2016 | | | | | | | | | | EUR | | | USD | | | GBP | | | EUR | | | USD | | | GBP | | | EUR | | | USD | | | GBP | | 1 | | EUR | | | - | | | | 1.1432 | | | | 0.8976 | | | | - | | | | 1.2008 | | | | 0.8877 | | | | - | | | | 1.0548 | | | | 0.8536 | | 1 | | USD | | | 0.8747 | | | | - | | | | 0.7852 | | | | 0.8328 | | | | - | | | | 0.7393 | | | | 0.9480 | | | | - | | | | 0.8093 | | 1 | | GBP | | | 1.1141 | | | | 1.2736 | | | | - | | | | 1.1265 | | | | 1.3527 | | | | - | | | | 1.1715 | | | | 1.2357 | | | | - | | | | Weighted average exchange rates | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | | | | | | | | 2017 | | | | | | | | | 2016 | | | | | | | | | | EUR | | | USD | | | GBP | | | EUR | | | USD | | | GBP | | | EUR | | | USD | | | GBP | | 1 | | EUR | | | - | | | | 1.1816 | | | | 0.8844 | | | | - | | | | 1.1291 | | | | 0.8758 | | | | - | | | | 1.1069 | | | | 0.8187 | | 1 | | USD | | | 0.8463 | | | | - | | | | 0.7485 | | | | 0.8857 | | | | - | | | | 0.7757 | | | | 0.9034 | | | | - | | | | 0.7396 | | 1 | | GBP | | | 1.1307 | | | | 1.3360 | | | | - | | | | 1.1418 | | | | 1.2892 | | | | - | | | | 1.2214 | | | | 1.3520 | | | | - | |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 141 | | Consolidated financial statements of Aegon N.V. | | | |
Consolidated income statement of Aegon N.V.
For the year ended December 31
| | | | | | | | | | | | | | | | | | Amounts in EUR million (except per share data) | | Note | | | 2018 | | | 2017 | | | 2016 | | Premium income | | | 6 | | | | 19,316 | | | | 22,826 | | | | 23,453 | | Investment income | | | 7 | | | | 7,035 | | | | 7,338 | | | | 7,788 | | Fee and commission income | | | 8 | | | | 2,558 | | | | 2,802 | | | | 2,408 | | Other revenues | | | | | | | 5 | | | | 7 | | | | 7 | | Total revenues | | | | | | | 28,914 | | | | 32,973 | | | | 33,655 | | | | | | | Income from reinsurance ceded | | | 9 | | | | 3,740 | | | | 4,288 | | | | 3,687 | | Results from financial transactions | | | 10 | | | | (11,701 | ) | | | 20,250 | | | | 15,753 | | Other income | | | 11 | | | | 8 | | | | 540 | | | | 66 | | Total income | | | | | | | 20,961 | | | | 58,052 | | | | 53,162 | | | | | | | Premiums paid to reinsurers | | | 6 | | | | 2,663 | | | | 3,431 | | | | 3,176 | | Policyholder claims and benefits | | | 12 | | | | 10,557 | | | | 45,599 | | | | 41,974 | | Profit sharing and rebates | | | 13 | | | | 23 | | | | 23 | | | | 49 | | Commissions and expenses | | | 14 | | | | 6,224 | | | | 5,925 | | | | 6,351 | | Impairment charges/(reversals) | | | 15 | | | | 78 | | | | 42 | | | | 95 | | Interest charges and related fees | | | 16 | | | | 507 | | | | 435 | | | | 347 | | Other charges | | | 17 | | | | 375 | | | | 235 | | | | 700 | | Total charges | | | | | | | 20,427 | | | | 55,689 | | | | 52,693 | | Income before share in profit/(loss) of joint ventures, associates and tax | | | | | | | 535 | | | | 2,363 | | | | 470 | | Share in profit/(loss) of joint ventures | | | | | | | 210 | | | | 161 | | | | 137 | | Share in profit/(loss) of associates | | | | | | | 6 | | | | 11 | | | | 3 | | Income/(loss) before tax | | | | | | | 751 | | | | 2,534 | | | | 610 | | Income tax (expense)/benefit | | | 18 | | | | (40 | ) | | | (65 | ) | | | (172 | ) | Net income/(loss) | | | | | | | 711 | | | | 2,469 | | | | 438 | | | | | | | Net income/(loss) attributable to: | | | | | | | | | | | | | | | | | Owners of Aegon N.V. | | | | | | | 710 | | | | 2,469 | | | | 437 | | Non-controlling interests | | | | | | | 1 | | | | - | | | | - | | | | | | | Earnings per share (EUR per share) | | | 19 | | | | | | | | | | | | | | Basic earnings per common share | | | | | | | 0.29 | | | | 1.14 | | | | 0.15 | | Basic earnings per common share B | | | | | | | 0.01 | | | | 0.03 | | | | - | | Diluted earnings per common share | | | | | | | 0.29 | | | | 1.14 | | | | 0.15 | | Diluted earnings per common share B | | | | | | | 0.01 | | | | 0.03 | | | | - | |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 142 | | Consolidated financial statements of Aegon N.V. | | | |
Consolidated statement of comprehensive income of Aegon N.V. For the year ended December 31 | | Amounts in EUR million | | 2018 | | | 2017 | | 2016 | | | 2019 | | | 20181)
| | 20171)
| | Net income/(loss) | | | 711 | | | 2,469 | | | 438 | | | Net income / (loss) | | | | 1,239 | | | 711 | | | 2,469 | | | Items that will not be reclassified to profit or loss: | | | | | | | | | | | | | Changes in revaluation reserve real estate held for own use | | | (32 | ) | | 8 | | | 8 | | | | (4 | ) | | (32 | ) | | 8 | | Remeasurements of defined benefit plans | | | (134 | ) | | 224 | | | (392 | ) | | | (612 | ) | | (134 | ) | | 224 | | Income tax relating to items that will not be reclassified | | | (8 | ) | | (166 | ) | | 86 | | | | 92 | | | (8 | ) | | (166 | ) | | Items that may be reclassified subsequently to profit or loss: | | | | | | | | | | | | | Gains/(losses) on revaluation ofavailable-for-sale investments | | | (2,138 | ) | | 1,283 | | | 854 | | | (Gains)/losses transferred to income statement on disposal and impairment ofavailable-for- sale investments | | | 66 | | | (1,330 | ) | | (2,122 | ) | | Gains / (losses) on revaluation ofavailable-for-sale investments | | | | 3,471 | | | (2,142 | ) | | 1,376 | | (Gains) / losses transferred to income statement on disposal and impairment ofavailable-for-sale investments | | | | (412 | ) | | 66 | | | (1,330 | ) | Changes in cash flow hedging reserve | | | 5 | | | (853 | ) | | (54 | ) | | | (8 | ) | | 5 | | | (853 | ) | Movement in foreign currency translation and net foreign investment hedging reserves | | | 602 | | | (2,149 | ) | | 69 | | | | 314 | | | 602 | | | (2,149 | ) | Equity movements of joint ventures | | | 9 | | | (15 | ) | | 9 | | | | 8 | | | 9 | | | (15 | ) | Equity movements of associates | | | (1 | ) | | (5 | ) | | 3 | | | | 4 | | | (1 | ) | | (5 | ) | Disposal of group assets | | | 36 | | | 7 | | | | - | | | | (1 | ) | | 36 | | | 7 | | Income tax relating to items that may be reclassified | | | 493 | | | 951 | | | 225 | | | | (632 | ) | | 494 | | | 927 | | Other | | | (2 | ) | | 9 | | | 12 | | | | 13 | | | (2 | ) | | 9 | | Total other comprehensive income/(loss) | | | (1,104 | ) | | | (2,038 | ) | | | (1,301 | ) | | Total comprehensive income/(loss) | | | (393 | ) | | 431 | | | (863 | ) | | Total other comprehensive income / (loss) | | | | 2,232 | | | (1,107 | ) | | (1,968 | ) | Total comprehensive income / (loss) | | | | 3,471 | | | (396 | ) | | 501 | | | Total comprehensive income/(loss) attributable to: | | | | | | | | Total comprehensive income/ (loss) attributable to: | | | | | | | | Owners of Aegon N.V. | | | (395 | ) | | 435 | | | (878 | ) | | | 3,472 | | | (398 | ) | | 505 | | Non-controlling interests | | | 2 | | | (3 | ) | | 15 | | | | (1 | ) | | 2 | | | (3 | ) |
| 1 | Amounts have been restated to reflect voluntary changes in accounting policies related to liability adequacy testing that was adopted by Aegon effective January 1, 2019. Refer to note 2.1.2 Voluntary changes in accounting policies for details about this change. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 143146 | | | | Consolidated financial statements of Aegon N.V. | | | | | | | | | | | |
Consolidated statement of financial position of Aegon N.V. As at December 31 | | Amounts in EUR million | | Note | | | 2018 | | | 2017 | | | Note | | | 2019 | | | 20181) | | | January 1, 20181) | | Assets | | | | | | | | | | | | | | | Cash and cash equivalents | | | 21 | | | | 8,744 | | | | 10,768 | | | | 21 | | | | 12,263 | | | | 8,744 | | | | 10,768 | | Assets held for sale | | | 22 | | | | - | | | | 5,249 | | | | | | - | | | | - | | | | 5,249 | | Investments | | | 23 | | | | 138,625 | | | | 136,804 | | | | 22 | | | | 145,976 | | | | 138,625 | | | | 136,804 | | Investments for account of policyholders | | | 24 | | | | 194,353 | | | | 194,063 | | | | 23 | | | | 226,374 | | | | 194,353 | | | | 194,063 | | Derivatives | | | 25 | | | | 7,615 | | | | 5,912 | | | | 24 | | | | 11,157 | | | | 7,615 | | | | 5,912 | | Investments in joint ventures | | | 26 | | | | 1,745 | | | | 1,712 | | | | 25 | | | | 1,983 | | | | 1,745 | | | | 1,712 | | Investments in associates | | | 27 | | | | 327 | | | | 308 | | | | 25 | | | | 363 | | | | 327 | | | | 308 | | Reinsurance assets | | | 28 | | | | 20,507 | | | | 19,202 | | | | 26 | | | | 20,835 | | | | 20,507 | | | | 19,202 | | Defined benefit assets | | | 41 | | | | - | | | | 55 | | | | 39 | | | | 1 | | | | - | | | | 55 | | Deferred tax assets | | | 43 | | | | 125 | | | | 79 | | | | 40 | | | | 193 | | | | 125 | | | | 79 | | Deferred expenses | | | 29 | | | | 10,910 | | | | 10,135 | | | | 27 | | | | 10,804 | | | | 10,910 | | | | 10,135 | | Other assets and receivables | | | 30 | | | | 7,954 | | | | 10,002 | | | | 28 | | | | 8,841 | | | | 7,954 | | | | 10,002 | | Intangible assets | | | 31 | | | | 1,727 | | | | 1,633 | | | | 29 | | | | 1,559 | | | | 1,727 | | | | 1,633 | | Total assets | | | | | 392,633 | | | | 395,923 | | | | | | 440,348 | | | | 392,633 | | | | 395,923 | | | Equity and liabilities | | | | | | | | | | | | | | | Shareholders’ equity | | | 32 | | | | 19,225 | | | | 20,288 | | | | 30 | | | | 21,850 | | | | 19,200 | | | | 20,266 | | Other equity instruments | | | 33 | | | | 3,320 | | | | 3,794 | | | | 31 | | | | 2,571 | | | | 3,320 | | | | 3,794 | | Issued capital and reserves attributable to owners of Aegon N.V. | | | | | 22,545 | | | | 24,082 | | | | | | 24,421 | | | | 22,520 | | | | 24,059 | | Non-controlling interests | | | | | 22 | | | | 20 | | | | | | 20 | | | | 22 | | | | 20 | | Group equity | | | | | 22,567 | | | | 24,102 | | | | | | 24,441 | | | | 22,542 | | | | 24,079 | | | Subordinated borrowings | | | 34 | | | | 1,389 | | | | 764 | | | | 32 | | | | 2,207 | | | | 1,389 | | | | 764 | | Trust pass-through securities | | | 35 | | | | 133 | | | | 133 | | | | 33 | | | | 136 | | | | 133 | | | | 133 | | Insurance contracts | | | 36 | | | | 115,294 | | | | 110,818 | | | | 34 | | | | 123,454 | | | | 115,328 | | | | 110,848 | | Insurance contracts for account of policyholders | | | 36 | | | | 117,113 | | | | 122,168 | | | | 34 | | | | 135,710 | | | | 117,113 | | | | 122,168 | | Investment contracts | | | 37 | | | | 18,048 | | | | 16,943 | | | | 35 | | | | 18,594 | | | | 18,048 | | | | 16,943 | | Investment contracts for account of policyholders | | | 37 | | | | 80,097 | | | | 74,434 | | | | 35 | | | | 93,826 | | | | 80,097 | | | | 74,434 | | Derivatives | | | 25 | | | | 7,230 | | | | 7,130 | | | | 24 | | | | 11,616 | | | | 7,230 | | | | 7,130 | | Borrowings | | | 39 | | | | 12,061 | | | | 13,635 | | | | 37 | | | | 9,307 | | | | 12,061 | | | | 13,635 | | Provisions | | | 40 | | | | 320 | | | | 210 | | | | 38 | | | | 214 | | | | 320 | | | | 210 | | Defined benefit liabilities | | | 41 | | | | 3,989 | | | | 4,005 | | | | 39 | | | | 4,360 | | | | 3,989 | | | | 4,005 | | Deferred gains | | | 42 | | | | 12 | | | | 13 | | | | | | 11 | | | | 12 | | | | 13 | | Deferred tax liabilities | | | 43 | | | | 538 | | | | 1,029 | | | | 40 | | | | 1,227 | | | | 529 | | | | 1,021 | | Liabilities held for sale | | | 22 | | | | - | | | | 5,003 | | | | | | - | | | | - | | | | 5,003 | | Other liabilities | | | 44 | | | | 13,454 | | | | 15,208 | | | | 41 | | | | 14,819 | | | | 13,454 | | | | 15,208 | | Accruals | | | 45 | | | | 388 | | | | 329 | | | | 42 | | | | 426 | | | | 388 | | | | 329 | | Total liabilities | | | | | 370,065 | | | | 371,821 | | | | | | 415,907 | | | | 370,091 | | | | 371,844 | | | | | | | | | | | | Total equity and liabilities | | | | | 392,633 | | | | 395,923 | | | | | | 440,348 | | | | 392,633 | | | | 395,923 | |
| 1 | Amounts have been restated to reflect voluntary changes in accounting policies related to liability adequacy testing that was adopted by Aegon effective January 1, 2019. Refer to note 2.1.2 Voluntary changes in accounting policies for details about this change. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 144147 | | | | Consolidated financial statements of Aegon N.V. | | | | | | | | | | | |
Consolidated statement of changes in equity of Aegon N.V. For the year ended December 31, 20182019 | | Amounts in EUR million | | Note | | | Share
capital | | Retained earnings | | Revaluation reserves | | Remea- surement of defined benefit plans | | Other reserves | | Other equity instruments | | Issued capital and reserves1 | | Non-
controlling
interests | | | Total | | | Note | | | Share
capital | | Retained
earnings | | Revalua-
tion
reserves | | Remea-
surement
of defined
benefit
plans | | Other
reserves | | Other
equity
instru- ments | | Issued
capital and
reserves 1) | | Non-
controlling
interests | | Total | | At January 1, 2018 | | | | | 8,053 | | | | 9,374 | | | | 4,920 | | | | (1,669 | ) | | | (390 | ) | | | 3,794 | | | | 24,082 | | | | 20 | | | | 24,102 | | | At January 1, 20192) | | | | | | 7,808 | | | | 9,657 | | | | 3,436 | | | | (1,850 | ) | | | 149 | | | | 3,320 | | | | 22,520 | | | | 22 | | | | 22,542 | | | Net income/(loss) recognized in the income statement | | | | | - | | | 710 | | | | - | | | | - | | | | - | | | | - | | | 710 | | | 1 | | | | 711 | | | Mandatory change in accounting policy | | | | 2.1.1 | | | | - | | | (44 | ) | | | - | | | | - | | | | - | | | | - | | | (44 | ) | | | - | | | (44 | ) | At January 1, 2019 (restated) | | | | | | 7,808 | | | | 9,613 | | | | 3,436 | | | | (1,850 | ) | | | 149 | | | | 3,320 | | | | 22,476 | | | | 22 | | | | 22,498 | | | Net income / (loss) recognized in the income statement | | | | | | - | | | 1,239 | | | | - | | | | - | | | | - | | | | - | | | 1,239 | | | | - | | | 1,239 | | Other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Items that will not be reclassified to profit or loss: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Changes in revaluation reserve real estate held for own use | | | | | - | | | | - | | | (32 | ) | | | - | | | | - | | | | - | | | (32 | ) | | | - | | | | (32 | ) | | | | | - | | | 32 | | | (36 | ) | | | - | | | | - | | | | - | | | (4 | ) | | | - | | | (4 | ) | Remeasurements of defined benefit plans | | | | | - | | | | - | | | | - | | | (134 | ) | | | - | | | | - | | | (134 | ) | | | - | | | | (134 | ) | | | | | - | | | | - | | | | - | | | (612 | ) | | | - | | | | - | | | (612 | ) | | | - | | | (612 | ) | Income tax relating to items that will not be reclassified | | | | | - | | | | - | | | 7 | | | (15 | ) | | | - | | | | - | | | (8 | ) | | | - | | | | (8 | ) | | | | | - | | | (7 | ) | | 8 | | | 90 | | | | - | | | | - | | | 92 | | | | - | | | 92 | | | | Items that may be reclassified subsequently to profit or loss: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gains/(losses) on revaluation ofavailable-for-sale investments | | | | | - | | | | - | | | (2,138 | ) | | | - | | | | - | | | | - | | | (2,138 | ) | | | - | | | | (2,138 | ) | | (Gains)/losses transferred to income statement on disposal and impairment ofavailable-for-sale investments | | | | | - | | | | - | | | 66 | | | | - | | | | - | | | | - | | | 66 | | | | - | | | | 66 | | | | Gains / (losses) on revaluation ofavailable-for-sale investments | | | | | | - | | | | - | | | 3,471 | | | | - | | | | - | | | | - | | | 3,471 | | | | - | | | 3,471 | | (Gains) / losses transferred to income statement on disposal and impairment ofavailable-for-sale investments | | | | | | - | | | | - | | | (412 | ) | | | - | | | | - | | | | - | | | (412 | ) | | | - | | | (412 | ) | Changes in cash flow hedging reserve | | | | | - | | | | - | | | 5 | | | | - | | | | - | | | | - | | | 5 | | | | - | | | | 5 | | | | | | - | | | | - | | | (8 | ) | | | - | | | | - | | | | - | | | (8 | ) | | | - | | | (8 | ) | Movements in foreign currency translation and net foreign investment hedging reserves | | | | | - | | | | - | | | 119 | | | (32 | ) | | 515 | | | | - | | | 602 | | | | - | | | | 602 | | | | | | - | | | | - | | | 37 | | | (25 | ) | | 302 | | | | - | | | 314 | | | | - | | | 314 | | Equity movements of joint ventures | | | | | - | | | | - | | | | - | | | | - | | | 9 | | | | - | | | 9 | | | | - | | | | 9 | | | | | | - | | | | - | | | | - | | | | - | | | 8 | | | | - | | | 8 | | | | - | | | 8 | | Equity movements of associates | | | | | - | | | | - | | | | - | | | | - | | | (1 | ) | | | - | | | (1 | ) | | | - | | | | (1 | ) | | | | | - | | | | - | | | | - | | | | - | | | 4 | | | | - | | | 4 | | | | - | | | 4 | | Disposal of group assets | | | | | - | | | | - | | | | - | | | | - | | | 36 | | | | - | | | 36 | | | | - | | | | 36 | | | | | | - | | | | - | | | | - | | | | - | | | (1 | ) | | | - | | | (1 | ) | | | - | | | (1 | ) | Income tax relating to items that may be reclassified | | | | | - | | | | - | | | 513 | | | | - | | | (20 | ) | | | - | | | 493 | | | | - | | | | 493 | | | | | | - | | | | - | | | (627 | ) | | | - | | | (5 | ) | | | - | | | (632 | ) | | | - | | | (632 | ) | Other | | | | | - | | | (3 | ) | | | - | | | | - | | | | - | | | | - | | | (3 | ) | | 1 | | | | (2 | ) | | | | | - | | | 15 | | | | - | | | | - | | | | - | | | | - | | | 15 | | | (2 | ) | | 13 | | Total other comprehensive income/(loss) | | | �� | | - | | | | (3 | ) | | | (1,459 | ) | | | (182 | ) | | | 539 | | | | - | | | | (1,105 | ) | | | 1 | | | | (1,104 | ) | | | Total comprehensive income/(loss) for 2018 | | | | | - | | | 707 | | | (1,459 | ) | | (182 | ) | | 539 | | | | - | | | (395 | ) | | 2 | | | | (393 | ) | | | Total other comprehensive income / (loss) | | | | | | - | | | 40 | | | 2,433 | | | (547 | ) | | 307 | | | | - | | | 2,234 | | | (2 | ) | | 2,232 | | | | | | | | | | | | | | | | | | | | | | | | | Total comprehensive income / (loss) for 2019 | | | | | | - | | | 1,279 | | | 2,433 | | | (547 | ) | | 307 | | | | - | | | 3,472 | | | (1 | ) | | 3,471 | | Shares issued | | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | 1 | | | | - | | | | - | | | | - | | | | - | | | | - | | | 1 | | | | - | | | 1 | | Issuance and purchase of treasury shares | | | | | - | | | 14 | | | | - | | | | - | | | | - | | | | - | | | 14 | | | | - | | | | 14 | | | | | | - | | | (30 | ) | | | - | | | | - | | | | - | | | | - | | | (30 | ) | | | - | | | (30 | ) | Issuance and redemption of other equity instruments | | | | | - | | | 2 | | | | - | | | | - | | | | - | | | (471 | ) | | (468 | ) | | | - | | | | (468 | ) | | | | | - | | | (81 | ) | | | - | | | | - | | | | - | | | (744 | ) | | (825 | ) | | | - | | | (825 | ) | Dividends paid on common shares | | | | | (244 | ) | | (329 | ) | | | - | | | | - | | | | - | | | | - | | | (573 | ) | | | - | | | | (573 | ) | | | | | (273 | ) | | (309 | ) | | | - | | | | - | | | | - | | | | - | | | (583 | ) | | | - | | | (583 | ) | Dividend withholding tax reduction | | | | | - | | | 1 | | | | - | | | | - | | | | - | | | | - | | | 1 | | | | - | | | | 1 | | | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Coupons on perpetual securities | | | | | - | | | (102 | ) | | | - | | | | - | | | | - | | | | - | | | (102 | ) | | | - | | | | (102 | ) | | | | | - | | | (88 | ) | | | - | | | | - | | | | - | | | | - | | | (88 | ) | | | - | | | (88 | ) | Coupons onnon-cumulative subordinated notes | | | | | - | | | (11 | ) | | | - | | | | - | | | | - | | | | - | | | (11 | ) | | | - | | | | (11 | ) | | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Incentive plans | | | | | - | | | | - | | | | - | | | | - | | | | - | | | (2 | ) | | (2 | ) | | | - | | | | (2 | ) | | | | | - | | | 2 | | | | - | | | | - | | | | - | | | (5 | ) | | (3 | ) | | | - | | | (3 | ) | At December 31, 2018 | | | 32,33 | | | | 7,808 | | | 9,657 | | | 3,461 | | | (1,850 | ) | | 149 | | | 3,320 | | | 22,545 | | | 22 | | | | 22,567 | | | At December 31, 2019 | | | | 30,31 | | | | 7,536 | | | 10,386 | | | 5,868 | | | (2,397 | ) | | 456 | | | 2,571 | | | 24,421 | | | 20 | | | 24,441 | |
| 1 | Issued capital and reserves attributable to owners of Aegon N.V. |
| 2 | See note 2.1.1 for details about the impact of adopting IFRS 16 on Leases and note 2.1.2 for details about the impact of voluntary change in accounting policy on Liability Adequacy Testing |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 145148 | | | | Consolidated financial statements of Aegon N.V. | | | | | | | | | | | |
Consolidated statement of changes in equity of Aegon N.V. For the year ended December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amounts in EUR million | | Note | | | Share
capital | | | Retained
earnings | | | Revalua-
tion
reserves | | | Remea-
surement
of defined
benefit
plans | | | Other
reserves | | | Other
equity
instru-
ments | | | Issued
capital
and
reserves 1) | | | Non-
controlling
interests | | | Total | | At January 1, 20182) | | | | | | | 8,053 | | | | 9,374 | | | | 4,898 | | | | (1,669 | ) | | | (390 | ) | | | 3,794 | | | | 24,059 | | | | 20 | | | | 24,079 | | | | | | | | | | | | | Net income / (loss) recognized in the income statement | | | | | | | - | | | | 710 | | | | - | | | | - | | | | - | | | | - | | | | 710 | | | | 1 | | | | 711 | | | | | | | | | | | | | | Other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Items that will not be reclassified to profit or loss: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Changes in revaluation reserve real estate held for own use | | | | | | | - | | | | - | | | | (32 | ) | | | - | | | | - | | | | - | | | | (32 | ) | | | - | | | | (32 | ) | Remeasurements of defined benefit plans | | | | | | | - | | | | - | | | | - | | | | (134 | ) | | | - | | | | - | | | | (134 | ) | | | - | | | | (134 | ) | Income tax relating to items that will not be reclassified | | | | | | | - | | | | - | | | | 7 | | | | (15 | ) | | | - | | | | - | | | | (8 | ) | | | - | | | | (8 | ) | | | | | | | | | | | | | Items that may be reclassified subsequently to profit or loss: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gains / (losses) on revaluation ofavailable-for-sale investments | | | | | | | - | | | | - | | | | (2,142 | ) | | | - | | | | - | | | | - | | | | (2,142 | ) | | | - | | | | (2,142 | ) | (Gains) / losses transferred to income statement on disposal and impairment ofavailable-for-sale investments | | | | | | | - | | | | - | | | | 66 | | | | - | | | | - | | | | - | | | | 66 | | | | - | | | | 66 | | Changes in cash flow hedging reserve | | | | | | | - | | | | - | | | | 5 | | | | - | | | | - | | | | - | | | | 5 | | | | - | | | | 5 | | Movements in foreign currency translation and net foreign investment hedging reserves | | | | | | | - | | | | - | | | | 119 | | | | (32 | ) | | | 515 | | | | - | | | | 602 | | | | - | | | | 602 | | Equity movements of joint ventures | | | | | | | - | | | | - | | | | - | | | | - | | | | 9 | | | | - | | | | 9 | | | | - | | | | 9 | | Equity movements of associates | | | | | | | - | | | | - | | | | - | | | | - | | | | (1 | ) | | | - | | | | (1 | ) | | | - | | | | (1 | ) | Disposal of group assets | | | | | | | - | | | | - | | | | - | | | | - | | | | 36 | | | | - | | | | 36 | | | | - | | | | 36 | | Income tax relating to items that may be reclassified | | | | | | | - | | | | - | | | | 514 | | | | - | | | | (20 | ) | | | - | | | | 494 | | | | - | | | | 494 | | Other | | | | | | | - | | | | (3 | ) | | | - | | | | - | | | | - | | | | - | | | | (3 | ) | | | 1 | | | | (2 | ) | | Total other comprehensive income / (loss) | | | | | | | - | | | | (3 | ) | | | (1,462 | ) | | | (182 | ) | | | 539 | | | | - | | | | (1,108 | ) | | | 1 | | | | (1,107 | ) | | Total comprehensive income / (loss) for 2018 | | | | | | | - | | | | 707 | | | | (1,462 | ) | | | (182 | ) | | | 539 | | | | - | | | | (398 | ) | | | 2 | | | | (396 | ) | | | | | | | | | | | | Shares issued | | | | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Issuance and purchase of treasury shares | | | | | | | - | | | | 14 | | | | - | | | | - | | | | - | | | | - | | | | 14 | | | | - | | | | 14 | | Issuance and redemption of other equity instruments | | | | | | | - | | | | 2 | | | | - | | | | - | | | | - | | | | (471 | ) | | | (468 | ) | | | - | | | | (468 | ) | Dividends paid on common shares | | | | | | | (244 | ) | | | (329 | ) | | | - | | | | - | | | | - | | | | - | | | | (573 | ) | | | - | | | | (573 | ) | Dividend withholding tax reduction | | | | | | | - | | | | 1 | | | | - | | | | - | | | | - | | | | - | | | | 1 | | | | - | | | | 1 | | Coupons on perpetual securities | | | | | | | - | | | | (102 | ) | | | - | | | | - | | | | - | | | | - | | | | (102 | ) | | | - | | | | (102 | ) | Coupons onnon-cumulative subordinated notes | | | | | | | - | | | | (11 | ) | | | - | | | | - | | | | - | | | | - | | | | (11 | ) | | | - | | | | (11 | ) | Incentive plans | | | | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (2 | ) | | | (2 | ) | | | - | | | | (2 | ) | At December 31, 20182) | | | 30,31 | | | | 7,808 | | | | 9,657 | | | | 3,436 | | | | (1,850 | ) | | | 149 | | | | 3,320 | | | | 22,520 | | | | 22 | | | | 22,542 | |
| 1 | Issued capital and reserves attributable to owners of Aegon N.V. |
| 2 | Amounts have been restated to reflect voluntary changes in accounting policies related to liability adequacy testing that was adopted by Aegon effective January 1, 2019. Refer to note 2.1.2 Voluntary changes in accounting policies for details about this change. |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 149 | | | | Consolidated financial statements of Aegon N.V. | | | | | | | | | | |
Consolidated statement of changes in equity of Aegon N.V. For the year ended December 31, 2017 | | Amounts in EUR million | | Note | | | Share capital | | Retained earnings | | Revaluation reserves | | Remea- surement of defined benefit plans | | Other reserves | | Other equity instruments | | Issued capital and reserves1 | | Non-con- trolling interests | | Total | | | Note | | | Share
capital | | Retained
earnings | | Revalua-
tion
reserves | | Remea-
surement
of defined
benefit
plans | | Other
reserves | | Other
equity
instru- ments | | Issued
capital and
reserves 1) | | Non-
controlling
interests | | Total | | At January 1, 2017 | | | | | 8,193 | | | 7,419 | | | 5,381 | | | (1,820 | ) | | 1,347 | | | 3,797 | | | 24,318 | | | 23 | | | 24,341 | | | At January 1, 2017 (as previously stated) | | | | | | 8,193 | | | 7,419 | | | 5,381 | | | (1,820 | ) | | 1,347 | | | 3,797 | | | 24,318 | | | 23 | | | 24,341 | | | Net income/(loss) recognized in the income statement | | | | | - | | | 2,469 | | | | - | | | | - | | | | - | | | | - | | | 2,469 | | | | - | | | 2,469 | | | Changes in accounting policies related to liability adequacy testing | | | | 2.1.2 | | | | - | | | | - | | | (92 | ) | | | - | | | | - | | | | - | | | (92 | ) | | | - | | | (92 | ) | At January 1, 2017 (restated)2) | | | | | | 8,193 | | | 7,419 | | | 5,289 | | | (1,820 | ) | | 1,347 | | | 3,797 | | | 24,226 | | | 23 | | | 24,249 | | | Net income / (loss) recognized in the income statement | | | | | | - | | | 2,469 | | | | - | | | | - | | | | - | | | | - | | | 2,469 | | | | - | | | 2,469 | | | Other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Items that will not be reclassified to profit or loss: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Changes in revaluation reserve real estate held for own use | | | | | - | | | | - | | | 8 | | | | - | | | | - | | | | - | | | 8 | | | | - | | | 8 | | | | | | - | | | | - | | | 8 | | | | - | | | | - | | | | - | | | 8 | | | | - | | | 8 | | Remeasurements of defined benefit plans | | | | | - | | | | - | | | | - | | | 224 | | | | - | | | | - | | | 224 | | | | - | | | 224 | | | | | | - | | | | - | | | | - | | | 224 | | | | - | | | | - | | | 224 | | | | - | | | 224 | | Income tax relating to items that will not be reclassified | | | | | - | | | | - | | | 9 | | | (175 | ) | | | - | | | | - | | | (166 | ) | | | - | | | (166 | ) | | | | | - | | | | - | | | 9 | | | (175 | ) | | | - | | | | - | | | (166 | ) | | | - | | | (166 | ) | | | Items that may be reclassified subsequently to profit or loss: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gains/(losses) on revaluation ofavailable-for-sale investments | | | | | - | | | | - | | | 1,283 | | | | - | | | | - | | | | - | | | 1,283 | | | | - | | | 1,283 | | | (Gains)/losses transferred to income statement on disposal and impairment ofavailable-for-sale investments | | | | | - | | | | - | | | (1,330 | ) | | | - | | | | - | | | | - | | | (1,330 | ) | | | - | | | (1,330 | ) | | | Gains / (losses) on revaluation ofavailable-for-sale investments | | | | | | - | | | | - | | | 1,376 | | | | - | | | | - | | | | - | | | 1,376 | | | | - | | | 1,376 | | (Gains) / losses transferred to income statement on disposal and impairment ofavailable-for-sale investments | | | | | | - | | | | - | | | (1,330 | ) | | | - | | | | - | | | | - | | | (1,330 | ) | | | - | | | (1,330 | ) | Changes in cash flow hedging reserve | | | | | - | | | | - | | | (853 | ) | | | - | | | | - | | | | - | | | (853 | ) | | | - | | | (853 | ) | | | | | - | | | | - | | | (853 | ) | | | - | | | | - | | | | - | | | (853 | ) | | | - | | | (853 | ) | Movements in foreign currency translation and net foreign investment hedging reserves | | | | | - | | | | - | | | (452 | ) | | 102 | | | (1,800 | ) | | | - | | | (2,149 | ) | | | - | | | (2,149 | ) | | | | | - | | | | - | | | (452 | ) | | 102 | | | (1,800 | ) | | | - | | | (2,149 | ) | | | - | | | (2,149 | ) | Equity movements of joint ventures | | | | | - | | | | - | | | | - | | | | - | | | (15 | ) | | | - | | | (15 | ) | | | - | | | (15 | ) | | | | | - | | | | - | | | | - | | | | - | | | (15 | ) | | | - | | | (15 | ) | | | - | | | (15 | ) | Equity movements of associates | | | | | - | | | | - | | | | - | | | | - | | | (5 | ) | | | - | | | (5 | ) | | | - | | | (5 | ) | | | | | - | | | | - | | | | - | | | | - | | | (5 | ) | | | - | | | (5 | ) | | | - | | | (5 | ) | Disposal of group assets | | | | | - | | | | - | | | | - | | | | - | | | 7 | | | | - | | | 7 | | | | - | | | 7 | | | | | | - | | | | - | | | | - | | | | - | | | 7 | | | | - | | | 7 | | | | - | | | 7 | | Income tax relating to items that may be reclassified | | | | | - | | | | - | | | 874 | | | | - | | | 76 | | | | - | | | 951 | | | | - | | | 951 | | | | | | - | | | | - | | | 851 | | | | - | | | 76 | | | | - | | | 927 | | | | - | | | 927 | | Other | | | | | - | | | 13 | | | | - | | | | - | | | | - | | | | - | | | 13 | | | (3 | ) | | 9 | | | | | | - | | | 13 | | | | - | | | | - | | | | - | | | | - | | | 13 | | | (3 | ) | | 9 | | | Total other comprehensive income/(loss) | | | | | - | | | 13 | | | (461 | ) | | 151 | | | (1,737 | ) | | | - | | | (2,034 | ) | | (3 | ) | | (2,038 | ) | | | Total other comprehensive income / (loss) | | | | | | - | | | 13 | | | (391 | ) | | 151 | | | (1,737 | ) | | | - | | | (1,965 | ) | | (3 | ) | | (1,968 | ) | | | | | | | | | | | | | | | | | | | | | | | | Total comprehensive income/(loss) for 2017 | | | | | - | | | 2,482 | | | (461 | ) | | 151 | | | (1,737 | ) | | | - | | | 435 | | | (3 | ) | | 431 | | | | Total comprehensive income / (loss) for 2017 | | | | | | - | | | 2,482 | | | (391 | ) | | 151 | | | (1,737 | ) | | | - | | | 505 | | | (3 | ) | | 501 | | Shares issued | | | | | 3 | | | | - | | | | - | | | | - | | | | - | | | | - | | | 3 | | | | - | | | 3 | | | | | | 3 | | | | - | | | | - | | | | - | | | | - | | | | - | | | 3 | | | | - | | | 3 | | Issuance and purchase of treasury shares | | | | | - | | | (105 | ) | | | - | | | | - | | | | - | | | | - | | | (105 | ) | | | - | | | (105 | ) | | | | | - | | | (105 | ) | | | - | | | | - | | | | - | | | | - | | | (105 | ) | | | - | | | (105 | ) | Dividends paid on common shares | | | | | (142 | ) | | (296 | ) | | | - | | | | - | | | | - | | | | - | | | (439 | ) | | | - | | | (439 | ) | | | | | (142 | ) | | (296 | ) | | | - | | | | - | | | | - | | | | - | | | (439 | ) | | | - | | | (439 | ) | Dividend withholding tax reduction | | | | | - | | | 2 | | | | - | | | | - | | | | - | | | | - | | | 2 | | | | - | | | 2 | | | | | | - | | | 2 | | | | - | | | | - | | | | - | | | | - | | | 2 | | | | - | | | 2 | | Coupons on perpetual securities | | | | | - | | | (103 | ) | | | - | | | | - | | | | - | | | | - | | | (103 | ) | | | - | | | (103 | ) | | | | | - | | | (103 | ) | | | - | | | | - | | | | - | | | | - | | | (103 | ) | | | - | | | (103 | ) | Coupons onnon-cumulative subordinated notes | | | | | - | | | (28 | ) | | | - | | | | - | | | | - | | | | - | | | (28 | ) | | | - | | | (28 | ) | | | | | - | | | (28 | ) | | | - | | | | - | | | | - | | | | - | | | (28 | ) | | | - | | | (28 | ) | Incentive plans | | | | | - | | | 4 | | | | - | | | | - | | | | - | | | (4 | ) | | (1 | ) | | | - | | | (1 | ) | | | | | - | | | 4 | | | | - | | | | - | | | | - | | | (4 | ) | | (1 | ) | | | - | | | (1 | ) | At December 31, 2017 | | | 32,33 | | | | 8,053 | | | 9,374 | | | 4,920 | | | (1,669 | ) | | (390 | ) | | 3,794 | | | 24,082 | | | 20 | | | 24,102 | | | At December 31, 20172) | | | | 30,31 | | | | 8,053 | | | 9,374 | | | 4,898 | | | (1,669 | ) | | (390 | ) | | 3,794 | | | 24,059 | | | 20 | | | 24,079 | |
| 1 | Issued capital and reserves attributable to owners of Aegon N.V. |
| 2 | Amounts have been restated to reflect voluntary changes in accounting policies related to liability adequacy testing that was adopted by Aegon effective January 1, 2019. Refer to note 2.1.2 Voluntary changes in accounting policies for details about this change. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F20-F20192018 | | |
| | | 146 | | Consolidated financial statements of Aegon N.V. | | | |
Consolidated statement of changes in equity of Aegon N.V.
For the year ended December 31, 2016
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amounts in EUR million | | Note | | | Share
capital | | | Retained
earnings | | | Revaluation
reserves | | | Remea- surement of defined
benefit
plans | | | Other
reserves | | | Other
equity
instru-
ments | | | Issued
capital and
reserves1 | | | Non-con-
trolling
interests | | | Total | | At January 1, 2016 | | | | | | | 8,387 | | | | 7,832 | | | | 6,471 | | | | (1,532 | ) | | | 1,283 | | | | 3,800 | | | | 26,241 | | | | 9 | | | | 26,250 | | | | | | | | | | | | | Net income/(loss) recognized in the income statement | | | | | | | - | | | | 437 | | | | - | | | | - | | | | - | | | | - | | | | 437 | | | | - | | | | 438 | | Other comprehensive income: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Items that will not be reclassified to profit or loss: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Changes in revaluation reserve real estate held for own use | | | | | | | - | | | | - | | | | 8 | | | | - | | | | - | | | | - | | | | 8 | | | | - | | | | 8 | | Remeasurements of defined benefit plans | | | | | | | - | | | | - | | | | - | | | | (392 | ) | | | - | | | | - | | | | (392 | ) | | | - | | | | (392 | ) | Income tax relating to items that will not be reclassified | | | | | | | - | | | | - | | | | (3 | ) | | | 89 | | | | - | | | | - | | | | 86 | | | | - | | | | 86 | | | | | | | | | | | | | Items that may be reclassified subsequently to profit or loss: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gains/(losses) on revaluation ofavailable-for-sale investments | | | | | | | - | | | | - | | | | 854 | | | | - | | | | - | | | | - | | | | 854 | | | | - | | | | 854 | | (Gains)/losses transferred to income statement on disposal and impairment of available-for-sale investments | | | | | | | - | | | | - | | | | (2,122 | ) | | | - | | | | - | | | | - | | | | (2,122 | ) | | | - | | | | (2,122 | ) | Changes in cash flow hedging reserve | | | | | | | - | | | | - | | | | (54 | ) | | | - | | | | - | | | | - | | | | (54 | ) | | | - | | | | (54 | ) | Movements in foreign currency translation and net foreign investment hedging reserves | | | | | | | - | | | | - | | | | (38 | ) | | | 16 | | | | 91 | | | | - | | | | 69 | | | | - | | | | 69 | | Equity movements of joint ventures | | | | | | | - | | | | - | | | | - | | | | - | | | | 9 | | | | - | | | | 9 | | | | - | | | | 9 | | Equity movements of associates | | | | | | | - | | | | - | | | | - | | | | - | | | | 3 | | | | - | | | | 3 | | | | - | | | | 3 | | Income tax relating to items that may be reclassified | | | | | | | - | | | | - | | | | 264 | | | | - | | | | (39 | ) | | | - | | | | 225 | | | | - | | | | 225 | | Other | | | | | | | - | | | | (2 | ) | | | - | | | | - | | | | - | | | | - | | | | (2 | ) | | | 14 | | | | 12 | | Total other comprehensive income/(loss) | | | | | | | - | | | | (2 | ) | | | (1,090 | ) | | | (288 | ) | | | 64 | | | | - | | | | (1,315 | ) | | | 14 | | | | (1,301 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total comprehensive income/(loss) for 2016 | | | | | | | - | | | | 435 | | | | (1,090 | ) | | | (288 | ) | | | 64 | | | | - | | | | (878 | ) | | | 15 | | | | (863 | ) | Shares issued | | | | | | | 1 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1 | | | | - | | | | 1 | | Shares withdrawn | | | | | | | (10 | ) | | | (372 | ) | | | - | | | | - | | | | - | | | | - | | | | (382 | ) | | | - | | | | (382 | ) | Issuance and purchase of treasury shares | | | | | | | - | | | | (27 | ) | | | - | | | | - | | | | - | | | | - | | | | (27 | ) | | | - | | | | (27 | ) | Dividends paid on common shares | | | | | | | (186 | ) | | | (304 | ) | | | - | | | | - | | | | - | | | | - | | | | (490 | ) | | | - | | | | (490 | ) | Dividend withholding tax reduction | | | | | | | - | | | | (2 | ) | | | - | | | | - | | | | - | | | | - | | | | (2 | ) | | | - | | | | (2 | ) | Coupons on perpetual securities | | | | | | | - | | | | (105 | ) | | | - | | | | - | | | | - | | | | - | | | | (105 | ) | | | - | | | | (105 | ) | Coupons onnon-cumulative subordinated notes | | | | | | | - | | | | (28 | ) | | | - | | | | - | | | | - | | | | - | | | | (28 | ) | | | - | | | | (28 | ) | Incentive plans | | | | | | | - | | | | (9 | ) | | | - | | | | - | | | | - | | | | (3 | ) | | | (12 | ) | | | - | | | | (12 | ) | At December 31, 2016 | | | 32, 33 | | | | 8,193 | | | | 7,419 | | | | 5,381 | | | | (1,820 | ) | | | 1,347 | | | | 3,797 | | | | 24,318 | | | | 23 | | | | 24,341 | |
1 | Issued capital and reserves attributable to owners of Aegon N.V.
|
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 147150 | | | | Consolidated financial statements of Aegon N.V. | | | | | | | | | | | |
Consolidated cash flow statement of Aegon N.V. For the year ended December 31 | | Amounts in EUR million | | Note | | | 2018 | | | 2017 | | 2016 | | | Note | | | 2019 | | | 2018 | | 2017 | | Income/(loss) before tax | | | | | 751 | | | 2,534 | | | 610 | | | Income / (loss) before tax | | | | | | 1,457 | | | 751 | | | 2,534 | | Results from financial transactions | | | | | 11,516 | | | (23,445 | ) | | (16,294 | ) | | | | | (35,933 | ) | | 11,516 | | | (23,445 | ) | Amortization and depreciation | | | | | 1,315 | | | 781 | | | 1,208 | | | | | | 1,185 | | | 1,315 | | | 781 | | Impairment losses | | | | | 68 | | | 84 | | | 88 | | | | | | 160 | | | 68 | | | 84 | | Income from joint ventures | | | | | (210 | ) | | (161 | ) | | (137 | ) | | | | | (214 | ) | | (210 | ) | | (161 | ) | Income from associates | | | | | (6 | ) | | (11 | ) | | (3 | ) | | | | | (12 | ) | | (6 | ) | | (11 | ) | Release of cash flow hedging reserve | | | | | (80 | ) | | (739 | ) | | (59 | ) | | | | | (97 | ) | | (80 | ) | | (739 | ) | Other | | | | | 145 | | | (620 | ) | | 577 | | | | | | 26 | | | 145 | | | (620 | ) | Adjustments ofnon-cash items | | | | | 12,749 | | | (24,112 | ) | | (14,621 | ) | | | | | (34,885 | ) | | 12,749 | | | (24,112 | ) | Insurance and investment liabilities | | | | | 1,989 | | | (613 | ) | | 2,640 | | | | | | 3,750 | | | 1,989 | | | (613 | ) | Insurance and investment liabilities for account of policyholders | | | | | (21,751 | ) | | 12,988 | | | 10,716 | | | | | | 26,512 | | | (21,751 | ) | | 12,988 | | Accrued expenses and other liabilities | | | | | (2,384 | ) | | 309 | | | 2,610 | | | | | | 352 | | | (2,384 | ) | | 309 | | Accrued income and prepayments | | | | | 709 | | | (1,797 | ) | | (2,812 | ) | | | | | (1,056 | ) | | 709 | | | (1,797 | ) | Changes in accruals | | | | | (21,437 | ) | | 10,887 | | | 13,153 | | | | | | 29,557 | | | (21,437 | ) | | 10,887 | | Purchase of investments (other than money market investments) | | | | | (31,279 | ) | | (32,057 | ) | | (34,873 | ) | | | | | (40,014 | ) | | (31,279 | ) | | (32,057 | ) | Purchase of derivatives | | | | | (1,525 | ) | | 752 | | | (831 | ) | | | | | (214 | ) | | (1,525 | ) | | 752 | | Disposal of investments (other than money market investments) | | | | | 29,192 | | | 35,512 | | | 33,246 | | | | | | 40,187 | | | 29,192 | | | 35,512 | | Disposal of derivatives | | | | | (597 | ) | | (878 | ) | | 2,373 | | | | | | 2,880 | | | (597 | ) | | (878 | ) | Net purchase of investments for account of policyholders | | | | | 10,819 | | | 8,869 | | | 5,160 | | | | | | 7,605 | | | 10,819 | | | 8,869 | | Net change in cash collateral | | | | | 1,029 | | | (455 | ) | | (1,347 | ) | | | | | (332 | ) | | 1,029 | | | (455 | ) | Net purchase of money market investments | | | | | 823 | | | (659 | ) | | 532 | | | | | | 1,089 | | | 823 | | | (659 | ) | Cash flow movements on operating items not reflected in income | | | | | 8,462 | | | 11,082 | | | 4,260 | | | | | | 11,200 | | | 8,462 | | | 11,082 | | Tax (paid)/received | | | | | (9 | ) | | 173 | | | (116 | ) | | Tax (paid)/ received | | | | | | (18 | ) | | (9 | ) | | 173 | | Other | | | | | 1 | | | (12 | ) | | 34 | | | | | | (9 | ) | | 1 | | | (12 | ) | Net cash flows from operating activities | | | 21 | | | | 517 | | | 553 | | | 3,319 | | | | 21 | | | | 7,302 | | | 517 | | | 553 | | Purchase of individual intangible assets (other than VOBA and future servicing rights) | | | | | (42 | ) | | (34 | ) | | (22 | ) | | | | | (46 | ) | | (42 | ) | | (34 | ) | Purchase of equipment and real estate for own use | | | | | (81 | ) | | (72 | ) | | (69 | ) | | | | | (102 | ) | | (81 | ) | | (72 | ) | Acquisition of subsidiaries, net of cash | | | | | (89 | ) | | (52 | ) | | (2 | ) | | | | | (1 | ) | | (89 | ) | | (52 | ) | Acquisition joint ventures and associates | | | | | (146 | ) | | (121 | ) | | (112 | ) | | Acquisition/capital contributions joint ventures and associates | | | | | | (269 | ) | | (146 | ) | | (121 | ) | Disposal of intangible asset | | | | | 2 | | | 1 | | | | - | | | | | | 1 | | | 2 | | | 1 | | Disposal of equipment | | | | | 14 | | | 5 | | | 3 | | | | | | 63 | | | 14 | | | 5 | | Disposal of subsidiaries and businesses, net of cash | | | | | (200 | ) | | (1,054 | ) | | (1,082 | ) | | | | | 137 | | | (200 | ) | | (1,054 | ) | Disposal joint ventures and associates | | | | | 7 | | | 2 | | | 3 | | | | | | 1 | | | 7 | | | 2 | | Dividend received from joint ventures and associates | | | | | 97 | | | 129 | | | 203 | | | | | | 130 | | | 97 | | | 129 | | Net cash flows from investing activities | | | 21 | | | | (438 | ) | | (1,196 | ) | | (1,078 | ) | | | 21 | | | | (86 | ) | | (438 | ) | | (1,196 | ) | | Issuance of treasury shares | | | | | - | | | 2 | | | | - | | | | | | 1 | | | | - | | | 2 | | Issuance of perpetuals | | | | | | 496 | | | | - | | | | - | | Purchase of treasury shares | | | | | (248 | ) | | (266 | ) | | (623 | ) | | | | | (318 | ) | | (248 | ) | | (266 | ) | Proceeds from TRUPS1, Subordinated borrowings and borrowings | | | | | 4,185 | | | 9,170 | | | 3,711 | | | Repayment of TRUPS1, Subordinated borrowings and borrowings | | | | | (5,211 | ) | | (7,918 | ) | | (3,070 | ) | | Proceeds from TRUPS1), Subordinated borrowings and borrowings | | | | | | 4,923 | | | 4,185 | | | 9,170 | | Repayment of TRUPS1), Subordinated borrowings and borrowings | | | | | | (7,014 | ) | | (5,211 | ) | | (7,918 | ) | Repayment of perpetuals | | | | | (200 | ) | | | - | | | | - | | | | | | (1,343 | ) | | (200 | ) | | | - | | Repayment ofnon-cumulative subordinated note | | | | | (443 | ) | | | - | | | | - | | | | | | - | | | (443 | ) | | | - | | Dividends paid | | | | | (328 | ) | | (294 | ) | | (306 | ) | | | | | (309 | ) | | (328 | ) | | (294 | ) | Coupons on perpetual securities | | | | | (136 | ) | | (138 | ) | | (140 | ) | | | | | (112 | ) | | (136 | ) | | (138 | ) | Coupons onnon-cumulative subordinated notes | | | | | (14 | ) | | (37 | ) | | (38 | ) | | | | | (54 | ) | | (14 | ) | | (37 | ) | Net cash flows from financing activities | | | 21 | | | | (2,395 | ) | | | 519 | | | | (465 | ) | | | 21 | | | | (3,730 | ) | | | (2,395 | ) | | | 519 | | Net increase/(decrease) in cash and cash equivalents2 | | | | | (2,317 | ) | | (125 | ) | | 1,776 | | | Net increase / (decrease) in cash and cash equivalents2) | | | | | | 3,486 | | | (2,317 | ) | | (125 | ) | | Net cash and cash equivalents at the beginning of the year | | | | | 11,026 | | | 11,347 | | | 9,593 | | | | | | 8,744 | | | 11,026 | | | 11,347 | | Effects of changes in exchange rate | | | | | 35 | | | (196 | ) | | (23 | ) | | | | | 33 | | | 35 | | | (196 | ) | Net cash and cash equivalents at the end of the year | | | 21 | | | | 8,744 | | | 11,026 | | | 11,346 | | | | 21 | | | | 12,263 | | | 8,744 | | | 11,026 | |
| 1 | Trust pass-through securities. |
| 2 | Included in net increase/increase / (decrease) in cash and cash equivalents are interest received EUR 5,999 million (2018: EUR 5,914 million and 2017: EUR 6,215 million and 2016: EUR 6,691 million) dividends received EUR 1,702 million (2018: EUR 1,222 million and 2017: EUR 1,292 million and 2016: EUR 1,387 million) and interest paid EUR 407 million (2018: EUR 400 million and 2017: EUR 311 million and 2016: EUR 300 million). All included in operating activities except for dividend received from joint ventures and associates EUR 130 million (2018: EUR 97 million and 2017: EUR 129 million and 2016: EUR 203 million). |
The cash flow statement is prepared according to the indirect method. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 148151 | | Notes to the consolidated | | Consolidated financial statements of Aegon N.V. Note 1 | | | | | | | | | | | | |
Notes to the consolidated financial statements 1 General information Aegon N.V., incorporated and domiciled in the Netherlands, is a public limited liability company organized under Dutch law and recorded in the Commercial Register of The Hague registered under number 27076669 and with its registered address at Aegonplein 50, 2591 TV, The Hague, the Netherlands. Aegon N.V. serves as the holding company for Thethe Aegon Group and has listings of its common shares in Amsterdam and New York. Aegon N.V. (or ‘the Company’) and its subsidiaries (‘Aegon’ or ‘the Group’) have life insurance and pensions operations in more than 20 countries in the Americas, Europe and Asia and are also active in savings and asset management operations, accident and health insurance, general insurance and to a limited extent banking operations. Headquarters are located in The Hague, the Netherlands. The Group employs over 26,00023,000 people worldwide (2017:(2018: over 28,000)26,000). Aegon Funding Company LLC Aegon Funding Company LLC (AFC) is an indirect wholly owned subsidiary of Aegon that was established as a financing vehicle to raise funds for the US subsidiaries of Aegon. AFC has been fully consolidated in the financial statements of Aegon under IFRS. If AFC issues debt securities, Aegon will fully and unconditionally guarantee the due and punctual payment of the principal, any premium and any interest on those debtsdebt securities when and as these payments become due and payable, wheatherwhether at maturity, upon redemption or declaration of acceleration, or otherwise. The guarantees of senior debt securities will constitute an unsecured, unsubordinated obligation of Aegon and will rank equally with all other unsecured and unsubordinated obligations of Aegon. The guarantees of subordinated debt securities will constitute an unsecured obligation of Aegon and will be subordinated in right of payment to all senior indebtedness of Aegon. 2 Significant accounting policies 2.1 Basis of presentation TheAegon prepares its consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS) and with Part 9 of Book 2 of the Netherlands Civil Code for purposepurposes of reporting with the U.S. Securities and Exchange Commission (‘SEC’), including financial information contained in this Annual Report on Form20-F.
The consolidated financial statements have been prepared in accordance with the historical cost convention as modified by the revaluation of investment properties and those financial instruments (including derivatives) and financial liabilities that have been measured at fair value. Information on the standards and interpretations that were adopted in 20182019 is provided below in note 2.1.1 Adoption of new IFRS 2.1.1. Aegon also adopted voluntary changes in accounting standards.policies, effective January 1, 2019, disclosed in note 2.1.2. The consolidated financial statements are presented in euro and all values are rounded to the nearest million unless otherwise stated. The consequence is that the rounded amounts may not add up to the rounded total in all cases. All ratios and variances are calculated using the underlying amount rather than the rounded amount.
With regard to the income statements of Aegon N.V., article 402, Part 9 of Book 2 of the Netherlands Civil Code has been applied, allowing a simplified format. The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Those estimates are inherently subject to change and actual results could differ from those estimates. Included among the material (or potentially material) reported amounts and disclosures that require extensive use of estimates are: fair value of certain invested assets and derivatives, deferred policy acquisition costs, value of business acquired and other purchased intangible assets, goodwill, policyholder claims and benefits, insurance guarantees, pension plans, income taxes and the potential effects of resolving litigation matters. The consolidated financial statements of Aegon N.V. were approved by the Executive Board and by the Supervisory Board on March 21, 2019.18, 2020. The financial statements will be put for adoption to the Annual General Meeting of Shareholders on May 17, 2019.15, 2020. The shareholders’ meeting can decide not to adopt the financial statements but cannot amend them. Other than for SEC reporting, Aegon prepares its Annual Accounts under International Financial Reporting Standards as adopted by the European Union, including the decisions Aegon made with regard to the options available under International Financial Reporting Standards as adopted by the EU(IFRS-EU).IFRS-EU differs from IFRS in respect of certain paragraphs in IAS 39 ‘Financial Instruments: | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 152 | | | | Consolidated financial statements of Aegon N.V. Note 2 | | | | | | | | | | |
Recognition and Measurement’ regarding hedge accounting for portfolio hedges of interest rate risk. UnderIFRS-EU, Aegon applies fair value hedge accounting for portfolio hedges of interest rate risk (faitr(fair value macro hedges) in accordance with the EU ‘carve out’ version of IAS 39. Under IFRS, hedge accounting for fair value macro hedges cannot be applied to mortagemortgage loans and ineffectiveness arises whenever the revised estimate of the amount of cash flows in scheduled time buckets is either more or less than the original designated amount of that bucket. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 149 | | Notes to the consolidated financial statements Note 2 | | | | | | |
A reconciliation between IFRS andIFRS-EU is included in the table below. | | | | | Shareholders’ equity | | | | Net income | | | | Shareholders’ equity | | | | Net income | | | | | | 2018 | | | | 2017 | | | | 2016 | | | | 2018 | | | | 2017 | | | | 2016 | | | | 2019 | | | | 2018 | | | | 2017 | | | | 2019 | | | | 2018 | | | | 2017 | | In accordance with IFRS | | | 19,225 | | | | 20,288 | | | | 20,520 �� | | | | 711 | | | | 2,469 | | | | 438 | | | | 21,850 | | | | 19,200 | | | | 20,266 | | | | 1,239 | | | | 711 | | | | 2,469 | | Adjustment of EU ‘IAS 39’carve-out | | | 399 | | | | 368 | | | | 510 | | | | 31 | | | | (142) | | | | 195 | | | | 774 | | | | 399 | | | | 368 | | | | 375 | | | | 31 | | | | (142) | | Tax effect of the adjustment | | | (81) | | | | (83) | | | | (117) | | | | 3 | | | | 34 | | | | (47) | | | | (167) | | | | (81) | | | | (83) | | | | (86) | | | | 3 | | | | 34 | | Effect of the adjustment after tax | | | 318 | | | | 285 | | | | 393 | | | | 34 | | | | (108) | | | | 149 | | | | 607 | | | | 318 | | | | 285 | | | | 289 | | | | 34 | | | | (108) | | In accordance withIFRS-EU | | | 19,543 | | | | 20,573 | | | | 20,913 | | | | 744 | | | | 2,361 | | | | 586 | | | | 22,457 | | | | 19,518 | | | | 20,550 | | | | 1,528 | | | | 744 | | | | 2,361 | |
2.1.1 Adoption of new IFRS accounting standards and amendments effective in 2019 New standards and amendments to standards become effective at the date specified by IFRS, but may allow companies to opt for an earlier adoption date. In 2017,2019, the following standards and amendments to existing standards issued by the IASB became mandatory but are not currently relevant or do not significantly impact the financial position or financial statements:early adopted: | | | | | Accounting standard/amendment/interpretation | | IASB effective date | | Impact for Aegon | IFRS 9 Financial instruments, including the separate amendment applying IFRS 9 Financial instruments with IFRS 4 Insurance contracts | | January 1, 2018 (Aegon makes use of the amendment) | | See 2.1.2 for comments | IFRS 15 Revenue from Contracts with Customers, including Clarifications to IFRS 15 as issued in 2016
| | January 1, 2018 | | See below for comments | IFRS 2 Clarifications of Classification and measurement of Share Based Payments Transactions
| | January 1, 2018 | | Low | IAS 40 Investment property, amendments regarding the transfer of property
| | January 1, 2018 | | Low | IFRIC 22 Foreign currency transactions and advance consideration
| | January 1, 2018 | | Low | Annual improvements 2014-2016
| | January 1, 2018 | | Low |
IFRS 15 Revenue from Contracts with Customers
IFRS 15 Revenue from Contracts with Customers issued in May 2014 and the amendments to IFRS 15 issued in April 2016 are effective for the Group from January 1, 2018. The adoption of this standard has a very limited impact on the Group’s financial statements because insurance revenue is not in scope of IFRS 15 and because the other types of revenue are already materially compliant with this standard. Given the very limited impact on the Group’s financial statements, Aegon chose to apply the modified retrospective approach as transition method.
2.1.2 Future adoption of new IFRS accounting standards
The following standards and amendments to existing standards, published prior to January 1, 2019, were not early adopted by the Group, but will be applied in future years:
| | | | | | | Accountingstandard/amendment/interpretation
| | IASB effective date
| | Early adopted by Aegon
| | Impact for Aegon
| Amendment to IFRS 9 Financial instruments on prepayment features with negative compensation
| | January 1, 2019 | | No | | See below for comments | IFRS 16 Leases
| | January 1, 2019 | | No | | See below for comments | IFRS 17 Insurance contract
| | January 1, 2021 | | No | | See below for comments | IFRIC 23 Uncertainty over Tax Treatments | | January 1, 2019 | | No | | Low | Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures | | January 1, 2019 | | No | | Low | Annual improvements 2015-2017 | | January 1, 2019 | | No | | Low | AmendmentAmendments to IAS 19 Plan amendment, curtailment or settlement
| | January 1, 2019 | | No | | Low | Amendments to References to the Conceptual Framework in IFRS StandardsEarly adopted
| | | | | Interest Rate Benchmark Reform | | January 1, 2020 | | No | | Low | Amendment to IFRS 3 Business Combinations
| | January 1, 2020 | | No | | Low | Amendments to IAS 1 and IAS 8: Definition of Material
| | January 1, 2020 | | No | | LowSee below for comments |
Except for IFRS 16 Leases and Interest Rate Benchmark Reform (early adopted by the Group), the new standards and amendments to existing standards are currently not relevant or do not significantly impact the financial position or financial statements (total adverse impact on the opening balance of retained earnings is EUR 3 million). IFRS 16 Leases IFRS 16 Leases was issued by the IASB in January 2016 and replaced IAS 17 Leases and IFRIC 4 on January 1, 2019. The most significant change of IFRS 16 is related to leases that were identified as operational leases held by a lessee under IAS 17. Under IAS 17 these leases were reported as(off-balance) operating lease obligations, and after January 1, 2019 are reported as(on-balance) lease liabilities with the accompanying lease assets. From a lessor perspective, IFRS 16 substantially carries forward the lessor accounting requirements under IAS 17. The accounting policy for leases applicable from January 1, 2019 is included in note 2.33 Leases. Transitional disclosures The Group has applied IFRS 16 using the modified retrospective approach and therefore the comparative information has not been restated and continues to be reported under IAS 17 and IFRIC 4. At transition, the cumulative effect of initial application was recognized as an adjustment to the opening balance of retained earnings on January 1, 2019. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 150153 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V. Note 2 | | | | | | | | | | | | |
IFRS 16 Leases
IFRS 16 Leases, which replaces IAS 17 Leases has been issued by the IASB in January 2016. It will be mandatorily effective for annual reporting periods beginning on or after January 1, 2019. IFRS 16 introduces a single lessee accounting model and requiresAs a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize aright-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments, which will replace the current ‘Operating lease obligations’ disclosed under note 48 Commitments and Contingencies. Lease costs will be recognised in the form of depreciation of theright-of-use asset and interest on the lease liability, as oppose to the treatment under IAS 17 where expenses are recognised when occurred in ‘Administration expenses’. From a lessor perspective, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, only with additional disclosure requirements. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. Aegon has assessed the impacts of IFRS 16 during 2018, and has completed the implementation of the standard.
In order to implement the standard, theThe Group has adopted a number of key options and practical expedients allowed under IFRS 16, of which the following are the most significant:
| ◆ | | The Group will applyhas applied the modified retrospective approach and therefore willhas not restaterestated the comparative amounts for the year prior to initial application. Under this approach, on alease-by-lease basis, the following two options are available:(i) right-of-use assets (mainly high value properties) measured on transition as if the new rules had always been applied, but discounted using the lessee’s incremental borrowing rate at the date of initial application; or(ii) right-of-use assets measured at the amount of the lease liability on adoption (adjusted for any prepaid or accrued lease expenses). The group will applyhas applied these two available options on alease-by-lease basis; |
| ◆ | | The Group has applied the exemption not to recognizeright-of-use assets and liabilities for liabilities with less than 12 months of lease term; |
| ◆ | | The Group has elected to apply the ‘grandfather’ option, which means that all conclusions previously reached under IAS 17 (and IFRIC 4 Determining Whether an Arrangement Contains a Lease) are deemed compliant with IFRS 16; and |
| ◆ | | The Group has elected to use hindsight in areas that involve judgment or estimation, such as in determining the lease term if the contract contains options to extend or terminate the lease. |
As a lessor The Group is not required to make any adjustments on transition to IFRS 16 for leases in which it acts as a lessor, except for a sublease. The Group accounted for its leases in accordance with IFRS 16 from the date of initial application. Impacts on financial statements At transition, the Group expects to recogniserecognized EUR 235 million ofright-of-use assets of approximately EUR 248 million and lease liabilities of EUR 299285 million, (adjusted for any prepaid or accrued lease expenses) on January 1, 2019. Therecognizing the adverse impact onof EUR 41 million in shareholders’ equity, is expected to be approximately EUR 51 millionpre-tax and is recognized as an adjustment to the 2019 opening balance ofin retained earnings. Theright-of-use assets mainly consist of approximately EUR 216212 million propertiesreal estate and of approximately EUR 3223 million equipment. The largestright-of-use assets are office buildings located in the United Kingdom and US for an amount of EUR 116 million and EUR 50 million respectively. The Group does not expect material movements in net income going forward. When measuring lease liabilities, the Group discounted lease payments using its incremental borrowing rate at January 1, 2019. The most significant judgmentweighted-average rate applied is 3.46%. The reconciliation between operating lease commitments at December 31, 2018 and lease liabilities at January 1, 2019 is as follows: | | | | | | | | January 1, 2019 | | Operating lease commitments at December 31, 2018 as per the consolidated annual financial statements | | | 386 | | Discounted using the incremental borrowing rate at January 1, 2019 | | | 302 | | Recognition exemption for: | | | | | Short term leases | | | (7) | | Extenstion and termination options reasonably certain to be exercised | | | (4) | | Exclusion ofnon-lease components | | | (6) | | Lease liabilities recognized at January 1, 2019 | | | 285 | |
Interest rate benchmark reform Aegon has elected to early adopt the ‘Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform’ issued in September 2019. In accordance with the transition provisions, the amendments have been adopted retrospectively to hedging relationships that existed on January 1, 2019 or were designated thereafter. The amendments provide temporary relief from applying specific hedge accounting requirements, thereby ensuring that uncertainty on the outcome of the Interest Rate Benchmark Reform (IBOR) reforms does not result in early termination of hedge accounting, notably because the retrospective effectiveness may fall outside of the required range due to the IBOR reform. Please refer to note 24 Derivatives for the required disclosures of the uncertainty arising from IBOR reform for hedging relationships for which the Group applied the reliefs. The IASB is currently working on additional amendments to IAS 39 and IFRS 9, which will include the accounting for contract modifications following IBOR reform. Aegon continues to follow the status of the IASB’s IBOR reform project, and will assess the impact for the Group iswhen further information becomes available. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 154 | | | | Consolidated financial statements of Aegon N.V. Note 2 | | | | | | | | | | |
2.1.2 Voluntary change in accounting policy effective in 2019 Liability adequacy test (LAT) Effective January 1, 2019, Aegon adopted a voluntary accounting policy change related to the determinationliability adequacy test (LAT) of Aegon the Netherlands, which is applied retrospectively for all periods presented. The recognition of a LAT deficit (refer to note 34 Insurance contracts) in Aegon the Netherlands triggered a review and change of its existing accounting policy related to the LAT. When assessing the adequacy of the lease term.insurance liabilities, Aegon the Netherlands takes into account any unrecognized gains on the investments backing the insurance liabilities measured at amortized cost. The subsequent sales of these assets can trigger a LAT deficiency, because previously unrecognized gains are realized and therefore no longer included in the LAT. Under the previous policy, unrealized gains on intercompany transferred assets which at balance sheet date are allocated to the insurance liabilities were taken into account. Under the new policy, the LAT takes into account the unrecognized gain on the transferred investments that are still held by the group, but only to the extent that these gains arose whilst the assets were backing the insurance liabilities. Consistently, for assets transferred to the insurer from another group company, the unrecognized gain that arose prior to transfer is not taken into account in the LAT. The change avoids that unrealized gains on assets that are still held by the group are not taken into account in the LAT. The change does not impact other reporting units within Aegon as this change is specific to Aegon the Netherlands. The impact of the change in accounting policy on full year 2019, is an increase in net income of EUR 19 million, an increase in shareholders’ equity of EUR 19 million, a decrease in insurance contracts of EUR 25 million and an increase in other liabilities of EUR 6 million. As a result, the basic and diluted earnings per common share increased with EUR 0.01. The basic and diluted earnings per common share B as disclosed on the face on the income statement remain unchanged. Impact of the adjustment on previous periods is provided in the following tables, including references to the notes that are impacted by the change in accounting policy. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impact of voluntary changes in
accounting policies on the consolidated
statement of comprehensive income | | Note | | | December
31, 2018
(as previously
reported) 1) | | | Change in
accounting
policy related
to liability
adequacy
testing | | | December
31, 2018
(restated) | | | December
31, 2017
(as previously
reported) 1) | | | Change in
accounting
policy related
to liability
adequacy
testing | | | December
31, 2017
(restated) | | Net income / (loss) | | | | | | | 711 | | | | - | | | | 711 | | | | 2,469 | | | | - | | | | 2,469 | | | | | | | | | | Items that may be reclassified to profit or loss: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gains / (losses) on revaluation ofavailable-for-sale investments | | | | | | | (2,138 | ) | | | (4 | ) | | | (2,142 | ) | | | 1,283 | | | | 93 | | | | 1,376 | | Income tax relating to items that may be reclassified | | | | | | | 493 | | | | 1 | | | | 494 | | | | 951 | | | | (23 | ) | | | 927 | | Net effect comprehensive income | | | | | | | (393 | ) | | | (3 | ) | | | (396 | ) | | | 431 | | | | 70 | | | | 501 | | | | | | | | | | Total comprehensive income / (loss) attributable to: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Owners of Aegon N.V. | | | | | | | (395 | ) | | | (3 | ) | | | (398 | ) | | | 435 | | | | 70 | | | | 505 | | Non-controlling interests | | | | | | | 2 | | | | - | | | | 2 | | | | (3 | ) | | | - | | | | (3) | |
| 1 | As reported in Aegon’s Annual Report on Form20-F dated March 21, 2019. |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 155 | | | | Consolidated financial statements of Aegon N.V. Note 2 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impact of voluntary changes in
accounting policies on the consolidated
statement of financial position | | Note | | | December
31, 2018
(as previously reported) 1) | | | Change in
accounting
policy
related to
liability
adequacy
testing | | | December
31, 2018
(restated) | | | December
31, 2017
(as previously reported) 1) | | | Change in
accounting
policy
related to
liability
adequacy
testing | | | December
31, 2017
(restated) | | Equity and liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shareholders’ equity | | | 30 | | | | 19,225 | | | | (26 | ) | | | 19,200 | | | | 20,288 | | | | (23 | ) | | | 20,266 | | Insurance contracts | | | 34 | | | | 115,294 | | | | 34 | | | | 115,328 | | | | 110,818 | | | | 30 | | | | 110,848 | | Deferred tax liabilities | | | 40 | | | | 538 | | | | (9 | ) | | | 529 | | | | 1,029 | | | | (8 | ) | | | 1,021 | |
| 1 | As reported in Aegon’s Annual Report on Form20-F dated March 21, 2019. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impact of voluntary changes in
accounting policies on the statement
of changes in equity | | Note | | | December
31, 2018
(as previously reported) 1) | | | Change in
accounting
policy
related to
liability
adequacy
testing | | | December
31, 2018
(restated) | | | December
31, 2017
(as previously reported) 1) | | | Change in
accounting
policy
related to
liability
adequacy
testing | | | December
31, 2017
(restated) | | | | | | | | | | Share capital | | | 30.1 | | | | 7,808 | | | | - | | | | 7,808 | | | | 8,053 | | | | - | | | | 8,053 | | Retained earnings | | | 30 | | | | 9,657 | | | | - | | | | 9,657 | | | | 9,374 | | | | - | | | | 9,374 | | Revaluation reserves | | | 30.4 | | | | 3,461 | | | | (26 | ) | | | 3,436 | | | | 4,920 | | | | (23 | ) | | | 4,898 | | Remeasurement of defined benefit plans | | | 30.5 | | | | (1,850 | ) | | | - | | | | (1,850 | ) | | | (1,669 | ) | | | - | | | | (1,669 | ) | Other reserves | | | 30.6 | | | | 149 | | | | - | | | | 149 | | | | (390 | ) | | | - | | | | (390 | ) | Shareholders’ equity | | | | | | | 19,225 | | | | (26 | ) | | | 19,200 | | | | 20,288 | | | | (23 | ) | | | 20,266 | |
| 1 | As reported in Aegon’s Annual Report on Form20-F dated March 21, 2019. |
2.1.3 Future adoption of new IFRS 16,accounting standards and amendments The following standards and amendments to existing standards, published prior to January 1, 2020, were not early adopted by the lease term includes extension periods where it is reasonably certain that a lease extension optionGroup, but will be exercised or that a lease termination option will not be exercised. Judgement is also required to determine the appropriate incremental borrowing rate.applied in future years: | | | | | | | Accounting standard/ amendment/ interpretation | | IASB effective
date | | Early
adopted by Aegon | | Impact for Aegon | IFRS 17 Insurance contracts | | January 1, 2021 | | No | | See below for comments | IFRS 9 Financial instruments | | January 1, 20181) | | No | | See below for comments | Amendments to IFRS 9 Financial instruments on prepayment features with negative compensation | | January 1, 20191) | | No | | See below for comments | Amendments to References to the Conceptual Framework in IFRS Standards | | January 1, 2020 | | No | | Low | Amendments to IFRS 3 Business Combinations | | January 1, 2020 | | No | | Low | Amendments to IAS 1 and IAS 8: Definition of Material | | January 1, 2020 | | No | | Low |
| 1 | The amendments to IFRS 4, Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts, issued in September 2016, allow entities that issue insurance contracts within the scope of IFRS 4 to defer the implementation of IFRS 9 (and linked amendments ‘Amendments to IFRS 9 Financial instruments on prepayment features with negative compensation’). The amendments to IFRS 4 are further explained below. |
IFRS 9 Financial Instruments The IASB issued the complete version of IFRS 9 Financial Instruments in July 2014. IFRS 9 combines classification and measurement, the expected credit loss impairment model and hedge accounting. The standard replaces IAS 39 and all previous versions of IFRS 9. Under IFRS 9 Classification and Measurement, financial assets are measured at amortized cost, fair value through profit or loss or fair value through other comprehensive income, based on both the entity’s business model for managing the financial assets and the financial asset’s contractual cash flow characteristics. The classification and measurement of financial liabilities is unchanged from existing requirements apart from own credit risk. For financial liabilities that are designated at fair value through profit or loss, the changes which are attributable to the change in an entity’s own credit risk are presented in other comprehensive income, unless doing so would enlarge or create an accounting mismatch. For the impairment component, the IASB included requirements for a credit loss allowance or provision which should be based on expected losses rather than incurred losses. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 156 | | | | Consolidated financial statements of Aegon N.V. Note 2 | | | | | | | | | | |
Application of IFRS 9 is required for annual periods beginning on or after January 1, 2018. However, on May 18, 2017, the IASB published the final version of the IFRS 17 Insurance Contracts standard. Prior to its finalization, the IASB issued an amendment to IFRS 4 Insurance Contracts (the predecessor standard to IFRS 17) that provides for a qualifying insurer a temporary exemption that permits, but does not require, the insurer to apply IAS 39 Financial Instruments: Recognition and Measurement rather than IFRS 9 for annual periods beginning before January 1, 2021 (i.e., a temporary exemption of IFRS 9). The objective of the amendment is to address the temporary accounting consequences of the different effective dates of IFRS 9 and IFRS 17. However, in November 2018, the IASB agreed to start the process to amend IFRS 17, which could lead to the temporary exemption from IFRS 9 to be extended until January 1, 2022. As this decision is still subject to IASB due process, this could lead to another year of deferral. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 151 | | Notes to the consolidated financial statements Note 2 | | | | | | |
An entity is eligible to apply the temporary exemption if the carrying amount of its liabilities connected with insurance activities is | ◆ | | greaterGreater than 90% of the total carrying value of all liabilities; or |
| ◆ | | betweenBetween 80% and 90% of the total carrying value of all its liabilities, and the insurer does not have significant activities unrelated to insurance. |
Aegon performed this analysis at December 31, 2015, and concluded that it meets the requirements for the temporary exception as 94% of its liabilities are connected with insurance activities. As a result, Aegon elected to defer implementationmake use of the temporary exemption of IFRS 9 until January 1, 2021.9. As Aegon defers the application of IFRS 9 until 2021,(including linked amendments as included in above table), the full impact of the standard is not yet clear, however an initial impact assessment resulted in the expectation that it will have a significant impact on shareholders’ equity, income and/or other comprehensive income and disclosures. An implementation project haswas started in 2017 and is combined with the implementation of IFRS17IFRS 17 Insurance Contracts. By qualifying for and electing the temporary exemption, the IFRS 4 amendment requires certain additional disclosures; specifically, Aegon is required to disclose information to enable users of financial statements to compare insurers applying the temporary exemption with entities applying IFRS 9. This information is presented below: Fair value changes The table below presents an overview of the fair value of the classes of financial assets as of December 31, 2018,2019, as well as the change in fair value during the reporting period. The asset classes are divided into two categories: | ◆ | | SPPI: assets of which cash flows represent solely payments of principal and interest (SPPI) on an outstanding principal amount, excluding any financial assets that meet the definition of held for trading in IFRS 9, or that are managed and whose performance is evaluated on a fair value basis; and |
| ◆ | | Other: all financial assets other than those specified in SPPI: |
| | ◆ | | with contractual terms that do not give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding; |
| | ◆ | | that meet the definition of held for trading in IFRS 9; or |
| | ◆ | | that are managed and whose performance are evaluated on a fair value basis. |
| | | | | | | | | | | | | | Financial assets at fair value | | | | | Fair value at the
end of the
reporting period | | | Change in fair
value during the
reporting period | | Shares | | | SPPI | | | | 68 | | | | (2 | ) | | | | Other | | | | 2,092 | | | | 87 | | Debt securities | | | SPPI | | | | 76,283 | | | | (2,997 | ) | | | | Other | | | | 4,970 | | | | (123 | ) | Money Markets and other short-term investments | | | SPPI | | | | 3,126 | | | | - | | | | | Other | | | | 3,181 | | | | - | | Mortgage loans | | | SPPI | | | | 39,758 | | | | (1,213 | ) | | | | Other | | | | - | | | | | | Private loans | | | SPPI | | | | 4,452 | | | | (63 | ) | | | | Other | | | | 42 | | | | (5 | ) | Deposits with financial institutions | | | SPPI | | | | 141 | | | | - | | | | | Other | | | | - | | | | - | | Policy loans | | | SPPI | | | | - | | | | | | | | | Other | | | | 1,973 | | | | - | | Other financial assets | | | SPPI | | | | 111 | | | | - | | | | | | Other | | | | 3,637 | | | | (210 | ) | At December 31 | | | | | | | 139,834 | | | | (4,525 | ) |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 152157 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 2 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | 2019 | | | 2018 | | | Financial assets at fair value | | | | | Fair value at
the end of the
reporting
period | | | Change in fair
value during
the reporting
period | | | Fair value at
the end of the
reporting
period | | | Change in fair value during the reporting period | | Shares1) | | | SPPI | | | | 70 | | | | 1 | | | | 68 | | | | (2 | ) | | | | Other | | | | 810 | | | | 54 | | | | 2,092 | | | | 87 | | Debt securities | | | SPPI | | | | 82,014 | | | | 6,218 | | | | 76,283 | | | | (2,997 | ) | | | | Other | | | | 4,839 | | | | (770 | ) | | | 4,970 | | | | (123 | ) | Money Markets and other short-term investments | | | SPPI | | | | 2,724 | | | | - | | | | 3,126 | | | | - | | | | | Other | | | | 2,603 | | | | - | | | | 3,181 | | | | - | | Mortgage loans | | | SPPI | | | | 42,567 | | | | 930 | | | | 39,758 | | | | (1,213 | ) | | | | Other | | | | - | | | | - | | | | - | | | | - | | Private loans | | | SPPI | | | | 5,152 | | | | 284 | | | | 4,452 | | | | (63 | ) | | | | Other | | | | 200 | | | | (18 | ) | | | 42 | | | | (5 | ) | Deposits with financial institutions | | | SPPI | | | | 142 | | | | - | | | | 141 | | | | - | | | | | Other | | | | - | | | | - | | | | - | | | | - | | Policy loans | | | SPPI | | | | - | | | | - | | | | - | | | | - | | | | | Other | | | | 2,024 | | | | - | | | | 1,973 | | | | - | | Other financial assets | | | SPPI | | | | 36 | | | | - | | | | 111 | | | | - | | | | | | Other | | | | 5,388 | | | | (100 | ) | | | 3,637 | | | | (210 | ) | At December 31 | | | | | | | 148,570 | | | | 6,598 | | | | 139,834 | | | | (4,525 | ) |
| 1 | The SPPI-compliant shares include preferred equity instruments. |
Cash and cash equivalents, deposits with financial institutions, and receivables all pass the SPPI test and are held at amortized cost, whereby the amortized cost is assumed to approximate fair value due to the short-term nature of the assets. For movement schedules of these financial assets, refer to respective notes. The fair value at the end of the reporting period in the table reconciles back to the respective table in the fair value note.note 22.1 Financial assets, excluding derivatives. Credit Risk The table below details the credit risk rating grades, as of December 31, 2018,2019, for financial assets with cash flows that are SPPI, excluding any financial assets that meet the definition of held for trading in IFRS 9, or that are managed and whose performance is evaluated on a fair value basis. The tables show the carrying value of those financial assets applying IAS 39 (in the case of financial assets measured at amortized cost, before adjusting for any impairment allowances). | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | SPPI compliant financial assets at
carrying value | | AAA | | | AA | | | A | | | BBB | | | BB | | | B | | | CCC or
lower | | | Not
Rated | | | Total | | Shares – Carried at fair value | | | - | | | | - | | | | - | | | | 42 | | | | 9 | | | | 17 | | | | - | | | | - | | | | 68 | | Debt securities – Carried at fair value | | | 25,637 | | | | 9,224 | | | | 17,057 | | | | 20,330 | | | | 1,480 | | | | 1,159 | | | | 1,395 | | | | - | | | | 76,283 | | Money market and other short-term investments- carried at fair value | | | 55 | | | | 158 | | | | 2,561 | | | | 351 | | | | - | | | | - | | | | - | | | | - | | | | 3,126 | | Mortgage loans– Carried at amortized cost | | | 941 | | | | 3,204 | | | | 3,567 | | | | 266 | | | | 15 | | | | - | | | | - | | | | 28,647 | | | | 36,639 | | Private loans – Carried at amortized cost | | | 1,611 | | | | 83 | | | | 261 | | | | 924 | | | | 52 | | | | - | | | | - | | | | 1,136 | | | | 4,068 | | Other financial assets – Carried at fair value | | | - | | | | - | | | | 64 | | | | 12 | | | | 44 | | | | 61 | | | | 1 | | | | 70 | | | | 252 | | At December 31 | | | 28,244 | | | | 12,670 | | | | 23,510 | | | | 21,925 | | | | 1,601 | | | | 1,237 | | | | 1,396 | | | | 29,853 | | | | 120,436 | |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 158 | | | | Consolidated financial statements of Aegon N.V. Note 2 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | SPPI compliant financial assets at
carrying value | | AAA | | | AA | | | A | | | BBB | | | BB | | | B | | | CCC or
lower | | | Not
Rated | | | Total | | 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares – Carried at fair value | | | - | | | | - | | | | - | | | | 43 | | | | 27 | | | | - | | | | - | | | | - | | | | 70 | | Debt securities – Carried at fair value | | | 26,723 | | | | 8,989 | | | | 20,112 | | | | 22,296 | | | | 1,364 | | | | 1,244 | | | | 1,283 | | | | 3 | | | | 82,014 | | Money market and other short-term investments – carried at fair value | | | 255 | | | | 193 | | | | 2,164 | | | | 112 | | | | - | | | | - | | | | - | | | | - | | | | 2,724 | | Mortgage loans – Carried at amortized cost | | | 1,311 | | | | 3,671 | | | | 3,580 | | | | 369 | | | | 15 | | | | 4 | | | | - | | | | 29,574 | | | | 38,524 | | Private loans – Carried at amortized cost | | | 1,799 | | | | 82 | | | | 198 | | | | 970 | | | | 49 | | | | - | | | | - | | | | 1,383 | | | | 4,479 | | Other financial assets – Carried at fair value | | | - | | | | - | | | | 57 | | | | 10 | | | | 33 | | | | 38 | | | | - | | | | 40 | | | | 177 | | | | | | | | | | | | | At December 31 | | | 30,088 | | | | 12,933 | | | | 26,111 | | | | 23,800 | | | | 1,487 | | | | 1,285 | | | | 1,283 | | | | 31,000 | | | | 127,988 | | 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares – Carried at fair value | | | - | | | | - | | | | - | | | | 42 | | | | 9 | | | | 17 | | | | - | | | | - | | | | 68 | | Debt securities – Carried at fair value | | | 25,637 | | | | 9,224 | | | | 17,057 | | | | 20,330 | | | | 1,480 | | | | 1,159 | | | | 1,395 | | | | - | | | | 76,283 | | Money market and other short-term investments – carried at fair value | | | 55 | | | | 158 | | | | 2,561 | | | | 351 | | | | - | | | | - | | | | - | | | | - | | | | 3,126 | | Mortgage loans – Carried at amortized cost | | | 941 | | | | 3,204 | | | | 3,567 | | | | 266 | | | | 15 | | | | - | | | | - | | | | 28,647 | | | | 36,639 | | Private loans – Carried at amortized cost | | | 1,611 | | | | 83 | | | | 261 | | | | 924 | | | | 52 | | | | - | | | | - | | | | 1,136 | | | | 4,068 | | Other financial assets – Carried at fair value | | | - | | | | - | | | | 64 | | | | 12 | | | | 44 | | | | 61 | | | | 1 | | | | 70 | | | | 252 | | | | | | | | | | | | | At December 31 | | | 28,244 | | | | 12,670 | | | | 23,510 | | | | 21,925 | | | | 1,601 | | | | 1,237 | | | | 1,396 | | | | 29,853 | | | | 120,436 | |
As no external ratings are available for residential mortgage loans, the residential portfolio is included under ‘Not rated’. For assets that do not have low credit risk (rated BB or below) and of which cash flows represent SPPI, excluding any financial assets that meet the definition of held for trading in IFRS 9, or that are managed and whose performance is evaluated on a fair value basis, the table below provides the credit risk exposure from the financial assets held by Aegon1. The financial assets are categorized by asset class with a carrying amount and fair value measured in accordance with IAS 39 measurement requirements. | | | | | | | 2019 | | | 2018 | | | SPPI compliant financial assets with no low credit risk | | Carrying amount | | | Fair value | | | Carrying amount | | | Fair value | | | Carrying amount | | | Fair value | | Shares – Carried at fair value | | | 26 | | | | 26 | | | | 27 | | | | 27 | | | | 26 | | | | 26 | | Debt securities – Carried at fair value | | | 4,035 | | | | 4,035 | | | | 3,894 | | | | 3,894 | | | | 4,035 | | | | 4,035 | | Money market and other short-term investments – Carried at fair value | | | - | | | | - | | | Mortgage loans – Carried at amortized cost | | | 28,661 | | | | 31,711 | | | | 29,593 | | | | 33,132 | | | | 28,661 | | | | 31,711 | | Private loans – Carried at amortized cost | | | 1,189 | | | | 1,225 | | | | 1,431 | | | | 1,488 | | | | 1,189 | | | | 1,225 | | Deposits with financial institutions – Carried at amortized cost | | | 70 | | | | 70 | | | | 76 | | | | 76 | | | | 70 | | | | 70 | | Other financial assets – Carried at fair value | | | 106 | | | | 106 | | | | 35 | | | | 35 | | | | 106 | | | | 106 | | | | | | At December 31 | | | 34,087 | | | | 37,173 | | | | 35,056 | | | | 38,652 | | | | 34,087 | | | | 37,173 | |
Investments in joint ventures and associates All Aegon’s equity accounted investments remain to apply IAS 39. Except AMVEST Vastgoed B.V. (AMVEST), Aegon does not hold any other individually material joint-venture nor associate. As most of AMVEST financial assets are measured at fair value through profit or loss, there is no material difference between the financial statements of AMVEST under IFRS 9 and IAS 39. As the remaining joint ventures and associates are not material on a consolidated level, the additional information required by IFRS 4 for electing the temporary exemption areis not disclosed for these entities. Subsidiaries and joint ventures applying IFRS 9 in their statutory accounts Information on the adoption of IFRS 9 by principal subsidiaries and joint ventures that for statutory purposes cannot elect to defer the effective date of IFRS 9 can be found in the publicly available statutory annual reports on www.aegon.nl and and/or the Chamber of Commerce. This information is not part of the audited consolidated financial statements of Aegon N.V.. The related entities are: | ◆ | | Aegon Asset Management Holding B.V. |
| 1 | Mortgage loans with no low credit risk are defined as being more than 90 days past due, in line with regulatory guidelines. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 153159 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V. Note 2 | | | | | | | | | | | | |
IFRS 17 Insurance Contracts The IASB issued IFRS 17 Insurance Contracts in May 2017. The Standard will replace IFRS 4, which was intended as an interim solution and allowed insurers to continue to use accounting principles that they had applied prior to the initial adoption of IFRS. IFRS 17 establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts issued, reinsurance contracts held and investment contracts with discretionary participating features issued. The objective of the Standard is to ensure that entities provide relevant information in a way that faithfully represents those contracts. This information should provide users of financial statements with a basis to assess the effects that the contracts have on the financial position, financial performance and cash flows of the insurer. The Standard also specifies presentation and disclosure requirements to enhance comparability between insurance companies. In November 2018, the IASB agreed to start the process to amend IFRS 17 to defer the mandatory effective date of IFRS 17 by one year (original effective date was January 1, 2021). Subject to IASB due process, entities will be required to apply IFRS 17 for annual periods beginning on or after January 1, 2022. The IASB noted that given the considerations to proposeof the proposed amendments to IFRS 17 in June/Julyof June 2019, and in light of the criteria for assessing them, any such potential amendments could take a year to finalize. A final Standard is expected by the IASB to be issued in June 2020. As a consequence of the IFRS 17 deferral, the IASB also agreed to revise the fixed expiry date of the temporary exemption from IFRS 9 in IFRS 4 to allow entities to continue applying the temporary exemption from IFRS 9 until January 1, 2022. As this decision is still subject to IASB due process, this could lead to another year of deferral. The Standard represents a fundamental change to current financial reporting and the implementation effort is expected to be significant. Early adoption of the standard is therefore not expected. An implementation project was started soon after the publication of the new Standard. Currently no choicesfinal decisions have been made as to the accounting policy options provided in IFRS 17 as a consequence of awaiting the final amendments and the outcome of quantitative studies intended to be performed subsequently, however, it is expected that the impact of the initial application on Aegon’s financial statements is significant. 2.1.4 Future adoption of voluntary change in accounting policy Reinsurance accounting As of January 1, 2020, Aegon will voluntarily change its accounting policy for the deferred cost of reinsurance. A deferred cost of reinsurance is established when Aegon enters into a reinsurance transaction, except for reinsurance transactions that are entered into as part of a plan to exit a business. Until 2019, the amortization of the deferred cost of reinsurance is based solely on assumptions relating to the underlying insurance contracts. As of January 1, 2020, for products sold in the Americas and Asia where the amortization is based on expected gross profit margins (EGPs), these EGPs will be net of reinsurance (i.e. net of actual reinsurance cash flows that exceed expected reinsurance cash flows). Additionally, the reinsurance cash flows used to calculate the amortization rate will be unlocked prospectively. The accounting policy on the amortization of similar intangibles, such as deferred policy acquisition costs, will be updated accordingly. The new policy will be adopted because it better reflects the economics of Aegon’s reinsurance transactions and aligns to current market practice. The previous accounting policy would have resulted in significant income volatility in the event of incurred claims with large sums insured, despite the fact that a significant part of the losses is reinsured. As no recent death claims with large sum insured have occurred prior to 2020, the impact of this policy change on shareholders’ equity per January 1, 2020 is not significant. 2.2 Basis of consolidation Subsidiaries The consolidated financial statements include the financial statements of Aegon N.V. and its subsidiaries. Subsidiaries (including consolidated structured entities) are entities over which Aegon has control. Aegon controls an entity when Aegon is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The assessment of control is based on the substance of the relationship between the Group and the entity and, among other things, considers existing and potential voting rights that are substantive. For a right to be substantive, the holder must have the practical ability to exercise that right. The subsidiary’s assets, liabilities and contingent liabilities are measured at fair value on the acquisition date and are subsequently accounted for in accordance with the Group’s accounting policies, which is consistent with IFRS. Intra-group transactions, including Aegon N.V. shares held by subsidiaries, which are recognized as treasury shares in equity, are eliminated. Intra-group losses may indicate an impairment that requires recognition in the consolidated financial statements.Non-controlling interests are initially stated | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 160 | | | | Consolidated financial statements of Aegon N.V. Note 2 | | | | | | | | | | |
at their share in the fair value of the net assets on the acquisition date and subsequently adjusted for thenon-controlling share in changes in the subsidiary’s equity. The excess of the consideration paid to acquire the interest and the fair value of any interest already owned, over the Group’s share in the net fair value of assets, liabilities and contingent liabilities acquired is recognized as goodwill. Negative goodwill is recognized directly in the income statement. If the fair value of the assets, liabilities and contingent liabilities acquired in the business combination has been determined provisionally, adjustments to these values resulting from the emergence of new evidence within 12 months after the acquisition date are made against goodwill. Aegon recognized contingent considerations either as provision or as financial liability depending on the characteristics. Contingent considerations recognized as provisions are discounted and the unwindingAny contingent consideration payable is recognized inat fair value at the income statementacquisition date. If the contingent consideration is classified as an interest expense. Anyequity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes into the estimatedfair value of the contingent consideration given in a business combination are recognized in the income statement. Contingent considerations recognized as financial liabilities are measured at fair value through profit or loss. The identifiable assets, liabilities and contingent liabilities are stated at fair value when control is obtained. 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 includingnon-controlling interests is recognized in the income statement. Transactions withnon-controlling interests Transactions withnon-controlling interests are accounted for as transactions with owners. Therefore disposals tonon-controlling interests and acquisitions fromnon-controlling interests, not resulting in losing or gaining control of the subsidiary are recorded | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 154 | | Notes to the consolidated financial statementsNote 2 | | | | | | |
in equity. Any difference between consideration paid or received and the proportionate share in net assets is accounted for in equity attributable to shareholders of Aegon N.V. Investment funds Investment funds managed by the Group in which the Group holds an interest are consolidated in the financial statements if the Group has power over that investment fund and it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. In assessing control, all interests held by the Group in the fund are considered, regardless of whether the financial risk related to the investment is borne by the Group or by the policyholders (unless a direct link between the policyholder and the fund can be assumed). In determining whether Aegon has power over an investment fund all facts and circumstances are considered, including the following: | ◆ | | Control structure of the asset manager (i.e. whether an Aegon subsidiary); |
| ◆ | | The investment constraints posed by investment mandate; |
| ◆ | | Legal rights held by the policyholder to the separate assets in the investment vehicle (e.g. policyholders could have the voting rights related to these investments); |
| ◆ | | The governance structure, such as an independent board of directors, representing the policyholders, which has substantive rights (e.g. to elect or remove the asset manager); and |
| ◆ | | Rights held by other parties (e.g. voting rights of policyholders that are substantive or not). |
Exposure or rights to variability of returns can be the result of, for example: | ◆ | | General account investment of Aegon; |
| ◆ | | Aegon’s investments held for policyholder; |
| ◆ | | Guarantees provided by Aegon on return of policyholders in specific investment vehicles; |
| ◆ | | Fees dependent on fund value (including, but not limited to, asset management fees); and |
| ◆ | | Fees dependent on performance of the fund (including, but not limited to, performance fees). |
Investment funds where Aegon acts as an agent are not consolidated due to lack of control of the funds. In particular, for some separate accounts, the independent board of directors has substantive rights and therefore Aegon does not have power over these separate accounts but acts as an agent. For limited partnerships, the assessment takes into account Aegon’s legal position (i.e. limited partner or general partner) and any substantive removal rights held by other parties. Professional judgment is applied concerning the substantiveness of the removal rights and the magnitude of the exposure to variable returns, leading to the conclusion that Aegon controls some, but not all, of the limited partnerships in which it participates. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 161 | | | | Consolidated financial statements of Aegon N.V. Note 2 | | | | | | | | | | |
Upon consolidation of an investment fund, a liability is recognized to the extent that the Group is legally obliged to buy back participations held by third parties. The liability is presented in the consolidated financial statements as investment contracts for account of policyholders. Where no repurchase obligation exists, the participations held by third parties are presented asnon-controlling interests in equity. The assets allocated to participations held by third parties or by the Group on behalf of policyholders are presented in the consolidated financial statements as investments for account of policyholders. Equity instruments issued by the Group that are held by investment funds are eliminated on consolidation. However, the elimination is reflected in equity and not in the measurement of the related financial liabilities towards policyholders or other third parties. Structured entities A structured entity is defined in IFRS 12 as “An entity that has been designed so that voting rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements.” In these instances the tests and indicators to assess control provided by IFRS 10 have more focus on the purpose and design of the investee (with relation to the relevant activities that most significantly affect the structured entity) and the exposure to variable returns, which for structured entities lies in interests through e.g. derivatives, and will not be focused on entities that are controlled by voting rights. Structured entities that are consolidated include certain mortgage backed securitization deals, where Aegon was involved in the design of the structured entities and also has the ability to use its power to affect the amount of the investee’s returns. Other factors that contribute to the conclusion that consolidation of these entities is required includes consideration of whether Aegon fully services | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 155 | | Notes to the consolidated financial statementsNote 2 | | | | | | |
the investees and can therefore influence the defaults of the mortgage portfolios and the fact that in these cases the majority of risks are maintained by Aegon. Structured entities that are not consolidated include general account investments innon-affiliated structured entities that are used for investment purposes. Non-current assets held for sale and disposal groups Disposal groups are classified as held for sale if they are available for immediate sale in their present condition, subject only to the customary sales terms of such assets and disposal groups and their sale is considered highly probable. Management must be committed to the sale, which is expected to occur within one year from the date of classification as held for sale. Upon classification as held for sale, the carrying amount of the disposal group (or group of assets) is compared to their fair value less cost to sell. If the fair value less cost to sell is lower than the carrying value, this expected loss is recognized through a reduction of the carrying value of any goodwill related to the disposal group or the carrying value of certain othernon-current,non-financial assets to the extent that the carrying value of those assets exceeds their fair value. Any excess of the expected loss over the reduction of the carrying amount of these relevant assets is not recognized upon classification as held for sale, but is recognized as part of the result on disposal if and when a divestment transaction occurs. Classification into or out of held for sale does not result in restating comparative amounts in the statement of financial position. 2.3 Foreign exchange translation a. Translation of foreign currency transactions The Group’s consolidated financial statements are presented in euros. Items included in the financial statements of individual group companies are recorded in their respective functional currency which is the currency of the primary economic environment in which each entity operates. Transactions in foreign currencies are initially recorded at the exchange rate prevailing at the date of the transaction. At the reporting date, monetary assets and monetary liabilities in foreign currencies are translated to the functional currency at the closing rate of exchange prevailing on that date, except for own equity instruments in foreign currencies which are translated using historical exchange rates.Non-monetary items carried at cost are translated using the exchange rate at the date of the transaction, while assets carried at fair value are translated at the exchange rate when the fair value was determined. Exchange differences on monetary items are recognized in the income statement when they arise, except when they are deferred in other comprehensive income as a result of a qualifying cash flow or net investment hedge. Exchange differences onnon-monetary items carried at fair value are recognized in other comprehensive income or the income statement, consistently with other gains and losses on these items. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 162 | | | | Consolidated financial statements of Aegon N.V. Note 2 | | | | | | | | | | |
b. Translation of foreign currency operations On consolidation, the financial statements of group entities with a foreign functional currency are translated to euro, the currency in which the consolidated financial statements are presented. Assets and liabilities are translated at the closing rates on the reporting date. Income, expenses and capital transactions (such as dividends) are translated at average exchange rates or at the prevailing rates on the transaction date, if more appropriate. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are translated at the closing rates on the reporting date. 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. 2.4 Segment reporting Reporting segments and segment measures are explained and disclosed in note 5 Segment information. 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. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 156 | | Notes to the consolidated financial statementsNote 2 | | | | | | |
2.6 Intangible assets a. Goodwill Goodwill is recognized as an intangible asset for interests in subsidiaries and is measured as the positive difference between the acquisition cost and the Group’s interest in the net fair value of the entity’s identifiable assets, liabilities and contingent liabilities. Subsequently, goodwill is carried at cost less accumulated impairment charges. It is derecognized when the interest in the subsidiary is disposed. b. Value of business acquired When a portfolio of insurance contracts is acquired, whether directly from another insurance company or as part of a business combination, the difference between the fair value and the carrying amount of the insurance liabilities is recognized as value of business acquired (VOBA). The Group also recognizes VOBA when it acquires a portfolio of investment contracts with discretionary participation features. VOBA is amortized over the useful life of the acquired contracts, based on either the expected future premiums, revenues or the expected gross profit margins. The amortization period and pattern are reviewed at each reporting date; any change in estimates is recorded in the income statement. For all products, VOBA, in conjunction with deferred policy acquisition costs (DPAC) where appropriate, is assessed for recoverability using aggregation levels on a geographical jurisdiction basis or at the level of portfolio of contracts that are subject to broadly similar risks and managed together as a single portfolio. The portion determined not to be recoverable is charged to the income statement. VOBA is considered in the liability adequacy test for each reporting period, for more details refer to 2.19.f2.19. f Liability adequacy testing. When unrealized gains or losses arise onavailable-for-sale assets backing the insurance liabilities, VOBA is adjusted to equal the effect that the realization of the gains or losses (through a sale or impairment) would have had on VOBA. The adjustment is recognized in OCI and accumulated in the related revaluation reserve in shareholders’ equity. VOBA is derecognized when the related contracts are settled or disposed. c. Future servicing rights On the acquisition of a portfolio of investment contracts without discretionary participation features under which Aegon will render investment management services, the present value of future servicing rights is recognized as an intangible asset. Future servicing rights can also be recognized on the sale of a loan portfolio or the acquisition of insurance agency activities. The present value of the future servicing rights is amortized over the servicing period and is subject to impairment testing. It is derecognized when the related contracts are settled or disposed. Where applicable, Aegon recognizes other intangibles on the acquisition of a business combination such as those related to customer relationships. This can include customer contracts, distribution agreements and client portfolios. For these intangibles the present | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 163 | | | | Consolidated financial statements of Aegon N.V. Note 2 | | | | | | | | | | |
value of future cash flows are recognized and amortized in the period when future economic benefits arise from these intangibles. These intangible assets are also presented under future servicing rights. d. Software and other intangible assets Software and other intangible assets are recognized to the extent that the assets can be identified, are controlled by the Group, are expected to provide future economic benefits and can be measured reliably. The Group does not recognize internally generated intangible assets arising from research or internally generated goodwill, brands, customer lists and similar items. Software and other intangible assets are carried at cost less accumulated depreciation and impairment losses. Depreciation of the asset is over its useful life as the future economic benefits emerge and is recognized in the income statement as an expense. The depreciation period and pattern are reviewed at each reporting date, with any changes recognized in the income statement. An intangible asset is derecognized when it is disposed of or when no future economic benefits are expected from its use or disposal. 2.7 Investments General account investments comprise financial assets, excluding derivatives, as well as investments in real estate. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 157 | | Notes to the consolidated financial statements Note 2 | | | | | | |
a. Financial assets, excluding derivatives Financial assets are recognized at trade date (except for Private placements that are recognized at settlement date) when the Group becomes a party to the contractual provisions of the instruments. All financial assets are classified for accounting purposes depending on the characteristics of the instruments and the purpose for which they were purchased. Classification The following financial assets are measured at fair value through profit or loss: financial assets held for trading, financial assets managed on a fair value basis in accordance with the Group’s investment strategy and financial assets containing an embedded derivative that is not closely related and that cannot be reliably bifurcated. In addition, in certain instances the Group designates financial assets to this category when by doing so a potential accounting mismatch in the financial statements is eliminated or significantly reduced. Financial assets with fixed or determinable payments, that are not quoted in an active market and that the Group does not intend to sell in the near future are classified as loans. Those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration, are accounted for asavailable-for-sale. All remainingnon-derivative financial assets are classified asavailable-for-sale. Measurement Financial assets are initially recognized at fair value excluding interest accrued to date plus, in the case of a financial asset not at fair value through profit or loss, any directly attributable incremental transaction costs. Loans and financial assetsheld-to-maturity are subsequently carried at amortized cost using the effective interest rate method. Financial assets at fair value through profit or loss are measured at fair value with all changes in fair value recognized in the income statement as incurred.Available-for-sale assets are recorded at fair value with unrealized changes in fair value recognized in other comprehensive income. Financial assets that are designated as hedged items are measured in accordance with the requirements for hedge accounting. Amortized cost The amortized cost of a debt instrument is the amount at which it is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization of any difference between the initial amount and the maturity amount, and minus any reduction for impairment. The effective interest rate method is a method of calculating the amortized cost and of allocating the interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the debt instrument or, when appropriate, a shorter period to the net carrying amount of the instrument. When calculating the effective interest rate, all contractual terms are considered. Possible future credit losses are not taken into account. Charges and interest paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts are included in the calculation. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 164 | | | | Consolidated financial statements of Aegon N.V. Note 2 | | | | | | | | | | |
Fair value The consolidated financial statements provide information on the fair value of all financial assets, including those carried at amortized cost where the values are provided in the notes to the financial statements. 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 market, the fair value is the bid price at the reporting date. In the absence of an active market, fair value is estimated by using present value based or other valuation techniques. Where discounting techniques are applied, the discount rate is based on current market rates applicable to financial instruments with similar characteristics. The valuation techniques that include unobservable inputs can result in a different outcome than the actual transaction price at which the asset was acquired. Such differences are not recognized in the income statement immediately but are deferred. They are released over time to the income statement in line with the change in factors (including time) that market participants would consider in setting a price for the asset. Interest accrued to date is not included in the fair value of the financial asset. Derecognition A financial asset is derecognized when the contractual rights to the asset’s cash flows expire or when the Group retains the right to receive cash flows from the asset but has an obligation to pay any received cash flows in full without delay to a third party and | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 158 | | Notes to the consolidated financial statements Note 2 | | | | | | |
either: has transferred the asset and substantially all the risks and rewards of ownership, or has neither transferred nor retained all the risks and rewards but has transferred control of the asset. Financial assets of which the Group has neither transferred nor retained significantly all the risk and rewards and retained control are recognized to the extent of the Group’s continuing involvement. If significantly all risks are retained, the assets are not derecognized. On derecognition, the difference between the disposal proceeds and the carrying amount is recognized in the income statement as a realized gain or loss. Any cumulative unrealized gain or loss previously recognized in the revaluation reserve in shareholders’ equity is also recognized in the income statement. Security lending and repurchase agreements Financial assets that are lent to a third party or that are transferred subject to a repurchase agreement at a fixed price are not derecognized as the Group retains substantially all the risks and rewards of the asset. A liability is recognized for cash (collateral) received, on which interest is accrued. A security that has been received under a borrowing or reverse repurchase agreement is not recognized as an asset. A receivable is recognized for any related cash (collateral) paid by Aegon. The difference between sale and repurchase price is treated as investment income. If the Group subsequently sells that security, a liability to repurchase the asset is recognized and initially measured at fair value. Collateral With the exception of cash collateral, assets received as collateral are not separately recognized as an asset until the financial asset they secure defaults. When cash collateral is recognized, a liability is recorded for the same amount. b. Real estate Investments in real estate include property held to earn rentals or for capital appreciation, or both. Investments in real estate are presented as ‘Investments’. Property that is occupied by the Group and that is not intended to be sold in the near future is classified as real estate held for own use and is presented in ‘Other assets and receivables’. All property is initially recognized at cost. Such cost includes the cost of replacing part of the real estate and borrowing cost for long-term construction projects if recognition criteria are met. Subsequently, investments in real estate are measured at fair value with the changes in fair value recognized in the income statement. Real estate held for own use is carried at its revalued amount, which is the fair value at the date of revaluation less subsequent accumulated depreciation and impairment losses. Depreciation is calculated on a straight line basis over the useful life of a building. Land is not depreciated. Revaluation of real estate for own use is recognized in OCI and accumulated in revaluation reserve in equity. On revaluation the accumulated depreciation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount. On disposal of an asset, the difference between the net proceeds received and the carrying amount is recognized in the income statement. Any remaining surplus attributable to real estate in own use in the revaluation reserve is transferred to retained earnings. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 165 | | | | Consolidated financial statements of Aegon N.V. Note 2 | | | | | | | | | | |
Maintenance costs and other subsequent expenditure Expenditure incurred after initial recognition of the asset is capitalized to the extent that the level of future economic benefits of the asset is increased. Costs that restore or maintain the level of future economic benefits are recognized in the income statement as incurred. 2.8 Investments for account of policyholders Investments held for account of policyholders consist of investments in financial assets as well as investments in real estate. Investment return on these assets is passed on to the policyholder. Also included are the assets held by consolidated investment funds that are backing liabilities towards third parties. Investments for account of policyholders are valued at fair value through profit or loss. 2.9 Derivatives a. Definition Derivatives are financial instruments of which the value changes in response to an underlying variable, that require little or no net initial investment and are settled at a future date. Assets and liabilities may include derivative-like terms and conditions. With the exception of features embedded in contracts held at fair value through profit or loss, embedded derivatives that are not considered closely related to the host contract are bifurcated, carried at fair value and presented as derivatives. In assessing whether a derivative-like feature is closely related to the contract | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 159 | | Notes to the consolidated financial statements Note 2 | | | | | | |
in which it is embedded, the Group considers the similarity of the characteristics of the embedded derivative and the host contract. Embedded derivatives that transfer significant insurance risk are accounted for as insurance contracts. Derivatives with positive values are reported as assets and derivatives with negative values are reported as liabilities. Derivatives for which the contractual obligation can only be settled by exchanging a fixed amount of cash for a fixed amount of Aegon N.V. equity instruments are accounted for in shareholders’ equity .equity. b. Measurement All derivatives recognized on the statement of financial position are carried at fair value. The fair value is calculated net of the interest accrued to date and is based on market prices, when available. When market prices are not available, other valuation techniques, such as option pricing or stochastic modeling, are applied. The valuation techniques incorporate all factors that market participants would consider and are based on observable market data, to the extent possible. c. Hedge accounting As part of its asset liability management, the Group enters into economic hedges to limit its risk exposure. These transactions are assessed to determine whether hedge accounting can and should be applied. To qualify for hedge accounting, the hedge relationship is designated and formally documented at inception, detailing the particular risk management objective and strategy for the hedge (which includes the item and risk that is being hedged), the derivative that is being used and how hedge effectiveness is being assessed. A derivative has to be highly effective in accomplishing the objective of offsetting either changes in fair value or cash flows for the risk being hedged. The effectiveness of the hedging relationship is evaluated on a prospective and retrospective basis using qualitative and quantitative measures of correlation. Qualitative methods may include comparison of critical terms of the derivative to the hedged item. Quantitative methods include a comparison of the changes in the fair value or discounted cash flow of the hedging instrument to the hedged item. A hedging relationship is considered highly effective if the results of the hedging instrument are within a ratio of 80% to 125% of the results of the hedged item. For hedge accounting purposes, a distinction is made between fair value hedges, cash flow hedges and hedges of a net investment in a foreign operation. Following the financial crisis, the reform and replacement of benchmark interest rates such as LIBOR and other interbank offered rates (‘IBORs’) has become a priority for global regulators. There is currently uncertainty around the timing and precise nature of these changes, in light of which the following assumptions have been made with respect to hedge accounting: | ◆ | | When considering the ‘highly probable’ requirement, it is assumed that the current benchmark interest rate on which the hedged positions is based will not change as a result of IBOR reform. |
| ◆ | | In assessing whether the hedge is expected to be ‘highly effective’ on a forward-looking basis, it is assumed that the current benchmark interest rate on which the cash flows of the hedged item and the derivative that hedges it are based is not altered as a result of the IBOR reform. |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 166 | | | | Consolidated financial statements of Aegon N.V. Note 2 | | | | | | | | | | |
| ◆ | | Hedge accounting is not discontinued during the period of IBOR-related uncertainty solely because the retrospective effectiveness falls outside the required80-125% range. |
| ◆ | | The cash flows hedge reserve relating to the period after the IBOR reform is expected to take effect, is not recycled solely because cash flows are expected to change. |
d. Brexit Since January 31, 2020, the United Kingdom (UK) is no longer a member of the European Union. The UK has until the end of 2020 to negotiate a trade deal with the EU and prevent a hard Brexit (no deal) scenario. A hard Brexit will have consequences for the derivatives contracts Aegon holds with UK counterparties as they may lose their eligibility under European regulation. Aegon transferred part of its derivatives with UK counterparties, clearing members and part of its derivatives that were held at the London Clearing House (LCH) tonon-UK counterparties and to Eurex in Frankfurt. Based on new information about Brexit, the future eligibility of LCH and the liquidity at the different venues will be assessed. Fair value hedges Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognized in the profit and loss account, together with fair value adjustments to the hedged item attributable to the hedged risk. If the hedge relationship no longer meets the criteria for hedge accounting, the cumulative adjustment of the hedged item is, in the case of interest bearing instruments, amortized through the profit and loss account over the remaining term of the original hedge or recognized directly when the hedged item is derecognized. Cash flow hedges Cash flow hedges are hedges of the exposure to variability in cash flows that is attributable to a particular risk of a forecasted transaction or a recognized asset or liability and could affect profit or loss. To the extent that the hedge is effective, the change in the fair value of the derivative is recognized in the related revaluation reserve in shareholders’ equity. Any ineffectiveness is recognized directly in the income statement. The amount recorded in shareholders’ equity is released to the income statement to coincide with the hedged transaction, except when the hedged transaction is an acquisition of anon-financial asset or liability. In this case, the amount in shareholders’ equity is included in the initial cost of the asset or liability. Net investment hedges Net investment hedges are hedges of currency exposures on a net investment in a foreign operation. To the extent that the hedge is effective, the change in the fair value of the hedging instrument is recognized in the net foreign investment hedging reserve in shareholders’ equity. Any ineffectiveness is recognized in the income statement. The amount in shareholders’ equity is released to the income statement when the foreign operation is disposed of. Hedge accounting is discontinued prospectively for hedges that are no longer considered effective. When hedge accounting is discontinued for a fair value hedge, the derivative continues to be carried on the statement of financial position with changes in its fair value recognized in the income statement. When hedge accounting is discontinued for a cash flow hedge because the cash flow is no longer expected to occur, the accumulated gain or loss in shareholders’ equity is recognized immediately in the income statement. In other situations where hedge accounting is discontinued for a cash flow hedge, including those where the derivative is sold, | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 160 | | Notes to the consolidated financial statements Note 2 | | | | | | |
terminated or exercised, accumulated gains or losses in shareholders’ equity are amortized into the income statement when the income statement is impacted by the variability of the cash flow from the hedged item. 2.10 Investments in joint arrangements In general, joint arrangements are contractual agreements whereby the Group undertakes, with other parties, an economic activity that is subject to joint control. Joint control exists when it is contractually agreed to share control over an economic activity. Joint control exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has rather than the legal structure of the joint arrangement. Aegon has assessed the nature of its joint arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method. Under the equity method of accounting, interests in joint ventures are initially recognized at cost, which includes positive goodwill arising on acquisition. Negative goodwill is recognized in the income statement on the acquisition date. If joint ventures are obtained in successive share purchases, each significant transaction is accounted for separately. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 167 | | | | Consolidated financial statements of Aegon N.V. Note 2 | | | | | | | | | | |
The carrying amount is subsequently adjusted to reflect the change in the Group’s share in the net assets of the joint venture and is subject to impairment testing. The net assets are determined based on the Group’s accounting policies. Any gains and losses recorded in other comprehensive income by the joint venture are recognisedrecognized in OCI and reflected in other reserves in shareholders’ equity, while the share in the joint ventures net income is recognized as a separate line item in the consolidated income statement. The Group’s share in losses is recognized until the investment in the joint ventures’ equity and any other long-term interest that are part of the net investment are reduced to nil, unless guarantees exist. Gains and losses on transactions between the Group and the joint ventures are eliminated to the extent of the Group’s interest in the entity, with the exception of losses that are evidence of impairment which are recognized immediately. Own equity instruments of Aegon N.V. that are held by the joint venture are not eliminated. On disposal of an interest in a joint venture, the difference between the net proceeds and the carrying amount is recognized in the income statement and gains and losses previously recorded directly in the revaluation reserve are reversed and recorded through the income statement. 2.11 Investments in associates Entities over which the Group has significant influence through power to participate in financial and operating policy decisions, but which do not meet the definition of a subsidiary, are accounted for using the equity method. Interests held by venture capital entities, mutual funds and investment funds that qualify as an associate are accounted for as an investment held at fair value through profit or loss. Interests held by the Group in venture capital entities, mutual funds and investment funds that are managed on a fair value basis, are also accounted for as investments held at fair value through profit or loss. Interests in associates are initially recognized at cost, which includes positive goodwill arising on acquisition. Negative goodwill is recognized in the income statement on the acquisition date. If associates are obtained in successive share purchases, each significant transaction is accounted for separately. The carrying amount is subsequently adjusted to reflect the change in the Group’s share in the net assets of the associate and is subject to impairment testing. The net assets are determined based on the Group’s accounting policies. Any gains and losses recorded in other comprehensive income by the associate are reflected in other reserves in shareholders’ equity, while the share in the associate’s net income is recognized as a separate line item in the consolidated income statement. The Group’s share in losses is recognized until the investment in the associate’s equity and any other long-term interest that are part of the net investment are reduced to nil, unless guarantees exist. Gains and losses on transactions between the Group and the associate are eliminated to the extent of the Group’s interest in the entity, with the exception of losses that are evidence of impairment which are recognized immediately. Own equity instruments of Aegon N.V. that are held by the associate are not eliminated. On disposal of an interest in an associate, the difference between the net proceeds and the carrying amount is recognized in the income statement and gains and losses previously recorded directly in the revaluation reserve are reversed and recorded through the income statement. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 161 | | Notes to the consolidated financial statements Note 2 | | | | | | |
2.12 Reinsurance assets Reinsurance contracts are contracts entered into by the Group in order to receive compensation for claims/benefits incurred on contracts written by the Group (outgoing reinsurance). Reinsurance assets are also held as part of exiting the business. For contracts transferring sufficient insurance risk, a reinsurance asset is recognized for the expected future benefits, less expected future reinsurance premiums. Reinsurance contracts with insufficient insurance risk transfer are accounted for as investment or service contracts, depending on the nature of the agreement. Reinsurance assets are measured consistently with the assumptions associated with the underlying insurance contracts and in accordance with the terms of each reinsurance contract. They are subject to impairment testing and are derecognized when the contractual rights are extinguished or expire or when the contract is transferred to another party. Aegon is not relieved of its legal liabilities when entering into reinsurance transactions, therefore the reserves relating to the underlying insurance contracts will continue to be reported on the consolidated statement of financial position during the contractual term of the underlying contracts. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 168 | | | | Consolidated financial statements of Aegon N.V. Note 2 | | | | | | | | | | |
Reinsurance premiums, commissions and claim settlements are accounted for in the same way as the original contracts for which the reinsurance was concluded. The insurance premiums for the original contracts are presented gross of reinsurance premiums paid. 2.13 Deferred expenses a. Deferred policy acquisition costs (DPAC) DPAC relates to all insurance contracts as well as investment contracts with discretionary participation features and represents directly attributable costs that are related to the selling, underwriting and initiating of these insurance contracts. DPAC are deferred to the extent that they are recoverable and are subsequently amortized based on factors such as expected gross profit margins. For products sold in the United States and Asia with amortization based on expected gross profit margins or revenues, the amortization period and pattern are reviewed at each reporting date and any change in estimates is recognized in the income statement. Estimates include, but are not limited to: an economic perspective in terms of future returns on bond and equity instruments, mortality, morbidity and lapse assumptions, maintenance expenses and expected inflation rates. For all products, DPAC, in conjunction with VOBA where appropriate, is assessed for recoverability at least annually as part of the liability adequacy test for each reporting period. If appropriate, the assumptions included in the determination of estimated gross profits or revenues are adjusted. The portion of DPAC that is determined not to be recoverable is charged to the income statement. For products sold in the United States and Asia, when unrealized gains or losses arise onavailable-for-sale assets backing the insurance liabilities, DPAC is adjusted to equal the effect that the realization of the gains or losses (through sale or impairment) would have had on its measurement. This is recognized in OCI and accumulated in the related revaluation reserve in shareholders’ equity. DPAC is derecognized when the related contracts are settled or disposed. b. Deferred cost of reinsurance A deferred cost of reinsurance is established when Aegon enters into a reinsurance transaction, except for reinsurance transactions that are entered into as part of a plan to exit a business. When Aegon enters into a reinsurance contract as part of a plan to exit a business, an immediate loss is recognized in the income statement. Upon reinsurance, Aegon is not relieved of its legal liabilities, so the reserves relating to the underlying reinsured contracts will continue to be reported in the consolidated statement of financial position during the contractual term of the underlying contracts. The difference, if any, between amounts paid in a reinsurance transaction and the amount of the liabilities relating to the underlying reinsured contracts is part of the deferred cost of reinsurance. When losses on buying reinsurance are deferred, the amortization is based on the assumptions of the underlying insurance contracts. In the Netherlands, the amortization is based on the percentage of premium paid on the reinsurance contract. The amortization is recognized in the income statement. c. Deferred transaction costs Deferred transaction costs relate to investment contracts without discretionary participation features under which Aegon will render investment management services. Incremental costs that are directly attributable to securing these investment management contracts are recognized as an asset if they can be identified separately and measured reliably and if it is probable that they will be recovered. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 162 | | Notes to the consolidated financial statements Note 2 | | | | | | |
For contracts involving both the origination of a financial liability and the provision of investment management services, only the transaction costs allocated to the servicing component are deferred. The other transaction costs are included in the carrying amount of the financial liability. The deferred transaction costs are amortized in line with fee income, unless there is evidence that another method better represents the provision of services under the contract. The amortization is recognized in the income statement. Deferred transaction costs are subject to impairment testing at least annually. Deferred transaction costs are derecognized when the related contracts are settled or disposed. 2.14 Other assets and receivables Other assets include trade and other receivables, prepaid expenses, equipment and real estate held for own use. Trade and other receivables are initially recognized at fair value and are subsequently measured at amortized cost. Equipment is initially carried at cost, | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 169 | | | | Consolidated financial statements of Aegon N.V. Note 2 | | | | | | | | | | |
depreciated on a straight line basis over its useful life to its residual value and is subject to impairment testing. The accounting for real estate held for own use is described in note 2.7 Investments. 2.15 Cash and cash equivalents Cash comprises cash at banks andin-hand. Cash equivalents are short-term, highly liquid investments generally with original maturities of three months or less that are readily convertible to known cash amounts, are subject to insignificant risks of changes in value and are held for the purpose of meeting short-term cash requirements. Money market investments that are held for investment purposes (backing insurance liabilities, investment liabilities or equity based on asset liability management considerations) are not included in cash and cash equivalents but are presented as investments or investments for account of policyholders. 2.16 Impairment of assets An asset is impaired if the carrying amount exceeds the amount that would be recovered through its use or sale. For tangible and intangible assets, financial assets and reinsurance assets, if not held at fair value through profit or loss, the recoverable amount of the asset is estimated when there are indications that the asset may be impaired. Irrespective of the indications, goodwill and other intangible assets with an indefinite useful life that are not amortized, are tested at least annually. There are a number of significant risks and uncertainties inherent in the process of monitoring investments and determining if impairment exists. These risks and uncertainties include the risk that the Group’s assessment of an issuer’s ability to meet all of its contractual obligations will change based on changes in the credit characteristics of that issuer and the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated. Any of these situations could result in a charge against the income statement to the extent of the impairment charge recorded. a. Impairment ofnon-financial assets Assets are tested individually for impairment when there are indications that the asset may be impaired. For goodwill and intangible assets with an undefined life, an impairment test is performed at least once a year or more frequently as a result of an event or change in circumstances that would indicate an impairment charge may be necessary. The impairment loss is calculated as the difference between the carrying and the recoverable amount of the asset, which is the higher of an asset’s value in use and its fair value less cost of disposal. The value in use represents the discounted future net cash flows from the continuing use and ultimate disposal of the asset and reflects its known inherent risks and uncertainties. The valuation utilizes the best available information, including assumptions and projections considered reasonable and supportable by management. The assumptions used in the valuation involve significant judgments and estimates. Refer to note 3129 Intangible assets for more details. Impairment losses are charged to other comprehensive income to the extent that they offset a previously recorded revaluation reserve relating to the same item. Any further losses are recognized directly in the income statement. Impairment of deferred policy acquisition costs is included in note 15 Impairment charges/(reversals). With the exception of goodwill, impairment losses are reversed when there is evidence that there has been a change in the estimates used to determine the asset’s recoverable amount since the recognition of the last impairment loss. The reversal is recognized in the income statement to the extent that it reverses impairment losses previously recognized in the income statement. The carrying amount after reversal cannot exceed the amount that would have been recognized had no impairment taken place. Non-financial assets that only generate cash flows in combination with other assets and liabilities are tested for impairment at the level of the cash-generating unit. The goodwill acquired in a business combination, for the purpose of impairment testing, | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 163 | | Notes to the consolidated financial statementsNote 2 | | | | | | |
is allocated to cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination. The allocation is based on the level at which goodwill is monitored internally and cannot be larger than an operating segment. When impairing a cash-generating unit, any goodwill allocated to the unit is firstwritten-off and recognized in the income statement. The remaining impairment loss is allocated on a pro rata basis among the other assets, on condition that the resulting carrying amounts do not fall below the individual assets’ recoverable amounts. b. Impairment of debt instruments Debt instruments are impaired if there is objective evidence that a credit event has occurred after the initial recognition of the asset that has a negative impact on the estimated future cash flows. Individually significant loans and other receivables are first assessed separately. Allnon-impaired assets measured at amortized cost are then grouped by credit risk characteristics and collectively tested for impairment. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 170 | | | | Consolidated financial statements of Aegon N.V. Note 2 | | | | | | | | | | |
For debt instruments carried at amortized cost, the carrying amount of impaired financial assets is reduced through an allowance account. The impairment loss is calculated as the difference between the carrying and recoverable amount of the investment. The recoverable amount is determined by discounting the estimated probable future cash flows at the original effective interest rate of the asset. For variable interest debt instruments, the current effective interest rate under the contract is applied. For debt instruments classified asavailable-for-sale, the asset is impaired to its fair value. Any unrealized loss previously recognized in other comprehensive income is taken to the income statement in the impairment loss. After impairment the interest accretion on debt instruments that are classified asavailable-for-sale is recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Impairment losses recognized for debt instruments can be reversed if in subsequent periods the amount of the impairment loss decreases and that decrease can be objectively related to a credit event occurring after the impairment was recognized. For debt instruments carried at amortized cost, the carrying amount after reversal cannot exceed what the amortized cost would have been at the reversal date, had the impairment not been recognized. c. Impairment of equity instruments For equity instruments, objective evidence of impairment of an investment in an equity instrument classified asavailable-for-sale includes information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered. A significant or prolonged decline in fair value below initial cost is also considered objective evidence of impairment and always results in a loss being recognized in the income statement. Significant or prolonged decline is defined as an unrealized loss position for generally more than six months or a fair value of less than 80% of the cost price of the investment. Equity investments are impaired to the asset’s fair value and any unrealized gain or loss previously recognized in shareholders’ equity is taken to the income statement as an impairment loss. The amount exceeding the balance of previously recognized unrealized gains or losses is recognized in the income statement. If anavailable-for-sale equity security is impaired based upon Aegon’s qualitative or quantitative impairment criteria, any further declines in the fair value at subsequent reporting dates are recognized as impairments. Therefore, at each reporting period, for an equity security that is determined to be impaired based upon Aegon’s impairment criteria, an impairment is recognized for the difference between the fair value and the original cost basis, less any previously recognized impairments. Impairment losses on equity instruments cannot be reversed. d. Impairment of reinsurance assets Reinsurance assets are impaired if there is objective evidence, as a result of an event that occurred after initial recognition of the reinsurance asset, that not all amounts due under the terms of the contract may be received. In such a case, the value of the reinsurance asset recoverable is determined based on the best estimate of future cash flows, taking into consideration the reinsurer’s current and expected future financial conditions plus any collateral held in trust for Aegon’s benefit. The carrying value is reduced to this calculated recoverable value, and the impairment loss recognized in the income statement. 2.17 Equity Financial instruments that are issued by the Group are classified as equity if they represent a residual interest in the assets of the Group after deducting all of its liabilities and the Group has an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation. In addition to common shares, the Group has issued perpetual securities. Perpetual securities have no final maturity date, repayment is at the discretion of Aegon and for junior perpetual capital securities, Aegon has the option to defer coupon | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 164 | | Notes to the consolidated financial statements Note 2 | | | | | | |
payments at its discretion. The perpetual capital securities are classified as equity rather than debt, are measured at par and those that are denominated in US dollars are translated into euro using historical exchange rates. Non-cumulative subordinated notes were identified as a compound instrument due to the nature of this financial instrument. For thesenon-cumulative subordinated notes, Aegon had an unconditional right to avoid delivering cash or another financial asset to settle the coupon payments. The redemption of the principal was however not at the discretion of Aegon and therefore Aegon had 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 were separated into liability components and equity components. The liability component for thenon-cumulative subordinated notes was 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 was recognized in the income statement. At initial recognition the equity component was 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 was translated into euro | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 171 | | | | Consolidated financial statements of Aegon N.V. Note 2 | | | | | | | | | | |
using historical exchange rates. With effect on May 15, 2018, Aegon has exercised its right to redeem USD 525 millionnon-cumulative subordinated notes, subsequently leading to their redemption. As the Group’s obligation under the contract has expired, the liability and equity components of thenon-cumulative subordinated notes have been derecognised.derecognized. Incremental external costs that are directly attributable to the issuing or buying back of own equity instruments are recognized in equity, net of tax. For compound instruments incremental external costs that were directly attributable to the issuing or buying back of the compound instruments were recognized proportionate to the equity component and liability component, net of tax. Dividends andThe Group recognizes the income tax consequences of dividends in profit or loss, other distributionscomprehensive income or equity according to holders of equity instruments arewhere it originally recognized directly in equity, net of tax.the past transactions or events that generated the distributable profits. A liability fornon-cumulative dividends payable is not recognized until the dividends have been declared and approved.
Treasury shares are shares issued by Aegon N.V. that are held by Aegon, one of its subsidiaries or by another entity controlled by Aegon. Treasury shares are deducted from Group equity, regardless of the objective of the transaction. No gain or loss is recognized in the income statement on the purchase, sale, issue or cancellation of the instruments. If sold, the difference between the carrying amount and the proceeds is reflected in retained earnings. The consideration paid or received is recognized directly in shareholders’ equity. All treasury shares are eliminated in the calculation of earnings per share and dividend per common share. 2.18 Trust pass-through securities and (subordinated) borrowings A financial instrument issued by the Group is classified as a liability if the contractual obligation must be settled in cash or another financial asset or through the exchange of financial assets and liabilities at potentially unfavorable conditions for the Group. Trust pass-through securities and (subordinated) borrowings are initially recognized at their fair value including directly attributable transaction costs and are subsequently carried at amortized cost using the effective interest rate method, with the exception of specific borrowings that are designated as at fair value through profit or loss to eliminate, or significantly reduce, an accounting mismatch, or specific borrowings which are carried as at fair value through profit or loss as they are managed and evaluated on a fair value basis. The liability is derecognized when the Group’s obligation under the contract expires, is discharged or is cancelled. Subordinated borrowings include the liability component ofnon-cumulative subordinated notes. These notes are identified as a compound instrument due to the nature of this financial instrument. Compound instruments are separated into equity components and liability components. The liability component for thenon-cumulative subordinated notes is related to the redemption amount. For further information on the accounting policy of thenon-cumulative subordinated notes refer to note 2.17 Equity. 2.19 Insurance contracts Insurance contracts are accounted for under IFRS 4 Insurance Contracts.Contracts. In accordance with this standard, Aegon continues to apply the existing accounting policies that were applied prior to the adoption of IFRS with certain modifications allowed by IFRS 4 for standards effective subsequent to adoption. Aegon applies, in general,non-uniform accounting policies for insurance liabilities and insurance related intangible assets to the extent that it was allowed under Dutch Accounting Principles. As a result, specific methodologies applied may differ between Aegon’s operations as they may reflect local regulatory requirements and local practices for specific product features in these local markets. At the time of IFRS adoption, Aegon was applying US GAAP for its United States operations whereas in the Netherlands and the United Kingdom, Aegon was applying Dutch Accounting Principles. Since adoption of IFRS, Aegon has considered new and amended standards in those GAAPs which have become effective subsequent to the date of transition to IFRS. If any changes are made to current accounting policies for insurance contracts, these will be in accordance with IFRS 4. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 165 | | Notes to the consolidated financial statementsNote 2 | | | | | | |
Insurance contracts are contracts under which the Group accepts a significant risk – other than a financial risk – from a policyholder by agreeing to compensate the beneficiary on the occurrence of an uncertain future event by which he or she will be adversely affected. Contracts that do not meet this definition are accounted for as investment contracts. The Group reviews homogeneous books of contracts to assess whether the underlying contracts transfer significant insurance risk on an individual basis. This is considered the case when at least one scenario with commercial substance can be identified in which the Group has to pay significant additional benefits to the policyholder. Contracts that have been classified as insurance are not reclassified subsequently. Insurance liabilities are recognized when the contract is entered into and the premiums are charged. The liability is derecognized when the contract expires, is discharged, disposed or cancelled. Within the United States, the Netherlands and the United Kingdom, substantially modified contracts are accounted for as an extinguishment of the original liability and the recognition of a new liability. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 172 | | | | Consolidated financial statements of Aegon N.V. Note 2 | | | | | | | | | | |
Insurance assets and liabilities are valued in accordance with the accounting principles that were applied by the Group prior to the transition to IFRS and with consideration of standards effective subsequent to the date of transition to IFRS, as further described in the following paragraphs. In order to reflect the specific nature of the products written, subsidiaries are allowed to apply local accounting principles to the measurement of insurance contracts. All valuation methods used by the subsidiaries are based on the general principle that the carrying amount of the net liability must be sufficient to meet any reasonably foreseeable obligation resulting from the insurance contracts. a. Life insurance contracts Life insurance contracts are insurance contracts with life-contingent benefits. The measurement of the liability for life insurance contracts varies depending on the nature of the product. Liabilities arising from traditional life insurance products that are offered by Aegon, particularly those with fixed and guaranteed account terms, are typically measured using the net premium method. Under this method the liability is determined as the sum of the discounted value of the expected benefits and future administration expenses directly related to the contract, less the discounted value of the expected theoretical premiums that would be required to meet the future cash outflows based on the valuation assumptions used. The liability is either based on current assumptions or calculated using the assumptions established at the time the contract was issued, in which case a margin for risk and adverse deviation is generally included. Furthermore, the liability for life insurance comprises reserves for unearned premiums and accrued annuity benefits payable. Depending on local accounting principles, the liability may include amounts for future services on contracts where the policy administration charges are higher in the initial years than in subsequent years. Terms and conditions, including participation features, are considered when establishing the insurance liabilities. Where the Group has discretion over the amount or timing of the bonuses distributed resulting from participation features, a liability is recognized equal to the amount that is available at the reporting date for future distribution to policyholders. In establishing the liability, guaranteed minimum benefits issued to the policyholder are measured as described in note 2.19.c2.19. c Embedded derivatives or, if bifurcated from the host contract, as described in note 2.9 Derivatives. b. Life insurance contracts for account of policyholders Life insurance contracts under which the policyholder bears the risks associated with the underlying investments are classified as insurance contracts for account of policyholders. The liability for the insurance contracts for account of policyholders is measured at the policyholder account balance. Contracts with unit-denominated payments are measured at current unit values, which reflect the fair values of the assets of the fund. If applicable, the liability representing the nominal value of the policyholder unit account is amortized over the term of the contract so that interest on actuarial funding is at an expected rate of return. c. Embedded derivatives Life insurance contracts may include derivative-like terms and conditions. With the exception of policyholder options to surrender the contract at a fixed amount, contractual features that are not closely related to the insurance contract and that do not themselves meet the definition of insurance contracts are accounted for as derivatives. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 166 | | Notes to the consolidated financial statements Note 2 | | | | | | |
Guaranteed minimum benefits Certain life insurance contracts, issued by the Group, contain guaranteed minimum benefits. Bifurcated guaranteed minimum benefits are classified as derivatives. In the United States, the additional liability for guaranteed minimum benefits that are not bifurcated is determined each period by estimating the expected value of benefits in excess of the projected account balance and recognizing the excess over the accumulation period based on total expected assessments. The estimates are reviewed regularly and any resulting adjustment to the additional liability is recognized in the income statement. The benefits used in calculating the liabilities are commonly based on the average benefits payable over a range of stochastic scenarios. Where applicable, the calculation of the liability incorporates a percentage of the potential annuitizations that may be elected by the contract holder. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 173 | | | | Consolidated financial statements of Aegon N.V. Note 2 | | | | | | | | | | |
In the Netherlands, an additional liability is established for guaranteed minimum investment returns on group pension plans with profit sharing and on traditional insurance contracts, with profit sharing based on an external interest index, that are not bifurcated. These guarantees are measured at fair value. d. Shadow accounting Shadow accounting allows that all gains and losses on investments affect the measurement of the insurance assets and liabilities in the same way, regardless of whether they are realized or unrealized and regardless of whether the unrealized gains and losses are recognized in the income statement or directly in shareholders’ equitythrough other comprehensive income in the revaluation reserve. In some instances, realized gains or losses on investments have a direct effect on the measurement of the insurance assets and liabilities. For example, some insurance contracts include benefits that are contractually based on the investment returns realized by the insurer. In addition, realization of gains or losses onavailable-for-sale investments can lead to unlocking of VOBA or DPAC and can also affect the outcome of the liability adequacy test to the extent that it considers actual future investment returns. For similar changes in unrealized gains and losses, shadow accounting is applied. If an unrealized gain or loss triggers a shadow accounting adjustment to VOBA, DPAC or the insurance liabilities, the corresponding adjustment is recognized through other comprehensive income in the revaluation reserve, together with the unrealized gain or loss. Some profit sharing schemes issued by the Group entitle the policyholder to a bonus which is based on the actual total return on specific assets held. To the extent that the bonus relates to gains or losses onavailable-for-sale investments for which the unrealized gains or losses are recognized through other comprehensive income in the revaluation reserve in shareholders’ equity, shadow accounting is applied. This means that the increase in the liability is also charged through other comprehensive income to shareholders’ equity to offset the unrealized gains rather than to the income statement. e.Non-life insurance contracts Non-life insurance contracts are insurance contracts where the insured event is not life-contingent. Fornon-life products the insurance liability generally includes reserves for unearned premiums, unexpired risk, inadequate premium levels and outstanding claims and benefits. No catastrophe or equalization reserves are included in the measurement of the liability. The reserve for unearned premiums includes premiums received for risks that have not yet expired. Generally, the reserve is released over the coverage period of the premium and is recognized as premium income. The liability for outstanding claims and benefits is established for claims that have not been settled and any related cash flows, such as claims handling costs. It includes claims that have been incurred but have not been reported to the Group. The liability is calculated at the reporting date using statistical methods based on empirical data and current assumptions that may include a margin for adverse deviation. Liabilities for claims subject to periodic payment are calculated using actuarial methods consistent with those applied to life insurance contracts. Discounting is applied if allowed by the local accounting principles used to measure the insurance liabilities. Discounting of liabilities is generally applied when there is a high level of certainty concerning the amount and settlement term of the cash outflows. f. Liability adequacy testing At each reporting date, the adequacy of the life insurance liabilities (including life insurance contracts for account of policyholders), net of VOBA and DPAC, is assessed using a liability adequacy test. All tests performed within the Group are based on current estimates of all contractual future cash flows, including related cash flows from policyholder options and guarantees. A number of valuation methods are applied, including discounted cash flow methods, option pricing models and stochastic modeling. Aggregation levels are set either on geographical jurisdiction or at the level of portfolio | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 167 | | Notes to the consolidated financial statementsNote 2 | | | | | | |
of contracts that are subject to broadly similar risks and managed together as a single portfolio. Specifically, in the Netherlands the liability adequacy test is performed on a consolidated basis for all life andnon-life business, whereas in the Americas and the UK it is performed at the level of the portfolio of contracts. To the extent that the tests involve discounting of future cash flows, the interest rate applied is based on market rates or is based on management’s expectation of the future return on investments. These future returns on investments take into account management’s best estimate related to the actual investments and, where applicable, reinvestments of these investments at maturity. Aegon the Netherlands, as required locally, adjusts the outcome of the liability adequacy test for the difference between the fair value and the book value of the assets that are measured at amortized cost in the statement of financial position. For details on the fair value (measurement) of Aegon’s assets and liabilities, please refer to note 44 Fair value. Only differences between the fair value and the book value build up during the period when the asset were allocated to the insurance portfolio are included in the LAT. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 174 | | | | Consolidated financial statements of Aegon N.V.Note 2 | | | | | | | | | | |
To the extent that the account balances are insufficient to meet future benefits and expenses, any resulting deficiency is recognized in the income statement, initially by impairing the DPAC and VOBA and subsequently by establishing an insurance liability for the remaining loss, unless shadow loss recognition has taken place. In the Netherlands, in situations where market interest rates for the valuation of debt securities leads to a change in the revaluation reserve, and where the result of using the same assumptions for the liabilities could lead to a deficiency in the liability adequacy test that should be recognized in the income statement, shadow loss recognition is applied. Shadow loss recognition is applied to the extent that the deficiency of the insurance liabilities relates to the revaluation of debt securities as a result of movements in interest rates, the addition to the insurance liabilities is then offset against the revaluation reserve. If in subsequent periods such a deficiency of the insurance liability is no longer applicable, shadow loss recognition is reversed via the revaluation reserve. The adequacy of thenon-life insurance liability is tested at each reporting date. Changes in expected claims that have occurred, but that have not been settled, are reflected by adjusting the liability for claims and future benefits. The reserve for unexpired risk is increased to the extent that the future claims and expenses in respect of current insurance contracts exceed the future premiums plus the current unearned premium reserve. 2.20 Investment contracts Aegon conducts its operations through the following reporting segments:type of investment contracts: Contracts issued by the Group that do not transfer significant insurance risk, but do transfer financial risk from the policyholder to the Group are accounted for as investment contracts. Depending on whether the Group or the policyholder runs the risks associated with the investments allocated to the contract, the liabilities are classified as investment contracts or as investment contracts for account of policyholders. Investment contract liabilities are recognized when the contract is entered into and are derecognized when the contract expires, is discharged, cancelled or substantially modified. a. Investment contracts with discretionary participation features Some investment contracts have participation features whereby the policyholder has the right to receive potentially significant additional benefits which are based on the performance of a specified pool of investment contracts, specific investments held by the Group or on the issuer’s net income. If the Group has discretion over the amount or timing of the distribution of the returns to policyholders, the investment contract liability is measured based on the accounting principles that apply to insurance contracts with similar features. Some unitized investment contracts provide policyholders with the option to switch between funds with and without discretionary participation features. The entire contract is accounted for as an investment contract with discretionary participation features if there is evidence of actual switching resulting in discretionary participation benefits that are a significant part of the total contractual benefits. b. Investment contracts without discretionary participation features At inception, investment contracts without discretionary participation features are carried at amortized cost. Investment contracts without discretionary participation features are carried at amortized cost based on the expected cash flows and using the effective interest rate method. The expected future cash flows arere-estimated at each reporting date and the carrying amount of the financial liability is recalculated as the present value of estimated future cash flows using the financial liability’s original effective interest rate. Any adjustment is immediately recognized in the income statement. For these investment contracts deposit accounting is applied, meaning that deposits are not reflected as premium income, but are recognized as part of the financial liability. The consolidated financial statements provide information on the fair value of all financial liabilities, including those carried at amortized cost. As these contracts are not quoted in active markets, their value is determined by using valuation techniques, such | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 168 | | Notes to the consolidated financial statements Note 2 | | | | | | |
as discounted cash flow methods and stochastic modeling. For investment contracts without discretionary participation features that can be cancelled by the policyholder, the fair value cannot be less than the surrender value. c. Investment contracts for account of policyholders Investment contracts for account of policyholders are investment contracts for which the actual return on investments allocated to the contract is passed on to the policyholder. Also included are participations held by third parties in consolidated investment funds that meet the definition of a financial liability. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 175 | | | | Consolidated financial statements of Aegon N.V.Note 2 | | | | | | | | | | |
Investment contracts for account of policyholders are designated at fair value through profit or loss. Contracts with unit-denominated payments are measured at current unit values, which reflect the fair values of the assets of the fund. For unit-linked contracts without discretionary participation features and subject to actuarial funding, the Group recognizes a liability at the funded amount of the units. The difference between the gross value of the units and the funded value is treated as an initial fee paid by the policyholder for future asset management services and recognized as a deferred revenue liability, refer to note 2.23 Deferred gains. 2.21 Provisions A provision is recognized for present legal or constructive obligations arising from past events, when it is probable that it will result in an outflow of economic benefits and the amount can be reliably estimated. Management exercises judgment in evaluating the probability that a loss will be incurred. The amount recognized as a provision is the best estimate of the expenditure required to settle the present obligation at the reporting date, considering all its inherent risks and uncertainties, as well as the time value of money. The estimate of the amount of a loss requires management judgment in the selection of a proper calculation model and the specific assumptions related to the particular exposure. The unwinding of the effect of discounting is recorded in the income statement as an interest expense. Onerous contracts With the exception of insurance contracts and investment contracts with discretionary participation features for which potential future losses are already considered in establishing the liability, a provision is recognized for onerous contracts in which the unavoidable costs of meeting the resulting obligations exceed the expected future economic benefits. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfill it. 2.22 Assets and liabilities relating to employee benefits a. Short-term employee benefits A liability is recognized for the undiscounted amount of short-term employee benefits expected to be settled within one year after the end of the period in which the service was rendered. Accumulating short-term absences are recognized over the period in which the service is provided. Benefits that are not service-related are recognized when the event that gives rise to the obligation occurs. b. Post-employment benefits The Group has issued defined contribution plans and defined benefit plans. A plan is classified as a defined contribution plan when the Group has no further obligation than the payment of a fixed contribution. All other plans are classified as defined benefit plans. Defined contribution plans The contribution payable to a defined contribution plan for services provided is recognized as an expense in the income statement. An asset is recognized to the extent that the contribution paid exceeds the amount due for services provided. Defined benefit plans Measurement The defined benefit obligation is based on the terms and conditions of the plan applicable on the reporting date. In measuring the defined benefit obligation the Group uses the projected unit credit method and actuarial assumptions that represent the best estimate of future variables. The benefits are discounted using an interest rate based on the market yield for high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity that approximate the terms of the related pension liability. Actuarial assumptions used in the measurement of the liability include the discount rate, estimated future salary increases, mortality rates and price inflation. To the extent that actual experience deviates from these | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 169 | | Notes to the consolidated financial statements Note 2 | | | | | | |
assumptions, the valuation of defined benefit plans and the level of pension expenses recognized in the future may be affected. Plan improvements (either vested or unvested) are recognized in the income statement at the date when the plan improvement occurs. Plan assets are qualifying insurance policies and assets held by long-term employee benefit funds that can only be used to pay the employee benefits under the plan and are not available to the Group’s creditors. They are measured at fair value and are deducted from the defined benefit obligation in determining the amount recognized on the statement of financial position. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 176 | | | | Consolidated financial statements of Aegon N.V.Note 2 | | | | | | | | | | |
Profit or loss recognition The cost of the defined benefit plans are determined at the beginning of the year and comprise the following components: | ◆ | | Current year service cost which is recognized in profit or loss; and |
| ◆ | | Net interest on the net defined benefit liability (asset) which is recognized in profit or loss. |
Remeasurements of the net defined benefit liability (asset) which is recognized in other comprehensive income are revisited quarterly and shall not be reclassified to profit or loss in a subsequent period. Deducted from current year service cost are discretionary employee contributions and employee contributions that are linked to service (those which are independent of the number of years of service). Net interest on the net defined benefit liability (asset) shall be determined by multiplying the net defined benefit liability (asset) by the applicable discount rate. Net interest on the net defined benefit liability (asset) comprises interest income on plan assets and interest cost on the defined benefit obligation. Whereby interest income on plan assets is a component of the return on plan assets and is determined by multiplying the fair value of the plan assets by the applicable discount rate. The difference between the interest income on plan assets and the actual return on plan assets is included in the remeasurement of the net defined benefit liability (asset). Remeasurements of the net defined benefit liability (asset) comprise of: | ◆ | | Actuarial gains and losses; |
| ◆ | | The return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset); and |
| ◆ | | Any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset). |
Past service cost and gains or losses on settlements Past service cost is the change in the present value of the defined benefit obligation for employee service, resulting from a plan amendment or curtailment. Gains or losses on curtailments or settlements of a defined benefit plan comprise of the difference between: | ◆ | | The present value of the defined benefit obligation being settled, as determined on the date of settlement; and |
| ◆ | | The settlement price, including any plan assets transferred and any payments made directly by Aegon in connection with the settlement. |
Aegon recognizes (in the income statement) gains or losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs. c. Share-based payments The Group has issued share-based plans that entitle selected 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 employeesshares, subject topre-defined conditions such as the grant price of the Group with the choice of settlement.shares and (business and personal) performance criteria. 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,The expenses recognized for these plans are based on the fair value on the grant date of the shares. The fair value is measured at the market price of the entitiesAegon N.V. common shares, adjusted to take into account the termsnon-vesting and market 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.
The cost for long term incentive plans are recognized in the income statement, together with a corresponding increase in shareholders’ equity, as the services are rendered. During this period the cumulative expense recognized at the reporting date reflects management’s best estimate of the number of shares expected to vest ultimately. For cash settled components (such as net settled component of long-term share-based plans) a liability will be recognized using the fair value of the equity settled award based on the elapsed portion of the vesting period. For modifications of the terms and conditions of equity-settled plans that result | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 170 | | Notes to the consolidated financial statements Note 2 | | | | | | |
in those plans to be classified as cash-settled plans, the liability is recognized using the fair value measured at the modification date. The liability is remeasured at each reporting date and at the date of settlement, with any changes in fair value recognized in the income statement.
The withholding of shares to fund the payment to the tax authority in respect of the employee’s withholding tax obligation associated with the share-based payment is accounted for as a deduction from equity for the shares withheld, except to the extent that the payment exceeds the fair value at the net settlement date of the equity instruments withheld. 2.23 Deferred gains Initial fees andfront-end loadings paid by policyholders and other clients for future investment management services related to investment contracts without discretionary participation features are deferred and recognized as revenue when the related services are rendered. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 177 | | | | Consolidated financial statements of Aegon N.V.Note 2 | | | | | | | | | | |
2.24 Tax assets and liabilities a. Current tax receivables and payables Tax receivables and payables for current and prior periods are measured at the amount that is expected to be received from or paid to the taxation authoritiesauthorities. The tax treatment of transactions or events requires judgement and that reflects uncertaintyis often complex and may lead to income taxes,discussions with tax authorities. Consequently, in a number of jurisdictions, prior year tax returns remain open and subject to tax authority approval or pending litigation for a number of years. The tax assets and liabilities reported are based on the best available information, supported by external advice if any.necessary, and are reflecting uncertainties. Differences between the final outcome and the estimates originally made are accounted for in the current and deferred tax assets and liabilities in the period in which reasonable certainty is obtained. Measurement is done using the tax rates that have been enacted or substantively enacted by the reporting date. b. Deferred tax assets and liabilities Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the carrying value of an item and its tax value, with the exception of differences arising from the initial recognition of goodwill and of assets and liabilities that do not impact taxable or accounting profits. A tax asset is recognized for tax loss carryforwards to the extent that it is probable at the reporting date that future taxable profits will be available against which the unused tax losses and unused tax credits can be utilized. Deferred tax liabilities relating to investments in subsidiaries, associates and joint ventures are not recognized if the Group is able to control the timing of the reversal of the temporary difference and it is probable that the difference will not be reversed in the foreseeable future. Deferred tax assets and liabilities are reviewed at each reporting period and are measured at tax rates that are expected to apply when the asset is realized or the liability is settled. Since there is no absolute assurance that these assets will ultimately be realized, management reviews Aegon’s deferred tax positions at each reporting period to determine if it is probable that the assets will be realized. These reviews include, among other things, the nature and amount of the taxable income and deductible expenses, the expected timing when certain assets will be used or liabilities will be required to be reported and the reliability of historical profitability of businesses expected to provide future earnings. Furthermore, management considerstax-planning opportunities it can utilize to increase the likelihood that the tax assets will be realized. The carrying amount is not discounted and reflects the Group’s expectations concerning the manner of recovery or settlement. Deferred tax assets and liabilities are recognized in relation to the underlying transaction either in profit and loss, other comprehensive income or directly in equity. 2.25 Contingent assets and liabilities Contingent assets are disclosed in the notes if the inflow of economic benefits is probable, but not virtually certain. When the inflow of economic benefits becomes virtually certain, the asset is no longer contingent and its recognition is appropriate. A provision is recognized for present legal or constructive obligations arising from past events, when it is probable that it will result in an outflow of economic benefits and the amount can be reliably estimated. If the outflow of economic benefits is not probable, a contingent liability is disclosed, unless the possibility of an outflow of economic benefits is remote. 2.26 Premium income Gross premiums, including recurring and single premiums, from life andnon-life insurance and investment contracts with discretionary participation features are recognized as revenue when they become receivable. For products where deposit accounting is required, the deposits are not reflected as premium income, but are recognized as part of the financial liability. For these products the surrender charges and charges assessed have been included in gross premiums. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 171 | | Notes to the consolidated financial statements Note 2 | | | | | | |
Premium loadings for installment payments and additional payments by the policyholder towards costs borne by the insurer are included in the gross premiums. Rebates that form part of the premium rate, such asno-claim rebates, are deducted from the gross premium, others are recognized as an expense. Depending on the applicable local accounting principles, bonuses that are used to increase the insured benefits may be recognized as gross premiums. The insurance premiums for the original contracts are presented gross of reinsurance premiums paid. 2.27 Investment income For interest-bearing assets, interest is recognized as it accrues and is calculated using the effective interest rate method. Fees and commissions that are an integral part of the effective yield of the financial assets or liabilities are recognized as an adjustment | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 178 | | | | Consolidated financial statements of Aegon N.V.Note 2 | | | | | | | | | | |
to the effective interest rate of the instrument. Investment income includes the interest income and dividend income on financial assets carried at fair value through profit or loss. Investment income also includes rental income due. 2.28 Fee and commission income Fees and commissions from investment management services and mutual funds are performed on an ongoing basis evenly throughout the year and are accounted for monthly (1/12 of the contractual agreement). Performance fees may be charged to policyholders in the event of outperformance in the investments compared to predefined benchmark levels. They are accounted for only when specified hurdles for generating performance fees are achieved i.e. when the full performance obligation is met. Aegon acts also as an insurance broker selling insurance contracts of other insurance companies to policyholders and receiving direct sales commission as well as commissions over time when the same policyholders renew their contracts. These commissions are recognized only when received as policyholders’ renewals are not certain enough to be recorded upfront. 2.29 Policyholder claims and benefits Policyholder claims and benefits consist of claims and benefits paid to policyholders, including benefits in excess of account value for products for which deposit accounting is applied and the change in the valuation of liabilities for insurance and investment contracts. It includes internal and external claims handling costs that are directly related to the processing and settlement of claims. Amounts receivable in respect of salvage and subrogation are also considered. 2.30 Results from financial transactions Results from financial transactions include: Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives include fair value changes of financial assets carried at fair value through profit or loss. The net gains and losses do not include interest or dividend income. Realized gains and losses on financial investments Gains and losses on financial investments include realized gains and losses on general account financial assets, other than those classified as at fair value through profit or loss. Net fair value change of derivatives All changes in fair value are recognized in the income statement, unless the derivative has been designated as a hedging instrument in a cash flow hedge or a hedge of a net investment in a foreign operation. Fair value movements of fair value hedge instruments are offset by the fair value movements of the hedged item, and the resulting hedge ineffectiveness, if any, is included in this line. In addition, the fair value movements of bifurcated embedded derivatives are included in this line. Net fair value change on for account of policyholder financial assets at fair value through profit or loss Net fair value change on for account of policyholder financial assets at fair value through profit or loss includes fair value movements of investments held for account of policyholders (refer to note 2.8 Investments for account of policyholders). The net fair value change does not include interest or dividend income. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 172 | | Notes to the consolidated financial statements Note 3 | | | | | | |
Other In addition, results from financial transactions include gains/losses on real estate (general account and account of policyholders), net foreign currency gains/(losses) and net fair value change on borrowings and other financial liabilities and realized gains on repurchased debt. 2.31 Impairment charges/(reversals) Impairment charges and reversals include impairments and reversals on investments in financial assets, impairments and reversals on the valuation of insurance assets and othernon-financial assets and receivables. Impairment of deferred policy acquisition costs is included in note 15 Impairment charges/(reversals). Refer to note 15 Impairment charges/(reversals). | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 179 | | | | Consolidated financial statements of Aegon N.V.Note 2 | | | | | | | | | | |
2.32 Interest charges and related fees Interest charges and related fees includes interest expense on trust pass-through securities and other borrowings. Interest expense on trust pass-through securities and other borrowings carried at amortized cost is recognized in profit or loss using the effective interest method. 2.33 Leases The Group has applied IFRS 16 using the modified retrospective approach and therefore the comparative information has not been restated and continues to be reported under IAS 17 and IFRIC 4. For further information on the revised Leases standard refer to note 2.1.1. Adoption of new IFRS accounting standards and amendments effective in 2019. Policy applicable from January 1, 2019 As a lessee The Group recognizes aright-of-use asset and a lease liability at the lease commencement date. Theright-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. Theright-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of theright-of-use asset or the end of the lease term. The estimated useful lives ofright-of-use assets are determined on the same basis as those of real estate and equipment. In addition, theright-of-use asset is periodically reduced by impairment losses (using the same rate to measure the lease liability), if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option. The Group presentsright-of-use assets that do not meet the definition of investment property in ‘Other assets and receivables’ and lease liabilities in ‘Other liabilities’ in the statement of financial position. Short-term leases and leases oflow-value assets The Group has elected not to recognizeright-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases oflow-value assets, including small office equipment. The Group recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term. As a lessor Where the Group is the lessor under an operating lease, the assets subject to the operating lease arrangement are presented in the statement of financial position according to the nature of the asset. Income from these leases are recognized in the income statement on a straight line basis over the lease term, unless another systematic basis is more representative of the time pattern in which use benefit derived from the leased asset is diminished. Policy applicable before January 1, 2019 As a lessee Arrangements that do not take the form of a lease but convey a right to use an asset in return for a payment are assessed at inception to determine whether they are, or contain, a lease. This involves an assessment of whether fulfillment of the arrangement is dependent on the use of a specific asset and whether the purchaser (lessee) has the right to control the use of the underlying asset. Leases that do not transfer substantially all the risks and rewards of ownership are classified as operating leases. Payments made under operating leases, where the Group is the lessee, are charged to the income statement on a straight line basis over the period of the lease. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 180 | | | | Consolidated financial statements of Aegon N.V.Note 3 | | | | | | | | | | |
As a lessor Where the Group is the lessor under an operating lease, the assets subject to the operating lease arrangement are presented in the statement of financial position according to the nature of the asset. Income from these leases are recognized in the income statement on a straight line basis over the lease term, unless another systematic basis is more representative of the time pattern in which use benefit derived from the leased asset is diminished. 2.34 Events after the reporting period The financial statements are adjusted to reflect events that occurred between the reporting date and the date when the financial statements are authorized for issue, provided they give evidence of conditions that existed at the reporting date. Events that are indicative of conditions that arose after the reporting date are disclosed, but do not result in an adjustment of the financial statements themselves. 3 Critical accounting estimates and judgment in applying accounting policies Application of the accounting policies in the preparation of the financial statements requires management to apply judgment involving assumptions and estimates concerning future results or other developments, including the likelihood, timing or amount of future transactions or events. Those estimates are inherently subject to change and actual results could differ from those estimates. Included among the material (or potentially material) reported amounts and disclosures that require extensive use of estimates are: fair value of certain invested assets and derivatives, deferred policy acquisition costs (please refer to paragraph 2.13), value of business acquired and other purchased intangible assets (please refer to paragraph 2.6), goodwill (please refer to paragraph 2.6), policyholder claims and benefits (please refer to paragraph 2.29), insurance guarantees (please refer to paragraph 2.19), pension plans (please refer to paragraph 2.22), income taxes (please refer to paragraph 2.24) and the potential effects of resolving litigation matters (please refer to paragraph 2.25). Accounting policies that are critical to the financial statement presentation and that require complex estimates or significant judgment are described in the following sections. Valuation of assets and liabilities arising from life insurance contracts The valuation of certain assets and liabilities arising from insurance contracts is developed using complex valuation models. The liability for life insurance contracts with guaranteed or fixed account terms is either based on current assumptions, on the assumptions established at inception of the contract, reflecting the best estimates at the time increased with a margin for adverse deviation, or on the valuation assumptions (historical cost), without risk margin. All contracts are subject to liability adequacy testing which reflects management’s current estimates of future cash flows (including investment returns). To the extent that the liability is based on current assumptions, a change in assumptions will have an immediate impact on the income statement. Also, if a change in assumption results in not passing the liability adequacy test, the entire deficiency is recognized in the income statement. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 173 | | Notes to the consolidated financial statements Note 3 | | | | | | |
To the extent that the deficiency relates to unrealized gains and losses onavailable-for-sale investments, the additional liability is recognized through other comprehensive income in the related revaluation reserve in shareholders’ equity. Aegon the Netherlands, as required locally, adjusts the outcome of the liability adequacy test for the difference between the fair value and the book value of the assets that are measured at amortized cost in the statement of financial position. Mortgage loans is the primary asset class for which the difference between the fair value and the book value of assets impacts the LAT. For details on the fair value (measurement) of Aegon’s assets and liabilities, please refer to note 44 Fair value. Some insurance contracts without a guaranteed or fixed contractual term contain guaranteed minimum benefits. Depending on the nature of the guarantee, it may either be bifurcated and presented as a derivative, or be reflected in the value of the insurance liability in accordance with local accounting principles. Given the dynamic and complex nature of these guarantees, stochastic techniques under a variety of market return scenarios are often used for measurement purposes. Such models require management to make numerous estimates based on historical experience and market expectations. Changes in these estimates will immediately affect the income statement. In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force are recorded as DPAC and VOBA assets respectively, and are amortized to the income statement over time. If the assumptions relating to the future profitability of these policies are not realized, the amortization of these costs could be accelerated and may require write-offs due to unrecoverability. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 181 | | | | Consolidated financial statements of Aegon N.V.Note 3 | | | | | | | | | | |
Actuarial and economic assumptions The main assumptions used in measuring DPAC, VOBA and the liabilities for life insurance contracts with fixed or guaranteed terms relate to mortality, morbidity, investment return and future expenses. Depending on local accounting principles, surrender, lapse, and utilization rates may be considered. Mortality tables applied are generally developed based on a blend of company experience and industry wide studies, taking into consideration product characteristics, own risk selection criteria, target market and past experience. Mortality experience is monitored through regular studies, the results of which are fed into the pricing cycle for new products and reflected in the liability calculation when appropriate. For contracts insuring survivorship or mortality, allowance may be made for further longevity or mortality improvements. Morbidity assumptions are based on own claims severity and frequency experience, adjusted where appropriate for industry information. Investment assumptions are prescribed by the local regulator, market observable or based on management’s future expectations. In the latter case, the anticipated future investment returns are set by management on a countrywide basis, considering available market information and economic indicators. A significant assumption related to estimated gross profits on variable annuities and variable life insurance products in the United States and some of the smaller countries, is the annual long-term growth rate of the underlying assets. The reconsideration of this assumption may affect the original DPAC or VOBA amortization schedule, referred to as DPAC or VOBA unlocking. The difference between the original DPAC or VOBA amortization schedule and the revised schedule, which is based on actual and estimates of future gross profits, is recognized in the income statement as an expense or a benefit in the period of determination. Assumptions on future expenses are based on the current level of expenses, adjusted for expected expense inflation if appropriate. In Aegon the Netherlands, the expense basis makes an allowance for planned future cost savings, which are included in the liability adequacy test. Surrender and lapse rates depend on product features, policy duration and external circumstances such as the interest rate environment and competitor behavior. For policies with account value guarantees based on equity market movements, a dynamic lapse assumption is utilized to reflect policyholder behavior based on whether the guarantee is in the money. Own experience, as well as industry published data, are used in establishing assumptions. Lapse experience is correlated to mortality and morbidity levels, as higher or lower levels of surrenders may indicate future claims will be higher or lower than anticipated. Such correlations are accounted for in the mortality and morbidity assumptions based on the emerging analysis of experience. Actuarial assumption and model updates Assumptions are reviewed periodically historically in the third quarter, but now in the second quarter for the US and Asia and in the fourth quarter for Europe, 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. During 2018,2019, Aegon implemented actuarial assumption and model updates resulting in a net EUR 121196 million charge to income before tax (2017:(2018: EUR 276121 million charge). Refer to note 5 Segment information for further details. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 174 | | Notes to the consolidated financial statements Note 3 | | | | | | |
For the years 20162017 through 2018,2019, Aegon kept its long-term equity market return assumption for the estimated gross profits on variable life and variable annuity products in the Americas at 8%. During the three year period, the long-term assumption for10-year US Treasury yields was 4.25% and the uniform grading period was 10 years. Aegon’s assumed returns for US separate account bond funds are 4% over the next 10 years and 6% thereafter. The long term credit spread assumption, net of assumed defaults and expenses, on our most common corporate bonds is 114bps. The90-day Treasury yield was 2.37%1.55%, 1.39%,2.37% and 0.51%1.39% at December 31, 2019, 2018 2017 and 2016,2017, respectively. During the period 20162017 to 20182019 the90-day Treasury yield was assumed to have a uniform grading over 10 years to 2.5%. On a quarterly basis, the estimated gross profits are updated for the difference between the estimated market return and the actual market return. Sensitivities Please note that the sensitivities listed in the disclosures below represent sensitivities to Aegon’s position at the balance sheet date for the respective years. The sensitivities reflect single shocks where other elements remain unchanged. Real world market impacts (e.g. lower interest rates and declining equity markets) may happen simultaneously which can lead to more severe combined impacts and may not be equal to the sum of the individual sensitivities presented in the disclosure. Sensitivity on variable annuities and variable life insurance products in the United States A 1% decrease in the expected long-term equity growth rate with regard to Aegon’s variable annuities and variable life insurance products in the United States would result in a decrease in DPAC and VOBA balances and reserve strengthening of approximately EUR 148111 million (2017:(2018: EUR 130148 million). The DPAC and VOBA balances for these products in the United States amounted to EUR 2.62.7 billion at December 31, 2018 (2017:2019 (2018: EUR 2.72.6 billion). | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 182 | | | | Consolidated financial statements of Aegon N.V. Note 3 | | | | | | | | | | |
A relative increase of 10% to the mortality assumption was used, dependent on product and characteristics of the block of business, would reduce net income by approximately EUR 207204 million (2017:(2018: EUR 265207 million). A relative 20% increase in the lapse rate assumption would increase net income by approximately EUR 89126 million (2017:(2018: EUR 7889 million). Any reasonably possible changes in the other assumptions Aegon uses to determine EGP margins (i.e. maintenance expenses) would reduce net income by less than EUR 913 million (2017:(2018: EUR 159 million). Sensitivity on long term care products (LTC) in the United States Sensitivities of significant product liability assumptions on the LTC IFRSafter-tax Gross Present Value Reserve (GPV) margin are indicated below. The GPV is the liability as determined on a best estimate assumption basis. Until an assumption change is of significant amount to breach the current margin of EUR 35251 million (loss recognition block of LTC), there will be no IFRS financial impact (2017:(2018: EUR 1735 million). The GPV margin is the amount by which the IFRS reserve exceeds the GPV liability. A 5% increase in the incidence rates with regard to Aegon’s long term care products would result in a GPV increase of approximately EUR 178 million (2018: EUR 170 million.million). A 5% decrease in the incidence rates with regard to Aegon’s long term care products would result in a GPV decrease of approximately EUR 178 million (2018: EUR 170 million.million). Removing the morbidity improvement, which is a component of the incidence assumption, would result in a GPV increase of approximately EUR 535 million (2018: EUR 500 million,million), of which EUR 445 million (2018: EUR 425 millionmillion) relates to the loss recognition block. Reducing mortality 10% would result in a GPV increase of approximately EUR 89 million (2018: EUR 85 million.million). Increasing mortality 10% would result in a GPV decrease of approximately EUR 89 million (2018: EUR 85 million.million). Removing future mortality improvement would result in a GPV decrease of approximately EUR 89 million (2018: EUR 85 million.million). Sensitivity on liability adequacy test (LAT) in the Netherlands At December 31, 2019 the liability adequacy test (LAT) of Aegon the Netherlands resulted in a deficiency driven by market movements in 2019. The LAT assesses the adequacy of the insurance liabilities by comparing them to their fair value. Aegon the Netherlands adjusts the outcome of the LAT for certain unrealized gains in the bond portfolio and certain differences between the fair value and the book value of assets measured at amortized cost, mainly residential mortgages (shadow loss recognition). Please also refer to Note 2.19f Liability adequacy testing for further details on the accounting policy. The LAT deficit per December 31, 2019 in Aegon the Netherlands amounted to EUR 5.1 billion, which was partially offset by the shadow loss recognition of EUR 3.4 billion, resulting in a net deficit of EUR 1.7 billion. During 2019 the outcome of the liability adequacy test in Aegon the Netherlands triggered a review of the existing sensitivities. As a result, starting from 2019, Aegon discloses sensitivities on interest rate, bond credit spread, mortgage spread and liquidity premium assumptions to assess the impact on the LAT test, without taking into account the impact of shadow loss recognition. The results are indicated below: An increase of 100 bps in interest rate would result in a decrease in LAT deficit of EUR 3.5 billion. A decrease of 100 bps would result in an increase in LAT deficit of approximately EUR 4.7 billion. Increasing 50 bps in bond credit spread would lead to an increase in LAT deficit of EUR 0.2 billion. A decrease of 50 bps would result in a decrease in LAT deficit of EUR 0.2 billion. A 50 bps increase in mortgage spread would result in an increase in LAT deficit of EUR 0.6 billion. A 50 bps decrease would result in a decrease in LAT deficit of EUR 0.6 billion. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 183 | | | | Consolidated financial statements of Aegon N.V.Note 3 | | | | | | | | | | |
A shift up or down by 5 bps in liquidity premium would not result in a significant movement in the LAT deficit. Given the LAT deficit at December 31, 2019, the above mentioned results would be reflected directly in the income statement. This impact on the income statement will be partially offset by the application of shadow loss recognition, triggered by the interest rate shock. Determination of fair value and fair value hierarchy The following is a description of Aegon’s methods of determining fair value, and a quantification of its exposure to assets and liabilities measured at fair value. 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). A fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either: | ◆ | | In the principal market for the asset or liability; or |
| ◆ | | In the absence of a principal market, in the most advantageous market for the asset or liability. |
Aegon uses the following hierarchy for measuring and disclosing of the fair value of assets and liabilities: | ◆ | | Level I: quoted prices (unadjusted) in active markets for identical assets or liabilities that Aegon can access at the measurement date; |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 175 | | Notes to the consolidated financial statements Note 4 | | | | | | |
| ◆ | | Level II: inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices of identical or similar assets and liabilities) using valuation techniques for which all significant inputs are based on observable market data; and |
| ◆ | | Level III: inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) using valuation techniques for which any significant input is not based on observable market data. |
The best evidence of fair value is a quoted price in an actively traded market. In the event that the market for a financial instrument is not active or quoted market prices are not available, a valuation technique is used. The degree of judgment used in measuring the fair value of assets and liabilities generally inversely correlates with the level of observable valuation inputs. Aegon maximizes the use of observable inputs and minimizes the use of unobservable valuation inputs when measuring fair value. Financial instruments, for example, with quoted prices in active markets generally have more pricing observability and therefore less judgment is used in measuring fair value. Conversely, financial instruments for which no quoted prices are available have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment. The assets and liabilities categorization within the fair value hierarchy is based on the lowest input that is significant to the fair value measurement. An active market is one in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The judgment as to whether a market is active may include, although not necessarily determinative, lower transaction volumes, reduced transaction sizes and, in some cases, no observable trading activity for short periods. In inactive markets, assurance is obtained that the transaction price provides evidence of fair value or it is determined that adjustments to transaction prices are necessary to measure the fair value of the instrument. The majority of valuation techniques employ only observable market data, and so the reliability of the fair value measurement is high. However, certain assets and liabilities are valued on the basis of valuation techniques that feature one or more significant market inputs that are unobservable and, for such assets and liabilities, the derivation of fair value is more judgmental. An instrument is classified in its entirety as valued using significant unobservable inputs (Level III) if, in the opinion of management, a significant proportion of the instrument’s carrying amount is driven by unobservable inputs. ‘Unobservable’ in this context means that there is little or no current market data available from which to determine the price at which an at arm’s length transaction would be likely to occur. It generally does not mean that there is no market data available at all upon which to base a determination of fair value. Additional information is provided in the table headed ‘Effect of changes in significant unobservable assumptions to reasonably possible alternatives’ in note 4744 Fair Value. While Aegon believes its valuation techniques are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain instruments (both financial andnon-financial) could result in a different estimate of fair value at the reporting date. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 184 | | | | Consolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | |
The valuation techniques applied to financial instrument affected by IBOR reforms remain consistent with those of other market participants, and the uncertainty on the outcome of the reforms has not affected the classification of the instruments. To operationalize Aegon’s fair value hierarchy, individual instruments (both financial andnon-financial) are assigned a fair value level based primarily on the type of instrument and the source of the prices (e.g. index, third-party pricing service, broker, internally modeled). Periodically, this logic for assigning fair value levels is reviewed to determine if any modifications are necessary in the context of the current market environment. 4 Financial risks General As an insurance group, Aegon is exposed to a variety of risks. Aegon’s largest exposures are to changes in financial markets (e.g. foreign currency, interest rate, credit and equity market risks) that affect the value of the investments, liabilities from products that Aegon sells, deferred expenses and value of business acquired. Other risks include insurance related risks, such as changes in mortality, morbidity, bond credit spread and morbidity,liquidity premium, which are discussed in note 3634 Insurance contracts. Aegon manages risk at local level where business is transacted, based on principles and policies established at the Group level. Aegon’s integrated approach to risk management involves similar measurement of risk and scope of risk coverage to allow for aggregation of the Group’s risk position. To manage its risk exposure, Aegon has risk policies in place. Many of these policies are group-wide while others are specific to the unique situation of local businesses. The Group level policies limit the Group’s exposure to major risks such as equity, interest rates, credit, and currency. The limits in these policies in aggregate remain within the Group’s overall tolerance for risk and the Group’s financial resources. Operating within this policy framework, Aegon employs risk management programs including asset liability management (ALM) processes and models and hedging programs (which are largely conducted via the use of financial derivative | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 176 | | Notes to the consolidated financial statements Note 4 | | | | | | |
instruments). These risk management programs are in place in each country unit and are not only used to manage risk in each unit, but are also part of the Group’s overall risk strategy. Aegon operates a Derivative Use Policy to govern its usage of derivatives. This policy establishes the control, authorization, execution and monitoring requirements of the usage of such instruments. In addition, the policy stipulates necessary mitigation of credit risk created through derivatives management tools. For derivatives, counterparty credit risk is normally mitigated by requirements to post collateral via credit support annex agreements or through a central clearinghouse. As part of its risk management programs, Aegon takes inventory of its current risk position across risk categories. Aegon also measures the sensitivity of net income and shareholders’ equity under both deterministic and stochastic scenarios. Management uses the insight gained through these ‘what if?’ scenarios to manage the Group’s risk exposure and capital position. The models, scenarios and assumptions used are reviewed regularly and updated as necessary. 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. Each sensitivity analysis reflects the extent to which the shock tested would affect management’s critical accounting estimates and judgment in applying Aegon’s accounting policies. Market-consistent assumptions underlying the measurement ofnon-listed assets and liabilities are adjusted to reflect the shock tested. The shock may also affect the measurement of assets and liabilities based on assumptions that are not observable in the market. For example, a shock in interest rates may lead to changes in the amortization schedule of DPAC or to increased impairment losses on equity investments. Although management’s short-term assumptions may change if there is a reasonably possible change in a risk factor, long-term assumptions will generally not be revised unless there is evidence that the movement is permanent. This fact is reflected in the sensitivity analyses. The accounting mismatch inherent in IFRS is also apparent in the reported sensitivities. A change in interest rates has an immediate impact on the carrying amount of assets measured at fair value. However, the shock will not have a similar effect on the carrying amount of the related insurance liabilities that are measured based onlocked-in assumptions or on management’s long-term expectations. Consequently, the different measurement bases for assets and liabilities lead to increased volatility in IFRS net income and shareholders’ equity. Aegon has classified a significant part of its investment portfolio as‘available-for-sale’, which is one of the main reasons why the economic shocks tested have a different impact on net income than on shareholders’ equity. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 185 | | | | Consolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | |
Unrealized gains and losses on these assets are not recognized in the income statement but are booked directlythrough other comprehensive income to the revaluation reserves in shareholders’ equity, unless impaired. As a result, economic sensitivities predominantly impact shareholders’ equity but leave net income unaffected. The effect of movements of the revaluation reserve on capitalization ratios and capital adequacy are minimal. Aegon’s target ratio for the composition of its capital base is based on shareholders’ equity excluding the revaluation reserve. The sensitivities do not reflect what the net income for the period would have been if risk variables had been different because the analysis is based on the exposures in existence at the reporting date rather than on those that actually occurred during the year. Nor are the results of the sensitivities intended to be an accurate prediction of Aegon’s future shareholders’ equity or earnings. The analysis does not take into account the impact of future new business, which is an important component of Aegon’s future earnings. It also does not consider all methods available to management to respond to changes in the financial environment, such as changing investment portfolio allocations or adjusting premiums and crediting rates. Furthermore, the results of the analyses cannot be extrapolated for wider variations since effects do not tend to be linear. Concentration risk for financial risks are measured and managed at the following levels: | ◆ | | Concentration per risk type: Risk exposures are measured per risk type as part of Aegon’s internal economic framework. A risk tolerance framework is in place which sets risk limits per risk type to target desired risk balance and promote diversification across risk types; |
| ◆ | | Concentration per counterparty: Risk exposure is measured and risk limits are in place per counterparty as part of the Counterparty 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. Compliance monitoring of the investment mandates is done by the insurance operating companies. |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 177 | | Notes to the consolidated financial statements Note 4 | | | | | | |
Moreover, concentration of financial risks are measured in Aegon business planning cycle. As part of business planning, the resilience of Aegon’s business strategy is tested in several extreme event scenarios. In the Adverse Financial scenario, financial markets are stressed without assuming diversification across different market factors. Within the projection certain management actions may be implemented when management deems this necessary. Aegon’s significant financial risks and related financial information are explained in the order as follows: | ◆ | | Equity market risk and other investment risks |
Credit risk As premiums and deposits are received, these funds are invested to pay for future policyholder obligations. For general account products, Aegon typically bears the risk for investment performance which is equal to the return of principal and interest. Aegon is exposed to credit risk on its general account fixed-income portfolio (debt securities, mortgages and private placements),over-the-counter derivatives and reinsurance contracts. Some issuers have defaulted on their financial obligations for various reasons, including bankruptcy, lack of liquidity, downturns in the economy, downturns in real estate values, operational failure and fraud. During financial downturns, Aegon can incur defaults or other reductions in the value of these securities and loans, which could have a materially adverse effect on Aegon’s business, results of operations and financial condition. Investments for account of policyholders are excluded as the policyholder bears the credit risk associated with the investments. The table that follows shows the Group’s maximum exposure to credit risk from investments in general account financial assets, as well as general account derivatives and reinsurance assets, collateral held and net exposure. Please refer to note 49 Transfer of financial assets45 and 46 for further information on capital commitments and contingencies and on collateral given, which may expose the Group to credit risk. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | Maximum
exposure to
credit risk | | | Cash | | | Secu-
rities | | | Letters of
credit/
guarantees | | | Real
estate
property | | | Master
netting
agree-
ments | | | Other | | | Total
collateral | | | Surplus
collateral
(or over-
collateral-
ization) | | | Net
exposure | | Debt securities – carried at fair value | | | 81,253 | | | | - | | | | - | | | | 169 | | | | - | | | | - | | | | - | | | | 169 | | | | - | | | | 81,084 | | Debt securities – carried at amortized cost | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Money market and other short-term investments – carried at fair value | | | 6,307 | | | | - | | | | 484 | | | | - | | | | - | | | | - | | | | - | | | | 484 | | | | 29 | | | | 5,852 | | Mortgage loans – carried at amortized cost | | | 36,240 | | | | 2,535 | | | | - | | | | 136 | | | | 57,009 | | | | - | | | | - | | | | 59,680 | | | | 23,589 | | | | 149 | | Private loans – carried at amortized cost | | | 4,103 | | | | 45 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 45 | | | | - | | | | 4,058 | | Other loans – carried at amortized cost | | | 2,310 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,960 | | | | 1,960 | | | | 1,238 | | | | 1,589 | | Other financial assets – carried at fair value | | | 3,551 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 3,551 | | Derivatives | | | 7,337 | | | | 2,627 | | | | 233 | | | | 31 | | | | - | | | | 4,606 | | | | - | | | | 7,496 | | | | 225 | | | | 66 | | Reinsurance assets | | | 20,505 | | | | - | | | | 4,035 | | | | 104 | | | | - | | | | - | | | | - | | | | 4,139 | | | | - | | | | 16,366 | | At December 31 | | | 161,607 | | | | 5,207 | | | | 4,752 | | | | 439 | | | | 57,009 | | | | 4,606 | | | | 1,960 | | | | 73,972 | | | | 25,081 | | | | 112,715 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 178186 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2017 | | Maximum
exposure to
credit risk | | | Cash | | | Securi-
ties | | | Letters of
credit/
guarantees | | | Real
estate
property | | | Master
netting
agree-
ments | | | Other | | | Total
collateral | | | Surplus
collateral
(or
overcollat-
eralization) | | | Net
exposure | | Debt securities – carried at fair value | | | 84,344 | | | | - | | | | - | | | | 242 | | | | - | | | | - | | | | - | | | | 242 | | | | - | | | | 84,102 | | Debt securities – carried at amortized cost | | | - | | | | - | | | | - | | | | 14 | | | | - | | | | - | | | | - | | | | 14 | | | | - | | | | (14) | | Money market and other short-term investments – carried at fair value | | | 6,809 | | | | - | | | | 719 | | | | - | | | | - | | | | - | | | | - | | | | 719 | | | | 25 | | | | 6,115 | | Mortgage loans – carried at amortized cost | | | 33,562 | | | | 2,437 | | | | - | | | | 379 | | | | 49,756 | | | | - | | | | - | | | | 52,573 | | | | 19,271 | | | | 260 | | Private loans – carried at amortized cost | | | 3,642 | | | | 79 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 79 | | | | - | | | | 3,563 | | Other loans – carried at amortized cost | | | 2,164 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,886 | | | | 1,886 | | | | 1,195 | | | | 1,473 | | Other financial assets – carried at fair value | | | 2,586 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2,586 | | Derivatives | | | 5,563 | | | | 647 | | | | 56 | | | | 29 | | | | - | | | | 4,867 | | | | - | | | | 5,599 | | | | 85 | | | | 48 | | Reinsurance assets | | | 19,200 | | | | - | | | | 4,395 | | | | 137 | | | | - | | | | - | | | | - | | | | 4,532 | | | | - | | | | 14,667 | | | | | | | | | | | | | | At December 31 | | 157,869 | | | 3,163 | | | 5,171 | | | 801 | | | 49,756 | | | 4,867 | | | 1,886 | | | 65,644 | | | 20,576 | | | 112,800 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2019 | | Maximum
exposure
to credit
risk | | | Cash | | | Securities | | | Letters of
credit /
guarantees | | | Real
estate
property | | | Master
netting
agree-
ments | | | Other | | | Total
collateral | | | Surplus
collateral (or
overcollater-
alization) | | | Net
exposure | | Debt securities - carried at fair value | | | 86,853 | | | | - | | | | - | | | | 267 | | | | - | | | | - | | | | - | | | | 267 | | | | - | | | | 86,586 | | | | | | | | | | | | | Money market and other short-term investments - carried at fair value | | | 5,327 | | | | - | | | | 363 | | | | - | | | | - | | | | - | | | | - | | | | 363 | | | | 23 | | | | 4,987 | | | | | | | | | | | | | Mortgage loans - carried at amortized cost | | | 37,750 | | | | 2,648 | | | | - | | | | 65 | | | | 61,159 | | | | - | | | | - | | | | 63,872 | | | | 26,249 | | | | 127 | | | | | | | | | | | | | Private loans - carried at amortized cost | | | 4,487 | | | | 51 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 51 | | | | - | | | | 4,436 | | | | | | | | | | | | | Other loans - carried at amortized cost | | | 2,353 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2,008 | | | | 2,008 | | | | 1,329 | | | | 1,674 | | | | | | | | | | | | | Other financial assets - carried at fair value | | | 4,083 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 4,083 | | | | | | | | | | | | | Derivatives | | | 10,658 | | | | 2,666 | | | | 47 | | | | 31 | | | | - | | | | 8,186 | | | | - | | | | 10,930 | | | | 283 | | | | 10 | | | | | | | | | | | | | Reinsurance assets | | | 20,835 | | | | - | | | | 3,884 | | | | 105 | | | | - | | | | - | | | | - | | | | 3,989 | | | | - | | | | 16,845 | | | | | | | | | | | | | At December 31 | | | 172,346 | | | | 5,365 | | | | 4,294 | | | | 468 | | | | 61,159 | | | | 8,186 | | | | 2,008 | | | | 81,481 | | | | 27,884 | | | | 118,749 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | Maximum
exposure
to credit
risk | | | Cash | | | Securities | | | Letters of
credit /
guarantees | | | Real
estate
property | | | Master
netting
agree-
ments | | | Other | | | Total
collateral | | | Surplus
collateral (or
overcollateral-
ization) | | | Net
exposure | | | | | | | | | | | | | Debt securities - carried at fair value | | | 81,253 | | | | - | | | | - | | | | 169 | | | | - | | | | - | | | | - | | | | 169 | | | | - | | | | 81,084 | | | | | | | | | | | | | Money market and other short-term investments - carried at fair value | | | 6,307 | | | | - | | | | 484 | | | | - | | | | - | | | | - | | | | - | | | | 484 | | | | 29 | | | | 5,852 | | | | | | | | | | | | | Mortgage loans - carried at amortized cost | | | 36,240 | | | | 2,535 | | | | - | | | | 136 | | | | 57,009 | | | | - | | | | - | | | | 59,680 | | | | 23,589 | | | | 149 | | | | | | | | | | | | | Private loans - carried at amortized cost | | | 4,103 | | | | 45 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 45 | | | | - | | | | 4,058 | | | | | | | | | | | | | Other loans - carried at amortized cost | | | 2,310 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,960 | | | | 1,960 | | | | 1,238 | | | | 1,589 | | | | | | | | | | | | | Other financial assets - carried at fair value | | | 3,551 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 3,551 | | | | | | | | | | | | | Derivatives | | | 7,337 | | | | 2,627 | | | | 233 | | | | 31 | | | | - | | | | 4,606 | | | | - | | | | 7,496 | | | | 225 | | | | 66 | | | | | | | | | | | | | Reinsurance assets | | | 20,505 | | | | - | | | | 4,035 | | | | 104 | | | | - | | | | - | | | | - | | | | 4,139 | | | | - | | | | 16,366 | | | | | | | | | | | | | At December 31 | | | 161,607 | | | | 5,207 | | | | 4,752 | | | | 439 | | | | 57,009 | | | | 4,606 | | | | 1,960 | | | | 73,972 | | | | 25,081 | | | | 112,715 | |
Debt securities Several bonds in Aegon’s Americas’sAmericas’ portfolio are guaranteed by monolineMonoline insurers. This is shown in the table above in the column ‘Letters of credit/credit / guarantees’. Further information on the monolineMonoline insurers is provided below under ‘Monoline insurers’. Money market and short-term investments The collateral reported for the money market and short-term investments are related totri-party repurchase agreements (repos). Withintri-party repos Aegon invests under short-term reverse repurchase agreements and the counterparty posts collateral to a third party custodian. The collateral posted is typically high-quality, short-term securities and is only accessible for or available to Aegon in the event the counterparty defaults. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 187 | | | | Consolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | |
Mortgage loans The real estate collateral for mortgages includes both residential and commercial properties. The collateral for commercial mortgage loans in Aegon Americas is measured at fair value. At a minimum on an annual basis, a fair value is estimated for each individual real estate property that has been pledged as collateral. When a loan is originally provided, an external appraisal is obtained to estimate the value of the property. In subsequent years, the value is typically estimated internally using various professionally accepted valuation methodologies. Internal appraisals are performed by qualified, professionally accredited personnel. International valuation standards are used and the most significant assumptions made during the valuation of real estate are the current cost of reproducing or replacing the property, the value that the property’s net earning power will support, and the value indicated by recent sales of comparable properties. Valuations are primarily supported by market evidence. For Aegon the Netherlands, collateral for the residential mortgages is measured as the foreclosure value which is indexed periodically. Cash collateral for mortgage loans includes the savings that have been received to redeem the underlying mortgage loans at redemption date. These savings are part of the credit side of the statement of financial position, but reduce the credit risk for the mortgage loan as a whole. A substantial part of Aegon’s Dutch residential mortgage loan portfolio benefits from guarantees by a Dutch government-backed trust (Stichting Waarborgfonds Eigen Woning) through the Dutch Mortgage loan Guarantee program (NHG). With exception ofNHG-backed mortgage loans originated after January 1, 2014, for which a 10% lender-incurred haircut applies on realized losses on each defaulted loan, 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 | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 179 | | Notes to the consolidated financial statementsNote 4 | | | | | | |
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. Derivatives The master netting agreements column in the table relates to derivative liability positions which are used in Aegon’s credit risk management. The offset in the master netting agreements column includes balances where there is a legally enforceable right of offset, but no intention to settle these balances on a net basis under normal circumstances. As a result, there is a net exposure for credit risk management purposes. However, as there is no intention to settle these balances on a net basis, they do not qualify for net presentation for accounting purposes. Reinsurance assets The collateral related to the reinsurance assets include assets in trust that are held by the reinsurer for the benefit of Aegon. The assets in trust can be accessed to pay policyholder benefits in the event the reinsurers fail to perform under the terms of their contract. Further information on the related reinsurance transactions is included in note 2826 Reinsurance assets. Other loans The collateral included in the other column represents the policyholders account value for policy loans. The excess of the account value over the loan value is included in the surplus collateral column. For further information on the policy loans refer to note 23.122.1 Financial assets, excluding derivatives. The total collateral includes both under- and over-collateralized positions. To present a net exposure of credit risk, the over-collateralization, which is shown in the surplus collateral column, is extracted from the total collateral. Credit risk management Aegon manages credit risk exposure by individual counterparty, sector and asset class, including cash positions. Normally, Aegon mitigates credit risk in derivative contracts by entering into credit support agreement, where practical, and in ISDA master netting agreements for most of Aegon’s legal entities to facilitate Aegon’s right to offset credit risk exposure. Main counterparties to these transactions are investment banks which are typically rated ‘A’ or higher. The credit support agreement will normally dictate the threshold over which collateral needs to be pledged by Aegon or its counterparty. Transactions requiring Aegon or its counterparty to post collateral are typically the result of derivative trades, comprised mostly of interest rate swaps, equity swaps, currency swaps and credit swaps. Collateral received is mainly cash (USD and EUR). The credit support agreements that outline the acceptable collateral require high qualityhigh-quality instruments to be posted. Over the last three years, there was no default with any derivatives counterparty. 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 | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 188 | | | | Consolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | |
traded via Central Clearing Houses as required by EMIR and the Dodd-Frank act. Credit risk in these transactions is mitigated through posting of initial and variation margins. Aegon may also mitigate credit risk in reinsurance contracts by including downgrade clauses that allow the recapture of business, retaining ownership of assets required to support liabilities ceded or by requiring the reinsurer to hold assets in trust. For the resulting net credit risk exposure, Aegon employs deterministic and stochastic credit risk modeling in order to assess the Group’s credit risk profile, associated earnings and capital implications due to various credit loss scenarios. Aegon operates a Credit Name Limit Policy (CNLP) under which limits are placed on the aggregate exposure that it has to any one counterparty. Limits are placed on the exposure at both group level and individual country units. The limits also vary by a rating system, which is a composite of the main rating agencies (S&P, Moody’s and Fitch) and Aegon’s internal rating of the counterparty. If an exposure exceeds the stated limit, then the exposure must be reduced to the limit for the country unit and rating category as soon as possible. Exceptions to these limits can only be made after explicit approval from Aegon’s Group Risk and Capital Committee (GRCC). The policy is reviewed regularly. At December 31, 20182019, there was no violationwere two violations of the Credit Name Limit Policy at Group level (December 31, 2017:2018: nil). These related to Bank of America and Republic of Turkey. The Bank of America violation was addressed in early 2020 and the Turkey violation is being monitored. At December 31, 20182019, Aegon’s largest corporate credit exposures are to Wilton Re Holdings Ltd, American United Mutual Insurance, SCOR and Reinsurance Group of America. Aegon had large government exposures, the largest being in the Americas, the Netherlands and Germany. Highly rated government bonds and government exposure domestically issued and owned in local currency are excluded from the Credit Name Limit Policy. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 180 | | Notes to the consolidated financial statements Note 4 | | | |
Aegon group level long-term counterparty exposure limits are as follows: Group limits per credit rating | | | | | | | | | Group limits per credit rating
Amounts in EUR million | | 2018 | | | 2017 | | AAA | | | 900 | | | | 900 | | AA | | | 900 | | | | 900 | | A | | | 675 | | | | 675 | | BBB | | | 450 | | | | 450 | | BB | | | 250 | | | | 250 | | B | | | 125 | | | | 125 | | CCC or lower | | | 50 | | | | 50 | |
| | | | | | | | | Amounts in EUR million | | | 2019 | | | | 2018 | | | | | AAA | | | 900 | | | | 900 | | | | | AA | | | 900 | | | | 900 | | | | | A | | | 675 | | | | 675 | | | | | BBB | | | 450 | | | | 450 | | | | | BB | | | 250 | | | | 250 | | | | | B | | | 125 | | | | 125 | | | | | CCC or lower | | | 50 | | | | 50 | |
Credit rating The ratings distribution of general account portfolios of Aegon’s major reporting units, excluding reinsurance assets, are presented in the table that follows, organized by rating category and split by assets that are valued at fair value and assets that are valued at amortized cost. Aegon uses a composite rating based on a combination of the external ratings of S&P, Moody’s, Fitch and National Association of Insurance Commissioners (NAIC which is for US only) and internal ratings. The rating used is the lower of the external rating and the internal rating. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Americas | | | The Netherlands | | | United Kingdom | | | Central & Eastern
Europe | | | Spain & Portugal | | Credit rating general
account investments,
excluding reinsurance assets 2018 | | Amortized
cost | | | Fair value | | | Amortized
cost | | | Fair value | | | Amortized cost | | | Fair value | | | Amortized
cost | | | Fair value | | | Amortized
cost | | | Fair value | | AAA | | | 941 | | | | 15,338 | | | | 1,611 | | | | 12,956 | | | | - | | | | 84 | | | | - | | | | 1 | | | | - | | | | 9 | | AA | | | 3,104 | | | | 3,855 | | | | 83 | | | | 6,704 | | | | - | | | | 594 | | | | - | | | | 22 | | | | - | | | | 78 | | A | | | 3,567 | | | | 17,428 | | | | 55 | | | | 2,482 | | | | - | | | | 291 | | | | 16 | | | | 119 | | | | 38 | | | | 386 | | BBB | | | 266 | | | | 17,609 | | | | 924 | | | | 1,299 | | | | - | | | | 95 | | | | 6 | | | | 502 | | | | (3 | ) | | | 180 | | BB | | | 7 | | | | 1,393 | | | | 52 | | | | 39 | | | | - | | | | 1 | | | | 9 | | | | 5 | | | | - | | | | 17 | | B | | | - | | | | 1,013 | | | | - | | | | - | | | | - | | | | - | | | | 64 | | | | 105 | | | | - | | | | - | | CCC or lower | | | - | | | | 741 | | | | - | | | | - | | | | - | | | | - | | | | 1 | | | | 1 | | | | - | | | | - | | Assets not rated | | | 1,952 | | | | 4,126 | | | | 29,534 | | | | 4,423 | | | | - | | | | 1,085 | | | | 11 | | | | 67 | | | | 2 | | | | 4 | | Total | | | 9,837 | | | | 61,501 | | | | 32,259 | | | | 27,905 | | | | - | | | | 2,149 | | | | 106 | | | | 823 | | | | 37 | | | | 673 | | Past due and/or impaired assets | | | 108 | | | | 1,346 | | | | 277 | | | | 25 | | | | - | | | | - | | | | - | | | | 1 | | | | - | | | | - | | At December 31 | | | 9,945 | | | | 62,847 | | | | 32,536 | | | | 27,930 | | | | - | | | | 2,149 | | | | 106 | | | | 824 | | | | 37 | | | | 673 | |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Asia | | | Asset Management | | | Total 20181 | | Credit rating general account investments, excluding
reinsurance assets 2018 | | Amortized
cost | | | Fair value | | | Amortized
cost | | | Fair value | | | Amortized
cost | | | Fair value | | | Total
carrying
value | | AAA | | | - | | | | 987 | | | | - | | | | 136 | | | | 2,552 | | | | 29,518 | | | | 32,070 | | AA | | | - | | | | 372 | | | | - | | | | - | | | | 3,188 | | | | 11,626 | | | | 14,813 | | A | | | - | | | | 1,823 | | | | - | | | | 5 | | | | 3,675 | | | | 22,542 | | | | 26,218 | | BBB | | | - | | | | 2,186 | | | | - | | | | 1 | | | | 1,193 | | | | 21,871 | | | | 23,064 | | BB | | | - | | | | 140 | | | | - | | | | 9 | | | | 68 | | | | 1,653 | | | | 1,721 | | B | | | - | | | | 132 | | | | - | | | | 17 | | | | 64 | | | | 1,267 | | | | 1,331 | | CCC or lower | | | - | | | | 22 | | | | - | | | | 9 | | | | 1 | | | | 773 | | | | 774 | | Assets not rated | | | 16 | | | | 14 | | | | - | | | | 5 | | | | 31,527 | | | | 9,960 | | | | 41,488 | | Total | | | 16 | | | | 5,676 | | | | - | | | | 181 | | | | 42,268 | | | | 99,210 | | | | 141,478 | | Past due and/or impaired assets | | | - | | | | 27 | | | | - | | | | - | | | | 385 | | | | 1,399 | | | | 1,784 | | At December 31 | | | 16 | | | | 5,704 | | | | - | | | | 181 | | | | 42,653 | | | | 100,609 | | | | 143,263 | |
| | | | | | | | | 189 | | | | Consolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Credit rating general account investments, excluding reinsurance assets 2019 | | Americas | | | The Netherlands | | | United Kingdom | | | Southern & Eastern
Europe | | | | Amortized | | | | | | Amortized | | | | | | Amortized | | | | | | Amortized | | | | | | | cost | | | Fair value | | | cost | | | Fair value | | | cost | | | Fair value | | | cost | | | Fair value | | | | | | | | | | | AAA | | | 1,311 | | | | 14,664 | | | | 1,799 | | | | 13,342 | | | | - | | | | 91 | | | | - | | | | 15 | | | | | | | | | | | AA | | | 3,671 | | | | 4,162 | | | | 82 | | | | 7,625 | | | | - | | | | 624 | | | | - | | | | 101 | | | | | | | | | | | A | | | 3,580 | | | | 19,752 | | | | 47 | | | | 8,271 | | | | - | | | | 307 | | | | 61 | | | | 592 | | | | | | | | | | | BBB | | | 275 | | | | 19,062 | | | | 970 | | | | 1,758 | | | | - | | | | 120 | | | | 5 | | | | 572 | | | | | | | | | | | BB | | | 15 | | | | 1,314 | | | | 49 | | | | 97 | | | | - | | | | 1 | | | | - | | | | 10 | | | | | | | | | | | B | | | 4 | | | | 926 | | | | - | | | | 2 | | | | - | | | | - | | | | 36 | | | | 212 | | | | | | | | | | | CCC or lower | | | - | | | | 677 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1 | | | | | | | | | | | Assets not rated | | | 1,971 | | | | 4,028 | | | | 30,306 | | | | 1,493 | | | | - | | | | 959 | | | | 16 | | | | 72 | | | | | | | | | | | Total | | | 10,827 | | | | 64,584 | | | | 33,251 | | | | 32,589 | | | | - | | | | 2,103 | | | | 118 | | | | 1,574 | | | | | | | | | | | Past due and / or impaired assets | | | 95 | | | | 1,051 | | | | 210 | | | | 19 | | | | - | | | | - | | | | - | | | | - | | | At December 31 | | | 10,922 | | | | 65,635 | | | | 33,460 | | | | 32,609 | | | | - | | | | 2,103 | | | | 118 | | | | 1,574 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Credit rating general account investments, excluding reinsurance assets 2019 | | | | | Asia | | | Asset Management | | | | | | Total 2019 1) | | | | | | | | | | Amortized | | | | | | Amortized | | | | | | Amortized | | | | | | Total carrying | | | | | | | cost | | | Fair value | | | cost | | | Fair value | | | cost | | | Fair value | | | value | | | | | | | | | | | AAA | | | | | | | - | | | | 1,032 | | | | - | | | | 164 | | | | 3,110 | | | | 29,322 | | | | 32,431 | | | | | | | | | | | AA | | | | | | | - | | | | 500 | | | | - | | | | 2 | | | | 3,752 | | | | 13,014 | | | | 16,766 | | | | | | | | | | | A | | | | | | | - | | | | 2,260 | | | | - | | | | 11 | | | | 3,688 | | | | 31,206 | | | | 34,895 | | | | | | | | | | | BBB | | | | | | | - | | | | 2,530 | | | | - | | | | 15 | | | | 1,249 | | | | 24,058 | | | | 25,307 | | | | | | | | | | | BB | | | | | | | - | | | | 158 | | | | - | | | | 27 | | | | 64 | | | | 1,678 | | | | 1,742 | | | | | | | | | | | B | | | | | | | - | | | | 100 | | | | - | | | | 34 | | | | 40 | | | | 1,274 | | | | 1,314 | | | | | | | | | | | CCC or lower | | | | | | | - | | | | 13 | | | | - | | | | 9 | | | | - | | | | 699 | | | | 699 | | | | | | | | | | | Assets not rated | | | | | | | 42 | | | | 17 | | | | - | | | | 5 | | | | 32,383 | | | | 6,789 | | | | 39,172 | | | | | | | | | | | Total | | | | | | | 42 | | | | 6,611 | | | | - | | | | 266 | | | | 44,286 | | | | 108,040 | | | | 152,327 | | Past due and / or impaired assets | | | | | | | - | | | | 9 | | | | - | | | | - | | | | 305 | | | | 1,101 | | | | 1,406 | | At December 31 | | | | | | | 42 | | | | 6,620 | | | | - | | | | 266 | | | | 44,591 | | | | 109,142 | | | | 153,732 | |
| 1 | Includes investments of Holding and other activities. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Credit rating general account investments, excluding reinsurance assets 2018 | | Americas | | | The Netherlands | | | United Kingdom | | | Southern & Eastern
Europe | | | | Amortized | | | | | | Amortized | | | | | | Amortized | | | | | | Amortized | | | | | | | cost | | | Fair value | | | cost | | | Fair value | | | cost | | | Fair value | | | cost | | | Fair value | | | | | | | | | | | AAA | | | 941 | | | | 15,338 | | | | 1,611 | | | | 12,956 | | | | - | | | | 84 | | | | - | | | | 10 | | | | | | | | | | | AA | | | 3,104 | | | | 3,855 | | | | 83 | | | | 6,704 | | | | - | | | | 594 | | | | - | | | | 100 | | | | | | | | | | | A | | | 3,567 | | | | 17,428 | | | | 55 | | | | 2,482 | | | | - | | | | 291 | | | | 54 | | | | 505 | | | | | | | | | | | BBB | | | 266 | | | | 17,609 | | | | 924 | | | | 1,299 | | | | - | | | | 95 | | | | 3 | | | | 682 | | | | | | | | | | | BB | | | 7 | | | | 1,393 | | | | 52 | | | | 39 | | | | - | | | | 1 | | | | 9 | | | | 22 | | | | | | | | | | | B | | | - | | | | 1,013 | | | | - | | | | - | | | | - | | | | - | | | | 64 | | | | 105 | | | | | | | | | | | CCC or lower | | | - | | | | 741 | | | | - | | | | - | | | | - | | | | - | | | | 1 | | | | 1 | | | | | | | | | | | Assets not rated | | | 1,952 | | | | 4,126 | | | | 29,534 | | | | 4,423 | | | | - | | | | 1,085 | | | | 13 | | | | 70 | | | | | | | | | | | Total | | | 9,837 | | | | 61,501 | | | | 32,259 | | | | 27,905 | | | | - | | | | 2,149 | | | | 143 | | | | 1,496 | | | | | | | | | | | Past due and / or impaired assets | | | 108 | | | | 1,346 | | | | 277 | | | | 25 | | | | - | | | | - | | | | - | | | | 1 | | | | | | | | | | | At December 31 | | | 9,945 | | | | 62,847 | | | | 32,536 | | | | 27,930 | | | | - | | | | 2,149 | | | | 143 | | | | 1,497 | |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 190 | | | | Consolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Asia | | | Asset Management | | | | | | Total 2018 1) | | | | | Credit rating general account investments,
excluding reinsurance assets 2018 | | | | | Amortized
cost | | | Fair
value | | | Amortized
cost | | | Fair
value | | | Amortized
cost | | | Fair value | | | Total carrying
value | | | | | | | | | | | AAA | | | | | | | - | | | | 987 | | | | - | | | | 136 | | | | 2,552 | | | | 29,518 | | | | 32,070 | | | | | | | | | | | AA | | | | | | | - | | | | 372 | | | | - | | | | - | | | | 3,188 | | | | 11,626 | | | | 14,813 | | | | | | | | | | | A | | | | | | | - | | | | 1,823 | | | | - | | | | 5 | | | | 3,675 | | | | 22,542 | | | | 26,218 | | | | | | | | | | | BBB | | | | | | | - | | | | 2,186 | | | | - | | | | 1 | | | | 1,193 | | | | 21,871 | | | | 23,064 | | | | | | | | | | | BB | | | | | | | - | | | | 140 | | | | - | | | | 9 | | | | 68 | | | | 1,653 | | | | 1,721 | | | | | | | | | | | B | | | | | | | - | | | | 132 | | | | - | | | | 17 | | | | 64 | | | | 1,267 | | | | 1,331 | | | | | | | | | | | CCC or lower | | | | | | | - | | | | 22 | | | | - | | | | 9 | | | | 1 | | | | 773 | | | | 774 | | | | | | | | | | | Assets not rated | | | | | | | 16 | | | | 14 | | | | - | | | | 5 | | | | 31,527 | | | | 9,960 | | | | 41,488 | | | | | | | | | | | Total | | | | | | | 16 | | | | 5,676 | | | | - | | | | 181 | | | | 42,268 | | | | 99,210 | | | | 141,478 | | | | | | | | | | | Past due and / or impaired assets | | | | | | | - | | | | 27 | | | | - | | | | - | | | | 385 | | | | 1,399 | | | | 1,784 | | | | | | | | | | | At December 31 | | | | | | | 16 | | | | 5,704 | | | | - | | | | 181 | | | | 42,653 | | | | 100,609 | | | | 143,263 | |
| 1 | Includes investments of Holding and other activities. |
The following table shows the credit quality of the gross positions in the statement of financial position for general account reinsurance assets specifically: | | | | | | | | | | | | Carrying value 2019 | | | Carrying value 2018 | | | | | AAA | | | - | | | | - | | | | | AA | | | 10,477 | | | | 9,150 | | | | | A | | | 10,002 | | | | 11,041 | | | | | Below A | | | 40 | | | | 30 | | | | | Not rated | | | 316 | | | | 284 | | | | | At December 31 | | | 20,835 | | | | 20,505 | |
Credit risk concentration The tables that follow present specific credit risk concentration information for general account financial assets. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Credit risk concentrations – debt
securities and money market
investments 2019 | | Americas | | | The
Netherlands | | | United
Kingdom | | | Southern
& Eastern
Europe | | | Asia | | | Asset
Manage-
ment | | | Total
2019 1) | | | Of which
past due
and / or
impaired
assets | | | | | | | | | | | Residential mortgage-backed securities (RMBSs) | | | 2,289 | | | | 311 | | | | - | | | | - | | | | 128 | | | | - | | | | 2,729 | | | | 909 | | | | | | | | | | | Commercial mortgage-backed securities (CMBSs) | | | 3,428 | | | | 13 | | | | 128 | | | | - | | | | 584 | | | | 1 | | | | 4,154 | | | | 8 | | | | | | | | | | | Asset-backed securities (ABSs) - CDOs backed by ABS, Corp. bonds, Bank loans | | | 519 | | | | 1,050 | | | | - | | | | - | | | | 73 | | | | - | | | | 1,642 | | | | 4 | | | | | | | | | | | ABSs – Other | | | 1,724 | | | | 73 | | | | 72 | | | | 6 | | | | 384 | | | | - | | | | 2,258 | | | | 1 | | | | | | | | | | | Financial - Banking | | | 6,561 | | | | 2,684 | | | | 154 | | | | 224 | | | | 928 | | | | 3 | | | | 10,554 | | | | 4 | | | | | | | | | | | Financial - Other | | | 8,885 | | | | 191 | | | | 38 | | | | 71 | | | | 742 | | | | 154 | | | | 10,096 | | | | 4 | | | | | | | | | | | Industrial | | | 23,158 | | | | 2,243 | | | | 234 | | | | 176 | | | | 2,966 | | | | 57 | | | | 28,835 | | | | 61 | | | | | | | | | | | Utility | | | 3,760 | | | | 136 | | | | 67 | | | | 45 | | | | 402 | | | | 1 | | | | 4,411 | | | | 52 | | | | | | | | | | | Government bonds | | | 9,558 | | | | 16,072 | | | | 449 | | | | 975 | | | | 401 | | | | 44 | | | | 27,500 | | | | 2 | | At December 31 | | | 59,882 | | | | 22,773 | | | | 1,143 | | | | 1,497 | | | | 6,609 | | | | 260 | | | | 92,180 | | | | 1,046 | |
| 1 | Includes investments of Holding and other activities. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F2018 | | |
| | | 181 | | Notes to the consolidated financial statements20-F Note 42019 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Americas | | | The Netherlands | | | United Kingdom | | | Central & Eastern Europe | | | Spain & Portugal | | Credit rating general
account investments,
excluding reinsurance
assets 2017 | | Amortized cost | | | Fair value | | | Amortized cost | | | Fair value | | | Amortized cost | | | Fair value | | | Amortized cost | | | Fair value | | | Amortized cost | | | Fair value | | AAA | | | 958 | | | | 18,935 | | | | 1,658 | | | | 12,727 | | | | - | | | | 137 | | | | - | | | | 1 | | | | - | | | | 9 | | AA | | | 2,693 | | | | 3,353 | | | | 85 | | | | 5,449 | | | | - | | | | 1,139 | | | | - | | | | 5 | | | | - | | | | 48 | | A | | | 2,905 | | | | 18,684 | | | | 56 | | | | 3,186 | | | | - | | | | 449 | | | | 8 | | | | 126 | | | | 55 | | | | 167 | | BBB | | | 330 | | | | 16,822 | | | | 941 | | | | 1,267 | | | | - | | | | 78 | | | | 3 | | | | 495 | | | | (3 | ) | | | 401 | | BB | | | 18 | | | | 1,567 | | | | 18 | | | | 22 | | | | - | | | | 9 | | | | 72 | | | | 92 | | | | - | | | | 20 | | B | | | - | | | | 1,162 | | | | - | | | | - | | | | - | | | | - | | | | 2 | | | | 1 | | | | - | | | | - | | CCC or lower | | | - | | | | 793 | | | | - | | | | 3 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Assets not rated | | | 1,892 | | | | 2,797 | | | | 27,133 | | | | 3,770 | | | | - | | | | 219 | | | | 107 | | | | 55 | | | | 2 | | | | 6 | | Total | | | 8,796 | | | | 64,114 | | | | 29,890 | | | | 26,425 | | | | - | | | | 2,031 | | | | 193 | | | | 775 | | | | 54 | | | | 651 | | Past due and/or impaired assets | | | 35 | | | | 1,145 | | | | 299 | | | | 41 | | | | - | | | | - | | | | 82 | | | | 1 | | | | - | | | | - | | At December 31 | | | 8,831 | | | | 65,259 | | | | 30,189 | | | | 26,467 | | | | - | | | | 2,031 | | | | 275 | | | | 777 | | | | 54 | | | | 651 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Asia | | | Asset Management | | | Total 2017 1 | | Credit rating general account investments,
excluding reinsurance assets 2017 | | Amortized cost | | | Fair value | | | Amortized cost | | | Fair value | | | Amortized cost | | | Fair value | | | Total carrying value | | AAA | | | - | | | | 985 | | | | - | | | | 144 | | | | 2,616 | | | | 32,960 | | | | 35,575 | | AA | | | - | | | | 340 | | | | - | | | | - | | | | 2,778 | | | | 10,334 | | | | 13,111 | | A | | | - | | | | 1,775 | | | | - | | | | - | | | | 3,024 | | | | 24,399 | | | | 27,423 | | BBB | | | - | | | | 1,920 | | | | - | | | | - | | | | 1,271 | | | | 20,983 | | | | 22,254 | | BB | | | - | | | | 140 | | | | - | | | | 1 | | | | 107 | | | | 1,852 | | | | 1,959 | | B | | | - | | | | 117 | | | | - | | | | 4 | | | | 2 | | | | 1,284 | | | | 1,287 | | CCC or lower | | | - | | | | 23 | | | | - | | | | 4 | | | | - | | | | 823 | | | | 823 | | Assets not rated | | | 6 | | | | 1 | | | | - | | | | 4 | | | | 29,154 | | | | 7,011 | | | | 36,165 | | Total | | | 6 | | | | 5,300 | | | | - | | | | 157 | | | | 38,951 | | | | 99,645 | | | | 138,597 | | Past due and/or impaired assets | | | - | | | | 20 | | | | - | | | | - | | | | 416 | | | | 1,207 | | | | 1,624 | | At December 31 | | | 6 | | | | 5,320 | | | | - | | | | 157 | | | | 39,368 | | | | 100,853 | | | | 140,221 | | 1 Includes investments of Holding and other activities. | |
The following table shows the credit quality of the gross positions in the statement of financial position for general account reinsurance assets specifically:
| | | | | | | | | | | | Carrying value 2018 | | | Carrying value 2017 | | AAA | | | - | | | | - | | AA | | | 9,150 | | | | 13,379 | | A | | | 11,041 | | | | 5,242 | | Below A | | | 30 | | | | 24 | | Not rated | | | 284 | | | | 555 | | At December 31 | | | 20,505 | | | | 19,200 | |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 182191 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | | |
Credit risk concentration
The tables that follow present specific credit risk concentration information for general account financial assets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Credit risk concentrations – debt
securities and money market
investments 2018 | | Americas | | | The Netherlands | | | United Kingdom | | | Central & Eastern Europe | | | Spain &
Portugal | | | Asia | | | Asset
Manage-
ment | | | Total 20181 | | | Of which past due
and/or
impaired
assets | Residential mortgage-backed securities (RMBSs) | | | 2,138 | | | | 395 | | | | - | | | | - | | | | - | | | | 52 | | | | - | | | | 2,585 | | | | 918 | | Commercial mortgage-backed securities (CMBSs) | | | 3,314 | | | | 35 | | | | 127 | | | | - | | | | - | | | | 537 | | | | - | | | | 4,013 | | | | 14 | | Asset-backed securities (ABSs) – CDOs backed by ABS, Corp. bonds, Bank loans | | | 717 | | | | 1,669 | | | | - | | | | - | | | | - | | | | 61 | | | | - | | | | 2,447 | | | | 3 | | ABSs – Other | | | 1,915 | | | | 247 | | | | 61 | | | | - | | | | 6 | | | | 323 | | | | - | | | | 2,552 | | | | 40 | | Financial – Banking | | | 6,423 | | | | 1,473 | | | | 132 | | | | 92 | | | | 118 | | | | 815 | | | | 6 | | | | 9,059 | | | | 29 | | Financial – Other | | | 8,863 | | | | 188 | | | | 33 | | | | 4 | | | | 112 | | | | 595 | | | | 121 | | | | 9,924 | | | | 19 | | Industrial | | | 21,060 | | | | 1,515 | | | | 213 | | | | 5 | | | | 142 | | | | 2,486 | | | | 33 | | | | 25,457 | | | | 187 | | Utility | | | 3,572 | | | | 115 | | | | 60 | | | | 5 | | | | 46 | | | | 370 | | | | - | | | | 4,169 | | | | 144 | | Government bonds | | | 9,607 | | | | 15,948 | | | | 438 | | | | 650 | | | | 238 | | | | 457 | | | | 17 | | | | 27,356 | | | | 8 | | At December 31 | | | 57,609 | | | | 21,586 | | | | 1,064 | | | | 756 | | | | 662 | | | | 5,696 | | | | 176 | | | | 87,560 | | | | 1,362 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Credit risk concentrations – Government
bonds per country of risk 2019 | | | | | Americas | | | The
Netherlands | | | United
Kingdom | | | Southern &
Eastern
Europe | | | Asia | | | Asset
Manage-
ment | | | Total
2019 1) | | | | | | | | | | United States | | | | | | | 8,893 | | | | 1 | | | | - | | | | 4 | | | | 309 | | | | 2 | | | | 9,210 | | | | | | | | | | | Netherlands | | | | | | | - | | | | 6,316 | | | | - | | | | - | | | | - | | | | - | | | | 6,316 | | | | | | | | | | | United Kingdom | | | | | | | - | | | | - | | | | 362 | | | | - | | | | - | | | | 18 | | | | 380 | | | | | | | | | | | Austria | | | | | | | - | | | | 1,227 | | | | - | | | | 4 | | | | - | | | | - | | | | 1,230 | | | | | | | | | | | Belgium | | | | | | | - | | | | 1,097 | | | | 21 | | | | 5 | | | | - | | | | - | | | | 1,123 | | | | | | | | | | | Finland | | | | | | | - | | | | 135 | | | | - | | | | - | | | | - | | | | - | | | | 135 | | | | | | | | | | | France | | | | | | | - | | | | 1,512 | | | | 35 | | | | 3 | | | | - | | | | - | | | | 1,551 | | | | | | | | | | | Germany | | | | | | | - | | | | 4,649 | | | | - | | | | - | | | | - | | | | - | | | | 4,649 | | | | | | | | | | | Hungary | | | | | | | 2 | | | | - | | | | - | | | | 345 | | | | - | | | | - | | | | 348 | | | | | | | | | | | Luxembourg | | | | | | | - | | | | 807 | | | | - | | | | - | | | | - | | | | - | | | | 807 | | | | | | | | | | | Spain | | | | | | | - | | | | 95 | | | | - | | | | 273 | | | | - | | | | - | | | | 368 | | | | | | | | | | | Rest of Europe | | | | | | | 85 | | | | 216 | | | | - | | | | 336 | | | | 6 | | | | 3 | | | | 646 | | | | | | | | | | | Rest of world | | | | | | | 576 | | | | 17 | | | | 32 | | | | 5 | | | | 85 | | | | 22 | | | | 737 | | Supranational | | | | | | | 1 | | | | - | | | | - | | �� | | - | | | | - | | | | - | | | | 1 | | | | | | | | | | | | At December 31 | | | | | | | 9,558 | | | | 16,072 | | | | 449 | | | | 975 | | | | 401 | | | | 44 | | | | 27,500 | |
| 1 | Includes investments of Holding and other activities. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Credit risk concentrations – Government
bonds per country of risk 2018 | | Americas | | | The
Netherlands | | | United
Kingdom | | | Central & Eastern Europe | | | Spain & Portugal | | | Asia | | | Asset
Manage-
ment | | | Total 20181 | United States | | | 8,891 | | | | | | | | | | | | | | | | | | | | 362 | | | | | | | | 9,253 | | Netherlands | | | | | | | 6,040 | | | | | | | | | | | | | | | | | | | | | | | | 6,040 | | United Kingdom | | | | | | | | | | | 356 | | | | 1 | | | | | | | | | | | | 17 | | | | 374 | | Austria | | | | | | | 1,102 | | | | | | | | | | | | 4 | | | | | | | | | | | | 1,106 | | Belgium | | | | | | | 1,000 | | | | 21 | | | | | | | | 6 | | | | | | | | | | | | 1,027 | | Finland | | | | | | | 949 | | | | | | | | | | | | | | | | | | | | | | | | 949 | | France | | | | | | | 1,292 | | | | 33 | | | | | | | | 5 | | | | | | | | | | | | 1,329 | | Germany | | | | | | | 4,397 | | | | | | | | | | | | | | | | | | | | | | | | 4,397 | | Hungary | | | 3 | | | | | | | | | | | | 410 | | | | | | | | | | | | | | | | 413 | | Luxembourg | | | | | | | 786 | �� | | | | | | | | | | | 1 | | | | | | | | | | | | 787 | | Spain | | | | | | | 89 | | | | | | | | 3 | | | | 206 | | | | | | | | | | | | 298 | | Rest of Europe | | | 103 | | | | 264 | | | | | | | | 236 | | | | 11 | | | | 9 | | | | | | | | 623 | | Rest of world | | | 580 | | | | 30 | | | | 28 | | | | - | | | | 5 | | | | 86 | | | | | | | | 730 | | Supranational | | | 30 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 30 | | At December 31 | | | 9,607 | | | | 15,948 | | | | 438 | | | | 650 | | | | 238 | | | | 457 | | | | 17 | | | | 27,356 | |
1 | Includes investments of Holding and other activities.
|
| | Credit risk concentrations – Credit rating 20182 | | Government
bonds | | | Corporate bonds | | | RMBSs CMBSs
ABSs | | | Other | | | Total
20181 | | Credit risk concentrations – Credit rating 2019 2) | | | | | | | | | | | | Government
bonds | | | Corporate
bonds | | | RMBSs
CMBSs ABSs | | | Other | | | Total
2019 1) | | AAA | | | 20,479 | | | | 772 | | | | 6,505 | | | | 1,753 | | | | 29,511 | | | | | | | | | | 20,324 | | | | 719 | | | | 6,344 | | | | 1,861 | | | | 29,248 | | | AA | | | 4,949 | | | | 3,264 | | | | 1,721 | | | | | | 9,934 | | | | | | | | | | 4,903 | | | | 3,514 | | | | 1,429 | | | | 2 | | | | 9,848 | | | A | | | 614 | | | | 18,482 | | | | 1,490 | | | | 1 | | | | 20,587 | | | | | | | | | | 899 | | | | 22,416 | | | | 1,378 | | | | - | | | | 24,693 | | | BBB | | | 961 | | | | 20,360 | | | | 349 | | | | 1 | | | | 21,670 | | | | | | | | | | 949 | | | | 22,137 | | | | 284 | | | | - | | | | 23,371 | | | BB | | | 215 | | | | 1,279 | | | | 144 | | | | | | 1,638 | | | | | | | | | | 110 | | | | 1,292 | | | | 122 | | | | - | | | | 1,524 | | | B | | | 136 | | | | 1,003 | | | | 69 | | | | | | 1,207 | | | | | | | | | | 297 | | | | 956 | | | | 27 | | | | - | | | | 1,280 | | | CCC or lower | | | 1 | | | | 302 | | | | 1,318 | | | | | | 1,621 | | | | | | | | | | 18 | | | | 309 | | | | 1,197 | | | | - | | | | 1,524 | | | Assets not rated | | | | | | | | | 1,391 | | | | 1,391 | | | | | | | | | | - | | | | 3 | | | | 3 | | | | 686 | | | | 691 | | | | | | | At December 31 | | | 27,356 | | | | 45,462 | | | | 11,596 | | | | 3,147 | | | | 87,560 | | | | | | | | | | 27,500 | | | | 51,347 | | | | 10,783 | | | | 2,549 | | | | 92,180 | |
| 1 | Includes investments of Holding and other activities. |
| 2 | CNLP Ratings are used and are the lower of the Barclay’s Rating and the Internal Rating with the Barclay’s rating being a blended rating of S&P, Fitch, and Moody’s. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Credit risk concentrations – debt
securities and money market
investments 2018 | | Americas | | | The
Netherlands | | | United
Kingdom | | | Southern
& Eastern
Europe | | | Asia | | | Asset
Manage-
ment | | | Total
2018 1) | | | Of which
past due
and / or
impaired
assets | | | | | | | | | | Residential mortgage-backed securities (RMBSs) | | | 2,138 | | | | 395 | | | | - | | | | - | | | | 52 | | | | - | | | | 2,585 | | | | 918 | | | | | | | | | | | Commercial mortgage-backed securities (CMBSs) | | | 3,314 | | | | 35 | | | | 127 | | | | - | | | | 537 | | | | - | | | | 4,013 | | | | 14 | | | | | | | | | | | Asset-backed securities (ABSs) - CDOs backed by ABS, Corp. bonds, Bank loans | | | 717 | | | | 1,669 | | | | - | | | | - | | | | 61 | | | | - | | | | 2,447 | | | | 3 | | | | | | | | | | | ABSs – Other | | | 1,915 | | | | 247 | | | | 61 | | | | 6 | | | | 323 | | | | - | | | | 2,552 | | | | 40 | | | | | | | | | | | Financial - Banking | | | 6,423 | | | | 1,473 | | | | 132 | | | | 210 | | | | 815 | | | | 6 | | | | 9,059 | | | | 29 | | | | | | | | | | | Financial - Other | | | 8,863 | | | | 188 | | | | 33 | | | | 116 | | | | 595 | | | | 121 | | | | 9,924 | | | | 19 | | | | | | | | | | | Industrial | | | 21,060 | | | | 1,515 | | | | 213 | | | | 148 | | | | 2,486 | | | | 33 | | | | 25,457 | | | | 187 | | | | | | | | | | | Utility | | | 3,572 | | | | 115 | | | | 60 | | | | 51 | | | | 370 | | | | - | | | | 4,169 | | | | 144 | | | | | | | | | | | Government bonds | | | 9,607 | | | | 15,948 | | | | 438 | | | | 889 | | | | 457 | | | | 17 | | | | 27,356 | | | | 8 | | | | | | | | | | | | At December 31 | | | 57,609 | | | | 21,586 | | | | 1,064 | | | | 1,419 | | | | 5,696 | | | | 176 | | | | 87,560 | | | | 1,362 | |
| 1 | Includes investments of Holding and other activities. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 183192 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Credit risk concentrations – debt
securities and money market
investments 2017 | | Americas | | | The
Netherlands | | | United
Kingdom | | | Central &
Eastern
Europe | | | Spain &
Portugal | | | Asia | | | Asset
Manage-
ment | | | Total 2017 1 | | | Of which
past due
and/or
impaired
assets | | Residential mortgage-backed securities (RMBSs) | | | 3,025 | | | | 556 | | | | 17 | | | | - | | | | - | | | | 57 | | | | - | | | | 3,655 | | | | 1,022 | | Commercial mortgage-backed securities (CMBSs) | | | 3,375 | | | | 28 | | | | 146 | | | | - | | | | - | | | | 537 | | | | - | | | | 4,086 | | | | 10 | | Asset-backed securities (ABSs) – CDOs backed by ABS, Corp. bonds, Bank loans | | | 751 | | | | 1,529 | | | | - | | | | - | | | | - | | | | 47 | | | | - | | | | 2,327 | | | | 3 | | ABSs – Other | | | 1,688 | | | | 270 | | | | 88 | | | | - | | | | 1 | | | | 331 | | | | - | | | | 2,378 | | | | 35 | | Financial – Banking | | | 6,525 | | | | 1,440 | | | | 124 | | | | 102 | | | | 104 | | | | 730 | | | | - | | | | 9,026 | | | | 3 | | Financial – Other | | | 9,028 | | | | 212 | | | | 58 | | | | 3 | | | | 114 | | | | 498 | | | | 137 | | | | 10,069 | | | | 4 | | Industrial | | | 21,975 | | | | 1,726 | | | | 255 | | | | 7 | | | | 129 | | | | 2,344 | | | | - | | | | 26,435 | | | | 62 | | Utility | | | 3,386 | | | | 119 | | | | 65 | | | | 3 | | | | 45 | | | | 309 | | | | - | | | | 3,927 | | | | - | | Government bonds | | | 11,319 | | | | 15,531 | | | | 1,060 | | | | 603 | | | | 253 | | | | 466 | | | | 17 | | | | 29,249 | | | | 14 | | At December 31 | | | 61,073 | | | | 21,411 | | | | 1,812 | | | | 718 | | | | 646 | | | | 5,319 | | | | 153 | | | | 91,153 | | | | 1,154 | | 1 Includes investments of Holding and other activities. | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Credit risk concentrations – Government
bonds per country of risk 2018 | | | | | Americas | | | The
Netherlands | | | United
Kingdom | | | Southern &
Eastern
Europe | | | Asia | | | Asset
Manage-
ment | | | Total
2018 1) | | | | | | | | | | United States | | | | | | | 8,891 | | | | - | | | | - | | | | - | | | | 362 | | | | - | | | | 9,253 | | | | | | | | | | | Netherlands | | | | | | | - | | | | 6,040 | | | | - | | | | - | | | | - | | | | - | | | | 6,040 | | | | | | | | | | | United Kingdom | | | | | | | - | | | | - | | | | 356 | | | | 1 | | | | - | | | | 17 | | | | 374 | | | | | | | | | | | Austria | | | | | | | - | | | | 1,102 | | | | - | | | | 4 | | | | - | | | | - | | | | 1,106 | | | | | | | | | | | Belgium | | | | | | | - | | | | 1,000 | | | | 21 | | | | 6 | | | | - | | | | - | | | | 1,027 | | | | | | | | | | | Finland | | | | | | | - | | | | 949 | | | | - | | | | - | | | | - | | | | - | | | | 949 | | | | | | | | | | | France | | | | | | | - | | | | 1,292 | | | | 33 | | | | 5 | | | | - | | | | - | | | | 1,329 | | | | | | | | | | | Germany | | | | | | | - | | | | 4,397 | | | | - | | | | - | | | | - | | | | - | | | | 4,397 | | | | | | | | | | | Hungary | | | | | | | 3 | | | | - | | | | - | | | | 410 | | | | - | | | | - | | | | 413 | | | | | | | | | | | Luxembourg | | | | | | | - | | | | 786 | | | | - | | | | 1 | | | | - | | | | - | | | | 787 | | | | | | | | | | | Spain | | | | | | | - | | | | 89 | | | | - | | | | 209 | | | | - | | | | - | | | | 298 | | | | | | | | | | | Rest of Europe | | | | | | | 103 | | | | 264 | | | | - | | | | 247 | | | | 9 | | | | - | | | | 623 | | | | | | | | | | | Rest of world | | | | | | | 580 | | | | 30 | | | | 28 | | | | 5 | | | | 86 | | | | - | | | | 730 | | | | | | | | | | | Supranational | | | | | | | 30 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 30 | | | | | | | | | | | | At December 31 | | | | | | | 9,607 | | | | 15,948 | | | | 438 | | | | 889 | | | | 457 | | | | 17 | | | | 27,356 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Credit risk concentrations – Government
bonds per country of risk 2017 | | Americas | | | The
Netherlands | | | United
Kingdom | | | Central &
Eastern
Europe | | | Spain &
Portugal | | | Asia | | | Asset
Manage-
ment | | | Total 20171 | | United States | | | 10,501 | | | | 32 | | | | - | | | | - | | | | - | | | | 372 | | | | - | | | | 10,906 | | Netherlands | | | - | | | | 5,777 | | | | - | | | | - | | | | 4 | | | | - | | | | - | | | | 5,781 | | United Kingdom | | | - | | | | - | | | | 946 | | | | 1 | | | | - | | | | - | | | | 17 | | | | 964 | | Austria | | | - | | | | 1,154 | | | | - | | | | - | | | | 4 | | | | - | | | | - | | | | 1,158 | | Belgium | | | - | | | | 1,065 | | | | 23 | | | | - | | | | 6 | | | | - | | | | - | | | | 1,094 | | Finland | | | - | | | | 938 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 938 | | France | | | - | | | | 1,216 | | | | 34 | | | | - | | | | 5 | | | | - | | | | - | | | | 1,255 | | Germany | | | - | | | | 4,233 | | | | 28 | | | | - | | | | - | | | | - | | | | - | | | | 4,261 | | Hungary | | | 3 | | | | - | | | | - | | | | 402 | | | | - | | | | - | | | | - | | | | 405 | | Luxembourg | | | - | | | | 785 | | | | - | | | | - | | | | 1 | | | | - | | | | - | | | | 786 | | Spain | | | - | | | | 89 | | | | - | | | | 2 | | | | 203 | | | | - | | | | - | | | | 294 | | Rest of Europe | | | 133 | | | | 205 | | | | - | | | | 198 | | | | 16 | | | | 17 | | | | - | | | | 568 | | Rest of world | | | 652 | | | | 36 | | | | 29 | | | | - | | | | 14 | | | | 77 | | | | - | | | | 809 | | Supranational | | | 30 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 30 | | At December 31 | | | 11,319 | | | | 15,531 | | | | 1,060 | | | | 603 | | | | 253 | | | | 466 | | | | 17 | | | | 29,249 | | 1 Includes investments of Holding and other activities. | |
| 1 | Includes investments of Holding and other activities. |
| | Credit risk concentrations – Credit rating 20172 | | Government
bonds | | | Corporate bonds | | | RMBSs CMBSs
ABSs | | | Other | | | Total 20171 | | | Credit risk concentrations – Credit rating 2018 2) | | | | | | | | | | | | Government
bonds | | | Corporate
bonds | | | RMBSs
CMBSs ABSs | | | Other | | | Total
2018 1) | | AAA | | | 21,855 | | | | 792 | | | | 7,102 | | | | 3,157 | | | | 32,906 | | | | | | | | | | 20,479 | | | | 772 | | | | 6,505 | | | | 1,753 | | | | 29,511 | | | AA | | | 5,462 | | | | 2,879 | | | | 1,700 | | | | - | | | | 10,040 | | | | | | | | | | 4,949 | | | | 3,264 | | | | 1,721 | | | | - | | | | 9,934 | | | A | | | 311 | | | | 20,765 | | | | 1,443 | | | | - | | | | 22,520 | | | | | | | | | | 614 | | | | 18,482 | | | | 1,490 | | | | 1 | | | | 20,587 | | | BBB | | | 1,198 | | | | 19,045 | | | | 396 | | | | 6 | | | | 20,646 | | | | | | | | | | 961 | | | | 20,360 | | | | 349 | | | | 1 | | | | 21,670 | | | BB | | | 269 | | | | 1,395 | | | | 178 | | | | - | | | | 1,842 | | | | | | | | | | 215 | | | | 1,279 | | | | 144 | | | | - | | | | 1,638 | | | B | | | 152 | | | | 1,011 | | | | 111 | | | | - | | | | 1,273 | | | | | | | | | | 136 | | | | 1,003 | | | | 69 | | | | - | | | | 1,207 | | | CCC or lower | | | 2 | | | | 309 | | | | 1,516 | | | | - | | | | 1,828 | | | | | | | | | | 1 | | | | 302 | | | | 1,318 | | | | - | | | | 1,621 | | | Assets not rated | | | - | | | | 3 | | | | - | | | | 95 | | | | 98 | | | | | | | | | | - | | | | - | | | | - | | | | 1,391 | | | | 1,391 | | | | | | At December 31 | | | 29,249 | | | | 46,199 | | | | 12,446 | | | | 3,258 | | | | 91,153 | | | | | | | | | | 27,356 | | | | 45,462 | | | | 11,596 | | | | 3,147 | | | | 87,560 | |
| 1 | Includes investments of Holding and other activities. |
| 2 | CNLP Ratings are used and are the lower of the Barclay’s Rating and the Internal Rating with the Barclay’s rating being a blended rating of S&P, Fitch, and Moody’s. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Credit risk concentrations –
mortgage loans 2019 | | Americas | | | The
Netherlands | | | United
Kingdom | | | Southern
& Eastern
Europe | | | Asia | | | Asset
Manage-
ment | | | Total
2019 1) | | | Of which past due
and /or impaired
assets | | | | | | | | | | Agricultural | | | 69 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 69 | | | | - | | | | | | | | | | | Apartment | | | 4,383 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 4,383 | | | | 94 | | | | | | | | | | | Industrial | | | 1,266 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,266 | | | | - | | | | | | | | | | | Office | | | 1,395 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,395 | | | | - | | | | | | | | | | | Retail | | | 1,575 | | | | 8 | | | | - | | | | - | | | | - | | | | - | | | | 1,583 | | | | 1 | | | | | | | | | | | Other commercial | | | 258 | | | | 43 | | | | - | | | | - | | | | - | | | | - | | | | 302 | | | | 1 | | | | | | | | | | | Residential | | | 9 | | | | 28,742 | | | | - | | | | 1 | | | | - | | | | - | | | | 28,752 | | | | 163 | | | | | | | | | | | | At December 31 | | | 8,956 | | | | 28,793 | | | | - | | | | 1 | | | | - | | | | - | | | | 37,750 | | | | 259 | |
| 1 | Includes investments of Holding and other activities. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 184193 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | | |
| Credit risk concentrations – mortgage
loans 2018 | | Americas | | | The Netherlands | | | United Kingdom | | | Central & Eastern Europe | | | Spain & Portugal | | | Asia | | | Asset Manage- ment | | | Total 20181 | | | Of which past due and/or impaired assets | | | Americas | | | The
Netherlands | | | United
Kingdom | | | Southern
& Eastern
Europe | | | Asia | | | Asset
Manage-
ment | | | Total
2018 1) | | | Of which past due
and / or impaired
assets | | Agricultural | | | 69 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 69 | | | | 15 | | | | 69 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 69 | | | | 15 | | Apartment | | | 3,993 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 3,993 | | | | 92 | | | | 3,993 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 3,993 | | | | 92 | | Industrial | | | 871 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 871 | | | | - | | | | 871 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 871 | | | | - | | Office | | | 1,342 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,343 | | | | - | | | | 1,342 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,343 | | | | - | | Retail | | | 1,457 | | | | 9 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,466 | | | | 1 | | | | 1,457 | | | | 9 | | | | - | | | | - | | | | - | | | | - | | | | 1,466 | | | | 1 | | Other commercial | | | 258 | | | | 35 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 292 | | | | 2 | | | | 258 | | | | 35 | | | | - | | | | - | | | | - | | | | - | | | | 292 | | | | 2 | | Residential | | | 12 | | | | 28,193 | | | | - | | | | - | | | | 1 | | | | - | | | | - | | | | 28,207 | | | | 227 | | | | 12 | | | | 28,193 | | | | - | | | | 1 | | | | - | | | | - | | | | 28,207 | | | | 227 | | At December 31 | | | 8,002 | | | | 28,237 | | | | - | | | | - | | | | 1 | | | | - | | | | - | | | | 36,240 | | | | 337 | | | | 8,002 | | | | 28,237 | | | | - | | | | 1 | | | | - | | | | - | | | | 36,240 | | | | 337 | | 1 Includes investments of Holding and other activities. | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Credit risk concentrations – mortgage
loans 2017 | | Americas | | | The Netherlands | | | United Kingdom | | | Central & Eastern Europe | | | Spain & Portugal | | | Asia | | | Asset Manage- ment | | | Total 20171 | | | Of which past due and/or impaired assets | | Agricultural | | | 77 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 77 | | | | 8 | | Apartment | | | 3,371 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 3,371 | | | | - | | Industrial | | | 631 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 631 | | | | 7 | | Office | | | 1,226 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,226 | | | | - | | Retail | | | 1,375 | | | | 11 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,385 | | | | 19 | | Other commercial | | | 256 | | | | 38 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 294 | | | | 2 | | Residential | | | 16 | | | | 26,384 | | | | - | | | | 176 | | | | 1 | | | | - | | | | - | | | | 26,578 | | | | 343 | | At December 31 | | | 6,951 | | | | 26,434 | | | | - | | | | 176 | | | | 1 | | | | - | | | | - | | | | 33,562 | | | | 379 | | 1 Includes investments of Holding and other activities. | |
| 1 | Includes investments of Holding and other activities. |
The fair value of Aegon Americas commercial and agricultural mortgage loan portfolio as per December 31, 2018,2019, amounted to EUR 8,0599,447 million (2017:(2018: EUR 7,1328,059 million). The loan to value (LTV) amounted to approximately 53% (2018: 54% (2017: 55%). Of the portfolio 1.06% (2018: 1.25% (2017: 0.06%) is in delinquency (defined as 60 days in arrears). In 2018,2019, Aegon Americas recognized EUR 10 million of net recoveries (2017:(2018: EUR 191 million net impairments) on this portfolio. In 2018,2019, there were no foreclosures (2017:(2018: EUR 0 million) and no impairments or recoveries associatiedassociated with foreclosed loans (2017:(2018: EUR 0 million). The fair value of Aegon the Netherlands mortgage loan portfolio as per December 31, 2018,2019, amounted to EUR 31,68633,111 million (2017:(2018: EUR 30,92631,686 million). The LTV amounted to approximately 67% (2018: 70% (2017: 76%). A significant part of the portfolio 49% (2018: 46% (2017: 51%) is government guaranteed. Of the portfolio, 0.2% (2017:0.1% (2018: 0.2%) is in delinquency (defined as 60 days in arrears). Impairments in 20182019 amounted to EUR 0 million (2017:(2018: EUR 80 million). During the last ten years defaults of the portfolio have been 5 basis points on average. Unconsolidated structured entities Aegon’s investments in unconsolidated structured entities such as RMBSs, CMBSs and ABSs and investment funds are presented in the line item ‘Investments’ of the statement of financial position. Aegon’s interests in these unconsolidated structured entities can be characterized as basic interests, Aegon does not have loans, derivatives, guarantees or other interests related to these investments. Any existing commitments such as future purchases of interests in investment funds are disclosed in note 4845 Commitments and contingencies. For debt instruments, specifically for RMBSs, CMBSs and ABSs, the maximum exposure to loss is equal to the carrying amount which is reflected in the credit risk concentration table regarding debt securities and money market investments. To manage credit risk Aegon invests primarily in senior notes of RMBSs, CMBSs and ABSs. Additional information on credit ratings for Aegon’s investments in RMBSs, CMBSs and ABSs are disclosed in the sections that describe per category of debt securities the composition and impairment assessments. The composition of the RMBSs, CMBSs and ABSs portfolios of Aegon are widely dispersed looking at the individual amount per entity, therefore Aegon only hasnon-controlling interests in individual unconsolidated structured entities. Furthermore these investments are not originated by Aegon. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 185 | | Notes to the consolidated financial statements Note 4 | | | |
Except for commitments as noted in note 4845 Commitments and contingencies, Aegon did not provide, nor is required to provide financial or other support to unconsolidated structured entities. Nor does Aegon have intentions to provide financial or other support to unconsolidated structured entities in which Aegon has an interest or previously had an interest. For RMBSs, CMBSs and ABSs in which Aegon has an interest at reporting date, the following table presents total income received from those interests. The Investments column reflects the carrying values recognized in the statement of financial position of Aegon’s interests in RMBSs, CMBSs and ABSs. | | | | | | | | | Total income 2018 | | | December 31, 2018 | | | | | | | Total income 2019 | | | December 31, 2019 | | | 2018 | | Interest income | | | Total gains and losses on sale of assets | | Total | | | Investments | | | 2019 | | | Interest income | | | Total gains and
losses on sale of
assets | | Total | | | Investments | | Residential mortgage-backed securities | | | 140 | | | | (3 | ) | | 137 | | | | 2,585 | | | | 140 | | | | 97 | | | 237 | | | | 2,729 | | Commercial mortgage-backed securities | | | 139 | | | | (41 | ) | | 98 | | | | 4,013 | | | | 138 | | | | 182 | | | 320 | | | | 4,153 | | Asset-backed securities | | | 54 | | | | - | | | 54 | | | | 2,447 | | | | 47 | | | | (1 | ) | | 45 | | | | 1,642 | | ABSs – Other | | | 84 | | | | 15 | | | 99 | | | | 2,552 | | | ABSs - Other | | | | 87 | | | | 81 | | | 168 | | | | 2,258 | | Total | | | 417 | | | | (28 | ) | | 389 | | | | 11,596 | | | | 412 | | | | 358 | | | 769 | | | | 10,782 | | | | | | | | | | | Total income 2017 | | | December 31, 2017 | | | 2017 | | Interest income | | | Total gains and losses on sale of assets | | Total | | | Investments | | Residential mortgage-backed securities | | | 174 | | | | 95 | | | 269 | | | | 3,655 | | | Commercial mortgage-backed securities | | | 159 | | | | 53 | | | 212 | | | | 4,086 | | | Asset-backed securities | | | 56 | | | | 26 | | | 82 | | | | 2,327 | | | ABSs – Other | | | 87 | | | | 71 | | | 158 | | | | 2,378 | | | Total | | | 476 | | | | 245 | | | 721 | | | | 12,446 | | |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 194 | | | | Consolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | Total income 2018 | | | December 31, 2018 | | | 2018 | | Interest income | | | Total gains and losses on
sale of assets | | | Total | | | Investments | | Residential mortgage-backed securities | | | 140 | | | | (3 | ) | | | 137 | | | | 2,585 | | | | | | | Commercial mortgage-backed securities | | | 139 | | | | (41 | ) | | | 98 | | | | 4,013 | | | | | | | Asset-backed securities | | | 54 | | | | - | | | | 54 | | | | 2,447 | | | | | | | ABSs - Other | | | 84 | | | | 15 | | | | 99 | | | | 2,552 | | Total | | | 417 | | | | (28 | ) | | | 389 | | | | 11,596 | |
Monoline insurers EUR 178272 million (2017:(2018: EUR 264178 million) of the bonds in Aegon Americas’sAmericas’ and Asia’s portfolios are insured by Monoline insurers. An insolvency by one of the Monolines could create significant market price volatility for the affected holdings. Of the EUR 178272 million indirect exposure on the Monoline insurers, 15%6% relates to Municipal Bond Insurance Association, Inc. (MBIA), 13%54% to Ambac Financial Group, inc.Inc. (AMBAC), and 52%27% to Assured Guaranty Corporation (AGC) (2017: 31%(2018: 15% related to MBIA, 13% to AMBAC, and 43%52% to AGC). | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 186 | | Notes to the consolidated financial statements Note 4 | | | |
Additional information on credit risk, unrealized losses and impairments Debt instruments The amortized cost and fair value of debt securities, money market investments and other, included in Aegon’savailable-for-sale (AFS) portfolios, are as follows as of December 31, 2018,2019, and December 31, 20172018. | | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | Amortized
cost | | | Unrealized
gains | | | Unrealized
losses | | | Total fair value | | | Fair value of instruments with unrealized gains | | | Fair value of instruments with unrealized losses | | | Debt securities, money market instruments and other | | | | | | | | | | | | | | | | | | | | | | | | | United States government | | | 6,973 | | | | 603 | | | | (127 | ) | | | 7,449 | | | | 4,772 | | | | 2,676 | | Dutch government | | | 4,908 | | | | 1,136 | | | | (3 | ) | | | 6,040 | | | | 6,002 | | | | 38 | | Other government | | | 11,293 | | | | 718 | | | | (54 | ) | | | 11,957 | | | | 11,105 | | | | 852 | | Mortgage-backed securities | | | 6,275 | | | | 366 | | | | (84 | ) | | | 6,557 | | | | 3,700 | | | | 2,857 | | Asset-backed securities | | | 4,948 | | | | 65 | | | | (55 | ) | | | 4,958 | | | | 1,825 | | | | 3,133 | | Corporate | | | 39,770 | | | | 1,748 | | | | (1,138 | ) | | | 40,379 | | | | 21,441 | | | | 18,939 | | Money market investments | | | 5,955 | | | | - | | | | - | | | | 5,955 | | | | 5,701 | | | | 254 | | Other | | | 919 | | | | 71 | | | | (88 | ) | | | 902 | | | | 707 | | | | 194 | | Total | | | 81,039 | | | | 4,707 | | | | (1,550 | ) | | | 84,196 | | | | 55,253 | | | | 28,943 | | | | | | | | | Of which held by Aegon Americas and NL | | | 72,486 | | | | 4,370 | | | | (1,352 | ) | | | 75,504 | | | | 50,976 | | | | 24,528 | | | | | | | | | | 2017 | | Amortized cost | | | Unrealized gains | | | Unrealized losses | | | Total fair value | | | Fair value of instruments with unrealized gains | | | Fair value of instruments with unrealized losses | | | Debt securities, money market instruments and other | | | | | | | | | | | | | | | | | | | | | | | | | United States government | | | 8,011 | | | | 936 | | | | (101 | ) | | | 8,846 | | | | 6,805 | | | | 2,041 | | Dutch government | | | 4,799 | | | | 992 | | | | (11 | ) | | | 5,781 | | | | 4,885 | | | | 896 | | Other government | | | 11,746 | | | | 838 | | | | (17 | ) | | | 12,568 | | | | 11,501 | | | | 1,067 | | Mortgage-backed securities | | | 7,326 | | | | 424 | | | | (56 | ) | | | 7,694 | | | | 5,569 | | | | 2,126 | | Asset-backed securities | | | 4,624 | | | | 92 | | | | (17 | ) | | | 4,698 | | | | 3,878 | | | | 820 | | Corporate | | | 37,168 | | | | 3,663 | | | | (218 | ) | | | 40,613 | | | | 34,945 | | | | 5,668 | | Money market investments | | | 6,690 | | | | - | | | | - | | | | 6,690 | | | | 5,642 | | | | 1,048 | | Other | | | 765 | | | | 98 | | | | (73 | ) | | | 791 | | | | 597 | | | | 193 | | Total | | | 81,130 | | | | 7,043 | | | | (493 | ) | | | 87,681 | | | | 73,822 | | | | 13,858 | | | | | | | | | Of which held by Aegon Americas and NL | | | 72,937 | | | | 6,392 | | | | (462 | ) | | | 78,867 | | | | 66,688 | | | | 12,179 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | 2019 | | Amortized
cost | | | Unrealized
gains | | | Unrealized
losses | | | Total fair
value | | | Fair value of
instruments
with unrealized
gains | | | Fair value of
instruments
with unrealized
losses | | Debt securities, money market instruments and other | | | | | | | | | | | | | | | | | | | | | | | | | United States government | | | 7,443 | | | | 1,377 | | | | (8 | ) | | | 8,812 | | | | 8,478 | | | | 335 | | Dutch government | | | 4,869 | | | | 1,448 | | | | - | | | | 6,316 | | | | 6,267 | | | | 49 | | Other government | | | 8,901 | | | | 2,989 | | | | (17 | ) | | | 11,872 | | | | 11,662 | | | | 210 | | Mortgage-backed securities | | | 6,366 | | | | 470 | | | | (25 | ) | | | 6,811 | | | | 5,773 | | | | 1,037 | | Asset-backed securities | | | 3,776 | | | | 103 | | | | (9 | ) | | | 3,869 | | | | 2,881 | | | | 989 | | Corporate | | | 40,552 | | | | 4,853 | | | | (167 | ) | | | 45,238 | | | | 42,801 | | | | 2,437 | | Money market investments | | | 5,169 | | | | - | | | | - | | | | 5,169 | | | | 4,702 | | | | 467 | | Other | | | 976 | | | | 49 | | | | (117 | ) | | | 908 | | | | 628 | | | | 280 | | Total | | | 78,052 | | | | 11,289 | | | | (345 | ) | | | 88,995 | | | | 83,192 | | | | 5,803 | | | | | | | | | Of which held by Aegon Americas and NL | | | 69,012 | | | | 10,493 | | | | (327 | ) | | | 79,178 | | | | 74,025 | | | | 5,153 | |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 187 | | Notes to the consolidated financial statements Note 4 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | Amortized
cost | | | Unrealized
gains | | | Unrealized
losses | | | Total fair
value | | | Fair value of
instruments
with unrealized
gains | | | Fair value of
instruments
with unrealized
losses | | Debt securities, money market instruments and other | | | | | | | | | | | | | | | | | | | | | | | | | United States government | | | 6,973 | | | | 603 | | | | (127 | ) | | | 7,449 | | | | 4,772 | | | | 2,676 | | Dutch government | | | 4,908 | | | | 1,136 | | | | (3 | ) | | | 6,040 | | | | 6,002 | | | | 38 | | Other government | | | 11,327 | | | | 684 | | | | (54 | ) | | | 11,957 | | | | 11,105 | | | | 852 | | Mortgage-backed securities | | | 6,275 | | | | 366 | | | | (84 | ) | | | 6,557 | | | | 3,700 | | | | 2,857 | | Asset-backed securities | | | 4,948 | | | | 65 | | | | (55 | ) | | | 4,958 | | | | 1,825 | | | | 3,133 | | Corporate | | | 39,770 | | | | 1,748 | | | | (1,138 | ) | | | 40,379 | | | | 21,441 | | | | 18,939 | | Money market investments | | | 5,955 | | | | - | | | | - | | | | 5,955 | | | | 5,701 | | | | 254 | | Other | | | 919 | | | | 71 | | | | (88 | ) | | | 902 | | | | 707 | | | | 194 | | Total | | | 81,073 | | | | 4,673 | | | | (1,550 | ) | | | 84,196 | | | | 55,253 | | | | 28,943 | | | | | | | | | Of which held by Aegon Americas and NL | | | 72,520 | | | | 4,336 | | | | (1,352 | ) | | | 75,504 | | | | 50,976 | | | | 24,528 | |
Unrealized bond losses by sector The composition by industry category of Aegon’savailable-for-sale (AFS) debt securities, money market investments and other in an unrealized loss position at December 31, 2018,2019, and December 31, 2017,2018, is presented in the following table: | | | | | | | | | | | | | | | | | | | | December 31, 2018 | | | December 31, 2017 | | Unrealized losses – debt securities, money market investments and other | | Carrying value of instruments with unrealized losses | | | Unrealized losses | | | Carrying value of instruments with
unrealized losses | | | Unrealized losses | | Residential mortgage-backed securities (RMBSs) | | | 446 | | | | (30 | ) | | | 732 | | | | (30) | | Commercial mortgage-backed securities (CMBSs) | | | 2,012 | | | | (45 | ) | | | 1,140 | | | | (22) | | Asset-backed securities (ABSs) – CDOs backed by | | | | | | | | | | | | | | | | | ABS, Corp. bonds, Bank loans | | | 2,088 | | | | (42 | ) | | | 87 | | | | (2) | | ABSs – Other | | | 829 | | | | (10 | ) | | | 603 | | | | (13) | | Financial Industry – Banking | | | 2,522 | | | | (106 | ) | | | 663 | | | | (39) | | Financial Industry – Insurance | | | 646 | | | | (36 | ) | | | 231 | | | | (7) | | Financial Industry – Other | | | 1,523 | | | | (69 | ) | | | 1,411 | | | | (10) | | Industrial | | | 10,073 | | | | (684 | ) | | | 3,305 | | | | (131) | | Utility | | | 1,258 | | | | (78 | ) | | | 375 | | | | (14) | | Government | | | 2,935 | | | | (164 | ) | | | 3,438 | | | | (122) | | Other | | | 194 | | | | (88 | ) | | | 193 | | | | (73) | | Total held by Aegon Americas and NL | | | 24,528 | | | | (1,352 | ) | | | 12,179 | | | | (462) | | Held by other segments | | | 4,415 | | | | (197 | ) | | | 1,680 | | | | (31) | | Total | | | 28,943 | | | | (1,550 | ) | | | 13,858 | | | | (493) | |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 195 | | | | Consolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | December 31, 2019 | | | December 31, 2018 | | Unrealized losses - debt securities, money market investments and other | | Carrying value of
instruments with
unrealized losses | | | Unrealized losses | | | Carrying value of
instruments with
unrealized losses | | | Unrealized losses | | | | | | | Residential mortgage-backed securities (RMBSs) | | | 413 | | | | (18 | ) | | | 446 | | | | (30 | ) | | | | | | Commercial mortgage-backed securities (CMBSs) | | | 494 | | | | (6 | ) | | | 2,012 | | | | (45 | ) | | | | | | Asset-backed securities (ABSs) - CDOs backed by | | | | | | | | | | | | | | | | | | | | | | ABS, Corp. bonds, Bank loans | | | 662 | | | | (5 | ) | | | 2,088 | | | | (42 | ) | | | | | | ABSs - Other | | | 242 | | | | (4 | ) | | | 829 | | | | (10 | ) | | | | | | Financial Industry - Banking | | | 349 | | | | (20 | ) | | | 2,522 | | | | (106 | ) | | | | | | Financial Industry - Insurance | | | 104 | | | | (5 | ) | | | 646 | | | | (36 | ) | | | | | | Financial Industry - Other | | | 615 | | | | (15 | ) | | | 1,523 | | | | (69 | ) | | | | | | Industrial | | | 1,293 | | | | (105 | ) | | | 10,073 | | | | (684 | ) | | | | | | Utility | | | 249 | | | | (10 | ) | | | 1,258 | | | | (78 | ) | | | | | | Government | | | 453 | | | | (23 | ) | | | 2,935 | | | | (164 | ) | | | | | | Other | | | 279 | | | | (117 | ) | | | 194 | | | | (88 | ) | | | | | | | Total held by Aegon Americas and NL | | | 5,153 | | | | (327 | ) | | | 24,528 | | | | (1,352 | ) | | | | | | Held by other segments | | | 650 | | | | (18 | ) | | | 4,415 | | | | (197 | ) | | | | | | | | Total | | | 5,803 | | | | (345 | ) | | | 28,943 | | | | (1,550 | ) |
As of December 31, 2018,2019, there are EUR 4,37010,493 million (December 31, 2017:2018: EUR 6,3924,370 million) of gross unrealized gains and EUR 1,352327 million (December 31, 2017:2018: EUR 4621,352 million) of gross unrealized losses in the AFS debt securities, money markets and other portfolio of Aegon Americas and Aegon the Netherlands. After generally strong performance through the first three quarters of 2018, U.S.US credit and equity markets weakened dramaticallymarket returns were strong during 2019, rebounding from sharp sell-offs at the fourth quarter.end of 2018. Credit spreads widened for the year, while U.S.tightened dramatically, and US equity markets finishedrose throughout the year sharply lower.year. Developed-world economic growth was fairly strong,steady and positive, though somewhat lack-luster, with the U.S. economy outperforming. Emerging economies turned in mixed performances, with trade tensions weighing on some markets.US generally outperforming most other developed economies. Outside of the U.S., mostUS, global equity markets were significantly weaker in 2018.also very strong. The U.S. dollar strengthened againstwas modestly stronger versus the Euro, but weakenedand little-changed versus the Yen.yen. The U.S.US Federal Reserve raisedpaused its tightening cycle at the beginning of 2019, and began easing in July, ultimately reducing the Fed Funds rate target by 10075 basis points in 2018, reflecting strong labor conditions and healthy economic growth. Long-term U.S.points. US Treasury rates also increased, but failed to keep pace with shorter term rates, flattening the U.S yield curve.declined sharply. Corporate default rates remained very low, in spite of widening credit spreads. After rising for most of the year, oillow. Oil prices fell dramatically in the fourth quarter and ended the year significantly lower. Widerhigher than the very low levels at the end of 2018, but lower than where they traded during most of 2018. Tighter credit spreads and higher U.S. treasurylower US Treasury rates decreasedincreased the market values of fixed income holdings.
EconomicGDP growth in the Eurozone2019 slowed down markedly. The Eurozone economy was impacted by a manufacturing slowdown. Especially export dependent countries like Germany and Italy were impacted. The slowdown was the result of a combination of factors. The automotive sector was hit by new emission standards and weakness in 2018, but is still performing above trend. Unemployment is on a downward trend and wage inflation is slowly increasing in several (Northern) European countries due tosome export markets like the tight labor markets. In an aggregate level, the EU has a relatively strong fiscal and external position. However, on a country basis, large differences exist. The Italian government wanted to increase its budget deficit in 2019. The ensuing argument with the EU resulted in lower confidence, wider sovereign spreads and lower investments. The Italian economy therefore came to a standstill in the second half of 2018.UK. Also the inability of the UK and the EU to reach a Brexit deal dented confidence and investments. Especially in more recent data it has become apparent that the UK economy is negatively impacted. The EU is a relatively open economy. The trade conflict between the US and China, might have resulted in lower Chinese demand. A bright spot remained private consumption and weaker Chinese demandthe services sectors, which held up well despite these developments. The Brexit process also resulted in continued uncertainty. The deadline was therefore quickly felt viapostponed twice. Firstly, due to the inability of the UK parliament ratify a deal and secondly, to allow for new elections. These elections resulted in a clear majority of the conservative party, which led to an exit from the EU in January 2020.
The ECB decided to ease monetary conditions further. Initially they introduced new targeted longer-term refinancing operations (TLTROs) to ease credit conditions. In September the ECB decided to also reinstate the asset purchase program (APP) at a monthly pace of EUR 20 billion and to lower export volumes. The European Central Bank announced the end of its quantitative easing program. Markets are however not pricing in anydeposit rate hikes for next year.further into negative territory to-0.5%. Impairment of financial assets Aegon regularly monitors industry sectors and individual debt securities for indicators of impairment. These indicators may include one or more of the following: 1) deteriorating market to book ratio, 2) increasing industry risk factors, 3) deteriorating financial condition of the issuer, 4) covenant violations by the issuer, 5) high probability of bankruptcy of the issuer, or 6) downgrades by internationally recognized credit rating agency. Additionally, for asset-backed securities, cash flow trends and underlying levels of collateral are monitored. A security is impaired if there is objective evidence that a loss event has occurred after the initial recognition of the asset that has a negative impact on the estimated future cash flows. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 188 | | Notes to the consolidated financial statements Note 4 | | | |
In the sections below a description is provided on the composition of the categories of debt securities and money market investments. Individual issuers rated below investment grade in any sector which have unrealized loss positions greater than EUR 25 million are | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 196 | | | | Consolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | |
disclosed separately. Furthermore, quality ratings of investment portfolios are based on a composite of the main rating agencies (S&P, Moody’s and Fitch) and Aegon’s internal rating of the counterparty. Residential mortgage-backed securities Aegon Americas and Aegon the Netherlands hold EUR 2,4972,533 million (December 31, 2017:2018: EUR 3,5412,497 million) of residential mortgage-backed securitiesavailable-for-sale (RMBS), of which EUR 2,1022,222 million (December 31, 2017:2018: EUR 2,9852,102 million) is held by Aegon Americas and EUR 395311 million (December 31, 2017:2018: EUR 556395 million) by Aegon the Netherlands. Residential mortgage-backed securities are securitizations of underlying pools ofnon-commercial mortgages on real estate. The underlying residential mortgages have varying credit characteristics and are pooled together and sold in tranches. The following table shows the breakdown of Aegon America’s RMBSavailable-for-sale (AFS) portfolio. | | AFS RMBS by quality | | AAA | | | AA | | | A | | | BBB | | | <BBB | | | Total
amortized cost | | | Total
fair value | | | AAA | | | AA | | | A | | | BBB | | | <BBB | | | Total
amortized
cost | | | Total fair
value | | | GSE guaranteed | | | 450 | | | | 149 | | | | - | | | | - | | | | - | | | | 599 | | | | 599 | | | | 735 | | | | 43 | | | | - | | | | - | | | | - | | | | 778 | | | | 782 | | | Prime jumbo | | | - | | | | 16 | | | | 1 | | | | 5 | | | | 98 | | | | 120 | | | | 124 | | | | 6 | | | | 16 | | | | 1 | | | | 2 | | | | 32 | | | | 56 | | | | 62 | | | Alt-A | | | - | | | | 59 | | | | 17 | | | | 5 | | | | 221 | | | | 301 | | | | 397 | | | | 48 | | | | 59 | | | | 15 | | | | 10 | | | | 242 | | | | 373 | | | | 462 | | | Negative amortization floaters | | | - | | | | 1 | | | | - | | | | 11 | | | | 438 | | | | 450 | | | | 533 | | | | - | | | | 2 | | | | - | | | | 9 | | | | 382 | | | | 394 | | | | 468 | | | Other housing | | | - | | | | 13 | | | | 4 | | | | 16 | | | | 333 | | | | 366 | | | | 450 | | | | 2 | | | | 9 | | | | 2 | | | | 7 | | | | 317 | | | | 337 | | | | 449 | | At December 31, 2018 | | | 450 | | | | 238 | | | | 22 | | | | 36 | | | | 1,089 | | | | 1,836 | | | | 2,102 | | | | At December 31, 2019 | | | | 790 | | | | 129 | | | | 18 | | | | 28 | | | | 973 | | | | 1,938 | | | | 2,222 | | | Of which insured | | | - | | | | - | | | | 20 | | | | 5 | | | | 99 | | | | 124 | | | | 113 | | | | - | | | | - | | | | 16 | | | | 4 | | | | 88 | | | | 109 | | | | 100 | | | | AFS RMBS by quality | | AAA | | | AA | | | A | | | BBB | | | <BBB | | | Total amortized cost | | | Total fair value | | | GSE guaranteed | | | 1,025 | | | | 270 | | | | - | | | | - | | | | - | | | | 1,295 | | | | 1,298 | | | Prime jumbo | | | - | | | | - | | | | - | | | | 5 | | | | 124 | | | | 130 | | | | 136 | | | Alt-A | | | - | | | | 33 | | | | 20 | | | | 8 | | | | 277 | | | | 337 | | | | 437 | | | Negative amortization floaters | | | - | | | | - | | | | - | | | | - | | | | 502 | | | | 502 | | | | 584 | | | Other housing | | | - | | | | 9 | | | | 17 | | | | 30 | | | | 397 | | | | 453 | | | | 530 | | | At December 31, 2017 | | | 1,025 | | | | 312 | | | | 37 | | | | 43 | | | | 1,300 | | | | 2,717 | | | | 2,985 | | | | Of which insured | | | - | | | | - | | | | 24 | | | | 5 | | | | 146 | | | | 175 | | | | 166 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | AFS RMBS by quality | | AAA | | | AA | | | A | | | BBB | | | <BBB | | | Total
amortized
cost | | | Total fair
value | | | | | | | | | | GSE guaranteed | | | 450 | | | | 149 | | | | - | | | | - | | | | - | | | | 599 | | | | 599 | | | | | | | | | | Prime jumbo | | | - | | | | 16 | | | | 1 | | | | 5 | | | | 98 | | | | 120 | | | | 124 | | | | | | | | | | Alt-A | | | - | | | | 59 | | | | 17 | | | | 5 | | | | 221 | | | | 301 | | | | 397 | | | | | | | | | | Negative amortization floaters | | | - | | | | 1 | | | | - | | | | 11 | | | | 438 | | | | 450 | | | | 533 | | | | | | | | | | Other housing | | | - | | | | 13 | | | | 4 | | | | 16 | | | | 333 | | | | 366 | | | | 450 | | | | | | | | | | At December 31, 2018 | | | 450 | | | | 238 | | | | 22 | | | | 36 | | | | 1,089 | | | | 1,836 | | | | 2,102 | | | | | | | | | | Of which insured | | | - | | | | - | | | | 20 | | | | 5 | | | | 99 | | | | 124 | | | | 113 | |
A significant part of Aegon America’s RMBS holdings are rated <below BBB, as the issuances took place before the United States housing downturn that started in 2007. Additionally, Aegon Americas has investments in RMBS of EUR 3567 million (December 31, 2017:2018: EUR 4035 million), which are classified as fair value through profit or loss. RMBS of Aegon Americas are monitored and reviewed on a monthly basis. Detailed cash flow models using the current collateral pool and capital structure on the portfolio are updated and reviewed quarterly. Model output is generated under base and stress-case scenarios. Aegon’s RMBS asset specialists utilize widely recognized industry modeling software to perform aloan-by-loan,bottom-up approach to modeling. Key assumptions used in the models are projected defaults, loss severities, and prepayments. Each of these key assumptions varies greatly based on the significantly diverse characteristics of the current collateral pool for each security.Loan-to-value,Loan-to- value, loan size, and borrower credit history are some of the key characteristics used to determine the level of assumption that is utilized. Defaults were estimated by identifying the loans that are in various delinquency buckets and defaulting a certain percentage of them over the near-term and long-term. Assumed defaults on delinquent loans are dependent on the specific security’s collateral attributes and historical performance. LossPrepayments and loss severity assumptions were determined by obtaining historical rates from broader market data and by adjusting those rates for vintage, specific pool performance, collateral type, mortgage insurance and estimated loan modifications. Prepayments were estimated by examining historical averages of prepayment activity on the underlying collateral. Quantitative ranges of significant assumptions within Aegon’s modeling process for Prime Jumbo,Alt-A, Negative Amortization and subprime RMBS are as follows: prepayment assumptions range from approximately 0% to 25%33% with a weighted average of approximately 5.4% (December 31, 2017:8.44% (2018: 5.45%),
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5.5%), assumedthe increase compared to prior year is related to a change in the model from using ‘delinquent’ loans to using ‘defaulted’ loans. Assumed loan defaults on delinquent loans range from 0% to 100%56% with a weighted average of approximately 78.9% (December 31, 2017: 77.6%), assumed defaults on current loans20.42% and are dependent on the specific security’s collateral attributes and historical performance, while loss severity assumptions range from approximately 24%0% to 103%105%, with a weighted average of approximately 57.0% (December 31, 2017: 58.3%50.19% (2018: 56.96%).
Once the entire pool is modeled, the results are closely analyzed by Aegon’s asset specialists to determine whether or not Aegon’s particular tranche or holding is at risk for not collecting all contractual cash flows taking into account the seniority and other terms of the tranches held. Aegon the Netherlands has mandated Aegon Asset Management to invest in RMBS transactions. Aegon Asset Management uses its own proprietary cash flow tools to analyseanalyze and stress test RMBS transactions. The key input parameters are default rates and loss given default assumptions, which are established based on historical pool characteristics and current loan level data. Cash flows for each bond are modelled in 225 scenarios of varying severity, ranging from our base case to extreme stress to even unrealistic scenarios to establish breaking points of the tranche. The model takes all deal characteristics, such as waterfall or reserve funds, into account and gives us detailed insight in the risk of principal loss or deferral of contractual cash flows. The total gross unrealized losson available-for-sale RMBS of Aegon Americas and Aegon the Netherlands amounted to EUR 3018 million (December 31, 2017:2018: EUR 2930 million), of which EUR 2918 million (December 31, 2017:2018: EUR 29 million) relates to positions of Aegon Americas, and the total net unrealized gain onavailable-for-sale RMBS was EUR 268288 million (December 31, 2017:2018: EUR 281269 million), including a EUR 266284 million (December 31, 2017:2018: EUR 268266 million) net unrealized gain relating to positions of Aegon Americas. The United States’ housing market in the United States remains goodbuoyant but has begun its transitiontransitioned to a more moderate growth trajectory. The housing market continues to benefit from strongfavorable interest rates, high employment, historically low inventory, rising household formation rates, income growth, demographic and modest credit easing. This is manifestingsupply conditions and has manifested itself in low borrower delinquencies, better recoveries upon liquidation and shorter timelines to sell properties. However,short property sale timelines. Although housing affordability has now come under pressure from years of price appreciation outpacing wage growth, and risingdeclining mortgage rates. Home price appreciation and existing home sales volumerates during 2019 have begun to decelerate. Thesemitigated this risk. The confluence of factors will leave limited room forlarge rates moves, modest spread tightening across the asset class.and rapid deleveraging helped facilitate modest positive returns for legacynon-agency in second half of 2019. In general, the European housing market showed further improvement in the second half of 2018 barring some signs of stress in the UK housing market although this is mostly concentrated in the London metropolitan area.2019. House prices are increasing and affordability remains high given the low level of interest rates. Although economic growth picked up,development was healthy, markets are expecting (global) growth to slow. Unemployment levels meanwhile continue to dropbe at historically low levels which is clearly beneficial for consumer risk in general and retail mortgages in particular. While the net supply in the European RMBS markets is still negative, primary markets are very active. While RMBS backed by new origination is increasing, securitizations backed by legacy mortgage pools continue to be part of the primary supply. Improving fundamentals, deleveraging of the deals and collateral, and negative net supply (together with increasing demand) in the sector were overshadowedcompensated by the anticipation of monetary policy tightening, political related turmoil and expectations of a less benign macroeconomic climate due to increased trade tensions and this resulted in a marginal widening of credit spreads. There are no individual issuers rated below investment grade in this RMBS sector which have unrealized loss position greater than EUR 25 million. The fair values of Aegon Americas’available-for-sale (AFS) RMBS instruments were determined as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Level II | | | Level III | | | Total 2018 | | | Level II | | | Level III | | | Total 2017 | | RMBS | | | 2,060 | | | | 42 | | | | 2,102 | | | | 2,931 | | | | 54 | | | | 2,985 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Level II | | | | Level III | | | | Total 2019 | | | | Level II | | | | Level III | | | | Total 2018 | | RMBS | | | 2,188 | | | | 34 | | | | 2,222 | | | | 2,060 | | | | 42 | | | | 2,102 | |
Commercial mortgage-backed securities As of December, 31, 2018,2019, Aegon Americas and Aegon the Netherlands hold EUR 3,3493,440 million (December 31, 2017:2018: EUR 3,4033,349 million) of AFS commercial mortgage-backed securities (CMBS), of which EUR 3,3143,427 million (December 31, 2017:2018: EUR 3,3753,314 million) is held by Aegon Americas and EUR 3513 million (December 31, 2017:2018: EUR 2835 million) by Aegon the Netherlands. CMBS are securitizations of underlying pools of mortgages on commercial real estate. The underlying mortgages have varying risk characteristics and are pooled together and sold in different rated tranches. The company’s CMBS include conduit, large loan, single borrower, commercial real estate collateralized debt obligations (CRE CDOs), collateralized debt obligations (CDOs), government agency, and franchise loan receivable trusts. The total gross unrealized loss onavailable-for-sale CMBS of Aegon Americas amounted to EUR 446 million as of December 31, 20182019 (December 31, 2017:2018: EUR 2244 million). The total net unrealized gain on theavailable-for-sale CMBS as of December 31, 2018,2019, is EUR 17157 million (December 31, 2017:2018: EUR 3617 million), of which EUR 17104 million (December 31, 2017:2018: EUR 3617 million) relates to positions of Aegon Americas. CMBS fundamentals remain stable. The delinquency rate continues to fall, led by distressed legacy | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
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relates to positionsloan resolutions. Despite modest spread widening during the 2nd half of Aegon Americas. CMBS fundamentals remain stable. Commercial real estate valuation increases have slowed. The delinquency rate continues to fall as distressed legacy loan resolutions outpace new defaults and positive net supply increases the total outstanding balance. Liquidity remains reasonable for the CMBS market. Lower prices in the2019, US CMBS sector since the start of the year are mostly drivenprices continue to be supported by broader market moves from higherlower interest rates.
The tables below summarize the credit quality of Aegon Americas’available-for-sale (AFS) CMBS portfolio. Additionally, as of December 31, 2018,2019, Aegon Americas has no investments in CMBS (December 31, 2017:2018: EUR nil), which are classified as fair value through profit or loss. | | CMBS by quality | | AAA | | | AA | | | A | | | BBB | | | <BBB | | | Total amortized cost | | | Total fair value | | | AAA | | | | AA | | | | A | | | | BBB | | | | <BBB | | |
| Total
amortized
cost |
| |
| Total fair
value |
| | CMBS | | | 2,635 | | | | 567 | | | | 65 | | | | 3 | | | | 57 | | | | 3,326 | | | | 3,310 | | | | 2,540 | | | | 639 | | | | 109 | | | | 7 | | | | 29 | | | | 3,323 | | | | 3,427 | | CMBS and CRE CDOs | | | - | | | | - | | | | - | | | | - | | | | 5 | | | | 5 | | | | 4 | | | At December 31, 2018 | | | 2,635 | | | | 567 | | | | 65 | | | | 3 | | | | 62 | | | | 3,331 | | | | 3,314 | | | | | CMBS by quality | | AAA | | | AA | | | A | | | BBB | | | <BBB | | | Total amortized cost | | | Total fair value | | CMBS | | | 2,626 | | | | 559 | | | | 63 | | | | 3 | | | | 84 | | | | 3,335 | | | | 3,372 | | | CMBS and CRE CDOs | | | - | | | | - | | | | - | | | | - | | | | 4 | | | | 4 | | | | 3 | | | At December 31, 2017 | | | 2,626 | | | | 559 | | | | 63 | | | | 3 | | | | 88 | | | | 3,339 | | | | 3,375 | | | At December 31, 2019 | | | | 2,540 | | | | 639 | | | | 109 | | | | 7 | | | | 29 | | | | 3,323 | | | | 3,427 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CMBS by quality | | AAA | | | AA | | | A | | | BBB | | | <BBB | | | Total
amortized
cost | | | Total fair
value | | | | | | | | | | CMBS | | | 2,635 | | | | 567 | | | | 65 | | | | 3 | | | | 57 | | | | 3,326 | | | | 3,310 | | | | | | | | | | CMBS and CRE CDOs | | | - | | | | - | | | | - | | | | - | | | | 5 | | | | 5 | | | | 4 | | | | | | | | | | | At December 31, 2018 | | | 2,635 | | | | 567 | | | | 65 | | | | 3 | | | | 62 | | | | 3,331 | | | | 3,314 | |
CMBS of Aegon Americas are monitored and reviewed on a monthly basis. Detailed cash flow models using the current collateral pool and capital structure on the portfolio are updated and reviewed quarterly. Model output is generated under base and several stress-case scenarios by Aegon’s internal CMBS asset specialists. For conduit securities, a widely recognized industry modeling software is used to perform aloan-by-loan,bottom-up approach. Fornon-conduit securities, a CMBS asset specialist works closely with Aegon’s real estate valuation group to determine underlying asset valuation and risk. Both methodologies incorporate external estimates on the property market, capital markets, property cash flows, and loan structure. Results are then closely analyzed by the asset specialist to determine whether or not a principal or interest loss is expected to occur. As the remaining unrealized losses in the CMBS portfolio relate to holdings where Aegon expects to receive full principal and interest, Aegon does not consider the underlying investments to be impaired as of December 31, 2018.2019. There are no individual issuers rated below investment grade in the CMBS sector which have unrealized loss position greater than EUR 25 million. The fair values of Aegon Americas’available-for-sale (AFS) CMBS instruments were determined as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Level II | | | Level III | | | Total 2018 | | | Level II | | | Level III | | | Total 2017 | | CMBS | | | 3,310 | | | | 4 | | | | 3,314 | | | | 3,372 | | | | 3 | | | | 3,375 | |
| | | | | | | | | | | | | | | | | | | | | | | Level II | | Level III | | Total 2019 | | Level II | | Level III | | Total 2018 | | | | | | | | | CMBS | | 3,427 | | - | | 3,427 | | 3,310 | | 4 | | 3,314 |
Asset-backed securities Aegon Americas and Aegon the Netherlands hold EUR 4,5033,332 million (December 31, 2017:2018: EUR 4,2254,503 million) of AFS ABS instruments of which EUR 2,6262,239 million (December 31, 2017:2018: EUR 2,4292,626 million) is held by Aegon Americas and EUR 1,8771,093 million (December 31, 2017:2018: EUR 1,7961,877 million) by Aegon the Netherlands. Additionally, as of December 31, 2018,2019, Aegon Americas has investments in ABS of EUR 63 million (December 31, 2017:2018: EUR 106 million), which are classified as fair value through profit or loss. ABS are securitizations of underlying pools of credit card receivables, auto financing loans, small business loans, bank loans, and other receivables. The underlying assets of the asset backed securities have been pooled together and sold in tranches with varying credit ratings. The total gross unrealized loss onavailable-for-sale ABS of Aegon Americas and Aegon the Netherlands amounted to EUR 529 million as of December 31, 20182019 (December 31, 2017:2018: EUR 1452 million). Aegon Americas has EUR 185 million (December 31, 2017:2018: EUR 1218 million) of this gross unrealized loss and Aegon the Netherlands EUR 343 million (December 31, 2017:2018: EUR 234 million). In the United States, increasing investor demand has been met with new issuance in the asset-backed sector. Spreads in the asset-backed sector widenedtightened in 2019. In the latter partsecond half of 2018 in conjunction with2019, the widening of corporate bond spreads. European ABS market showed a positive performance. Spreads declined in most of the European ABS sectors. Our outlook for European ABS markets remains moderately positive for the short to medium term. Despite the bleaker macroeconomic picture, we still consider ABS fundamentals to be supportive for most European | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
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fared well through otherwise volatile financial markets inABS sectors. In addition, favorable technicals will persist for the first half of 2018. Against a benign macroeconomic backdrop and increasing demand for European ABS spreads continued to tighten and resulted in positive performance. Inmarkets. Alongside ECB demand, investor demand is increasing as well driven by the second half of 2018, European ABS markets joined in on the generalrisk-off sentiment on financial markets. Spreads across all sectors were affected but overall the movements have been less severe when looking at credit markets over the last three months. Investors have shifted their attention to short-maturity assets and sectors further down the curve were affected the most. Due to the recent spread widening, valuations of European ABS have become more appealing. However, it seems that investors are still reluctant to add risk despite the attractive spreads. We expect this to be temporary and that investors will step back in the first half of 2019. Spreads will, however, remain volatilesearch for the moment.yield.
The breakdown by quality of theavailable-for-sale (AFS) ABS portfolio of Aegon Americas and Aegon the Netherlands is as follows: | | ABS US and NL | | AAA | | | AA | | | A | | | BBB | | | <BBB | | | Total amortized cost | | | Total fair value | | | AAA | | | AA | | | A | | | BBB | | | <BBB | | | Total
amortized
cost | | | Total fair
value | | Credit cards | | | 174 | | | | 19 | | | | - | | | | - | | | | - | | | | 193 | | | | 201 | | | | 66 | | | | 1 | | | | - | | | | - | | | | - | | | | 67 | | | | 77 | | Autos | | | 230 | | | | - | | | | 58 | | | | 2 | | | | - | | | | 290 | | | | 289 | | | | 147 | | | | - | | | | 72 | | | | 2 | | | | - | | | | 220 | | | | 222 | | Small business loans | | | - | | | | - | | | | 2 | | | | 12 | | | | 46 | | | | 60 | | | | 63 | | | | - | | | | - | | | | 2 | | | | 6 | | | | 13 | | | | 21 | | | | 21 | | CDOs backed by ABS, Corp. bonds, Bank loans | | | 1,535 | | | | 479 | | | | 216 | | | | 146 | | | | 46 | | | | 2,423 | | | | 2,386 | | | | 1,201 | | | | 229 | | | | 45 | | | | 42 | | | | 49 | | | | 1,567 | | | | 1,569 | | Other ABS | | | 525 | | | | 151 | | | | 774 | | | | 88 | | | | 8 | | | | 1,547 | | | | 1,563 | | | | 429 | | | | 98 | | | | 760 | | | | 104 | | | | 9 | | | | 1,400 | | | | 1,444 | | At December 31, 2018 | | | 2,464 | | | | 649 | | | | 1,051 | | | | 248 | | | | 100 | | | | 4,512 | | | | 4,503 | | | | | ABS US and NL | | AAA | | | AA | | | A | | | BBB | | | <BBB | | | Total amortized cost | | | Total fair value | | | Credit cards | | | 170 | | | | 19 | | | | - | | | | 30 | | | | - | | | | 219 | | | | 229 | | | Autos | | | 226 | | | | - | | | | 64 | | | | 2 | | | | - | | | | 292 | | | | 292 | | | Small business loans | | | - | | | | - | | | | 3 | | | | 6 | | | | 62 | | | | 70 | | | | 74 | | | CDOs backed by ABS, Corp. bonds, Bank loans | | | 1,467 | | | | 407 | | | | 224 | | | | 120 | | | | 46 | | | | 2,265 | | | | 2,281 | | | Other ABS | | | 494 | | | | 76 | | | | 683 | | | | 81 | | | | 1 | | | | 1,336 | | | | 1,350 | | | At December 31, 2017 | | | 2,357 | | | | 503 | | | | 975 | | | | 238 | | | | 109 | | | | 4,182 | | | | 4,226 | | | At December 31, 2019 | | | | 1,843 | | | | 329 | | | | 878 | | | | 154 | | | | 71 | | | | 3,274 | | | | 3,332 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ABS US and NL | | AAA | | | AA | | | A | | | BBB | | | <BBB | | | Total
amortized
cost | | | Total fair
value | | Credit cards | | | 174 | | | | 19 | | | | - | | | | - | | | | - | | | | 193 | | | | 201 | | Autos | | | 230 | | | | - | | | | 58 | | | | 2 | | | | - | | | | 290 | | | | 289 | | Small business loans | | | - | | | | - | | | | 2 | | | | 12 | | | | 46 | | | | 60 | | | | 63 | | CDOs backed by ABS, Corp. bonds, Bank loans | | | 1,535 | | | | 479 | | | | 216 | | | | 146 | | | | 46 | | | | 2,423 | | | | 2,386 | | Other ABS | | | 525 | | | | 151 | | | | 774 | | | | 88 | | | | 8 | | | | 1,547 | | | | 1,563 | | At December 31, 2018 | | | 2,464 | | | | 649 | | | | 1,051 | | | | 248 | | | | 100 | | | | 4,512 | | | | 4,503 | |
There were no individual issuers rated below investment grade in this ABS sector which has unrealized loss position greater than EUR 25 million. The fair values of Aegon Americas and Aegon the Netherlandsavailable-for-sale (AFS) ABS instruments were determined as follows: | | | | | | | | | | | | | | | | Level II | | Level III | | Total 2018 | | Level II | | Level III | | Total 2017 | ABSs | | 3,650 | | 853 | | 4,503 | | 3,323 | | 903 | | 4,226 |
Corporate – Financial sector
The Corporate – Financial sector is further subdivided into banking, brokerage, insurance, REIT’s and Financial – Othersub-sectors. A majority of the gross unrealized loss in Aegon’savailable-for-sale portfolio is from the banking and REITssub-sectors.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Level II | | | | Level III | | | | Total 2019 | | | | Level II | | | | Level III | | | | Total 2018 | | ABSs | | | 2,668 | | | | 664 | | | | 3,332 | | | | 3,650 | | | | 853 | | | | 4,503 | |
Corporate – Financial sector – Bankingsub-sector The Bankingsub-sector in Aegon’s portfolio is relatively large, diverse, and of high quality. Aegon Americas and Aegon the Netherlands hold EUR 6,293 million (December 31, 2017: EUR 6,669 million) of AFS bonds issued by banks, of which EUR 6,069 million (December 31, 2017: EUR 6,364 million) is held by Aegon Americas and EUR 224 million (December 31, 2017: EUR 305 million) by Aegon the Netherlands. In aggregate, the gross unrealized loss on these bonds amounted to EUR 106 million (December 31, 2017: EUR 39 million) and the net unrealized gain on these bonds amounted to EUR 4 million (December 31, 2017: EUR 307 million).
Bank regulators continue to implement a wide array of reforms designed to strengthen capital levels, reduce balance sheet risk and improve liquidity in an ongoing effort to reduce systemic risk and harmonize global bank regulation. Both regulators and central governments are adopting new bank guidelines designed to improve ‘resolvability’ in an attempt to ensure that banks can ‘fail’ in an orderly manner without the use of taxpayer money. While most banks already meet new capital and liquidity requirements, well ahead of regulatory deadlines, they are now in the process of issuing loss absorbing securities and altering their legal, financial and operating
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structures. Bank balance sheet repair and risk reduction is expected to continue. Globally, risk concentrations on bank balance sheets continue to exist but confidence in the sector has increased materially since the financial crisis. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2018.
Within the Bankingsub-sector, Aegon Americas and Aegon the Netherlands hold EUR 456 million (December 31, 2017:
EUR 627 million) of deeply subordinated securities with deferrable coupons that have an associated unrealized loss of EUR 42 million (December 31, 2017: EUR 10 million).
There are no individual issuers rated below investment grade in the Bankingsub-sector which have unrealized losses greater than EUR 25 million.
Corporate – Financial sector – REITssub-sector
Within the REITSsub-sector, Aegon Americas and Aegon the Netherlands hold EUR 1,624 million (December 31, 2017: EUR 1,369 million) of AFS bonds issued by banks, of which EUR 1,552 million (December 31, 2017: EUR 1,290 million) is held by Aegon Americas and EUR 71 million (December 31, 2017: EUR 79 million) by Aegon the Netherlands. In aggregate, the gross unrealized loss on these bonds amounted to EUR 49 million (December 31, 2017: EUR 5 million) and the net unrealized gain on these bonds amounted to EUR 33 million (December 31, 2017: EUR 48 million).
The REITssub-sector encompasses companies invested across various real estate property types, including Apartment REITs, Healthcare REITs, Office REITS, Other REITs, and Retail REITs. The majority of the gross unrealized loss relates to Other REITs and Retail REITs. Most of the Other REITs unrealized losses are related to long-term private placement investments, which have been negatively impacted by market price volatility despite otherwise stable credit fundamentals. Within Retail REITs, credit fundamentals are bifurcated by asset quality. Retail REITs with strong locations continue to experience tenant demand and are able to grow rents and maintain healthy occupancy. In contrast, operating performance in secondary locations has be mixed due to the over-retailed environment and competitive pressures frome-commerce. Despite these challenges, immediate liquidity remains more than adequate to address near term funding obligations. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2018.
There are no individual issuers rated below investment grade in the REITSsub-sector which have unrealized losses greater than EUR 25 million.
Corporate –- Industrial sector
The Industrial sector is further subdivided into varioussub-sectors. A majority of Aegon’savailable-for-sale portfolio gross unrealized loss is in the ConsumerNon-Cyclical and Energysub-sectors. Aegon also saw significant losses in the Capital Goods, Consumer Cyclical, Technology, Transportation, and Communicationssub-sectors. Corporate – Industrial sector – Capital Goods- Energysub-sector Within the Capital GoodsEnergysub-sector, Aegon Americas and Aegon the Netherlands hold EUR 2,0383,961 million (December 31, 2017:2018: EUR 2,3083,802 million) of AFS bonds, of which EUR 1,9953,844 million (December 31, 2017:2018: EUR 2,2123,592 million) is held by Aegon Americas and EUR 43117 million (December 31, 2017:2018: EUR 96211 million) by Aegon the Netherlands. In aggregate, the gross unrealized loss on these bonds amounted to EUR 6062 million (December 31, 2017:2018: EUR 5138 million) and the net unrealized gain on these bonds amounted to EUR 29367 million (December 31, 2017:2018: EUR 210 million). The Capital Goodssub-sector encompasses various industries including aerospace/defense, building materials, construction machinery, diversified manufacturing, environmental, and packaging. The majority of the gross unrealized loss relates to building materials and diversified manufacturing. Building material credit fundamentals were solid for most of the year, benefiting from favorableend-market demand. However, while infrastructure markets are improving, softness has emerged in residential housing as interest rates have risen, resulting in concerns over affordability, buyers delaying decisions, and a less robust near term outlook. Within Diversified Manufacturing, credit fundamentals are generally stable. Two large issuers have experienced some idiosyncratic issues that have led to deteriorating credit profiles, which has contributed to the unrealized losses. Despite these issues, immediate liquidity remains adequate for near term obligations. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2018.
There are no individual issuers rated below investment grade in thissub-sector which have unrealized loss positions greater than EUR 25 million.
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 193 | | Notes to the consolidated financial statements Note 4 | | | |
Corporate – Industrial sector – Consumer Cyclicalsub-sector
Within the Consumer Cyclicalsub-sector, Aegon Americas and Aegon the Netherlands hold EUR 2,637 million (December 31, 2017: EUR 2,657 million) of AFS bonds, of which EUR 2,428 million (December 31, 2017: EUR 2,494 million) is held by Aegon Americas and EUR 209 million (December 31, 2017: EUR 163 million) by Aegon the Netherlands. In aggregate, the gross unrealized loss on these bonds amounted to EUR 75 million (December 31, 2017: EUR 10 million) and the net unrealized gain on these bonds amounted to EUR 52 million (December 31, 2017: EUR 245 million).
The Consumer Cyclicalsub-sector encompasses various industries ranging from retailers to home construction. The more significant of thesesub-sectors from an unrealized loss perspective are automotive and retailers.
Within the automotive sector, North American sales have been driven by continued demand for high-marginfull-size pickups and SUVs. However, negative headwinds for the sector have included: tariffs, commodity prices, regulations in Europe and deteriorating demand in China. Since the last downturn, ongoing efforts by the auto companies have significantly lowered the breakeven production and sales levels for the industry. Ford Motor Co has been slower than its peers to restructure its global operations, only recently announcing a general multi-year effort. As such, price declines have reflected investor uncertainty around the timing and success of the turnaround.
Within the retail sector, fundamentals are largely positive with modest top line growth, inventory levels aligned with demand, and rational promotional levels. Unrealized losses are driven by price volatility and would not be deemed fundamentally driven.
Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2018
There are no individual issuers rated below investment grade in thissub-sector which have unrealized loss positions greater than EUR 25 million.
Corporate – Industrial sector – ConsumerNon-Cyclicalsub-sector
Within the ConsumerNon-Cyclicalsub-sector, Aegon Americas and Aegon the Netherlands hold EUR 5,615 million (December 31, 2017: EUR 6,010 million) of AFS bonds, of which EUR 5,362 million (December 31, 2017: EUR 5,729 million) is held by Aegon Americas and EUR 253 million (December 31, 2017: EUR 281 million) by Aegon the Netherlands. In aggregate, the gross unrealized loss on these bonds amounted to EUR 182 million (December 31, 2017: EUR 35 million) and the net unrealized gain on these bonds amounted to EUR 99 million (December 31, 2017: EUR 529 million).
The ConsumerNon-Cyclicalsub-sector encompasses various industries ranging from consumer products to supermarkets. The more significant of thesesub-sectors from an unrealized loss perspective are food, beverage and pharmaceuticals. In food and beverage, a number of large issuers have increased leverage for M&A in an effort to ignite growth, with the new issuance and higher leverage weighing on bond prices. And more recently, some larger issuers have been impacted by downgrades, notably AB Inbev (largest issuer in the space), which crossed over fromA- to BBB+ due to a slower than expectedde-levering trajectory. In pharmaceuticals, unrealized losses have primarily been driven by price volatility in the bond market rather than fundamental issues. We do note however that M&A risk in pharmaceuticals is modestly increasing as some key issuers face patent cliffs in the next 5 years, including Abbvie. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2018.
There are no individual issuers rated below investment grade in thissub-sector which have unrealized loss positions greater than EUR 25 million.
Corporate – Industrial sector – Energysub-sector
Within the Energysub-sector, Aegon Americas and Aegon the Netherlands hold EUR 3,802 million (December 31, 2017:
EUR 4,020 million) of AFS bonds, of which EUR 3,592 million (December 31, 2017: EUR 3,813 million) is held by Aegon Americas and EUR 211 million (December 31, 2017: EUR 207 million) by Aegon the Netherlands. In aggregate, the gross unrealized loss on these bonds amounted to EUR 138 million (December 31, 2017: EUR 41 million) and the net unrealized gain on these bonds amounted to EUR 13 million (December 31, 2017: EUR 316 million).
The Energysub-sector encompasses various industries including integrated oil and gas producers, independent oil and gas producers, midstream processing and transport, oil field services and drilling, and refining. Lower oil and natural gas prices have reduced cash flow for upstream companies, and reduced access to capital for some producers. Oil field service and drilling companies have been pressured by reduced capital spending by their upstream client base and excess capacity which has resulted in pricing concession and margin compression from price concessionscompression. Refiners are navigating rising feedstock prices and new capacity additions. While refiners have seen positive impacts from lower feedstock | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 194 | | Notes to the consolidated financial statements Note 4 | | | |
costs, margins have softened due to high refined product inventory levels.tightening quality spreads as well as uncertainty around global demand. Commodity price pressure has been the result of strongnon-OPEC supply growth, reduced supply disruptions, high global inventories and concerns on trade and softening global demand.demand, partially offset by supply disruptions andgeo-political tensions. In response, OPEC has coordinated an agreementa series of agreements to cutcurtail production levels in an effort to reduce global inventories and increase prices. Aegon evaluated the near-term prospects of the issuers in relation to the severity and duration of the unrealized loss and does not consider those investments to be impaired as of December 31, 2018.2019.
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 200 | | | | Consolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | |
There are no individual issuers rated below investment grade in thissub-sector which have unrealized loss positions greater than EUR 25 million. Corporate – Industrial sector – Technologysub-sector
Within the Technologysub-sector, Aegon Americas and Aegon the Netherlands hold EUR 2,046 million (December 31, 2017: EUR 1,840 million) of AFS bonds, of which EUR 2,002 million (December 31, 2017: EUR 1,819 million) is held by Aegon Americas and EUR 44 million (December 31, 2017: EUR 21 million) by Aegon the Netherlands. In aggregate, the gross unrealized loss on these bonds amounted to EUR 47 million (December 31, 2017: EUR 6 million) and the net unrealized gain on these bonds amounted to EUR 28 million (December 31, 2017: EUR 157 million).
The Technology sector can be further divided into hardware, software, semiconductors, IT services, memory, and payment processors. The majority of the gross unrealized losses are related to interest rates moving higher, causing long duration bond prices to move lower. A small group of issuers have been negatively impacted by merger and acquisition financing, poor integration of recent acquisitions, and newly announced debt financed stock repurchase programs. On a fundamental basis, majority of technology subsectors performed well; however the memory industry has experienced price erosion due to high inventory levels. Aegon evaluated the near-term prospects of the issuers in relation to the severity and duration of the unrealized loss and does not consider those investments impaired as of December 31, 2018.
There are no individual issuers rated below investment grade in thissub-sector which have unrealized loss positions greater than EUR 25 million.
Corporate – Industrial sector – Transportationsub-sector
Within the Transportationsub-sector, Aegon Americas and Aegon the Netherlands hold EUR 1,720 million (December 31, 2017: EUR 1,787 million) of AFS bonds, of which EUR 1,549 million (December 31, 2017: EUR 1,597 million) is held by Aegon Americas and EUR 171 million (December 31, 2017: EUR 191 million) by Aegon the Netherlands. In aggregate, the gross unrealized loss on these bonds amounted to EUR 70 million (December 31, 2017: EUR 9 million) and the net unrealized gain on these bonds amounted to EUR 2 million (December 31, 2017: EUR 117 million).
The Transportationsub-sector can be further divided into airlines, railroads and transportation services. The majority of the gross unrealized loss relates to completed and operating private infrastructure, such as airports, ports and toll roads. These investments tend to be longer dated debt which have had significant negative price changes solely due to moves in long term rates. Across the public credits, increases in fuel were a notable headwind, as well as North American railroads adopting more aggressive financial policies following lowered corporate tax rates. Aegon evaluated the near-term prospects of the issuers in relation to the severity and duration of the unrealized loss and does not consider those investments impaired as of December 31, 2018.
There are no individual issuers rated below investment grade in thissub-sector which have unrealized loss positions greater than EUR 25 million.
Corporate – Industrial sector – Communicationssub-sector
Within the Communicationssub-sector, Aegon Americas and Aegon the Netherlands hold EUR 2,566 million (December 31, 2017: EUR 2,690 million) of AFS bonds, of which EUR 2,484 million (December 31, 2017: EUR 2,600 million) is held by Aegon Americas and EUR 82 million (December 31, 2017: EUR 90 million) by Aegon the Netherlands. In aggregate, the gross unrealized loss on these bonds amounted to EUR 68 million (December 31, 2017: EUR 21 million) and the net unrealized gain on these bonds amounted to EUR 90 million (December 31, 2017: EUR 279 million).
The Communication sector encompasses varioussub-sectors including cable satellite, media entertainment, wireless and wirelines. Merger and acquisition speculation and activity created volatility in each of thesub-sectors during the year. In addition, several issuers in the communications sector are among the largest issuers in the market and were negatively impacted by thesell-off in liquid securities as we saw an increase in market price volatility and higher treasury yields. On a fundamental basis, the competitive environment in the wireless market remains challenging. The wireline market continues to see a gradual secular decline, whereas
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 195 | | Notes to the consolidated financial statements Note 4 | | | |
cable continues to benefit from the demand for broadband. Media continues to be impacted by consumers viewing content on digital platforms as well as intense competition fromnon-traditional content providers. Aegon evaluated the near-term prospects of the issuers in relation to the severity and duration of the unrealized loss and does not consider those investments impaired as of December 31, 2018.
There are no individual issuers rated below investment grade in thissub-sector which have unrealized loss positions greater than EUR 25 million.
Corporate – Utility sector
The Utility sector is further subdivided into varioussub-sectors. A majority of Aegon’savailable-for-sale portfolio gross unrealized loss is in the Electricsub-sector.
Corporate – Utility sector – Electricsub-sector
Within the Electricsub-sector, Aegon Americas and Aegon the Netherlands hold EUR 3,178 million (December 31, 2017:
EUR 3,098 million) of AFS bonds, of which EUR 3,121 million (December 31, 2017: EUR 3,013 million) is held by Aegon Americas and EUR 57 million (December 31, 2017: EUR 85 million) by Aegon the Netherlands. In aggregate, the gross unrealized loss on these bonds amounted to EUR 64 million (December 31, 2017: EUR 13 million) and the net unrealized gain on these bonds amounted to EUR 128 million (December 31, 2017: EUR 343 million).
Regulated electric utilities, which account for the majority of debt issuance in the sector, continue to produce predictable cash flow and credit trends have been stable for most companies operating in the United States, although, M&A has continued in the sector with some adding incremental leverage. The low natural gas price environment has generally been beneficial for regulated utilities because it has had the effect of decreasing the fuel component on customer’s bills. Lower all in cost to the customer generally enables increases in other operating costs to be passed through with less regulatory lag. It should also be noted that utilities operating in California, particularly PG&E Corp, generated unrealized losses due to potential exposure to the recent wildfires
Unregulated merchant power generators operating in the United States continue to be negatively impacted by low natural gas prices and the corresponding low electricity prices as well as reduced customer usage. These companies have experienced margin pressure for their coal and nuclear generation assets. Absent a recovery in electricity prices, credit fundamentals are unlikely to improve significantly, however, capacity auctions have shown improvement and most companies have taken actions to navigate this difficult environment including consolidation, cost cutting, expanding retail operations andde-levering balance sheets. AEGON evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2018.
There are no individual issuers rated below investment grade in thissub-sector which have unrealized loss positions greater than EUR 25 million.
Government bonds
Aegon Americas and Aegon the Netherlands’ government issuedavailable-for-sale debt securities include emerging market government bonds, US Treasury bonds, agency and state bonds. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2018.
There are no individual issuers rated below investment grade in the government sector which have unrealized loss positions greater than EUR 25 million.
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 196 | | Notes to the consolidated financial statements Note 4 | | | |
Unrealized loss by maturity The table below shows the composition by maturity of allavailable-for-sale debt securities in an unrealized loss position held by Aegon Americas and Aegon the Netherlands. | | | | | | | | | | | | | | | | | | | | December 31, 2018 | | | December 31, 2017 | | | Debt securities | | Carrying value of
securities with gross
unrealized losses | | | Gross unrealized
losses | | | Carrying value of
securities with gross
unrealized losses | | | Gross unrealized
losses | | |
One year or less | | | 643 | | | | (18 | ) | | | 442 | | | | (6 | ) | Over 1 through 5 years | | | 5,545 | | | | (120 | ) | | | 1,784 | | | | (31 | ) | Over 5 through 10 years | | | 9,575 | | | | (446 | ) | | | 4,517 | | | | (95 | ) | Over 10 years | | | 8,317 | | | | (680 | ) | | | 4,194 | | | | (258 | ) | Total | | | 24,080 | | | | (1,264 | ) | | | 10,937 | | | | (389 | ) | | Unrealized loss by credit quality The table below shows the composition by credit quality of debt securities,available-for-sale, in an unrealized loss position held by Aegon Americas and Aegon the Netherlands. | | | | | December 31, 2018 | | | December 31, 2017 | | | Debt securities | | Carrying value of
securities with
unrealized losses | | | Unrealized losses | | | Carrying value of
securities with
unrealized losses | | | Unrealized losses | | |
AAA | | | 6,318 | | | | (186 | ) | | | 4,924 | | | | (135 | ) | AA | | | 1,468 | | | | (48 | ) | | | 753 | | | | (16 | ) | A | | | 5,345 | | | | (181 | ) | | | 1,750 | | | | (44 | ) | BBB | | | 8,881 | | | | (578 | ) | | | 2,339 | | | | (70 | ) | BB | | | 920 | | | | (90 | ) | | | 507 | | | | (39 | ) | B | | | 742 | | �� | | (87 | ) | | | 323 | | | | (32 | ) | Below B | | | 407 | | | | (95 | ) | | | 341 | | | | (54 | ) | Total | | | 24,080 | | | | (1,264 | ) | | | 10,937 | | | | (389 | ) | | The table below provides the length of time anavailable-for-sale security has been below cost and the respective unrealized loss. | | | | | | | | At December 31, 2018 | | | | | | Debt securities | | Investment grade
carrying value of
securities with
unrealized losses | | | Below investment
grade carrying
value of securities
with unrealized
losses | | | Investment grade
unrealized loss | | | Below investment
grade unrealized
loss | | |
0 – 6 months | | | 8,354 | | | | 977 | | | | (227 | ) | | | (58 | ) | 6 – 12 months | | | 9,976 | | | | 609 | | | | (504 | ) | | | (96 | ) | > 12 months | | | 3,681 | | | | 483 | | | | (261 | ) | | | (119 | ) | Total | | | 22,012 | | | | 2,069 | | | | (992 | ) | | | (272 | ) | | | | | | | | | | | At December 31, 2017 | | | | | | Debt securities | | Investment grade
carrying value of
securities with
unrealized losses | | | Below investment
grade carrying
value of securities
with unrealized
losses | | | Investment grade
unrealized loss | | | Below investment
grade unrealized
loss | | |
0 – 6 months | | | 4,051 | | | | 485 | | | | (45 | ) | | | (15 | ) | 6 – 12 months | | | 1,391 | | | | 62 | | | | (9 | ) | | | (5 | ) | > 12 months | | | 4,324 | | | | 624 | | | | (211 | ) | | | (105 | ) | Total | | | 9,766 | | | | 1,171 | | | | (264 | ) | | | (125 | ) |
| | | | | | | | | | | | | | | | | | | | December 31, 2019 | | | December 31, 2018 | | | Debt securities | | Carrying value of
securities with gross
unrealized losses | | | Gross unrealized
losses | | | Carrying value of
securities with gross
unrealized losses | | | Gross unrealized
losses | | One year or less | | | 247 | | | | (1 | ) | | | 643 | | | | (18 | ) | Over 1 through 5 years | | | 983 | | | | (26 | ) | | | 5,545 | | | | (120 | ) | Over 5 through 10 years | | | 1,175 | | | | (47 | ) | | | 9,575 | | | | (446 | ) | Over 10 years | | | 2,002 | | | | (135 | ) | | | 8,317 | | | | (680 | ) | Total | | | 4,407 | | | | (210 | ) | | | 24,080 | | | | (1,264 | ) |
Unrealized loss by credit quality The table below shows the composition by credit quality of debt securities,available-for-sale, in an unrealized loss increased during 2018 due mainly to widening credit spreadsposition held by Aegon Americas and increasing US Treasury rates.Aegon the Netherlands. | | | | | | | | | | | | | | | | | | | | December 31, 2019 | | | December 31, 2018 | | | Debt securities | | Carrying value of
securities with
unrealized losses | | | Unrealized losses | | | Carrying value of
securities with
unrealized losses | | | Unrealized losses | | AAA | | | 1,340 | | | | (10 | ) | | | 6,318 | | | | (186 | ) | AA | | | 452 | | | | (8 | ) | | | 1,468 | | | | (48 | ) | A | | | 662 | | | | (13 | ) | | | 5,345 | | | | (181 | ) | BBB | | | 1,345 | | | | (58 | ) | | | 8,881 | | | | (578 | ) | BB | | | 181 | | | | (17 | ) | | | 920 | | | | (90 | ) | B | | | 186 | | | | (25 | ) | | | 742 | | | | (87 | ) | Below B | | | 240 | | | | (78 | ) | | | 407 | | | | (95 | ) | Total | | | 4,407 | | | | (210 | ) | | | 24,080 | | | | (1,264 | ) |
The table below provides the length of time anavailable-for-sale security has been below cost and the respective unrealized loss. | | | | | | | | | | | | | | | | | | | | At December 31, 2019 | | | Debt securities | | Investment grade
carrying value of
securities with
unrealized losses | | | Below investment
grade carrying value
of securities with
unrealized losses | | | Investment grade
unrealized loss | | | Below investment
grade unrealized loss | | 0 – 6 months | | | 2,178 | | | | 132 | | | | (35 | ) | | | (7 | ) | 6 – 12 months | | | 128 | | | | 45 | | | | (2 | ) | | | (4 | ) | > 12 months | | | 1,493 | | | | 432 | | | | (52 | ) | | | (110 | ) | Total | | | 3,799 | | | | 608 | | | | (89 | ) | | | (121 | ) |
| | | | | | | | | | | | | | | | | | | | At December 31, 2018 | | | Debt securities | | Investment grade
carrying value of
securities with
unrealized losses | | | Below investment
grade carrying value
of securities with
unrealized losses | | | Investment grade
unrealized loss | | | Below investment
grade unrealized loss | | 0 – 6 months | | | 8,354 | | | | 977 | | | | (227 | ) | | | (58 | ) | 6 – 12 months | | | 9,976 | | | | 609 | | | | (504 | ) | | | (96 | ) | > 12 months | | | 3,681 | | | | 483 | | | | (261 | ) | | | (119 | ) | Total | | | 22,012 | | | | 2,069 | | | | (992 | ) | | | (272 | ) |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 197201 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | | |
The unrealized loss increased during 2019 due mainly to widening credit spreads and increasing US Treasury rates. Aging and severity unrealized losses The table below provides the length of time a below investment grade security has been in an unrealized loss and the percentage of carrying value (CV) to amortized cost in Aegon Americas and Aegon the Netherlands. | | | | | | | 2018 | | | | | | 2017 | | | | | | 2019 | | | | | | 2018 | | | Aging and severity unrealized losses debt securities | | Carrying value | | | Unrealized
losses | | | Carrying value | | | Unrealized losses | | | Carrying value | | | Unrealized
losses | | | Carrying value | | | Unrealized losses | | | CV70-100% of amortized cost | | | 970 | | | | (53 | ) | | 482 | | | | (13 | ) | | | 131 | | | | (6 | ) | | 970 | | | | (53 | ) | | CV40-70% of amortized cost | | | 7 | | | | (5 | ) | | 3 | | | | (2 | ) | | | 1 | | | | (1 | ) | | 7 | | | | (5 | ) | | CV < 40% of amortized cost | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | 0-6 months | | | 977 | | | | (58 | ) | | 485 | | | | (15 | ) | | | 132 | | | | (7 | ) | | 977 | | | | (58 | ) | | CV70-100% of amortized cost | | | 577 | | | | (76 | ) | | 62 | | | | (5 | ) | | | 43 | | | | (3 | ) | | 577 | | | | (76 | ) | | CV40-70% of amortized cost | | | 31 | | | | (18 | ) | | | - | | | | - | | | | 1 | | | | (1 | ) | | 31 | | | | (18 | ) | | CV < 40% of amortized cost | | | - | | | | (1 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1 | ) | | 6-12 months | | | 609 | | | | (96 | ) | | 62 | | | | (5 | ) | | | 45 | | | | (4 | ) | | 609 | | | | (96 | ) | | CV70-100% of amortized cost | | | 143 | | | | (21 | ) | | 67 | | | | (10 | ) | | | 175 | | | | (21 | ) | | 143 | | | | (21 | ) | | CV40-70% of amortized cost | | | 8 | | | | (5 | ) | | 8 | | | | (4 | ) | | | 33 | | | | (22 | ) | | 8 | | | | (5 | ) | | CV < 40% of amortized cost | | | 1 | | | | (2 | ) | | | - | | | | - | | | | 4 | | | | (9 | ) | | 1 | | | | (2 | ) | | 12-24 months | | | 151 | | | | (28 | ) | | 75 | | | | (13 | ) | | | 213 | | | | (52 | ) | | 151 | | | | (28 | ) | | CV70-100% of amortized cost | | | 265 | | | | (34 | ) | | 511 | | | | (63 | ) | | | 192 | | | | (24 | ) | | 265 | | | | (34 | ) | | CV40-70% of amortized cost | | | 58 | | | | (43 | ) | | 30 | | | | (16 | ) | | | 13 | | | | (9 | ) | | 58 | | | | (43 | ) | | CV < 40% of amortized cost | | | 8 | | | | (13 | ) | | 8 | | | | (12 | ) | | | 14 | | | | (25 | ) | | 8 | | | | (13 | ) | | > 24 months | | | 331 | | | | (90 | ) | | | 549 | | | | (92 | ) | | | 219 | | | | (58 | ) | | | 331 | | | | (90 | ) | |
Total | | | 2,069 | | | | (272 | ) | | 1,171 | | | | (125 | ) | | | 608 | | | | (121 | ) | | 2,069 | | | | (272 | ) |
There are no individual issuers rated below investment grade which has an unrealized loss greater than EUR 25 million. Realized gains and losses on debt securities of Aegon Americas and Aegon the Netherlands The following table provides the realized gains and losses on the debt securities of Aegon Americas and Aegon the Netherlands for the twelve months ended December 31, 2018,2019, and December 31, 2017.2018. | | Gross realized gains and (losses) | | Gross realized gains | | | Gross realized losses | | | | Gross realized gains | | | | Gross realized losses | | | | December 31, 2019 | | | | | | | Debt securities | | | | 405 | | | | (66 | ) | | December 31, 2018 | | | | | | | | | | Debt securities | | | 156 | | | | (378 | ) | | | 156 | | | | (378 | ) | December 31, 2017 | | | | | | Debt securities | | | 1,813 | | | | (171 | ) | |
The table below provides the length of time the security was below cost prior to the sale and the respective realized loss for assets not considered impaired. | | | | Gross realized losses | | | Gross realized losses | | | | | 0 - 12 months | | >12 months | | Total | | | 0 -12 months | | >12 months | | Total | | December 31, 2018 | | | | | | | | | | December 31, 2019 | | | | | | | | | Debt securities | | | (145 | ) | | (233 | ) | | (378 | ) | | | (32 | ) | | (34 | ) | | (66 | ) | | December 31, 2017 | | | | | | | | December 31, 2018 | | | | | | | | | Debt securities | | | (137 | ) | | (35 | ) | | (171 | ) | | | (145 | ) | | (233 | ) | | (378 | ) |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 198202 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | | |
Impairment losses and recoveries The composition of Aegon Americas and Aegon the Netherlands’ bond impairment losses and recoveries by issuer for the periods ended December 31, 2018,2019, and December 31, 2017,2018, is presented in the table below. Those issuers with impairments or recoveries above EUR 25 million are specifically noted. | | | | 2018 | | 2017 | | | 2019 | | | 2018 | | | | | (Impairment)/recovery | | | (Impairment)/recovery | | | (Impairment) /
recovery | | | (Impairment) /
recovery | | Impairments: | | | | | | | | | | Other (none individually greater than EUR 25 million) | | | (24 | ) | | (16 | ) | | | (49 | ) | | | (24 | ) | | Subtotal | | | (24 | ) | | (16 | ) | | | (49 | ) | | | (24 | ) | | | | | | | | Recoveries: | | | | | | | | | | Total recoveries | | | 34 | | | 16 | | | | 66 | | | | 34 | | | Sub-total | | | 34 | | | | 16 | | | | 66 | | | | 34 | | | | | | | | | | | Net (impairments) and recoveries | | | 10 | | | | - | | | | 17 | | | | 10 | |
Net (impairments) and recoveries Net recoveries for the twelve months ended December 31, 2018,2019, totaled EUR 1017 million (twelve months ended December 31, 2017:2018: EUR 010 million net recoveries). For the twelve months ended December 31, 2018,2019, Aegon recognized EUR 3466 million (twelve months ended December 31, 2017:2018: EUR 1634 million) in recoveries on previously impaired securities. In each case where a recovery was taken on structured securities, improvements in underlying cash flows for the security were documented and modeling results improved significantly. Recoveries onnon-structured securities were supported by documented credit events combined with significant market value improvements. Past due and impaired assets The tables that follow provide information on past due and individually impaired financial assets for the whole Aegon Group. An asset is past due when a counterparty has failed to make a payment when contractually due. Assets are impaired when an impairment loss has been charged to the income statement relating to this asset. After the impairment loss is reversed in subsequent periods, the asset is no longer considered to be impaired. When the terms and conditions of financial assets have been renegotiated, the terms and conditions of the new agreement apply in determining whether the financial assets are past due. Aegon’s policy is to pursue realization of the collateral in an orderly manner as and when liquidity permits. Aegon generally does not use thenon-cash collateral for its own operations. | | | | | | | 2018 | | | | | | 2017 | | | 2019 | | | 2018 | | | Past due but not impaired assets | | 0-6 months | | | 6-12 months | | | > 1 year | | | Total | | | 0-6 months | | | 6-12 months | | | > 1 year | | | Total | | | 0-6 months | | | 6-12
months | | | > 1 year | | | Total | | | 0-6
months | | | 6-12
months | | | > 1 year | | | Total | | Debt securities – carried at fair value | | | 108 | | | | 121 | | | | 48 | | | | 277 | | | | 49 | | | | 14 | | | | 28 | | | | 91 | | | | Debt securities - carried at fair value | | | | 70 | | | | 21 | | | | 10 | | | | 101 | | | | 108 | | | | 121 | | | | 48 | | | | 277 | | | Mortgage loans | | | 192 | | | | 22 | | | | 2 | | | | 215 | | | | 111 | | | | 2 | | | | 4 | | | | 117 | | | | 198 | | | | 3 | | | | - | | | | 201 | | | | 192 | | | | 22 | | | | 2 | | | | 215 | | | Other loans | | | 41 | | | | 2 | | | | 2 | | | | 45 | | | | 31 | | | | 1 | | | | 3 | | | | 35 | | | | 35 | | | | 4 | | | | 4 | | | | 43 | | | | 41 | | | | 2 | | | | 2 | | | | 45 | | | Accrued interest | | | 3 | | | | 3 | | | | - | | | | 6 | | | | - | | | | 1 | | | | 1 | | | | 1 | | | | 1 | | | | - | | | | 1 | | | | 2 | | | | 3 | | | | 3 | | | | - | | | | 6 | | | Other financial assets - carried at fair value | | | | 22 | | | | - | | | | - | | | | 22 | | | | - | | | | - | | | | - | | | | - | | | At December 31 | | | 344 | | | | 148 | | | | 52 | | | | 544 | | | | 191 | | | | 18 | | | | 35 | | | | 244 | | | | 326 | | | | 28 | | | | 16 | | | | 370 | | | | 344 | | | | 148 | | | | 52 | | | | 544 | |
| | Impaired financial assets | | Carrying amount 2018 | | | Carrying amount 2017 | | | | Carrying amount 2019 | | | | Carrying amount 2018 | | | Shares | | | 33 | | | | 48 | | | | 30 | | | | 33 | | Debt securities – carried at fair value | | | 1,085 | | | | 1,063 | | | | Debt securities - carried at fair value | | | | 945 | | | | 1,085 | | | Mortgage loans | | | 122 | | | | 262 | | | | 58 | | | | 122 | | Private Loans | | | - | | | | - | | | | Other loans | | | 3 | | | | 3 | | | | 3 | | | | 3 | | Other financial assets – carried at fair value | | | 5 | | | | 6 | | | | Other financial assets - carried at fair value | | | | 4 | | | | 5 | | | At December 31 | | | 1,247 | | | | 1,381 | | | | 1,039 | | | | 1,247 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 199203 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | | |
Equity instruments classified asavailable-for-sale Objective evidence of impairment of an investment in an equity instrument classified asavailable-for-sale includes information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered. A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is also objective evidence of impairment. Significant or prolonged decline is generally defined within Aegon as an unrealized loss position for more than six months or a fair value of less than 80% of the cost price of the investment. Additionally, as part of an ongoing process, internal equity analysts actively monitor earnings releases, company fundamentals, new developments and industry trends for any signs of possible impairment. These factors typically require significant management judgment. The impairment review process has resulted in EUR 47 million of impairment charges for the twelve months ended December 31, 20182019 (twelve months ended December 31, 2017:2018: EUR 24 million) for Aegon Americas and Aegon the Netherlands. As of December 31, 2018,2019, there are EUR 47 million of gross unrealized gains and EUR 24 million of gross unrealized losses in the equity portfolio of Aegon (December 31, 2018: EUR 40 million of gross unrealized gains and EUR 20 million of gross unrealized losses in the equity portfolio of Aegon (December 31, 2017: EUR 62 million of gross unrealized gains and EUR 13 million of gross unrealized losses). The table below represents the unrealized gains and losses on share positions held by Aegon Americas and Aegon the Netherlands. | | | | Cost basis | | | Carrying value | | Net
unrealized
gains/(losses) | | Carrying value of
securities with
gross unrealized
gains | | | Gross
unrealized
gains | | Carrying value of
securities with
gross unrealized
losses | | | Gross
unrealized
losses | | | Cost basis | | | Carrying
value | | | Net unrealized
gains /
(losses) | | | Carrying value
of securities
with gross
unrealized
gains | | | Gross
unrealized
gains | | | Carrying value
of securities
with gross
unrealized
losses | | | Gross
unrealized
losses | | December 31, 2019 Shares | | | | 290 | | | | 312 | | | | 23 | | | | 254 | | | | 47 | | | | 58 | | | | (24 | ) | December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares | | | 371 | | | | 391 | | | 20 | | | 304 | | | | 40 | | | 86 | | | | (20 | ) | | | 371 | | | | 391 | | | | 20 | | | | 304 | | | | 40 | | | | 86 | | | | (20 | ) | December 31, 2017 | | | | | | | | | | | | | | | | Shares | | | 385 | | | | 433 | | | 48 | | | 400 | | | | 62 | | | 34 | | | | (13 | ) | |
The composition of shares by industry sector in an unrealized loss position held by Aegon Americas and Aegon the Netherlands at December 31, 2018,2019, and December 31, 20172018 is presented in the following table. | | | | 2018 | | 2017 | | | 2019 | | | 2018 | | | Unrealized losses on shares | | Carrying value of
instruments with
unrealized losses | | | Unrealized losses | | | Carrying value of
instruments with
unrealized losses | | | Unrealized losses | | | Carrying value of
instruments with
unrealized losses | | | Unrealized losses | | | Carrying value of
instruments with
unrealized losses | | | Unrealized losses | | |
Financials | | | 49 | | | | (15 | ) | | 19 | | | | (12 | ) | | | 28 | | | | (10 | ) | | 49 | | | | (15 | ) | Other | | | 37 | | | | (6 | ) | | 14 | | | | (2 | ) | | | 30 | | | | (14 | ) | | 37 | | | | (6 | ) | Total | | | 86 | | | | (20 | ) | | 34 | | | | (13 | ) | | | 58 | | | | (24 | ) | | 86 | | | | (20 | ) |
Impairment losses on shares The table below provides the length of time the shares held by Aegon Americas and Aegon the Netherlands were below cost prior to their impairment in 20182019 and 2017.2018. | | | | | In million EUR | | | 0- 6 months | | 20182019
Shares | | | (2 | ) | 2018 Shares | | | (5 | ) | 2017
| | | | | Shares
| | | - | |
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 | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 204 | | | | Consolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | |
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. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 200 | | Notes to the consolidated financial statements Note 4 | | | |
The general account equity, real estate and othernon-fixed-income portfolio of Aegon is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity, real estate and non-fixed income exposure | | Americas | | | The Netherlands | | | United Kingdom | | | Central & Eastern Europe | | | Spain & Portugal | | | Asia | | | Asset Manage- ment | | | Holding and other
activities | | | Total 2018 | | |
Equity funds | | | 141 | | | | 196 | | | | - | | | | 63 | | | | - | | | | - | | | | - | | | | - | | | | 401 | | Common shares1 | | | 203 | | | | - | | | | 3 | | | | 2 | | | | 3 | | | | 7 | | | | 1 | | | | 66 | | | | 287 | | Preferred shares | | | 187 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 46 | | | | 233 | | Investments in real estate | | | 530 | | | | 2,150 | | | | - | | | | 4 | | | | 17 | | | | - | | | | - | | | | - | | | | 2,700 | | Hedge funds | | | 678 | | | | 1 | | | | - | | | | - | | | | - | | | | - | | | | 2 | | | | - | | | | 681 | | Other alternative investments | | | 1,206 | | | | 438 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 22 | | | | 1,666 | | Other financial assets | | | 555 | | | | 832 | | | | 1,046 | | | | 2 | | | | 7 | | | | - | | | | 1 | | | | - | | | | 2,443 | | At December 31 | | | 3,501 | | | | 3,617 | | | | 1,050 | | | | 71 | | | | 27 | | | | 7 | | | | 5 | | | | 134 | | | | 8,412 | | 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. | | | | | | Equity, real estate and non-fixed income exposure | | Americas | | | The Netherlands | | | United Kingdom | | | Central & Eastern Europe | | | Spain & Portugal | | | Asia | | | Asset Manage- ment | | | Holding and other
activities | | | Total 2017 | | |
Equity funds | | | 142 | | | | 161 | | | | - | | | | 47 | | | | - | | | | - | | | | - | | | | - | | | | 351 | | Common shares1 | | | 232 | | | | - | | | | 5 | | | | 8 | | | | 4 | | | | 1 | | | | - | | | | 40 | | | | 290 | | Preferred shares | | | 192 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 192 | | Investments in real estate | | | 633 | | | | 1,495 | | | | - | | | | 4 | | | | 15 | | | | - | | | | - | | | | - | | | | 2,147 | | Hedge funds | | | 688 | | | | 1 | | | | - | | | | - | | | | - | | | | - | | | | 2 | | | | - | | | | 691 | | Other alternative investments | | | 1,122 | | | | 309 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 18 | | | | 1,448 | | Other financial assets | | | 556 | | | | 410 | | | | 194 | | | | 2 | | | | 2 | | | | - | | | | 1 | | | | - | | | | 1,165 | | At December 31 | | | 3,566 | | | | 2,375 | | | | 199 | | | | 62 | | | | 20 | | | | 1 | | | | 4 | | | | 57 | | | | 6,284 | | 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. | | | | | | | Market risk concentrations – shares | | Americas | | | The
Netherlands | | | United Kingdom | | | Central & Eastern Europe | | | Spain & Portugal | | | Asia | | | Asset Manage- ment | | | Total 20181 | | | Of which impaired assets | | |
Communication | | | 26 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 32 | | | | - | | Consumer | | | 6 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 7 | | | | - | | Financials | | | 466 | | | | 3 | | | | - | | | | - | | | | 3 | | | | 7 | | | | - | | | | 491 | | | | 3 | | Funds | | | - | | | | 1,410 | | | | 3 | | | | 62 | | | | 7 | | | | - | | | | - | | | | 1,558 | | | | 26 | | Industries | | | 19 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 19 | | | | - | | Other | | | 15 | | | | - | | | | - | | | | 2 | | | | - | | | | - | | | | 4 | | | | 54 | | | | 3 | | At December 31 | | | 532 | | | | 1,412 | | | | 3 | | | | 64 | | | | 10 | | | | 7 | | | | 4 | | | | 2,161 | | | | 33 | | 1 Includes investments of Holding and other activities. | | | | | | | | | | | | | Market risk concentrations – shares | | Americas | | | The Netherlands | | | United Kingdom | | | Central & Eastern Europe | | | Spain & Portugal | | | Asia | | | Asset Manage- ment | | | Total 20171 | | | Of which impaired
assets | | |
Communication | | | 28 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 28 | | | | - | | Consumer | | | 8 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 8 | | | | - | | Financials | | | 491 | | | | 3 | | | | 1 | | | | - | | | | 3 | | | | 1 | | | | - | | | | 499 | | | | 1 | | Funds | | | - | | | | 852 | | | | 4 | | | | 53 | | | | 2 | | | | - | | | | - | | | | 968 | | | | 43 | | Industries | | | 19 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 19 | | | | - | | Other | | | 22 | | | | 4 | | | | - | | | | 2 | | | | - | | | | - | | | | 2 | | | | 30 | | | | 4 | | At December 31 | | | 567 | | | | 859 | | | | 5 | | | | 54 | | | | 5 | | | | 1 | | | | 2 | | | | 1,551 | | | | 48 | | 1 Includes investments of Holding and other activities. | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity, real estate and non-fixed
income exposure | | Americas | | | The
Netherlands | | | United
Kingdom | | | Southern
& Eastern
Europe | | | Asia | | | Asset
Manage-
ment | | | Holding
and other
activities | | | Total
2019 | | | | | | | | | | Equity funds | | | 161 | | | | 35 | | | | - | | | | 63 | | | | - | | | | - | | | | - | | | | 259 | | | | | | | | | | | Common shares1) | | | 130 | | | | - | | | | 17 | | | | 4 | | | | 11 | | | | 2 | | | | 94 | | | | 258 | | | | | | | | | | | Preferred shares | | | 208 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 70 | | | | 279 | | | | | | | | | | | Investments in real estate | | | 653 | | | | 2,229 | | | | - | | | | 19 | | | | - | | | | - | | | | - | | | | 2,901 | | | | | | | | | | | Hedge funds | | | 699 | | | | - | | | | - | | | | - | | | | - | | | | 2 | | | | - | | | | 702 | | | | | | | | | | | Other alternative investments | | | 1,366 | | | | 405 | | | | - | | | | - | | | | - | | | | - | | | | 17 | | | | 1,787 | | | | | | | | | | | Other financial assets | | | 1,055 | | | | 1,080 | | | | 874 | | | | 10 | | | | - | | | | 1 | | | | - | | | | 3,020 | | | | | | | | | | | | At December 31 | | | 4,272 | | | | 3,750 | | | | 891 | | | | 96 | | | | 11 | | | | 6 | | | | 181 | | | | 9,205 | |
| 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. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Equity, real estate and non-fixed
income exposure | | Americas | | | The
Netherlands | | | United
Kingdom | | | Southern
& Eastern
Europe | | | Asia | | | Asset
Manage-
ment | | | Holding
and other
activities | | | Total
2018 | | | | | | | | | | Equity funds | | | 141 | | | | 196 | | | | - | | | | 63 | | | | - | | | | - | | | | - | | | | 401 | | | | | | | | | | | Common shares1) | | | 203 | | | | - | | | | 3 | | | | 6 | | | | 7 | | | | 1 | | | | 66 | | | | 287 | | | | | | | | | | | Preferred shares | | | 187 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 46 | | | | 233 | | | | | | | | | | | Investments in real estate | | | 530 | | | | 2,150 | | | | - | | | | 21 | | | | - | | | | - | | | | - | | | | 2,700 | | | | | | | | | | | Hedge funds | | | 678 | | | | 1 | | | | - | | | | - | | | | - | | | | 2 | | | | - | | | | 681 | | | | | | | | | | | Other alternative investments | | | 1,206 | | | | 438 | | | | - | | | | - | | | | - | | | | - | | | | 22 | | | | 1,666 | | | | | | | | | | | Other financial assets | | | 555 | | | | 832 | | | | 1,046 | | | | 9 | | | | - | | | | 1 | | | | - | | | | 2,443 | | | | | | | | | | | | At December 31 | | | 3,501 | | | | 3,617 | | | | 1,050 | | | | 99 | | | | 7 | | | | 5 | | | | 134 | | | | 8,412 | |
| 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. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Market risk concentrations – shares | | Americas | | | The
Netherlands | | | United
Kingdom | | | Southern
& Eastern
Europe | | | Asia | | | Asset
Manage-
ment | | | Total
2019 1) | | | Of which
impaired
assets | | | | | | | | | | Communication | | | 26 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 32 | | | | - | | | | | | | | | | | Consumer | | | 7 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 9 | | | | 2 | | | | | | | | | | | Financials | | | 416 | | | | 3 | | | | - | | | | 3 | | | | 11 | | | | 2 | | | | 455 | | | | 1 | | | | | | | | | | | Funds | | | - | | | | 1,440 | | | | 17 | | | | 63 | | | | - | | | | - | | | | 1,616 | | | | 19 | | | | | | | | | | | Industries | | | 21 | | | | - | | | | - | | | | - | | | | - | | | | 1 | | | | 22 | | | | 4 | | | | | | | | | | | Other | | | 29 | | | | - | | | | - | | | | 7 | | | | - | | | | 2 | | | | 88 | | | | 2 | | | | | | | | | | | | At December 31 | | | 499 | | | | 1,443 | | | | 17 | | | | 74 | | | | 11 | | | | 5 | | | | 2,221 | | | | 30 | |
| 1 | Includes investments of Holding and other activities. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Market risk concentrations – shares | | Americas | | | The
Netherlands | | | United
Kingdom | | | Southern
& Eastern
Europe | | | Asia | | | Asset
Manage-
ment | | | Total
2018 1) | | | Of which
impaired
assets | | | | | | | | | | Communication | | | 26 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 32 | | | | - | | | | | | | | | | | Consumer | | | 6 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 7 | | | | - | | | | | | | | | | | Financials | | | 466 | | | | 3 | | | | - | | | | 3 | | | | 7 | | | | - | | | | 491 | | | | 3 | | | | | | | | | | | Funds | | | - | | | | 1,410 | | | | 3 | | | | 69 | | | | - | | | | - | | | | 1,558 | | | | 26 | | | | | | | | | | | Industries | | | 19 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 19 | | | | - | | | | | | | | | | | Other | | | 15 | | | | - | | | | - | | | | 2 | | | | - | | | | 4 | | | | 54 | | | | 3 | | | | | | | | | | | | At December 31 | | | 532 | | | | 1,412 | | | | 3 | | | | 74 | | | | 7 | | | | 4 | | | | 2,161 | | | | 33 | |
| 1 | Includes investments of Holding and other activities. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 201205 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | | |
The table that follows sets forth the closing levels of certain major indices at the end of the last five years. | | | | | | | | | | | | | 2019 | | | 2018 | | | 2017 | | | 2016 | | | 2015 | | | | | 2018 | | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | S&P 500 | | | 2,507 | | | | 2,674 | | | | 2,239 | | | | 2,044 | | | | 2,059 | | | | 3,231 | | | | 2,507 | | | | 2,674 | | | | 2,239 | | | | 2,044 | | | Nasdaq | | | 6,635 | | | | 6,903 | | | | 5,383 | | | | 5,007 | | | | 4,736 | | | | 8,973 | | | | 6,635 | | | | 6,903 | | | | 5,383 | | | | 5,007 | | | FTSE 100 | | | 6,728 | | | | 7,688 | | | | 7,143 | | | | 6,242 | | | | 6,566 | | | | 7,542 | | | | 6,728 | | | | 7,688 | | | | 7,143 | | | | 6,242 | | | AEX | | | 488 | | | | 545 | | | | 483 | | | | 442 | | | | 424 | | | | 605 | | | | 488 | | | | 545 | | | | 483 | | | | 442 | |
The sensitivity analysis of net income and shareholders’ equity to changes in equity prices is presented in the table below. The sensitivity of shareholders’ equity and net income to changes in equity 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. Aegon generally has positive income benefits from equity market increases and negative impacts from equity market declines as it earns fees on policyholder account balances and provides minimum guarantees for account values. Aegon uses options and other equity derivatives to provide protection against the negative impact of equity market declines. Sensitivity analysis of net income and shareholders’ equity to equity markets | | | | | | | | | Sensitivity analysis of net income and shareholders’ equity to equity markets Immediate change of | | Estimated approximate effects on net income | | | Estimated approximate effects on shareholders’ equity | | 2018 | | | | | | | | | Equity increase 10% | | | 293 | | | | 405 | | Equity decrease 10% | | | (273 | ) | | | (379 | ) | Equity increase 20% | | | 652 | | | | 877 | | Equity decrease 20% | | | (393 | ) | | | (599 | ) | | | | | 2017 | | | | | | | | | Equity increase 10% | | | 317 | | | | 405 | | Equity decrease 10% | | | (316 | ) | | | (405 | ) | Equity increase 20% | | | 647 | | | | 820 | | Equity decrease 20% | | | (660 | ) | | | (839 | ) |
| | | | | | | | | | Immediate change of | | Estimated approximate effects on net income | | | Estimated approximate effects
on shareholders’ equity | | | 2019 | | | | | | | | | | Equity increase 10% | | | 307 | | | | 450 | | | | | Equity decrease 10% | | | (374 | ) | | | (525 | ) | | | | Equity increase 25% | | | 721 | | | | 1,083 | | | | | Equity decrease 25% | | | (456 | ) | | | (837 | ) | | | | | | 2018 | | | | | | | | | | | | Equity increase 10% | | | 293 | | | | 405 | | | | | Equity decrease 10% | | | (273 | ) | | | (379 | ) | | | | Equity increase 25% | | | 789 | | | | 1,069 | | | | | Equity decrease 25% | | | (308 | ) | | | (562 | ) |
Interest rate risk Aegon bears interest rate risk with many of its products. In cases where cash flows are highly predictable, investing in assets that closely match the cash flow 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. In periods of rapidly increasing interest rates, policy loans, surrenders and withdrawals may increase. Premiums in flexible premium policies may decrease as policyholders seek investments with higher perceived returns. This activity may result in cash payments by Aegon requiring the sale of invested assets at a time when the prices of those assets are adversely affected by the increase in market interest rates; this may result in realized investment losses. These cash payments to policyholders result in a decrease in total invested assets and a decrease in net income. Among other things, early withdrawals may also require accelerated amortization of DPAC, which in turn reduces net income. During periods of sustained low interest rates, Aegon may not be able to preserve margins as a result of minimum interest rate guarantees and minimum guaranteed crediting rates provided on policies. Also, investment earnings may be lower because the interest earnings on new fixed-income investments are likely to have declined with the market interest rates. Mortgage loans and redeemable bonds in the investment portfolio are more likely to be repaid as borrowers seek to borrow at lower interest rates and Aegon may be required to reinvest the proceeds in securities bearing lower interest rates. Accordingly, net income declines as a result of a decrease in the spread between returns on the investment portfolio and the interest rates either credited to policyholders or assumed in reserves. Aegon manages interest rate risk closely, taking into account all of the complexity regarding policyholder behavior and management action. Aegon employs sophisticated interest rate measurement techniques and actively uses derivatives and other risk mitigation tools to closely manage its interest rate risk exposure. Aegon operates an Interest RateInvestment & Counterparty Risk policy that limits the amount | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 206 | | | | Consolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | |
of interest rate risk to which the Group is exposed. All derivative use is governed by Aegon’s Derivative Use Policy. A detailed description on the use of derivatives within Aegon is included in note 2524 Derivatives. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 202 | | Notes to the consolidated financial statements Note 4 | | | |
The following table shows interest rates at the end of each of the last five years. | | | | | | | | | | | | | | 2019 | | | 2018 | | 2017 | | 2016 | | 2015 | | | | | 2018 | | 2017 | | 2016 | | 2015 | | 2014 | | | 3-month US LIBOR | | | 2.81 | % | | 1.69 | % | | 1.00 | % | | 0.61 | % | | 0.26 | % | | | 1.91 | % | | 2.81 | % | | 1.69 | % | | 1.00 | % | | 0.61 | % | | 3-month EURIBOR | | | (0.31 | %) | | (0.33 | %) | | (0.32 | %) | | (0.13 | %) | | 0.08 | % | | | (0.38 | %) | | (0.31 | %) | | (0.33 | %) | | (0.32 | %) | | (0.13 | %) | | 10-year US Treasury | | | 2.69 | % | | 2.41 | % | | 2.43 | % | | 2.27 | % | | 2.17 | % | | | 1.91 | % | | 2.69 | % | | 2.41 | % | | 2.43 | % | | 2.27 | % | | 10-year Dutch government | | | 0.39 | % | | 0.53 | % | | 0.35 | % | | 0.79 | % | | 0.68 | % | | | (0.06 | %) | | 0.39 | % | | 0.53 | % | | 0.35 | % | | 0.79 | % |
The sensitivity analysis in the table below shows an estimate of the effect of a parallel shift in the yield curves on net income and shareholders’ equity arising from the impact on general account investments and offset due to liabilities from insurance and investment contracts. In general, increases in interest rates are beneficial to Aegon. However, timing and valuation differences between assets and liabilities may cause short-term reductions in net income as rates rise. The risingRising interest rates would also cause the fair value of theavailable-for-sale bond portfolio to decline and the level of unrealized gains could become too low to support recoverability of the full deferred tax asset triggering an allowance charge to income. The offsetting economic gain on the insurance and investment contracts is however not fully reflected in the sensitivities because many of these liabilities are not measured at fair value. The short to medium term reduction in net income due to rising interest rates would be offset by higher net income in later years, all else being equal. 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 and due to lower long term returns from decreased overall portfolio yields. | | Parallel movement of yield curve | | Estimated approximate effects on net income | | Estimated approximate effects on shareholders’ equity | | | Estimated approximate effects
on net income | | Estimated approximate effects
on shareholders’ equity | | |
2019 | | | | | | Shift up 100 basis points | | | | 945 | | | (2,688 | ) | | Shift down 100 basis points | | | | (1,236 | ) | | 1,847 | | | 2018 | | | | | | | | | Shift up 100 basis points | | | (677 | ) | | (3,892 | ) | | | (677 | ) | | (3,892 | ) | | Shift down 100 basis points | | | 1,188 | | | 2,819 | | | | 1,188 | | | 2,819 | | | 2017 | | | | | | Shift up 100 basis points | | | (282 | ) | | (2,620 | ) | | Shift down 100 basis points | | | 200 | | | 2,160 | | |
The hedge strategy targets minimal mismatch according to the Aegon economic framework which aligns with Solvency II Own Funds and stabilize Solvency II ratio volatility. Currency exchange rate risk As an international group, Aegon is subject to foreign currency translation risk. Foreign currency exposure exists mainly when policies are denominated in currencies other than the issuer’s functional currency. Currency risk in the investment portfolios backing insurance and investment liabilities is managed using asset liability matching principles. Assets allocated to equity are kept in local currencies to the extent shareholders’ equity is required to satisfy regulatory and self-imposed capital requirements. Therefore, currency exchange rate fluctuations will affect the level of shareholders’ equity as a result of translation of subsidiaries into euro, the Group’s presentation currency. Aegon holds the remainder of its capital base (perpetual capital securities, subordinated and senior debt) in various currencies in amounts that are targeted to correspond to the book value of the country units. This balancing mitigates currency translation impacts on shareholders’ equity and leverage ratios. Aegon does not hedge the income streams from the mainnon-euro units and, as a result, earnings may fluctuate due to currency translation. As Aegon has significant business segments in the Americas and in the United Kingdom, the principal sources of exposure from currency fluctuations are from the differences between the US dollar and the euro and between the UK pound and the euro. Aegon may experience significant changes in net income and shareholders’ equity because of these fluctuations. Aegon operates a Currencyan investment & Counterparty Risk Policy which applies currency risk exposure limits both at Group and regional levels, and under which direct currency speculation or program trading by country units is not allowed unless explicit approval has been granted by the Group Risk and Capital Committee and the Management Board. Assets should be held in the functional currency of the business written or hedged back to that currency. Where this is not possible or practical, remaining currency exposure should be sufficiently documented and limits are placed on the total exposure at both group level and for individual country units. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 203207 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | | |
Information on Aegon’s three year historical net income/(loss) and shareholders’ equity in functional currency are shown in the table below: | | | | | | | | | | | | | | | | 2018 | | | 2017 | | | 2016 | | Net income | | | | | | | | | | | | | Americas (in USD) | | | 61 | | | | 1,762 | | | | 618 | | The Netherlands (in EUR) | | | 648 | | | | 818 | | | | 418 | | United Kingdom (in GBP) | | | 35 | | | | 71 | | | | (346 | ) | Central & Eastern Europe (in EUR) | | | 60 | | | | 57 | | | | 19 | | Spain & Portugal (in EUR) | | | (3 | ) | | | (2 | ) | | | (2 | ) | Asia (in USD) | | | 13 | | | | 6 | | | | (14 | ) | Asset Management (in EUR) | | | 105 | | | | 48 | | | | 97 | | | | | | Equity in functional currency | | | | | | | | | | | | | Americas (in USD) | | | 15,239 | | | | 17,712 | | | | 17,103 | | The Netherlands (in EUR) | | | 6,967 | | | | 6,558 | | | | 5,101 | | United Kingdom (in GBP) | | | 1,671 | | | | 1,905 | | | | 1,845 | | Central & Eastern Europe (in EUR) | | | 377 | | | | 402 | | | | 378 | | Spain & Portugal (in EUR) | | | 427 | | | | 433 | | | | 451 | | Asia (in USD) | | | 862 | | | | 1,169 | | | | 1,281 | | Asset Management (in EUR) | | | 471 | | | | 397 | | | | 422 | |
| | | | | | | | | | | | | | | | 2019 | | | 2018 | | | 2017 | | Net income | | | | | | | | | | | | | | | | | Americas (in USD) | | | 1,323 | | | | 61 | | | | 1,762 | | United Kingdom (in GBP) | | | (29 | ) | | | 35 | | | | 71 | | | | | | Equity in functional currency | | | | | | | | | | | | | Americas (in USD)1) | | | 18,117 | | | | 15,111 | | | | 17,617 | | United Kingdom (in GBP) | | | 1,358 | | | | 1,671 | | | | 1,905 | |
| 1 | Comparative figures have been reclassified to conform to the current year presentation as the elimination logic has changed. This reclassification is not considered material as there is no effect on consolidated group figures. |
The exchange rates for US dollar and UK pound per euro for each of the last five year ends are set forth in the table below: | | Closing rates | | 2018 | | | 2017 | | 2016 | | 2015 | | 2014 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | | | 2015 | | USD | | 1.14 | | | 1.20 | | | 1.05 | | | 1.09 | | | 1.21 | | | | 1.12 | | | | 1.14 | | | | 1.20 | | | | 1.05 | | | | 1.09 | | GBP | | 0.90 | | | 0.89 | | | 0.85 | | | 0.74 | | | 0.78 | | | | 0.85 | | | | 0.90 | | | | 0.89 | | | | 0.85 | | | | 0.74 | |
Aegon Group companies’ foreign currency exposure from monetary assets and liabilities denominated in foreign currencies is not material. The sensitivity analysis in the following table shows an estimate of the effect of movements in the exchange rates of Aegon’snon-euro currencies relative to the euro on net income and shareholders’ equity. Sensitivity analysis of net income and shareholders’ equity to translation risk | | Movement of currency exchange rates1 | | Estimated approximate effects on net income | | Estimated approximate effects on shareholders’ equity | | | | | Estimated approximate effects
on net income | | Estimated approximate effects
on shareholders’ equity | | 2019 | | | | | | Increase by 15% of USD currencies relative to the euro | | | | 203 | | | 2,528 | | Increase by 15% of GBP currencies relative to the euro | | | | (11 | ) | | 241 | | Increase by 15% ofnon-euro currencies relative to the euro | | | | 211 | | | 2,906 | | Decrease by 15% of USD currencies relative to the euro | | | | (158 | ) | | (1,830 | ) | Decrease by 15% of GBP currencies relative to the euro | | | | 9 | | | (163 | ) | Decrease by 15% ofnon-euro currencies relative to the euro | | | | (150 | ) | | (2,094 | ) | | 2018 | | | | | | | | | Increase by 15% of USD currencies relative to the euro | | | 1 | | | 1,909 | | | | 1 | | | 1,909 | | Increase by 15% of GBP currencies relative to the euro | | | 4 | | | 269 | | | | 4 | | | 269 | | Increase by 15% ofnon-euro currencies relative to the euro | | | 20 | | | 2,301 | | | | 20 | | | 2,301 | | Decrease by 15% of USD currencies relative to the euro | | | 3 | | | (1,389 | ) | | | 3 | | | (1,389 | ) | Decrease by 15% of GBP currencies relative to the euro | | | (2 | ) | | (179 | ) | | | (2 | ) | | (179 | ) | Decrease by 15% ofnon-euro currencies relative to the euro | | | (9 | ) | | (1,659 | ) | | | (9 | ) | | (1,659 | ) | | 2017 | | | | | | Increase by 15% of USD currencies relative to the euro | | | 260 | | | 2,159 | | | Increase by 15% of GBP currencies relative to the euro | | | 21 | | | 321 | | | Increase by 15% ofnon-euro currencies relative to the euro | | | 265 | | | 2,598 | | | Decrease by 15% of USD currencies relative to the euro | | | (189 | ) | | (1,566 | ) | | Decrease by 15% of GBP currencies relative to the euro | | | (16 | ) | | (216 | ) | | Decrease by 15% ofnon-euro currencies relative to the euro | | | (184 | ) | | (1,868 | ) | |
| 1 | The effect of currency exchange movements is reflected as aone-time shift up or down in the value of thenon-euro currencies relative to the euro on December 31. |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 204 | | Notes to the consolidated financial statements Note 4 | | | |
Liquidity risk Liquidity risk is inherent in much of Aegon’s business. Each asset purchased and liability incurred has its own liquidity characteristics. Some liabilities are surrenderable while some assets, such as privately placed loans, mortgage loans, real estate and limited partnership interests, have low liquidity. If Aegon requires significant amounts of cash on short notice in excess of normal cash requirements and existing credit facilities, it may have difficulty selling these investments at attractive prices or in a timely manner. Liquidity risk is also affected by our use of collateralized financial derivatives to mitigate risk. Aegon operates a Liquidity Risk Policy under which country units are obliged to maintain sufficient levels of highly liquid assets to meet cash demands by policyholders and account holders over the next two years. Potential cash demands are assessed under | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 208 | | | | Consolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | |
a stress scenario including spikes in disintermediation risk due to rising interest rates and concerns over Aegon’s financial strength due to multiple downgrades of the Group’s credit rating. At the same time, the liquidity of assets other than cash and government issues is assumed to be severely impaired for an extended period of time. All legal entities and Aegon Group must maintain enough liquidity in order to meet all cash needs under this extreme scenario. Aegon held EUR 32,11631,066 million of general account investments in cash, money market products and government bonds that are readily saleable or redeemable on demand (2017:(2018: EUR 34,39332,116 million). The Group expects to meet its obligations, even in a stressed liquidity event, from operating cash flows and the proceeds of maturing assets as well as these highly liquid assets. Further, the Group has access toback-up credit facilities, as disclosed in note 3937 Borrowings, amounting to EUR 3,6803,403 million which were unused at the end of the reporting period (2017:(2018: EUR 3,3673,680 million). The maturity analysis below shows the remaining contractual maturities of each category of financial liabilities (including coupon interest). When the counterparty has a choice of when an amount is paid, the liability is included on the basis of the earliest date on which it can be required to be paid. Financial liabilities that can be required to be paid on demand without any delay are reported in the category ‘On demand.’ If there is a notice period, it has been assumed that notice is given immediately and the repayment has been presented at the earliest date after the end of the notice period. When the amount payable is not fixed, the amount reported is determined by reference to the conditions existing at the reporting date. For example, when the amount payable varies with changes in an index, the amount disclosed may be based on the level of the index at the reporting date. To manage the liquidity risk arising from financial liabilities, Aegon holds liquid assets comprising cash and cash equivalents and investment grade investment securities for which there is an active and liquid market. These assets can be readily sold to meet liquidity requirements. For this reason, Aegon believes that it is not necessary to disclose a maturity analysis in respect of these assets to enable users to evaluate the nature and extent of liquidity risk. | Maturity analysis – gross undiscounted contractual cash flows (fornon-derivatives) | | On demand | | | < 1 yr amount | | | 1 < 5 yrs amount | | | 5 < 10 yrs amount | | | > 10 yrs amount | | | Total amount | | | |
Maturity analysis – gross undiscounted
contractual cash flows (for non-derivatives) | | | On demand | | | < 1 yr
amount | | | 1 < 5 yrs
amount | | | 5 < 10 yrs
amount | | | > 10 yrs
amount | | | Total amount | | 2019 | | | | | | | | | | | | | | Trust pass-through securities | | | | - | | | | 9 | | | | 36 | | | | 106 | | | | 67 | | | | 218 | | Subordinated loans | | | | - | | | | 109 | | | | 437 | | | | 347 | | | | 3,077 | | | | 3,971 | | Borrowings | | | | - | | | | 3,967 | | | | 4,202 | | | | 1,109 | | | | 1,119 | | | | 10,397 | | Investment contracts1) | | | | 14,281 | | | | 1,930 | | | | 1,888 | | | | 1,001 | | | | 795 | | | | 19,895 | | Investment contracts for account of policyholders1) | | | | 32,463 | | | | 26,298 | | | | 6 | | | | 3 | | | | 2 | | | | 58,772 | | Lease liabilities | | | | - | | | | 51 | | | | 120 | | | | 66 | | | | 92 | | | | 331 | | Other financial liabilities | | | | 4,867 | | | | 2,713 | | | | 313 | | | | 96 | | | | 257 | | | | 8,245 | | Total financial liabilities (excluding investment/insurance contracts) | | | | 4,867 | | | | 6,798 | | | | 4,988 | | | | 1,658 | | | | 4,520 | | | | 22,831 | | 2018 | | | | | | | | | | | | | | | | | | | | | | | | | Trust pass-through securities | | | - | | | | 9 | | | | 36 | | | | 110 | | | | 69 | | | | 223 | | | | - | | | | 9 | | | | 36 | | | | 110 | | | | 69 | | | | 223 | | Subordinated loans | | | - | | | | 66 | | | | 266 | | | | 201 | | | | 1,400 | | | | 1,933 | | | | - | | | | 66 | | | | 266 | | | | 201 | | | | 1,400 | | | | 1,933 | | Borrowings | | | - | | | | 1,713 | | | | 8,136 | | | | 1,499 | | | | 2,825 | | | | 14,174 | | | | - | | | | 1,713 | | | | 8,136 | | | | 1,499 | | | | 2,825 | | | | 14,174 | | Investment contracts1 | | 13,305 | | | | 1,439 | | | | 1,831 | | | | 985 | | | | 1,517 | | | | 19,077 | | | Investment contracts for account of policyholders1 | | 29,360 | | | | 19,670 | | | | 20 | | | | 26 | | | | 91 | | | | 49,166 | | | Investment contracts1) | | | | 13,305 | | | | 1,439 | | | | 1,831 | | | | 985 | | | | 1,517 | | | | 19,077 | | Investment contracts for account of policyholders1) | | | | 29,360 | | | | 19,670 | | | | 20 | | | | 26 | | | | 91 | | | | 49,166 | | Other financial liabilities | | 5,849 | | | | 2,445 | | | | 81 | | | | 45 | | | | 38 | | | | 8,457 | | | | 5,849 | | | | 2,445 | | | | 81 | | | | 45 | | | | 38 | | | | 8,457 | | | Total financial liabilities (excluding investment/insurance contracts) | | 5,849 | | | | 4,234 | | | | 8,519 | | | | 1,854 | | | | 4,332 | | | | 24,787 | | | |
2017 | | | | | | | | | | | | | | Trust pass-through securities | | | - | | | | 9 | | | | 34 | | | | 110 | | | | 68 | | | | 221 | | | Subordinated loans | | | - | | | | 28 | | | | 112 | | | | 56 | | | | 1,137 | | | | 1,333 | | | Borrowings | | | - | | | | 1,888 | | | | 8,396 | | | | 2,411 | | | | 2,668 | | | | 15,362 | | | Investment contracts1 | | 12,189 | | | | 1,381 | | | | 1,591 | | | | 577 | | | | 1,709 | | | | 17,448 | | | Investment contracts for account of policyholders1 | | 33,738 | | | | 2,605 | | | | 1 | | | | 1 | | | | 133 | | | | 36,478 | | | Other financial liabilities | | 6,277 | | | | 2,002 | | | | 791 | | | | 23 | | | | 32 | | | | 9,125 | | | | Total financial liabilities (excluding investment/insurance contracts) | | 6,277 | | | | 3,926 | | | | 9,333 | | | | 2,599 | | | | 3,905 | | | | 26,041 | | | Total financial liabilities (excluding investment/ insurance contracts) | | | | 5,849 | | | | 4,234 | | | | 8,519 | | | | 1,854 | | | | 4,332 | | | | 24,787 | |
| 1 | Excluding investment contracts with discretionary participating features. |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 205 | | Notes to the consolidated financial statements Note 4 | | | |
Aegon’s liquidity management is based on expected claims and benefit payments rather than on the contractual maturities. The projected cash benefit payments in the table below are based on management’s best estimates of the expected gross benefits and expenses, partially offset by the expected gross premiums, fees and charges relating to the existing business in force. 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. | | | | | | | | | | | | | | | | | | | | | | | | | Financial liabilities relating to insurance and investment contracts1 | | On demand | | | < 1 yr amount | | | 1 < 5 yrs amount | | | 5 < 10 yrs amount | | | > 10 yrs amount | | | Total amount | | 2018 | | | | | | | | | | | | | | | | | | | | | | | | | Insurance contracts | | | - | | | | 5,255 | | | | 17,147 | | | | 17,891 | | | | 126,514 | | | | 166,807 | | Insurance contracts for account of policyholders | | | - | | | | 8,382 | | | | 35,238 | | | | 36,455 | | | | 130,475 | | | | 210,550 | | Investment contracts | | | - | | | | 6,679 | | | | 6,985 | | | | 2,739 | | | | 5,087 | | | | 21,490 | | Investment contracts for account of policyholders | | | 169 | | | | 8,839 | | | | 23,185 | | | | 28,747 | | | | 64,185 | | | | 125,125 | | | | | | 169 | | | | 29,155 | | | | 82,556 | | | | 85,831 | | | | 326,261 | | | | 523,972 | | 2017 | | | | | | | | | | | | | | | | | | | | | | | | | Insurance contracts | | | - | | | | 3,865 | | | | 16,348 | | | | 17,155 | | | | 122,702 | | | | 160,070 | | Insurance contracts for account of policyholders | | | - | | | | 8,122 | | | | 33,916 | | | | 35,391 | | | | 123,911 | | | | 201,339 | | Investment contracts | | | - | | | | 5,961 | | | | 6,870 | | | | 2,510 | | | | 4,620 | | | | 19,960 | | Investment contracts for account of policyholders | | | 234 | | | | 10,117 | | | | 23,871 | | | | 21,202 | | | | 54,930 | | | | 110,353 | | | | | | 234 | | | | 28,064 | | | | 81,005 | | | | 76,258 | | | | 306,162 | | | | 491,723 | |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 209 | | | | Consolidated financial statements of Aegon N.V.Note 4 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | Financial liabilities relating to insurance and investment contracts1) | | | On demand | | |
| < 1 yr
amount |
| |
| 1 < 5 yrs
amount |
| |
| 5 < 10 yrs
amount |
| |
| > 10 yrs
amount |
| | | Total amount | | 2019 | | | | | | | | | | | | | | | | | | | | | | | | | Insurance contracts | | | - | | | | 3,500 | | | | 13,003 | | | | 15,668 | | | | 119,044 | | | | 151,216 | | Insurance contracts for account of policyholders | | | - | | | | 9,666 | | | | 36,782 | | | | 36,571 | | | | 130,299 | | | | 213,318 | | Investment contracts | | | - | | | | 8,857 | | | | 5,837 | | | | 2,503 | | | | 4,347 | | | | 21,544 | | Investment contracts for account of policyholders | | | 181 | | | | 10,311 | | | | 28,244 | | | | 31,766 | | | | 81,024 | | | | 151,527 | | | | | | 181 | | | | 32,335 | | | | 83,868 | | | | 86,508 | | | | 334,714 | | | | 537,605 | | 2018 | | | | | | | | | | | | | | | | | | | | | | | | | Insurance contracts | | | - | | | | 5,255 | | | | 17,147 | | | | 17,891 | | | | 126,514 | | | | 166,807 | | Insurance contracts for account of policyholders | | | - | | | | 8,382 | | | | 35,238 | | | | 36,455 | | | | 130,475 | | | | 210,550 | | Investment contracts | | | - | | | | 6,679 | | | | 6,985 | | | | 2,739 | | | | 5,087 | | | | 21,490 | | Investment contracts for account of policyholders | | | 169 | | | | 8,839 | | | | 23,185 | | | | 28,747 | | | | 64,185 | | | | 125,125 | | | | | 169 | | | | 29,155 | | | | 82,556 | | | | 85,831 | | | | 326,261 | | | | 523,972 | |
| 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 3634 Insurance contracts and 3735 Investments contracts. |
The following table details the Group’s liquidity analysis for its derivative financial instruments, based on the undiscounted contractual net cash inflows and outflows on derivative instruments that settle on a net basis, and the undiscounted gross inflows and outflows on those derivatives that require gross settlement. | | | | | | | | | | | | | | | | | | | | | | | | | Maturity analysis relating to derivatives1 (Contractual cash flows) | | On demand | | | < 1 yr amount | | | 1 < 5 yrs amount | | | 5 < 10 yrs amount | | | > 10 yrs amount | | | Total amount | | 2018 | | | | | | | | | | | | | | | | | | | | | | | | | Gross settled | | | | | | | | | | | | | | | | | | | | | | | | | Cash inflows | | | - | | | | 23,453 | | | | 8,092 | | | | 11,323 | | | | 21,233 | | | | 64,101 | | Cash outflows | | | - | | | | (23,143 | ) | | | (7,351 | ) | | | (10,832 | ) | | | (20,816 | ) | | | (62,141 | ) | | | | | | | | Net settled | | | | | | | | | | | | | | | | | | | | | | | | | Cash inflows | | | - | | | | 156 | | | | 709 | | | | 982 | | | | 2,230 | | | | 4,078 | | Cash outflows | | | - | | | | (66 | ) | | | (288 | ) | | | (516 | ) | | | (5,743 | ) | | | (6,614 | ) | 2017 | | | | | | | | | | | | | | | | | | | | | | | | | Gross settled | | | | | | | | | | | | | | | | | | | | | | | | | Cash inflows | | | - | | | | 14,646 | | | | 7,024 | | | | 10,658 | | | | 18,916 | | | | 51,245 | | Cash outflows | | | - | | | | (14,766 | ) | | | (6,367 | ) | | | (9,890 | ) | | | (18,447 | ) | | | (49,471 | ) | | | | | | | | Net settled | | | | | | | | | | | | | | | | | | | | | | | | | Cash inflows | | | - | | | | 129 | | | | 783 | | | | 1,033 | | | | 2,428 | | | | 4,374 | | Cash outflows | | | - | | | | (67 | ) | | | (332 | ) | | | (543 | ) | | | (5,870 | ) | | | (6,812 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | Maturity analysis relating to derivatives1) (Contractual cash flows) | | | On demand | | |
| < 1 yr
amount |
| |
| 1 < 5 yrs
amount |
| |
| 5 < 10 yrs
amount |
| |
| > 10 yrs
amount |
| | | Total amount | | 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross settled | | | | | | | | | | | | | | | | | | | | | | | | | Cash inflows | | | - | | | | 17,162 | | | | 3,098 | | | | 4,470 | | | | 11,628 | | | | 36,357 | | Cash outflows | | | - | | | | (17,056 | ) | | | (2,922 | ) | | | (3,570 | ) | | | (10,071 | ) | | | (33,619 | ) | | | | | | | | Net settled | | | | | | | | | | | | | | | | | | | | | | | | | Cash inflows | | | - | | | | 865 | | | | 3,091 | | | | 3,537 | | | | 6,798 | | | | 14,292 | | Cash outflows | | | - | | | | (983 | ) | | | (2,594 | ) | | | (2,832 | ) | | | (7,716 | ) | | | (14,126 | ) | 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross settled | | | | | | | | | | | | | | | | | | | | | | | | | Cash inflows | | | - | | | | 23,453 | | | | 8,092 | | | | 11,323 | | | | 21,233 | | | | 64,101 | | Cash outflows | | | - | | | | (23,143 | ) | | | (7,351 | ) | | | (10,832 | ) | | | (20,816 | ) | | | (62,141 | ) | | | | | | | | Net settled | | | | | | | | | | | | | | | | | | | | | | | | | Cash inflows | | | - | | | | 156 | | | | 709 | | | | 982 | | | | 2,230 | | | | 4,078 | | Cash outflows | | | - | | | | (66 | ) | | | (288 | ) | | | (516 | ) | | | (5,743 | ) | | | (6,614 | ) |
| 1 | Derivatives includes all financial derivatives regardless whether they have a positive or a negative value. It does not include bifurcated embedded derivatives. These are presented together with the host contract. For interest rate derivatives only, cash flows related to the pay leg are taken into account for determining the gross undiscounted cash flows. |
For maturity information on other obligations, please refer to note 4845 Commitments and contingencies. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 206210 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 5 | | | | | | | | | | | |
5 Segment information Aegon’s operating segments are based on the businesses as presented in internal reports that are regularly reviewed by the Executive Board which is regarded as the chief operating decision maker. All reportable segments are involved in insurance or reinsurance business, asset management or services related to these activities. The reportable segments are: | ◆ | | Americas: one operating segment which covers business units in the United States, Brazil and Mexico, including any of the units’ activities located outside these countries; |
| ◆ | | Central &Southern and Eastern Europe; |
| ◆ | | 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. |
Aegon’s segment information is prepared by consolidating on a proportionate basis Aegon’s joint ventures and associated companies. Change in operating segments Aegon has changed the grouping of the operating segments included in the performance measure as of 2019. Previously, the operating segments ‘Spain & Portugal’ and ‘Central & Eastern Europe’ were disclosed separately in the segment information whilst as of 2019 these are disclosed combined under the operating segment ‘Southern & Eastern Europe’. The tables presented in this note have been updated to reflect this change. Performance Measure AAegon uses thenon-IFRS performance measure of reporting segments utilized by the Company is underlying earnings before tax. Underlying earnings before tax reflects Aegon’s profit from underlying business operations and mainly excludes components that relate to accounting mismatches that are dependent on market volatility, updates to best estimate actuarial and economic assumptions and model updates or events that are considered outside the normal course of business. There is no standardized meaning to these measures under IFRS or any other recognized set of accounting standards.
Aegon believes that its performance measure underlying earnings before tax provides meaningful information about the underlying results of Aegon’s business, including insight into the financial measures that Aegon’s senior management uses in managing the business. Among other things, Aegon’s senior management is compensated based in part on Aegon’s results against targets using underlying earnings before tax. While many other insurers in Aegon’s peer group present substantially similar performance measures, the performance measures presented in this document may nevertheless differ from the performance measures presented by other insurers. There is no standardized meaning to these measures under IFRS or any other recognized set of accounting standards.
The reconciliation from underlying earnings before tax to income before tax, being the most comparable IFRS measure, is presented in the tables in this note. The items that are excluded from underlying earnings before tax as described further below are: fair value items, realized gains or losses on investments, impairment charges/reversals, other income or charges,run-off businesses and share in earnings of joint ventures and associates. ChangeIncluded in measurement of performance measure
Aegon has changed the measurement of underlying earnings before tax for its real estate investments portfolio held by Aegon the Netherlands. Previously, direct returnsis management’s best estimate expected return on these investments were reported as part ofproducts. Any over- or underperformance compared to management’s expected return is excluded from underlying earnings before tax and the fair value movements were reported as part of tax.
Fair value items. From January 1, 2018, fairitems Fair value items include the over-orover- or underperformance for the real estateof investments of Aegon the Netherlands,and guarantees held at fair value for which ‘management’smanagement’s best estimate’estimate investment return is included in underlying earnings before tax. In addition, Aegon the Netherlands started to record its management’s best estimate investment returnhedge ineffectiveness on consumer loan investments (net of expected impairments)hedge transactions, fair value changes on economic hedges without natural offset in underlying earnings before tax, where previously the gross returns were recorded in underlying earnings before tax and the impairments in the impairment line. All other alternative investmentsfor which no hedge accounting is applied and fair value movements on real estate are reported similarly with ‘management’s best estimate investment return’ being included in underlying earnings before tax and the over- or underperformance in Fairunder fair value items. For segment reporting purposes, the impact of this change in measurement on full year 2017 was an increase inCertain assets held by Aegon Group consolidated underlying earnings before tax of EUR 37 million and a decrease inare carried at fair value items of EUR 61 million and managed on a decrease in impairment charges of EUR 24 million. There istotal return basis, with no impact on net income in any of the reporting periods. Comparative numbers have been restated in Aegon’s segment reporting note, enabling a like for like comparison. The presentation of the itemsoffsetting changes in the IFRS income statement remains unchanged and continue to be partvaluation of the line ‘Investment income’.related liabilities. These include assets such as investments in hedge funds, private equities, real estate (limited partnerships),
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 207211 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 5 | | | | | | | | | | | |
convertible bonds and structured products. Underlying earnings before tax exclude any over- or underperformance compared to management’s best estimate investment return on assets. Based on current holdings and asset returns, the long-term expected return on an annual basis is3-10%, depending on asset class, including cash income and market value changes. The expected earnings from these asset classes are net of deferred policy acquisition costs (DPAC) where applicable. In addition, certain products offered by Aegon Americas contain guarantees and are reported on a fair value basis and include the total return annuities and guarantees on variable annuities. The earnings on these products are impacted by movements in equity markets and risk-free interest rates. Short-term developments in the financial markets may therefore cause volatility in earnings. The fair value movements of certain guarantees and the fair value change of derivatives that hedge certain risks on these guarantees of Aegon’s businesses in the Netherlands and Japan are excluded from underlying earnings before tax, because management’s best estimate expected return for these guarantees is set at zero. In addition, fair value items include market related results on our loyalty bonus reserves in the United Kingdom. The value of these reserves are directly related to policyholder investments which value is directly impacted by movements in equity and bond markets. Holding and other activities include certain issued bonds that are held at fair value through profit or loss (FVTPL). The interest rate risk on these bonds is hedged using swaps. The fair value movement resulting from changes in Aegon’s credit spread used in the valuation of these bonds are excluded from underlying earnings before tax and reported under fair value items. Realized gains or losses on investments Realized gains or losses on investments includes realized gains and losses onavailable-for-sale investments, mortgage loans and other loan portfolios. Impairment charges/(reversals) Impairment charges/(reversals) include impairments onavailable-for-sale debt securities, shares including the effect of deferred policyholder acquisition costs, mortgage loans and other loan portfolios at amortized cost, joint ventures and associates. Impairment reversals include reversals onavailable-for-sale debt securities. For Aegon the Netherlands, the expected impairments on alternative assets classes (e.g. illiquid investments – including consumer loans and catastrophe bonds – and residential real estate) are allocated to underlying earnings in order to present management’s best estimate investment return in underlying earnings. Deviations from the expected impairments are presented as part of impairment charges / (reversals) innon-underlying earnings. Other income or charges Other income or charges includes the following: | ◆ | | Items which cannot be directly allocated to a specific line of business; |
| ◆ | | The impact of actuarial and economic assumption and model updates used to support calculations of our liabilities for insurance and investment contracts sold to policyholders and related assets (refer to note 3 Critical accounting estimates and judgement in applying accounting policies); and |
| ◆ | | Items that are outside the normal course of business, including restructuring charges. |
In the Consolidated income statement, these restructuring charges are included in operating expenses. Actuarial assumption and model updates are recorded in ‘Policyholder claims and benefits’ in the Consolidated income statement. Run-off businesses Run-off businesses includes results of business units where management in earlier years has decided to exit the market and torun-off the existing block of business. This line only includes results related to therun-off of the remaining institutional spread-based business, structured settlements blocks of business, the life reinsurance business and the bank-owned and corporate-owned life insurance (BOLI/COLI) business in the United States. Aegon has other blocks of business for which sales have been discontinued and of which the earnings are included in underlying earnings before tax. Share in earnings of joint ventures and associates Earnings from Aegon’s joint ventures in China, India, Japan, Mexico, the Netherlands, Spain and Portugal, and Aegon’s associates in Brazil, France, the Netherlands and United Kingdom are reported on an underlying earnings before tax basis. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 212 | | | | Consolidated financial statements of Aegon N.V.Note 5 | | | | | | | | | | |
The following table presents Aegon’s segment results. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income statement -Underlying
earnings | | Americas | | | The
Netherlands | | | United
Kingdom | | | Southern &
Eastern
Europe | | | Asia | | | Asset
Management | | | Holding and
other
activities | | | Eliminations | | | Segment
total | | | Joint ventures and
associates
eliminations | | | Consolidated | | 2019 Underlying earnings before tax | | | 1,124 | | | | 648 | | | | 139 | | | | 88 | | | | 62 | | | | 139 | | | | (228 | ) | | | 1 | | | | 1,973 | | | | 50 | | | | 2,023 | | Fair value items | | | 272 | | | | (741 | ) | | | (131 | ) | | | 7 | | | | (4 | ) | | | - | | | | (4 | ) | | | - | | | | (601 | ) | | | (88 | ) | | | (689 | ) | Realized gains / (losses) on investments | | | 125 | | | | 240 | | | | 3 | | | | 27 | | | | 9 | | | | - | | | | 1 | | | | - | | | | 405 | | | | (2 | ) | | | 403 | | Impairment charges | | | (54 | ) | | | (30 | ) | | | - | | | | - | | | | (1 | ) | | | - | | | | (10 | ) | | | - | | | | (95 | ) | | | - | | | | (95 | ) | Impairment reversals | | | 68 | | | | 5 | | | | - | | | | - | | | | 1 | | | | - | | | | - | | | | - | | | | 73 | | | | - | | | | 73 | | Other income / (charges) | | | (156 | ) | | | (1 | ) | | | (38 | ) | | | 33 | | | | (18 | ) | | | (7 | ) | | | (95 | ) | | | - | | | | (281 | ) | | | - | | | | (281 | ) | Run-off businesses | | | 23 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 23 | | | | - | | | | 23 | | | Income / (loss) before tax | | | 1,401 | | | | 121 | | | | (27 | ) | | | 155 | | | | 48 | | | | 133 | | | | (335 | ) | | | 1 | | | | 1,497 | | | | (40 | ) | | | 1,457 | | Income tax | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (expense) / benefit | | | (220 | ) | | | (27 | ) | | | (7 | ) | | | (19 | ) | | | (14 | ) | | | (36 | ) | | | 65 | | | | - | | | | (258 | ) | | | 40 | | | | (218 | ) | Net income / (loss) | | | 1,182 | | | | 94 | | | | (34 | ) | | | 136 | | | | 33 | | | | 97 | | | | (270 | ) | | | 1 | | | | 1,239 | | | | - | | | | 1,239 | | Inter-segment underlying earnings | | | (61 | ) | | | (105 | ) | | | (87 | ) | | | (16 | ) | | | (4 | ) | | | 193 | | | | 79 | | | | | | | | | | | | | | | | | | Revenues 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Life insurance gross premiums | | | 7,279 | | | | 1,765 | | | | 6,282 | | | | 552 | | | | 737 | | | | - | | | | 11 | | | | (8 | ) | | | 16,617 | | | | (691 | ) | | | 15,926 | | Accident and health insurance | | | 1,416 | | | | 228 | | | | 28 | | | | 110 | | | | 91 | | | | - | | | | - | | | | - | | | | 1,872 | | | | (50 | ) | | | 1,823 | | General insurance | | | - | | | | 130 | | | | - | | | | 382 | | | | - | | | | - | | | | 1 | | | | (1 | ) | | | 512 | | | | (122 | ) | | | 390 | | | Total gross premiums | | | 8,694 | | | | 2,123 | | | | 6,309 | | | | 1,044 | | | | 828 | | | | - | | | | 12 | | | | (9 | ) | | | 19,002 | | | | (864 | ) | | | 18,138 | | Investment income | | | 3,172 | | | | 2,224 | | | | 1,830 | | | | 76 | | | | 303 | | | | 5 | | | | 269 | | | | (284 | ) | | | 7,595 | | | | (64 | ) | | | 7,531 | | Fee and commission income | | | 1,757 | | | | 237 | | | | 197 | | | | 50 | | | | 59 | | | | 627 | | | | - | | | | (187 | ) | | | 2,740 | | | | (218 | ) | | | 2,523 | | Other revenues | | | 8 | | | | - | | | | - | | | | - | | | | 1 | | | | 1 | | | | 5 | | | | - | | | | 16 | | | | (10 | ) | | | 6 | | | Total revenues | | | 13,631 | | | | 4,583 | | | | 8,337 | | | | 1,171 | | | | 1,191 | | | | 633 | | | | 286 | | | | (480 | ) | | | 29,352 | | | | (1,155 | ) | | | 28,197 | | Inter-segment revenues | | | 1 | | | | 12 | | | | - | | | | - | | | | - | | | | 187 | | | | 280 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 213 | | | | Consolidated financial statements of Aegon N.V.Note 5 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income statement -Underlying
earnings | | Americas | | | The
Netherlands | | | United
Kingdom | | | Southern &
Eastern
Europe | | | Asia | | | Asset
Management | | | Holding and
other
activities | | | Eliminations | | | Segment
total | | | Joint ventures and
associates
eliminations | | | Consolidated | | 2018 Underlying earnings before tax | | | 1,216 | | | | 615 | | | | 128 | | | | 96 | | | | 55 | | | | 151 | | | | (189 | ) | | | 1 | | | | 2,074 | | | | 72 | | | | 2,146 | | Fair value items | | | (613 | ) | | | 250 | | | | 59 | | | | 6 | | | | 3 | | | | - | | | | 5 | | | | - | | | | (291 | ) | | | (119 | ) | | | (409 | ) | Realized gains / (losses) on investments | | | (204 | ) | | | 46 | | | | 83 | | | | - | | | | (8 | ) | | | 2 | | | | 4 | | | | - | | | | (77 | ) | | | (2 | ) | | | (79 | ) | Impairment charges | | | (46 | ) | | | 4 | | | | - | | | | (2 | ) | | | (5 | ) | | | - | | | | (9 | ) | | | - | | | | (58 | ) | | | - | | | | (58 | ) | Impairment reversals | | | 37 | | | | 2 | | | | - | | | | 1 | | | | - | | | | - | | | | - | | | | - | | | | 39 | | | | - | | | | 39 | | Other income / (charges) | | | (397 | ) | | | (132 | ) | | | (252 | ) | | | (26 | ) | | | (7 | ) | | | (5 | ) | | | (57 | ) | | | - | | | | (875 | ) | | | 1 | | | | (874 | ) | Run-off businesses | | | (14 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (14 | ) | | | - | | | | (14 | ) | Income / (loss) before tax | | | (20 | ) | | | 784 | | | | 19 | | | | 76 | | | | 36 | | | | 149 | | | | (247 | ) | | | 1 | | | | 798 | | | | (47 | ) | | | 751 | | Income tax (expense) / benefit | | | 71 | | | | (136 | ) | | | 20 | | | | (19 | ) | | | (25 | ) | | | (44 | ) | | | 46 | | | | - | | | | (87 | ) | | | 47 | | | | (40 | ) | Net income / (loss) | | | 51 | | | | 648 | | | | 38 | | | | 57 | | | | 11 | | | | 105 | | | | (201 | ) | | | 1 | | | | 711 | | | | - | | | | 711 | | Inter-segment underlying earnings | | | (73 | ) | | | (101 | ) | | | (82 | ) | | | (18 | ) | | | (5 | ) | | | 198 | | | | 80 | | | | | | | | | | | | | | | | | | Revenues 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Life insurance gross premiums | | | 7,004 | | | | 1,632 | | | | 7,509 | | | | 622 | | | | 779 | | | | - | | | | 9 | | | | (7 | ) | | | 17,548 | | | | (579 | ) | | | 16,969 | | Accident and health insurance | | | 1,571 | | | | 219 | | | | 29 | | | | 102 | | | | 94 | | | | - | | | | - | | | | - | | | | 2,015 | | | | (36 | ) | | | 1,979 | | General insurance | | | - | | | | 136 | | | | - | | | | 343 | | | | - | | | | - | | | | 1 | | | | (1 | ) | | | 479 | | | | (112 | ) | | | 367 | | Total gross premiums | | | 8,575 | | | | 1,987 | | | | 7,539 | | | | 1,067 | | | | 873 | | | | - | | | | 10 | | | | (8 | ) | | | 20,042 | | | | (727 | ) | | | 19,316 | | Investment income | | | 3,125 | | | | 2,265 | | | | 1,346 | | | | 83 | | | | 268 | | | | 5 | | | | 286 | | | | (284 | ) | | | 7,095 | | | | (59 | ) | | | 7,035 | | Fee and commission income | | | 1,826 | | | | 211 | | | | 198 | | | | 63 | | | | 58 | | | | 632 | | | | - | | | | (206 | ) | | | 2,782 | | | | (224 | ) | | | 2,558 | | Other revenues | | | 5 | | | | - | | | | - | | | | - | | | | 2 | | | | 1 | | | | 4 | | | | - | | | | 12 | | | | (6 | ) | | | 5 | | Total revenues | | | 13,530 | | | | 4,463 | | | | 9,083 | | | | 1,213 | | | | 1,201 | | | | 638 | | | | 300 | | | | (499 | ) | | | 29,930 | | | | (1,016 | ) | | | 28,914 | | Inter-segment revenues | | | 1 | | | | 2 | | | | - | | | | - | | | | - | | | | 206 | | | | 290 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 214 | | | | Consolidated financial statements of Aegon N.V.Note 5 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income statement -Underlying
earnings | | Americas | | | The
Netherlands | | | United
Kingdom | | | Southern &
Eastern
Europe | | | Asia | | | Asset
Management | | | Holding and
other
activities | | | Eliminations | | | Segment
total | | | Joint ventures and
associates
eliminations | | | Consolidated | | 2017 Underlying earnings before tax | | | 1,381 | | | | 557 | | | | 116 | | | | 71 | | | | 49 | | | | 136 | | | | (170 | ) | | | - | | | | 2,140 | | | | 61 | | | | 2,200 | | Fair value items | | | 170 | | | | (31 | ) | | | (82 | ) | | | - | | | | - | | | | - | | | | 24 | | | | - | | | | 81 | | | | (97 | ) | | | (16 | ) | Realized gains / (losses) on investments | | | 157 | | | | 184 | | | | 62 | | | | 1 | | | | 4 | | | | 3 | | | | - | | | | - | | | | 413 | | | | (5 | ) | | | 408 | | Impairment charges | | | (37 | ) | | | (3 | ) | | | - | | | | (2 | ) | | | (1 | ) | | | - | | | | (3 | ) | | | - | | | | (46 | ) | | | - | | | | (46 | ) | Impairment reversals | | | 22 | | | | 10 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 32 | | | | - | | | | 32 | | Other income / (charges) | | | (353 | ) | | | 296 | | | | 40 | | | | - | | | | (19 | ) | | | (49 | ) | | | 16 | | | | - | | | | (68 | ) | | | (4 | ) | | | (72 | ) | Run-off businesses | | | 30 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 30 | | | | - | | | | 30 | | Income / (loss) before tax | | | 1,370 | | | | 1,013 | | | | 137 | | | | 70 | | | | 33 | | | | 90 | | | | (134 | ) | | | - | | | | 2,580 | | | | (45 | ) | | | 2,536 | | Income tax (expense) / benefit | | | 198 | | | | (196 | ) | | | (56 | ) | | | (15 | ) | | | (28 | ) | | | (42 | ) | | | 29 | | | | - | | | | (110 | ) | | | 44 | | | | (65 | ) | Net income / (loss) | | | 1,568 | | | | 818 | | | | 81 | | | | 56 | | | | 5 | | | | 48 | | | | (105 | ) | | | - | | | | 2,470 | | | | (0 | ) | | | 2,470 | | Inter-segment underlying earnings | | | (78 | ) | | | (111 | ) | | | (87 | ) | | | (12 | ) | | | (1 | ) | | | 214 | | | | 73 | | | | | | | | | | | | | | | | | | Revenues 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Life insurance gross premiums | | | 7,437 | | | | 1,857 | | | | 9,603 | | | | 619 | | | | 983 | | | | - | | | | 7 | | | | (9 | ) | | | 20,498 | | | | (546 | ) | | | 19,952 | | Accident and health insurance | | | 2,115 | | | | 203 | | | | 32 | | | | 84 | | | | 97 | | | | - | | | | - | | | | - | | | | 2,531 | | | | (20 | ) | | | 2,511 | | General insurance | | | - | | | | 148 | | | | - | | | | 319 | | | | - | | | | - | | | | 1 | | | | (1 | ) | | | 466 | | | | (103 | ) | | | 363 | | Total gross premiums | | | 9,553 | | | | 2,208 | | | | 9,635 | | | | 1,022 | | | | 1,080 | | | | - | | | | 8 | | | | (10 | ) | | | 23,496 | | | | (670 | ) | | | 22,826 | | Investment income | | | 3,368 | | | | 2,172 | | | | 1,517 | | | | 85 | | | | 246 | | | | 4 | | | | 295 | | | | (291 | ) | | | 7,396 | | | | (58 | ) | | | 7,338 | | Fee and commission income | | | 1,919 | | | | 326 | | | | 235 | | | | 60 | | | | 63 | | | | 609 | | | | - | | | | (222 | ) | | | 2,990 | | | | (188 | ) | | | 2,802 | | Other revenues | | | 5 | | | | - | | | | - | | | | 3 | | | | 1 | | | | - | | | | 4 | | | | - | | | | 13 | | | | (5 | ) | | | 7 | | Total revenues | | | 14,844 | | | | 4,706 | | | | 11,387 | | | | 1,170 | | | | 1,390 | | | | 613 | | | | 308 | | | | (523 | ) | | | 33,895 | | | | (921 | ) | | | 32,973 | | Inter-segment revenues | | | - | | | | (1 | ) | | | - | | | | - | | | | 3 | | | | 222 | | | | 298 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 215 | | | | Consolidated financial statements of Aegon N.V.Note 5 | | | | | | | | | | |
The Group uses underlying earnings before tax in its segment reporting as an important indicator of its financial performance. The reconciliation from underlying earnings before tax to income before tax, being the most comparable IFRS measure, is presented in the table below. For those items that cannot be directly reconciled to the respective notes, the explanation is provided below the table. Aegon believes that underlying earnings before tax, together with the other information included in this report, provides a meaningful measure for the investing public to evaluate Aegon’s business relative to the businesses of its peers. | | | | | | | | | | | | | | | | | | | | Note | | | 2019 | | | 2018 | | | 2017 | | Underlying earnings before tax | | | | | | | 1,973 | | | | 2,074 | | | | 2,140 | | Elimination of share in earnings of joint ventures and associates | | | | | | | 50 | | | | 72 | | | | 61 | | | | | | | Rental income | | | 7 | | | | (76 | ) | | | (72 | ) | | | (61 | ) | Dividend income | | | 7 | | | | 9 | | | | 30 | | | | - | | Recovered claims and benefits | | | 9 | | | | - | | | | 2 | | | | - | | Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives | | | 10 | | | | (17 | ) | | | (295 | ) | | | (437 | ) | Net fair value change on borrowings and other financial liabilities | | | 10 | | | | 7 | | | | 6 | | | | - | | Realized gains and losses on financial investments | | | 10 | | | | 399 | | | | (92 | ) | | | 431 | | Gains and (losses) on investments in real estate | | | 10 | | | | 317 | | | | 261 | | | | 193 | | Net fair value change of derivatives | | | 10 | | | | 163 | | | | (67 | ) | | | (134 | ) | Net foreign currency gains and (losses) | | | 10 | | | | - | | | | (2 | ) | | | 5 | | Realized gains and (losses) on repurchased debt | | | 10 | | | | - | | | | 1 | | | | 1 | | Other income | | | 11 | | | | 200 | | | | 8 | | | | 540 | | Change in valuation of liabilities for insurance contracts | | | 12 | | | | (1,231 | ) | | | (341 | ) | | | (254 | ) | Change in valuation of liabilities for investment contracts | | | 12 | | | | (13 | ) | | | 13 | | | | (19 | ) | Benefits and claims paid life | | | 12 | | | | 7 | | | | - | | | | - | | Policyholder claims and benefits - Other | | | 12 | | | | 50 | | | | (9 | ) | | | 34 | | Commissions and expenses | | | 14 | | | | (319 | ) | | | (428 | ) | | | 256 | | Impairment (charges) reversals | | | 15 | | | | (105 | ) | | | (20 | ) | | | (16 | ) | Interest charges and related fees | | | 16 | | | | 21 | | | | - | | | | - | | Other charges | | | 17 | | | | (1 | ) | | | (375 | ) | | | (235 | ) | Run-off businesses | | | 5 | | | | 23 | | | | (14 | ) | | | 30 | | Income / (loss) before tax | | | | | | | 1,457 | | | | 751 | | | | 2,534 | |
| ◆ | | Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives is reported as part of the respective line in note 10 and reflects the over- or underperformance of investments and guarantees held at fair value for which the expected long-term return is included in underlying earnings before tax. |
| ◆ | | Net fair value change of derivatives is reported as part of the respective line in note 10 and includes: 1) the over- or underperformance of derivatives of EUR 34 million gain (2018: EUR 3 million gain, 2017: EUR 9 million gain) for which the expected long-term return is included in underlying earnings before tax; 2) Net fair value change on economic hedges where no hedge accounting is applied of EUR 130 million gain (2018: EUR 77 million loss, 2017: EUR 145 million loss); 3) Ineffective portion of hedge transactions to which hedge accounting is applied of EUR 1 million gain (2018: EUR 7 million gain, 2017: EUR 2 million gain). |
| ◆ | | Net foreign currency gains and (losses) are reported as part of the respective line in note 10. |
| ◆ | | Change in valuation of liabilities for insurance contracts is reported as part of the respective line in note 12. |
| ◆ | | Change in valuation of liabilities for investment contracts is reported as part of the respective line in note 12. |
| ◆ | | Policyholder claims and benefits - Other are reported as part of the ‘Other’ line in note 12 and is related to policyholder tax. |
| ◆ | | Commissions and expenses include: 1) Restructuring charges of EUR 220 million (2018: EUR 279 million charge, 2017: EUR 116 million charge) which are reported as part of Employee and Administration expenses lines in note 14; 2) Amortization of deferred expenses of EUR 32 million income (2018: charge of EUR 67 million, 2017: income of EUR 285 million) which is reported as part of the respective line in note 14. This is offset against realized gains and losses and impairments on financial investments; 3) Amortization of VOBA and future servicing rights of EUR 5 million charge (2018: charge of EUR 20 million; 2017: income of EUR 94 million) which is reported as part of the respective line in note 14. Commissions and expenses include a DPAC/ VOBA fair value adjustment of EUR 151 million gain (2018: loss of EUR 88 million; 2017: gain of EUR 135 million). |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 216 | | | | Consolidated financial statements of Aegon N.V.Note 5 | | | | | | | | | | |
| ◆ | | Impairment (charges) reversals include: 1) Impairment charges and reversals on financial assets, excluding receivables of EUR 60 million charge (2018: EUR charge of 41 million, 2017: charge of EUR 42 million) as shown in note 15; 2) Impairment charges and reversals on non-financial assets and receivables of EUR 109 million charge (2018: EUR 19 million charge; 2017: EUR 1 million reversal) reported as part of the respective line in note 15. |
| ◆ | | There are no interest charges and related fees that are classified for segment reporting purposes as non-underlying earnings. |
Impact from assumption and model updates The 2019 assumption changes and model updates amounted to a negative impact of EUR 196 million and mainly relates to Aegon’s businesses in the Americas and the Netherlands. Assumption changes and model updates in the Americas led to a net negative impact of EUR 64 million mainly driven by updates to Universal Life products for surrender, lapse and mortality to reflect actual experience, partially offset by gains driven by updates to the annuitization of Variable Deferred Annuities Guaranteed Minimum Income Benefit and to the returns on Equity-Index Universal Life. In the second half of 2019, a negative impact of EUR 75 million resulted mostly from expense assumption updates in the Americas. Assumption changes and model updates in the Netherlands led to negative impact of EUR 57 million mainly related to model enhancements and expense assumption updates which more than offset favorable longevity assumption changes. In 2018, athe pre-tax charge of EUR 121 million (2017: EUR 276 million charge) has been recorded in other income/(charges) in respect of assumption changes and model updates. The impact is mainly attributable to Aegon’s business in the Americas and the Netherlands. Assumption changes and model updates in the Americas led to a net negative impact of EUR 6 million, which includes charges of EUR 164 million, mainly driven by Americas Life mortality updates to reflect actual experience, partially offset by gains of EUR 158 million, mainly driven by the positive impact from new expense allocation methodology within Retirement plans and Variable and Fixed annuities lines of business, Universal Life model update using results from AXIS model and a Variable Annuities (WB) modelling enhancement in discount curve upon account exhaustion. In the Netherlands, assumption changes and model updates led to a net loss of EUR 111 million, which includes charges of EUR 219 million mainly related to the population mortality best estimate update to reflect latest available data and an improvement in the modelling of policyholder behavior (lapses) and the lowering of IFRS ultimate forward rate from 4.25% to 3.65%. This was partly offset by EUR 108 million gains driven by the TKP/UL model conversion. During 2017 Aegon implemented actuarial assumption and model updates resulting in a net EUR 276 million charge (2016: EUR 118 million charge) to income before tax.
Fair value items
Fair value items include the over-or underperformance of investments and guarantees held at fair value for which management’s best estimate investment return is included in underlying earnings before tax.
In addition, hedge ineffectiveness on hedge transactions, fair value changes on economic hedges without natural offset in earnings and for which no hedge accounting is applied and fair value movements on real estate are included under fair value items.
Certain assets held by Aegon are carried at fair value and managed on a total return basis, with no offsetting changes in the valuation of related liabilities. These include assets such as investments in hedge funds, private equities, real estate (limited partnerships), convertible bonds and structured products. Underlying earnings before tax exclude any over-or underperformance compared to management’s best estimate investment return on assets. Based on current holdings and asset returns, the long-term expected return on an annual basis is3-10%, depending on asset class, including cash income and market value changes. The expected earnings from these asset classes are net of deferred policy acquisition costs (DPAC) where applicable.
In addition, certain products offered by Aegon Americas contain guarantees and are reported on a fair value basis and the total return annuities and guarantees on variable annuities. The earnings on these products are impacted by movements in equity markets and risk-free interest rates. Short-term developments in the financial markets may therefore cause volatility in earnings. Included in underlying earnings before tax is management’s best estimate expected return on these products. Any over-or underperformance compared to management’s expected return is excluded from underlying earnings before tax.
The fair value movements of certain guarantees and the fair value change of derivatives that hedge certain risks on these guarantees of Aegon’s businesses in the Netherlands and Japan are excluded from underlying earnings before tax, because management’s best estimate expected return for these guarantees is set at zero. In addition, fair value items include market related results on our loyalty bonus reserves in the United Kingdom. The value of these reserves are directly related to policyholder investments which value is directly impacted by movements in equity and bond markets.
Holding and other activities include certain issued bonds that are held at fair value through profit or loss (FVTPL). The interest rate risk on these bonds is hedged using swaps. The fair value movement resulting from changes in Aegon’s credit spread used in the valuation of these bonds are excluded from underlying earnings before tax and reported under fair value items.
Realized gains or losses on investments
Realized gains or losses on investments includes realized gains and losses onavailable-for-sale investments, mortgage loans and other loan portfolios.
Impairment charges/reversals
Impairment charges/reversals include impairments onavailable-for-sale debt securities, shares including the effect of deferred policyholder acquisition costs, mortgage loans and other loan portfolios at amortized cost, joint ventures and associates. Impairment reversals include reversals onavailable-for-sale debt securities. For Aegon the Netherlands, the expected impairments on alternative assets classes (e.g. illiquid investments – including consumer loans and catastrophe bonds – and residential real estate) are allocated to underlying earnings in order to present management’s best estimate investment return in underlying earnings. Deviations from the expected impairments are presented as part of impairment charges/(reversals) innon-underlying earnings.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other selected income statement
items | | Americas | | | The
Netherlands | | | United
Kingdom | | | Southern &
Eastern
Europe | | | Asia | | | Asset
Management | | | Holding and
other
activities | | | Eliminations | | | Total | | 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortization of deferred expenses, VOBA and future servicing rights | | | 685 | | | | 4 | | | | 117 | | | | 37 | | | | 32 | | | | - | | | | - | | | | - | | | | 876 | | Depreciation | | | 44 | | | | 18 | | | | 12 | | | | 11 | | | | 1 | | | | 1 | | | | 2 | | | | - | | | | 87 | | Impairment charges / (reversals) on financial assets, excluding receivables | | | (12 | ) | | | 72 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 60 | | Impairment charges / (reversals) on non-financial assets and receivables | | | 3 | | | | 94 | | | | - | | | | 3 | | | | - | | | | - | | | | 10 | | | | - | | | | 109 | | | | | | | | | | | | 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortization of deferred expenses, VOBA and future servicing rights | | | 852 | | | | 25 | | | | 119 | | | | 52 | | | | 24 | | | | - | | | | - | | | | - | | | | 1,072 | | Depreciation | | | 38 | | | | 12 | | | | 14 | | | | 12 | | | | 1 | | | | 1 | | | | 2 | | | | - | | | | 80 | | Impairment charges / (reversals) on financial assets, excluding receivables | | | (9 | ) | | | 34 | | | | - | | | | 1 | | | | 5 | | | | - | | | | 9 | | | | - | | | | 41 | | Impairment charges / (reversals) on non-financial assets and receivables | | | 19 | | | | 15 | | | | 1 | | | | - | | | | 1 | | | | - | | | | - | | | | - | | | | 36 | | | | | | | | | | | | 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortization of deferred expenses, VOBA and future servicing rights | | | 336 | | | | 27 | | | | 134 | | | | 55 | | | | 33 | | | | - | | | | - | | | | - | | | | 586 | | Depreciation | | | 44 | | | | 16 | | | | 28 | | | | 11 | | | | 1 | | | | 3 | | | | 2 | | | | - | | | | 105 | | Impairment charges / (reversals) on financial assets, excluding receivables | | | 19 | | | | 17 | | | | - | | | | 2 | | | | - | | | | - | | | | 3 | | | | - | | | | 42 | | Impairment charges / (reversals) on non-financial assets and receivables | | | (2 | ) | | | 3 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 208217 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 5 | | | | | | | | | | | |
Other income or charges
Other income or charges includes the following:
◆ | | items which cannot be directly allocated to a specific line of business; |
◆ | | the impact of actuarial and economic assumption and model updates used to support calculations of our liabilities for insurance and investment contracts sold to policyholders and related assets; and |
◆ | | items that are outside the normal course of business, including restructuring charges. |
In the Consolidated income statement, these restructuring charges are included in operating expenses. Actuarial assumption and model updates are recorded in ‘Policyholder claims and benefits’ in the Consolidated income statement.
Run-off businesses
Run-off businesses includes results of business units where management in earlier years has decided to exit the market and torun-off the existing block of business. This line only includes results related to therun-off of the remaining institutional spread-based business, structured settlements blocks of business, the life reinsurance business and the bank-owned and corporate-owned life insurance (BOLI/COLI) business in the United States. Aegon has other blocks of business for which sales have been discontinued and of which the earnings are included in underlying earnings before tax.
Share in earnings of joint ventures and associates
Earnings from Aegon’s joint ventures in the Netherlands, Mexico, Spain, Portugal, China and Japan and Aegon’s associates in India, Brazil, the Netherlands, United Kingdom, Mexico and France are reported on an underlying earnings before tax basis.
The following table presents Aegon’s segment results.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of employees | | Americas | | | The Netherlands | | | United
Kingdom | | | Southern &
Eastern
Europe | | | Asia | | | Asset Management | | | Holding and other
activities | | | Total | | 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of employees - headcount | | | 8,570 | | | | 3,582 | | | | 2,261 | | | | 2,853 | | | | 4,540 | | | | 1,535 | | | | 416 | | | | 23,757 | | Of which Aegon’s share of employees in joint ventures and associates | | | 651 | | | | - | | | | 62 | | | | 104 | | | | 4,172 | | | | 173 | | | | - | | | | 5,162 | | | | | | | | | | | 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of employees - headcount | | | 8,824 | | | | 3,548 | | | | 3,135 | | | | 2,837 | | | | 6,344 | | | | 1,464 | | | | 390 | | | | 26,543 | | Of which Aegon’s share of employees in joint ventures and associates | | | 559 | | | | - | | | | 58 | | | | 86 | | | | 5,983 | | | | 168 | | | | - | | | | 6,854 | | | | | | | | | | | 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of employees - headcount | | | 10,951 | | | | 3,089 | | | | 3,435 | | | | 2,947 | | | | 6,025 | | | | 1,500 | | | | 371 | | | | 28,318 | | Of which Aegon’s share of employees in joint ventures and associates | | | 549 | | | | - | | | | - | | | | 83 | | | | 5,702 | | | | 163 | | | | - | | | | 6,497 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income statement – Underlying earnings | | 
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| | 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Underlying earnings before tax | | | 1,216 | | | | 615 | | | | 128 | | | | 72 | | | | 24 | | | | 55 | | | | 151 | | | | (189 | ) | | | 1 | | | | 2,074 | | | | 72 | | | | 2,146 | | Fair value items | | | (613 | ) | | | 250 | | | | 59 | | | | 4 | | | | 2 | | | | 3 | | | | - | | | | 5 | | | | - | | | | (291 | ) | | | (119 | ) | | | (409 | ) | Realized gains/(losses) on investments | | | (204 | ) | | | 46 | | | | 83 | | | | 1 | | | | (1 | ) | | | (8 | ) | | | 2 | | | | 4 | | | | - | | | | (77 | ) | | | (2 | ) | | | (79 | ) | Impairment charges | | | (46 | ) | | | 4 | | | | - | | | | (2 | ) | | | - | | | | (5 | ) | | | - | | | | (9 | ) | | | - | | | | (58 | ) | | | - | | | | (58 | ) | Impairment reversals | | | 37 | | | | 2 | | | | - | | | | 1 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 39 | | | | - | | | | 39 | | Other income/(charges) | | | (397 | ) | | | (132 | ) | | | (252 | ) | | | (7 | ) | | | (18 | ) | | | (7 | ) | | | (5 | ) | | | (57 | ) | | | - | | | | (875 | ) | | | 1 | | | | (874 | ) | Run-off businesses | | | (14 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (14 | ) | | | - | | | | (14 | ) | Income/(loss) before tax | | | (20 | ) | | | 784 | | | | 19 | | | | 69 | | | | 7 | | | | 36 | | | | 149 | | | | (247 | ) | | | 1 | | | | 798 | | | | (47 | ) | | | 751 | | | | | | | | | | | | | | | Income tax (expense)/benefit | | | 71 | | | | (136 | ) | | | 20 | | | | (8 | ) | | | (10 | ) | | | (25 | ) | | | (44 | ) | | | 46 | | | | - | | | | (87 | ) | | | 47 | | | | (40 | ) | Net income/(loss) | | | 51 | | | | 648 | | | | 38 | | | | 60 | | | | (3 | ) | | | 11 | | | | 105 | | | | (201 | ) | | | 1 | | | | 711 | | | | - | | | | 711 | | Inter-segment underlyingearnings | | | (73 | ) | | | (101 | ) | | | (82 | ) | | | (15 | ) | | | (2 | ) | | | (5 | ) | | | 198 | | | | 80 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Revenues 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Life insurance gross premiums | | | 7,004 | | | | 1,632 | | | | 7,509 | | | | 405 | | | | 217 | | | | 779 | | | | - | | | | 9 | | | | (7 | ) | | | 17,548 | | | | (579 | ) | | | 16,969 | | Accident and health insurance | | | 1,571 | | | | 219 | | | | 29 | | | | 2 | | | | 100 | | | | 94 | | | | - | | | | - | | | | - | | | | 2,015 | | | | (36 | ) | | | 1,979 | | General insurance | | | - | | | | 136 | | | | - | | | | 231 | | | | 112 | | | | - | | | | - | | | | 1 | | | | (1 | ) | | | 479 | | | | (112 | ) | | | 367 | | Total gross premiums | | | 8,575 | | | | 1,987 | | | | 7,539 | | | | 638 | | | | 429 | | | | 873 | | | | - | | | | 10 | | | | (8 | ) | | | 20,042 | | | | (727 | ) | | | 19,316 | | | | | | | | | | | | | | | Investment income | | | 3,125 | | | | 2,265 | | | | 1,346 | | | | 48 | | | | 36 | | | | 268 | | | | 5 | | | | 286 | | | | (284 | ) | | | 7,095 | | | | (59 | ) | | | 7,035 | | Fee and commission income | | | 1,826 | | | | 211 | | | | 198 | | | | 47 | | | | 16 | | | | 58 | | | | 632 | | | | - | | | | (206 | ) | | | 2,782 | | | | (224 | ) | | | 2,558 | | Other revenues | | | 5 | | | | - | | | | - | | | | - | | | | - | | | | 2 | | | | 1 | | | | 4 | | | | - | | | | 12 | | | | (6 | ) | | | 5 | | Total revenues | | | 13,530 | | | | 4,463 | | | | 9,083 | | | | 733 | | | | 480 | | | | 1,201 | | | | 638 | | | | 300 | | | | (499 | ) | | | 29,930 | | | | (1,016 | ) | | | 28,914 | | | | | | | | | | | | | | | Inter-segment revenues | | | 1 | | | | 2 | | | | - | | | | - | | | | - | | | | - | | | | 206 | | | | 290 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Summarized assets and
liabilities per segment | | Americas | | | The
Netherlands | | | United
Kingdom | | | Southern &
Eastern
Europe | | | Asia | | | Asset
Management | | | Holding and
other
activities | | | Eliminations | | | Total | | 2019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and Cash equivalents | | | 822 | | | | 9,627 | | | | 305 | | | | 152 | | | | 91 | | | | 166 | | | | 1,100 | | | | - | | | | 12,263 | | Investments | | | 75,076 | | | | 59,983 | | | | 2,034 | | | | 1,711 | | | | 6,662 | | | | 266 | | | | 244 | | | | - | | | | 145,976 | | Investments for account of policyholders | | | 107,963 | | | | 25,491 | | | | 91,848 | | | | 994 | | | | 82 | | | | - | | | | - | | | | (4 | ) | | | 226,374 | | Investments in joint ventures | | | - | | | | 1,159 | | | | - | | | | 476 | | | | 192 | | | | 153 | | | | 3 | | | | - | | | | 1,983 | | Investments in associates | | | 79 | | | | 106 | | | | 9 | | | | - | | | | 28 | | | | 129 | | | | 21 | | | | (10 | ) | | | 363 | | Deferred expenses | | | 8,999 | | | | 360 | | | | 913 | | | | 45 | | | | 487 | | | | - | | | | - | | | | - | | | | 10,804 | | Other assets | | | 27,078 | | | | 11,996 | | | | 2,546 | | | | 271 | | | | 1,905 | | | | 126 | | | | 31,511 | | | | (32,848 | ) | | | 42,585 | | Total assets | | | 220,017 | | | | 108,722 | | | | 97,655 | | | | 3,648 | | | | 9,448 | | | | 840 | | | | 32,879 | | | | (32,862 | ) | | | 440,348 | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Insurance contracts | | | 73,784 | | | | 40,554 | | | | 1,518 | | | | 1,411 | | | | 7,825 | | | | - | | | | 17 | | | | (1,655 | ) | | | 123,454 | | Insurance contracts for account of policyholders | | | 77,988 | | | | 25,328 | | | | 31,559 | | | | 815 | | | | 20 | | | | - | | | | - | | | | - | | | | 135,710 | | Investment contracts | | | 6,662 | | | | 11,716 | | | | 211 | | | | 2 | | | | 2 | | | | - | | | | - | | | | - | | | | 18,594 | | Investment contracts for account of policyholders | | | 29,976 | | | | 2,301 | | | | 61,305 | | | | 181 | | | | 62 | | | | - | | | | - | | | | - | | | | 93,826 | | Other liabilities | | | 15,468 | | | | 22,636 | | | | 1,459 | | | | 323 | | | | 229 | | | | 322 | | | | 8,421 | | | | (4,534 | ) | | | 44,324 | | Total liabilities | | | 203,877 | | | | 102,535 | | | | 96,052 | | | | 2,733 | | | | 8,138 | | | | 322 | | | | 8,438 | | | | (6,189 | ) | | | 415,907 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F2018 | | |
| | | 209 | | Notes to the consolidated financial statements20-F Note 52019 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income statement – Underlying earnings | | 
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| | 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Underlying earnings before tax | | | 1,381 | | | | 557 | | | | 116 | | | | 67 | | | | 4 | | | | 49 | | | | 136 | | | | (170 | ) | | | - | | | | 2,140 | | | | 61 | | | | 2,200 | | Fair value items | | | 170 | | | | (31 | ) | | | (82 | ) | | | - | | | | - | | | | - | | | | - | | | | 24 | | | | - | | | | 81 | | | | (97 | ) | | | (16 | ) | Realized gains/(losses) on investments | | | 157 | | | | 184 | | | | 62 | | | | 1 | | | | - | | | | 4 | | | | 3 | | | | - | | | | - | | | | 413 | | | | (5 | ) | | | 408 | | Impairment charges | | | (37 | ) | | | (3 | ) | | | - | | | | (2 | ) | | | - | | | | (1 | ) | | | - | | | | (3 | ) | | | - | | | | (46 | ) | | | (0 | ) | | | (46 | ) | Impairment reversals | | | 22 | | | | 10 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 32 | | | | - | | | | 32 | | Other income/(charges) | | | (353 | ) | | | 296 | | | | 40 | | | | - | | | | - | | | | (19 | ) | | | (49 | ) | | | 16 | | | | - | | | | (68 | ) | | | (4 | ) | | | (72 | ) | Run-off businesses | | | 30 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 30 | | | | - | | | | 30 | | Income/(loss) before tax | | | 1,370 | | | | 1,013 | | | | 137 | | | | 66 | | | | 4 | | | | 33 | | | | 90 | | | | (134 | ) | | | - | | | | 2,580 | | | | (45 | ) | | | 2,536 | | Income tax (expense)/benefit | | | 198 | | | | (196 | ) | | | (56 | ) | | | (9 | ) | | | (6 | ) | | | (28 | ) | | | (42 | ) | | | 29 | | | | - | | | | (110 | ) | | | 44 | | | | (65 | ) | Net income/(loss) | | | 1,568 | | | | 818 | | | | 81 | | | | 57 | | | | (2 | ) | | | 5 | | | | 48 | | | | (105 | ) | | | - | | | | 2,470 | | | | (0 | ) | | | 2,470 | | Inter-segmentunderlying earnings | | | (78 | ) | | | (111 | ) | | | (87 | ) | | | (11 | ) | | | (1 | ) | | | (1 | ) | | | 214 | | | | 73 | | | | | | | | | | | | | | | | | | Revenues 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Life insurance gross premiums | | | 7,437 | | | | 1,857 | | | | 9,603 | | | | 411 | | | | 208 | | | | 983 | | | | - | | | | 7 | | | | (9 | ) | | | 20,498 | | | | (546 | ) | | | 19,952 | | Accident and health insurance | | | 2,115 | | | | 203 | | | | 32 | | | | 1 | | | | 83 | | | | 97 | | | | - | | | | - | | | | - | | | | 2,531 | | | | (20 | ) | | | 2,511 | | General insurance | | | - | | | | 148 | | | | - | | | | 216 | | | | 103 | | | | - | | | | - | | | | 1 | | | | (1 | ) | | | 466 | | | | (103 | ) | | | 363 | | Total gross premiums | | | 9,553 | | | | 2,208 | | | | 9,635 | | | | 628 | | | | 394 | | | | 1,080 | | | | - | | | | 8 | | | | (10 | ) | | | 23,496 | | | | (670 | ) | | | 22,826 | | Investment income | | | 3,368 | | | | 2,172 | | | | 1,517 | | | | 49 | | | | 37 | | | | 246 | | | | 4 | | | | 295 | | | | (291 | ) | | | 7,396 | | | | (58 | ) | | | 7,338 | | Fee and commission income | | | 1,919 | | | | 326 | | | | 235 | | | | 43 | | | | 17 | | | | 63 | | | | 609 | | | | - | | | | (222 | ) | | | 2,990 | | | | (188 | ) | | | 2,802 | | Other revenues | | | 5 | | | | - | | | | - | | | | - | | | | 3 | | | | 1 | | | | - | | | | 4 | | | | - | | | | 13 | | | | (5 | ) | | | 7 | | Total revenues | | | 14,844 | | | | 4,706 | | | | 11,387 | | | | 720 | | | | 450 | | | | 1,390 | | | | 613 | | | | 308 | | | | (523 | ) | | | 33,895 | | | | (921 | ) | | | 32,973 | | Inter-segment revenues | | | - | | | | (1 | ) | | | - | | | | - | | | | - | | | | 3 | | | | 222 | | | | 298 | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 210218 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 5 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Income statement – Underlying earnings | | 
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| | 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Underlying earnings before tax | | | 1,249 | | | | 534 | | | | 59 | | | | 55 | | | | 8 | | | | 21 | | | | 149 | | | | (162 | ) | | | - | | | | 1,913 | | | | 48 | | | | 1,960 | | Fair value items | | | (521 | ) | | | (228 | ) | | | (7 | ) | | | - | | | | (1 | ) | | | (9 | ) | | | - | | | | (74 | ) | | | - | | | | (840 | ) | | | (72 | ) | | | (912 | ) | Realized gains/(losses) on investments | | | (13 | ) | | | 189 | | | | 153 | | | | - | | | | (1 | ) | | | 8 | | | | 3 | | | | - | | | | - | | | | 340 | | | | (6 | ) | | | 334 | | Impairment charges | | | (72 | ) | | | (29 | ) | | | - | | | | 1 | | | | - | | | | (1 | ) | | | (5 | ) | | | (7 | ) | | | - | | | | (113 | ) | | | - | | | | (112 | ) | Impairment reversals | | | 42 | | | | 17 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1 | ) | | | 58 | | | | - | | | | 58 | | Other income/(charges) | | | (100 | ) | | | 44 | | | | (678 | ) | | | (23 | ) | | | (0 | ) | | | (5 | ) | | | (2 | ) | | | (6 | ) | | | - | | | | (771 | ) | | | - | | | | (771 | ) | Run-off businesses | | | 54 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 54 | | | | - | | | | 54 | | Income/(loss) before tax | | | 638 | | | | 526 | | | | (474 | ) | | | 34 | | | | 6 | | | | 14 | | | | 145 | | | | (249 | ) | | | (0 | ) | | | 641 | | | | (31 | ) | | | 610 | | Income tax (expense)/benefit | | | (80 | ) | | | (109 | ) | | | 18 | | | | (15 | ) | | | (8 | ) | | | (27 | ) | | | (48 | ) | | | 65 | | | | - | | | | (203 | ) | | | 31 | | | | (172 | ) | Net income/(loss) | | | 559 | | | | 418 | | | | (456 | ) | | | 19 | | | | (2 | ) | | | (13 | ) | | | 97 | | | | (183 | ) | | | (0 | ) | | | 438 | | | | - | | | | 438 | | Inter-segmentunderlying earnings | | | (194 | ) | | | (95 | ) | | | (87 | ) | | | (14 | ) | | | (1 | ) | | | 74 | | | | 234 | | | | 84 | | | | | | | | | | | | | | | | | | Revenues | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Life insurance gross premiums | | | 7,363 | | | | 2,015 | | | | 9,888 | | | | 399 | | | | 191 | | | | 1,121 | | | | - | | | | 6 | | | | (84 | ) | | | 20,898 | | | | (498 | ) | | | 20,400 | | Accident and health insurance | | | 2,204 | | | | 210 | | | | 36 | | | | 1 | | | | 73 | | | | 104 | | | | - | | | | (4 | ) | | | - | | | | 2,624 | | | | (15 | ) | | | 2,609 | | General insurance | | | - | | | | 266 | | | | - | | | | 179 | | | | 92 | | | | - | | | | - | | | | 5 | | | | (5 | ) | | | 536 | | | | (92 | ) | | | 444 | | Total gross premiums | | | 9,567 | | | | 2,491 | | | | 9,924 | | | | 578 | | | | 355 | | | | 1,225 | | | | - | | | | 7 | | | | (89 | ) | | | 24,058 | | | | (606 | ) | | | 23,453 | | Investment income | | | 3,717 | | | | 2,135 | | | | 1,661 | | | | 45 | | | | 45 | | | | 232 | | | | 3 | | | | 406 | | | | (403 | ) | | | 7,841 | | | | (54 | ) | | | 7,788 | | Fee and commission income | | | 1,651 | | | | 350 | | | | 95 | | | | 36 | | | | 14 | | | | 61 | | | | 632 | | | | - | | | | (242 | ) | | | 2,596 | | | | (188 | ) | | | 2,408 | | Other revenues | | | 4 | | | | - | | | | - | | | | - | | | | 2 | | | | - | | | | 1 | | | | 3 | | | | - | | | | 11 | | | | (4 | ) | | | 7 | | Total revenues | | | 14,940 | | | | 4,976 | | | | 11,680 | | | | 659 | | | | 416 | | | | 1,517 | | | | 636 | | | | 416 | | | | (734 | ) | | | 34,507 | | | | (852 | ) | | | 33,655 | | Inter-segment revenues | | | - | | | | 3 | | | | - | | | | - | | | | - | | | | 79 | | | | 243 | | | | 409 | | | | | | | | | | | | | | | | | |
The Group uses underlying earnings before tax in its segment reporting as an important indicator of its financial performance. The reconciliation of this measure to the income before tax is shown below. Aegon believes that underlying earnings before tax, together with the other information included in this report, provides a meaningful measure for the investing public to evaluate Aegon’s business relative to the businesses of its peers.
| | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 211 | | Notes to the consolidated financial statements Note 5 | | | |
The reconciliation from underlying earnings before tax to income before tax, being the most comparable IFRS measure, is presented in the table below. For those items that cannot be directly reconciled to the respective notes, the explanation is provided below the table.
| | | | | | | | | | | | | | | | | | | | Note | | | 2018 | | | 2017 | | | 2016 | | Underlying earnings before tax & excl. JVs/Assoc. | | | | | | | 2,074 | | | | 2,140 | | | | 1,913 | | Elimination of share in earnings of joint ventures and associates | | | | | | | 72 | | | | 61 | | | | 48 | | | | | | | Rental income | | | 7 | | | | (72 | ) | | | (61 | ) | | | - | | Dividend income | | | 7 | | | | 30 | | | | - | | | | - | | Recovered claims and benefits | | | 9 | | | | 2 | | | | - | | | | - | | Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives | | | 10 | | | | (295 | ) | | | (437 | ) | | | (783 | ) | Net fair value change on borrowings and other financial liabilities | | | 10 | | | | 6 | | | | - | | | | - | | Realized gains and losses on financial investments | | | 10 | | | | (92 | ) | | | 431 | | | | 327 | | Gains and (losses) on investments in real estate | | | 10 | | | | 261 | | | | 193 | | | | 70 | | Net fair value change of derivatives | | | 10 | | | | (67 | ) | | | (134 | ) | | | (277 | ) | Net foreign currency gains and (losses) | | | 10 | | | | (2 | ) | | | 5 | | | | 30 | | Realized gains and (losses) on repurchased debt | | | 10 | | | | 1 | | | | 1 | | | | 1 | | Other income | | | 11 | | | | 8 | | | | 540 | | | | 66 | | Change in valuation of liabilities for insurance contracts | | | 12 | | | | (341 | ) | | | (254 | ) | | | (144 | ) | Change in valuation of liabilities for investment contracts | | | 12 | | | | 13 | | | | (19 | ) | | | (18 | ) | Policyholder claims and benefits – Other | | | 12 | | | | (9 | ) | | | 34 | | | | 45 | | Commissions and expenses | | | 14 | | | | (428 | ) | | | 256 | | | | 75 | | Impairment (charges) reversals | | | 15 | | | | (20 | ) | | | (16 | ) | | | (97 | ) | Other charges | | | 17 | | | | (375 | ) | | | (235 | ) | | | (700 | ) | Run-off businesses | | | 5 | | | | (14 | ) | | | 30 | | | | 54 | | Income/(loss) before tax | | | | | | | 751 | | | | 2,534 | | | | 610 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Summarized assets and liabilities per segment | | Americas | | | The
Netherlands | | | United
Kingdom | | | Southern &
Eastern
Europe | | | Asia | | | Asset
Management | | | Holding and
other
activities | | | Eliminations | | | Total | | 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and Cash equivalents | | | 683 | | | | 6,004 | | | | 315 | | | | 148 | | | | 90 | | | | 213 | | | | 1,290 | | | | - | | | | 8,744 | | Investments | | | 71,056 | | | | 57,738 | | | | 2,114 | | | | 1,660 | | | | 5,720 | | | | 181 | | | | 157 | | | | - | | | | 138,625 | | Investments for account of policyholders | | | 95,343 | | | | 23,767 | | | | 73,958 | | | | 1,187 | | | | 103 | | | | - | | | | - | | | | (5 | ) | | | 194,353 | | Investments in joint ventures | | | 1 | | | | 1,001 | | | | - | | | | 472 | | | | 152 | | | | 119 | | | | - | | | | - | | | | 1,745 | | Investments in associates | | | 72 | | | | 85 | | | | 8 | | | | 5 | | | | 17 | | | | 131 | | | | 8 | | | | - | | | | 327 | | Deferred expenses | | | 9,209 | | | | 66 | | | | 896 | | | | 74 | | | | 665 | | | | - | | | | - | | | | - | | | | 10,910 | | Other assets1) | | | 27,782 | | | | 7,421 | | | | 1,893 | | | | 272 | | | | 1,907 | | | | 123 | | | | 27,258 | | | | (28,727 | ) | | | 37,928 | | Total assets | | | 204,145 | | | | 96,083 | | | | 79,184 | | | | 3,819 | | | | 8,654 | | | | 767 | | | | 28,713 | | | | (28,732 | ) | | | 392,632 | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Insurance contracts | | | 71,584 | | | | 34,878 | | | | 1,435 | | | | 1,339 | | | | 7,726 | | | | - | | | | 15 | | | | (1,648 | ) | | | 115,328 | | Insurance contracts for account of policyholders | | | 68,126 | | | | 23,855 | | | | 24,086 | | | | 1,022 | | | | 24 | | | | - | | | | - | | | | - | | | | 117,113 | | Investment contracts | | | 6,943 | | | | 10,795 | | | | 223 | | | | 85 | | | | 2 | | | | - | | | | - | | | | - | | | | 18,048 | | Investment contracts for account of policyholders | | | 27,217 | | | | 2,101 | | | | 50,532 | | | | 169 | | | | 79 | | | | - | | | | - | | | | - | | | | 80,097 | | Other liabilities | | | 17,055 | | | | 17,499 | | | | 1,047 | | | | 400 | | | | 67 | | | | 293 | | | | 6,156 | | | | (3,012 | ) | | | 39,505 | | Total liabilities | | | 190,924 | | | | 89,127 | | | | 77,322 | | | | 3,015 | | | | 7,898 | | | | 293 | | | | 6,171 | | | | (4,660 | ) | | | 370,091 | |
◆1 | | Net fair value change of general account financial investments at fair value through profit or loss, other than derivativesComparative figures have been reclassified to conform to the current year presentation as the elimination logic has changed. This reclassification is reportednot considered material as part of the respective line in Note 10 and reflects the over-or underperformance of investments and guarantees held at fair value for which the expected long-term returnthere is included in underlying earnings before tax. |
◆ | | Net fair value change of derivatives is reported as part of the respective line in Note 10 and includes: 1) the over-or underperformance of derivatives of EUR 3 million gain (2017: EUR 9 million gain, 2016: EUR 8 million gain) for which the expected long-term return is included in underlying earnings before tax; 2) Net fair value changeno effect on economic hedges where no hedge accounting is applied of EUR 77 million loss (2017: EUR 145 million loss, 2016: EUR 297 million loss); 3) Ineffective portion of hedge transactions to which hedge accounting is applied of EUR 7 million gain (2017: EUR 2 million gain, 2016: EUR 12 million gain). |
◆ | | Net foreign currency gains and (losses) are reported as part of the respective line in Note 10. |
◆ | | Change in valuation of liabilities for insurance contracts is reported as part of the respective line in Note 12. |
◆ | | Change in valuation of liabilities for investment contracts is reported as part of the respective line in Note 12. |
◆ | | Policyholder claims and benefits – Other are reported as part of the “Other” line in note 12 and is related to policyholder tax. |
◆ | | Commissions and expenses include: 1) Restructuring charges of EUR 279 million (2017: EUR 116 million charge, 2016: EUR 54 million charge) which are reported as part of Employee and Administration expenses lines in Note 14; 2) Amortization of deferred expenses of EUR 67 million loss (2017: gain of EUR 285 million, 2016: gain of EUR 137 million) which is reported as part of the respective line in Note 14. This is offset against realized gains and losses and impairments on financial investments; 3) Amortization of VOBA and future servicing rights of EUR 20 million loss (2017: gain of EUR 94 million; 2016: charge of EUR 8 million) which is reported as part of the respective line in Note 14. Commissions and expenses include a DPAC/VOBA fair value adjustment of EUR 88 million loss (2017: gain of EUR 135 million; 2016: gain of EUR 105 million). |
◆ | | Impairment (charges) reversals include: 1) Impairment charges and reversals on financial assets, excluding receivables of EUR 41 million charge (2017: EUR charge of 42 million , 2016: charge of EUR 59 million) as shown in Note 15; 2) Impairment charges and reversals onnon-financial assets and receivables of EUR 19 million loss (2017: EUR 1 million gain; 2016: EUR 38 million charge) reported as part of the respective line in Note 15. |
◆ | | There are no interest charges and related fees that are classified for segment reporting purposes asnon-underlying earnings.consolidated group figures. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F2018 | | |
| | | 212 | | Notes to the consolidated financial statements20-F Note 52019 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Other selected income
statement items
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| | 2018
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortization of deferred expenses, VOBA and future servicing rights
| | | 852 | | | | 25 | | | | 119 | | | | 52 | | | | - | | | | 24 | | | | - | | | | - | | | | - | | | | 1,072 | | Depreciation
| | | 38 | | | | 12 | | | | 14 | | | | 9 | | | | 3 | | | | 1 | | | | 1 | | | | 2 | | | | - | | | | 80 | | Impairment charges/(reversals) on financial assets, excluding receivables
| | | (9 | ) | | | 34 | | | | - | | | | 1 | | | | - | | | | 5 | | | | - | | | | 9 | | | | - | | | | 41 | | Impairment charges/(reversals) onnon- financial assets and receivables
| | | 19 | | | | 15 | | | | 1 | | | | - | | | | - | | | | 1 | | | | - | | | | - | | | | - | | | | 36 | | | | | | | | | | | | | 2017
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortization of deferred expenses, VOBA and future servicing rights
| | | 336 | | | | 27 | | | | 134 | | | | 55 | | | | - | | | | 33 | | | | - | | | | - | | | | - | | | | 586 | | Depreciation
| | | 44 | | | | 16 | | | | 28 | | | | 8 | | | | 3 | | | | 1 | | | | 3 | | | | 2 | | | | - | | | | 105 | | Impairment charges/(reversals) on financial assets, excluding receivables
| | | 19 | | | | 17 | | | | - | | | | 2 | | | | - | | | | - | | | | - | | | | 3 | | | | - | | | | 42 | | Impairment charges/(reversals) onnon- financial assets and receivables
| | | (2 | ) | | | 3 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | | | 2016
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortization of deferred expenses, VOBA and future servicing rights
| | | 761 | | | | 32 | | | | 177 | | | | 59 | | | | - | | | | 32 | | | | - | | | | - | | | | 2 | | | | 1,065 | | Depreciation
| | | 38 | | | | 17 | | | | 21 | | | | 9 | | | | 3 | | | | 1 | | | | - | | | | 2 | | | | - | | | | 89 | | Impairment charges/(reversals) on financial assets, excluding receivables
| | | 35 | | | | 12 | | | | - | | | | (1 | ) | | | - | | | | 1 | | | | 5 | | | | 7 | | | | - | | | | 59 | | Impairment charges/(reversals) onnon- financial assets and receivables
| | | 7 | | | | (2 | ) | | | 31 | | | | (1 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | 36 | | | | | | | | | | | | | Number of employees219 | | | | Consolidated financial statements of Aegon N.V.Note 5 | 
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| | 2018
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of employees – headcount
| | | | | | | 8,824 | | | | 3,548 | | | | 3,135 | | | | 2,318 | | | | 519 | | | | 6,344 | | | | 1,464 | | | | 390 | | | | 26,543 | | Of which Aegon’s share of employees in joint ventures and associates
| | | | | | | 559 | | | | - | | | | 58 | | | | - | | | | 86 | | | | 5,983 | | | | 168 | | | | - | | | | 6,854 | | | | | | | | | | | | | 2017
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of employees – headcount
| | | | | | | 10,951 | | | | 3,089 | | | | 3,435 | | | | 2,337 | | | | 610 | | | | 6,025 | | | | 1,500 | | | | 371 | | | | 28,318 | | Of which Aegon’s share of employees in joint ventures and associates
| | | | | | | 549 | | | | - | | | | - | | | | - | | | | 83 | | | | 5,702 | | | | 163 | | | | - | | | | 6,497 | | | | | | | | | | | | | 2016
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Number of employees – headcount
| | | | | | | 11,943 | | | | 4,464 | | | | 2,673 | | | | 2,317 | | | | 600 | | | | 5,579 | | | | 1,474 | | | | 330 | | | | 29,380 | | Of which Aegon’s share of employees in joint ventures and associates
| | | | | | | 561 | | | | - | | | | - | | | | - | | | | 41 | | | | 5,186 | | | | 156 | | | | - | | | | 5,944 | |
| | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 213 | | Notes to the consolidated financial statements Note 5 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Summarized assets and liabilities per segment | | 
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| | 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and Cash equivalents | | | 683 | | | | 6,004 | | | | 315 | | | | 68 | | | | 80 | | | | 90 | | | | 213 | | | | 1,290 | | | | - | | | | 8,744 | | Assets held for sale | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Investments | | | 71,056 | | | | 57,738 | | | | 2,114 | | | | 933 | | | | 727 | | | | 5,720 | | | | 181 | | | | 157 | | | | - | | | | 138,625 | | Investments for account of policyholders | | | 95,343 | | | | 23,767 | | | | 73,958 | | | | 1,088 | | | | 99 | | | | 103 | | | | - | | | | - | | | | (5 | ) | | | 194,353 | | Investments in joint ventures | | | 1 | | | | 1,001 | | | | - | | | | - | | | | 472 | | | | 152 | | | | 119 | | | | - | | | | - | | | | 1,745 | | Investments in associates | | | 72 | | | | 85 | | | | 8 | | | | 5 | | | | - | | | | 17 | | | | 131 | | | | 8 | | | | - | | | | 327 | | Deferred expenses | | | 9,209 | | | | 66 | | | | 896 | | | | 74 | | | | 1 | | | | 665 | | | | - | | | | - | | | | - | | | | 10,910 | | Other assets | | | 27,893 | | | | 7,421 | | | | 1,893 | | | | 210 | | | | 62 | | | | 1,907 | | | | 123 | | | | 27,284 | | | | (28,864 | ) | | | 37,928 | | Total assets | | | 204,257 | | | | 96,083 | | | | 79,184 | | | | 2,378 | | | | 1,441 | | | | 8,654 | | | | 767 | | | | 28,738 | | | | (28,869 | ) | | | 392,633 | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Insurance contracts | | | 71,584 | | | | 34,844 | | | | 1,435 | | | | 657 | | | | 681 | | | | 7,726 | | | | - | | | | 15 | | | | (1,648 | ) | | | 115,294 | | Insurance contracts for account of policyholders | | | 68,126 | | | | 23,855 | | | | 24,086 | | | | 919 | | | | 103 | | | | 24 | | | | - | | | | - | | | | - | | | | 117,113 | | Investment contracts | | | 6,943 | | | | 10,795 | | | | 223 | | | | 85 | | | | - | | | | 2 | | | | - | | | | - | | | | - | | | | 18,048 | | Investment contracts for account of policyholders | | | 27,217 | | | | 2,101 | | | | 50,532 | | | | 169 | | | | - | | | | 79 | | | | - | | | | - | | | | - | | | | 80,097 | | Liabilities held for sale | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | Other liabilities | | | 17,055 | | | | 17,507 | | | | 1,047 | | | | 170 | | | | 231 | | | | 67 | | | | 293 | | | | 6,156 | | | | (3,012 | ) | | | 39,513 | | Total liabilities | | | 190,924 | | | | 89,102 | | | | 77,322 | | | | 2,000 | | | | 1,015 | | | | 7,898 | | | | 293 | | | | 6,171 | | | | (4,660 | ) | | | 370,065 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Summarized assets and
liabilities per segment | | 
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| | 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash and Cash equivalents | | | 548 | | | | 8,382 | | | | 317 | | | | 67 | | | | 116 | | | | 71 | | | | 141 | | | | 1,125 | | | | - | | | | 10,768 | | Assets held for sale | | | - | | | | - | | | | 5,249 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 5,249 | | Investments | | | 73,469 | | | | 53,975 | | | | 2,011 | | | | 1,055 | | | | 720 | | | | 5,326 | | | | 157 | | | | 91 | | | | - | | | | 136,804 | | Investments for account of policyholders | | | 102,964 | | | | 26,697 | | | | 62,961 | | | | 1,343 | | | | 105 | | | | - | | | | - | | | | - | | | | (6 | ) | | | 194,063 | | Investments in joint ventures | | | 6 | | | | 1,008 | | | | - | | | | - | | | | 480 | | | | 118 | | | | 99 | | | | 1 | | | | - | | | | 1,712 | | Investments in associates | | | 77 | | | | 74 | | | | 7 | | | | 6 | | | | - | | | | 14 | | | | 122 | | | | 8 | | | | - | | | | 308 | | Deferred expenses | | | 8,552 | | | | 76 | | | | 945 | | | | 70 | | | | 1 | | | | 490 | | | | - | | | | - | | | | - | | | | 10,135 | | Other assets | | | 26,628 | | | | 6,763 | | | | 1,840 | | | | 245 | | | | 72 | | | | 1,786 | | | | 101 | | | | 28,427 | | | | (28,979 | ) | | | 36,883 | | Total assets | | | 212,245 | | | | 96,975 | | | | 73,331 | | | | 2,787 | | | | 1,494 | | | | 7,805 | | | | 620 | | | | 29,651 | | | | (28,985 | ) | | | 395,923 | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Insurance contracts | | | 68,556 | | | | 34,379 | | | | 1,451 | | | | 624 | | | | 703 | | | | 6,696 | | | | - | | | | 24 | | | | (1,615 | ) | | | 110,818 | | Insurance contracts for account of policyholders | | | 72,501 | | | | 25,587 | | | | 22,862 | | | | 1,109 | | | | 108 | | | | - | | | | - | | | | - | | | | - | | | | 122,168 | | Investment contracts | | | 6,824 | | | | 9,787 | | | | 278 | | | | 52 | | | | - | | | | 2 | | | | - | | | | - | | | | - | | | | 16,943 | | Investment contracts for account of policyholders | | | 30,463 | | | | 3,255 | | | | 40,482 | | | | 234 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 74,434 | | Liabilities held for sale | | | - | | | | - | | | | 5,003 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 5,003 | | Other liabilities | | | 19,145 | | | | 17,400 | | | | 1,103 | | | | 365 | | | | 250 | | | | 133 | | | | 218 | | | | 5,526 | | | | (1,684 | ) | | | 42,456 | | Total liabilities | | | 197,490 | | | | 90,408 | | | | 71,178 | | | | 2,385 | | | | 1,061 | | | | 6,830 | | | | 218 | | | | 5,550 | | | | (3,299 | ) | | | 371,821 | |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 214 | | Notes to the consolidated financial statements Note 5 | | | |
Amounts included in the tables on investments are presented on an IFRS basis, which means that investments in joint ventures and associates are not consolidated on a proportionate basis. Instead, these investments are included on a single line using the equity method of accounting. | Investments | | |  | | | | | | | |  | | | |  | | | |  | | | |  | | | |  | | | |  | | | |  | | | |  | | | Americas | | | The
Netherlands | | | United Kingdom | | | Southern &
Eastern
Europe | | | Asia | | | Asset
Management | | | Holding and
other
activities | | | Eliminations | | | Total | | 2018 | | | | | | | | | | | | | | | | | | | | | 2019 | | | | | | | | | | | | | | | | | | | | Shares | | | 532 | | | | 1,412 | | | | 3 | | | | 64 | | | | 10 | | | | 7 | | | | 4 | | | | 128 | | | | - | | | 2,161 | | | | 499 | | | | 1,443 | | | | 17 | | | | 74 | | | | 11 | | | | 5 | | | | 173 | | | | - | | | | 2,221 | | Debt securities | | | 51,681 | | | | 21,586 | | | | 1,005 | | | | 754 | | | | 662 | | | | 5,526 | | | | 36 | | | | 3 | | | | - | | | 81,253 | | | | 54,970 | | | | 22,773 | | | | 1,055 | | | | 1,497 | | | | 6,465 | | | | 93 | | | | 1 | | | | - | | | | 86,853 | | Loans | | | 9,945 | | | | 32,536 | | | | - | | | | 106 | | | | 37 | | | | 16 | | | | - | | | | 12 | | | | - | | | 42,653 | | | | 10,922 | | | | 33,460 | | | | - | | | | 118 | | | | 42 | | | | - | | | | 48 | | | | - | | | | 44,591 | | Other financial assets | | | 8,367 | | | | 54 | | | | 1,105 | | | | 5 | | | | - | | | | 170 | | | | 142 | | | | 14 | | | | - | | | 9,858 | | | | 8,032 | | | | 78 | | | | 962 | | | | 3 | | | | 145 | | | | 168 | | | | 21 | | | | - | | | | 9,410 | | Investments in real estate | | | 530 | | | | 2,150 | | | | - | | | | 4 | | | | 17 | | | | - | | | | - | | | | - | | | | - | | | 2,700 | | | | 653 | | | | 2,229 | | | | - | | | | 19 | | | | - | | | | - | | | | - | | | | - | | | | 2,901 | | Investments general account | | | 71,056 | | | | 57,738 | | | | 2,114 | | | | 933 | | | | 727 | | | | 5,720 | | | | 181 | | | | 157 | | | | - | | | 138,625 | | | | 75,076 | | | | 59,983 | | | | 2,034 | | | | 1,711 | | | | 6,662 | | | | 266 | | | | 244 | | | | - | | | | 145,976 | | | Shares | | | - | | | | 7,403 | | | | 13,044 | | | | 184 | | | | 14 | | | | - | | | | - | | | | - | | | | (5 | ) | | 20,640 | | | | - | | | | 8,490 | | | | 16,583 | | | | 218 | | | | - | | | | - | | | | - | | | | (4 | ) | | | 25,288 | | Debt securities | | | 1,716 | | | | 11,283 | | | | 7,259 | | | | 176 | | | | 7 | | | | - | | | | - | | | | - | | | | - | | | 20,441 | | | | 877 | | | | 11,652 | | | | 8,043 | | | | 173 | | | | - | | | | - | | | | - | | | | - | | | | 20,744 | | Unconsolidated investment funds | | | 93,548 | | | | 1,059 | | | | 48,296 | | | | 717 | | | | 78 | | | | 103 | | | | - | | | | - | | | | - | | | 143,800 | | | | 106,926 | | | | 695 | | | | 61,738 | | | | 598 | | | | 82 | | | | - | | | | - | | | | - | | | | 170,039 | | Other financial assets | | | 79 | | | | 4,022 | | | | 4,748 | | | | 11 | | | | - | | | | - | | | | - | | | | - | | | | - | | | 8,861 | | | | 161 | | | | 4,653 | | | | 4,898 | | | | 4 | | | | - | | | | - | | | | - | | | | - | | | | 9,716 | | Investments in real estate | | | - | | | | - | | | | 612 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | 612 | | | | - | | | | - | | | | 586 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 586 | | | Investments for account of policyholders | | | 95,343 | | | | 23,767 | | | | 73,958 | | | | 1,088 | | | | 99 | | | | 103 | | | | - | | | | - | | | | (5 | ) | | 194,353 | | | | 107,963 | | | | 25,491 | | | | 91,848 | | | | 994 | | | | 82 | | | | - | | | | - | | | | (4 | ) | | | 226,374 | | | Investments on balance sheet | | | 166,399 | | | | 81,505 | | | | 76,072 | | | | 2,021 | | | | 826 | | | | 5,823 | | | | 181 | | | | 157 | | | | (5 | ) | | 332,979 | | | | 183,039 | | | | 85,474 | | | | 93,882 | | | | 2,704 | | | | 6,745 | | | | 266 | | | | 244 | | | | (4 | ) | | | 372,350 | | Off-balance sheet investments third parties | | | 204,184 | | | | 3,339 | | | | 106,347 | | | | 5,360 | | | | 491 | | | | 2,818 | | | | 149,197 | | | | - | | | | (774 | ) | | 470,963 | | | | 220,039 | | | | 4,802 | | | | 123,904 | | | | 5,461 | | | | 1,001 | | | | 170,158 | | | | - | | | | (818 | ) | | | 524,547 | | | Total revenue-generating investments | | | 370,583 | | | | 84,844 | | | | 182,419 | | | | 7,381 | | | | 1,317 | | | | 8,641 | | | | 149,378 | | | | 157 | | | | (778 | ) | | 803,942 | | | | 403,078 | | | | 90,276 | | | | 217,786 | | | | 8,166 | | | | 7,746 | | | | 170,424 | | | | 244 | | | | (822 | ) | | | 896,897 | | | | | | Investments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale | | | 55,921 | | | | 19,974 | | | | 1,459 | | | | 810 | | | | 673 | | | | 5,686 | | | | 131 | | | | 21 | | | | - | | | 84,675 | | | | 59,899 | | | | 19,591 | | | | 1,556 | | | | 1,570 | | | | 6,602 | | | | 153 | | | | 32 | | | | - | | | | 89,404 | | Loans | | | 9,945 | | | | 32,536 | | | | - | | | | 106 | | | | 37 | | | | 16 | | | | - | | | | 12 | | | | - | | | 42,653 | | | | 10,922 | | | | 33,460 | | | | - | | | | 118 | | | | 42 | | | | - | | | | 48 | | | | - | | | | 44,591 | | Financial assets at fair value through profit or loss | | | 100,002 | | | | 26,846 | | | | 74,001 | | | | 1,101 | | | | 99 | | | | 121 | | | | 50 | | | | 123 | | | | (5 | ) | | 202,339 | | | | 111,565 | | | | 30,193 | | | | 91,740 | | | | 997 | | | | 100 | | | | 113 | | | | 164 | | | | (4 | ) | | | 234,867 | | Investments in real estate | | | 530 | | | | 2,150 | | | | 612 | | | | 4 | | | | 17 | | | | - | | | | - | | | | - | | | | - | | | 3,312 | | | | 653 | | | | 2,229 | | | | 586 | | | | 19 | | | | - | | | | - | | | | - | | | | - | | | | 3,487 | | | Total investments on balance sheet | | | 166,399 | | | | 81,505 | | | | 76,072 | | | | 2,021 | | | | 826 | | | | 5,823 | | | | 181 | | | | 157 | | | | (5 | ) | | 332,979 | | | | 183,039 | | | | 85,474 | | | | 93,882 | | | | 2,704 | | | | 6,745 | | | | 266 | | | | 244 | | | | (4 | ) | | | 372,350 | | | Investments in joint ventures | | | 1 | | | | 1,001 | | | | - | | | | - | | | | 472 | | | | 152 | | | | 119 | | | | - | | | | - | | | 1,745 | | | | - | | | | 1,159 | | | | - | | | | 476 | | | | 192 | | | | 153 | | | | 3 | | | | - | | | | 1,983 | | Investments in associates | | | 72 | | | | 85 | | | | 8 | | | | 5 | | | | - | | | | 17 | | | | 131 | | | | 8 | | | | - | | | 327 | | | | 79 | | | | 106 | | | | 9 | | | | - | | | | 28 | | | | 129 | | | | 21 | | | | (10 | ) | | | 363 | | Other assets | | | 37,786 | | | | 13,491 | | | | 3,104 | | | | 352 | | | | 143 | | | | 2,662 | | | | 336 | | | | 28,573 | | | | (28,864 | ) | | 57,582 | | | | 36,899 | | | | 21,983 | | | | 3,764 | | | | 468 | | | | 2,483 | | | | 292 | | | | 32,611 | | | | (32,848 | ) | | | 65,652 | | | Consolidated total assets | | | 204,257 | | | | 96,083 | | | | 79,184 | | | | 2,378 | | | | 1,441 | | | | 8,654 | | | | 767 | | | | 28,738 | | | | (28,869 | ) | | 392,633 | | | | 220,017 | | | | 108,722 | | | | 97,655 | | | | 3,648 | | | | 9,448 | | | | 840 | | | | 32,879 | | | | (32,862 | ) | | | 440,348 | |
| 1 | Due to the announced divestment of Aegon’s 50% stake in the joint venture with Sony Life, Revenue Generating Investments of Japan are no longer included in 2019.Off-balance investments for Japan amount to EUR 2.3 billion per December 31, 2019. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 215220 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 56 | | | | | | | | | | | |
| | Investments | | 
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| | | Americas | | | The Netherlands | | | United
Kingdom | | | Southern &
Eastern
Europe | | | Asia | | | Asset Management | | | Holding and
other
activities | | | Eliminations | | | Total | | 2017 | | | 2018 | | | | | | | | | | | | | | | | | | | | Shares | | 567 | | | 859 | | | 5 | | | 54 | | | 5 | | | 1 | | | 2 | | | 57 | | | | - | | | 1,551 | | | | 532 | | | | 1,412 | | | | 3 | | | | 74 | | | | 7 | | | | 4 | | | | 128 | | | | - | | | | 2,161 | | Debt securities | | 54,535 | | | 21,411 | | | 1,779 | | | 712 | | | 646 | | | 5,252 | | | 9 | | | | - | | | | - | | | 84,344 | | | | 51,681 | | | | 21,586 | | | | 1,005 | | | | 1,417 | | | | 5,526 | | | | 36 | | | | 3 | | | | - | | | | 81,253 | | Loans | | 8,831 | | | 30,189 | | | | - | | | 275 | | | 54 | | | 6 | | | | - | | | 13 | | | | - | | | 39,368 | | | | 9,945 | | | | 32,536 | | | | - | | | | 143 | | | | 16 | | | | - | | | | 12 | | | | - | | | | 42,653 | | Other financial assets | | 8,904 | | | 21 | | | 228 | | | 10 | | | | - | | | 67 | | | 146 | | | 20 | | | | - | | | 9,395 | | | | 8,367 | | | | 54 | | | | 1,105 | | | | 5 | | | | 170 | | | | 142 | | | | 14 | | | | - | | | | 9,858 | | Investments in real estate | | 633 | | | 1,495 | | | | - | | | 4 | | | 15 | | | | - | | | | - | | | | - | | | | - | | | 2,147 | | | | 530 | | | | 2,150 | | | | - | | | | 21 | | | | - | | | | - | | | | - | | | | - | | | | 2,700 | | Investments general account | | 73,469 | | | 53,975 | | | 2,011 | | | 1,055 | | | 720 | | | 5,326 | | | 157 | | | 91 | | | | - | | | 136,804 | | | | 71,056 | | | | 57,738 | | | | 2,114 | | | | 1,660 | | | | 5,720 | | | | 181 | | | | 157 | | | | - | | | | 138,625 | | | Shares | | | - | | | 9,262 | | | 15,856 | | | 244 | | | 14 | | | | - | | | | - | | | | - | | | (6 | ) | | 25,370 | | | | - | | | | 7,403 | | | | 13,044 | | | | 198 | | | | - | | | | - | | | | - | | | | (5 | ) | | | 20,640 | | Debt securities | | 3,116 | | | 13,370 | | | 8,125 | | | 216 | | | 9 | | | | - | | | | - | | | | - | | | | - | | | 24,836 | | | | 1,716 | | | | 11,283 | | | | 7,259 | | | | 183 | | | | - | | | | - | | | | - | | | | - | | | | 20,441 | | Unconsolidated investment funds | | 99,426 | | | 276 | | | 33,476 | | | 873 | | | 81 | | | | - | | | | - | | | | - | | | | - | | | 134,132 | | | | 93,548 | | | | 1,059 | | | | 48,296 | | | | 795 | | | | 103 | | | | - | | | | - | | | | - | | | | 143,800 | | Other financial assets | | 422 | | | 3,788 | | | 4,850 | | | 11 | | | 1 | | | | - | | | | - | | | | - | | | | - | | | 9,072 | | | | 79 | | | | 4,022 | | | | 4,748 | | | | 11 | | | | - | | | | - | | | | - | | | | - | | | | 8,861 | | Investments in real estate | | | - | | | | - | | | 655 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | 655 | | | | - | | | | - | | | | 612 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 612 | | Investments for account of policyholders | | 102,964 | | | 26,697 | | | 62,961 | | | 1,343 | | | 105 | | | | - | | | | - | | | | - | | | (6 | ) | | 194,063 | | | | 95,343 | | | | 23,767 | | | | 73,958 | | | | 1,187 | | | | 103 | | | | - | | | | - | | | | (5 | ) | | | 194,353 | | | Investments on balance sheet | | 176,434 | | | 80,672 | | | 64,972 | | | 2,398 | | | 825 | | | 5,326 | | | 157 | | | 91 | | | (6 | ) | | 330,868 | | | | 166,399 | | | | 81,505 | | | | 76,072 | | | | 2,847 | | | | 5,823 | | | | 181 | | | | 157 | | | | (5 | ) | | | 332,979 | | Off-balance sheet investments third parties | | 212,736 | | | 1,759 | | | 114,906 | | | 5,709 | | | 528 | | | 2,718 | | | 143,923 | | | | - | | | (981 | ) | | 481,297 | | | | 204,184 | | | | 3,339 | | | | 106,347 | | | | 5,851 | | | | 2,818 | | | | 149,197 | | | | - | | | | (774 | ) | | | 470,963 | | Total revenue-generating investments | | 389,170 | | | 82,431 | | | 179,878 | | | 8,107 | | | 1,353 | | | 8,043 | | | 144,079 | | | 91 | | | (987 | ) | | 812,165 | | | | 370,583 | | | | 84,844 | | | | 182,419 | | | | 8,698 | | | | 8,641 | | | | 149,378 | | | | 157 | | | | (778 | ) | | | 803,942 | | | | | | Investments | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale | | 59,459 | | | 19,841 | | | 2,007 | | | 756 | | | 651 | | | 5,299 | | | 137 | | | 20 | | | | - | | | 88,170 | | | | 55,921 | | | | 19,974 | | | | 1,459 | | | | 1,483 | | | | 5,686 | | | | 131 | | | | 21 | | | | - | | | | 84,675 | | Loans | | 8,831 | | | 30,189 | | | | - | | | 275 | | | 54 | | | 6 | | | | - | | | 13 | | | | - | | | 39,368 | | | | 9,945 | | | | 32,536 | | | | - | | | | 143 | | | | 16 | | | | - | | | | 12 | | | | - | | | | 42,653 | | Financial assets at fair value through profit or loss | | 107,511 | | | 29,147 | | | 62,310 | | | 1,363 | | | 105 | | | 21 | | | 20 | | | 57 | | | (6 | ) | | 200,528 | | | | 100,002 | | | | 26,846 | | | | 74,001 | | | | 1,200 | | | | 121 | | | | 50 | | | | 123 | | | | (5 | ) | | | 202,339 | | Investments in real estate | | 633 | | | 1,495 | | | 655 | | | 4 | | | 15 | | | | - | | | | - | | | | - | | | | - | | | 2,801 | | | | 530 | | | | 2,150 | | | | 612 | | | | 21 | | | | - | | | | - | | | | - | | | | - | | | | 3,312 | | Total investments on balance sheet | | 176,434 | | | 80,672 | | | 64,972 | | | 2,398 | | | 825 | | | 5,326 | | | 157 | | | 91 | | | (6 | ) | | 330,868 | | | | 166,399 | | | | 81,505 | | | | 76,072 | | | | 2,847 | | | | 5,823 | | | | 181 | | | | 157 | | | | (5 | ) | | | 332,979 | | | Investments in joint ventures | | 6 | | | 1,008 | | | | - | | | | - | | | 480 | | | 118 | | | 99 | | | 1 | | | | - | | | 1,712 | | | | 1 | | | | 1,001 | | | | - | | | | 472 | | | | 152 | | | | 119 | | | | - | | | | - | | | | 1,745 | | Investments in associates | | 77 | | | 74 | | | 7 | | | 6 | | | | - | | | 14 | | | 122 | | | 8 | | | | - | | | 308 | | | | 72 | | | | 85 | | | | 8 | | | | 5 | | | | 17 | | | | 131 | | | | 8 | | | | - | | | | 327 | | Other assets | | 35,728 | | | 15,221 | | | 8,352 | | | 383 | | | 189 | | | 2,347 | | | 242 | | | 29,552 | | | (28,979 | ) | | 63,034 | | | Other assets1) | | | | 37,674 | | | | 13,491 | | | | 3,104 | | | | 494 | | | | 2,662 | | | | 336 | | | | 28,548 | | | | (28,727 | ) | | | 57,582 | | Consolidated total assets | | 212,245 | | | 96,975 | | | 73,331 | | | 2,787 | | | 1,494 | | | 7,805 | | | 620 | | | 29,651 | | | (28,985 | ) | | 395,923 | | | | 204,145 | | | | 96,083 | | | | 79,184 | | | | 3,819 | | | | 8,654 | | | | 767 | | | | 28,713 | | | | (28,732 | ) | | | 392,633 | |
| 1 | Comparative figures have been reclassified to conform to the current year presentation as the elimination logic has changed. This reclassification is not considered material as there is no effect on consolidated group figures. |
6 Premium income and premiums paid to reinsurers | | | | | | | | | | | | | | | | 2019 | | | 2018 | | | 2017 | | Life insurance | | | 15,926 | | | | 16,969 | | | | 19,952 | | Non-life insurance | | | 2,212 | | | | 2,346 | | | | 2,874 | | Total premium income | | | 18,138 | | | | 19,316 | | | | 22,826 | | | | | | - Accident and health insurance | | | 1,823 | | | | 1,979 | | | | 2,511 | | - General insurance | | | 390 | | | | 367 | | | | 363 | | Non-life insurance premium income | | | 2,212 | | | | 2,346 | | | | 2,874 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 216221 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 67 | | | | | | | | | | | |
6 Premium income and premiums paid to reinsurers
| | | | | | | | | | | | | | | | 2018 | | | 2017 | | | 2016 | | Life insurance | | | 16,969 | | | | 19,952 | | | | 20,400 | | Non-life insurance | | | 2,346 | | | | 2,874 | | | | 3,053 | | Total premium income | | | 19,316 | | | | 22,826 | | | | 23,453 | | | | | | - Accident and health insurance | | | 1,979 | | | | 2,511 | | | | 2,609 | | - General insurance | | | 367 | | | | 363 | | | | 444 | | Non-life insurance premium income | | | 2,346 | | | | 2,874 | | | | 3,053 | | | | | | | | | | | | | | | | | | | | | | 2018 | | | 2017 | | | 2016 | | Life insurance | | | 2,500 | | | | 3,214 | | | | 2,932 | | Non-life insurance | | | 163 | | | | 217 | | | | 244 | | Total premiums paid to reinsurers | | | 2,663 | | | | 3,431 | | | | 3,176 | | | | | | - Accident and health insurance | | | 152 | | | | 205 | | | | 238 | | - General insurance | | | 11 | | | | 13 | | | | 7 | | Non-life insurance paid to reinsurers | | | 163 | | | | 217 | | | | 244 | |
Premium income decreased by EUR 3,5101,178 million in 2018 (2017:2019 (2018: EUR 6273,510 million) mainly driven by a reduction of upgraded Life insurance policies to the retirement platform in the UK, which represents EUR 1,777 million (2018: EUR 3,439 million (2017:million; 2017: EUR 5,139 million; 2016: EUR 5,255 million) of total premium income Life insurance. In addition, there is a negative impact onNon-life insurance from product exits in the US and currency translation adjustments.
The decrease of EUR 714 million in Premium paid to reinsurers Life in 2018 is mainly due to the divestment of annuity businesses in Americas and the United Kingdom which occurred in 2017.
| | | | | | | | | | | | | | | | | 2019 | | | | 2018 | | | | 2017 | | Life insurance | | | 2,276 | | | | 2,500 | | | | 3,214 | | Non-life insurance | | | 158 | | | | 163 | | | | 217 | | Total premiums paid to reinsurers | | | 2,434 | | | | 2,663 | | | | 3,431 | | | | | | - Accident and health insurance | | | 138 | | | | 152 | | | | 205 | | - General insurance | | | 19 | | | | 11 | | | | 13 | | Non-life insurance paid to reinsurers | | | 158 | | | | 163 | | | | 217 | |
7 Investment income | | | | 2018 | | | 2017 | | | 2016 | | | | 2019 | | | | 2018 | | | | 2017 | | Interest income | | | 5,783 | | | | 6,052 | | | | 6,479 | | | | 5,835 | | | | 5,783 | | | | 6,052 | | Dividend income | | | 1,124 | | | | 1,164 | | | | 1,180 | | | | 1,571 | | | | 1,124 | | | | 1,164 | | Rental income | | | 129 | | | | 121 | | | | 129 | | | | 125 | | | | 129 | | | | 121 | | Total investment income | | | 7,035 | | | | 7,338 | | | | 7,788 | | | | 7,531 | | | | 7,035 | | | | 7,338 | | | Investment income related to general account | | | 5,268 | | | | 5,394 | | | | 5,737 | | | | 5,291 | | | | 5,268 | | | | 5,394 | | Investment income for account of policyholders | | | 1,767 | | | | 1,944 | | | | 2,051 | | | | 2,240 | | | | 1,767 | | | | 1,944 | | Total | | | 7,035 | | | | 7,338 | | | | 7,788 | | | | 7,531 | | | | 7,035 | | | | 7,338 | |
Included in interest income is EUR 146 million (2018: EUR 160 million (2017:million; 2017: EUR 190 million; 2016: EUR 230 million) in respect of interest income accrued on impaired financial assets. The interest income on financial assets that are not carried at fair value through profit or loss amounted to EUR 4,943 million (2018: EUR 4,811 million (2017:million; 2017: EUR 5,056 million; 2016: EUR 5,642 million). Lease income is included within rental income. Please refer to note 45 Commitments and Contingencies for future lease payments (lease rights). | | Total investment income from: | | 2018 | | | 2017 | | | 2016 | | | | 2019 | | | 2018 | | | | 2017 | | Shares | | | 1,124 | | | | 1,164 | | | | 1,180 | | | | 1,571 | | | 1,124 | | | | 1,164 | | Debt securities and money market instruments | | | 3,899 | | | | 4,248 | | | | 4,838 | | | | 3,959 | | | 3,899 | | | | 4,248 | | Loans | | | 1,704 | | | | 1,686 | | | | 1,752 | | | | 1,779 | | | 1,704 | | | | 1,686 | | Real estate | | | 129 | | | | 121 | | | | 129 | | | | 125 | | | 129 | | | | 121 | | Other | | | 181 | | | | 119 | | | | (111 | ) | | | 97 | | | 181 | | | | 119 | | Total | | | 7,035 | | | | 7,338 | | | | 7,788 | | | | 7,531 | | | 7,035 | | | | 7,338 | | | | | | | | | | | Investment income from financial assets held for general account: | | | | 2019 | | | 2018 | | | | 2017 | | Available-for-sale | | | | 3,267 | | | 3,180 | | | | 3,467 | | Loans | | | | 1,779 | | | 1,704 | | | | 1,686 | | Financial assets designated at fair value through profit or loss | | | | 125 | | | 212 | | | | 148 | | Real estate | | | | 83 | | | 82 | | | | 71 | | Derivatives | | | | 39 | | | 72 | | | | 31 | | Other | | | | (2 | ) | | 18 | | | | (10 | ) | Total | | | | 5,291 | | | 5,268 | | | | 5,394 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 217222 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 8 | | | | | | | | | | | |
| | | | | | | | | | | | | | Investment income from financial assets held for general account: | | 2018 | | | 2017 | | | 2016 | | Available-for-sale | | | 3,180 | | | | 3,467 | | | | 4,007 | | Loans | | | 1,704 | | | | 1,686 | | | | 1,752 | | Financial assets designated at fair value through profit or loss | | | 212 | | | | 148 | | | | 80 | | Real estate | | | 82 | | | | 71 | | | | 69 | | Derivatives | | | 72 | | | | 31 | | | | (139 | ) | Other | | | 18 | | | | (10 | ) | | | (32 | ) | Total | | | 5,268 | | | | 5,394 | | | | 5,737 | | | 8 Fee and commission income | | | | | 2018 | | | 2017 | | | 2016 | | Fee income from asset management | | | 1,853 | | | | 2,126 | | | | 1,702 | | Commission income | | | 594 | | | | 535 | | | | 562 | | Other | | | 112 | | | | 140 | | | | 144 | | Total fee and commission income | | | 2,558 | | | | 2,802 | | | | 2,408 | | | | Included in fee and commission income is EUR 215 million of fees on trust and fiduciary activities (2017: EUR 190 million; 2016: EUR 55 million). | | | 9 Income from reinsurance ceded | | | | | 2018 | | | 2017 | | | 2016 | | Recovered claims and benefits | | | 3,127 | | | | 3,669 | | | | 3,477 | | Change in technical provisions | | | 372 | | | | 497 | | | | (26 | ) | Commissions | | | 241 | | | | 122 | | | | 236 | | Total | | | 3,740 | | | | 4,288 | | | | 3,687 | | | | Income from reinsurance ceded decreased by EUR 549 million compared to 2017, mainly due to the completion of the part VII transfers of the annuity portfolios in the UK in 2017. Refer to note 51 Business combinations for more details on these transactions. | | | | | | 10 Results from financial transactions | | | | | | | | | | | | | | Results from financial transactions comprise: | | 2018 | | | 2017 | | | 2016 | | Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives | | | (79 | ) | | | 232 | | | | (42 | ) | Realized gains and (losses) on financial investments | | | (92 | ) | | | 431 | | | | 327 | | Gains and (losses) on investments in real estate | | | 261 | | | | 193 | | | | 70 | | Net fair value change of derivatives | | | (545 | ) | | | (1,159 | ) | | | 239 | | Net fair value change on account of policyholder financial assets at fair value through profit or loss | | | (11,326 | ) | | | 20,524 | | | | 15,121 | | Net fair value change on investments in real estate for account of policyholders | | | 5 | | | | 38 | | | | (26 | ) | Net foreign currency gains and (losses) | | | 44 | | | | (20 | ) | | | 41 | | Net fair value change on borrowings and other financial liabilities | | | 29 | | | | 10 | | | | 21 | | Realized gains and (losses) on repurchased debt | | | 1 | | | | 1 | | | | 1 | | Total | | | (11,701 | ) | | | 20,250 | | | | 15,753 | | | | | | | | | | | | | | | | | | | Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives comprise: | | 2018 | | | 2017 | | | 2016 | | Shares | | | 69 | | | | 25 | | | | 4 | | Debt securities and money market investments | | | (143 | ) | | | 127 | | | | 8 | | Other | | | (5 | ) | | | 80 | | | | (54 | ) | Total | | | (79 | ) | | | 232 | | | | (42 | ) |
Other mainly includes net fair value changes8 Fee and commission income
| | | | | | | | | | | | | | | | 2019 | | | 2018 | | | 2017 | | Fee income from asset management | | | 1,824 | | | | 1,853 | | | | 2,126 | | Commission income | | | 585 | | | | 594 | | | | 535 | | Other | | | 114 | | | | 112 | | | | 140 | | Total fee and commission income | | | 2,523 | | | | 2,558 | | | | 2,802 | |
Included in fee and commission income is EUR 225 million of alternative investments.fees on trust and fiduciary activities (2018: EUR 215 million; 2017: EUR 190 million). 9 Income from reinsurance ceded | | | | | | | | | | | | | | | | 2019 | | | 2018 | | | 2017 | | Recovered claims and benefits | | | 3,367 | | | | 3,127 | | | | 3,669 | | Change in technical provisions | | | (53 | ) | | | 372 | | | | 497 | | Commissions | | | 218 | | | | 241 | | | | 122 | | Total | | | 3,532 | | | | 3,740 | | | | 4,288 | |
The decrease in income from reinsurance ceded in 2018 reflects the completion of the BlackRock Part VII transfer on July 1, 2018, in the UK. Refer to note 48 Business combinations for more details on these transactions. 10 Results from financial transactions | | | | | | | | | | | | | | Results from financial transactions comprise: | | 2019 | | | 2018 | | | 2017 | | Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives | | | 279 | | | | (79 | ) | | | 232 | | Realized gains and (losses) on financial investments | | | 399 | | | | (92 | ) | | | 431 | | Gains and (losses) on investments in real estate | | | 317 | | | | 261 | | | | 193 | | Net fair value change of derivatives | | | 1,130 | | | | (545 | ) | | | (1,159 | ) | Net fair value change on account of policyholder financial assets at fair value through profit or loss | | | 33,188 | | | | (11,326 | ) | | | 20,524 | | Net fair value change on investments in real estate for account of policyholders | | | (18 | ) | | | 5 | | | | 38 | | Net foreign currency gains and (losses) | | | 77 | | | | 44 | | | | (20 | ) | Net fair value change on borrowings and other financial liabilities | | | 15 | | | | 29 | | | | 10 | | Realized gains and (losses) on repurchased debt | | | - | | | | 1 | | | | 1 | | Total | | | 35,386 | | | | (11,701 | ) | | | 20,250 | | | | | | | | | | | | | | | | | | | Net fair value change of general account financial investments at fair value
through profit or loss, other than derivatives comprise: | | 2019 | | | 2018 | | | 2017 | | Shares | | | 99 | | | | 69 | | | | 25 | | Debt securities and money market investments | | | 85 | | | | (143 | ) | | | 127 | | | | | | Other | | | 95 | | | | (5 | ) | | | 80 | | Total | | | 279 | | | | (79 | ) | | | 232 | | | | | | Other mainly includes net fair value changes of limited partnerships such as hedge and private equity funds. | | | | | | | | | | | | | | | | | | | | | | | | | | | Realized gains and losses on financial investments comprise: | | 2019 | | | 2018 | | | 2017 | | Shares | | | 11 | | | | 25 | | | | 165 | | Debt securities and money market investments | | | 372 | | | | (147 | ) | | | 242 | | Loans | | | 32 | | | | 16 | | | | 20 | | | | | | Other | | | (16 | ) | | | 14 | | | | 3 | | Total | | | 399 | | | | (92 | ) | | | 431 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 218223 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 11 | | | | | | | | | | | |
| | Realized gains and losses on financial investments comprise: | | 2018 | | | 2017 | | 2016 | | | Shares | | | 25 | | | 165 | | | 46 | | | Debt securities and money market investments | | | (147 | ) | | 242 | | | 211 | | | Loans | | | 16 | | | 20 | | | 16 | | | Other | | | 14 | | | 3 | | | 54 | | | Total | | | (92 | ) | | 431 | | | 327 | | | | | | | | | | | | | | | | | | Realized gains and losses on financial investments comprise: | | 2018 | | | 2017 | | 2016 | | | 2019 | | | 2018 | | | 2017 | | Available-for-sale investments | | | (108 | ) | | 411 | | | 311 | | | | 368 | | | | (108 | ) | | | 411 | | Loans | | | 16 | | | 20 | | | 16 | | | | 32 | | | | 16 | | | | 20 | | Total | | | (92 | ) | | 431 | | | 327 | | | | 399 | | | | (92 | ) | | | 431 | | | | | | | | | | | | | | | | | Net fair value change of derivatives comprise: | | 2018 | | | 2017 | | 2016 | | | 2019 | | | 2018 | | | 2017 | | Net fair value change on economic hedges where no hedge accounting is applied | | | 272 | | | 70 | | | 793 | | | | 2,281 | | | | 272 | | | | 70 | | Net fair value change on bifurcated embedded derivatives | | | (824 | ) | | (1,231 | ) | | (565 | ) | | | (1,153 | ) | | | (824 | ) | | | (1,231 | ) | Ineffective portion of hedge transactions to which hedge accounting is applied | | | 7 | | | 2 | | | 12 | | | | 1 | | | | 7 | | | | 2 | | Total | | | (545 | ) | | (1,159 | ) | | 239 | | | | 1,130 | | | | (545 | ) | | | (1,159 | ) | | | | | | | | | | | | | | | The ineffective portion of hedge transactions to which hedge accounting is applied comprises: | | 2018 | | | 2017 | | 2016 | | | 2019 | | | 2018 | | | 2017 | | Fair value change on hedging instruments in a fair value hedge | | | 13 | | | (12 | ) | | (29 | ) | | | (1 | ) | | | 13 | | | | (12 | ) | Fair value change on hedged items in a fair value hedge | | | (8 | ) | | 15 | | | 35 | | | | 2 | | | | (8 | ) | | | 15 | | | Ineffectiveness fair value hedge | | | 5 | | | 3 | | | 7 | | | | 1 | | | | 5 | | | | 3 | | Ineffectiveness cash flow hedges | | | 2 | | | | - | | | 5 | | | | - | | | | 2 | | | | - | | Total | | | 7 | | | 2 | | | 12 | | | | 1 | | | | 7 | | | | 2 | | | | | | | | | | | | | | | | Net fair value change on for account of policyholder financial assets at fair value through profit or loss comprise: | | 2018 | | | 2017 | | 2016 | | | 2019 | | | 2018 1) | | | 2017 1) | | Shares | | | (2,318 | ) | | 2,372 | | | 2,462 | | | | 4,591 | | | | (2,318 | ) | | | 2,372 | | Debt securities and money market investments | | | (421 | ) | | 166 | | | 1,682 | | | | 863 | | | | (421 | ) | | | 166 | | Unconsolidated investment funds | | | (8,158 | ) | | 17,720 | | | 10,496 | | | | 26,450 | | | | (8,158 | ) | | | 17,720 | | Derivatives | | | (153 | ) | | 94 | | | 252 | | | | 1,284 | | | | (429 | ) | | | 265 | | Other | | | (276 | ) | | 171 | | | 230 | | | Total | | | (11,326 | ) | | 20,524 | | | 15,121 | | | | 33,188 | | | | (11,326 | ) | | | 20,524 | | 1 Numbers in previous years recorded as “Other” are now recorded in the line “Derivatives”. | | | | | | | | | Net fair value change on for account of policyholder financial assets at fair value through profit or loss decreased in 2018 compared to 2017, mainly from unfavorable credit and equity markets. Net fair value changes on for account of policyholder financial assets at fair value through profit or loss are offset by changes in technical provisions reported as part of the lines Change in valuation of liabilities for insurance contracts and Change in valuation of liabilities for investment contracts in note 12 Policyholder claims and benefits. | | | Net fair value change on for account of policyholder financial assets at fair value through profit or loss increased in 2019 compared to 2018, mainly from favorable equity markets and decreasing interest rates. Net fair value changes on for account of policyholder financial assets at fair value through profit or loss are offset by changes in technical provisions reported as part of the lines Change in valuation of liabilities for insurance contracts and Change in valuation of liabilities for investment contracts in note 12 Policyholder claims and benefits. | | Net fair value change on for account of policyholder financial assets at fair value through profit or loss increased in 2019 compared to 2018, mainly from favorable equity markets and decreasing interest rates. Net fair value changes on for account of policyholder financial assets at fair value through profit or loss are offset by changes in technical provisions reported as part of the lines Change in valuation of liabilities for insurance contracts and Change in valuation of liabilities for investment contracts in note 12 Policyholder claims and benefits. | | | Net fair value change on borrowings and other financial liabilities | | 2018 | | | 2017 | | 2016 | | | 2019 | | | 2018 | | | 2017 | | Borrowings | | | 23 | | | 10 | | | 21 | | | | 8 | | | | 23 | | | | 10 | | Other financial liabilities | | | 6 | | | | - | | | | - | | | | 7 | | | | 6 | | | | - | | Total | | | 29 | | | 10 | | | 21 | | | | 15 | | | | 29 | | | | 10 | | | 11 Other income | | | | | | | | | | | | | | | | 2018 | | | 2017 | | 2016 | | | | | | | | 2019 | | | 2018 | | | 2017 | | Other income | | | 8 | | | 540 | | | 66 | | | | 200 | | | | 8 | | | | 540 | |
Other income of EUR 200 million for 2019 includes a gain of EUR 101 million on pension plan amendments in the Netherlands following the move from a defined benefit plan to a defined contribution plan, as well as a book gain of EUR 70 million on the divestment of the business in Slovakia and Czech Republic. Refer to note 48 Business combinations for more details on this divestment. Other income in 2017 of EUR 540 million mainly related to a book gain of EUR 231 million (USD 250 million) from the divestment of the payout annuity and the BOLI/COLI businesses in the Americas and a book gain of EUR 208 million on the sale of the Unirobe Meeùs Groep. Furthermore, a release of an expense reserve of EUR 82 million (GBP 71 million) was recorded that was embedded in the liabilities for insurance contracts following the completion of the Part VII transfer to Rothesay Life. Also EUR 17 million (GBP | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 224 | | | | Consolidated financial statements of Aegon N.V.Note 12 | | | | | | | | | | |
(GBP 14 million) related to the completion of the Part VII transfer of annuities reinsured to Legal & General in 2016 was included. An insurance business transfer scheme under Part VII of the United Kingdom Financial Services and Markets Act 2000 allows an insurer | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 219 | | Notes to the consolidated financial statements Note 12 | | | |
to transfer policies as at a fixed time and date to another insurer, along with related contracts with other parties. For more details refer to note 5148 Business combinations. Other income of EUR 66 million for 2016 includes the result on the sale of Transamerica Financial Advisors. This transaction has resulted in a gain of USD 58 million (EUR 52 million). Refer to note 51 Business combinations for more details.
12 Policyholder claims and benefits | | | | 2018 | | | | | 2017 | | 2016 | | | 2019 | | | 2018 | | | 2017 | | Benefits and claims paid life | | | 19,673 | | | | | | 23,634 | | | 23,877 | | | | 18,824 | | | | 19,673 | | | | 23,634 | | Benefits and claims paidnon-life | | | 1,658 | | | | | | 1,903 | | | 2,052 | | | | 1,635 | | | | 1,658 | | | | 1,903 | | Change in valuation of liabilities for insurance contracts | | | (2,639 | ) | | | | | 22,741 | | | 16,193 | | | | 30,620 | | | | (2,639 | ) | | | 22,741 | | Change in valuation of liabilities for investment contracts | | | (8,143 | ) | | | | | (2,644 | ) | | (104 | ) | | | 5,768 | | | | (8,143 | ) | | | (2,644 | ) | | Other | | | 9 | | | | | | (34 | ) | | (45 | ) | | | (50 | ) | | | 9 | | | | (34 | ) | Total | | | 10,557 | | | | | | 45,599 | | | 41,974 | | | | 56,797 | | | | 10,557 | | | | 45,599 | |
Policyholder claims and benefits includes claims and benefits in excess of account value for products for which deposit accounting is applied and the change in valuation of liabilities for insurance and investment contracts. The lines ‘‘Change in valuation of liabilities for insurance contracts’’ and ‘‘Change in valuation of liabilities for investment contracts’’ reflect movements in technical provisions resulting from “Net fair value change on for account of policyholder financial assets at fair value through profit or loss” included in note 10 Results from financial transactions of EUR 33,188 million positive (2018: EUR 11,326 million negative, (2017:2017: EUR 20,524 million positive, 2016: EUR 15,121 million positive). In addition, the line ‘‘Change in valuation of liabilities for insurance contracts’’ includes an increase of technical provisions for life insurance contracts of EUR 1,4032,431 million (2017:(2018: increase of EUR 6011,403 million, 2016:2017: increase of EUR 2,349601 million). 13 Profit sharing and rebates | | | | 2018 | | | | | 2017 | | 2016 | | | 2019 | | | 2018 | | | 2017 | | Surplus interest bonuses | | | 2 | | | | | | 2 | | | | 4 | | | | 2 | | | | 2 | | | | 2 | | | Profit appropriated to policyholders | | | 21 | | | | | | 21 | | | | 45 | | | | 15 | | | | 21 | | | | 21 | | Total | | | 23 | | | | | | 23 | | | | 49 | | | | 17 | | | | 23 | | | | 23 | |
14 Commissions and expenses | | | | 2018 | | | | | | 2017 | | 2016 | | | 2019 | | | 2018 | | 2017 | | Commissions | | | 2,445 | | | | | | 2,661 | | | 2,929 | | | | 2,423 | | | 2,445 | | | 2,661 | | Employee expenses | | | 2,061 | | | | | | 2,234 | | | 2,287 | | | | 2,149 | | | 2,061 | | | 2,234 | | Administration expenses | | | 1,477 | | | | | | 1,424 | | | 1,273 | | | | 1,537 | | | 1,477 | | | 1,424 | | Deferred expenses | | | (831 | ) | | | | | (980 | ) | | (1,203 | ) | | | (832 | ) | | (831 | ) | | (980 | ) | Amortization of deferred expenses | | | 928 | | | | | | 543 | | | 880 | | | | 755 | | | 928 | | | 543 | | Amortization of VOBA and future servicing rights | | | 144 | | | | | | 43 | | | 184 | | | | 120 | | | 144 | | | 43 | | Total | | | 6,224 | | | | | | 5,925 | | | 6,351 | | | | 6,153 | | | 6,224 | | | 5,925 | |
Included in administration expenses is an amount of EUR 8087 million of depreciation and amortization that relates to equipment, software and real estate held for own use (2017:(2018: EUR 80 million; 2017: EUR 105 million; 2016: EUR 89 million). Minimum lease payments recognized as expense amounted to EUR 84 million (2017: EUR 89 million; 2016: EUR 89 million). The minimum lease payments recognized as expense for both 2017 and 2016 have been adjusted to conform to the current year presentation as certain amounts were previously not
| | | | | | | | | | | | | | Employee expenses | | 2019 | | | 2018 | | | 2017 | | Salaries | | | 1,321 | | | | 1,261 | | | | 1,470 | | Post-employment benefit costs | | | 287 | | | | 277 | | | | 318 | | Social security charges | | | 127 | | | | 120 | | | | 151 | | Other personnel costs | | | 378 | | | | 367 | | | | 267 | | Shares | | | 36 | | | | 36 | | | | 28 | | Total | | | 2,149 | | | | 2,061 | | | | 2,234 | |
An amount of EUR 43 million is included in the narrative in this note. These adjusted amounts are not considered material as these adjustments had no effect on net income, shareholders’ equity and earnings per share, nor on the total of commissions andemployee expenses ofrelating to defined contributions (2018: EUR 5,925 reported in 2017 and44 million; 2017: EUR 6,351 reported in 2016.46 million). | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 220225 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 14
| | | | | | | | | | | |
| | | | | | | | | | | | | | Employee expenses | | 2018 | | | 2017 | | | 2016 | | Salaries | | | 1,261 | | | | 1,470 | | | | 1,471 | | Post-employment benefit costs | | | 277 | | | | 318 | | | | 338 | | Social security charges | | | 120 | | | | 151 | | | | 155 | | Other personnel costs | | | 367 | | | | 267 | | | | 294 | | Shares | | | 36 | | | | 28 | | | | 28 | | Total | | | 2,061 | | | | 2,234 | | | | 2,287 | |
An amount of EUR 44 million is included in employee expenses relating to defined contributions (2017: EUR 46 million; 2016: EUR 46 million).
Long Term Incentive Plans Selected senior employees within Aegon, who have not been classified as ‘Identified Staff’‘Material Risk Takers’, can be granted the conditional right to receive Aegon shares at the start of a performance year. The grant price for these shares is equal to the volume weighted average price (VWAP) on the Euronext stock exchange in Amsterdam during the period between December 15 preceding a plan year and January 15 of a plan year. The actual allocation of these shares to eligible employees depends on Aegon Group performance, the employee’s unit performance and individual performance on predefined financial andnon-financial performance indicators and targets, as well as the continued employment of the employee. Once allocated, the shares are subject to a vesting period ofdeferred and cliff-vest two years from the moment ofafter allocation. In specific circumstances Aegon’s Supervisory Board can reclaim variable compensation that has already been allocated (but still unvested) or vested (claw back). Variable Compensation Identified StaffMaterial Risk Takers Members of the Executive Board and the Management Board as well as other senior employees are classified as ‘Material Risk Takers’ in accordance with the Solvency II Legal Framework (up to 2018 these employees were classified as ‘Identified Staff’ in accordance with the applicable rules and guidance from the relevant supervisory authorities. Of these, the Dutch 2015 Act on compensation in the financial sector (Wet beloningsbeleid financiële ondernemingen Wft) and the Dutch 2014 Decree on sound remuneration policy (Regeling beheerst beloningsbeleid 2014) are prominent examples.Capital Requirements Directives). In line with these rules, variable compensation awards for Identified StaffMaterial Risk Takers is partially paid out directly after allocation and partly deferred, andas well as split into cash and Aegon shares. The shares are conditionally granted at the start of the performance year. The grant price of these shares is equal to the volume weighted average price (VWAP) on the Euronext stock exchange in Amsterdam during the period between December 15 preceding a plan year and January 15 of the plan year. The actual allocation of these shares to eligible employees depends on Aegon Group performance, the employee’s unit performance and individual performance against predefined financial andnon-financial performance indicators and targets, as well as the continued employment of the employee. Once allocated, theThe deferred partsshares of the variable compensation award are subject to a vesting period ofcliff-vest three years fromafter allocation, while the momentdeferred parts for members of the Executive Board tranche-vest during a three-year period after allocation. The latter vesting schedule also applied to variable compensation of Identified Staff in the Netherlands up to 2018). Before each vesting moment, the Supervisory Board can decide to adjust an award downwards based on the annualex-post risk assessment, which takes into account significant and exceptional circumstances which were not (sufficiently) reflected in the initial performance assessment.
The shares may be subject to an additional holding period up to three years after vesting. For the Members of the Executive Board, and the members of the Management Board, whoshares are based in the Netherlands, thissubject to an additional holding period isof three years. During this holding period it is not allowed to sell the vested shares, with the exception of shares withheld or sold to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the Company holds a withholding obligation in connection with the vesting of the shares. In specific circumstances Aegon’s Supervisory Board willcan reclaim variable compensation that has already vested (claw back).
The following overview contains the cumulative number of shares and their status in relation to active Long Term Incentive Plans and allocated variable compensation allocated to Identified Staff.Material Risk Takers. Number of shares per plan year | | | | | | | | | | | | | | | | | | | | | | | | | | | | 20141 | | | 20151 | | | 20161 | | | 20171 | | | 20181 | | | Total | | Number of shares conditionally granted2 | | | 5,306,037 | | | | 5,178,633 | | | | 6,809,814 | | | | 6,722,418 | | | | 6,513,984 | | | | 30,530,886 | | Number of shares allocated | | | 4,714,569 | | | | 4,942,275 | | | | 7,155,420 | | | | 7,461,564 | | | | - | | | | 24,273,828 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | | | Total | | Conditionally granted1) | | | 5,178,633 | | | | 6,809,814 | | | | 6,722,418 | | | | 6,513,984 | | | | 7,378,113 | | | | 32,602,962 | | Allocated2) | | | 4,942,275 | | | | 7,155,420 | | | | 7,461,564 | | | | 6,123,546 | | | | - | | | | 25,682,805 | |
| 1 | Performance yearThe at target number of shares which were conditionally granted for both Long-term incentive plans and Variable compensation Identified Staffthe plan year.
|
| 2 | NumberThe allocated number of shares conditionally granted based on the at target number of grants made that could increase or decrease subject to the actual performance attainedduring the plan year.
|
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 221226 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 15 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | 20141 | | | 2015 1 | | | 2016 1 | | | 2017 1 | | | 2018 1 | | | Total | | Unvested at January 1, 2017 | | | 4,181,844 | | | | 4,553,637 | | | | 6,809,814 | | | | - | | | | - | | | | 15,545,295 | | Number of shares conditionally granted2 | | | - | | | | - | | | | - | | | | 6,722,418 | | | | - | | | | 6,722,418 | | Number of shares allocated4 | | | 49,780 | | | | - | | | | 345,606 | | | | 1,115,876 | | | | - | | | | 1,511,262 | | Number of shares forfeited | | | 42,580 | | | | 116,505 | | | | 136,506 | | | | - | | | | - | | | | 295,591 | | Number of shares vested | | | 1,887,728 | | | | 122,638 | | | | 427,485 | | | | 158,666 | | | | - | | | | 2,596,517 | | Unvested at December 31, 2017 | | | 2,301,316 | | | | 4,314,494 | | | | 6,591,429 | | | | 7,679,628 | | | | - | | | | 20,886,867 | | Number of shares conditionally granted2 | | | - | | | | - | | | | - | | | | - | | | | 6,513,984 | | | | 6,513,984 | | Number of shares allocated4 | | | - | | | | - | | | | 11,471 | | | | 739,146 | | | | 166,371 | | | | 916,988 | | Number of shares forfeited | | | 94,876 | | | | 102,383 | | | | 169,629 | | | | 364,515 | | | | - | | | | 731,403 | | Number of shares vested | | | 2,206,440 | | | | 1,831,944 | | | | 189,300 | | | | 810,028 | | | | - | | | | 5,037,712 | | Unvested at December 31, 2018 | | | - | | | | 2,380,167 | | | | 6,243,971 | | | | 7,244,231 | | | | 6,680,355 | | | | 22,548,724 | | | | | | | | | Average share price used for grant in EUR3 | | | 6.739 | | | | 6.106 | | | | 5.128 | | | | 5.246 | | | | 5.405 | | | | | | | | | | | | | Fair value of shares at grant date in EUR | |
| 5.840 to
6.658 |
| |
| 5.159 to
6.018 |
| |
| 3.990 to
4.898 |
| |
| 4.040 to
4.933 |
| |
| 4.143 to
5.054 |
| | | | | | 1 Performance year for both Long-term incentive plans and Variable compensation Identified Staff 2 Number of shares conditionally granted based on the at target number of grants made that could increase or decrease subject to the actual performance attained 3 This value is the volume weighted average price (VWAP) of Aegon on the Euronext Amsterdam stock exchange for the period December 15 to January 15 4 Per 2017 shares allocated assign-on are not allocated anymore to the plan years in which the vesting takes place. Instead, we now create and allocate specificsign-on shares in the calendar year of commencement. Aegon applies a net settlement option for participants in order to meet their income tax obligations when their shares vest. This means that Aegon will not sell shares on the market, but hold these shares within Aegon and settle directly with the tax authorities in cash rather than selling shares first. Refer to note 53 Related party transactions for detailed information on conditional shares granted to the Executive Board. 15 Impairment charges/(reversals) | | | Impairment charges/(reversals) comprise: | | | | | | | | | | | 2018 | | | 2017 | | | 2016 | | Impairment charges on financial assets, excluding receivables | | | | | | | | | | | | | | | 71 | | | | 70 | | | | 110 | | Impairment reversals on financial assets, excluding receivables | | | | | | | | | | | | | | | (39 | ) | | | (32 | ) | | | (58 | ) | Impairment charges and reversals onnon-financial assets and receivables | | | | | | | | | | | | | | | 46 | | | | 4 | | | | 43 | | Total | | | | | | | | | | | | | | | 78 | | | | 42 | | | | 95 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impairment charges on financial assets, excluding receivables, from: | | | 2018 | | | 2017 | | | 2016 | | Shares | | | | | | | | | | | | | | | 5 | | | | 2 | | | | 1 | | Debt securities and money market instruments | | | | | | | | | | | | | | | 30 | | | | 17 | | | | 53 | | Loans | | | | | | | | | | | | | | | 35 | | | | 50 | | | | 23 | | Other | | | | | | | | | | | | | | | - | | | | - | | | | 33 | | Total | | | | | | | | | | | | | | | 71 | | | | 70 | | | | 110 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Impairment reversals on financial assets, excluding receivables, from: | | | 2018 | | | 2017 | | | 2016 | | Debt securities and money market instruments | | | | | | | | | | | | | | | (34 | ) | | | (17 | ) | | | (42 | ) | Loans | | | | | | | | | | | | | | | (3 | ) | | | (13 | ) | | | (14 | ) | Other | | | | | | | | | | | | | | | (2 | ) | | | (2 | ) | | | (2 | ) | Total | | | | | | | | | | | | | | | (39 | ) | | | (32 | ) | | | (58 | ) |
Number of shares per plan year | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2015 | | | | 2016 | | | | 2017 | | | | 2018 | | | | 2019 | | | | Total | | Unvested at January 1, 2018 | | | 4,314,494 | | | | 6,591,429 | | | | 7,679,628 | | | | - | | | | - | | | | 18,585,551 | | Conditionally granted1) | | | - | | | | - | | | | - | | | | 6,513,984 | | | | - | | | | 6,513,984 | | Allocated2) | | | - | | | | 11,471 | | | | 739,146 | | | | 166,371 | | | | - | | | | 916,988 | | Forfeited | | | (102,383 | ) | | | (169,629 | ) | | | (364,515 | ) | | | - | | | | - | | | | (636,527 | ) | Vested | | | (1,831,944 | ) | | | (189,300 | ) | | | (810,028 | ) | | | - | | | | - | | | | (2,831,272 | ) | Unvested at December 31, 2018 | | | 2,380,167 | | | | 6,243,971 | | | | 7,244,231 | | | | 6,680,355 | | | | - | | | | 22,548,724 | | Conditionally granted1) | | | - | | | | - | | | | - | | | | - | | | | 7,378,113 | | | | 7,378,113 | | Allocated2) | | | - | | | | 22,580 | | | | 30,730 | | | | (390,438 | ) | | | 958,501 | | | | 621,373 | | Forfeited | | | (3,912 | ) | | | (44,746 | ) | | | (331,606 | ) | | | (169,383 | ) | | | - | | | | (549,647 | ) | Vested | | | (2,376,255 | ) | | | (2,530,968 | ) | | | (426,360 | ) | | | (457,079 | ) | | | (6,600 | ) | | | (5,797,262 | ) | Unvested at December 31, 2019 | | | - | | | | 3,690,837 | | | | 6,516,995 | | | | 5,663,455 | | | | 8,330,014 | | | | 24,201,301 | | | | | | | | | Grant price (in EUR)3) | | | 6.106 | | | | 5.128 | | | | 5.246 | | | | 5.405 | | | | 4.162 | | | | | | | | | | | | | | | | 5.159 to | | | | 3.990 to | | | | 4.040 to | | | | 4.143 to | | | | 2.741 to | | | | | | Fair value of shares at grant date (in EUR) | | | 6.018 | | | | 4.898 | | | | 4.933 | | | | 5.054 | | | | 3.737 | | | | | |
| 1 | The at target number of shares which were conditionally granted for the plan year. |
| 2 | The allocated number of shares based on the actual performance during the plan year. Per 2017 sign-on shares are not allocated anymore to the plan year(s) in which the vesting takes place. Instead, sign-on shares are allocated in the calendar year of commencement. Allocation to a previous plan year concerns backdated corrections to the administration (e.g. the allocation to the 2016 plan year, during the 2018 calendar year). |
| 3 | This is the volume weighted average price (VWAP) of Aegon on the Euronext Amsterdam stock exchange for the period December 15 to January 15. For instance for the 2019 plan year, this is the VWAP for the period December 15, 2018 to January 15, 2019. |
Aegon applies a net settlement option for participants in order to meet their income tax obligations when their shares vest. This means that Aegon will not sell shares on the market, but hold these shares within Aegon and settle directly with the tax authorities in cash rather than selling shares first. 15 Impairment charges / (reversals) | | | | | | | | | | | | | Impairment charges / (reversals) comprise: | | | 2019 | | | | 2018 | | | | 2017 | | Impairment charges on financial assets, excluding receivables | | | 133 | | | | 71 | | | | 70 | | Impairment reversals on financial assets, excluding receivables | | | (73 | ) | | | (39 | ) | | | (32 | ) | Impairment charges and reversals on non-financial assets and receivables | | | 109 | | | | 46 | | | | 4 | | Total | | | 169 | | | | 78 | | | | 42 | | | | | | | | | | | | | | | | | | | Impairment charges on financial assets, excluding receivables, from: | | | 2019 | | | | 2018 | | | | 2017 | | Shares | | | 7 | | | | 5 | | | | 2 | | Debt securities and money market instruments | | | 50 | | | | 30 | | | | 17 | | Loans | | | 76 | | | | 35 | | | | 50 | | Total | | | 133 | | | | 71 | | | | 70 | | | | | | | | | | | | | | | | | | | Impairment reversals on financial assets, excluding receivables, from: | | | 2019 | | | | 2018 | | | | 2017 | | Debt securities and money market instruments | | | (67 | ) | | | (34 | ) | | | (17 | ) | Loans | | | (5 | ) | | | (3 | ) | | | (13 | ) | Other | | | (1 | ) | | | (2 | ) | | | (2 | ) | Total | | | (73 | ) | | | (39 | ) | | | (32 | ) |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 227 | | | | Consolidated financial statements of Aegon N.V.Note 16 | | | | | | | | | | |
Impairment charges/(reversals) onnon-financial assets and receivables increasedamount to EUR 109 million and are mainly related to a write-off of VOBA and DPAC amounting to EUR 76 million as a result of a liability adequacy test (LAT) deficit in Aegon the Netherlands. Refer to note 34 “Insurance contracts” for further details on the LAT impact. In addition, 2019 includes the dilution of the capital injections in India (ALIC) of EUR 10 million and impairments to software in the Netherlands of EUR 9 million. Impairment charges/(reversals) on non-financial assets and receivables in 2018 amounted to EUR 46 million in 2018 mainly due to updated valuations on various real estate properties in the Americas and impairments to software in the Netherlands. For more details on impairments on financial assets, excluding receivables, refer to note 4 Financial risks. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 222 | | Notes to the consolidated financial statements Note 16 | | | |
16 Interest charges and related fees | | | | | | | | | | | | | | | | 2019 | | | 2018 | | | 2017 | | Subordinated loans | | | 88 | | | | 62 | | | | 34 | | Trust pass-through securities | | | 8 | | | | 8 | | | | 9 | | Borrowings | | | 252 | | | | 300 | | | | 283 | | Other | | | 164 | | | | 136 | | | | 108 | | Total | | | 513 | | | | 507 | | | | 435 | |
Other includes interest charges on short term borrowings and bank fees. The interest charges accrued on financial assets and liabilities that are not carried at fair value through profit or loss amounted to EUR 298 million (2018: EUR 143 million; 2017: EUR 162 million). 17 Other charges | | | | | | | | | | | | | | | | 2018 | | | 2017 | | | 2016 | | Subordinated loans | | | 62 | | | | 34 | | | | 34 | | Trust pass-through securities | | | 8 | | | | 9 | | | | 9 | | Borrowings | | | 300 | | | | 283 | | | | 210 | | Other | | | 136 | | | | 108 | | | | 95 | | Total | | | 507 | | | | 435 | | | | 347 | | Other includes interest charges on short term borrowings and bank fees. The interest charges accrued on financial assets and liabilities that are not carried at fair value through profit or loss amounted to EUR 143 million (2017: EUR 162 million; 2016: EUR 176 million). 17 Other charges | | | | | 2018 | | | 2017 | | | 2016 | | Other charges | | | 375 | | | | 235 | | | | 700 | |
| | | | | | | | | | | | | | | | 2019 | | | 2018 | | | 2017 | | Other charges | | | 1 | | | | 375 | | | | 235 | |
Other charges in 2018 of EUR 375 million include the gross settlement amount of a litigationclass action lawsuit regarding certain monthly deduction rate adjustments on universal life insurance policies and other related plaintiff and administration fees. The settlement relates to a block of around 70,000 universal life policies on which Transamerica raised the monthly deduction rates in 2015 and 2016. These adjustments were necessitated by, among other factors, low long-term interest rates and changes in future mortality experience, and were in accordance with the contractual terms of the policies. Nonetheless, the increases were challenged by policyholders in several court cases. To remove the uncertainty of ongoing litigation for Aegon and its customers, the decision was made to settle with the plaintiffs. In January 2019, a court approved the aforementioned settlement with universal life policyholders. Resolution of this class action ended a number of other related cases, including other related class actions. Over 99% of affected policyholders participated in the settlement. While less than 1% of policyholders opted out of the settlement, they represented approximately 43% of the value of the settlement fund. The settlement fund was reduced proportionally for opt outs, although Aegon continues to hold a provision for these policyholders. The charge to the income statement for 2018 was USDEUR 140 million (USD 166 million (EUR 140 million). Included in the charge is a release of the technical provision (USD 38 million) and a reduction of the amortization of other intangible assets (USD 6 million). Other charges in 2018 also include a loss of USDEUR 93 million (USD 110 million (EUR 93 million) related to the divestment of the last substantial block of its life reinsurance business to SCOR Global Life. Under the terms of the agreement, Aegon’s Transamerica life subsidiaries reinsured approximately USD 700 million of liabilities through SCOR Global Life. The transaction covered the last substantial block of life reinsurance business that Transamerica retained after it divested the vast majority of its reinsurance business to SCOR Global Life in 2011 and 2017. Furthermore, other charges in 2018 include a loss of GBPEUR 93 million (GBP 81 million (EUR 93 million) from the divestment of Aegon Ireland Plc. For more details on the divestment of Aegon Ireland Plc. refer to note 5148 Business combinations. Other charges in 2017 of EUR 235 million mainly relate to the book loss of EUR 105 million (USD 119 million) regarding the divestment of a block of life reinsurance business in the Americas and a charge of EUR 85 million (USD 100 million), regarding a provision in anticipation of a possible settlement in connection with an investigation by the SEC, refer to Note 48 Commitments and contingencies.SEC. In addition, an impairment of deferred transaction costs of EUR 36 million (GBP 32 million) was recorded as a result of the agreed sale of Aegon Ireland plc. For more details on the divestment of a block of US reinsurance run off business and Aegon Ireland plc. refer to note 5148 Business combinations. Other charges in 2016 of EUR 700 million mainly relate to the book loss on the sale of the UK annuity portfolio (EUR 682 million) and charges related to claims and litigations regarding fees payable upon purchase or surrender of unit-linked policies in the Polish Life insurance portfolio (EUR 19 million). For more details on the sale of the UK annuity portfolio refer to note 22 Assets and Liabilities held for sale and note 51 Business combinations. In note 40 Provisions more details are provided on the Polish claims and litigations.
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 223228 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 18 | | | | | | | | | | | |
18 Income tax | | | | | | | | | | | | | | | | | | | | Note | | | 2018 | | | 2017 | | | 2016 | | Current tax | | | | | | | | | | | | | | | | | Current year | | | | | | | 54 | | | | 220 | | | | 33 | | Adjustments to prior years | | | | | | | (36 | ) | | | 47 | | | | (46 | ) | | | | | | | | | 18 | | | | 267 | | | | (13 | ) | Deferred tax | | | 43 | | | | | | | | | | | | | | Origination/(reversal) of temporary differences | | | | | | | 23 | | | | 397 | | | | 102 | | Changes in tax rates/bases | | | | | | | (30 | ) | | | (550 | ) | | | 93 | | Changes in deferred tax assets as a result of recognition/write off of previously not recognized/recognized tax losses, tax credits and deductible temporary differences | | | | | | | (35 | ) | | | (45 | ) | | | (54 | ) | Non-recognition of deferred tax assets | | | | | | | 17 | | | | 41 | | | | 33 | | Adjustments to prior years | | | | | | | 48 | | | | (45 | ) | | | 12 | | | | | | | | | | 22 | | | | (201 | ) | | | 185 | | Income tax for the period (income)/charge | | | | | | | 40 | | | | 65 | | | | 172 | | | | | | | | Adjustments to prior years include shifts between current and deferred tax. | | | | | | | | | | | | | | | | | | | | | | | Reconciliation between standard and effective income tax: | | | | | 2018 | | | 2017 | | | 2016 | | Income before tax | | | | | | | 751 | | | | 2,534 | | | | 610 | | Income tax calculated using weighted average applicable statutory tax rates | | | | | | | 178 | | | | 745 | | | | 239 | | | | | | | Difference due to the effects of: | | | | | | | | | | | | | | | | | Non-taxable income | | | | | | | (80 | ) | | | (157 | ) | | | (126 | ) | Non-tax deductible expenses | | | | | | | 28 | | | | 28 | | | | 21 | | Changes in tax rate/base | | | | | | | (30 | ) | | | (550 | ) | | | 93 | | Different tax rates on overseas earnings | | | | | | | - | | | | (1 | ) | | | 8 | | Tax credits | | | | | | | (68 | ) | | | (67 | ) | | | (41 | ) | Other taxes | | | | | | | 29 | | | | 67 | | | | 38 | | Adjustments to prior years | | | | | | | 11 | | | | 2 | | | | (34 | ) | Origination and change in contingencies | | | | | | | 2 | | | | 9 | | | | 8 | | Changes in deferred tax assets as a result of recognition/write off of previously not recognized/recognized tax losses, tax credits and deductible temporary differences | | | | | | | (35 | ) | | | (45 | ) | | | (54 | ) | Non-recognition of deferred tax assets | | | | | | | 17 | | | | 41 | | | | 33 | | Tax effect of (profit)/losses from joint ventures and associates | | | | | | | (9 | ) | | | (7 | ) | | | (7 | ) | Other | | | | | | | (3 | ) | | | (1 | ) | | | (6 | ) | | | | | | | | | (138 | ) | | | (680 | ) | | | (67 | ) | Income tax for the period (income)/charge | | | | | | | 40 | | | | 65 | | | | 172 | |
| | | | | | | | | | | | | | | | | | | | Note | | | 2019 | | | 2018 | | | 2017 | | | | | | | Current tax | | | | | | | | | | | | | | | | | Current year | | | | | | | 118 | | | | 54 | | | | 220 | | | | | | | Adjustments to prior years | | | | | | | (14) | | | | (36 | ) | | | 47 | | | | | | | | | 104 | | | | 18 | | | | 267 | | Deferred tax | | | 40 | | | | | | | | | | | | | | | | | | | Origination / (reversal) of temporary differences | | | | | | | 69 | | | | 23 | | | | 397 | | | | | | | Changes in tax rates / bases | | | | | | | 33 | | | | (30 | ) | | | (550 | ) | | | | | | Changes in deferred tax assets as a result of recognition / write off of previously not recognized / recognized tax losses, tax credits and deductible temporary differences | | | | | | | 4 | | | | (35 | ) | | | (45 | ) | | | | | | Non-recognition of deferred tax assets | | | | | | | 17 | | | | 17 | | | | 41 | | | | | | | Adjustments to prior years | | | | | | | (8) | | | | 48 | | | | (45 | ) | | | | | | | | | 114 | | | | 22 | | | | (201 | ) | Income tax for the period (income) / charge | | | | | | | 218 | | | | 40 | | | | 65 | |
Adjustments to prior years include shifts between current and deferred tax. | | | | | | | | | | | | | | Reconciliation between standard and effective income tax: | | 2019 | | | 2018 | | | 2017 | | Income before tax | | | 1,457 | | | | 751 | | | | 2,534 | | | | | | Income tax calculated using weighted average applicable statutory tax rates | | | 293 | | | | 178 | | | | 745 | | | | | | Difference due to the effects of: | | | | | | | | | | | | | | | | | Non-taxable income | | | (76) | | | | (80 | ) | | | (157 | ) | | | | | Non-tax deductible expenses | | | 22 | | | | 28 | | | | 28 | | | | | | Changes in tax rate/base | | | 33 | | | | (30 | ) | | | (550 | ) | | | | | Different tax rates on overseas earnings | | | (1) | | | | - | | | | (1 | ) | | | | | Tax credits | | | (67) | | | | (68 | ) | | | (67 | ) | | | | | Other taxes | | | 57 | | | | 29 | | | | 67 | | | | | | Adjustments to prior years | | | (22) | | | | 11 | | | | 2 | | | | | | Origination and change in contingencies | | | - | | | | 2 | | | | 9 | | | | | | Changes in deferred tax assets as a result of recognition / write off of previously not recognized / recognized tax losses, tax credits and deductible temporary differences | | | 4 | | | | (35 | ) | | | (45 | ) | | | | | Non-recognition of deferred tax assets | | | 17 | | | | 17 | | | | 41 | | | | | | Tax effect of (profit) / losses from joint ventures and associates | | | (11) | | | | (9 | ) | | | (7 | ) | | | | | Other | | | (31) | | | | (3 | ) | | | (1 | ) | | | | | (76) | | | | (138 | ) | | | (680 | ) | Income tax for the period (income) / charge | | | 218 | | | | 40 | | | | 65 | |
The weighted average applicable statutory tax rate for 20182019 is 20.1% (2018: 23.7% (2017: 29.4%; 2016: 39.2%2017: 29.4%). The decrease in the weighted average applicable statutory tax rate compared to 20172018 is mainly due to the relatively high contribution of income before tax in the NetherlandsUnited States versus the negative income before tax in the United KingdomNetherlands and the United States.Kingdom. Non-taxable income in 2018 is lower compared2019 comprises of the regular non-taxable items such as the Dividend Received Deduction in the US and the Participation Exemption in the Netherlands. Compared to previous years2017 the non-taxable income decreased because of the decrease of the US corporate income tax rate from 35% to 21% as from January 1, 2018.Non-taxable income in 2017 includes the tax exempt sale proceeds of the Dutch Unirobe Meeùs Group. Changes in tax rate/base in 2017 highly benefited by the decrease of the US corporate income tax rate from 35% to 21% as from January 1, 2018. Changes in tax rate/base in 2016 was heavily impacted by the release of profits from other comprehensive income (OCI) to income statement in the United Kingdom. These profits were taxed in the past against high historic tax rates and were released from OCI to the income statement against a lower statutory tax rate in 2016. The difference caused a negative impact in changes in tax rate/base.
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 224229 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 18 | | | | | | | | | | | |
In the Netherlands, the corporate income tax rate will decrease from 25% to 22.55% as from January 1, 2020 and will further decrease to 20.5%21.7% as from January 1, 2021. The beneficial impact of thisthe previous enacted tax rate change in the Netherlands is included in the 2018 change in tax rate/base. In 2019 part of this beneficial impact is reversed due to the new enacted tax rate. In the UK, the corporate income tax rate will decrease from 19% to 17% with effect from April 1, 2020. The minor impact of this tax rate change was included in the 2016 change in tax rate/base. In Hungary, the corporate income tax rate decreased from 19% to 9% as from January 1, 2017. The minor impact of this tax rate change was included in the 2016 change in tax rate/base. Tax credits in 2018 and 2017 increased by US foreign tax credits. Tax credits include tax benefits from US investments that provide affordable housing to individuals and families that meet median household income requirements and from investing in solar energy.requirements.
Adjustments to prior years in 2016 included aone-timeyear consists of one time tax benefit in the US caused byNetherlands in respect of the revised2017 and 2018 tax deduction for dividends received on prior filedreturns filed. Other mainly relates to the one off tax returns.benefit in the UK due to the release of the historic deferred tax balances held in respect of the pension scheme deficit when the Defined Benefit pension scheme moved to surplus. The following tables present income tax related to components of other comprehensive income and retained earnings. | | | | | | | 2018 | | | 2017 | | 2016 | | | | | | 2019 | | | 2018 | | | 2017 | | Items that will not be reclassified to profit and loss: | | | | | | | | | | | | | | | | | Changes in revaluation reserve real estate held for own use | | | | | 7 | | | 9 | | | (3 | ) | | | | | 1 | | | | 7 | | | | 9 | | | Remeasurements of defined benefit plans | | | | | (15 | ) | | (175 | ) | | 89 | | | | | | 90 | | | | (15 | ) | | | (175 | ) | | | | | | | (8 | ) | | (166 | ) | | 86 | | | | | | 92 | | | | (8 | ) | | | (166 | ) | Items that may be reclassified subsequently to profit and loss: | | | | | | | | | | | | | | | | | Gains/losses on revaluation ofavailable-for-sale investments | | | | | 530 | | | (134 | ) | | (187 | ) | | Gains/losses transferred to the income statement on disposal and impairment ofavailable-for-sale investments | | | | | (17 | ) | | 441 | | | 427 | | | | (Gains) / losses on revaluation of available-for-sale investments | | | | | | (724) | | | | 531 | | | | (157 | ) | | (Gains) / losses transferred to the income statement on disposal and impairment of available-for-sale investments | | | | | | 94 | | | | (17 | ) | | | 441 | | | Changes in cash flow hedging reserve | | | | | 1 | | | 567 | | | 24 | | | | | | 3 | | | | 1 | | | | 567 | | | Movement in foreign currency translation and net foreign investment hedging reserve | | | | | (20 | ) | | 76 | | | (39 | ) | | | | | (5) | | | | (20 | ) | | | 76 | | | | | | | | 493 | | | 951 | | | 225 | | | | | | (632) | | | | 494 | | | | 927 | | Total income tax related to components of other comprehensive income | | | | | 485 | | | 785 | | | 311 | | | | | | (541) | | | | 486 | | | | 762 | | | | | | | | | | | | | | | | Note | | | 2018 | | | 2017 | | 2016 | | | Income tax related to equity instruments and other | | | | | | | | | | Income tax related to equity instruments | | | 33 | | | | 38 | | | 44 | | | 44 | | | Other | | | | | (12 | ) | | 14 | | | (3 | ) | | Total income tax recognized directly in retained earnings | | | | | 26 | | | 58 | | | 41 | | |
In 2017, the income tax related to components of OCI included a deferred tax benefit of EUR 479 million caused by the decrease of the US corporate income tax rate from 35% to 21% as from January 1, 2018. | | | | | | | | | | | | | | | | | | | | | | | 2019 | | | 2018 | | | 2017 | | | Income tax related to equity instruments and other | | | | | | | | | | | | | | | | | | Income tax related to equity instruments | | | 31 | | | | 51 | | | | 38 | | | | 44 | | | | | | | Other | | | | | | | (1) | | | | (12 | ) | | | 14 | | Total income tax recognized directly in retained earnings | | | | | | | 50 | | | | 26 | | | | 58 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 225230 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 19 | | | | | | | | | | | |
19 Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the net income attributable to owners, after deduction of coupons on perpetual securities andnon-cumulative subordinated notes by the weighted average number of common shares, excluding common shares purchased by the Company and held as treasury shares (refer to note 32.130.1 Share capital – par value and 32.330.3 Treasury shares respectively). | | | | 2018 | | | 2017 | | 2016 | | | 2019 | | | 2018 | | 2017 | | Net income/(loss) attributable to owners | | | 710 | | | 2,469 | | | 437 | | | Net income / (loss) attributable to owners | | | | 1,239 | | | | 710 | | | 2,469 | | | Coupons on perpetual securities | | | (102 | ) | | (103 | ) | | (105 | ) | | | (88) | | | | (102 | ) | | (103 | ) | | Coupons onnon-cumulative subordinated notes | | | (11 | ) | | (28 | ) | | (28 | ) | | | - | | | | (11 | ) | | (28 | ) | Net income/(loss) attributable to owners for basic earnings per share calculation | | | 597 | | | 2,338 | | | 304 | | | Net income/(loss) attributable to common shareholders | | | 593 | | | 2,321 | | | 302 | | | Net income/(loss) attributable to common shareholders B | | | 4 | | | 16 | | | 2 | | | Net income / (loss) attributable to owners for basic earnings per share calculation | | | | 1,151 | | | | 597 | | | 2,338 | | | Net income / (loss) attributable to common shareholders | | | | 1,143 | | | | 593 | | | 2,321 | | | Net income / (loss) attributable to common shareholders B | | | | 8 | | | | 4 | | | 16 | | | Weighted average number of common shares outstanding (in million) | | | 2,036 | | | 2,042 | | | 2,048 | | | | 2,042 | | | | 2,036 | | | 2,042 | | Weighted average number of common shares B outstanding (in million) | | | 571 | | | 575 | | | 575 | | | | 572 | | | | 571 | | | 575 | | | Basic earnings per common share (EUR per share) | | | 0.29 | | | 1.14 | | | 0.15 | | | | 0.56 | | | | 0.29 | | | 1.14 | | Basic earnings per common share B (EUR per share) | | | 0.01 | | | 0.03 | | | | - | | | | 0.01 | | | | 0.01 | | | 0.03 | |
Diluted earnings per share The diluted earnings per share equaled the basic earnings per share for all years disclosed since there were no outstanding share optionsLong Term Incentive Plans which were considered dilutive. 20 Dividend per common share Final dividend 2019 At the Annual General Meeting of Shareholders currently scheduled for May 15, 2020, the Executive Board will, in line with its earlier announcement and absent a further significant deterioration of market circumstances, propose a final dividend for the year 2019 of EUR 0.16 per common share and EUR 0.004 per common share B, which has financial rights attached to it of 1/40th of a common share. After taking into account the interim dividend 2019 of EUR 0.15 per common share, this will result in a total 2019 dividend of EUR 0.31 per common share. After taking the interim dividend 2019 of EUR 0.00375 per common share B into account, this will result in a total 2019 dividend of EUR 0.00775 per common share B. Interim dividend 2019 The interim dividend 2019 was paid in cash or stock at the election of the shareholder. Approximately 55% of holders of common shares elected to receive the cash dividend. The remaining 45% opted for stock dividend. The cash dividend amounted to EUR 0.15 per common share, the stock dividend amounted to one new Aegon common share for every 25 common shares held. The stock dividend and cash dividend are approximately equal in value. The interim dividend was payable as of September 20, 2019. The interim dividend 2019 for common shares B amounted to 1/40th of the dividend paid on common shares. To neutralize the dilutive effect of the 2019 interim dividend paid in shares, Aegon executed a program to repurchase 43,149,667 common shares. Between October 1, 2019, and November 8, 2019, these common shares were repurchased at an average price of EUR 3.89 per share. These shares will be held as treasury shares and will be used to cover future stock dividends. Final dividend 2018 At the Annual General Meeting of Shareholders on May 17, 2019 the Supervisory Board will, absent unforeseen circumstances, propose a final dividend was approved for the year 2018 of EUR 0.15 per common share.share payable in either cash or stock. After taking into account the interim dividend 2018 of EUR 0.14 per common share, this will resultwhich results in a total 2018 dividend of EUR 0.29 per common share. With respect to the common shares B, each of which has financial rights attached to it of 1/40th40th of a common share, the proposed final dividend will beamounted to EUR 0.00375. After taking into account the interim dividend 2018 of EUR 0.0035 per common share B, into account, this will resultwhich results in a total 2018 dividend of EUR 0.00725 per common share B. Approximately 55% of holders of common shares elected to receive the cash dividend. The remaining 45% opted for stock dividend. The final dividend was payable as of June 21, 2019. The stock dividend amounted to one new Aegon common share for every 28 common shares held. The stock dividend and cash dividend are approximately equal. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 231 | | | | Consolidated financial statements of Aegon N.V.Note 21 | | | | | | | | | | |
To neutralize the dilutive effect of the 2018 final dividend paid in shares, Aegon executed a share buyback program to repurchase 32,873,805 common shares. Between July 1, 2019 and August 2, 2019, these common shares were repurchased at an average price of EUR 4.52 per share. These shares will be held as treasury shares and will be used to cover future stock dividends. Interim dividend 2018 The interim dividend 2018 was paid in cash or stock at the election of the shareholder. Approximately 56% of holders of common shares elected to receive the cash dividend. The remaining 44% have opted for stock dividend. The cash dividend amounted to EUR 0.14 per common share, the stock dividend amounted to one new Aegon common share for every 37 common shares held. The stock dividend and cash dividend are approximately equal in value. The interim dividend was payable as of September 21, 2018. The interim dividend 2018 for common shares B amounted to 1/40th of the dividend paid on common shares. To neutralize the dilutive effect of the 2018 interim dividend paid in shares, Aegon executed a program to repurchase 24,133,950 common shares. Between October 1, 2018, and November 9, 2018, these common shares were repurchased at an average price of EUR 5.43 per share. These shares will be held as treasury shares and will be used to cover future stock dividends. Final dividend 2017 The Annual General Meeting of Shareholders on May 18, 2018, approved a final dividend was approved over the year 2017 of EUR 0.14 per common share payable in either cash or stock, related to the second half of 2017. Approximately 58% of holders of common shares elected to receive the cash dividend. The remaining 42% have opted for stock dividend. The final dividend was payable as of June 22, 2018. The stock dividend amounted to one new Aegon common share for every 39 common shares held. The stock dividend and cash dividend are approximately equal. To neutralize the dilutive effect of the 2017 final dividend paid in shares, Aegon executed a program to repurchase 21,954,140 common shares. Between July 2, 2018, and August 10, 2018, these common shares were repurchased at an average price of EUR 5.34 per share. These shares will be held as treasury shares and will be used to cover future stock dividends. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 226 | | Notes to the consolidated financial statements Note 21 | | | |
Interim dividend 2017 The interim dividend 2017 was paid in cash or stock at the election of the shareholder. Approximately 57% of holders of common shares elected to receive the cash dividend. The remaining 43% have opted for stock dividend. The cash dividend amounted to EUR 0.13 per common share, the stock dividend amounted to one new Aegon common share for every 36 common shares held. The stock dividend and cash dividend are approximately equal in value. The interim dividend was payable as of September 15, 2017. The interim dividend 2017 for common shares B amounted to 1/40th of the dividend paid on common shares. To neutralize the dilutive effect of the 2016 final and 2017 interim dividend paid in shares, Aegon executed a program to repurchase 51,864,626 common shares. Between October 2, 2017, and December 15, 2017, these common shares were repurchased at an average price of EUR 5.0950 per share. These shares will be held as treasury shares and will be used to cover future stock dividends. Final dividend 2016
The Annual General Meeting of Shareholders on May 19, 2017, approved a final dividend over 2016 of EUR 0.13 per common share payable in either cash or stock, related to the second half of 2016. Approximately 54% of holders of common shares elected to receive the cash dividend. The remaining 46% have opted for stock dividend. The final dividend was payable as of June 23, 2017. The stock dividend amounted to one new Aegon common share for every 35 common shares held. The stock dividend and cash dividend are approximately equal in value. Dividend paid on common shares B amounted to 1/40th of the dividend paid on common shares.
Interim dividend 2016
The interim dividend 2016 was paid in cash or stock at the election of the shareholder. Approximately 58% of holders of common shares elected to receive the cash dividend. The remaining 42% have opted for stock dividend. The cash dividend amounted to EUR 0.13 per common share, the stock dividend amounted to one new Aegon common share for every 28 common shares held. The stock dividend and cash dividend are approximately equal in value. The interim dividend was payable as of September 16, 2016. The interim dividend 2016 for common shares B amounted to 1/40th of the dividend paid on common shares.
To neutralize the dilutive effect of the 2016 interim dividend paid in shares, Aegon executed a program to repurchase 30,765,224 common shares. Between October 3, 2016, and November 11, 2016, these common shares were repurchased at an average price of EUR 3.8406 per share. These shares will be held as treasury shares and will be used to cover future stock dividends.
21 Cash and cash equivalents | | | | 2018 | | | 2017 | | | 2016 | | | 2019 | | | 2018 | | | 2017 | | Cash at bank and in hand | | | 3,725 | | | | 3,720 | | | | 3,727 | | | | 4,619 | | | | 3,725 | | | | 3,720 | | | Short-term deposits | | | 2,524 | | | | 2,544 | | | | 3,666 | | | | 2,518 | | | | 2,524 | | | | 2,544 | | | Money market investments | | | 2,493 | | | | 4,496 | | | | 3,939 | | | | 5,116 | | | | 2,493 | | | | 4,496 | | | Short-term collateral | | | 2 | | | | 7 | | | | 16 | | | | 11 | | | | 2 | | | | 7 | | At December 31 | | | 8,744 | | | | 10,768 | | | | 11,347 | | | | 12,263 | | | | 8,744 | | | | 10,768 | |
The carrying amounts disclosed reasonably approximate the fair values as at the year-end. EUR 6.27.2 billion (2017:(2018: EUR 7.06.2 billion) of cash collateral is received related to securities lending, repurchase agreements and margins on derivatives transactions. A corresponding liability to repay the cash is recognized in other liabilities (note 44(refer to note 41 Other liabilities). Refer to note 4946 Transfer of financial assets for details on collateral received and paid. Investment of cash collateral received is restricted through limitations on credit worthiness, duration, approved investment categories and borrower limits. EUR 211 million (2017:(2018: EUR 72 million) of the cash collateral received is included in cash and cash equivalents and the remainder is included in other asset classes as that collateral is typically reinvested. Aegon earns a share of the spread between the collateral earnings and the rebate paid to the borrower of the securities. Income from securities lending programs was approximately EUR 6 million (2018: EUR 8 million (2017:million; 2017: EUR 11 million; 2016: EUR 13 million). The weighted effective interest rate on short-term deposits in 2018 was 0.39% negative (2017: 0.32% negative) and these deposits have an average maturity of 28 days (2017: 31 days).
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 227232 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 21 | | | | | | | | | | | |
The weighted effective interest rate on short-term deposits in 2019 was 0.38% negative (2018: 0.39% negative) and these deposits have an average maturity of 19 days (2018: 28 days). For the purposes of the cash flow statement, cash and cash equivalents comprise the following: | | | | Note | | | 2018 | | | 2017 | | 2016 | | | Note | | | 2019 | | | 2018 | | | 2017 | | Cash and cash equivalents | | | | | 8,744 | | | | 10,768 | | | 11,347 | | | | | | 12,263 | | | | 8,744 | | | | 10,768 | | | Cash classified as Assets held for sale | | | 22 | | | | - | | | | 260 | | | | - | | | | | | - | | | | - | | | | 260 | | | Bank overdrafts | | | 44 | | | | - | | | | (2 | ) | | (1 | ) | | | 41 | | | | - | | | | - | | | | (2 | ) | | Bank overdrafts classified as Liabilities held for sale | | | | | - | | | | (1 | ) | | | - | | | | | | - | | | | - | | | | (1 | ) | Net cash and cash equivalents | | | | | 8,744 | | | | 11,026 | | | 11,346 | | | | | | 12,263 | | | | 8,744 | | | | 11,026 | |
Cash and cash equivalents include cash and demand balances held at the Dutch Central Bank. The Dutch Central Bank requires Aegon Bank N.V. to place 1% of their deposits with agreed maturity or the savings accounts (without restrictions to withdraw their money) in an account with the Dutch Central Bank. This deposit is renewed 12 times per year,every 42-49 days, based on an updated valuation of total assets. The interest receivedpaid on this deposit is equal to the ECB deposit rate (whichwhich was -40bp-50bp as from 18 September 2019 (-40bp throughout 2017 and 2018)2018 up to 18 September 2019). The year-end minimum required balance on deposit by the Dutch Central Bank was EUR 7079 million (2017:(2018: EUR 6770 million). These deposits are therefore not freely available. | | Summary cash flow statement | | 2018 | | | 2017 | | 2016 | | | 2019 | | | 2018 | | 2017 | | Net cash flows from operating activities | | | 517 | | | 553 | | | 3,319 | | | | 7,302 | | | | 517 | | | 553 | | | Net cash flows from investing activities | | | (438 | ) | | (1,196 | ) | | (1,078 | ) | | | (86) | | | | (438 | ) | | (1,196 | ) | | Net cash flows from financing activities | | | (2,395 | ) | | 519 | | | (465 | ) | | | (3,730) | | | | (2,395 | ) | | 519 | | Net increase in cash and cash equivalents | | | (2,317 | ) | | (125 | ) | | 1,776 | | | | 3,486 | | | | (2,317 | ) | | (125 | ) |
Net cash and cash equivalents at December 31, 2018,2019, are positively impacted by effects of changes in exchange rates of EUR 33 million (2018: EUR 35 million (2017:positive; 2017: EUR 196 million negative; 2016: EUR 23 million negative). Analysis of cash flows 2019 compared to 2018 Net cash flows from operating activities Total net cash flow from operating activities increased by EUR 6,785 million to a EUR 7,302 million inflow (2018: EUR 517 million inflow). The main movements are the cash inflows regarding insurance and investment liabilities general account and for account of policyholder (refer to note 34 Insurance contracts and note 35 Investment contracts), cash inflows from disposal of derivatives (refer to note 24 Derivatives) and net purchase of investments for account of policyholder (refer to note 23 Investments for account of policyholders) partially offset by outflow from results from financial transactions (refer to note 10 Results from financial transactions). Net cash flows from investing activities Net cash flows from investing activities increased by EUR 352 million to a EUR 86 million outflow (2018: EUR 438 million outflow). The total consideration paid for acquisitions/capital contributions in joint ventures and associates, was EUR 269 million. The total consideration received for disposals, excluding transferred assets and reinsurance assets from reinsurance transactions, was EUR 155 million. Transferred cash and cash equivalents amounts to an outflow of EUR 17 million as a result of disposal of entities over which control is lost. The outflow in 2019 is mainly driven by the expansion of the joint venture arrangement with Banco Santander in Spain and capital injections to support growth in Amvest, offset by the sale off the businesses in Czech Republic and Slovakia (refer to note 48 Business combinations). Net cash flows from financing activities Net cash flow from financing activities decreased by EUR 1,312 million to a EUR 3,707 million outflow (2018: EUR 2,395 million outflow). The decrease is a result of proceeds and repayments of borrowings (refer to the table below and note 37 Borrowings) and other equity instruments redeemed (refer to note 31 Other equity instruments). | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 233 | | | | Consolidated financial statements of Aegon N.V.Note 21 | | | | | | | | | | |
2018 compared to 2017 Net cash flows from operating activities Total net cash flow from operating activities decreased slightly by EUR 36 million to a EUR 517 million inflow (2017: EUR 553 million inflow). The main movements are the inflow from results from financial transactions (refer to note 10 Result from financial transactions) offset by cash outflows regarding insurance and investment liabilities for account of policyholder (refer to note 3634 Insurance contracts and note 3735 Investment contracts). Net cash flows from investing activities Net cash flows from investing activities increased by EUR 758 million to a EUR 438 million outflow (2017: EUR 1,196 million outflow). The total consideration paid for acquisitions, including cash in acquired entities, was EUR 89 million. The total consideration received for disposals, excluding transferred assets and reinsurance assets from reinsurance transactions, was EUR 214 million. Total consideration received in cash and cash equivalents amounted to EUR 202 million, as anearn-out of EUR 2 million was part of the total consideration. Transferred cash and cash equivalents amounts to an outflow of EUR 416 million as a result of reinsurance transactions and disposal of entities over which control is lost. The outflow in 2018 is mainly driven by the acquisition of Robidus, the divestment of Aegon Ireland plc and the divestment of the last substantial block of US Life reinsurance business (refer to note 5148 Business combinations). Net cash flows from financing activities Net cash flow from financing activities decreased by EUR 2,914 million to a EUR 2,395 million outfowoutflow (2017: EUR 519 million inflow). The decrease is a result of proceeds and repayments of borrowings (refer to the following table below and note 3937 Borrowings) and other equity instruments redeemed (refer to note 3331 Other equity instruments). 2017 compared to 2016
Net cash flows from operating activities
Total net cash flows from operating activities decreased by EUR 2,766 million to a EUR 553 million inflow (2016: 3,319 EUR million inflow). The decrease is mainly driven by an outflow from results from financial transactions, changes in accruals and money market investments. These cash outflows are partly offset by the net purchase of investments for account of policyholders and by net changes in cash collateral.
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 228 | | Notes to the consolidated financial statements Note 22 | | | |
Net cash flows from investing activities
Net cash flows from investing activities decreased by EUR 118 million to a EUR 1,196 million outflow (2016: EUR 1,078 million outflow). The total consideration paid for acquisitions, including cash in acquired entities, was EUR 52 million. The total consideration received for disposals, excluding transferred assets and reinsurance assets from reinsurance transactions, was EUR 299 million. Total consideration received in cash and cash equivalents amounted to EUR 306 million, as anearn-out of EUR 7 million was part of the total consideration. Transferred cash and cash equivalents amounts to an outflow of EUR 1,361 million as a result of reinsurance transactions and disposals of entities over which control is lost. The decrease is mainly driven by the aquisition of Cofunds Ltd., the divestment of the payout annuity business and Bank Owned Life Insurance/Corporate Owned Life Insurance business (BOLI/COLI) and the sale of Unirobe Meeùs Groep (UMG) (refer to note 51 Business combinations).
Net cash flows from financing activities
Net cash flows from financing activities increased by EUR 984 million to a EUR 519 million inflow (2016: EUR 465 million outflow). The increase is mainly a result of proceeds and repayments of borrowings (refer to the table below and note 39 Borrowings).
Reconciliation of liabilities arising from financing activities The table below shows the reconciliation between the net cash flows from financing activities and the liabilities as included in the consolidated statement of financial position. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows | | | | Non-cash changes | | Reconciliation of debt from financing activities | | 
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| | Subordinated borrowings | | | 764 | | | | 640 | | | - | | | | | - | | | | - | | | | - | | | | 2 | | | | (68 | ) | | | - | | | | 52 | | | | 1,389 | | Trust pass-through securities | | | 133 | | | | - | | | - | | | | | - | | | | - | | | | (6 | ) | | | - | | | | - | | | | - | | | | 6 | | | | 133 | | Borrowings | | | 13,635 | | | | 3,545 | | | (5,211) | | | | | (151 | ) | | | (23 | ) | | | - | | | | 2 | | | | - | | | | - | | | | 263 | | | | 12,061 | | Assets held to hedge Trust pass-through securities | | | 15 | | | | - | | | - | | | | | - | | | | (6 | ) | | | - | | | | - | | | | - | | | | - | | | | 1 | | | | 10 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows | | | | | | Non-cash changes | | Reconciliation of debt from financing activities | | 
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| | Subordinated borrowings | | | 767 | | | | - | | | | - | | | | | | | | - | | | | - | | | | 6 | | | | - | | | | (9 | ) | | | 764 | | Trust pass-through securities | | | 156 | | | | - | | | | - | | | | | | | | - | | | | (4 | ) | | | - | | | | - | | | | (19 | ) | | | 133 | | Borrowings | | | 13,153 | | | | 9,170 | | | | (7,918 | ) | | | | | | | (10 | ) | | | - | | | | (1 | ) | | | 1 | | | | (760 | ) | | | 13,635 | | Assets held to hedge Trust pass-through securities | | | 22 | | | | - | | | | - | | | | | | | | (4 | ) | | | - | | | | - | | | | - | | | | (2 | ) | | | 15 | |
22 Assets and liabilities held for sale
Assets and liabilities held for sale include disposal groups whose carrying amount will be recovered principally through a sale transaction expected within the next year rather than through continuing operations. This relates to businesses for which a sale is agreed upon or a sale is highly probable at the reporting date, but for which the transaction has not yet fully closed. As of December 31, 2018, there are no assets or liabilities held for sale.
In 2018, Aegon completed the sale of Aegon Ireland plc., also referred to as VA Europe. As a consequence, the related assets and liabilities are no longer classified as assets and liabilities held for sale at year-end 2018. For more information related to the sale transaction, refer to note 51 Business combinations.
As of December 31, 2018, there are no unrealized gains relating tonon-current assets and disposal groups classified as held for sale included in other comprehensive income.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Cash flows | | | | | | | | Non-cash changes | | Reconciliation of debt from financing
activities | |
| At January 1,
2019 |
| | | Addition | | | | Repayment | | | | | | |
| Disposal of
a business |
| |
| Realized gains /
losses in
income
statement |
| |
| Movements
related to fair
value hedges |
| | | Amortization | | |
| Transfer to/
from other
headings |
| | | Other | | |
| Net
exchange
difference |
| |
| At December 31,
2019 |
| Subordinated borrowings | | | 1,389 | | | | 806 | | | | - | | | | | | | | - | | | | - | | | | - | | | | 1 | | | | - | | | | - | | | | 11 | | | | 2,207 | | | | | | | | | | | | | | | Trust pass-through securities | | | 133 | | | | - | | | | - | | | | | | | | - | | | | - | | | | 1 | | | | (1 | ) | | | - | | | | - | | | | 2 | | | | 136 | | | | | | | | | | | | | | | Borrowings | | | 12,061 | | | | 4,117 | | | | (7,014 | ) | | | | | | | - | | | | (8 | ) | | | - | | | | 1 | | | | - | | | | - | | | | 149 | | | | 9,307 | | Assets held to hedge Trust pass-through securities | | | 10 | | | | - | | | | - | | | | | | | | - | | | | 1 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 11 | | | | | | | | | | Cash flows | | | | | | | | Non-cash changes | | Reconciliation of debt from financing
activities | |
| At January 1,
2018 |
| | | Addition | | | | Repayment | | | | | | |
| Disposal of
a business |
| |
| Realized gains /
losses in
income
statement |
| |
| Movements
related to fair
value hedges |
| | | Amortization | | |
| Transfer to/
from other
headings |
| | | Other | | |
| Net
exchange
difference |
| |
| At December 31,
2018 |
| Subordinated borrowings | | | 764 | | | | 640 | | | | - | | | | | | | | - | | | | - | | | | - | | | | 2 | | | | (68 | ) | | | - | | | | 52 | | | | 1,389 | | Trust pass-through securities | | | 133 | | | | - | | | | - | | | | | | | | - | | | | - | | | | (6 | ) | | | - | | | | - | | | | - | | | | 6 | | | | 133 | | Borrowings | | | 13,635 | | | | 3,545 | | | | (5,211 | ) | | | | | | | (151 | ) | | | (23 | ) | | | - | | | | 2 | | | | - | | | | - | | | | 263 | | | | 12,061 | | Assets held to hedge Trust pass-through securities | | | 15 | | | | - | | | | - | | | | | | | | - | | | | (6 | ) | | | - | | | | - | | | | - | | | | - | | | | 1 | | | | 10 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 229234 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 2322 | | | | | | | | | | | |
2322 Investments
Investments for general account comprise financial assets, excluding derivatives, as well as investments in real estate. | | | | Note | | | 2018 | | | 2017 | | | Note | | | 2019 | | | 2018 | | Available-for-sale (AFS) | | | | | 84,675 | | | | 88,170 | | | | | | 89,404 | | | | 84,675 | | Loans | | | | | 42,653 | | | | 39,368 | | | | | | 44,591 | | | | 42,653 | | Financial assets at fair value through profit or loss (FVTPL) | | | | | 8,597 | | | | 7,119 | | | | | | 9,080 | | | | 8,597 | | Total financial assets, excluding derivatives | | | 23.1 | | | | 135,925 | | | | 134,658 | | | | 22.1 | | | | 143,075 | | | | 135,925 | | Investments in real estate | | | 23.2 | | | | 2,700 | | | | 2,147 | | | | 22.2 | | | | 2,901 | | | | 2,700 | | Total investments for general account | | | | | 138,625 | | | | 136,804 | | | | | | 145,976 | | | | 138,625 | |
23.122.1 Financial assets, excluding derivatives
| | | | | AFS | | | FVTPL | | | Loans | | | Total | | | Fair value | | 2019 | | | | | | | | | | | | Shares | | | | 409 | | | | 1,813 | | | | - | | | | 2,221 | | | | 2,221 | | Debt securities | | | | 82,918 | | | | 3,934 | | | | - | | | | 86,853 | | | | 86,853 | | Money market and other short-term investments | | | | 5,169 | | | | 158 | | | | - | | | | 5,327 | | | | 5,327 | | Mortgage loans | | | | - | | | | - | | | | 37,750 | | | | 37,750 | | | | 42,567 | | Private loans | | | | - | | | | - | | | | 4,487 | | | | 4,487 | | | | 5,159 | | Deposits with financial institutions | | | | - | | | | - | | | | 141 | | | | 141 | | | | 141 | | Policy loans | | | | - | | | | - | | | | 2,024 | | | | 2,024 | | | | 2,024 | | Other | | | | 908 | | | | 3,175 | | | | 188 | | | | 4,272 | | | | 4,272 | | At December 31, 2019 | | | | 89,404 | | | | 9,080 | | | | 44,591 | | | | 143,075 | | | | 148,563 | | | | | AFS | | | FVTPL | | | Loans | | | Total | | | Fair value | | | 2018 | | | | | | | | | | | | | | | | | | | | | Shares | | | 478 | | | | 1,682 | | | | - | | | | 2,161 | | | | 2,161 | | | | 478 | | | | 1,682 | | | | - | | | | 2,161 | | | | 2,161 | | Debt securities | | | 77,340 | | | | 3,913 | | | | - | | | | 81,253 | | | | 81,253 | | | | 77,340 | | | | 3,913 | | | | - | | | | 81,253 | | | | 81,253 | | Money market and other short-term investments | | | 5,955 | | | | 352 | | | | - | | | | 6,307 | | | | 6,307 | | | | 5,955 | | | | 352 | | | | - | | | | 6,307 | | | | 6,307 | | Mortgage loans | | | - | | | | - | | | | 36,240 | | | | 36,240 | | | | 39,758 | | | | - | | | | - | | | | 36,240 | | | | 36,240 | | | | 39,758 | | Private loans | | | - | | | | - | | | | 4,103 | | | | 4,103 | | | | 4,494 | | | | - | | | | - | | | | 4,103 | | | | 4,103 | | | | 4,494 | | Deposits with financial institutions | | | - | | | | - | | | | 141 | | | | 141 | | | | 141 | | | | - | | | | - | | | | 141 | | | | 141 | | | | 141 | | Policy loans | | | - | | | | - | | | | 1,973 | | | | 1,973 | | | | 1,973 | | | | - | | | | - | | | | 1,973 | | | | 1,973 | | | | 1,973 | | Other | | | 902 | | | | 2,649 | | | | 196 | | | | 3,747 | | | | 3,747 | | | | 902 | | | | 2,649 | | | | 196 | | | | 3,747 | | | | 3,747 | | At December 31, 2018 | | | 84,675 | | | | 8,597 | | | | 42,653 | | | | 135,925 | | | | 139,834 | | | | 84,675 | | | | 8,597 | | | | 42,653 | | | | 135,925 | | | | 139,834 | | | | | | 2017 | | | | | | | | | | | | Shares | | | 490 | | | | 1,062 | | | | - | | | | 1,551 | | | | 1,551 | | | Debt securities | | | 80,200 | | | | 4,144 | | | | - | | | | 84,344 | | | | 84,344 | | | Money market and other short-term investments | | | 6,690 | | | | 119 | | | | - | | | | 6,809 | | | | 6,809 | | | Mortgage loans | | | - | | | | - | | | | 33,562 | | | | 33,562 | | | | 38,076 | | | Private loans | | | - | | | | - | | | | 3,642 | | | | 3,642 | | | | 4,181 | | | Deposits with financial institutions | | | - | | | | - | | | | 139 | | | | 139 | | | | 139 | | | Policy loans | | | - | | | | - | | | | 1,897 | | | | 1,897 | | | | 1,897 | | | Other | | | 791 | | | | 1,795 | | | | 127 | | | | 2,713 | | | | 2,713 | | | At December 31, 2017 | | | 88,170 | | | | 7,119 | | | | 39,368 | | | | 134,658 | | | | 139,711 | | |
Of the debt securities, money market and other short-term investments, mortgage loans and private loans EUR 13,28714,654 million is current (2017:(2018: EUR 13,74913,287 million). Refer to note 4744 Fair value for further detail on fair value measurement. Loan allowance Movement on the loan allowance account during the year were as follows: | | | | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | At January 1 | | | | | (165 | ) | | (137 | ) | | | (138 | ) | | (165 | ) | Addition charged to income statement | | | | | (35 | ) | | (50 | ) | | | (76 | ) | | (35 | ) | Reversal to income statement | | | | | 3 | | | 13 | | | | 5 | | | 3 | | Amounts written off | | | | | 40 | | | 10 | | | | 44 | | | 40 | | Net exchange differences | | | | | (1 | ) | | 3 | | | | - | | | (1 | ) | | Other | | | | | 20 | | | (4 | ) | | | - | | | 20 | | At December 31 | | | | | (138 | ) | | (165 | ) | | | (165 | ) | | (138 | ) |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 230235 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 23 | | | | | | | | | | | | |
23.222.2 Investments in real estate
| | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | At January 1 | | | 2,147 | | | | 1,999 | | | | 2,700 | | | 2,147 | | Additions | | | 472 | | | | 239 | | | | 179 | | | 472 | | Subsequent expenditure capitalized | | | 3 | | | | 10 | | | | 16 | | | 3 | | Transfers from other headings | | | - | | | | 1 | | | Disposals | | | (209 | ) | | | (202 | ) | | | (331 | ) | | (209 | ) | Fair value gains/(losses) | | | 261 | | | | 193 | | | Fair value gains / (losses) | | | | 317 | | | 261 | | Net exchange differences | | | 27 | | | | (89 | ) | | | 9 | | | 27 | | Other | | | (1 | ) | | | (4 | ) | | | 11 | | | (1 | ) | At December 31 | | | 2,700 | | | | 2,147 | | | | 2,901 | | | 2,700 | |
99%100% of the value of Aegon’s properties, both for general account and for account of policyholders, were appraised (2017: 95%(2018: 99%), of which 98%99% was performed by independent external appraisers (2017: 99%(2018: 98%).
Of the investments in real estate EUR 530653 million (2017:(2018: EUR 633530 million) is held by Aegon Americas and EUR 2,1502,229 million (2017:(2018: EUR 1,4942,150 million) is held by Aegon the Netherlands. Aegon Americas has invested in a commercial property portfolio, consisting of office, retail and industrial buildings. Thesenon-cancellable leases have remaining lease terms up to 20 years. Most leases include a clause to enable upward revision of the rental charge on an annual basis according to either a fixed schedule or prevailing market conditions. Aegon the Netherlands has invested in long-term residential property leases that can be terminated subject to a short-term notice. Under Dutch law, the maximum annual rent increase on residential property rented in the affordable housing segment is specified by the Dutch national government and equals the annual inflation rate plus a small margin. Refer to note 4845 Commitments and contingencies for a description ofnon-cancellable lease rights. Rental income of EUR 83 million (2018: EUR 82 million (2017:million; 2017: EUR 71 million; 2016: EUR 69 million) is reported as part of investment income in the income statement. Direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the period amounted to EUR 59 million (2018: EUR 63 million (2017:million; 2017: EUR 71 million; 2016: EUR 79 million). In 2018,2019, EUR 2 million of direct operating expenses is related to investment properties that did not generate rental income during the period (2017:(2018: EUR 2 million; 2017: EUR 1 million; 2016: 1 million). Transfers from other headings in 2017 mainly reflect the properties that were foreclosed during the year. The associated mortgage loans were previously reported as part of investments.
There are no restrictions on the realizability of investment property or the remittance of income and proceeds of disposal. Refer to note 4845 Commitments and contingencies for a summary of contractual obligations to purchase investment property. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 231 | | Notes to the consolidated financial statements Note 24 | | | | | | |
2423 Investments for account of policyholders
Investments for account of policyholders comprise financial assets at fair value through profit or loss, excluding derivatives, and investments in real estate. | | | | | | | | | | | | | | | | Note | | | 2018 | | | 2017 | | Shares | | | | | | | 20,640 | | | | 25,370 | | Debt securities | | | | | | | 20,441 | | | | 24,836 | | Money market and other short-term investments | | | | | | | 1,578 | | | | 2,340 | | Deposits with financial institutions | | | | | | | 3,263 | | | | 2,946 | | Unconsolidated investment funds | | | | | | | 143,800 | | | | 134,132 | | Other | | | | | | | 4,020 | | | | 3,786 | | | Total investments for account of policyholders at fair value through profit or loss, excluding derivatives | | | | | | | 193,741 | | | | 193,409 | | | | | | Investments in real estate | | | 24.1 | | | | 612 | | | | 655 | | Total investments for account of policyholders | | | | | | | 194,353 | | | | 194,063 | |
Included in investments for account of policyholders is the BlackRock Part VII transfer1 in the United Kingdom, completed on July 1, 2018. This transaction has transferred GBP 16.3 billion (EUR 18.4 billion) of unit linked defined contribution assets and liabilities into the Group’s portfolio. Refer to note 37 Investments contracts for account of policyholders for the impact on liabilities.
The resulting increase in investments for account of policyholders above is offset by increased withdrawals and unfavorable equity markets performance in 2018. Refer to note 10 Results from financial transactions for further details on the impact of fair value changes.
| | | | | | | | | | | | | | | | Note | | | 2019 | | | 2018 | | Shares | | | | | | | 25,288 | | | | 20,640 | | Debt securities | | | | | | | 20,744 | | | | 20,441 | | Money market and other short-term investments | | | | | | | 1,805 | | | | 1,578 | | Deposits with financial institutions | | | | | | | 3,278 | | | | 3,263 | | Unconsolidated investment funds | | | | | | | 170,039 | | | | 143,800 | | Other | | | | | | | 4,634 | | | | 4,020 | | | Total investments for account of policyholders at fair value through profit or loss, excluding derivatives | | | | | | | 225,788 | | | | 193,741 | | | | | | Investments in real estate | | | 23.1 | | | | 586 | | | | 612 | | Total investments for account of policyholders | | | | | | | 226,374 | | | | 194,353 | |
Refer to note 4744 Fair value for a summary of all financial assets and financial liabilities at fair value through profit or loss. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 236 | | | | Consolidated financial statements of Aegon N.V. Note 24 | | | | | | | | | | |
24.123.1 Investments in real estate for account of policyholders
| | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | At January 1 | | | 655 | | | 686 | | | | 612 | | | | 655 | | Additions | | | - | | | 7 | | | Subsequent expenditure capitalized | | | 2 | | | 3 | | | | 2 | | | | 2 | | Disposals | | | (43 | ) | | (53 | ) | | | (43 | ) | | | (43 | ) | Fair value gains/(losses) | | | 5 | | | 38 | | | Fair value gains / (losses) | | | | (18 | ) | | | 5 | | | Net exchange differences | | | (7 | ) | | (26 | ) | | | 34 | | | | (7 | ) | At December 31 | | | 612 | | | 655 | | | | 586 | | | | 612 | |
The investment properties are leased out under operating leases. Rental income of EUR 42 million (2018: EUR 47 million (2017:million; 2017: EUR 50 million; 2016: EUR 60 million) is reported as part of investment income in the income statement. Direct operating expenses relating to investments in real estate for account of policyholder amounted to EUR 46 million in 2018 (2017:2019 (2018: EUR 4 million, 2016:2017: EUR 54 million). There are no restrictions on the realizability of investment property or the remittance of income and proceeds of disposal. Refer to note 4845 Commitments and contingencies for a summary of contractual obligations to purchase investment property. 1 | A Part VII transfer is a court-sanctioned legal transfer of some or all of the policies of one company to another governed by Part VII of the UK Financial Services and Markets Act 2000.
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| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 232 | | Notes to the consolidated financial statements Note 25 | | | | | | |
2524 Derivatives
| | | | Derivative asset | | | Derivative liability | | | | Derivative asset | | | | Derivative liability | | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Derivatives for general account | | | | | | | | | | | | | | | | | Derivatives not designated in a hedge | | | 6,904 | | | | 5,081 | | | | 6,879 | | | | 6,716 | | | | 10,134 | | | | 6,904 | | | | 11,060 | | | | 6,879 | | Derivatives designated as fair value hedges | | | 30 | | | | 32 | | | | 29 | | | | 48 | | | | 21 | | | | 30 | | | | 26 | | | | 29 | | Derivatives designated as cash flow hedges | | | 289 | | | | 393 | | | | 151 | | | | 233 | | | | 390 | | | | 289 | | | | 320 | | | | 151 | | | Derivatives designated as Net foreign investment hedges | | | 115 | | | | 57 | | | | 114 | | | | 57 | | | | 112 | | | | 115 | | | | 96 | | | | 114 | | | | | 7,337 | | | | 5,563 | | | | 7,174 | | | | 7,053 | | | | 10,658 | | | | 7,337 | | | | 11,501 | | | | 7,174 | | | Derivatives for account of policyholders | | | | | | | | | | | Derivatives for account of policyholders | | | | | | | | | | Derivatives not designated in a hedge | | | 278 | | | | 349 | | | | 56 | | | | 76 | | | | 499 | | | | 278 | | | | 114 | | | | 56 | | | | | | 278 | | | | 349 | | | | 56 | | | | 76 | | | Total derivatives1 | | | 7,615 | | | | 5,912 | | | | 7,230 | | | | 7,130 | | | Total derivatives1) | | | | 11,157 | | | | 7,615 | | | | 11,616 | | | | 7,230 | |
| 1 | Refer to note 4744 Fair value for a summary of all financial assets and financial liabilities at fair value through profit or loss. |
The fair value of derivatives on the asset and liability side of the consolidated statement of financial position increased during 2018 mainy2019 mainly due to market movements, changes in interest rates and changes in the credit spread, as well as purchases, disposals and maturities. Refer to note 4744 Fair value for details on fair value measurement of derivatives. Of the derivatives EUR 1,643581 million (2017:(2018: EUR 4951,643 million) and EUR 1,8862,300 million (2017:(2018: EUR 9491,886 million) are current derivative assets and liabilities respectively. Aegon the Netherlands partially hedges the risk of future longevity increases in the Netherlands related to a part of its insurance liabilities. These longevity derivatives are constructed to pay out if the mortality rates in future years have decreased more thana pre-determinedpredetermined percentage compared with the base scenario at the moment of signing the contract. The above mentioned transactions are used to enhance Aegon’s risk-return profile and to improve capital efficiency. The derivatives are measured at fair value through profit or loss in accordance with IAS 39. The value of the longevity derivatives are calculated using an internal model as there is no active market for this type of derivatives. For more details refer to the paragraph on underwriting risk included in note 3634 Insurance contracts and the paragraph on derivatives included in note 4744 Fair value. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 237 | | | | Consolidated financial statements of Aegon N.V.Note 24 | | | | | | | | | | |
Use of derivatives Derivatives not designated in a hedge –- general account | | | | Derivative asset | | | Derivative liability | | | Derivative asset | | | Derivative liability | | | Derivatives not designated in a hedge – general account | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | Derivatives held as an economic hedge | | | 6,808 | | | | 4,933 | | | | 4,278 | | | | 4,774 | | | | 10,118 | | | | 6,808 | | | | 7,854 | | | | 4,278 | | Bifurcated embedded derivatives | | | 5 | | | | 13 | | | | 2,588 | | | | 1,937 | | | | 16 | | | | 5 | | | | 3,197 | | | | 2,588 | | | Other | | | 91 | | | | 134 | | | | 12 | | | | 5 | | | | - | | | | 91 | | | | 9 | | | | 12 | | Total | | | 6,904 | | | | 5,081 | | | | 6,879 | | | | 6,716 | | | | 10,134 | | | | 6,904 | | | | 11,060 | | | | 6,879 | |
Aegon utilizes derivative instruments as a part of its asset liability risk management practices. The derivatives held for risk management purposes are classified as economic hedges to the extent that they do not qualify for hedge accounting, or that Aegon has elected not to apply hedge accounting. The economic hedges of certain exposures relate to an existing asset, liability or future reinvestment risk. In all cases, these are in accordance with internal risk guidelines and are closely monitored for continuing compliance. Bifurcated embedded derivatives that are not closely related to the host contracts have been bifurcated and recorded at fair value in the consolidated statement of financial position. These bifurcated embedded derivatives are embedded in various institutional products, modified coinsurance and unit-linked insurance contracts in the form of guarantees for minimum benefits. Please refer to note 3836 Guarantees in insurance contracts for more disclosures about these guarantees. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 233 | | Notes to the consolidated financial statements Note 25 | | | | | | |
CDSs Aegon has entered into free-standing credit derivative transactions. The positions outstanding at the end of the year were: | | | | 2018 | | | 2017 | | | | | | Notional | | | Fair value | | | Notional | | | Fair value | | | CDSs | | | 4,358 | | | | 57 | | | 3,606 | | | | 92 | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | Credit derivative disclosure by quality | | Notional | | | Fair value | | | Notional | | | Fair value | | | | Notional | | | | Fair value | | | | Notional | | | | Fair value | | AAA | | | 16 | | | | - | | | 4 | | | | - | | | | 10 | | | | - | | | | 16 | | | | - | | AA | | | 97 | | | | 1 | | | 83 | | | | 2 | | | | 106 | | | | 3 | | | | 97 | | | | 1 | | A | | | 764 | | | | 10 | | | 750 | | | | 15 | | | | 915 | | | | 13 | | | | 764 | | | | 10 | | BBB | | | 3,201 | | | | 45 | | | 2,392 | | | | 68 | | | | 3,258 | | | | 70 | | | | 3,201 | | | | 45 | | BB | | | 226 | | | | 5 | | | 357 | | | | 8 | | | | 97 | | | | 3 | | | | 226 | | | | 5 | | B or lower | | | 54 | | | | (3 | ) | | 21 | | | | - | | | | 58 | | | | - | | | | 54 | | | | (3 | ) | Total | | | 4,358 | | | | 57 | | | 3,606 | | | | 92 | | | | 4,444 | | | | 89 | | | | 4,358 | | | | 57 | |
Certain derivatives are used to add risk by selling protection in the form of single name and index based credit default swaps.Thisswaps. This involves the purchase of high quality, low risk assets and the sale of credit derivatives. The table above provides a breakdown in credit quality of these credit derivatives. Derivatives designated as fair value hedges Aegon’s fair value hedges consist mainly of interest rate swaps, swaptions, equity and fixed income total return swaps, equity options, equity futures, bond futures and variance swaps that are used to protect against changes in the fair value of interest rate and equity sensitive instruments or liabilities. Gains and losses on derivatives designated under fair value hedge accounting are recognized in the income statement. The effective portion of the fair value change on the hedged item is also recognized in the income statement. As a result, only the net accounting ineffectiveness has an impact on the net result. Aegon has entered into interest rate swap agreements that effectively convert certain fixed-rate assets and liabilities to a floating-rate basis (generally to six months or less LIBOR). These hedges are used for portfolio management to better match assets to liabilities or to protect the value of the hedged item from interest rate movements. These agreements involve the payment or receipt of fixed-rate interest amounts in exchange for floating-rate interest amounts over the life of the agreement without the exchange of the underlying principal amounts. Some of the arrangements use forward starting swaps to better match the duration of assets and liabilities. Aegon has entered into cross-currency interest rate swap agreements that effectively convert certain foreign currency fixed-rate and floating-rate assets and liabilities to US dollar floating-rate assets and liabilities. These agreements involve the exchange of the underlying principal amounts. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 238 | | | | Consolidated financial statements of Aegon N.V.Note 24 | | | | | | | | | | |
For the years ended December 31, 2019, 2018 2017 and 2016,2017, Aegon recognized gains and (losses) related to the ineffectiveness portion of designated fair value hedges of EUR 522 million, EUR 3(9) million and EUR 7(6) million respectively. No portion of derivatives was excluded when assessing hedge effectiveness. During 2016 Aegon the Netherlands changed their risk management policy and decided to take on more interest rate risk, in order to economically offset the interest rate risk on the insurance liabilities. This has resulted in ade-designation for some of the fair value hedge accounting portfolios. The cumulative base adjustment of EUR 53 million peryear-end 2018 (2017: EUR 67 million) is amortized over the weighted average duration (7 to 13 years) of the mortgage portfolios to which hedge-accounting was applied at the date ofde-designation.
Derivatives designated as cash flow hedges Aegon has entered primarily into interest rate swap agreements that effectively convert certain variable-rate assets and liabilities to a fixed-rate basis in order to match the cash flows of the assets and liabilities within Aegon’s portfolio more closely. These agreements involve the payment or receipt of variable-rate interest amounts in exchange for fixed-rate interest amounts over the life of the agreement without the exchange of the underlying principal amounts. Aegon hedges its exposure to the variability of future | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 234 | | Notes to the consolidated financial statements Note 25 | | | | | | |
cash flows from the interest rate movements for terms up to 2725 years for hedges converting existing floating-rate assets and liabilities to fixed-rate assets. Aegon uses forward starting interest rate swap agreements to hedge the variability in future cash flows associated with the forecasted purchase of fixed-income assets. These agreements reduce the impact of future interest rate changes on the forecasted transaction. Fair value adjustments for these interest rate swaps are deferred and recorded in equity until the occurrence of the forecasted transaction at which time the interest rate swaps will be terminated. The accumulated gain or loss in equity will be amortized into investment income as the acquired asset affects income. Aegon hedges its exposure to the variability of future cash flows from interest rate movements for terms up to 2524 years. The cash flows from these hedging instruments are expected to affect the profit and loss for approximately the next 3433 years. For the year ended December 31, 2018,2019, the contracts for which cash flow hedge accounting was terminated resulted in deferred gains of EUR 57112 million (2017:(2018: EUR 59857 million) that are recognized directly in equity to be reclassified into net income during the period when the cash flows occur of the underlying hedged items. During the year ended December 31, 2017, EUR 248 million of Aegon’s cash flow hedges were discontinued, due to the divestment of the payout annuity and BOLI/COLI business. Refer to note 51 Business combinations for more details regarding this investment. Outside of this transaction no other2019, none of Aegon’s cash flow hedges were discontinued as it was highly probable that the original forecasted transactions would occur by the end of the originally specified time period documented at the inception of the hedging relationship. Aegon projects investment needs many years into the future in order to support the insurance liabilities and pay all contractual obligations arising from the policies in force today. In addition, Aegon also makes use of cross currency swaps to convert variable or fixed foreign currency cash flows into fixed cash flows in local currencies. The cash flows from these hedging instruments are expected to occur over the next 1831 years. These agreements involve the exchange of the underlying principal amounts. For the year ended December 31, 2018,2019, Aegon recognized EUR 20 million of hedge ineffectiveness on cash flow hedges (2017:(2018: EUR 2 million loss; 2017: EUR 0 million; 2016: EUR 5 million gain)million). In 2018,2019, EUR 6251 million lossgain was reclassified from equity into investmentthe income (2017:statement (2018: EUR 11362 million loss, 2016:2017: EUR 37113 million loss). The amount of deferred gains or losses to be reclassified from equity into net income during the next 12 months is expected to be EUR 989 million gain. The periods when the cash flows are expected to occur are as follows: | | | | < 1 year | | | 1 – 5 years | | | 5 –10 years | | | > 10 years | | | 2018 Total | | | < 1 year | | | 1 – 5 years | | | 5 – 10 years | | | > 10 years | | | 2019 Total | | Cash inflows | | | 95 | | | | 321 | | | | 301 | | | | 5,582 | | | | 6,299 | | | | 597 | | | | 928 | | | | 875 | | | | 5,764 | | | | 8,165 | | Cash outflows | | | - | | | | 1 | | | | 3 | | | | - | | | | 5 | | | | - | | | | 1 | | | | 3 | | | | - | | | | 4 | | Net cash flows | | | 95 | | | | 320 | | | | 297 | | | | 5,582 | | | | 6,294 | | | | 597 | | | | 927 | | | | 872 | | | | 5,764 | | | | 8,160 | | | | | | < 1 year | | | 1 – 5 years | | | 5 – 10 years | | | > 10 years | | | 2017 Total | | | < 1 year | | | 1 – 5 years | | | 5 – 10 years | | | > 10 years | | | 2018 Total | | Cash inflows | | | 78 | | | | 315 | | | | 312 | | | | 5,648 | | | | 6,352 | | | | 95 | | | | 321 | | | | 301 | | | | 5,582 | | | | 6,299 | | Cash outflows | | | - | | | | 1 | | | | 4 | | | | - | | | | 5 | | | | - | | | | 1 | | | | 3 | | | | - | | | | 5 | | Net cash flows | | | 78 | | | | 314 | | | | 309 | | | | 5,648 | | | | 6,348 | | | | 95 | | | | 320 | | | | 297 | | | | 5,582 | | | | 6,294 | |
Effect of uncertainty of IBOR reform on derivatives designated as fair value and cash flows hedges The future of IBORs (Interbank Offered Rates) such as Euribor, Eonia and LIBOR has been a major topic on the global agenda since the G20 asked the Financial Stability Board (FSB) to undertake a fundamental review of leading interest rate benchmarks in 2013. The FSB proposed new standards to reform interest rate benchmarks and the use of transaction-based input data instead of non-transactional/panel input data. In the EU this is adopted in the new Benchmark Regulation (BMR) which stipulates that from January 2020 only BMR compliant benchmarks may be used within the EU. Despite current uncertainties on how the transition from IBORs to alternative benchmarks will be managed, it is widely acknowledged that IBOR benchmarks impact financial products and contracts, including among others derivatives, corporate bonds, structured | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 239 | | | | Consolidated financial statements of Aegon N.V.Note 25 | | | | | | | | | | |
debt products, deposits and mortgages. Aegon recognizes that IBOR transitions potentially have implications for all reporting units, including its insurance, asset management and banking activities. In order to facilitate an orderly transition from the different IBORs to the new risk free rates Aegon has established for each region a project group led by the local CFO. Transition plans have been prepared by each unit covering the impact on the business- and operating models and include among others project solutions and actions, timelines and ownership to ensure timely preparation and implementation. Aegon has identified a number of legal, financial, pricing, operational and conduct risks and are in the process of addressing these. Aegon continues to analyze these risks and their evolution over the course of the transition. In addition Aegon will continue to engage with industry participants on the transition while monitoring further transition guidance and insights from the different market working groups and regulators. The majority of the fair value and cash flow hedges are directly exposed to changes in benchmark rates (predominantly Eonia, Euribor, and USD Libor), as it is not clear until when these benchmark rates will be continued and how they will transition to alternative rates. For example, the majority of financial instruments designated as fair value or cash flow hedges have a maturity date beyond December 31, 2021 (Net notional amount: EUR 1,594 million). Aegon applies the reliefs offered in IAS 39 to ensure that this uncertainty does not result in the early termination of hedge accounting, whilst also assuming for measurement purposes that, owing to the general principle of equivalence, transitions to alternative rates will not result in significant contract modifications. Net foreign investment hedges Aegon funds its investments in insurance subsidiaries with a mixture of debt and equity. Aegon aims to denominate debt funding in the same currency as the functional currency of the investment. Investments outside the eurozone,Eurozone, the United States and the United Kingdom are funded in euros. When the debt funding of investments is not in the functional currency of the investment, Aegon uses derivatives to swap the currency exposure of the debt instrument to the appropriate functional currency. This policy will ensure that total capital will reflect currency movements without distorting debt to shareholders’ equity ratios. Aegon utilizes various financial instruments as designated hedging instruments of its foreign investments. These instruments include long-term and short-term borrowings, short-term debts to credit institutions, cross currency swap contracts and forward foreign exchange contracts. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 235 | | Notes to the consolidated financial statements Note 26 | | | | | | |
2625 Investments in joint ventures and associates
| | | | | | | Joint ventures | | | Associates | | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | At January 1 | | | 1,712 | | | | 1,614 | | | | 1,745 | | | | 1,712 | | | | 327 | | | | 308 | | | Additions | | | 120 | | | | 81 | | | | 151 | | | | 120 | | | | 39 | | | | 23 | | | Disposals | | | (211 | ) | | | - | | | | (1 | ) | | | (211 | ) | | | - | | | | (1 | ) | | Share in net income | | | 210 | | | | 161 | | | | 214 | | | | 210 | | | | 12 | | | | 6 | | Share in changes in joint ventures equity (note 32.6) | | | 8 | | | | (15 | ) | | Dividend | | | (94 | ) | | | (118 | ) | | | Share in changes in equity (note 30.6) | | | | 8 | | | | 8 | | | | 4 | | | | 2 | | | Impairment losses | | | | - | | | | - | | | | (7 | ) | | | (1 | ) | | Dividends | | | | (120 | ) | | | (94 | ) | | | (10 | ) | | | (3 | ) | | Net exchange difference | | | 4 | | | | (17 | ) | | | 2 | | | | 4 | | | | (1 | ) | | | (8 | ) | | Other | | | (5 | ) | | | 7 | | | | (16 | ) | | | (5 | ) | | | - | | | | - | | At December 31 | | | 1,745 | | | | 1,712 | | | | 1,983 | | | | 1,745 | | | | 363 | | | | 327 | |
In 2018, one of the Amvest funds with a carrying value of EUR 211 million was liquidated. Based on the termination agreement, Aegon received a distribution of its share of the assets and liabilities. As a result, the investment properties, being the main asset class in the fund, were recognized as part of investments in real estate of Aegon. AllWith the exception of a limited number of immaterial venture capital entities, all joint ventures and associates are unlisted and are accounted for using the equity method and are considered to benon-current. The investments in joint ventures and associates include interest in insurance companies that are required to maintain a minimum solvency margin based on local directives. Such restrictions can affect the ability of these joint ventures and associates to transfer funds in the form of cash dividends, or repayment of loans or advances, and therefore, there can be no assurance that these restrictions will not become a limitation in the future. Refer to note 4845 Commitments and contingencies for any commitments and contingencies related to investments in joint ventures. There are no unrecognized shares of losses in joint ventures.ventures and associates. The financial statements of the principal joint ventures and associates have the same reporting date as the Group. Refer to note 5249 Group companies for a listing of the investments in joint ventures and associates and the Group’s percentage holding.
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 236240 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 2625 | | | | | | | | | | | | |
Summarized financial information of joint ventures The summarized financial information presented in the following table presents the joint ventures on a 100% basis. Aegon considers its investment in AMVEST Vastgoed B.V. (AMVEST) a material joint venture and is therefore presented separately. | | | | AMVEST | | | Other Joint ventures | | | | AMVEST | | | | Other Joint ventures | | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | | 2019 | | | | 2018 | | | | 2019 | | | | 2018 | | Summarized statement of financial position | | | | | | | | | | | | | | | | | Cash and cash equivalents | | | 132 | | | | 109 | | | | 511 | | | | 342 | | | | 124 | | | | 132 | | | | 525 | | | | 511 | | Other current assets | | | 157 | | | | 166 | | | | 896 | | | | 721 | | | | 42 | | | | 157 | | | | 1,261 | | | | 896 | | Total current assets | | | 289 | | | | 276 | | | | 1,407 | | | | 1,063 | | | | 166 | | | | 289 | | | | 1,786 | | | | 1,407 | | | Non-current assets | | | 3,304 | | | | 3,173 | | | | 6,723 | | | | 6,521 | | | | 4,319 | | | | 3,304 | | | | 7,451 | | | | 6,723 | | Total assets | | | 3,593 | | | | 3,449 | | | | 8,130 | | | | 7,584 | | | | 4,486 | | | | 3,593 | | | | 9,236 | | | | 8,130 | | | Current financial liabilities excluding trade payables and other provisions | | | - | | | | - | | | | 27 | | | | 30 | | | | - | | | | - | | | | 17 | | | | 27 | | Other current liabilities | | | 154 | | | | 133 | | | | 590 | | | | 503 | | | | 175 | | | | 154 | | | | 661 | | | | 590 | | Total current liabilities | | | 154 | | | | 133 | | | | 617 | | | | 533 | | | | 175 | | | | 154 | | | | 678 | | | | 617 | | | Non-current financial liabilities excluding trade payables and other provisions | | | 590 | | | | 643 | | | | 416 | | | | 220 | | | | 709 | | | | 590 | | | | 439 | | | | 416 | | Othernon-current liabilities | | | - | | | | - | | | | 6,040 | | | | 5,871 | | | | - | | | | - | | | | 6,883 | | | | 6,040 | | Totalnon-current financial liabilities | | | 590 | | | | 643 | | | | 6,456 | | | | 6,091 | | | | 709 | | | | 590 | | | | 7,321 | | | | 6,456 | | | | | | | | | | | | | | | | | | | | Total liabilities | | | 745 | | | | 776 | | | | 7,073 | | | | 6,624 | | | | 884 | | | | 745 | | | | 8,000 | | | | 7,073 | | | | | | | | | | | | | | | | | | | | Net assets | | | 2,848 | | | | 2,673 | | | | 1,057 | | | | 960 | | | | 3,602 | | | | 2,848 | | | | 1,237 | | | | 1,057 | | | Summarized statement of comprehensive income | | | | | | | | | | | | | | | | | Revenue | | | 89 | | | | 91 | | | | 1,599 | | | | 1,420 | | | | 111 | | | | 89 | | | | 1,846 | | | | 1,599 | | Results from financial transactions | | | 349 | | | | 275 | | | | (1 | ) | | | (1 | ) | | | 299 | | | | 349 | | | | 1 | | | | (1 | ) | Depreciation and amortization | | | - | | | | - | | | | (14 | ) | | | (20 | ) | | | - | | | | - | | | | (12 | ) | | | (14 | ) | Interest income | | | - | | | | - | | | | 51 | | | | 186 | | | | - | | | | - | | | | 56 | | | | 51 | | Interest expense | | | (6 | ) | | | (5 | ) | | | (4 | ) | | | (3 | ) | | | (8 | ) | | | (6 | ) | | | (4 | ) | | | (4 | ) | | Profit or loss | | | 438 | | | | 357 | | | | 226 | | | | 160 | | | | 406 | | | | 438 | | | | 244 | | | | 226 | | Income tax (expense) or income | | | (6 | ) | | | (1 | ) | | | (82 | ) | | | (74 | ) | | | (9 | ) | | | (6 | ) | | | (62 | ) | | | (82 | ) | Post-tax profit or (loss) | | | 432 | | | | 357 | | | | 144 | | | | 86 | | | | 398 | | | | 432 | | | | 183 | | | | 144 | | Other comprehensive income | | | - | | | | - | | | | 12 | | | | (32 | ) | | | - | | | | - | | | | 13 | | | | 12 | | Total comprehensive income | | | 432 | | | | 357 | | | | 156 | | | | 54 | | | | 398 | | | | 432 | | | | 196 | | | | 156 | | | Dividends received | | | 24 | | | | 49 | | | | 70 | | | | 69 | | | | 55 | | | | 24 | | | | 64 | | | | 70 | | An overview of the summarized financial information of the carrying amount of the joint ventures is as follows: | | | | | | AMVEST | | | Other Joint ventures | | | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | | Net assets of joint venture as presented above | | | 2,848 | | | | 2,673 | | | | 1,057 | | | | 960 | | | Net assets of joint venture excluding goodwill | | | 2,848 | | | | 2,673 | | | | 681 | | | | 587 | | | Group share of net assets of joint venture, excluding goodwill | | | 1,001 | | | | 1,008 | | | | 352 | | | | 312 | | | Goodwill on acquisition | | | - | | | | - | | | | 376 | | | | 373 | | | Carrying amount | | | 1,001 | | | | 1,008 | | | | 728 | | | | 685 | | |
TheAn overview of the summarized financial information of the carrying amount of the joint ventures is as follows:
| | | | | | | | | | | | | | | | | | | | | AMVEST | | | | Other Joint ventures | | | | | | 2019 | | | | 2018 | | | | 2019 | | | | 2018 | | Net assets of joint venture as presented above | | | 3,602 | | | | 2,848 | | | | 1,237 | | | | 1,057 | | Net assets of joint venture excluding goodwill | | | 3,602 | | | | 2,848 | | | | 857 | | | | 681 | | Group share of net assets of joint venture, excluding goodwill | | | 1,159 | | | | 1,001 | | | | 445 | | | | 352 | | Goodwill on acquisition | | | - | | | | - | | | | 380 | | | | 376 | | Carrying amount | | | 1,159 | | | | 1,001 | | | | 824 | | | | 728 | |
In 2018, the difference in the carrying value of investments in joint ventures of EUR 1,745 million (2017: EUR 1,712 million) and the total of the carrying value of joint ventures presented above of EUR 1,729 million (2017: EUR 1,693 million) relates to joint ventures with a negative carrying value of EUR 16 million (2017: EUR 18 million) which have been reclassified to Provisions. Aegon’s group share of net assets of joint ventures, as presented in the table above, is less than Aegon’s share of the net assets as presented in the summarized financial information on a 100% basis, due to the inclusion of third parties in the joint ventures. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 237241 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 2726 | | | | | | | | | | | | |
The following table includes the summarized financial information of the joint ventures based on the Group’s relative holding. | | | | | | | | | | | | | | | | | | | | AMVEST | | | Other Joint ventures | | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | Post-tax profit or loss | | | 144 | | | | 126 | | | | 66 | | | | 35 | | Other comprehensive income | | | - | | | | - | | | | 5 | | | | (14 | ) | Total comprehensive income | | | 144 | | | | 126 | | | | 71 | | | | 20 | |
27 Investments in associates
| | | | | | | | | | | | 2018 | | | 2017 | At January 1 | | | 308 | | | | 270 | | Additions | | | 23 | | | | 73 | | Disposals | | | (1 | ) | | | (15 | ) | Share in net income | | | 6 | | | | 11 | | Share in changes in associate’s equity (note 32.6) | | | 2 | | | | (5 | ) | Impairment losses | | | (1 | ) | | | (1 | ) | Dividend | | | (3 | ) | | | (11 | ) | Net exchange difference | | | (8 | ) | | | (13 | ) | At December 31 | | | 327 | | | | 308 | |
All associates are unlisted and are accounted for using the equity method and are considered to benon-current. The investments in associates include interest in insurance companies that are required to maintain a minimum solvency margin based on local directives. Such restrictions can affect the ability of these associates to transfer funds in the form of cash dividends, or repayment of loans or advances, and therefore, there can be no assurance that these restrictions will not become a limitation in the future. There are no unrecognized shares of losses in associates. The financial statements of the principal associates have the same reporting date as the Group. Refer to note 52 Group companies for a listing of the investments in associates and the Group’s percentage holding.
| | | | | | | | | | | | | | | | | | | | | AMVEST | | | | Other Joint ventures | | | | | | 2019 | | | | 2018 | | | | 2019 | | | | 2018 | | Post-tax profit or loss | | | 125 | | | | 144 | | | | 88 | | | | 66 | | Other comprehensive income | | | - | | | | - | | | | 7 | | | | 5 | | Total comprehensive income | | | 125 | | | | 144 | | | | 95 | | | | 71 | |
Summarized financial information of associates | | | | | | | | | | | | | | | | | | 2018 | | | 2017 | | | | 2019 | | | | 2018 | | Post-tax profit or loss | | | 6 | | | | 9 | | | | 7 | | | | 6 | | Other comprehensive income | | | 2 | | | | (5 | ) | | | (7 | ) | | | 2 | | Total comprehensive income | | | 9 | | | | 3 | | | | - | | | | 9 | | | Carrying amount | | | 327 | | | | 308 | | | | 350 | | | | 327 | |
The summarized financial information of associates presented above is based on the Group’s relative holding. 2826 Reinsurance assets
| | | | | | | | | | | | | | | | Assets arising from reinsurance contracts related to: | | 2018 | | | 2017 | | | | 2019 | | | | 2018 | | Life insurance general account | | | 18,712 | | | | 17,419 | | | | 19,046 | | | | 18,712 | | Life insurance for account of policyholders | | | 2 | | | | 2 | | | | - | | | | 2 | | Non-life insurance | | | 1,356 | | | | 1,327 | | | | 1,376 | | | | 1,356 | | Investment contracts | | | 437 | | | | 453 | | | | 412 | | | | 437 | | At December 31 | | | 20,507 | | | 19,202 | | | | 20,835 | | | | 20,507 | |
Amounts due from reinsurers in respect of claims already paid by the Group are included in note 3028 Other assets and receivables. Of the reinsurance assets EUR 1213 million is current (2017:(2018: EUR 1312 million). | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 238242 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 2826 | | | | | | | | | | | | |
| | | | | | | | | | | | | | Movements during the year in reinsurance assets relating to life insurance: | | Life insurance
general account | | | Life insurance for account of
policyholders | | | Total life insurance | | At January 1, 2018 | | | 17,419 | | | | 2 | | | | 17,421 | | Gross premium and deposits – existing and new business | | | 2,038 | | | | 3 | | | | 2,041 | | Unwind of discount/interest credited | | | 860 | | | | - | | | | 860 | | Insurance liabilities released | | | (2,518 | ) | | | (3 | ) | | | (2,521 | ) | Fund charges released | | | (82 | ) | | | - | | | | (82 | ) | Changes to valuation of expected future benefits | | | 109 | | | | - | | | | 109 | | Policy transfers | | | 25 | | | | - | | | | 25 | | Net exchange differences | | | 858 | | | | - | | | | 858 | | Transfers to disposal groups | | | - | | | | - | | | | - | | Transfer to/from insurance contract | | | - | | | | - | | | | - | | Other movements | | | 2 | | | | - | | | | 2 | | At December 31, 2018 | | | 18,712 | | | | 2 | | | | 18,714 | | | | | | At January 1, 2017 | | | 9,714 | | | | 2 | | | | 9,716 | | Gross premium and deposits – existing and new business | | | 11,326 | | | | 6 | | | | 11,332 | | Unwind of discount/interest credited | | | 533 | | | | - | | | | 533 | | Insurance liabilities released | | | (2,877 | ) | | | (3 | ) | | | (2,880 | ) | Fund charges released | | | (49 | ) | | | - | | | | (49 | ) | Changes to valuation of expected future benefits | | | 823 | | | | - | | | | 823 | | Policy transfers | | | (38 | ) | | | - | | | | (38 | ) | Net exchange differences | | | (1,698 | ) | | | - | | | | (1,697 | ) | Transfers to disposal groups | | | (239 | ) | | | (3 | ) | | | (242 | ) | Transfer to/from insurance contract | | | 23 | | | | - | | | | 23 | | Other movements | | | (97 | ) | | | - | | | | (97 | ) | At December 31, 2017 | | | 17,419 | | | | 2 | | | | 17,421 | |
| | | | | | | | | | Movements during the year in reinsurance assets relating tonon-life insurance: | | 2018 | | | 2017 | | At January 1 | | | 1,327 | | | | 1,481 | | Gross premium and deposits – existing and new business | | | 84 | | | | 99 | | Unwind of discount/interest credited | | | 84 | | | | 89 | | Insurance liabilities released | | | (123 | ) | | | (129 | ) | Changes to valuation of expected future benefits | | | - | | | | 28 | | Changes in unearned premiums | | | (28 | ) | | | (42 | ) | Incurred related to current year | | | 77 | | | | 85 | | Incurred related to prior years | | | 36 | | | | 37 | | Release for claims settled current year | | | (18 | ) | | | (19 | ) | Release for claims settled prior years | | | (130 | ) | | | (119 | ) | Change in IBNR | | | 12 | | | | (8 | ) | Shadow accounting adjustment | | | (24 | ) | | | 6 | | Net exchange differences | | | 65 | | | | (180 | ) | Portfolio transfers and acquisitions | | | - | | | | 2 | | Other movements | | | (8 | ) | | | (4 | ) | At December 31 | | | 1,356 | | | | 1,327 | | | | | | | | | | | | | | | Assets arising from reinsurance contracts related to: | | 2018 | | | 2017 | | Normal course of business | | | 6,900 | | | | 6,648 | | Exit of a business | | | 13,606 | | | | 12,553 | | At December 31 | | | 20,507 | | | | 19,202 | |
| | | | | | | | | | | | | | Movements during the year in reinsurance assets relating to life insurance: | | Life insurance
general
account | | | Life insurance
for account of
policyholders | | | Total life
insurance | | At January 1, 2019 | | | 18,712 | | | | 2 | | | | 18,714 | | Gross premium and deposits – existing and new business | | | 2,170 | | | | - | | | | 2,170 | | Unwind of discount / interest credited | | | 887 | | | | - | | | | 887 | | Insurance liabilities released | | | (3,028 | ) | | | - | | | | (3,028 | ) | Fund charges released | | | (85 | ) | | | - | | | | (85 | ) | Changes to valuation of expected future benefits | | | (16 | ) | | | - | | | | (16 | ) | Net exchange differences | | | 369 | | | | - | | | | 369 | | Disposal of a business | | | - | | | | (2 | ) | | | (2 | ) | Transfer to/from insurance contracts | | | 22 | | | | - | | | | 22 | | | | | | Other movements | | | 16 | | | | - | | | | 16 | | At December 31, 2019 | | | 19,046 | | | | - | | | | 19,046 | | | | | | At January 1, 2018 | | | 17,419 | | | | 2 | | | | 17,421 | | Gross premium and deposits – existing and new business | | | 2,038 | | | | 3 | | | | 2,041 | | Unwind of discount / interest credited | | | 860 | | | | - | | | | 860 | | Insurance liabilities released | | | (2,518 | ) | | | (3 | ) | | | (2,521 | ) | Fund charges released | | | (82 | ) | | | - | | | | (82 | ) | Changes to valuation of expected future benefits | | | 109 | | | | - | | | | 109 | | Policy transfers | | | 25 | | | | - | | | | 25 | | Net exchange differences | | | 858 | | | | - | | | | 858 | | | | | | Other movements | | | 2 | | | | - | | | | 2 | | At December 31, 2018 | | | 18,712 | | | | 2 | | | | 18,714 | |
The assets arising from reinsurance contracts related to the exit of a business per December 31, 2018 and 2017 relate to the divestment in 2017 of the payout annuity, BOLI/COLI business and a block of reinsurance business in the US and the sale of Aegon’s life reinsurance business from Transamerica Reinsurance (TARe) to SCOR. The divestment of TARe consists of a series
| | | | | | | | | | Movements during the year in reinsurance assets relating to non-life insurance: | | 2019 | | | 2018 | | At January 1 | | | 1,356 | | | | 1,327 | | Gross premium and deposits – existing and new business | | | 99 | | | | 84 | | Unwind of discount / interest credited | | | 88 | | | | 84 | | Insurance liabilities released | | | (127 | ) | | | (123 | ) | Changes in unearned premiums | | | (30 | ) | | | (28 | ) | Incurred related to current year | | | 80 | | | | 77 | | Incurred related to prior years | | | 56 | | | | 36 | | Release for claims settled current year | | | (23 | ) | | | (18 | ) | Release for claims settled prior years | | | (124 | ) | | | (130 | ) | Change in IBNR | | | (19 | ) | | | 12 | | Shadow accounting adjustment | | | - | | | | (24 | ) | Net exchange differences | | | 25 | | | | 65 | | | | | Other movements | | | (4 | ) | | | (8 | ) | At December 31 | | | 1,376 | | | | 1,356 | |
| | | | | | | | | | | | | | | | | | | | | | Assets arising from reinsurance contracts related to: | | 2019 | | | 2018 | | Normal course of business | | | 7,101 | | | | 6,900 | | | | | Exit of a business | | | 13,734 | | | | 13,606 | | At December 31 | | | 20,835 | | | | 20,507 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 239243 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 2927 | | | | | | | | | | | | |
of reinsurance agreements between various statutory insurance entities and SCOR for the US domestic business. For more details on the divestment of this business refer to note 51 Business combinations.
2927 Deferred expenses
| | | | | | | | | | | | | | | | | | | | | | | 2018 | | | | | | 2017 | | DPAC for insurance contracts and investment contracts with discretionary participation features | | | | | | | 10,457 | | | | | | | | 9,688 | | Deferred cost of reinsurance | | | | | | | 23 | | | | | | | | 41 | | Deferred transaction costs for investment management services | | | | | | | 431 | | | | | | | | 406 | | At December 31 | | | | | | | 10,910 | | | | | | | | 10,135 | | | | | | | Current | | | | | | | 957 | | | | | | | | 838 | | | | | | | Non-current | | | | | | | 9,953 | | | | | | | | 9,297 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | DPAC | | | Deferred
costs of
reinsurance | | | Deferred
transaction
costs | | At January 1, 2018 | | | 9,688 | | | | 41 | | | | 406 | | Costs deferred during the year | | | 802 | | | | - | | | | 29 | | Amortization through income statement | | | (914 | ) | | | (19 | ) | | | (23 | ) | Shadow accounting adjustments | | | 455 | | | | - | | | | - | | Impairments | | | - | | | | - | | | | - | | Net exchange differences | | | 433 | | | | 1 | | | | 18 | | Transfers to disposal groups | | | - | | | | - | | | | - | | Other | | | (7 | ) | | | - | | | | - | | At December 31, 2018 | | | 10,457 | | | | 23 | | | | 431 | | | | | | | | | | | | | | | | | | | | | | DPAC | | | Deferred
costs of
reinsurance | | | Deferred
transaction
costs | | At January 1, 2017 | | | 10,882 | | | | 60 | | | | 481 | | Costs deferred during the year | | | 938 | | | | - | | | | 41 | | Amortization through income statement | | | (770 | ) | | | (13 | ) | | | (29 | ) | Shadow accounting adjustments | | | (216 | ) | | | - | | | | - | | Impairments | | | - | | | | - | | | | (36 | ) | Net exchange differences | | | (1,227 | ) | | | (7 | ) | | | (52 | ) | Transfers to disposal groups | | | (6 | ) | | | - | | | | - | | Other | | | 88 | | | | - | | | | - | | At December 31, 2017 | | | 9,688 | | | | 41 | | | | 406 | | Deferred expenses are predominantly impacted by regular amortizations, adjustments for differences between projections versus realizations of deferral schemes and changes in foreign exchange rates. 30 Other assets and receivables | | | | | Note | | | 2018 | | | 2017 | | Real estate held for own use and equipment | | | 30.1 | | | | 498 | | | | 530 | | Receivables | | | 30.2 | | | | 6,019 | | | | 8,091 | | Accrued income | | | 30.3 | | | | 1,436 | | | | 1,382 | | At December 31 | | | | | | | 7,954 | | | | 10,002 | |
| | | | | | | | | | | | | | | | | | | | 2019 | | | | | | 2018 | | DPAC for insurance contracts and investment contracts with discretionary participation features | | | 9,972 | | | | | | | | 10,457 | | Deferred cost of reinsurance | | | 389 | | | | | | | | 23 | | Deferred transaction costs for investment management services | | | 442 | | | | | | | | 431 | | At December 31 | | | 10,804 | | | | | | | | 10,910 | | | | | | Current | | | 882 | | | | | | | | 957 | | | | | | Non-current | | | 9,921 | | | | | | | | 9,953 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2019 | | | | | | | | | 2018 | | | | | | | | DPAC | | | Deferred costs of
reinsurance | | | Deferred transaction costs | | | DPAC | | | Deferred
costs of
reinsurance | | | Deferred transaction costs | | At January 1 | | | 10,457 | | | | 23 | | | | 431 | | | | 9,688 | | | | 41 | | | | 406 | | Costs deferred during the year | | | 807 | | | | 360 | | | | 24 | | | | 802 | | | | - | | | | 29 | | Amortization through income statement | | | (754 | ) | | | 17 | | | | (22) | | | | (914 | ) | | | (19 | ) | | | (23) | | Shadow accounting adjustments | | | (656 | ) | | | (11) | | | | - | | | | 455 | | | | - | | | | - | | Impairments | | | (65 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | Net exchange differences | | | 223 | | | | - | | | | 9 | | | | 433 | | | | 1 | | | | 18 | | Disposal of group assets | | | (35 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | Other | | | (5 | ) | | | - | | | | - | | | | (7 | ) | | | - | | | | - | | At December 31 | | | 9,972 | | | | 389 | | | | 442 | | | | 10,457 | | | | 23 | | | | 431 | |
In December 2019, Aegon the Netherlands entered into a longevity reinsurance contract with Canada Life Reinsurance. The contract reinsures a specified portfolio of insurance contracts against possible future mortality developments. The reinsurer will pay benefits as long as the participants live and receive fixed payments from Aegon the Netherlands. EUR 360 million is recognized as deferred cost of reinsurance with regard to this reinsurance contract, which will be amortized over the duration of the underlying insurance contracts. 28 Other assets and receivables | | | | | | | | | | | | | | | | | | | | Note | | | 2019 | | | 2018 | | Real estate held for own use and equipment | | | 28.1 | | | | 489 | | | | 498 | | Receivables | | | 28.2 | | | | 6,655 | | | | 6,019 | | Accrued income | | | 28.3 | | | | 1,442 | | | | 1,436 | | Right-of-use assets | | | 28.4 | | | | 255 | | | | - | | At December 31 | | | | | | | 8,841 | | | | 7,954 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 240244 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 3028 | | | | | | | | | | | | |
30.128.1 Real estate held for own use and equipment
| | Net book value | | General account real
estate held for own use | | Equipment | | Total | | | General account real
estate held for own use | | Equipment | | Total | | At January 1, 2017 | | | 332 | | | 241 | | | 572 | | | At December 31, 2017 | | | 307 | | | 223 | | | 530 | | | At January 1, 2018 | | | | 307 | | | 223 | | | 530 | | At December 31, 2018 | | | 263 | | | 235 | | | 498 | | | | 263 | | | 235 | | | 498 | | At December 31, 2019 | | | | 208 | | | 281 | | | 489 | | | Cost | | | | | | | | At January 1, 2019 | | | | 363 | | | 538 | | | 901 | | Additions | | | | - | | | 105 | | | 106 | | Capitalized subsequent expenditure | | | | (4 | ) | | | - | | | (4 | ) | Disposals | | | | (94 | ) | | (24 | ) | | (118 | ) | Unrealized gains/(losses) through equity | | | | (4 | ) | | | - | | | (4 | ) | Realized gains/(losses) through income statement | | | | 10 | | | | - | | | 10 | | Net exchange differences | | | | 4 | | | 9 | | | 13 | | Other | | | | - | | | (5 | ) | | (5 | ) | At December 31, 2019 | | | | 276 | | | 624 | | | 900 | | | Accumulated depreciation and impairment losses | | | | | | | | At January 1, 2019 | | | | 100 | | | 303 | | | 403 | | Depreciation through income statement | | | | 5 | | | 60 | | | 64 | | Disposals | | | | (32 | ) | | (22 | ) | | (54 | ) | Impairment losses reversed | | | | (6 | ) | | | - | | | (6 | ) | Net exchange differences | | | | 2 | | | 5 | | | 7 | | Other | | | | - | | | (3 | ) | | (3 | ) | At December 31, 2019 | | | | 68 | | | 343 | | | 411 | | | Cost | | | | | | | | | | | | | At January 1, 2018 | | | 396 | | | 488 | | | 885 | | | | 396 | | | 488 | | | 885 | | Additions | | | 1 | | | 63 | | | 64 | | | | 1 | | | 63 | | | 64 | | Acquired through business combinations | | | - | | | 1 | | | 1 | | | | - | | | 1 | | | 1 | | Capitalized subsequent expenditure | | | 18 | | | | - | | | 18 | | | | 18 | | | | - | | | 18 | | Disposals | | | (26 | ) | | (26 | ) | | (52 | ) | | | (26 | ) | | (26 | ) | | (52 | ) | Unrealized gains/(losses) through equity | | | (32 | ) | | | - | | | (32 | ) | | | (32 | ) | | | - | | | (32 | ) | Transfer to investments in real estate | | | (1 | ) | | | - | | | (1 | ) | | | (1 | ) | | | - | | | (1 | ) | Realized gains/(losses) through income statement | | | (4 | ) | | | - | | | (4 | ) | | | (4 | ) | | | - | | | (4 | ) | Net exchange differences | | | 11 | | | 12 | | | 23 | | | | 11 | | | 12 | | | 23 | | At December 31, 2018 | | | 363 | | | 538 | | | 901 | | | | 363 | | | 538 | | | 901 | | | Accumulated depreciation and impairment losses | | | | | | | | | | | | | At January 1, 2018 | | | 90 | | | 265 | | | 355 | | | | 90 | | | 265 | | | 355 | | Depreciation through income statement | | | 4 | | | 54 | | | 58 | | | | 4 | | | 54 | | | 58 | | Disposals | | | (16 | ) | | (22 | ) | | (38 | ) | | | (16 | ) | | (22 | ) | | (38 | ) | Impairment losses | | | 18 | | | | - | | | 18 | | | | 18 | | | | - | | | 18 | | Transfer to investments in real estate | | | (1 | ) | | | - | | | (1 | ) | | | (1 | ) | | | - | | | (1 | ) | Net exchange differences | | | 4 | | | 5 | | | 9 | | | | 4 | | | 5 | | | 9 | | At December 31, 2018 | | | 100 | | | 303 | | | 403 | | | | 100 | | | 303 | | | 403 | | | Cost | | | | | | | | At January 1, 2017 | | | 453 | | | 593 | | | 1,046 | | | Additions | | | 3 | | | 68 | | | 71 | | | Acquired through business combinations | | | - | | | 11 | | | 11 | | | Capitalized subsequent expenditure | | | 1 | | | | - | | | 1 | | | Disposals | | | (34 | ) | | (144 | ) | | (179 | ) | | Unrealized gains/(losses) through equity | | | 8 | | | | - | | | 8 | | | Transfer to investments in real estate | | | - | | | | - | | | | - | | | Transfers to disposal groups | | | - | | | (5 | ) | | (5 | ) | | Net exchange differences | | | (34 | ) | | (40 | ) | | (74 | ) | | Other | | | - | | | 7 | | | 7 | | | At December 31, 2017 | | | 396 | | | 488 | | | 885 | | | Accumulated depreciation and impairment losses | | | | | | | | At January 1, 2017 | | | 121 | | | 352 | | | 474 | | | Depreciation through income statement | | | 8 | | | 63 | | | 71 | | | Disposals | | | (28 | ) | | (131 | ) | | (159 | ) | | Impairment losses | | | - | | | | - | | | | - | | | Impairment losses reversed | | | (1 | ) | | | - | | | (1 | ) | | Transfers to disposal groups | | | - | | | (5 | ) | | (5 | ) | | Net exchange differences | | | (10 | ) | | (20 | ) | | (30 | ) | | Other | | | - | | | 6 | | | 6 | | | At December 31, 2017 | | | 90 | | | 265 | | | 355 | | |
General account real estate held for own use are mainly held by Aegon USAAmericas and Aegon the Netherlands, with relatively smaller holdings at Aegon UK, Aegon Hungary and Aegon Spain. The carrying value under a historical cost model amounted to EUR 231 million (2018: EUR 301 million (2017: EUR 319 million). 51% of the value of the general account real estate held for own use was last revalued in 2019 (2018: 57%), based on market value appraisals by qualified internal and external appraisers. 99% of the appraisals in 2019 were performed by independent external appraisers (2018: 99%). | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 241245 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 3028 | | | | | | | | | | | | |
57% of the value of the general account real estate held for own use was last revalued in 2018 (2017: 30%), based on market value appraisals by qualified internal and external appraisers. The increase is mainly related to positive revaluations in the Dutch real estate markets. 99% of the appraisals in 2018 were performed by independent external appraisers (2017: 95%).
General account real estate held for own use has not been pledged as security for liabilities, nor are there any restrictions on title. Depreciation expenses are recorded in Commissions and expenses in the income statement. The useful lives of buildings range between 40 and 50 years. None of the equipment is held for lease (2017:(2018: none). Equipment has not been pledged as security for liabilities, nor are there any restrictions on title. Depreciation expenses have been recorded in Commissions and expenses in the income statement. Equipment is generally depreciated over a period of three to five years. 30.228.2 Receivables
| | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | Loans to associates | | | 12 | | | 12 | | | | 16 | | | | 12 | | Loans to joint ventures | | | 18 | | | 13 | | | | - | | | | 18 | | Receivables from policyholders | | | 969 | | | 999 | | | | 945 | | | | 969 | | Receivables from brokers and agents | | | 396 | | | 400 | | | | 288 | | | | 396 | | Receivables from reinsurers | | | 1,129 | | | 2,708 | | | | 777 | | | | 1,129 | | Cash outstanding from assets sold | | | 116 | | | 46 | | | | 320 | | | | 116 | | Trade receivables | | | 1,321 | | | 910 | | | | 1,484 | | | | 1,321 | | Cash collateral | | | 616 | | | 1,545 | | | | 1,383 | | | | 616 | | Reverse repurchase agreements | | | - | | | 230 | | | | 76 | | | | - | | Income tax receivable | | | 102 | | | 85 | | | | 102 | | | | 102 | | Other | | | 1,382 | | | 1,190 | | | | 1,300 | | | | 1,382 | | Provision for doubtful debts | | | (41 | ) | | (48 | ) | | | (34) | | | | (41) | | At December 31 | | | 6,019 | | | 8,091 | | | | 6,655 | | | | 6,019 | | | Current | | | 5,989 | | | 8,061 | | | | 6,611 | | | | 5,989 | | | Non-current | | | 30 | | | 30 | | | | 43 | | | | 30 | |
With the exception of receivables from reinsurers, the receivables balances presented above are mostly not externally rated. The movements in the provision for doubtful debts during the year were as follows: | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | At January 1 | | | (48 | ) | | (79 | ) | | | (41) | | | (48) | | Additions charged to earnings | | | (7 | ) | | (6 | ) | | | (9) | | | (7) | | Unused amounts reversed through the income statement | | | 4 | | | 4 | | | | 8 | | | 4 | | Disposal of business | | | | 4 | | | | - | | Used during the year | | | 10 | | | 31 | | | | 5 | | | 10 | | Net exchange differences | | | - | | | 2 | | | At December 31 | | | (41 | ) | | (48 | ) | | | (34 | ) | | (41 | ) | | | 30.3 Accrued income | | | | | | | | | | | | | | | | 2018 | | | 2017 | | | Accrued interest | | | 1,415 | | | 1,357 | | | Other | | | 21 | | | 25 | | | At December 31 | | | 1,436 | | | 1,382 | | |
28.3 Accrued income | | | | | | | | | | | | | | | 2019 | | | 2018 | | Accrued interest | | | 1,436 | | | | 1,415 | | Other | | | 6 | | | | 21 | | At December 31 | | | 1,442 | | | | 1,436 | |
Of accrued income EUR 1,4211,442 million is current (2017:(2018: EUR 1,3641,421 million). | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 242246 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 3128 | | | | | | | | | | | | |
28.4Right-of-use assets | | | | | | | | | | | | | | | | | | Net book value | | Real estate for
own use | | | Equipment | | | Other | | | Total | | At December 31, 2019 | | | 227 | | | | 25 | | | | 3 | | | | 255 | | Cost | | | | | | | | | | | | | | | | | At January 1, 2019 | | | 213 | | | | 18 | | | | 5 | | | | 235 | | Additions | | | 40 | | | | 19 | | | | 1 | | | | 59 | | Modification of lease contracts | | | 2 | | | | - | | | | - | | | | 3 | | Net exchange differences | | | 8 | | | | - | | | | - | | | | 8 | | At December 31, 2019 | | | 262 | | | | 37 | | | | 5 | | | | 305 | | Accumulated depreciation and impairment losses | | | | | | | | | | | | | | | | | At January 1, 2019 | | | - | | | | - | | | | - | | | | - | | Depreciation through income statement | | | 35 | | | | 13 | | | | 2 | | | | 50 | | At December 31, 2019 | | | 36 | | | | 13 | | | | 2 | | | | 50 | |
Right-of-use assets are mainly held by Aegon UK and Aegon Americas and they are mainly office buildings held for own use. For information on the Lease liabilities and respective maturity analysis, please refer to note 41 Other liabilities and note 4 Financial risks, respectively. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 247 | | | | Consolidated financial statements of Aegon N.V.Note 29 | | | | | | | | | | |
3129 Intangible assets
| | Net book value | | Goodwill | | VOBA | | Future
servicing
rights | | Software | | Other | | Total | | | Goodwill | | | VOBA | | Future
servicing
rights | | | Software | | Other | | | Total | | At January 1, 2017 | | | 294 | | | 1,399 | | | 64 | | | 50 | | | 12 | | | 1,820 | | | At December 31, 2019 | | | | 392 | | | | 952 | | | 84 | | | | 69 | | | 61 | | | | 1,559 | | | | | | | | | | | | At December 31, 2017 | | | 293 | | | | 1,153 | | | | 99 | | | | 51 | | | | 36 | | | | 1,633 | | | At December 31, 2018 | | | 384 | | | 1,123 | | | 91 | | | 64 | | | 64 | | | 1,727 | | | | 384 | | | | 1,123 | | | 91 | | | | 64 | | | 64 | | | | 1,727 | | | | | | | | | | | | | At January 1, 2018 | | | | 293 | | | | 1,153 | | | 99 | | | | 51 | | | 36 | | | | 1,633 | | | Cost | | | | | | | | | | | | | | At January 1, 2019 | | | | 554 | | | | 6,858 | | | 361 | | | | 327 | | | 166 | | | | 8,265 | | Additions | | | | - | | | | - | | | | - | | | | 35 | | | 4 | | | | 39 | | Capitalized subsequent expenditure | | | | - | | | | - | | | | - | | | | 7 | | | | - | | | | 7 | | Disposals | | | | - | | | | - | | | | - | | | | (9 | ) | | | - | | | | (9 | ) | Net exchange differences | | | | 13 | | | | 145 | | | 5 | | | | 11 | | | 3 | | | | 178 | | At December 31, 2019 | | | | 567 | | | | 7,003 | | | 366 | | | | 371 | | | 173 | | | | 8,479 | | Accumulated amortization, depreciationand impairment losses | | | | | | | | | | | | | | At January 1, 2019 | | | | 169 | | | | 5,735 | | | 270 | | | | 263 | | | 101 | | | | 6,538 | | Amortization through income statement | | | | - | | | | 112 | | | 8 | | | | 16 | | | 7 | | | | 143 | | Shadow accounting adjustments | | | | - | | | | 72 | | | | - | | | | - | | | | - | | | | 72 | | Disposals | | | | - | | | | - | | | | - | | | | (7 | ) | | | - | | | | (7 | ) | Impairment losses | | | | 3 | | | | 11 | | | | - | | | | 20 | | | | - | | | | 34 | | Net exchange differences | | | | 3 | | | | 121 | | | 4 | | | | 9 | | | 3 | | | | 140 | | At December 31, 2019 | | | | 175 | | | | 6,051 | | | 282 | | | | 301 | | | 111 | | | | 6,920 | | | Cost | | | | | | | | | | | | | | | | | | | | | | | | | At January 1, 2018 | | | 462 | | | 6,565 | | | 359 | | | 294 | | | 128 | | | 7,808 | | | | 462 | | | | 6,565 | | | 359 | | | | 294 | | | 128 | | | | 7,808 | | Additions | | | - | | | | - | | | | - | | | 45 | | | 2 | | | 47 | | | | - | | | | - | | | | - | | | | 45 | | | 2 | | | | 47 | | Acquisitions through business combinations | | | 85 | | | | - | | | | - | | | 7 | | | 33 | | | 126 | | | | 85 | | | | - | | | | - | | | | 7 | | | 33 | | | | 126 | | Capitalized subsequent expenditure | | | - | | | | - | | | | - | | | 5 | | | | - | | | 5 | | | | - | | | | - | | | | - | | | | 5 | | | | - | | | | 5 | | Disposals | | | - | | | | - | | | | - | | | (19 | ) | | | - | | | (19 | ) | | | - | | | | - | | | | - | | | | (19 | ) | | | - | | | | (19 | ) | Net exchange differences | | | 6 | | | 293 | | | 2 | | | (6 | ) | | 2 | | | 298 | | | | 6 | | | | 293 | | | 2 | | | | (6 | ) | | 2 | | | | 298 | | At December 31, 2018 | | | 554 | | | 6,858 | | | 361 | | | 327 | | | 166 | | | 8,265 | | | | 554 | | | | 6,858 | | | 361 | | | | 327 | | | 166 | | | | 8,265 | | | Accumulated amortization, depreciation and impairment losses | | | | | | | | | | | | | | | | | | | | | | | | | At January 1, 2018 | | | 169 | | | 5,412 | | | 260 | | | 243 | | | 92 | | | 6,176 | | | | 169 | | | | 5,412 | | | 260 | | | | 243 | | | 92 | | | | 6,176 | | Amortization through income statement | | | - | | | 135 | | | 8 | | | 16 | | | 6 | | | 165 | | | | - | | | | 135 | | | 8 | | | | 16 | | | 6 | | | | 165 | | Shadow accounting adjustments | | | - | | | (56 | ) | | | - | | | | - | | | | - | | | (56 | ) | | | - | | | | (56 | ) | | | - | | | | - | | | | - | | | | (56 | ) | Disposals | | | - | | | | - | | | | - | | | (6 | ) | | | - | | | (6 | ) | | | - | | | | - | | | | - | | | | (6 | ) | | | - | | | | (6 | ) | Impairment losses | | | - | | | | - | | | | - | | | 15 | | | | - | | | 15 | | | | - | | | | - | | | | - | | | | 15 | | | | - | | | | 15 | | Net exchange differences | | | - | | | 244 | | | 2 | | | (5 | ) | | 3 | | | 243 | | | | - | | | | 244 | | | 2 | | | | (5 | ) | | 3 | | | | 243 | | At December 31, 2018 | | | 169 | | | 5,735 | | | 270 | | | 263 | | | 101 | | | 6,538 | | | | 169 | | | | 5,735 | | | 270 | | | | 263 | | | 101 | | | | 6,538 | | | | Cost | | | | | | | | | | | | | | At January 1, 2017 | | | 503 | | | 7,576 | | | 327 | | | 362 | | | 109 | | | 8,876 | | | Additions | | | - | | | 6 | | | | - | | | 29 | | | 2 | | | 37 | | | Acquisitions through business combinations | | | 56 | | | | - | | | 47 | | | 9 | | | 29 | | | 140 | | | Capitalized subsequent expenditure | | | - | | | | - | | | | - | | | 3 | | | | - | | | 3 | | | Disposals | | | (55 | ) | | (175 | ) | | | - | | | (98 | ) | | | - | | | (328 | ) | | Net exchange differences | | | (42 | ) | | (841 | ) | | (15 | ) | | (9 | ) | | (11 | ) | | (919 | ) | | Transfers to disposal groups | | | - | | | | - | | | | - | | | (2 | ) | | | - | | | (2 | ) | | At December 31, 2017 | | | 462 | | | 6,565 | | | 359 | | | 294 | | | 128 | | | 7,808 | | | | Accumulated amortization, depreciation and impairment losses | | | | | | | | | | | | | | At January 1, 2017 | | | 209 | | | 6,177 | | | 263 | | | 311 | | | 97 | | | 7,056 | | | Amortization through income statement | | | - | | | 63 | | | 7 | | | 28 | | | 6 | | | 104 | | | Shadow accounting adjustments | | | - | | | 26 | | | | - | | | | - | | | | - | | | 26 | | | Disposals | | | (28 | ) | | (165 | ) | | | - | | | (95 | ) | | | - | | | (288 | ) | | Impairment losses | | | - | | | | - | | | | - | | | 8 | | | | - | | | 8 | | | Net exchange differences | | | (11 | ) | | (689 | ) | | (9 | ) | | (8 | ) | | (11 | ) | | (728 | ) | | Transfers to disposal groups | | | - | | | | - | | | | - | | | (2 | ) | | | - | | | (2 | ) | | At December 31, 2017 | | | 169 | | | 5,412 | | | 260 | | | 243 | | | 92 | | | 6,176 | | |
Amortization and depreciation through income statement is included in Commissions and expenses. None of the intangible assets have titles that are restricted or have been pledged as security for liabilities. With the exception of goodwill, all intangible assets have a finite useful life and are amortized accordingly. VOBA and future servicing rights are amortized over the term of the related insurance contracts, which can vary significantly depending on the maturity of the acquired portfolio. VOBA currently recognizedThe amortization is amortized over an average periodbased on either the expected future premiums, revenues or the expected gross profit margins, which for the most significant blocks of 24 years, with an average remaining amortization period of 7 years (2017: 7 years).business ranges between 50 and 80 years. Future servicing rights are amortized over an averagea period upof 10 to 30 years of which 1315 years remain at December 31, 2018 (2017: 142019 (2018: 13 years). Software is generally depreciated over an average period of 3 to 5 years. Atyears of which 4 years remain at December 31, 2018, the remaining average amortization period was 4 years (2017:2019 (2018: 4 years). | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 243 | | Notes to the consolidated financial statements Note 31 | | | | | | |
In 2018, Goodwill and Other increased by EUR 85 million and EUR 33 million respectively following the acquisition of Robidus in September 2018. For details of the acquisition, refer to note 5148 Business combinations. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 248 | | | | Consolidated financial statements of Aegon N.V.Note 29 | | | | | | | | | | |
Goodwill The goodwill balance has been allocated across the cash-generating units which are expected to benefit from the synergies inherent in the goodwill. Goodwill is tested for impairment both annually and when there are specific indicators of a potential impairment. The recoverable amount is the higher of the value in use and fair value less costs of disposal for a cash-generating unit. The operating assumptions used in all the calculations are best estimate assumptions and based on historical data where available. The economic assumptions used in all the calculations are based on observable market data and projections of future trends. All the cash-generating units tested showed that the recoverable amounts were higher than their carrying values, including goodwill. A reasonably possible change in any key assumption is not expected to cause the carrying value of the cash-generating units to exceed its recoverable amount. A geographical summary of the cash-generating units to which the goodwill is allocated is as follows: | | Goodwill | | 2018 | | | 2017 | | | 2019 | | | 2018 | | Americas | | | 182 | | | | 174 | | | | 183 | | | | 182 | | Central & Eastern Europe | | | 30 | | | | 34 | | | Southern & Eastern Europe | | | | 29 | | | | 30 | | Asset Management | | | 33 | | | | 31 | | | | 34 | | | | 33 | | United Kingdom | | | 54 | | | | 54 | | | | 57 | | | | 54 | | The Netherlands | | | 85 | | | | - | | | | 89 | | | | 85 | | At December 31 | | | 384 | | | | 293 | | | | 392 | | | | 384 | |
Goodwill in Aegon Americas is allocated to groups of cash-generating units including variable annuities, fixed annuities and the retirement plans cash-generating unit. Value in use calculations of Aegon Americas have been actuarially determined based on business plans covering a period of typically three years andpre-tax risk adjusted discount rates. Based on the value in use tests, goodwill in the Americas for the group of annuities cash-generating units (2018:(2019: EUR 127 million: 2017:2018: EUR 121127 million) and the retirement plans cash-generating unit (2018:(2019: EUR 5556 million: 2017:2018: EUR 5255 million) remain unchanged from prior year except for the impact of currency translation adjustments. The value in use tests assume business plans covering a period of three years further extrapolated to ten years, where the new business levels for years4-10 assumed a 0% growth rate (2017:(2018: 0%). Thepre-tax adjusted discount rate was 17% for annuities and 18% for retirement plans. To determine the recoverable amounts of the cash generating units of Aegon Central &Southern and Eastern Europe (CEE)(SEE), value in use was calculated, and compared to the carrying amounts. Value in use has been determined based on a business plan covering a period of typically 3 years, that, in certain instances was further extrapolated to 20 years where the new business levels for years4-20 assumed a growth rate based on the business plan of the third year, prudentially decreased by 20% (2017:(2018: 20%). Other key assumptions used for the calculation werepre-tax risk adjusted discount rate of ranging between9.1%-14.0%8.6%-25.2% (2017:(2018:8.3%-14.6%9.1%-28.5%), new business contribution, renewals, asset fees, investment return, persistency and expenses. Operating assumptions are best estimate assumptions and based on historical data where available. Economic assumptions are based on observable market data and projections of future trends. For Aegon UK,As of 2018, goodwill that was provisionally allocated to the cash-generating unit – Cofunds Ltd., is now allocated to Aegon UK, whose value in use exceeded its carrying value. Assessment of value in use at this level is considered to reflect the expected benefit flowing to Aegon UK from the synergies arising from the acquisition of Cofunds. The value in use of Scottish Equitable plc (SE plc) is the most material part of the Aegon UK value in use calculation, and it is determined using SE plc’s Solvency II own funds value with adjustments for contract boundaries, risk margin and SE plc’s share of the defined benefit pension scheme liability. An allowance has also been made for the present value of the next 3 years profits, from expected new business. This is considered a key assumption which if it does not arise would reduce the value in use, however a headroom would still remain.
For Aegon the Netherlands, goodwill was allocated to Robidus –- a cash generating unit whose value in use exceeds its carrying value. The value in use calculations were based on business plans covering a period of five years,pre-tax discount rate of 8.2%,post-tax discount rate of 8.1%, and terminal growth rate at 2%. The goodwill arises mainly from new customers, future software platform developments, synergies, and assembled workforce. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 244249 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 3230 | | | | | | | | | | | | |
VOBA The movement in VOBA over 20182019 can be summarized and compared to 20172018 as follows: | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | At January 1 | | | 1,153 | | | 1,399 | | | | 1,123 | | | 1,153 | | Additions | | | - | | | 6 | | | Disposals | | | - | | | (11 | ) | | Amortization/depreciation through income statement | | | (135 | ) | | (63 | ) | | Amortization / depreciation through income statement | | | | (112 | ) | | (135 | ) | Shadow accounting adjustments | | | 56 | | | (26 | ) | | | (72 | ) | | 56 | | Impairment losses | | | | (11 | ) | | | - | | Net exchange differences | | | 49 | | | (153 | ) | | | 24 | | | 49 | | At December 31 | | | 1,123 | | | 1,153 | | | | 952 | | | 1,123 | |
3230 Shareholders’ equity
Issued share capital and reserves attributable to shareholders of Aegon N.V. | | | | Note | | | 2018 | | | 2017 | | 2016 | | | Note | | | 2019 | | | 2018 | | 2017 | | Share capital – par value | | | 32.1 | | | | 322 | | | 322 | | | 319 | | | | 30.1 | | | | 323 | | | 322 | | | 322 | | Share premium | | | 32.2 | | | | 7,487 | | | 7,731 | | | 7,873 | | | | 30.2 | | | | 7,213 | | | 7,487 | | | 7,731 | | Total share capital | | | | | 7,808 | | | 8,053 | | | 8,193 | | | | | | 7,536 | | | 7,808 | | | 8,053 | | Retained earnings | | | | | 9,995 | | | 9,699 | | | 7,609 | | | | | | 10,667 | | | 9,995 | | | 9,699 | | Treasury shares | | | 32.3 | | | | (337 | ) | | (325 | ) | | (190 | ) | | | 30.3 | | | | (281 | ) | | (337 | ) | | (325 | ) | Total retained earnings | | | | | 9,657 | | | 9,374 | | | 7,419 | | | | | | 10,386 | | | 9,657 | | | 9,374 | | Revaluation reserves | | | 32.4 | | | | 3,461 | | | 4,920 | | | 5,381 | | | | 30.4 | | | | 5,868 | | | 3,436 | | | 4,898 | | Remeasurement of defined benefit plans | | | 32.5 | | | | (1,850 | ) | | (1,669 | ) | | (1,820 | ) | | | 30.5 | | | | (2,397 | ) | | (1,850 | ) | | (1,669 | ) | Other reserves | | | 32.6 | | | | 149 | | | (390 | ) | | 1,347 | | | | 30.6 | | | | 456 | | | 149 | | | (390 | ) | Total shareholders’ equity | | | | | 19,225 | | | 20,288 | | | 20,520 | | | | | | 21,850 | | | 19,200 | | | 20,266 | |
| | | | | | | | | | | | | | Share capital transactions relating to common shares A | | 2018 | | | 2017 | | | 2016 | | | | | Number of
shares
(thousands) | | | Number of
shares
(thousands) | | | Number of
shares
(thousands) | | Transactions in 2018: | | | | | | | | | | | | | Final dividend 20171 | | | (21,954 | ) | | | | | | | | | Share buyback program (final dividend 2017) | | | 21,954 | | | | | | | | | | Interim dividend 20181 | | | (24,134 | ) | | | | | | | | | Share buyback program (interim dividend 2018) | | | 24,134 | | | | | | | | | | | | | | Transactions in 2017: | | | | | | | | | | | | | Final dividend 20161 | | | | | | | (26,916 | ) | | | | | Interim dividend 20172 | | | | | | | (24,948 | ) | | | | | Issuance of common shares with a par value of EUR 0.12 | | | | | | | 21,099 | | | | | | Share buyback program (final dividend 2016 and interim dividend 2017) | | | | | | | 51,865 | | | | | | | | | | Transactions in 2016: | | | | | | | | | | | | | Final dividend 20152 | | | | | | | | | | | (29,259 | ) | Issuance of common shares with a par value of EUR 0.12 | | | | | | | | | | | 9,122 | | Share buyback program (final dividend 2015) | | | | | | | | | | | 29,259 | | Interim dividend 20162 | | | | | | | | | | | (30,765 | ) | Issuance of common shares with a par value of EUR 0.12 | | | | | | | | | | | 1,507 | | Share buyback program (interim dividend 2016) | | | | | | | | | | | 30,765 | |
| | | | | | | | | | | | | | | | | | Share capital transactions relating to common shares | | 2019 | | | 2018 | | | 2017 | | | | | Number of shares (thousands) | | | Number of shares (thousands) | | | Number of shares (thousands) | | Transactions in 2019: | | | | | | | | | | | | | Final dividend 20181) | | | (32,874 | ) | | | | | | | | | Share buyback program (final dividend 2018) | | | 32,874 | | | | | | | | | | Interim dividend 20191) | | | (35,370 | ) | | | | | | | | | Share buyback program (interim dividend 2019) | | | 43,150 | | | | | | | | | | | | | | Transactions in 2018: | | | | | | | | | | | | | Final dividend 20171) | | | | | | | (21,954 | ) | | | | | Share buyback program (final dividend 2017) | | | | | | | 21,954 | | | | | | Interim dividend 20181) | | | | | | | (24,134 | ) | | | | | Share buyback program (interim dividend 2018) | | | | | | | 24,134 | | | | | | | | | | Transactions in 2017: | | | | | | | | | | | | | Final dividend 20161) | | | | | | | | | | | (26,916 | ) | Interim dividend 20172) | | | | | | | | | | | (24,948 | ) | Issuance of common shares with a par value of EUR 0.12 | | | | | | | | | | | 21,099 | | Share buyback program (final dividend 2016 and interim dividend 2017) | | | | | | | | | | | 51,865 | |
1 Dividend distribution paid from treasury shares (note 32.3)
2 Dividend distribution paid from treasury shares (note 32.3) and issuance of common shares performed in the year.
On May 18, 2018, Vereniging Aegon exercised its options rights to purchase in aggregate 1,489,200 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time
| 1 | Dividend distribution paid from treasury shares (note 30.3) |
| 2 | Dividend distribution paid from treasury shares (note 30.3) and issuance of common shares performed in the year. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 245250 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 3230 | | | | | | | | | | | | |
of issuance) to mitigate dilution caused the issuance of shares on May 18, 2018, in connection with the Long Term Incentive Plans for senior management.
In addition to the transactions presented above, in May 2017, Aegon issued a total of 1,979,260 common shares B with a par value of EUR 0.12 to compensate for the dilution of Vereniging Aegon’s shareholding caused by the allocation of shares with senior management on May 19, 2017, in connection with the Long Term Incentive Plans for senior management.
Furthermore, in June 2017, Aegon issued to Vereniging Aegon 13,042,612 common shares B with a par value of EUR 0.12 to compensate for the dilution of Vereniging Aegon’s shareholding caused by the distribution of the final dividend 2016 in shares.
In June 2016 and December 2017, Aegon repurchased from Vereniging Aegon 17,324,960 and 13,042,592 common shares B respectively, to keep the voting rights of Vereniging Aegon on the agreed level.
32.130.1 Share capital – par value
| | | | | 2018 | | | 2017 | | | 2016 | | | 2019 | | | 2018 | | | 2017 | Common shares | | | 251 | | | | 251 | | | | 249 | | | | 253 | | | | 251 | | | | 251 | | Common shares B | | | 70 | | | | 70 | | | | 70 | | | | 70 | | | | 70 | | | | 70 | | At December 31 | | | 322 | | | | 322 | | | | 319 | | | | 323 | | | | 322 | | | | 322 | | | | | | | | | | | | Common shares | | | 2019 | | | 2018 | | | 2017 | Authorized share capital | | | | 720 | | | | 720 | | | | 720 | | Number of authorized shares (in million) | | | | 6,000 | | | | 6,000 | | | | 6,000 | | Par value in cents per share | | | | 12 | | | | 12 | | | | 12 | | | | | | | | | | | | Common shares B | | | 2019 | | | 2018 | | | 2017 | Authorized share capital | | | | 360 | | | | 360 | | | | 360 | | Number of authorized shares (in million) | | | | 3,000 | | | | 3,000 | | | | 3,000 | | Par value in cents per share | | | | 12 | | | | 12 | | | | 12 | |
| | | | | | | | | | | | | | | | | | Common shares | | 2018 | | | 2017 | | | 2016 | | Authorized share capital | | | 720 | | | | 720 | | | | 720 | | Number of authorized shares (in million) | | | 6,000 | | | | 6,000 | | | | 6,000 | | Par value in cents per share | | | 12 | | | | 12 | | | | 12 | |
| | | | | | | | | | | | | | | | | | Common shares B | | 2018 | | | 2017 | | | 2016 | | Authorized share capital | | | 360 | | | | 360 | | | | 360 | | Number of authorized shares (in million) | | | 3,000 | | | | 3,000 | | | | 3,000 | | Par value in cents per share | | | 12 | | | | 12 | | | | 12 | |
| | | | Common shares | | Common shares B | | | Common shares | | | Common shares B | | | | | Number of shares | | | | Number of shares | | | | | | Number of shares (thousands) | | | Total amount | | | Number of shares (thousands) | | | Total amount | | | | | (thousands) | | Total amount | | (thousands) | | | Total amount | | | At January 1, 2016 | | | 2,147,037 | | | 258 | | | 585,022 | | | | 70 | | | Dividend | | | 10,629 | | | 1 | | | | - | | | | - | | | Shares withdrawn | | | (83,117 | ) | | (10 | ) | | | - | | | | - | | | At December 31, 2016 | | | 2,074,549 | | | 249 | | | 585,022 | | | | 70 | | | At January 1, 2017 | | | | 2,074,549 | | | | 249 | | | | 585,022 | | | | 70 | | Dividend | | | 21,099 | | | 3 | | | | - | | | | - | | | | 21,099 | | | | 3 | | | | - | | | | - | | At December 31, 2017 | | | 2,095,648 | | | 251 | | | 585,022 | | | | 70 | | | | 2,095,648 | | | | 251 | | | | 585,022 | | | | 70 | | Dividend | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | At December 31, 2018 | | | 2,095,648 | | | 251 | | | 585,022 | | | | 70 | | | | 2,095,648 | | | | 251 | | | | 585,022 | | | | 70 | | Dividend | | | | 9,491 | | | | 1 | | | | - | | | | - | | At December 31, 2019 | | | | 2,105,139 | | | | 253 | | | | 585,022 | | | | 70 | |
The table below represents weighted average number of common shares including treasury shares attributable to Aegon N.V.: | | | | | | | | | | | | Weighted average number
of common shares
(thousands) | | | Weighted average number of
common shares B
(thousands) | | 2016 | | | 2,129,074 | | | | 585,022 | | 2017 | | | 2,080,792 | | | | 585,022 | | 2018 | | | 2,095,648 | | | | 585,022 | |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 246 | | Notes to the consolidated financial statements Note 32 | | | | | | |
| | | | | | | | | | | | Weighted average number of common shares (thousands) | | | Weighted average number of common shares B (thousands) | | 2017 | | | 2,080,792 | | | | 585,022 | | 2018 | | | 2,095,648 | | | | 585,022 | | 2019 | | | 2,098,326 | | | | 585,022 | |
All issued common shares and common shares B each have a nominal value of EUR 0.12 and are fully paid up. Repayment of capital can only be initiated by the Executive Board, is subject to approval of the Supervisory Board and must be resolved by the General Meeting of Shareholders. Moreover, repayment on common shares B needs approval of the related shareholders. Refer to ‘Other information’ for further information on dividend rights. Vereniging Aegon, based in The Hague, the Netherlands, holds all of the issued and outstanding common shares B. Under the terms of the 1983 Amended Merger Agreement, dated May 2013, Vereniging Aegon has a call option relating to common shares B. Vereniging Aegon may exercise its call option at fair value of a common share B (being 1/40th 40thof the market value of a common share in the capital of the Company at the time of issuance) to keep or restore its total stake at 32.6%, irrespective of the circumstances which cause the total shareholding to be or become lower than 32.6%. Refer to Note 50 Related party transactions for transactions between Aegon N.V. and Vereniging Aegon. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 251 | | | | Consolidated financial statements of Aegon N.V.Note 30 | | | | | | | | | | |
32.230.2 Share premium
| | | | 2018 | | | 2017 | | 2016 | | | 2019 | | | 2018 | | 2017 | | At January 1 | | | 7,731 | | | 7,873 | | | 8,059 | | | | 7,487 | | | 7,731 | | | 7,873 | | Share dividend | | | (244 | ) | | (142 | ) | | (186 | ) | | | (273 | ) | | (244 | ) | | (142 | ) | At December 31 | | | 7,487 | | | 7,731 | | | 7,873 | | | | 7,213 | | | 7,487 | | | 7,731 | | | Share premium relating to: | | | | | | | | | | | | | - Common shares | | | 5,834 | | | 6,078 | | | 6,220 | | | | 5,560 | | | 5,834 | | | 6,078 | | - Common shares B | | | 1,653 | | | 1,653 | | | 1,653 | | | | 1,653 | | | 1,653 | | | 1,653 | | Total share premium | | | 7,487 | | | 7,731 | | | 7,873 | | | | 7,213 | | | 7,487 | | | 7,731 | |
The share premium account reflects the balance ofpaid-in amounts above par value at issuance of new shares less the amounts charged for share dividends. 30.3 Treasury shares On the reporting date, Aegon N.V. and its subsidiaries held 66,583,671 (2018: 62,562,070) of its own common shares and 25,309,920 (2018: 13,856,480) own common shares B with a par value of EUR 0.12 each. Movements in the number of treasury common shares held by Aegon N.V. were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2019 | | | | | | 2018 | | | | | | 2017 | | | | | | | | Number of shares
(thousands) | | | Amount | | | Number of shares
(thousands) | | | Amount | | | Number of shares
(thousands) | | | Amount | | At January 1 | | | 61,418 | | | | 326 | | | | 64,488 | | | | 314 | | | | 47,473 | | | | 178 | | | | | | | | | Transactions in 2019: | | | | | | | | | | | | | | | | | | | | | | | | | Sale: transactions, average price 5.10 | | | (3,657 | ) | | | (19 | ) | | | | | | | | | | | | | | | | | Sale: 1 transaction, average price 5.25 | | | (32,874 | ) | | | (173 | ) | | | | | | | | | | | | | | | | | Purchase: 1 transaction average price 4.52 | | | 32,874 | | | | 149 | | | | | | | | | | | | | | | | | | Sale: 1 transaction, average price 5.16 | | | (35,370 | ) | | | (183 | ) | | | | | | | | | | | | | | | | | Purchase: 1 transaction average price 3.89 | | | 43,150 | | | | 168 | | | | | | | | | | | | | | | | | | | | | | | | | Transactions in 2018: | | | | | | | | | | | | | | | | | | | | | | | | | Sale: transactions, average price 3.76 | | | | | | | | | | | (3,070 | ) | | | (12 | ) | | | | | | | | | Sale: 1 transaction, average price 4.62 | | | | | | | | | | | (21,954 | ) | | | (101 | ) | | | | | | | | | Purchase: 1 transaction average price 5.34 | | | | | | | | | | | 21,954 | | | | 117 | | | | | | | | | | Sale: 1 transaction, average price 5.09 | | | | | | | | | | | (24,134 | ) | | | (123 | ) | | | | | | | | | Purchase: 1 transaction average price 5.43 | | | | | | | | | | | 24,134 | | | | 131 | | | | | | | | | | | | | | | | | Transactions in 2017: | | | | | | | | | | | | | | | | | | | | | | | | | Sale: transactions, average price EUR 3.44 | | | | | | | | | | | | | | | | | | | (4,085 | ) | | | (14 | ) | Sale: 1 transaction, average price EUR 3.68 | | | | | | | | | | | | | | | | | | | (26,916 | ) | | | (99 | ) | Sale: 1 transaction, average price EUR 3.77 | | | | | | | | | | | | | | | | | | | (3,849 | ) | | | (14 | ) | Purchase: 1 transaction, average price EUR 5.09 | | | | | | | | | | | | | | | | | | | 51,865 | | | | 263 | | At December 31 | | | 65,540 | | | | 269 | | | | 61,418 | | | | 326 | | | | 64,488 | | | | 314 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 247252 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 3230 | | | | | | | | | | | | |
32.3 Treasury shares
On the reporting date, Aegon N.V. and its subsidiaries held 62,562,070 (2017: 65,650,650) of its own common shares and 13,856,480 (2017: 15,345,680) own common shares B with a par value of EUR 0.12 each.
Movements in the number of treasury common shares held by Aegon N.V. were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | | 2017 | | | 2016 | | | | | Number of shares
(thousands) | | | Amount | | | Number of shares
(thousands) | | | Amount | | | Number of shares
(thousands) | | | Amount | | At January 1 | | | 64,488 | | | | 314 | | | | 47,473 | | | | 178 | | | | 42,998 | | | | 257 | | | | | | | | | Transactions in 2018: | | | | | | | | | | | | | | | | | | | | | | | | | Sale: transactions, average price 3.76 | | | (3,070 | ) | | | (12 | ) | | | | | | | | | | | | | | | | | Sale: 1 transaction, average price 4.62 | | | (21,954 | ) | | | (101 | ) | | | | | | | | | | | | | | | | | Purchase: 1 transaction average price 5.34 | | | 21,954 | | | | 117 | | | | | | | | | | | | | | | | | | Sale: 1 transaction, average price 5.09 | | | (24,134 | ) | | | (123 | ) | | | | | | | | | | | | | | | | | Purchase: 1 transaction average price 5.43 | | | 24,134 | | | | 131 | | | | | | | | | | | | | | | | | | | | | | | | | Transactions in 2017: | | | | | | | | | | | | | | | | | | | | | | | | | Sale: transactions, average price EUR 3.44 | | | | | | | | | | | (4,085 | ) | | | (14 | ) | | | | | | | | | Sale: 1 transaction, average price EUR 3.68 | | | | | | | | | | | (26,916 | ) | | | (99 | ) | | | | | | | | | Sale: 1 transaction, average price EUR 3.77 | | | | | | | | | | | (3,849 | ) | | | (14 | ) | | | | | | | | | Purchase: 1 transaction, average price EUR 5.09 | | | | | | | | | | | 51,865 | | | | 263 | | | | | | | | | | | | | | | | | Transactions in 2016: | | | | | | | | | | | | | | | | | | | | | | | | | Purchase: transactions, average price EUR 4.81 | | | | | | | | | | | | | | | | | | | 83,117 | | | | 400 | | Sale: transactions, price average EUR 6.49 | | | | | | | | | | | | | | | | | | | (6,153 | ) | | | (40 | ) | Sale: 1 transaction, price EUR 6.38 | | | | | | | | | | | | | | | | | | | (20,137 | ) | | | (129 | ) | Purchase: transactions, average price EUR 3.51 | | | | | | | | | | | | | | | | | | | 29,259 | | | | 103 | | Sale: 1 transaction, price EUR 5.11 | | | | | | | | | | | | | | | | | | | (29,259 | ) | | | (150 | ) | Shares withdrawn: 1 transaction, price EUR 4.60 | | | | | | | | | | | | | | | | | | | (83,117 | ) | | | (382 | ) | Purchase: transactions, average price EUR 3.84 | | | | | | | | | | | | | | | | | | | 30,765 | | | | 118 | | At December 31 | | | 61,418 | | | | 326 | | | | 64,488 | | | | 314 | | | | 47,473 | | | | 178 | |
Movements in the number of treasury common shares B held by Aegon N.V. were as follows: | | | | | 2018 | | | 2017 | | 2016 | | | 2019 | | | | | 2018 | | | | | 2017 | | | | | | | Number of
shares
(thousands) | | Amount | | | Number of
shares
(thousands) | | Amount | | Number of
shares
(thousands) | | Amount | | | Number of shares (thousands) | | Amount | | | Number of shares (thousands) | | Amount | | | Number of shares (thousands) | | Amount | | At January 1 | | 15,346 | | | 2 | | | 17,325 | | | 2 | | | | - | | | | - | | | | 13,856 | | | 2 | | | | 15,346 | | | 2 | | | | 17,325 | | | 2 | | | Transactions in 2019: | | | | | | | | | | | | | | Sale: 1 transaction, average price 0.12 | | | | (1,774 | ) | | | - | | | | | | | | | | Purchase: 1 transaction average price 0.10 | | | | 13,227 | | | 1 | | | | | | | | | | | Transactions in 2018: | | | | | | | | | | | | | | | | | | | | | | | | | Sale: 1 transaction, average price EUR 0.11 | | (1,489 | ) | | | - | | | | | | | | | | | | | | | | (1,489 | ) | | | - | | | | | | | Transactions in 2017: | | | | | | | | | | | | | | | | | | | | | | | | | Sale: 1 transaction, average price EUR 0.11 | | | | | | (1,979 | ) | | | - | | | | | | | | | | | | | | | | (1,979 | ) | | | - | | Sale: 1 transaction, average price EUR 0.11 | | | | | | (13,043 | ) | | (1 | ) | | | | | | | | | | | | | | | (13,043 | ) | | (1 | ) | Purchase: 1 transaction, average price EUR 0.13 | | | | | | 13,043 | | | 2 | | | | | | | | | | | | | | | | 13,043 | | | | 2 | | | Transactions in 2016: | | | | | | | | | | | | | | Purchase: transactions, average price EUR 0.11 | | | | | | | | | | 17,325 | | | 2 | | | At December 31 | | 13,856 | | | 2 | | | 15,346 | | | 2 | | | 17,325 | | | 2 | | | | 25,310 | | | 3 | | | | 13,856 | | | 2 | | | | 15,346 | | | 2 | |
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. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2019 | | | | | | 2018 | | | | | | 2017 | | | | | | | | Number of shares
(thousands) | | | Total
amount | | | Number of shares (thousands) | | | Total
amount | | | Number of shares (thousands) | | | Total
amount | | Common shares | | | | | | | | | | | | | | | | | | | | | | | | | Held by Aegon N.V. | | | 65,540 | | | | 269 | | | | 61,418 | | | | 326 | | | | 64,488 | | | | 314 | | Held by subsidiaries | | | 1,043 | | | | 9 | | | | 1,144 | | | | 9 | | | | 1,162 | | | | 9 | | Common shares B | | | | | | | | | | | | | | | | | | | | | | | | | Held by Aegon N.V. | | | 25,310 | | | | 3 | | | | 13,856 | | | | 2 | | | | 15,346 | | | | 2 | | At December 31 | | | 91,893 | | | | 281 | | | | 76,419 | | | | 337 | | | | 80,996 | | | | 325 | |
| | | | | | | | | | | | Weighted average number of treasury shares, including treasury shares held by subsidiaries (thousands) | | | Weighted average number of treasury shares B (thousands) | 2017 | | | 38,490 | | | | 9,841 | | 2018 | | | 60,129 | | | | 14,415 | | 2019 | | | 56,467 | | | | 13,070 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 248253 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 3230 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | | 2017 | | | 2016 | | | | | Number of shares
(thousands) | | | Total
amount | | | Number of shares
(thousands) | | | Total amount | | | Number of shares
(thousands) | | | Total amount | | Common shares | | | | | | | | | | | | | | | | | | | | | | | | | Held by Aegon N.V. | | | 61,418 | | | | 326 | | | | 64,488 | | | | 314 | | | | 47,473 | | | | 178 | | Held by subsidiaries | | | 1,144 | | | | 9 | | | | 1,162 | | | | 9 | | | | 1,307 | | | | 10 | | | | | | | | | Common shares B | | | | | | | | | | | | | | | | | | | | | | | | | Held by Aegon N.V. | | | 13,856 | | | | 2 | | | | 15,346 | | | | 2 | | | | 17,325 | | | | 2 | | At December 31 | | | 76,419 | | | | 337 | | | | 80,996 | | | | 325 | | | | 66,105 | | | | 190 | |
| | | | | | | | | | | | Weighted average number of treasury shares, including
treasury shares held by subsidiaries (thousands) | | | Weighted average number of
treasury shares B (thousands) | | 2016 | | | 81,570 | | | | 9,893 | | 2017 | | | 38,490 | | | | 9,841 | | 2018 | | | 60,129 | | | | 14,415 | |
32.430.4 Revaluation reserves
| | | | | Available-for-sale investments | | Real estate held for own use | | Cash flow hedging reserve | | Total | | At January 1, 2019 | | | | 1,910 | | | 46 | | | 1,479 | | | 3,436 | | Gross revaluation | | | | 3,470 | | | (4 | ) | | 89 | | | 3,556 | | Net (gains) / losses transferred to income statement | | | | (412 | ) | | | - | | | (97 | ) | | (509 | ) | Net (gains) / losses transferred to retained earnings | | | | - | | | (32 | ) | | | - | | | (32 | ) | Foreign currency translation differences | | | | 8 | | | 1 | | | 27 | | | 37 | | Tax effect | | | | (630 | ) | | 8 | | | 3 | | | (619 | ) | At December 31, 2019 | | | | 4,348 | | | 19 | | | 1,502 | | | 5,868 | | | | | Available-for-sale
investments | | Real estate held for
own use | | Cash flow hedging
reserve | | Total | | | At January 1, 2018 | | | 3,450 | | | 68 | | | 1,402 | | | 4,920 | | | | 3,427 | | | 68 | | | 1,402 | | | 4,898 | | Gross revaluation | | | (2,138 | ) | | (32 | ) | | 85 | | | (2,086 | ) | | | (2,142 | ) | | (32 | ) | | 85 | | | (2,090 | ) | Net (gains)/losses transferred to income statement | | | 66 | | | | - | | | (80 | ) | | (14 | ) | | Net (gains) / losses transferred to income statement | | | | 66 | | | | - | | | (80 | ) | | (14 | ) | Foreign currency translation differences | | | 46 | | | 2 | | | 71 | | | 119 | | | | 46 | | | 2 | | | 71 | | | 119 | | Tax effect | | | 513 | | | 7 | | | 1 | | | 521 | | | | 514 | | | 7 | | | 1 | | | 522 | | Other | | | - | | | | - | | | | - | | | 1 | | | | - | | | | - | | | | - | | | 1 | | At December 31, 2018 | | | 1,936 | | | 46 | | | 1,479 | | | 3,461 | | | | 1,910 | | | 46 | | | 1,479 | | | 3,436 | | | At January 1, 2017 | | | 3,418 | | | 59 | | | 1,904 | | | 5,381 | | | | 3,326 | | | 59 | | | 1,904 | | | 5,289 | | Gross revaluation | | | 1,310 | | | 8 | | | (115 | ) | | 1,203 | | | | 1,403 | | | 8 | | | (115 | ) | | 1,296 | | Net (gains)/losses transferred to income statement | | | (1,330 | ) | | | - | | | (738 | ) | | (2,069 | ) | | Net (gains) / losses transferred to income statement | | | | (1,330 | ) | | | - | | | (738 | ) | | (2,069 | ) | Foreign currency translation differences | | | (228 | ) | | (8 | ) | | (216 | ) | | (452 | ) | | | (228 | ) | | (8 | ) | | (216 | ) | | (452 | ) | Tax effect | | | 308 | | | 9 | | | 567 | | | 883 | | | | 285 | | | 9 | | | 567 | | | 860 | | Other | | | (28 | ) | | | - | | | 1 | | | (27 | ) | | | (28 | ) | | | - | | | 1 | | | (27 | ) | At December 31, 2017 | | | 3,450 | | | 68 | | | 1,402 | | | 4,920 | | | | 3,427 | | | 68 | | | 1,402 | | | 4,898 | | | At January 1, 2016 | | | 4,546 | | | 52 | | | 1,873 | | | 6,471 | | | Gross revaluation | | | 857 | | | 8 | | | (131 | ) | | 733 | | | Net (gains)/losses transferred to income statement | | | (2,122 | ) | | | - | | | 78 | | | (2,044 | ) | | Foreign currency translation differences | | | (101 | ) | | 2 | | | 61 | | | (38 | ) | | Tax effect | | | 240 | | | (3 | ) | | 24 | | | 262 | | | Other | | | (2 | ) | | | - | | | | - | | | (2 | ) | | At December 31, 2016 | | | 3,418 | | | 59 | | | 1,904 | | | 5,381 | | |
The revaluation accounts for bothavailable-for-sale investments and for real estate held for own use include unrealized gains and losses on these investments, net of tax. Upon sale, the amounts realized are recognized in the income statement (foravailable-for-sale investments) or transferred to retained earnings (for real estate held for own use). Upon impairment, unrealized losses are recognized in the income statement. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 249 | | Notes to the consolidated financial statements Note 32 | | | | | | |
The closing balances of the revaluation reserve foravailable-for-sale investments relate to the following instruments: | | | | | | 2018 | | | | 2017 | | | 2016 | | | 2019 | | | 2018 | | 2017 | | Shares | | | 22 | | | | 40 | | | 130 | | | | 25 | | | 22 | | | 40 | | Debt securities | | | 1,937 | | | | 3,423 | | | 3,245 | | | | 4,348 | | | 1,911 | | | 3,401 | | Other | | | (23 | ) | | | (14 | ) | | 43 | | | | (26 | ) | | (23 | ) | | (14 | ) | Revaluation reserve foravailable-for-sale investments | | | 1,936 | | | | 3,450 | | | 3,418 | | | | 4,348 | | | 1,910 | | | 3,427 | |
The cash flow hedging reserve includes (un)realized gains and losses on the effective portions of hedging instruments, net of tax. The amounts are recognized in the income statement at the moment of realization of the hedged position to offset the gain or loss from the hedged cash flow. No amounts have been released from equity to be included in the initial measurement ofnon-financial assets or liabilities. 32.530.5 Remeasurement of defined benefit plans
| | | | | 2018 | | | | 2017 | | | 2016 | | | 2019 | | | 2018 | | 2017 | | At January 1 | | | (1,669 | ) | | | (1,820 | ) | | (1,532 | ) | | | (1,850 | ) | | (1,669 | ) | | (1,820 | ) | Remeasurements of defined benefit plans | | | (134 | ) | | | 224 | | | (392 | ) | | | (612 | ) | | (134 | ) | | 224 | | Tax effect | | | (15 | ) | | | (175 | ) | | 89 | | | | 90 | | | (15 | ) | | (175 | ) | Net exchange differences | | | (32 | ) | | | 102 | | | 16 | | | | (25 | ) | | (32 | ) | | 102 | | Total remeasurement of defined benefit plans | | | (1,850 | ) | | | (1,669 | ) | | (1,820 | ) | | | (2,397 | ) | | (1,850 | ) | | (1,669 | ) |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 254 | | | | Consolidated financial statements of Aegon N.V.Note 30 | | | | | | | | | | |
32.630.6 Other reserves
| | | | | Foreign currency translation reserve | | Net foreign investment hedging reserve | | Equity movements of joint ventures and associates | | Total | | At January 1, 2019 | | | | 499 | | | (370 | ) | | 19 | | | 149 | | Movement in foreign currency translation and net foreign investment hedging reserves | | | | 312 | | | (10 | ) | | | - | | | 302 | | Disposal of a business | | | | (1 | ) | | | - | | | | - | | | (1 | ) | Tax effect | | | | (10 | ) | | 5 | | | | - | | | (5 | ) | Equity movements of joint ventures | | | | - | | | | - | | | 8 | | | 8 | | Equity movements of associates | | | | - | | | | - | | | 4 | | | 4 | | At December 31, 2019 | | | | 800 | | | (374 | ) | | 31 | | | 456 | | | | |
| Foreign currency
translation
reserve |
| |
| Net foreign
investment
hedging reserve |
| |
| Equity movements
of joint ventures
and associates |
| | �� Total | | | At January 1, 2018 | | | (80 | ) | | (321 | ) | | 11 | | | (390 | ) | | | (80 | ) | | (321 | ) | | 11 | | | (390 | ) | Movement in foreign currency translation and net foreign investment hedging reserves | | | 562 | | | (46 | ) | | (3 | ) | | 513 | | | | 562 | | | (46 | ) | | (3 | ) | | 513 | | Disposal of a business | | | 50 | | | (14 | ) | | | - | | | 36 | | | | 50 | | | (14 | ) | | | - | | | 36 | | Tax effect | | | (32 | ) | | 12 | | | | - | | | (20 | ) | | | (32 | ) | | 12 | | | | - | | | (20 | ) | Equity movements of joint ventures | | | - | | | | - | | | 8 | | | 8 | | | | - | | | | - | | | 8 | | | 8 | | Equity movements of associates | | | - | | | | - | | | 2 | | | 2 | | | | - | | | | - | | | 2 | | | 2 | | Other | | | - | | | | - | | | 1 | | | 1 | | | | - | | | | - | | | 1 | | | 1 | | At December 31, 2018 | | | 499 | | | (370 | ) | | 19 | | | 149 | | | | 499 | | | (370 | ) | | 19 | | | 149 | | | At January 1, 2017 | | | 1,734 | | | (418 | ) | | 31 | | | 1,347 | | | | 1,734 | | | (418 | ) | | 31 | | | 1,347 | | Movement in foreign currency translation and net foreign investment hedging reserves | | | (1,929 | ) | | 129 | | | | - | | | (1,800 | ) | | | (1,929 | ) | | 129 | | | | - | | | (1,800 | ) | Disposal of a business | | | 7 | | | | - | | | | - | | | 7 | | | | 7 | | | | - | | | | - | | | 7 | | Tax effect | | | 108 | | | (32 | ) | | | - | | | 76 | | | | 108 | | | (32 | ) | | | - | | | 76 | | Equity movements of joint ventures | | | - | | | | - | | | (15 | ) | | (15 | ) | | | - | | | | - | | | (15 | ) | | (15 | ) | Equity movements of associates | | | - | | | | - | | | (5 | ) | | (5 | ) | | | - | | | | - | | | (5 | ) | | (5 | ) | At December 31, 2017 | | | (80 | ) | | (321 | ) | | 11 | | | (390 | ) | | | (80 | ) | | (321 | ) | | 11 | | | (390 | ) | | At January 1, 2016 | | | 1,731 | | | (467 | ) | | 19 | | | 1,283 | | | Movement in foreign currency translation and net foreign investment hedging reserves | | | 25 | | | 65 | | | | - | | | 91 | | | Tax effect | | | (22 | ) | | (17 | ) | | | - | | | (39 | ) | | Equity movements of joint ventures | | | - | | | | - | | | 9 | | | 9 | | | Equity movements of associates | | | - | | | | - | | | 3 | | | 3 | | | At December 31, 2016 | | | 1,734 | | | (418 | ) | | 31 | | | 1,347 | | |
The foreign currency translation reserve includes the currency results from investments innon-euro denominated subsidiaries. The amounts are released to the income statement upon the sale of the subsidiary. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 250 | | Notes to the consolidated financial statements Note 33 | | | | | | |
The net foreign investment hedging reserve is made up of gains and losses on the effective portions of hedging instruments, net of tax. The amounts are recognized in the income statement at the moment of realization of the hedged position to offset the gain or loss from the net foreign investment. The equity movements of joint ventures and associates reflect Aegon’s share of changes recognized directly in the joint venture’s and associate’s equity. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 255 | | | | Consolidated financial statements of Aegon N.V.Note 31 | | | | | | | | | | |
3331 Other equity instruments
| | | | | Perpetual
contingent
convertible
securities | | | Junior
perpetual
capital
securities | | Perpetual
cumulative
subordinated
bonds | | | Non-cumulative
subordinated
notes | | Long Term
Incentive
Plans1) | | Total | | At January 1, 2019 | | | | - | | | | 2,808 | | | 454 | | | | - | | | 58 | | | 3,320 | | Shares granted | | | | - | | | | - | | | | - | | | | - | | | 21 | | | 21 | | Shares vested | | | | - | | | | - | | | | - | | | | - | | | (26 | ) | | (26 | ) | Securities issued | | | | 500 | | | | - | | | | - | | | | - | | | | - | | | 500 | | Securities redeemed | | | | - | | | | (1,244 | ) | | | - | | | | - | | | | - | | | (1,244 | ) | At December 31, 2019 | | | | 500 | | | | 1,564 | | | 454 | | | | - | | | 53 | | | 2,571 | | | | | Junior perpetual capital securities | | Perpetual cumulative subordinated bonds | | | Share options and incentive plans1 | | Non-cumulative subordinated notes | | Total | | | At January 1, 2018 | | | 3,008 | | | 454 | | | | 61 | | | 271 | | | 3,794 | | | | - | | | | 3,008 | | | 454 | | | | 271 | | | 61 | | | 3,794 | | Shares granted | | | - | | | | - | | | | 16 | | | | - | | | 16 | | | | - | | | | - | | | | - | | | | - | | | 16 | | | 16 | | Shares vested | | | - | | | | - | | | | (19 | ) | | | - | | | (19 | ) | | | - | | | | - | | | | - | | | | - | | | (19 | ) | | (19 | ) | Securities redeemed | | | (200 | ) | | | - | | | | - | | | (271 | ) | | (471 | ) | | | - | | | | (200 | ) | | | - | | | | (271 | ) | | | - | | | (471 | ) | At December 31, 2018 | | | 2,808 | | | 454 | | | | 58 | | | | - | | | 3,320 | | | | - | | | | 2,808 | | | 454 | | | | - | | | 58 | | | 3,320 | | | At January 1, 2017 | | | 3,008 | | | 454 | | | | 65 | | | 271 | | | 3,797 | | | | - | | | | 3,008 | | | 454 | | | | 271 | | | 65 | | | 3,797 | | Shares granted | | | - | | | | - | | | | 26 | | | | - | | | 26 | | | | - | | | | - | | | | - | | | | - | | | 26 | | | 26 | | Shares vested | | | - | | | | - | | | | (30 | ) | | | - | | | (30 | ) | | | - | | | | - | | | | - | | | | - | | | (30 | ) | | (30 | ) | Securities redeemed | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | At December 31, 2017 | | | 3,008 | | | 454 | | | | 61 | | | 271 | | | 3,794 | | | | - | | | | 3,008 | | | 454 | | | | 271 | | | 61 | | | 3,794 | | | At January 1, 2016 | | | 3,008 | | | 454 | | | | 68 | | | 271 | | | 3,800 | | | Shares granted | | | - | | | | - | | | | 13 | | | | - | | | 13 | | | Shares vested | | | - | | | | - | | | | (16 | ) | | | - | | | (16 | ) | | At December 31, 2016 | | | 3,008 | | | 454 | | | | 65 | | | 271 | | | 3,797 | | |
| 1 | Share options and incentive plansLong Term Incentive Plans include the shares and options granted to personnel which are not yet vested.
|
| | | | | | | | | | | | | Junior perpetual capital securities | | Coupon rate | | Coupon date, as of | | Year of next call | | 2018 | | 2017 | | 2016 | USD 500 million | | 6.50% | | Quarterly, December 15 | | 2019 | | 424 | | 424 | | 424 | USD 250 million | | floating LIBOR rate 1 | | Quarterly, December 15 | | 2019 | | 212 | | 212 | | 212 | USD 500 million | | floating CMS rate 2 | | Quarterly, July 15 | | 2019 | | 402 | | 402 | | 402 | USD 1 billion | | 6.375% | | Quarterly, June 15 | | 2019 | | 821 | | 821 | | 821 | EUR 950 million | | floating DSL rate 3 | | Quarterly, July 15 | | 2019 | | 950 | | 950 | | 950 | EUR 200 million | | 6.0% | | Annually, July 21 | | Called in 2018 | | - | | 200 | | 200 | At December 31 | | | | | | | | 2,808 | | 3,008 | | 3,008 |
| | | | | | | | | | | | | | | | | | | | | | | | | Perpetual contingent convertible securities | | Coupon rate | | | Coupon date | | | Year of next call | | | 2019 | | | 2018 | | | 2017 | | EUR 500 million | | | 5.625 | % | | | Semi-annually, April 15 | | | | 2029 | | | | 500 | | | | - | | | | - | | At December 31 | | | | | | | | | | | | | | | 500 | | | | - | | | | - | |
The perpetual contingent convertible securities of EUR 500 million issued on April 4, 2019 have a fixed coupon of 5.625% until the first call date and reset thereafter to 5 year mid swap plus a margin of 5.207%. The securities have been issued at par and have subordination provisions, rank junior to all other liabilities and senior to shareholders’ equity only. The conditions of the securities contain certain provisions for optional and required coupon payment cancelation. Although the securities have no stated maturity, Aegon has the right to call the securities for redemption at par for the first time between April 15, 2029 and October 15, 2029 and every reset date (October 15, with five year intervals) thereafter. Upon breach of certain regulatory capital requirement levels, the securities convert into common shares. | | | | | | | | | | | | | | | | | | | | | | | | | Junior perpetual capital securities | | Coupon rate | | | Coupon date, as of | | | Year of next call | | | 2019 | | | 2018 | | | 2017 | | USD 500 million | | | 6.50 | % | | | Quarterly, December 15 | | | | Called in 2019 | | | | - | | | | 424 | | | | 424 | | USD 250 million | | | floating LIBOR rate | 1) | | | Quarterly, December 15 | | | | 2020 | | | | 212 | | | | 212 | | | | 212 | | USD 500 million | | | floating CMS rate | 2) | | | Quarterly, July 15 | | | | 2020 | | | | 402 | | | | 402 | | | | 402 | | USD 1 billion | | | 6.375 | % | | | Quarterly, June 15 | | | | Called in 2019 | | | | - | | | | 821 | | | | 821 | | EUR 950 million | | | floating DSL rate | 3) | | | Quarterly, July 15 | | | | 2020 | | | | 950 | | | | 950 | | | | 950 | | EUR 200 million | | | 6.0 | % | | | Annually, July 21 | | | | Called in 2018 | | | | - | | | | - | | | | 200 | | At December 31 | | | | | | | | | | | | | | | 1,564 | | | | 2,808 | | | | 3,008 | |
| 1 | The coupon of the USD 250 million junior perpetual capital securities is reset each quarter based on the then prevailing three-month LIBOR yield plus a spread of 87.5 basis points, with a minimum of 4%. |
| 2 | The coupon of the USD 500 million junior perpetual capital securities is reset each quarter based on the then prevailingten-year US dollar interest rate swap yield plus a spread of ten basis points, with a maximum of 8.5%. |
| 3 | The coupon of the EUR 950 million junior perpetual capital securities is reset each quarter based on the then prevailingten-year Dutch government bond yield plus a spread of ten basis points, with a maximum of 8%. |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 256 | | | | Consolidated financial statements of Aegon N.V.Note 31 | | | | | | | | | | |
The interest rate exposure on some of these securities has been swapped to a three-month LIBOR and/or EURIBOR based yield. With effect on June 15, 2019, Aegon has exercised its right to redeem USD 500 million 6.5% perpetual capital securities issued in 2005. The securities had no stated maturity, however Aegon had the right to call the securities for redemption and exercised this right with effect on June 15, 2019. With effect on December 15, 2019, Aegon has exercised its right to redeem USD 1 billion 6.375% perpetual capital securities issued in 2005. The securities had no stated maturity, however Aegon had the right to call the securities for redemption and exercised this right with effect on December 15, 2019. The securities have been issued at par. The securities have subordination provisions, rank junior to all other liabilities and senior to shareholders’ equity only. The conditions of the securities contain certain provisions for optional and required coupon payment deferral and, in situations under Aegon’s control, mandatory coupon payment events. Although the securities have no stated maturity, Aegon has the right to call the securities for redemption at par for the first time on the coupon date in the years as specified, or on any coupon payment date thereafter. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 251 | | Notes to the consolidated financial statements Note 34 | | | | | | |
| Perpetual cumulative subordinated bonds | | Coupon rate | | Coupon date | |
| Year of
next call |
| | | 2018 | | | | 2017 | | | | 2016 | | | Coupon rate | | | Coupon date | | | Year of next
call | | | 2019 | | | 2018 | | | 2017 | | EUR 203 million | | 4.260%1, 4 | | Annual, March 4 | | | 2021 | | | | 203 | | | | 203 | | | | 203 | | | | 4.260% 1), 4) | | | | Annually, March 4 | | | | 2021 | | | | 203 | | | | 203 | | | | 203 | | EUR 114 million | | 1.506%2, 4 | | Annual, June 8 | | | 2025 | | | | 114 | | | | 114 | | | | 114 | | | | 1.506% 2), 4) | | | | Annually, June 8 | | | | 2025 | | | | 114 | | | | 114 | | | | 114 | | EUR 136 million | | 1.425%3, 4 | | Annual, October 14 | | | 2028 | | | | 136 | | | | 136 | | | | 136 | | | | 1.425% 3), 4) | | | | Annually, October 14 | | | | 2028 | | | | 136 | | | | 136 | | | | 136 | | At December 31 | | | | | | | | | 454 | | | | 454 | | | | 454 | | | | | | | | | | 454 | | | | 454 | | | | 454 | |
| 1 | The coupon of the EUR 203 million bonds was originally set at 7.125% until March 4, 2011. Subsequently, the coupon has been reset at 4.26% until March 4, 2021. |
| 2 | The coupon of the EUR 114 million bonds was originally set at 8% until June 8, 2005. Subsequently, the coupon has been reset at 4.156% until June 8, 2015 and 1.506% until June 8, 2025. |
| 3 | The coupon of the EUR 136 million bonds was originally set at 7.25% until October 14, 2008. Subsequently, the coupon has been reset at 5.185% until October 14, 2018 and 1.425% until October 14, 2028. |
| 4 | If the bonds are not called on the respective call dates and after consecutive period of ten years, the coupons will be reset at the then prevailing effective yield often-year Dutch government securities plus a spread of 85 basis points. |
The bonds have the same subordination provisions as dated subordinated debt. In addition, the conditions of the bonds contain provisions for interest deferral. Although the bonds have no stated maturity, Aegon has the right to call the bonds for redemption at par for the first time on the coupon date in the year of next call. | Non-cumulative subordinated notes | | Coupon rate | | Coupon date | |
| Year of
next call |
| | | 2018 | | | | 2017 | | | | 2016 | | | Coupon rate | | | Coupon date | | | Year of next
call | | | 2019 | | | 2018 | | | 2017 | | USD 525 million | | 8% | | Quarterly, February 15 | | | Called in 2018 | | | | - | | | | 271 | | | | 271 | | | | 8% | | | | Quarterly, February 15 | | | | Called in 2018 | | | | - | | | | - | | | | 271 | | At December 31 | | | | | | | | | - | | | | 271 | | | | 271 | | | | | | | | | | - | | | | - | | | | 271 | |
With effect on May 15, 2018, Aegon has exercised its right to redeem USD 525 millionnon-cumulative subordinated notes, subsequently leading to their redemption. The securities had a stated maturity of 30 years, however, Aegon had the right to call the securities for redemption at par on any coupon payment date. Thenon-cumulative subordinated notes were initially issued on February 7, 2012, in aggregate principal amount of 8.00%, due 2042, in an underwritten public offering in the United States registered with the US Securities and Exchange Commission. The securities were subordinated and rank senior to the junior perpetual capital securities, equally with the perpetual cumulative subordinated bonds and fixed floating subordinated notes, and junior to all other liabilities. The conditions of the securities contained certain provisions for optional and required cancellation of interest payments.
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
These notes were recognized as compound financial instruments and separated into an equity component and a liability component. Prior to redemption, the equity component had a book value of EUR 271 million (2017: EUR 271 million), subordinated borrowings amounted to EUR 68 million (2017: EUR 69 million) and a deferred tax liability amounting to EUR 89 million (2017: EUR 92 million).
| | | | | | | | | 257 | | | | Consolidated financial statements of Aegon N.V.Note 32 | | | | | | | | | | |
Refer to note 34 Subordinated borrowings for details of the component classified as subordinated borrowings.
3432 Subordinated borrowings
| | | Coupon rate | | Coupon date | | | Year of next call | | | | 2018 | | | | 2017 | | | | | Fixed floating subordinated notes | | | | | | | | | | | | | | | | Coupon rate | | Coupon date | | Year of next call | | 2019 | | | 2018 | | Fixed to floating subordinated notes | | Fixed to floating subordinated notes | | | | | | | | | EUR 700 million | | 4% | | Annually, April 25 | | | 2024 | | | | 696 | | | | 695 | | | 4% | | Annually, April 25 | | 2024 | | | 697 | | | | 696 | | USD 800 million | | 5,5% | | Semi-annually, April 11 | | | 2028 | | | | 693 | | | | - | | | 5.5% | | Semi-annually, April 11 | | 2028 | | | 707 | | | | 693 | | Non-cumulative subordinated notes | | | | | | | | | | | | USD 525 million | | 8% | | Quarterly, February 15 | | | Called in 2018 | | | | - | | | | 69 | | | Fixed subordinated notes | | | | | | | | | | | | USD 925 million1) | | | 5.1% | | Quarterly, March 15 | | 2024 | | | 804 | | | | - | | At December 31 | | | | | | | | | 1,389 | | | | 764 | | | | | | | | | | 2,207 | | | | 1,389 | |
| 1 | Issued by a subsidiary of, and guaranteed by Aegon N.V. |
The subordinated debt securities of USD 925 million issued on October 22, 2019 have a fixed coupon of 5.1%. The securities are first callable on December 15, 2024 and maturing on December 15, 2049. The subordinated debt securities of USD 800 million issued on April 11, 2018 have a fixed coupon of 5.5% until the first call date and floating thereafter with a margin including a 100 basis pointsstep-up. The securities are first callable on April 11, 2028 and maturing on April 11, 2048. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 252 | | Notes to the consolidated financial statements Note 35 | | | | | | |
These securities are subordinated and rank senior to the junior perpetual capital securities and the perpetual contingent convertible securities, equally with the perpetual cumulative subordinated bonds and junior to all other liabilities. The conditions of the securities contain certain provisions for optional and required deferral of interest payments. There have been no defaults or breaches of conditions during the period. In 2017, subordinated borrowings included a liability of EUR 69 million relating to the USD 525 millionnon-cumulative subordinated notes issued on February 7, 2012. The liability component of thenon-cumulative subordinated notes related to the redemption amount was derecognised subsequent to Aegon exercising its redemption rights in May 2018.
For further information on thenon-cumulative subordinated notes, their subordination and redemption refer to note 33 Other equity instruments.
The fair value of these loans amounted to EUR 1,3552,416 million (2017:(2018: EUR 9531,355 million). 3533 Trust pass-through securities
| | | | | | | | | | | | | | | | | | | | | | Coupon rate | | Coupon date | | Year of issue | | Year of maturity | | Year of next call | | | 2018 | | | | 2017 | | USD 225 million 1 | | 7.65% | | Semi-annually, December 1 | | 1996 | | 2026 | | n.a. | | | 90 | | | | 91 | | USD 190 million 1 | | 7.625% | | Semi-annually, November 15 | | 1997 | | 2037 | | n.a. | | | 43 | | | | 41 | | At December 31 | | | | | | | | | | | | | 133 | | | | 133 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Coupon rate | | | Coupon date | | | Year of issue | | | Year of maturity | | | Year of next call | | | 2019 | | | 2018 | | USD 225 million 1) | | | 7.65% | | | | Semi-annually, December 1 | | | | 1996 | | | | 2026 | | | | n.a. | | | | 92 | | | | 90 | | USD 190 million 1) | | | 7.625% | | | | Semi-annually, November 15 | | | | 1997 | | | | 2037 | | | | n.a. | | | | 44 | | | | 43 | | At December 31 | | | | | | | | | | | | | | | | | | | | | | | 136 | | | | 133 | |
1 Issued by a subsidiary of, and guaranteed by Aegon N.V.
| 1 | Issued by a subsidiary of, and guaranteed by Aegon N.V. |
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 pass-through securities are subordinated to all other unsubordinated borrowings and liabilities of Transamerica Corporation. There were no defaults or breaches of conditions during the period. The fair value of these loans amounted to EUR 128144 million (2017:(2018: EUR 137128 million). 3634 Insurance contracts
36.134.1 Underwriting risk
Aegon’s earnings depend significantly upon the extent to which actual claims experience differs from the assumptions used in setting the prices for products and establishing the technical liabilities and liabilities for claims. To the extent that actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, income would be reduced. Furthermore, if these higher claims were part of a permanent trend, Aegon may be required to change best estimate assumptions for future claims which could increase the required reserves for these future claims, which could reduce income. In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force have been recorded as assets on the statement of financial position and are being amortized into the income statement over time. If the assumptions relating to the future profitability of these policies (such as future claims, investment income and expenses) are not realized, the amortization of these costs could be accelerated and may even require write offs should there be an expectation of unrecoverability. This could have a materially adverse effect on Aegon’s business, results of operations and financial condition. Sources of underwriting risk include policyholder behavior (such as lapses, surrender of policies or partial withdrawals), policy claims (such as mortality, longevity or morbidity) and expenses. For some product lines, Aegon is at risk if policy lapses increase as sometimes | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 258 | | | | Consolidated financial statements of Aegon N.V.Note 34 | | | | | | | | | | |
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, Aegon also 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 the expenses assumed beforehand by management and that were priced into the products. Aegon monitors and manages its underwriting risk by underwriting risk type. Attribution analysis is performed on earnings and reserve movements in order to understand the source of any material variation in actual results from what was expected. Aegon’s units also perform experience studies for underwriting risk assumptions, comparing Aegon’s experience to industry experience as well as combining Aegon’s experience and industry experience based on the depth of the history of each source to Aegon’s underwriting assumptions. Where policy charges are flexible in products, Aegon uses these analyses as the basis for modifying these charges, with | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 253 | | Notes to the consolidated financial statements Note 36 | | | | | | |
a view to maintain a balance between policyholder and shareholder interests. Aegon also has the ability to reduce expense levels over time, thus mitigating unfavorable expense variation. Sensitivity analysis of net income and shareholders’ equity to various underwriting risks is shown in the table that follows. Aegon’s best estimate assumptions already include expected future developments and the sensitivities represent an increase or decrease of lapse rates, mortality rates and morbidity rates, compared to Aegon’s best estimate assumptions. These underwriting sensitivities were run using a permanent shock applied to all of Aegon’s products, exposed to an increase and to a decrease in the rates. The table below indicates that the mortalitymorbidity sensitivity has the largest impact and in aggregate, Aegon is exposed to a decrease in mortality rates. Sensitivity analysis of net income and shareholders’ equity to changes in various underwriting risks | | | | | | | | | | | | | | | | | | | | | 2018 | | | | 2017 | | Sensitivity analysis of net income and shareholders’ equity to changes in various underwriting risks | | | On shareholders’ | | | | | | | | On shareholders’ | | | | | | Estimated approximate effect | | | equity | | | | On net income | | | | equity | | | | On net income | | 20% increase in lapse rates | | | 94 | | | | 109 | | | | 69 | | | | 94 | | 20% decrease in lapse rates | | | (139 | ) | | | (154 | ) | | | (124 | ) | | | (155 | ) | 10% increase in mortality rates | | | 478 | | | | 105 | | | | 514 | | | | 91 | | 10% decrease in mortality rates | | | (965 | ) | | | (532 | ) | | | (1,011 | ) | | | (577 | ) | 10% increase in morbidity rates | | | (525 | ) | | | (446 | ) | | | (492 | ) | | | (463 | ) | 10% decrease in morbidity rates | | | 183 | | | | 125 | | | | 189 | | | | 142 | |
| | | | | | | | | | | | | | | | | | | | 2019 | | | 2018 | | | Estimated approximate effect | | On shareholders’ equity | | | On net income | | | On shareholders’ equity | | | On net income | | 20% increase in lapse rates | | | 152 | | | | 143 | | | | 94 | | | | 109 | | 20% decrease in lapse rates | | | (169 | ) | | | (156 | ) | | | (139 | ) | | | (154 | ) | 5% increase in mortality rates | | | 261 | | | | 192 | | | | 252 | | | | 63 | | 5% decrease in mortality rates | | | (322 | ) | | | (240 | ) | | | (418 | ) | | | (210 | ) | 10% increase in morbidity rates | | | (370 | ) | | | (376 | ) | | | (525 | ) | | | (446 | ) | 10% decrease in morbidity rates | | | 191 | | | | 196 | | | | 183 | | | | 125 | |
Aegon the Netherlands partially hedges and reinsures the risk of future longevity increases in the Netherlands related to a part of its insurance liabilities. Aegon the Netherlands hedges this risk via both longevity index derivatives and reinsurance contracts. 36.234.2 Insurance contracts for general account
| | | | | 2018 | | | | 2017 | | | 2019 | | 2018 | Life insurance | | | 102,418 | | | | 98,422 | | | | 109,879 | | | | 102,452 | | Non-life insurance | | | | | | | | | - Unearned premiums and unexpired risks | | | 5,341 | | | | 5,447 | | | | 6,002 | | | | 5,341 | | - Outstanding claims | | | 2,338 | | | | 2,206 | | | | 2,417 | | | | 2,338 | | - Incurred but not reported claims | | | 820 | | | | 830 | | | | 772 | | | | 820 | | Incoming reinsurance | | | 4,377 | | | | 3,913 | | | | 4,385 | | | | 4,377 | | At December 31 | | | 115,294 | | | | 110,818 | | | | 123,454 | | | | 115,328 | | | | | | | | | | | | | 2018 | | | | 2017 | | | Non-life insurance: | | | | | | - Accident and health insurance | | | 8,247 | | | | 8,225 | | | - General insurance | | | 252 | | | | 259 | | | Totalnon-life insurance | | | 8,499 | | | | 8,484 | | |
| | | | | | | | | | | | 2019 | | 2018 | Non-life insurance: | | | | | | | | | - Accident and health insurance | | | 8,955 | | | | 8,247 | | - General insurance | | | 235 | | | | 252 | | Totalnon-life insurance | | | 9,190 | | | | 8,499 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 254259 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 3634 | | | | | | | | | | | | |
| Movements during the year in life insurance: | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | At January 1 | | | 98,422 | | | 105,763 | | | | 102,452 | | | 98,452 | | Acquisitions | | | - | | | | - | | | Disposals | | | - | | | | - | | | | (44 | ) | | | - | | Portfolio transfers and acquisitions | | | 95 | | | 139 | | | | (8 | ) | | 95 | | Gross premium and deposits – existing and new business | | | 6,293 | | | 6,498 | | | | 6,913 | | | 6,293 | | Unwind of discount/interest credited | | | 3,711 | | | 4,200 | | | Unwind of discount / interest credited | | | | 3,795 | | | 3,711 | | Insurance liabilities released | | | (9,582 | ) | | (9,247 | ) | | | (9,921 | ) | | (9,582 | ) | Changes in valuation of expected future benefits | | | 617 | | | (1,145 | ) | | | 800 | | | 617 | | Loss recognized as a result of liability adequacy testing | | | 49 | | | 843 | | | | 1,587 | | | 49 | | Shadow accounting adjustments | | | (303 | ) | | 92 | | | | 1,948 | | | (299 | ) | Net exchange differences | | | 3,087 | | | (8,598 | ) | | | 1,271 | | | 3,087 | | Transfer (to)/from reinsurance assets | | | - | | | 23 | | | Transfer (to)/from insurance contracts for account of policyholders | | | - | | | 135 | | | Transfers to disposal groups1 | | | - | | | (239 | ) | | Transfer (to) / from reinsurance assets | | | | 18 | | | | - | | Transfer (to) / from insurance contracts for account of policyholders | | | | 1,050 | | | 27 | | Other | | | 1 | | | (43 | ) | | | 17 | | | 1 | | At December 31 | | | 102,418 | | | 98,422 | | | | 109,879 | | | 102,452 | | | | | | 1 Linked to the sale of Aegon UK’s annuity portfolio, refer to note 51 Business combinations. | | | | | | | | | | | | | Movements during the year innon-life insurance: | | | 2018 | | | 2017 | | | At January 1 | | | 8,484 | | | 9,066 | | | Acquisitions | | | - | | | | - | | | Disposals | | | - | | | | - | | | Portfolio transfers and acquisitions | | | - | | | 5 | | | Gross premiums – existing and new business | | | 1,563 | | | 1,893 | | | Unwind of discount/interest credited | | | 450 | | | 444 | | | Insurance liabilities released | | | (1,052 | ) | | (1,065 | ) | | Changes in valuation of expected future claims | | | (8 | ) | | 173 | | | Change in unearned premiums | | | (742 | ) | | (1,017 | ) | | Change in unexpired risks | | | 2 | | | 3 | | | Incurred related to current year | | | 747 | | | 750 | | | Incurred related to prior years | | | 195 | | | 231 | | | Release for claims settled current year | | | (278 | ) | | (287 | ) | | Release for claims settled prior years | | | (704 | ) | | (717 | ) | | Shadow accounting adjustments | | | (459 | ) | | 76 | | | Change in IBNR | | | (51 | ) | | (79 | ) | | Net exchange differences | | | 354 | | | (986 | ) | | Other | | | (2 | ) | | (5 | ) | | At December 31 | | | 8,499 | | | 8,484 | | | | | | | | | | Movements during the year in incoming reinsurance: | | | 2018 | | | 2017 | | | At January 1 | | | 3,913 | | | 4,739 | | | Gross premium and deposits – existing and new business | | | 1,441 | | | 1,625 | | | Unwind of discount/interest credited | | | 199 | | | 175 | | | Insurance liabilities released | | | (1,557 | ) | | (2,005 | ) | | Change in unearned premiums | | | - | | | 1 | | | Changes in valuation of expected future benefits | | | 190 | | | (57 | ) | | Shadow accounting adjustments | | | (11 | ) | | (1 | ) | | Loss recognized as a result of liability adequacy | | | (4 | ) | | (1 | ) | | Net exchange differences | | | 205 | | | (558 | ) | | Other | | | 2 | | | (4 | ) | | At December 31 | | | 4,377 | | | 3,913 | | |
The LAT deficit per December 31, 2019 in Aegon the Netherlands amounted to EUR 5.1 billion, which was partially offset by the shadow loss recognition of EUR 3.4 billion, resulting in a net deficit of EUR 1.7 billion. The LAT deficit of EUR 1.7 billion for December 31, 2019 is recorded in the income statement and led to the recognition of an increase in insurance contracts liabilities as at December 31, 2019. The positive LAT headroom of Aegon the Netherlands at the end of 2018 of EUR 0.6 billion was negatively impacted by adverse credit spread movements (widening mortgage spreads, tightened liquidity premium) of EUR 0.8 billion and the impact of lower interest rate of EUR 1.1 billion. The LAT deficit was partly recorded as an impairment of DPAC and VOBA balances (EUR 76 million) (refer to note 15 “Impairment charges/(reversals)”) and for the remainder by increasing the insurance liability by EUR 1.8 billion. Due to the positive LAT headroom of Aegon the Netherlands at the end of 2018, changes in the LAT margin triggered by up or down interest shocks could be absorbed by the revaluation reserves on available for sale assets (shadow accounting). However, due to the current deficit, changes in the LAT margin of Aegon the Netherlands, triggered by up or down interest shocks, will now be directly recognized in the income statement. As a result, the IFRS income statement of Aegon the Netherlands is now less sensitive for interest movements as the interest risk was, and is, economically hedged using derivatives largely offsetting the impact of a changed LAT margin. Please refer to note 4 Financial risks for the updated Group sensitivities on interest rate risk. Furthermore, as a result of the current negative LAT headroom position, future results will become more volatile due to changes in credit spreads as these are not hedged. Please find below the estimated sensitivities on shareholders’ equity and on net income, for up and down shocks for credit spreads, mortgage spreads for the bond and mortgage portfolio and liquidity premium shocks for general account insurance liabilities. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 255260 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 3734 | | | | | | | | | | | | |
36.3 Insurance contracts for account of policyholders
| | | | | | | | | Insurance contracts for account of policyholders | | | 2018 | | | | 2017 | | At January 1 | | | 122,168 | | | | 120,929 | | Portfolio transfers and acquisitions | | | (140 | ) | | | (259 | ) | Gross premium and deposits – existing and new business | | | 9,716 | | | | 12,144 | | Unwind of discount/interest credited | | | (5,311 | ) | | | 13,349 | | Insurance liabilities released | | | (10,471 | ) | | | (10,882 | ) | Fund charges released | | | (1,671 | ) | | | (1,746 | ) | Changes in valuation of expected future benefits | | | (245 | ) | | | 100 | | Transfer (to)/from insurance contracts | | | (27 | ) | | | (135 | ) | Transfer (to)/from investment contracts for account of policyholders | | | - | | | | - | | Transfers to disposal groups | | | - | | | | (1,359 | ) | Net exchange differences | | | 3,092 | | | | (10,289 | ) | Other | | | 2 | | | | 317 | | At December 31 | | | 117,113 | | | | 122,168 | |
Included in Transfers to disposal groups for 2017 is the sale of Aegon Ireland plc. business which is classified as held for sale peryear-end 2017. As a result, the Insurance contracts for account of policyholders are no longer included in the 2017 ending balance. Refer to note 22 Assets and liabilities held for sale and note 51 Business combinations.
Other in 2017 reflects the reclassification of the pension contract relating to the personnel of Unirobe Meeùs Groep (UMG) from defined benefit plans to insurance contracts for account of policy holders following the sale of UMG in November 2017.
37 Investment contracts
37.1 Investment contracts for general account
| | | | | | | | | | Movements during the year innon-life insurance: | | 2019 | | | 2018 | | At January 1 | | | 8,499 | | | | 8,484 | | Gross premiums – existing and new business | | | 1,594 | | | | 1,563 | | Unwind of discount / interest credited | | | 481 | | | | 450 | | Insurance liabilities released | | | (1,087 | ) | | | (1,052 | ) | Changes in valuation of expected future claims | | | (7 | ) | | | (8 | ) | Change in unearned premiums | | | (720 | ) | | | (742 | ) | Change in unexpired risks | | | 2 | | | | 2 | | Incurred related to current year | | | 718 | | | | 747 | | Incurred related to prior years | | | 316 | | | | 195 | | Release for claims settled current year | | | (292 | ) | | | (278 | ) | Release for claims settled prior years | | | (788 | ) | | | (704 | ) | Shadow accounting adjustments | | | 422 | | | | (459 | ) | Change in IBNR | | | (73 | ) | | | (51 | ) | Net exchange differences | | | 131 | | | | 354 | | Other | | | (5 | ) | | | (2 | ) | At December 31 | | | 9,191 | | | | 8,499 | |
| | | | | | | | | | | | | | | |
| Without discretionary
participation features |
| |
| With discretionary
participation features |
| | | Total | | At January 1, 2018 | | | 16,665 | | | | 278 | | | | 16,943 | | Portfolio transfers and acquisitions | | | 271 | | | | - | | | | 271 | | Deposits | | | 10,308 | | | | - | | | | 10,308 | | Withdrawals | | | (10,101 | ) | | | - | | | | (10,101 | ) | Investment contracts liabilities released | | | - | | | | (53 | ) | | | (53 | ) | Interest credited | | | 236 | | | | - | | | | 236 | | Net exchange differences | | | 335 | | | | (2 | ) | | | 332 | | Transfer to/from other headings | | | 133 | | | | - | | | | 133 | | Other | | | (22 | ) | | | - | | | | (22 | ) | At December 31, 2018 | | | 17,825 | | | | 223 | | | | 18,048 | | | | | | At January 1, 2017 | | | 19,217 | | | | 355 | | | | 19,572 | | Portfolio transfers and acquisitions | | | 55 | | | | - | | | | 55 | | Deposits | | | 8,432 | | | | - | | | | 8,432 | | Withdrawals | | | (8,455 | ) | | | - | | | | (8,455 | ) | Investment contracts liabilities released | | | - | | | | (64 | ) | | | (64 | ) | Interest credited | | | 268 | | | | - | | | | 268 | | Net exchange differences | | | (1,102 | ) | | | (13 | ) | | | (1,114 | ) | Transfer to/from other headings | | | 21 | | | | - | | | | 21 | | Other | | | (1,771 | ) | | | - | | | | (1,771 | ) | At December 31, 2017 | | | 16,665 | | | | 278 | | | | 16,943 | |
| | | | | | | | | | Movements during the year in incoming reinsurance: | | 2019 | | | 2018 | | At January 1 | | | 4,377 | | | | 3,913 | | Gross premium and deposits – existing and new business | | | 1,397 | | | | 1,441 | | Unwind of discount / interest credited | | | 211 | | | | 199 | | Insurance liabilities released | | | (1,668 | ) | | | (1,557 | ) | Changes in valuation of expected future benefits | | | (30 | ) | | | 190 | | Shadow accounting adjustments | | | 12 | | | | (11 | ) | Loss recognized as a result of liability adequacy | | | 3 | | | | (4 | ) | Net exchange differences | | | 81 | | | | 205 | | Other | | | 2 | | | | 2 | | At December 31 | | | 4,385 | | | | 4,377 | |
| | | | | | | | | | Sensitivity analysis of net income and shareholders’ equity | | Estimated approximate
effects on net income | | | Estimated approximate effects on shareholders’ equity | | 2019 | | | | | | | | | Shift up 50 basis points - Bond credit spreads | | | (205 | ) | | | (2,386 | ) | Shift down 50 basis points - Bond credit spreads | | | 198 | | | | 2,117 | | Shift up 50 basis points - Mortgage spreads | | | (440 | ) | | | (440 | ) | Shift down 50 basis points - Mortgage spreads | | | 467 | | | | 467 | | Shift up 5 basis points - Liquidity premium | | | 104 | | | | 101 | | Shift down 5 basis points - Liquidity premium | | | (105 | ) | | | (103 | ) |
| 1 | The sensitivities shown above were collected for the first time in 2019, therefore we do not provide comparatives. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 256261 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 3835 | | | | | | | | | | | | |
34.3 Insurance contracts for account of policyholders | | | | | | | | | | Insurance contracts for account of policyholders | | 2019 | | | 2018 | | At January 1 | | | 117,113 | | | | 122,168 | | Disposal of a business | | | (196 | ) | | | - | | Portfolio transfers and acquisitions | | | (10 | ) | | | (140 | ) | Gross premium and deposits – existing and new business | | | 9,122 | | | | 9,716 | | Unwind of discount / interest credited | | | 19,780 | | | | (5,311 | ) | Insurance liabilities released | | | (11,103 | ) | | | (10,471 | ) | Fund charges released | | | (1,677 | ) | | | (1,671 | ) | Changes in valuation of expected future benefits | | | 861 | | | | (245 | ) | Transfer (to) / from insurance contracts | | | (1,050 | ) | | | (27 | ) | Net exchange differences | | | 2,868 | | | | 3,092 | | Other | | | 2 | | | | 2 | | At December 31 | | | 135,710 | | | | 117,113 | |
35 Investment contracts 35.1 Investment contracts for general account | | | | | | | | | | | | | | | | Without discretionary
participation features | | | With discretionary
participation features | | | Total | | At January 1, 2019 | | | 17,825 | | | | 223 | | | | 18,048 | | Deposits | | | 13,234 | | | | - | | | | 13,234 | | Withdrawals | | | (13,768 | ) | | | - | | | | (13,768 | ) | Investment contracts liabilities released | | | - | | | | (23 | ) | | | (23 | ) | Interest credited | | | 247 | | | | - | | | | 247 | | Net exchange differences | | | 128 | | | | 12 | | | | 140 | | Transfer to/from other headings | | | 724 | | | | - | | | | 724 | | Other | | | (7 | ) | | | - | | | | (7 | ) | At December 31, 2019 | | | 18,382 | | | | 211 | | | | 18,594 | | | | | | At January 1, 2018 | | | 16,665 | | | | 278 | | | | 16,943 | | Portfolio transfers and acquisitions | | | 271 | | | | - | | | | 271 | | Deposits | | | 10,308 | | | | - | | | | 10,308 | | Withdrawals | | | (10,101 | ) | | | - | | | | (10,101 | ) | Investment contracts liabilities released | | | - | | | | (53 | ) | | | (53 | ) | Interest credited | | | 236 | | | | - | | | | 236 | | Net exchange differences | | | 335 | | | | (2 | ) | | | 332 | | Transfer to/from other headings | | | 133 | | | | - | | | | 133 | | Other | | | (22 | ) | | | - | | | | (22 | ) | At December 31, 2018 | | | 17,825 | | | | 223 | | | | 18,048 | |
| | | | | | | | | | Investment contracts consist of the following: | | 2019 | | | 2018 | | Institutional guaranteed products | | | 339 | | | | 944 | | Fixed annuities | | | 6,237 | | | | 5,981 | | Savings accounts | | | 11,517 | | | | 10,586 | | Investment contracts with discretionary participation features | | | 211 | | | | 223 | | Other | | | 289 | | | | 314 | | At December 31 | | | 18,594 | | | | 18,048 | |
| | | | | Investment contracts consist of the following: | | 2018 | | 2017 | Institutional guaranteed products | | 944 | | 1,053 | Fixed annuities | | 5,981 | | 5,714 | Savings accounts | | 10,586 | | 9,568 | Investment contracts with discretionary participation features | | 223 | | 278 | Other | | 314 | | 331 | At December 31 | | 18,048 | | 16,943 |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 262 | | | | Consolidated financial statements of Aegon N.V.Note 36 | | | | | | | | | | |
37.235.2 Investment contracts for account of policyholders
| | | | | Without discretionary participation features | | With discretionary participation features | | | | Total | At January 1, 2019 | | | | 49,847 | | | 30,250 | | | | | | 80,097 | | Gross premium and deposits – existing and new business | | | | 10,545 | | | 1,066 | | | | | | 11,610 | | Withdrawals | | | | (10,228 | ) | | | - | | | | | | (10,228 | ) | Interest credited | | | | 9,244 | | | 5,511 | | | | | | | | 14,755 | | Investment contracts liabilities released | | | | - | | | (4,815 | ) | | | | | (4,815 | ) | Fund charges released | | | | (142 | ) | | | - | | | | | | (142 | ) | Net exchange differences | | | | 1,898 | | | 1,858 | | | | | | 3,755 | | Transfer to/from other headings | | | | (1,210 | ) | | | - | | | | | | (1,210 | ) | Other | | | | 1 | | | | - | | | | | | 1 | | At December 31, 2019 | | | | 59,956 | | | 33,870 | | | | | | 93,826 | | | | |
| Without discretionary
participation features |
| |
| With discretionary
participation features |
| | Total | | | At January 1, 2018 | | | 37,169 | | | 37,265 | | | 74,434 | | | | 37,169 | | | 37,265 | | | | | | 74,434 | | Additions | | | 18,415 | | | | - | | | 18,415 | | | | 18,415 | | | | - | | | | | | 18,415 | | Gross premium and deposits – existing and new business | | | 6,432 | | | 1,279 | | | 7,711 | | | | 6,432 | | | 1,279 | | | | | | 7,711 | | Withdrawals | | | (10,279 | ) | | | - | | | (10,279 | ) | | | (10,279 | ) | | | - | | | | | | (10,279 | ) | Interest credited | | | (2,682 | ) | | (1,475 | ) | | (4,157 | ) | | | (2,682 | ) | | (1,475 | ) | | | | | (4,157 | ) | Investment contracts liabilities released | | | - | | | (6,506 | ) | | (6,506 | ) | | | - | | | (6,506 | ) | | | | | (6,506 | ) | Fund charges released | | | (157 | ) | | | - | | | (157 | ) | | | (157 | ) | | | - | | | | | | (157 | ) | Net exchange differences | | | 1,084 | | | (312 | ) | | 772 | | | | 1,084 | | | (312 | ) | | | | | 772 | | Transfers to disposal groups | | | - | | | | - | | | | - | | | Transfer to/from other headings | | | | (137 | ) | | | - | | | | | | (137 | ) | Other | | | (135 | ) | | | - | | | (135 | ) | | | 2 | | | | - | | | | | | 2 | | At December 31, 2018 | | | 49,847 | | | 30,250 | | | 80,097 | | | | 49,847 | | | 30,250 | | | | | | 80,097 | | | At January 1, 2017 | | | 42,803 | | | 41,971 | | | 84,774 | | | Gross premium and deposits – existing and new business | | | 5,393 | | | 1,313 | | | 6,706 | | | Withdrawals | | | (7,654 | ) | | | - | | | (7,654 | ) | | Interest credited | | | 4,589 | | | 4,558 | | | 9,147 | | | Investment contracts liabilities released | | | - | | | (9,006 | ) | | (9,006 | ) | | Fund charges released | | | (176 | ) | | | - | | | (176 | ) | | Net exchange differences | | | (4,272 | ) | | (1,570 | ) | | (5,842 | ) | | Transfers to disposal groups | | | (3,498 | ) | | | - | | | (3,498 | ) | | Other | | | (16 | ) | | | - | | | (16 | ) | | At December 31, 2017 | | | 37,169 | | | 37,265 | | | 74,434 | | |
The value ofaddition in investment contracts for account of policyholders increased in 2018 mainly due toof EUR 18.4 billion (GBP 16.3 billion) reflects the completion of the BlackRock Part VII transfer on July 1, 2018, in the UK. This transaction has transferred into the Group’s portfolio GBP 16.3 billion (EUR 18.4 billion) unit linked defined contribution assets and liabilities. Refer to note 24 Investments for account of policyholders for the impact on assets. 3836 Guarantees in insurance contracts
For financial reporting purposes Aegon distinguishes between the following types of minimum guarantees: | a. | Financial guarantees: these guarantees are treated as bifurcated embedded derivatives, valued at fair value and presented as derivatives (refer to note 2.9 and note 4744 Fair value); |
| b. | Total return annuities: these guarantees are not bifurcated from their host contracts because they are presented and valued at fair value together with the underlying insurance contracts (refer to note 2.19); |
| c. | Life contingent guarantees in the United States: these guarantees are not bifurcated from their host contracts, presented and valued in accordance with insurance accounting together with the underlying insurance contracts (refer to note 2.19); and |
| d. | Minimum investment return guarantees in the Netherlands: these guarantees are not bifurcated from their host contracts, valued at fair value and presented together with the underlying insurance contracts (refer to note 2.19 and note 4744 Fair value). |
In addition to the guarantees mentioned above, Aegon has traditional life insurance contracts that include minimum guarantees that are not valued explicitly; however, the adequacy of all insurance liabilities, net of VOBA and DPAC, and including all guarantees, are assessed periodically (refer to note 2.19). | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 257 | | Notes to the consolidated financial statements Note 38 | | | | | | |
a. Financial guarantees In the United States and in the United Kingdom, a guaranteed minimum withdrawal benefit (GMWB) is offered directly on some variable annuity products Aegon issues and is also assumed from a ceding company. Additionally, Aegon offers guarantees on variable annuities sold through its joint venture in Japan. Variable annuities allow a customer to provide for the future on atax-deferred basis and to participate in equity or bond market performance. Variable annuities allow a customer to select payout options designed to help meet the customer’s need for income upon maturity, including lump sum payment or income for life or for a period of time. This benefit guarantees that a policyholder can withdraw a certain percentage of the account value, starting at a certain age or duration, for either a fixed period or during the life of the policyholder. In the Netherlands, individual variable unit-linked products have a minimum benefit guarantee if premiums are invested in certain funds. The sum insured at maturity or upon the death of the beneficiary has a minimum guaranteed return (in the range of 3% to 4%) | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 263 | | | | Consolidated financial statements of Aegon N.V.Note 36 | | | | | | | | | | |
if the premium has been paid for a consecutive period of at least ten years and is invested in a mixed fund and/or fixed-income funds. No guarantees are given if invested is in equity only. The following table provides information on the liabilities for financial guarantees for minimum benefits, net of present value of the expected future premiums that are received to cover these guarantees: | | | | | | | 2018 | | | | | | | | 2017 | | | | 2019 | | | 2018 | | | | |
| United
States 1 |
| |
| The
Netherlands 2 |
| |
| United
Kingdom |
| | | Total 3 | | |
| United
States 1 |
| |
| The
Netherlands 2 |
| |
| United
Kingdom |
| | | Total 3 | | | United States 1) | | The Netherlands 2) | | | | | | Total 3) | | | United States 1) | | The Netherlands 2) | | | | | | Total 3) | | At January 1 | | | 247 | | | 1,547 | | | | - | | | | 1,794 | | | | 405 | | | 1,555 | | | 68 | | | 2,028 | | | | 766 | | | 1,678 | | | | | | 2,445 | | | 247 | | | 1,547 | | | | | | 1,794 | | Incurred guarantee benefits4 | | | 491 | | | 131 | | | | - | | | | 622 | | | | (114 | ) | | (8 | ) | | (37 | ) | | (158 | ) | | Incurred guarantee benefits4) | | | | 518 | | | 57 | | | | | | 575 | | | 491 | | | 131 | | | | | | 622 | | Paid guarantee benefits | | | (1 | ) | | | - | | | | - | | | | (1 | ) | | | (1 | ) | | | - | | | | - | | | (1 | ) | | | (1 | ) | | | - | | | | | | | | (1 | ) | | (1 | ) | | | - | | | | | | | | (1 | ) | Transfers to disposal groups | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | (30 | ) | | (30 | ) | | Net exchange differences | | | 29 | | | | - | | | | - | | | | 29 | | | | (42 | ) | | | - | | | (2 | ) | | (44 | ) | | | 13 | | | | - | | | | | | 13 | | | 29 | | | | - | | | | | | 29 | | At December 31 | | | 766 | | | 1,678 | | | | - | | | | 2,445 | | | | 247 | | | 1,547 | | | | - | | | 1,794 | | | | 1,296 | | | 1,735 | | | | | | 3,031 | | | 766 | | | 1,678 | | | | | | 2,445 | | | Account value5 | | | 30,788 | | | 8,175 | | | | - | | | | 38,963 | | | | 33,371 | | | 8,805 | | | | - | | | 42,175 | | | Net amount at risk6 | | | 235 | | | 2,004 | | | | - | | | | 2,239 | | | | 94 | | | 1,737 | | | | - | | | 1,831 | | | Account value5) | | | | 34,503 | | | 8,626 | | | | | | 43,130 | | | 30,788 | | | 8,175 | | | | | | 38,963 | | Net amount at risk6) | | | | 236 | | | 2,002 | | | | | | 2,239 | | | 235 | | | 2,004 | | | | | | 2,239 | |
| 1 | Guaranteed minimum accumulation and withdrawal benefits. |
| 2 | Fund plan and unit-linked guarantees. |
| 3 | Balances are included in the derivatives liabilities on the face of the statement of financial position; refer to note 2524 Derivatives. |
| 4 | Incurred guarantee benefits mainly comprise the effect of guarantees from new contracts, releases related to expiredout-of-the-money guarantees and fair value movements during the reporting year. |
| 5 | Account value reflects the actual fund value for the policyholders. |
| 6 | The net amount at risk represents the sum of the positive differences between the discounted maximum amount payable under the guarantees and the account value. |
The increase of incurred guarantee benefits mainly relates to declines indecreasing interest rates and credit spreads movements offset by rising equity markets in 2018. This2019. The decreasing interest rates and rising equity markets also loweredincreased the account value and increased the amount at risk.in 2019. Aegon Americas mitigates the exposure from the elective guaranteed minimum withdrawal benefit rider issued with a ceding company’s variable annuity contracts. The rider is essentially a return of premium guarantee, which is payable over a period of at least 14 years from the date that the policyholder elects to start withdrawals. At contract inception, the guaranteed remaining balance is equal to the premium payment. The periodic withdrawal is paid by the ceding company until the account value is insufficient to cover additional withdrawals. Once the account value is exhausted, Aegon pays the periodic withdrawals until the guaranteed remaining balance is exhausted. At December 31, 2018,2019, the reinsured account value was EUR 1.71.8 billion (2017:(2018: EUR 2.01.7 billion) and the guaranteed remaining balance was EUR 1.1 billion (2017:(2018: EUR 1.21.1 billion). The GMWB rider Aegon assumed from the ceding company is accounted for as a derivative and is carried in Aegon’s statement of financial position at fair value. At December 31, 2018,2019, the contract had a value of EUR 3637 million (2017:(2018: EUR 3436 million). Aegon entered into a derivative program to mitigate the overall exposure to equity market and interest rate risks associated with the reinsurance contract. This program involves selling equity futures contracts and equity total return swap contracts (S&P 500, Midcap, Russell 2000, and the MCSI EAFE index in accordance with Aegon’s exposure) to mitigate the effect of equity market movement on the reinsurance contract and the purchase of interest rate swaps, treasury futures and treasury forwards to mitigate the effect of movements in interest rates on the reinsurance contracts. Aegon the Netherlands provides guarantees to its customers on expiry date for certain insurance contracts. In order to mitigate the risks related to the guarantees Aegon the Netherlands has setup a hedging program. Aegon the Netherlands does not use | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 258 | | Notes to the consolidated financial statements Note 38 | | | | | | |
reinsurance in order to mitigate risks related to insurance contracts with a guarantee component. The net amount at risk represents the sum of the positive differences between the discounted maximum amount payable under the guarantees and the account value, which is the actual fund value of the policyholder. b. Total return annuities Total Return Annuity (TRA) is an annuity product in the United States which provides customers with a pass-through of the total return on an underlying portfolio of investment securities (typically a mix of corporate and convertible bonds) subject to a cumulative minimum guarantee. Both the assets and liabilities are carried at fair value, however, due to the minimum guarantee not all of the changes in the market value of the asset will be offset in the valuation of the liability. This product exists for the fixed annuity line of business and represents a closed block. The fixed annuities product balance as of December 31, 2018,2019, amounted to EUR 243234 million (2017:(2018: EUR 270243 million). | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 264 | | | | Consolidated financial statements of Aegon N.V.Note 36 | | | | | | | | | | |
c. Life contingent guarantees in the United States Certain variable insurance contracts in the United States also provide guaranteed minimum death benefits (GMDB) and guaranteed minimum income benefits (GMIB). Under a GMDB, the beneficiaries receive the greater of the account balance or the guaranteed amount upon the death of the insured. The net amount at risk for GMDB contracts is defined as the current GMDB in excess of the capital account balance at the reporting date. 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 aroll-up orstep-up feature that increases the value of the guarantee with interest or with increases in the account value. The additional liability for guaranteed minimum benefits that are not bifurcated are determined each period by estimating the expected value of benefits in excess of the projected account balance and recognizing the excess over the accumulation period based on total expected assessments. The estimates are reviewed regularly and any resulting adjustment to the additional liability is recognized in the income statement. The benefits used in calculating the liabilities are based on the average benefits payable over a range of stochastic scenarios. Where applicable, the calculation of the liability incorporates a percentage of the potential annuitizations that may be elected by the contract holder. The following table provides information on the liabilities for guarantees for minimum benefits that are included in the valuation of the host contracts: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | | | | | | | | | | | 2017 | | | | | | | | | | GMDB 1 | | | | GMIB 2 | | | | Total 4 | | | | GMDB 1 | | | | GMIB 2 | | | | Total 4 | | At January 1 | | | 364 | | | | 608 | | | | 972 | | | | 531 | | | | 849 | | | | 1,381 | | Incurred guarantee benefits5 | | | 197 | | | | 282 | | | | 479 | | | | (49 | ) | | | (121 | ) | | | (171 | ) | Paid guarantee benefits | | | (65 | ) | | | (23 | ) | | | (88 | ) | | | (60 | ) | | | (26 | ) | | | (86 | ) | Net exchange differences | | | 23 | | | | 39 | | | | 62 | | | | (58 | ) | | | (94 | ) | | | (153 | ) | At December 31 | | | 519 | | | | 906 | | | | 1,425 | | | | 364 | | | | 608 | | | | 972 | | | | | | | | | | | | GMDB 1,3 | | | | GMIB 2,3 | | | | | | | | GMDB 1,3 | | | | GMIB 2,3 | | | | | | Account value6 | | | 48,174 | | | | 4,770 | | | | | | | | 52,070 | | | | 5,270 | | | | | | Net amount at risk7 | | | 2,839 | | | | 888 | | | | | | | | 1,309 | | | | 474 | | | | | | Average attained age of contract holders | | | 70 | | | | 71 | | | | | | | | 69 | | | | 70 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | 2019 | | | 2018 | | | | | GMDB 1) | | | GMIB 2) | | | Total 4) | | GMDB 1) | | | GMIB 2) | | | Total 4) | | At January 1 | | | 519 | | | | 906 | | | | 1,425 | | | | 364 | | | | 608 | | | | 972 | | Incurred guarantee benefits5) | | | (27 | ) | | | (210 | ) | | | (238 | ) | | | 197 | | | | 282 | | | | 479 | | Paid guarantee benefits | | | (53 | ) | | | (27 | ) | | | (81 | ) | | | (65 | ) | | | (23 | ) | | | (88 | ) | Net exchange differences | | | 10 | | | | 17 | | | | 27 | | | | 23 | | | | 39 | | | | 62 | | At December 31 | | | 448 | | | | 686 | | | | 1,133 | | | | 519 | | | | 906 | | | | 1,425 | | | | | | | | | | | | GMDB 1),3) | | | GMIB 2),3) | | | | | GMDB 1),3) | | | GMIB 2),3) | | | | | Account value6) | | | 54,411 | | | | 5,331 | | | | | | | | 48,174 | | | | 4,770 | | | | | | Net amount at risk7) | | | 1,268 | | | | 688 | | | | | | | | 2,839 | | | | 888 | | | | | | Average attained age of contract holders | | | 70 | | | | 71 | | | | | | | | 70 | | | | 71 | | | | | |
| 1 | Guaranteed minimum death benefit in the United States. |
| 2 | Guaranteed minimum income benefit in the United States. |
| 3 | Note that the variable annuity contracts with guarantees may offer more than one type of guarantee in each contract; therefore, the amounts listed are not mutually exclusive. |
| 4 | Balances are included in the insurance liabilities on the face of the statement of financial position; refer to note 3634 Insurance contracts. |
| 5 | Incurred guarantee benefits mainly comprise the effect of guarantees from new contracts, releases related to expiredout-of-the-money guarantees and value changes as a consequence of interest movements during the reporting year. |
| 6 | Account value reflects the actual fund value for the policyholders. |
| 7 | The net amount at risk is defined as the present value of the minimum guaranteed annuity payments available to the contract holder determined in accordance with the terms of the contract in excess of the current account balance. |
d. Minimum investment return guarantees in the Netherlands The traditional life and pension products offered by Aegon in the Netherlands include various products that accumulate a cash value. Premiums are paid by customers at inception or over the term of the contract. The accumulation products pay benefits on the policy | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 259 | | Notes to the consolidated financial statements Note 38 | | | | | | |
maturity date, subject to survival of the insured. In addition, most policies also pay death benefits if the insured dies during the term of the contract. The death benefits may be stipulated in the policy or depend on the gross premiums paid to date. Premiums and amounts insured are established at inception of the contract. The amount insured can be increased as a result of profit sharing, if provided for under the terms and conditions of the product. Minimum interest guarantees exist for all generations of traditional accumulation products written. Older generations contain a 4% guarantee; in 1999 the guarantee decreased to 3% and in 2013 the guarantee decreased to 0%. The traditional group pension contracts offered by Aegon in the Netherlands include large group insurance contracts that have an individually determined asset investment strategy underlying the pension contract. The guarantee given is that the profit sharing is the maximum of 0% and the realized return on an asset portfolio specified in the policy conditions, adjusted for technical interest rates ranging from 3% to 4%. If the adjusted return is negative, the 0% minimum is effective, but the loss in any given year is carried forward to be offset against any future surpluses within the contract period. In general, a guarantee is given for the life | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 265 | | | | Consolidated financial statements of Aegon N.V.Note 36 | | | | | | | | | | |
of the underlying employees so that their pension benefit is guaranteed. Large group contracts also share technical results (mortality risk and disability risk). The contract period is typically five years and the premiums are fixed over this period. These guarantees are valued at fair value and are included as part of insurance liabilities with the underlying host insurance contracts in note 3634 Insurance contracts. The following table provides information on the liabilities for guarantees that are included in the valuation of the host contracts, net of the present value of the expected future premiums that are received to cover these guarantees: | | | | | | | | | | | | 2018 | | | 2017 | | | | | GMI 1, 2 | | | GMI 1, 2 | | At January 1 | | | 4,719 | | | | 5,542 | | Incurred guarantee benefits3 | | | 344 | | | | (823 | ) | At December 31 | | | 5,063 | | | | 4,719 | | | | | Account value4 | | | 18,346 | | | | 18,754 | | Net amount at risk5 | | | 4,933 | | | | 4,440 | |
| | | | | | | | | | | | | | | | 2019 | | 2018 | | | | | GMI 1), 2) | | | | | | | | GMI 1), 2) | | At January 1 | | | 5,063 | | | | | | | | 4,719 | | Incurred guarantee benefits3) | | | 1,358 | | | | | | | | 344 | | At December 31 | | | 6,422 | | | | | | | | 5,063 | | | | | | Account value4) | | | 19,985 | | | | | | | | 18,346 | | Net amount at risk5) | | | 6,335 | | | | | | | | 4,933 | |
| 1 | Guaranteed minimum investment return in the Netherlands. |
| 2 | Balances are included in the insurance liabilities on the face of the statement of financial position; refer to note 3634 Insurance contracts. |
| 3 | Incurred guarantee benefits mainly comprise the effect of guarantees from new contracts, releases related to expiredout-of-the-money guarantees and fair value movements during the reporting year. |
| 4 | Account value reflects the liability value of the insurance contracts as a whole. |
| 5 | The net amount at risk represents the sum of the differences between the guaranteed and actual amount that is credited to the policyholders. For Individual policies only positive differences are included, for Group pensions contracts carry forwards of negative differences are recognized. |
Fair value measurement of guarantees in insurance contracts The fair values of guarantees mentioned above (with the exception of life contingent guarantees in the United States) are calculated as the present value of future expected payments to policyholders less the present value of assessed rider fees attributable to the guarantees. For further details refer to note 4744 Fair value. For equity volatility, Aegon uses a term structure assumption with market-based implied volatility inputs for the first five years and a long-term forward rate assumption of 25% thereafter. The volume of observable option trading from which volatilities are derived generally declines as the contracts’ term increases, therefore, the volatility curve grades from implied volatilities for five years to the ultimate rate. The resulting volatility assumption in year 20 for the S&P 500 index (expressed as a spot rate) was 21.1% at December 31, 2019, and 23.3% at December 31, 2018, and 23.1% at December 31, 2017.2018. Correlations of market returns across underlying indices are based on historical market returns and their inter-relationships over a number of years preceding the valuation date. Assumptions regarding policyholder behavior, such as lapses, included in the models are derived in the same way as the assumptions used to measure insurance liabilities. These assumptions are reviewed at each valuation date, and updated based on historical experience and observable market data, including market transactions such as acquisitions and reinsurance transactions. Disclosure on interest rate risk, including interest rate risk sensitivity is included in note 4 Financial risks. Aegon utilizes different risk management strategies to mitigate the financial impact of the valuation of these guarantees on the results including asset and liability management and derivative hedging strategies to hedge certain aspects of the market risks embedded in these guarantees. Guarantees valued at fair value contributed a net gain before tax of EUR 424 million (2018: loss of EUR 56 million) to earnings. The main drivers of this gain before tax are a gain of EUR 1,585 million related to an increase in equity markets (2018: EUR 532 million loss), a gain of EUR 12 million related to increases in equity volatility (2018: EUR 8 million loss), a fair value gain on hedges related to the guarantee reserves of EUR 1,840 million (2018: EUR 527 million gain), a gain of EUR 42 million related to widening own credit spread (2018: EUR 148 million gain) and other and DPAC offset contributed a gain of EUR 273 million (2018: EUR 233 million loss). These gains are partly offset by negative results related to decreases in risk free rates of EUR 3,281 million (2018: EUR 32 million gain). Guarantee reserves increased by EUR 1,937 million in 2019 (2018: increase of EUR 1,081 million) to EUR 9,645 million (2018: EUR 7,708 million). | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 260266 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 3937 | | | | | | | | | | | | |
Guarantees valued at fair value contributed a net loss before tax of EUR 56 million (2017: loss of EUR 75 million) to earnings.
The main drivers of this loss before tax are a loss of EUR 532 million related to a decrease in equity markets (2017: EUR 1,147 million gain) a loss of EUR 8 million related to increases in equity volatility (2017: EUR 81 million gain) and other contributed a loss of EUR 233 million (2017: EUR 205 million gain), partly offset by a fair value gain on hedges related to the guarantee reserves of EUR 527 million (2017: EUR 1,417 million loss), a gain of EUR 148 million related to widening own credit spread (2017: EUR 243 million loss) and positive results related to increases in risk free rates of EUR 32 million (2017: EUR 169 million gain) and DPAC offset.
Guarantee reserves increased by EUR 1,081 million in 2018 (2017: decrease of EUR 1,121 million) to EUR 7,708 million (2017: EUR 6,627 million).
3937 Borrowings
| | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | Capital funding | | | 1,774 | | | | 2,280 | | | | 1,745 | | | | 1,774 | | Operational funding | | | 10,287 | | | | 11,355 | | | | 7,562 | | | | 10,287 | | At December 31 | | | 12,061 | | | | 13,635 | | | | 9,307 | | | | 12,061 | | | Current | | | 1,379 | | | | 1,692 | | | | 4,969 | | | | 1,379 | | Non-current | | | 10,682 | | | | 11,943 | | | | 4,338 | | | | 10,682 | | | Fair value of borrowings | | | 12,421 | | | | 14,035 | | | | 9,783 | | | | 12,421 | |
Aegon’s borrowings are defined separately as capital funding and operational funding. Capital funding includes debt securities that are issued for general corporate purposes and for capitalizing its business units. Capital funding is part of the Company’s total capitalization that is used for financing its subsidiaries and the cash held at the holding company. Operational funding includes debt securities that are issued for financing of dedicated pools of assets. These assets are either legally segregated or tracked as separate portfolios. Capital funding During 2018, capital funding decreased by EUR 0.5 billion related to the repayment of EUR 500 million senior unsecured notes with a coupon rate of 0%.
A detailed composition of capital funding is included in the following table: | | (sorted at maturity) | | Coupon rate | | Coupon date | | | Issue/
Maturity | | | 2018 | | | 2017 | | | Coupon rate | | | Coupon date | | | Issue / Maturity | | | 2019 | | | 2018 | | EUR 500 million Unsecured Notes | | | 0 | % | | August 30 | | | | 2017/18 | | | | - | | | | 500 | | | EUR 75 million Medium-Term Notes1 | | | 4.625 | % | | December 9 | | | | 2004/19 | | | | 78 | | | | 82 | | | USD 500 million Senior Notes1, 2 | | | 5.75 | % | | Semi-annually | | | | 2005/20 | | | | 457 | | | | 455 | | | EUR 75 million Medium-Term Notes1) | | | | 4.625% | | | | December 9 | | | | 2004 / 19 | | | | - | | | | 78 | | USD 500 million Senior Notes1),2) | | | | 5.75% | | | | Semi-annually | | | | 2005 / 20 | | | | 461 | | | | 457 | | EUR 500 million Senior Unsecured Notes | | | 1.00 | % | | December 8 | | | | 2016/23 | | | | 496 | | | | 495 | | | | 1.00% | | | | December 8 | | | | 2016 / 23 | | | | 497 | | | | 496 | | GBP 250 million Medium-Term Notes | | | 6.125 | % | | December 15 | | | | 1999/31 | | | | 277 | | | | 279 | | | | 6.125% | | | | December 15 | | | | 1999 / 31 | | | | 293 | | | | 277 | | GBP 400 million Senior Unsecured Notes | | | 6.625 | % | | Semi-annually | | | | 2009/39 | | | | 440 | | | | 445 | | | | 6.625% | | | | Semi-annually | | | | 2009 / 39 | | | | 467 | | | | 440 | | Other | | | | | | | | | 26 | | | | 24 | | | | | | | | | | 26 | | | | 26 | | At December 31 | | | | | | | | | 1,774 | | | | 2,280 | | | | | | | | | | 1,745 | | | | 1,774 | |
| 1 | Measured at fair value. |
| 2 | Issued by subsidiaries of, and guaranteed by, Aegon N.V. |
These loans are considered senior debt in calculating financial leverage in note 4643 Capital management and solvency. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 261 | | Notes to the consolidated financial statements Note 39 | | | | | | |
Operational funding During 2019, the operational funding decreased by EUR 2.7 billion mainly due to the early redemption of a USD 1.54 billion Variable Funding Surplus Note (EUR 1.4 billion), following a restructuring of this financing transaction in the US. In addition, a further decrease was driven by the redemption of ‘SAECURE 14’ of EUR 0.9 billion and the pay down of FHLB advances of EUR 1.7 billion. This was partly offset by an increase in other mortgage loan funding of EUR 0.5 billion, the issuance of EUR 500 million seniornon-preferred notes with a coupon of 0.625%, and a transaction under the Dutch SAECURE program (‘SAECURE 18’) to sell Class A mortgage backed securities (RMBS). ‘SAECURE 18 NHG’ consists of EUR 512 million of class A notes with an expected weighted average life of 4.8 years and a coupon of 3 month Euribor plus 40bps. During 2018, the operational funding decreased by EUR 1.1 billion mainly due to the redemption of ‘SAECURE 13’ of EUR 0.7 billion, paydown of FHLB advances of EUR 0.7 billion and a decrease in other mortgage funding of EUR 0.5 billion. This was partly offset by a transaction under the Dutch SAECURE program (‘SAECURE 16’) to sell Class A mortgage backed securities (RMBS). ‘SAECURE 16’ consists of EUR 875 million of class A notes with an expected weighted average life of 4.1 years and a coupon of 3 month Euribor plus 40bps. During 2017, the operational funding increased EUR 0.6 billion due to new FHLB advances of EUR 1.3 billion and two covered bond issuances in the Netherlands of EUR 0.5 billion in June and November 2017. This was partly offset by the redemption of ‘SAECURE 12’ in the Netherlands of EUR 1.0 billion and the redemption of operational funding of EUR 0.4 billion supporting a captive insurance company, which was dissolved following the divestment of a block of life reinsurance business in the Americas. Next to this there was a decrease of EUR 0.5 billion as result of foreign exchange impacts on the US dollar positions as a result of the strengthening of the euro.
| | | | | | | | | | | | | | | | | | | | | | | | Coupon rate | | | Coupon date | | | Issue/
Maturity | | | 2018 | | | 2017 | | Revolving Loan Facility Warehouse Mortgage Loans1 | | | Floating | | | | Monthly | | | | - /2018-20 | | | | 375 | | | | 729 | | EUR 1,123 million “SAECURE 13” RMBS Note1, 2 | | | Floating | | | | Quarterly | | | | 2013/18 | | | | - | | | | 750 | | EUR 1,367 million “SAECURE 14” RMBS Note1, 3 | | | Floating | | | | Quarterly | | | | 2014/19 | | | | 874 | | | | 994 | | EUR 1,443 million “SAECURE 15” RMBS Note1, 4 | | | Floating | | | | Quarterly | | | | 2014/20 | | | | 1,038 | | | | 1,164 | | EUR 875 million “SAECURE 16” RMBS Note1, 5 | | | Floating | | | | Quarterly | | | | 2018/23 | | | | 875 | | | | - | | EUR 750 million Conditional Pass-Through Covered Bond1, 6 | | | 0.267% | | | | Annual | | | | 2015/20 | | | | 748 | | | | 747 | | EUR 500 million Conditional Pass-Through Covered Bond1, 7 | | | 0.250% | | | | Annual | | | | 2016/23 | | | | 497 | | | | 496 | | EUR 500 million Conditional Pass-Through Covered Bond1, 8 | | | 0.750% | | | | Annual | | | | 2017/27 | | | | 488 | | | | 486 | | EUR 500 million Conditional Pass-Through Covered Bond1, 9 | | | 0.375% | | | | Annual | | | | 2017/24 | | | | 497 | | | | 497 | | USD 1.54 billion Variable Funding Surplus Note10, 11 | | | Floating | | | | Quarterly | | | | 2006/36 | | | | 1,388 | | | | 1,322 | | FHLB Secured borrowings1 | | | Floating | | | | Quarterly | | | | 2016/46 | | | | 3,495 | | | | 4,160 | | Other | | | | | | | | | | | | | | | 12 | | | | 10 | | At December 31 | | | | | | | | | | | | | | | 10,287 | | | | 11,355 | |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 267 | | | | Consolidated financial statements of Aegon N.V.Note 37 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | Coupon rate | | | Coupon date | | | Issue / Maturity | | | 2019 | | | 2018 | | Revolving Loan Facility Warehouse Mortgage Loans1) | | | Floating | | | | Monthly | | | | - / 2020-22 | | | | 817 | | | | 375 | | EUR 1,367 million “SAECURE 14” RMBS Note1),2) | | | Floating | | | | Quarterly | | | | 2014 / 19 | | | | - | | | | 874 | | EUR 1,443 million “SAECURE 15” RMBS Note1),3) | | | Floating | | | | Quarterly | | | | 2014 / 20 | | | | 917 | | | | 1,038 | | EUR 875 million “SAECURE 16” RMBS Note1),4) | | | Floating | | | | Quarterly | | | | 2018 / 23 | | | | 820 | | | | 875 | | EUR 512 million “SAECURE 18” RMBS Note1),5) | | | Floating | | | | Quarterly | | | | 2019/25 | | | | 491 | | | | - | | EUR 750 million Conditional Pass-Through Covered Bond1),6) | | | 0.267% | | | | Annual | | | | 2015 / 20 | | | | 749 | | | | 748 | | EUR 500 million Conditional Pass-Through Covered Bond1),7) | | | 0.250% | | | | Annual | | | | 2016 / 23 | | | | 498 | | | | 497 | | EUR 500 million Conditional Pass-Through Covered Bond1),8) | | | 0.750% | | | | Annual | | | | 2017 / 27 | | | | 489 | | | | 488 | | EUR 500 million Conditional Pass-Through Covered Bond1),9) | | | 0.375% | | | | Annual | | | | 2017 / 24 | | | | 498 | | | | 497 | | USD 1.54 billion Variable Funding Surplus Note10),11) | | | Floating | | | | Quarterly | | | | 2006 / 36 | | | | - | | | | 1,388 | | FHLB Secured borrowings1) | | | Floating | | | | Quarterly | | | | 2016 / 46 | | | | 1,777 | | | | 3,495 | | Aegon Bank SeniorNon-Preferred debt1) | | | Fixed | | | | Annual | | | | 2019/24 | | | | 497 | | | | - | | Other | | | | | | | | | | | | | | | 8 | | | | 12 | | At December 31 | | | | | | | | | | | | | | | 7,562 | | | | 10,287 | |
| 1 | Issued by a subsidiary of Aegon N.V. |
| 2 | The Notes were called for redemption on the first optional redemption date (February 28, 2018)
|
3 | The first optional redemption date is January 30, 2019; the final maturity date is January 30, 2092. Notes are fully collateralized by mortgage loans which are part of Aegon’s general account investments. |
43 | The first optional redemption date is January 30, 2020; the final maturity date is January 30, 2092. Notes are fully collateralized by mortgage loans which are part of Aegon’s general account investments. |
54 | The first optional redemption date is October 30, 2023; the final legal maturity date is October 30, 2091. Notes are fully collateralized by mortgage loans which are part of Aegon’s general account investments. |
| 5 | The first optional redemption date is July 28, 2025; the final legal maturity date is April 28, 2092. Notes are fully collateralized by mortgage loans which are part of Aegon’s general account investments. |
| 6 | The maturity date is December 1, 2020; the extended due for payment date is December 1, 2052. |
| 7 | The maturity date is May 25, 2023; the extended due for payment date is May 25, 2055. |
| 8 | The maturity date is June 27, 2027; the extended due for payment date is June 27, 2059. |
| 9 | The maturity date is November 21, 2024; the extended due for payment date is November 21, 2056. |
| 10 | Outstanding amounts can vary up to the maximum stated nominal amount. |
| 11 | This debenture is issued by a wholly owned captive that is consolidated in the Aegon N.V. consolidated financial statements. A guarantee has been provided by Aegon N.V. –- refer to note 4845 Commitments and contingencies. |
Other Included in borrowings is EUR 536461 million relating to borrowings measured at fair value (2017:(2018: EUR 536 million). For the year 2018,2019, Aegon’s credit spread had a positivenegative impact of EUR 1 million on income before tax (2017:(2018: positive impact of EUR 1 million) and a positive impact of EUR 1 million on shareholders’ equity (2018: negative impact of EUR 15 million) and a negative impact of EUR 3 million on shareholders’ equity (2017: negative impact of EUR 10 million). The cumulative negative impact of Aegon’s credit spread for borrowings in portfolio atyear-end, based on observable market data, on income before tax amounted to EUR 2628 million (2017:(2018: EUR 2726 million). The difference between the contractually required payment at maturity date and the carrying amount of the borrowings amounted to EUR (8)40 million (2017:negative (2018: EUR 9 million)8 million negative). | | Undrawn committed borrowing facilities: | | 2018 | | | 2017 | | | 2019 | | | 2018 | | Floating-rate | | | | | | | | | - Expiring within one year | | | 260 | | | | 197 | | | | 516 | | | | 260 | | - Expiring beyond one year | | | 3,420 | | | | 3,170 | | | | 2,887 | | | | 3,420 | | At December 31 | | | 3,680 | | | | 3,367 | | | | 3,403 | | | | 3,680 | |
There were no defaults or breaches of conditions during the period. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 262268 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4038 | | | | | | | | | | | | |
4038 Provisions
| | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | At January 1 | | | 210 | | | | 173 | | | | 320 | | | 210 | | Additional provisions | | | 231 | | | | 107 | | | | 42 | | | 231 | | Disposals | | | (94) | | | | (72 | ) | | | (60 | ) | | (94 | ) | Unused amounts reversed through the income statement | | | (1) | | | | - | | | | (3 | ) | | (1 | ) | Used during the year | | | (34) | | | | 12 | | | | (90 | ) | | (34 | ) | Net exchange differences | | | 8 | | | | (9 | ) | | | 5 | | | 8 | | At December 31 | | | 320 | | | | 210 | | | | 214 | | | 320 | | Current | | | 275 | | | | 151 | | | | 137 | | | 275 | | Non-current | | | 45 | | | | 60 | | | | 77 | | | 45 | |
The provisions as at December 31, 20182019 mainly consist of litigation provisions of EUR 19890 million (2017:(2018: EUR 92198 million) mainly related to a settlement in the US relating to increases in monthly deduction rates on universal life products refer(refer to note 4845 Commitments and contingencies,contingencies), restructuring provisions of EUR 3043 million (2017:(2018: EUR 2730 million), provisions regarding fees payable upon purchase and surrender of unit-linked policies in the Polish Life Insurance portfolio of EUR 1714 million (2017:(2018: EUR 2017 million) and other provisions of EUR 7666 million (2017:(2018: EUR 7176 million) including the remaining provision related to the harbor workers’ former pension fund Optas. 4139 Defined benefit plans
| | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | Retirement benefit plans | | | 3,714 | | | | 3,657 | | | | 4,076 | | | 3,714 | | Other post-employment benefit plans | | | 275 | | | | 293 | | | | 283 | | | 275 | | Total defined benefit plans | | | 3,989 | | | | 3,950 | | | | 4,359 | | | 3,989 | | | | | | | | - | | | Retirement benefit plans in surplus | | | - | | | | 55 | | | | 1 | | | | - | | Other post-employment benefit plans in surplus | | | - | | | | - | | | | - | | | | - | | Total defined benefit assets | | | - | | | | 55 | | | | 1 | | | | - | | | | | | | | - | | | Retirement benefit plans in deficit | | | 3,714 | | | | 3,712 | | | | 4,077 | | | 3,714 | | Other post-employment benefit plans in deficit | | | 275 | | | | 293 | | | | 283 | | | 275 | | Total defined benefit liabilities | | | 3,989 | | | | 4,005 | | | | 4,360 | | | 3,989 | |
| | | | | | 2018 | | | | | | | 2017 | | | | | 2019 | | | 2018 | | Movements during the year in defined
benefit plans | | Retirement
benefit plans | | Other post-
employment
benefit plans | | Total | | | Retirement
benefit plans | | Other post-
employment
benefit plans | | Total | | | Retirement
benefit plans | | Other post-
employment
benefit plans | | Total | | | Retirement
benefit plans | | Other post-
employment
benefit plans | | Total | | At January 1 | | | 3,657 | | | 293 | | | 3,950 | | | | 4,453 | | | 314 | | | 4,767 | | | | 3,714 | | | 275 | | | 3,989 | | | 3,657 | | | 293 | | | 3,950 | | Defined benefit expenses | | | 192 | | | 13 | | | 206 | | | | 242 | | | 19 | | | 262 | | | | 227 | | | 17 | | | 244 | | | 192 | | | 13 | | | 206 | | Remeasurements of defined benefit plans | | | 157 | | | (23 | ) | | 134 | | | | (233 | ) | | 10 | | | (224 | ) | | | 607 | | | 5 | | | 612 | | | 157 | | | (23 | ) | | 134 | | Contributions paid | | | (234 | ) | | | - | | | (234) | | | | (163 | ) | | | - | | | (163 | ) | | | (298 | ) | | | - | | | (298 | ) | | (234 | ) | | | - | | | (234 | ) | Benefits paid | | | (99 | ) | | (19 | ) | | (118) | | | | (108 | ) | | (19 | ) | | (128 | ) | | | (100 | ) | | (18 | ) | | (118 | ) | | (99 | ) | | (19 | ) | | (118 | ) | Net exchange differences | | | 37 | | | 11 | | | 47 | | | | (133 | ) | | (31 | ) | | (164 | ) | | | 14 | | | 4 | | | 18 | | | 37 | | | 11 | | | 47 | | Other | | | 5 | | | | - | | | 5 | | | | (400 | ) | | | - | | | (400 | ) | | Other1) | | | | (89 | ) | | | - | | | (88 | ) | | 5 | | | | - | | | 5 | | At December 31 | | | 3,714 | | | 275 | | | 3,989 | | | | 3,657 | | | 293 | | | 3,950 | | | | 4,076 | | | 283 | | | 4,359 | | | 3,714 | | | 275 | | | 3,989 | |
Other
| 1 | In 2019, ‘Other’ mainly relates to the plan amendment from The Netherlands as described in the section on ‘Aegon the Netherlands’ in this note. |
The amounts recognized in 2017 reflects the reclassificationstatement of the pension contract relating to the personnel of Unirobe Meeùs Groep (UMG) from defined benefit plans to insurance contracts for account of policyholders following the sale of UMG in November 2017.financial position are determined as follows: | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 263269 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4139 | | | | | | | | | | | | |
The amounts recognized in the statement of financial position are determined as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | | | | | | | | 2017 | | | | | | | | Retirement
benefit plans | | | Other post-
employment
benefit plans | | | Total | | | Retirement
benefit plans | | | Other post-
employment
benefit plans | | | Total | | Present value of wholly or partly funded obligations | | | 4,027 | | | | - | | | | 4,027 | | | | 4,389 | | | | - | | | | 4,389 | | Fair value of plan assets | | | (3,525 | ) | | | - | | | | (3,525 | ) | | | (3,622 | ) | | | - | | | | (3,622 | ) | | | | | 502 | | | | - | | | | 502 | | | | 767 | | | | - | | | | 767 | | Present value of wholly unfunded obligations1 | | | 3,212 | | | | 275 | | | | 3,487 | | | | 2,890 | | | | 293 | | | | 3,183 | | At December 31 | | | 3,714 | | | | 275 | | | | 3,989 | | | | 3,657 | | | | 293 | | | | 3,950 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2019 | | | | | | | | | 2018 | | | | | | | | Retirement
benefit plans | | | Other post-
employment
benefit plans | | | Total | | | Retirement
benefit plans | | | Other post-
employment
benefit plans | | | Total | | Present value of wholly or partly funded obligations | | | 4,807 | | | | - | | | | 4,807 | | | | 4,027 | | | | - | | | | 4,027 | | Fair value of plan assets | | | (4,420 | ) | | | - | | | | (4,420 | ) | | | (3,525 | ) | | | - | | | | (3,525 | ) | | | | 386 | | | | - | | | | 386 | | | | 502 | | | | - | | | | 502 | | Present value of wholly unfunded obligations 1) | | | 3,690 | | | | 283 | | | | 3,973 | | | | 3,212 | | | | 275 | | | | 3,487 | | At December 31 | | | 4,076 | | | | 283 | | | | 4,359 | | | | 3,714 | | | | 275 | | | | 3,989 | |
| 1 | As all pension obligations are insured at subsidiary Aegon Levensverzekering almost all assets held by Aegon Nederland backing retirement benefits of EUR 2,568 million (2017:2,736 millions (2018: EUR 2,4572,568 million) do not meet the definition of plan assets and as such were not deducted in calculating this amount. Instead, these assets are recognized as general account assets. Consequently, the return on these assets does not form part of the calculation of defined benefit expenses. |
The fair value of Aegon’s own transferable financial instruments included in plan assets and the fair value of other assets used by Aegon included in plan assets was nil in both 20182019 and 2017.2018. | | | | | | 2018 | | | | | | 2017 | | | | | | | 2019 | | | | | | | | 2018 | | | | | Defined benefit expenses | | Retirement
benefit plans | | Other post-
employment
benefit plans | | Total | | | Retirement
benefit plans | | Other post-
employment
benefit plans | | Total | | | Retirement
benefit plans | | Other post-
employment
benefit plans | | | Total | | | Retirement
benefit plans | | Other post-
employment
benefit plans | | Total | | Current year service cost | | | 121 | | | 10 | | | 131 | | | 148 | | | 11 | | | 158 | | | | 148 | | | 8 | | | | 157 | | | 121 | | | 10 | | | 131 | | Net interest on the net defined benefit liability (asset) | | | 87 | | | 8 | | | 96 | | | 99 | | | 10 | | | 109 | | | | 80 | | | 9 | | | | 89 | | | 87 | | | 8 | | | 96 | | Past service cost | | | (16 | ) | | (5 | ) | | (21 | ) | | (5 | ) | | (1 | ) | | (6 | ) | | | (1 | ) | | | - | | | | (1 | ) | | (16 | ) | | (5 | ) | | (21 | ) | Total defined benefit expenses | | | 192 | | | 13 | | | 206 | | | 242 | | | 19 | | | 262 | | | | 227 | | | 17 | | | | 244 | | | 192 | | | 13 | | | 206 | | | | | | | | | | | | | | | | | | | | | | | | | | | 2016 | | | | | | | | | | | | | | Retirement
benefit plans | | Other post-
employment
benefit plans | | Total | | | Current year service cost | | | | | | | | 127 | | | 13 | | | 140 | | | Net interest on the net defined benefit liability (asset) | | | | | | | | 123 | | | 11 | | | 134 | | | Past service cost | | | | | | | | 53 | | | (2 | ) | | 50 | | | Total defined benefit expenses | | | | | | | | 302 | | | 22 | | | 324 | | |
| | | | | | | | | | | | | | | | | | | 2017 | | | | | | | | Retirement
benefit plans | | | Other post-
employment
benefit plans | | | Total | | Current year service cost | | | 148 | | | | 11 | | | | 158 | | Net interest on the net defined benefit liability (asset) | | | 99 | | | | 10 | | | | 109 | | Past service cost | | | (5 | ) | | | (1 | ) | | | (6 | ) | Total defined benefit expenses | | | 242 | | | | 19 | | | | 262 | |
Defined benefit expenses are included in ‘Commissions and expenses’ in the income statement. | | Movements during the year of the present value of the defined benefit obligations | | 2018 | | | 2017 | | | 2019 | | | 2018 | | At January 1 | | | 7,572 | | | 8,560 | | | | 7,514 | | | 7,572 | | Acquisition of subsidiary | | | - | | | | - | | | Current year service cost | | | 131 | | | 158 | | | | 157 | | | 131 | | Interest expense | | | 213 | | | 230 | | | | 221 | | | 213 | | Remeasurements of the defined benefit obligations: | | | | | | | | | - Actuarial gains and losses arising from changes in demographic assumptions | | | (28 | ) | | 30 | | | | 40 | | | (28 | ) | - Actuarial gains and losses arising from changes in financial assumptions | | | (102 | ) | | 29 | | | | 1,126 | | | (102 | ) | Past service cost | | | (21 | ) | | (6 | ) | | | (1 | ) | | (21 | ) | Contributions by plan participants | | | 11 | | | 12 | | | | 8 | | | 11 | | Benefits paid | | | (409 | ) | | (523 | ) | | | (353 | ) | | (409 | ) | Net exchange differences | | | 144 | | | (519 | ) | | | 144 | | | 144 | | Other | | | 5 | | | (400 | ) | | Other1) | | | | (76 | ) | | 5 | | At December 31 | | | 7,514 | | | 7,572 | | | | 8,779 | | | 7,514 | |
| 1 | In 2019, ‘Other’ mainly relates to the plan amendment from Aegon the Netherlands as described in the section on ‘Aegon the Netherlands’ in this note. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 264270 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4139 | | | | | | | | | | | | |
| | | | | | | | | | Movements during the year in plan assets for retirement benefit plans | | 2018 | | | 2017 | | At January 1 | | | 3,622 | | | | 3,793 | | Interest income (based on discount rate) | | | 117 | | | | 121 | | Remeasurements of the net defined liability (asset) | | | (264 | ) | | | 283 | | Contributions by employer | | | 245 | | | | 175 | | Benefits paid | | | (291 | ) | | | (396 | ) | Net exchange differences | | | 96 | | | | (355 | ) | At December 31 | | | 3,525 | | | | 3,622 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | | | | | | | | | | | 2017 | | | | | | | | Breakdown of plan assets for retirement benefit plans | | Quoted | | | Unquoted | | | Total | | | in % of
total plan
assets | | | Quoted | | | Unquoted | | | Total | | | in % of
total plan
assets | | Equity instruments | | | 106 | | | | 5 | | | | 111 | | | | 3% | | | | 127 | | | | 4 | | | | 131 | | | | 4% | | Debt instrument | | | 369 | | | | 343 | | | | 712 | | | | 20% | | | | 397 | | | | 411 | | | | 809 | | | | 22% | | Real estate | | | - | | | | 111 | | | | 111 | | | | 3% | | | | | | | | | | | | | | | | | | Derivatives | | | - | | | | 149 | | | | 149 | | | | 4% | | | | - | | | | 254 | | | | 254 | | | | 7% | | Investment funds | | | 11 | | | | 1,945 | | | | 1,956 | | | | 55% | | | | 5 | | | | 2,027 | | | | 2,032 | | | | 56% | | Structured securities | | | - | | | | - | | | | - | | | | 0% | | | | - | | | | - | | | | - | | | | 0% | | Other | | | 14 | | | | 471 | | | | 484 | | | | 14% | | | | 25 | | | | 372 | | | | 397 | | | | 11% | | At December 31 | | | 500 | | | | 3,025 | | | | 3,525 | | | | 100% | | | | 554 | | | | 3,068 | | | | 3,622 | | | | 100% | |
| | | | | | | | | | Movements during the year in plan assets for retirement benefit plans | | 2019 | | | 2018 | | At January 1 | | | 3,525 | | | | 3,622 | | Interest income (based on discount rate) | | | 133 | | | | 117 | | Remeasurements of the net defined liability (asset) | | | 566 | | | | (264 | ) | Contributions by employer | | | 306 | | | | 245 | | Benefits paid | | | (235 | ) | | | (291 | ) | Net exchange differences | | | 126 | | | | 96 | | At December 31 | | | 4,420 | | | | 3,525 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2019 | | | | | | 2018 | | | | | | | | Breakdown of plan assets for retirement benefit plans | | Quoted | | | Unquoted | | | Total | | | in % of total plan assets | | | Quoted | | | Unquoted | | | Total | | | in % of total plan assets | | Equity instruments | | | 160 | | | | 3 | | | | 164 | | | | 4% | | | | 106 | | | | 5 | | | | 111 | | | | 3% | | Debt instrument | | | 465 | | | | 361 | | | | 826 | | | | 19% | | | | 369 | | | | 343 | | | | 712 | | | | 20% | | Real estate | | | - | | | | 119 | | | | 119 | | | | 3% | | | | - | | | | 111 | | | | 111 | | | | 3% | | Derivatives | | | - | | | | 57 | | | | 57 | | | | 1% | | | | - | | | | 149 | | | | 149 | | | | 4% | | Investment funds | | | 3 | | | | 2,484 | | | | 2,487 | | | | 56% | | | | 11 | | | | 1,945 | | | | 1,956 | | | | 55% | | Other | | | 15 | | | | 752 | | | | 767 | | | | 17% | | | | 14 | | | | 471 | | | | 484 | | | | 14% | | At December 31 | | | 644 | | | | 3,776 | | | | 4,420 | | | | 100% | | | | 500 | | | | 3,025 | | | | 3,525 | | | | 100% | |
Defined benefit plans are mainly operated by Aegon USA, Aegon the Netherlands and Aegon UK. The following sections contain a general description of the plans in each of these subsidiaries and a summary of the principal actuarial assumptions applied in determining the value of defined benefit plans. Aegon USA Aegon USA has defined benefit plans covering substantially all its employees that are qualified under the Internal Revenue Service Code, including all requirements for minimum funding levels. The defined benefit plans are governed by the Board of ManagersDirectors of Transamerica Corporation. The Board of ManagersDirectors has the full power and discretion to administer the plan and to apply all of its provisions, including such responsibilities as, but not limited to, developing the investment policy and managing assets for the plan, maintaining required funding levels for the plan, deciding questions related to eligibility and benefit amounts, resolving disputes that may arise from plan participants and for complying with the plan provisions, and legal requirements related to the plan and its operation. The benefits are based on years of service and the employee’s eligible annual compensation. The plans provide benefits based on a traditional final average formula or a cash balance formula (which defines the accrued benefit in terms of a stated account balance), depending on the age and service of the plan participant. The defined benefit plans have a deficit of EUR 450388 million at December 31, 2018 (2017:2019 (2018: EUR 629450 million deficit). Investment strategies are established based on asset and liability studies by actuaries which are updated as they consider appropriate. These studies, along with the investment policy, assist to develop the appropriate investment criteria for the plan, including asset allocation mix, return objectives, investment risk and time horizon, benchmarks and performance standards, and restrictions and prohibitions. The overall goal is to maximize total investment returns to provide sufficient funding for the present and anticipated future benefit obligations within the constraints of a prudent level of portfolio risk and diversification. Aegon believes that the asset allocation is an important factor in determining the long-term performance of the plan. The plan uses multiple asset classes as well assub-classes to meet the asset allocation and other requirements of the investment policy, which minimizes investment risk. From time to time the actual asset allocation may deviate from the desired asset allocation ranges due to different market performance among the various asset categories. If it is determined that rebalancing is required, future additions and withdrawals will be used to bring the allocation to the desired level. Aegon USA maintains minimum required funding levels as set forth by the Internal Revenue Code. If contributions are required, the funding would be provided from the Company’s general account assets. Pension plan contributions were not required for Aegon USA in 20182019 or 2017.2018. However, with the Aegon N.V. Management Board approval of a proposal from Transamerica Corporation, Transamerica Corporation made a pension plan contribution of EUR 223 million in September 2019 (EUR 190 million in September 2018 (EUR 89 million in September 2017)2018) that was over and above the minimum required funding levels as set forth by the Internal Revenue Code. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 265271 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4139 | | | | | | | | | | | | |
Aegon USA also sponsors supplemental retirement plans to provide senior management with benefits in excess of normal retirement benefits. The plans are unfunded and are not qualified under the Internal Revenue Code. The supplemental retirement plans are governed by either Transamerica Corporation, or the Compensation Committee of the Board of Directors of Transamerica Corporation. Transamerica Corporation, or the Compensation Committee of the Board of Directors has the full power and discretion to apply all of the plan’s provisions, including such responsibilities as, but not limited to, interpret the plan provisions, to make factual determinations under the plan, to determine plan benefits, and to comply with any statutory reporting and disclosure requirements. The benefits are based on years of service and the employee’s eligible annual compensation. The plans provide benefits based on a traditional final average formula or a cash balance formula (which defines the accrued benefit in terms of a stated account balance), depending on the age and service of the plan participant. The company funds the benefit payments of the supplemental retirement plans from its general account assets. The unfunded amount related to these plans, for which a liability has been recorded, was EUR 241272 million (2017:(2018: EUR 257241 million unfunded). Aegon USA provides health care benefits to retired employees through continuation of coverage primarily in self funded plans, and partly in fully insured plans, which are classified as unfunded per IAS 19 financial guidance. The postretirement health care benefits under the Plans are administered by Transamerica Corporation, which has delegated the claims administration to third-party administrators. Aegon USA maintains two plans which provide continuation of coverage for retiree medical benefits. For each plan, Aegon USA has the fiduciary responsibility to administer the plan in accordance with its terms, and decides questions related to eligibility and determines plan provisions and benefit amounts. Under the Employee Retirement Income Security Act (ERISA), Aegon USA has the fiduciary responsibility to monitor the quality of services provided by the third-party claims administrator and to replace the third-party administrator if needed. In addition, Aegon USA 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 funds the benefit payments or premium payments of the post-retirement health care plans from its general account assets. The post-retirement health benefit liability amounted to EUR 210217 million (2017:(2018: EUR 227210 million). The weighted average duration of the defined benefit obligation is 12.212.6 years (2017: 13.2(2018: 12.2 years). The principal actuarial assumptions that apply for the year ended December 31 are as follows: | | Actuarial assumptions used to determine defined benefit obligations atyear-end | | 2018 | | 2017 | | 2019 | | | 2018 | | | Demographic actuarial assumptions | | | | | | | | | Mortality | | US mortality table1 | | US mortality table2 | | | US mortality table1) | | | | US mortality table2) | | | Financial actuarial assumptions | | | | | | | | | Discount rate3 | | 4.22%/4.05% | | 3.55% | | Discount rate3) | | | | 3.23%/3.02% | | | | 4.22% / 4.05% | | Salary increase rate | | 3.85% | | 3.85% | | | 4.00% | | | | 3.85% | | Health care trend rate | | 7.00% | | 7.40% | | | 6.60% | | | | 7.00% | |
| 1 | U.S. Society of Actuaries RP2014 mortality table2019 assumption-PRI-2012 Employee, Health Annuitant and Contingent Survivor Tables (90% white collar/ 10% blue collar) projected with Scale MP2018.MP -2019.
|
| 2 | U.S. Society of Actuaries2018 Assumption- RP2014 mortality tableEmployee and Health Annuitant Tables projected with Scale MP2017.MP - 2018
|
| 3 | Aegon USA has separate discount rates beginning with 2018 – 4.22%3.23% for all pension plans and 4.05%3.02% for post retirement welfare plan.plan 2019. |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 266 | | Notes to the consolidated financial statements Note 41 | | | | | | |
The principal actuarial assumptions have an effect on the amounts reported for the defined benefit obligation. A change as indicated in the table below in the principal actuarial assumptions would have the following effects on the defined benefit obligation peryear-end: | | | | | | | | | | Estimated approximate effects on the defined
benefit obligation | | | | | 2018 | | 2017 | | | | | Demographic actuarial assumptions | | | | | | | 10% increase in mortality rates | | (70) | | | (76 | ) | 10% decrease in mortality rates | | 77 | | | 83 | | | | | Financial actuarial assumptions | | | | | | | 100 basis points increase in discount rate | | (351) | | | (402 | ) | 100 basis points decrease in discount rate | | 430 | | | 498 | | 100 basis points increase in salary increase rate | | 29 | | | 38 | | 100 basis points decrease in salary increase rate | | (26) | | | (33 | ) | 100 basis points increase in health care trend rate | | 12 | | | 15 | | 100 basis points decrease in health care trend rate | | (11) | | | (13 | ) |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 272 | | | | Consolidated financial statements of Aegon N.V.Note 39 | | | | | | | | | | |
| | | | | | | | | | | | Estimated approximate effects on the defined benefit obligation | | | | | 2019 | | | 2018 | | | | | Demographic actuarial assumptions | | | | | | | | | 10% increase in mortality rates | | | (83 | ) | | | (70 | ) | 10% decrease in mortality rates | | | 92 | | | | 77 | | | | | Financial actuarial assumptions | | | | | | | | | 100 basis points increase in discount rate | | | (417 | ) | | | (351 | ) | 100 basis points decrease in discount rate | | | 514 | | | | 430 | | 100 basis points increase in salary increase rate | | | 29 | | | | 29 | | 100 basis points decrease in salary increase rate | | | (27 | ) | | | (26 | ) | 100 basis points increase in health care trend rate | | | 12 | | | | 12 | | 100 basis points decrease in health care trend rate | | | (11 | ) | | | (11 | ) |
The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognized within the statement of financial position. | | | | | | | | | | | | Target allocation of plan assets for retirement benefit plans for the next annual period is: | | Equity instruments | | 19-28% | | | | | 19-28 | % | Debt instruments | | 47-58% | | | | | 47-58 | % | Other | | 20-28% | | | | | 20-28 | % |
Aegon the Netherlands Aegon the NederlandsNetherlands 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 Board of Directors of Aegon the Netherlands. The Board of Directors 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 the Netherlands runs, in principle, full actuarial and investment risk regarding the defined benefit plans. This includes the risks of low interest rates, low returns and increased longevity. 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/(Pensioenwet / Pw). Insurers are subject to prudential supervision pursuant to the Financial Supervision Act (Wet op het financieel toezicht/toezicht / Wft). Investment strategies are established based on asset and liability studies. The overall goal is to maximize total investment returns to provide sufficient funding for the present and anticipated future benefit obligations within the constraints of a prudent level of portfolio risk. These studies use for example return objectives and various investment instruments. Investment restrictions are updated regularly and they result in asset allocation mix and hedges. The contributions to the retirement benefit plan of Aegon the Netherlands 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 2,9673,413 million at December 31, 2018. (2017:2019. (2018: EUR 2,967 million). The defined benefit plans are largely backed by investment, although these assets do not qualify as ‘plan assets’ as defined by IFRS. The average remaining duration of the defined benefits obligation is 21.9 years (2018: 20.9 years). Aegon the Netherlands also has a post-retirement medical plan that contributes to the health care coverage of employees and beneficiaries after retirement. For this plan, Aegon the Netherlands has the responsibility to administer the plan in accordance with its terms, and decides on questions related to eligibility and determines plan provisions and benefit amounts. In addition, Aegon | 1 | Aegon Nederland deducts employee contributions from the total pension expenses. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 267273 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4139 | | | | | | | | | | | | |
EUR 2,628 million). The defined benefit plans are largely backed by investment, although these assets do not qualify as ‘plan assets’ as defined by IFRS. The average remaining duration of the defined benefits obligation is 20.9 years (2017: 19.6 years).
Aegon the Netherlands also has a post-retirement medical plan that contributes to the health care coverage of employees and beneficiaries after retirement. For this plan, Aegon the Nederlands has the responsibility to administer the plan in accordance with its terms, and decides on questions related to eligibility and determines plan provisions and benefit amounts. In addition, Aegon the Nederlands has the obligation to interpret the provisions of the plans, and to comply with any statutory reporting and disclosure requirements. Finally, Aegon the NederlandsNetherlands reviews the terms of the plans and makes changes to the plans if and when appropriate. The liabilities related to these other post-employment benefit plans are fully unfunded and amount to EUR 65 million at December 31, 2018 (2017:2019 (2018: EUR 65 million). The weighted average duration of the other post-employment benefit plans is 11.712.4 years (2017: 11.9(2018: 11.7 years).
Plan amendments As per December 31, 2017In 2019, Aegon the Nederlands has accountedNetherlands amended the current defined pension plans for their own employees. The entitlements build up under the existing defined benefit scheme will continue to exist and will remain insured at Aegon Levensverzekering, but is closed to new entrants. All contributions after January 1, 2020, will be made to a new individual defined contribution pension scheme. The new Aegon Pension Plan will be between Aegon the Netherlands and Aegon Cappital and comes into effect on January 1, 2020.
The plan amendment resulted in a release of EUR 101 million in 2019 which is included in note 11 ‘Other income’. This release is driven by the effect of no longer taking into account future salary increases under the new defined contribution pension scheme. The minimumtax-qualified retirement age for occupational retirement plans in the Netherlands is triggered by an increase in average life expectancy as fromdetermined by the Central Bureau of Statistics. Effective January 1, 2018, which concernsthetax-qualified retirement age in combination with the increasemaximum annual benefit accrual of its1.875% becomes 68. As a result Aegon has changed the retirement age of its pension plan from 67 to 68 years. There were no plan amendments duringyears as from January 1, 2018. The principal actuarial assumptions that apply for the year-ended December 31 are as follows: | Actuarial assumptions used to determine defined benefit obligations atyear-end | | | 2018 | | | | 2017 | | | 2019 | | 2018 | Demographic actuarial assumptions | | | | | | | | | Mortality | | | NL mortality table1 | | | | NL mortality table1 | | | | NL mortality table 1) | | | NL mortality table 1) | | | Financial actuarial assumptions | | | | | | | | | Discount rate | | | 1.74% | | | | 2.09% | | | | 0.94% | | | 1.74% | | Salary increase rate2 | | | Curve 2018 | | | | Curve 2017 | | | Indexation3 | | | 57.75% of Curve 2018 | | | | 44.10% of Curve 2017 | | | Salary increase rate2) | | | | Curve 2019 | | | Curve 2018 | | Indexation3) | | | | 59.2 % of Curve 2019 | | | 57.75% of Curve 2018 | |
| 1 | Based on prospective mortality table of the Dutch Actuarial Society with minor methodology adjustments. |
| 2 | Based on Dutch Consumer Price Index. |
| 3 | Based on Dutch Consumer Price Index. |
The principal actuarial assumptions have an effect on the amounts reported for the defined benefit obligation. A change as indicated in the table below in the principal actuarial assumptions of the retirement benefit plan would have the following effects peryear-end: | | | |
| Estimated approximate effects on the defined
benefit obligation |
| | Estimated approximate effects on the defined benefit obligation | | | | | | 2018 | | | | 2017 | | | 2019 | | | 2018 | | Demographic actuarial assumptions | | | | | | | | | 10% increase in mortality rates | | (81 | ) | | | (69 | ) | | | (100 | ) | | (81 | ) | 10% decrease in mortality rates | | 90 | | | | 77 | | | | 112 | | | 90 | | | Financial actuarial assumptions | | | | | | | | | 100 basis points increase in discount rate | | (534 | ) | | | (447 | ) | | | (645 | ) | | (534 | ) | 100 basis points decrease in discount rate | | 733 | | | | 605 | | | | 893 | | | 733 | | 100 basis points increase in salary increase rate | | 18 | | | | 4 | | | | 1 | | | 18 | | 100 basis points decrease in salary increase rate | | (18 | ) | | | (4 | ) | | | - | | | (18 | ) | 25 basis points increase in indexation | | 167 | | | | 140 | | | | 194 | | | 167 | | 25 basis points decrease in indexation | | (152 | ) | | | (128 | ) | | | (177 | ) | | (152 | ) |
The above sensitivity analysis is based on a change in one assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit obligation recognized within the statement of financial position. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 268274 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4139 | | | | | | | | | | | | |
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. The pension scheme is administered separately from Aegon UK and is governed by Trustees, who are required to act in the best interests of the pension scheme members. The pension scheme Trustees are required to carry out triennial valuations on the scheme’s funding position, with the latest valuation being as at March 31, 2016.2019. As part of this triennial valuation process, a schedule of contributions is agreed between the Trustees and Aegon UK in accordance with UK pensions legislation and guidance issued by the Pensions Regulator in the UK. The schedule of contributions includes deficit reduction contributions to clear any scheme deficit. Under IAS 19, the defined benefit plan has a deficitsurplus of EUR 511.5 million at December 31, 2018 (2017:2019 (2018: EUR 13751 million deficit). During 20182019, EUR 5583 million (2017:(2018: EUR 8755 million) of contributions were paid into the scheme. The 20172019 contributions included a one off payment of EUR 3429 million in addition to the schedule of contributions. The investment strategy for the scheme is determined by the trustees in consultation with Aegon UK. Currently 30% of assets are invested in growth assets (i.e. primarily equities) and 70% are liability driven investments where the investments are a portfolio of fixed interest and inflation-linked bonds and related derivatives, selected to broadly match the interest rate and inflation profile of liabilities. Under the scheme rules, pensions in payment increase in line with the UK Retail Price Index, and deferred benefits increase in line with the UK Consumer Price Index. The pension scheme is therefore exposed to UK inflation changes as well as interest rate risks, investment returns and changes in the life expectancy of pensioners. During 2019, the scheme purchased abuy-in policy in the name of the Trustee to cover full scheme benefits for a group of pensioners. The liability (and matching asset) calculated on the year end assumptions has been included in the funded position as at 31 December 2019. The weighted average duration of the defined benefit obligation is 21.6 years (2017: 23.1(2018: 21.6 years). The principal actuarial assumptions that apply for the year ended December 31 are as follows: | | | | | | | | | Actuarial assumptions used to determine defined benefit obligations atyear-end | | | 2018 | | | | 2017 | | Demographic actuarial assumptions | | | | | | | | | Mortality | | | UK mortality table 1 | | | | UK mortality table 2 | | | | | Financial actuarial assumptions | | | | | | | | | Discount rate | | | 2.94% | | | | 2.56% | | Price inflation | | | 3.32% | | | | 3.29% | |
| | | | | | | | Actuarial assumptions used to determine defined benefit obligations at year-end | | 2019 | | 2018 | Demographic actuarial assumptions | | | | | | | Mortality | | UK mortality table 1) | | | UK mortality table | 2) | | | | Financial actuarial assumptions | | | | | | | Discount rate | | 2.08% | | | 2.94 | % | Price inflation | | 3.08% | | | 3.32 | % |
| 1 | Club Vita tables based on analysis of Scheme membership CMI 2017 1.5%/1.25% p.a. (males/females) |
| 2 | Club Vita tables based on analysis of Scheme membership CMI 20142017 1.5%/1.25% p.a. (males/females) |
The principal actuarial assumptions have an effect on the amounts reported for the defined benefit obligation. A change as indicated in the table below in the principal actuarial assumptions would have the following effects on the defined benefit obligation peryear-end: | | | | | | | | | | | |
| Estimated approximate effects on the defined
benefit obligation |
| | | | | 2018 | | | | 2017 | | Demographic actuarial assumptions | | | | | | | | | 10% increase in mortality rates | | | (34 | ) | | | (44 | ) | 10% decrease in mortality rates | | | 38 | | | | 50 | | | | | Financial actuarial assumptions | | | | | | | | | 100 basis points increase in discount rate | | | (235 | ) | | | (299 | ) | 100 basis points decrease in discount rate | | | 313 | | | | 412 | | 100 basis points increase in price inflation | | | 119 | | | | 169 | | 100 basis points decrease in price inflation | | | (192 | ) | | | (248 | ) |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 275 | | | | Consolidated financial statements of Aegon N.V.Note 40 | | | | | | | | | | |
| | | | | | | Estimated approximate effects on the defined benefit obligation |
| | | | | | | | | | | | 2019 | | | 2018 | | Demographic actuarial assumptions | | | | | | | | | 10% increase in mortality rates | | | (48 | ) | | | (34 | ) | 10% decrease in mortality rates | | | 54 | | | | 38 | | | | | Financial actuarial assumptions | | | | | | | | | 100 basis points increase in discount rate | | | (306 | ) | | | (235 | ) | 100 basis points decrease in discount rate | | | 414 | | | | 313 | | 100 basis points increase in price inflation | | | 130 | | | | 119 | | 100 basis points decrease in price inflation | | | (281 | ) | | | (192 | ) |
The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 269 | | Notes to the consolidated financial statements Note 42 | | | | | | |
benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognized within the statement of financial position. | | | | | | | | | | Target allocation of plan assets for retirement
benefit plans for the next annual period is: | | | | Equity instruments | | | 33% | | | 32% | Debt instruments | | | 68% | | | |
All other operating segments Businesses included in all other operating segments mostly operate defined contribution plans. Please refer to note 14 Commissions and expenses for the employee expenses regarding these contribution plans. 42 Deferred gains
| | | | | | | | | | | | | | | | | | | | 2018 | | | | | | 2017 | | | | | At January 1 | | | 13 | | | | | | | | 64 | | | | | | Income deferred | | | - | | | | | | | | 1 | | | | | | Disposals | | | - | | | | | | | | - | | | | | | Release to income statement | | | (1 | ) | | | | | | | (5 | ) | | | | | Net exchange differences | | | - | | | | | | | | (2 | ) | | | | | Transfers to disposal groups | | | - | | | | | | | | (45 | ) | | | | | At December 31 | | | 12 | | | | | | | | 13 | | | | | |
Transfers to disposal groups relates to the Aegon Ireland plc. business which is classified as held for sale peryear-end 2017 and as a result the deferred gains are no longer included in the 2017 ending balance.
4340 Deferred tax
| | | | 2018 | | | | | 2017 | | | | | 2019 | | | 2018 | | Deferred tax assets | | | 125 | | | | | | 79 | | | | | | 193 | | | 125 | | Deferred tax liabilities | | | 537 | | | | | | 1,029 | | | | | | 1,227 | | | 529 | | Total net deferred tax liability/(asset) | | | 412 | | | | | | 950 | | | | | Total net deferred tax liability / (asset) | | | | 1,035 | | | 404 | | | | | | | | | | | | | | | | | | Deferred tax assets comprise temporary differences on: | | 2018 | | | | | 2017 | | | | | 2019 | | | 2018 | | Real Estate | | | | (520 | ) | | | - | | Financial assets | | | (7 | ) | | | | | (20 | ) | | | | | 76 | | | (7 | ) | Insurance and investment contracts | | | - | | | | | | (19 | ) | | | | | 440 | | | | - | | Deferred expenses, VOBA and other intangible assets | | | (125 | ) | | | | | (140 | ) | | | | | (112 | ) | | (125 | ) | Defined benefit plans | | | 12 | | | | | | 26 | | | | | | 7 | | | 12 | | Losses | | | 167 | | | | | | 176 | | | | | Tax losses and credits carried forward | | | | 183 | | | 167 | | Other | | | 79 | | | | | | 57 | | | | | | 119 | | | 79 | | At December 31 | | | 125 | | | | | | 79 | | | | | | 193 | | | 125 | | | | | | | | | | | | | | | | | | Deferred tax liabilities comprise temporary differences on: | | 2018 | | | | | 2017 | | | | | 2019 | | | 2018 | | Real estate | | | 520 | | | | | | 554 | | | | | | 124 | | | 520 | | Financial assets | | | 815 | | | | | | 1,724 | | | | | | 1,549 | | | 807 | | Insurance and investment contracts | | | (1,433 | ) | | | | | (1,806 | ) | | | | | (1,031 | ) | | (1,433 | ) | Deferred expenses, VOBA and other intangible assets | | | 1,788 | | | | | | 1,752 | | | | | | 1,663 | | | 1,788 | | Defined benefit plans | | | (257 | ) | | | | | (268 | ) | | | | | (249 | ) | | (257 | ) | Losses | | | (147 | ) | | | | | (120 | ) | | | | Tax losses and credits carried forward | | | | (551 | ) | | (147 | ) | Other | | | (748 | ) | | | | | (807 | ) | | | | | (279 | ) | | (748 | ) | At December 31 | | | 537 | | | | | | 1,029 | | | | | | 1,227 | | | 529 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 270276 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4340 | | | | | | | | | | | | |
The following table provides a movement schedule of net deferred tax broken-down by those items for which a deferred tax asset or liability has been recognized. | | | | Real estate | | | | Financial
assets | | | | Insurance
and
investment
contracts | | | | Deferred
expenses, VOBA
and other
intangible assets | | | | Defined
benefit
plans | | | | Losses | | | | Other | | | | Total | | | Real estate | | Financial assets | | Insurance and investment contracts | | Deferred expenses, VOBA and other intangible assets | | Defined benefit plans | | Tax losses and credits carried forward | | Other | | Total | | At January 1, 2018 | | 554 | | | | | 1,744 | | | | | (1,787 | ) | | | | 1,892 | | | | | (295 | ) | | | | (296 | ) | | | | (863 | ) | | | | 950 | | | Acquisitions/Additions | | | - | | | | | | - | | | | | | - | | | | | 9 | | | | | | - | | | | | | - | | | | | | - | | | | | 9 | | | At January 1, 2019 | | | | 519 | | | 814 | | | (1,434 | ) | | 1,914 | | | (269 | ) | | (314 | ) | | (837 | ) | | 394 | | Charged to income statement | | (31 | ) | | | | (451 | ) | | | | 401 | | | | | (63 | ) | | | | 23 | | | | | (1 | ) | | | | 143 | | | | | 22 | | | | 125 | | | 25 | | | (20 | ) | | (176 | ) | | 108 | | | 63 | | | (11 | ) | | 114 | | Charged to equity | | (7 | ) | | | | (513 | ) | | | | 2 | | | | | | - | | | | | 17 | | | | | (2 | ) | | | | 12 | | | | | (493 | ) | | Charged to OCI | | | | (8 | ) | | 628 | | | | - | | | | - | | | (90 | ) | | | - | | | (9 | ) | | 520 | | Net exchange differences | | 4 | | | | | 46 | | | | | (51 | ) | | | | 82 | | | | | (14 | ) | | | | (4 | ) | | | | (38 | ) | | | | 25 | | | | 1 | | | 9 | | | (17 | ) | | 37 | | | (5 | ) | | (9 | ) | | (17 | ) | | (2 | ) | Disposal of a business | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | 2 | | | 2 | | Transfers to disposal groups | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | | - | | | Transfer to current income tax | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | | - | | | Transfer to/from other headings | | | | - | | | | - | | | | - | | | | - | | | | - | | | (473 | ) | | 473 | | | | - | | Other | | | | 7 | | | (3 | ) | | | - | | | | - | | | | - | | | | - | | | 3 | | | 7 | | At December 31, 2019 | | | | 644 | | | 1,473 | | | (1,471 | ) | | 1,775 | | | (256 | ) | | (734 | ) | | (398 | ) | | 1,035 | | | At January 1, 2018 | | | | 554 | | | 1,737 | | | (1,787 | ) | | 1,892 | | | (295 | ) | | (296 | ) | | (863 | ) | | 942 | | Acquisitions / Additions | | | | - | | | | - | | | | - | | | 9 | | | | - | | | | - | | | | - | | | 9 | | Charged to income statement | | | | (31 | ) | | (451 | ) | | 401 | | | (63 | ) | | 23 | | | (1 | ) | | 143 | | | 22 | | Charged to OCI | | | | (7 | ) | | (514 | ) | | 2 | | | | - | | | 17 | | | (2 | ) | | 12 | | | (494 | ) | Net exchange differences | | | | 4 | | | 46 | | | (51 | ) | | 82 | | | (14 | ) | | (4 | ) | | (38 | ) | | 25 | | Transfer to/from other headings | | | - | | | | | (3 | ) | | | | | - | | | | | (6 | ) | | | | | - | | | | | | - | | | | | 9 | | | | | | - | | | | - | | | (3 | ) | | | - | | | (6 | ) | | | - | | | | - | | | 9 | | | | - | | Other | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | (11 | ) | | | | (90 | ) | | | | (101 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | (11 | ) | | (90 | ) | | (101 | ) | At December 31, 2018 | | 519 | | | | | 822 | | | | | (1,434 | ) | | | | 1,914 | | | | | (269 | ) | | | | (314 | ) | | | | (827 | ) | | | | 412 | | | | 519 | | | 814 | | | (1,434 | ) | | 1,914 | | | (269 | ) | | (314 | ) | | (827 | ) | | 404 | | | At January 1, 2017 | | 541 | | | | | 3,165 | | | | | (2,988 | ) | | | | 3,298 | | | | | (645 | ) | | | | (407 | ) | | | | (850 | ) | | | | 2,113 | | | Acquisitions/Additions | | | - | | | | | | - | | | | | | - | | | | | 9 | | | | | | - | | | | | (1 | ) | | | | (14 | ) | | | | (6 | ) | | Charged to income statement | | 37 | | | | | 32 | | | | | 609 | | | | | (1,016 | ) | | | | 120 | | | | | 78 | | | | | (62 | ) | | | | (202 | ) | | Charged to equity | | (9 | ) | | | | (874 | ) | | | | | - | | | | | | - | | | | | 174 | | | | | | - | | | | | (5 | ) | | | | (715 | ) | | Net exchange differences | | (16 | ) | | | | (270 | ) | | | | 241 | | | | | (322 | ) | | | | 57 | | | | | 27 | | | | | 111 | | | | | (172 | ) | | Disposal of a business | | | - | | | | | | - | | | | | | - | | | | | 2 | | | | | | - | | | | | | - | | | | | | - | | | | | 2 | | | Transfers to disposal groups | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | 8 | | | | | | - | | | | | 8 | | | Transfer to current income tax | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | (73 | ) | | | | (73 | ) | | Transfer to/from other headings | | | - | | | | | (300 | ) | | | | 351 | | | | | (79 | ) | | | | | - | | | | | | - | | | | | 27 | | | | | | - | | | Other | | | - | | | | | (9 | ) | | | | | - | | | | | | - | | | | | | - | | | | | | - | | | | | 2 | | | | | (7 | ) | | At December 31, 2017 | | 554 | | | | | 1,744 | | | | | (1,787 | ) | | | | 1,892 | | | | | (295 | ) | | | | (296 | ) | | | | (863 | ) | | | | 950 | | |
The position as per January 1, 2019 has been adjusted due to the initial application of IFRS 16. Reference is made to note 2.1.1 for details. In 2018,2019, the decreaseincrease of deferred tax liability primarily related to a decreasean increase of unrealisedunrealized profits in respect of financial assets mainly driven by an increase ofa decrease in interest rates and widening credit spread.rates. TheIn 2018, the movement in other of EUR 90 million is caused by the redemption of thenon-cumulative subordinated note. Refer to note 3331 “Other equity instruments” and note 34 “Subordinated borrowings”.
The decrease of the United States corporate income tax rate from 35% to 21% as from January 1, 2018 with an impact of total EUR 1,034 million, EUR 554 million through profit and loss and EUR 479 million through other comprehensive income (refer to note 18) is the main cause for the total decrease in the deferred tax liability in 2017 of EUR 1,197 million.
The transfer to current income tax in 2017 relates to transfers from deferred to current tax, in relation to own equity instruments.
Transfer to/from other headings in 2019 includes transfersthe transfer between two reporting segments.the columns “other” and “tax losses and credits carried forward”, in relation to credits carried forward for an amount of EUR 473 million. Deferred corporate income tax assets are recognized for tax losses and credits carried forward to the extent that the realization of the related tax benefit through future taxable profits is probable. For an amount of gross EUR 261,379 million; tax EUR 6236 million (2017:related to tax losses carried forward (2018: gross EUR 851,317 million; tax EUR 15225 million) and an amount of tax EUR 391 million related to tax credits carried forward (2018; tax EUR 473 million) the realization of the deferred tax asset is dependent on the projection of future taxable profits as well as foreign income from existing business in excess of the profits arising from the reversal of existing taxable temporary differences. For comparative purposes the figures relating to the gross amount and tax amount for 2018 have been adjusted since several entities with deferred tax assets dependent on future taxable profits reported profits and were therefore not required to be included. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 271 | | Notes to the consolidated financial statements Note 44 | | | | | | |
For the following amounts, arranged by loss carry forward periods, the deferred corporate income tax asset is not recognized: | | | | | | | | | | | | | | | | | | | | Gross amounts1 | | | Not recognized deferred tax assets | | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | < 5 years | | | 65 | | | | 89 | | | | 15 | | | | 22 | | ³ 5 – 10 years | | | 21 | | | | 137 | | | | 5 | | | | 18 | | ³ 10 – 15 years | | | 20 | | | | - | | | | 36 | | | | 25 | | ³ 15 – 20 years | | | - | | | | - | | | | - | | | | - | | Indefinitely | | | 385 | | | | 499 | | | | 86 | | | | 111 | | At December 31 | | | 490 | | | | 725 | | | | 142 | | | | 177 | |
| | | | | | | | | | | | | | | | | | Gross amounts1) | | | Not recognized deferred tax assets | | | | 2019 | | 2018 | | 2019 | | 2018 | < 5 years | | 79 | | | 65 | | | | 20 | | | | 15 | | ³ 5 – 10 years | | 18 | | | 21 | | | | 4 | | | | 5 | | ³ 10 – 15 years | | 27 | | | 20 | | | | 51 | | | | 36 | | ³ 15 – 20 years | | 1 | | | - | | | | - | | | | - | | Indefinitely | | 488 | | | 385 | | | | 107 | | | | 86 | | At December 31 | | 613 | | | 490 | | | | 182 | | | | 142 | |
| 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 |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 277 | | | | Consolidated financial statements of Aegon N.V.Note 41 | | | | | | | | | | |
Deferred corporate income tax assets in respect of deductible temporary differences are recognized to the extent that the realization of the related tax benefit through future taxable profits is probable. For an amount of gross EUR 406 million; tax EUR 99 million (2018: gross EUR 162 million; tax EUR 29 million (2017: gross EUR 261 million; tax EUR 46 million) relating to Defined benefit plans and Other items the recognitionrealization of the deferred corporate income tax asset is dependent on future taxable profits in excess of the profits arising from the reversal of existing taxable temporary differences. Aegon did not recognize deferred corporate income tax assets in respect of deductible temporary differences relating to Financial assets and Other items for the amount of gross EUR 4032 million; tax EUR 86 million (2017:(2018: gross EUR 4340 million; tax EUR 8 million). Deferred corporate income tax liabilities have not been recognized for withholding tax and other taxes that would be payable on the unremitted earnings of certain subsidiaries. The unremitted earnings totaled gross EUR 1,774 million; tax EUR 383 million (2018: gross EUR 1,770 million; tax EUR 361 million (2017: gross EUR 1,771 million; tax EUR 441 million). All deferred corporate income taxes arenon-current by nature. 4441 Other liabilities
| | | | | 2018 | | | | 2017 | | | 2019 | | 2018 | | Payables due to policyholders | | | 1,172 | | | | 1,184 | | | | 1,363 | | | | 1,172 | | Payables due to brokers and agents | | | 373 | | | | 385 | | | | 296 | | | | 373 | | Payables out of reinsurance | | | 1,327 | | | | 3,010 | | | | 1,597 | | | | 1,327 | | Social security and taxes payable | | | 108 | | | | 125 | | | | 117 | | | | 108 | | Income tax payable | | | 2 | | | | - | | | | 3 | | | | 2 | | Investment creditors | | | 1,195 | | | | 1,228 | | | | 940 | | | | 1,195 | | Cash collateral on derivative transactions | | | 3,396 | | | | 2,335 | | | | 4,243 | | | | 3,396 | | Cash collateral on securities lended | | | 2,480 | | | | 3,277 | | | | 2,146 | | | | 2,480 | | Cash collateral – other | | | 49 | | | | 43 | | | Cash collateral - other | | | | 59 | | | | 49 | | Repurchase agreements | | | 322 | | | | 1,373 | | | | 719 | | | | 322 | | Commercial paper | | | 82 | | | | 72 | | | | 58 | | | | 82 | | Bank overdrafts | | | - | | | | 2 | | | Lease liabilities | | | | 311 | | | | - | | Other creditors | | | 2,947 | | | | 2,174 | | | | 2,968 | | | | 2,947 | | At December 31 | | | 13,454 | | | | 15,208 | | | | 14,819 | | | | 13,454 | | | Current | | | 13,309 | | | | 14,992 | | | | 14,097 | | | | 13,309 | | Non-current | | | 146 | | | | 216 | | | | 722 | | | | 146 | |
The carrying amounts disclosed reasonably approximate the fair values atyear-end, given the predominantly current nature of the other liabilities. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 272 | | Notes to the consolidated financial statements Note 45 | | | | | | |
4542 Accruals
| | | | 2018 | | | 2017 | | | 2019 | | 2018 | | Accrued interest | | | 237 | | | | 183 | | | | 292 | | | | 237 | | Accrued expenses | | | 151 | | | | 147 | | | | 134 | | | | 151 | | At December 31 | | | 388 | | | | 329 | | | | 426 | | | | 388 | |
The carrying amounts disclosed reasonably approximate the fair values as at theyear-end. 4643 Capital management and solvency
Strategic importance Aegon’s approach towards capital management plays a vital role in supporting the execution of its strategy. The key capital management priority is to ensure adequate capitalization to cover Aegon’s obligations towards its policyholders and debtholders while providing sustainable dividends to shareholders. This priority is accomplished by allocating capital to products that offer high growth and return prospects. Furthermore, a priority for capital management for several years has been to shift the product portfolio from focusing mostly on capital intensive spread business to diversifying the portfolio to include more capital light fee business. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 278 | | | | Consolidated financial statements of Aegon N.V.Note 43 | | | | | | | | | | |
Management of capital Disciplined risk and capital management support Aegon’s decisions in deploying the capital that is generated in the Company’s businesses and that is provided for by investors. Aegon balances the funding of new business growth with the funding required to ensure that its obligations towards policyholders and debtholders are always adequately met, and providing for a sustainable dividend to shareholders. Aegon’s goal for both its operating units and for the Aegon group as a whole is to maintain a strong financial position and to be able to sustain losses from extreme business and market conditions. The company’s overall capital management strategy is based on adequate solvency capital, capital quality, and the use of leverage. Aegon’s ERM framework ensures that the Aegon Group and its operating companies are adequately capitalized and that obligations towards policyholders are always adequately met. Firmly embedded in this larger framework, Aegon’s capital management framework builds on a set of key pillars: the use of internal target capital management zones, an internal target range for the use of gross financial leverage and, supported by robust risk and capital monitoring processes that timely trigger and escalate interventions if needed to ensure that capital is always being managed towards these internal target ranges, and is prevented from falling below the regulatory minimum capital requirements. Capital adequacy The capitalization of the Aegon Group and its operating units is managed in relation to the most stringent of local regulatory requirements, rating agency requirements and/or self-imposed criteria. Aegon manages its Solvency II capital in relation to the required capital. Under Aegon’s capital management framework the own funds are managed such that the Group Solvency II ratio remains within the target range of 150% –- 200% even in an adverse event. The Solvency contribution of Aegon US insurance entities under DeducationDeduction & Aggregation (D&A) involves converting 150% Risk-Based Capital Company Action Level into Solvency Required Capital Requirement (SCR) and reducing own funds by a 100% RBC Company Action Level requirement to reflect transferability restrictions. The methodology is subject to annual review. Minimum solvency requirements Insurance laws and regulations in local regulatory jurisdictions often contain minimum regulatory capital requirements. For insurance companies in the European Union, Solvency II formally defines a lower capital requirement, being the Minimum Capital Requirement (MCR). An irreparable breach of the MCR would lead to a withdrawal of the Company’s insurance license. Similarly, for the US insurance entities the withdrawal of the insurance license is triggered by a breach of the 100% Authorized Control Level (ACL), which is set at 50% of the Company Action Level (CAL). With the introduction of Solvency II for EEA countries, Aegon views the higher capital requirement, 100% of the SCR, as the level around which EU supervisors will formally require management to provide regulatory recovery plans. For the US insurance entities this is viewed at 100% Company Action Level (CAL). | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 273 | | Notes to the consolidated financial statements Note 46 | | | | | | |
During 2018,2019, the Aegon Group and all of itsthe regulated entities within the Aegon Group that are subject to regulatory capital requirements on a solo-level continued to comply with such requirements, except for Aegon España, S.A.U. de Seguros y Reaseguros (Aegon Spain). Aegon Spain used to apply a transitional arrangement related to its technical provisions and applied the Solvency II matching adjustment. At the instruction of the Spanish Insurance Regulator (DGSFP), Aegon Spain no longer applies the matching adjustment and the transitional arrangements. As a consequence of this, the Solvency II ratio of Aegon Spain dropped below the 100% and Aegon Group contributed with a capital injection in Aegon Spain to restore the Solvency II ratio. Aegon Group and all of its regulated entities are continued to be compliant with externally imposed legal capital requirements.position. Capital quality Aegon’s capital consists of 3 Tiers as an indication of its quality, with Tier 1 capital ranking highest. It is to be noted that the Group own funds do not include any contingent liability potentially arising from unit-linked products sold, issued or advised on by Aegon in the Netherlands in the past as the potential liability cannot be reliably quantified at this point. Further, the available own funds is an estimate, has not been filed with the regulator and is subject to supervisory review. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 279 | | | | Consolidated financial statements of Aegon N.V.Note 43 | | | | | | | | | | |
The below table provides the composition of Aegon’s available own funds across Tiers: | | Available own funds | | December 31, 2018
Available own funds | | | December 31, 2017
Available own funds | | | December 31, 2019 Available own funds | | | December 31, 2018 Available own funds | | Unrestricted Tier 1 | | | 12,204 | | | | 10,428 | | | | 12,724 | | | | 12,204 | | Restricted Tier 1 | | | 3,406 | | | | 3,540 | | | | 2,614 | | | | 3,406 | | Tier 2 | | | 1,487 | | | | 1,213 | | | | 2,370 | | | | 1,487 | | Tier 3 | | | 505 | | | | 448 | | | | 762 | | | | 505 | | Total available own funds | | | 17,602 | | | | 15,628 | | | | 18,470 | | | | 17,602 | |
As at December 31, 2018,2019, Tier 1 capital accounted for 89%83% of own funds (2017:(2018: 89%), including EUR 2,9311,617 million of junior perpetual capital securities (2017:(2018: EUR 3,0472,931 million) and EUR 476479 million of perpetual cumulative subordinated bonds (2017:(2018: EUR 493476 million) which are both classified as grandfathered restricted Tier 1 capital. In addition, Aegon issued EUR 500 million perpetual contingent convertible security in 2019, which is Solvency II compliant capital contributing EUR 518 million to restricted Tier 1 capital. The decrease in Tier 1 capital is mainly due to the redemptions of USD 1 billion perpetual capital securities issued in 2005, partly offset by the issuance of perpetual contingent convertible security during 2019. As at December 31, 2018,2019, Tier 2 capital accounted for 8%13% of own funds (2017:(2018: 8%), including USD 925 million subordinated notes issued by Aegon Funding Corporate LLC (AFC) during 2019 contributing EUR 716823 million to Tier 2 capital, EUR 773 million of subordinated liabilities which are issued during 2018 and classified as Solvency II compliant Tier 2 capital.capital (2018: EUR 771716 million), EUR 774 million of fixed floating subordinated notes (2017:(2018: EUR 772771 million) which are classified as grandfathered Tier 2 capital. Changes in Tier 2 capital compared to previous year is mainly related to the issuance of new capital instruments and the redemptions of existing grandfathered Tier 2 capital instruments(non-cumulativesubordinated notes).notes by AFC. The grandfathered restricted Tier 1 and Tier 2 capital instruments are grandfathered such that they are considered as capital under the Solvency II framework for up to 10 years as from January 1, 2016.years. For the terms and conditions of these grandfathered instruments refer to note 3331 Other equity instruments and note 34 to the consolidated financial statements.32 Subordinated borrowings. It is to be noted that the difference between the amounts mentioned above for junior perpetual capital securities and perpetual cumulative subordinated bonds, and those in note 3331 Other equity instruments and note 34 to the consolidated financial statements,32 Subordinated borrowings, stem from valuation differences between Solvency II (market value) and IFRS rules (refer to related accounting policies in note 2, paragraphs 2.17 and 2.18). Tier 3 capital as of December 31, 20182019 is comprised of deferred tax assets balances related to Solvency II entities. IFRS equity compares to Solvency II own funds as follows: | | | | December 31, 2018 | | | December 31, 2017 1 | | | December 31, 2019 | | | December 31, 2018 | | Shareholders’ Equity | | | 19,225 | | | | 20,288 | | | | 21,850 | | | 19,200 | | IFRS adjustments for Other Equity instruments and non controlling interests | | | 3,342 | | | | 3,813 | | | | 2,591 | | | 3,342 | | Group Equity | | | 22,567 | | | | 24,102 | | | | 24,441 | | | 22,542 | | Solvency II revaluations & reclassifications | | | (6,618 | ) | | | (10,169 | ) | | | (7,607 | ) | | (6,593 | ) | Transferability restrictions2 | | | (1,884 | ) | | | (1,758 | ) | | Transferability restrictions1) | | | | (1,973 | ) | | (1,884 | ) | Excess of Assets over Liabilities | | | 14,065 | | | | 12,174 | | | | 14,861 | | | 14,065 | | Availability adjustments | | | 4,326 | | | | 4,147 | | | | 4,446 | | | 4,326 | | Fungibility adjustments3 | | | (789 | ) | | | (693 | ) | | Fungibility adjustments2) | | | | (838 | ) | | (789 | ) | Available own funds | | | 17,602 | | | | 15,628 | | | | 18,470 | | | 17,602 | |
1 The 2017 comparative numbers have been updated for a change of the presentation for the subordinated debt2 This includes the transferability restriction related to the RBC CAL conversion methodology.
3
| This includes the transferability restriction related to the RBC CAL conversion methodology. |
| 2 | Amongst others, this contains the exclusion of Aegon Bank. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 274280 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4643 | | | | | | | | | | | | |
The Solvency II revaluations and reclassification of EUR 6,6187,607 million negative (2017:(2018: EUR 10,1696,593 million negative) mainly stem from the difference in valuation and presentation between IFRS and Solvency II frameworks, and the redemption ofnon-cumulative subordinated notes.frameworks. The change in Solvency II revaluations per December 31, 20182019 compared to December 31, 20172018 is mainly driven by risinglower interest rates and widening credit spreads during 2018, reducing2019, increasing the revaluation reserves in Aegon US. In addition, Aegon exercised its right to redeem the USD 525 million 8%non-cumulative subordinated notes. The Solvency II revaluations and reclassification can be grouped into threefour categories: | ◆ | | Items that are not recognized under Solvency II. The most relevant examples of this category for Aegon include Goodwill, DPAC and other intangible assets (EUR 2,0241,932 million negative, 2017:2018: EUR 2,0192,024 million negative); |
| ◆ | | Items that have a different valuation treatment between IFRS and Solvency II. Solvency II is a market consistent framework hence all assets and liabilities are to be presented at fair value while IFRS also includes other valuation treatments in addition to fair value. The most relevant examples of this category for Aegon Group include Loans and Mortgages, Reinsurance Recoverables Deferred tax assets balances and Technical provisions. The revaluation difference stemming from this category amounted to EUR 2,7643,360 million positive (2017:(2018: EUR 2,8792,789 million positive) compared to the IFRS Statement of Financial Position; |
| ◆ | | The Net Asset Value of subsidiaries that are included under the Deduction & Aggregation method (on provisional equivalence or Standard Formula basis) in the Group Solvency II results. The revaluation difference stemming from this category amounted to EUR 4,0955,663 million negative (2017:(2018: EUR 6,7914,095 million negative) compared to the IFRS Statement of Financial Position;Position, which is mainly driven by lower interest rates during 2019; |
| ◆ | | Reclassification of subordinated liabilities of EUR 3,2623,372 million negative (2017:(2018: EUR 4,2373,262 negative). In 2018, the accounting treatment of subordinated liabilities which were grandfathered by the Dutch Central Bank have changed on the Solvency II balance sheet. These subordinated liabilities include Junior Perpetual Capital Securities (JPCS), Perpetual capital subordinated loans (PCSL), and Fixed Floating Security Notes (FFSN). Under IFRS, JPCS and PCSL are presented as Shareholder’s equity, FFSN is presented as liabilities. Previously, they were all reported as equity instruments under Solvency II. From 2018 these grandfathered instruments are reported as subordinated liabilities in the Solvency II balance sheet and no longer included in the excess of assets over liabilities. Availability adjustments have increased by the same amount as available own funds have not changed by this change in presentation. The movement of subordinated liabilities mainly stem from the redemption ofnon-cumulative perpetual capital securities, the issuance Restricted Tier 1 perpetual contingent convertible securities, and the issuance of Tier 2 subordinated notes during 2019. |
The transferability restrictions reflect the restrictions on US Life Companies DTA and capping of Tier 1 unrestricted own funds as a consequence of the RBC CAL conversion methodology as described above. The availability adjustments are changes to the availability of own funds of Aegon Group in accordance with Solvency II requirements. Examples include the adjustments for subordinated liabilities, ring-fenced fund, treasury shares and foreseeable dividend. Finally, the fungibility restrictions limit the availability of own funds on Aegon Group level as prescribed by Supervisory Authorities. These limitations refer to charitable trusts in the Americas for which the local Supervisory Authority could limit the upstream of capital to the Group and Aegon Bank which is under a different regulatory regime but under the same Supervisory Authority and therefore excluded for Solvency II purposes. Capital leverage Aegon’s total capitalization reflects the capital employed in the business units and consists of shareholders’ capital and total gross financial leverage. Aegon’s gross financial leverage ratio is calculated by dividing total financial leverage by total capitalization. Aegon aims to keep total gross financial leverage within a range of 26% to 30% of total capitalization as measured by the gross financial leverage ratio, and a fixed charge coverage in the range of6-8x the interest payments on financial leverage. Aegon defines total financial leverage as debt or debt-like funding issued for general corporate purposes and for capitalizing Aegon’s business units. Total financial leverage includes hybrid instruments, in addition to both subordinated and senior debt. Aegon’s total capitalization comprises the following components: | ◆ | | Shareholders’ equity excluding revaluation reserves based on IFRS as adopted by the EU;IFRS; |
| ◆ | | Non-controlling interests and share optionsLong Term Incentive Plans not yet exercised;vested; and |
| ◆ | | Total financial leverage. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 275281 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4643 | | | | | | | | | | | | |
The following table shows the composition of Aegon’s total capitalization, the calculation of the gross financial leverage ratio and its fixed charge coverage: | | | | Note | | | 2018 | | | 2017 | | | Note | | | 2019 | | | 2018 | Total shareholders’ equity – based on IFRS as adopted by the EU | | | 32 | | | | 19,543 | | | 20,573 | | | Non-controlling interests, share options and incentive plans not yet exercised | | | 33, SOFP 2 | | | | 80 | | | 81 | | | Total shareholders’ equity - based on IFRS as adopted by the EU | | | | 2 | | | | 22,457 | | | 19,518 | | | Non-controlling interests and Long Term Incentive Plans not yet vested | | | | 31, SOFP 2) | | | | 73 | | | 80 | | | Revaluation reserves | | | 32 | | | | (3,461 | ) | | (4,920 | ) | | | 30 | | | | (5,868 | ) | | (3,436 | ) | | | | | | | Adjusted shareholders’ equity | | | | | 16,162 | | | 15,733 | | | | | | 16,662 | | | 16,162 | | Perpetual contingent convertible securities | | | | 31 | | | | 500 | | | | - | | | Junior perpetual capital securities | | | 33 | | | | 2,808 | | | 3,008 | | | | 31 | | | | 1,564 | | | 2,808 | | | Perpetual cumulative subordinated bonds | | | 33 | | | | 454 | | | 454 | | | | 31 | | | | 454 | | | 454 | | Non-cumulative subordinated notes (Other equity instruments) | | | 33 | | | | - | | | 271 | | | | Fixed floating subordinated notes | | | 34 | | | | 1,389 | | | 695 | | | | 32 | | | | 1,404 | | | 1,389 | | Non-cumulative subordinated notes (Subordinated borrowings) | | | 34 | | | | - | | | 69 | | | | Fixed subordinated notes | | | | 32 | | | | 804 | | | | - | | | Trust pass-through securities | | | 35 | | | | 133 | | | 133 | | | | 33 | | | | 136 | | | 133 | | Currency revaluation other equity instruments1 | | | | | 110 | | | 40 | | | | Currency revaluation other equity instruments1) | | | | | | 54 | | | 110 | | | | | | | | Hybrid leverage | | | | | 4,895 | | | 4,669 | | | | | | 4,916 | | | 4,895 | | Senior debt3 | | | 39 | | | | 1,774 | | | 2,312 | | | | Senior debt3) | | | | 37 | | | | 1,738 | | | 1,774 | | | | | | | | Senior leverage | | | | �� | 1,774 | | | 2,312 | | | | | | 1,738 | | | 1,774 | | | Total gross financial leverage | | | | | 6,669 | | | 6,982 | | | | | | 6,653 | | | 6,669 | | | | | | | | | | | | Total capitalization | | | | | 22,831 | | | 22,715 | | | | | | 23,316 | | | 22,831 | | | | | | | | | | | Gross financial leverage ratio4 | | | | | 29.2% | | | 30.7% | | | | Gross financial leverage ratio4) | | | | | | 28.5% | | | 29.2% | | | | | | | | | | | Fixed Charge Coverage | | | | | 8.2x | | | 8.2x | | | | | | 7.7x | | | 8.2x | |
| 1 | Other equity instruments that are denominated in foreign currencies are, for purpose of calculating hybrid leverage, revalued to theperiod-end exchange rate. |
| 2 | Non-controlling interests are disclosed in the statement of financial position. |
| 3 | Senior debt for the gross financial leverage calculation also contains swaps for an amount of EUR (1)(7) million (2017:(2018: EUR 31(1) million). |
| 4 | To align closer to definitions used by peers and rating agencies, Aegon has retrospectively changed the definition of adjusted shareholders’ equity used in calculating the gross financial leverage ratio. Shareholders’ equity will no longer be adjusted for the remeasurement of defined benefit plans. All figures, including comparatives, are based on the new definition, unless stated otherwise. |
Aegon N.V. is subject to financial covenants as included in a number of its financial agreements (such as issued debentures, credit facilities and 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 a cross-default provision which may be triggered if and when any financial indebtedness of any member of the Group is declared to be or otherwise becomes due and payable prior to its specified maturity as a result of an event of default. All financial agreements are periodically monitored to assess the likelihood of a breach of any financial covenant and the likelihood thereof in the near future. No breach of any such covenant occurred during 2018.
Aegon N.V. is subject to legal restrictions with regard to the amount of dividends it can pay to its shareholders. Under Dutch law, the amount that is available to pay dividends consists of total shareholders’ equity less the issued and outstanding capital and the reserves required by law. The revaluation account and legal reserves in respect of the foreign currency translation reserve (FCTR), group companies and otherthe revaluation reserves, cannot be freely distributed. In case of negative balances for individual reserves legally to be retained, no distributions can be made out of retained earnings to the level of these negative amounts. Total distributable items under Dutch law amounted to EUR 13,30713,569 million as at December 31, 2018 (2017:2019 (2018: EUR 13,74913,307 million). The following table shows the composition of the total distributable items:
| | | | | | | | | Distributable items1 | | | 2018 | | | | 2017 | | Equity attributable to shareholders based on IFRS as adopted by the EU | | | 19,543 | | | | 20,573 | | Non-distributable items: | | | | | | | | | Share capital | | | (322 | ) | | | (322 | ) | Statutory reserves2 | | | (5,915 | ) | | | (6,502 | ) | At December 31 | | | 13,307 | | | | 13,749 | |
| | | | | | | | | | Distributable items1) | | 2019 | | | 2018 | | | | | Equity attributable to shareholders based on IFRS as adopted by the EU | | | 22,457 | | | | 19,518 | | | | | Non-distributable items: | | | | | | | | | | | | Share capital | | | (323 | ) | | | (322 | ) | | | | Legal reserves2) | | | (8,565 | ) | | | (5,890 | ) | At December 31 | | | 13,569 | | | | 13,307 | |
| 1 | Distributable items under Dutch law; note that Solvency II ratios also possibly restricts the distribution of dividends. |
| 2 | Statutory reserves containsThe legal reserves in respect of both FCTR andthe foreign currency translation reserve (FCTR), group companies and the positive revaluations ofin the revaluation account.reserves, cannot be freely distributed.
|
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 276 | | Notes to the consolidated financial statements Note 47 | | | | | | |
The ability of Aegon’s subsidiaries, principally insurance companies, to pay dividends to the holding company is constrained by the requirement for these subsidiaries to remain adequately capitalized to the levels set by local insurance regulations and governed by local insurance supervisory authorities. Based on the capitalization level of the local subsidiary, local insurance supervisors are able to restrict and/or prohibit the transfer of dividends to the holding company. In addition, the ability of subsidiaries to pay dividends to the holding company can be constrained by the requirement for these subsidiaries to hold sufficient shareholders’ equity as determined by law. The capitalization level and shareholders’ equity of the subsidiaries can be impacted by various factors (e.g. general economic conditions, capital market risks, underwriting risk factors, changes in government regulations, and legal and arbitrational proceedings). To mitigate the impact of such factors on the ability to pay dividends, the subsidiaries hold additional capital in excess of the levels required by local insurance regulations, as reflected in Aegon’s target capitalization ranges. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 282 | | | | Consolidated financial statements of Aegon N.V.Note 44 | | | | | | | | | | |
4744 Fair value
The estimated fair values of Aegon’s assets and liabilities correspond with the amounts that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available, Aegon uses quoted market prices in active markets to determine the fair value of investments and derivatives. In the absence of an active market, the fair value of investments in financial assets is estimated by using other market observable data, such as corroborated external quotes and present value or other valuation techniques. An active market is one in which transactions are taking place regularly on an arm’s length basis. Fair value is not determined based upon a forced liquidation or distressed sale. Valuation techniques are used when Aegon determines the market is inactive or quoted market prices are not available for the asset or liability at the measurement date. However, the fair value measurement objective remains the same, that is, to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place 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). Therefore, unobservable inputs reflect Aegon’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). These inputs are developed based on the best information available. Aegon employs an oversight structure over valuation of financial instruments that includes appropriate segregation of duties. Senior management, independent of the investing functions, is responsible for the oversight of control and valuation policies and for reporting the results of these policies. For fair values determined by reference to external quotation or evidenced pricing parameters, independent price determination or validation is utilized to corroborate those inputs. Further details of the validation processes are set out below. Valuation of assets and liabilities is based on a pricing hierarchy, in order to maintain a controlled process that will systematically promote the use of prices from sources in which Aegon has the most confidence, where the least amount of manual intervention exists and to embed consistency in the selection of price sources. Depending on asset type the pricing hierarchy consists of a waterfall that starts with making use of market prices from indices and follows with making use of third-party pricing services or brokers. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 277283 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4744 | | | | | | | | | | | | |
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 2018 | | Assets carried at fair value | | | | | | | | | | | | | | | | | Available-for-sale | | | | | | | | | | | | | | | | | Shares | | | 82 | | | | 155 | | | | 241 | | | | 478 | | Debt securities | | | 24,652 | | | | 51,446 | | | | 1,242 | | | | 77,340 | | Money market and other short-term instruments | | | 1,427 | | | | 4,528 | | | | - | | | | 5,955 | | Other investments at fair value | | | - | | | | 409 | | | | 493 | | | | 902 | | | | | 26,160 | | | | 56,538 | | | | 1,976 | | | | 84,675 | | | | | | | Fair value through profit or loss | | | | | | | | | | | | | | | | | Shares | | | 217 | | | | 239 | | | | 1,226 | | | | 1,682 | | Debt securities | | | 1,868 | | | | 2,028 | | | | 17 | | | | 3,913 | | Money market and other short-term instruments | | | 17 | | | | 335 | | | | - | | | | 352 | | Other investments at fair value | | | 1 | | | | 1,272 | | | | 1,376 | | | | 2,649 | | Investments for account of policyholders1 | | | 103,977 | | | | 87,893 | | | | 1,871 | | | | 193,741 | | Derivatives | | | 53 | | | | 7,527 | | | | 35 | | | | 7,615 | | Investments in real estate | | | - | | | | - | | | | 2,700 | | | | 2,700 | | Investments in real estate for policyholders | | | - | | | | - | | | | 612 | | | | 612 | | | | | 106,134 | | | | 99,295 | | | | 7,837 | | | | 213,266 | | | | | | | Revalued amounts | | | | | | | | | | | | | | | | | Real estate held for own use | | | - | | | | - | | | | 263 | | | | 263 | | | | | | - | | | | - | | | | 263 | | | | 263 | | Total assets at fair value | | | 132,294 | | | | 155,833 | | | | 10,077 | | | | 298,204 | | | | | | | Liabilities carried at fair value | | | | | | | | | | | | | | | | | Investment contracts for account of policyholders2 | | | - | | | | 49,641 | | | | 206 | | | | 49,847 | | Borrowings3 | | | - | | | | 536 | | | | - | | | | 536 | | Derivatives | | | 93 | | | | 4,648 | | | | 2,489 | | | | 7,230 | | Total liabilities at fair value | | | 93 | | | | 54,824 | | | | 2,695 | | | | 57,613 | |
| | | | | | | | | | | | | | | | | | | | Level I | | | Level II | | | Level III | | | Total 2019 | Assets carried at fair value | | | | | | | | | | | | | | | | | Available-for-sale | | | | | | | | | | | | | | | | | Shares | | | 92 | | | | 160 | | | | 157 | | | | 409 | | Debt securities | | | 25,528 | | | | 56,317 | | | | 1,074 | | | | 82,918 | | Money market and other short-term instruments | | | 1,255 | | | | 3,914 | | | | - | | | | 5,169 | | Other investments at fair value | | | - | | | | 426 | | | | 482 | | | | 908 | | | | | | | | | | 26,875 | | | | 60,817 | | | | 1,712 | | | | 89,404 | | | | | | | Fair value through profit or loss | | | | | | | | | | | | | | | | | Shares | | | 106 | | | | 306 | | | | 1,401 | | | | 1,813 | | Debt securities | | | 204 | | | | 3,727 | | | | 4 | | | | 3,934 | | Money market and other short-term instruments | | | 19 | | | | 139 | | | | - | | | | 158 | | Other investments at fair value | | | 1 | | | | 1,125 | | | | 2,049 | | | | 3,175 | | Investments for account of policyholders1) | | | 120,271 | | | | 103,712 | | | | 1,805 | | | | 225,788 | | Derivatives | | | 96 | | | | 11,006 | | | | 56 | | | | 11,157 | | Investments in real estate | | | - | | | | - | | | | 2,901 | | | | 2,901 | | Investments in real estate for policyholders | | | - | | | | - | | | | 586 | | | | 586 | | | | | | | | | | 120,696 | | | | 120,014 | | | | 8,802 | | | | 249,512 | | | | | | | Revalued amounts | | | | | | | | | | | | | | | | | Real estate held for own use | | | - | | | | - | | | | 208 | | | | 208 | | | | | | | | | | - | | | | - | | | | 208 | | | | 208 | | | | | | | | | | | | | | | | | | | | Total assets at fair value | | | 147,571 | | | | 180,831 | | | | 10,722 | | | | 339,124 | | | | | | | Liabilities carried at fair value | | | | | | | | | | | | | | | | | Investment contracts for account of policyholders2) | | | - | | | | 59,759 | | | | 197 | | | | 59,956 | | Borrowings3) | | | - | | | | 461 | | | | - | | | | 461 | | Derivatives | | | 59 | | | | 8,476 | | | | 3,081 | | | | 11,616 | | Total liabilities at fair value | | | 59 | | | | 68,696 | | | | 3,278 | | | | 72,033 | |
| 1 | The investments for account of policyholders included in the table above only include investments carried at fair value through profit or loss. |
| 2 | The investment contracts for account of policyholders included in the table above represents only those investment contracts carried at fair value. |
| 3 | Total borrowings on the statement of financial position contain borrowings carried at amortized cost that are not included in the above schedule. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 278284 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4744 | | | | | | | | | | | | |
| | | | | Level I | | | | Level II | | | | Level III | | | | Total 2017 | | | Level I | | | Level II | | | Level III | | | Total 2018 | Assets carried at fair value | | | | | | | | | | | | | | | | | Available-for-sale | | | | | | | | | | | | | | | | | Shares | | | 51 | | | | 151 | | | | 288 | | | | 490 | | | | 82 | | | | 155 | | | | 241 | | | | 478 | | Debt securities | | | 26,338 | | | | 52,415 | | | | 1,447 | | | | 80,200 | | | | 24,652 | | | | 51,446 | | | | 1,242 | | | | 77,340 | | Money market and other short-term instruments | | | 1,664 | | | | 5,026 | | | | - | | | | 6,690 | | | | 1,427 | | | | 4,528 | | | | - | | | | 5,955 | | Other investments at fair value | | | - | | | | 208 | | | | 583 | | | | 791 | | | | - | | | | 409 | | | | 493 | | | | 902 | | | | | 28,053 | | | | 57,800 | | | | 2,318 | | | | 88,170 | | | | 26,160 | | | | 56,538 | | | | 1,976 | | | | 84,675 | | | Fair value through profit or loss | | | | | | | | | | | | | | | | | Shares | | | 226 | | | | 232 | | | | 604 | | | | 1,062 | | | | 217 | | | | 239 | | | | 1,226 | | | | 1,682 | | Debt securities | | | 1,964 | | | | 2,175 | | | | 4 | | | | 4,144 | | | | 1,868 | | | | 2,028 | | | | 17 | | | | 3,913 | | Money market and other short-term instruments | | | 17 | | | | 102 | | | | - | | | | 119 | | | | 17 | | | | 335 | | | | - | | | | 352 | | Other investments at fair value | | | 1 | | | | 539 | | | | 1,255 | | | | 1,795 | | | | 1 | | | | 1,272 | | | | 1,376 | | | | 2,649 | | Investments for account of policyholders1 | | | 115,323 | | | | 76,302 | | | | 1,784 | | | | 193,409 | | | Investments for account of policyholders1) | | | | 103,977 | | | | 87,893 | | | | 1,871 | | | | 193,741 | | Derivatives | | | 68 | | | | 5,787 | | | | 57 | | | | 5,912 | | | | 53 | | | | 7,527 | | | | 35 | | | | 7,615 | | Investments in real estate | | | - | | | | - | | | | 2,147 | | | | 2,147 | | | | - | | | | - | | | | 2,700 | | | | 2,700 | | Investments in real estate for policyholders | | | - | | | | - | | | | 655 | | | | 655 | | | | - | | | | - | | | | 612 | | | | 612 | | | | | 117,599 | | | | 85,137 | | | | 6,506 | | | | 209,241 | | | | 106,134 | | | | 99,295 | | | | 7,837 | | | | 213,266 | | | Revalued amounts | | | | | | | | | | | | | | | | | Real estate held for own use | | | - | | | | - | | | | 307 | | | | 307 | | | | - | | | | - | | | | 263 | | | | 263 | | | | | | - | | | | - | | | | 307 | | | | 307 | | | | - | | | | - | | | | 263 | | | | 263 | | | | | | | | | | | | Total assets at fair value | | | 145,652 | | | | 142,937 | | | | 9,130 | | | | 297,718 | | | | 132,294 | | | | 155,833 | | | | 10,077 | | | | 298,204 | | | Liabilities carried at fair value | | | | | | | | | | | | | | | | | Investment contracts for account of policyholders2 | | | - | | | | 36,950 | | | | 219 | | | | 37,169 | | | Borrowings3 | | | - | | | | 536 | | | | - | | | | 536 | | | Investment contracts for account of policyholders2) | | | | - | | | | 49,641 | | | | 206 | | | | 49,847 | | Borrowings3) | | | | - | | | | 536 | | | | - | | | | 536 | | Derivatives | | | 34 | | | | 5,251 | | | | 1,845 | | | | 7,130 | | | | 93 | | | | 4,648 | | | | 2,489 | | | | 7,230 | | Total liabilities at fair value | | | 34 | | | | 42,738 | | | | 2,064 | | | | 44,835 | | | | 93 | | | | 54,824 | | | | 2,695 | | | | 57,613 | |
| 1 | The investments for account of policyholders included in the table above only include investments carried at fair value through profit or loss. |
| 2 | The investment contracts for account of policyholders included in the table above represents only those investment contracts carried at fair value. |
| 3 | Total borrowings on the statement of financial position contain borrowings carried at amortized cost that are not included in the above schedule. |
Significant transfers between Level I, Level II and Level III Aegon’s policy is to record transfers of assets and liabilities between Level I, Level II and Level III at their fair values as of the beginning of each reporting period. The table below shows transfers between Level I and Level II for financial assets and financial liabilities recorded at fair value on a recurring basis. | | | | | Total 2018 | | | | Total 2017 | | | Total 2019 | | | Total 2018 | | | | | Transfers Level I
to Level II | | | Transfers Level II
to Level I | | | Transfers Level I
to Level II | | | Transfers Level II
to Level I | | | Transfers Level I to Level II | | | Transfers Level II to Level I | | | Transfers Level I to Level II | | | Transfers Level II to Level I | | Assets carried at fair value | | | | | | | | | | | | | | | | | Available-for-sale | | | | | | | | | | | | | | | | | Shares | | | - | | | | - | | | 1 | | | | 1 | | | Debt securities | | | - | | | | - | | | 12 | | | | - | | | | 12 | | | | 3 | | | | - | | | | - | | Money markets and other short-term instruments | | | - | | | | - | | | | - | | | | 1,664 | | | | | | | - | | | | - | | | 13 | | | | 1,666 | | | | 12 | | | | 3 | | | | - | | | | - | | | Fair value through profit or loss | | | | | | | | | | | | | | | | | Shares | | | 3 | | | | 1 | | | 124 | | | | 19 | | | | 8 | | | | 8 | | | | 3 | | | | 1 | | Investments for account of policyholders | | | - | | | | (4 | ) | | 12 | | | | 30 | | | | - | | | | 8 | | | | - | | | | (4 | ) | | | | | 3 | | | | (3 | ) | | 136 | | | | 49 | | | | 8 | | | | 16 | | | | 3 | | | | (3 | ) | Total assets at fair value | | | 3 | | | | (3 | ) | | 149 | | | | 1,714 | | | | 20 | | | | 19 | | | | 3 | | | | (3 | ) | | | | | | | | | | | | Investment contracts for account of policyholders | | | - | | | | - | | | 1 | | | | - | | | Total Liabilities carried at fair value | | | - | | | | - | | | 1 | | | | - | | | | - | | | | - | | | | - | | | | - | |
Transfers are identified based on transaction volume and frequency, which are indicative of an active market. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 279285 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4744 | | | | | | | | | | | | |
Movements in Level III financial instruments measured at fair value The following table summarizes the change of all assets and liabilities measured at estimated fair value on a recurring basis using significant unobservable inputs (Level III), including realized and unrealized gains (losses) of all assets and liabilities and unrealized gains (losses) of all assets and liabilities still held at the end of the respective period. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Assets carried at fair value | | |  | | | |  | | | |  | | | |  | | | |  | | | |  | | | |  | | | |  | | | |  | | | |  | | | |  | | | |  | | | |  | | | |  | | | |  | | Available-for-sale | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares | | | 288 | | | | - | | | | - | | | | 21 | | | | (12 | ) | | | 9 | | | | (77 | ) | | | - | | | | 10 | | | | 2 | | | | - | | | | - | | | | - | | | | 241 | | | | - | | Debt securities | | | 1,447 | | | | - | | | | - | | | | 26 | | | | 2 | | | | 494 | | | | (76 | ) | | | (452 | ) | | | 51 | | | | 1 | | | | 58 | | | | (310 | ) | | | - | | | | 1,242 | | | | - | | Other investments at fair value | | | 583 | | | | - | | | | - | | | | (83 | ) | | | (38 | ) | | | 125 | | | | (102 | ) | | | (21 | ) | | | 25 | | | | 3 | | | | - | | | | - | | | | - | | | | 493 | | | | - | | | | | | 2,318 | | | | - | | | | - | | | | (36 | ) | | | (48 | ) | | | 629 | | | | (255 | ) | | | (473 | ) | | | 87 | | | | 6 | | | | 58 | | | | (310 | ) | | | - | | | | 1,976 | | | | - | | | | | | | | | | | | | | | | | | Fair value through profit or loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares | | | 604 | | | | - | | | | - | | | | 104 | | | | - | | | | 541 | | | | (61 | ) | | | 1 | | | | 1 | | | | 36 | | | | - | | | | - | | | | - | | | | 1,226 | | | | 105 | | Debt securities | | | 4 | | | | - | | | | - | | | | (25 | ) | | | - | | | | 37 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 17 | | | | (24 | ) | Other investments at fair value | | | 1,255 | | | | - | | | | - | | | | 11 | | | | - | | | | 332 | | | | (307 | ) | | | - | | | | 64 | | | | - | | | | 94 | | | | (72 | ) | | | - | | | | 1,376 | | | | 3 | | Investments for account of policyholders | | | 1,784 | | | | 130 | | | | - | | | | 76 | | | | - | | | | 537 | | | | (660 | ) | | | - | | | | 3 | | | | - | | | | - | | | | - | | | | - | | | | 1,871 | | | | 35 | | Derivatives | | | 57 | | | | - | | | | - | | | | 57 | | | | - | | | | - | | | | (80 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 35 | | | | 59 | | Investments in real estate | | | 2,147 | | | | - | | | | - | | | | 261 | | | | - | | | | 474 | | | | (209 | ) | | | - | | | | 27 | | | | - | | | | - | | | | - | | | | - | | | | 2,700 | | | | 202 | | Investments in real estate for policyholders | | | 655 | | | | - | | | | - | | | | 5 | | | | - | | | | 2 | | | | (43 | ) | | | - | | | | (7 | ) | | | - | | | | - | | | | - | | | | - | | | | 612 | | | | 4 | | | | | 6,506 | | | | 130 | | | | - | | | | 490 | | | | - | | | | 1,924 | | | | (1,360 | ) | | | - | | | | 90 | | | | 36 | | | | 94 | | | | (72 | ) | | | - | | | | 7,837 | | | | 383 | | | | | | | | | | | | | | | | | | Revalued amounts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate held for own use | | | 307 | | | | - | | | | (1 | ) | | | (19 | ) | | | (39 | ) | | | 17 | | | | (10 | ) | | | - | | | | 7 | | | | - | | | | - | | | | - | | | | - | | | | 263 | | | | 5 | | | | | | 307 | | | | - | | | | (1 | ) | | | (19 | ) | | | (39 | ) | | | 17 | | | | (10 | ) | | | - | | | | 7 | | | | - | | | | - | | | | - | | | | - | | | | 263 | | | | 5 | | Total assets at fair value | | | 9,130 | | | | 130 | | | | (1 | ) | | | 435 | | | | (87 | ) | | | 2,570 | | | | (1,624 | ) | | | (472 | ) | | | 185 | | | | 42 | | | | 151 | | | | (382 | ) | | | - | | | | 10,077 | | | | 388 | | | | | | | | | | | | | | | | | | Liabilities carried at fair value | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investment contracts for account of policyholders | | | 219 | | | | - | | | | - | | | | (10 | ) | | | - | | | | 7 | | | | (14 | ) | | | - | | | | 4 | | | | - | | | | - | | | | - | | | | - | | | | 206 | | | | - | | Derivatives | | | 1,845 | | | | - | | | | - | | | | 613 | | | | - | | | | - | | | | - | | | | - | | | | 31 | | | | - | | | | - | | | | - | | | | - | | | | 2,489 | | | | 613 | | | | | | 2,064 | | | | - | | | | - | | | | 604 | | | | - | | | | 7 | | | | (14 | ) | | | - | | | | 35 | | | | - | | | | - | | | | - | | | | - | | | | 2,695 | | | | 614 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Assets carried at fair value | | At January 1, 2019 | | | Acquisitions through business combinations | | | Disposal of a business | | | Total gains / losses in income statement 1 | | | Total gains / losses in OCI2 | | | Purchases | | | Sales | | | Settlements | | | Net exchange difference | | | Reclassification | | | Transfers from levels I and II | | | Transfers to levels I and II | | | Transfers to disposal groups | | | At December 31, 2019 | | | Total unrealized gains and (losses) for the period recorded in the P&L for instruments held at December 31, 20193 | | Available-for-sale | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares | | | 241 | | | | - | | | | - | | | | - | | | | (5 | ) | | | 22 | | | | (100 | ) | | | - | | | | 4 | | | | 2 | | | | - | | | | (7 | ) | | | - | | | | 157 | | | | - | | Debt securities | | | 1,242 | | | | - | | | | - | | | | 3 | | | | 21 | | | | 319 | | | | (317 | ) | | | (68 | ) | | | 19 | | | | (2 | ) | | | 52 | | | | (195 | ) | | | - | | | | 1,074 | | | | - | | Money markets and other short-term instruments | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,061 | | | | (855 | ) | | | (103 | ) | | | - | | | | - | | | | 126 | | | | (229 | ) | | | - | | | | - | | | | - | | Other investments at fair value | | | 493 | | | | - | | | | - | | | | (100 | ) | | | (56 | ) | | | 183 | | | | (25 | ) | | | (23 | ) | | | 9 | | | | - | | | | - | | | | - | | | | - | | | | 482 | | | | - | | | | | | 1,976 | | | | - | | | | - | | | | (97 | ) | | | (40 | ) | | | 1,584 | | | | (1,297 | ) | | | (194 | ) | | | 32 | | | | 1 | | | | 178 | | | | (431 | ) | | | - | | | | 1,712 | | | | - | | | | | | | | | | | | | | | | | | | Fair value through profit or loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares | | | 1,226 | | | | - | | | | - | | | | 72 | | | | - | | | | 368 | | | | (266 | ) | | | - | | | | 1 | | | | - | | | | - | | | | - | | | | - | | | | 1,401 | | | | 62 | | Debt securities | | | 17 | | | | - | | | | - | | | | (1 | ) | | | - | | | | 1 | | | | (12 | ) | | | (1 | ) | | | - | | | | (1 | ) | | | - | | | | - | | | | - | | | | 4 | | | | - | | Other investments at fair value | | | 1,376 | | | | - | | | | - | | | | 34 | | | | - | | | | 884 | | | | (268 | ) | | | - | | | | 23 | | | | - | | | | 85 | | | | (86 | ) | | | - | | | | 2,049 | | | | 36 | | Investments for account of policyholders | | | 1,871 | | | | - | | | | - | | | | 45 | | | | - | | | | 435 | | | | (567 | ) | | | - | | | | 20 | | | | - | | | | - | | | | - | | | | - | | | | 1,805 | | | | 86 | | Derivatives | | | 35 | | | | - | | | | - | | | | 19 | | | | - | | | | 35 | | | | (33 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 56 | | | | 20 | | Investments in real estate | | | 2,700 | | | | - | | | | - | | | | 317 | | | | - | | | | 206 | | | | (331 | ) | | | - | | | | 9 | | | | - | | | | - | | | | - | | | | - | | | | 2,901 | | | | 2 | | Investments in real estate for policyholders | | | 612 | | | | - | | | | - | | | | (18) | | | | - | | | | 2 | | | | (43 | ) | | | - | | | | 34 | | | | - | | | | - | | | | - | | | | - | | | | 586 | | | | (27) | | | | | | 7,837 | | | | - | | | | - | | | | 468 | | | | - | | | | 1,931 | | | | (1,521 | ) | | | (1 | ) | | | 88 | | | | (1 | ) | | | 85 | | | | (86 | ) | | | - | | | | 8,802 | | | | 179 | | | | | | | | | | | | | | | | | | | Revalued amounts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate held for own use | | | 263 | | | | - | | | | - | | | | 7 | | | | 3 | | | | (5 | ) | | | (62 | ) | | | - | | | | 3 | | | | - | | | | - | | | | - | | | | - | | | | 208 | | | | - | | | | | 263 | | | | - | | | | - | | | | 7 | | | | 3 | | | | (5 | ) | | | (62 | ) | | | - | | | | 3 | | | | - | | | | - | | | | - | | | | - | | | | 208 | | | | - | | | Total assets at fair value | | | 10,077 | | | | - | | | | - | | | | 379 | | | | (37 | ) | | | 3,509 | | | | (2,880 | ) | | | (194 | ) | | | 122 | | | | - | | | | 263 | | | | (517 | ) | | | - | | | | 10,722 | | | | 179 | | | | | | | | | | | | | | | | | | | Liabilities carried at fair value | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investment contracts for account of policyholders | | | 206 | | | | - | | | | - | | | | 9 | | | | - | | | | 4 | | | | (23 | ) | | | - | | | | 1 | | | | - | | | | - | | | | - | | | | - | | | | 197 | | | | (10) | | Derivatives | | | 2,489 | | | | - | | | | - | | | | 597 | | | | 4 | | | | - | | | | (22 | ) | | | - | | | | 13 | | | | - | | | | - | | | | - | | | | - | | | | 3,081 | | | | 84 | | | | | | 2,695 | | | | - | | | | - | | | | 605 | | | | 4 | | | | 4 | | | | (46 | ) | | | - | | | | 15 | | | | - | | | | - | | | | - | | | | - | | | | 3,278 | | | | 75 | |
| 1 | Includes impairments and movements related to fair value hedges. Gains and losses are recorded in the line item Results from financial transactions of the income statement. |
| 2 | Total gains and losses are recorded in line items: Gains/Gains / (losses) on revaluation ofavailable-for-sale investments, (Gains)/losses transferred to the income statement on disposal and impairment ofavailable-for-sale investments and Changes in revaluation reserve real estate held for own use of the statement of other comprehensive income. |
| 3 | Total gains/gains / (losses) for the period during which the financial instrument was in Level III. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 280286 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4744 | | | | | | | | | | | | |
| Assets carried at fair value | | |  | | | |  | | |  | | |  | | |  | | |  | | |  | | |  | | |  | | | |  | | |  | | |  | | | |  | | | At January 1, 2018 | | Acquisitions through business combinations | | Disposal of a business | | Total gains / losses in income statement 1 | | Total gains / losses in OCI 2 | | Purchases | | Sales | | Settlements | | Net exchange difference | | Reclassification | | Transfers from levels I and II | | Transfers to levels I and II | | Transfers to disposal groups | | At December 31, 2018 | | Total unrealized gains and (losses) for the period recorded in the P&L for instruments held at December 31, 20183 | | Available-for-sale | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares | | | 393 | | | | 54 | | | (46 | ) | | 68 | | | (112 | ) | | (35 | ) | | (34 | ) | | | - | | | | - | | | | - | | | | - | | | 288 | | | | - | | | 288 | | | | - | | | | - | | | 21 | | | (12 | ) | | 9 | | | (77 | ) | | | - | | | 10 | | | 2 | | | | - | | | | - | | | | - | | | 241 | | | | - | | Debt securities | | | 1,966 | | | | 39 | | | (2 | ) | | 678 | | | (149 | ) | | (890 | ) | | (186 | ) | | | - | | | 203 | | | | (211 | ) | | | - | | | 1,447 | | | | - | | | 1,447 | | | | - | | | | - | | | 26 | | | 2 | | | 494 | | | (76 | ) | | (452 | ) | | 51 | | | 1 | | | 58 | | | (310 | ) | | | - | | | 1,242 | | | | - | | Other investments at fair value | | | 754 | | | | (112 | ) | | (109 | ) | | 194 | | | (48 | ) | | (9 | ) | | (87 | ) | | | - | | | 1 | | | | - | | | | - | | | 583 | | | | - | | | 583 | | | | - | | | | - | | | (83 | ) | | (38 | ) | | 125 | | | (102 | ) | | (21 | ) | | 25 | | | 3 | | | | - | | | | - | | | | - | | | 493 | | | | - | | | | | | 3,112 | | | | (19 | ) | | (158 | ) | | 939 | | | (309 | ) | | (935 | ) | | (307 | ) | | | - | | | 205 | | | | (211 | ) | | | - | | | 2,318 | | | | - | | | 2,318 | | | | - | | | | - | | | (36 | ) | | (48 | ) | | 629 | | | (255 | ) | | (473 | ) | | 87 | | | 6 | | | 58 | | | (310 | ) | | | - | | | 1,976 | | | | - | | | Fair value through profit or loss | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares | | | 50 | | | | (11 | ) | | | - | | | 583 | | | (18 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | 604 | | | | (11 | ) | | 604 | | | | - | | | | - | | | 104 | | | | - | | | 541 | | | (61 | ) | | 1 | | | 1 | | | 36 | | | | - | | | | - | | | | - | | | 1,226 | | | 105 | | Debt securities | | | 6 | | | | - | | | | - | | | | - | | | | - | | | | - | | | (1 | ) | | | - | | | | - | | | | - | | | | - | | | 4 | | | | 1 | | | 4 | | | | - | | | | - | | | (25 | ) | | | - | | | 37 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | 17 | | | (24 | ) | Other investments at fair value | | | 1,257 | | | | 23 | | | | - | | | 378 | | | (350 | ) | | | - | | | (162 | ) | | | - | | | 341 | | | | (233 | ) | | | - | | | 1,255 | | | | 20 | | | 1,255 | | | | - | | | | - | | | 11 | | | | - | | | 332 | | | (307 | ) | | | - | | | 64 | | | | - | | | 94 | | | (72 | ) | | | - | | | 1,376 | | | 3 | | Investments for account of policyholders | | | 1,726 | | | | 11 | | | | - | | | 671 | | | (622 | ) | | | - | | | (27 | ) | | | - | | | 32 | | | | (8 | ) | | | - | | | 1,784 | | | | 30 | | | 1,784 | | | 130 | | | | - | | | 76 | | | | - | | | 537 | | | (660 | ) | | | - | | | 3 | | | | - | | | | - | | | | - | | | | - | | | 1,871 | | | 35 | | Derivatives | | | 108 | | | | (33 | ) | | | - | | | | - | | | | - | | | | - | | | (2 | ) | | (16 | ) | | | - | | | | - | | | | - | | | 57 | | | | (21 | ) | | 57 | | | | - | | | | - | | | 57 | | | | - | | | | - | | | (80 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | 35 | | | 59 | | Investments in real estate | | | 1,999 | | | | 193 | | | | - | | | 246 | | | (202 | ) | | | - | | | (89 | ) | | | - | | | | - | | | | - | | | | - | | | 2,147 | | | | 77 | | | 2,147 | | | | - | | | | - | | | 261 | | | | - | | | 474 | | | (209 | ) | | | - | | | 27 | | | | - | | | | - | | | | - | | | | - | | | 2,700 | | | 202 | | Investments in real estate for policyholders | | | 686 | | | | 38 | | | | - | | | 10 | | | (53 | ) | | | - | | | (26 | ) | | | - | | | | - | | | | - | | | | - | | | 655 | | | | 38 | | | 655 | | | | - | | | | - | | | 5 | | | | - | | | 2 | | | (43 | ) | | | - | | | (7 | ) | | | - | | | | - | | | | - | | | | - | | | 612 | | | 4 | | | | | 5,831 | | | | 220 | | | | - | | | 1,889 | | | (1,245 | ) | | | - | | | (306 | ) | | (16 | ) | | 374 | | | | (241 | ) | | | - | | | 6,506 | | | | 134 | | | 6,506 | | | 130 | | | | - | | | 490 | | | | - | | | 1,924 | | | (1,360 | ) | | | - | | | 90 | | | 36 | | | 94 | | | (72 | ) | | | - | | | 7,837 | | | 383 | | | Revalued amounts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Real estate held for own use | | | 332 | | | | (2 | ) | | 8 | | | (3 | ) | | (4 | ) | | | - | | | (24 | ) | | | - | | | | - | | | | - | | | | - | | | 307 | | | | (3 | ) | | 307 | | | | - | | | (1 | ) | | (19 | ) | | (39 | ) | | 17 | | | (10 | ) | | | - | | | 7 | | | | - | | | | - | | | | - | | | | - | | | 263 | | | 5 | | | | | | 332 | | | | (2 | ) | | 8 | | | (3 | ) | | (4 | ) | | | - | | | (24 | ) | | | - | | | | - | | | | - | | | | - | | | 307 | | | | (3 | ) | | | 307 | | | | - | | | | (1 | ) | | | (19 | ) | | | (39 | ) | | | 17 | | | | (10 | ) | | | - | | | | 7 | | | | - | | | | - | | | | - | | | | - | | | | 263 | | | | 5 | | Total assets at fair value | | | 9,275 | | | | 199 | | | (150 | ) | | 2,826 | | | (1,558 | ) | | (935 | ) | | (638 | ) | | (16 | ) | | 578 | | | | (452 | ) | | | - | | | 9,130 | | | | 131 | | | 9,130 | | | 130 | | | (1 | ) | | 435 | | | (87 | ) | | 2,570 | | | (1,624 | ) | | (472 | ) | | 185 | | | 42 | | | 151 | | | (382 | ) | | | - | | | 10,077 | | | 388 | | | Liabilities carried at fair value | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investment contracts for account of policyholders | | | 176 | | | | 7 | | | | - | | | 60 | | | (21 | ) | | | - | | | (12 | ) | | | - | | | 10 | | | | (2 | ) | | | - | | | 219 | | | | (2 | ) | | 219 | | | | - | | | | - | | | (10 | ) | | | - | | | 7 | | | (14 | ) | | | - | | | 4 | | | | - | | | | - | | | | - | | | | - | | | 206 | | | | - | | Derivatives | | | 2,467 | | | | (828 | ) | | | - | | | | - | | | 300 | | | | - | | | (75 | ) | | 10 | | | | - | | | | - | | | (30 | ) | | 1,845 | | | | (745 | ) | | 1,845 | | | | - | | | | - | | | 613 | | | | - | | | | - | | | | - | | | | - | | | 31 | | | | - | | | | - | | | | - | | | | - | | | 2,489 | | | 613 | | | | | | 2,643 | | | | (821 | ) | | | - | | | 60 | | | 279 | | | | - | | | (87 | ) | | 10 | | | 10 | | | | (2 | ) | | (30 | ) | | 2,064 | | | | (747 | ) | | 2,064 | | | | - | | | | - | | | 604 | | | | - | | | 7 | | | (14 | ) | | | - | | | 35 | | | | - | | | | - | | | | - | | | | - | | | 2,695 | | | 614 | |
| 1 | Includes impairments and movements related to fair value hedges,hedges. Gains and losses are recorded in the line item Results from financial transactions of the income statement. |
| 2 | Total gains and losses are recorded in line items: Gains/Gains / (losses) on revaluation ofavailable-for-sale investments, (Gains)/losses transferred to the income statement on disposal and impairment ofavailable-for-sale investments and Changes in revaluation reserve real estate held for own use of the statement of other comprehensive income. |
| 3 | Total gains/gains / (losses) for the period during which the financial instrument was in Level III. |
During 2018,2019, Aegon transferred certain financial instruments from Level II to Level III of the fair value hierarchy. The reason for the change in level was that the market liquidity for these securities decreased, which led to a change in market observability of prices. Prior to transfer, the fair value for the Level II securities was determined using observable market transactions or corroborated broker quotes respectively for the same or similar instruments. The amount of assets and liabilities transferred to Level III was EUR 151263 million (2017:(2018: EUR 588151 million). Since the transfer, all such assets have been valued using valuation models incorporating significant non market-observable inputs or uncorroborated broker quotes. Similarly, during 2018,2019, Aegon transferred EUR 382517 million (2017:(2018: EUR 454382 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. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 281287 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4744 | | | | | | | | | | | | |
Valuation techniques and significant unobservable inputs The table below presents information about the significant unobservable inputs used for recurring fair value measurements for certain Level III financial instruments. | | | | | | | | | | | | | | | | | | | | | | | | | | Assets carried at fair value | | Valuation
technique 1 | | | Significant
unobservable
input2 | | | December 31,
2018 | | | Range
(weighted
average) | | | December 31,
2017 | | | Range
(weighted
average) | | | Available-for-sale | | Net asset value 3 | | | n.a. | | | 205 | | | n.a. | | | 231 | | | n.a. | | Shares | | | Other | | | | n.a. | | | | 36 | | | | n.a. | | | | 57 | | | | n.a. | | | | | | | | | | | | | 241 | | | | | | | | 288 | | | | | | Debt securities | | | Broker quote | | | | n.a. | | | | 985 | | | | n.a. | | | | 1,034 | | | | n.a. | | | | | | | | | | | | | | | | | | | | | | | | | 1.04% – 2.72% | | | | | Discounted cash flow | | | | Credit spread | | | | 17 | | | | 3.38% | | | | 116 | | | | (2.64%) | | | | | | Other | | | | n.a. | | | | 240 | | | | n.a. | | | | 297 | | | | n.a. | | | | | | | | | | | | | 1,242 | | | | | | | | 1,447 | | | | | | Other investments at fair value | | | | | | | | | | | | | | | | | | | | | | | | | Tax credit investments | | | Discounted cash flow | | | | Discount rate | | | | 435 | | | | 6.8% | | | | 528 | | | | 5.8% | | Investment funds | | | Net asset value | 3 | | | n.a. | | | | 24 | | | | n.a. | | | | 31 | | | | n.a. | | Other | | | Other | | | | n.a. | | | | 34 | | | | n.a. | | | | 24 | | | | n.a. | | | | | | | | | | | | | 493 | | | | | | | | 583 | | | | | | At December 31 | | | | | | | | | | | 1,976 | | | | | | | | 2,318 | | | | | | Fair value through profit or loss | | | | | | | | | | | | | | | | | | | | | | | | | Shares | | | Other | | | | n.a. | | | | 1,226 | | | | n.a. | | | | 604 | | | | n.a. | | Debt securities | | | Other | | | | n.a. | | | | 17 | | | | n.a. | | | | 4 | | | | n.a. | | | | | | | | | | | | | 1,243 | | | | | | | | 609 | | | | | | Other investments at fair value | | | | | | | | | | | | | | | | | | | | | | | | | Investment funds | | | Net asset value | 3 | | | n.a. | | | | 1,334 | | | | n.a. | | | | 1,246 | | | | n.a. | | Other | | | Other | | | | n.a. | | | | 42 | | | | n.a. | | | | 9 | | | | n.a. | | | | | | | | | | | | | 1,376 | | | | | | | | 1,255 | | | | | | Derivatives | | | | | | | | | | | | | | | | | | | | | | | | | Longevity swap | | | Discounted cash flow | | | | Mortality | | | | 33 | | | | n.a. | | | | 24 | | | | n.a. | | Other | | | Other | | | | n.a. | | | | - | | | | n.a. | | | | 30 | | | | n.a. | | | | | | | | | | | | | 33 | | | | | | | | 54 | | | | | | Real estate | | | | | | | | | | | | | | | | | | | | | | | | | Investments in real estate | | | Direct capitalization | | | | Capitalization | | | | 427 | | | | 4.25% – 7.5% | | | | 496 | | | | 3.0% – 10.0% | | | | | technique | | | | rate | | | | | | | | (4.4%) | | | | | | | | (5.9%) | | | | | Appraisal value | | | | n.a. | | | | 2,150 | | | | n.a. | | | | 1,495 | | | | n.a. | | | | | | Other | | | | n.a. | | | | 123 | | | | n.a. | | | | 155 | | | | n.a. | | | | | | | | | | | | | 2,700 | | | | | | | | 2,147 | | | | | | At December 31 | | | | | | | | | | | 5,352 | | | | | | | | 4,065 | | | | | | Revalued amounts | | | Direct capitalization | | | | Capitalization | | | | | | | | 8.25% – 9.50% | | | | | | | | 6.0% – 10.0% | | Real estate held for own use | | | technique | | | | rate | | | | 53 | | | | (8.9%) | | | | 157 | | | | (7.9%) | | | | | Appraisal value | | | | n.a. | | | | 101 | | | | n.a. | | | | 115 | | | | n.a. | | | | | | Other | | | | n.a. | | | | 108 | | | | n.a. | | | | 35 | | | | n.a. | | At December 31 | | | | | | | | | | | 263 | | | | | | | | 307 | | | | | | Total assets at fair value4 | | | | | | | | | | | 7,592 | | | | | | | | 6,689 | | | | | | Liabilities carried at fair value | | | | | | | | | | | | | | | | | | | | | | | | | Derivatives | | | | | | | | | | | | | | | | | | | | | | | | | Embedded derivatives in | | | | | | | Own credit | | | | | | | | 0.25% – 0.40% | | | | | | | | 0.2% – 0.3% | | insurance contracts | | | Discounted cash flow | | | | spread | | | | 2,484 | | | | (0.30%) | | | | 1,831 | | | | (0.22%) | | Longevity swap | | | Discounted cash flow | | | | Mortality | | | | 5 | | | | n.a. | | | | 10 | | | | n.a. | | Other | | | Other | | | | n.a. | | | | - | | | | n.a. | | | | 3 | | | | n.a. | | Total liabilities at fair value | | | | | | | | | | | 2,489 | | | | | | | | 1,845 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | Valuation technique 1) | | Significant unobservable input 2) | | December
31, 2019 | | | Range (weighted average) | | | December
31, 2018 | | | Range (weighted average) | | | Assets carried at fair value | | | | | | | | | | | | | | | | | | | | | Available-for-sale | | | | | | | | | | | | | | | | | | | | | Shares | | Net asset value3) | | n.a. | | | 119 | | | | n.a. | | | | 205 | | | | n.a. | | | | | Other | | n.a. | | | 38 | | | | n.a. | | | | 36 | | | | n.a. | | | | | | | | | 157 | | | | | | | | 241 | | | | | | | | | | | | | Debt securities | | Broker quote | | n.a. | | | 818 | | | | n.a. | | | | 985 | | | | n.a. | | | | Discounted cash flow | | Credit spread | | | 25 | | | | 3.24% | | | | 17 | | | | 3.38% | | | | Discounted cash flow | | Constant Prepayment Rate | | | 7 | | | | 25.00% | | | | - | | | | - | | | | Discounted cash flow | | Constant Prepayment Rate | | | 30 | | | | 7.82% | | | | - | | | | - | | | | | Other | | n.a. | | | 193 | | | | n.a. | | | | 240 | | | | n.a. | | | | | | | | | 1,074 | | | | | | | | 1,242 | | | | | | | Other investments at fair value | | | | | | | | | | | | | | | | | | | | | Tax credit investments | | Discounted cash flow | | Discount rate | | | 435 | | | | 6.5% | | | | 435 | | | | 6.8% | | Investment funds | | Net asset value3) | | n.a. | | | 14 | | | | n.a. | | | | 24 | | | | n.a. | | Other | | Other | | n.a. | | | 33 | | | | n.a. | | | | 34 | | | | n.a. | | | | | | | | | 482 | | | | | | | | 493 | | | | | | At December 31 | | | | | | | 1,712 | | | | | | | | 1,976 | | | | | | | | | | | | | | Fair value through profit or loss | | | | | | | | | | | | | | | | | | | | | Shares | | Other | | n.a. | | | 1,401 | | | | n.a. | | | | 1,226 | | | | n.a. | | Debt securities | | Other | | n.a. | | | 4 | | | | n.a. | | | | 17 | | | | n.a. | | | | | | | | | 1,405 | | | | | | | | 1,243 | | | | | | | | | | | | | | Other investments at fair value | | | | | | | | | | | | | | | | | | | | | Investment funds | | Net asset value3) | | n.a. | | | 1,984 | | | | n.a. | | | | 1,334 | | | | n.a. | | Other | | Other | | n.a. | | | 65 | | | | n.a. | | | | 42 | | | | n.a. | | | | | | | | | 2,049 | | | | | | | | 1,376 | | | | | | | | | | | | | Derivatives | | | | | | | | | | | | | | | | | | | | | Longevity swap | | Discounted cash flow | | Mortality | | | 55 | | | | n.a. | | | | 33 | | | | n.a. | | Other | | Other | | n.a. | | | - | | | | n.a. | | | | - | | | | n.a. | | | | | | | | | 55 | | | | | | | | 33 | | | | | | | | | | | | | Real estate | | | | | | | | | | | | | | | | | | | | | | | Direct capitalization | | | | | | | | | 4.25% - 5.5% | | | | | | | | 4.25% - 7.5% | | Investments in real estate | | technique | | Capitalization rate | | | 580 | | | | (3.3%) | | | | 427 | | | | (4.4%) | | | | Appraisal value | | n.a. | | | 2,229 | | | | n.a. | | | | 2,150 | | | | n.a. | | | | | Other | | n.a. | | | 92 | | | | n.a. | | | | 123 | | | | n.a. | | | | | | | | | | 2,901 | | | | | | | | 2,700 | | | | | | At December 31 | | | | | | | 6,410 | | | | | | | | 5,352 | | | | | | | | | | | | | Revalued amounts | | | | | | | | | | | | | | | | | | | | | | | Direct capitalization | | | | | | | | | 7.75% - 9.50% | | | | | | | | 8.25% - 9.50% | | Real estate held for own use | | technique | | Capitalization rate | | | 54 | | | | (9.0%) | | | | 53 | | | | (8.9%) | | | | Appraisal value | | n.a. | | | 108 | | | | n.a. | | | | 101 | | | | n.a. | | | | | Other | | n.a. | | | 46 | | | | n.a. | | | | 108 | | | | n.a. | | At December 31 | | | | | | | 208 | | | | | | | | 263 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total assets at fair value4) | | | | | | | 8,330 | | | | | | | | 7,592 | | | | | | | | | | | | | | Liabilities carried at fair value | | | | | | | | | | | | | | | | | | | | | | Derivatives | | | | | | | | | | | | | | | | | | | | | Embedded derivatives in insurance contracts | | Discounted cash flow | | Own credit spread | | | 3,072 | | |
| 0.2% - 0.3%
(0.24%) |
| | | 2,484 | | |
| 0.25% - 0.40%
(0.30%) |
| Longevity swap | | Discounted cash flow | | Mortality | | | 9 | | | | n.a. | | | | 5 | | | | n.a. | | Other | | Other | | n.a. | | | - | | | | n.a. | | | | - | | | | n.a. | | Total liabilities at fair value | | | | | | | 3,081 | | | | | | | | 2,489 | | | | | |
| 1 | Other in the table above (column Valuation technique) includes investments for which the fair value is uncorroborated and no broker quote is received. |
| 2 | Not applicable (n.a.) has been included when the unobservable inputs are not developed by the Group and are not reasonably available. Refer to the section Fair value measurement in this note for a detailed description of Aegon’s methods of determining fair value and the valuation techniques. |
| 3 | Net asset value is considered the best approximation to the fair value of these financial instruments. |
| 4 | Investments for account of policyholders are excluded from the table above and from the disclosure regarding reasonably possible alternative assumptions. Policyholder assets, and their returns, belong to policyholders and do not impact Aegon’s net income or equity. The effect on total assets is offset by the effect on total liabilities. Derivatives exclude derivatives for account of policyholders amounting to EUR 21 million (2017:(2018: EUR 32 million). |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 288 | | | | Consolidated financial statements of Aegon N.V.Note 44 | | | | | | | | | | |
For reference purposes, the valuation techniques included in the table above are described in more detail on the following pages. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 282 | | Notes to the consolidated financial statements Note 47 | | | | | | |
Effect of changes in significant unobservable assumptions to reasonably possible alternatives From all significant unobservable inputs, own credit spread as included in the discount rate for embedded derivatives in insurance contracts is considered significant. It is estimated that changing the other significant unobservable inputs to reflect reasonable possible alternatives in valuation would have no significant impact for the Group. An increase in own credit spread results in lower valuation, while a decrease results in a higher valuation of the embedded derivatives. The table below presents the impact on a fair value measurement of a change in the own credit spread by 20 basis points included in the discount rate. | | | | December
31, 2018 | | | Effect of reasonably
possible alternative
assumptions (+/-) | | | December
31, 2017 | | | Effect of reasonably
possible alternative
assumptions (+/-) | | | December 31, 2019 | | Effect of reasonably possible alternative assumptions (+/-) | | | December 31, 2018 | | Effect of reasonably possible alternative assumptions (+/-) | | | | | | | Increase | | | Decrease | | | | | | Increase | | | Decrease | | | | | Increase | | Decrease | | | | Increase | | Decrease | | Financial liabilities carried at fair value | | | | | | | | | | | | | | | | | | | | | | | | | Embedded derivatives in insurance contracts | | | 2,484 | | | | 131 | | | | (126 | ) | | 1,831 | | | | 125 | | | | (120 | ) | | 3,072 | | 158 | | | (152 | ) | | 2,484 | | 131 | | | (126 | ) |
Fair value information about assets and liabilities not measured at fair value The following table presents the carrying values and estimated fair values of assets and liabilities, excluding assets and liabilities which are carried at fair value on a recurring basis. | | | | | | | | | | | | | | | | | | | | | | 2018 | | Carrying
amount
December
31, 2018 | | | Estimated fair value hierarchy | | | Total
estimated
fair value
December
31, 2018 | | | | | | | | Level I | | | Level II | | | Level III | | | | | Assets | | | | | | | | | | | | | | | | | | | | | Mortgage loans – held at amortized cost | | | 36,240 | | | | - | | | | 1 | | | | 39,757 | | | | 39,758 | | Private loans – held at amortized cost | | | 4,103 | | | | - | | | | 42 | | | | 4,452 | | | | 4,494 | | Other loans – held at amortized cost | | | 2,310 | | | | 13 | | | | 2,064 | | | | 233 | | | | 2,310 | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | Subordinated borrowings – held at amortized cost | | | 1,389 | | | | 1,355 | | | | - | | | | - | | | | 1,355 | | Trust pass-through securities – held at amortized cost | | | 133 | | | | - | | | | 128 | | | | - | | | | 128 | | Borrowings – held at amortized cost | | | 11,525 | | | | 1,570 | | | | 28 | | | | 10,287 | | | | 11,885 | | Investment contracts – held at amortized cost | | | 17,825 | | | | - | | | | - | | | | 18,028 | | | | 18,028 | | | | | | | 2017 | | Carrying
amount
December
31, 2017 | | | Estimated fair value hierarchy | | | Total
estimated
fair value
December
31, 2017 | | | | | | | | Level I | | | Level II | | | Level III | | | | | Assets | | | | | | | | | | | | | | | | | | | | | Mortgage loans – held at amortized cost | | | 33,562 | | | | - | | | | - | | | | 38,076 | | | | 38,076 | | Private loans – held at amortized cost | | | 3,642 | | | | - | | | | 64 | | | | 4,117 | | | | 4,181 | | Other loans – held at amortized cost | | | 2,164 | | | | 6 | | | | 1,991 | | | | 166 | | | | 2,164 | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | Subordinated borrowings – held at amortized cost | | | 764 | | | | 791 | | | | 162 | | | | - | | | | 953 | | Trust pass-through securities – held at amortized cost | | | 133 | | | | - | | | | 137 | | | | - | | | | 137 | | Borrowings – held at amortized cost | | | 13,099 | | | | 2,116 | | | | 28 | | | | 11,355 | | | | 13,499 | | Investment contracts – held at amortized cost | | | 16,665 | | | | - | | | | - | | | | 17,031 | | | | 17,031 | |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 283 | | Notes to the consolidated financial statements Note 47 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | 2019 | | Carrying amount December 31, 2019 | | | Estimated fair value hierarchy | | | Total estimated fair value December 31,
2019 | | | | | | | | Level I | | | Level II | | | Level III | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | | | | | Mortgage loans - held at amortized cost | | | 37,750 | | | | - | | | | 1 | | | | 42,566 | | | | 42,567 | | Private loans - held at amortized cost | | | 4,487 | | | | - | | | | 65 | | | | 5,094 | | | | 5,159 | | Other loans - held at amortized cost | | | 2,353 | | | | 45 | | | | 2,080 | | | | 228 | | | | 2,353 | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | Subordinated borrowings - held at amortized cost | | | 2,207 | | | | 1,560 | | | | 855 | | | | - | | | | 2,416 | | Trust pass-through securities - held at amortized cost | | | 136 | | | | - | | | | 144 | | | | - | | | | 144 | | Borrowings – held at amortized cost | | | 8,845 | | | | 1,728 | | | | 30 | | | | 7,565 | | | | 9,322 | | Investment contracts - held at amortized cost | | | 18,382 | | | | - | | | | - | | | | 18,964 | | | | 18,964 | | | | | | | 2018 | | Carrying amount December 31, 2018 | | | Estimated fair value hierarchy | | | Total estimated fair value December 31, 2018 | | | | | | | | Level I | | | Level II | | | Level III | | | | | | | | | | | Assets | | | | | | | | | | | | | | | | | | | | | Mortgage loans - held at amortized cost | | | 36,240 | | | | - | | | | 1 | | | | 39,757 | | | | 39,758 | | Private loans - held at amortized cost | | | 4,103 | | | | - | | | | 42 | | | | 4,452 | | | | 4,494 | | Other loans - held at amortized cost | | | 2,310 | | | | 13 | | | | 2,064 | | | | 233 | | | | 2,310 | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | | | | | Subordinated borrowings - held at amortized cost | | | 1,389 | | | | 1,355 | | | | - | | | | - | | | | 1,355 | | Trust pass-through securities - held at amortized cost | | | 133 | | | | - | | | | 128 | | | | - | | | | 128 | | Borrowings – held at amortized cost | | | 11,525 | | | | 1,570 | | | | 28 | | | | 10,287 | | | | 11,885 | | Investment contracts - held at amortized cost | | | 17,825 | | | | - | | | | - | | | | 18,028 | | | | 18,028 | |
Certain financial instruments that are not carried at fair value are carried at amounts that approximate fair value, due to their short-term nature and generally negligible credit risk. These instruments include cash and cash equivalents, short-term receivables and accrued interest receivable, short-term liabilities, and accrued liabilities. These instruments are not included in the table above. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 289 | | | | Consolidated financial statements of Aegon N.V.Note 44 | | | | | | | | | | |
Fair value measurement The description of Aegon’s methods of determining fair value and the valuation techniques are described on the following pages. Shares When available, Aegon uses quoted market prices in active markets to determine the fair value of its investments in shares. For Level III unquoted shares, the net asset value can be considered the best approximation to the fair value. Net asset value is the value of an entity’s assets minus the value of its liabilities and may be the same as the book value or the equity value of the entity. Also for unquoted shares, the fair value may be estimated using other methods, such as observations of the price/earnings or price/ cash flow ratios of quoted companies considered comparable to the companies being valued. Valuations are adjusted to account for company-specific issues and the lack of liquidity inherent in an unquoted investment. Adjustments for lack of liquidity are generally based on available market evidence. In addition, a variety of other factors are reviewed by management, including, but not limited to, current operating performance, changes in market outlook and the third-party financing environment. Available-for-sale shares include shares in a Federal Home Loan Bank (FHLB) for an amount of EUR 17691 million (2017: (2018: EUR 204176 million), which are reported as part of the line-item Net asset value. A FHLB has implicit financial support from the United States government. The redemption value of the shares is fixed at par and they can only be redeemed by the FHLB. Debt securities The fair values of debt securities are determined by management after taking into consideration several sources of data. When available, Aegon uses quoted market prices in active markets to determine the fair value of its debt securities. As stated previously, 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 which arenon-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. When broker quotes are not available, 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, issue specific credit adjustments, indicative quotes from market makers and/or estimated cash flows. To understand the valuation methodologies used by third-party pricing services Aegon reviews and monitors the applicable methodology documents of the third-party pricing services. Any changes to their methodologies are noted and reviewed for reasonableness. In addition, Aegon performsin-depth reviews of prices received from third-party pricing services on a sample basis. The objective for such reviews is to demonstrate that Aegon can corroborate detailed information such as assumptions, inputs and methodologies used in pricing individual securities against documented pricing methodologies. Only third-party pricing services and brokers with a substantial presence in the market and with appropriate experience and expertise are used. Third-party pricing services will often determine prices using recently reported trades for identical or similar securities. The third-party pricing service makes adjustments for the elapsed time from the trade date to the reporting date to take into account available market information. Lacking recently reported trades, third-party pricing services and brokers will use modeling techniques to determine a security price where expected future cash flows are developed based on the performance of the underlying collateral and discounted using an estimated market rate. Periodically, Aegon performs an analysis of the inputs obtained from third-party pricing services and brokers to ensure that the inputs are reasonable and produce a reasonable estimate of fair value. Aegon’s asset specialists and investment valuation specialists consider both qualitative and quantitative factors as part of this analysis. Several examples of analytical procedures performed include, but are not limited to, recent transactional activity for similar debt securities, review of pricing statistics and trends and consideration of recent relevant market events. Other controls and procedures over pricing received from indices, third-party pricing services, or brokers include validation checks such as exception reports which highlight significant price changes, stale prices or unpriced securities. Additionally, Aegon performs back testing on a sample basis. Back testing involves selecting a sample of securities trades and comparing the prices in those transactions to prices used for financial reporting. Significant variances between the price used for financial reporting and the transaction price are investigated to explain the cause of the difference. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 284 | | Notes to the consolidated financial statements Note 47 | | | | | | |
Credit ratings are also 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. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 290 | | | | Consolidated financial statements of Aegon N.V.Note 44 | | | | | | | | | | |
Aegon’s portfolio of private placement securities (held at fair value under the classification ofavailable-for-sale or fair value through profit or loss) is valued using a matrix pricing methodology. The pricing matrix is obtained from a third-party service provider and indicates current spreads for securities based on weighted average life, credit rating, and industry sector. Each month, Aegon’s asset specialists review the matrix to ensure the spreads are reasonable by comparing them to observed spreads for similar bonds traded in the market. Other inputs to the valuation include coupon rate, the current interest rate curve used for discounting and a liquidity premium to account for the illiquid nature of these securities. The liquidity premiums are determined based upon the pricing of recent transactions in the private placements market; comparing the value of the privately offered security to a similar public security. The impact of the liquidity premium for private placement securities to the overall valuation is insignificant. Aegon’s portfolio of debt securities can be subdivided ininto Residential mortgage-backed securities (RMBS), Commercial mortgage-backed securities (CMBS), Asset-backed securities (ABS), Corporate bonds and Government debt. Below relevant details inof the valuation methodologymethodologies for these specific types of debt securities are described. Residential mortgage-backed securities, commercial mortgage-backed securities and asset-backed securities Valuations of RMBS, CMBS and ABS are monitored and reviewed on a monthly basis. Valuations per asset type are based on a pricing hierarchy which uses a waterfall approach that starts with market prices from indices and follows with third-party pricing services or brokers. The pricing hierarchy is dependent on the possibilities of corroboration of the market prices. If no market prices are available, Aegon uses internal models to determine fair value. Significant inputs included in the internal models are generally determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles. Market standard models may be used to model the specific collateral composition and cash flow structure of each transaction. The most significant unobservable input is liquidity premium which is embedded in the discount rate. Corporate bonds 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 increaseddecreased to 3.4%2.5% (December 31, 2017: 2.6%2018: 3.4%). Government debt When available, Aegon uses quoted market prices in active markets to determine the fair value of its government debt investments. When Aegon cannot make use of quoted market prices, market prices from indices or quotes from third-party pricing services or brokers are used. Money market and other short-term investments and deposits with financial institutions The fair value of assets maturing within a year is assumed to be approximated by their carrying amount adjusted for credit risk where appropriate. Credit risk adjustments are based on market observable credit spreads if available, or management’s estimate if not market observable. Tax credit investments The Level III fair value of tax credit investments is determined by using a discounted cash flow valuation technique. This valuation technique takes into consideration projections of future capital contributions and distributions, as well as future tax credits and the tax benefits of future operating losses. The present value of these cash flows is calculated by applying a discount rate. In general, the discount rate is determined based on the cash outflows for the investments and the cash inflows from the tax credits and/or tax benefits (and the timing of these cash flows). These inputs are unobservable in the market place. The discount rate used in valuation of tax credit investments has increaseddecreased to 6.8%6.5% (December 31, 2017: 5.8%2018: 6.8%). Investment funds: Real estate funds, private equity funds and hedge funds The fair values of investments held innon-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 | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 285 | | Notes to the consolidated financial statements Note 47 | | | | | | |
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 Annual Report on Form 20-F2019 | | |
| | | | | | | | | 291 | | | | Consolidated financial statements of Aegon N.V.Note 44 | | | | | | | | | | |
Mortgage loans, policy loans and private loans(held at amortized cost) For private loans, fixed interest mortgage loans and other loans originated by the Group, the fair value used for disclosure purposes is estimated by discounting expected future cash flows using a current market rate applicable to financial instruments with similar yield and maturity characteristics. For fixed interest mortgage loans, the market rate is adjusted for expenses, prepayment rates, lapse assumptions (unobservable inputs), liquidity and credit risk (market observable inputs). An increase in expense spread, prepayment rates and/or prepayment assumptions, would decrease the fair value of the mortgage loan portfolio. The fair value of floating interest rate mortgage loans, policy loans and private placements used for disclosure purposes is assumed to be approximated by their carrying amount, adjusted for changes in credit risk. Credit risk adjustments are based on market observable credit spreads if available, or management’s estimate if not market observable. Derivatives Where quoted market prices are not available, other valuation techniques, such as option pricing or stochastic modeling, are applied. The valuation techniques incorporate all factors that a typical market participant would consider and are based on observable market data when available. Models are validated before they are used and calibrated to ensure that outputs reflect actual experience and comparable market prices. Fair values for exchange-traded derivatives, principally futures and certain options, are based on quoted market prices in active markets. Fair values forover-the-counter (OTC) derivative financial instruments represent amounts estimated to be received from or paid to a third party in settlement of these instruments. These derivatives are valued using pricing models based on the net present value of estimated future cash flows, directly observed prices from exchange-traded derivatives, other OTC trades, or external pricing services. Most valuations are derived from swap and volatility matrices, which are constructed for applicable indices and currencies using current market data from many industry standard sources. Option pricing is based on industry standard valuation models and current market levels, where applicable. The pricing of complex or illiquid instruments is based on internal models or an independent third party. For long-dated illiquid contracts, extrapolation methods are applied to observed market data in order to estimate inputs and assumptions that are not directly observable. To value OTC derivatives, management uses observed market information, other trades in the market and dealer prices. Some OTC derivatives areso-called longevity derivatives. The payout of longevity derivatives is linked to publicly available mortality tables. The derivatives are measured using the present value of the best estimate of expected payouts of the derivative plus a risk margin. The best estimate of expected payouts is determined using best estimate of mortality developments. Aegon determined the risk margin by stressing the best estimate mortality developments to quantify the risk and applying acost-of-capital methodology. Depending on the duration of the longevity swaps either the projected mortality development or discount rate are the most significant unobservable inputs. Aegon normally mitigates counterparty credit risk in derivative contracts by entering into collateral agreements where practical and in ISDA master netting agreements for each of the Group’s legal entities to facilitate Aegon’s right to offset credit risk exposure. Changes in the fair value of derivatives attributable to changes in counterparty credit risk were not significant. Embedded derivatives in insurance contracts including guarantees Bifurcated guarantees for minimum benefits in insurance and investment contracts are carried at fair value. These guarantees include Guaranteed minimum withdrawal benefits (GMWB) in the United States and United Kingdom which are offered on some variable annuity products and are also assumed from a ceding company; minimum investment return guarantees on insurance products offered in the Netherlands, including group pension and traditional products; variable annuities sold in Europe. Additionally, Aegon offers guarantees on variable annuities sold through its joint venture in Japan. Since the price of these guarantees is not quoted in any market, the fair values of these guarantees are based on discounted cash flows 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 complexity and long-term nature of these guarantees which are unlike instruments available in financial markets, their fair values are determined by using stochastic models under a variety of market return scenarios. A variety of factors are considered, including own credit spread, expected market rates of return, equity and interest rate volatility, correlations of market returns, discount rates and actuarial assumptions. The most significant unobservable factor is own credit spread. The weighted average own credit spread used in the valuations of embedded derivatives in insurance contracts increaseddecreased to 0.2% (2018: 0.3% (2017: 0.2%). | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 286292 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4744 | | | | | | | | | | | | |
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 company level (who have priority in payments over other creditors). Aegon’s assumptions are set by region to reflect differences in the valuation of the guarantee embedded in the insurance contracts. Aegon extrapolates yield curves beyond market observable maturities. The discount rates converge linearly in 10 years to an Ultimate Forward Rate of 3.65% in the Netherlands and 4.25% in the US from the last liquid point. The uniform last liquid point for all Aegon’s major currencies (EUR, USD and GBP) is set at 30 years. Since many of the assumptions are unobservable and are considered to be significant inputs to the liability valuation, the liability included in future policy benefits has been reflected within Level III of the fair value hierarchy. Refer to note 3836 Guarantees in insurance contracts for more details about Aegon’s guarantees. Real estate Valuations of Level III investments in real estate and real estate held for own use are conducted in full by independent external appraisers at least every three to five years and reviewed at least once a year by qualified internal appraisers to ensure the value correctly reflects the fair value at the reporting date. Appraisals are different for each specific local market, but are based on market guidelines such as International Valuation Standards, Uniform Standards of Professional Appraisal Practice or guidelines issued by the Investment Property Databank. Valuations are mostly based on active market prices, adjusted for any difference in the nature, location or condition of the specific property. If such information is not available, other valuation methods are applied, considering the value that the property’s net earning power will support, the value indicated by recent sales of comparable properties and the current cost of reproducing or replacing the property. Discount rates used in the valuation of real estate reflect the risk embedded in the projected cash flows for the asset being valued. Capitalization rates represent the income rate for a real estate property that reflects the relationship between a single year’s net operating income expectancy and the total property price or value. For property held for own use, appraisers consider the present value of the future rental income cash flows that could be achieved had the real estate been rented to a third party. Trust pass-through securities and subordinated borrowings Trust pass-through securities and subordinated borrowings are either carried at fair value (if they are designated as financial liabilities at fair value through profit or loss) or amortized cost (with fair value being disclosed in the notes to the consolidated financial statements). For the determination of the fair value of these instruments, the level hierarchy as described by IFRS is used. The preferred method of obtaining the fair value of the fair value option bonds is the quoted price (Level I). In case markets are less liquid or the quoted prices are not available, an internal model is used, based on parameters which are market observable (Level II). Aegon uses a discounted cash flow method including yield curves such as deposit rates, floating rates and3-month swap rates. In addition, Aegon includes own credit spread based on Aegon’s credit default swap curve. Investment contracts Investment contracts issued by Aegon are either carried at fair value (if they are designated as financial liabilities at fair value through profit or loss) or amortized cost (with fair value being disclosed in the notes to the consolidated financial statements). These contracts are not quoted in active markets and their fair values are determined by using valuation techniques, such as discounted cash flow methods and stochastic modeling or in relation to the unit price of the underlying assets. All models are validated and calibrated. A variety of factors are considered, including time value, volatility, policyholder behavior, servicing costs and fair values of similar instruments. Similar to embedded derivatives in insurance contracts, certain investment products are not quoted in active markets and their fair values are determined by using valuation techniques. Because of the dynamic and complex nature of these cash flows, stochastic or similar techniques under a variety of market return scenarios are often used. A variety of factors are considered, including expected market rates of return, market volatility, correlations of market returns, discount rates and actuarial assumptions. The expected returns are based on risk-free rates, such as the current London Interbank Offered Rate (LIBOR) swap rates and associated forward rates, the Overnight Index Swap (OIS) curve or the current rates on local government bonds. Market volatility assumptions for each underlying index are based on observed market implied volatility data and/or observed market performance. Correlations of market returns for various underlying indices are based on observed market returns and their inter-relationships over a number of years preceding the valuation date. Current risk-free spot rates are used to determine the present value of expected future cash flows produced in the stochastic projection process. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 287293 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4744 | | | | | | | | | | | | |
Assumptions on customer behavior, such as lapses, included in the models are derived in the same way as the assumptions used to measure insurance liabilities. Summary of total financial assets and financial liabilities at fair value through profit or loss The table that follows summarizes the carrying amounts of financial assets and financial liabilities that are classified as at fair value through profit or loss, with appropriate distinction between those financial assets and financial liabilities held for trading and those that, upon initial recognition, were designated as at fair value through profit or loss. | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | | | Trading | | | Designated | | | Trading | | | Designated | | | Trading | | | Designated | | Trading | | | Designated | | Investments for general account | | | 174 | | | | 8,424 | | | | 78 | | | | 7,042 | | | | 277 | | | | 8,803 | | | | 174 | | | | 8,424 | | Investments for account of policyholders | | | - | | | | 193,741 | | | | - | | | | 193,409 | | | | - | | | | 225,788 | | | | - | | | | 193,741 | | Derivatives with positive values not designated as hedges | | | 7,181 | | | | - | | | | 5,430 | | | | - | | | | 10,634 | | | | - | | | | 7,181 | | | | - | | Total financial assets at fair value through profit or loss | | | 7,355 | | | | 202,165 | | | | 5,508 | | | | 200,451 | | | | 10,910 | | | | 234,591 | | | | 7,355 | | | | 202,165 | | | Investment contracts for account of policyholders | | | - | | | | 49,847 | | | | - | | | | 37,169 | | | | - | | | | 59,956 | | | | - | | | | 49,847 | | Derivatives with negative values not designated as hedges | | | 6,935 | | | | - | | | | 6,792 | | | | - | | | | 11,175 | | | | - | | | | 6,935 | | | | - | | Borrowings | | | - | | | | 536 | | | | - | | | | 536 | | | | - | | | | 461 | | | | - | | | | 536 | | Total financial liabilities at fair value through profit or loss | | | 6,935 | | | | 50,383 | | | | 6,792 | | | | 37,705 | | | | 11,175 | | | | 60,417 | | | | 6,935 | | | | 50,383 | |
Investments for general account The Group manages certain portfolios on a total return basis which have been designated at fair value through profit or loss. This includes portfolios of investments in limited partnerships and limited liability companies (primarily hedge funds) for which the performance is assessed internally on a total return basis. In addition, some investments that include an embedded derivative that would otherwise have required bifurcation, such as convertible instruments, preferred shares and credit linked notes, have been designated at fair value through profit or loss. Investments for general account backingAegon has certain insurance and investment liabilities that are carried at fair value with changes in the fair value recognized in the income statement, are designated at fair value through profit or loss.statement. The Group has elected to designate thesethe investments backing those liabilities at fair value through profit or loss, as a classification of financial assets asavailable-for-sale would result in accumulation of unrealized gains and losses in a revaluation reserve within equity whilewhilst changes to the liability would be reflected in net income (accounting mismatch).
Investments for account of policyholders Investments held for account of policyholders comprise assets that are linked to various insurance and investment contracts for which the financial risks are borne by the customer. Under the Group’s accounting policies these insurance and investment liabilities are measured at the fair value of the linked assets with changes in the fair value recognized in the income statement. To avoid an accounting mismatch the linked assets have been designated as at fair value through profit or loss. In addition, the investment for account of policyholders include with profit assets, where an insurer manages these assets together with related liabilities on a fair value basis in accordance with a documented policy of asset and liability management. In accordance with the Group’s accounting policies, these assets have been designated as at fair value through profit or loss. Investment contracts for account of policyholders With the exception of the financial liabilities with discretionary participating features that are not subject to the classification and measurement requirements for financial instruments, all investment contracts for account of policyholders that are carried at fair value or at the fair value of the linked assets are included in the table above. Derivatives With the exception of derivatives designated as a hedging instrument, all derivatives held for general account and held for account of policyholders are included in the table above. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 288 | | Notes to the consolidated financial statements Note 48 | | | | | | |
Borrowings Borrowings designated as at fair value through profit or loss includes financial instruments that are managed on a fair value basis together with related financial assets and financial derivatives (refer to note 3937 Borrowings). | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 294 | | | | Consolidated financial statements of Aegon N.V.Note 45 | | | | | | | | | | |
Gains and losses on financial assets and financial liabilities classified at fair value through profit or loss Gains and losses recognized in the income statement on financial assets and financial liabilities classified as at fair value through profit or loss can be summarized as follows: | | | | | | | | | | | | | | | | | | | | 2018 | | | 2017 | | | | | Trading | | | Designated | | | Trading | | | Designated | | Net gains and (losses) | | | (4,584 | ) | | | (7,356 | ) | | | 13,924 | | | | 5,679 | |
| | | | | | | | | | | | 2019 | | 2018 | | | | Trading | | Designated | | Trading | | Designated | Net gains and (losses) | | 21,020 | | 13,574 | | (4,584) | | (7,356) |
No loans and receivables were designated at fair value through profit or loss. Changes in the fair value of investment contracts for account of policyholders designated at fair value through profit or loss were not attributable to changes in Aegon’s credit spread. There are also no differences between the carrying amounts of these financial liabilities and the contractual amounts payable at maturity (net of surrender penalties). Refer to note 3937 Borrowings for the impact of Aegon’s own credit spread on the fair value of the borrowings designated at fair value through profit or loss. 4845 Commitments and contingencies
Investments contracted In the normal course of business, the Group has committed itself through purchase and sale transactions of investments, mostly to be executed in the course of 2019.2020. The amounts represent the future outflow and inflow, respectively, of cash related to these investment transactions that are not reflected in the consolidated statement of financial position. | | | | 2018 | | | 2017 | | | 2019 | | 2018 | | | | Purchase | | | Sale | | | Purchase | | | Sale | | | Purchase | | Sale | | Purchase | | Sale | Real estate | | | 156 | | | | 66 | | | | 196 | | | | 39 | | | 168 | | 3 | | 156 | | 66 | Mortgage loans | | | 3,187 | | | | 67 | | | | 3,152 | | | | 69 | | | 859 | | 79 | | 3,187 | | 67 | Private loans | | | 1,224 | | | | - | | | | 705 | | | | - | | | 394 | | - | | 1,224 | | - | Other | | | 2,222 | | | | - | | | | 2,373 | | | | - | | | 1,824 | | - | | 2,222 | | - |
Aegon has commitedcommitted itself, through certain subsidiaries, to invest in real estate, private loans, mortgage loans and receivables and investment funds. Real estate commitments represent the committed pipeline of investments in real estate projects. The sale of real estate relates to properties that are under contract to be sold as per December 31, 2018.2019. Mortgage loans commitments represent undrawn mortgage loan facility provided and outstanding proposals on mortgages. The sale of mortgage loans relates topre-announced redemptions on mortgage loans. Private loans represents deals on Aegon’s portfolio of private placement securities that Aegon has committed to, but have not yet settled and funded. Other commitments include future purchases of interests in investment funds and limited partnerships. Future lease payments | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2018 | | | | | | 2017 | | | | | | Future lease payments | | Not later
than 1 year | | | 1-5 years | | | Later than 5
years | | | Not later
than 1 year | | | 1-5 years | | | Later than 5
years | | Operating lease obligations | | | 73 | | | | 144 | | | | 169 | | | | 74 | | | | 143 | | | | 201 | | Operating lease rights | | | 50 | | | | 127 | | | | 52 | | | | 53 | | | | 136 | | | | 58 | |
The operating lease obligations relate mainly to office space leased from third parties.
| | | | | | | | | | | | | | | | < 1 year amounts | | 1 < 2 years amounts | | 2 < 3 years
amounts | | 3 < 4 years
amounts | | 4 < 5 years amounts | | > 5 years amounts | 2019 | | | | | | | | | | | | | Operating lease rights | | 49 | | 42 | | 32 | | 26 | | 19 | | 47 | | | | | | | | | | | < 1 year
amounts | | 1 - 5 years
amounts | | > 5 years
amounts | | | | | | | | 2018 | | | | | | | | | | | | | | | | | | | | Operating lease obligations | | 73 | | 144 | | 169 | | | | | | | Operating lease rights | | 50 | | 127 | | 52 | | | | | | |
The operating lease rights relate tonon-cancellable commercial property leases. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 289295 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 4845 | | | | | | | | | | | | |
Other commitments and contingencies | | | | | 2018 | | | | 2017 | | | 2019 | | 2018 | | Guarantees | | | 437 | | | | 483 | | | | 380 | | | | 437 | | Standby letters of credit | | | 12 | | | | 12 | | | | 12 | | | | 12 | | Share of contingent liabilities incurred in relation to interests in joint ventures | | | 49 | | | | 39 | | | | 14 | | | | 49 | | Other guarantees | | | 14 | | | | 16 | | | | 13 | | | | 14 | | Other commitments and contingent liabilities | | | 7 | | | | 32 | | | | 7 | | | | 7 | |
Guarantees include those guarantees associated with the sale of investments inlow-income housing tax credit partnerships in the United States.States, which mostly can be called upon immediately. Standby letters of credit amounts reflected above are the liquidity commitment notional amounts. In addition to the guarantees shown in the table, guarantees have been given for fulfillment of contractual obligations such as investment mandates related to investment funds. Contractual obligations In March 2019, affiliates of Transamerica Corporation entered into a series of agreements with Long Term Care Group (LTCG), an independent third party administrator, to transfer the administration and claims management of its long term care insurance business line. The transaction enables Transamerica to accelerate the enhancement of its digital capabilities and the modernization of its long term care insurance platform. Over the course of the multi-year contract, Transamerica will pay approximately USD 390 million to LTCG. These fees represents compensation for administering Transamerica’s long term care product line including new business, policyholder service, claims processing and care management. The agreement also contains a termination clause in which case Transamerica – subject to certain limitations – agrees to compensate LTCG, on a specified schedule, for early termination. In April 2018, affiliates of Transamerica Corporation entered into a series of agreements with affiliates of Tata Consultancy Services Limited (‘TCS’) to administer the Company’s US life insurance, voluntary benefits, and annuity business lines. The collaboration enables Transamerica to accelerate the enhancement of its digital capabilities and the modernization of its platforms to service its customers in all lines of business. Over the course of the multi-year contract, Transamerica will pay more than USD 2 billion to TCS. These revenuesfees represent compensation for administering Transamerica’s over 10 million policies and are driven by both new business and policies already in force. In addition, this commitment includes remaining transition and conversion charges of approximately USD 100107 million (period 2019 – 2022)2020-2022) as well as administrative, IT and finance service fees which are contingent on TCS meeting specified milestones in the underlying agreement with Transamerica. The agreement also contains a termination clause in which case Transamerica – subject to certain limitations – agrees to compensate TCS, on a specified schedule, for early termination. Transamerica Corporation, a wholly-owned subsidiary of Aegon N.V., has providedpreviously had a parental guarantee to TLIC Riverwood Reinsurance, Inc. (TRRI), an affiliated captive reinsurer, for the cash payments required fulfilling reinsurance payments to Transamerica Life Insurance Company, to the extent that the assets in the captive (TRRI) are not sufficient to cover reinsurance obligations. As of December 31, 2018, this amounted to EUR 1,892 million (2017 EUR: 1,793 million). In 2019, the parental guarantee was cancelled resulting in a EUR 0 balance. In November 2018, Aegon UK entered intoannounced an agreementextended partnership with Atos BPS Ltd (Atos) to service and administer its Existing Business(non-Platform customers). This collaboration builds on the relationship we already have with Atos for our award-winning Protection business and is expected to be effective as ofmid-2019.The agreement is a15-year contract under which Aegon UK will paypays Atos to administer around 1.4 million customers, with payments driven by the volume of policies being administered. which took effect on 1 June 2019 as planned. At end 2018,year-end 2019, outstanding transition and conversion charges are estimated to amount to approximately GBP 10860 million, which are expected to be recorded over the next threetwo years, with fixed payments to Atos defined in the agreement and subject to completion of milestones which have been agreed with Aegon UK. On October 31, 2017 Aegon the Netherlands sold its shares in Unirobe Meeùs Groep (UMG) for EUR 295 million to Aon Groep Nederland. Under the share purchase agreement between Aegon Nederland and the buyer, Aegon the Netherlands indemnifies and holds the buyer and its group (including UMG) harmless for and against any damage suffered or incurred which is the result of the Unit Linked Insurances Claims until 2027 with respect to Unit Linked Policies in the portfolio of UMG prior to 1 January 2017. The aggregate liability for Aegon the Netherlands is maximized at an amount equal to the purchase price. An Aegon N.V. indirect US life subsidiary has a net worth maintenance agreement with its subsidiary Transamerica Life (Bermuda) Ltd, pursuant to which Transamerica Life Insurance Company, a US life insurance subsidiary, will provide capital sufficient to maintain a S&P ‘AA’ financial strength rating and capital sufficient to comply with the requirements of the countries in which its branches are located. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 296 | | | | Consolidated financial statements of Aegon N.V.Note 45 | | | | | | | | | | |
Aegon N.V. has guaranteed and is severally liable for the following: | ◆ | | Due and punctual payment of payables due under letter of credit agreements applied for by Aegon N.V. asco-applicant with its captive insurance companies that are subsidiaries of Transamerica Corporation and Commonwealth General Corporation. At December 31, 2018,2019, the letter of credit arrangements utilized by captives to provide collateral to affiliates amounted to EUR 3,4692,249 million (2017:(2018: EUR 3,0253,469 million); as of that date no amounts had been drawn, or were due under these facilities. Other letter of credit arrangements for subsidiaries amounted to EUR 6010 million (2017:(2018: EUR 5560 million); as of that date no amounts had been drawn, or were due under these facilities; |
| ◆ | | Due and punctual payment of payables due under letter of credit agreements or guarantees provided for subsidiaries of Transamerica Corporation at December 31, 20182019 amounted to EUR 3,1641,666 million (2017:(2018: EUR 3,0793,164 million). As of that date no amounts had been drawn, or were due under letter of credit facilities. The guarantees partly related to debt amounted to EUR 1,388 million (2017: EUR 1,322 million) and is included in the Operational funding table in note 39 Borrowings of the consolidated financial statements of the Group in the line ‘USD 1.54 billion Variable Funding Surplus Note’; |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 290 | | Notes to the consolidated financial statements Note 48 | | | | | | |
| ◆ | | Due and punctual payment of payables by the consolidated group companies Transamerica Corporation, Aegon Funding Company LLC and Commonwealth General Corporation with respect to fixed subordinated notes, bonds, capital trust pass-through securities and notes issued under commercial paper programs amountedamounting to EUR 6141,449 million (2017:(2018: EUR 585614 million); and |
| ◆ | | Due and punctual payment of any amounts owed to third parties by the consolidated group company Aegon Derivatives N.V. in connection with derivative transactions. Aegon Derivatives N.V. only enters into derivative transactions with counterparties with which ISDA master netting agreements, including collateral support annex agreements, have been agreed. Net (credit) exposure on derivative transactions with these counterparties was therefore limited as of December 31, 2018.2019. |
Legal and arbitration proceedings, regulatory investigations and actions Aegon faces significant risks of litigation as well as regulatory investigations and actions relating to its and its subsidiaries’ insurance, pensions, retirement administration, securities, investment management, investment advisory and annuities businesses as well as Aegon’s corporate compliance, including compliance with employment, sanctions, anti-corruption and tax regulations. Aegon subsidiaries regularly receive inquiries from local regulators and policyholder advocates in various jurisdictions, including the United States, the Netherlands, Poland and the United Kingdom. In some cases, Aegon subsidiaries have modified business practices in response to inquiries or findings of inquiries. Regulators may seek fines or penalties, or changes to the way Aegon operates. Due to the geographic spread of its business, Aegon Group may be subject to tax audits or litigation in various jurisdictions. Although uncertainties are provided for adequately in the tax position, the ultimate outcome of the tax audits of litigation may result in an outcome that differs from the amounts provided for. Insurance companies and their affiliated regulated entities are routinely subject to 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, product fees and costs, including transparency and adequacy of disclosure of initial costs, ongoing costs, and costs due on policy surrender as well as changes to costs over time; employment or distribution relationships; operational and internal controls and processes; environmental matters; competition and antitrust matters; data privacy; information security; intellectual property; and anti-money laundering, anti-bribery and economic sanctions compliance. Government and regulatory investigations may result in the institution of administrative, injunctive or other proceedings and/or the imposition of monetary fines, penalties and/or disgorgement as well as other remedies, sanctions, damages and restitutionary amounts. There can be no assurance that government and regulatory investigations will not have a material and adverse effect on Aegon’s reputation, financial position, results of operations or liquidity. Many of Aegon’s products are affected by fluctuations in equity markets as well as interest rate movements, which may prove to be volatile or disappointing to customers. Significant investment risks are often borne by the customer. Disputes and investigations initiated by governmental entities and private parties may lead to orders or settlements including payments or changes to business practices even if Aegon believes the underlying claims are without merit. The existence of potential claims may remain unknown for long periods of time after the events giving rise to such claims. Determining the likelihood of exposure to Aegon and the extent of any such exposure may not be possible for long periods of time after Aegon becomes aware of such potential claims. Once litigation is initiated, it may be protracted and subject to multiple levels of appeal. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 297 | | | | Consolidated financial statements of Aegon N.V.Note 45 | | | | | | | | | | |
Aegon cannot predict the effect of litigation, investigations or other actions on its businesses or the insurance industry. In some jurisdictions, plaintiffs may seek recovery of very large or indeterminate amounts under claims of bad faith, resulting in punitive or treble damages. Damages alleged may not be quantifiable or supportable, or may have no relationship to economic losses or final awards. Separate from financial loss, litigation, regulatory action, legislative changes or changes in public opinion may require Aegon to change its business practices, which could have a material adverse impact on Aegon’s businesses, results of operations, cash flows and financial position. Aegon has defended and will continue to defend itself 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. Proceedings in which Aegon is involved Several US insurers, including Aegon subsidiaries, have been named in class actions as well as individual litigation relating to increases in monthly deduction rates (‘‘MDR’’) on universal life products. Plaintiffs generally allege that the increases were made to recoup past losses rather than to cover the future costs of providing insurance coverage. In one such class action against Aegon’s subsidiary pending in the US federal district court for the Central District of California, the parties agreed to settle the case which resulted in a net charge to the income statement for 2018 of USD 166 million. In January 2019, a court approved the aforementioned settlement. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 291 | | Notes to the consolidated financial statements Note 48 | | | | | | |
Over 99% of affected policyholders participated in the settlement. While less than 1% of policyholders opted out, they represent approximately 43% of the value of the settlement fund. The settlement fund was reduced proportionally for opt outs, although Aegon continues to hold a provision for these policyholders. Resolution of this class action is expected to endended a number of other related cases, including several other class actions. At this time it is impracticable for Aegon to quantify a range or maximum liability or the timing of the financial impact, if any, of the remaining MDR increase related litigation, as the potential financial impacts are dependent both on the outcomes of court proceedings and future developments in financial markets and mortality. If decided adversely to Aegon, these claims could have a material adverse effect on Aegon’s business, results of operations, and financial position. Unclaimed property administrators and state insurance regulators performed examinations and multi-state examinations of the life insurance industry in the United States, including certain of Aegon’s subsidiaries. Aegon subsidiaries, like other major US insurers, entered into resolutions with state treasurers and insurance regulators regarding unclaimed property and claims settlement practices. As of 2018,December 2019, there wasremained a provision of USD 3125 million for unclaimed property obligations, which is management’s best estimate of the still-outstanding exposure. The final amount may vary based on subsequent regulatory review. Aegon’sUS-based subsidiaries may face employment-related lawsuits from time to time. For example, severalUS-based Aegon subsidiaries have been named in two purporteda class actionsaction alleging that the business model inappropriately characterizes distributors as independent contractors instead of employees. Depending on the outcome, these lawsuits, along with similar claims against other companies, as well as regulatory action could necessitate a change in the distribution model and could result in significant settlements or judgments. A former subsidiary of Transamerica Corporation was involved in a contractual dispute with a Nigerian travel broker that arose in 1976. That dispute was resolved in Delaware court for USD 235 thousand plus interest in 2010. The plaintiff took the Delaware judgment relating to the 1976 dispute to a Nigerian court and alleged that it was entitled to approximately the same damages for 1977 through 1984 despite the absence of any contract relating to those years. The Nigerian trial court issued a judgment in favor of the plaintiff of the alleged actual damages as well aspre-judgment interest of approximately USD 120 million. On appeal this decision was reversed on procedural grounds and remanded back to the trial court which ruled to dismiss the case; however, at this time the casePlaintiff appealed the trial court’s ruling. The appeal is still subject to appeal.pending. Aegon has no material assets located in Nigeria. 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. Aegon faces a significant number of these cases. For reasons of commercial necessity as well as at the instigation of the regulatory authorities, Aegon decided to modify the fee structure. As of 2018,2019, a provision of EUR 1714 million remains, which represents management’s best estimate of the exposure. The final amount may vary based on regulatory developments and the outcome of litigation. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 298 | | | | Consolidated financial statements of Aegon N.V.Note 46 | | | | | | | | | | |
In the Netherlands, unit linked products (‘beleggingsverzekeringen’) have been controversial and the target of litigation since at least 2005. Allegations include excessive cost, unfair terms, 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 has made improvements across its product lines, including after settlements reached in 2009 with Stichting Woekerpolis and Stichting Verliespolis. In 2013 Aegon took a charge of EUR 25 million after the Dutch Supreme Court ruled adversely in litigation concerning premium amounts charged in the KoersPlan product. Some of the unit linked products are still involved in ongoing litigation. In September 2014, consumer interest group Vereniging Woekerpolis.nl filed a claim against Aegon in court. The claim related to a range of unit linked products that Aegon sold in the past, including Aegon products involved in the earlier litigation. The claim challenges a variety of elements of these products, on multiple legal grounds, including allegations made previously. In June 2017, the court issued a verdict which upheld the principle that disclosures must be evaluated according to the standards at the time when the relevant products were placedin-force. Most of the claims of Vereniging Woekerpolis.nl were dismissed under this standard, although the court found that Aegon did not adequately disclose certain charges on a limited set of policies. The district court did not decide on the reasonableness of the cost levels and whether the previous compensation arrangements provide sufficient compensation. This court decision has been appealed by both parties. 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. At this time, Aegon is unable to estimate the range or potential maximum liability. There can be no assurances that these matters, in the aggregate, will not ultimately result in a material adverse effect on Aegon’s business, results of operations and financial position. Securities leasing products (‘aandelenlease producten’) have also been the subject of litigation in the Netherlands. Although sales of securities leasing products ended more than a decade ago, litigation relating to these products has resurfaced. In 2016, the Dutch Supreme Court ruled on a case involving a securities leasing product sold by one of Aegon’s competitors. It decided that the financial | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 292 | | Notes to the consolidated financial statements Note 49 | | | | | | |
institution was liable if a broker (‘remisier’) that advised on the sale of the institution’s products was not properly licensed. In July 2016, consumer interest group Platform Aandelenlease filed a claim against Aegon Bank regarding securities leasing product Sprintplan. Allegations include, among other things, a lack of a proper license of the brokers involved. In October 2017, the district court of The Hague ruled in favor of Aegon that the Sprintplan liability had been conclusively determined in earlier proceedings and there were no grounds to hold further collective proceedings. The plaintiff appealed. The case is now pending atIn February 2020, the courtCourt of Appeal rejected all claims filed by Platform Aandelenlease against Aegon Bank. Platform Aandelenlease may appeal of The Hague.in cassation against this ruling. In addition, Aegon is involved in claims for compensation and the cancellation or nullification of contracts concerning the Vliegwiel product, a variation on securities leasing products. Currently, proceedings are pending before the Dutch courts and the Complaint Institute for Financial Services (‘Klachteninstituut Financiële Dienstverlening’), with numerous cases having been initiated by Leaseproces B.V. At this time, Aegon is unable to estimate the range or potential maximum liability. 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. 4946 Transfers of financial assets
Transfers of financial assets occur when Aegon transfers contractual rights to receive cash flows of financial assets or when Aegon retains the contractual rights to receive the cash flows of the transferred financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients in that arrangement. In the normal course of business Aegon is involved in the following transactions: | ◆ | | Transferred financial assets that are not derecognized in their entirety: |
| | ◆ | | Securities lending; whereby Aegon legally (but not economically) transfers assets and receives cash andnon-cash collateral. The transferred assets are not derecognized. The obligation to repay the cash collateral is recognized as a liability. Thenon-cash collateral is not recognized in the statement of financial position; and |
| | ◆ | | Repurchase activities; whereby Aegon receives cash for the transferred assets. The financial assets are legally (but not economically) transferred, but are not derecognized. The obligation to repay the cash received is recognized as a liability. |
| ◆ | | Transferred financial assets that are derecognized in their entirety and Aegon does not have a continuing involvement (normal sale); |
| ◆ | | Transferred financial assets that are derecognized in their entirety, but where Aegon has a continuing involvement; |
| ◆ | | Collateral accepted in the case of securities lending, reverse repurchase agreement and derivative transactions; and |
| ◆ | | Collateral pledged in the case of (contingent) liabilities, repurchase agreements, securities borrowing and derivative transactions. |
The following disclosures provide details for transferred financial assets that are not derecognized in their entirety, transferred financial asset that are derecognized in their entirety, but where Aegon has a continuing involvement and assets accepted and pledged as collateral. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 299 | | | | Consolidated financial statements of Aegon N.V.Note 46 | | | | | | | | | | |
49.146.1 Transferred financial assets that have not been derecognized in their entirety
The following table reflects the carrying amount of financial assets that have been transferred to another party in such a way that part or all of the transferred financial assets do not qualify for derecognition. Furthermore, it reflects the carrying amounts of the associated liabilities. | | | | | | | | | | | | | | | | | | | | | 2018 | | | | | | Available-for-sale financial assets | | |
| Financial assets at fair value
through profit or loss |
| | | | | Shares | | | | Debt securities | | | | Debt securities | | |
| Investments for
account of policyholders |
| Carrying amount of transferred assets | | | 81 | | | | 3,310 | | | | 404 | | | | 249 | | Carrying amount of associated liabilities | | | 91 | | | | 3,396 | | | | 416 | | | | 69 | | | | | | | | 2017 | | | | | | Available-for-sale financial assets | | |
| Financial assets at fair value
through profit or loss |
| | | | | Shares | | | | Debt securities | | | | Debt securities | | |
| Investments for
account of
policyholders |
| Carrying amount of transferred assets | | | 114 | | | | 5,805 | | | | 54 | | | | 384 | | Carrying amount of associated liabilities | | | 122 | | | | 5,929 | | | | 55 | | | | 93 | |
| | | | | | | | | | | | 2019 | | | | | | | | | | Financial assets at fair | | | | Available-for-sale financial assets | | | | value through profit or loss | | | | Shares | | Debt securities | | Debt securities | | Investments for account of policyholders | Carrying amount of transferred assets | | 144 | | 3,127 | | 20 | | 161 | Carrying amount of associated liabilities | | 155 | | 3,304 | | 21 | | 4 |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 293 | | Notes to the consolidated financial statements Note 49 | | | | | | |
| | | | | | | | | | | | 2018 | | | | Available-for-sale financial assets | | | | Financial assets at fair value through profit or loss | | | | | | | | | | Investments for account | | | | Shares | | Debt securities | | Debt securities | | of policyholders | Carrying amount of transferred assets | | 81 | | 3,310 | | 404 | | 249 | Carrying amount of associated liabilities | | 91 | | 3,396 | | 416 | | 69 |
Securities lending and repurchase activities The table above includes financial assets that have been transferred to another party under securities lending and repurchase activities. Aegon retains substantially all risks and rewards of those transferred assets, this includes credit risk, settlement risk, country risk and market risk. The assets are transferred in return for cash collateral or other financial assets.Non-cash collateral is not recognized in the statement of financial position. Cash collateral is recorded on the statement of financial position as an asset and an offsetting liability is established for the same amount as Aegon is obligated to return this amount upon termination of the lending arrangement. Cash collateral is usually invested inpre-designated high quality investments. The sum of cash andnon-cash collateral is typically greater than the market value of the related securities loaned. Refer to note 49.346.3 Assets accepted and note 49.446.4 Assets pledged for an analysis of collateral accepted and pledged in relation to securities lending and repurchase agreements. 49.246.2 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 entirety as peryear-end 20182019 and 2017.2018. 49.346.3 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. The following tables present the fair value of the assets received in relation to securities lending and reverse repurchase activities: | Securities lending | | | 2018 | | | | 2017 | | | 2019 | | 2018 | | Carrying amount of transferred financial assets | | | 3,718 | | | | 4,987 | | | 2,734 | | 3,718 | Fair value of cash collateral received | | | 2,480 | | | | 3,277 | | | 2,146 | | 2,480 | Fair value ofnon-cash collateral received | | | 1,356 | | | | 1,847 | | | 780 | | 1,356 | Net exposure | | | (117) | | | | (138) | | | (192) | | (117) | | Non-cash collateral that can be sold or repledged in the absence of default | | | 1,171 | | | | 1,550 | | | 618 | | 1,171 | Non-cash collateral that has been sold or transferred | | | - | | | | - | | | - | | - |
| | | | | | | | | Reverse repurchase agreements | | | 2018 | | | | 2017 | | Cash paid for reverse repurchase agreements | | | 2,195 | | | | 4,859 | | Fair value ofnon-cash collateral received | | | 2,224 | | | | 4,885 | | Net exposure | | | (29) | | | | (25) | | | | | Non-cash collateral that can be sold or repledged in the absence of default | | | 1,740 | | | | 4,166 | | Non-cash collateral that has been sold or transferred | | | - | | | | - | |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 300 | | | | Consolidated financial statements of Aegon N.V.Note 46 | | | | | | | | | | |
| | | | | | Reverse repurchase agreements | | 2019 | | 2018 | | | | Cash paid for reverse repurchase agreements | | 4,980 | | 2,195 | Fair value ofnon-cash collateral received | | 5,003 | | 2,224 | Net exposure | | (23) | | (29) | | | | Non-cash collateral that can be sold or repledged in the absence of default | | 4,640 | | 1,740 | Non-cash collateral that has been sold or transferred | | - | | - |
The above items are conducted under terms that are usual and customary to standard securities lending activities, as well as requirements determined by exchanges where the bank acts as intermediary. In addition, Aegon can receive collateral related to derivative transactions that it enters into. The credit support agreement will normally dictate the threshold over which collateral needs to be pledged by Aegon or its counterparty. Transactions requiring Aegon or its counterparty to post collateral are typically the result ofover-the-counter derivative trades, comprised mostly of interest rate swaps, currency swaps and credit swaps. Refer to the credit risk section in note 4 Financial risks for details on collateral received for derivative transactions. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 294 | | Notes to the consolidated financial statements Note 50 | | | | | | |
49.446.4 Assets pledged
Aegon pledges assets that are on its statement of financial position in securities borrowing transactions, in repurchase transactions, in derivative transactions and against long-term borrowings. In addition, in order to trade derivatives on the various exchanges, Aegon posts margin as collateral. These transactions are conducted under terms that are usual and customary to standard long-term borrowing, derivative and securities borrowing activities, as well as requirements determined by exchanges where the bank acts as intermediary. Non-cash financial assets that are borrowed or purchased under agreement to resell are not recognized in the statement of financial position. To the extent that cash collateral is paid, a receivable is recognized for the corresponding amount. If othernon-cash financial assets are given as collateral, these are not derecognized. The following tables present the carrying amount of collateral pledged and the corresponding amounts. | Assets pledged for general account and contingent liabilities | | | 2018 | | | | 2017 | | | 2019 | | 2018 | | General account (contingent) liabilities | | | 4,844 | | | | 5,588 | | | 2,664 | | 4,844 | Collateral pledged | | | 6,694 | | | | 6,951 | | | 3,726 | | 6,694 | Net exposure | | | (1,849) | | | | (1,363) | | | (1,061) | | (1,849) | | Non-cash collateral that can be sold or repledged by the counterparty | | | - | | | | - | | | - | | - | | | | | | | Assets pledged for repurchase agreements | | | 2018 | | | | 2017 | | | Cash received on repurchase agreements | | | 322 | | | | 1,373 | | | Collateral pledged (transferred financial assets) | | | 325 | | | | 1,370 | | | Net exposure | | | (3) | | | | 3 | | |
| | | | | | Assets pledged for repurchase agreements | | 2019 | | 2018 | | | | Cash received on repurchase agreements | | 719 | | 322 | Collateral pledged (transferred financial assets) | | 718 | | 325 | Net exposure | | - | | (3) |
As part of Aegon’s mortgage loan funding program in the Netherlands, EUR 65.5 billion (2017:(2018: EUR 6.56 billion) has been pledged as security for notes issued (refer to note 3937 Borrowings). In addition, in order to trade derivatives on the various exchanges, Aegon posts margin as collateral. The amount of collateral pledged for derivative transactions was EUR 1,399 million (2017:2.4 billion (2018: EUR 2,234 million)1.4 billion). | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 301 | | | | Consolidated financial statements of Aegon N.V.Note 47 | | | | | | | | | | |
5047 Offsetting, enforceable master netting arrangements and similar agreements
The following table only includes financial instrumentspositions for which there is a recognized corresponding position that are set off in the statement of financial position. In addition, it includes financial instruments that are subject tocould be offset under a legally enforceable master netting arrangement or similar agreements,agreement. Aegon also enters into collateralized (reverse) repo or security lending and borrowing transaction, for which the collateral is not set off inrecognized on the balance sheet. For further information on the financial statements.positions resulting from such transactions please refer to note 46. The table provides details relating to the effect, or potential effect, of netting arrangements, including rights toset-off, associated with the entity’s recognized financial assets and recognized financial liabilities. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross amounts
of recognized
financial assets |
| |
| Gross amounts of
recognized financial
liabilities set off in
the statement of
financial position |
| |
| Net amounts
of financial assets
presented in the
statement of
financial position |
| |
| Related amounts not set off in
the statements of financial position |
| | | Net amount | | Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements | | | | | | | | | | | | �� | |
| Financial
instruments |
| |
| Cash collateral
received
(excluding surplus
collateral) |
| | | | | 2018 | | | | | | | | | | | | | | | | | | | | | | | | | Derivatives | | | 7,650 | | | | - | | | | 7,650 | | | | 4,840 | | | | 2,689 | | | | 120 | | At December 31 | | | 7,650 | | | | - | | | | 7,650 | | | | 4,840 | | | | 2,689 | | | | 120 | | | | | | | | | 2017 | | | | | | | | | | | | | | | | | | | | | | | | | Derivatives | | | 5,823 | | | | - | | | | 5,823 | | | | 4,973 | | | | 821 | | | | 30 | | At December 31 | | | 5,823 | | | | - | | | | 5,823 | | | | 4,973 | | | | 821 | | | | 30 | |
| | | | | | | | | | | | | | | | Financial assets subject | | | | Gross amounts of | | Net amounts of | | Related amounts not set off in the | | | | | to offsetting, enforce- | | | | recognized financial | | financial assets | | statements of financial position | | | | | able master netting | | Gross amounts of | | liabilities set off in | | presented in the | | | | Cash collateral | | | | | arrangements and | | recognized | | the statement of | | statement of | | Financial | | received (excluding | | Net | | | similar agreements | | financial assets | | financial position | | financial position | | instruments | | surplus collateral) | | amount | | | | | | | | | 2019 | | | | | | | | | | | | | | | | | | | | | | Derivatives | | 11,220 | | - | | 11,220 | | 8,261 | | 2,837 | | | 122 | | At December 31 | | 11,220 | | - | | 11,220 | | 8,261 | | 2,837 | | | 122 | | | | | | | | | 2018 | | | | | | | | | | | | | | | | | | | | | | Derivatives | | 7,650 | | - | | 7,650 | | 4,840 | | 2,689 | | | 120 | | At December 31 | | 7,650 | | - | | 7,650 | | 4,840 | | 2,689 | | | 120 | |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 295 | | Notes to the consolidated financial statements Note 51 | | | | | | |
| | Financial liabilities | | | | | Gross amounts of | | Net amounts of | | Related amounts not set off in the | | | | subject to offsetting, | | | | | recognized financial | | financial liabilities | | statements of financial position | | | | enforceable master | | | Gross amounts of | | assets set off in the | | presented in the | | | Cash collateral | | | | netting arrangements | | | recognized | | statement of | | statement of | | Financial | | pledged (excluding | | Net | | and similar agreements | | | financial liabilities | | financial position | | financial position | | instruments | | surplus collateral) | | amount | | | | Gross amounts
of recognized
financial
liabilities | | | Gross amounts
of recognized
financial assets
set off in the
statement of
financial
position | | | Net amounts
of financial
liabilities
presented in
the statement
of financial
position | | | Related amounts not set off
in the statements of financial position | | | Net amount | | | Financial liabilities subject to offsetting,
enforceable master netting arrangements
and similar agreements | | | | | | | | | | | Financial
instruments | | | Cash collateral
pledged
(excluding
surplus
collateral) | | | | | | 2018 | | | | | | | | | | | | | | 2019 | | | | | | | | | | | | | | | Derivatives | | | 4,734 | | | | - | | | | 4,734 | | | | 4,705 | | | | 7 | | | | 22 | | | 8,556 | | - | | 8,556 | | 8,433 | | 43 | | 80 | At December 31 | | | 4,734 | | | | - | | | | 4,734 | | | | 4,705 | | | | 7 | | | | 22 | | | 8,556 | | - | | 8,556 | | 8,433 | | 43 | | 80 | | 2017 | | | | | | | | | | | | | | 2018 | | | | | | | | | | | | | | | Derivatives | | | 5,185 | | | | - | | | | 5,185 | | | | 5,145 | | | | 2 | | | | 38 | | | 4,734 | | - | | 4,734 | | 4,705 | | 7 | | 22 | At December 31 | | | 5,185 | | | | - | | | | 5,185 | | | | 5,145 | | | | 2 | | | | 38 | | | 4,734 | | - | | 4,734 | | 4,705 | | 7 | | 22 |
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 to realize the asset and settle the liability simultaneously. As shown in the second column there are no financial assets and liabilities offset in 20182019 and 2017.2018. The line Derivatives includes derivatives for general account and for account of policyholder. Aegon mitigates credit risk in derivative contracts by entering into collateral agreements, where practical, and in ISDA master netting agreements for each of the Aegon’s legal entities to facilitate Aegon’sAegon���s right to offset credit risk exposure. The credit support agreement will normally dictate the threshold over which collateral needs to be pledged by Aegon or its counterparty. Transactions requiring Aegon or its counterparty to post collateral are typically the result ofover-the-counter derivative trades, comprised mostly of interest rate swaps, currency swaps and credit swaps. These transactions are conducted under terms that are usual and customary to standard long-term borrowing, derivative, securities lending and securities borrowing activities, as well as requirements determined by exchanges where the bank acts as intermediary. 5148 Business combinations
Acquisitions 2019 There were no significant acquisitions in 2019. 2018 On July 1, 2018, the legal transfer of the BlackRock Life Limited’s Defined Contribution and investment platform business to Scottish Equitable plc., a subsidiary of Aegon NV, was completed following the approval of the High Court on June 21, 2018, in accordance with Part VII of the Financial Services and Markets Act 2000. On July 3, 2018, Aegon agreed to expand its joint venture arrangement with Banco Santander in Spain and will pay an upfront consideration of EUR 215 million and an additional amount of up to EUR 75 million to be paid after 5 years, depending | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 302 | | | | Consolidated financial statements of Aegon N.V.Note 48 | | | | | | | | | | |
on the performance of the partnership. The consideration will be funded from Holding excess cash. The final terms (including closing and date of payment) of the transaction are subject to due diligence, regulatory approval, several other conditions and to the process of terminating the existing alliances of Banco Popular. On September 10, 2018, Aegon completed the acquisition of Robidus, a leading income protection service provider in the Netherlands. Under the terms of the agreement, Aegon acquired 94.4% and voting interests of the company with the remainder to be retained by Robidus’ management team. The total consideration of the acquisition amounted to EUR 103 million. Based on the purchase price allocation the fair value of the net assets amounted to EUR 18 million, resulting in a goodwill of EUR 85 million. 2017 On January 1, 2017, Aegon completed the acquisition of Cofunds Ltd., following regulatory approval. The purchase of the Cofunds Ltd. business was done through a sale and purchase agreement to acquire all the shares and platform assets. The total consideration of the acquisition amounted to GBP 147 million (EUR 171 million). The fair value of the net assets amounted to GBP 99 million (EUR 116 million), of which GBP 25 million (EUR 29 million) related to “customer intangibles”, resulting in goodwill of GBP 48 million (EUR 56 million). The value of the transferred customer investments under management as per January 1, 2017 amounted to approximately GBP 82 billion (EUR 96 billion) and is not recognized on Aegon’s statement of financial position. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 296 | | Notes to the consolidated financial statements Note 51 | | | | | | |
On August 2, 2017, Aegon Poland has received approval by the Polish Financial Supervision Authority to take over the management of the Nordea second-pillar pension fund. The value of the transferred net assets of Nordea to Aegon Poland as per June 30, 2017 amounted to approximately PLN 8.1 billion (EUR 1.9 billion). 2016Divestments/Disposals
2019 On May 3, 2016, Aegon announced it has agreed to buy BlackRock’s UK defined contribution (DC) platform and administration business. Under the purchase agreement, Aegon will acquire approximately GBP 12 billion (EUR 15 billion) of assets and 350,000 customers from BlackRock, which serves institutional and retail clients. The transaction was subject to a Part VII transfer of the underlying assets and liabilities to Aegon, which was subject to regulatory and court approval, and has closed in 2018. On August 11, 2016 Aegon announced the acquisition of Cofunds from Legal & General for GBP 140 million (EUR 164 million). The purchase of the Cofunds Ltd business is done through a sale and purchase agreement to acquire all the shares and platform assets. On January 1, 201729, 2020, Aegon completed the acquisitionsale of Cofunds, following regulatory approval.its 50% stake in the variable annuity joint ventures in Japan. The sale was announced on May 17, 2019. The total cash proceeds are EUR 153 million (JPY 18.75 billion). The divestment will not have a material impact on Aegon’s capital position and is expected to lead to an IFRS gain of EUR 51 million. This divestment has no material impact on underlying earnings before tax going forward.
Divestments/DisposalsOn January 8, 2019, Aegon completed the sale of its businesses in Czech Republic and Slovakia. The businesses consisted mainly of unit linked life insurance coverage, term life products and pension reserves. The proceeds of the sale amount to EUR 155 million and the book gain amounts to approximately EUR 70 million, which were reflected in other income. As a consequence of the transaction, annual income before tax and underlying earnings before tax have decreased. In 2018, the underlying earnings before tax of the combined operations amounted to EUR 17 million.
2018 On April 3, 2018, Aegon completed the sale of Aegon Ireland plc to Athora Holding Ltd. agreed to on August 9, 2017. The net proceeds of the transaction amounted to GBP 177 million (EUR 202 million). The divestment led to a book loss of GBP 81 million (EUR 93 million), reported in note 17 Other charges. This divestment had no material impact on underlying earnings before tax going forward. Upon disposal, an amount of GBP 31 million (EUR 36 million) related to the foreign currency translation and net foreign investment hedging reserve has been reclassified from Other Comprehensive Income into the income statement. On August 7, 2018, Aegon agreed to divest the last substantial block of its US life reinsurance business to SCOR Global Life. Under the terms of the agreement, Aegon’s Transamerica life subsidiaries reinsured approximately USD 700 million of liabilities through SCOR. The transaction covered the block of life reinsurance business that Transamerica retained after it divested the vast majority of its life reinsurance business to SCOR in 2011 and 2017. The transaction had aone-time benefit of USD 50 million on Transamerica’s capital position. On August 15, 2018, Aegon has agreed to sell its business in Czech Republic and Slovakia for EUR 155 million to NN Group. The business consists mainly of unit linked life insurance coverage, term life products and pension services. Based on the book value as of December 31, 2018, the book gain is expected to amount to approximately EUR 80 million and will be reported in Other income upon completion. As a consequence of this transaction, annual income before tax and underlying earnings before tax will decrease. In 2018, the underlying earnings before tax of the combined operations amounted to EUR 17 million. The transaction has closed early 2019. Aegon entered into a series of agreements under which it disposed of its Hungarian mortgage business, captured in a separate legal entity. The sale was completed on October 2018, and the result on the sale was not material. This divestment has no material impact on underlying earnings before tax going forward. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 303 | | | | Consolidated financial statements of Aegon N.V.Note 49 | | | | | | | | | | |
2017 On June 28, 2017, Aegon completed its transaction to divest its two largestrun-off businesses in the Americas, the payout annuity business and Bank Owned Life Insurance/Corporate Owned Life Insurance business (BOLI/COLI). Under the terms of the agreement, Aegon’s Transamerica life subsidiaries has reinsured USD 14 billion of liabilities. The transaction resulted in a book gain of USD 250 million (EUR 231 million), reported in the line other income in the condensed consolidated income statement. The book gain consisted of a loss on the reinsurance transaction which is more than offset by the reclassification of gains from Other Comprehensive Income following the disposal of assets to fund the transaction. The loss on the reinsurance transaction amounted to USD 1,813 million (EUR 1,675 million) being the difference of the reinsurance premium paid and the reinsurance asset received related to the insurance liabilities. Upon disposal an amount of USD 979 million (EUR 905 million) and USD 1,018 million (EUR 941 million) respectively related to revaluation reserves and cash flow hedging reserves has been reclassified from Other Comprehensive Income into the income statement. Gains on sale of certain assets carried at amortized cost backing the insurance liabilities amount to USD 94 million (EUR 87 million). Other expenses related to the transaction, including cost of sale, amounted to USD 28 million (EUR 26 million). | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 297 | | Notes to the consolidated financial statements Note 51 | | | | | | |
On June 30, 2017, following court approval on the Part VII transfer, the sale of the annuity portfolio to Rothesay Life has been completed. On September 22, 2017, following court approval on the Part VII transfer, the sale of the annuity portfolio to Legal & General has been completed. On November 1, 2017, Aegon completed the sale of Unirobe Meeùs Groep (UMG), an independent financial advisory group, for a total consideration of EUR 295 million. The divestment led to a book gain of EUR 208 million, which was reported in Other income in the fourth quarter. As a consequence of this transaction annual income before tax and underlying earnings before tax will decrease by approximately EUR 20 million going forward from the 2017 level. On December 28, 2017, Aegon agreed to divest a block of life reinsurance business and to dissolve a related captive insurance company. Under the terms of the agreement, Aegon’s Transamerica life subsidiaries reinsured approximately USD 750 million of liabilities. The transaction covers approximately half of the life reinsurance business that Transamerica retained after it divested the vast majority of its life reinsurance business to SCOR in 2011. 2016
On January 18, 2016 Aegon Nederland N.V. sold its commercialnon-life insurance business, which includes the proxy and coinsurancerun-off portfolios. This business has an annual premium volume of approximately EUR 90 million. The total insurance liabilities from this business are EUR 334 million while the consideration paid in cash was EUR 302 million. The transaction was subsequently approved by the Dutch Central Bank (De Nederlandsche Bank) and the Dutch Authority for Consumers and Markets (Autoriteit Consument & Markt). Aegon completed the sale on July 1, 2016, which resulted in a gain of EUR 11 million.
On May 13, 2016, Aegon completed the sale of certain assets of Transamerica Financial Advisors, a full service independent broker-dealer and registered investment adviser, following regulatory approval. The consideration received for the sale consisted of USD 49 million (EUR 44 million) cash and USD 14 million (EUR 13 million) of contingent consideration which is subject to a 12 monthearn-out period. The transaction resulted in a pre tax gain of USD 58 million (EUR 52 million) recorded in the second quarter of 2016.
In the second quarter of 2016 Aegon sold its UK annuity portfolio in two parts. On April 11, 2016 Aegon announced the sale of around GBP 6 billion of the portfolio to Rothesay Life. On May 23, 2016 Aegon announced the sale of around GBP 3 billion of the portfolio to Legal & General. Aegon incurred a book loss on the transaction before tax of GBP 530 million (EUR 682 million), reported in the line other charges in the consolidated income statement. The transaction resulted in a tax benefit of GBP 41 million (EUR 53 million). Under the terms of the agreements, Aegon reinsured GBP 6.8 billion of liabilities to Rothesay Life and Legal & General, followed by a Part VII transfer1, which were completed in 2017. The loss on the reinsurance transaction is GBP 1.9 billion (EUR 2.4 billion) being the difference of the reinsurance premium paid and the reinsurance asset received related to the insurance liabilities. Upon disposal an amount of GBP 1.4 billion (EUR 1.8 billion) related to a positive revaluation reserve has been reclassified from Other Comprehensive Income into the income statement. Taking into account the results of the sale of the related bonds leads to abovementioned result on the transaction of GBP 530 million. The related net cash outflow amounted to GBP 647 million (EUR 831 million). Expenses related to the transaction, including cost of sale, amount to GBP 13 million (EUR 16 million).
On December 16, 2016, Aegon completed the sale of 100% of its shares of Aegon Life Ukraine to TAS Group, and exited the Ukrainian market. This transaction has no material impact on the consolidated numbers of Aegon.
1 | An insurance business transfer scheme under Part VII of the United Kingdom Financial Services and Markets Act 2000 allows an insurer to transfer policies as at a fixed time and date to another insurer, along with related contracts with other parties (including reinsurance).
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| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 298 | | Notes to the consolidated financial statements Note 52 | | | | | | |
5249 Group companies
Subsidiaries The principal subsidiaries of the parent company Aegon N.V. are listed by geographical segment. All are wholly owned, directly or indirectly, unless stated otherwise, and are involved in insurance or reinsurance business, pensions, asset management or services related to these activities. The voting power in these subsidiaries held by Aegon is equal to the shareholdings. Americas | ◆ | | Transamerica Corporation, Wilmington, Delaware (United States); |
◆ | | Transamerica Advisors Life Insurance Company, Little Rock, Arkansas (United States); |
| ◆ | | Transamerica Casualty Insurance Company, Columbus, Ohio (United States); |
| ◆ | | Transamerica Financial Life Insurance Company, Harrison, New York (United States); |
| ◆ | | Transamerica Life Insurance Company, Cedar Rapids, Iowa (United States); |
| ◆ | | Transamerica Premier Life Insurance Company, Cedar Rapids, Iowa (United States). |
The Netherlands | ◆ | | Aegon Bank N.V., The Hague; |
| ◆ | | Aegon Hypotheken B.V., The Hague; |
| ◆ | | Aegon Levensverzekering N.V., The Hague; |
◆ | | Aegon PPI B.V., The Hague (until January 1, 2019); |
| ◆ | | Aegon Schadeverzekering N.V., The Hague; |
| ◆ | | Aegon Spaarkas N.V., The Hague; |
| ◆ | | CAPPITAL PremiepensioeninstellingAegon Cappital B.V., Groningen (Aegon Cappital B.V. as of January 1, 2019); |
| ◆ | | Optas Pensioenen N.V.Salus Holding B.V., Rotterdam;Zaandam; |
| ◆ | | TKP Pensioen B.V., Groningen; |
| ◆ | | Nedasco B.V., Amersfoort; |
◆ | | Robijn Participaties B.V. (Robidus Groep B.V.), Zaandam (until January 2, 2019). |
United Kingdom | ◆ | | Aegon Investment Solutions Ltd., Edinburgh; |
| ◆ | | Aegon Investments Ltd., London; |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 304 | | | | Consolidated financial statements of Aegon N.V.Note 49 | | | | | | | | | | |
| ◆ | | Scottish Equitable plc, Edinburgh; |
| ◆ | | Cofunds Limited, London. |
Central &Southern and Eastern Europe
| ◆ | | Aegon Magyarország Általános Biztosító Zártkörűen Működő Részvénytársaság, Budapest (Aegon Hungary Composite Insurance Co.); |
| ◆ | | Aegon Towarzystwo UbezpieczeńUbezpieczeñ na Życie Spółka Akcyjna, Warsaw (Aegon Poland Life); |
| ◆ | | Aegon Powszechne Towarzystwo Emerytaine Spólka Akcyjna, Warsaw (Aegon Poland Pension Fund Management Co.); |
| ◆ | | Aegon Emeklilik ve Hayat A.Ş., Istanbul (Aegon Turkey); |
| ◆ | | Aegon Pensii Societate de Administrare a Fondurilor de Pensii Private S.A., Cluj (Aegon Romania Pension Administrator Co.); |
◆ | | Aegon Pojištovna, a.s., Prague (Aegon Czech Life, until January 8, 2019); |
◆ | | Aegon Životná poist’ovňa, a.s., Bratislava (Aegon Slovakia Life, until January 8, 2019); |
◆ | | Aegon, d.s.s., a.s., Bratislava (Aegon Slovakia Pension Management Co., until January 8, 2019). |
Spain & Portugal
| ◆ | | Aegon España S.A.U. de Seguros y Reaseguros, Madrid (Spain); |
| ◆ | | Aegon Administracion y Servicios A.I.E., Madrid (Spain); |
| ◆ | | Aegon Activos A.V., S.A., Madrid (Spain); |
| ◆ | | Aegon Mediacion, S.L.U, Madrid (Spain). |
Asia | ◆ | | Transamerica Life (Bermuda) Ltd., Hamilton (Bermuda). |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 299 | | Notes to the consolidated financial statements Note 52 | | | | | | |
Asset Management | ◆ | | Aegon Asset Management Holding B.V., The Hague (The Netherlands); |
| ◆ | | Aegon Custody B.V., The Hague (The Netherlands); |
| ◆ | | Aegon Asset ManagementPan-Europe B.V., The Hague (The Netherlands); |
| ◆ | | Kames Capital plc, Edinburgh (United Kingdom); |
◆ | | TKP Investments B.V., Groningen (The Netherlands), (Merged with Aegon Investment Management B.V. as per January 1, 2019); |
| ◆ | | 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 ZrtA), Budapest (Hungary); |
| ◆ | | Aegon Investment Management B.V, The Hague (The Netherlands); |
The legally required list of participations as set forth in articles 379 and 414 of Book 2 of the Dutch Civil Code has been registered with the Trade Register in The Hague. Aegon N.V. has issued a statement of liability as meant in article 403 of Book 2 of the Dutch Civil Code for its subsidiary company Aegon Derivatives N.V. Joint ventures The principal joint ventures are listed by geographical segment. The voting power in these joint ventures is equal to the shareholdings. Americas | ◆ | | Akaan-Aegon, S.A.P.I. de C.V., Mexico City (Mexico) (50%). |
The Netherlands | ◆ | | AMVEST Vastgoed B.V., Utrecht (50%). |
Spain & PortugalSouthern and Eastern Europe
| ◆ | | Santander Generales Seguros y Reaseguros, S.A., Madrid (Spain) (51%); |
| ◆ | | Santander Vida Seguros y Reaseguros, S.A., Madrid (Spain) (51%); |
| ◆ | | Liberbank Vida y Pensiones, Seguros y Reaseguros, S.A., Oviedo (Spain) (50%); |
| ◆ | | Aegon Santander Portugal Não Vida – Companhia de Seguros S.A., Lisbon (Portugal) (51%); |
| ◆ | | Aegon Santander Portugal Vida – Companhia de Seguros de Vida S.A., Lisbon (Portugal) (51%). |
Asia | ◆ | | Aegon Sony Life Insurance Co., Tokyo (Japan) (50%); (Sold as of January 29, 2020) |
| ◆ | | Aegon THTF Life Insurance Co., Ltd., Shanghai (China) (50%); |
| ◆ | | SA Reinsurance Ltd, Hamilton (Bermuda) (50%); |
| ◆ | | Aegon Life Insurance Co. ltd (India) (49%). |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 305 | | | | Consolidated financial statements of Aegon N.V.Note 50 | | | | | | | | | | |
Asset Management | ◆ | | Aegon Industrial Fund Management Co., Ltd, Shanghai (China) (49%). |
Refer to note 2625 Investments in joint ventures and associates for further details on these investments. Investments in associates The principal investments in associates are listed by geographical segment. The voting power in these associates is equal to the shareholdings. Americas | ◆ | | Mongeral Aegon, Seguros e Previdencia S.A., Rio de Janeiro (Brazil) (50%). |
Asset Management | ◆ | | La Banque Postale Asset Management, Paris (France) (25%). |
Refer to note 2725 Investments in joint ventures and associates for further details on these investments. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 300 | | Notes to the consolidated financial statements Note 53 | | | | | | |
5350 Related party transactions
In the normal course of business, Aegon enters into various transactions with related parties. Parties are considered to be related if one party has the ability to control or exercise significant influence over the other party in making financial or operating decisions. Related parties of Aegon include, amongst others, its associates, joint ventures, key management personnel and the defined benefit and contribution plans. Transactions between related parties have taken place on an arm’s length basis. Transactions between Aegon and its subsidiaries that are deemed related parties have been eliminated in the consolidation and are not disclosed in the notes. Related party transactions include, among others, transactions between Aegon N.V. and Vereniging Aegon. On December 23, 2019 Aegon N.V. repurchased 13,227,120 common shares B from Vereniging Aegon for the amount of EUR 1,384,046 based on 1/40th of the Value Weight Average Price of the common shares on the five trading days preceding this transaction. The repurchase of common shares B was executed to align the shareholding of Vereniging Aegon in Aegon N.V. with its special cause voting rights of 32.6%. On May 17, 2019, Vereniging Aegon exercised its options rights to purchase 1,773,680 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by the issuance of shares on May 17, 2019, in connection with the Long Term Incentive Plans for senior management. On May 18, 2018, Vereniging Aegon exercised its options rights to purchase in aggregate 1,489,200 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused the issuance of shares on May 18, 2018, in connection with the Long Term Incentive Plans for senior management. On December 19, 2017 Aegon N.V. repurchased 13,042,592 common shares B from Vereniging Aegon for the amount of EUR 1,725,169.731,725,169 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 N.V. with its special cause voting rights of 32.6% following the completion of the Share Buy Back Program, initiated by Aegon N.V. in October 2017 to neutralize the dilutive effect of the distribution of final dividend 2016 in stock and interim dividend 2017 in stock. On June 23, 2017, Vereniging Aegon exercised its options rights to purchase in aggregate 13,042,612 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by Aegon’s issuance of shares on June 23, 2017, being the final dividend 2016 in the form of stock dividend. On May 19, 2017, Vereniging Aegon exercised its options rights to purchase in aggregate 1,979,260 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused the issuance of shares on May 19, 2017, in connection with the Long Term Incentive Plans for senior management. On June 6, 2016 Aegon N.V. repurchased 17,324,960 common shares B from Vereniging Aegon for the amount of EUR 1,968,332, based on 1/40th of the Value Weight Average Price of the common shares of the 5 trading days preceding this transaction. The repurchase of common shares B was executed to align the aggregate shareholding of Vereniging Aegon in Aegon N.V. with its special cause voting rights of 32.6%.
On May 19, 2016 Aegon N.V. repurchased 13,450,835 common shares from Vereniging Aegon for the amount of EUR 58 million being the Value Weight Average Price of the common shares of the 5 trading days preceding this transaction, as part of the EUR 400 million Share Buy Back program, initiated by Aegon N.V. in January 2016 to neutralize the dilutive effect of the cancellation of Aegon N.V.’s preferred shares in 2013. Also the amount of EUR 58 million is 14.5% of EUR 400 million, which percentage is equal to the percentage of shares held by Vereniging Aegon in the total number of outstanding and voting shares Aegon N.V. at the time of this transaction.
Remuneration of members of the Management Board
The Management Board, which assists the Executive Board in pursuing Aegon’s strategic goals, is formed by members of the Executive Board, the CEOs of Aegon USA, Aegon Continental Europe, Aegon UK, Aegon Asset Management, the Chief Risk Officer, the Chief Technology Officer, the Global Head HR and the General Counsel. In April 2017, the Management Board decreased in size by one member as a result of the retirement of the CEO of Aegon Central & Eastern Europe.
The total remuneration for the members of the Management Board over 2018 was EUR 22.6 million (2017: EUR 19.8 million; 2016: EUR 18.6 million), consisting of EUR 8.4 million (2017: EUR 7.4 million; 2016: EUR 7.0 million) fixed compensation, EUR 8.7 million variable compensation awards (2017: EUR 7.8 million; 2016: EUR 6.4 million), EUR 0.9 million (2017: EUR 0.9 million; 2016: EUR 1.9 million) other benefits and EUR 4.5 million (2017: EUR 3.7 million; 2016: EUR 3.4 million) pension premiums. Amounts are reflective of time spent on the Management Board.
Expenses as recognized under IFRS in the income statement for variable compensation and pensions differ from the variable compensation awards and pension premiums paid due to the accounting treatment under respectively IFRS 2 and IAS 19. IFRS expenses related to variable compensation amounted to EUR 6.9 million (2017: EUR 6.3 million; 2016: EUR 6.0 million) and
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| | | | | | | | 301306 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 5350 | | | | | | | | | | | | |
EUR 4.3 million (2017: EUR 3.7 million; 2016: EUR 3.2 million) for pensions. Total IFRS expenses for theRemuneration of members of the ManagementSupervisory Board, over 2018 were EUR 20.5 million (2017: EUR 18.3 million; 2016: EUR 18.7 million). Executive Board and Key Management
The amount isfollowing table includes the expenses for remuneration, with amounts reflective of time spent on the Board. | | | | | | | | | | | | | | Remuneration expenses | | 2019 | | | 2018 | | | 2017 | | Supervisory Board | | | 1.0 | | | | 1.0 | | | | 1.1 | | Executive Board | | | 5.8 | | | | 6.3 | | | | 5.3 | | Key Management | | | 26.4 | | | | 21.5 | | | | 19.4 | | In fixed compensation | | | 14.5 | | | | 9.4 | | | | 8.5 | | In cash based variable compensation | | | 3.6 | | | | 3.6 | | | | 3.1 | | In share based variable compensation | | | 3.2 | | | | 3.3 | | | | 3.1 | | In pension contributions | | | 3.9 | | | | 4.3 | | | | 3.7 | | In other benefits | | | 1.2 | | | | 0.9 | | | | 0.9 | |
In 2019 the fixed compensation amount of the Key Management Board.included EUR 717 thousand in severance payments. The Key Management consists of all members of the Supervisory Board, Executive Board and Management Board (see the chapter Composition of the Boards for more details). Additional information on the remuneration and share-based compensation of members of the Executive Board and the remuneration of the Supervisory Board is disclosed in the sections below (all amounts in EUR ‘000, except where indicated otherwise). Remuneration of members of the Executive Board The information below reflects the compensation and various related expenses for members of the Executive Board. Mr. Rider was appointed to the Executive Board for a term of four years by the shareholders on May 19, 2017 as CFO. Amounts and numbers are disclosed for the period Mr. Rider has been part of the Executive Board. Under the current remuneration structure, certain compensation elements are paid out over a number of years, or in the case of shares, vest over a number of years. This remuneration structure has made it more relevant to present compensation and benefit amounts allocated during a certain performance year instead of what was received in a certain year.
Fixed compensation
| | | | | | | | | | | | | | In EUR thousand | | 2018 | | | 2017 | | | 2016 | | Alex Wynaendts | | | 1,295 | | | | 1,269 | | | | 1,269 | | | | | | Matt Rider1 | | | 918 | | | | 560 | | | | - | | | | | | Darryl Button | | | - | | | | - | | | | 933 | | Total fixed compensation | | | 2,213 | | | | 1,829 | | | | 2,202 | |
1 | Mr. Rider was appointed as CFO and member of Aegon’s Executive Board per May 19, 2017. Fixed compensation is disclosed for the period that Mr. Rider has been part of the Executive Board. The base salary of Mr Rider in 2017 was EUR 900 on an annualized basis.
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Conditional variable compensation awards
| | | | | | | | | | | | | | In EUR thousand | | 2018 | | | 2017 | | | 2016 | | Alex Wynaendts | | | 1,062 | | | | 1,147 | | | | 1,044 | | | | | | Matt Rider1 | | | 760 | | | | 499 | | | | - | | | | | | Darryl Button2 | | | - | | | | - | | | | 747 | | Total conditional variable compensation awards | | | 1,822 | | | | 1,646 | | | | 1,791 | |
1 | Mr. Rider was appointed as CFO and member of Aegon’s Executive Board per May 19, 2017. Conditional variable compensation is disclosed for the period that Mr. Rider has been part of the Executive Board. The conditional variable compensation award of Mr Rider in 2017 was EUR 802 on an annualized basis.
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2 | Mr. Button stepped down as CFO and member of Aegon’s Executive Board on December 1, 2016. Conditional variable compensation is disclosed for the period that Mr. Button has been part of the Executive Board and are reflective of his time with Aegon until December 1, 2016. Amounts are based on USD, converted to EUR, based on annual average exchange rates. Expenses recognized under IFRS accounting treatment in the income statement for Mr. Button for 2016 amount to EUR 1,237.
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The amounts in the table represent the conditional variable compensation awards earned during the related performance year. Expenses recognized under IFRS accounting treatment in the income statement for conditionally awarded cash and shares differ from the awards. For the performance year 2018 and previous performance years, expenses under IFRS for Mr. Wynaendts amounted to EUR 962 (2017: EUR 1,092; 2016: EUR 956). For Mr. Rider the expenses under IFRS amounted to EUR 545 (2017: EUR 293).
2018
Over the performance year 2018, Mr. Wynaendts was awarded EUR 1,062 in total conditional variable compensation. Mr. Rider was awarded EUR 760.
The variable compensation award is split 50/50 in cash payments and an allocation of shares. Of the variable compensation related to performance year 2018, 40% is payable in 2018. Accordingly, Mr. Wynaendts and Mr. Rider will receive a cash payment of EUR 212 and EUR 152 respectively. The number of shares to be made available in 2019 relating to performance year 2018 is 39,314 and 28,110 for Mr. Wynaendts and Mr. Rider respectively. The vested shares, minus 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 company holds a withholding obligation in connection with the vesting of the shares, are subject to a three year holding period, before they are at the disposal of the Executive Board members.
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| | | 302 | | Notes to the consolidated financial statements Note 53 | | | | | | |
The remaining part of variable compensation award for the performance year 2018 (60%), for Mr. Wynaendts EUR 319 and 58,968 shares and for Mr. Rider EUR 228 and 42,162 shares, is to be paid out in equal portions in 2018, 2019 and 2020, subject toex-post assessments, which may result in downward adjustments and may be subject to additional conditions being met. Any payout will be split 50/50 in a cash payment and vesting of shares. The vested shares, minus 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 Company holds a withholding obligation in connection with the vesting of the shares, are subject to a three year holding period, before they are at the disposal of the Executive Board members.
2017
Over the performance year 2017, Mr. Wynaendts was awarded EUR 1,147 in total conditional variable compensation. Mr. Rider was awarded EUR 499.
The variable compensation award is split 50/50 in cash payments and an allocation of shares. Of the variable compensation related to performance year 2017, 40% is payable in 2018. Accordingly, Mr. Wynaendts and Mr. Rider will receive a cash payment of EUR 229 and EUR 100 respectively. The number of shares to be made available in 2018 relating to performance year 2017 is 43,732 and 19,017 for Mr. Wynaendts and Mr. Rider respectively. The vested shares, minus 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 Company holds a withholding obligation in connection with the vesting of the shares, are subject to a three year holding period, before they are at the disposal of the Executive Board members.
The remaining part of variable compensation award for the performance year 2017 (60%), for Mr. Wynaendts EUR 344 and 65,598 shares and for Mr. Rider EUR 150 and 28,522 shares, is to be paid out in equal portions in 2019, 2020 and 2021, subject toex-post assessments, which may result in downward adjustments and may be subject to additional conditions being met. Any payout will be split 50/50 in a cash payment and vesting of shares. The vested shares, minus 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 Company holds a withholding obligation in connection with the vesting of the shares, are subject to a three year holding period, before they are at the disposal of the Executive Board members.
Mr. Button has not been awarded variable compensation.
2016
Over the performance year 2016, Mr. Wynaendts was awarded EUR 1,044 in total conditional variable compensation. Mr. Button was awarded EUR 747.
The variable compensation award is split 50/50 in cash payments 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, minus 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 Company holds a withholding obligation in connection with the vesting of the shares, are subject to a three year retention (holding) period, before they are at the disposal of the Executive Board members.
The remaining part of variable compensation award for the performance year 2016 (60%), for Mr. Wynaendts EUR 313 and 61,083 shares and for Mr. Button EUR 224 and 44,424 shares, is to be paid out in equal portions in 2018, 2019 and 2020, subject toex-post assessments, which may result in downward adjustments and may be subject to additional conditions being met. Any payout will be split 50/50 in a cash payment and vesting of shares. The vested shares, minus 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 Company holds a withholding obligation in connection with the vesting of the shares, are subject to a three year holding period, before they are at the disposal of the Executive Board members.
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 303 | | Notes to the consolidated financial statements Note 53 | | | | | | |
The table below illustrates all the conditionally awarded cash and shares of the members of the Executive Board, and the years in which each component will be paid out and/or vest, subject to the conditions as mentioned:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Conditional granted | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | performance related | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | remuneration | | | | Timing of vesting, subject to targets and conditions | | | | | | Shares by reference period | | | | | | | 2016 | | | | 2017 | | | | 2018 | | | | 2019 | | | | 2020 | | | | 2021 | | | | 2022 | | Alex Wynaendts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2007 | | | 9,2538 | | | | 9,253 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | 20121 | | | 32,555 | | | | 32,555 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | 20132 | | | 41,962 | | | | 20,981 | | | | 20,981 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | 20143 | | | 37,268 | | | | 13,552 | | | | 13,552 | | | | 10,164 10 | | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | 20154 | | | 75,549 | | | | 30,219 | | | | 15,110 | | | | 15,110 | | | | 15,110 | | | | - | | | | - | | | | - | | | | | | | | | | | 20165 | | | 101,805 | | | | - | | | | 40,722 | | | | 20,361 | | | | 20,361 | | | | 20,361 | | | | - | | | | - | | | | | | | | | | | 20176 | | | 109,330 | | | | - | | | | - | | | | 43,732 | | | | 21,866 | | | | 21,866 | | | | 21,866 | | | | - | | | | | | | | | | | 20187 | | | 98,282 | | | | - | | | | - | | | | - | | | | 39,314 | | | | 19,656 | | | | 19,656 | | | | 19,656 | | Total number of shares9 | | | 506,004 | | | | 106,560 | | | | 90,365 | | | | 89,367 | | | | 96,651 | | | | 61,883 | | | | 41,522 | | | | 19,656 | | Matt Rider | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 20176 | | | 47,539 | | | | - | | | | - | | | | 19,015 | | | | 9,508 | | | | 9,508 | | | | 9,508 | | | | - | | | | | | | | | | | 20187 | | | 70,272 | | | | - | | | | - | | | | - | | | | 28,110 | | | | 14,054 | | | | 14,054 | | | | 14,054 | | Total number of shares9 | | | 117,811 | | | | - | | | | - | | | | 19,015 | | | | 37,618 | | | | 23,562 | | | | 23,562 | | | | 14,054 | | Darryl Button | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 20132 | | | 19,144 | | | | 9,572 | | | | 9,572 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | 20143 | | | 25,956 | | | | 8,652 | | | | 8,652 | | | | 8,652 | | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | 20154 | | | 59,054 | | | | 23,621 | | | | 11,811 | | | | 11,811 | | | | 11,811 | | | | - | | | | - | | | | - | | | | | | | | | | | 20165 | | | 74,038 | | | | - | | | | 29,614 | | | | 14,808 | | | | 14,808 | | | | 14,808 | | | | - | | | | - | | Total number of shares9 | | | 178,192 | | | | 41,845 | | | | 59,649 | | | | 35,271 | | | | 26,619 | | | | 14,808 | | | | - | | | | - | | Jan J. Nooitgedagt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 20122 | | | 22,370 | | | | 22,370 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | 20133 | | | 17,652 | | | | 8,826 | | | | 8,826 | | | | - | | | | - | | | | - | | | | - | | | | - | | Total number of shares9 | | | 40,022 | | | | 31,196 | | | | 8,826 | | | | - | | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 304 | | Notes to the consolidated financial statements Note 53 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Conditional granted | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | performance related | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | remuneration | | | | Timing of vesting, subject to targets and conditions | | | | | | Cash (in EUR) | | | | | | | 2016 | | | | 2017 | | | | 2018 | | | | 2019 | | | | 2020 | | | | 2021 | | | | 2022 | | Alex Wynaendts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2012 | | | 101,768 | | | | 101,768 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | 2013 | | | 206,326 | | | | 103,163 | | | | 103,163 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | 2014 | | | 251,155 | | | | 91,329 | | | | 91,329 | | | | 68,497 10 | | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | 2015 | | | 461,305 | | | | 184,522 | | | | 92,261 | | | | 92,261 | | | | 92,261 | | | | - | | | | - | | | | - | | | | | | | | | | | 2016 | | | 522,060 | | | | - | | | | 208,824 | | | | 104,412 | | | | 104,412 | | | | 104,412 | | | | - | | | | - | | | | | | | | | | | 2017 | | | 573,550 | | | | - | | | | - | | | | 229,420 | | | | 114,710 | | | | 114,710 | | | | 114,710 | | | | - | | | | | | | | | | | 2018 | | | 531,219 | | | | - | | | | - | | | | - | | | | 212,490 | | | | 106,243 | | | | 106,243 | | | | 106,243 | | Total cash | | | 2,647,383 | | | | 480,782 | | | | 495,577 | | | | 494,590 | | | | 523,873 | | | | 325,365 | | | | 220,953 | | | | 106,243 | | Matt Rider | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2017 | | | 249,390 | | | | - | | | | - | | | | 99,756 | | | | 49,878 | | | | 49,878 | | | | 49,878 | | | | - | | | | | | | | | | | 2018 | | | 379,823 | | | | - | | | | - | | | | - | | | | 151,931 | | | | 75,964 | | | | 75,964 | | | | 75,964 | | Total cash | | | 629,213 | | | | - | | | | - | | | | 99,756 | | | | 201,809 | | | | 125,842 | | | | 125,842 | | | | 75,964 | | Darryl Button | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2013 | | | 93,534 | | | | 46,767 | | | | 46,767 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | 2014 | | | 180,072 | | | | 60,024 | | | | 60,024 | | | | 60,024 | | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | 2015 | | | 392,155 | | | | 156,862 | | | | 78,431 | | | | 78,431 | | | | 78,431 | | | | - | | | | - | | | | - | | | | | | | | | | | 2016 | | | 373,369 | | | | - | | | | 149,347 | | | | 74,674 | | | | 74,674 | | | | 74,674 | | | | - | | | | - | | Total cash | | | 1,039,130 | | | | 263,653 | | | | 334,569 | | | | 213,129 | | | | 153,105 | | | | 74,674 | | | | - | | | | - | | Jan J. Nooitgedagt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2012 | | | 69,929 | | | | 69,929 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | 2013 | | | 86,792 | | | | 43,396 | | | | 43,396 | | | | - | | | | - | | | | - | | | | - | | | | - | | Total cash | | | 156,721 | | | | 113,325 | | | | 43,396 | | | | - | | | | - | | | | - | | | | - | | | | - | |
1 | The number of shares is based on a volume weighted average price of EUR 3.126. After vesting a 3 year holding period applies to shares vested.
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2 | The number of shares is based on a volume weighted average price of EUR 4.917. After vesting a 3 year holding period applies to shares vested.
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3 | The number of shares is based on a volume weighted average price of EUR 6.739. After vesting a 3 year holding period applies to shares vested.
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4 | The number of shares is based on a volume weighted average price of EUR 6.106. After vesting a 3 year holding period applies to shares vested.
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5 | The number of shares is based on a volume weighted average price of EUR 5.128. After vesting a 3 year holding period applies to shares vested.
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6 | The number of shares is based on a volume weighted average price of EUR 5.246. After vesting a 3 year holding period applies to shares vested.
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7 | The number of shares is based on a volume weighted average price of EUR 5.405. After vesting a 3 year holding period applies to shares vested.
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8 | During the vesting period, dividend payments on these shares are deposited in blocked savings accounts on behalf of the executive members. For active members of the Executive Board 50% of the shares vested in 2012 and 50% vested in 2016.
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9 | The shares that were allocated, vested with the acceptance of the Annual Accounts at the AGM in the year of vesting. The vesting price (in EUR) was: 4.5020 on 20 May 2016, 4.4230 on 19 May 2017 and 5.848 on 18 May 2018.
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10 | In line with the Aegon Group Global Remuneration Framework, it was agreed to adjust Mr Wynaendt’s 2014 variable compensation award downwards by 3,388 shares and EUR 22,832 to reflect the outcome of a regulatory matter relating to the company.
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| | | | | | | | | | | | | Other benefits | | | | | | | | | | | | | | | | | In EUR thousand | | | 2018 | | | | 2017 | | | | 2016 | | Alex Wynaendts | | | 195 | | | | 165 | | | | 178 | | | | | | Matt Rider1 | | | 46 | | | | 59 | | | | - | | | | | | Darryl Button2 | | | - | | | | - | | | | 739 | | Total other benefits | | | 240 | | | | 224 | | | | 917 | |
1 | Mr. Rider was appointed as CFO and member of Aegon’s Executive Board per May 19, 2017. Other benefits are disclosed for the period that Mr. Rider has been part of the Executive Board. The other benefits for Mr Rider in 2017 was EUR 95 on an annualized basis.
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2 | Mr. Button stepped down as CFO and member of Aegon’s Executive Board on December 1, 2016. Other benefits are disclosed for the period that Mr. Button has been part of the Executive Board and are reflective of his time with Aegon December 1, 2016. These benefits also included expenses related to his expatriation and commuter assignment from the United States to the Netherlands, borne by the Group.
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Other benefits includenon-monetary benefits (e.g. company car), social security contributions by the employer, and tax expenses borne by the Group.
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 305 | | Notes to the consolidated financial statements Note 53 | | | | | | |
Pension contributions
| | | | | | | | | | | | | In EUR thousand | | | 2018 | | | | 2017 | | | | 2016 | | Alex Wynaendts1 | | | 1,681 | | | | 1,670 | | | | 1,631 | | | | | | Matt Rider2 | | | 367 | | | | 224 | | | | - | | | | | | Darryl Button3 | | | - | | | | - | | | | 375 | | Total pension contributions | | | 2,048 | | | | 1,894 | | | | 2,006 | |
1 | The increase Mr. Wynaendts’ fixed compensation in 2016 and 2018 resulted in a back service liability of EUR 1,361 and EUR 340 respectively. The 2016 back service liability is expensed over 2016-2019 (2018: EUR 442; 2017: EUR 432; 2016: EUR 416).
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2 | Mr. Rider was appointed as CFO and member of Aegon’s Executive Board per May 19, 2017. Pension contributions are disclosed for the period that Mr. Rider has been part of the Executive Board.
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3 | Mr. Button stepped down as CFO and member of Aegon’s Executive Board on December 1, 2016. Pension contributions are disclosed for the period that Mr. Button has been part of the Executive Board and are reflective of his time with Aegon until December 1, 2016. Expenses recognized under IFRS accounting treatment in the income statement for Mr. Button for 2016 amount to EUR 375 (2015: EUR 215).
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Pension contributions reflect the expenses related to the pension accrual over the financial year disclosed in the table, excluding back service charges.
The amounts as presented in the table are the pension contributions in the related book year. The 2016-2018 contributions for Mr. Wynaendts to the Aegon pension funds reflect the increase to his fixed salary in 2016 and 2018, as well as the current low interest rates. Under IFRS, the service cost as recognized in the income statement related to the defined benefit obligation of Mr. Wynaendts amounted to EUR 1,952 (2017: EUR 1,733; 2016: EUR 1,666). Service cost for Mr. Rider amounted to EUR 379 (2017: 175; 2016: nil).
Total
The total amount of remuneration, consisting of the fixed compensation, conditional variable compensation awards, other benefits and pension contributions, for Mr. Wynaendts related to 2018 was EUR 5,015 (2017: EUR 4,683; 2016: EUR 4,538) and for Mr. Rider EUR 2,091 (2017: EUR 1,342). The total remuneration for the members of the Executive Board over 2018 was EUR 7.1 million (2017: EUR 6.0 million; 2016: EUR 7.3 million). Total expenses recognized under IFRS accounting treatment in the income statement for Mr. Wynaendts related to 2018 was EUR 4,403 (2017: EUR 4,258; 2016: EUR 4,086) and for Mr. Rider EUR 1,887 (2017: 1,088; 2016: nil). Total IFRS expenses for the members of the Executive Board over 2018 was EUR 6.3 million (2017: EUR 5.3 million; 2016: 8.0 million). As a result of the termination of the Board membership of Mr. Button in 2016, an additional Dutch employer wage tax was estimated at EUR 1,394 in 2016. In 2017 it turned out that based on the actual situation and the expected value of the deferred compensations no additional Dutch employer wage tax will be due.report.
Interests in Aegon N.V. held by active members of the Executive Board Shares held in Aegon at December 31, 20182019 by Mr. Wynaendts amount to 494,779 (2017: 448,601)544,914 (2018: 494,779) and by Mr. Rider to 20,462 (2017: nil)42,972 (2018: 20,462). Mr. Rider was appointed as CFO and member of Aegon’s Executive Board per May 19, 2017. The shares held in Aegon mentioned above do not exceed 1% of total outstanding share capital at the reporting date. At the reporting date no loans with Aegon or outstanding balances such as guarantees or advanced payments exist for either Mr. Wynaendts or Mr. Rider. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 306 | | Notes to the consolidated financial statements Note 53 | | | | | | |
Remuneration of active and retired members of the Supervisory Board
| | | | | | | | | | | | | | In EUR | | 2018 | | | 2017 | | | 2016 | | William L. Connelly (as of May 19, 2017) | | | 119,000 | | | | 60,125 | | | | - | | | | | | Robert W. Dineen | | | 100,500 | | | | 104,000 | | | | 115,000 | | | | | | Mark A. Ellman (as of May 19, 2017) | | | 103,000 | | | | 70,125 | | | | - | | | | | | Ben J. Noteboom | | | 86,000 | | | | 101,500 | | | | 109,000 | | | | | | Ben van der Veer | | | 101,000 | | | | 106,000 | | | | 109,000 | | | | | | Corien M. Wortmann-Kool | | | 103,000 | | | | 100,750 | | | | 90,000 | | | | | | Dona D. Young | | | 120,500 | | | | 115,500 | | | | 113,000 | | Total for active members | | | 733,000 | | | | 658,000 | | | | 536,000 | | Irving W. Bailey, II (up to May 20, 2016) | | | - | | | | - | | | | 53,625 | | | | | | Shemaya Levy (up to May 19, 2017) | | | - | | | | 40,375 | | | | 95,250 | | | | | | Robert J. Routs (up to May 18, 2018) | | | 47,625 | | | | 134,000 | | | | 140,000 | | | | | | Dirk P.M. Verbeek (up to May 18, 2018) | | | 28,750 | | | | 100,000 | | | | 111,000 | | Total remuneration | | | 809,375 | | | | 932,375 | | | | 935,875 | | VAT liable on Supervisory Board remuneration | | | 169,969 | | | | 195,799 | | | | 196,534 | | Total | | | 979,344 | | | | 1,128,174 | | | | 1,132,409 | |
Aegon’s Supervisory Board members are entitled to the following:
◆ | | A base fee for membership of the Supervisory Board. No separate attendance fees are paid to members for attendance at the regular Supervisory Board meetings (2018: 7 meetings; 2017: 7 meetings; 2016: 8 meetings); |
◆ | | An attendance fee of EUR 3,000 for each extra Board meeting attended, be it in person or by video and/or telephone conference; |
◆ | | A committee fee for members on each of the Supervisory Board’s Committees; |
◆ | | An attendance fee for each Committee meeting attended, be it in person or through video and/or telephone conference; and |
◆ | | An additional fee for attending meetings that require intercontinental travel between the Supervisory Board member’s home location and the meeting location. |
Not included in the table above is a premium for state health insurance paid on behalf of Dutch Supervisory Board members. There are no outstanding balances such as loans, guarantees or advanced payments.
Common shares held by Supervisory Board members | Shares held in Aegon at December 31 | | | 2018 | | | | 2017 | | | 2019 | | | 2018 | | Robert W. Dineen | | | 10,000 | | | | 10,000 | | | | Robert W. Dineen (up to October 11, 2019) | | | | - | | | | 10,000 | | Ben J. Noteboom | | | 23,500 | | | | 23,500 | | | | 23,500 | | | | 23,500 | | | Ben van der Veer | | | 1,450 | | | | 1,450 | | | | 1,450 | | | | 1,450 | | | Dirk P.M. Verbeek | | | 1,011 | | | | 1,011 | | | | Dona D. Young | | | 13,260 | | | | 13,260 | | | | 13,260 | | | | 13,260 | | Total | | | 49,221 | | | | 49,221 | | | | 38,210 | | | | 48,210 | |
Shares held by Supervisory Board members are only disclosed for the period for which they have been part of the Supervisory Board. At the reporting date no loans with Aegon or outstanding balances such as guarantees or advanced payments exist for the members of the Supervisory Board. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | | 307 | | | | Notes to the consolidatedConsolidated financial statements of Aegon N.V.Note 5451 | | | | | | | | | | | | |
5451 Events after the reporting period
On January 8, 2019,29, 2020, Aegon announced the completion of the sale of its businesses50% stake in Czech Republicthe Japanese variable annuity joint ventures, Aegon Sony Life Insurance Co. and Slovakia. The businesses consists mainly of unit linked life insurance coverage, term life products and pension services.SA Reinsurance Ltd., to partner Sony Life. The proceeds of the sale amountamounted to EUR 155153 million and the book gain amountsamounted to approximately EUR 8051 million. As On February 3, 2020, Aegon’s subsidiary in the Americas, Transamerica accepted an offer to sell the Transamerica Pyramid property in San Francisco for a consideration of EUR 635 million (USD 711 million). The sale is expected to close in the second quarter of 2020. Since January 2020, the Coronavirus disease (COVID-19) outbreak is causing significant disruption to society, impacting Aegon, its employees, suppliers and customers worldwide. Financial markets have been severely impacted by significant decreases in interest rates, equity markets and commodity prices and by credit spreads widening. Governments and central banks worldwide are responding to this crisis with aid packages and further quantitative easing. At the date of this report the depth and length of this crisis is unknown. The Company is continuously monitoring the market and economic turbulence that has arisen as a consequence of the transaction, annual income before taxCOVID-19 outbreak, and underlying earnings before tax will decrease. In 2018,its impact on Aegon. The most significant risks Aegon faces are related to financial markets (particularly credit, equity and interest rates), and underwriting risks (particularly related to mortality, morbidity and policyholder behavior). The notes to Aegon’s financial statements include elaborate descriptions and related financial market sensitivities. Aegon continues to monitor claim activity, including mortality and morbidity claims, and policyholder behavior. At the underlying earnings before taxdate of this report it is too early to tell what the impact of the combined operations amountedCOVID-19 crisis is on Aegon’s underwritings results and Aegon’s long term underwriting and economic assumptions, if any. Because of the far-reaching measures governments around the world are taking to EUR 17 million. control the impact of this pandemic we expect the sale of new business to be impacted by these measures. At the date of this report it remains too early to tell what the impact of these measures will be on Aegon’s sales. Lower interest rates are also likely to impact the profitability of Aegon’s sales depending on the market response. Aegon ceded businesseshas invoked its business continuity plans to a subsidiary of Scottish Re Group. In January 2018, Scottish Re Group announced a salehelp ensure the safety and restructuring plan and commenced Chapter 11 (reorganization) procedures for somewell-being of its subsidiaries. In December 2018, the Delaware Department of Insurance began also oversight procedures of the Scottish Re Group subsidiary ‘SRUS’ with whom Aegon is a counterparty for some ofstaff, as well as its reinsurance activities. On March 1, 2019, the Delaware Department of Insurance requested SRUScapability to be placed in rehabilitation. The Company’s management closely monitors the current developments but is not yet able to assess whethersupport its outstanding reservescustomers and receivables will be recoverable. The reservesmaintain its business operations, while maintaining our financial and receivables of Aegon to Scottish Re Group at December 31, 2018 are less than EUR 100 million. The Hague, the Netherlands, March 21, 2019operational resilience.
| | | | The Hague, the Netherlands, March 18, 2020 | | | | | | Supervisory Board | | Executive Board | | | William L. Connelly | | Alexander R. Wynaendts | | | Robert W. DineenMark A. Ellman | | Matthew J. Rider | | | Mark A. EllmanBen J. Noteboom | | | | | Ben J. Noteboomvan der Veer | | | | | Ben van der VeerCorien M. Wortmann-Kool | | | | | Corien M. Wortmann-Kool | | | | | Dona D. Young | | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | | 308 | | | | Consolidated financial statements of Aegon N.V.Note 51 | | | | | | | | | | | | |
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| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 309310 | | | | Financial statements of Aegon N.V. | | | | | | | | | | | | |
Income statement of Aegon N.V. For the year ended December 31 | Amounts in EUR million | | | Note | | | | 2018 | | | 2017 | | | Note | | | 2019 | | | 2018 | | Income | | | | | | | | | | | | | | Investment Income | | | 3 | | | | 77 | | | 83 | | | | 3 | | | | 47 | | | 77 | | Total revenues | | | | | 77 | | | 83 | | | | | | 47 | | | 77 | | | Results from financial transactions | | | 4 | | | | (1 | ) | | 56 | | | | 4 | | | | (15 | ) | | (1 | ) | Total income | | | | | 76 | | | 139 | | | | | | 32 | | | 76 | | | Charges | | | | | | | | | | | | | | Commissions and expenses | | | 5 | | | | 82 | | | 82 | | | | 5 | | | | 74 | | | 82 | | | Interest charges and related fees | | | 6 | | | | 118 | | | 100 | | | | 6 | | | | 139 | | | 118 | | Total charges | | | �� | | | 200 | | | | 182 | | | | | | 213 | | | 200 | | | | | | | | | | Income before tax | | | | | (124 | ) | | (43 | ) | | | | | (181 | ) | | (124 | ) | | Income Tax | | | 7 | | | | 2 | | | 1 | | | | 7 | | | | 40 | | | 2 | | Income after tax | | | | | (122 | ) | | | (42 | ) | | | | | (141 | ) | | (122 | ) | | Net income/(loss) group companies | | | | | 832 | | | 2,511 | | | | 8 | | | | 1,379 | | | 832 | | Net income/(loss) | | | | | 710 | | | 2,469 | | | Net income / (loss) | | | | | | 1,239 | | | 710 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 310311 | | | | Financial statements of Aegon N.V. | | | | | | | | | | | | |
Statement of financial position of Aegon N.V. As at December 31 | Before profit appropriation, amounts in EUR million | | | Note | | | | 2018 | | | 2017 | | | Note | | | 2019 | | | 2018 1) | | | Non-current assets | | | | | | | | | | | | | | Financial fixed assets | | | | | | | | | | | | | | Shares in group companies | | | 8 | | | | 22,168 | | | 23,117 | | | | 8 | | | | 25,045 | | | 22,143 | | | Loans to group companies | | | 9 | | | | 2,487 | | | 2,690 | | | | 9 | | | | 1,337 | | | 2,487 | | | | | | | 24,655 | | | 25,807 | | | | | | 26,382 | | | 24,630 | | | Current assets | | | | | | | | | | | | | | Receivables | | | | | | | | | | | | | | Receivables from group companies | | | 10 | | | | 35 | | | 36 | | | | 10 | | | | 112 | | | 35 | | | Other receivables | | | 10 | | | | 137 | | | 146 | | | | 10 | | | | 175 | | | 137 | | | Other current assets | | | 11 | | | | 137 | | | 74 | | | | 11 | | | | 124 | | | 137 | | | Accrued interest and rent | | | | | 16 | | | 8 | | | | | | 13 | | | 16 | | | | | | | 325 | | | 264 | | | | | | 424 | | | 325 | | | Cash and cash equivalents | | | | | | | | | | | | | | Cash and cash equivalents | | | | | 1,231 | | | 1,068 | | | | | | 1,032 | | | 1,231 | | Total assets | | | | | 26,211 | | | 27,139 | | | | | | 27,838 | | | 26,186 | | | Shareholders’ equity | | | | | | | | | | | | | | Share capital | | | 12 | | | | 322 | | | 322 | | | | 12 | | | | 323 | | | 322 | | | Paid-in surplus | | | 13 | | | | 7,486 | | | 7,731 | | | | 13 | | | | 7,213 | | | 7,486 | | | Revaluation account | | | 13 | | | | 3,565 | | | 5,017 | | | | 13 | | | | 6,116 | | | 3,540 | | | Legal reserves – foreign currency translation reserve | | | 13 | | | | 130 | | | (401 | ) | | | 13 | | | | 426 | | | 130 | | | Legal reserves in respect of group companies | | | 13 | | | | 1,326 | | | 1,122 | | | | 13 | | | | 1,703 | | | 1,326 | | | Retained earnings, including treasury shares | | | 13 | | | | 7,536 | | | 5,696 | | | | 13 | | | | 7,227 | | | 7,536 | | | Remeasurement of defined benefit plans of group companies | | | 13 | | | | (1,850 | ) | | (1,669 | ) | | | 13 | | | | (2,397 | ) | | (1,850 | ) | | Net income/(loss) | | | 13 | | | | 710 | | | 2,469 | | | Net income / (loss) | | | | 13 | | | | 1,239 | | | 710 | | | | | | | 19,225 | | | 20,288 | | | | | | 21,850 | | | 19,200 | | Other equity instruments | | | 14 | | | | 3,320 | | | 3,794 | | | | 14 | | | | 2,571 | | | 3,320 | | Total equity | | | | | 22,546 | | | 24,082 | | | | | | 24,421 | | | 22,520 | | | Provisions | | | | | | | | | | | | | Deferred tax liability | | | | | 10 | | | 89 | | | | | | - | | | 10 | | | | | | | 10 | | | 89 | | | | | | - | | | 10 | | | Non-current liabilities | | | | | | | | | | | | | | Subordinated borrowings | | | 15 | | | | 1,389 | | | 764 | | | | 15 | | | | 1,403 | | | 1,389 | | | Long-term borrowings | | | 16 | | | | 1,292 | | | 1,801 | | | | 16 | | | | 1,257 | | | 1,292 | | | | | | | 2,681 | | | 2,565 | | | | | | 2,660 | | | 2,681 | | | Current liabilities | | | 17 | | | | | | | | 17 | | | | | | | Short term deposits | | | | | 82 | | | 73 | | | | | | - | | | 82 | | | Loans from group companies | | | | | 9 | | | 62 | | | | | | 6 | | | 9 | | | Payables to group companies | | | | | 582 | | | 123 | | | | | | 484 | | | 582 | | | Other current liabilities | | | | | 271 | | | 125 | | | | | | 236 | | | 271 | | | Accruals and deferred income | | | | | 31 | | | 22 | | | | | | 31 | | | 31 | | | | | | | | 975 | | | | 405 | | | | | | 757 | | | | 975 | | Total liabilities | | | | | 3,666 | | | | 2,970 | | | | | | 3,417 | | | 3,666 | | | | | | | | | ‘ | | | | Total equity and liabilities | | | | | 26,211 | | | 27,139 | | | | | | 27,838 | | | 26,186 | |
| 1 | Amounts have been restated to reflect voluntary changes in accounting policies related to liability adequacy testing that was adopted by Aegon effective January 1, 2019. Refer to note 2.1.2 Voluntary changes in accounting policies in the consolidated notes for details about this change. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 311312 | | | | Notes to the financial statements of Aegon N.V. Note 1 | | | | | | | | | | | | |
Notes to the financial statements 1 General information Aegon N.V., incorporated and domiciled in the Netherlands, is a public limited liability company organized under Dutch law and recorded in the Commercial Register of The Hague registered under number 27076669 and with its registered address at Aegonplein 50, 2591 TV, The Hague, the Netherlands. Aegon N.V. serves as the holding company for the Aegon Group and has listings of its common shares in Amsterdam and New York. Aegon N.V. (or ‘the Company’) and its subsidiaries (‘Aegon’ or ‘the Group’) have life insurance and pensions operations in more than 20 countries in the Americas, Europe and Asia and are also active in savings and asset management operations, accident and health insurance, general insurance and to a limited extent banking operations. Headquarters are located in The Hague, the Netherlands. The Group employs over 26,00023,000 people worldwide (2017:(2018: over 28,000)26,000). 2 Significant accounting policies The financial statements have been prepared in accordance with accounting principles in the Netherlands as embodied in Part 9 of Book 2 of the Netherlands Civil Code. In accordance with 2:362.8 of the Dutch Civil Code, the Company’s financial statements are prepared based on the accounting principles of recognition, measurement and determination of profit, as applied in the consolidated financial statements. These principles also include the classification and presentation of financial instruments, being equity instruments or financial liabilities. The group companies are stated at their net asset value, determined on the basis of the consolidated accounting policies as applied in the consolidated financial statements of the Group. For details on the accounting policies applied for the group companies refer to the consolidated financial statements. Revaluation account includes unrealized gains and losses onavailable-for-sales assets and the positive changes in value that have been recognized in net income/(loss) relating to investments (including real estate) and which do not have a frequent market listing. Legal reserves in respect of group companies include net increases in net asset value of subsidiaries and associates since their first inclusion, less any amounts that can be distributed without legal restrictions. A reference is made to Note 2 Significant accounting policies of the consolidated financial statements for the description of the accounting policies applied. 3 Investment income | | | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | Interest income from intercompany loans | | | 66 | | | 65 | | | | 51 | | | 66 | | | Interest income from derivatives | | | 11 | | | 18 | | | | (4 | ) | | 11 | | | | | | | Total Investment Income | | | 77 | | | 83 | | | | 47 | | | 77 | | | | | | | | 4 Results from financial transactions | | | | | | | | | | | | | 2018 | | | 2017 | | | | | | | | | | | 2019 | | | 2018 | | Results from financial transactions comprise: | | | | | | | | | | Net fair value change of derivatives | | | (8 | ) | | 56 | | | | (22 | ) | | (8 | ) | | Net foreign currency gains and (losses) | | | 3 | | | | - | | | | 3 | | | 3 | | | Net fair value change on borrowings and other financial liabilities | | | 4 | | | | - | | | | 4 | | | 4 | | Total | | | (1 | ) | | 56 | | | | (15 | ) | | (1 | ) |
Net fair value change of derivatives mostly comprises of Fair value changes on derivatives that are designated as economic hedges for which no hedge accounting is applied. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 312313 | | | | Notes to the financial statements of Aegon N.V. Note 5 | | | | | | | | | | | | |
5 Commissions and expenses | | | | | | | | | | | | | 2018 | | | | 2017 | | Employee expenses | | | 83 | | | | 80 | | | | | Administration expenses | | | 79 | | | | 78 | | | | | Cost sharing to group companies | | | (80 | ) | | | (76 | ) | | | | | Total | | | 82 | | | | 82 | |
6 Interest charges and related fees
| | | | | | | | | | | | | | | 2019 | | | 2018 | | Employee expenses | | | 88 | | | | 83 | | Administration expenses | | | 77 | | | | 79 | | Cost sharing to group companies | | | (91 | ) | | | (80 | ) | Total | | | 74 | | | | 82 | | | | | | | | | | | | 6 Interest charges and related fees | | | | | | | | | | | | | | | | | | | | | | | | 2019 | | | 2018 | | Subordinated borrowings | | | 80 | | | | 63 | | Borrowings | | | 57 | | | | 55 | | Other | | | 2 | | | | - | | Total | | | 139 | | | | 118 | | | | | | | | | | | | 7 Income tax | | | | | | | | | | | | | | | | | | | | | | | | 2019 | �� | | 2018 | | Current Tax | | | | | | | | | Current Tax | | | 40 | | | | 2 | | Income tax for the period (income) / charge | | | 40 | | | | 2 | | | | | Reconciliation between standard and effective tax | | | | | | | | | Income before tax | | | (181 | ) | | | (124 | ) | Tax on income on Dutch corporate income tax rate | | | 45 | | | | 31 | | | | | Differences due to the effect of: | | | | | | | | | Non deductible expenses | | | (6 | ) | | | (5 | ) | Adjustments prior year | | | - | | | | (24 | ) | Total | | | 40 | | | | 2 | | | | | | | | | | | | 8 Shares in group companies | | | | | | | | | | | | | | | | | | | | | | | | 2019 | | | 2018 | | At January 1 | | | 22,143 | | | | 23,117 | | Restated opening balance1) | | | (44 | ) | | | (22 | ) | At January 1 (restated) | | | 22,099 | | | | 23,095 | | Capital contributions and acquisitions | | | 231 | | | | 97 | | Divestments and capital repayments | | | (6 | ) | | | (23 | ) | Dividend received | | | (872 | ) | | | (702 | ) | Net income / (loss) for the financial year | | | 1,379 | | | | 831 | | Revaluations | | | 2,214 | | | | (1,157 | ) | At December 31 | | | 25,045 | | | | 22,143 | |
| | | | | | | | | | | | | 2018 | | | | 2017 | | Subordinated borrowings | | | 63 | | | | 34 | | | | | Borrowings | | | 55 | | | | 62 | | | | | Other | | | - | | | | 4 | | Total | | | 118 | | | | 100 | |
7 Income tax
| | | | | | | | | | | | | 2018 | | | | 2017 | | Current Tax | | | | | | | | | | | | Current Tax | | | 2 | | | | 1 | | | | | | Income tax for the period (income)/charge | | | 2 | | | | 1 | | | | | Reconciliation between standard and effective tax | | | | | | | | | | | | Income before tax | | | (124 | ) | | | (43 | ) | | | | Tax on income on Dutch corporate income tax rate | | | 31 | | | | 11 | | | | | Differences due to the effect of: | | | | | | | | | | | | Non deductible expenses | | | (5 | ) | | | (11 | ) | | | | Adjustments prior year | | | (24 | ) | | | - | | Total | | | 2 | | | | 1 | |
8 Shares in group companies
| | | | | | | | | | | | | 2018 | | | | 2017 | | At January 1 | | | 23,117 | | | | 22,219 | | | | | Capital contributions and acquisitions | | | 97 | | | | 1,006 | | | | | Divestments and capital repayments | | | (23 | ) | | | (698 | ) | | | | Dividend received | | | (702 | ) | | | (120 | ) | | | | Net income/(loss) for the financial year | | | 831 | | | | 2,511 | | | | | Revaluations | | | (1,154 | ) | | | (1,799 | ) | At December 31 | | | 22,168 | | | | 23,117 | |
| 1 | See in consolidated financial statements note 2.1.1 for details about the impact of adopting IFRS 16 on Leases and note 2.1.2 for details about the impact of voluntary change in accounting policy on Liability Adequacy Testing |
For a list of names and locations of the most important group companies, refer to note 5249 Group companies of the consolidated financial statements of the Group. The legally required list of participations as set forth in article 379 of Book 2 of the Netherlands Civil Code has been registered with the Commercial Register of The Hague. 9 Loans to group companies
| | | | | | | | | | | | | 2018 | | | | 2017 | | At January 1 | | | 2,690 | | | | 4,123 | | | | | Additions/(repayments) | | | (333 | ) | | | (990 | ) | | | | Other changes | | | 131 | | | | (443 | ) | At December 31 | | | 2,487 | | | | 2,690 | | | | | Current | | | 60 | | | | 439 | | | | | Non-current | | | 2,427 | | | | 2,251 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 313314 | | | | Notes to the financial statements of Aegon N.V. Note 109 | | | | | | | | | | | | |
9 Loans to group companies | | | | | | | | | | | | | | | 2019 | | | 2018 | | At January 1 | | | 2,487 | | | | 2,690 | | Additions / (repayments) | | | (1,194 | ) | | | (333 | ) | Other changes | | | 45 | | | | 131 | | At December 31 | | | 1,337 | | | | 2,487 | | | | | | | | | | | Current | | | 957 | | | | 2,427 | | Non-current | | | 380 | | | | 60 | |
The other changes in Loans to group companies mainly relate to currency exchange rate fluctuations. 10 Receivables Receivables from group companies and other receivables have a maturity of less than one year. Other receivables include an income tax receivable of EUR 134 million (2018: EUR 88 million (2017: EUR 130 million). Aegon N.V., together with certain of its subsidiaries, is part of a tax grouping for Dutch corporate income tax purposes. The members of the fiscal unit are jointly and severally liable for any taxes receivable or payable by the Dutch tax grouping. 11 Other current assets Other current assets include derivatives with positive fair values of EUR 134120 million (2017:(2018: EUR 70134 million). 12 Share capital
| | 12 Share capital | | | | | | | | | | | | | Issued and outstanding capital | | | 2018 | | | | 2017 | | | 2019 | | | 2018 | | Common shares | | | 251 | | | | 251 | | | | 253 | | | | 251 | | | Common shares B | | | 70 | | | | 70 | | | | 70 | | | | 70 | | Total share capital | | | 322 | | | | 322 | | | | 323 | | | | 322 | | | | | | | | | | | Common shares | | | 2018 | | | | 2017 | | | 2019 | | | 2018 | | Authorized share capital | | | 720 | | | | 720 | | | | 720 | | | | 720 | | Number of authorized shares (in million) | | | | 6,000 | | | | 6,000 | | Par value in cents per share | | | | 12 | | | | 12 | | | Number of authorized shares (in million) | | | 6,000 | | | | 6,000 | | | | Par value in cents per share | | | 12 | | | | 12 | | | | | | | | | | | | | | | | Common shares B | | | 2018 | | | | 2017 | | | 2019 | | | 2018 | | Authorized share capital | | | 360 | | | | 360 | | | | 360 | | | | 360 | | | Number of authorized shares (in million) | | | 3,000 | | | | 3,000 | | | | 3,000 | | | | 3,000 | | | Par value in cents per share | | | 12 | | | | 12 | | | | 12 | | | | 12 | |
All issued common shares and common shares B each have a nominal value of EUR 0.12 and are fully paid up. Repayment of capital can only be initiated by the Executive Board, is subject to approval of the Supervisory Board and must be resolved by the General Meeting of Shareholders. Moreover, repayment on common shares B needs approval of the related shareholders. Refer to Other information for further information on dividend rights. Vereniging Aegon, based in The Hague, the Netherlands, holds all of the issued and outstanding common shares B. On December 23, 2019 Aegon N.V. repurchased 13,227,120 common shares B from Vereniging Aegon for the amount of EUR 1,384,046 based on 1/40th of the Value Weight Average Price of the common shares on the five trading days preceding this transaction. The repurchase of common shares B was executed to align the shareholding of Vereniging Aegon in Aegon N.V. with its special cause voting rights of 32.6%. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 315 | | | | Notes to the financial statements of Aegon N.V. Note 12 | | | | | | | | | | |
On May 17, 2019, Vereniging Aegon exercised its options rights to purchase 1,773,680 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by the issuance of shares on May 17, 2019, in connection with the Long Term Incentive Plans for senior management. On May 18, 2018, Vereniging Aegon exercised its options rights to purchase in aggregate 1,489,200 common shares B at fair value of a common share B (being 1/40th40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused the issuance of shares on May 18, 2018, in connection with the Long Term Incentive Plans for senior management. On December 19, 2017, Aegon N.V. repurchased 13,042,592 common shares B from Vereniging Aegon for the amount of EUR 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 N.V. with its special cause voting rights of 32.6% following the completion of the Share Buy Back Program, initiated by Aegon N.V. in October 2017 to neutralize the dilutive effect of the distribution of final dividend 2016 in stock and interim dividend 2017 in stock.
On June 23, 2017, Vereniging Aegon exercised its options rights to purchase in aggregate 13,042,612 common shares B at fair value of a common share B (based on 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by Aegon’s issuance of shares on June 23, 2017, being the final dividend 2016 in the form of stock dividend.
On May 19, 2017, Vereniging Aegon exercised its options rights to purchase in aggregate 1,979,260 common shares B at fair value of a common share B (based on 1/40th of the market value of a common share in the capital of the Company at the time
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 314 | | Notes to the financial statements of Aegon N.V. Note 12 | | | | | | |
of issuance) to mitigate dilution caused the issuance of shares on May 19, 2017, in connection with the Long Term Incentive Plans for senior management.
The following table shows the movement during the year in the number of common shares and common shares B: | | | | Common shares | | | Common shares B | | | Common shares | | | Common shares B | | | | | Number of shares
(thousands) | | | Total amount | | | Number of shares
(thousands) | | | Total amount | | | Number of shares | | | | | | Number of shares | | | | | At January 1, 2017 | | | 2,074,549 | | | | 249 | | | | 585,022 | | | | 70 | | | | | | (thousands) | | | Total amount | | | (thousands) | | | Total amount | | Dividend | | | 21,099 | | | | 3 | | | | - | | | | - | | | At December 31, 2017 | | | 2,095,648 | | | | 251 | | | | 585,022 | | | | 70 | | | | At January 1, 2018 | | | | 2,095,648 | | | | 251 | | | | 585,022 | | | | 70 | | Dividend | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | At December 31, 2018 | | | 2,095,648 | | | | 251 | | | | 585,022 | | | | 70 | | | | 2,095,648 | | | | 251 | | | | 585,022 | | | | 70 | | Dividend | | | | 9,491 | | | | 1 | | | | - | | | | - | | At December 31, 2019 | | | | 2,105,139 | | | | 253 | | | | 585,022 | | | | 70 | |
The following table shows the weighted average number of common shares and common shares B: | | | | Weighted average number of common shares (thousands) | | | Weighted average
number of common
shares B (thousands) | | | Weighted average number of | | | Weighted average number of | | 2017 | | | 2,080,792 | | | | 585,022 | | | | | | | common shares (thousands) | | | common shares B (thousands) | | 2018 | | | 2,095,648 | | | | 585,022 | | | | 2,095,648 | | | | 585,022 | | 2019 | | | | 2,098,326 | | | | 585,022 | |
The shares repurchased by Aegon N.V. during theshare-buy-back programs to undo the dilution caused by the distribution of dividend in stock, although included in the issued and outstanding number of shares, are excluded from the calculation of the weighted average number of shares. Long-term incentive plans For detailed information on the Long Term Incentive Plans refer to note 14 Commissions and expenses to the consolidated financial statements of the Group. Board remuneration Detailed information on remuneration of active and retired members of the Executive Board including their share plans, remuneration of active and retired members of the Supervisory Board along with information about shares held in Aegon by the members of the Boards is included in note 5350 Related party transactions to the consolidated financial statements of the Group.Group and in the remuneration report on page 54. | | | | | | | | | | | | Aegon Annual Report on Form 20F20-F20192018 | | |
| | | 315 | | Notes to the financial statements of Aegon N.V.Note 13 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |  | | |  | | |  | | |  | | |  | | |  | | |  | | |  | | |  | | |  | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | At January 1, 2018 | | | 322 | | | | 7,731 | | | | 5,017 | | | | (401 | ) | | | 1,122 | | | | 6,022 | | | | (1,669 | ) | | | (325 | ) | | | 2,469 | | | | 20,288 | | | | | | | | | | | | | Net income 2017 retained | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2,469 | | | | - | | | | - | | | | (2,469 | ) | | | - | | | | | | | | | | | | | Net income 2018 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 710 | | | | 710 | | Total net income/(loss) | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2,469 | | | | - | | | | - | | | | (1,759 | ) | | | 710 | | | | | | | | | | | | | Foreign currency translation differences and movement in foreign investment hedging reserves | | | - | | | | - | | | | - | | | | 531 | | | | - | | | | - | | | | (32 | ) | | | - | | | | - | | | | 499 | | | | | | | | | | | | | Changes in revaluation subsidiaries | | | - | | | | - | | | | (1,459 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,459 | ) | | | | | | | | | | | | Remeasurement of defined benefit plans of group companies | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (150 | ) | | | - | | | | - | | | | (150 | ) | | | | | | | | | | | | Changes and transfer to legal reserve | | | - | | | | - | | | | 7 | | | | - | | | | 204 | | | | (202 | ) | | | - | | | | - | | | | - | | | | 9 | | | | | | | | | | | | | Other | | | - | | | | - | | | | - | | | | - | | | | - | | | | (3 | ) | | | - | | | | - | | | | - | | | | (3 | ) | Other comprehensive income/(loss) | | | - | | | | - | | | | (1,452 | ) | | | 531 | | | | 204 | | | | (205 | ) | | | (182 | ) | | | - | | | | - | | | | (1,105 | ) | | | | | | | | | | | | Shares issued | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | | | | | | | | | | Dividend common shares | | | - | | | | (244 | ) | | | - | | | | - | | | | - | | | | (329 | ) | | | - | | | | - | | | | - | | | | (573 | ) | | | | | | | | | | | | Dividend withholding tax reduction | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1 | | | | - | | | | - | | | | - | | | | 1 | | | | | | | | | | | | | Treasury shares | | | - | | | | - | | | | - | | | | - | | | | - | | | | 26 | | | | - | | | | (12 | ) | | | - | | | | 14 | | | | | | | | | | | | | Coupons and premium on convertible core capital securities and coupon on perpetual securities, net of tax | | | - | | | | - | | | | - | | | | - | | | | - | | | | (113 | ) | | | - | | | | - | | | | - | | | | (113 | ) | | | | | | | | | | | | Repurchased and sold own shares | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | At December 31, 2018 | | | 322 | | | | 7,486 | | | | 3,565 | | | | 130 | | | | 1,326 | | | | 7,872 | | | | (1,850 | ) | | | (337 | ) | | | 710 | | | | 19,225 | |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | | 316 | | | | Notes to the financial statements of Aegon N.V. Note 13 | | | | | | | | | | | | |
13 Shareholders’ equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Share capital | | | Paid- in surplus | | | Revaluation account | | | Legal
reserves
FCTR | | | Legal
reserves
group
companies | | | Retained
earnings | | | Remeasurement of defined benefit plans of group companies | | | Treasury
shares | | | Net
income/(loss) | | | Total | | At January 1, 20191) | | | 322 | | | | 7,486 | | | | 3,540 | | | | 130 | | | | 1,326 | | | | 7,872 | | | | (1,850 | ) | | | (337 | ) | | | 710 | | | | 19,200 | | Mandatory change in accounting policy | | | - | | | | - | | | | - | | | | - | | | | - | | | | (44 | ) | | | - | | | | - | | | | - | | | | (44 | ) | At January 1, 2019 (restated) | | | 322 | | | | 7,486 | | | | 3,540 | | | | 130 | | | | 1,326 | | | | 7,828 | | | | (1,850 | ) | | | (337 | ) | | | 710 | | | | 19,156 | | | | | | | | | | | | | Net income 2018 retained | | | - | | | | - | | | | - | | | | - | | | | - | | | | 710 | | | | - | | | | - | | | | (710 | ) | | | - | | Net income 2019 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,239 | | | | 1,239 | | Total net income / (loss) | | | - | | | | - | | | | - | | | | - | | | | - | | | | 710 | | | | - | | | | - | | | | 529 | | | | 1,239 | | | | | | | | | | | | | Foreign currency translation differences and movement in foreign investment hedging reserves | | | - | | | | - | | | | | | | | 296 | | | | - | | | | - | | | | (25 | ) | | | - | | | | - | | | | 271 | | Changes in revaluation subsidiaries | | | - | | | | - | | | | 2,460 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2,460 | | Changes in revaluation reserve real estate held for own use | | | - | | | | - | | | | (28 | ) | | | - | | | | - | | | | 25 | | | | | | | | | | | | | | | | (3 | ) | Remeasurement of defined benefit plans of group companies | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (522 | ) | | | - | | | | - | | | | (522 | ) | Changes and transfer to legal reserve | | | - | | | | - | | | | 143 | | | | - | | | | 377 | | | | (509 | ) | | | - | | | | - | | | | - | | | | 11 | | Other | | | - | | | | - | | | | - | | | | - | | | | - | | | | 15 | | | | - | | | | - | | | | - | | | | 15 | | Other comprehensive income / (loss) | | | - | | | | - | | | | 2,576 | | | | 296 | | | | 377 | | | | (469 | ) | | | (547 | ) | | | - | | | | - | | | | 2,234 | | | | | | | | | | | | | Shares issued | | | 1 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1 | | Dividends paid on common shares | | | - | | | | (273 | ) | | | - | | | | - | | | | - | | | | (309 | ) | | | - | | | | - | | | | - | | | | (583 | ) | Issuance and purchase of treasury shares | | | - | | | | - | | | | - | | | | - | | | | - | | | | (86 | ) | | | - | | | | 56 | | | | - | | | | (30 | ) | Issuance and redemption of other equity instruments | | | - | | | | - | | | | - | | | | - | | | | - | | | | (81 | ) | | | - | | | | - | | | | - | | | | (81 | ) | Coupons on perpetual securities | | | - | | | | - | | | | - | | | | - | | | | - | | | | (88 | ) | | | - | | | | - | | | | - | | | | (88 | ) | Incentive plans | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2 | | | | - | | | | - | | | | - | | | | 2 | | At December 31, 2019 | | | 323 | | | | 7,213 | | | | 6,116 | | | | 426 | | | | 1,703 | | | | 7,508 | | | | (2,397 | ) | | | (281 | ) | | | 1,239 | | | | 21,850 | |
| 1 | See in consolidated financial statements note 2.1.1 for details about the impact of adopting IFRS 16 on Leases and note 2.1.2 for details about the impact of voluntary change in accounting policy on Liability Adequacy Testing |
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| | At January 1, 2017 | | | 319 | | | | 7,873 | | | | 5,450 | | | | 1,316 | | | | 1,169 | | | | 5,966 | | | | (1,820 | ) | | | (190 | ) | | | 437 | | | | 20,520 | | | | | | | | | | | | | Net income 2016 retained | | | - | | | | - | | | | - | | | | - | | | | - | | | | 437 | | | | - | | | | - | | | | (437 | ) | | | - | | | | | | | | | | | | | Net income 2017 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2,469 | | | | 2,469 | | Total net income/(loss) | | | - | | | | - | | | | - | | | | - | | | | - | | | | 437 | | | | - | | | | - | | | | 2,032 | | | | 2,469 | | | | | | | | | | | | | Foreign currency translation differences and movement in foreign investment hedging reserves | | | - | | | | - | | | | - | | | | (1,717 | ) | | | - | | | | - | | | | 102 | | | | - | | | | - | | | | (1,615 | ) | | | | | | | | | | | | Changes in revaluation subsidiaries | | | - | | | | - | | | | (461 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (461 | ) | | | | | | | | | | | | Remeasurement of defined benefit plans of group companies | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 49 | | | | - | | | | - | | | | 49 | | | | | | | | | | | | | Changes and transfer to legal reserve | | | - | | | | - | | | | 28 | | | | - | | | | (47 | ) | | | (1 | ) | | | - | | | | - | | | | - | | | | (20 | ) | | | | | | | | | | | | Other | | | - | | | | - | | | | - | | | | - | | | | - | | | | 12 | | | | - | | | | - | | | | - | | | | 12 | | Other comprehensive income/(loss) | | | - | | | | - | | | | (433 | ) | | | (1,717 | ) | | | (47 | ) | | | 11 | | | | 151 | | | | - | | | | - | | | | (2,035 | ) | | | | | | | | | | | | Shares issued | | | 3 | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 3 | | | | | | | | | | | | | Dividend common shares | | | - | | | | (142 | ) | | | - | | | | - | | | | - | | | | (296 | ) | | | - | | | | - | | | | - | | | | (438 | ) | | | | | | | | | | | | Dividend withholding tax reduction | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2 | | | | - | | | | - | | | | - | | | | 2 | | | | | | | | | | | | | Treasury shares | | | - | | | | - | | | | - | | | | - | | | | - | | | | 30 | | | | - | | | | (136 | ) | | | - | | | | (106 | ) | | | | | | | | | | | | Coupons and premium on convertible core capital securities and coupon on perpetual securities, net of tax | | | - | | | | - | | | | - | | | | - | | | | - | | | | (131 | ) | | | - | | | | - | | | | - | | | | (131 | ) | | | | | | | | | | | | Repurchased and sold own shares | | | - | | | | - | | | | - | | | | - | | | | - | | | | 4 | | | | - | | | | - | | | | - | | | | 4 | | At December 31, 2017 | | | 322 | | | | 7,731 | | | | 5,017 | | | | (401 | ) | | | 1,122 | | | | 6,022 | | | | (1,669 | ) | | | (325 | ) | | | 2,469 | | | | 20,288 | |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 317 | | | | Notes to the financial statements of Aegon N.V. Note 13 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Share capital | | | Paid- in surplus | | | Revaluation account | | | Legal
reserves
FCTR | | | Legal
reserves
group
companies | | | Retained
earnings | | | Remeasurement of defined benefit plans of group companies | | | Treasury
shares | | | Net
income/(loss) | | | Total | | At January 1, 2018 | | | 322 | | | | 7,731 | | | | 5,017 | | | | (401 | ) | | | 1,122 | | | | 6,022 | | | | (1,669 | ) | | | (325 | ) | | | 2,469 | | | | 20,287 | | Changes in accounting policies related to liability adequancy testing | | | - | | | | - | | | | (22 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (22 | ) | At January 1, 2018 (restated)1) | | | 322 | | | | 7,731 | | | | 4,995 | | | | (401 | ) | | | 1,122 | | | | 6,022 | | | | (1,669 | ) | | | (325 | ) | | | 2,469 | | | | 20,265 | | | | | | | | | | | | | Net income 2017 retained | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2,469 | | | | - | | | | - | | | | (2,469 | ) | | | - | | Net income 2018 | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 710 | | | | 710 | | Total net income / (loss) | | | - | | | | - | | | | - | | | | - | | | | - | | | | 2,469 | | | | - | | | | - | | | | (1,759 | ) | | | 710 | | | | | | | | | | | | | Foreign currency translation differences and movement in foreign investment hedging reserves | | | - | | | | - | | | | - | | | | 531 | | | | - | | | | - | | | | (32 | ) | | | - | | | | - | | | | 499 | | Changes in revaluation subsidiaries | | | - | | | | - | | | | (1,462 | ) | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (1,462 | ) | Remeasurement of defined benefit plans of group companies | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | (150 | ) | | | - | | | | - | | | | (150 | ) | Changes and transfer to legal reserve | | | - | | | | - | | | | 7 | | | | - | | | | 204 | | | | (202 | ) | | | - | | | | - | | | | - | | | | 9 | | Other | | | - | | | | - | | | | - | | | | - | | | | - | | | | (3 | ) | | | - | | | | - | | | | - | | | | (3 | ) | Other comprehensive income / (loss) | | | - | | | | - | | | | (1,455 | ) | | | 531 | | | | 204 | | | | (205 | ) | | | (182 | ) | | | - | | | | - | | | | (1,108 | ) | | | | | | | | | | | | Dividend common shares | | | - | | | | (244 | ) | | | - | | | | - | | | | - | | | | (329 | ) | | | - | | | | - | | | | - | | | | (573 | ) | Dividend withholding tax reduction | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1 | | | | - | | | | - | | | | - | | | | 1 | | Treasury shares | | | - | | | | - | | | | - | | | | - | | | | - | | | | 26 | | | | - | | | | (12 | ) | | | - | | | | 14 | | Coupons and premium on convertible core capital securities and coupon on perpetual securities, net of tax | | | - | | | | - | | | | - | | | | - | | | | - | | | | (113 | ) | | | - | | | | - | | | | - | | | | (113 | ) | At December 31, 2018 | | | 322 | | | | 7,486 | | | | 3,540 | | | | 130 | | | | 1,326 | | | | 7,872 | | | | (1,850 | ) | | | (337 | ) | | | 710 | | | | 19,200 | |
| 1 | See in consolidated financial statements note 2.1.2 for details about the impact of voluntary change in accounting policy on Liability Adequacy Testing |
The balance of the revaluation account, which includes revaluation reserves for real estate and investments that do not have a frequent market listing, consisted of EUR 4,4596,438 million (2017:(2018: EUR 5,3804,434 million) of items with positive revaluation and of EUR 895323 million (2017:(2018: EUR 363895 million) of items with negative revaluation. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 318 | | | | Notes to the financial statements of Aegon N.V. Note 13 | | | | | | | | | | |
The revaluation account and legal reserves in respect of the foreign currency translation reserve (FCTR), group companies and other, can notthe revaluation reserves, cannot be freely distributed. In case of negative balances for individual reserves legally to be retained, no distributions can be made out of retained earnings to the level of these negative amounts. Certain of Aegon’s subsidiaries, principally insurance companies, are subject to restrictions on the amounts of funds they may transfer in the form of cash dividends or otherwise to their parent companies. There can be no assurance that these restrictions will not limit or restrict Aegon in its ability to pay dividends in the future. On the reporting date, Aegon N.V., and its subsidiaries held 62,562,07066,583,671 of its own common shares (2017: 65,650,650)(2018: 62,562,070) with a nominalpar value of EUR 0.12 each. Most of the shares have been purchased to neutralize the dilution effect of issued share dividend and to hedge share based payment plans for executives and employees. Aegon N.V. held 13,856,48025,309,920 of its own common shares B (2017:15,345,680)(2018:13,856,480) with a nominalpar value of EUR 0.12 each. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 317 | | Notes to the financial statements of Aegon N.V. Note 13 | | | | | | |
Movements in the number of treasury common shares held by Aegon N.V. were as follows: | | | | | | | | | | | | | | | | | | | | 2018 | | | 2017 | | | | | Number of shares
(thousands) | | | Amount | | | Number of shares
(thousands) | | | Amount | | At January 1 | | | 64,488 | | | | 314 | | | | 47,473 | | | | 178 | | | | | | | Transactions in 2018: | | | | | | | | | | | | | | | | | | | | | | Sale: transactions, average price EUR 3,76 | | | (3,070 | ) | | | (12 | ) | | | | | | | | | | | | | | Sale: 1 transaction, average price EUR 4.62 | | | (21,954 | ) | | | (101 | ) | | | | | | | | | | | | | | Purchase: 1 transaction, average price EUR 5.34 | | | 21,954 | | | | 117 | | | | | | | | | | | | | | | Sale: 1 transaction, average price EUR 5.09 | | | (24,134 | ) | | | (123 | ) | | | | | | | | | | | | | | Purchase: 1 transaction, average price EUR 5.43 | | | 24,134 | | | | 131 | | | | | | | | | | | | | | | Transactions in 2017: | | | | | | | | | | | | | | | | | | | | | | Sale: transactions, average price EUR 3.44 | | | | | | | | | | | (4,085 | ) | | | (14 | ) | | | | | | Sale: 1 transaction, average price EUR 3.68 | | | | | | | | | | | (26,916 | ) | | | (99 | ) | | | | | | Sale: 1 transaction, average price EUR 3.77 | | | | | | | | | | | (3,849 | ) | | | (14 | ) | | | | | | Purchase: 1 transaction, average price EUR 5.09 | | | | | | | | | | | 51,865 | | | | 263 | | At December 31 | | | 61,418 | | | | 326 | | | | 64,488 | | | | 314 | |
Movements in the number of treasury common shares B held by Aegon N.V. were as follows:
| | | | | | | | | | | | 2019 | | | 2018 | | | | | 2018 | | | 2017 | | | Number of shares | | | | | Number of shares | | | | | | | Number of shares
(thousands) | | Amount | | | Number of shares
(thousands) | | Amount | | | (thousands) | | Amount | | | (thousands) | | Amount | | At January 1 | | | 15,346 | | | 2 | | | | 17,325 | | | 2 | | | | 61,418 | | | 326 | | | 64,488 | | | 314 | | | Transactions in 2019: | | | | | | | | | | Sale: transactions, average price EUR 5.10 | | | | (3,657 | ) | | (19 | ) | | | | | Sale: 1 transaction, average price EUR 5.25 | | | | (32,874 | ) | | (173 | ) | | | | | Purchase: 1 transaction, average price EUR 4.52 | | | | 32,874 | | | 149 | | | | | | Sale: 1 transaction, average price EUR 5.16 | | | | (35,370 | ) | | (183 | ) | | | | | Purchase: 1 transaction, average price EUR 3.89 | | | | 43,150 | | | 168 | | | | | | | Transactions in 2018: | | | | | | | | | | | | | | | | | Sale: transactions, average price EUR 3,76 | | | | | | | (3,070 | ) | | (12 | ) | Sale: 1 transaction, average price EUR 4.62 | | | | | | | (21,954 | ) | | (101 | ) | Purchase: 1 transaction, average price EUR 5.34 | | | | | | | 21,954 | | | 117 | | Sale: 1 transaction, average price EUR 5.09 | | | | | | | (24,134 | ) | | (123 | ) | Purchase: 1 transaction, average price EUR 5.43 | | | | | | | 24,134 | | | 131 | | At December 31 | | | | 65,540 | | | 269 | | | 61,418 | | | 326 | | Movements in the number of treasury common shares B held by Aegon N.V. were as follows: | | Movements in the number of treasury common shares B held by Aegon N.V. were as follows: | | | | | | | 2019 | | | 2018 | | | | | | Number of shares | | | | | Number of shares | | | | | | | | (thousands) | | Amount | | | (thousands) | | Amount | | At January 1 | | | | 13,856 | | | 2 | | | 15,346 | | | 2 | | | Transactions in 2019: | | | | | | | | | | Sale: 1 transaction, average price EUR 0.12 | | | | (1,774 | ) | | | - | | | | | | Buy: 1 transaction, average price EUR 0.10 | | | | 13,227 | | | 1 | | | | | | | Transactions in 2018: | | | | | | | | | | Sale: 1 transaction, average price EUR 0.11 | | | (1,489 | ) | | | - | | | | | | | | | | | | (1,489 | ) | | | - | | | Transactions in 2017: | | | | | | | | | | | Sale: 1 transaction, average price EUR 0.11 | | | | | | | (1,979 | ) | | | - | | | | Sale: 1 transaction, average price EUR 0.11 | | | | | | | (13,043 | ) | | (1 | ) | | | Purchase: 1 transaction, average price EUR 0.13 | | | | | | | 13,043 | | | | 2 | | | At December 31 | | | 13,856 | | | 2 | | | | 15,346 | | | 2 | | | | 25,310 | | | 3 | | | 13,856 | | | 2 | |
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 included at their consideration paid or received. | | | | | | | | | | | | | | | | | | | | 2018 | | | 2017 | | | | | Number of shares
(thousands) | | | Total amount | | | Number of shares
(thousands) | | | Total amount | | Common shares | | | | | | | | | | | | | | | | | | | | | | Held by Aegon N.V. | | | 61,418 | | | | 326 | | | | 64,488 | | | | 314 | | | | | | | Held by subsidiaries | | | 1,144 | | | | 9 | | | | 1,163 | | | | 9 | | | | | | | Common shares B | | | | | | | | | | | | | | | | | | | | | | Held by Aegon N.V. | | | 13,856 | | | | 2 | | | | 15,346 | | | | 2 | | At December 31 | | | 76,419 | | | | 337 | | | | 80,996 | | | | 325 | |
The consideration for the related shares is deducted from or added to the retained earnings.
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 318319 | | | | Notes to the financial statements of Aegon N.V. Note 14 | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | 2019 | | | 2018 | | | | | Number of shares
(thousands) | | | Total amount | | | Number of shares
(thousands) | | | Total amount | | Common shares | | | | | | | | | | | | | | | | | Held by Aegon N.V. | | | 65,540 | | | | 269 | | | | 61,418 | | | | 326 | | Held by subsidiaries | | | 1,043 | | | | 9 | | | | 1,144 | | | | 9 | | Common shares B | | | | | | | | | | | | | | | | | Held by Aegon N.V. | | | 25,310 | | | | 3 | | | | 13,856 | | | | 2 | | At December 31 | | | 91,893 | | | | 281 | | | | 76,419 | | | | 337 | |
The consideration for the related shares is deducted from or added to the retained earnings. 14 Other equity instruments | | | | Junior perpetual
capital securities | | Perpetual
cumulative
subordinated
bonds | | | Share options
and incentive
plans1) | | Non-cumulative subordinated notes | | Total | | | Perpetual
contingent
convertible
securities | | | Junior
perpetual
capital
securities | | Perpetual
cumulative
subordinated
bonds | | | Non-cumulative
subordinated
notes | | Long Term
Incentive Plans1) | | Total | | At January 1, 2019 | | | | - | | | | 2,808 | | | 454 | | | | - | | | 58 | | | 3,320 | | Shares granted | | | | - | | | | - | | | | - | | | | - | | | 21 | | | 21 | | Shares vested | | | | - | | | | - | | | | - | | | | - | | | (26 | ) | | (26 | ) | Securities issued | | | | 500 | | | | - | | | | - | | | | - | | | | - | | | 500 | | Securities redeemed | | | | - | | | | (1,244 | ) | | | - | | | | - | | | | - | | | (1,244 | ) | At December 31, 2019 | | | | 500 | | | | 1,564 | | | 454 | | | | - | | | 53 | | | 2,571 | | | At January 1, 2018 | | | 3,008 | | | 454 | | | | 61 | | | 271 | | | 3,794 | | | | - | | | | 3,008 | | | 454 | | | | 271 | | | 61 | | | 3,794 | | | Shares granted | | | - | | | | - | | | | 16 | | | | - | | | 16 | | | | - | | | | - | | | | - | | | | - | | | 16 | | | 16 | | | Shares vested | | | - | | | | - | | | | (19 | ) | | | - | | | (19 | ) | | | - | | | | - | | | | - | | | | - | | | (19 | ) | | (19 | ) | | Securities redeemed | | | (200 | ) | | | - | | | | - | | | (271 | ) | | (471 | ) | | | - | | | | (200 | ) | | | - | | | | (271 | ) | | | - | | | (471 | ) | At December 31, 2018 | | | 2,808 | | | 454 | | | | 58 | | | | - | | | 3,320 | | | | - | | | | 2,808 | | | 454 | | | | - | | | 58 | | | 3,320 | | | At January 1, 2017 | | | 3,008 | | | 454 | | | | 65 | | | 271 | | | 3,797 | | | | Shares granted | | | - | | | | - | | | | 26 | | | | - | | | 26 | | | | Shares vested | | | - | | | | - | | | | (30 | ) | | | - | | | (30 | ) | | At December 31, 2017 | | | 3,008 | | | 454 | | | | 61 | | | 271 | | | 3,794 | | |
| 1 | Share options and incentive plansLong Term Incentive Plans include the shares and options granted to personnel which are not yet vested.
|
| | | | | | | | | | | | | | | | | | | | | | Junior perpetual capital securities | | Coupon rate | | | Coupon date, as of | | | Year of next call | | | 2018 | | | 2017 | | USD 500 million | | | 6.50% | | | | Quarterly, December 15 | | | | 2019 | | | | 424 | | | | 424 | | | | | | | | USD 250 million | | | floating LIBOR rate 1 | | | | Quarterly, December 15 | | | | 2019 | | | | 212 | | | | 212 | | | | | | | | USD 500 million | | | floating CMS rate2 | | | | Quarterly, July 15 | | | | 2019 | | | | 402 | | | | 402 | | | | | | | | USD 1 billion | | | 6.375% | | | | Quarterly, June 15 | | | | 2019 | | | | 821 | | | | 821 | | | | | | | | EUR 950 million | | | floating DSL rate3 | | | | Quarterly, July 15 | | | | 2019 | | | | 950 | | | | 950 | | | | | | | | EUR 200 million | | | 6.0% | | | | Annually, July 21 | | | | Called in 2018 | | | | - | | | | 200 | | At December 31 | | | | | | | | | | | | | | | 2,808 | | | | 3,008 | |
| | | | | | | | | | | | | | | | | | | | | | Perpetual contingent convertible securities | | Coupon rate | | | Coupon date | | | Year of next call | | | 2019 | | | 2018 | | EUR 500 million | | | 5.625% | | | | Semi-annually, April 15 | | | | 2029 | | | | 500 | | | | - | | At December 31 | | | | | | | | | | | | | | | 500 | | | | - | |
The perpetual contingent convertible securities of EUR 500 million issued on April 4, 2019 have a fixed coupon of 5.625% until the first call date and reset thereafter to 5 year mid swap plus a margin of 5.207%. The securities have been issued at par and have subordination provisions, rank junior to all other liabilities and senior to shareholders’ equity only. The conditions of the securities contain certain provisions for optional and required coupon payment cancelation. Although the securities have no stated maturity, Aegon has the right to call the securities for redemption at par for the first time between April 15, 2029 and October 15, 2029 and every reset date (October 15, with five year intervals) thereafter. Upon breach of certain regulatory capital requirement levels, the securities convert into common shares. | | | | | | | | | | | | | | | | | | Junior perpetual capital securities | | Coupon rate | | Coupon date, as of | | Year of next call | | | 2019 | | | 2018 | | USD 500 million | | 6.50% | | Quarterly, December 15 | | | Called in 2019 | | | | - | | | | 424 | | USD 250 million | | floating LIBOR rate 1) | | Quarterly, December 15 | | | 2020 | | | | 212 | | | | 212 | | USD 500 million | | floating CMS rate2) | | Quarterly, July 15 | | | 2020 | | | | 402 | | | | 402 | | USD 1 billion | | 6.375% | | Quarterly, June 15 | | | Called in 2019 | | | | - | | | | 821 | | EUR 950 million | | floating DSL rate3) | | Quarterly, July 15 | | | 2020 | | | | 950 | | | | 950 | | At December 31 | | | | | | | | | | | 1,564 | | | | 2,808 | |
| 1 | The coupon of the USD 250 million junior perpetual capital securities is reset each quarter based on the then prevailing three-month LIBOR yield plus a spread of 87.5 basis points, with a minimum of 4%. |
| 2 | The coupon of the USD 500 million junior perpetual capital securities is reset each quarter based on the then prevailingten-year US dollar interest rate swap yield plus a spread of ten basis points, with a maximum of 8.5%. |
| 3 | The coupon of the EUR 950 million junior perpetual capital securities is reset each quarter based on the then prevailingten-year Dutch government bond yield plus a spread of ten basis points, with a maximum of 8%. |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 320 | | | | Notes to the financial statements of Aegon N.V. Note 15 | | | | | | | | | | |
The interest rate exposure on some of these securities has been swapped to a three-month LIBOR and/or EURIBOR based yield. With effect on June 15, 2019, Aegon has exercised its right to redeem USD 500 million 6.5% perpetual capital securities issued in 2005. The securities had no stated maturity, however Aegon had the right to call the securities for redemption and exercised this right with effect on June 15, 2019. With effect on December 15, 2019, Aegon has exercised its right to redeem USD 1 billion 6.375% perpetual capital securities issued in 2005. The securities had no stated maturity, however Aegon had the right to call the securities for redemption and exercised this right with effect on December 15, 2019. The securities have been issued at par. The securities have subordination provisions, rank junior to all other liabilities and senior to shareholders’ equity only. The conditions of the securities contain certain provisions for optional and required coupon payment deferral and, in situations under Aegon’s control, mandatory coupon payment events. Although the securities have no stated maturity, Aegon has the right to call the securities for redemption at par for the first time on the coupon date in the years as specified, or on any coupon payment date thereafter. | | Perpetual cumulative subordinated bonds | | Coupon rate | | | Coupon date | | | Year of next call | | | 2018 | | | 2017 | | | Coupon rate | | Coupon date | | Year of next call | | | 2019 | | | 2018 | | EUR 203 million | | | 4.260% 1, 4 | | | | Annual, March 4 | | | | 2021 | | | | 203 | | | | 203 | | | 4.260% 1), 4) | | Annually, March 4 | | | 2021 | | | | 203 | | | | 203 | | | EUR 114 million | | | 1.506%2,4 | | | | Annual, June 8 | | | | 2025 | | | | 114 | | | | 114 | | | 1.506%2),4) | | Annually, June 8 | | | 2025 | | | | 114 | | | | 114 | | | EUR 136 million | | | 1.425% 3, 4 | | | | Annual, October 14 | | | | 2028 | | | | 136 | | | | 136 | | | 1.425%3),4) | | Annually, October 14 | | | 2028 | | | | 136 | | | | 136 | | At December 31 | | | | | | | | | 454 | | | | 454 | | | | | | | | | | 454 | | | | 454 | |
| 1 | The coupon of the EUR 203 million bonds was originally set at 7.125% until March 4, 2011. Subsequently, the coupon has been reset at 4.26% until March 4, 2021. |
| 2 | The coupon of the EUR 114 million bonds was originally set at 8% until June 8, 2005. Subsequently, the coupon has been reset at 4.156% until June 8, 2015 and 1.506% until June 8, 2025. |
| 3 | The coupon of the EUR 136 million bonds was originally set at 7.25% until October 14, 2008. Subsequently, the coupon has been reset at 5.185% until October 14, 2018 and 1.425% until October 14, 2028. |
| 4 | If the bonds are not called on the respective call dates and after consecutive period of ten years, the coupons will be reset at the then prevailing effective yield often-year Dutch government securities plus a spread of 85 basis points. |
The bonds have the same subordination provisions as dated subordinated debt. In addition, the conditions of the bonds contain provisions for interest deferral. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 319 | | Notes to the financial statements of Aegon N.V. Note 15 | | | | | | |
Although the bonds have no stated maturity, Aegon has the right to call the bonds for redemption at par for the first time on the coupon date in the year of next call. | | | | | | | | | | | | | | | | | | | | | | Non-cumulative subordinated notes | | Coupon rate | | | Coupon date, as of | | | Year of next call | | | 2018 | | | 2017 | | USD 525 million | | | 8 | % | | | Quarterly, February 15 | | | | Called in 2018 | | | | - | | | | 271 | | At December 31 | | | | | | | | | | | | | | | - | | | | 271 | |
With effect May 15, 2018, Aegon has exercised its right to redeem USD 525 millionnon-cumulative subordinated notes, subsequently leading to their redemption. The securities had a stated maturity of 30 years, however, Aegon had the right to call the securities for redemption at par on any coupon payment date.
Thenon-cumulative subordinated notes were initially issued on February 7, 2012, in aggregate principal amount of 8.00%, due 2042, in an underwritten public offering in the United States registered with the US Securities and Exchange Commission.
The securities were subordinated and ranked senior to the junior perpetual capital securities, equally with the perpetual cumulative subordinated bonds and fixed floating subordinated notes, and junior to all other liabilities. The conditions of the securities contained certain provisions for optional and required cancellation of interest payments.
These notes were recognized as compound financial instruments and separated into an equity component and a liability component. Prior to redemption, the equity component had a book value of EUR 271 million (2017: EUR 271 million), subordinated borrowings amounted to EUR 68 million (2017: EUR 69 million) and a deferred tax liability amounting to EUR 89 million (2017: EUR 92 million).
Refer to note 15 Subordinated borrowings for details of the component classified as subordinated borrowings.
15 Subordinated borrowings | | | | Coupon rate | | | Coupon date | | | Year of next call | | | 2018 | | | 2017 | | | Coupon rate | | | Coupon date | | | Year of next call | | | 2019 | | | 2018 | | Fixed floating subordinated notes | | | | | | | | | | | | | Fixed to floating subordinated notes | | | | | | | | | | | | | | | | | EUR 700 million | | | 4% | | | | Annually, April 25 | | | | 2024 | | | | 696 | | | | 695 | | | | 4% | | | | Annually, April 25 | | | | 2024 | | | | 697 | | | | 696 | | | USD 800 million | | | 5.5% | | | | Semi-annualy, April 11 | | | | 2028 | | | | 693 | | | | - | | | | 5.5% | | | | Semi-annually, April 11 | | | | 2028 | | | | 707 | | | | 693 | | | Non-cumulative subordinated notes | | | | | | | | | | | | USD 525 million | | | 8% | | | | Quarterly, February 15 | | | | Called in 2018 | | | | - | | | | 69 | | | At December 31 | | | | | | | | | 1,389 | | | | 764 | | | | | | | | | | 1,403 | | | | 1,389 | |
The newly issued subordinated debt securities of USD 800 million issued on April 11, 2018 have a fixed coupon of 5.5% until the first call date and floating thereafter with a margin including a 100 basis pointsstep-up. The securities are first callable on April 11, 2028 and maturing on April 11, 2048. These securities are subordinated and rank senior to the junior perpetual capital securities, equally with the perpetual cumulative subordinated bonds and junior to all other liabilities. The conditions of the securities contain certain provisions for optional and required deferral of interest payments. There have been no defaults or breaches of conditions during the period. In 2017, subordinated borrowings included a liability of EUR 69 million relating to the USD 525 millionnon-cumulative subordinated notes issued on February 7, 2012. The liability component of thenon-cumulative subordinated notes related to the redemption amount was derecognised subsequent to Aegon exercising its redemption rights in May 2018.
For further information on thenon-cumulative subordinated notes and their subordination refer to note 14 Other equity instruments.
The fair value of these loans amounted to EUR 1,3551,560 million (2017:(2018: EUR 9531,355 million). | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 320321 | | | | Notes to the financial statements of Aegon N.V. Note 16 | | | | | | | | | | | | |
16 Long-term borrowings | | | | | | | | | | | | 2018 | | | 2017 | | Remaining terms less than 1 year | | | 78 | | | | 500 | | | | | Remaining terms 1 – 5 years | | | 496 | | | | 82 | | | | | Remaining terms 5 – 10 years | | | - | | | | 495 | | | | | Remaining terms over 10 years | | | 717 | | | | 724 | | At December 31 | | | 1,292 | | | | 1,801 | |
Long-term borrowings decreased by EUR 509 million to EUR 1,292 million compared to December 31, 2017, mainly related to the repayment of EUR 500 million 0% senior unsecured notes on August 30, 2018.
| | | | | | | | | | | | 2019 | | | 2018 | | Remaining terms less than 1 year | | | - | | | | 78 | | Remaining terms 1 - 5 years | | | 497 | | | | 496 | | Remaining terms 5 - 10 years | | | - | | | | - | | Remaining terms over 10 years | | | 760 | | | | 717 | | At December 31 | | | 1,257 | | | | 1,292 | |
The repayment periods of borrowings vary from within one year4 years up to a maximum of 2119 years. The interest rates vary from 1.000% to 6.625% per annum. The market value of the long-term borrowings amounted to EUR 1,6491,728 million (2017:(2018: EUR 2,1981,649 million). 17 Current liabilities Loans from and payables to group companies have a maturity of less than one year. Other current liabilities includes derivatives with negative fair values of EUR 164165 million (2017:(2018: EUR 97164 million). 18 Commitments and contingencies Aegon N.V. has guaranteed and is severally liable for the following: | ◆ | | Due and punctual payment of payables due under letter of credit agreements applied for by Aegon N.V. asco-applicant with its captive insurance companies that are subsidiaries of Transamerica Corporation and Commonwealth General Corporation. At December 31, 2018,2019, the letter of credit arrangements utilized by captives to provide collateral to affiliates amounted to EUR 3,4692,249 million (2017:(2018: EUR 3,0253,469 million); as of that date no amounts had been drawn, or were due under these facilities. Other letter of credit arrangements for subsidiaries amounted to EUR 6010 million (2017:(2018: EUR 5560 million); as of that date no amounts had been drawn, or were due under these facilities; |
| ◆ | | Due and punctual payment of payables due under letter of credit agreements or guarantees provided for subsidiaries of Transamerica Corporation at December 31, 20182019 amounted to EUR 3,1641,666 million (2017:(2018: EUR 3,0793,164 million) as of that date no amounts had been drawn, or were due under letter of credit facilities. The guarantees partly related to debt amounted to EUR 1,388 million (2017: EUR 1,322 million) and is included in the Operational funding table in note 39 Borrowings of the consolidated financial statements of the Group in the line ‘USD 1.54 billion Variable Funding Surplus Note’;facilities; |
| ◆ | | Due and punctual payment of payables by the consolidated group companies Transamerica Corporation, Aegon Funding Company LLC and Commonwealth General Corporation with respect to fixed subordinated notes, bonds, capital trust pass-through securities and notes issued under commercial paper programs amounted to EUR 6141,449 million (2017:(2018: EUR 585614 million); and |
| ◆ | | Due and punctual payment of any amounts owed to third parties by the consolidated group company Aegon Derivatives N.V. in connection with derivative transactions. Aegon Derivatives N.V. only enters into derivative transactions with counterparties with which ISDA master netting agreements including collateral support annex agreements have been agreed; net (credit) exposure on derivative transactions with these counterparties was therefore limited as of December 31, 2018.2019. |
19 Number of employees There were no employees employed by Aegon N.V. in 2018 (2017:2019 (2018: nil). 20 Auditor’s remuneration | | | | | | | | Of which PricewaterhouseCoopers | | | | | | | | | | | | | | Total remuneration of the group | | | | Accountants N.V. (NL) | | | Total remuneration of the group | | | Of which PricewaterhouseCoopers
Accountants N.V. (NL) | | | | | 2018 | | | 2017 | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | 2019 | | | 2018 | | | Audit fees | | | 37 | | | | 42 | | | | 12 | | | | 13 | | | | 32 | | | | 37 | | | | 9 | | | | 12 | | | | Audit-related fees | | | 2 | | | | 3 | | | | - | | | | 1 | | | | 6 | | | | 2 | | | | 1 | | | | - | | Total | | | 39 | | | | 46 | | | | 12 | | | | 14 | | | | 38 | | | | 39 | | | | 11 | | | | 12 | |
21 Events after the reporting period On January 29, 2020, Aegon announced the completion of the sale of its 50% stake in the Japanese variable annuity joint ventures, Aegon Sony Life Insurance Co. and SA Reinsurance Ltd., to partner Sony Life. The proceeds of the sale amount to EUR 153 million and the book gain amounts to EUR 51 million. On February 3, 2020, Aegon’s subsidiary in the Americas, Transamerica accepted an offer to sell the Transamerica Pyramid property in San Francisco for a consideration of EUR 635 million (USD 711 million). The sale is expected to close in the second quarter of 2020. Since January 2020, the Coronavirus disease (COVID-19) outbreak is causing significant disruption to society, impacting Aegon, its employees, suppliers and customers worldwide. Financial markets have been severely impacted by significant decreases in interest rates, equity markets and commodity prices and credit spreads widening. Governments and central banks worldwide are responding to this crisis with aid packages and further quantitative easing. At the date of this report the depth and length of this crisis is unknown. The Company is continuously monitoring the market and economic turbulence that has arisen as a consequence of the COVID-19 outbreak, and its impact on Aegon. The most significant risks Aegon N.V.is facing, directly or indirectly through its subsidiaries are related to financial markets (particularly credit, equity and interest rates), and underwriting risks (particularly related to mortality, morbidity and policyholder behavior). The notes to Aegon’s consolidated financial statements include elaborate descriptions and related financial market sensitivities. Aegon N.V.’s subsidiaries continue to monitor claim activity, including mortality and morbidity claims, and policyholder behavior. At the date of this report it is too early to tell what the impact of the COVID-19 crisis is on Aegon N.V. ‘s subsidiaries’ underwritings results and Aegon N.V.’s subsidiaries’ long term underwriting and economic assumptions, if any, affecting the value of Aegon N.V.. Because of the far-reaching measures governments around the world are taking to control the impact of this pandemic we expect the sale of new business to be impacted by these measures. At the date of this report it is too early to tell what the impact of these measures will be on Aegon’s subsidiaries’ sales. Lower interest rates are also likely to impact the profitability of Aegon’s subsidiaries’ sales depending on the market response. Aegon has invoked its business continuity plans to help ensure the safety and well-being of its staff, as well as its capability to support its customers and maintain its business operations, while maintaining our financial and operational resilience. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 321322 | | | | Notes to the financial statements of Aegon N.V. Note 2122 | | | | | | | | | | | | |
21 Events after the reporting period
On January 8, 2019, Aegon announced the completion of the sale of its businesses in Czech Republic and Slovakia. The businesses consists mainly of unit linked life insurance coverage, term life products and pension services. The proceeds of the sale amount to EUR 155 million and the book gain amounts to approximately EUR 80 million. As a consequence of the transaction, annual income before tax and underlying earnings before tax will decrease. In 2018, the underlying earnings before tax of the combined operations amounted to EUR 17 million.
22 Proposal for profit appropriation At the Annual General Meeting of Shareholders oncurrently scheduled for May 17, 2019,15, 2020, the Executive Board will, in line with its earlier announcement and absent unforeseena further significant deterioration of market circumstances, propose a final dividend for 20182019 of EUR 0.150.16 per common share and EUR 0.003750.004 per common share B. The final dividend will be paid in cash or stock at the election of the shareholder. The value of the stock dividend will be approximately equal to the cash dividend. If the proposed dividend is approved by shareholders, Aegon shares will be quotedex-dividend on May 21, 2019,19, 2020, for the shares listed on the New York Stock Exchange and on May 21, 2019,19, 2020, for shares listed on Euronext. The record date for the dividend will be May 22, 2019.20, 2020. Shareholders can elect to receive a dividend in cash or in shares during the dividend election period, which will run from May 28, 201926, 2020 up to and including June 14, 2019.12, 2020. The dividend will be payable as of June 21, 2019.19, 2020. In order to reflect the prevailing market price of Aegon N.V. common shares fully within the indication provided, the number of dividend coupons that give entitlement to a new common share of EUR 0.12 (nominal value) will be determined on June 14, 201912, 2020 after 5.30 p.m. (CET), based on the average share price on Euronext Amsterdam in the five trading days from June 10, 20198, 2020 up to and including June 14, 2019.12, 2020. | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | Final dividend on common shares | | | 307 | | | | 286 | | | | 329 | | | | 307 | | | | Earnings to be retained | | | 403 | | | | 2,183 | | | | 910 | | | | 403 | | Net income attributable to owners of Aegon N.V. | | | 710 | | | | 2,469 | | | | 1,239 | | | | 710 | |
The Hague, the Netherlands, March 21, 201918, 2020 | | | | | | | | Supervisory Board | | | | Executive Board | | | | | | | | William L. Connelly | | | | Alexander R. Wynaendts | | | | | | Robert W. Dineen | | Matthew J. Rider | | | | | | | Mark A. Ellman | | | | | | Matthew J. Rider | | | | Ben J. Noteboom | | | | | | | | | Ben van der Veer | | | | | | | | | Corien M. Wortmann-Kool | | | | | | | | | Dona D. Young | | | | | | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 322323 | | | | Other information Profit appropriation | | | | | | | | | | | | |
Other information Profit appropriation Appropriation of profit will be determined in accordance with the articles 31 and 32 of the Articles of Association of Aegon N.V. The relevant provisions are as follows: | 1. | The General Meeting of Shareholders will adopt the Annual Accounts; |
| 2. | If the adopted profit and loss account shows a profit, the Supervisory Board may decide, upon the proposal of the Executive Board, to set aside part of the profit to augment and/or form reserves; |
| 3. | The profits remaining after application of 2 above shall be put at the disposal of the General Meeting of Shareholders. The Executive Board, subject to the approval of the Supervisory Board, shall make a proposal for that purpose. A proposal to pay a dividend shall be dealt with as a separate agenda item at the General Meeting of Shareholders; |
| 4. | The Executive Board may, subject to the approval of the Supervisory Board, make one or more interim distributions to the holders of common shares and common shares B; |
| 5. | Distributions are made in accordance with the principle set forth in article 4 of the Articles of Association of Aegon N.V. that the financial rights of a common share B are one fortieth (1/40th) of the financial rights of a common share; |
| 6. | The Executive Board may, subject to the approval of the Supervisory Board, decide that a distribution on common shares and common shares B shall not take place as a cash payment but as a payment in common shares. Alternatively, it may decide that holders of common shares and common shares B shall have the option to receive a distribution as a cash payment and/or as a payment in common shares, out of the profit and/or at the expense of reserves, provided that the Executive Board is designated by the General Meeting to issue shares. Subject to the approval of the Supervisory Board, the Executive Board shall also determine the conditions applicable to the aforementioned choices; and |
| 7. | The Company’s policy on reserves and dividends shall be determined and can be amended by the Supervisory Board, upon the proposal of the Executive Board. The adoption and each amendment of the policy on reserves and dividends thereafter, shall be discussed and accounted for at the General Meeting of Shareholders under a separate agenda item. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 323324 | | | | Other information Major shareholders | | | | | | | | | | | | |
Major shareholders General As of December 31, 2018,2019, Aegon’s total authorized share capital consisted of 6,000,000,000 common shares with a par value of EUR 0.12 per share and 3,000,000,000 common shares B with a par value of EUR 0.12 per share. At the same date, there were 2,095.648,2442,105,138,885 common shares and 585,022,160 common shares B issued. Of the issued common shares, 61,418,16765,540,444 common shares and 13,856,48025,309,920 common shares B were held by Aegon as treasury shares and 1,143,9031,043,227 treasury shares were held by its subsidiaries.subsidiaries All of Aegon’s common shares and common shares B are fully paid and not subject to calls for additional payments of any kind. All of Aegon’s common shares are registered shares. Holders of shares of New York registry hold their common shares in the registered form issued by Aegon’s New York transfer agent on Aegon’s behalf. Shares of New York registry and shares of Netherlands registry are exchangeable on aone-to-one basis and are entitled to the same rights, except that cash dividends are paid in US dollars on shares of New York registry. As of December 31, 2018, 2512019, 254 million common shares were held in the form of New York Registry shares. As of December 31, 2018,2019, there were approximately 16,23113,693 record holders of Aegon’s New York Registry shares resident in the United States. Vereniging Aegon Vereniging Aegon is the continuation of the former mutual insurer AGO. In 1978, AGO demutualized and Vereniging AGO became the only shareholder of AGO Holding N.V., which was the holding company for its insurance operations. In 1983, AGO Holding N.V. and 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 changed its name to Vereniging Aegon. The purpose of the Association is a balanced representation of the direct and indirect interests of Aegon N.V. and of companies with which Aegon N.V. forms a group, of insured parties, employees, shareholders and other related parties of these companies. Influences that threaten the continuity, independence or identity of Aegon N.V., in conflict with the aforementioned interests will be resisted as much as possible. In accordance with the 1983 Amended Merger Agreement, Vereniging Aegon had certain option rights on preferred shares to prevent dilution of voting power as a result of share issuances by Aegon N.V. This enabled Vereniging Aegon to maintain voting control at the General Meeting of Shareholders of Aegon N.V. In September 2002, Aegon N.V. effected a capital restructuring whereby Vereniging Aegon, among others, sold 206,400,000 common shares to Aegon N.V. for the amount of EUR 2,064,000,000; Vereniging Aegon contributed these as additionalpaid-in capital on the then existing Aegon N.V. preferred shares. As a result of this capital restructuring, Vereniging Aegon’s beneficial ownership interest in Aegon N.V.’s common shares decreased from approximately 37% to approximately 12% and its beneficial ownership interest in Aegon N.V.’s voting shares decreased from approximately 52% to approximately 33%. On May 9, 2003, Aegon’s shareholders approved certain changes to Aegon’s corporate governance structure. Preferred shares with a nominal value of EUR 0.12 were converted into 211,680,000 new class A preferred shares with a nominal value of EUR 0.25, and class B preferred shares were created with a nominal value of EUR 0.25 each. No class B preferred shares were issued at that time. The voting rights pertaining to the preferred shares were adjusted accordingly to 25/12 vote per preferred share. However, in May 2003, Aegon N.V. and Vereniging Aegon entered into a Preferred Shares Voting Agreement, pursuant to which Vereniging Aegon agreed to exercise one vote only per preferred share, except in the event of a ’Special‘Special Cause’, as defined below. In May 2003, Aegon N.V. and Vereniging Aegon amended the option arrangements under the 1983 Amended Merger Agreement so that, in the event of an issuance of shares by Aegon N.V., Vereniging Aegon could purchase as many class B preferred shares as would enable Vereniging Aegon to prevent or correct dilution to below its actual percentage of voting shares, to a maximum of 33%. On February 15, 2013, Aegon N.V. and Vereniging Aegon entered into an agreement to simplify the capital structure of Aegon and to cancel all of Aegon’s preferred shares, of which Vereniging Aegon was the sole owner. The execution of this agreement was subject to the approval of the General Meeting of Shareholders of Aegon N.V. This approval was granted at the Annual General Meeting of Shareholders on May 15, 2013. The simplified capital structure entailed, but was not limited to, the amendment of the Articles of Association of Aegon N.V., including the conversion of all outstanding 329,773,000 preferred shares A and B, with a nominal value of EUR 0.25 each, into 120,713,389 | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 324325 | | | | Other information Major shareholders | | | | | | | | | | | | |
common shares and 566,313,695 common shares B, with a nominal value of EUR 0.12 each. The financial rights attached to a common share B were determined at 1/40th40th of the financial rights attached to a common share. The simplified capital structure also entailed the amendment of the Voting Rights Agreement between Aegon N.V. and Vereniging Aegon, known as the Preferred Shares Voting Agreement before May 2013. As a matter of Dutch corporate law, the shares of both classes offer equal full voting rights, as they have equal nominal values (EUR 0.12). The amended Voting Rights Agreement ensures that under normal circumstances, i.e. except in the event of a Special Cause, Vereniging Aegon will no longer be able to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in the absence of a Special Cause Vereniging Aegon may cast one vote for every common share it holds and one vote only for every 40 common shares B it holds. As Special Cause qualifies the acquisition of a 15% interest in Aegon N.V., a tender offer for Aegon N.V. shares or a proposed business combination by any person or group of persons, whether individually or as a group, other than in a transaction approved by the Executive Board and the Supervisory Board. If, in its sole discretion, Vereniging Aegon determines that a Special Cause has occurred, Vereniging Aegon will notify the General Meeting of Shareholders and retain its right to exercise the full voting power of one vote per common share B for a limited period of six months. The simplified capital structure also included an amendment to the 1983 Amended Merger Agreement between Aegon N.V. and Vereniging Aegon. Following this 2013 amendment, Vereniging Aegon’s call option relates to common shares B. Vereniging Aegon may exercise its call option to keep or restore its total stake at 32.6%, irrespective of the circumstances which cause the total shareholding to be or become lower than 32.6%. In the years 2003 through 2012, 118,093,000 class B preferred shares were issued under these option rights and in the years 2013 through 20152016 Vereniging Aegon purchased in aggregate 18,708,465 common shares B under its call option right. On May 19, 2016, During this period Aegon N.V. repurchased 13,450,835 common shares from Vereniging Aegon for the amount of EUR 58,000,000, being the Value Weight Average Price of the common shares of the five trading days preceding this transaction, as part of the EUR 400 million Share Buy Back program, initiated by Aegon N.V. in January 2016 to neutralize the dilutive effect of the cancellation of Aegon N.V.’s preferred shares in 2013.
On June 6, 2016, Aegon N.V. repurchasedCommon Shares and 17,324,960 Common Shares B from Vereniging Aegon for the amount of EUR 1,968,332, based on 1/40th of the Value Weight Average Price of the common shares of the 5 trading days preceding this transaction. The repurchase of common shares B was executed to align the aggregate shareholding of Vereniging Aegon in Aegon N.V. with its special cause voting rights of 32.6%.Aegon.
On May 19, 2017, Vereniging Aegon exercised its options rights to purchase in aggregate 1,979,260 common shares B at fair value of a common share B (being 1/40th40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused the issuance of shares on May 19, 2017, in connection with the Long Term Incentive Plans for senior management. On June 23, 2017, Vereniging Aegon exercised its options rights to purchase in aggregate 13,042,612 common shares B at fair value of a common share B (being 1/40th40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by Aegon’s issuance of shares on June 23, 2017, being the final dividend 2016 in the form of stock dividend. On December 19, 2017, Aegon N.V. repurchased 13,042,592 Common Shares B from Vereniging Aegon for the amount of EUR 1,725,169.731,725,169 based on 1/40th40th 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 shareholdingholding of voting shares by Vereniging Aegon in Aegon N.V. with its special cause voting rights of 32.6% following the completion of the Share Buy Back Program, initiated by Aegon N.V. in October 2017 to neutralize the dilutive effect of the distribution of final dividend 2016 in stock and interim dividend 2017 in stock. On May 18, 2018, Vereniging Aegon exercised its options rights to purchase in aggregate 1,489,200 common shares B at fair value of a common share B (being 1/40th40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused the issuance of shares on May 18, 2018, in connection with the Long Term Incentive Plans for senior management. On May 17, 2019, Vereniging Aegon exercised its options rights to purchase in aggregate 1,773,680 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused the issuance of shares on May 17, 2019, in connection with the Long Term Incentive Plans for senior management. On December 23, 2019, Aegon N.V. repurchased 13,227,120 common shares B from Vereniging Aegon for the amount of EUR 1,384,046 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 holding of voting shares by Vereniging Aegon in Aegon N.V. with its special cause voting rights of 32.6% following the completion of the Share Buy Back Program, initiated by Aegon N.V. in October 2019 to neutralize the dilutive effect of the distribution of interim dividend 2019 in stock. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 325326 | | | | Other information Major shareholders | | | | | | | | | | | | |
Development of shareholding in Aegon N.V. | | | | | | | | | Number of shares held by Vereniging Aegon | | | Common | | | | Common B | | | At January 1, 2018 | | | 279,236,609 | | | | 569,676,480 | | | | | | Exercise option right common shares B – May 2018 | | | - | | | | 1,489,200 | | At December 31, 2018 | | | 279,236,609 | | | | 571,165,680 | |
| | | | | | | | | | Number of shares held by Vereniging Aegon | | Common | | | Common B | | At January 1, 2019 | | | 279,236,609 | | | | 571,165,680 | | Exercise option right common shares B - May 2019 | | | - | | | | 1,773,680 | | Share dividend on common shares - September 2019 | | | 9,466,160 | | | | - | | Sale of common shares B - December 2019 | | | - | | | | (13,227,120 | ) | At December 31, 2019 | | | 288,702,769 | | | | 559,712,240 | |
Accordingly, at December 31, 2018,2019, the voting power of Vereniging Aegon under normal circumstances amounted to approximately 14.33%14.75%, based on the number of outstanding and voting shares (excluding issued common shares held in treasury by Aegon N.V.). In the event of a Special Cause, Vereniging Aegon’s voting rights will increase, currently to 32.6%, for up to six months. At December 31, 2018,2019, the General Meeting of Members of Vereniging Aegon consisted of seventeeneighteen members. The majority of the voting rights is with the fifteensixteen members who are not employees or former employees of Aegon N.V. or one of the Aegon Group companies, nor current or former members of the Supervisory Board or the Executive Board of Aegon N.V. The other two members are from the Executive Board of Aegon N.V.N.V.. Vereniging Aegon has an Executive Committee consisting of seven members, five of whom are not, nor have ever been, related to Aegon, including the Chairman and the Vice-Chairman. The other two members are also member of the Executive Board of Aegon N.V. Resolutions of the Executive Committee, other than regarding the amendment of the Articles of Association of Vereniging Aegon, are made with an absolute majority of the votes. When a vote in the Executive Committee results in a tie, the General Meeting of Members has the deciding vote. Regarding the amendment of the Articles of Association of Vereniging Aegon, a special procedure requires a unanimous proposal from the Executive Committee, thereby including the consent of the representatives of Aegon N.V. at the Executive Committee. This requirement does not apply in the event of a hostile change of control at the General Meeting of Shareholders of Aegon N.V., in which event Vereniging Aegon may amend its Articles of Association without the cooperation of Aegon N.V. Furthermore, the two members of the Executive Board of Aegon N.V., who are also members of the Executive Committee, have no voting rights on several decisions that relate to Aegon N.V., as set out in the Articles of Association of Vereniging Aegon. Other major shareholders In this section below where reference is made to any filings with the Dutch Autoriteit Financiële Markten or the SEC the terms ‘capital issued’ and ‘votes’ are used as defined in the Wet op het Financieel Toezicht. To Aegon’s knowledge based on the filings made with the Dutch Autoriteit Financiële Markten, Dodge & Cox International Stock Fund, BlackRock, Inc. and Franklin Resources, Inc. hold a capital or voting interest in Aegon of 3% or more. Based on its last filing with the Dutch Autoriteit Financiële Markten as at June 20, 2018, Dodge & Cox International Stock Fund stated to hold 131,792,024 common shares, which represent 4.9% of the issued capital and votes as at December 31, 2018.2019. On February 14, 2019,13, 2020, Dodge & Cox’s filing with the US Securities and Exchange Commission (SEC) shows that Dodge & Cox holds 237,992,105235,569,910 common shares, representing 8.9%9.1% of the issued and outstanding capital as at December 31, 2018,2019, and has voting rights for 232,925,689230,578,490 shares, representing 8.7%8.9% of the votes as at December 31, 2018.2019. Based on its filing with the Dutch Autoriteit Financiële Markten as at March 27, 2018,November 14, 2019, BlackRock, Inc. stated to hold 112,661,670116,325,180 shares, representing 4.2%4.3% of the issued capital as at December 31, 20182019 and 131,979,873136,885,389 voting rights, representing 4.9%5.1% of the votesissued capital as at December 31, 2018.2019. On February 4, 2019,5, 2020, BlackRock, Inc.’s filing with the US Securities and Exchange Commission (SEC) shows that BlackRock holds 122,040,092149,073,955 common shares, representing 4.6%5.7% of the issued and outstanding capital as at December 31, 2018,2019, and has voting rights for 106,522,921129,834,767 shares, representing 4.0%5.0% of the votes as at December 31, 2018.2019. Based on its filing with the Dutch Autoriteit Financiële Markten as at June 10, 2015, Franklin Resources, Inc. (FRI), a US based investment management firm, stated to hold 81,510,408 shares, representing 3.0% of the issued capital and of the votes as ofat December 31, 2018. On January 25, 2019, the filing of Franklin Resources, Inc. (FRI) with the SEC shows that FRI holds 61,141,668 common shares and voting rights, representing 2.3% of the issued and outstanding capital, as of December 31, 2018.2019.
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 326327 | | | | Other financial information Schedule I | | | | | | | | | | | | |
Other financial information Schedules to the financial statements Index to schedules | Schedule I Summary of Investments other than Investments in Related Parties as at December 31, 2018 | Schedule II Condensed Financial Information of Registrant (Parent Company Only) | Schedule II Statement of Financial Position as of December 31, 2018 and 2017 | Schedule II Income Statement (Loss) for the years ended December 31, 2018, 2017 and 2016 | Schedule II Condensed Cash Flow Statement for the years ended December 31, 2018, 2017 and 2016 | Schedule II Dividends from and Capital Contributions to Business Units for the years ended December 31, 2018, 2017 and 2016 | Schedule III Supplementary Insurance Information for the years ended December 31, 2018, 2017 and 2016 | Schedule IV Reinsurance for the years ended December 31, 2018, 2017 and 2016 | Schedule V Valuation and Qualifying Accounts for the years ended December 31, 2018, 2017 and 2016 |
Schedule I—Summary of Investments other than Investments in Related Parties as at December 31, 2019 Schedule II—Condensed Financial Information of Registrant (Parent Company Only) Schedule II—Statement of Financial Position as of December 31, 2019 and 2018 Schedule II—Income Statement (Loss) for the years ended December 31, 2019, 2018 and 2017 Schedule II—Condensed Cash Flow Statement for the years ended December 31, 2019, 2018 and 2017 Schedule II—Dividends from and Capital Contributions to Business Units for the years ended December 31, 2019, 2018 and 2017 Schedule III—Supplementary Insurance Information for the years ended December 31, 2019, 2018 and 2017 Schedule IV—Reinsurance for the years ended December 31, 2019, 2018 and 2017 Schedule V—Valuation and Qualifying Accounts for the years ended December 31, 2019, 2018 and 2017 Schedule I Summary of investments other than investments in related parties As at December 31, 2019 | | | | | | | | | | | | | | As at December 31, 2018 | | | | | | | | | Amounts in million EUR | | | Cost1 | | | | Fair value | | | | Book value | | Shares: | | | | | | | | | | | | | | | | | Available-for-sale | | | 451 | | | | 478 | | | | 478 | | | | | | Fair value through profit or loss | | | 1,554 | | | | 1,682 | | | | 1,682 | | | | | | Bonds: | | | | | | | | | | | | | | | | | Available-for-sale andheld-to-maturity: | | | | | | | | | | | | | | | | | US government | | | 6,973 | | | | 7,449 | | | | 7,449 | | | | | | Dutch government | | | 4,908 | | | | 6,040 | | | | 6,040 | | | | | | Other government | | | 11,293 | | | | 11,957 | | | | 11,957 | | | | | | Mortgage backed | | | 6,275 | | | | 6,557 | | | | 6,557 | | | | | | Asset backed | | | 4,948 | | | | 4,958 | | | | 4,958 | | | | | | Corporate | | | 39,770 | | | | 40,379 | | | | 40,379 | | | | | | Money market investments | | | 5,955 | | | | 5,955 | | | | 5,955 | | | | | | Other | | | 919 | | | | 902 | | | | 902 | | | Subtotal | | | 81,039 | | | | 84,196 | | | | 84,196 | | | | | | Bonds: | | | | | | | | | | | | | | | | | Fair value through profit or loss | | | 3,901 | | | | 3,913 | | | | 3,913 | | | | | | Other investments at fair value through profit or loss | | | 2,325 | | | | 3,002 | | | | 3,002 | | | | | | Mortgages | | | 36,240 | | | | 39,758 | | | | 36,240 | | | | | | Private loans | | | 4,103 | | | | 4,494 | | | | 4,103 | | | | | | Deposits with financial institutions | | | 141 | | | | 141 | | | | 141 | | | | | | Policy loans | | | 1,973 | | | | 1,973 | | | | 1,973 | | | | | | Other | | | 196 | | | | 196 | | | | 196 | | | Subtotal | | | 42,653 | | | | 46,562 | | | | 42,653 | | | | | | Real estate: | | | | | | | | | | | | | | | | | Investments in real estate | | | | | | | 2,700 | | | | 2,700 | | Total | | | | | | | 142,534 | | | | 138,625 | |
| | | | | | | | | | | | | | Amounts in million EUR | | Cost1) | | | Fair value | | | Book value | | Shares: | | | | | | | | | | | | | Available-for-sale | | | 377 | | | | 409 | | | | 409 | | Fair value through profit or loss | | | 1,661 | | | | 1,813 | | | | 1,813 | | | | | | Bonds: | | | | | | | | | | | | | Available-for-sale andheld-to-maturity: | | | | | | | | | | | | | US government | | | 7,443 | | | | 8,812 | | | | 8,812 | | Dutch government | | | 4,869 | | | | 6,316 | | | | 6,316 | | Other government | | | 8,901 | | | | 11,872 | | | | 11,872 | | Mortgage backed | | | 6,366 | | | | 6,811 | | | | 6,811 | | Asset backed | | | 3,776 | | | | 3,869 | | | | 3,869 | | Corporate | | | 40,552 | | | | 45,238 | | | | 45,238 | | Money market investments | | | 5,169 | | | | 5,169 | | | | 5,169 | | Other | | | 976 | | | | 908 | | | | 908 | | Subtotal | | | 78,052 | | | | 88,995 | | | | 88,995 | | | | | | Bonds: | | | | | | | | | | | | | Fair value through profit or loss | | | 3,892 | | | | 3,934 | | | | 3,934 | | | | | | Other investments at fair value through profit or loss | | | 2,849 | | | | 3,333 | | | | 3,333 | | | | | | Mortgages | | | 37,750 | | | | 42,567 | | | | 37,750 | | Private loans | | | 4,487 | | | | 5,159 | | | | 4,487 | | Deposits with financial institutions | | | 141 | | | | 141 | | | | 141 | | Policy loans | | | 2,024 | | | | 2,024 | | | | 2,024 | | Other | | | 188 | | | | 188 | | | | 188 | | Subtotal | | | 44,591 | | | | 50,079 | | | | 44,591 | | | | | | Real estate: | | | | | | | | | | | | | Investments in real estate | | | - | | | | 2,901 | | | | 2,901 | | Total | | | 131,421 | | | | 151,464 | | | | 145,976 | |
| 1 | Cost is defined as original cost foravailable-for-sale shares and amortized cost foravailable-for-sale andheld-to-maturity bonds |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 327328 | | | | Other financial information Schedule II | | | | | | | | | | | | |
Schedule II Condensed financial information of registrant Statement of financial position of Aegon N.V. As at December 31 | | Before profit appropriation, amounts in EUR million | | 2018 | | | 2017 | | | 2019 | | | 2018 | | Non-current assets | | | | | | | | | | Financial fixed assets | | | | | | | | | | Shares in group companies | | | 22,168 | | | 23,117 | | | | 25,045 | | | 22,143 | | | Loans to group companies | | | 2,487 | | | 2,690 | | | | 1,337 | | | 2,487 | | | | | 24,655 | | | 25,807 | | | | 26,382 | | | 24,630 | | | Current assets | | | | | | | | | | Receivables | | | | | | | | | | Receivables from group companies | | | 35 | | | 36 | | | | 112 | | | 35 | | | Other receivables | | | 137 | | | 146 | | | | 175 | | | 137 | | | Other current assets | | | 137 | | | 74 | | | | 124 | | | 137 | | | Accrued interest and rent | | | 16 | | | 8 | | | | 13 | | | 16 | | | | | 325 | | | 264 | | | | 424 | | | 325 | | Cash and cash equivalents | | | | | | | | | Cash and cash equivalents | | | 1,231 | | | 1,068 | | | | 1,032 | | | 1,231 | | Total assets | | | 26,211 | | | 27,139 | | | | 27,838 | | | 26,186 | | | Shareholders’ equity | | | | | | | | | | Share capital | | | 322 | | | 322 | | | | 323 | | | 322 | | | Paid-in surplus | | | 7,486 | | | 7,731 | | | | 7,213 | | | 7,486 | | | Revaluation account | | | 3,565 | | | 5,017 | | | | 6,116 | | | 3,540 | | | Legal reserves – foreign currency translation reserve | | | 130 | | | (401 | ) | | | 426 | | | 130 | | | Legal reserves in respect of group companies | | | 1,326 | | | 1,122 | | | | 1,703 | | | 1,326 | | | Retained earnings, including treasury shares | | | 7,536 | | | 5,696 | | | | 7,227 | | | 7,536 | | | Remeasurement of defined benefit plans of group companies | | | (1,850 | ) | | (1,669 | ) | | | (2,397 | ) | | (1,850 | ) | | Net income/(loss) | | | 710 | | | 2,469 | | | Net income / (loss) | | | | 1,239 | | | 710 | | | | | 19,225 | | | 20,287 | | | | 21,850 | | | 19,200 | | Other equity instruments | | | 3,320 | | | 3,794 | | | | 2,571 | | | 3,320 | | Total equity | | | 22,546 | | | 24,081 | | | | 24,421 | | | 22,520 | | | Provisions | | | | | | | | | | Deferred tax liability | | | 10 | | | 89 | | | | - | | | 10 | | | | | 10 | | | | 89 | | | | - | | | 10 | | | Non-current liabilities | | | | | | | | | | Subordinated borrowings | | | 1,389 | | | 764 | | | | 1,403 | | | 1,389 | | | Long-term borrowings | | | 1,292 | | | 1,801 | | | | 1,257 | | | 1,292 | | | | | 2,681 | | | 2,565 | | | | 2,660 | | | 2,681 | | | Current liabilities | | | | | | | | | | Short term deposits | | | 82 | | | 73 | | | | - | | | 82 | | | Loans from group companies | | | 9 | | | 62 | | | | 6 | | | 9 | | | Payables to group companies | | | 582 | | | 123 | | | | 484 | | | 582 | | | Other current liabilities | | | 271 | | | 125 | | | | 236 | | | 271 | | | Accruals and deferred income | | | 31 | | | 22 | | | | 31 | | | 31 | | | | | 975 | | | 405 | | | | 757 | | | | 975 | | Total liabilities | | | | 3,417 | | | 3,666 | | | | | | | | | Total liabilities | | | 3,666 | | | | 2,970 | | | Total equity and liabilities | | | 26,211 | | | 27,139 | | | | 27,838 | | | 26,186 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 328329 | | | | Other financial information Schedule II | | | | | | | | | | | | |
Condensed income statement of Aegon N.V. For the year ended December 31 | | | | | | | | | | | | | | Amounts in EUR million | | 2018 | | | 2017 | | | 2016 | | | | | | Net income/(loss) group companies | | | 832 | | | | 2,511 | | | | 533 | | | | | | Other income/(loss) | | | (122 | ) | | | (42 | ) | | | (96 | ) | Net income/(loss) | | | 710 | | | | 2,469 | | | | 437 | |
| | | | | | | | | | | | | | Amounts in EUR million | | 2019 | | | 2018 | | | 2017 | | Net income / (loss) group companies | | | 1,379 | | | | 832 | | | | 2,511 | | Other income / (loss) | | | (141 | ) | | | (122 | ) | | | (42 | ) | Net income / (loss) | | | 1,239 | | | | 710 | | | | 2,469 | |
Condensed cash flow statement of Aegon N.V. For the year ended December 31 | | Amounts in EUR million | | 2018 | | | 2017 | | 2016 | | | 2019 | | | 2018 | | 2017 | | | Income/(loss) before tax | | | 708 | | | 2,468 | | | 411 | | | | Income / (loss) before tax | | | | 1,199 | | | 708 | | | 2,468 | | Adjustments | | | (291 | ) | | (3,676 | ) | | (231 | ) | | | (1,529 | ) | | (291 | ) | | (3,676 | ) | Net cash flows from operating activities | | | 418 | | | (1,208 | ) | | 180 | | | | (330 | ) | | 418 | | | (1,208 | ) | | Dividends and capital repayments of subsidiaries, associates and joint ventures | | | 824 | | | 700 | | | 895 | | | | 647 | | | 824 | | | 700 | | | Other | | | (1 | ) | | (1 | ) | | (2 | ) | | | (1 | ) | | (1 | ) | | (1 | ) | Net cash flows from investing activities | | | 822 | | | 700 | | | 893 | | | | 646 | | | 822 | | | 700 | | | Issuance of perpetuals | | | | 497 | | | | - | | | | - | | Issuance of treasury shares | | | - | | | 2 | | | | - | | | | 1 | | | | - | | | 2 | | | Purchase of treasury shares | | | (248 | ) | | (266 | ) | | (623 | ) | | | (318 | ) | | (248 | ) | | (266 | ) | | Issuance and repurchase of borrowings | | | 294 | | | 1,429 | | | 604 | | | | 1,074 | | | 294 | | | 1,429 | | | Repayment of perpetuals | | | (200 | ) | | | - | | | | - | | | | (1,343 | ) | | (200 | ) | | | - | | | Repayment ofnon-cumulative subordinated note | | | (443 | ) | | | - | | | | - | | | | - | | | (443 | ) | | | - | | | Dividends paid | | | (328 | ) | | (294 | ) | | (306 | ) | | | (309 | ) | | (328 | ) | | (294 | ) | | Coupons on perpetual securities | | | (136 | ) | | (138 | ) | | (140 | ) | | | (112 | ) | | (136 | ) | | (138 | ) | | Coupons onnon-cumulative subordinated notes | | | (14 | ) | | (37 | ) | | (38 | ) | | | - | | | (14 | ) | | (37 | ) | Net cash flows from financing activities | | | (1,076 | ) | | | 696 | | | | (503 | ) | | | (512 | ) | | (1,076 | ) | | 696 | | Net increase/(decrease) in cash and cash equivalents | | | 165 | | | 188 | | | 570 | | | | | | | | | Net increase / (decrease) in cash and cash equivalents | | | | (196 | ) | | 165 | | | 188 | |
Five-year schedule of maturities of debt As at December 31 | | | | 2018 | | | 2017 | | | 2019 | | | 2018 | | | Amounts in million EUR | | Subordinated
borrowings | | | Long-term
Borrowings | | | Subordinated
borrowings | | | Long-term
Borrowings | | Subordinated
borrowings | | | Long-term
Borrowings | | | Subordinated
borrowings | | | Long-term
Borrowings | | Remaining terms less than 1 year | | | - | | | | 78 | | | | - | | | | 500 | | | | - | | | | - | | | | - | | | | 78 | | | Remaining terms 1 – 2 years | | | - | | | | - | | | | - | | | | 82 | | | | Remaining terms 2 – 3 years | | | - | | | | - | | | | - | | | | - | | | | Remaining terms 3 – 4 years | | | - | | | | - | | | | - | | | | - | | | | Remaining terms 4 – 5 years | | | - | | | | 496 | | | | - | | | | - | | | | Remaining terms 1 - 2 years | | | | - | | | | - | | | | - | | | | - | | Remaining terms 2 - 3 years | | | | - | | | | - | | | | - | | | | - | | Remaining terms 3 - 4 years | | | | - | | | | 497 | | | | - | | | | - | | Remaining terms 4 - 5 years | | | | - | | | | - | | | | - | | | | 496 | | Remaining terms longer than 5 years | | | 1,389 | | | | 717 | | | | 764 | | | | 1,219 | | | | 1,403 | | | | 760 | | | | 1,389 | | | | 717 | | At December 31 | | | 1,389 | | | | 1,292 | | | | 764 | | | | 1,801 | | | | 1,403 | | | | 1,257 | | | | 1,389 | | | | 1,292 | |
Dividends from and capital contributions to business units Aegon received EUR 1.2 billion of dividends from its business units during 2019 from the Americas, United Kingdom, asset management, Southern & Eastern Europe and Asia. Aegon spent EUR 0.4 billion on capital contributions, mainly on Spain and the Netherlands. Aegon received EUR 1.4 billion of dividends from its business units during 2018, mainly from Americas, the Netherlands, United Kingdom, Asset Management Centraland Southern & Eastern Europe and Spain & Portugal.Europe. Aegon spent EUR 0.1 billion on capital contributions. Aegon received EUR 1.8 billion of dividends from its business units during 2017, mainly from Americas, United Kingdom, Asset Management Centraland Southern & Eastern Europe and Spain & Portugal.Europe. Capital contributions of EUR 1.1 billion were paid to Aegon’s businesses, mainly to the Netherlands. Aegon received EUR 1.1 billion of dividends from its business units during 2016 from the Americas, asset management, Central & Eastern Europe and Spain & Portugal. Aegon spent EUR 0.2 billion on capital contributions.
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 329330 | | | | Other financial information Schedule III | | | | | | | | | | | | |
Schedule III Supplementary insurance information | | Column A | | Column B | | | Column C | | | Column D | | | Column E | | | Column F | | Column B | | | Column C | | Column D | | | Column E | | | Column F | | Segment Amounts in million EUR | | Deferred policy
acquisition costs | | | Future policy
benefits | | | Unearned premiums | | | Other policy claims
and benefits | | | Premium revenue | | | Segment | | | | | | | | | | | | | | | | | Amounts in million EUR | | | Deferred
policy
acquisition
costs | | | Future policy
benefits | | Unearned
premiums | | | Other policy
claims and
benefits | | | Premium
revenue | | 2019 | | | | | | | | | | | | Americas | | | | 8,592 | | | | 180,522 | | | 5,770 | | | | 2,117 | | | | 8,515 | | The Netherlands | | | | 360 | | | | 67,382 | | | 56 | | | | 944 | | | | 2,123 | | United Kingdom | | | | 878 | | | | 94,570 | | | 18 | | | | 5 | | | | 6,309 | | Southern & Eastern Europe | | | | 45 | | | | 2,271 | | | 35 | | | | 104 | | | | 728 | | Asia | | | | 487 | | | | 7,770 | | | 121 | | | | 18 | | | | 460 | | Holding and other activities | | | | - | | | | 16 | | | 1 | | | | - | | | | 3 | | Eliminations1) | | | | - | | | | (1,655 | ) | | | - | | | | - | | | | - | | Total | | | | 10,362 | | | | 350,876 | | | 6,002 | | | | 3,188 | | | | 18,138 | | | | 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | Americas | | | 8,816 | | | | 166,644 | | | | 5,125 | | | | 2,100 | | | | 8,403 | | | | 8,816 | | | | 166,644 | | | 5,125 | | | | 2,100 | | | | 8,403 | | | | The Netherlands | | | 66 | | | | 60,011 | | | | 62 | | | | 934 | | | | 1,987 | | | | 66 | | | | 60,046 | | | 62 | | | | 934 | | | | 1,987 | | | | United Kingdom | | | 859 | | | | 76,254 | | | | 16 | | | | 5 | | | | 7,539 | | | | 859 | | | | 76,255 | | | 16 | | | | 5 | | | | 7,539 | | | | Central & Eastern Europe | | | 74 | | | | 1,714 | | | | 31 | | | | 85 | | | | 638 | | | | | Spain & Portugal | | | 1 | | | | 768 | | | | - | | | | 17 | | | | 147 | | | | Southern & Eastern Europe | | | | 74 | | | | 2,483 | | | 31 | | | | 102 | | | | 785 | | | Asia | | | 665 | | | | 6,064 | | | | 106 | | | | 16 | | | | 600 | | | | 665 | | | | 7,709 | | | 106 | | | | 16 | | | | 600 | | | | Holding and other activities | | | - | | | | 12 | | | | 2 | | | | - | | | | 2 | | | | - | | | | 12 | | | 2 | | | | - | | | | 2 | | Eliminations1) | | | | - | | | | (1,648 | ) | | | - | | | | - | | | | - | | | Total | | 10,480 | | | 311,467 | | | 5,341 | | | 3,158 | | | 19,316 | | | 10,480 | | | | 311,501 | | | 5,341 | | | | 3,158 | | | | 19,316 | | | | 2017 | | | | | | | | | | | | | | | | | | | | | | | | | | | Americas | | | 8,188 | | | | 171,122 | | | | 5,241 | | | | 1,982 | | | | 9,383 | | | | 8,188 | | | | 171,122 | | | 5,241 | | | | 1,982 | | | | 9,383 | | | | The Netherlands | | | 76 | | | | 62,446 | | | | 61 | | | | 932 | | | | 2,208 | | | | 76 | | | | 62,476 | | | 61 | | | | 932 | | | | 2,208 | | | | United Kingdom | | | 903 | | | | 65,052 | | | | 14 | | | | 6 | | | | 9,635 | | | | 903 | | | | 65,053 | | | 14 | | | | 6 | | | | 9,635 | | | | Central & Eastern Europe | | | 70 | | | | 1,910 | | | | 23 | | | | 86 | | | | 628 | | | | | Spain & Portugal | | | 1 | | | | 796 | | | | - | | | | 15 | | | | 155 | | | | Southern & Eastern Europe | | | | 71 | | | | 2,707 | | | 23 | | | | 101 | | | | 783 | | | Asia | | | 490 | | | | 4,969 | | | | 100 | | | | 15 | | | | 816 | | | | 490 | | | | 6,582 | | | 100 | | | | 15 | | | | 816 | | | | Holding and other activities | | | - | | | | 16 | | | | 8 | | | | - | | | | 1 | | | | - | | | | 16 | | | 8 | | | | - | | | | 1 | | Eliminations1) | | | | - | | | | (1,615 | ) | | | - | | | | - | | | | - | | | Total | | 9,729 | | | 306,311 | | | 5,447 | | | 3,036 | | | 22,826 | | | 9,729 | | | | 306,341 | | | 5,447 | | | | 3,036 | | | | 22,826 | | | | 2016 | | | | | | | | | | | | | | | | | | Americas | | | 8,958 | | | | 185,654 | | | | 5,625 | | | | 2,151 | | | | 9,433 | | | | | The Netherlands | | | 84 | | | | 63,526 | | | | 59 | | | | 977 | | | | 2,491 | | | | | United Kingdom | | | 996 | | | | 69,505 | | | | 11 | | | | 6 | | | | 9,924 | | | | | Central & Eastern Europe | | | 71 | | | | 1,905 | | | | 18 | | | | 75 | | | | 578 | | | | | Spain & Portugal | | | 1 | | | | 799 | | | | - | | | | 12 | | | | 148 | | | | | Asia | | | 832 | | | | 5,558 | | | | 105 | | | | 22 | | | | 882 | | | | | Holding and other activities | | | - | | | | 16 | | | | 4 | | | | - | | | | (2) | | | | Total | | 10,942 | | | 326,964 | | | 5,822 | | | 3,244 | | | 23,453 | |
| 1 | Comparative figures have been reclassified. The intercompany eliminations have been removed from the individual reporting units and included in a separate line as ‘Eliminations’. This reclassification is not considered material as there is no effect on consolidated group figures. |
The numbers included in Schedule III are based on IFRS and excludes the proportionate share in Aegon’s joint ventures and Aegon’s associates. Deferred policy acquisition costs also include deferred costs of reinsurance. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 330331 | | | | Other financial information Schedule III | | | | | | | | | | | | |
| | | | Column G | | | Column H | | | Column I | | | Column J | | | Column K | | | Column G | | Column H | | Column I | | | Column J | | Column K | | | Amounts in million EUR | | Net investment
income | | | Benefits, claims
and losses | | | Amortization of
deferred policy
acquisition costs | | | Other operating
expenses | | | Premiums written | | | Net
investment
income | | Benefits,
claims and
losses | | Amortization
of deferred
policy
acquisition
costs | | | Other
operating
expenses | | Premiums
written | | 2019 | | | | | | | | | | | | Americas | | | | 3,166 | | | 8,484 | | | 582 | | | | 3,181 | | | 6,360 | | The Netherlands | | | | 2,224 | | | 3,416 | | | 3 | | | | 880 | | | 2,090 | | United Kingdom | | | | 1,830 | | | 7,722 | | | 100 | | | | 607 | | | 6,120 | | Southern & Eastern Europe | | | | 71 | | | 497 | | | 34 | | | | 288 | | | 710 | | Asia | | | | 254 | | | 337 | | | 36 | | | | 88 | | | 413 | | Asset Management | | | | - | | | | - | | | | - | | | | 388 | | | | - | | Holding and other activities | | | | - | | | 5 | | | | - | | | | 153 | | | 12 | | Eliminations1) | | | | (15 | ) | | (3 | ) | | | - | | | | (187 | ) | | | - | | Total | | | | 7,531 | | | 20,459 | | | 754 | | | | 5,399 | | | 15,704 | | | 2018 | | | | | | | | | | | | | | | | | | | | | | Americas | | | 3,120 | | | | 7,767 | | | | 720 | | | | 3,219 | | | | 6,069 | | | | 3,121 | | | 7,767 | | | 720 | | | | 3,219 | | | 6,069 | | | The Netherlands | | | 2,263 | | | | 3,546 | | | | 20 | | | | 806 | | | | 1,960 | | | | 2,265 | | | 3,547 | | | 20 | | | | 792 | | | 1,960 | | | United Kingdom | | | 1,346 | | | | 9,218 | | | | 101 | | | | 604 | | | | 7,299 | | | | 1,346 | | | 9,221 | | | 101 | | | | 604 | | | 7,299 | | | Central & Eastern Europe | | | 48 | | | | 396 | | | | 49 | | | | 216 | | | | 625 | | | | Spain & Portugal | | | 29 | | | | 165 | | | | - | | | | 98 | | | | 140 | | | | Southern & Eastern Europe | | | | 77 | | | 562 | | | 49 | | | | 314 | | | 765 | | Asia | | | 225 | | | | 231 | | | | 24 | | | | 91 | | | | 550 | | | | 225 | | | 233 | | | 24 | | | | 91 | | | 550 | | | Asset Management | | | - | | | | - | | | | - | | | | 151 | | | | - | | | | - | | | | - | | | | - | | | | 371 | | | | - | | | Holding and other activities | | | 5 | | | | 6 | | | | - | | | | 127 | | | | 10 | | | | 6 | | | 6 | | | | - | | | | 127 | | | 10 | | Eliminations1) | | | | (4 | ) | | (5 | ) | | | - | | | | (206 | ) | | | - | | Total | | | 7,035 | | | | 21,331 | | | | 914 | | | | 5,311 | | | | 16,653 | | | | 7,035 | | | 21,331 | | | 914 | | | | 5,311 | | | 16,653 | | | 2017 | | | | | | | | | | | | | | | | | | | | | | Americas | | | 3,362 | | | | 8,585 | | | | 552 | | | | 2,953 | | | | 6,387 | | | | 3,362 | | | 8,585 | | | 552 | | | | 2,953 | | | 6,387 | | | The Netherlands | | | 2,173 | | | | 4,430 | | | | 19 | | | | 925 | | | | 2,192 | | | | 2,172 | | | 4,430 | | | 19 | | | | 911 | | | 2,192 | | | United Kingdom | | | 1,516 | | | | 11,796 | | | | 111 | | | | 646 | | | | 9,266 | | | | 1,517 | | | 11,798 | | | 111 | | | | 646 | | | 9,266 | | | Central & Eastern Europe | | | 49 | | | | 416 | | | | 54 | | | | 207 | | | | 614 | | | | Spain & Portugal | | | 31 | | | | 153 | | | | - | | | | 93 | | | | 150 | | | | Southern & Eastern Europe | | | | 80 | | | 569 | | | 54 | | | | 301 | | | 764 | | Asia | | | 203 | | | | 153 | | | | 33 | | | | 95 | | | | 778 | | | | 203 | | | 155 | | | 33 | | | | 96 | | | 778 | | | Asset Management | | | - | | | | - | | | | - | | | | 159 | | | | - | | | | - | | | | - | | | | - | | | | 394 | | | | - | | | Holding and other activities | | | 5 | | | | 5 | | | | - | | | | 76 | | | | 8 | | | | 8 | | | 5 | | | | - | | | | 76 | | | 8 | | Eliminations1) | | | | (4 | ) | | (4 | ) | | | - | | | | (221 | ) | | | - | | Total | | | 7,338 | | | | 25,537 | | | | 770 | | | | 5,155 | | | | 19,395 | | | | 7,338 | | | 25,537 | | | 770 | | | | 5,155 | | | 19,395 | | | 2016 | | | | | | | | | | | | | Americas | | | 3,711 | | | | 8,913 | | | | 576 | | | | 3,438 | | | | 6,824 | | | | The Netherlands | | | 2,133 | | | | 3,726 | | | | 24 | | | | 967 | | | | 2,477 | | | | United Kingdom | | | 1,661 | | | | 12,618 | | | | 148 | | | | 518 | | | | 9,331 | | | | Central & Eastern Europe | | | 45 | | | | 395 | | | | 59 | | | | 185 | | | | 568 | | | | Spain & Portugal | | | 36 | | | | 143 | | | | - | | | | 90 | | | | 143 | | | | Asia | | | 196 | | | | 130 | | | | 31 | | | | 111 | | | | 927 | | | | Asset Management | | | - | | | | - | | | | - | | | | 138 | | | | - | | | | Holding and other activities | | | 6 | | | | 3 | | | | - | | | | 66 | | | | 7 | | | Total | | | 7,788 | | | | 25,929 | | | | 837 | | | | 5,513 | | | | 20,277 | | |
| 1 | Comparative figures have been reclassified. The intercompany eliminations have been removed from the individual reporting units and included in a separate line as ‘Eliminations’. This reclassification is not considered material as there is no effect on consolidated group figures. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 331332 | | | | Other financial information Schedule IV | | | | | | | | | | | | |
Schedule IV Reinsurance | | Amounts in million EUR | | Gross amount | | | Ceded to other
companies | | | Assumed from
other companies | | | Net amount | | | % of amount
assumed to net | | | Gross amount | | | Ceded to
other
companies | | | Assumed
from other
companies | | | Net amount | | | % of amount
assumed to
net | | For the year ended December 31, 2018 | | | | | | | | | | | | | For the year ended December 31, 2019 | | | | | | | | | | | | Life insurance in force | | | 874,423 | | | | 708,242 | | | | 512,735 | | | | 678,915 | | | | 76% | | | | 955,451 | | | | 699,005 | | | | 480,723 | | | | 737,170 | | | | 65% | | | Premiums | | | | | | | | | | | | | | | | | | | | | Life insurance | | | | 14,524 | | | | 2,276 | | | | 1,402 | | | | 13,650 | | | | 10% | | Non-life insurance | | | | 2,199 | | | | 158 | | | | 13 | | | | 2,055 | | | | 1% | | Total premiums | | | | 16,723 | | | | 2,434 | | | | 1,415 | | | | 15,704 | | | | 9% | | | For the year ended December 31, 2018 | | | | | | | | | | | | Life insurance in force | | | | 874,423 | | | | 708,242 | | | | 512,735 | | | | 678,915 | | | | 76% | | | Premiums | | | | | | | | | | | | | | Life insurance | | | 15,526 | | | | 2,500 | | | | 1,443 | | | | 14,470 | | | | 10% | | | | 15,526 | | | | 2,500 | | | | 1,443 | | | | 14,470 | | | | 10% | | | Non-life insurance | | | 2,330 | | | | 163 | | | | 16 | | | | 2,183 | | | | 1% | | | | 2,330 | | | | 163 | | | | 16 | | | | 2,183 | | | | 1% | | Total premiums | | | 17,856 | | | | 2,663 | | | | 1,459 | | | | 16,653 | | | | 9% | | | | 17,856 | | | | 2,663 | | | | 1,459 | | | | 16,653 | | | | 9% | | | For the year ended December 31, 2017 | | | | | | | | | | | | | | | | | | | | | | Life insurance in force | | | 863,686 | | | | 709,326 | | | | 525,201 | | | | 679,561 | | | | 77% | | | | 863,686 | | | | 709,326 | | | | 525,201 | | | | 679,561 | | | | 77% | | | Premiums | | | | | | | | | | | | | | | | | | | | | | | | Life insurance | | | 18,324 | | | | 3,214 | | | | 1,628 | | | | 16,738 | | | | 10% | | | | 18,324 | | | | 3,214 | | | | 1,628 | | | | 16,738 | | | | 10% | | | Non-life insurance | | | 2,849 | | | | 217 | | | | 25 | | | | 2,657 | | | | 1% | | | | 2,849 | | | | 217 | | | | 25 | | | | 2,657 | | | | 1% | | Total premiums | | | 21,174 | | | | 3,431 | | | | 1,653 | | | | 19,395 | | | | 9% | | | | 21,174 | | | | 3,431 | | | | 1,653 | | | | 19,395 | | | | 9% | | | For the year ended December 31, 2016 | | | | | | | | | | | | | Life insurance in force | | | 986,854 | | | | 851,003 | | | | 648,147 | | | | 783,999 | | | | 83% | | | | Premiums | | | | | | | | | | | | | Life insurance | | | 18,687 | | | | 2,932 | | | | 1,713 | | | | 17,468 | | | | 10% | | | | Non-life insurance | | | 3,046 | | | | 244 | | | | 7 | | | | 2,808 | | | | 0% | | | Total premiums | | | 21,734 | | | | 3,176 | | | | 1,719 | | | | 20,277 | | | | 8% | | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 332333 | | | | Other financial information Schedule V | | | | | | | | | | | | |
Schedule V Valuation and qualifying accounts | | Amounts in million EUR | | 2018 | | | 2017 | | 2016 | | | 2019 | | | 2018 | | 2017 | | Balance at January 1 | | | 213 | | | 215 | | | 249 | | | | 179 | | | 213 | | | 215 | | | Addition charged to earnings | | | 35 | | | 40 | | | 5 | | | | 72 | | | 35 | | | 40 | | | Amounts written off and other changes | | | (70 | ) | | (37 | ) | | (40 | ) | | | (53 | ) | | (70 | ) | | (37 | ) | | Currency translation | | | 1 | | | (5 | ) | | 1 | | | | - | | | 1 | | | (5 | ) | Balance at December 31 | | | 179 | | | 213 | | | 215 | | | | 199 | | | 179 | | | 213 | | | The provisions can be analyzed as follows: | | | | | | | | | | | | | | Mortgages | | | 19 | | | 48 | | | 40 | | | | 6 | | | 19 | | | 48 | | | Other loans | | | 118 | | | 116 | | | 97 | | | | 159 | | | 118 | | | 116 | | | Receivables | | | 41 | | | 48 | | | 79 | | | | 34 | | | 41 | | | 48 | | Total | | | 179 | | | 213 | | | 215 | | | | 199 | | | 179 | | | 213 | |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 333334 | | | | Auditor’s report on the Annual Report on FormForm 20-F | | | | | | | | | | | | |
Auditor’s report on the Annual Report on Form20-F Report of Independent Registered Public Accounting Firm To:To the Supervisory Board and Shareholders of Aegon N.V.
Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated statement of financial position of Aegon N.V. and its subsidiaries (the “Company”) as of December 31, 20182019 and 2017,2018, and the related consolidated statements of income, statement, statement of comprehensive income, statement of changes in equity and cash flow statement for each of the three years in the period ended December 31, 2018,2019, including the related notes and schedules to the financial statements of summary of investments other than investments in related parties as of December 31, 2018,2019, of condensed financial information of Aegon N.V. as of December 31, 2019 and 2018 and 2017 and for each of the three years in the period ended December 31, 2018,2019, of supplementary insurance information as offor the years ended December 31, 2019, 2018 2017 and 2016,2017, of reinsurance for the years ended December 31, 2019, 2018 2017 and 20162017, and of valuation and qualifying accounts as offor the years ended December 31, 2019, 2018 2017 and 20162017 appearing under the section Other Financial Information (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2018,2019, based on criteria established inInternal Control –- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20182019 and 2017,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20182019 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2019, based on criteria established inInternal Control –- Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on internal control over financial reporting.reporting appearing under Item 15. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets | | | | | | | | | | | Annual Report on Form 20F2018 | | |
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of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Valuation of certain assets and liabilities arising from insurance contracts As described in Notes 3, 27, 29, 34 and 44 to the consolidated financial statements, the Company had deferred policy acquisition costs (DPAC) of EUR 10.0 billion included in the deferred expenses line item, value of business acquired (VOBA) of EUR 1.0 billion included in the intangible assets line item, insurance contracts of EUR 123.5 billion and embedded derivatives in insurance contracts of EUR 3.1 billion included in the derivatives liability line item as of December 31, 2019 (collectively, ‘certain assets and liabilities arising from insurance contracts’). Management’s estimation of the valuation of certain assets and liabilities arising from insurance contracts is developed using complex valuation models and significant assumptions, including mortality, morbidity, investment return, future expenses, surrender, lapse, incidence rates, and, for embedded derivatives in insurance contracts, own credit spread. In addition, Aegon the Netherlands adjusts the outcome of the liability adequacy test (LAT) for the difference between the fair value and the book value of mortgage loans, which are valued using significant assumptions, including prepayment and lapse assumptions. The principal considerations for our determination that performing procedures relating to the valuation of certain assets and liabilities arising from insurance contracts is a critical audit matter are (i) there was significant judgment by management when determining these estimates, which in turn led to a high degree of auditor judgment, and subjectivity in evaluating the audit evidence relating to the valuation of certain assets and liabilities arising from insurance contracts; (ii) significant audit effort was necessary in evaluating the audit evidence relating to the models and the aforementioned significant assumptions; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing procedures and evaluating the audit evidence obtained. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of certain assets and liabilities arising from insurance contracts and the valuation of mortgage loans, including controls over the development of significant assumptions. These procedures also included, among others, testing the completeness and accuracy of key data underlying the development of the aforementioned significant assumptions, and the involvement of professionals with specialized skill and knowledge to assist in testing management’s process for determining the valuation of certain assets and liabilities arising from insurance contracts, which included (i) evaluating the appropriateness of the models used in the valuation of certain assets and liabilities arising from insurance contracts, and (ii) evaluating the reasonableness of the aforementioned significant assumptions. Professionals with specialized skills and knowledge were used to assist in evaluating the reasonableness of management’s estimate of the valuation of mortgage loans by developing an independent range of prices and comparing management’s estimate to the independently developed ranges. Developing the independent estimate involved utilizing a range of available market inputs and assumptions and testing the completeness and accuracy of data provided by management. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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Valuation of certain Level 3 investments As described in Notes 3 and 44 to the consolidated financial statements, the Company had investments of EUR 146.8 billion as of December 31, 2019 of which EUR 4 billion were categorized as Level 3 debt securities and investments in real estate in the valuation hierarchy. Management’s estimation of the valuation of Level 3 debt securities and investments in real estate is developed using quotes from third-party brokers, internal cash flow modelling techniques and external appraisals that use significant unobservable inputs, including discount and capitalization rates, default rate and liquidity assumptions, issue specific credit adjustments and indicative quotes from market makers. The principal considerations for our determination that performing procedures relating to the valuation of certain Level 3 investments is a critical audit matter are (i) there was significant judgment by management in determining the fair value of Level 3 debt securities and investments in real estate as the valuation uses significant unobservable inputs, which led to a high degree of auditor judgment, subjectivity and effort in performing the procedures relating to the estimate; and (ii) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing procedures and evaluating the audit evidence obtained. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the valuation of Level 3 debt securities and investments in real estate, including controls over the development of the model and the significant unobservable inputs. These procedures also included, among others, developing an independent estimate of the value for a sample of the investments by obtaining independent pricing from third party vendors, if available. For a sample of Level 3 investments, professionals with specialized skill and knowledge were used to assist in developing an independent range of prices and comparing management’s estimate to the independently developed ranges. Developing the independent estimate involved utilizing a range of available market inputs and assumptions and testing the completeness and accuracy of data provided by management. /s/ G.J. Heuvelink RA PricewaterhouseCoopers Accountants N.V. Amsterdam, the Netherlands March 21, 201918, 2020 We have served as the Company’s auditor since 2014. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
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Overview ofAmericasof Americas Aegon Americas operates primarily under the Transamerica brand in the United States, and has operations in Brazil and Mexico and a small operation in Canada. Aegon in the US Transamerica is one of the leading life insurance organizationscompanies in the United States, and the largest of Aegon’s operating units worldwide. ItsTransamerica employs approximately 7,900 people and its businesses in the USUnited States serve customers in all fifty states and the District of Columbia, and employ approximately 7,500 people.Columbia. Most Aegon companies in the United States operate under the Transamerica brand, which stands for the pursuit of financial and physical well-being: Wealth + Health. Its companies have existed since themid-19th century, and its primary offices are in Cedar Rapids, Iowa; Denver, Colorado and Baltimore, Maryland – withMaryland. There are additional offices located throughout the United States. Through its subsidiaries and affiliated companies, AegonTransamerica provides a wide range of life insurance, long-term care insurance and voluntary benefits including(including supplemental health insurance,insurance), retirement plans, recordkeeping and advisory services, annuities, mutual funds and other long-term savings and investment products – all solutions and services that help customers achieve financial security and a healthy lifestyle throughout their lives.products. Aegon employs a variety of distribution channelsmodels to help customers access its products and services as suits their needs.services. These include Workplaceworking through third party financial professionals, retail producers and Individual, Brokerage, Closely-Affiliated,agents, and the Transamerica Advice Center distribution channels.registered investment advisors. Aegon in Brazil Aegon has a 50% interest in Mongeral Aegon Seguros e Previdência S.A. (hereafter referred to as Mongeral(Mongeral Aegon), Brazil’s third largest independent (i.e.non-bank affiliated) life insurer.insurer1. To further capture growth prospects in Brazil, Mongeral Aegon and Bancoob (Banco Cooperativo do Brasil) established Sicoob Seguradora de Vida e Previdência, a life insurance and pensions company dedicated to providing life insurance and pension products within the Sicoob system.system, Brazil’s largest cooperative financial system2 with over 4.6 million associates and over 3,000 points of sale. As of December 2018,2019, Aegon Brazil had 550651 employees. Aegon in Mexico Aegon has a joint venture in Mexico with Administradora Akaan S.A. de C.V., called Akaan-Aegon S.A.P.I. de C.V..C.V. The Mexico City-based operating company, Akaan Transamerica, launched a series of mutual funds and investment solutions in October 2017, targetingsupporting family offices, high net worthhigh-net-worth individuals, and institutions. AsIn 2019, Transamerica made the strategic decision to wind down this joint venture, as the business had not performed according to expectations. The wind down of December 31, 2018, Aegon Mexico had 25 employees.the joint venture is expected to be completed in 2020. Organizational structure Aegon USA Aegon USA was formed in 1989, when Aegon brought all of its operating companies in the United States together under a single financial services holding company: Aegon USA, LLC. On December 31, 2015, Aegon USA, LLC was merged into Transamerica Corporation which is the holding company for the US operations. Businessoperations, and all US business is conducted through its various subsidiaries. The use of the term ‘Aegon USA’ throughout this business overview refers to the operating subsidiaries and joint venturesventure(s) in the United States and Latin America, collectively or individually, through which Aegon conducts business. Aegon USA hasentities collectively have operating licenses in every US state, in addition to the District of Columbia, Puerto Rico, the US Virgin Islands, and Guam.
Aegon USA’s primary insurance subsidiaries are: | ◆ | | Transamerica Life Insurance Company; |
| ◆ | | Transamerica Financial Life Insurance Company; and |
◆ | | Transamerica Advisors Life Insurance Company; |
| ◆ | | Transamerica Premier Life Insurance Company; and |
◆ | | Transamerica Casualty Insurance Company. |
Aegon USA is a functionally organized firm that aims to meet customers’ needs and to create a consistent, positive experience for customers, business partners and employees. Aegon USA 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.life. 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. The business lines operated through one or more of Aegon USA’s life insurance companies include: life insurance, accident & health insurance, mutual funds, variable annuities, fixed annuities, retirement plans, stable value solutions, and Latin America. The business
| 1 | SUSEP, http://www2.susep.gov.br/menuestatistica/SES/principal.aspx. Webpage visited October 4, 2019. |
| 2 | SICOOB,https://www.sicoob.com.br/web/sicoob/o-sicoob. Webpage visited January 3, 2020. |
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lines, described in greater detail below, represent groups of products and services thatIn 2019, Aegon USA offers through a number of distribution methodsrealigned into two core business lines, Workplace Solutions and sales channels. Products are also offered and distributedIndividual Solutions, that operate through one or more of Aegon USA’s licensedlife insurance or brokerage subsidiary companies. Retirement plans, employee benefits (including supplemental health insurance), and stable value solutions are offered through Workplace Solutions. Annuities, mutual funds, supplemental health insurance, and life and long term care (LTC) insurance are offered through Individual Solutions. Aegon USA offers these product lines, described in greater detail below, through a number of distribution and sales channels and methodologies.
On January 11, 2018, Transamerica announced that it had entered into an agreement with Tata Consultancy Services (TCS) to administer the company’s US insurance and annuity business lines. The partnership enables Transamerica to accelerateComplimented by the enhancement of its digital capabilities and the modernization of its platforms to service its customers in all lines of business. With a transfer of over 2,000 Transamerica employees to TCS, will supportTCS supports the administration of Transamerica’s life insurance, annuity, supplemental health insurance and workplace voluntaryemployee benefits products (both for inforce and new business based on a transition timeline), taking on the administration of over 10 million policies. Effective October 1, 2018, Aegon mergedOn March 21, 2019, Transamerica announced that it entered into an agreement with LTCG to transfer the administration and claims management of the company’s LTC insurance business. This strategic relationship enables Transamerica to enhance and modernize itsArizona-based variable annuity captive with Transamerica Life Insurance Company (TLIC), subject claims and administrative systems and processes in order to customary regulatory approval. The mergerbetter serve its long-term care customers. LTCG is a leading provider of this company into TLIC is in responseadministrative solutions to the National Associationlong-term care insurance industry, serving more than 100 carriers nationwide. LTCG’s advanced data analytics, actuarial and risk management capabilities, and general long-term care industry expertise are aligned with our focus on providing an excellent customer experience. LTCG will support the administration of Insurance Commissioners (NAIC) recently proposed improvements toTransamerica’s LTC insurance business with the existing variable annuity capital framework. As a resulttransfer of the merger of two legal entities, Aegon realized aone-time benefit to capital generation of approximately USD 1 billionover 200 Transamerica employees, which was completed in the second half of 2018. This benefit was offset by the impact of tax reform on the RBC ratio in the second half of 2018.August 2019.
Overview of sales and distribution channels Aegon USA’s distribution channels are organized so asin order to meet customer needs and offer solutions to the third-partythrough affiliated andnon-affiliated distributors that provide guidance to Aegon USA customers. Each channel is focused on a number of primary target market segments, which fall under four main distribution categories: Workplace Solutions supports customers primarily through their employers, and Individual Brokerage, Closely-AffiliatedSolutions supports individual customers and the Transamerica Advice Center.investors. Workplace and Individual solutions Through Workplace Solutions, Aegon USA offersprovides employer-sponsored retirement plans, rollover individual retirement accounts (IRAs),group life insurance (universal life, whole life, and term life), supplemental group health products (critical illness, cancer, hospital indemnity, supplemental medical expense, short-term disability, vision, and dental policies), group accident products, and institutional stable value solutions to consumersUS organizations of all sizes. Workplace Solutions accesses these employers through financial advisors, benefits consultants and agents. Through the employer segment, also known as theTransamerica Advice Center (TAC), which includes a team of experienced registered representatives, investment advisor representatives, and licensed insurance agents, Workplace solutions segment.Solutions offers rollover individual retirement accounts (IRAs), advisory services, annuities and access to other insurance products and resources to eligible retirement plan participants. In addition,Individual solutions
Wholesale distribution Through its Individual Solutions business line, Aegon USA offers annuities, investments (mutual funds and Exchange Traded Funds (ETF)exchange traded funds (ETFs)), life insurance and long-term care insurance products through partnershipsagreements with independent broker-dealers, (banks,banks, wirehouses, independent financial planners, and independent financial planners).insurance producers. Annuity and investment products are also offered through institutions, including large broker-dealer research and advisory platforms, and large registered investment advisers. Together these comprise the Individual solutions segment. While Aegon USA’s wholesalers are dedicated to one business line, they work closely together to refer financial professionals across Aegon USA’s multiple business lines in order to create deeper partnerships with these professionals and become even more relevant in the financial lives of customers.
Brokerage
Additionally, Aegon USA offers protection products (life insurance, supplemental health insurance and long-term careLTC insurance products) through third-party distribution outlets known as ‘Brokerage General Agents’ or ‘Independent Marketing Organizations’. These are typicallypredominantlynon-registered products sold through independent insurance agents.producers. This channel offers life insurance (term life, universal life, variable universal life, index universal life, and whole life insurance), long-term careLTC insurance and supplemental health products and services (Medicare Supplement, accident, and cancer insurance) through approximately 51,000 independent brokerage distributors and financial institutions that targetoperate in the affluent, emerging affluent and middle markets. TheseEffective December 2019, accident and cancer insurance products are designed for family protection, business needs and legacy planning.no longer sold in the Individual line. Closely-AffiliatedRetail distribution
One of Aegon USA’s closely-affiliatedretail affiliate distribution groups,group, ‘Transamerica Financial Network,’Network’ (TFN), provides advice and guidance to individuals to meet their protection and investment needs. With over 50,000 licensed associates on theTFN consists of World Financial Group platform, approximately 3,300 of whom are registered representatives of a broker-dealer and/or investment advisers (withInsurance Agency (‘WFGIA’), Transamerica Agency Network (TAN) and Transamerica Financial Advisors, Inc.), together with 1,700 (TFA). TFN, through licensed agents and directors (Transamerica Agency Network), Transamerica Financial Networkregistered representatives/ investment advisor representatives, offers insurance, annuities, mutual funds, retirement plans and managed accounts to individuals. This channeladvisory account solutions. There are approximately 43,000 independent insurance agents associated with WFGIA in the United States and its affiliated insurance agency operating in Canada. There are approximately 1,700 insurance agents associated with TAN. TAN provides the same life and health products as the brokerage channel, with a focus on the middle and emerging affluent markets.
Advice Center
Aegon USA distributes directly to customers through the Transamerica Advice Center. The Advice Center provides advice, guidance and education to retirement plan participants, building loyalty and strengthening Transamerica’s relationships with these customers. WithTAN agent field is comprised
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over 250 licensed advisorsof both employees and educators, the Advice Center provides IRAs, annuities, life insurance,independent producers. Approximately 3,400 WFGIA and Managed Advice to retirement plan participants, helping these customers achieve a lifetimeTAN agents are associated with TFA as registered representatives, of financial security.which approximately 1,700 are registered as investment advisor representatives.
Overview of businessproduct lines Life Aegon USA offers a comprehensive portfolio of protection solutions to customers in a broad range of market segments. Products offeredLife products include term life (TL), universal life (UL), variable universal life (VUL), index universal life (IUL) and whole life insurance.insurance (WL). Term life insurance Term lifeTL insurance provides protection for a stated period of time. Benefits are paid to policy beneficiaries in the event of the death of the insured during a specified period. Living benefit riders that provide accelerated benefits for critical illnesses or chronic conditions are available on term insurance.
Universal life insurance Universal lifeUL insurance is flexible permanent life insurance that offers death benefit protection together with the potential for cash value accumulation. After the first few years, there is usually no set premium. The policyholder can adjust the frequency and amount of premium payments, as long as sufficient premiums are paidaccumulated in the policy’s account value to cover charges in the month that follows, which are called “monthly deductions”‘monthly deductions’. In determining the monthly deduction rate to apply to a specific policy plan, Aegon USA may take a wide number of factors into account that impact the cost of providing the insurance, including but not limited to: interest rates, investment earnings, mortality, persistency, premium funding levels, capital and reserve requirements, taxes, and other expenses associated with such a plan. Any changes in the monthly deduction rate reflect Aegon USA’s current expectations with respect to future policy performance. At any time, the policy owner is able to see the maximum monthly deduction rate that can be charged. Some versions of this product have ‘secondary guarantees.’ These maintain life insurance coverage when cash value is insufficient, as long as the customer pays a specified minimum premium.
Variable universal life insurance Variable universal lifeVUL insurance is permanent life insurance that offers both a death benefit and cash value accumulation potential with financial market participation. The premium amount for variable universal lifeVUL insurance is flexible and within contract limits may be changed by the policyholder.policyholder within contract limits. Coverage amount may change as well. The investment feature usually includes‘sub-accounts,’ which provide exposure to investments, such as stocks and bonds. This exposure increases cash value return potential, but also the risk of additional premium requirements or lower coverage amounts in comparison with a traditional,non-variable life insurance policy. Aegon USA does not actively market VUL insurance.
Index universal life insurance Index Universal Life (IUL)IUL insurance provides permanent death benefit protection and cash value accumulation with flexible premium payments. What distinguishes it from other types of permanent life insurance is the way in which interest earnings are credited. Net premiums may be allocated to either a fixed account or indexed accounts. Indexed accounts credit interest based in part on the performance of one or more market indices. The credited interest is based on the index, but with a floor and a cap. IUL offers both market-paced growth potential in the indexed accounts and downside protection. It is an appealing alternative to regular Universal Life –traditional UL - for which interest is credited at a fixed rate –- and Variable Universal Life,VUL, in which the cash value is directly exposed to ups and downs of the market. Long-term care riders that provide benefits if policyholders are unable to perform two or more specific activities of daily living or develop a severe cognitive impairment, and other living benefit riders that provide accelerated death benefits for critical illnesses or chronic conditions, are available on IUL.
Whole life insurance Whole lifeWL insurance provides permanent death benefit protection, provided that the required premiums are paid, while accumulating cash values based on statutory requirements. Premiums are generally fixed and usually payable over the life of the policy.
Accident & health Aegon USA offers supplemental health insurance and long-term care insurance. Supplemental health insurance Supplemental health insurance products include accidental death and dismemberment, accidental injury, cancer, critical illness, disability, hospital indemnity, Medicare Supplement, retiree medical, and supplemental medical expense indemnity. Medicare Part D prescription drug plan coverage previously offered by Aegon USA was discontinued at the end of 2018. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
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A number of these products provide policyholders with lump sumsums or specified payments if suchthese policyholders are hospitalized, injured, or diagnosed with a critical illness. Others pay benefits for specific medical expenses and treatments, or cover deductibles,co-payments andco-insurance amounts not covered by other health insurance. Medical stop-loss insurance offered to employers to protect against catastrophic losses under self-funded health plans was discontinued during 2018 and is in a wind-down phase. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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Long-term care insurance Long-term care (LTC)LTC insurance products are a category of health insurance, and provide benefits to policyholders that require qualified LTC services aswhen they are unable to perform two or more specificspecified activities of daily living or develop a severe cognitive impairment. LTC insurance helps protect against the high cost of LTC services, and it may also help families better manage the financial, health and safety issues associated with LTC. TheTransamerica’s LTC product is offered as a standalone product or as a rider to certain life insurance products.
Mutual funds and ETFs Mutual funds are professionally managed investment vehicles comprised of pooled money invested by numerous and different individuals or institutions. Such funds are invested in various underlying security types such as stocks, bonds, money market instruments, and other securities. Transamerica offers mutual funds that are focused on several different asset classes, including US equity, global/international equity, fixed income, money markets and alternative investments, as well as asset allocation and target date funds with combined equity and fixed income strategies. Transamerica mutual funds utilize the portfolio management expertise of asset managers across the industry in asub-advised platform, using managers both affiliated with and not affiliated with Aegon. These managers are subject to a rigorous selection and monitoring due diligence process conducted by Transamerica Asset Management. Exchange Traded Funds (ETFs)ETFs are a pooled investment vehicle for individual and institutional investors that combine some of the features of a mutual fund with the flexibility of allowing investors to trade throughout the day on an exchange. Transamerica offers a suite of managed risk passive exchange-traded funds that seek to track the S&P Managed Risk 2.0 Indices marketed under the brand name DeltaShares. TheThis Managed Risk strategy is applied to US Large Cap, Mid Cap, Small Cap, International Developed Equity and Emerging Market Equity Indices.
Variable annuities Variable annuities (VAs) allow the policyholder to accumulate assets for retirement on atax-deferred basis and to participate in equity or bond market performance. Additional insurance guarantees, also referred to aswhich are offered through riders, can be added to variable annuities, including guaranteed minimum death benefits (GMDBs) and guaranteed living benefits (GLBs). GMDBs provide a guaranteed benefit in the event of death. GLBs are intended to provide a measure of protection against market risk while the annuitant is alive. Different forms of GLBs are offered, such as guaranteeing an income stream for life and/or guaranteeing principal protection. Fixed annuities Fixed annuities allow the policyholder to accumulate assets for retirement on atax-deferred basis through periodic interest crediting and principal protection. Aegon USA hasde-emphasized traditional fixed deferred annuities, and is not activelyonly marketing new sales.sales through the TAC. The traditional fixed deferred annuity book is, according to plan, continuing to reduce over time. Aegon USA actively offers a fixed-index annuity 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 aswhich are offered through riders, can be added to fixed-index annuities, including GLBs. Retirement plans and IRAs Comprehensive and customized retirement plan services are offered to employers across the entire spectrumrange of defined benefit, defined contribution,non-qualified deferred compensation, and multiple employer plans (MEPs). Services are also offered to individuals rolling over funds from other qualified retirement funds or Individual Retirement Accounts (IRAs).IRAs. Retirement plan services, including administration, recordkeeping and related services are offered to employers of all sizes and to plans across all market segments. Aegon USA also partnersworks closely with plan advisors and third-party administrators to serve their customers. Transamerica Retirement Solutions is a top tentop-ten1 defined contribution record-keeper in the United States based on plan participants. Plan sponsors have access to a wide array of investment options. Depending on the product chosen by the plan sponsor, unrestricted access to the entire universe of publicly-availableall publicly available investments can be offered. Certain smaller plans have access to an array of hundreds of investment choices from more than 40 investment advisory companies. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
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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 a managed account option that plan sponsors can make available to participants that provides investment advice to participants using the plan’sline-up. slate of funds. For individual plan participants in transition due to a job loss or change or planned retirement, services are offered through the Transamerica Advice Center, which includes a team of experienced registered representatives, investment advisor representatives, and licensed insurance agents. Services and products include IRAs, advisory services, and annuities andas well as access to other financial insurance products and resources. | 1 | PLANSPONSOR, July 18, 2019, https://www.plansponsor.com/research/2019-recordkeeping-survey/8/. Webpage visited October 9, 2019. |
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Stable Value Solutions Stable Value Solutions are Synthetic Guaranteed Investment Contracts (GICs) which are offered primarily totax-qualified institutional entities such as 401(k) plans and other retirement plans. A synthetic GIC ‘wrapper’ is offered around fixed-income invested assets, which are owned by the plan and managed by the plan or a third-party money manager hired by the plan. A synthetic GIC is typically issued with an evergreen maturity and may be terminated under certain conditions. Such a contract helps to reduce fluctuations in the value of the wrapped assets and provides book value withdrawals for plan participants, while ensuring that investment fund conditions are met. Latin America Aegon’s businessesbusiness in Latin America are comprised ofincludes a 50% interest in Mongeral Aegon Seguros e Previdência S.A., a Brazilian independent life insurer,insurer. Mongeral Aegon’s activities include a life insurance and pension company, an asset management company, a multi sponsored pension fund, a liabilities management company for pension funds, and a joint venture with Administradora Akaan S.A. de C.V., which created and operates Akaan Transamerica in Mexico. Mongeral Aegon’s insurance activities include pension product distribution, individual and group life insurance products, mutual fund management, and administrative services.longevity institute. To further capture growth prospects in Brazil, Mongeral Aegon and Bancoob (Banco Cooperativo do Brasil) established Sicoob Seguradora de Vida e Previdência, a life insurance and pensions company dedicated to providing life insurance and pension products via the Sicoob system. The joint venture began operations on March 1, 2017, and distributes products through Sicoob, the largest cooperative financial system in the country, with over 3.2 million associates and 2,340 points of service.Sicoob. Bancoob is a private commercial bank owned by the credit cooperative entities affiliated with the Sicoob system. This agreement represents a key expansion of distribution for Mongeral Aegon, which already serves over 23.8 million customers nationwide through over 4,000 brokers.
Akaan Transamerica offers a wide variety of Mexican and International mutual funds as well as diversified global investment solutions. In addition to the wide variety of investment products, Akaan Transamerica offers integrated investment solutions for individuals and companies based on their financial needs.
Run-off businesses OnLatin America
Beginning in 2017, Akaan Transamerica, Aegon’s joint venture in Mexico with Administradora Akaan S.A. de C.V., offered a wide variety of mutual funds and investment solutions. In 2019, Transamerica made the strategic decision to wind down this joint venture as the business had not performed according to expectations. The wind down of the joint venture is expected to be completed in 2020. Institutional spread-based business The institutional spread-based business, primarily comprised of small blocks ofnon-synthetic GICs, funding agreements and funding agreement-backed medium-term notes (MTNs), was put intorun-off mode in 2009. Life reinsurance In August 2011, Aegon USA completed the effective divestment of its life reinsurance business to SCOR Global Life (SCOR) through the reinsurance and sale of its reinsurance entity based in Ireland. In 2017 and 2018, Aegon USA further divested a life reinsurance block that had been previously ceded to a captive structure to SCOR. As of 2019, Aegon USA has divested substantially all of its life reinsurance operations through retrocessions to SCOR. Life reinsurance business was comprised primarily of the reinsurance of term insurance products. In June 28, 2017, Aegon USA completed the divestment of its two largest USrun-off businesses, the payout annuity business and the Bank Owned/Corporate Owned Life Insurance businessbank owned life insurance / corporate owned life insurance (BOLI/COLI) through reinsurance to Wilton Re. The transactionpayout annuity block was placed in line with the Company’s stated strategic objective to reduce the amount of capital allocated to itsrun-off businesses. Payout annuities are a form of immediate annuity purchased to provide periodic payments on an agreed schedule, in general to provide settlements of legal claims, product liability, pension payouts or other payment structured settlement. New sales of payout annuities2003 and the BOLI/COLI products were discontinued in 2003. BOLI/COLI products are purchased as an efficient way for banks and corporations to finance long-term employee benefit liabilities. The bank or corporation insures key employees, and is the owner and beneficiary of the policies. New sales of BOLI/COLI were discontinued in 2010.
Institutional spread-based business
This business was put intorun-off in 2009. The primary products included Guaranteed Investment Contracts (GICs), funding agreements and medium-term notes (MTNs). GICs were generally issued to tax qualified plans, while funding agreements and MTNs were typically issued tonon-tax qualified institutional investors.
GICs and funding agreements are spread-based products issued on a fixed-rate or floating-rate basis. They provide customers with a guarantee of principal and a specified rate of return. Contracts issued in foreign currencies were converted at issuance to US dollars through swap agreements when the contracts were issued to eliminate currency risk.
Before 2009, Aegon USA utilized consolidated special purpose entities to issue MTNs that are backed by funding agreements. The proceeds of each note series were used to purchase a funding agreement from an Aegon USA insurance company, which was
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used to secure that particular series of notes. The payment terms of any particular series substantially matched the payment terms of the funding agreement that secured that series.
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.
On December 28, 2017, Aegon divested a block of life reinsurance business that covered approximately half of the life reinsurance business Transamerica retained after it divested the vast majority of its life reinsurance business to SCOR Global Life in 2011. Under the terms of the agreement, Aegon’s Transamerica life subsidiaries will cede approximately USD 750 million of liabilities to SCOR Global Life. As part of the transaction, the Company dissolved a related captive insurance company in place to finance redundant reserves, generally referred to as regulation XXX term life insurance reserves, and redeemed operational leverage supporting that captive.
In addition, on August 7, 2018, Aegon agreed to divest the last substantial block of its life reinsurance business to SCOR Global Life after it divested the vast majority of its reinsurance business to SCOR Global Life in 2011 and 2017. This transaction is consistent with Aegon’s stated strategic objective to reduce the amount of capital allocated to itsrun-off businesses. Under the terms of the agreement, Aegon’s Transamerica life subsidiaries will reinsure approximately USD 700 million of liabilities through SCOR Global Life. As a result of the transaction, Aegon will significantly reduce the size of a related captive insurance company and the related letter of credit facility in place to finance redundant reserves, generally referred to as regulation XXX term life insurance reserves.
Competition The US marketplace is highly competitive. Aegon USA’s competitors include other large insurance carriers, in addition to certain banks, securities brokerage firms, investment advisors, and other financial intermediaries marketing insurance products, annuities and mutual funds. Aegon USA leverages long-term relationships with many institutions to offer them product lines such as life insurance, variable annuities, mutual funds, defined contribution and defined benefit retirement plans. In individual life insurance, leading competitors include AIG,Pacific Life, Lincoln National, Nationwide, Prudential Financial, PacificJohn Hancock, National Life, Voya Financial,Nationwide, and John Hancock.AIG. Mutual of Omaha is the primary competitor for sales of individual long-term care insurance through the brokerage channel. Competitors for supplemental health include a wide range of companies and company types based on the nature of the coverage including Aflac, Allstate, MetLife, andColonial Life, Allstate, Unum, and ColonialGuardian Life. Aegon USA’s primary competitors in the variable annuity market are AIG, AXA Equitable, Jackson National, Prudential Financial, Lincoln National, AIG, Nationwide, and Prudential Financial.AXA Equitable. The largest competitors in the mutual fund market include Vanguard, Fidelity, American Funds, Fidelity, Vanguard, JP Morgan Funds and T. Rowe Price.Price, J.P. Morgan and BlackRock. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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In the institutional segment of the defined contribution plan administration market, Aegon USA’s mainlargest competitors are Fidelity, TIAA, Empower, Prudential Financial, MassMutual,TIAA, Principal Financial, Charles Schwab,Voya, Vanguard, Alight, and Lincoln National.Bank of America Merrill Lynch. Aegon USA’s mainlargest competitors in the defined benefit segment are MassMutual, New York Life, Principal FinancialAlight, Willis Towers Watson, Conduent, Fidelity, Aon, Mercer, and Prudential Financial. In the emerging market segment and the multiple employer plan segment, Aegon USA’s main competitors are Fidelity, Empower, Voya Financial, John Hancock, Principal Financial and MassMutual.Milliman. In the market for synthetic GICs, Transamerica’s Stable Value Solutions business, the largest competitors are Prudential Financial, MetLife, Voya, and AIG. Regulation and supervision Aegon USA’s insurance companies and the business they conduct in the USUnited States are regulated primarily at the state level, as carried out by various state insurance regulators. Some activities, products and services are also subject to federal regulation. State Insurance Regulation Aegon USA’s largest insurance companies are domiciled in the State of Iowa, and the Iowa Insurance Division exercises principal regulatory jurisdiction over those companies. This regulation includes implementation and enforcement of standards of solvency, adequacy of reserves and capital, and reinsurance.
The Aegon USA insurance companies are licensed as insurers and are regulated in each US state and jurisdiction in which they conduct insurance business. The extent of such regulation varies, but has a shared purpose in terms of the protection of policy and contract | | | | | | | | | | | Annual Report on Form 20F2018 | | |
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holders. The insurance regulators in each state carry out their mission by providing oversight in the broad areas of market conduct and financial solvency regulation. Aegon USA’s largest insurance companies are domiciled in the State of Iowa, and the Iowa Insurance Division exercises principal regulatory jurisdiction over those companies1. This regulation includes implementation and enforcement of standards of solvency, adequacy of reserves and capital, and reinsurance. In the areas of licensing and market conduct, states grant or revoke licenses to transact insurance business, regulate trade, advertising and marketing practices, approve policy forms and certain premium rates, review and approve products and certain rates prior to sale, address consumer complaints, and perform market conduct examinations on both a regular and targeted basis. In the area of financial regulation, state regulators implement and supervise statutory reserve and capital requirements, including minimum risk-based capital solvency standards. Insurance companies are also subject to extensive reporting, investment limitations, and required approval of significant transactions. State regulators, by law, conduct extensive financial examinations every three to five years. State regulators have the authority to impose a variety of punitive measures, including revoking licenses, for failure to comply with applicable regulations. All state insurance regulators are members of the National Association of Insurance Commissioners (NAIC), anon-regulatory association that works to achieve uniformity and efficiency of insurance regulation across the United States and US territories. Recent regulatory enhancements in recent years 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-basedprinciple-based reserving requirements for life insurance, which must bewas implemented byon January 1, 2020. Emerging state issues that may impact Aegon USA include consideration of changesa project by the NAIC to accountingdevelop a group capital calculation that could impact an NAIC group capital ratio and actuarial requirements for variable annuities (VA), which may reduce insurers’ needs and abilities to deploy and cede specified risks to variable annuity captives. Aegon USA uses a captive for certain variable annuity business in order to facilitate effective hedging. Other current initiatives include a projectNAIC projects to update capital charges for asset default risk and longevity risk and operational risk. A project to develop a group capital calculation is underway in the NAIC that could impact how captives are treated from a capital perspective. Long-term carerequired capital. LTC is currently regulated by states as health insurance, although both state regulators and federal agencies are examining the current environment for the long-term careLTC industry, which may lead to a more predictable regulatory regime for premium adjustments, and facilitate the development of new and innovative products. In 2017, the NAIC approved amendments to the Life and Health Insurance Guaranty Association Model Act. Among other things, the amendments will bring health maintenance organizations (HMO) into the life and health guaranty association system and adjust guaranty fund assessments for future long-term care-related insolvencies so that 50% of such assessments will come from life/annuity accounts, with the other 50% from the combined health/HMO accounts. These amendments must be adopted into law in each state before becoming effective in each such state. To date, approximately 12 states have adopted the amended model. | 1 | Aegon USA’s life insurance company in New York, Transamerica Financial Life Insurance Company, is regulated by the New York Department of Financial Services. |
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Federal Regulation of Financial Services and Health Insurance Although the insurance business is primarily regulated at the state level, many federal laws and initiatives impact the insurance sector in such areas as the regulation of financial services, derivatives, retirement plans, securities products, health care, taxes, datainformation security and privacy. Regulation of financial services has increased as a result of the Dodd Frank Act, which also created the Federal Insurance Office (FIO) and the Office of Financial Research (OFR). The FIO is authorized to review the insurance market in the USUnited States and report to Congress, and the OFR conducts research in financial services, including insurance, in support of such oversight. In addition, the FIO is authorized to establish US insurance policy in international matters. The Federal Reserve Board also has authority to establish capital standards for systemically significant insurers, and insurers that own a federally insured bank or thrift, and to participate in the establishment of international insurance capital standards for Internationally Active Insurance Groups (IAIGs) and globally systemically significant insurers(G-SIIs). In Information Security and Privacy Regulation Transamerica’s businesses are regulated with respect to information security, data breach response, privacy and data use at both the area of data security and privacy, there has been increased scrutiny at a state, federal and internationalstate levels. At the federal level followingvarious Transamerica companies are subject to the Gramm-Leach-Bliley Act (GLBA), the Fair Credit Reporting Act (FCRA), and the Health Insurance Portability and Accountability Act (HIPAA), among other laws. At the state level, Departments of Insurance and Financial Services typically administer a series of privacy and information security laws and regulations that impact a number of high-profileTransamerica businesses. Following a series of high profile data breaches and data exploitation events at various companies. As a result,companies that attracted substantial media attention, numerous US regulators and legislators at every level are currently proposing or have already passed additional legal requirements with regardrespect to information security data breach response and privacy. In addition These include but are not limited to financial services products, the PatientCalifornia Consumer Protection Act and Affordable Care Act (ACA), enactedthe New York Department of Financial Services Cybersecurity Rule. Additional laws and regulations with respect to these topics are also anticipated to be promulgated and to go into effect in 2011, changed the regulation of a number of supplemental health insurance products. Efforts to completely repeal the ACA have been ineffective, and states remain skeptical about broadening supplemental health insurance products. Aegon USA anticipates little by way of regulation that will affect its supplemental products, with the exception of IRS taxation ofpre-tax group products.coming years.
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Securities Regulation A number of Aegon USA subsidiaries are subject to regulation under the federal securities laws administered by the US Securities and Exchange Commission (SEC) and aspects of states’ securities and other laws. Variable insurance policies, certain annuity contracts and registered investment management companies (mutual funds) offered by Aegon USA are subject to regulation under the federal securities laws administered by the SEC and aspects of states’ securities laws. Certain separate accounts of Aegon USA insurers that offer variable life insurance and certain annuities, and interests under these annuity and insurance policies are registered and subject to SEC regulation. The distribution and sale of thesevariable products, mutual funds, and other securities by affiliate andnon-affiliate broker-dealers are regulated by the SEC and the Financial Industry Regulatory Authority (FINRA). A number of Aegon USA companies are also registered as investment advisors and subject to SEC regulation or operate under registrations or exemptions from registration as commodity pool operators or Commodities Trading Advisers, regulated by the Commodities Futures Trading Commission and the National Futures Association. Aegon USA also owns or manages other investment vehicles that are exempt from registration, but may be subject to other requirements of those laws, such as anti-fraud provisions and the terms of applicable exemptions. On April 18, 2018,June 5, 2019, the SEC issuedadopted Regulation Best Interest (Regulation BI), a proposal to createnew rule imposing a best interest‘best interest’ standard of conduct applicableon broker-dealers making recommendations to retail clients. Among other things, Regulation BI requires broker-dealers and associated persons. Broker-dealers are currently requiredinvestment advisers to make suitable recommendations, while investment advisors are regulated as fiduciaries, and thus required to put customer interests aboveprovide retail clients with information about the nature of their own. The SEC’s proposed Regulation Best Interest (the ‘SEC proposed rule’) would require broker-dealers and associated persons to adhere to a best interest standard in providing advice, as well as to mitigate, or eliminate in certain cases, conflicts of interest. The SEC proposed rule would also require additional disclosures to customers. relationship. In addition, somesince the Department of Labor Fiduciary Rule was vacated, several states includinghave moved forward with developing standard of conduct rules and proposals. New York and Nevada have enacted orbest interest rules, and other states, including Massachusetts and New Jersey, have proposed an enhancedtheir own fiduciary regulation. The state standard of care for insurance agents and securities brokers registered in their states. Finally, the NAIC has proposed the addition of a best interest standard of care for the sale of variable annuities in its model law. The likelihood or impact of any proposed regulation cannot be determined at this time.conduct landscape continues to evolve. The financial services industry continues to operate under heightened scrutiny and increased regulation in various jurisdictions. Such scrutiny and regulations have included matters relating to conflicts of interest, cash andnon-cash compensation arrangements, suitability of sales (especially to seniors), misleading sales practices, unclaimed property reporting, revenue sharing, investment management and valuation issues involving mutual funds and life insurance separate accounts and their underlying funds, sales, investments and oversight processes related to retail investors saving for retirement, variable annuity buyout offers, and share classes in mutual funds and variable annuities. Aegon USA, like other businesses in the financial services industry, is routinely examined and receives requests for information from the SEC, FINRA, state regulators and others in connection with examinations and investigations of its own companies and third-party or unaffiliated insurers, broker-dealers, investment advisers, investment companies and service providers relating to certain historical and current practices with respect to these and other matters. Some of those inquiries have led to investigations, which remain open, or have resulted in fines, corrective actions or restitution. Aegon USA continues to cooperate with these regulatory agencies. In certain instances, Aegon USA modified business practices in response to those inquiries or findings. Certain Aegon USA companies have paid, or have been informed that the regulators may seek, restitution, disgorgement, fines or other monetary penalties or changes in the way that business is conducted. The impact of any such fines or other monetary penalties is not expected to have a material impact on Aegon USA’s financial position. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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Regulation of Retirement Plans and IRAs Aegon USA administers and provides recordkeeping, investment and insurance services and products used to fund defined contribution plans, such as 401(k), 403(b), multiple employer and 457 plans, in addition to defined benefit plans, IRAs, 529 plans and other savings vehicles. Aegon USA also administers pension benefits distributed onupon termination of defined benefit plans. These products and services are generally subject to the Employee Retirement Income Security Act (ERISA) (certain government and church plans are exempt from ERISA) and the federal Internal Revenue Code of 1986, as amended (the ‘Code’) for which the US Department of Labor (DOL) and the US Department of the Treasury (‘Treasury’) have regulatory jurisdiction, respectively. Legislation to enhanceThe Setting Every Community Up for Retirement Enhancement Act of 2019, better known as the retirement security of Americans, and in particular, through workplace retirement plans, is being considered in Congress.SECURE Act, was signed into law on December 20, 2019. The legislation would facilitatefacilitates the use of multiple employer plans (MEPs), of which Aegon USA is a leading provider, as well as expandexpands the safe harbor for automatic enrollment in plans, and reducereduces the burden of offering annuities either as anin-plan investment option or as the form of distribution from a plan. In addition, on August 31, 2018,The SECURE Act also expands retirement coverage to long-time, part-time workers and “gig economy” workers may not otherwise have access totax-deferred retirement savings, as well as increases the President issued an Executive Order directing Treasury andage for “required minimum distributions” from tax deferred accounts from 701⁄2 to 72. The Act would also accelerate distributions from inherited IRAs (i.e. stretch IRAs) to offset the DOL to issue regulations or guidance to make it easier for small businesses to establish retirement plans, including through facilitationcost of multiple employer plans. Manythe other provisions. Separately, many states have also sought to open their plans tonon-government non government workers who do not have access to an employer retirement savings plan.
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Federal Tax Treatment of Insurance Companies and their Products and Plans Although the insurance business is regulated at state level, the US federal income tax treatment of life insurers, life insurance, pension and annuity products is governed by the US federal tax code. The ‘Tax Cuts and Jobs Act,’ signed into law on December 22, 2017, made significant changes toProvisions that increase the federal tax code, generally effectivetaxation of life insurers, as of January 1, 2018. Along with other changes,well as remove or decrease the new law lowered the corporate tax rate to 21%, eliminated the corporate alternative minimum tax, changed interest deductibility limitations (including by adding a new limitation on the deductibilityvalue of business interest expense) and moved the US to a partial territorial system of international business taxation. In addition, the new law introduced a ’base erosion anti-abuse tax (BEAT),’ which may be imposed on companies that make significant deductible payments to theirnon-US affiliates. With respect to life insurance, pension and annuity contracts, among other changes, the Tax Cuts and Jobs Act reduced the tax deduction for life insurance reserves, limited the dividends received deduction for separate account products such as variable annuities, and increased the capitalization rates of acquisition costs for life insurance products and extended the amortization period for such deferred acquisition costs. It did not, however, make any significant changes to the tax incentives for life insurance, pensions orand annuity products – considered alone and relative to other retirement savings products. investment vehicles – have been proposed in prior Administrations federal budgets and by the US Congress. These initiatives also contemplate international tax reform, including proposals that would limit the ability of companies to deduct interest expense on financing provided by anon-US affiliate. Executive Administration budget proposals, legislative proposals and discussion drafts must be enacted by Congress and signed by the President before they become law. The impactrisk of the tax law changes do not significantly favor oneis heightened when additional revenue is sought to reduce the federal deficit or to pay for other tax law changes, such as lower tax rates. In addition, tax reform initiatives of the type contemplated by discussion drafts of comprehensive federal tax reform legislation further increase the risk of both increased taxation of life insurers and of decreased tax incentives for short- and long-term savings products. These changes, if enacted, would have a direct impact on the cost and competitiveness of life insurance, product or structureannuity and pension products sold to the detriment of another. Aegon USA expects a recurring annual benefit to net underlying earnings from the tax rate reduction to 21 percent, with only small offsets for other permanent items, such as the limited dividends received deduction. Similarly, Aegon USA expects a recurring annual benefit to capital generation from the lower tax rate, with only partial offsets for the other permanent itemsensure Americans’ financial and the timing provisions that generally accelerate taxable income, the increased capitalization and slower amortization of deferred acquisition costs. However, these benefits are more than offset by the increase in required capital arising from the lower corporate tax rate. Thus, the overall impact of the Tax Cuts and Jobs Act on Aegon USA’s businesses and results of operations should be slightly negative.retirement security.
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Overview of the Netherlands Aegon has operated for more than 170175 years in the Netherlands, where it is a leading provider of life insurance and pensions, and employs approximately 3,100 people. Aegon’s Dutch business, Aegon the Netherlands, is headquartered in The Hague, and its other main offices are in Amsterdam, Leeuwarden and Groningen. Organizational structure Aegon the Netherlands operates through a number of brands, including Knab, TKP Pension,Pensioen, Optas and Robidus, and is itself one of the most widely recognized brands in the Dutch financial services sector. Aegon the Netherlands’ primary subsidiaries are: | ◆ | | Aegon Levensverzekering N.V.; |
| ◆ | | Aegon PPICappital B.V. (until January 1, 2019); |
| ◆ | | Aegon Schadeverzekering N.V.; |
◆ | | CAPPITAL Premiepensioeninstelling B.V. (Aegon Cappital B.V. as of January 1, 2019); |
| ◆ | | Robijn ParticipatiesSalus Holding B.V. (Robidus Groep |
Aegon the Netherlands’ joint venture is: | ◆ | | AMVEST Vastgoed B.V. until January 2, 2019). |
Within the organization structure, Aegon is aiming for less complexity with a merger.two mergers in 2019. Aegon PPI B.V. merged into CAPPITAL Premiepensioeninstelling B.V. as per January 1, January 2019. The latter subsequently changedits2019 (subsequently changed its name into Aegon Cappital B.V.) and OPTAS Pensioenen N.V. has been legally merged into Aegon Levensverzekering N.V. as per April 1, 2019. In addition, Robijn Participaties B.V. was acquired through Salus Holding B.V., a private limited liability company incorporated by Aegon Nederland N.V. in 2018. Robijn Participaties B.V. has been merged into Salus Holding B.V. as per January 2, January 2019.2019, which owns the Robidus brand. Aegon the Netherlands has four lines of business: Overview of sales and distribution channels Aegon the Netherlands uses a variety of distribution channels to help customers assess the products and services appropriate for their needs. In general, all business lines use the intermediary channel, which focuses on independent brokers in different market segments in the Netherlands. In recent years, Aegon the Netherlands has invested heavily in its direct online channel to achieve an enhanced digital self-service. Aegon usually distributes most of its products and services through intermediaries. Its own advisory channel, Aegon Advies B.V., is growing rapidly, as is the frequency with which advice is provided to customers.self-service experience. Distribution channels such as online and the contact centers generate leads for Aegon Advies B.V..B.V Aegon Bank N.V. sells the majority of its Aegon label banking products via the intermediary sales. For the Knab label it solely uses the direct channel primarily for savings, whereas Aegon Schadeverzekering uses anand online channel and independent brokerschannels to sell its products. Aegon’s online bank, Knab, helpshelp its customers to make smart decisions by providinggiving them with a clear overview of their finances, and adviseshelps thempro-actively onwith products and services that can help them achieve their financial goals, such as through giving mortgage advicegoals. In 2020, all Aegon Bank products and offering a range of insurance solutions.customers will be migrated to the Knab label. The distribution via intermediaries will remain, but via the Knab label. For wholesale clients, Aegon has an integrated sales organization for pension and income products servicing corporate clients and advisors. On September 11, 2018, Aegon completed the acquisition of Robidus Group, including the independent broker division.
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Overview of business lines Life Pensions Aegon the Netherlands provides full-serviceInterest rates have been low for an extended period of time and have decreased even further in 2019. This drives a shift from Defined Benefit (DB) pension solutions, administration-only services and life or disability insurancesplans to company and industry pension funds, large companies and owners of small andmedium-sized companies and employees.
Separate account group contracts are large group contracts that have an individually-determined asset investment strategy underlying the pension contract. For older generation products, a guarantee consists of profit sharing with a contractual interest rate of 3% or 4%. At present, the contracts offered to clients hold a guarantee of 3% or market interest rate, and Aegon the Netherlands always relates guarantee costs to the current market interest rate. If profit sharing turns into a loss, the minimum guarantee becomes effective, but the loss in any given year is carried forward to be offset against future surpluses. In general, the guarantee is such that the pension benefit payment is guaranteed and profit sharing offers potential upside via indexation. Some large group contracts also receive part of the technical results for mortality risk and disability risk. The contract period for these types of contracts is typically five years, and the tariffs, cost loadings and risk premiums are generally fixed over this period.
Aegon the Netherlands also offers products for small andmedium-sized companies, both defined benefit and defined contribution products on a subscription basis. These products reduce complexity and enable Aegon to adapt the tariffs, cost loadings and risk premiums annually. In addition, customers have the opportunity to decide on an annual basis as to whether they wish to continue with their subscription.
The defined benefit subscription product is anall-in product with guaranteed benefits. The expected profit for the customer and anticipated investment returns are taken into accountDefined Contribution (DC) pensions plans where, in the pricing of the product, and customers may contribute funds for future pension increases to a separate account. For the defined contribution subscription productlatter, all investment risk and longevity risk is borne by the policyholders. The product is managedpolicyholder. Aegon offers its defined contribution plans in a separate businesslegal entity (as described below), rather than on Aegon Leven’s balance sheet.
An increasing number of customers is becoming more interested inand theselow-cost and flexible subscription products. This has resulted in a significant movement from separate account and other5-year contracts to1-year subscription products. More specifically, customers are increasingly interested in defined contribution productstherefore not managed on the Aegon Leven balance sheet. This means that Aegon Leven now primarily manages premium paying DB products, annuities (as explained below), and existing DB and DC books, while most of the new business flows to other Aegon entities.
DefinedRegarding premium paying DB products Aegon offers two variations: a subscription product and a contract. Both are straight forward DB products without profit sharing and with guaranteed benefit group contracts or defined benefit subscriptions both provide a guarantee on the benefits paid. Thepayments. All investment risk and longevity risk therefore liesis borne by Aegon and customers need to contribute additional funds for indexations.
The DB subscription product is a simple and cost-efficient product targeting small andmedium-sized companies. It reduces complexity and enables Aegon to adapt the tariffs, cost loadings and risk premiums annually. In addition, customers have the opportunity to decide on an annual basis as to whether they wish to continue with their subscription or not. The DB contract targetsmedium-sized and larger customers and is by default a5-year contract. The DB contract offers more flexibility than the subscription product, for example with regard to the pension accrual rate and has fixed tariffs over a longer period. All other products are not being sold anymore and include: | ◆ | | Separate account group contracts with individually-determined asset investment strategies, profit sharing and guarantees. |
| ◆ | | DB contracts with profit sharing based on apre-determined interest rate. |
| ◆ | | Traditional variable unit-linked products. |
Premiums are still being paid fornon-selling products. These products are managed on a value basis, with Aegon trying to optimize the Netherlands. Most of Aegonreturn on capital while the Netherlands’ pensionsproducts 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. Aegon the Netherlands is one of the country’s leading pension providers.
For the majority of company and industry customers, Aegon the Netherlands provides a full range of pension products and services.running off.
Endowment insurance Endowment insurance includes several products that accumulate a cash value. Premiums are paid at inception or over the term of the contract. Accumulation These products pay benefits on the policy maturity date, subject to survival of the insured. Most policies also pay death benefits should the insured pass away during the term of the contract. Death benefits may be stipulated in the policy or depend on the gross premiums paid to date. Premiums and amounts insured are established at inception of the contract. The amount insured can be increased as a result of profit sharing, if provided for under the terms and conditions of the product.
Minimum interest guarantees exist for all generations of accumulation products written, except for universal life products, for which premiums are invested solely in equity funds. Older generation products contained a 4% guarantee when sold. In 1999, the guarantee for new products decreased to 3%; and in. In 2013, the guarantee on new products was reduced to 0%. and in 2019 the guarantee has been ended. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
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Various profit-sharing mechanisms exist. Bonuses are either paid in cash (usually for a pension, as described below) or used to increase the sum insured. A common form of profit sharing is to set bonus levels by reference to external indexes based onpre-defined portfolios of Dutch government bonds. The bonds included in the portfolios have different remaining maturities and interest rates. Together they are considered an approximation of the long-term rate of return on high-quality Dutch financial investments. Term and whole life insurance Term life insurance pays out death benefits should the insured pass away during the term of the contract. Whole life insurance pays out death benefits in the event of death, regardless of when this occurs. Premiums and amounts insured are established at inception of the contract and are guaranteed. The amount insured may be adjusted at the request of the policyholder. Term life insurance policies do not include profit-sharing mechanisms. Part of the whole life insurance portfolio has profit-sharing features, which are based on external indexes or the return of related assets. Annuity insurance Annuity insurance includes olderare products with both an accumulation and payout phase, with guaranteed interest rates and profit sharing for which no new business is written. The most active products in this category are however, simple payout annuities and variable annuities. These products are clearly linked to defined contribution schemes in which participants build up their capital, and purchase an annuity at the pension date. Participants can choose between a guaranteed annuity, where all risks | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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are borne by Aegon, or a variable annuity without investment guarantees, where all risks are borne by the participant – including investment risk and longevity.participant. Given that a significant shift has been observed towards defined contribution schemes, these annuities are a natural driver of growth as they provide a solution for the payout phase. Traditional Variable unit-linked Annuity insurance includes older products
This category consists of traditional unit-linked with guaranteed interest rates and profit sharing for which no new business with guarantees. These products are managed on the Aegon Leven balance sheet and arenon-selling.is written.
Non-life Non-life accidentAccident and health protection insuranceHealth
Aegon the Netherlands offers disability and sick leave products to employers that cover disability and sick leave payments for employees not covered by social security and for which employers bear the risk. In addition, for some forms of disability, employers can choose to use the social security system with related premiums or opt out and seek private insurance. Private insurance may lead to lower premiums and Aegon offers solutions for this. For individuals, Aegon the Netherlands offers a disability product mainly targeted at the growing self-employed market. Product options were extended during 2018 and this product is expected to be a driver of future growth.2019. Aegon accident and health products are distributed mainly through the intermediary channel. Some of these products are a natural fit with pension products, and are therefore also promoted to pension intermediaries.
Non-lifeProperty and Casualty
Aegon the Netherlands has focused exclusively on retail lines in general insurance withsince 2017, offering products providing cover forin the segments of property, motor, travel, legal aidassistance, pet insurance, injury and casualtyprivate liability claims. The ambition for the P&C retail segment is to provide the best digital servicing in the Dutch market by 2022, while building long-lasting relationships with customers. Aegon the Netherlands primarily offers itsnon-life insurance products through the intermediary channel, where service concepts are in place for high-value intermediaries. Through the service concepts, Aegon provides(non-financial) incentives for intermediaries to help their customers in the optimal way, while also protecting the health of the supply chain by stimulating performance at sustainable levels for customers, intermediaries and insurer. In addition to the intermediary market, Aegon the Netherlands develops digital and online capabilities, as distribution is slowly shifting towards the direct market. This market includes sales via Aegon’s own website and agents,affiliates, and via aggregator websites.
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Banking Savings
In 2019, Aegon Bank N.V. aimsannounced to achieve its vision and ambition through two business units:integrate the Aegon Bank and Knab. Knab operations under the Knab brand. By integrating both operations and rationalizing product offerings costs will be reduced, operations will be more efficient and governance unified and simplified. The coming period will be used to migrate the Aegon bank label products and customers towards the Knab label. Aegon Bank focuses on the ‘income’ and ‘housing’ markets, together with seekingN.V. will continue to reinforce the Aegon Netherlands-wide pensions offering. Customers are increasingly havingNetherlands wide pension offering with its banking (savings, bank savings and investments) products, but under the Knab brand. Aegon Bank and Knab offer banking solutions to make provision for their current650,000 Dutch customers, being consumers and future income and wealth since the government changed the rules for pension provisions.small-scale enterprises. The bank offers simple and high quality products. These include both savings products focused on security, and investment products focused on a suitable risk/return profile that fits the customer’s need and risk appetite. Processes are designed in such a way as to provide the maximum benefit to customers, and customer service is based on the principles of easy access, speed, first time right, convenience, insight and understanding.
Aegon Bank’s focus is on customers whose income and wealth is in the middle-market, in line with Aegon the Netherlands’s target group. Products are distributed directly to Aegon’s customers. For more complex ‘advice’ products, independent financial advisers continue to be a very important distribution channel for Aegon Bank. Aegon Bank’s activities mainly focus on ‘Banksparen’ products’. ‘Banksparen’Knab is atax-deferred savings product fully online digital bank that went live in which amounts are deposited in a ’locked’ bank account. The amount saved is available after a certain period of time for specific purposes such as for a supplementary pension or paying off a mortgage.
Knab
2012. Knab aims to be the most customer-oriented financial platform in the Netherlands, by informing customers about their personal financial situation and enabling them to achieve their financial goals. IfIt’s therefore Knab’s mission to help people manage their money matters now and in the future. This reflects the core of Aegon’s purpose, offering customers both insight and an overview of their finances through its financial planning tools and alerts. Asas an online bank, Knab offers payment-accounts,payment accounts, savings and a basic investment product. The Aegon Bank label focuses on customers whose income and wealth is in the middle-market, in line with Aegon the Netherlands’ target group. Aegon Bank offers simple and high-quality products. These include both savings products focused on security, and investment products focused on a suitable risk/return profile that fits the customer’s need and risk appetite. With these products Aegon Bank reinforces the Aegon Netherlands wide pension offering. Aegon Bank’s activities among others focus on ‘Banksparen’ products’. ‘Banksparen’ is atax-deferred savings product in which amounts are deposited in a ‘locked’ bank account. The amount saved is available after a certain period of time for specific purposes such as for a supplementary pension or paying off a mortgage. This product is predominantly sold via independent financial advisors who remain a very important distribution channel. Knab Advies & Bemiddeling N.V. With the integration of the Aegon Bank and Knab, the strategic choice was made to phase out thenon-bank (i.e. adviser and broker) activities in Knab Advies en Bemiddeling N.V. (KAB), and therewith stop the online advice and comparison ofcar-insurance and home-related insurances, as well as the mortgage broker business, effective from October 1, 2019. The KAB entity will be liquidated as soon as the remaining activities are sold to third parties or transferred to other Aegon entities. Investment contracts Investment contracts are investment products that offer returns and generate fee income from the performance of the investments. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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Services Business Mortgage loans At present,In 2019, Aegon the Netherlands mostly offersoffered ‘annuity mortgages’. Before 2013, Aegon the Netherlands also offered interest-only, unit-linked and savings mortgage loans, and is continuing to do so for existing mortgage loans that are being renegotiated. Mortgage loans are partly funded externally. Besides residential mortgage-backed securities in Saecure –— Aegon’s Dutch residential mortgage-backed securities program and private placements –— the Aegon Mortgage fund is the main source of external funding. For this business, Aegon originates the mortgage loans fully for account of third parties and remains the service provider for these mortgage loans.
PPIprovider.
Aegon the Netherlands has twoCappital As of January 1, 2019, regulated pension premium institutions (PPIs): Aegon PPI B.V.; and Cappital Premiepensioeninstelling B.V., which will beCAPPITAL merged and operate under the combined entityto become Aegon Cappital. Aegon Cappital B.V. in 2019. These PPIs areis alow-cost providersprovider of defined contribution pension schemes offered through intermediary advisors. Together they formIt is the largest pension premium institution in the Netherlands and therefore benefitbenefits considerably from economies of scale. The low interest rate environment and aging society is expected to result in a continued shift in customer preference for defined contribution schemes. PPIs cannot bear any investment or insurance risks on their offerings due to regulatory requirements. The schemes can, however, include disability or life insurance which are offered by partners Aegon Levensverzekering N.V., Aegon Schadeverzekering N.V. and Elips Life AG, for whichand an optional guaranteed interest rate during the PPI’s act as an intermediary. All other positive or negative risks, such as investmentaccumulation phase offered by partner Aegon Levensverzekering N.V Apart from operational and regulatory risk, and longevity risk, are attributed to the participants in the scheme.Aegon Cappital runs no risk. Aegon PPICappital offers defined contribution pension schemes in a standardized subscription based model to small and medium enterprises.enterprises and customized contracts for medium to large corporations. The model enables employers to choose from a variety of contribution tables and franchises,social security offsets, while remaining flexible for regulatory changes, such as changes in pension age or fiscal contribution tables.limits. Savings premiums are invested in life cycle funds by Aegon Investment Asset Management B.V.. Cappital PPI offers tailor-made contribution pension schemes to large corporations and industry pension funds. Its size and expertise enables it to offer customized pension solutions to its customers. Savings premiums are invested in life cycle funds by TKP, Investments B.V..
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The combined entity Aegon Cappital B.V. offers further scalability, and puts Aegon in an optimal position to benefit from the rise of defined contribution pension schemes.
Knab Advies & Bemiddeling
As an adviser and broker, Knab Advies & Bemiddeling it offers online advice and comparison ofncar-insurance and home-related insurances. As a mortgage broker, Knab provides advices on more than 30 different mortgage-labels.
Knab services two segments: private customers and as well the business-customers, mainly focusing on the self-employed segment. Products are distributed and managed through its own digital channels, and specifically for mortgages remote -advice specifically for mortgages is offered through its own advisors.
The focus is on creating value througheasy-to-use products, for a good price, and easy (online) onboarding, thereby creating offering excellent customer service and achieving a high net promoter score NPS (NPS)with customers with excellent service.
TKP,Stap, Robidus and Nedasco
TKP Pensioen specializes in pension administration for company and industry pension funds, and also provides administration services for defined contribution plans to corporate and institutional clients. Aegon offers defined contribution plans for small andmedium-sized companies, and CAPPITAL offers the same plans for large companies. Aegon PPI and Cappital will merge to form Aegon Cappital, the largest premium pension institution in the Netherlands. Formal decision-making is in progress, with completion expected in the second half of 2019. On December 22, 2015, legislation was passed that enables companies to set up an ‘Algemeen Pensioen Fonds’ (General Pension Fund). On June 20, 2016, Aegon received approval from the Dutch Central Bank (DNB) to launch the first such fund called ‘Stap’ (a separate legal entity), together with TKPI B.V.. Stap is a pension pooling vehicle that enables separate financial administration for multiple pension plans from multiple employers. This vehicle enables smaller pension schemes to benefit from economies of scale and to comply with complex pension regulations, meaning that a greater percentage of the employees’ pension premium is invested, and that employers and participants receive the same high quality of service as a traditional pension plan. The fiduciary investments for Stap are carried out by TKP Investments B.V. which has merged with Aegon Investment Asset Management B.V. as per January 1, 2019.
Aegon acquired Robidus from the investment company Avedon Capital Partners on September 11, 2018. Robidus advises corporations on the risks and associated costs under Dutch social security legislation, and provides corporations and insurance companies with claims management and outsourcing solutions as to how to manage these issues, including outsourcing services. It operates as an independent organization within Aegon, and the acquisition gives Robidus both more room to invest and access to the broad expertise within Aegon. Subsidiary Nedasco is a fast-growing intermediary service provider that is mainly active innon-life business domains. Competition Aegon the Netherlands has strong competition in all markets from insurers, banks, investment companies and pension funds. Its main competitors are Achmea, ASR, NN Group and Vivat.Vivat1. The company has been a key player in the total life market for many years, and was ranked secondthird in 20172018 based on gross premium income. The life insurance market in the Netherlands comprises pensions and life insurance. The top five life insurance companies in the Netherlands by gross premium income accounted for almost 85% of total premium (Individual Life and Pension) of total premium income in 2017 in the insurance market. Following the merger of NN group and Delta Lloyd,2018. Aegon the Netherlands is the second largest insurance company in the pensions market. Aegon the Netherlands is one of many insurers in thenon-life market, where in 2017,2018, ten companies accounted for 80% of the total premium income. In terms of premium income, Aegon the Netherlands’non-life market share is around 3%2%, making it the ninth largest company in the market. | 1 | Vivat was sold to NN Group(non-life) and Athora (life) in 2019, subject to Regulatory approval. |
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In the mortgage loans market, Aegon the Netherlands held a market share of approximately 9%8% based on new sales in 2017 (and 7% in 2016),2018, making it the fourth largest mortgage loan provider in the market. Rabobank, ING Bank and ABN AMRO are the largest mortgage loan providers in the market, and competition is increasing from foreign competitors and capital from pension funds. Aegon the Netherlands’ share is growing in the market for Dutch household savings. In 2017,2018, its market share was approximately 3%, which is relatively small in comparison to banks such as Rabobank, ING and ABN AMRO. Various legal and regulatory changes have had an impact on demand for insurance products in the Dutch market. This is especially true in the life insurance market, where the tax deductibility of certain products has been reduced, leading to a shift to bank-saving | | | | | | | | | | | Annual Report on Form 20F2018 | | |
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products. Moreover, volatility in economic and financial markets has meant that customers are more reluctant to commit themselves to long-term contracts. These changes have resulted in more competition, greater focus on competitive prices, improved customer service and retention, and product innovation. In the pensions market, pension funds have faced pressure on their coverage ratios, in addition to increased regulatory and administrative requirements. In response, they have sought to reduce risks by insuring all or parts of their business. This represents an opportunity for pension insurers and providers of new style pension solutions and Aegon is one of the leading providers of these solutions. The defined contribution (PPI) market is set to grow significantly due to the shift from defined benefit plans to defined contribution plans and the demand for transparent and cost-effective pension products. As a result, significant economiesgrowth of scale will be requiredremains necessary to effectively serve this market, and the number of providers is expected to shrink further within a few years. Aegon the Netherlands has identified this market as an opportunity for growth and intends to invest in maintainingmaintain its leadership position.position with Aegon Cappital. Regulation and supervision General Regulation of the financial sector in the Netherlands is included in the Financial Supervision Act (Wet op het financieel toezicht or Wft). The Wft embeds the cross-sectorial functional approach within the Dutch supervisory system. The supervision of financial institutions pursuant to the Wft rests with the De Nederlandsche Bank DNB and the Dutch Authority for the Financial Markets (AFM). The DNB is responsible for prudential supervision, while the AFM supervises the conduct of business of financial institutions, and the conduct of business on financial markets. The aim of the DNB’s prudential supervision is to ensure the solidity of financial institutions and contribute to the stability of the financial sector. With regard to banks, the DNB undertakes its supervisory role, in particular with respect to prudential supervision, together with the European Central Bank (ECB). The AFM’s conduct of business supervision focuses on ensuring orderly and transparent financial market processes, integrity in relations between market parties, and due care in the provision of services to customers. The Dutch supervisory authorities have a number of formal tools to exercise their supervisory tasks. These tools include the authority to request information, if this is necessary for the purpose of prudential supervision, and the power to issue formal instructions to financial institutions, to impose fines, or to publish sanctions. The DNB, as prudential supervisory authority, can, under certain circumstances, require a recovery plan, a short-term financing plan, appoint a trustee, draw up a transfer plan or (ultimately) withdraw the license of a financial institution. Financial supervision of insurance companies The Solvency II framework consists of an EU Directive and has consequently been transposed into the Dutch Financial Supervision Act. A large part of the Level II Solvency II rules are, however, also set out in EU regulations, which apply directly in EU member states, and as a consequence have not been implemented into national legislation, such as in the Decree on Prudential Rules under the Wft (Besluit prudentiële regels Wft). The following insurance entities of Aegon the Netherlands are subject to prudential supervision of the DNB: | ◆ | | Aegon Levensverzekering N.V.; |
| ◆ | | Aegon Schadeverzekering N.V.; |
| ◆ | | Aegon Spaarkas N.V.; and |
◆ | | Optas Pensioenen N.V.N.V |
An insurance company is neither permitted to conduct both life insurance andnon-life insurance business within a single legal entity (with the exception of reinsurance), nor to carry out both insurance and banking activities within the same legal entity. Within Aegon the Netherlands, Aegon Levensverzekering N.V., and Aegon Spaarkas N.V. and Optas Pensioenen N.V. conduct life insurance activities. Aegon Schadeverzekering N.V. conductsnon-life insurance activities. Prudential supervision is exercised by the home state supervisory authority (DNB in the Netherlands). Insurance companies in the Netherlands may conduct their activities on a cross-border basis or through a branch office based on the mutual recognition of (prudential) supervision in the EU (theso-called ‘European passport’). Aegon the Netherlands does not have material cross-border insurance business or business conducted through branch offices elsewhere in the EU. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
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Solvency II Aegon the Netherlands uses a PIMpartial internal model (PIM) to calculate the solvency position of its insurance activities under Solvency II. The calculation includes the use of the volatility adjustment (VA), but does not include the use of any transitional measures. In 2018 the Dynamic VA model has been updated for Aegon the Netherlands and the updated Dynamic VA model uses an asset-only model approach to quantify required capital for spread risk. The initial internal model of Aegon the Netherlands was approved on November 26, 2015, by the supervisor, the DNB, as part of the Internal Model Application Process. The combined Solvency II position of the activities of Aegon the Netherlands, including Aegon Bank, on December 31, 2018, is estimated to be 181% (2017: 199%). This decrease is mainly driven byone-time items, including the lowering of the UFR by 15 basis points to 4.05%, impact of tax changes in the Netherlands and changes to the assumptions regarding mortgages, mortality rates and lapses for individual life policies. This negative impact is partly offset by favorable market impacts mainly due to decreasing interest rates combined with widening of the EIOPA VA, and narrowed mortgage spread. The solvency position of the banking activities are calculated using the CRR/CRD IV framework. As at December 31, 2018, the factor of LAC DT is set at 75%, unchanged from 2017. The Solvency II capital ratio of the Group and Aegon the Netherlands does not include any contingent liability potentially arising from unit-linked products sold, issued or advised on by Aegon in the Netherlands in the past, as the potential liability cannot be reliably quantified at this point. Dutch Act on Recovery & Resolution for Insurers On January 1, 2019, the Dutch Act on Recovery & Resolution for Insurers (R&R Act) came into force in the Netherlands, replacing the previously applicable intervention regime for insurance companies in the Netherlands faced with financial difficulties. The R&R Act has introduced a revised regulatory framework for recovery and resolution of Dutch insurance and reinsurance companies and provides for a range of measures to be taken by these companies and the Dutch Central Bank ex ante, in order for these insurance and reinsurance companies to be prepared for recovery in circumstances where it no longer meets the required solvency requirements and for orderly resolution, in circumstances where it is failing or is likely to fail. The R&R Act introduces a requirement for Dutch insurance companies and reinsurance companies, such as the Dutch insurance and reinsurance subsidiaries in the Aegon Group, to draw up and maintain an ex ante recovery plan, that should allow these entities, when faced with financial problems, to take measures to recover their solvency ratio and continue to operate in going concern. In addition, the Dutch Central Bank, in its capacity as national resolution authority in gone concern circumstances (as opposed to its role as supervisory authority in going concern) is required to draw up and maintain a resolution plan, which should provide for the orderly resolution of the Dutch insurance and reinsurance entities in the group, or the group, to avoid unnecessary damage to policyholders and beneficiaries and to provide an alternative to ordinary bankruptcy proceedings.
The R&R Act allows DNB to require a Dutch insurance or reinsurance company or a group in certain circumstances, to remove, ex ante, impediments to effective resolution of a Dutch insurance or reinsurance undertaking, such as the revision of financing arrangements, the reduction of exposures, the transfer of assets, the termination or limitation of business activities, or the prohibition to start certain business activities, change the legal or operational structure of the group, or securing certain critical business lines.
The R&R Act allows DNB to intervene in situations where a Dutch insurer or reinsurer, where it is failing or is likely to fail, as defined in the R&R Act. The powers under the R&R Act may also extend to the level of the Group and to entities, other than in insurance or reinsurance entities in the Netherlands, that are part of the group, such as Aegon N.V.. The powers include the transfer of the undertaking to a third party, the transfer to a bridge institution and the transfer of certain specific assets and/or liabilities. In addition, abail-in tool is introduced, that allows for thewrite-off or conversion of rights of creditors, including policyholders and beneficiaries, while respecting the principle that they should not be worse off through resolution, including the application of thebail-in tool, than they would in ordinary insolvency proceedings.
Financial supervision of credit institutions As of November 4, 2014, Aegon Bank N.V. has beenis subject to indirect supervision by the ECB under the new European system of banking supervision, the Single Supervisory Mechanism (SSM), which comprises the European Central Bank and the relevant national authorities of participating EU Member States. The SSM isbeing one of the elements of the Banking Union. TheAs a consequence thereof, the ECB may give instructions to the DNB in respect of Aegon Bank N.V. or even assume direct supervision over the prudential aspects of the Aegon Bank N.V.‘s’s business. Pursuant to the banking supervision by the DNB, Aegon Bank N.V. is (among others) required to file monthly regulatory reports and an audited Annual Report.
Credit institutions are Aegon Bank N.V. is subject to regulatory requirements. These include (among others) capital and liquidity requirements, the requirement to maintain a certain leverage ratio, governance and reportingBasel III requirements in line with the requirements of EU Directive 2013/36/EU (CRD IV)CRR and EU Regulation 575/2013 (CRR).
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the CRD IV, and the CRR are the European Union’s translation of the Basel III accord for prudential supervision of credit institutions and investment firms. The CRR is binding for all EU member states and became effective on January 1, 2014. CRD IV is an EU directive, and is required to be implemented into local legislation. CRD IV has beenas implemented in the Netherlands by means of amending the Financial Supervision Act (Wet op het financieel toezicht, the ‘Wft’) on August 1, 2014. The application in full of all measures under CRD IV (including any national implementation thereof in the Netherlands) has to be completed before January 1, 2019. The CRR has been applied across all EU member states since January 1, 2014. TheWft. CRD IV and CRR frameworks include requirements with respect to the quality and quantity of capital, adequacy, and introduce requirements with respect to increased capital against derivative positions, the introduction of two supplementary buffers (a capital conservation buffer and a counter-cyclical buffer), a new liquidity framework (liquidity coverage ratio and net stable funding ratioratio) and a leverage ratio. The leverage ratio is defined asTier-1 capital divided by a measure ofnon-risk weighted assets. If Basel III is followed under CRD IV, theThe leverage ratio may not fall below 3%, although uncertainty still remains asrequirement will be phased in gradually. Pursuant to the exact percentage and the scope of the leverage ratio under CRD IV. With respect to the percentage, the Dutch government has announced that it wishes to implementEU Banking Reforms (as described below), a binding leverage ratio of at least 4%3% will become applicable to banks. According to the EU Banking Reforms, competent authorities remain responsible for large Dutch banks, which does not applymonitoring leverage policies and processes of individual institutions and may impose additional measures to Aegon Bank N.V.. The ultimate aimaddress risk of Basel III/CRD IV is to reduceexcessive leverage, in order to bring institutions’ unweighted assets more in line with theirTier-1 capital. The capital requirements include qualitative in addition to quantitative requirements.if warranted.
Capital of the highest quality, Common Equity Tier 1, forms a substantial part of the capital of a credit institution. Additional Tier 1 capital forms the rest of the Tier 1 capital. In addition, the capital of a credit institution may be composed of Tier 2 capital, which is of a lesser quality than Tier 1 capital. EU Directive 2014/59/EU (theThe Banking Recovery and Resolution Directive, BRRD)as implemented in the Netherlands in the Wft, and Regulation 806/2014 on the Single Resolution Mechanism (the SRM Regulation)Regulation form the European framework for recovery and resolution for (among others) ailing banks, certain investment firms and their holding companies. The BRRD was implemented in the Netherlands on November 26, 2015, by means of an amendment of the Wft (the BRRD Implementation Act). The SRM Regulation was adopted on July 15, 2014. Those parts of the SRM Regulation that deal with recoveryBanking Recovery and resolution entered into force on January 1, 2016.
The BBRDResolution Directive provides for early intervention measures that may be imposed by the national competent authorityDNB in respect of Aegon Bank N.V. in the event that its financial condition is deteriorating. These early intervention measures could pertain, among others, to a change of its legal or operational structure,It also allows the removal of (individuals within) senior management or the management body, or the appointment of a temporary administrator to work together with or replace such (individual within) senior management or management body. The national resolution authority may alsoDNB under certain circumstances decide to write down or convert relevant capital instruments, including Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments, in a specific order.
Were Aegon Bank N.V. to fail or be likely to fail and the other resolution conditions were also met, the national resolution authorityDNB would be able to place Aegon Bank N.V. under resolution. As part of the resolution scheme to be adopted by the national resolution authorityDNB it may decide to apply certain resolution tools and exercise its powers pursuant to the implemented BRRD in order to give effect to such resolution tools. In addition, the SRM Regulation and the BRRD Implementation Act introduce thebail-in tool which gives the national resolution authority the power to write down or convert into equity certain debt and other liabilities of the institution. Pursuant to the SRM Regulation and the BRRD Implementation Act, banks are requiredBanking Recovery and Resolution Directive, Aegon Bank N.V. is at all times required to meet a minimum amount of own funds and eligible liabilities (MREL), expressed as a percentage of the total liabilities and own funds. The competent resolution authorityDNB will set a level of minimum MREL on abank-by-bank basis based on assessment criteria due to be set out in technical regulatory standards. On June 7, 2019, a comprehensive package of banking reforms to CRD IV, the BRRD and the SRM Regulation (the ‘EU Banking Reforms’), including measures to increase the resilience of EU institutions and enhance financial stability entered into force, with most rules starting to apply inmid-2021. The EU Banking Reforms are wide-ranging and cover multiple areas. On December 7, 2017, the Basel Committee published the finalized Basel III reforms as improvements to the global regulatory framework (the ‘Basel III Reforms’) (informally referred to as Basel IV), with a proposed implementation from January 2022 onwards. The Basel III Reforms includes stricter rules for internal models, a capital floor and revisions to the standardized approaches for credit risk, operational risk and the credit valuation adjustment specified at a counterparty level (‘CVA’). | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
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Overview of United Kingdom Aegon in the UKUnited Kingdom (hereafter referred to as Aegon UK) is leading financial services provider that offers advisors, employers and individualsthe market-leading investment platform in the UK, providing a broad range of pension, investment, retirement solutions and protection products to individuals, advisers and employers. Aegon UK accesses customers through its online platform. wealth advisers and the workplace and has a market-leading position in each with 3.9 million customers and GBP 179 billion assets under administration (AUA) underpinned by a growing investment solutions capability. The business has deep relationships with in excess of 5,000 adviser firms (around 50% of the market) and 10,000 employers, and continues to show strong market growth growing assets under administration by 13%. It employs over 3,0002,000 people and its main offices are in Edinburgh, London, Peterborough Hove and Witham. Organizational structure Aegon UK plc is Aegon’s holding company in the United Kingdom. It was registered as a public limited company at the beginning of December 1998. The leading operating subsidiaries, which all operate under the Aegon brand, are: | ◆ | | Aegon Investment Solutions Ltd.; |
| ◆ | | Scottish Equitable plc; |
Acquisitions and disposals
Aegon UK’s business strategy is focused on developing the business as the leading platform savings, investments and pensions provider in the market and has made a number of strategic changes in order to align its business model with its strategy.
Since 2016, Aegon UK has completed the divestment of its own annuity portfolio to Rothesay Life and Legal & General. These transactions were consistent with its ambition to free up capital fromnon-core businesses, and its capital position improved as a result of the transactions. Aegon UK has approximately GBP 0.7 billion annuity liabilities remaining through an inward reinsurance transaction.
In 2016, Aegon UK announced an agreement to acquire BlackRock’s UK defined contribution (DC) platform and administration business, strengthening its position as a leading player in the UK workplace market, adding Master Trust and Investment Only capability, as well as assets under administration of around GBP 16 billion. This transaction finalized in July 2018.
On January 1, 2017, Aegon UK completed the acquisition of Cofunds. The transaction demonstrates Aegon’s commitment to the retail platform market. Intermediaries that use Cofunds have been upgraded to an enhanced version of Aegon’s platform, with approximately 79,000 customers upgraded in December 2017 and approximately 400,000 customers in May 2018. In addition, Aegon UK has also completed there-platorming of the institutional business acquired as part of the Cofunds transaction.
On April 3, 2018, Aegon completed the sale of Aegon Ireland plc to Athora Holding Ltd., the holding company of the European operations of Athene Holding Ltd. Aegon Ireland provided both unit linked guarantees and offshore bond product in the UK.
The combination of the acquisitions and Aegon’s program to upgrade existing customers to the digital solutions platform have enabled Aegon to create the largest UK platform with approximately GBP 128 billion assets under administration, and provide broad expertise across the savings, investments and pensions markets.
Overview of sales and distribution channels
In the United Kingdom, Aegon has two main distribution channels: retail and workplace intermediaries. These are supported by Aegon UK’s customer capability, which offers employees and advisor clients a market-leading portal to view and manage their money. Aegon UK’s award-winning platform supports these channels in an integrated way, making it easier for customers to move between products and channels. In addition, Aegon offers an institutional trading platform that underpins other UK retail platforms.
Retail channel
Aegon UK offers a comprehensive proposition to intermediaries and strategic partners underpinned by technology that drives efficiency and supports the profitability of advisor’s businesses.
Aegon Retirement Choices (ARC) helps advisors and their customers save for the long term and manage the transition from work to retirement. ARC uses leading-edge digital technology to deliver an intuitive method of saving for the long term, including retirement, taking income in retirement, such as theon-platform drawdown product, and dealing with changing circumstances. It also provides valuable online reporting and lifestyle tools that enable advisors to demonstrate their professionalism and display their charges for advice in a transparent way. In addition to the Self Invested Pension Plan – which provides a range ofpre-and post-retirement
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investment options forhigh-net-worth customers (including insured funds and a wide range of open-ended investment companies) – Individual Savings Accounts and General Investment Accounts are also offered.
Aegon UK offers two distinct versions of the proposition targeted at distinct market segments:
◆ | | A ‘fund wrap’ service, which includes multiple wrapper choices, fully open architecture fund choice and digital advisor/customer self-service access;; and |
◆ | | ‘One Retirement’, a standalone pension accumulation and drawdown product, designed to be a single-point solution for customers that do not have a broader set of needs. |
The acquisition of Cofunds made Aegon UK the UK’s leading ‘fund supermarket’, adding approximately GBP 80 billion of assets, predominantly in ISAs and GIAs, complementing Aegon UK’s core pension expertise. The modernization of the Cofunds business by migrating it on to Aegon’s market-leading technology has seen Aegon UK emerge with a market-leading position among intermediary platforms.
Workplace channel
Aegon is building and diversifying its workplace distribution capability to cover a range of intermediaries from Independent Financial Advisors (IFAs) to large Employee Benefit Consultants (EBCs). Services that Aegon UK offers include:
◆ | | ‘Workplace Aegon Retirement Choices’, a comprehensive pension proposition that manages workplace pensions for employers in a seamless and streamlined way, enabling them to offer employees a choice of savings wrappers; |
◆ | | Employers’ auto-enrolment obligations, which are supported through Aegon’s SmartEnrol capability; |
◆ | | Support for the governance of the workplace pension scheme, which is offered through the sophisticated analytics of Aegon’s Smart Governance; |
◆ | | Employee access to Retiready, which enables employers to cater for all levels of employee investment knowledge and confidence, in addition to moving with their employees throughout their working life; and |
◆ | | ‘TargetPlan’, Aegon UK’s dedicated offering for large employers. This offers both a Trust, Master Trust and Contract-based version underpinned by Aegon’s market-leading employee engagement services. |
Following the completion of the BlackRock Part VII transfer, Aegon is now aiming to use its proposition breadth to build towards being the largest workplace pension platform in the UK. This will combine Aegon’s traditional strengths in employee engagement and online services with BlackRock’s experience tailoring solutions to meet the distinct needs of larger employers.
Customer capability
Aegon’s digital retirement planning service is designed to help customers understand how ‘on track’ they are for the retirement they want, and to support them in taking action. Answering a few simple questions gives customers a Retiready score out of 100, showing how ready they are for retirement.
Retiready is focused on both existing Aegon UK customers that no longer have an advisor and members of group pension schemes. The majority of customers receive the service having been ‘upgraded’ from Aegon UK’s existing business, thereby allowing longstanding customers to benefit from the advantages of a modern digital pension. Retiready customers have access to a number of tools to help them better engage with and manage their retirement savings. Since inception, approximately 400,000 customers, with assets of around GBP 7.8 billion, have been upgraded to Aegon UK’s new proposition.
As part of the Cofunds migration, Aegon UK is redeveloping its digital customer portal. This aims to offer an industry-leading customer experience, with the service then being rolled out to all customers.
Aegon UK also participates in the institutional market in 2 distinct areas where capability is provided to other parties who provide policy administration to the end client:
| ◆ | | An institutional trading platform which powers 28 of the UK’s leading end customer platforms (e.g. SEI, AJ Bell) and manages a total of GBP 52 billion assets; andAegon Investment Ltd. |
◆ | | An investment only proposition for pension schemes which provides access to insured funds for c160 clients representing GBP 7 billion assets under administration. |
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Overview of business Lines Aegon UK was reorganized in 2016 toorganizes around two core business lines, the ‘Digital Solutions’ business and the ‘Existing Business’, which have separate leadership teams.. This supports the transformation of Aegon UK from a traditional ‘insurer,’ competing with the likes of Prudential and Royal London to a modernfee-based investment management platform competing with businesses such as Transact and Willis Towers Watson. Over the last five years the UK business has focused on transforming and scaling the Digital Solutions Business. Aegon UK has done so through organic growth and the acquisition of Cofunds retail savings platform, and BlackRock’s large employer workplace pension business, and by disposing ofnon-core business lines, such as the Annuity portfolio, whilst progressing the outsourcing of service and administration for Existing Business. This phase of transformation is largely complete. The Digital Solutions business is responsible for Aegon UK’s new digital platform propositions sold through Retail AdvisorFinancial Adviser and Workplace workplace channels, together with protection products and an institutional trading platform business. The financial adviser and workplace channels are supported by an investment solutions capability which allows customers to invest in Aegon funds. This capability is well established within the protection lines. The majority of new assets going forward will be accumulatedworkplace channel with plans to significantly grow within the financial adviser channel.
It is positioned for growth, given the participation in this business. In addition, where appropriate, Aegon UK is upgrading customers from its Existing Businessthe workplace pensions and financial advice market, which are forecast to Digital Solutions to ensure an enhanced customer experience, a more engaged relationship,grow at 9.2% and lower cost to serve.13.5% over the next 5 years respectively. The Existing Business is managed for value and is responsible for older products that are no longer actively marketed to new customers. However, new assets are accumulated as customers pay into existing policies, or as new employees join older workplace schemes. These propositions include older style group pensions, individual pensions and with-profits policies. In November 2018July 2019, Aegon UK announced an extensioncompleted the outsourcing of service and operations tasks to its partnership with Atos with a 15 year15-year contract to service and administer the Existing Business.Business, thereby improving the profitability of this business line. This builds on the existing relationship, which has seen Atos successfully administer 450,000over 400,000 Digital Solutions protection policies since 2016. ProductsOverview of sales and distribution
Aegon UK’s main product focusUK has two principle distribution channels: financial advisers and workplace supported by a modern technology platform which provides services both to the adviser/employer and their underlying customers. Aegon UK works with those advisers and employers to deliver an online experience for customers. The platform is designed to work for customers throughout their life as needs evolve providing a comprehensive range of products and funds, moving with them each time they change employer and allowing them to link in with different advisers. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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This gives Aegon UK the ability to support customers throughout their life journey unlike the majority of its competitors. In addition, Aegon UK also participates in the protection and institutional trading platform markets. Financial Adviser channel The Financial Adviser channel provides financial advisers and other institutions access to long-term savings investments, pensions and protection products.retirement products, through an open architecture investment platform. Given the strong demand for advice, especially within the growing affluent population nearing and in retirement. Aegon UK offers a comprehensive proposition allowing advisers to manage their client’s long-term investment through a wide range of tax wrappers (Self Invested Personal Pension, Individual Savings Investments & PensionsAccount (ISA), General Investment Account (GIA)) investing in a choice of over 4,500 funds and equity trading. Aegon also offers its own investment solutions to advisers. Aegon UK provides a fulltechnology platform that supports the adviser and their customers in managing their finances, and integrates into the back office of the adviser. The aim is create a primary platform relationship, which positions Aegon to receive the majority of new business flows from the adviser partner. An example being the partnership agreed with leading wealth/workplace advisory firm LEBC in 2019 that is expected to deliver additional flow in 2020. Aegon UK partners with in excess of 5,000 advisers across a wide range of personalbusiness models. These range from the world’s largest building society, Nationwide, to leading wealth management firms such as Chase De Vere, financial services networks such as Quilter and Execution-Only Brokers. An important dimension of the Nationwide partnership is the inclusion of Aegon Investment Limited funds. This model will be extended in 2020 with the launch of an equivalent range of funds for financial advisers as Aegon UK builds out its investment solutions capability. Workplace channel The Workplace channel providesUK-based employers with workplace pensions and savings schemes. It allows Aegon UK to participate in the strong growing auto-enrolment market, cost effectively acquiring individual customer relationships. Aegon UK now has a market-leading position covering all major workplace savings products and participates in both the small andmedium-sized (SME) and large employer segments. A key driver of growth is in the mastertrust product, the fastest growing sector of the UK DC market, Aegon UK has an established and market leading offering. Aegon UK works with leading employee benefits consultants and corporate pensionsadvisers to provide a workplace savings platform to employers such as WH Smith, EasyJet and saving-related products.Skanska. This combines its core pension capabilities with ISA and GIA, allowing employees to maximize their savings whilst employed and then take the product with them when they leave or if they should choose to take regulated advice in the future. At the heart of this is Aegon UK’s employee digital portal, which provides tools to enable them to make better informed decisions. It also links into the wider engagement activities such as seminars in the workplace, and online innovations such as the launch of digital personalized summaries that seek to encourage customers to consolidate monies held elsewhere and increase their savings. Aegon UK’s proposition extends to include a range of tools to assist employers with their governance responsibilities: auto enrolment functionality and member insights tool to enable them to effectively manage their pension schemes. Individual customer channel Aegon UK has a large and growing individual customer base, which is not attached to an adviser or employer. This base is over 1 million individuals, and is forecast to continue to grow. These include:individuals are provided with tools that enable them to manage their finances and with customer service support to help with guidance and referrals available to Aegon UK’sin-house financial adviser business, Origen, where appropriate ◆ | | Individual Saving Accounts; |
◆ | | General Investment Account; |
◆ | | Flexible personal pensions; |
◆ | | Self-invested personal pensions; |
◆ | | Group personal pensions; |
◆ | | Group Self-invested personal pensions; |
◆ | | Investment Only capability for workplace pension schemes; and |
◆ | | Institutional Trading Platform. |
Protection productschannel Aegon UK offers a range of products for individual customers, including life cover, critical illness and income protection available through financial advisers. The target market is wealthier customers over the age of 40, where Aegon UK’s underwriting expertise helps it to provide a customer-centric proposition. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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This also provides a strong overlap with the target customers for Aegon Retirement Choices,UK’s financial adviser and workplace platform and the advisers who help them, giving the opportunity to leverage opportunities to leverage sales and promotional activity. cross-sell. In addition, Aegon UK offers a range of protection products for small-small tomedium-sized companies that wish to insure key personnel.personnel, complementing the core workplace channel. Traditional PensionsInstitutional channel
Traditional Pensions include a variety of individual and corporate pensions and with-profits products. These products are not actively marketed, but have a large number of existing customers.Aegon UK also participates in the institutional market in two distinct areas where capability is provided to other parties who provide policy administration to theend-client:
| ◆ | | An institutional trading platform which powers 28 of the UK’s leadingend-customer platforms (e.g. Brooks MacDonald, AJ Bell) and manages a total of GBP 52 billion assets; and |
| ◆ | | An investment-only proposition for pension schemes, which provides access to insured funds for approximately 160 clients who represent GBP 7 billion assets under administration. |
Competition Aegon UK is well positioned for growth, possessing a market leading position in markets with strong growth potential. There are a diverse range of competitors in the markets in which Aegon UK operates, and market dynamics are continuing to evolve. While competition can be seen partly in terms of product features and benefits, it is also increasingly played out in terms of establishing Aegon UK’s proposition as the primary or secondary ‘platform’ used by intermediaries to manage their clients assets, or as a preferred partner for EBCs advising corporate clients. Aegon UK’s competitors include traditional insurance companies, investment platformsUK encounters different competition in each of its core markets but is unique in the way it supports intermediaries wishing to operate across channels providing anend-to-end customer experience. In the financial adviser market, Aegon UK competes with the likes of Fidelity, Transact and asset managers,Quilter with a key competitive dimensionthe objective being to become ‘primary platform’ for the degreeintermediary. In the workplace market, Aegon UK competes with the likes of Aviva and Willis Towers Watson to which companies see their growth coming from extending into distribution or asset management versus building scale in administration.provide employee benefits, engagement and scheme governance. Regulation and supervision All relevant Aegon UK companies based in the United Kingdom are regulated by the Prudential Regulation Authority (PRA) and/ or the Financial Conduct Authority (FCA). | | | | | | | | | | | Annual Report on Form 20F2018 | | |
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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 Aegon Master Trust will beis subject to regulatory oversight by the Pensions Regulator following industry changes to authoriseauthorize Master Trusts and implement revised regulatory powers. The UK vote on June 23, 2016 to leave the European Union (EU) on June 23, 2016, has implications for financial services companies in the UK. Much financial regulation currently applicable in the UK derives from EU legislation. ThisBut this regulation will remain in force until any changes are made, which will be a matter for the UK government and the UK Parliament. Aegon UK must, therefore, continue to comply with UK law, including those that derive from EU law and continue with implementation plans for legislation that is anticipated to come into effect. The FCA has acknowledged that the longer term impacts of the decision to leave the EU on the overall regulatory framework for the UK will depend, in part, on the relationship that the UK seeks with the EU in the future. Financial supervision of insurance companies The European Union Insurance Directives referred to collectively as Solvency II are incorporated into UK law. The Solvency II directives came into effect on January 1, 2016. The directives are based on the ‘home country control’ principle, i.e. an insurance company with a license issued by the regulatory authorities in its home country is allowed to conduct business in any country of the European Union, either directly or through a branch. Separate licenses are required for each branch of the insurance company where it conducts business. The regulatory body that issued the license (the PRA in the UK) is responsible for monitoring the solvency of the insurer. Scottish Equitable PLC is authorized by the PRA and is subject to prudential regulation by the PRA and conduct regulation by the FCA. Every life insurance company licensed by and/or falling under the supervision of the PRA must file audited regulatory reports on at least an annual basis. These reports, primarily designed to enable the PRA to monitor the solvency of the insurance company, include a (consolidated) balance sheet, a (consolidated) income statement, a breakdown of the Solvency Capital Requirements, extensive | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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actuarial information, and detailed information regarding the investments of the insurance company. The PRA’s regulatory reporting is based on a single entity focus, and is designed to highlight risk assessment and risk management. Solvency II Under Solvency II, life insurance companies are required to maintain certain levels of shareholders’shareholder equity in accordance with EU directives, and have to hold the level of capital required to withstand a 1 in 2001-in-200 shock on a1-year value at risk basis. Since the introduction of Solvency II on January 1, 2016, Aegon has been using a Partial Internal Model (PIM) to calculate the solvency position of its insurance activities in the United Kingdom. The internal model was approved in December 2015, by the PRA as part of the Internal Model Application Process, with an additional Major Model Change approved in July 2017, which added Currency Risk and Operational Risk into the Internal Model. In addition, Aegon UK uses the matching adjustmentMatching Adjustment in the calculation of the technical provisions for its annuities, and uses the volatility adjustmentVolatility Adjustment in the calculation of the technical provisions for the With-Profits business with investment guarantees. Following the sale of the majority of its annuity business in 2016, Aegon UK no longer uses the transitional measures on technical provisions. CRD IV The Capital Requirements (Country by Country Reporting) Regulations 2013 (‘CRD IV’) came into force on January 1, 2014. These require credit institutions and investment firms, as defined within the directive, which are regulated under CRD IV, to “disclose annually, specifying by Member State and by third country in which it has an establishment, the following information on a consolidated basis for the financial year”: | ◆ | | Name, nature of activities and geographical location; |
| ◆ | | Number of employees on a full time equivalent basis; |
| ◆ | | Profit or loss before tax, and tax on profit or loss; |
| ◆ | | Public subsidies received. |
Cofunds Ltd and Aegon Investment Solutions Ltd are regulated by the FCA and maintain a capital framework in line with CRD IV. The information required by the legislation is published on Aegon’s websites. Aegon Investments Limited is a BIPRU firm, is regulated by the FCA and must maintain a capital framework in line with the FCA Handbook requirements. In conjunction with the FCA, the investment related companies within the Aegon UK group will in future be subject to consolidated reporting under CRD IV. This applies the same principles and rules under CRD IV to the consolidated group of entities. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
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Overview of Central &Southern and Eastern Europe In 2018At the start of 2019, Aegon had operations in the Central &Southern and Eastern European (CEE)(SEE) countries of the Czech Republic, Hungary, Poland, Portugal, Romania, Slovakia, Spain and Turkey. It
Aegon first entered the Central & Eastern EuropeanSpanish insurance market in 1980. This was followed in 1992 withby the purchase of a majority stake in Hungary’s former state-owned insurance company, Állami Biztosító. To strengthen its presence, Aegon Hungary is Aegon’s leading businessfurther expanded in Central & Eastern Europe. Europe in the early 2000s. Aegon’s activities in Spain have developed largely through distribution partnerships with Spanish banks. Aegon Spain Holding B.V. (hereafter referred to as Aegon Spain) operates in Spain through Aegon España S.A.U. de Seguros y Reaseguros. In 2013, Aegon Spain entered into a long-term partnership with Banco Santander S.A., offering both life and general insurance products through the bank’s branch network, both in Spain and Portugal. Similarly, Aegon Spain also entered into a long-term partnership with Liberbank, S.A., offering life and pension products in Spain. In line with its strategic objective to optimize its portfolio and capital allocation across its businesses, in 2018 Aegon agreed to sellsold its subsidiaries in the Czech Republic and Slovakia. The transaction was subject to customary regulatory approvals and was closedSlovakia on January 8, 2019. It also expanded its partnership with Banco Santander in Spain and Portugal on the back of the acquisition of Banco Popular by Banco Santander. Organizational structure Aegon’s main subsidiaries and affiliates in Central &Southern and Eastern Europe are: | ◆ | | Aegon España S.A.U. de Seguros y Reaseguros (Aegon España Insurance and Reinsurance); |
| ◆ | | Santander Generales Seguros y Reaseguros S.A. (Santander General Insurance and Reinsurance) (51%); |
| ◆ | | Santander Vida Seguros y Reaseguros S.A. (Santander Life Insurance and Reinsurance) (51%); |
| ◆ | | Liberbank Vida y Pensiones, Seguros y Reaseguros, S.A.(Liberbank Life and Pensions, Insurance and Reinsurance) (50%); |
| ◆ | | Aegon Santander Portugal Não Vida-Companhia de Seguros S.A. (Aegon Santander PortugalNon-Life Insurance Co.) (51%); |
| ◆ | | Aegon Santander Portugal Vida-Companhia de Seguros de Vida S.A. (Aegon Santander Portugal Life Insurance Co.) (51%); |
| ◆ | | Aegon Magyarország Általános Biztosító Zártkörűen Működő Részvénytársaság (Aegon Hungary Composite Insurance Co.); |
| ◆ | | Aegon Towarzystwo Ubezpieczeń na Życie Spółkatka Akcyjna (Aegon Poland Life); |
| ◆ | | Aegon Powszechne Towarzystwo Emerytalne Spółkatka Akcyjna (Aegon Poland Pension Fund Management Co.); |
| ◆ | | Aegon Emeklilik ve Hayat A.Ş. (Aegon Turkey).; and |
| ◆ | | Aegon Pensii Societate de Administrare a Fondurilor de Pensii Private S.A (Aegon Romania Pension Administrator Co.). |
Overview of sales and distribution channels In Spain & Portugal, the Aegon operatesaffiliates distribute their products mainly through a numberpartner branches (bancassurance). In addition, Aegon also has its own sales network, comprising of different sales channels inbrokers, agents and the direct channel. In Central & Eastern Europe. Aegon Hungary Insurance is a composite insurance entity and owns several subsidiaries that also operate in the financial services sector. The Group’s products are therefore marketed via a broad range of channels, the most important of which are tied agents and insurance brokers, in addition to bank partners, call centers, key account managers and its online channel. In Poland, unit-linked and different types of traditional life insurance products are distributed by tied agents and broker partners, while in Romania these types of products are distributed mainly by bank partners. In Turkey,Europe, the most important sales channels are insurance brokers andcomprise tied agents and brokers, in addition to bank partners, which distribute savings and term life insurance products. In the Czech Republic and in Slovakia, which were sold in January 2019, Aegon distributed mostly unit-linked and term life insurance policies with the help of broker sales partners.bancassurance. Overview of business lines
Life & Savings
Aegon’s companies in Central & Eastern Europe offer a range of life insurance and personal protection products. These include traditional life and unit-linked products, the latter of which cover all types of life insurance, including pension, endowment and savings.
Traditional general account life insurance mainly consists of index-life products that are not unit-linked, but have guaranteed interest rates, in addition to group life and preferred term life products.
Preferred life is an individual term life insurance product that offers insurance protection. The product distinguishes between whether an individual is a smoker ornon-smoker, and uses standard and preferred pricing dependent on the respective health of customers.
Group life contracts are renewable each year and carry optional accident and health cover.
In Hungary, Aegon offers a wide range of life insurance products: including term life, whole life, group life insurance, accidental life and traditional saving type products, in addition to unit-linked policies, which are frequently accompanied with riders. These riders provide customers – in addition to the main coverage – with additional financial support in the event of, for instance: having an accident, becoming disabled, or being hospitalized. Aegon is a significant market player in Hungary in the unit-linked segment.
In Poland, Aegon focuses on unit-linked as well as traditional life products. In line with local regulatory and market developments, the products marketed have been modified in recent years.
In Romania, Aegon undertakes life insurance business via a branch of Aegon Poland Life Insurance Company. The Romanian branch sells unit-linked, term life and endowment insurance policies.
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In Turkey, Aegon provides only traditional life insurance products, the most important of which are pure term life with several riders, term life with premium refund on maturity, and saving-type endowment products. Aegon’s insurance portfolio is growing significantly in Turkey due to the country’s high growth rate.
In both the Czech Republic and Slovakia, Aegon focused on the unit-linked segment, in addition to offering term life products and offering a wide range of riders that cover, among others, accidental death, disability, critical illness risks, and providing a daily hospitalization allowance to insured clients.
Also in Hungary, up until the end of September 2018 Aegon Hungary Home Savings and Loan Association provided a saving product combined with a preferential loan option, which is subsidized by the state during the saving period. In accordance with Aegon’s strategy on October 1, 2018 Aegon Hungary Home Savings and Loan Association suspended its sales activities.
As a further step to rationalize Aegon’s geographical footprint and focus its resources on its key markets, on August 16, 2018, Aegon announced it had agreed to sell its life insurance business lines in the Czech Republic and Slovakia to NN Group. This transaction was subject to customary regulatory approvals, and was closed on January 8, 2019.
Mortgage loans
Aegon Hungary first offered mortgage loans to retail customers in 2006 via Aegon Hungary Mortgage Finance Co., a subsidiary of Aegon Hungary Composite Insurance Company. After its launch, the mortgage loan business was affected by several legislative changes.
On March 17, 2014, Aegon Hungary Mortgage Finance Company suspended the acceptance of new loan applications for an indefinite period of time.
On June 4, 2018, Aegon agreed to sell its performing mortgage loan portfolio to Raiffeisen Bank Zrt., member of the Raiffeisen Bank International Group. This was followed by the sale of Aegon Hungary Mortgage Finance Co. to Intrum Justitia Zrt., being the Hungarian subsidiary of Intrum Justitia AB, the Swedish public company engaged in credit management. The transaction was subject to customary regulatory approval, and was closed on October 8, 2018.
Pensions
Aegon’s pension business in Central & Eastern Europe was impacted by reforms to the pension system in several countries in the region during recent years. In 2018 Aegon was active in the (formerly mandatory) private pension market in Slovakia, Poland and Romania. In the voluntary pension market, Aegon was active in Hungary, Turkey and Romania.
As of December 31, 2018, Aegon managed the savings of 3.1 million pension fund members in Central & Eastern Europe. In terms of assets under management, Aegon’s private pension funds in Poland, Slovakia and Romania, and its voluntary pension fund in Hungary, are significant market players in the respective countries. In terms of numbers of members, Aegon has a significant market presence in Poland, Romania, and Hungary.
On September 1, 2017 Aegon took over the management of Nordea’s Pillar 2 pension fund in Poland. The deal brought economies of scale and helped further improve the quality of services that Aegon provides to its customers. The merger of the two funds created the fourth largest Pillar 2 pension fund in the market.
Aegon’s private pension business in Slovakia, together with its life insurance operation in the market, was sold to NN Group on January 8, 2019.
Non-life
Aegon Hungary offersnon-life cover (mainly household and car insurance, in addition to some wealth and liability industrial risk and travel insurance). Aegon is the leading insurance company in the Hungarian household market. In recent years, margins onnon-life insurance in Hungary have been attractive. Moreover, household insurance provides considerable opportunities for the cross-selling of life insurance.
As part of Aegon’s regional expansion, Aegon Hungary has operated branch offices selling household insurance policies in Slovakia since 2010 and in Poland since 2011.
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Competition
In 2017, Aegon was the third largest life insurance provider in Hungary, based on annual standardized premium income, and the third largest provider in thenon-life insurance market. In Turkey, Aegon was ranked fifth in the life insurance market based on written premium at the end of 2018. Aegon is a less significant market participant in Poland, Slovakia, the Czech Republic and Romania.
Aegon was ranked third in terms of both the number of participants and managed assets in 2017 in the voluntary pension fund market in Hungary. Aegon was ranked fifth in terms of managed assets in December 2018 and also fifth in terms of number of participants in November 2018 in the Slovakian private pension market. Based on November 2018 data, Aegon was ranked fourth in terms of both the number of participants and managed assets in Poland. In September 2018, Aegon was the fourth largest provider in the Romanian mandatory private pension market, both in terms of net assets under management and number of participants.
Regulation and supervision
In the European Union, a single insurance company may only be licensed for and conduct either a life insurance business or anon-life insurance business; not both. In Hungary, however, insurance companies established before 1995 are exempt from this rule. This exemption therefore applies to Aegon Hungary, which is a composite insurance company.
State supervision and oversight of the insurance industry is conducted by the following bodies and institutions:
◆ | | The Central Bank of Hungary (MNB); |
◆ | | National Bank of Slovakia (NBS); |
◆ | | Czech National Bank (CNB); |
◆ | | Polish Financial Supervisory Authority (KNF); |
�� | | Authority for Financial Supervision (ASF) (Romania); and |
◆ | | Undersecretariat of Treasury (Turkey). |
The authorities mentioned above promote consumer protection and have the right to investigate prudential activities and conduct, financial position and solvency, and compliance with all relevant laws.
In addition to legal regulation, insurance companies are members of a number of self-regulatory groups in their respective countries. These self-regulatory groups are the main forums for discussion among insurance companies. Their specialized departments (for example, actuarial, financial, and legal) meet periodically.
Solvency II
The Solvency IIinsurance solvency regime, became effective in European Economic Area (EEA) countries on January 1, 2016. Aegon’sEU-domiciled entities in Central & Eastern Europe use the Standard Formula to calculate the solvency position of their insurance activities. The activities in Turkey have been included through Deduction & Aggregation on a Solvency II Standard Formula basis.
The foundation and operations of voluntary pension funds are regulated in Hungary by the country’s Voluntary Mutual Pension Funds Act (XCVI. 1993). Activity in this area is also supervised by the MNB. Slovakia’s pension market is regulated by the Pension Asset Management Companies and Respective Notices Act (43/2004). The private pension business is under the supervision of the National Bank of Slovakia (NBS). In Romania, the private and voluntary pension system is regulated and supervised by the Authority for Financial Supervision (ASF). The mandatory pension system is subject to the Privately Administered Pension Funds Act (411/2004) and the voluntary pension system is subject to the Voluntary Pension Law (204/2006), both complemented by individual regulations (as secondary legislation). In Poland, this activity is supervised by the KNF and governed by the Organization and Operation of Pension Funds Act. In Turkey, the voluntary pension funds are under the supervision of the Undersecretariat of Treasury and the companies are subject to Individual Retirement Saving and Investment System Law No. 4632.
In Hungary, the Credit Institutions and Financial Enterprises Act (2013) stipulates the foundation, operation and reporting obligations of the country’s financial institutions. Just like Aegon Hungary Composite Insurance Company, Aegon Hungary Home Savings and Loan Association is also under the supervision of MNB, as was Aegon Hungary Mortgage Finance Company before it was sold to and renamed by Intrum.
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Overview of Spain & Portugal
Aegon entered the Spanish insurance market in 1980. In recent years, Aegon’s activities in Spain have developed through distribution partnerships with Spanish banks.
Aegon Spain Holding BV (hereafter referred to as Aegon Spain) operates in Spain through Aegon España S.A.U. de Seguros y Reaseguros. In addition, Aegon Spain operates in Spain through long-term partnerships with Banco Santander S.A. (offering both life and general insurance products) and Liberbank, S.A. (offering life products).
Aegon Spain also operates in Portugal through a long-term partnership with Banco Santander, S.A., offering both life and general insurance products.
Aegon Administracion y Servicios A.I.E., a separate legal entity, provides administration and operations services to all Aegon companies in Spain and Portugal, including joint ventures with third parties.
Organizational structure
Aegon’s main subsidiaries and affiliates in Spain & Portugal are:
◆ | | Aegon España S.A.U. de Seguros y Reaseguros; |
◆ | | Aegon Administracion y Servicios A.I.E.; |
◆ | | Aegon Activos A.V, S.A.; |
◆ | | Aegon Mediación, S.L.U.; |
◆ | | Santander Generales Seguros y Reaseguros S.A. (51%); |
◆ | | Santander Vida Seguros y Reaseguros S.A. (51%); |
◆ | | Liberbank Vida y Pensiones, Seguros y Reaseguros, S.A. (50%); |
◆ | | Aegon Santander Portugal Não Vida-Companhia de Seguros S.A. (51%); |
◆ | | Aegon Santander Portugal Vida-Companhia de Seguros de Vida S.A. (51%). |
Overview of sales and distribution channels
Aegon Spain´s subsidiaries and affiliates distribute their insurance products nationwide through partner branches and its own sales network. The main distribution channel in the Spanish market is bancassurance, which accounts for 69% of life sales, with brokers and direct customers accounting for 23% and 8% of the total respectively. Overall, the bancassurance channel accounts for 26% of the Spanish household market.
In the Portuguese market, where all business is written through the bancassurance channel with approximately 61% of pure life risk premiums, where credit-related policies mostly related to mortgages play a significant role and 39% ofnon-life insurance premiums (mainly Household and Accidents).
Aegon Spain and Banco Santander Since June 4, 2013, Aegon Spain and Banco Santander S.A. have partnered to distribute a number of insurance products in Spain. Banco Santander S.A. is, the largest financial institution in Spain, with over 4,600 branches nationwide. have partnered to distribute certain types of insurance products in Spain, through Banco Santander’s network of branches. This was followed on December 31, 2014 by Aegon Spain’s agreementSpain entering into a similar partnership with Banco Santander S.A. initially concerned pure life risk and general insurance products (accident, home and commercial multi-risk insurance, and critical illness). These products are developed through two insurance entities: Santander Vida for pure life risk products and health; and 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 S.A. owns the remaining 49%. On December 28, 2016, Aegon Spain and Banco Santander further extended their partnership agreement to distribute health insurance products developed by Santander Vida, with sales commencing in 2017. Furthermore, Santander Generales began offering funeral insurance on July 7, 2017. Since December 31, 2014, Aegon Spain and Banco Santander Totta Seguros, S.A., a Portuguese insurance company, that is part of the Santander International group, have partnered to distribute a number ofgroup.
In Spain, the life insurance products. The partnership concerns the distribution of(mainly pure life risk and generalhealth) products are sold by Santander Life Insurance and Reinsurance, whereas thenon-life insurance (mainly accident, home, commercial multi-risk insurance, critical illness and funeral) products (accident,are sold by Santander General Insurance and Reinsurance Company. Both entities are joint venture insurance entities, owned 51% by Aegon España, being the subsidiary of Aegon Spain, and 49% by Santander Seguros y Reaseguros, Compañía Aseguradora, S.A. respectively. In Portugal, the life insurance (mainly pure risk) products are sold by Aegon Santander Portugal Life, whereas thenon-life insurance (mainly accident, home and commercial multi-risk insurance, and health) through over 500 branches nationwide – the largest network of its kind in the country. Thesemulti-risk) products are developed through two insurance entities:sold by Aegon Santander Portugal Vida, for pure life risk products;Non-Life Insurance Company. Both entities are joint venture insurance entities, owned 51% by Aegon Spain and Aegon49% by Santander Portugal Não Vida, for general insurance products. AegonTotta Seguros, S.A. respectively. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
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Spain and Banco Santander Totta, S.A. are both shareholders of these entities: Aegon Spain has a 51% share in each entity and Banco Santander Totta, S.A.´s group owns the remaining 49%.
On December 21, 2015, Banco Santander Totta, S.A. announced that it had acquired Banco Internacional de Funchal (Banif). On December 5, 2016, Aegon Spain and Santander Totta reached an agreement in order to add Banif´s retail and corporate network – consisting of 174 branches and 370,000 clients – to the current distribution network of Aegon Santander Portugal Vida and Aegon Santander Portugal Não Vida.
On July 2, 2018, Aegon Spain and Banco Santander signed an agreement to further expand its successful partnership in Spain. The expansion covers term life and selected lines ofnon-life insurance following Banco Santander’s acquisition of the Banco Popular franchise in 2017 as well as the acquisition of the term life portfolio of Banco Popular. The transaction will close following the acquisition of the former insurance partner business by Banco Santander.
On December 21, 2018, Aegon Spain and Banco Santander signed an agreement to further expand its partnership in Portugal. The expansion covers term life and selected lines ofnon-life insurance following Banco Santander’s acquisition of the Banco Popular franchise in 2017 as well as the acquisition of the term life and selected lines ofnon-life insurance portfolios of Banco Popular. The transaction is expected to close following the technological migration of the portfolios in 2019.
Aegon Spain and Liberbank Liberbank, S.A. has a nationwide presence nationwide,in Spain, with a special focus on retail markets in a number of Spanish regions (Asturias, Cantabria, Castilla La Mancha and Extremadura). Liberbank Vida y Pensiones, Seguros y Reaseguros, S.A. currentlyLife and Pensions distributes its products through nearly 475400 Liberbank, S.A. branches. Liberbank Life and Pensions is a joint venture life insurance and pension fund management company, with Aegon SpainEspaña and Liberbank S.A. are both shareholders of Liberbank Vida y Pensiones, Seguros y Reaseguros, S.A.. Aegon’s share in this entity isholding 50%, and Liberbank, S.A. owns the remaining 50%. ownership stakes. Aegon Spain own network and direct channel Aegon Spain’s own network and direct channel offers life insurance,and health insurance and pension products and mutual funds. It uses two main distribution channels: itsof the fully owned Aegon subsidiary. The own network comprises the network of brokers and agents, accounting for the products of its full subsidiaries, which comprises 90%approximately 80% of the total; and a direct channel, which comprises 10%total sales. The remaining 20% of the total.total sales is accounted for by the direct channel. Central and Eastern Europe Aegon Hungary Insurance is a composite insurance entity and owns several subsidiaries that also operate in the financial services sector. The Hungarian group’s products are therefore marketed via a broad range of channels, the most important of which are tied agents and insurance brokers, in addition to bank partners, call centers, key account managers and its online channel. In 2018, Aegon Spain implemented an efficiency planPoland, unit-linked and different types of traditional life insurance products are distributed by tied agents and broker partners. In Romania, unit-linked and different types of traditional life insurance products are distributed mainly by bank partners. In Turkey, the most important sales channels are insurance brokers and tied agents, in orderaddition to its streamline its core activities. The project,bank partners, which focused on transforming the healthdistribute savings and term life insurance business and simplifying operational processes and improving efficiency in general. A substantial number of positions was restructured on the basis of a social plan. New expenses control tools and processes were implemented in order to make savings last in time. Aegon Spain also ceased the activities of its subsidiary Aegon Activos A.V. S.A., mainly distributing mutual funds.products. Overview of business lines Aegon SpainSouthern and Eastern Europe focuses primarily on retail customers. It offers mainly individual life, pensions,different types of general insurance, accident and health products through different distribution channels, including its own channels (agents, brokers and direct), together with bancassurance products through its joint venture partnerships with Liberbank S.A. and Banco Santander Group, the latter of which in both Spain & Portugal.products. Life insurance, Savings & PensionsProtection Aegon Spain’sSpain & Portugal’s life insurance business comprises bothsavings as well as individual and group protection and savings products, with individual products forming the larger part of the business.
Customers’ saving needs are serviced by Aegon Spain through its Spanish insurance affiliates by means of its targeted offering of universal life and unit-linked products. Protection business, pursued both in Spain and Portugal, includes primarily life, accident and disability cover, and the products can be complemented with critical illness, income protection and other riders. Customers’ saving needs are serviced by In Hungary, Aegon Spain through its targeted offeringoffers a wide range of universal life unit-linked and pension funds. Both savings and protection products are distributed through the channels mentioned above. In addition, Aegon Spain distributes mutual funds from third parties. General insurance
Aegon Spain has been offering general insurance products, since 2013 throughincluding term life, whole life, accidental life and group life insurance. Group life contracts are renewable each year any carry optional accident and health cover. Aegon Hungary also offers traditional saving type products that consist of index-life products that are not unit-linked, but have guaranteed interest rates. Additionally, in Hungary Aegon also offers unit-linked policies, which are frequently accompanied with riders. These riders provide customers — in addition to the main coverage – with additional financial support in the event of, for instance, having an accident, becoming disabled, or being hospitalized.
In Poland, Aegon focuses on unit-linked as well as traditional life products. In Romania, Aegon undertakes life insurance business via a branch of Aegon Poland Life Insurance Company. The Romanian branch sells unit-linked, term life and endowment insurance policies. In Turkey, Aegon focuses on traditional life insurance products, the most important of which are pure term life with several riders, term life with premium refund on maturity, and saving-type endowment products. Also up until the end of September 2018, Aegon Hungary Home Savings and Loan Association, being the subsidiary of Aegon Hungary Insurance Company, provided a saving product combined with a preferential loan option, subsidized by the state during the saving period. In accordance with Aegon’s strategy on October 1, 2018, Aegon Hungary Home Savings and Loan Association suspended its joint venture with Banco Santander.sales activities. The offering focuses mainly on household protectionsale of the portfolio started in 2019 and funeral insurance products.is expected to be completed in 2020. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
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Health HealthIn Spain, health insurance is offered by Aegon Spain in Spainthrough its affiliated entities through its own network of brokers and agents, its direct channels, and
through Santander’s network of branches. Medical expense coverage for doctor visits, diagnoses, hospitalization, dental and other health covers are offered through a broad network of medical partners across the country. Pension In Spain, customers’ pension saving needs are serviced by Liberbank Life and Pensions as well as by Aegon España through their managed pension funds. Aegon’s pension business in Central & Eastern Europe was impacted by reforms to the pension system in several countries in the region during the past years. In 2019, Aegon was active in the (formerly mandatory) private pension market in Poland and Romania. In the voluntary pension market, Aegon was active in Hungary, Turkey and Romania. As of December 31, 2019, Aegon managed the savings of approximately 3.0 million pension fund members in Southern and Eastern Europe. General insurance Aegon Spain has been offering general insurance products since 2013 through its joint ventures with Banco Santander. The gross premium written contributionoffering focuses mainly on household protection and funeral insurance products. Aegon Hungary also offersnon-life cover (mainly household and car insurance, in 2018addition to some wealth and liability industrial risk and travel insurance). In recent years, margins onnon-life insurance in Hungary have been attractive. Moreover, household insurance provides considerable opportunities for eachthe cross-selling of life insurance. Aegon Spain’s business lines was 51% for lifeHungary has operated branch offices selling household insurance 23% for accidentpolicies in Slovakia since 2010 and health insurance, and 26% for general insurance.in Poland since 2011. So as to optimize its portfolio, Aegon Hungary sold the portfolio of its Slovak branch on September 6, 2019 to Union poistovňa, a.s.. Competition The Spanish insurance market is highly competitive. For Aegon Spain’s traditional life, unit-linked variable life and pension products, the major competitors are retail bank-owned insurance companies. The life market is dominated by Grupo VidaCaixa, with a 28% market share, and Zurich, with a 9% market share, followed by Mapfre, with a 8% market share. Aegon Spain’s market share is less than 1%. For Aegon Spain’s health and general insurance products, the main competitors are both foreign and local companies. Grupo Mutua Madrileña leadsAegon Spain is the exclusive provider of protection products to Santander. The excusive partnership also holds for Portugal. In Hungary, in 2018, Aegon was the third largest life insurance provider, based on annual standardized premium income, and the third largest provider in thenon-life insurance market with a 14% market share, followed by Mapfre with a 14% market share, and Allianz with a 7% market share. Thenon-life market is more fragmented thanmarket. In the life one.same year Aegon Spain’s multi-risk business line is responsible fornon-life and has awas the leading insurance company in the Hungarian household market share of less than 1%1. With respect to In Turkey, Aegon was ranked ninth in the life insurance Portuguese market Fidelidadebased on written premium in December 20192. In Romania, Aegon was ranked number eighth, based on the gross written premium, in September 2019. Aegon is a less significant life insurance market participant in Poland.
In the voluntary pension fund market Aegon was ranked third in terms of both the number of participants and Ocidental Vida are the main players with a combined market sharemanaged assets in 2018 in Hungary3. Based on February 2019 data, Aegon was ranked fourth in terms of 56% (basedboth the number of participants and managed assets in Poland4. In September 2019, Aegon was the fourth largest provider in the Romanian mandatory private pension market, both in terms of net assets under management and number of participants5. Aegon is a less significant participant on issued premiums of insurance contractsthe voluntary pension market in Romania, Turkey and deposits of financial products). In thenon-life, Fidelidade is also the main player with a market share of 26%, followed by a new company named Seguradoras Unidas with 16%. Seguradoras Unidas is the result of a merger of several insurance companies, including Tranquilidade and Açoreana.Spain.
Regulation and supervision InsuranceIn the European Union, a single insurance company may only be licensed for and conduct either a life insurance business or anon-life insurance business; not both. In Hungary, however, insurance companies in Spainestablished before 1995 are requiredexempt from this rule. This exemption therefore applies to report onAegon Hungary, which is a quarterly basis tocomposite insurance company.
| 1 | Source: MABISZ, https://mabisz.hu/kiadvanyok/. Website visited January 10, 2020. |
| 2 | Source: Insurance Association of Turkey, https://www.tsb.org.tr/official-statistics.aspx?pageID=1003. Website visited January 10, 2020. |
| 3 | Source: MNB,https://www.mnb.hu/felugyelet/idosorok/v-aranykonyv. Website visited January 10, 2020. |
| 4 | Source: KNF, https://www.knf.gov.pl/en/REPORTS_AND_ANALYSIS/Pension_system/Monthly_data_pension_funds_market. Website visited January 10, 2020. |
| 5 | Source: APAPR, https://apapr.ro/utile/statistici/. Website visited January 10, 2020 |
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State supervision and oversight of the Dirección General de Seguros y Fondos de Pensiones (DGSFP), the regulatory authority for the Spanish insurance industry. Spanish regulations incorporate all requirements from the relevant EU directives. The regulatory authority for the Portuguese insurance industry is conducted by the Autoridade de Supervisão de Seguros e Fundos de Pensõesfollowing bodies and institutions:
| ◆ | | General Directorate of Insurance and Pension Funds (DGSFP) (Spain); |
| ◆ | | The Insurance and Pension Funds Supervisory Authority (ASF) (Portugal); |
| ◆ | | The Central Bank of Hungary (MNB) (Hungary); |
| ◆ | | Financial Supervisory Authority (KNF) (Poland); |
| ◆ | | Authority for Financial Supervision (ASF) (Romania); and |
| ◆ | | Undersecretariat of Treasury (Turkey). |
The authorities mentioned above promote consumer protection and have the right to investigate prudential activities and conduct, financial position and solvency, and compliance with all relevant laws. In the European Union, a single insurance company may only be licensed for and conduct either a life insurance business or anon-life insurance business; not both. In Hungary, however, insurance companies established before 1995 are exempt from this rule. This exemption therefore applies to Aegon Hungary, which is a composite insurance company. The foundation and operations of voluntary pension funds are regulated in Hungary by the country’s Voluntary Mutual Pension Funds Act (XCVI. 1993). Activity in this area is also supervised by the MNB. The Credit Institutions and Financial Enterprises Act (2013) stipulates the foundation, operation and reporting obligations of the country’s financial institutions. Just like Aegon Hungary Composite Insurance Company, Aegon Hungary Home Savings and Loan Association is under the supervision of MNB. In Romania, the private and voluntary pension system is regulated and supervised by the Authority for Financial Supervision (ASF). InsuranceThe mandatory pension system is subject to the Privately Administered Pension Funds Act (411/2004) and the voluntary pension system is subject to the Voluntary Pension Law (204/2006), both complemented by individual regulations (as secondary legislation). In Poland, this activity is supervised by the KNF and governed by the Organization and Operation of Pension Funds Act. In Turkey, the voluntary pension funds are under the supervision of the Undersecretariat of Treasury and the companies are requiredsubject to reportIndividual Retirement Saving and Investment System Law No. 4632. In Spain the pension system is supervised by DGSFP. In Hungary, the Credit Institutions and Financial Enterprises Act (2013) stipulates the foundation, operation and reporting obligations of the country’s financial institutions. Just like Aegon Hungary Composite Insurance Company, Aegon Hungary Home Savings and Loan Association is also under the supervision of MNB. Solvency II The Solvency II insurance solvency regime became effective in European Economic Area (EEA) countries on January 1, 2016. Aegon’sEU-domiciled entities in Southern and Eastern Europe use the Standard Formula to calculate the ASFsolvency position of their insurance activities. As mentioned on page 278, Aegon Spain no longer applies the matching adjustment or transitional arrangements. The insurance activities in Turkey have been included through Deduction & Aggregation on a monthly basis (issued premiums and claims costs per line of business) and more extensively on a quarterlySolvency II Standard Formula basis. Portuguese regulations also incorporate all requirements from the relevant EU directives. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
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Overview of Asia Aegon Asia operates through threetwo major joint ventures in India Japan and the People’s Republic of China (hereafter referred to as ‘China’), in addition to several wholly-owned subsidiaries, including Aegon’s businesses in Hong Kong and Singapore that serve thehigh-net-worth segment. Organizational structure Aegon’s main operating companies in Asia (including Aegon’s ownership percentages) are: | ◆ | | Aegon THTF Life Insurance Co., Ltd. (50%); |
| ◆ | | Aegon Life Insurance Co. Ltd.Company Limited (49%); |
◆ | | Aegon Sony Life Insurance Co. Ltd. (50%); |
◆ | | SA Reinsurance Ltd. (50%); and |
| ◆ | | Transamerica Life (Bermuda) Ltd. (100%). |
Joint ventures Aegon operates in China through a joint venture with Tsinghua Tongfang Co. LtdLtd. (THTF) called Aegon THTF Life Insurance Co., Ltd. (Aegon THTF). Aegon THTF is licensed to sell both life insurance and accident and health products in China. Since 2003, the company has expanded its network of offices and business in China. Having established 13thirteen branches, its geographic presence has access to a potential market of over 656650 million people, primarily in the coastal provinces of eastern China. Aegon has been operatingoperates in India through its joint venture life insurance company, Aegon Life Insurance Co. LtdCompany Limited (Aegon Life), since 2008, and its current joint venture partner is Bennett, Coleman & Co. Ltd. (BCCL). The joint venture follows a digitally focuseddirect-to-consumer strategy. Since 2009, Aegon hashad been operating in Japan through a joint venture with Sony Life, one of Japan’s leading insurance companies, named Aegon Sony Life Insurance Co., Ltd. (Aegon Sony Life). The primary focus of Aegon Sony Life iswas variable annuity sales in Japan. Aegon and Sony Life also jointly established a reinsurance company, SA Reinsurance Ltd. (SARe), to provide Aegon Sony Life with greater flexibility in the pricing and design of its annuity products. Launched On May 17, 2019 Aegon announced an agreement to sell its 50% stake in 2010 and basedthe variable annuity joint ventures in Bermuda, SARe manages the guaranteed benefit risks of Aegon Sony Life’s products.Japan. The cash proceeds amounted to EUR 153 million. The transaction agreements were signed on June 28, 2019. The divestment was completed early 2020. Wholly-owned subsidiaries The Transamerica companies have over 100 years of history. This long tradition continues in Asia when Transamerica opened its first sales office in Shanghai over 80 years ago in 1933. Transamerica Life (Bermuda) Ltd. (TLB) was established in 2005 and its full-service branches opened in Hong Kong and Singapore in 2006.
Aegon Insights is a marketing, distribution and administration services business operating in the Asia-Pacific region with new business discontinued since 2017 due to change in consumer preferences. The Aegon Insights business, currently maintains operations in Australia, Hong Kong, Indonesia Japan and ThailandJapan to serve existing customers. Overview of sales and distribution In China, Aegon THTF follows a multi-channel distribution strategy. Current distribution channels include agency, brokerage, banks, direct marketing, group and digital. In India, Aegon Life now distributes its products predominantly via itse-sales, direct and group channels, utilizing its own website, ande-commercedigital partners, as well as its own direct sales force. Aegon Sony Life in Japan has two distribution channels: the Sony Life Planner channel (operated by Sony Life), with over 5,100 agents; and the bank distribution channel, which consists predominately of mega banks and regional banks.
TLB distributes its products tohigh-net-worth consumers through targeted distribution relationships with select local and international brokers, as well as through bancassurance channels. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
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Overview of business lines High-net-worth businesses TLB’s main products consist of USD denominated Universal Life and USD denominated Term Life Insurance planssolutions for thehigh-net-worth market segment. Universal Life products are TLB’s key products to meet the needs ofhigh-net-worth individuals, supporting | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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estate planning by providing life protection, while also helping to preserve and accumulate wealth. In addition to the Universal Life products, Term Life products are also offered with financial protection at a guaranteed level rate for up to 30thirty years. Aegon Insights Aegon Insights primarily worked with local insurers to develop marketing, distribution and administration solutions tailored to the needs of specific markets and customers. With changes in consumer preferences, the ongoing focus is on exploring opportunities in the emerging digital distribution landscape, in addition to continuing to provide services to existing customers. Revenue is primarily generated through reinsurance arrangements and fee income from marketing services, product distribution and administration. During 2017,With changes in consumer preferences, Aegon made the strategic decision in 2017 to discontinue Aegon Insights’ outbound telemarketing businesses.new business while continuing to provide services to existing customers. Strategic partnerships In China and India, Aegon provides a broad range of life insurance products including unit-linked, universal life, and traditional life products. Aegon also offers variable annuities in Japan through Aegon Sony Life. In China, Aegon THTF’s agency, broker, and direct marketing channels primarily offer its flagship whole-life critical illness products. Other products, such as participating annuity and endowment (via agency), whole life insurance products (via brokers) and personal accidentprotection with return of premium (via direct marketing) are, however, also offered through these channels.offered. Regular premium critical illness, whole-life insurance, traditional or participating annuity and single premium annuity are the key products offered in the bancassurance channel, while the digital channel is currently focused on offering protection products. Aegon THTF also offersnon-life products (primarily consisting of short-term accident and short-term health products) through allgroup, direct marketing and agency channels.Non-life sales are, however, concentrated in the group channel, where the main products are group medical policies. In India, Aegon Life offers individual term life plans, traditional participating andnon-participating savings products, and unit-linked life insurance plans through the direct sales force, ande-sales channels. In Japan, Aegon Sony Life offers variable annuities in JPY, USDchannels and AUD. These products typically provide a guaranteed minimum death benefit, together with a lifetime withdrawal benefit and an accumulation benefit with or without a minimum guarantee.
Since 2010, SARe has assumed the risk on all minimum guarantees offered on Aegon Sony Life’s variable annuity products.e-commerce partners.
Aegon also makes investments in digital distribution platforms in the Asia region to expand distribution capabilities. Competition China: Aegon THTF As of November 30, 2018, there were 91 life insurance companies in the market, including 63 domestic life companies and 28 foreign life insurers. Based on total premium income, Aegon THTF ranked fifty-fifth among life insurance companies and fifteenth among foreign life companies in China. Aegon THTF’s market share among foreign-invested companies was 1.64% in terms of total premium. India: Aegon Life There were 24 licensed life insurers in India at the end of December 2018. While the state-owned Life Insurance Corporation of India continues to maintain a dominant share of new business premiums (April 2018 to December 2018), private sector companies have shown double-digit growth to obtain more than 58% of the individual recurring new business premiums written. Aegon Life India ranked twenty-third according to individual recurring premiums (April 2017 to December 2018). Japan: Aegon Sony Life
There are seven active companies in Japan’s variable annuities market. In 2018, Aegon Sony Life ranked second in terms of market share behindDai-ichi Frontier Life, followed by Nippon Life and Credit Agricole Life.
Hong Kong and Singapore: TLB TLB’s main competitors in Hong Kong and Singapore have traditionallymainly been theother global life insurance providers in thehigh-net-worth market, such as HSBC Life, Manulife Bermuda, and Sun Life Bermuda. The local subsidiaries of both Sun Life and Manulife, in addition to domestic | | | | | | | | | | | Annual Report on Form 20F2018 | | |
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insurers such as AIA, Great Eastern Life, Singapore Life, Generali, AXA, and FWD, are however increasingly developing very competitive offerings for the samethis market segment. Regulation and supervision Aegon Insights keeps abreast of all relevant changes or proposed changes to regulations in all of its markets. China: Aegon THTF The insurance industry in China is regulated by the China Banking and Insurance Regulatory Commission (CBIRC). During 2018,2019, the CBIRC’s main focus was on strengthening weak links, tightening supervision, deepening reforms, acceleratingopening-up of the sector and joint supervision. Consequently, The CBIRC increased supervision on liquidity risks, solvency risks, product risks, sales practices and anti-money laundering. It also reformed regulations around foreign investment and selling insurance online. India: Aegon Life Indian life insurance companies are regulated by the Insurance Regulatory and Development Authority of India (IRDAI). The IRDAI regulates, promotes and encourages the orderly growth of insurance and reinsurance businesses in India. Established by the government of India, it safeguards the interests of the country’s insurance policyholders. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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The IRDAI is active in introducing new regulations that focus on protecting policyholders’ interests and exploring avenues to support growth in the industry. Steps initiated by the IRDAI during 20182019 included the issuance of regulationsguidelines with regards to Insurance brokersregistration of insurance marketing firms and corporate governance guidelines on key managerial persons.product pricing. IRDAI has also issued ‘circulars’ that provide additional guidance on information to the insurance policyholders/claimants about Insurance repositoriesvarious insurance policy services, grievance redressal mechanisms, group life insurance products, benefits illustration and electronic issuancemarket conduct. Aegon Life would discontinue products that no longer meet the regulations pertaining to product pricing in the month of insurance policies, point of sale guidelines, transfer of unclaimed amount by policyholders to senior citizen fundNovember 2019 and a roadmap towards risk based supervision of insurance sector. launch /Japan: Aegon Sony Lifere-launch The Financial Services Agency (FSA) is the government agency that supervises all insurance companies products in Japan. New products and major product amendments are filedcompliance with and approved by, the FSA, in addition to general policy provisions, statements of business procedure, and pricing and valuation.
The FSA published the “Principles for Customer-Oriented Business Conduct” to help accumulation of personal financial assets. In addition, the FSA also updated its guideline to enhance risk management by risk-based approach in March 2018, particularly to address issues around anti-money laundering and terrorism financing.regulations.
Hong Kong, Singapore and Bermuda: TLB TLB is incorporated in Bermuda and regulated by the Bermuda Monetary Authority, the integrated regulator of the financial services sector in Bermuda. TLB’s AsiaTLB has branches which are registered and licensed in Hong Kong and Singapore. The insurance industry is regulated by the Hong Kong Insurance Authority (HKIA) in Hong Kong was until June 26, 2017, regulated by the Office of the Commissioner of Insurance (OCI). Changes to the Insurance Companies Ordinance in 2015 provided for the establishment of a new independent insurance authority (IA, which came into operation and started regulating insurance companies in June 2017). The IA is expected to take over the regulation of insurance intermediaries from the three Self-Regulatory Organizations (SROs) through a statutory licensing regime inmid-2019. The insurance industry in Singapore is regulated by the Monetary Authority of Singapore (MAS). in Singapore. The MAS is an integrated regulator that overseessupervises all financial institutions including banks, insurers, capital market intermediaries and financial advisors in Singapore.
Asia: Aegon Insights A broad range of regulations apply to Aegon Insights’ activities. Depending on the precise nature of the activities undertaken and the form of business entity used in the jurisdictions in which Aegon Insights operates, relevant regulations include: marketing/ consultancy business licensing rules, insurance laws, and personal data protection laws. In addition, various regulators also keep oversight of activities undertaken by entities licensed by Aegon Insights. These regulators include the FSA in the Japan, the Office of Insurance Commission in Thailand, the Australian Securities &and Investments Commission in Australia, and the Confederation of Insurance BrokersAuthority in Hong Kong. Aegon Insights keeps abreast of all relevant changes or proposed changes to regulations in all of its markets. Solvency II Solvency II requirements became effective for Aegon Group as of January 1, 2016. Aegon’s Asian insurance activities are included in the Aegon Group Solvency II ratio through Deduction & Aggregation. For TLB, and Japan, Deduction & Aggregation is applied using available and required capital as per the local capital regime. The regulatory regime of Bermuda and Japan were granted full provisional equivalence on December 7, 2015. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 366363 | | | | Additional information Overview –of Aegon Asset Management | | | | | | | | | | | | |
Overview of Aegon Asset Management Aegon Asset Management is an active investment manager that uses its investment management expertise to help people achieve a lifetime of financial security. Organizational structure Aegon Asset Management is a provider of investment management expertise to institutional and private investors around the world. It has offices in the United States, the Netherlands, the United Kingdom, Hong Kong, Japan, Germany, Hungary and Spain. It operatesoperated under three main brands:brands in 2019: | ◆ | | Aegon Asset Management specializes in providing clients with a range of high-quality investment solutions across asset classes, including fixed income, equities, real estate, absolute return, liability-driven, and multi-asset and balance sheet solutions. A long and successful history of partnership with Aegon’s insurance businesses has enabled Aegon Asset Management to establish experienced investment teams, a solid asset base and proven long-term track records; |
| ◆ | | Kames Capital is aUK-based asset management company that provides fixed income, equities, real estate and multi-asset solutions to both UK and international clients; and |
| ◆ | | TKP InvestmentsTKPI is a Netherlands-based fiduciary manager that is recognized for its manager selection and tailored advice on balance sheet solutions for the pension market. |
In December 2019, it was decided to retire the Kames Capital and TKP Investments brand and move to the globally recognized Aegon Asset Management brand. In addition, Aegon Asset Management operates two key strategic partnerships: | ◆ | | In China, Aegon Asset Management owns 49% of Aegon Industrial Fund Management Company (AIFMC), a Shanghai-based asset manager that offers mutual funds, segregated accounts and advisory services; and |
| ◆ | | In France, Aegon Asset Management owns 25% of La Banque Postale Asset Management. La Banque Postale Asset Management offers a comprehensive range of investment strategies to French institutional clients, and to private investors through La Banque Postale group’s retail banking network. |
Aegon Asset Management’s main operating entities are Aegon USA Investment Management LLC, Aegon USA Realty Advisors LLC, Aegon Investment Management B.V. (the Netherlands), Kames Capital plc (United Kingdom) and Aegon Hungary Asset Management Company Zrt. Depending on regulatory requirements and the local business environment, boards of localThe operating entities may include oversight through independentnon-executive directors.Aegon Investment Management B.V. and TKP Investments B.V. have been merged as per January 1, 2019. In December 2019, it was decided to establish a globally integrated structure, with a simplification of the operating model which featured regional executive committees and to create a global operational management board (Global Board). Strategic direction and global oversight of business performance is executed by the Global Board of Aegon Asset Management, which has both global and local roles and responsibilities. This Boardboard is supported by the Governance Risk & Compliance Committee and the Human Resources Committee, together with a Global Strategic Change Committee.number of sub committees. Members of the Global Board are appointed by Aegon N.V..N.V The Risk Advisory Committee and Remuneration Committee support Aegon’s oversight of Aegon Asset Management. As of January 1, 2018, the activities of Aegon Investment Management B.V. and Kames Capital plc have been governed by a joint European Executive Committee.The-day-to-day management of these two entities is delegated to the European Executive Committee. The statutory boards of Aegon Investment Management B.V. and Kames Capital plc remain ultimately responsible for the entities, and have the duty to oversee the delegated authorities. As part of this integration in Europe, Aegon Asset Management plans to merge the operating entities Aegon Investment Management B.V. and TKP Investments B.V. on January 1, 2019. The brand TKPI and services offered thereunder will continue to exist.
The Target Operating Model program (TOM), which started in January 2018, is a multi-year initiative that will upgrade operational capabilities in Europe and the US in support of Aegon Asset Management’s wider business strategy. The TOM addresses four key themes (capability convergence, data as a service, pace of change and governance) and will deliver a robust data infrastructure, streamlined and upgraded global systems, and operational efficiencies that will enable Aegon Asset Management to become more responsive to changing client needs.
Overview of sales and distribution channels Aegon Asset Management uses a variety of sales and distribution channels in the Americas, Europe and Asia. These include, among others:include: affiliated companies, direct to institutional clients, independent investment advisors, investment consultants, joint ventures and third-party investment platforms. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
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Overview of business lines Aegon Asset Management has three distinct business lines. GeneralThe general account business consists of funds held on the balance sheet of Aegon insurance companies to meet policyholder liabilities typically when the insurer has given the policyholder a guarantee. These assets are managed to match the insurers’ liabilities. As a rule, general account assets are managed in a closed architecture structure, and the main asset classes are fixed income and mortgage loans. Furthermore, Aegon Asset Management manages Aegon’sthe general account derivatives book of Aegon the Netherlands.
The majority of third-partyThird-party business sourced through affiliates for the majority consists of funds sold by Aegon insurers through which the policyholder’s return is determined by the investment return of the fund. These funds have various legal structures, and are usually managed against a benchmark or peer group target. The main asset classes include fixed income, equities, real estate, mortgage
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loans and alternatives. In the United States and the United Kingdom, a significant element of Affiliate Sales is conducted on an open architecture basis, where Aegon Asset Management competes with external fund managers.basis. For third-party business sourced externally, Aegon Asset Management distributes its investment strategies directly to its clients. The wholesale businesses typically sell collective investment vehicles (mutual funds) to customers through wholesale distributors and independent intermediaries. The main asset classes are fixed income and equities, and the funds are usually managed against a benchmark or peer group target. The institutional businesses typically sell tailored services to large corporations or pension funds. Aegon Asset Management employs a full range of asset classes, and manages the funds against objectives, targets and risk profiles agreed with clients. Aegon Asset Management offers both absolute and relative return products. Via its brand TKPI, Aegon Asset Management offers fiduciary services and manager selection propositions targeted at institutional investors. Competition Aegon Asset Management competes with other asset management companies to acquire business from open-architecture Aegon insurance units and third parties. In the United States, Aegon Asset Management focuses on offering investors fixed income, balance sheet solutions and real estate-related strategies. It works directly with pension funds, endowments and foundations as well as investment consultants within the institutional market. In the wholesale market, Aegon Asset Management works as asub-advisor with its insurance company affiliates and other partners in order to offer competitive and relevant strategies for its client base. It also works with consultants and other partners to offer products to third-party institutions. Primary competitors in the United States include AllianceBernstein, BlackRock, Invesco, JP Morgan, Legg Mason, Principal, PIMCO and Prudential. In the Netherlands, Aegon Asset Management provides a wide range of investment strategies and solutions to institutional and wholesale clients, and through its affiliated insurance company to retail clients. In the third-party institutional market, it competes with domestic and global asset managers as well as with fiduciary and balance sheet managers. Competition continues to be strong in the institutional market due to both the ongoing consolidation of pension funds and the growing service requirements of pension fund clients. Primary competitors in the Netherlands include BlackRock, JP Morgan, Nationale Nederlanden Investment Partners, Robeco and Kempen. In the United Kingdom, Aegon Asset Management focuses on offering investors fixed income, equities, real estate, multi-asset, absolute return and ethical investments. It serves institutional clients and their advisors, and is active in the wholesale market. Primary competitors in the UK include Ashmore, BlackRock, Henderson Global Investors and Standard Life Aberdeen. In mainland China, Aegon Industrial Fund Management Company focuses on Chinese equity, fixed income, and money market strategies. It competes against a wide range of locally-basedlocal based asset managers including Alibaba’s Yuebao fund, China Universal Asset Management, E Fund Management, Fullgoal Fund Management, and Yinhua Fund Management. In France, La Banque Postale Asset Management competes for private investors through La Banque Postale’s retail banking network, with a focus on new multi-asset strategies. In the institutional market, it also offers strategies from Aegon Asset Management businesses in order to compete with large local asset managers and specialized international competitors. In France, primary competitors include Amundi Asset Management, AXA Investment Management, BNP Paribas Investment Partners and Natixis Global Asset Management. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 368 | | Additional information Overview – Aegon Asset Management | | | | | | |
Regulation and supervision Regulation of asset management companies in general differs to that of insurers. Aegon Asset Management’s global holding company, Aegon Asset Management Holding B.V., is authorized to hold substantial holdings in several EU investment firms and as such is a regulated by the Dutch Central Bank (DNB) as a financial holding company according to the Dutch Financial Supervision Act (Wft).company. Local operating entities are regulated by their local regulators, most notably the Dutch Authority for the Financial Markets (AFM) (conduct of business supervision) and the DNB (prudential supervision) for Dutch-based entities, the Financial Conduct Authority (FCA) for Kames Capital, and the Securities & Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) for theUS-based entities. Kames Capital is also regulated by the SEC for its activities in the US market. From a regulatory perspective, the asset management activities of theUS-based entities of Aegon Asset Management in the United States do not fall under the responsibility of Aegon Asset Management Holding B.V., as these entities are subsidiaries of Transamerica Corporation. MiFID II MIFID II requirements became effective for Aegon Asset Management as of January 3, 2018, and the Company adheres to the regulation. In line with most of its peers, the European Aegon Asset Management entities (Aegon Investment Management B.V., and Kames Capital plc and TKP Investments B.V.) have decided in principle to pay external research costs by their own means. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 369365 | | | | Additional information Risk factors Aegon N.V. | | | | | | | | | | | | |
Risk factors Aegon N.V. Aegon faces numerous risks, some of which may arise from internal factors, such as inadequate compliance systems and operational change management. Others may arise from external factors, such as developments in financial markets, the business and/or political environment, economic trends, politics and regulations. These risks, whether internal or external, may materially and adversely affect the Company´sCompany’s operations, its earnings, the value of its investments, the sale of certain products and services or its ability to fulfilfulfill its obligations in respect of securities issued or guaranteed by it. The market price of Aegon securities could decline due to any of the risks described in this section and investors could lose some or all of the value of their investments. Additional risks of which Aegon is not presently aware could also materially and adversely affect its operations and share price. The business of an international financial services group such as Aegon is inherently exposed to risks that may only become apparent with the benefit of hindsight. The next two sections provide a description ofgroup the risk factors relatinginto different categories based on the origin of the risk, while recognizing that the identified risk factor can have broader consequences, e.g. developments on financial markets (included under financial risks) can impact policyholder behavior (included under underwriting risk). The categories used are: 1) financial risks, 2) underwriting risks, 3) operational risks, 4) political, regulatory and supervisory risks, and 5) legal and compliance risks. Where possible the risk factors are presented in order of relevance. For instance financial risks and underwriting risks are of more significance than operational risks (in terms of required capital) and, within the category financial risks, fixed income risks and interest rate risks are of more significance than equity risk (due to Aegon´scomposition of the general account of Aegon) and currency risk. However, the order should not be seen as more than indicative as the likelihood of occurrence or the potential magnitude of the consequences of the materialization of risks often cannot be determined by a degree of certainty. Furthermore, risks with a low likelihood can have a large impact should they materialize. The described risk factors relate to Aegon’s businesses and to Aegon’s securities, including its common shares, of which Aegon is aware and that it considers material. The order in which theFurthermore, described risk factors are presented is not indicative of their likelihood of occurrence or the potential magnitude of their financial consequences. Risks relating to Aegon’s business
The following covers risk factors that may affect Aegon´sAegon’s businesses and operations in normal market circumstances, as well as risk factors that are particularly relevant to Aegon in periods of significant economic uncertainty.
Additional risks to which Aegon is subject include, but are not limited to, the factors mentioned under ‘Forward-looking statements’, and the risks of Aegon’s businesses described elsewhere in this Annual Report. Financial risks General economic uncertainty and financial crisis Disruptions in the global financial markets and general economic conditions may affect, and could have materially adverse effectsaffects on Aegon´sAegon’s businesses, results of operations, cash flows and financial condition. Aegon’s results of operations and financial condition may be materially affected from time to time by uncertainty, fluctuations or negative trends in general economic conditions, such as economic growth, levels of unemployment, consumer confidence, inflation and interest rate levels in the countries in which Aegon operates. The global financial crisis has shown that financial markets can experience extreme volatility and disruption. Any disruptions or downturns in the global financial markets or general economic conditions may result in reduced demand for Aegon’s products as well as impairments and reductions in the value of the assets in Aegon’s general account, separate account, and company pension schemes, among other assets. Aegon may also experience a higher incidence of claims and unexpected policyholder behavior such as unfavorable changes in lapse rates. Aegon’s policyholders may choose to defer or stop paying insurance premiums, which may impact Aegon’s businesses, results of operations, cash flows and financial condition, and Aegon cannot predict with any certainty if or when such actions may occur. Governmental action in the United States, the Netherlands, the United Kingdom, the European Union and elsewhere to address any of the above may impact Aegon’s businesses. Aegon cannot predict the effect that these or other government actions as well as actions by the European Central Bank (ECB) or the Federal Reserve may have on the financial markets or on Aegon’s businesses, results of operations, cash flows and financial condition. Declines in value and defaults in Aegon’s debt securities, private placements and mortgage loan portfolios held in Aegon’s general and separate accounts, or the failureIlliquidity of certain counterparties,investment assets may adversely affect Aegon’s profitability and shareholders’ equity.prevent Aegon from selling investments at fair prices in a timely manner.
CreditAegon must maintain sufficient liquidity to meet short term cash demand under normal circumstances, as well as in crisis situations. Liquidity risk is the riskinherent in much of loss resulting from the default by, or failure to meet contractual obligations of issuersAegon’s businesses. Each asset purchased and counterparties. Aegon also considers credit risk to include spread risk, that is, the value of a bond declines due to a general widening of credit spreads. For general account products, Aegon typically bears the risk for investment performance equaling the return of principalliability sold has unique liquidity characteristics. Some liabilities can be surrendered, while some assets, such as privately placed loans, mortgage loans, real estate and interest. Aegon is exposed to credit risk on its general account fixed-income portfolio (debt securities, mortgages and private placements),over-the-counter (OTC) derivatives and reinsurance contracts. In addition, financial institutions acting as a counterparty on derivatives may not fulfil their obligations. Default by issuers and counterparties on their financial obligations may be due to, among other things, bankruptcy, lack of liquidity, market downturns or operational failures, and the collateral or security they provide may prove inadequate to cover their obligations at the time of the default. Losses in excess of predicted losses due to any such default or series of defaults by issuers or counterparties may have a material adverse effect on Aegon’s results of operations and financial position.
Additionally, Aegon is indirectly exposed to credit risk on the investment portfolios underlying separate account liabilities. Changes to credit risk can result in separate account losses, which increase the probability of future loss events. In the United States andlimited
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partnership interests, are to some degree illiquid. In depressed markets, Aegon may be unable to sell or buy significant volumes of assets at quoted prices. Any security Aegon issues in significant volume may be issued at higher financing costs if funding conditions are impaired. The necessity to issue securities can be driven by a variety of factors, for instance Aegon may need liquidity for operating expenses, debt servicing and the Netherlands separate account products can include guaranteesmaintenance of capital levels of insurance subsidiaries. Although Aegon manages its liquidity position for extreme events, including greatly reduced liquidity in capital markets, if these conditions were to persist for an extended period of time, Aegon may need to sell assets substantially below prices at which protect policyholders against somethey are currently recorded to meet its insurance obligations. Aegon makes use of (bilateral and syndicated) credit facilities to support repayment of amounts outstanding under Aegon’s commercial paper programs and to serve as additional sources of liquidity. An inability to access these credit facilities, for example due tonon-compliance with conditions for borrowing or allthe default of the downside risks in their separate account portfolio. Reduced separate account values also decrease fee income and may accelerate deferred policy acquisition costs (DPAC) amortization. Reconsideration of assumptions might also affect the DPAC amortization schedule. These factors maya facility provider under stressed market circumstances, could have a materialan adverse effect on Aegon’s resultsability to meet liquidity needs and to comply with contractual and other requirements. Many of operations and financial position. Aegon’s investment portfolio contains, among other investments, Dutch government bonds, US Treasury, agency and state bonds, other government issued securities and corporate bonds. Especially in a weak economic environmentderivatives transactions require Aegon may incur significant investment impairments due to defaults and overallgrant collateral against declines in the capital markets. Further, excessive defaults or other reductions in thefair value of these securities and loans may have a materially adverse effect on Aegon’s businesses, results of operations, cash flows andcontracts. Volatile financial condition. A decline in equity markets may significantly increase requirements to grant collateral and adversely affect Aegon´s profitability and shareholders´ equity, sales of savings and investment products, and the amount of assets under management.
Aegon and its customers run the risk that the market value of its equity investments declines. Exposure to equity 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 policyholders’ accounts for insurance and investment contracts (such as variable annuities, unit-linked products and mutual funds) where funds are invested in equities. Although most of the risk remains with the policyholder, guarantees within certain products may transfer some or all of this risk to Aegon. Lower investment returns also reduce the asset management fee that Aegon earns on the asset balance in these products and prolonged investment under-performance may cause existing customers to withdraw funds and potential customers not to grant investment mandates.
Someliquidity position. Further, a downgrade of Aegon’s insurance and investment contract businesses have minimum return or accumulation guarantees, which require Aegon to establish reserves to fund these future guaranteed benefits when equity market returns do not meet or exceed these guarantee levels. Aegon’s reported results under International Financial Reporting Standards, are also at risk if returns are not sufficient to allow amortization of DPAC, which may impact the reported net income as well as shareholders’ equity. Volatile or poor market conditionscredit ratings may also significantly reduce the demand for some of Aegon’s savings and investment products, which may lead to lower sales and net income.result in additional collateral requirements.
Interest rate risk Interest rate volatility or sustained low interest rate levels may adversely affect Aegon´sAegon’s profitability and shareholders´shareholders’ equity. Aegon is exposed to interest rate risk as both its assets and liabilities are sensitive to movements in long- and short-term interest rates as well as to changes in the volatility of interest rates. During periods of decreasing interest rates or sustained low interest rates, as experienced in recent years, Aegon may not be able to preserve margins due to the existence of minimum interest rate guarantees and minimum guaranteed crediting rates provided in policies. Also, investment earnings may be lower because the interest earnings on new fixed-income investments are likely to have declined with the market interest rates. A prolonged low interest rate environment may also result in a lengthening of maturities of the policyholder liabilities from initial estimates, due to lower policy lapses and longer duration of annuities. In-force life insurance and annuity policies may be relatively more attractive to consumers due tobuilt-in minimum interest rate guarantees, resulting in increased premium payments on products with flexible premium features and a higher percentage of insurance policies remaining in forceyear-to-year. The majority of assets backing the insurance liabilities are invested in fixed-income securities. Aegon manages its investments and derivative portfolio, considering a variety of factors, including the relationship between the expected duration of its assets and liabilities. However, if interest rates remain low, the yield earned upon reinvesting interest payments from current investments, or from their sale or maturation, may decline. Reinvestment at lower yields may reduce the spread between interest earned on investments and interest credited to some of Aegon’s products and accordingly net income may decline. In addition, borrowers may prepay or redeem fixed maturity investments or mortgage loans in Aegon’s investment portfolio in order to borrow at lower rates. Aegon can lower crediting rates on certain products to offset the decrease in spread. However, its ability to lower these rates may be limited by contractually guaranteed minimum rates or competition. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 371 | | Additional information Risk factors Aegon N.V. | | | | | | |
Depending on economic developments, interest rates for securities with shorter maturities may remain at low or even negative levels for a prolonged period. In such an environment, an anchored expectation of low inflation or deflation could further push down the longer end of the interest rate curve which could have significant implications for Aegon’s operations and financial results. The profitability of Aegon’s spread-based businesses depends in large part upon the ability to manage interest rate risk, credit spread risk and other risks inherent in the investment portfolio. Aegon may not be able to successfully manage interest rate risk, credit spread risk and other risks in the investment portfolio or the potential negative impact of those risks. The sensitivity of Aegon’s net income and shareholders’ equity to a change in interest rates is provided in the notes to the consolidated statements, note 4 Financial risks, section “Interest‘Interest rate risk”risk’ of Aegon’s Annual Report 2018.2019. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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Rapidly rising interest rates may adversely affect Aegon’s profitability and available liquidityliquidity. In periods of rapidly increasing interest rates, policy loans, surrenders and withdrawals may and usually do increase. Premiums in flexible premium policies may decrease as policyholders seek investments with higher perceived returns. This activity may result in cash payments by Aegon requiring the sale of invested assets at a time when the prices of those assets are affected adversely by the increase in market interest rates. This may result in realized investment losses. These cash payments to policyholders also result in a decrease in total invested assets and net income. Early withdrawals may also require accelerated amortization of DPAC, which in turn reduces net income. Hedging against interest rate movements may change these effects significantly. Hedging programs are in place that are designed to manage the risks within the limits defined as part of the financial risk management policies within Aegon Group’s risk strategy. The actual impact of the hedging programs is dependent on the effectiveness of the design of those programs as well as real time movements of financial markets. If hedging programs are not effective, Aegon’s results of operation, cash flow and financial position could be materially and adversely affected. In general, if interest rates rise, there will be unrealized losses on assets carried at fair value that will be recorded in other comprehensive income(available-for-sale investments) or as negative income (investments at fair value through profit or loss) under IFRS. This is inconsistent with the IFRS accounting on much of Aegon’s liabilities, where corresponding economic gains from higher interest rates do not affect shareholders’ equity or income in the shorter term. Over time, the short-term reduction in shareholders’ equity and income due to rising interest rates would be offset in later years, all else being equal. Increased withdrawals and the need to post margin in relation to interest rate swaps when rates rise rapidly will put a strain on Aegon’s available liquidity. Aegon’sAegon takes this risk into account in its liquidity risk strategy tests this scenarioand stress test. Credit and default risk Declines in value and defaults in Aegon’s debt securities, private placements and mortgage loan portfolios held in Aegon’s general and separate accounts, or the failure of certain counterparties, may adversely affect Aegon’s profitability and shareholders’ equity. Credit risk is the risk of loss resulting from the default by, or failure to ensuremeet contractual obligations of, issuers and counterparties. Aegon also considers credit risk to include spread risk, that there is, sufficient liquidity available nowthe value of a bond declines due to withstand a rapid rise in rates. general widening of credit spreads. For general account products, Aegon typically bears the risk for investment performance equaling the return of principal and interest. Aegon is exposed to credit risk on its general account fixed-income portfolio (debt securities, mortgages, small and medium sized entities (SME) & consumer loans and private placements),over-the-counter (OTC) derivatives and reinsurance contracts. In addition, financial institutions acting as a counterparty on derivatives may not manage risks associated with the reformfulfill their obligations. Default by issuers and replacementcounterparties on their financial obligations may be due to, among other things, bankruptcy, lack of benchmark rates effectively. The reform and expected replacement of IBORs (Interbank Offered Rates) such as Euribor, Eonia and LIBOR with alternative benchmark rates introduces a number of risks for Aegon, its clients,liquidity, market downturns or operational failures, and the financial services industry more widely. This includes, but is not limited to:
◆ | | Legal risks, as changes required to documentation for new and existing transactions may be required; |
◆ | | Financial risks, arising from any changes in the valuation of financial instruments linked to benchmark rates; |
◆ | | Pricing risks, as changes to benchmark indices could impact pricing mechanisms on some instruments; |
◆ | | Operational risks,collateral or security they provide may prove inadequate to cover their obligations at the time of the default. Losses in excess of predicted losses due to the potential requirement to adapt informational technology systems, trade reporting infrastructure and operational processes; and |
◆ | | Conduct risks, relating to communication with potential impact on customers, and engagement during the transition period. |
Various supranational institutions, central banks, regulators, benchmark administrators and industry working groups play a role in the benchmark reform and the preparation for the replacement of IBORs. At this moment there is still a lot of uncertainty around a timetable and mechanisms for implementation. Accordingly, it is not currently possible to determine whether, or to what extent, any such changes would affect Aegon. However, the implementationdefault or series of alternative benchmark ratesdefaults by issuers or counterparties may have a material adverse effect on Aegon’s business,results of operations and financial condition, customersposition.
Additionally, Aegon is indirectly exposed to credit risk on the investment portfolios underlying separate account liabilities. Changes to credit risk can result in separate account losses, which increase the probability of future loss events. In the United States and operations.the 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 deferred policy acquisition costs (DPAC) amortization. Reconsideration of assumptions might also affect the DPAC amortization schedule. These factors may have a material adverse effect on Aegon’s results of operations and financial position. Aegon’s investment portfolio contains, among other investments, Dutch government bonds, US Treasury, agency and state bonds, other government issued securities and corporate bonds. Especially in a weak economic environment Aegon may incur significant investment impairments due to defaults and overall declines in the capital markets. Further, excessive defaults or other reductions in the value of these securities and loans may have a materially adverse effect on Aegon’s businesses, results of operations, cash flows and financial condition. A downturn in the real estate market may adversely impact valuations and cash flows. Aegon’s investment portfolio has a large exposure to the residential real estate market in the Netherlands through the residential mortgages sourced by Aegon and the AMVEST funds. Non market impacts assumed by Aegon the Netherlands include lower illiquid returns and lower margin forfeited due to higher prepayment in the mortgage portfolio in the event of lower interest rates, where higher prepayments results in market value losses and lower reinvestment yields. Furthermore, a general downturn in the real-estate | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 372368 | | | | Additional information Risk factors Aegon N.V. | | | | | | | | | | | | |
market can not only lead to lower valuation of assets and increased payment defaults, but also detrimentally affect the cash-flows of the company’s illiquid strategy including AMVEST, which is exposed to the Dutch residential rental market. The default of a major market participant may disrupt the markets and may affect Aegon’s business, financial condition, liquidity, operations and prospects. The failure of a sufficiently large and influential financial institution, or other market participant including a government issuer, may disrupt securities markets or clearing and settlement systems in Aegon’s markets. This may cause market declines or volatility. Such a failure may lead to a chain of defaults that may adversely affect Aegon and Aegon’s contract counterparties. In addition, such a failure may impact future product sales as a potential result of reduced confidence in the insurance industry. The default of one or more large international financial institutions, which may result in disruption or termination of their cash, custodial and/ or and administrative services, may also have a material adverse impact on Aegon’s ability to run effective treasury and asset management operations. Even the perceived lack of creditworthiness of a government or financial institution (or a default by any such entity) may lead to market-wide liquidity problems and losses or defaults by Aegon or by other institutions. This risk is sometimes referred to as ‘systemic risk’ and may adversely affect financial intermediaries, such as clearing members or futures commissions merchants, clearing houses, banks, securities firms and exchanges with which Aegon interacts on a daily basis and financial instruments of governments which Aegon invests in. Systemic risk could have a material adverse effect on Aegon’s ability to raise new funding and on its business, financial condition, results of operations, liquidity and/or prospects. In addition, such distress or failure could impact future product sales as a potential result of reduced confidence in the financial services industry. Reinsurers to which Aegon has ceded risk may fail to meet their obligations. Aegon’s insurance subsidiaries cede premiums to other insurers under various agreements that cover individual risks, group risks or defined blocks of business, on aco-insurance, yearly renewable term, excess or catastrophe excess basis. The purpose of these reinsurance agreements is to spread the risk and minimize the effect of losses. The amount of each risk retained depends on an evaluation of the specific risk, which is subject, in certain circumstances, to maximum limits based on the characteristics of coverage. Under the terms of the reinsurance agreements, the reinsurer agrees to reimburse for the ceded amount in the event a covered claim is paid. However, Aegon’s insurance subsidiaries remain liable to their policyholders for ceded insurance if any reinsurer fails to meet the obligations assumed by it. A bankruptcy or insolvency or inability of any of Aegon’s reinsurance counterparties to satisfy its obligations may have a materially adverse effect on Aegon’s financial position and results of operations. Refer to Schedule IV of Aegon’s Annual Report 2019 for a table showing life insurance in force amounts and premiums on a direct, assumed and ceded basis. A downgrade in Aegon’s ratings may increase policy surrenders and withdrawals, adversely affect relationships with distributors, and negatively affect Aegon’s results. Claims-paying ability and financial strength ratings are factors in establishing the competitive position of insurers. A rating downgrade (or a change in outlook indicating the potential for such a downgrade) of Aegon or any of its rated insurance subsidiaries may, among other things, materially increase the number of policy surrenders and withdrawals by policyholders of cash values from their policies. These withdrawals may require the sale of invested assets, including illiquid assets, at a price that may result in realized investment losses. These cash payments to policyholders would result in a decrease in total invested assets and a decrease in net income. Among other things, early withdrawals may also cause Aegon to accelerate amortization of deferred policy acquisition costs (DPAC), reducing net income. Aegon has experienced downgrades and negative changes to its outlook in the past, and may experience rating and outlook changes in the future. A downgrade or potential downgrade, including changes in outlook, may result in higher funding costs and/or affect the availability of funding in the capital markets. In addition, a downgrade may adversely affect relationships with broker-dealers, banks, agents, wholesalers and other distributors of Aegon’s products and services, which may negatively impact new sales and adversely affect Aegon’s ability to compete. A downgrade of Aegon’s credit ratings will have an effect of increased fees on credit facilities and may result in higher funding costs on future long-term debt funding transactions and may affect its ability to obtain reinsurance contracts at reasonable prices or at all. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 369 | | | | Additional information Risk factors Aegon N.V. | | | | | | | | | | |
Aegon cannot predict what actions rating agencies may take, or what actions Aegon may take in response to the actions of rating agencies. As with other companies in the financial services industry, Aegon’s ratings may be downgraded at any time and without notice by any rating agency. Equity risk A decline in equity markets may adversely affect Aegon’s profitability and shareholders´ equity, sales of savings and investment products, and the amount of assets under management. Aegon and its customers run the risk that the market value of its equity investments declines. Exposure to equity 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 policyholders’ accounts for insurance and investment contracts (such as variable annuities, unit-linked products and mutual funds) where funds are invested in equities. Although most of the risk remains with the policyholder, guarantees within certain products may transfer some or all of this risk to Aegon. Lower investment returns also reduce the asset management fee that Aegon earns on the asset balance in these products and prolonged investment under-performance may cause existing customers to withdraw funds and potential customers not to grant investment mandates. Some of Aegon’s insurance and investment contract businesses have minimum return or accumulation guarantees, which require Aegon to establish reserves to fund these future guaranteed benefits when equity market returns do not meet or exceed these guarantee levels. Aegon’s reported results under International Financial Reporting Standards as adopted by the European Union (IFRS), are also at risk if returns are not sufficient to allow amortization of DPAC, which may impact the reported net income as well as shareholders’ equity. Volatile or poor market conditions may also significantly reduce the demand for some of Aegon’s savings and investment products, which may lead to lower sales and net income. Currency risk Fluctuations in currency exchange rates may affect Aegon´sAegon’s reported results of operations. As an international group, Aegon is subject to foreign currency translation risk. Foreign currency exposure also exists when policies are denominated in currencies other than Aegon’s functional currency. Currency risk in the investment portfolios backing insurance and investment liabilities are managed using asset liability matching principles. Assets allocated to equity are kept in local currencies to the extent shareholders’ equity is required to satisfy regulatory and Aegon’s self-imposed capital requirements. Therefore, currency exchange rate fluctuations may affect the level of Aegon’s consolidated shareholders’ equity as a result of translation of the equity of Aegon’s subsidiaries into euro, Aegon’s reporting currency. Aegon holds the remainder of its capital base (capital securities, subordinated and senior debt) in various currencies in amounts that are targeted to correspond to the book value of Aegon’s business units. This balancing is intended to mitigate currency translation impacts on equity and leverage ratios. Aegon may also hedge the foreign exchange component of expected dividends from its principal business units that maintain their equity in currencies other than the euro. To the extent the foreign exchange component of expected dividends is not hedged or actual dividends vary from expected, Aegon’s net income and shareholders’ equity may fluctuate. As Aegon has significant business segments in the Americas and in the United Kingdom, the principal sources of exposure from currency fluctuations are from the differences between the US dollar and the euro and between the UK pound and the euro. Aegon may experience significant changes in net income and shareholders’ equity because of these fluctuations. The sensitivity of Aegon’s net income and shareholders’ equity to foreign exchange translation risk is provided in the notes to the financial statements, note 4 Financial risks, section “Currency‘Currency exchange risks”risks’ of Aegon’s Annual Report 2018.2019. Illiquidity of certain investment assets may prevent Aegon from selling investments at fair prices in a timely manner.Hedging risk
Aegon must maintain sufficient liquidity to meet short term cash demand under normal circumstances, as well as in crisis situations. Liquidity risk is inherent in much of Aegon’s businesses. Each asset purchased and liability sold has unique liquidity characteristics. Some liabilities can be surrendered, while some assets, such as privately placed loans, mortgage loans, real estate and limited partnership interests, are to some degree illiquid. In depressed markets, Aegon may be unable to sellmanage Aegon’s risks successfully through derivatives.
Aegon is exposed to changes in the fair value of its investments, the impact of interest rate, equity markets and credit spread changes, currency fluctuations and changes in mortality and longevity. Aegon uses common financial derivative instruments, such as swaps, options, futures and forward contracts to hedge some of the exposures related to both investments backing insurance products and Company borrowings. Aegon may not be able to manage the risks associated with these activities successfully through the use of derivatives. In addition, a counterparty may fail to honor the terms of its derivatives contracts with Aegon. Clearing members and clearing houses may terminate their derivatives contracts with Aegon. Aegon’s inability to manage risks successfully through | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 370 | | | | Additional information Risk factors Aegon N.V. | | | | | | | | | | |
derivatives, a counterparty’s failure to honor Aegon’s obligations or buy significant volumesthe systemic risk that failure is transmitted from counterparty to counterparty may each have a material adverse effect on Aegon’s businesses, results of assetsoperations and financial condition. Aegon uses the London Clearing House (LCH) as a central counterparty to clear most of its derivatives transactions. In December 2018, the European Commission declared the system of supervision in the United Kingdom to be equivalent to that of the European Union for 12 months following Brexit. If following this period LCH has not been granted recognition as a third country central counterparty by the European Securities Market Authority (ESMA), new and existing derivatives cleared through LCH and executed by EU27 entities, may not comply with EMIR regulations. If this situation materializes then it is possible that existing trades will have to be terminated and replaced by new trades to be cleared by an authorized clearing house located in the EU27. This could lead to additional costs and may impair the effectiveness of Aegon’s hedging programs. Risks relating to Aegon’s common shares Aegon’s share price could be volatile and could drop unexpectedly, and investors may not be able to resell Aegon’s common shares at quoted prices. Any security Aegon issues in significant volume may be issued at higher financing costs if funding conditions are impaired.or above the price paid.
The necessityprice at which Aegon’s common shares trade is influenced by many factors, some of which are specific to issue securities canAegon and Aegon’s operations, and some of which are related to the insurance industry and equity markets in general. As a result of these factors, investors may not be driven byable to resell their common shares at or above the price paid for them. In particular, the following factors, in addition to other risk factors described in this section, may have a varietymaterial impact on the market price of factors, for instance Aegon’s common shares: | ◆ | | Investor perception of Aegon as a company; |
| ◆ | | Actual or anticipated fluctuations in Aegon’s revenues or operating results; |
| ◆ | | Announcements of intended acquisitions, disposals or financings, or speculation about such acquisitions, disposals or financings; |
| ◆ | | Changes in Aegon’s dividend policy, which may result from changes in Aegon’s cash flow and capital position; |
| ◆ | | Sales of blocks of Aegon’s shares by significant shareholders, including Vereniging Aegon; |
| ◆ | | A downgrade or rumored downgrade of Aegon’s credit or financial strength ratings, including placement on credit watch; |
| ◆ | | Potential litigation or regulatory actions involving Aegon or the insurance industry in general; |
| ◆ | | Changes in financial estimates and recommendations by securities research analysts; |
| ◆ | | Fluctuations in capital markets, including foreign exchange rates, interest rates and equity markets; |
| ◆ | | The performance of other companies in the insurance sector; |
| ◆ | | Regulatory developments in the United States, the Netherlands, the United Kingdom, and other countries in which Aegon operates; |
| ◆ | | International political and economic conditions, including the effects of terrorist attacks, military operations and other developments stemming from such events, and the uncertainty related to these developments; |
| ◆ | | News or analyst reports related to markets or industries in which Aegon operates; and |
| ◆ | | General insurance market conditions. |
Aegon and its significant shareholders may offer additional common shares in the future, and these and other sales may adversely affect the market price of the outstanding common shares. Aegon may need liquiditydecide to offer additional common shares in the future, for operating expenses, debt servicing and the maintenance ofexample, to strengthen Aegon’s capital levels of insurance subsidiaries. Although Aegon manages its liquidity position for extreme events, including greatly reduced liquidity in capital markets, if these conditions wereresponse to persist for an extended period of time, Aegon may need to sell assets substantially below prices at which they are currently recorded to meet its insurance obligations. Aegon makes use of (bilateral and syndicated) credit facilitiesregulatory changes or to support repaymentan acquisition.
An additional offering of amounts outstanding undercommon shares by Aegon, the restructuring of Aegon’s commercial paper programs and to serve as additional sourcesshare capital, the sales of liquidity. An inability to access these credit facilities, for example due tonon-compliance with conditions for borrowingcommon shares by significant shareholders, or the default of a facility provider under stressed market circumstances, couldpublic perception that an offering or such sales may occur, may have an adverse effect on Aegon’s ability to meet liquidity needs and to comply with contractual and other requirements. Manythe market price of Aegon’s derivatives transactionscommon shares.
Vereniging Aegon, Aegon’s major shareholder, holds a large percentage of the voting shares and therefore has significant influence over Aegon’s corporate actions. Vereniging Aegon holds 32.6% of the voting shares. For details on the shareholding of Vereniging Aegon its developments, the Amended 1983 Merger Agreement and the Voting Rights Agreement – please see the section Major shareholders on pages 324-326. Following the 1983 Amended Merger Agreement between Aegon N.V. and Vereniging Aegon Vereniging Aegon has a call option on common shares B. which Vereniging Aegon may exercise to keep or restore its total stake at 32.6%, irrespective of the circumstances which cause the total shareholding to be or become lower than 32.6%. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 371 | | | | Additional information Risk factors Aegon N.V. | | | | | | | | | | |
As a matter of Dutch corporate law, common shares and common shares B offer equal full voting rights, as they have equal nominal values (EUR 0.12). The financial rights attached to a common share B are 1/40th of the financial rights attached to a common share. The Voting Rights Agreement between Aegon N.V. and Vereniging Aegon ensures that under normal circumstances, i.e. except in the event of a Special Cause, Vereniging Aegon will no longer be able to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in the absence of a Special Cause Vereniging Aegon will cast one vote for every common share it holds and one vote only for every 40 common shares B. It is at the sole discretion of Vereniging Aegon if a Special Cause has occurred. A Special Cause includes the acquisition of a 15% interest in Aegon N.V., a tender offer for Aegon N.V. shares or a proposed business combination by any person or group or persons, whether individually or as a group, other than in a transaction approved by the Executive Board and the Supervisory Board. In the event of a Special Cause, Vereniging Aegon’s voting rights will increase to 32.6% for up to six months. Consequently, Vereniging Aegon may have substantial influence on the outcome of corporate actions requiring shareholder approval. Currency fluctuations may adversely affect the trading prices of Aegon’s common shares and the value of any cash distributions made. Since Aegon’s common shares listed on Euronext Amsterdam are quoted in euros and Aegon’s common shares listed on NYSE New York are quoted in US dollars, fluctuations in exchange rates between the euro and the US dollar may affect the value of Aegon’s common shares. In addition, Aegon declares cash dividends in euros, but pays cash dividends, if any, on Aegon’s shares of New York registry in US dollars based on an exchange rate set the business day following the shareholder meeting approving the dividend. As a result, fluctuations in exchange rates may affect the US dollar value of any cash dividends paid. Perpetual Contingent Convertible Securities (or other securities that permit or require Aegon to grant collateral against declinessatisfy its obligations by issuing common shares) that Aegon may issue could influence the market price for Aegon’s common shares. In April 2019 Aegon issued EUR 500 million Perpetual Contingent Convertible Securities (“PCCS”). Upon the occurrence of a conversion trigger event the PCCS will be converted into common shares of the Company at the prevailing conversion price. A conversion trigger event shall occur if at any time: (i) the amount of eligible own funds items eligible to cover the Solvency Capital Requirement is equal to or less than 75 per cent. of the Solvency Capital Requirement; (ii) the amount of own fund items eligible to cover the Minimum capital requirement is equal to or less than the Minimum Capital Requirement; or (iii) in case the Minimum Capital Requirement is an event, such event occurs; or (iv) a breach of the Solvency Capital Requirement has occurred and such breach has not been remedied within a period of three months from the date on which the breach was first observed. The conversion price was set at EUR 2.994 per common share and will be adjusted upon occurrence of dilutive events like stock splits, extra ordinary dividend or stock dividend, rights issues and others. A reduction of the conversion price will result in an increase in the fair valuenumber of these contracts. Volatile financial marketscommon shares to be issued. The PCCS and other convertible securities may significantly increase requirements to grant collateral and adversely affect its liquidity position. Further, a downgradeinfluence the market for Aegon’s common shares. For example, the price of Aegon’s credit ratingscommon shares may become more volatile and may be depressed by the issue of common shares upon conversion of the PCCS and/or any convertible securities or by the acceleration by investors of any convertible securities (or other such securities) that Aegon may have issued. Negative price developments may also result in additional collateral requirements.from hedging or arbitrage trading activity by holders of such convertible securities that may develop involving such convertible securities (or other such securities) and Aegon’s common shares. Any such developments may negatively affect the value of Aegon’s common shares. Underwriting risks Pricing risk Underwriting risk relates to the products sold by Aegon insurance entities. The underwriting process requires, among others, the setting of assumptions. Aegon’s reported results of operations and financial condition may be affected by differences between actual claims experience and underwriting and reserve assumptions both due to incurred gains/losses and from potential changes in best estimate assumptions that are used to value insurance liabilities. There is a risk that the pricing of Aegon’s products turns out to be inadequate if the assumptions used for pricing do not materialize. Aegon’s earnings depend significantly upon the extent to which actual claims experience is consistent with the assumptions used in setting the prices for Aegon’s products and the extent to which the established technical provisions for insurance liabilities, both IFRS and Solvency II reporting, prove to be sufficient. If actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, Aegon’s income would be reduced. Furthermore, if less favorable claims experience became sustained, Aegon may be required to change its best estimate assumptions with respect to future experience, potentially increasing the technical | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 373 | | Additional information Risk factors Aegon N.V. | | | | | | |
provisions for insurance liabilities, which may reduce Aegon’s income and solvency ratio. In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force have been recorded as assets on the balance sheet and are | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 372 | | | | Additional information Risk factors Aegon N.V. | | | | | | | | | | |
being amortized into income over time. If the assumptions relating to the future profitability of these policies (such as future claims, investment income and expenses) are not realized, the amortization of these costs may be accelerated and may require write-offs should there be an expectation that the costs are not fully recoverable. This may have a materially adverse effect on Aegon’s results of operations and financial condition. Sources of underwriting risk include policyholder behavior (such as lapses or surrender of policies), policy claims (such as mortality and morbidity) and expenses. For some product lines, Aegon is at risk if policy lapses increase, as sometimes Aegon is unable to fully recoverup-front sales expenses despite the presence of commission recoveries or surrender charges and fees. In addition, some policies have embedded options which at times are more valuable to the client if they stay (lower lapses) or leave (higher lapses), which may result in losses to Aegon’s businesses. Aegon sells certain types of policies that are at risk if mortality or morbidity increases, such as term life insurance and accident insurance. Aegon also sells certain other types of policies, such as annuity products, that are at risk if mortality decreases (longevity risk). For example, certain current annuity products, as well as products sold in previous years, have seen their profitability deteriorate as longevity assumptions have been revised upward. If the trend toward increased longevity persists, Aegon’s annuity products may continue to experience adverse effects due to longer expected benefit payment periods. Aegon is also at risk if expenses are higher than assumed. The sensitivity of Aegon’s net income and shareholders’ equity to changes in various underwriting risks is provided in the notes to the consolidated financial statements, note 36 “Insurance contracts”34 ‘Insurance contracts’ of Aegon’s Annual Report 2018.2019. Valuation of Aegon´sAegon’s investments, allowances and impairments is subjective, and discrepant valuations may adversely affect Aegon´sAegon’s results of operations and financial condition. The valuation of many of Aegon’s financial instruments is based on methodologies, estimations and assumptions that are subject to different interpretations. Changes to investment valuations may have a materially adverse effect on Aegon’s results of operations and financial condition. In addition, the determination of the amount of allowances and impairments taken on certain investments and other assets is subjective and based on assumptions, estimations and judgments that may not reflect or correspond to Aegon’s actual experience any of which may materially impact Aegon’s results of operations or financial position. Among other things, changes in assumptions, estimations, judgments or in actual experience may require Aegon to accelerate the amortization of DPAC and value of business acquired, establish a valuation allowance against deferred income tax assets, or to recognize impairment of other assets, any of which may materially adversely affect Aegon’s results and financial condition. Certain of Aegon’s products have guarantees that may adversely affect its results, financial condition or liquidity. Certain products, particularly Aegon’s variable annuity products and defined benefit pension business in the Netherlands, include death benefit guarantees, guarantees of minimum surrender values or income streams for stated periods or for life, which may be in excess of account values. These guarantees are designed, among other things, to protect policyholders against downturns in equity markets and interest rates. As a result, a drop in the value of underlying assets or more volatile markets could result in an increase in the valuation of Aegon’s liabilities associated with these products. An increase in these liabilities may decrease its net income. Aegon uses a variety of hedging and risk management strategies to mitigate these risks. However, these strategies may not be fully effectiveeffective. Restrictions on underwriting criteria and hedging instruments may not fully offset the costs of guarantees or may otherwise be insufficient in relation to its obligations. Estimates and assumptions Aegon makes in connection with hedging activities may fail to fully reflect or correspond to the actual (longer term) exposure in respect of guarantees. Further, unexpected policyholder behavior may cause Aegon’s hedging to be less effective. The factors set forth above could have a material adverse effect on its results of operations, financial condition or liquidity. Aegon may be unable to manage Aegon´s risks successfully through derivatives.
Aegon is exposed to changes in the fair value of its investments, the impact of interest rate, equity markets and credit spread changes, currency fluctuations and changes in mortality and longevity. Aegon uses common financial derivative instruments, such as swaps, options, futures and forward contracts to hedge some of the exposures related to both investments backing insurance products and Company borrowings. Aegon may not be able to manage the risks associated with these activities successfully through the use of derivatives. In addition, a counterpartydata may failaffect Aegon’s ability to honor the termsdo business, its financial position or financial results.
Some countries impose restrictions on particular underwriting criteria, such as gender, or use of its derivatives contracts with Aegon. Clearing membersgenetic test results, for determination of premiums and clearing housesbenefits of insurance products. To date, Aegon has not observed negative financial or business impact due to these restrictions. However, future restrictions could adversely impact Aegon’s operations or financial results. Further developments in underwriting, such as automation and use of additional data, may terminate their derivatives contracts with Aegon. Aegon’s inability to manage risks successfully throughalso be affected by future regulatory developments regarding privacy and use of personal data. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 374373 | | | | Additional information Risk factors Aegon N.V. | | | | | | | | | | | | |
derivatives, a counterparty’s failureProduct development risk
Aegon regularly develops new financial products to honorremain 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 litigation and negative publicity. Aegon may face law suits from customers and experience negative publicity if Aegon’s obligationsproducts result in losses or fail to result in expected gains, regardless of the suitability of products for customers or the systemic riskadequacy of the disclosure provided to customers by Aegon and by the intermediaries who distribute Aegon’s products. New products that failure is transmitted from counterpartyare less well understood and that have less of a historical performance track record may be more likely to counterpartybe the subject of such litigations. Any such litigations may each have a materially adverse effect on Aegon’s results of operations, corporate reputation and financial condition. Reinsurance risk Reinsurance may not be available, affordable or adequate to protect Aegon against losses. As part of Aegon’s overall risk and capital management strategy, Aegon purchases reinsurance for certain risks underwritten by Aegon’s various business segments. Market conditions beyond Aegon’s control determine the availability and cost of the reinsurance protection Aegon purchases. In addition, interpretations of terms and conditions may differ over time from anticipated coverage as contracts extend for decades, which may lead to denials of coverage and potentially protracted litigation, the eventual outcome of which may be uncertain. Catastrophe risk Catastrophic events, which are unpredictable by nature, may result in material losses and abruptly and significantly interrupt Aegon’s business activities. Aegon’s operating results and financial position may be adversely affected by volatile natural andman-made disasters such as hurricanes, windstorms, earthquakes, terrorism, riots, fires and explosions, and other catastrophes. Over the past several years, changing weather patterns and climatic conditions have added to the unpredictability and frequency of natural disasters in certain parts of the world and created additional uncertainty as to future trends and exposure. Aegon is also exposed to the risk of a pandemic (such as Asian Flu, SARs, orCOVID-19) occurring in one of the countries in which Aegon operates or globally. Generally, Aegon seeks to reduce its exposure to these events through individual risk selection, monitoring risk accumulation, and purchasing reinsurance, as well as strong health and safety practices to protect employees. However, such events may lead to considerable financial losses to Aegon’s businesses. These catastrophic events may also lead to adverse market movements which increase the adverse impacts on Aegon’s financial position. Furthermore, natural disasters, pandemics, terrorism, civil unrest, military actions and fires may disrupt Aegon’s operations and result in significant loss of property, key personnel and information about Aegon and its clients. If its business continuity plans have not included effective and sufficient contingencies for such events, Aegon may experience business disruption and damage to corporate reputation and financial condition for a substantial period of time. Operational risks Business risk Competitive factors may adversely affect Aegon’s market share. Competition in Aegon’s business segments is based on service, product features, price, commission structure, financial strength, claims paying ability, ratings and name recognition. Aegon faces intense competition from a large number of other insurers, as well asnon-insurance financial services companies such as banks, broker-dealers and asset managers, for individual customers, employers, other group customers, agents and other distributors of insurance and investment products. Consolidation in the global financial services industry can enhance the competitive position of some of Aegon’s competitors by broadening the range of their products and services, and increasing their distribution channels and their access to capital. In addition, development of alternative distribution channels for certain types of insurance and securities products, including using digital technologies and platforms, may result in increasing competition as well as pressure on margins for certain types of products. Traditional distribution channels are also challenged by the ban on sales- based commissions in some countries. These competitive pressures may result in increased pricing pressures on a number of products and services, particularly as competitors seek to win market share. This may harm Aegon’s ability to maintain or increase profitability. Adverse market and economic conditions can be expected to result in changes in the competitive landscape. Financial distress experienced by financial services industry participants as a result of weak economic conditions and newly imposed regulation may lead to acquisition opportunities. Aegon’s ability or that of Aegon’s competitors to pursue such opportunities may be limited due to lower | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 374 | | | | Additional information Risk factors Aegon N.V. | | | | | | | | | | |
earnings, reserve increases, capital requirements or a lack of access to debt capital markets and other sources of financing. Such conditions may also lead to changes by Aegon or Aegon’s competitors in product offerings and product pricing that may affect Aegon and Aegon’s relative sales volumes, market shares and profitability. Additionally, the competitive landscape in which Aegon operates may be affected by government-sponsored programs or actions taken in response to, for instance, dislocations in financial markets. Aegon may have difficulty managing its expanding operations, and Aegon may not be successful in acquiring new businesses or divesting existing operations. In recent years, Aegon has made a number of acquisitions and divestitures around the world and it is possible that Aegon may make further acquisitions and divestitures in the future. Growth by acquisition involves risks that may adversely affect Aegon’s operating results and financial condition. These include: the potential diversion of financial and management resources from existing operations; difficulties in assimilating the operations, technologies, products and personnel of the acquired company; significant delays in completing the integration of acquired companies; the potential loss of key employees or customers of the acquired company; potential losses from unanticipated litigation and tax and accounting issues. In addition, expansion into new and emerging markets may involve heightened political, legal and regulatory risks, such as discriminatory regulation, nationalization or expropriation of assets, price controls and exchange controls. Aegon’s acquisitions may result in additional indebtedness, costs, contingent liabilities and impairment expenses related to goodwill and other intangible assets. Divestitures of existing operations may result in Aegon assuming or retaining certain contingent liabilities. Aegon may not be able to divest assets within the time or at the price planned. All of these factors may adversely affect Aegon’s businesses, results of operations and financial condition. Future acquisitions may also have a dilutive effect on the ownership and voting percentages of existing shareholders. There can be no assurance that Aegon will successfully identify suitable acquisition candidates or that Aegon will properly value acquisitions made. Aegon is unable to predict whether or when any prospective acquisition candidate will become available, or the likelihood that any acquisition will be completed once negotiations have commenced. Aegon may experience difficulties in distributing and marketing products through its current and future distribution channels. Although Aegon distributes its products through a wide variety of distribution channels, Aegon’s ability to market its products could be affected if key relationships are interrupted. Distributors may elect to reduce or terminate their distribution relationship with Aegon due to adverse developments in its business. Further, key distribution partners may also merge, change their business models in ways that affect how Aegon’s products are sold, or new distribution channels could emerge and adversely impact the effectiveness of its current distribution efforts. When Aegon’s products are distributed through unaffiliated firms, Aegon may not always be able to monitor or control the manner of their distribution despite its significant training and compliance programs. If Aegon’s products would be distributed by such firms in an inappropriate manner, or to customers for whom they are unsuitable, Aegon may suffer reputational and other harm to its business. Aegon may be unable to adapt to and apply new technologies. New technologies are transforming the insurance industry. New technologies include, but are not limited to, communication channels, automation, artificial intelligence, data analytics and blockchain. These technologies are changing the way insurance is distributed and sold. They are also changing the way insurers manage their businesses and the skills they need in their workforces. Furthermore, the new technologies are influencing customer and consumer demands. Technology makes it easier to move into new markets. This increases competition, not just among peers, but also from new competitors and disruptors. Inability to adapt quickly enough to and apply these new technologies may impact Aegon’s competitive position, and its ability to maintain profitability, and may adversely affect Aegon’s future financial condition and results of operations. Aegon may not be successful in managing its exposure to climate risk and adequately adapting investment portfolios for the transition to alow-carbon economy. Climate change is a long-term risk associated with high uncertainty regarding timing, scope and severity of potential impacts. Climate risks can be grouped into physical risks and transition risks. Physical risks relate to losses from overall climate changes (i.e. changing weather patterns and sea level rise) and acute climate events (i.e. extreme weather and natural disasters). These physical risks impact property & casualty (P&C) insurance, but also life insurance, for instance through higher than expected mortality rates. Losses can also follow from credit risk and collateral linked to the mortgage portfolio. Aegon is exposed to mortality risk and mortgage underwriting | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 375 | | | | Additional information Risk factors Aegon N.V. | | | | | | | | | | |
risks and has limited exposure to P&C risk, including catastrophic risk. Beyond insured losses, climate change may have disrupting and cascading effects on the wider economy. Transition risks are those arising from the shift to alow-carbon economy. These risks are a function of policy and regulatory uncertainty, including political, social and market dynamics and technological innovations. Transition risks can affect the value of assets and investments portfolios. Furthermore, it cannot be ruled out that Aegon itself is unable to adjust to environmental and sustainability goals. Linked to both the physical and the transition risks, there could also be litigation and reputational risks following from not fully considering or responding to the impacts of climate change, or not providing appropriate disclosure of current and future risks. The risks can relate both to Aegon and the companies in which it invests. Given the significant uncertainties related to climate change impacts and the long-term nature of the issue, it cannot be ruled out that climate change may lead to losses to Aegon’s businesses, the investment portfolios it manages and to its corporate reputation. More details on Aegon’s responsible investment and climate change activities can be found in the strategy and TCFD sections of this annual report. Aegon’s risk management policies and processes may leave the Company exposed to unidentified or unanticipated risk events, adversely affecting its businesses, results and financial condition. Aegon has devoted significant resources to the implementation and maintenance of a comprehensive enterprise risk management framework in all aspects of the business. Nevertheless, its risk measurements make use of historic and public data that may be inaccurate or may not predict future exposures. Further, operational and legal risks involve high volumes of transactions and are affected by frequent changes in Aegon’s businesses and their environments, and the risk management framework may not evolve at the same pace. As a result, there is a chance that risks present in its business strategies and initiatives may not be fully identified, monitored and managed. Information technology risk Failure of Aegon’s information technology or communications systems may result in a material adverse effect on Aegon’s results of operations and corporate reputation. Any failure of or gap in the systems and processes necessary to support complex transactions and avoid systems failure, fraud, information security failures, processing errors, cyber intrusion, loss of data and breaches of regulation may lead to a materially adverse effect on Aegon’s results of operations and corporate reputation. In addition, Aegon must commit significant resources to maintain and enhance its existing systems in order to keep pace with applicable regulatory requirements, industry standards and customer preferences. If Aegon fails to maintain secure and well-functioning information systems, Aegon may not be able to rely on information for product pricing, compliance obligations, risk management and underwriting decisions. In addition, Aegon cannot assure investors or consumers that interruptions, failures or breaches in security of these processes and systems will not occur, or if they do occur, that they can be timely detected and remediated. The occurrence of any of these events may have a materially adverse effect on Aegon’s businesses, results of operations and financial condition. A computer system failure or security breach may disrupt Aegon’s business, damage Aegon’s reputation and adversely affect Aegon’s results of operations, financial condition and cash flows. Aegon uses the London Clearing House (LCH) asrelies heavily on computer and information systems and internet and network connectivity to conduct a central counterparty to clear mostlarge portion of its derivatives transactions.business operations. This includes the need to securely store, process, transmit and dispose of confidential information, including personal information, through a number of complex systems. In December 2018,many cases this also includes transmission and processing to or through commercial customers, business partners and third-party service providers. The introduction of new technologies, computer system failures, cyber-crime attacks or security or data privacy breaches may materially disrupt Aegon’s business operations, damage Aegon’s reputation, result in regulatory and litigation exposure, investigation and remediation costs, and materially and adversely affect Aegon’s results of operations, financial condition and cash flows. The information security risk that Aegon faces includes the European Commission declaredrisk of malicious outside forces using public networks and other methods, including social engineering and the systemexploitation of supervisiontargeted offline processes, to attack Aegon’s systems and information. It also includes inside threats, both malicious and accidental. For example, human error, unauthorized user activity and lack of sufficiently automated processing can result in improper information exposure or use. Aegon also faces risk in this area due to its reliance in many cases on third-party systems, all of which may face cyber and information security risks of their own. Third-party administrators or distribution partners used by Aegon or its subsidiaries may not adequately secure their own information systems and networks, or may not adequately keep pace with the dynamic changes in this area. Potential bad actors that target Aegon and its applicable third parties may include, but are not limited to, criminal organizations, foreign government bodies, political factions, and others. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 376 | | | | Additional information Risk factors Aegon N.V. | | | | | | | | | | |
In recent years information security risk has increased sharply due to a number of developments in how information systems are used by companies such as Aegon, but also by society in general. Threats have increased as criminals and other bad actors become more organized and employ more sophisticated techniques. At the same time companies increasingly make information systems and data available through the internet, mobile devices or other network connections to customers, employees and business partners, thereby expanding the attack surface that bad actors can exploit. Large, global financial institutions such as Aegon have been, and will continue to be subject to information security attacks for the foreseeable future. The nature of these attacks will also continue to be unpredictable, and in many cases may arise from circumstances that are beyond Aegon’s control. If Aegon fails to adequately invest in defensive infrastructure, timely response capabilities, technology and processes or to effectively execute against its information security strategy, it may suffer material adverse consequences. To date the highest impact information security incidents that Aegon has experienced are believed to have been the result ofe-mail phishing attacks targeted at Aegon’s business partners and commercial customers. This in turn led to unauthorized use of valid Aegon website credentials to engage in fraudulent transactions and improper data exfiltration. Additionally, Aegon has also faced other types of attacks, including but not limited to other types of phishing attacks and distributed denial of service (DDoS) attacks, as well as certain limited cases of unauthorized internal user activity, including activity between different Aegon country units. Although to Aegon’s knowledge these events have thus far not been material in nature, Aegon management recognizes the need to establish and maintain adequate information security systems that are capable of addressing the possibility of these types of attacks, as well as for the possibility of more significant and sophisticated information security attacks, in the United Kingdomfuture. There is no guarantee that the measures that Aegon takes will be sufficient to be equivalentstop all types of attacks or mitigate all types of information security or data privacy risks. Aegon maintains cyber liability insurance to thathelp decrease the impact of cyber-attacks and information security events, subject to the terms and conditions of the European Union for 12 months following Brexit. If following this period LCH has not been granted recognition as a third country central counterparty by the European Securities Market Authority (ESMA), new and existing derivatives cleared through LCH and executed by EU27 entities,policy, however such insurance may not comply with EMIR regulations. If this situation materializes then it is possiblebe sufficient to cover all applicable losses that existing trades will have to be terminated and replaced by new trades to be cleared by an authorized clearing house located in the EU27. This could lead to additional costs andAegon may impair the effectiveness of Aegon’s hedging programs.suffer. Modelling risk 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 uses econometric, financial and actuarial models to measure and manage multiple types of risk, to price products and to establish and assess key valuations and report financial results. All these functions are critical to Aegon’s operations. Aegon has a model risk management framework in place to manage modelling risk. If, thesedespite this framework, models, their underlying methodologies, assumptions and estimates, or their implementation and monitoring prove to be inaccurate, this could have a significant adverse effect on Aegon’s business, financial condition and results. Many of Aegon’s business units offer investment products that utilize quantitative models, algorithms or calculations that could experience errors or prove to be incorrect, incomplete or unsuccessful resulting in losses for clients who have invested in such products and possible regulatory actions and/or litigation against Aegon and/or its affiliates. Aegon’s business units may utilize quantitative models, algorithms or calculations (whether proprietary or supplied by third parties) (Models) or information or data supplied by third parties (Data) for the management of, or to assist in the management of, investment products offered to clients. Examples of such investment products include volatility controlled funds, mutual funds, separately managed accounts, and other types of advisory accounts. Models and Data are used to construct sets of transactions and investments, to provide risk management insights, and may be used to assist in hedging investments. If Models and Data prove to be incorrect or incomplete, any decisions made, in whole or part, in reliance thereon expose the investment product to additional risks. For example, by utilizing Models or Data, certain investments may be bought at prices that are too high, certain other investments may be sold at prices that are too low, or favorable opportunities may be missed altogether. Similarly, any hedging based on faulty Models and Data may prove to be unsuccessful. The applicable investment product bears the risk that Models or Data used will not be successful and the product may not achieve its investment objective. Models can be predictive in nature. The use of predictive Models has inherent risks. For example, such Models may incorrectly forecast future behavior, leading to potential losses on a cash flow and/or amark-to-market basis. In addition, in unforeseen or certainlow-probability scenarios (often involving a market disruption of some kind), such Models may produce unexpected results, which can result in losses for an investment product. Furthermore, the success of relying on or otherwise using Models depends on a | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 377 | | | | Additional information Risk factors Aegon N.V. | | | | | | | | | | |
number of factors, including the validity, accuracy and completeness of the Model’s development, implementation and maintenance, the Model’s assumptions, factors, algorithms and methodologies, and the accuracy and reliability of the supplied historical or other Data. Models rely on, among other things, correct and complete Data inputs. If incorrect Data is entered into even a well-founded Model, the resulting information will be incorrect. However, even if Data is input correctly, Model prices may differ substantially from market prices, especially for securities with complex characteristics. Investments selected with the use of Models may perform differently than expected as a result of the design of the Model, inputs into the Model or other factors. There can be no assurance that the use of Models will result in effective investment decisions for an investment product. Additionally, if investment products offered by Aegon’s affiliates experience Model errors or use erroneous Data, this could result in regulatory actions and/or litigation brought against Aegon and/or its affiliates. Third Party risk Issues with third party providers (outsourcing partners and suppliers), including events such as bankruptcy, disruption of services, standards of service level agreements not upheld may adversely impact Aegon’s operational effectiveness and financial condition As Aegon continues to focus on reducing expenses necessary to support its business, a key part of its operating strategy has been to outsource certain services that are important to its business. Aegon outsources certain information technology, finance and actuarial services, investment management services and policy administration operations to third-party providers and may do so increasingly in the future. If Aegon fails to maintain an effective outsourcing strategy or if third-party providers do not provide the core administrative, operational, financial, and actuarial services Aegon requires and anticipates, or perform as contracted, such as compliance with applicable laws and regulations, or suffer an information security or data privacy breach, Aegon may not realize the productivity improvements or cost efficiencies or customers might experience lower service levels. In addition, Aegon may not be able to find an adequate alternate provider, and instead experience financial loss, reputational harm, operational difficulties, increased costs, a loss of business and other negative consequences, all of which could have a material adverse effect on Aegon’s results of operations. In addition, Aegon’s reliance on third-party providers does not relieve Aegon of its responsibilities and requirements. Any failure or negligence by such third-party providers in carrying out their contractual duties may result in Aegon being subjected to liability and litigation. Any litigation relating to such matters could be costly, time-consuming, and the outcome would be uncertain. Moreover, any adverse publicity arising from such litigation, even if the litigation is not successful, could adversely affect Aegon’s reputation and distribution of its products. Finally, Aegon’s ability to receive services from third-party providers based in different countries might be impacted by political instability, cultural differences, regulatory requirements or policies inside or outside of the countries within which Aegon has operations. As a result, Aegon’s ability to conduct its business might be adversely affected. Data privacy risk A breach of data privacy or security obligations may disrupt Aegon’s business, damage Aegon’s reputation and adversely affect financial conditions and results of operations. Pursuant to applicable laws, various government agencies and independent administrative bodies have established numerous rules protecting the privacy and security of personal information and other confidential information held by Aegon. For example, certain of our businesses are subject to laws and regulations enacted by US federal and state governments, the EU or othernon-US jurisdictions and/or enacted by various regulatory organizations relating to the privacy and/or information security of the information of customers, employees or others. Effective May 25, 2018, the General Data Protection Regulation (GDPR) took effect in the EU. Compared to the previous directive, the GDPR, among other things, increased compliance obligations, impacted our businesses’ collection, processing and retention of personal data, reporting of data breaches, and provides for significantly increased penalties fornon-compliance. The New York Department of Finance Services (NYDFS), pursuant to its cybersecurity regulation, requires financial institutions regulated by the NYDFS, including certain Aegon subsidiaries, to, among other things, satisfy an extensive set of minimum information security requirements, including but not limited to governance, management, reporting, policy, technology and control requirements. Numerous other US laws also impose various information security and privacy related obligations with respect to various Aegon subsidiaries operating in the US, including but not limited to the Gramm-Leach-Bliley Act and related state laws (GLBA), the California Consumer Privacy Act (CCPA) and the Health Insurance Portability and Accountability Act (HIPAA), among many others. Other legislators and regulators with jurisdiction over our businesses are considering or have already enacted enhanced information security risk management and privacy rules and regulations. A number of Aegon’s subsidiaries are also subject to contractual restrictions with respect to the information of our clients and business partners. Aegon, and numerous of its systems, employees and business partners have access to, and routinely process, the personal information of consumers and employees. Aegon relies on various processes and controls to protect the confidentiality, integrity and availability of personal information and | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 375378 | | | | Additional information Risk factors Aegon N.V. | | | | | | | | | | | | |
other confidential information that is accessible to, or in the possession of, Aegon, its systems, employees and business partners. It is possible that an Aegon employee, business partner or system could, intentionally or unintentionally, inappropriately disclose or misuse personal or confidential information. Aegon’s data or data in its possession could also be the subject of an unauthorized information security attack. If Aegon fails to maintain adequate processes and controls or if Aegon or its business partners fail to comply with relevant laws and regulations, policies and procedures, misappropriation or intentional or unintentional inappropriate disclosure or misuse of personal information or other confidential information could occur. Such control inadequacies ornon-compliance could cause disrupted operations and misstated or unreliable financial data, materially damage Aegon’s reputation or lead to increased regulatory scrutiny or civil or criminal penalties or litigation, which, in turn, could have a material adverse effect on Aegon’s business, financial condition and results of operations. In addition, Aegon analyses personal information and customer data to better manage its business, subject to applicable laws and regulations and other restrictions. It is possible that additional regulatory or other restrictions regarding the use of such techniques may be imposed. Additional privacy and information security obligations have been imposed by various governments with jurisdiction over Aegon or its subsidiaries in recent years, and more such obligations are likely to be imposed in the near future across Aegon’s operations. Such restrictions and obligations could have material impacts on Aegon’s business, financial conditions and/or results of operations. People risk Aegon may be unable to retain personnel who are key to the business. As a global financial services enterprise, Aegon relies, to a considerable extent, on the quality of local management and personnel 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’s ability to attract and retain key personnel, in particular senior officers, experienced portfolio managers, mutual fund managers and sales executives, is very much dependent on the competitiveness of the compensation package for employees in the market in which it competes. As a part of the governmental response in Europe and, to a certain extent, the United States to the financial crisis in 2008, there have been various legislative initiatives that have sought to give guidance or regulate the structure of remuneration for personnel, in particular senior management, with a focus on performance-related remuneration and limiting severance payments. With differences in interpretation of these regulations by local regulators on how the guidelines need to be applied, as well as to the question of whether they apply to insurance industries at all, these restrictions create an uncertain playing field and may adversely affect Aegon’s ability to compete for qualified employees, as well as Aegon’s ability to transfer employees between regions. Political, Regulatory and Supervisory Aegon may be required to increase its technical provisions and/or hold higher amounts of regulatory capital as a result of changes in the regulatory environment or changes in rating agency analysis, which may impact Aegon’s financial position and/ or decrease Aegon’s returns on its products. Prudential regulatory requirements such as with respect to the calculation of technical provisions, capital requirements, the eligibility of own funds as such and the regulatory treatment of investments may change, resulting in increasedwhich could require Aegon to increase technical provisions, hold higher amounts of regulatory capital and subject it to more stringent requirements with respect to investments and/or the qualification of own funds. Important examples include changes to applicable capital requirements by the European Union and/or EIOPA, the National Association of Insurance Commissioners (NAIC) in the US or US state regulators or local regulators in other jurisdictions in which Aegon’s subsidiaries operate. Aegon cannot predict specific proposals that might be adopted, or what impact, if any, such proposals or, if enacted, such laws, may have on its businesses, results of operations, or financial condition. For example, the European Union, the National Association of Insurance Commissioners (NAIC) in the US or US state regulators may adopt revisions to applicable risk-based capital formulas and local regulators in other jurisdictions in which Aegon’s subsidiaries operate may increase their capital requirements. Prudential regulatory requirements may not only apply to the individual entities in the group,Aegon Group but may additionally apply atsub-group Group level or group level.apply to part of the Group. Consequently, those requirements may have different, and more or less meaningful, impact depending on their scope. Important examples of such requirements are Solvency II group supervision as well asand consolidated requirements resulting from the Capital Requirements Directive (CRD) and the Capital Requirements Regulation (CRR), as applied to groups containing undertaking bank and/or asset management activities. The manner in whichway such requirements are applied to groups like Aegon has an impact on the group’sGroup’s capital position, as well as on the availability of capital at group level and changes theretoa Group level. Changes to prudential regulatory requirements may have an impact depending on the nature of the change, on Aegon’s competitive position to competitorsversus companies that are not subject to these or similar requirements at groupGroup level. As an example, as part of the Solvency II group calculation, Aegon uses, at group level,applies a specific methodology for its US insurance and reinsurance subsidiaries at Group level, in addition to the requirements to which these subsidiaries are subject to under their local prudential regime. This methodology is approved by Aegon’s group supervisor, De Nederlandsche Bank N.V. (DNB), but remains subject to annual review. For further detail on this methodology, we refer to the section ‘‘Regulation and supervision’’ of Aegon’s Annual Report 2018. Changes to this methodology | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 379 | | | | Additional information Risk factors Aegon N.V. | | | | | | | | | | |
might have an impact on Aegon’s capital position, as calculated under Solvency II group requirements and/or the manner in which DNB otherwise exercises group supervision on Aegon, (such asfor example through more stringent requirements with respect to intra-group transactions, risk concentrations and reporting).reporting. Furthermore,There are several important regulatory standards with respect to capital adequacy that apply to Aegon and are subject to change, which changes could impact Aegon’s financial position and results:
| ◆ | | Capital adequacy requirements resulting from the further development of the Insurance Capital Standards (ICS), as part of the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame), which may lead to regulations that could increase capital needs for Internationally Active Insurance Groups such as Aegon, and other requirements that would not be applicable to all (re)insurance companies and as a result distort a level playing field; |
| ◆ | | A further review of the Solvency II framework, referred to as the Solvency II 2020 review that has recently commenced. EIOPA has recently published an extensive draft technical advice on a broad range of topics within the Solvency II framework, for consultation among stakeholders. The impact on Aegon’s financial position and results depends on the final technical advice to the European Commission, and the extent to which the EIOPA advice will be taken over by the European Commission and the Europeanco-legislators; |
| ◆ | | The NAIC’s requirements with respect to risk-based capital, the NAIC continues to review the risk-based capital (RBC) charges for invested assets. Additionally, the NAIC has an ongoing project to review longevity risk. These initiatives or other regulatory changes to capital factors may lead to higher risk-based charges. In addition, the NAIC formed the Group Capital Calculation (E) Working Group charged with constructing a US group capital calculation (GCC) using an RBC aggregation approach that would be used by regulators as a monitoring tool. The results of the GCC could impact the translation of RBC in the Group capital ratio for the United States; and |
| ◆ | | US state insurance regulators’ perspectives on the use and value of captive insurance companies. Aegon utilizes affiliated captive insurance companies to manage risks of various insurance policies issued before the adoption of principle-based reserves, including universal life with secondary guarantees and level term life insurance. These structures have been utilized to finance certain regulatory reserves at a lower cost. To the extent that state insurance regulations restrict or require insurers to restate the valuation of the assets used to finance these structures, this could increase costs or reduce capital. |
In addition to requirements imposed by regulatory and/or supervisory authorities, rating agencies may incorporate higher capital thresholds into their quantitative analyses, thus requiring additional capital for Aegon’s regulated subsidiaries for Aegon Group may be impacted by furtherand/ or its regulated subsidiaries to maintain their desired credit ratings. The application of these capital standards and changes to the capital adequacy requirements it is subject to as a result of the development of the Insurance Capital Standard (ICS) as part of the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame) (a set of international regulatory standards focusing on the effective group-wide supervision of internationally active insurance groups (IAIGs)). For further detail on this development, we refer to the section ‘‘Regulation and supervision’’ of Aegon’s Annual Report 2018. In addition, since November 3, 2015, Aegon has been classified as a Global Systematically Important Insurer(G-SII). While the qualification is reviewed by the Financial Stability Board (FSB) yearly, the FSB, in consultation with the International Association of Insurance Supervisors (IAIS) and national authorities, decided not to publish a new list ofG-SIIs for 2017 or 2018. The policy measures set out in the FSB’s 2016 communication onG-SIIs will continue to apply to the firms listed in the 2016 communication.
In November 2018, the International Association of Insurance Supervisors (IAIS) published a consultation document for a holistic Framework for Systemic Risk in the Insurance Sector. As expressed in the consultation document, IAIS is of the view that the implementation of a holistic framework should remove the need for an (annual)G-SII identification by the FSB and national authorities and be replaced by an enhanced set of policy measures and supervisory powers of intervention that might be applied to a broader set of insurers than are currently on theFSB-list. For further detail on this development, we refer to the section ‘‘Regulation and supervision’’ of Aegon’s Annual Report 2018.
In this respect, the development of ComFrame as well as any additional requirements or standards applicable to either systemic entities or activities could lead to enhanced capital requirements applicable to IAIGs, even if theFSB-list will be discontinued. Thisthereto could adversely affect Aegon’s ability to compete with other insurers that are not subject to those capital requirements. These requirements may also lead Aegon to engage in transactions that affect capital and constrain Aegon’s ability to pay dividends or repurchase its own shares. Furthermore, such requirements may constrain Aegon’s ability to provide guarantees and may 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 requirements or standards applicable with respect to systemic entities or activities, of which the impact on shareholders cannot be predicted.predicted.For further detail on developments in these areas, we refer to the section ‘‘Regulation and supervision’’ of Aegon’s Integrated Annual Report 2019.
Changes in accounting standards may affect Aegon’s reported results, shareholders´ equity and dividend. Aegon’s financial statements are prepared and presented in accordance with IFRS. Any future changes in these accounting standards may have a significant impact on Aegon’s reported results, financial condition, shareholders’ equity and dividend. This includes the level and volatility of reported results and shareholders’ equity. New accounting standards that are likely to have a significant impact on Aegon’s reported results, financial condition and shareholders’ equity include, but are not limited to, IFRS 9 – Financial Instruments and IFRS 17 – Insurance Contracts. The IASB issued the complete version of IFRS 9 Financial Instruments in July 2014, which was endorsed by the European Union in November 2016. The IASB issued IFRS 17 Insurance Contracts in May 2017. The Standard will replace IFRS 4, which was intended as an interim solution and allowed insurers to continue to use accounting principles that they had applied prior to the initial adoption of IFRS. In November 2018, the IASB agreed to start the process to amend IFRS 17 to defer the mandatory effective date of IFRS 17 by one year (original effective date was January 1, 2021). Subject to IASB due process, entities will be required to apply IFRS 17 for annual periods beginning on or after January 1, 2022. As a consequence of the IFRS 17 deferral, the IASB also agreed to revise the fixed expiry date of the temporary exemption from IFRS 9 in IFRS 4 to allow entities to continue applying the temporary exemption from IFRS 9 until January 1, 2022. As this decision is still subject to IASB due process, this could lead to another year of deferral. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 376380 | | | | Additional information Risk factors Aegon N.V. | | | | | | | |
In addition to requirements imposed directly through regulatory requirements and/or supervisory authorities rating agencies may incorporate higher capital thresholds into their quantitative analyses, thus requiring additional capital for Aegon’s regulated subsidiaries in order for Aegon Group and/or its regulated subsidiaries to maintain their desired credit ratings.
In the United States, the NAIC is seeking to better align the Risk-Based Capital charges with the appropriate risk level for invested assets. This may lead to higher risk-based charges for such assets.
Furthermore, the NAIC model regulation ‘Valuation of Life Insurance Policies’, (commonly known as Regulation XXX), requires insurers in the United States to establish additional statutory reserves for term life insurance policies with long-term premium guarantees. In addition, Actuarial Guideline XXXVIII, (commonly known as AG38), which is intended to clarify Regulation XXX, requires insurers to establish additional statutory reserves for certain universal life insurance policies with secondary guarantees. Virtually all of Aegon’s newly issued term and universal life insurance products in the United States are affected by Regulation XXX and AG38, respectively.
Subsequently, the NAIC adopted regulations to monitor and provide transparency for insurer-affiliated captive reinsurers. Captive reinsurance structures have been used to manage ‘economically redundant’ reserves for term and secondary guarantee universal life policies. Since the January 1, 2017 enactment of US principle-based reserves for new business, new captive reinsurance structures are no longer required for new issuances of these term and secondary guarantee universal life products and the Company does not anticipate entering into any new captive reinsurance arrangements for such products. The new reserves requirements for US life insurance products are intended by regulators to represent a more economically supported view of the resources required to honor the promises to policyholders. For existing business held in a captive, Aegon may continue to be subject to the risks of adverse publicity and changes in regulations related to captive reinsurance.
Aegon utilizes affiliated captive insurance companies to manage risks of various insurance policies, including universal life with secondary guarantees and level term life insurance. Through these structures, Aegon finances certain required regulatory reserves at a lower cost. To the extent that state insurance departments restrict Aegon’s use of captives and regulatory reserve requirements remain unchanged, this could increase costs, limit the ability to write these products in the future or lead to increased prices to consumers on those products. The NAIC continues to consider changes to corporate governance and insurers’ use of captives. Due to the uncertainty of the proposals it is not possible to provide an estimate of the effects at this time.
Regulatory restrictions and failure to comply with regulations may impact Aegon’s ability to do business, its financial position or financial results.
Aegon and its subsidiaries are subject to laws and regulations in numerous jurisdictions in some cases including enforcement and supervision by different regulators with overlapping jurisdictions. Aegon may not be able to comply fully with, or obtain appropriate exemptions from, the wide variety of laws and regulations applicable to insurance companies, holding companies, groups of insurance companies and/or other financial undertakings and/or financial conglomerates. Failure to comply with or to obtain appropriate exemptions under any applicable laws and regulations may result in restrictions on Aegon’s ability to do business in one or more of the jurisdictions in which Aegon operates and may result in fines and other sanctions, which may have a materially adverse effect on Aegon’s businesses, financial position or results of operations.
Restrictions on underwriting criteria and the use of data may affect Aegon’s ability to do business, its financial position or financial results.
Some countries impose restrictions on particular underwriting criteria, such as gender, or use of genetic test results, for determination of premiums and benefits of insurance products. To date, Aegon has not observed negative financial or business impact due to these restrictions. However, future restrictions could adversely impact Aegon’s operations or financial results. Further developments in underwriting, such as automation and use of additional data, may also be affected by future regulatory developments regarding privacy and use of personal data.
A downgrade in Aegon´s ratings may increase policy surrenders and withdrawals, adversely affect relationships with distributors, and negatively affect Aegon´s results.
Claims-paying ability and financial strength ratings are factors in establishing the competitive position of insurers. A rating downgrade (or a change in outlook indicating the potential for such a downgrade) of Aegon or any of its rated insurance subsidiaries may, among other things, materially increase the number of policy surrenders and withdrawals by policyholders of cash values from their policies.
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 377 | | Additional information Risk factors Aegon N.V. | | | | | | | | | |
These withdrawals may requireAn implementation project was started soon after the salepublication of invested assets, including illiquid assets, at a pricethe new Standard. Currently no choices have been made as to the accounting policy options provided in IFRS 17, however, it is expected that may result in realized investment losses. These cash payments to policyholders would result in a decrease in total invested assets and a decrease in net income. Among other things, early withdrawals may also cause Aegon to accelerate amortizationthe impact of deferred policy acquisition costs (DPAC), reducing net income.the initial application on Aegon’s financial statements is significant.
Aegon has experienced downgrades and negative changes to its outlookFurther details are provided in the past,notes to the consolidated financial statements, note 2 ‘Summary of significant accounting policies’.
Local statutes and regulators may experience ratinglimit the amount of dividends paid by Aegon’s subsidiaries to Aegon N.V., thereby limiting Aegon’s ability to make payments on debt obligations. Aegon’s ability to make payments on debt obligations and outlook changes inpay operating expenses is dependent upon the future. A downgrade or potential downgrade, including changes in outlook, may result in higher funding costs and/or affectreceipt of dividends from subsidiaries. Some of these subsidiaries are subject to regulatory restrictions that can limit the availabilitypayment of funding in the capital markets.dividends. In addition, a downgradelocal regulators, may adversely affect relationships with broker-dealers, banks, agents, wholesalers and other distributors of Aegon’s products and services,decide to impose further restrictions to dividend payments, which may negatively impact new sales and adversely affect Aegon’s ability to compete. A downgrade of Aegon’s credit ratings will have an effect of increased fees on credit facilities and may result in higher funding costs on future long-termsatisfy its debt funding transactions and may affectobligations or pay its ability to obtain reinsurance contracts at reasonable prices or at all. Aegon cannot predict what actions rating agencies may take, or what actions Aegon may take in response to the actions of rating agencies. As with other companies in the financial services industry, Aegon’s ratings may be downgraded at any time and without notice by any rating agency.
Changes in government regulations in the countries in which Aegon operates may affect profitability.
Aegon’s regulated businesses, such as insurance, banking and asset management, are subject to comprehensive regulation and supervision, specific to these businesses. The primary purpose of such regulation is to protect clients of these operating companies,expenses.
(e.g. policyholders), rather than holders of Aegon shares, capital securities and debt instruments. Changes in existing laws and regulations may affect the way in which Aegon conducts its businesses, the profitability of its businesses and the products offered. Additionally, the laws or regulations adopted or amended from time to time may be more restrictive or may result in higher costs than currently is the case, such as regarding the calculation of capital needs, storage, processing and transmission of personal and other information, treatment of own funds, rules or guidance with respect to the modelling of insurance, investment and other risks.
Regulatory changes include or may include capital standards and prudential standards fornon-bank companies deemed to be systemically important financial institutions (SIFIs) that are more stringent than the standards applicable tonon-SIFIs. While as indicated above, Aegon was designated in 2015 by the FSB as aG-SII, Aegon has not been designated a SIFI in the United States. In addition, US state insurance regulators are developing group capital standards. The scope of application of these standards has not yet been determined. The current US administration announced plans to review aspects of the Dodd-Frank Act. This review may result in changes in laws and regulations that may impact US or global operations.
Other initiatives, such as the development of International Capital Standards (ICS) by the International Association of Insurance Supervisors, may lead to regulations that would increase capital needs and other requirements that would, if not adopted in whole or in part in the relevant markets in which Aegon is active, not be applicable to all insurance and reinsurance carriers and create an uneven competitive playing field.
In the Netherlands, the Dutch Central Bank provided guidance with regard to assumptions underlying Aegon’s factor for the loss absorbing capacity of deferred taxes(LAC-DT). Reduction of this factor would impact the Group Solvency II ratio. The factor ofLAC-DT is taken into account in Aegon the Netherlands’ Solvency II ratio, and remained unchanged at 75%. The factor is reassessed quarterly. The Solvency II sensitivity for a25-percentage point change in the factor is given in the section “Capital and liquidity management” of Aegon’s Annual Report 2018. The treatment ofLAC-DT under the Solvency II framework is also one of the elements of the Solvency II review and resulted in some changes with respect to the internal governance requirements regarding the determination of theLAC-DT. A further review of the Solvency II framework has recently commenced. While details on possible changes are yet unknown, the outcomes of this review (referred to as the Solvency II 2020 review) and potential changes to the relevant regulations, guidelines or opinions, or their application by national supervisory authorities may have an impact on the determination of theLAC-DT that may be taken into account by Aegon going forward.
In the United States, the Patient Protection and Affordable Care Act (PPACA) appears to be stable with the change in control of the US House of Representatives. But there may be additional changes in laws and regulations that may impact the US health insurance industry. The extent to which employers or individuals may discontinue their purchase of supplemental health insurance products as a result of any such changes may significantly impact Aegon USA’s supplemental health insurance products business. The extent of any such changes or the corresponding impact on Aegon USA’s supplemental health insurance business cannot be determined at this time.
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| | | 378 | | Additional information Risk factors Aegon N.V. | | | | | | |
The United States Department of Labor (DOL) issued a ’Conflict of Interest’ or ‘Fiduciary’ rule in April 2016 (the ‘DOL Rule’) which substantially broadened the definition of ‘fiduciary’ with respect to retirement savings and investment plans and products (‘qualified assets’). The final rule, which was to fully take effect on July 1, 2019, was vacated in its entirety by the Fifth Circuit Court of Federal Appeals on July 21, 2018.
Aegon believes the court’s invalidation of the DOL Rule will not materially impact prospective sales of Aegon America’s retirement plan and annuity businesses. However, any new DOL proposal or promulgation of a heightened standard of care by the SEC, NAIC or any state may have a material adverse impact on Aegon America’s business.
For example, on July 18, 2018, the New York Department of Financial Services (“NYDFS”) amended Regulation 187 which adopts a best interest standard in the sale of life insurance and annuities.
The NYDFS regulation could have a material adverse impact on annuity sales; however, the bigger impact could be with life sales by firms conducting business in the state. It is expected that other states will propose similar regulations impacting the sale of annuities and life insurance products.
In addition, in April 2018, the SEC proposed a Best Interest standard of conduct regulation applicable to broker-dealers and their registered representatives. The proposed regulation requires additional disclosures to clients and imposes heightened mitigation requirements with respect to conflicts of interest. In addition to the proposed Regulation Best Interest, the SEC proposed the use of a written relationship disclosure with investment advisor clients and an interpretation of the standard of conduct applicable to investment advisors.
Changes in pension and employee benefit regulation, social security regulation, financial services regulation, taxation and the regulation of securities products and transactions may adversely affect Aegon’s ability to sell new policies or claims exposure on existing policies. For example, in Hungary, the mandatory pension business has been nationalized and therefore Aegon in Hungary has liquidated its mandatory pension business. Similarly, in December 2013, the Polish Parliament approved legislation to overhaul the existing state pension system, which was a reason for Aegon to write down its intangible assets.
In general, changes in laws and regulations may materially increase Aegon’s direct and indirect compliance costs and other ongoing business expenses and have a materially adverse effect on Aegon’s businesses, results of operations or financial condition.
An abandonment of the euro currency by one or more members of the European Monetary Union may affect Aegon’s results of operations in the future.
It is possible that the euro may be abandoned as a currency in the future by countries that have already adopted its use. This may lead to there-introduction of individual currencies in one or more European Monetary Union member states, or in more extreme circumstances, the dissolution of the European Monetary Union. It is not possible to predict the effect on the European and global economies of a potential dissolution of the European Monetary Union or the exit of one or more European Union member states from the European Monetary Union. Any such event may have a materially adverse effect on Aegon’s future financial condition and results of operations.
The United Kingdom (UK) leaving the European Union (‘Brexit’), may affect Aegon’s results and financial condition.
On June 23, 2016 the United Kingdom voted in a national referendum to withdraw from the European Union. With continuing uncertainty on if and in what form a “Brexit-deal” will be reached and approved, the implications of ‘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 is prepared for all outcomes, including the worst case scenario. For this purpose, Aegon has assessed the risks and possible contingency measures specifically related to a hard Brexit(no-deal) scenario. Despite these efforts, Aegon could be adversely impacted by unexpected developments and market developments such as increased exchange rate movements of the UK pound 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. Aegon could also be adversely impacted should ‘Brexit’ result in the UK moving away from agreed and implemented EU legislation like, but not limited to, Solvency II regulations.
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| | | 379 | | Additional information Risk factors Aegon N.V. | | | | | | |
Risks of application of intervention measures may adversely affect Aegon’s business, results of operations and financial position. On January 1, 2019, theThe Dutch Act on Recovery & Resolution for Insurers (R&R Act) came into force in the Netherlands, replacing the previously applicable intervention regime for insurance companies in the Netherlands faced with financial difficulties. The (‘R&R ActAct’) allows DNB to intervene in situations where a Dutch insurer or reinsurer is faced with financial difficulties. The powers under the R&R Act may also extend to the level of the Group and to entities, other than in insurance or reinsurance entities in the Netherlands, which are part of the group,Group, such as Aegon N.V..N.V.
In addition, the R&R Act will allowallows DNB to require a Dutch insurance or reinsurance company or a group to remove, ex ante, material impediments to effective resolution of a Dutch insurance or reinsurance undertaking (such as the revision of financing arrangements, the reduction of exposures, the transfer of assets, the termination or limitation of business activities, or the prohibition to start certain business activities, change the legal or operational structure of the group,Group, or securing certain critical business lines). The use of this tool may adversely affect Aegon’s business, results of operations and financial position. Furthermore, to parts of the Aegon Group, in particular Aegon Bank N.V., the framework of the EU Directive on the recovery and resolution of credit institutions and investments firms (the “Bank‘Bank Recovery and Resolution Directive”Directive’) is applicable. The Bank Recovery and Resolution Directive also contains provisions that, in certain specific circumstances, where both Aegon Bank N.V. and Aegon N.V. fail or are likely to fail, could be applied to mixed financial holding companies such as Aegon N.V., including the right ofbail-in of creditors. Lastly, under Part 6 of the Dutch Financial Supervision Act, the Dutch Minister of Finance may intervene immediately, when the stability of the financial system is threatened by the situation of a financial institution the Dutch Minister of Finance may intervene immediately, in which case legal or statutory provisions, applicable to the financial institution, might be surpassed. The intervention measures available to the Minister of Finance include, in particular, the right to expropriate assets of the financial institution, as well as securities and/or other financial instruments issued by or with the cooperation of the financial instruments. The exercise of this power may significantly impact the rights of the owners or holders of these assets, securities and/or financial instruments. There is a risk that the possible exercise of powers, or any perceived exercise of powers, by DNB or the Ministry of Finance could have a material adverse effect on the performance by the failing institution, including Aegon, of its obligations (of payment or otherwise) under contracts of any form, including the expropriation,write-off, write-down or conversion of securities such as shares and debt obligations issued by the failing institution. The R&R Act as well asand the regime of the Bank Recovery and Resolution Directive isare described in more detail in the section “Regulation‘Regulation and supervision”supervision’ of Aegon’s Integrated Annual Report 2018.2019. The United Kingdom (UK) leaving the European Union (‘Brexit’) may affect Aegon’s results and financial condition. Since January 31, 2020, the United Kingdom is no longer a member of the European Union. It is currently uncertain if the UK and EU will succeed in reaching an agreement on the future trade relationship before December 31, 2020, and if they do, what that relationship would look like. This means that the implications of ‘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 has assessed possible outcomes, the risks and prepared possible contingency measures, including in particular, related to a hard Brexit(no-deal) scenario. Despite these efforts, Aegon could be adversely impacted by unexpected developments and market developments such as increased exchange rate movements of the UK pound 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. Aegon could also be adversely impacted | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 381 | | | | Additional information Risk factors Aegon N.V. | | | | | | | | | | |
should ‘Brexit’ result in the UK moving away from agreed and implemented EU legislation like, but not limited to, Solvency II regulations and financial services legislation. Legal and Compliance Legal and arbitration proceedings and regulatory investigations and actions may adversely affect Aegon’s business, results of operations and financial position. Aegon faces significant risks of litigation as well as regulatory investigations and actions relating to its and its subsidiaries’ insurance, pensions, retirement administration, securities, investment management, investment advisory and annuities businesses as well as Aegon’s corporate compliance, including compliance with employment, sanctions, anti-corruption and tax regulations. Aegon subsidiaries regularly receive inquiries from local regulators and policyholder advocates in various jurisdictions, including the United States, the Netherlands, and the United Kingdom. Regulators may seek fines or penalties, or changesregulations applicable to the way Aegon operates. In some cases, Aegon subsidiaries have modified business practices in response to inquiries.it as a corporate entity.
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 involvingin the jurisdictions in which Aegon does business, including the United States, the Netherlands, and the United Kingdom. These actions may involve issues such as,including, but not limited to, employment or distribution relationships; operational and internal controls and processes; disclosures;investment returns; sales practices; transparency and adequacy of product disclosures including regarding initial costs, ongoing costs, and costs due on policy surrender as well as changes to costs over time; environmental and climate change related matters; competition and antitrust matters; data privacy; information security; intellectual property; and anti-money laundering, anti-briberyanti- bribery and economic sanctions compliance. Government and regulatory investigations may result in the institution of administrative, injunctive or other proceedings and/ or the imposition of monetary fines, penalties and/or disgorgement as well as other remedies, sanctions, damages and restitutionary amounts. There can be no assurance that government and regulatory investigations will notRegulators may also seek changes to the way Aegon operates. In some cases, Aegon subsidiaries have a material and adverse effect on Aegon’s reputation, financial position, and resultsmodified business practices in response to inquiries. Customers of operations or liquidity. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 380 | | Additional information Risk factors Aegon N.V. | | | | | | |
Manycertain of Aegon’s products bear significant investment risks with respect to those products, which are affected by fluctuations in equity markets as well as interest rate movements, which may prove to bemovements. When investment returns disappoint, are volatile, or disappointingchange due to customers. Significant investment risks are often borne bychanges in the customer. market or other relevant conditions, customers may threaten or bring litigation against Aegon.
The existence of potential claims may remain unknown for long periods of time after the events giving rise to such claims. Determining the likelihood of exposure to Aegon and the extent of any such exposure may not be possible for long periods of time after Aegon becomes aware of such potential claims. OnceLitigation exposure as well may develop over long periods of time; once litigation is initiated, it may be protracted and subject to multiple levels of appeal.appeal, which can lead to significant costs of defense, distraction, and other constraints. Aegon cannot predict the effect of litigation, investigations or other actions on its businesses or the insurance industry. In some jurisdictions, plaintiffs may seek recovery of very large or indeterminate amounts under claims of bad faith, resultingwhich can result in tort, punitive and/or treblestatutory damages. Damages alleged may not be quantifiable or supportable or may have no relationship to economic losses or final awards. As a result, Aegon cannot predict the effect of litigation, investigations or other actions on its businesses.
Separate from financial loss, litigation, regulatory action, legislative changes or changes in public opinion may require Aegon to change its business practices, which could have a material adverse impact on Aegon’s businesses, results of operations, cash flows and financial position. Insurance companies and their affiliated regulated entities are also routinely subject to litigation, investigation and governmental review concerning product fees and costs, including transparency and adequacy of disclosure of initial costs, ongoing costs, and costs due on policy surrender as well as changes to costs over time. Disputes and investigations initiated by governmental entities and private parties may lead to orders or settlements, including payments or changes to business practices, even if Aegon believes the underlying claims are without merit.
Several US insurers, including Aegon subsidiaries, have also been named in class actions, as well as individual litigation, relating to increases in monthly deduction rates (‘‘MDR’’)(MDR) on universal life products. Plaintiffs generally allege that the increases were made to recoup past losses rather than to cover the future costs of providing insurance coverage. In one such class action against Aegon’san Aegon subsidiary pending in the US federal district court for the Central District of California, which arose from increases implemented in 2015-2016, the parties agreed to settle the case. In January 2019, athe court approved the aforementioned settlement. While less than 1% of policyholders opted out of the settlement, they represent approximately 43% of the value of the settlement fund. The individual opt out cases and disputes areon-going. Resolution of this class action ended a number of other related cases, including other related class actions. In addition, Aegon’s subsidiary is facing class action and individual lawsuits arising out of MDR increases implemented in 2017-2018. In the firstonly individual case against Aegon’s subsidiary to reach trial (in 2017), a jury found that thea 2013 increase to a certain group of policies was improper. That case is on appeal. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 382 | | | | Additional information Risk factors Aegon N.V. | | | | | | | | | | |
In addition, insurance companies and their affiliated regulated entities may face lawsuits that threaten their business models. For example, severalUS-based Aegon subsidiaries have been namedare defendants in two purporteda class actionsaction alleging that the business model inappropriatelyimproperly characterizes distributors as independent contractors instead of employees. Depending on the outcome, these lawsuits,this lawsuit, along with similar claims against other companies, as well as regulatory action, could necessitate a change in the distributionbusiness model andand/or could result in a significant settlementssettlement or judgments.judgment. In the Netherlands, unit linked products (beleggingsverzekeringen)(beleggingsverzekeringen) have been controversial and the target of litigation since 2005. Allegations include excessive cost, unfair terms, 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 has made improvements across its product lines, including after settlements reached in 2009 with Stichting Woekerpolis and Stichting Verliespolis. In 2013 Aegon took a chargealso decided to reduce future policy costs for the large majority of EUR 25 million after the Dutch Supreme Court ruled adversely in litigation concerning premium amounts charged in the KoersPlan product.its unit-linked portfolio. Some of the unit linked products are still involved in ongoing litigation. In September 2014, consumer interest group Vereniging Woekerpolis.nl filed a claim against Aegon in court. The claim related to a range of unit linked products that Aegon sold in the past, including Aegon products involved in the earlier litigation. In June 2017, the court issued a verdict which upheld the principle that disclosures must be evaluated according to the standards at the time when the relevant products were placedin-force. Most of the claims of Vereniging Woekerpolis.nl were dismissed under this standard, although the court found that Aegon did not adequately disclose certain charges on a limited set of policies. The district court did not decide on the reasonableness of the cost levels and whether the previous compensation arrangements provide sufficient compensation. This court decision has been appealed by both parties. Aegon expects the claims and litigation, whether collective or on an individual basis and in court or through alternative dispute resolution mechanisms, 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. Lawsuits have also been brought against providers of securities leasing products (aandelenlease producten). Although sales of securities leasing products ended more than a decade ago, litigation relating to these products has resurfaced. In 2016, the Dutch Supreme Court ruled on a case involving a securities leasing product sold by one of Aegon’s competitors. It decided that the financial institution was liable if a broker (remisier) that advised on the sale of the institution’s products, was not properly licensed. It also upheld the ruling of the Court of Appeals that a higher compensation might be payable in those circumstances, regardless of the financial position of the customer at the time of entering into the securities leasing contract. In July 2016, consumer interest group Stichting Platform Aandelenlease filed a mass claim against Aegon Bank regarding securities leasing product Sprintplan. Allegations include, among other things, a lack of a proper license of the brokers involved. In October 2017, the district court of The Hague ruled in favor of Aegon that the Sprintplan liability had been conclusively determined in earlier proceedings and there were no grounds to hold further collective proceedings. The plaintiff appealed. The caseIn February 2020, the Court of Appeal rejected all claims filed by platform Aandelenlease against Aegon Bank. Platform Aandelenlease may appeal in cassation against this ruling. In the Netherlands Aegon is now pending at the court of appeal | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 381 | | Additional information Risk factors Aegon N.V. | | | | | | |
of The Hague. In addition, Aegon isalso involved in claims for compensation and the cancellation or nullification of contracts concerning the Vliegwiel product, a variation on securities leasing products.products (without abuilt-in guarantee) of which a total of 63,000 contracts have been offered by an Aegon subsidiary in the Netherlands in the period between 1997 and 2002. All Vliegwiel contracts have expired. Currently, proceedings are pending before the Dutch courts and the Complaint Institute for Financial Services (‘Klachteninstituut Financiële Dienstverlening’), with numerous cases having been initiated by Leaseproces B.V., a company that represents a large number of claimants.
There can be no assurances that these matters will not ultimately result in a material adverse effect on Aegon’s business, results of operations, competitive position, reputation, and financial position. For additional information on proceedings in which Aegon is involved, refer to the notes to the consolidated financial statements, note 48 “Commitments 45 ‘Commitments and contingencies”contingencies’ of Aegon’s Integrated Annual Report 2018.2019.
Changes in government regulations in the countries in which Aegon operates may affect profitability. Aegon’s riskregulated businesses, such as insurance, banking and asset management, policiesare subject to comprehensive regulation and processessupervision. The primary purpose of such regulation is to protect clients of these operating companies (e.g. policyholders), rather than holders of Aegon shares, capital securities and debt instruments. Changes in existing laws and regulations may leaveaffect the Company exposed to unidentified or unanticipated risk events, adversely affectingway in which Aegon conducts its businesses, resultsthe profitability of its businesses and the products it offers. Additionally, the laws or regulations adopted or amended from time to time may impose greater restrictions on Aegon’s financial flexibility and operations or may result in higher costs to operate than currently is the case, including but not limited to financial and accounting requirements; information security, data privacy, transfer, storage, and usage requirements; modeling and other actuarial requirements and standards; investments, reserves, and financial condition.management. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 383 | | | | Additional information Risk factors Aegon N.V. | | | | | | | | | | |
Aegon has devoted significant resources to the implementation and maintenance of a comprehensive enterprise risk management framework in all aspects of the business. Nevertheless, its risk measurements make use of historic and public data that may be inaccurate or may not predict future exposures. Further, operational and legal risks involve high volumes of transactions and are affected by frequent changes in Aegon’s businesses and their environments, and the risk management framework may not evolve at the same pace. As a result, there is a chance that risks present in its business strategies and initiatives may not be able to comply fully identified, monitoredwith, or obtain appropriate exemptions from, the wide variety of laws and managed. Local statutesregulations applicable to its businesses and regulatorslegal entities. Failure to comply with or to obtain appropriate exemptions under any applicable laws and regulations may limit the aggregate amount of dividends payable by Aegon´s subsidiaries and Aegon N.V., thereby limiting Aegon´s ability to make paymentsresult in restrictions on debt obligations.
Aegon’s ability to make paymentsdo business in one or more of the jurisdictions in which Aegon operates and may result in fines and other sanctions, which may have a materially adverse effect on debt obligationsAegon’s businesses, financial position or results of operations. Certain key regulatory proposals that could materially impact Aegon’s financial condition and pay some operating expenses is dependent uponresults of operations are described below. Regulatory changes include preventive and corrective supervisory measures that aim to address macro-prudential concerns, referred to in the receiptHolistic Framework for Systemic Risk in the Insurance Sector, as adopted by the IAIS in November 2019. Aegon was designated a Global Systemically Important Insurer(G-SII) by the FSB in 2015. The FSB, in consultation with the IAIS, has decided to suspendG-SII identification as from the beginning of dividends from subsidiaries. Some2020 and in November 2022 will, based on the initial years of these subsidiaries have regulatory restrictions that can limitimplementation of the paymentholistic framework, review the need either to discontinue orre-establish an annual identification of dividends. G-SIIs. In addition, local regulators, actingthe ComFrame, which was adopted in November 2019 by the IAIS, establishes minimum supervisory standards and guidance on the effective group-wide supervision of Internationally Active Insurance Groups (IAIGs) and builds on the IAIS Insurance Core Principles (a set of principles that is applicable to representall insurers). Therefore, IAIGs may be subject to additional standards that other insurers or other insurance groups are not subject to. The development of ComFrame and the interestsholistic framework may cause Aegon to engage in transactions that affect capital or constrain Aegon’s ability to pay dividends or repurchase its own shares. Furthermore, such requirements may constrain Aegon’s ability to provide guarantees and increase the cost to Aegon of local policyholders, are taking an increasingly restrictive stanceoffering 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 requirements or standards applicable with respect to permitting dividend payments,systemic entities or activities, of which the impact on shareholders cannot be predicted. In the United States, the Patient Protection and Affordable Care Act (PPACA) adopted in 2010 has been challenged in whole or in part since its adoption. Changes to the PPACA and to other laws and regulations impacting the US health insurance industry could have a material effect on Aegon’s financial condition, results of operations, and competitive position. The extent to which employers or individuals may discontinue their purchase of supplemental health insurance products as a result of any such changes may significantly impact Aegon USA’s supplemental health insurance products business. The extent of any such changes or the corresponding impact on Aegon USA’s supplemental health insurance business cannot be determined at this time. On June 5, 2019, the SEC adopted Regulation Best Interest (Regulation BI), a new rule requiring broker-dealers and investment advisers to only recommend financial products to their customers that are in their customers best interest, and to clearly identify any potential conflicts of interest and financial incentives the broker-dealer may have in connection with the sale of such products. In addition, since the Department of Labor (DOL) Fiduciary Rule was vacated in July 2018, several states have moved forward with developing their own similar rules and proposals, which in some instances substantially broaden the standard of care traditionally owed by broker-dealers and/or insurance agents to their clients. The foregoing regulations and proposed regulations, along with any future regulations by the states that impose new, heightened, conflicting or differing standards of care or restrictions on broker-dealers, insurance agents, or advisers, could have a material impact on annuity sales and, as applicable, life insurance sales. Changes in pension and employee benefit regulation, social security regulation, financial services regulation, taxation and the regulation of securities products and transactions may adversely affect Aegon’s ability to satisfy its debt obligationssell new policies or pay its operating expenses.claims exposure on existing policies. ChangesThe introduction ofstate-run retirement programs for private-sector employees in accounting standards may affect Aegon´s reported results, shareholders´ equitythe United States could directly compete with private-market retirement plans. More than 30 US states have considered legislation that would establishstate-run plans but fewer than 10 states have enacted legislation, and dividend.among those, even fewer have actually implemented them. Federal ERISA law raises questions as to whether such plans arepre-empted by ERISA.
Since 2005, Aegon’s financial statements have been prepared and presented in accordance with IFRS. Any futureIn general, changes in these accounting standardslaws and regulations may materially increase Aegon’s direct and indirect compliance costs and other ongoing business expenses and have a significant impactmaterially adverse effect on Aegon’s reportedbusinesses, results of operations or financial condition and shareholders’ equity. This includes the level and volatility of reported results and shareholders’ equity. New accounting standards that are likely to have a significant impact on Aegon’s reported results, financial condition and shareholders’ equity include but are not limited to IFRS 9 – Financial Instruments and IFRS 17 – Insurance Contracts.condition.
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
Further details are provided in the notes to the consolidated financial statements, note 2 “Significant accounting policies” of Aegon’s Annual Report 2018.
| | | | | | | | | 384 | | | | Additional information Risk factors Aegon N.V. | | | | | | | | | | |
Tax law changesrisks may adversely affect Aegon´s profitability, as well as the saleAegon’s businesses and ownership of Aegon´s products.profitability. Aegon is subject to the substance and interpretation of tax laws in all countries in which Aegon operates or invests. Tax risk is the risk associated withThe majority of tax risks relate to both Aegon’s products and its businesses, that would materialise due to changes in (i) tax laws, or the(ii) interpretation of tax laws, (iii) later jurisprudence or case law, or (iv) the introduction of new taxes or tax laws. ThisThese tax risk includesrisks include for example the risk of changes in tax rates, changes in loss carry-over rules and new rules restricting the tax deductibility of interest expenses.changes in customer taxation rules. Tax riskrisks also includesinclude the risk of consequences arising from failure to comply with procedures required by tax authorities. Failure to manage compliance tax risks potentially leads to inaccurate, incomplete or untimely tax returns. Materialisation of those risks would lead tonon-compliance, and potentially increased tax charges, penalties and interest. Failure to manage reporting risks, may lead to increased tax charges, includingpositions in financial or operating penalties. This tax risk may havereporting that do not represent a direct materially adverse effect ontrue and fair view. Most of Aegon’s profits, capital and financial condition. Any changes in tax laws, interpretation of tax laws, later jurisprudence or case law, or the introduction of new taxes or tax laws in all countries in which Aegon operates or invests, which affects Aegon’s products, may also have a materially adverse effect on Aegon’s businesses, results of operations, capital and financial condition.
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| | | 382 | | Additional information Risk factors Aegon N.V. | | | | | | |
Most insurance products enjoy certain policy holder tax advantages, particularly inadvantages. This permits, for example, the United States, the United Kingdom 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. Taxes on this insidebuild-up of earnings may not be payable at all and,on gross premium amounts with deferred taxation, if payable, generally are due onlyany, when the accumulated earnings are actually paid.
paid to our customers. Legislators have, from time to time, considered possible legislation that may make Aegon’s products less attractive to consumers, including legislation that would reduce or eliminate thethis deferral of taxation on the accretion of value within certain annuities and life insurance products.taxation. This may have an impact on insurance products and sales. Legislators also consider from timeWith regard to timethe before described compliance and reporting tax law changesrisks, controls are in place to mitigate the risk exposure. The risk response depends on the type of risk, likelihood and impact analysis and chance of repetition and reputation damage. Controls are assessed on design and operational effectiveness (Risk Control Self-Assessment).
Overall, tax risks may have a materially adverse effect on Aegon’s businesses, profits, capital and financial condition. Judgments of US courts may not be enforceable against Aegon in Dutch courts. There is no treaty between the United States and the Netherlands providing for the reciprocal recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Judgments of US courts, including those predicated on the civil liability provisions of the US federal securities laws, may not be enforceable in Dutch courts. Therefore, Aegon’s investors that obtain a judgment against Aegon in the United States may increasenot be able to require Aegon to pay the amount of taxes due by Aegonthe judgment unless a competent court in the Netherlands gives binding effect to the judgment, or, may even introduce new taxes. Inif possible, the US effective January 1, 2018, the Tax Cuts and Jobs Act made significant changes to the computation of tax reserves, capitalized policy acquisition costs and the dividends received deduction available to life insurance companies, increasing the amount of tax that Aegon is required to pay. However, effective January 1, 2018 the Tax Cuts and Jobs Act also lowered US corporate tax from 35% to 21%, reducing the amount of tax that Aegon is required to pay. Competitive factors may adversely affect Aegon´s market share.
Competitioninvestor has brought a successful original action in Aegon’s business segments is based on service, product features, price, commission structure, financial strength, claims paying ability, ratings and name recognition. Aegon faces intense competition from a large number of other insurers, as well asnon-insurance financial services companies such as banks, broker-dealers and asset managers, for individual customers, employers, other group customers, agents and other distributors of insurance and investment products. Consolidation in the global financial services industry can enhance the competitive position of some of Aegon’s competitors by broadening the range of their products and services, and increasing their distribution channels and their access to capital. In addition, development of alternative distribution channels for certain types of insurance and securities products, including using digital technologies and platforms, may result in increasing competition as well as pressure on margins for certain types of products. Traditional distribution channels are also challenged by the ban on sales- based commissions in some countries. These competitive pressures may result in increased pricing pressures on a number of products and services, particularly as competitors seek to win market share. This may harm Aegon’s ability to maintain or increase profitability
Adverse market and economic conditions can be expected to result in changes in the competitive landscape. Financial distress experienced by financial services industry participants as a result of weak economic conditions and newly imposed regulation may lead to acquisition opportunities. Aegon’s ability or that of Aegon’s competitors to pursue such opportunities may be limited due to lower earnings, reserve increases, capital requirements or a lack of access to debt capital markets and other sources of financing. Such conditions may also lead to changes by Aegon or Aegon’s competitors in product offerings and product pricing that may affect Aegon and Aegon’s relative sales volumes, market shares and profitability. Additionally, the competitive landscape in which Aegon operates may be affected by government-sponsored programs or actions taken in response to, for instance, dislocations in financial markets.Dutch court.
Aegon may be unablenot manage risks associated with the reform and replacement of benchmark rates effectively. Aegon recognizes that the reform of IBORs (Interbank Offered Rates) and any transition to adapt toreplacement rates entail risks for all our businesses across our assets and apply new technologies. New technologies are transforming the insurance industry. New technologies include,liabilities. These includes, but are not limited to, communication channels, automation, artificial intelligence, data analyticsto:
| ◆ | | Legal risks, as Aegon is required to make changes to documentation for new and existing transactions, such as funding instruments issued with an IBOR reference and derivatives held with an IBOR reference; |
| ◆ | | Financial risks, arising from any changes in the valuation of financial instruments linked to benchmark rates, such as derivatives and floating rate notes, issued by, or invested in by Aegon; |
| ◆ | | Pricing risks, as changes to benchmark indices could impact pricing mechanisms on some funding instruments or investments; |
| ◆ | | Operational risks, due to the potential requirement to adapt informational technology systems, trade reporting infrastructure and operational processes; and |
| ◆ | | Conduct risks, relating to communication with potential impact on Aegon’s customers, and engagement during the transition period. |
Various supranational institutions, central banks, regulators, benchmark administrators and blockchain. These technologies are changingindustry working groups play a role in the way insurance is distributed and sold. They are also changing the way insurers manage their businessesbenchmark reform and the skills they need in their workforces. Furthermore,preparation for the new technologies are influencing customerreplacement of IBORs. At this moment there is still a lot of uncertainty around liquidity development, and consumer demands. Technology makesthe timetable and mechanisms for implementation, including application of spread adjustments to the alternative reference rates. Accordingly, it easieris not currently possible to move into new markets. This increases competition, not just among peers, but also from new competitors and disruptors. Inabilitydetermine whether, or to adapt quickly enough to and apply these new technologieswhat extent, any such changes would affect Aegon. However, the implementation of alternative reference rates may impacthave a material adverse effect on Aegon’s competitive position, and its ability to maintain profitability, and may adversely affect Aegon’s futurebusiness, financial condition, customers and results of operations. Aegon may experience difficulties in distributing and marketing products through its current and future distribution channels.
Although Aegon distributes its products through a wide variety of distribution channels, Aegon’s ability to market its products could be affected if key relationships are interrupted. Distributors may elect to reduce or terminate their distribution relationship with Aegon due to adverse developments in its business. Further, key distribution partners may also merge, change their business models in ways that affect how Aegon’s products are sold, or new distribution channels could emerge and adversely impact the effectiveness of its current distribution efforts.
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When Aegon’s products are distributed through unaffiliated firms, Aegon may not always be able to monitor or control the manner of their distribution despite its significant training and compliance programs. If Aegon’s products would be distributed by such firms in an inappropriate manner, or to customers for whom they are unsuitable, Aegon may suffer reputational and other harm to its business.
The default of a major market participant may disrupt the markets and may affect Aegon’s business, financial condition, liquidity, operations and prospects.
The failure of a sufficiently large and influential financial institution, or other market participant including a government issuer, may disrupt securities markets or clearing and settlement systems in Aegon’s markets. This may cause market declines or volatility. Such a failure may lead to a chain of defaults that may adversely affect Aegon and Aegon’s contract counterparties. In addition, such a failure may impact future product sales as a potential result of reduced confidence in the insurance industry. The default of one or more large international financial institutions, which may result in disruption or termination of their cash, custodial and/ or and administrative services, may also have a material adverse impact on Aegon’s ability to run effective treasury and asset management operations.
Even the perceived lack of creditworthiness of a government or financial institution (or a default by any such entity) may lead to market- wide liquidity problems and losses or defaults by Aegon or by other institutions. This risk is sometimes referred to as ‘systemic risk’ and may adversely affect financial intermediaries, such as clearing members or futures commissions merchants, clearing houses, banks, securities firms and exchanges with which Aegon interacts on a daily basis and financial instruments of governments which Aegon invests in. Systemic risk could have a material adverse effect on Aegon’s ability to raise new funding and on its business, financial condition, results of operations, liquidity and/or prospects. In addition, such distress or failure could impact future product sales as a potential result of reduced confidence in the financial services industry.
Aegon may be unable to retain personnel who are key to the business.
As a global financial services enterprise, Aegon relies, to a considerable extent, on the quality of local management and personnel 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’s ability to attract and retain key personnel, in particular senior officers, experienced portfolio managers, mutual fund managers and sales executives, is very much dependent on the competitiveness of the compensation package for employees in the market in which it competes. As a part of the governmental response in Europe and, to a certain extent, the United States to the financial crisis in 2008, there have been various legislative initiatives that have sought to give guidance or regulate the structure of remuneration for personnel, in particular senior management, with a focus on performance-related remuneration and limiting severance payments. With differences in interpretation of these regulations by local regulators on how the guidelines need to be applied, as well as to the question of whether they apply to insurance industries at all, these restrictions create an uncertain playing field and may adversely affect Aegon’s ability to compete for qualified employees, as well as Aegon’s ability to transfer employees between regions.
Reinsurers to which Aegon has ceded risk may fail to meet their obligations.
Aegon’s insurance subsidiaries cede premiums to other insurers under various agreements that cover individual risks, group risks or defined blocks of business, on aco-insurance, yearly renewable term, excess or catastrophe excess basis. The purpose of these reinsurance agreements is to spread the risk and minimize the effect of losses. The amount of each risk retained depends on an evaluation of the specific risk, which is subject, in certain circumstances, to maximum limits based on the characteristics of coverage. Under the terms of the reinsurance agreements, the reinsurer agrees to reimburse for the ceded amount in the event a covered claim is paid. However, Aegon’s insurance subsidiaries remain liable to their policyholders for ceded insurance if any reinsurer fails to meet the obligations assumed by it. A bankruptcy or insolvency or inability of any of Aegon’s reinsurance counterparties to satisfy its obligations may have a materially adverse effect on Aegon’s financial position and results of operations. Refer to Schedule IV of Aegon’s Annual Report 2018 for a table showing life insurance in force amounts and premiums on a direct, assumed and ceded basis.
Reinsurance may not be available, affordable or adequate to protect Aegon against losses.
As part of Aegon’s overall risk and capital management strategy, Aegon purchases reinsurance for certain risks underwritten by Aegon’s various business segments. Market conditions beyond Aegon’s control determine the availability and cost of the reinsurance protection Aegon purchases. In addition, interpretations of terms and conditions may differ over time as contracts extend for decades.
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Accordingly, Aegon may be forced to incur additional expenses for reinsurance or may not be able to obtain or enforce sufficient reinsurance on acceptable terms, which may adversely affect Aegon’s ability to write future business and realize planned value for current business.
Aegon may have difficulty managing its expanding operations, and Aegon may not be successful in acquiring new businesses or divesting existing operations.
In recent years, Aegon has made a number of acquisitions and divestitures around the world and it is possible that Aegon may make further acquisitions and divestitures in the future. Growth by acquisition involves risks that may adversely affect Aegon’s operating results and financial condition. These include: the potential diversion of financial and management resources from existing operations; difficulties in assimilating the operations, technologies, products and personnel of the acquired company; significant delays in completing the integration of acquired companies; the potential loss of key employees or customers of the acquired company; potential losses from unanticipated litigation and tax and accounting issues. In addition, expansion into new and emerging markets may involve heightened political, legal and regulatory risks, such as discriminatory regulation, nationalization or expropriation of assets, price controls and exchange controls.
Aegon’s acquisitions may result in additional indebtedness, costs, contingent liabilities and impairment expenses related to goodwill and other intangible assets. Divestitures of existing operations may result in Aegon assuming or retaining certain contingent liabilities. Aegon may not be able to divest assets within the time or at the price planned. All of these factors may adversely affect Aegon’s businesses, results of operations and financial condition. Future acquisitions may also have a dilutive effect on the ownership and voting percentages of existing shareholders. There can be no assurance that Aegon will successfully identify suitable acquisition candidates or that Aegon will properly value acquisitions made. Aegon is unable to predict whether or when any prospective acquisition candidate will become available, or the likelihood that any acquisition will be completed once negotiations have commenced.
Aegon may not be successful in managing its exposure to climate risk and adequately adapting investment portfolios for the transition to alow-carbon economy
Climate change is a long-term risk associated with high uncertainty regarding timing, scope and severity of potential impacts. The risks for insurers can be grouped into physical risks and transition risks. Physical risks relate to losses from climate trends (i.e. changing weather patterns and sea level rise) and climate events (i.e. extreme weather and natural disasters). These physical risks impact property & casualty (P&C) insurance, but also life insurance, for instance through higher than expected mortality rates. Losses can also follow from credit risk and collateral linked to the mortgage portfolio. Aegon is exposed to mortality risk and mortgage underwriting risks and has limited exposure to P&C risk, including catastrophic risk. Beyond insured losses from physical climate damages, climate change can increase uninsured damages and losses and may have disrupting and cascading effects on the wider economy and across the financial system. The second category of risks is associated with the transition to alow-carbon economy. These transition risks can affect the value of assets and impact the investments portfolios of insurers. Furthermore, it cannot be ruled out that Aegon itself is unable to adjust to environmental and sustainability goals. The transition risks are determined by largely uncertain factors such as policy and regulatory changes, political, social and market dynamics and technological innovations. Linked to both the physical and the transition risks, there could be litigation and reputational risks following from not fully considering or responding to the impacts of climate change, or not providing appropriate disclosure of current and future risks. The risks can relate both to Aegon and the companies in which it invests.
Aegon takes actions on all mentioned aspects of climate risks. Aegon seeks to reduce its exposure to the physical risks through risk selection, risk monitoring, and purchasing reinsurance. Furthermore, Aegon assesses and takes action on the transition risks of climate change with respect to its businesses and through its responsible investment activities and disclosures. More details on Aegon’s responsible investment and climate change activities can be found in the strategy section of this annual report. Despite these actions and given the significant uncertainties related to climate change and the long-term nature of the issue, it cannot be ruled out that climate change may lead to losses to Aegon’s businesses, the investment portfolios it manages and to its corporate reputation.
Catastrophic events, which are unpredictable by nature, may result in material losses and abruptly and significantly interrupt Aegon´s business activities.
Aegon’s operating results and financial position may be adversely affected by volatile natural andman-made disasters such as hurricanes, windstorms, earthquakes, terrorism, riots, fires and explosions, pandemic disease and other catastrophes. Over the past several years, changing weather patterns and climatic conditions have added to the unpredictability and frequency of natural disasters
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in certain parts of the world and created additional uncertainty as to future trends and exposure. Generally, Aegon seeks to reduce its exposure to these events through individual risk selection, monitoring risk accumulation, and purchasing reinsurance. However, such events may lead to considerable financial losses to Aegon’s businesses. Furthermore, natural disasters, terrorism, civil unrest, military actions and fires may disrupt Aegon’s operations and result in significant loss of property, key personnel and information about Aegon and its clients. If its business continuity plans have not included effective contingencies for such events, Aegon may experience business disruption and damage to corporate reputation and financial condition for a substantial period of time.
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 may face claims from customers, both individual claimants as well as policyholder advocate groups, and negative publicity if Aegon’s products result in losses or fail to result in expected gains, regardless of the suitability of products for customers or the adequacy of the disclosure provided to customers by Aegon and by the intermediaries who distribute Aegon’s products. New products that are less well understood and that have less of a historical performance track record may be more likely to be the subject of such claims. Any such claims may have a materially adverse effect on Aegon’s results of operations, corporate reputation and financial condition.
Aegon may not be able to protect its intellectual property and may be subject to infringement claims. Aegon relies on a combination of contractual rights with third parties and copyright, trademark, patent and trade secret laws to establish and protect Aegon’s intellectual property. Third parties may infringe on or misappropriate Aegon’s intellectual property, and it is possible that third parties may claim that Aegon has infringed on or misappropriated their intellectual property rights. Any resulting proceedings in which Aegon would have to enforce and protect its intellectual property or defend itself against a claim of infringement of a third-party’s intellectual property, may require significant effort and resources and may not prove successful. As a result of any proceeding in which Aegon would have to enforce and protect its intellectual property, Aegon may lose intellectual property protection, which may have a materially adverse effect on Aegon’s businesses, results of operations, financial condition and Aegon’s ability to compete. As a result of any proceeding in which Aegon would have to defend itself against a claim of infringement of a third-party’s intellectual property, Aegon may be required to pay damages and provide injunctive relief, which may have a materially adverse effect on Aegon’s businesses, results of operations and financial condition. Inadequate or failed processes or systems, human factors or external events may adversely affect Aegon´s profitability, reputation or operational effectiveness.
Operational risk is inherent in Aegon’s businesses and may manifest itself in many ways, including business interruption, poor vendor performance, information systems malfunctions or failures, regulatory breaches, cyber intrusions, failure to protect data, processing errors, modeling errors, and/or internal and external fraud. These events may result in financial loss, harm Aegon’s reputation, or hinder Aegon’s operational effectiveness. Further, employee error, unethical behavior and/or misconduct may be difficult to detect and prevent under all circumstances and may result in significant losses.
Operational risk is part of the business environment in which Aegon operates, and is inherent in Aegon’s size and complexity, as well as Aegon’s geographic diversity, and the scope of the businesses Aegon operates. Aegon’s risk management activities cannot anticipate every circumstance, and economic and financial outcome, or the specifics and timing of such outcomes. Furthermore, if the contractual arrangements put in place with any third-party service providers are terminated, including contractual arrangements with providers of information technology, administrative or investment management services, Aegon may not be able to find an alternative provider on a timely basis or on equivalent terms. Aegon may incur significant losses due to these types of risks.
As Aegon continues to focus on reducing expenses necessary to support its business, a key part of its operating strategy has been to outsource certain services that are important to its business. Aegon outsources certain information technology, finance and actuarial services, investment management services and policy administration operations to third-party providers and may do so increasingly in the future. If Aegon fails to maintain an effective outsourcing strategy or if third-party providers do not provide the core administrative, operational, financial, and actuarial services Aegon requires and anticipates, or perform as contracted, such as compliance with applicable laws and regulations, or suffer a cyber-attack or other security or privacy breach, Aegon may not realize the productivity improvements or cost efficiencies or customers might experience lower service levels. In addition, Aegon may not be able to find an adequate alternate provider, and instead experience financial loss, reputational harm, operational difficulties, increased costs, a loss of business and other negative consequences, all of which could have a material adverse effect
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on Aegon’s results of operations. In addition, Aegon’s reliance on third-party providers does not relieve Aegon of its responsibilities and requirements. Any failure or negligence by such third-party providers in carrying out their contractual duties may result in Aegon being subjected to liability and litigation. Any litigation relating to such matters could be costly, time-consuming, and the outcome would be uncertain. Moreover, any adverse publicity arising from such litigation, even if the litigation is not successful, could adversely affect Aegon’s reputation and distribution of its products. Finally, Aegon’s ability to receive services from third-party providers based in different countries might be impacted by political instability, cultural differences, regulatory requirements or policies inside or outside of the countries within which Aegon has operations. As a result, Aegon’s ability to conduct its business might be adversely affected.
Aegon´s operations support complex transactions and are highly dependent on the proper functioning of information technology and communication systems. Any failure of Aegon´s information technology or communications systems may result in a material adverse effect on Aegon´s results of operations and corporate reputation.
Any failure of or gap in the systems and processes necessary to support complex transactions and avoid systems failure, fraud, information security failures, processing errors, cyber intrusion, loss of data and breaches of regulation may lead to a materially adverse effect on Aegon’s results of operations and corporate reputation. In addition, Aegon must commit significant resources to maintain and enhance its existing systems in order to keep pace with applicable regulatory requirements, industry standards and customer preferences. If Aegon fails to maintain secure and well-functioning information systems, Aegon may not be able to rely on information for product pricing, compliance obligations, risk management and underwriting decisions. In addition, Aegon cannot assure investors or consumers that interruptions, failures or breaches in security of these processes and systems will not occur, or if they do occur, that they can be timely detected and remediated. The occurrence of any of these events may have a materially adverse effect on Aegon’s businesses, results of operations and financial condition.
A computer system failure or security breach may disrupt Aegon´s business, damage Aegon´s reputation and adversely affect Aegon´s results of operations, financial condition and cash flows.
Aegon relies heavily on computer and information systems and internet and network connectivity to conduct a large portion of its business operations. This includes the need to securely store, process and transmit confidential information, including personal information, through a number of complex systems. In many cases this also includes transmission and processing to or through commercial customers, business partners and third-party service providers. The introduction of new technologies, computer system failures, cyber-crime attacks or security or privacy breaches may materially disrupt Aegon’s business operations, damage Aegon’s reputation, result in regulatory and litigation exposure, investigation and remediation costs, and materially and adversely affect Aegon’s results of operations, financial condition and cash flows.
The information security risk that Aegon faces includes the risk of malicious outside forces using public networks and other methods, including social engineering and the exploitation of targeted offline processes, to attack Aegon’s systems and information. It also includes inside threats, both malicious and accidental. For example, human error and lack of sufficiently automated processing can result in improper information exposure or use. Aegon also faces risk in this area due to its reliance in many cases on third-party systems, all of which may face cyber and information security risks of their own. Third-party administrators or distribution partners used by Aegon or its subsidiaries may not adequately secure their own information systems and networks, or may not adequately keep pace with the dynamic changes in this area. Potential bad actors that target Aegon and its applicable third parties may include, but are not limited to, criminal organizations, foreign government bodies, political factions, and others.
In recent years information security risk has increased sharply due to a number of developments in how information systems are used by companies such as Aegon, but also by society in general. Threats have increased as criminals and other bad actors become more organized and employ more sophisticated techniques. At the same time companies increasingly make information systems and data available through the internet, mobile devices or other network connections to customers, employees and business partners, thereby expanding the attack surface that bad actors can exploit.
Large, global financial institutions such as Aegon have been, and will continue to be subject to information security attacks for the foreseeable future. The nature of these attacks will also continue to be unpredictable, and in many cases may arise from circumstances that are beyond Aegon’s control. If Aegon fails to adequately invest in defensive infrastructure, technology and processes or to effectively execute against its information security strategy, it may suffer material adverse consequences.
To date the highest impact information security incidents that Aegon has experienced are believed to have been the result ofe-mail phishing attacks targeted at Aegon’s business partners and commercial customers. This in turn led to unauthorized use of valid Aegon website credentials to engage in fraudulent transactions and improper data exfiltration. Additionally, Aegon has also faced other
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types of attacks, including but not limited to other types of phishing attacks and distributed denial of service (DDoS) attacks. Although to Aegon’s knowledge these events have thus far not been material in nature, Aegon management believes that significant investment will be required to establish and maintain adequate information security systems that are capable of addressing the possibility of these types of attacks, as well as for the possibility of more significant and sophisticated information security attacks, in the future. There is no guarantee that the measures that Aegon takes will be sufficient to stop all types of attacks or mitigate all types of information security or privacy risks.
Aegon maintains cyber liability insurance to help decrease the impact of cyber-attacks and information security events, subject to the terms and conditions of the policy, however such insurance may not be sufficient to cover all applicable losses that Aegon may suffer.
A breach of data privacy or security obligations may disrupt Aegon’s business, damage Aegon’s reputation and adversely affect financial conditions and results of operations.
Pursuant to applicable laws, various government agencies and independent administrative bodies have established numerous rules protecting the privacy and security of personal information and other confidential information held by Aegon. For example, certain of our businesses are subject to laws and regulations enacted by U.S. federal and state governments, the E.U. or othernon-U.S. jurisdictions and/or enacted by various regulatory organizations relating to the privacy and/or security of the information of customers, employees or others. Effective May 25, 2018, the General Data Protection Regulation (GDPR) took effect in the E.U. Compared to the previous directive, the GDPR, among other things, increased compliance obligations, impacted our businesses’ collection, processing and retention of personal data and reporting of data breaches, and provides for significantly increased penalties fornon-compliance. The New York Department of Finance Services (NYDFS), pursuant to its cybersecurity regulation, requires financial institutions regulated by the NYDFS, including certain Aegon subsidiaries, to, among other things, satisfy an extensive set of minimum cyber security requirements, including but not limited to governance, management, reporting, policy, technology and control requirements. Numerous other U.S. laws also impose various information security and privacy related obligations with respect to various Aegon subsidiaries operating in the U.S., including but not limited to the Gramm-Leach-Bliley Act and related state laws (GLBA), and the Health Insurance Portability and Accountability Act (HIPAA), among many others. Other legislators and regulators with jurisdiction over our businesses are considering potential enhanced information security risk management and privacy rules and regulations. A number of Aegon’s subsidiaries are also subject to contractual restrictions with respect to the information of our clients and business partners. Aegon, and numerous of its systems, employees and business partners have access to, and routinely process, the personal information of consumers. Aegon relies on various processes and controls to protect the confidentiality, integrity and availability of personal information and other confidential information that is accessible to, or in the possession of, Aegon, its systems, employees and business partners. It is possible that an Aegon employee, business partner or system could, intentionally or unintentionally, inappropriately disclose or misuse personal or confidential information. Aegon’s data or data in its possession could also be the subject of an unauthorized cyber intrusion or cybersecurity attack. If Aegon fails to maintain adequate processes and controls or if Aegon or its business partners fail to comply with relevant laws and regulations, policies and procedures, misappropriation or intentional or unintentional inappropriate disclosure or misuse of personal information or other confidential information could occur. Such control inadequacies ornon-compliance could cause disrupted operations and misstated or unreliable financial data, materially damage Aegon’s reputation or lead to increased regulatory scrutiny or civil or criminal penalties or litigation, which, in turn, could have a material adverse effect on Aegon’s business, financial condition and results of operations. In addition, Aegon analyzes personal information and customer data to better manage its business, subject to applicable laws and regulations and other restrictions. It is possible that additional regulatory or other restrictions regarding the use of such techniques may be imposed. Additional privacy and security obligations have been imposed by various governments with jurisdiction over Aegon or its subsidiaries in recent years, and more such obligations are likely to be imposed in the near future. Such restrictions and obligations could have material impacts on Aegon’s business, financial conditions and/or results of operations.
Judgments of US courts may not be enforceable against Aegon in Dutch courts.
There is no treaty between the United States and the Netherlands providing for the reciprocal recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Judgments of US courts, including those predicated on the civil liability provisions of the US federal securities laws, may not be enforceable in Dutch courts. Therefore, Aegon’s investors that obtain a judgment against Aegon in the United States may not be able to require Aegon to pay the amount of the judgment unless a competent court in the Netherlands gives binding effect to the judgment. It may, however, be possible for a US investor to bring an original action in a Dutch court to enforce liabilities against Aegon, Aegon’s affiliates, directors, officers or any expert named therein who resides outside the United States, based upon the US federal securities laws.
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Risks relating to Aegon’s common shares
Aegon´s share price could be volatile and could drop unexpectedly, and investors may not be able to resell Aegon´s common shares at or above the price paid.
The price at which Aegon’s common shares trade is influenced by many factors, some of which are specific to Aegon and
Aegon’s operations, and some of which are related to the insurance industry and equity markets in general. As a result of these factors, investors may not be able to resell their common shares at or above the price paid for them. In particular, the following factors, in addition to other risk factors described in this section, may have a material impact on the market price of Aegon’s common shares:
◆ | | Investor perception of Aegon as a company; |
◆ | | Actual or anticipated fluctuations in Aegon’s revenues or operating results; |
◆ | | Announcements of intended acquisitions, disposals or financings, or speculation about such acquisitions, disposals or financings; |
◆ | | Changes in Aegon’s dividend policy, which may result from changes in Aegon’s cash flow and capital position; |
◆ | | Sales of blocks of Aegon’s shares by significant shareholders, including Vereniging Aegon; |
◆ | | A downgrade or rumored downgrade of Aegon’s credit or financial strength ratings, including placement on credit watch; |
◆ | | Potential litigation involving Aegon or the insurance industry in general; |
◆ | | Changes in financial estimates and recommendations by securities research analysts; |
◆ | | Fluctuations in capital markets, including foreign exchange rates, interest rates and equity markets; |
◆ | | The performance of other companies in the insurance sector; |
◆ | | Regulatory developments in the United States, the Netherlands, the United Kingdom, and other countries in which Aegon operates; |
◆ | | International political and economic conditions, including the effects of terrorist attacks, military operations and other developments stemming from such events, and the uncertainty related to these developments; |
◆ | | News or analyst reports related to markets or industries in which Aegon operates; and |
◆ | | General insurance market conditions. |
Aegon and its significant shareholders may offer additional common shares in the future, and these and other sales may adversely affect the market price of the outstanding common shares.
Aegon may decide to offer additional common shares in the future, for example, to strengthen Aegon’s capital position in response to regulatory changes or to support an acquisition.
In 2016, Vereniging Aegon entered into a three year term and revolving facilities agreement with a consortium of banks. In 2018, this agreement was extended to 2021. Under this agreement, Aegon’s common shares in the possession of Vereniging Aegon are pledged to the consortium of banks. If Vereniging 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.
An additional offering of common shares by Aegon, the restructuring of Aegon’s share capital, the sales of common shares by significant shareholders or by lenders to Vereniging Aegon, or the public perception that an offering or such sales may occur, may have an adverse effect on the market price of Aegon’s common shares.
As of December 31, 2018, there were 2,095,648,244 common shares and 585,022,160 common shares B issued. Of these, Vereniging Aegon held 279,236,609 common shares and 571,165,680 common shares B. All of Aegon’s outstanding common shares are freely tradable, and all shareholders, including large shareholders such as Vereniging Aegon, are free to resell their common shares at any time.
Vereniging Aegon, Aegon´s major shareholder, holds a large percentage of the voting shares and therefore has significant influence over Aegon´s corporate actions.
Vereniging Aegon holds 32.6% of the voting shares. For details on the shareholding of Vereniging Aegon its developments, the Amended 1983 Merger Agreement and the Voting Rights Agreement – please see the section Major shareholders onpages 323-325.
Following the 1983 Amended Merger Agreement between Aegon N.V. and Vereniging Aegon Vereniging Aegon has a call option on common shares B. which Vereniging Aegon may exercise to keep or restore its total stake at 32.6%, irrespective of the circumstances which cause the total shareholding to be or become lower than 32.6%.
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 389 | | Additional information Risk factors Aegon N.V. | | | | | | |
As a matter of Dutch corporate law, common shares and common shares B offer equal full voting rights, as they have equal nominal values (EUR 0.12). The financial rights attached to a common share B are 1/40th of the financial rights attached to a common share. The Voting Rights Agreement between Aegon N.V. and Vereniging Aegon ensures that under normal circumstances, i.e. except in the event of a Special Cause, Vereniging Aegon will no longer be able to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in the absence of a Special Cause Vereniging Aegon will cast one vote for every common share it holds and one vote only for every 40 common shares B. It is at the sole discretion of Vereniging Aegon if a Special Cause has occurred. A Special Cause includes the acquisition of a 15% interest in Aegon N.V., a tender offer for Aegon N.V. shares or a proposed business combination by any person or group or persons, whether individually or as a group, other than in a transaction approved by the Executive Board and the Supervisory Board. In the event of a Special Cause, Vereniging Aegon’s voting rights will increase to 32.6% for up to six months. Consequently, Vereniging Aegon may have substantial influence on the outcome of corporate actions requiring shareholder approval.
Currency fluctuations may adversely affect the trading prices of Aegon´s common shares and the value of any cash distributions made.
Since Aegon’s common shares listed on Euronext Amsterdam are quoted in euros and Aegon’s common shares listed on NYSE New York are quoted in US dollars, fluctuations in exchange rates between the euro and the US dollar may affect the value of Aegon’s common shares. In addition, Aegon declares cash dividends in euros, but pays cash dividends, if any, on Aegon’s shares of New York registry in US dollars based on an exchange rate set the business day following the shareholder meeting approving the dividend. As a result, fluctuations in exchange rates may affect the US dollar value of any cash dividends paid.
Convertible securities (or other securities that permit or require Aegon to satisfy its obligations by issuing common shares) that Aegon may issue could influence the market price for Aegon´s common shares.
In the future, Aegon may issue convertible securities or other securities that permit or require Aegon to satisfy obligations by issuing common shares. Those securities would likely influence, and be influenced by, the market for Aegon’s common shares.
For example, the price of Aegon’s common shares may become more volatile and may be depressed by investors’ anticipation of the potential resale in the market of substantial amounts of Aegon’s common shares received at maturity or otherwise. Aegon’s common shares may also be depressed by the issue of common shares upon mandatory conversion of any convertible securities or by the acceleration of any convertible securities (or other such securities) that Aegon has issued by investors who view such convertible securities (or other such securities) as a more attractive means of participation in Aegon’s equity. Negative results may also be produced by hedging or arbitrage trading activity that may develop involving such convertible securities (or other such securities) and Aegon’s common shares. Any such developments may negatively affect the value of Aegon’s common shares.
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 390 | | Additional information Compliance with regulations | | | | | | | | | | | | |
Compliance with regulations Iran Threat Reduction and Syria Human Rights Act Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 requires Aegon to disclose whether Aegon N.V. or any of its affiliates has engaged during the calendar year in certain Iran-related activities, including any transaction or dealing with the Government of Iran that is not conducted pursuant to a specific authorization of the U.S. government. The amounts in this section are reported in EUR 1 or GBP 1. In the UK and the Netherlands, Aegon maintained a limited number of plans that are reportable under Section 219. Thenon-U.S.non-US based subsidiaries of Aegon N.V. do operate in compliance with applicable laws and regulations of the various jurisdictions where they conduct business. Aegon UK has six UK resident customers who have one active Individual Pension Plan (IPP) and areUK-based employees of a British registered charity that appears on the SDN (SpeciallySpecially Designated Nationals)Nationals (SDN) List with the identifier [SDGT] (SpeciallySpecially Designated Global Terrorist)Terrorist [SDGT]; the charity makesmade contributions to the pensions. The customers are not SDNs; the charity does not own, benefit from, or have control over the pensions. All payments have been paid in UK SterlingPounds from a UK bank account. The pensions are managed in line with applicable legislation and regulation in the UK and the charity is not subject to sanctions in the UK or EU. The relationships are under close ongoing review. IPP #1 has a value of GBP 10,36514,268 as at January 30, 2019,February 5, 2020, and regular monthly contributions of GBP 69.41 are being received into this policy. IPP #2 has a value of GBP 4,4105,948 as at January 30, 2019,February 5, 2020, and regular monthly contributions of GBP 18.61 are being received. IPP #3 has a value of GBP 199,455244,158 as at January 30, 2019,February 5, 2020, and regular monthly contributions of GBP 527.91 are being received. IPP #4 has a value of GBP 8,62211,218 as at January 30, 2019,February 5, 2020, and no further contributions are being received. IPP #5 has a value of GBP 43,01251,746 as at January 30, 2019,February 5, 2020, and no further contributions are being received. IPP #6 has a current value of GBP 8,13110,580 as at January 30, 2019,February 5, 2020, and no further contributions are being received. The related annual net profit arising from these contracts, which is difficult to calculate with precision, is estimated to be no greater than GBP 8,219.10,130. In the Netherlands, Aegon Levensverzekering N.V. has one Dutch resident customer who is a party subject to U.S.US sanctions for whom two active IPPs and one individual life investment linked insurance policy are held. This person is on the Foreign Sanctions Evaders List (‘FSE List’) with Regard to Syria and is listed on the SDN and Blocked Persons List. The FSE List includes persons sanctioned pursuant to E.O. 13608 and are identified with the program tags[FSE-IR] and[FSE-SY]. The customer is not subject to sanctions in the Netherlands or EU. IPP #1 and #2 are lifelong annuity plans which start at the retirement age of 65 (January 2023). The annual pensionpensions benefits as of January 1, 2023 for policy #1 will be EUR 560.64 gross per year and for #2 EUR 34.11 gross per year. The contributions into these policies ended in the 1980’s. The related annual net profit arising from these two contracts is negligible. The individual life investment linked insurance policy has a value of EUR 65,64068,505 as atof January 1, 2019,2020, and regular monthly contributions of EUR 198.60 are being received; all contributions have been paid in Euros from a Dutch bank account. The policy is managed in line with applicable legislation and regulation in the Netherlands; the individual is not subject to sanctions in the Netherlands or EU. The end date of this policy is February 1, 2023. The related annual net profit arising from this contract, which is difficult to calculate with precision, is estimated to be EUR 500 per year. | | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 391387 | | | | Additional information Property, plant and equipment | | | | | | | | | | | | |
Property, plant and equipment In the United States, Aegon owns many of the buildings that the Company uses in the normal course of its business, primarily as offices. Aegon owns 1410 offices located throughout the United States with a total square footage of 21.2 million. Aegon also leases space for various offices located throughout the United States under long-term leases with a total square footage of 11.3 million. Aegon’s principal offices in the United States are located in Little Rock, AR; Denver, CO; Cedar Rapids, IA; St. Petersburg, FL; Atlanta, GA; Louisville, KY; Baltimore, MD; Harrison, NY; Exton, PA;NY, and Plano, TX.
Other principal offices owned by Aegon are located in The Hague, the Netherlands and Budapest, Hungary. Aegon owns its headquarters and leases other offices in the Netherlands (Amsterdam, Leeuwarden and Groningen), in the United Kingdom and in Spain under long-term leases. Aegon believes that its properties are adequate to meet its current needs. The offer and listing The principal market for Aegon’s common shares is Euronext Amsterdam, where they are listed under the symbol ‘AGN’. Aegon’s common shares are also listed on NYSE New York under the symbol ‘AEG’. Aegon’s common shares B are not listed to trade on any securities market. On Euronext Amsterdam only Euronext registered shares may be traded, and on NYSE New York only New York Registry Shares may be traded. Material contracts There are no material contracts. Exchange controls There are no legislative or other legal provisions currently in force in the Netherlands or arising under Aegon’s Articles of Association restricting remittances to holders of Aegon’s securities that are not resident in the Netherlands. Cash dividends payable in euros on Aegon’s common shares may be officially transferred from the Netherlands and converted into any other convertible currency. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 388 | | | | Additional information Employees and labor relations | | | | | | | | | | |
Employees and labor relations At the end of 2018,2019, Aegon had 26,54323,757 employees. Approximately 33%36% are employed in the Americas, 37%38% in Europe, 24%19% in Asia and 6% in Asset Management. Note that employees of the Holding are included in Europe. All of Aegon’s employees in the Netherlands, other than senior management, are covered by the collective labor agreement of Aegon NL. Aegon, the unions and the Dutch Central Works Council are working closely together in theco-creation steering group to come to new agreements. The current collective labor agreement has a duration of threetwo years. Aegon has experienced no significant strike, work stoppage or labor dispute in recent years. Under Dutch law, members of the Central Works Council responsible for Aegon in the Netherlands are elected by Aegon the Netherlands’ employees. The Central Works Council has certain defined powers at the level of the Dutch subsidiary company Aegon Nederland N.V., including the right to makenon-binding recommendations for appointments to its Supervisory Board and the right to enter objections against proposals for appointments to that Supervisory Board. A break-down of the number of employees is provided below: | | | 2018 | | | 2017 | | | 2016 | | | 2019 | | | 2018 | | | 2017 | | | Americas | | | 8,824 | | | | 10,951 | | | | 11,943 | | | | 8,570 | | | | 8,824 | | | | 10,951 | | | The Netherlands | | | 3,938 | | | | 3,460 | | | | 4,794 | | | | 3,998 | | | | 3,938 | | | | 3,460 | | | United Kingdom | | | 3,135 | | | | 3,435 | | | | 2,673 | | | | 2,261 | | | | 3,135 | | | | 3,435 | | | Central & Eastern Europe | | | 2,318 | | | | 2,337 | | | | 2,317 | | | | Spain & Portugal | | | 519 | | | | 610 | | | | 600 | | | Southern and Eastern Europe | | | | 2,853 | | | | 2,837 | | | | 2,947 | | | Asia | | | 6,344 | | | | 6,025 | | | | 5,579 | | | | 4,540 | | | | 6,344 | | | | 6,025 | | | Asset Management | | | 1,464 | | | | 1,500 | | | | 1,474 | | | | 1,535 | | | | 1,464 | | | | 1,500 | | | | | | 26,543 | | | 28,318 | | | 29,380 | | | | 23,757 | | | | 26,543 | | | | 28,318 | | | Of which Aegon’s share of employees in joint ventures and associates | | | 6,854 | | | | 6,497 | | | | 5,944 | | | | 5,162 | | | | 6,854 | | | | 6,497 | |
See note 14 Commissions and expenses of the Notes to the consolidated financial statements of this Annual Report for a description of employee expenses. | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 389 | | | | Additional information Dividend policy | | | | | | | | | | |
Dividend policy Under Dutch law and Aegon’s Articlesarticles of Association,association, holders of Aegon’s common shares are entitled to dividends paid out of the profits remaining, if any, after the creation of a reserve account. Aegon’s Executive Board may determine the dividend payment date and the dividend record date for the common shares, which may vary for the various kinds of registered shares. Aegon’s Executive Board, with the approval of Aegon’s Supervisory Board, may also determine the currency or currencies in which the dividends will be paid. Aegon may make one or more interim distributions to the holders of common shares. Aegon aims to pay out a sustainable dividend to allow equity investors to share in Aegon’s performance, which can grow over time if Aegon’s performance so allows. After investment in new business to generate organic growth, capital generation | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 392 | | Additional information The offer and listing | | | | | | |
in Aegon’s operating subsidiaries is available for distribution to the holding company, while maintaining a capital and liquidity position in the operating subsidiaries in line with Aegon’s capital management and liquidity risk policies. Aegon uses cash flows from its operating subsidiaries to pay holding expenses, including funding costs. The remaining cash flow is available to execute Aegon’s strategy and to fund dividends on its shares, subject to maintaining holding company targeted capital. Depending on circumstances, future prospects and other considerations, Aegon’s Executive Board may elect to deviate from this target. Aegon’s Executive Board will also take capital position, financial flexibility, leverage ratios and strategic considerations into account when declaring or proposing dividends on common shares. Under normal circumstances, Aegon would expect to declare an interim dividend when announcing Aegon’s first half year results and to propose a final dividend at the Annual General Meeting of Shareholders for approval. Dividends would normally be paid in cash or stock at the election of the shareholder. The relative value of cash and stock dividends may vary. Stock dividends paid may, subject to capital management and other considerations, be repurchased in order to limit dilution. When determining whether to declare or propose a dividend, Aegon’s Executive Board has to balance prudence versus offering an attractive return to shareholders, for example in adverse economic and/or financial market conditions. Also, Aegon’s operating subsidiaries are subject to local insurance regulations which could restrict dividends to be paid to the Company. There is no requirement or assurance that Aegon will declare and pay any dividends. Holders of common shares historically have been permitted to elect to receive dividends, if any, in cash or in common shares. For dividends, which holders may elect to receive in either cash or common shares, the value of the stock alternative may differ slightly from the value of the cash option. Aegon pays cash dividends on shares of New York registry in US dollars through Citibank, N.A., Aegon’s NYSE paying agent, based on the foreign exchange reference rate (WM/Reuters closing spot exchange rate fixed at 5.00 pm Central European Summer Time (“CEST”(‘CEST’)) on theUS-ex dividend day. The offer and listing
The principal market for Aegon’s common shares is Euronext Amsterdam, where they are listed under the symbol “AGN”. Aegon’s common shares are also listed on NYSE New York under the symbol “AEG”.
On Euronext Amsterdam only Euronext registered shares may be traded, and on NYSE New York only New York Registry Shares may be traded.
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 393390 | | | | Additional information Memorandum and Articles of Association | | | | | | | | | | | | |
Memorandum and Articles of Association Aegon is registered under number 27076669 in the Commercial Register of the Chamber of Commerce and Industries for Haaglanden, The Hague, the Netherlands. Certain provisions of Aegon’s current Articles of Association are discussed below. Objects and purposes | ◆ | | The objects of Aegon are to incorporate, acquire and alienate shares and interests in, to finance and grant security for commitments of, to enter into general business relationships with, and to manage and grant services to legal entities and other entities, in particular those involved in the insurance business, and to do all that is connected therewith or which may be conducive thereto, all to be interpreted in the broadest sense; and |
| ◆ | | In achieving the aforesaid objects due regard shall be taken, within the scope of sound business operations, to provide fair safeguards for the interests of all the parties directly or indirectly involved in Aegon. |
Provisions related to directors For information with respect to provisions in the Articles of Association relating to members of the Supervisory Board and Executive Board, refer to the Governance section (see pages42-65)36-40). Description of Aegon’s capital stock Aegon has two types of shares: common shares (par value EUR 0.12) and common shares B (par value EUR 0.12). Common characteristics of the common shares and common shares B | ◆ | | All shares are in registered form; |
| ◆ | | All shares have dividend rights except for those shares (if any) held by Aegon as treasury stock. Dividends which have not been claimed within five years lapse to Aegon; |
| ◆ | | Each currently outstanding share is entitled to one vote except for shares held by Aegon as treasury stock. There are no upward restrictions; |
| ◆ | | However, under normal circumstances, i.e. except in the event of a Special Cause, based on the Voting Rights Agreement1, Vereniging Aegon will no longer be able to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in the absence of a Special Cause, Vereniging Aegon may cast one vote for every common share it holds and one vote only for every 40 common shares B it holds. As Special Cause qualifies the acquisition of a 15% interest in Aegon N.V., a tender offer for Aegon N.V. shares or a proposed business combination by any person or group of persons, whether individually or as a group, other than in a transaction approved by the Executive Board and the Supervisory Board. If, in its sole discretion, Vereniging Aegon determines that a Special Cause has occurred, Vereniging Aegon will notify the General Meeting of Shareholders and retain its right to exercise the full voting power of one vote per common share B for a limited period of six months; |
| ◆ | | All shares have the right to participate in Aegon’s net profits. Net profits is the amount of profits after contributions, if any, to a reserve account; |
| ◆ | | In the event of liquidation, all shares have the right to participate in any remaining balance after settlement of all debts; |
| ◆ | | The General Meeting of Shareholders may, at the proposal of the Executive Board, as approved by the Supervisory Board, resolve to reduce the outstanding capital either by (i) repurchasing shares and subsequently canceling them, or (ii) by reducing their nominal share value; |
| ◆ | | There are no sinking fund provisions; |
| ◆ | | All issued shares are fullypaid-up; so there is no liability for further capital calls; and |
| ◆ | | There are no provisions discriminating against any existing or prospective holder of shares as a result of such shareholder owning a substantial number of shares. |
Differences between common shares and common shares B | ◆ | | The common shares are listed; the common shares B are not listed; |
| ◆ | | The financial rights attaching to a common share B areone-fortieth (1/40th) of the financial rights attaching to a common share; and |
| ◆ | | A repayment on common shares B needs approval of the holders of common shares B. |
| ◆ | | A transfer of common shares B requires approval of the Supervisory Board of Aegon N.V. |
| 1 | The Voting Rights Agreement is published on Aegon’s corporate website. |
| | | | | | | | | | | | Aegon Annual Report on Form 20F201820-F2019 | | |
| | | | | | | | 394391 | | | | Additional information Memorandum and Articles of Association | | | | | | | | | | | | |
Actions necessary to change the rights of shareholders A change to the rights of shareholders would require an amendment to the Articles of Association. The General Meeting of Shareholders (Annual General Meeting or extraordinaryExtraordinary General Meeting) may only pass a resolution to amend the Articles of Association pursuant to a proposal of the Executive Board with the approval of the Supervisory Board. The resolution requires a majority of the votes cast at the meeting in order to pass. The actual changes to the text of the Articles of Association will be executed by a civil law notary. Furthermore, a resolution of the General Meeting of Shareholders to amend the Articles of Association which has the effect of reducing the rights attributable to holders of a specific class shall be subject to the approval of the meeting of holders of such class. Conditions under which meetings are held Annual General Meetings and extraordinaryExtraordinary General Meetings of Shareholders shall be convened by public notice. Notice must be given no later than 42 days prior to the date of the meeting. The notice must contain a summary agenda and indicate the place where the complete agenda together with the documents pertaining to the agenda may be obtained. The agenda is also sent to shareholders registered with the Company Register. New York Registry shareholders or their brokers receive a proxy solicitation notice. For admittance to and voting at the meeting, shareholders must produce evidence of their shareholding as of the record date. The Dutch law determines that the record date is 28 days prior to the General Meeting of Shareholders. Shareholders must notify Aegon of their intention to attend the meeting. Limitation on the right to own securities There are no limitations, either under the laws of the Netherlands or in Aegon’s Articles of Association, on the rights ofnon-residents of the Netherlands to hold or vote Aegon common shares or common shares B. Provisions that would have the effect of delaying a change of control A resolution of the General Meeting of Shareholders to suspend or dismiss a member of the Executive Board or a member of the Supervisory Board, other than pursuant to a proposal by the Supervisory Board, shall require at leasttwo-thirds of the votes cast representing more thanone-half of the issued capital. In the event a Special Cause occurs (such as the acquisition of 15% of Aegon’s voting shares, a tender offer for Aegon’s shares or a proposed business combination by any person or group of persons, whether individually or as a group, other than in a transaction approved by the Executive Board and Supervisory Board), Vereniging Aegon will be entitled to exercise its full voting rights of one vote per each common share B for up to six months per Special Cause, thus increasing its current voting rights to 32.6%. Threshold above which shareholder ownership must be disclosed There are no such provisions in the Articles of Association. Dutch law requires public disclosure with the Authority for Financial Markets with respect to the ownership of listed shares when the following thresholds are met: 3%, 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75% and 95%. Material differences between Dutch law and US law with respect to the items above Reference is made to the paragraph ‘Differences inbetween Dutch and US company law practices for domestic companies’laws’ included in the Corporate Governance section of this Annual Report (see page 46)40). Special conditions governing changes in the capital There are no conditions more stringent than what is required by law. | | | | | | | | | | | | Aegon Annual Report on Form 20F20-F20192018 | | |
| | | 395 | | Additional information Material contracts | | | | | | |
There are no material contracts.
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 396392 | | Additional information Exchange controls | | | | | | |
Exchange controls
There are no legislative or other legal provisions currently in force in the Netherlands or arising under Aegon’s Articles of Association restricting remittances to holders of Aegon’s securities that are not resident in the Netherlands. Cash dividends payable in euros on Aegon’s common shares may be officially transferred from the Netherlands and converted into any other convertible currency.
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 397 | | Additional information Taxation | | | | | | | | | | | | |
Taxation This chapter contains the following two sections: i Certain netherlandsDutch tax consequences forto holders of shares ii Taxation in the United States tax consequences to holders of shares i Certain NetherlandsDutch tax consequences forto holders of shares The following section outlines certain material NetherlandsDutch tax consequences of the acquisition, holding, redemption and disposal of Aegon common shares, but does not purport to be a comprehensive description of all NetherlandsDutch tax considerations that may be relevant. This section is intended as general information only and each prospective investor should consult a professional tax adviseradvisor with respect to the tax consequences of an investment in Aegon common shares. This section is based on tax legislation, published case law, treaties, regulations and published policy, in each case as in force as of the date hereof, and it does not take into account any developments or amendments thereof after that date whether or not such developments or amendments have retroactive effect. This section does not address the NetherlandsDutch corporate and individual income tax consequences for: | i. | Investment institutions(fiscale beleggingsinstellingen);. |
| ii. | Pension funds, exempt investment institutions(vrijgestelde beleggingsinstellingen)or other entities that are exempt from NetherlandsDutch corporate income tax;tax. |
| iii. | Corporate holders of Aegon common shares, the shareholding of which qualifies for the participation exemption(deelnemingsvrijstelling)of the NetherlandsDutch Corporate Income Tax Act 1969(Wet op de vennootschapsbelasting 1969)or would qualify for the participation exemption had the corporate holders of the Aegon common shares been resident in the Netherlands. Generally speaking, a shareholding is considered to qualify as a participation for the participation exemption if it represents an interest of 5% or more of the nominalpaid-up share capital;capital. |
| iv. | Holders of Aegon common shares holding a substantial interest(aanmerkelijk belang)or deemed substantial interest(fictief (fictief aanmerkelijk belangbelang)) in Aegon and holders of Aegon common shares of whom a certain related person holds a substantial interest in Aegon. Generally speaking, a substantial interest in Aegon arises if a person, alone or, where such person is an individual, together with his or her partner (statutory defined term), directly or indirectly, holds or is deemed to hold (i) an interest of 5% or more of the total of capital issued by Aegon or 5% or more of the issued capital of a certain class of Aegon shares, (ii) rights to acquire, directly or indirectly, such interest or (iii) certain profit-sharing rights in Aegon;Aegon. |
| v. | Persons to whom the Aegon common shares and the income from the Aegon common shares are attributed based on the separated private assets(afgezonderd particulier vermogen)provisions of the NetherlandsDutch Income Tax Act 2001(Wet inkomstenbelasting 2001);. |
| vi. | Entities which are resident in Aruba, Curacao or Sint Maarten that have an enterprise which is carried on through a permanent establishment or a permanent representative on Bonaire, Sint Eustatius or Saba, to which permanent establishment or permanent representative the Aegon common shares are attributable;attributable. |
| vii. | Holders of Aegon common shares which are not considered the beneficial owner(uiteindelijk gerechtigde)of these shares or of the benefits derived from or realized in respect of the Aegon common shares; andshares. |
| viii. | Individuals to whom Aegon common shares or the income therefrom are attributable to employment activities which are taxed as employment income in the Netherlands. |
Where this section refers to the Netherlands, such reference is restricted to the part of the Kingdom of the Netherlands that is situated in Europe and the legislation applicable in that part of the Kingdom. | | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 398 | | Additional information Taxation | | | | | | |
Dividend withholding tax Withholding requirement Aegon is required to withhold 15% NetherlandsDutch dividend withholding tax in respect of dividends paid on its common shares. Netherlands Dutch dividend withholding tax will be withheld from the gross dividends paid on the Aegon common shares. In the NetherlandsDutch Dividend Withholding Tax Act 1965 (Wet op de dividendbelasting 1965), dividends are defined as the proceeds from shares, which include:
| i. | Direct or indirect distributions of profit, regardless of their name or form;form. |
| ii. | Liquidation proceeds, proceeds on redemption of Aegon common shares and, as a rule, the consideration for the repurchase of its own common shares by Aegon in excess of the averagepaid-in capital recognized for NetherlandsDutch dividend withholding tax purposes, unless a particular statutory exemption applies;applies. |
| iii. | The nominal value of new common shares issued to a holder of Aegon common shares or an increase of the nominal value of Aegon common shares, except insofar as the (increase in the) nominal value of Aegon common shares is funded out of itspaid-in capital as recognized for NetherlandsDutch dividend withholding tax purposes; andpurposes. |
| | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
| | | | | | | | | 393 | | | | Additional information Taxation | | | | | | | | | | |
| iv. | Partial repayments ofpaid-in capital recognized for NetherlandsDutch dividend withholding tax purposes, if and to the extent there are qualifying profits ((zuiverezuivere winst winst),), unless Aegon’s General Meeting of Shareholders has resolved in advance to make such repayment and provided that the nominal value of Aegon common shares concerned has been reduced by an equal amount by way of an amendment of the Articles of Association. The term “qualifying profits”‘qualifying profits’ includes anticipated profits that have yet to be realized. |
Residents of the Netherlands If a holder of Aegon common shares is a resident, or deemed to be a resident of the Netherlands for NetherlandsDutch corporate or individual income tax purposes, NetherlandsDutch dividend withholding tax which is withheld with respect to proceeds from Aegon common shares will generally be creditable for NetherlandsDutch corporate income tax or NetherlandsDutch income tax purposes. Non-residents of the Netherlands 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 specific terms of that particular treaty, qualify for full or partial relief at source or for a refund in whole or in part of the NetherlandsDutch dividend withholding tax. A refund of NetherlandsDutch withholding dividend tax is available to an entity resident in another EU member state, Norway, Iceland, or Liechtenstein if (i) this entity is not subject to corporate income tax there and (ii) this entity would not be subject to Netherlands corporate income tax, if this entity would be tax resident in the Netherlands for corporate income tax purposes and (iii) this entity is not comparable to an investment institution(fiscale beleggingsinstelling) or exempt investment institution(vrijgestelde beleggingsinstelling). if: | ◆ | | This entity is not subject to corporate income tax there; |
| ◆ | | This entity would not be subject to Dutch corporate income tax, if this entity would be tax resident in the Netherlands for corporate income tax purposes; and |
| ◆ | | This entity is not comparable to an investment institution (fiscale beleggingsinstelling) or exempt investment institution (vrijgestelde beleggingsinstelling). |
Furthermore, a similar refund of NetherlandsDutch dividend withholding tax may be available to an entity resident in another country, under the additional conditions that (i) the Aegon common shares are considered portfolio investments for purposes of article 63 (taking into account article 64) of the Treaty on the functioning of the European Union and (ii) the Netherlands can exchange information with this other country in line with the international standards for the exchange of information.that: | ◆ | | The Aegon common shares are considered portfolio investments for purposes of article 63 (taking into account article 64) of the Treaty on the functioning of the European Union; and |
| ◆ | | The Netherlands can exchange information with this other country in line with the international standards for the exchange of information. |
A (partial) refund of NetherlandsDutch dividend withholding tax is available to a holder of Aegon common shares resident in another EU member state, Norway, Iceland or Liechtenstein if (i) this holder of Aegon common shares is not subject to Netherlands individual income tax or Netherlands corporate income tax with respect to the income from the Aegon common shares and (ii) such Netherlands dividend withholding tax is higher than the Netherlands individual income tax or Netherlands corporate income tax would have been had this holder of Aegon common shares been tax resident in the Netherlands, after taking into account a possible refund based on the Netherlands Dividend Withholding Tax Act 1965 (Wet op de dividendbelasting 1965) or a refund based on a treaty for the avoidance of double taxation with respect to taxes on income, and (iii) no credit based on a treaty for the avoidance of double taxation with respect to taxes on income is granted in the state in which the holder of Aegon common shares is tax resident, for the full amount of Netherlands dividend withholding tax withheld, and (iv) this holder of Aegon common shares does not have a similar function as an investment institution (fiscale beleggingsinstelling) or exempt investment institution (vrijgestelde beleggingsinstelling). if: | ◆ | | This holder of Aegon common shares is not subject to Dutch individual income tax or Dutch corporate income tax with respect to the income from the Aegon common shares; |
| ◆ | | Such Dutch dividend withholding tax is higher than the Dutch individual income tax or Dutch corporate income tax would have been had this holder of Aegon common shares been tax resident in the Netherlands, after taking into account a possible refund based on the Dutch Dividend Withholding Tax Act 1965 or a refund based on a treaty for the avoidance of double taxation with respect to taxes on income; |
| ◆ | | No credit based on a treaty for the avoidance of double taxation with respect to taxes on income is granted in the state in which the holder of Aegon common shares is tax resident, for the full amount of Dutch dividend withholding tax withheld; and |
| ◆ | | This holder of Aegon common shares does not have a similar function as an investment institution (fiscale beleggingsinstelling) or exempt investment institution (vrijgestelde beleggingsinstelling). |
Furthermore, a similar refund of NetherlandsDutch dividend withholding tax may be available to a holder of Aegon common shares resident in another country, under the additional conditions that (i) the Aegon common shares are considered portfolio investments for purposes of article 63 (taking into account article 64) of the Treaty on the functioning of the European Union and (ii) the Netherlands can exchange information with this other country in line with the international standards for the exchange of information.that: | | | | | | | | ◆ | | The Aegon common shares are considered portfolio investments for purposes of article 63 (taking into account article 64) of the Treaty on the functioning of the European Union; and |
| ◆ | | Annual Report on Form 20F2018 | | |
| | | 399 | | Additional information Taxation | | | | | | |
US-residents Residents of the United States that qualify for, and comply with the procedures for claiming benefits under the Convention between the Kingdom of the Netherlands and the United States of America for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income 1992 (the US/NL Income Tax Treaty) may, under various specified conditions, be eligible for a reduction of the NetherlandsDutch dividend withholding tax rate from 15% to 5% if the resident of the United States is a company which | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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holds directly at least 10% of the voting power in Aegon. The US/NL Income Tax Treaty provides, subject to certain conditions, for a complete exemption from, or refund of, NetherlandsDutch dividend withholding tax for dividends received by exempt pension trusts and exempt organizations, as defined therein. Beneficial owner A recipient of proceeds from Aegon common shares will not be entitled to any exemption, reduction, refund or credit of NetherlandsDutch dividend withholding tax if such recipient is not considered to be the beneficial owner of such proceeds. The recipient will not be considered the beneficial owner of these proceeds, if, in connection with such proceeds, the recipient has paid a consideration as part of a series of transactions in respect of which it is likely: | ◆ | | That the proceeds have in whole or in part accumulated, directly or indirectly, to a person or legal entity that would: (i) as opposed to the recipient paying the consideration, not be entitled to an exemption from dividend withholding tax; or (ii) in comparison to the recipient paying the consideration, to a lesser extent be entitled to a reduction or refund of dividend withholding tax; and |
| ◆ | | That such person or legal entity has, directly or indirectly, retained or acquired an interest in Aegon common shares or in profit sharing certificates or loans, comparable to the interest it had in similar instruments prior to the series of transactions being initiated. |
NetherlandsDutch dividend withholding tax upon redistribution of foreign dividends
Aegon must pay to the Dutch tax authorities all Netherlands dividend withholding tax it withholds on dividends it distributed with respect to the Aegon common shares. Provided certain conditions are met, Aegon may apply a reduction with respect to the withholding tax that it has to pay to the Dutch tax authorities. This reduction can be applied if Aegon distributes dividends that stem from dividends Aegon itself has received from certain qualifyingnon-Netherlandsnon-Dutch subsidiaries, provided these dividends received by Aegon are exempt from NetherlandsDutch corporate income tax and were subject to a withholding tax of at least 5% upon distribution to Aegon. The reduction is applied to the Netherlands dividend withholding tax that Aegon must pay to the NetherlandsDutch tax authorities and not to the amount of the NetherlandsDutch dividend withholding tax that Aegon must withhold. The reduction is equal to the lesser of: | i. | 3% of the amount of the dividends distributed by Aegon that are subject to NetherlandsDutch dividend withholding tax; and |
| ii. | 3% of the gross amount of the dividends received during a certain period from the qualifyingnon-Netherlandsnon-Dutch subsidiaries. |
The amount of the above mentioned reduction of the withholding tax will be reduced on a pro rata basis to the extent that Aegon distributes dividends to entities that are entitled to a refund of the NetherlandsDutch dividend withholding tax. This reduction does not apply in respect of dividends paid to entities that own less than 5% of the nominalpaid-up capital of Aegon. Corporate and individual income tax Residents of the Netherlands If a holder of Aegon common shares is a resident or deemed to be a resident of the Netherlands for NetherlandsDutch corporate income tax purposes and is fully subject to NetherlandsDutch corporate income tax or is only subject to NetherlandsDutch corporate income tax in respect of an enterprise to which Aegon common shares are attributable, income derived from Aegon common shares and gains realized upon the redemption or disposal of Aegon common shares are generally taxable in the Netherlands (at up to a maximum rate of 25%) under the NetherlandsDutch Corporate Income Tax Act 1969(Wet op de vennootschapsbelasting 1969).1969. If an individual is a resident or deemed to be a resident of the Netherlands for NetherlandsDutch individual income tax purposes, income derived from Aegon common shares and gains realized upon the redemption or disposal of Aegon common shares are taxable at progressive rates (at up to a maximum rate of 51.75%49.5%) under the NetherlandsDutch Income Tax Act 2001(Wet inkomstenbelasting 2001) if:2001if: | i. | The individual is an entrepreneur (ondernemer) and has an enterprise to which Aegon common shares are attributable or the individual has, other than as a shareholder, aco-entitlement to the net worth of an enterprise (medegerechtigde), to which enterprise Aegon common shares are attributable; or |
| ii. | Such income or gains qualify as income from miscellaneous activities (resultaat uit overige werkzaamheden), which includes but is not limited to activities with respect to Aegon common shares that exceed regular, active portfolio management (normaal, actief vermogensbeheer). |
| | | | | | | | | | | Annual Report on Form 20F2018 | | |
| | | 400 | | Additional information Taxation | | | | | | |
If neither condition (i) nor condition (ii) above applies to the holder of the Aegon common shares, taxable income with regard to the Aegon common shares must be determined on the basis of a deemed return on income from savings and investments (sparen(sparen en beleggen), rather than on the basis of income actually received or gains actually realized. This deemed return on income from savings and investments is fixed at a percentage of the individual’s yield basis (rendementsgrondslag) at the beginning of the calendar year (1 January), insofar as the individual’s yield basis exceeds a certain threshold (heffingsvrij vermogenvermogen)). The individual’s yield basis is determined as the fair market value of certain qualifying assets held by the holder of Aegon common shares less the fair market value of certain qualifying liabilities on 1 January. The fair market value of Aegon common shares will be included as an | | | | | | | | | | | Aegon Annual Report on Form 20-F2019 | | |
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asset in the individual’s yield basis. The deemed return percentage to be applied to the yield basis increases progressively depending on the amount of the yield basis. The deemed return on income from savings and investments is taxed at a rate of 30%. Non-residents of the Netherlands If a person is neither a resident nor is deemed to be a resident of the Netherlands for NetherlandsDutch corporate or individual income tax purposes, such person is not subject to NetherlandsDutch corporate income tax in respect of income derived from Aegon common shares and gains realized upon the redemption or disposal of Aegon common shares, except if:if the person is not an individual and: i.1 | The person is not an individual and (1) has an enterprise that is, in whole or in part, carried on through a permanent establishment or a permanent representative in the Netherlands to which permanent establishment or a permanent representative Aegon common shares are attributable, or (2) is,
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| 2 | other than by way of securities, is entitled to a share in the profits of an enterprise or aco-entitlement to the net worth of an enterprise, which is effectively managed in the Netherlands and to which enterprise Aegon common shares are attributable. This income and these gains are subject to Netherlands corporate income tax at up to a maximum rate of 25%; |
This income and these gains are subject to Dutch corporate income tax at up to a maximum rate of 25%. If a person is neither a resident nor is deemed to be a resident of the Netherlands for Dutch individual income tax purposes, such person is not subject to Dutch individual income tax in respect of income derived from Aegon common shares and gains realized upon the redemption or disposal of Aegon common shares, except if the person is an individual that: ii.1 | The person is an individual that (1) has an enterprise or an interest in an enterprise that is, in whole or in part, carried on through a permanent establishment or a permanent representative in the Netherlands to which permanent establishment or permanent representative Aegon common shares are attributable, or (2)
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| 2 | realizes income or gains with respect to Aegon common shares that qualify as income from miscellaneous activities (resultaat(resultaat uit overige werkzaamheden)werkzaamheden) in the Netherlands which include activities with respect to Aegon common shares that exceed regular, active portfolio management (normaal,(normaal, actief vermogensbeheer)vermogensbeheer), or (3) |
| 3 | is entitled to, other than by way of securities, entitled to a share in the profits of an enterprise that is effectively managed in the Netherlands and to which enterprise Aegon common shares are attributable. Income and gains derived from Aegon common shares as specified under (1) and (2) by an individual are subject to individual income tax at up to a maximum rate of 51.75% |
Income and gains derived from Aegon common shares as specified under (1) and (2) by an individual are subject to individual income tax at up to a maximum rate of 49.5%. Income derived from a share in the profits of an enterprise as specified under (3) that is not already included under (1) or (2) will be taxed on the basis of a deemed return on income from savings and investments (as described above under ‘Residents of the Netherlands’). The fair market value of the share in the profits of the enterprise (which includes Aegon common shares) will be part of the individual’s Netherlands yield basis. |
