UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM20-F
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(Mark One)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20172020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number1-10882
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Aegon N.V.
(Exact name of Registrant as specified in its charter)
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Not Applicable
(Translation of Registrant’s name into English)
The Netherlands
(Jurisdiction of incorporation or organization)
Aegonplein 50, PO Box 85, 2501 CB The Hague, The Netherlands
(Address of principal executive offices)
J.H.P.M. van Rossum
Executive Vice President and Head of Corporate Financial Center
Aegon N.V.
Aegonplein 50, 2501 CB The Hague, The Netherlands
+31-70-3445458
Jurgen.vanRossum@aegon.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common shares, par value EUR 0.12 per share | AEG | New York Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Not applicable
(Title of Class)
Not applicable
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
Not applicable
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 2,074,548,842
2,098,114,300 common shares and 585,022,160571,795,040 common shares B
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
☒ Yes No☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.☐ Yes No☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirementrequirements for the past 90 days.
☒ Yes No☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
☒ Yes No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or an emerging growth company.
See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule12b-2 of the Exchange ActAct.
☒ Large accelerated filer☐ Accelerated filer☐Non-accelerated filer☐ Emerging growth company
If an emerging growth company that prepares its financial statements in accordance with USU.S. GAAP, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards† provided pursuant to Section 13(a) of the Exchange ActAct. ☐
†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards
Board to its Accounting Standards Codification after April 5, 20122012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by checkmark which basis of accounting the registrant has used to prepare the financial statements included in this filing
☐ U.S. GAAP☒ International Financial Reporting Standards as issued by the International Accounting Standards Board☐ Other
If “other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
☐ Item 17☐ Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).☐ Yes No☒
Cross reference table Form20-F
1 | Identity of Directors, Senior Management and Advisers | n/a | |||||
2 |
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n/a | |||||||
3 | Key Information | ||||||
3A | Selected financial data | 122-123 | |||||
3B | Capitalization and indebtedness | n/a | |||||
3C | Reasons for the offer and use of proceeds | ||||||
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3D | Risk factors | 87-92, 111-117, 189-215, 370-392 | |||||
4 | Information on the Company | ||||||
4A | History and development of the Company | 11-45, 307-309, 435 | |||||
4B |
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4C |
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4D |
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Property, plants and equipment | 394 | ||||||
4A |
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n/a | |||||||
5 | Operating and Financial Review and Prospects | ||||||
5A |
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124-146 | |||||||
5B | Liquidity and capital resources | 99-106, 237-239, 272-273, 283-288 | |||||
5C |
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Research and development, patent and licenses etc. | |||||||
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5D | Trend information | 19-45, 124-146 | |||||
5E | Off-balance sheet arrangements | 300-304 | |||||
5F |
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Tabular disclosure of contractual obligations |
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5G | |||||||
Safe harbor | n/a | ||||||
6 | Directors, Senior Management and Employees | ||||||
6A | Directors and senior management | 53-57 | |||||
6B |
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6C |
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6D |
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6E |
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7 |
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Major Shareholders and Related Party Transactions | |||||||
7A |
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7B |
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310-312 | |||||||
7C | Interest of experts and counsel | n/a | |||||
8 | Financial Information | ||||||
8A | Consolidated Statements and Other Financial Information | 148-154, 331-337 | |||||
8B |
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n/a | |||||||
9 |
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9A |
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9B |
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9C |
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9D |
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9E | Dilution | n/a |
9F | Expenses of the issue | n/a | ||||
Aegon Annual Report on Form 20-F 2020
10 | Additional Information | |||||
10A | Share capital | n/a | ||||
10B | Memorandum and articles of association | 396-397 | ||||
10C | Material contracts | 398 | ||||
10D | Exchange controls | 398 | ||||
10E | Taxation | 399-402 | ||||
10F | Dividends and paying agents | n/a | ||||
10G | Statement by experts | n/a | ||||
10H | Documents on display | 436 | ||||
10I | Subsidiary Information | n/a | ||||
11 | Quantitative and Qualitative Disclosures About Market Risk | 111-117, 189-215 | ||||
12 | Description of Securities Other than Equity Securities | n/a | ||||
13 | Defaults, Dividend Arrearages and Delinquencies | n/a | ||||
14 | Material Modifications to the Rights of Security Holders and Use of Proceeds | n/a | ||||
15 | Controls and Procedures | 118 | ||||
16A | Audit committee financial expert | 61-62 | ||||
16B | Code of Ethics | 92 | ||||
16C | Principal Accountant Fees and Services | 403 | ||||
16D | Exemptions from the Listing Standards for Audit Committees | n/a | ||||
16E | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | 404 | ||||
16F | Change in Registrant’s Certifying Accountant | n/a | ||||
16G | Corporate Governance | 48-52 | ||||
16H | Mine Safety Disclosure | n/a | ||||
17 | Financial Statements | n/a | ||||
18 | Financial Statements | 148-326, 338-341 | ||||
19 | Exhibits | 437 | ||||
Aegon Annual Report on Form 20-F 2020
Help people achieve a lifetime of financial security This Annual Report on Form 20-F aims to provide you with a comprehensive and detailed overview of Aegon’s governance, strategy, and performance in 2020. Read how we are creating sustainable value in pursuit of our purpose of helping people achieve a lifetime of financial security.
13 | Defaults, Dividend Arrearages and Delinquencies | n/a | ||
14 | Material Modifications to the Rights of Security Holders and Use of Proceeds | n/a | ||
15 | Controls and Procedures | 138 | ||
16A | Audit committee financial expert | 115-116 | ||
16B | Code of Ethics | 137 | ||
16C | Principal Accountant Fees and Services | 368 | ||
16D | Exemptions from the Listing Standards for Audit Committees | n/a | ||
16E | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | 369 | ||
16F | Change in Registrant’s Certifying Accountant | n/a | ||
16G | Corporate Governance | 131-135 | ||
16H | Mine Safety Disclosure | n/a | ||
17 | Financial Statements | n/a | ||
18 | Financial Statements | 144-319 | ||
19 | Exhibits | 382 |
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Welcome to Aegon’s 2020
IntroductionAnnual Report on Form 20-F
This is Aegon’s Annual Report on Form About20-F for the year ended December 31, 2020. Aegon’s aim in producing this report
Filing is to provide a comprehensive and detailed overview of the Company’s operations, strategy, and performance. In this report, we look at the trends and challenges our business is facing, at our strategy, and at how we share and create value through a responsible approach to our business. This report also contains the 2020 consolidated financial statements and Company financial statements for Aegon N.V. (from page 148).
This document contains Aegon’s Annual Report as filed on Form20-F (also referred to in this document as ‘Annual Report’) with the United States Securities and Exchange Commission (SEC).
AboutWe have prepared this report
This report serves as Aegon’s Annual Report for the year ended December 31, 2017. It presents the consolidated financial statements of Aegon pages 144-305 and the stand-alone financial statements of Aegon N.V. pages 307-319, both prepared in accordance with the International Financial Reporting Standards, as issued by the IASB, as well as the International Accounting Standards Board (‘IFRS’), and Part 9 of Book 2 ofIntegrated Reporting Council (IIRC) framework. This report also conforms to the relevant reporting requirements under the Dutch Corporate Governance Code and Dutch Civil Code.
Aegon N.V. is referred to in this document as ‘Aegon’, or ‘the Company’, and is together with its member companies referred to as ‘Aegon Group’ or ‘the Group’Code (Part 9, Book 2). For such purposes, ‘member companies’ means, in relation to Aegon N.V., those companies required to be consolidated in accordance with the Netherlands legislative requirements relating to consolidated accounts.
Presentation of certain information
References to the ‘NYSE’ are to the New York Stock Exchange and references to the ‘SEC’ are to the US Securities and Exchange Commission. Aegon uses ‘EUR’ and ‘euro’ when referring to the lawful currency of the member states of the European Monetary Union; ‘USD’, and ‘US dollar’ when referring to the lawful currency of the United States of America; ‘GBP’, ‘UK pound’ and ‘pound sterling’ when referring to the lawful currency of the United Kingdom; and ‘PLN’ when referring to the lawful currency of Poland.
Aegon prepares its consolidated financial statements in accordance with IFRS and with Part 9 of Book 2 of the Netherlands Civil Code for purposes of reporting with the U.S. SEC, including financial information contained in this Annual
Report on Form20-F. Aegon’s accounting policies and its use of various options under IFRS are described in note 2 to the consolidated financial statements.
Other thenthan for SEC reporting, Aegon prepared 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. IFRS-EU differs from IFRS in respect of certain paragraphs in IAS 39 ‘Financial Instruments: Recognition and Measurement’regardingMeasurement’ 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 (fair value macro hedges) in accordance with the EU ‘carve out’ version of IAS 39. Under IFRS.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 sceduledscheduled time buckets is either more or less than the original designated amount of that bucket.
This information is prepared by revising the hedge accounting impacts that are applied under the EU ‘carve out’ version of IAS
39. Financial information under IFRS accordingly does not take account of the possibility that had Aegon applied IFRS as its primary accounting framework it might have aplliedapplied alternative hedge strategies where those alternative hedge strategies could have qualified for IFRS compliant hedge accounting. These decisions could have resulted in different shareholders’ equity and net income amounts compared to those indicated in this Annual Report on Form20-F.
A reconciliation betweenIFRS-EU and IFRS is included in note 2.1 to the consolidated financial statements.
If you have comments or suggestions about this report, please contact our offices in The Hague. Contact details may be found on page 435.
References
Throughout this document, Aegon N.V. is referred to as either ‘Aegon’ or ‘the Company’. Along with its member companies, Aegon N.V. may be referred to as ‘Aegon Group’ or ‘the Group’. For the purposes of this report, ‘member companies’ shall mean, with respect to Aegon N.V., those companies consolidated in accordance with Dutch legislation relating to consolidated accounts.
References to ‘NYSE’ and ‘SEC’ relate to the New York Stock Exchange and the US Securities and Exchange Commission respectively. Aegon uses ‘EUR’ and ‘euro’ when referring to the lawful currency of European Monetary Union member states; ‘USD’ and ‘US dollar’ when referring to the lawful currency of the United States and ‘GBP’, ‘UK pound’, and ‘pound sterling’ when referring to the lawful currency of the United Kingdom.
Aegon Annual Report on Form 20-F 2020 |
2 |
Aegon Annual Report on Form 20-F 2020 |
3 |
Aegon Annual Report on Form 20-F 2020 |
2020: A foundation for change 4 |
In 2020, Aegon introduced its new strategy, and put in place a set of measures based on an ambitious operating plan and new financial targets aimed at increasing value for all our stakeholders. This approach seeks to change Aegon’s performance trajectory by reducing costs, expanding margins and growing profitably.
◆ Aegon completes the sale of its 50% stake in its Japanese variable annuity joint ventures to partner Sony Life. ◆ Transamerica scores 100% in the Human Rights Campaign Foundation’s Corporate Equality Index for the third consecutive year. ◆ Aegon UK employees raise more than GBP 106,000 for its charity partners and other good causes following a series of fundraising initiatives. ◆ COVID-19 lockdowns are introduced in Europe and the United States; Aegon moves to working from home. ◆ Transamerica settles Universal Life litigation for approximately USD 88 million. ◆ Transamerica announces comprehensive CARES Act customer support initiatives, including distribution fee waiver for COVID-19-impacted retirement plan participants. ◆ Aegon Transamerica Foundation makes USD 500,000 contribution to Direct Relief to support ongoing COVID-19 relief efforts. ◆ Lard Friese succeeds Alex Wynaendts as CEO of Aegon. ◆ Caroline Ramsay and Thomas Wellauer are appointed to Aegon’s Supervisory Board. ◆ Appointments of Blake Bostwick as CEO of Transamerica’s Individual Solutions Division and Kent Callahan as CEO of Transamerica’s Workplace Solutions Division. ◆ Aegon the Netherlands agrees partnership with IBM for the management of 800,000 individual life insurance policies. ◆ Following the death of George Floyd in the United States, employees at Transamerica form Black Professionals for Change, a new employee resource group (ERG). |
Aegon Annual Report on Form 20-F 2020 |
2020: A foundation for change5 | ||
◆ Aegon and Banco Santander complete the expansion of their life and non-life insurance partnership in Spain. ◆ Aegon achieves its highest score yet in the Workplace Pride Benchmark. ◆ Transamerica is included in the Diversity Best Practices Inclusion Index for the third year in a row. ◆ Principles for Responsible Investment (PRI) awards Aegon Asset Management its top rating of A+ for the strategy and governance of its responsible investment activities. ◆ Aegon sponsors Pension Awareness Week 2020 in the United Kingdom. ◆ Aegon Transamerica Foundation donates USD 250,000 to relief efforts following a severe storm in Iowa, the United States. ◆ Aegon announces that Jack McGarry will be nominated for appointment to the Supervisory Board at the 2021 Annual General Meeting (AGM). ◆ Aegon the Netherlands joins 25 financial institutions to launch the Finance for Biodiversity Pledge, calling on world leaders to commit to reverse biodiversity loss this decade. ◆ Aegon Asset Management moves to a single global brand. ◆ Transamerica features on Working Mother 100 Best Companies list for the second consecutive year. ◆ Duncan Russell joins Aegon as Chief Transformation Officer. ◆ Aegon announces the sale of Stonebridge, a UK-based provider of accident insurance products, for approximately GBP 60 million. ◆ Aegon announces that Frans Blom will be nominated for appointment to the Supervisory Board at the 2021 AGM. ◆ Transamerica completes the sale of the iconic Pyramid building complex in San Francisco, California, for USD 650 million, while retaining the naming rights. ◆ Transamerica Premier Life Insurance Company merges with Transamerica Life Insurance Company. ◆ Aegon makes a financial contribution to a campaign to help individuals in the Netherlands experiencing financial difficulties during the COVID-19 pandemic. ◆ Aegon agrees to sell its insurance, pension, and asset management businesses in Hungary, Poland, Romania, and Turkey for EUR 830 million to Vienna Insurance Group AG Wiener Versicherung Gruppe (VIG). ◆ Aegon Asset Management joins other members of the International Investors Group on Climate Change (IIGCC) in asking 36 major European CO2-emitting companies to explicitly include climaterisks in their financial reports, or face possible investment withdrawal. ◆ Announcement that the Aegon-backed Silver Starters learning program for entrepreneurs aged 50+ will be extended to Italy and Portugal in 2021. ◆ Aegon signs the Race at Work Charter in the United Kingdom. ◆ Transamerica and Aegon Asset Management introduce Transamerica DB Complete, a new defined benefit plan management service that brings together all the services typically outsourced to unrelated third-party vendors, including plan administration, asset management, and actuarial support. ◆ At Capital Markets Day, Aegon announces its new strategy and financial targets, including an expense savings program aimed at reducing addressable expenses by EUR 400 million in 2023 compared with 2019. ◆ Aegon the Netherlands signs the Diversity Charter as part of its commitment to promoting diversity and inclusion in the workplace. ◆ Aegon Asset Management’s equity platform selected for a USD 1.1 billion sub-advisory responsible investment mandate under the US Sustainable Equity Income strategy. ◆ Aegon donates GBP 20,000 to Aegon Breakfast Clubs in Edinburgh. ◆ Aegon surpasses its goal of 30% gender diversity at management level worldwide in 2020, reaching 32% female representation. |
Aegon Annual Report on Form 20-F 2020 |
Letter from our CEO6 | ||
The past year was particularly challenging for everyone in terms of how we work and live. When I joined Aegon in March I was deeply impressed by how quickly our employees adapted to the new situation and maintained high levels of service to our customers and engagement with our business partners.
We took proactive steps to guide and support our customers during the difficulties they faced. For instance, we introduced the ‘Blue Heart’ program in the Netherlands that enabled people facing financial difficulties to postpone their payments. In China, we included COVID-19 coverage as part of our critical illness product range. Following the introduction of the CARES Act in the US, Transamerica helped customers navigate the complex regulations to access retirement savings in a penalty-free manner.
Our employees’ commitment was further illustrated by our US colleagues in Cedar Rapids, Iowa when a devastating storm hit the state in August. Everyone worked tirelessly to ensure uninterrupted service to customers, while supporting each other and their local communities during this extraordinarily difficult time.
Prior to 2020, the idea of an international organization of over 22,000 people working from home was difficult to imagine. Yet, faced with the pandemic and a host of other challenges, our colleagues across the Group adapted swiftly to a different way of working, stayed focused and began executing on our plans to transform Aegon.
Our employees still face challenges, ranging from working from home while caring for children, to being isolated from older family members, to coping with the mental strain of the drawn-out pandemic. Aside from providing the IT tools and equipment needed to create a safe home-working environment, we have developed the ‘Working from Home’ framework, which sets vitality and engagement as priorities to support employees. By delivering on our key aims of keeping fit, connected, and motivated, we have been able to improve our overall engagement as shown by the results of the 2020 Global Employee Survey.
New strategy
After my appointment as CEO, we launched a detailed review of the Group. Aegon has not been performing up to its full potential for some time, and we are determined to take action to address this. The review established that we needed to sharpen our strategic focus, improve the way we allocate capital, build a true, high-performance culture, improve our operating discipline, and reduce our risk profile - all against the backdrop of a low interest rate environment and an uncertain economic outlook.
We announced Aegon’s new strategy at our Capital Markets Day on December 10, 2020. Going forward, we are focusing on three core markets, three growth markets and one global asset manager. Our three core markets - the United States, the Netherlands, and the United Kingdom - are among the largest investment, protection, and retirement markets in the world. Our ambition is to play a leading role in each of them. In markets where we have sub-scale or niche positions, we will manage capital tightly and have a bias to exit. Additionally, we have decided to separate our businesses in our core markets into Financial Assets and Strategic Assets. Financial Assets are blocks of business which we have closed for new sales. They are capital intensive with relatively low returns on capital employed. Strategic Assets are businesses with a greater potential for an attractive return on capital, and where we are well-positioned for growth. We aim to release capital from Financial Assets over time and re-allocate capital to Strategic Assets and growth markets.
Growth markets
We aim to increase market share in attractive growth markets through our successful partnerships in Spain, China, and Brazil. Together with our partners, we will develop these businesses and capture the growth potential they provide by leveraging our global expertise and capabilities.
Success in all our businesses will be underpinned by a global asset manager that has strong investment capabilities, thereby allowing our customers to make attractive returns on their investments. Similarly, our asset manager benefits from the links with our other businesses. For instance, the retirement platforms
Aegon Annual Report on Form 20-F 2020 |
Letter from our CEO7 | ||
we operate in our core markets provide an opportunity to offer asset management solutions. Where appropriate we aim to increase the penetration of our own competitive, proprietary investment solutions across our retirement platforms over time.
Delivering on our plans
In the second half of 2020, we took the first concrete steps to deliver on our plans. We announced the divestments of Stonebridge and our operations in Central & Eastern Europe, restructured our businesses in India, Hong Kong, and Singapore and decided to cease funding of GoBear.
Measures taken to strengthen our balance sheet ensured that the capital ratios of our three main business units ended 2020 above their respective operating levels. Examples of the measures taken include the reinsurance of disability risk in our Dutch non-life business and the sale of the Transamerica Pyramid in San Francisco. We also took the first steps towards our deleveraging target by repaying USD 500 million of senior debt.
The aim of rebasing the dividend – announced at the first half-year results – is that dividend payments will be sustainable and well covered by the Free Cash Flows that we generate, even in reasonable stress scenarios. Our aim is to grow the dividend per share in line with recurring Free Cash Flows to around EUR 0.25 per share over 2023.
Granular operating plan
To ensure we deliver on our objectives, we have developed a rigorous and granular operating plan. The plan draws on input by over 1,500 employees to develop 1,100 initiatives aimed at reducing costs, expanding margins, and growing profitably. It includes an expense savings program targeting a EUR 400 million reduction in addressable expenses by 2023, representing a 13% savings over the addressable expense base of 2019. In 2020, we delivered on 260 initiatives, which puts us on track to deliver half of our expense savings 2023 target by the end of 2021. Of these savings, we intend to re-invest EUR 150 million in initiatives designed to deliver future growth in earnings.
There is still a lot of work ahead of us. We are building a high-performance culture within Aegon, investing in talent development, and focusing on delivery. We will operate with discipline and maintain an intense organizational rhythm to deliver on the transformation.
Responsible business
We believe that a solid environmental, social and governance (ESG) foundation is essential to long-term value creation. Further integration of ESG objectives into the overall strategy is a priority for Aegon. On January 1, 2020, we implemented a revised Group-wide Responsible Investment Policy and expanded the measurement of the carbon emissions
associated with our investments. We are committed to strengthening Aegon’s vision on sustainability and integrating it into our new business strategy. To drive this forward, I have appointed a Global Head of Corporate Sustainability, reporting directly to me, starting on January 1, 2021.
We are also making progress on inclusion and diversity across the Group. Aegon’s 2020 Global Employee Survey shows that 79% of employees believe they can be their authentic selves at work and have equal opportunity to succeed. We also met our objective to have at least 30% women in senior management positions across Aegon by the end of 2020.
We see our progress on inclusion and diversity as steps along our pathway to create a workplace that reflects the diversity of the customers we serve and where the views and perceptions of our people encourages diversity of thought and innovation.
While we are not there yet, we have a strong foundation to build upon. We are now including a gender diversity target into the remuneration for all Executive Board and Management Board members.
Aegon and the future
Our purpose is to help people achieve a lifetime of financial security. We are making progress to become a leader in investment, protection, and retirement solutions, with trusted brands and leading retirement platforms in attractive markets. In our core markets, the shift away from defined benefit pension plans, together with low interest rates, mean our customers need to save more, not less. In addition, traditional government-based retirement systems are increasingly strained, and customers in our markets must take on greater individual responsibility for retirement planning. Aegon will draw on its long years of experience and extensive distribution reach to support them with the right solutions. By serving our customers’ evolving needs in a changing world, Aegon creates long-term value that is shared with all its stakeholders.
Thank you
Looking back on a challenging year, I am pleased that we have supported our customers and taken the first steps to transform Aegon into a more enduring, high-performance company. I am very grateful to everyone who has contributed to this and I look forward to continuing with you on this exciting journey.
The Hague, the Netherlands, March 17, 2021
Lard Friese
CEO of Aegon
Aegon Annual Report on Form 20-F 2020 |
COVID-198 |
Since the first outbreak of COVID-19 in early 2020, Aegon has been directly affected by the pandemic. We recognize it has had a significant impact and created challenges for our employees, our customers, and the communities in which we operate. Throughout the pandemic, we have taken proactive steps to support our stakeholders as we navigate through this challenging period together.
Impact on Aegon’s financial performance
Earnings and capital
In terms of underlying earnings before tax, the greatest impact of the pandemic has been on Aegon Americas’ life insurance business. In 2020, higher mortality led to higher life insurance claims, adversely impacting earnings. In the second half of the year, increased mortality claims were offset by stronger performance of certain product groups. In particular, claims activity within Aegon’s long-term care (LTC) insurance business fell, leading to favorable morbidity experience as a result of the pandemic. Lower interest rates – resulting from more muted economic growth expectations and central bank stimulus – also had a negative impact on Aegon’s earnings in the Americas. The earnings repercussions for Aegon’s other major country units have been limited, although the Netherlands experienced a rise in travel and disability insurance claims when the pandemic first struck.
On the basis of the first half 2020 results - which reflected the impact of COVID-19 and lower interest rates - and in light of the uncertain economic outlook, Aegon withdrew its 2019-2021 financial targets in August 2020. Throughout the year, we took steps to strengthen our balance sheet and improve the Company’s risk profile. In this context, we decided to retain the final dividend for 2019 and rebase the interim dividend from a level of 15 cents per share for 2019 to 6 cents per common share for 2020. Rebasing of the dividend ensures that it is sustainable and well-covered by the free cash flows that we generate, even in reasonable stress scenarios. Furthermore, several actions were taken to increase the capital position of Aegon and its main units. As a result, the capital positions of the main units ended the year above their respective operating levels.
Expenses and sales
A series of lockdown measures and travel restrictions in Aegon’s key operating markets throughout 2020 caused disruption to our normal ways of engaging with our customers and one another. This significantly reduced our expenses, in part due to restrictions on employee travel, as well as the scaling back of sales and marketing activities. While generating savings, the pandemic also triggered additional expenditures, such as information technology (IT) costs associated with switching to a working-from-home set-up. Some of these savings will dissipate as normal business practices resume. However, others will become permanent, as Aegon has taken the lessons learned from working from home into account when developing a program to reduce addressable expenses by EUR 400 million by 2023.
Aegon’s sales teams have been resourceful in adapting to this new landscape, though restrictions on our sales and marketing activities have had a negative impact on sales in certain cases. In Spain and Portugal, sales of property and casualty insurance products fell in 2020 due to the temporary closure of retail banks, which provide an essential distribution channel. Meanwhile, a challenging economic and employment environment, coupled with government measures to combat the pandemic, has dampened customer demand, and hence sales, within specific product lines. US sales of retirement plan products fell during 2020, while travel restrictions and challenging market conditions severely affected sales within Transamerica Life Bermuda (Aegon’s high-net-worth business operating in Hong Kong, Singapore, and Bermuda).
Aegon Annual Report on Form 20-F 2020 |
COVID-199 | ||
Helping our stakeholders navigate the crisis
As events unfolded around COVID-19, Aegon’s customers, employees, and other stakeholder groups began to see their lives disrupted in a number of ways. Since the very start of the pandemic, we have taken proactive measures to help our colleagues and other partners navigate this intensely challenging period.
A stable environment for our employees
In early 2020, our first priority was to ensure the safety and well-being of our employees around the world. Swift, decisive action by our IT staff allowed our teams to transition smoothly to home-based working. As well as IT tools and hardware, we also provided colleagues with desk furniture to make the switch as practical and comfortable as possible. Alongside this, we have worked hard to give our employees the tools and day-to-day support they need to feel happy and motivated while working outside the office. To formalize this approach, we introduced a ‘Working from Home’ framework to help staff sustain good levels of well-being, engagement, and productivity during lockdown.
Guiding our customers and partners through the pandemic
We are acutely aware of the difficulties and disruption that the pandemic has caused for our customers, suppliers, and other partners. Our smooth transition to working from home and fast adoption of virtual conferencing tools such as Microsoft Teams, have enabled us to maintain an uninterrupted service for Aegon customers worldwide. We have also gone one step further, by exploring innovative ways to remain closely connected to our customers and provide additional support during this challenging time. As a result, Aegon’s customer-facing teams in the Netherlands recorded their best-ever relational NPS (rNPS) scores during the pandemic. rNPS is an important gauge of customer satisfaction. New digital solutions have played an important role: in Spain, we have launched a new tele-health service for local customers, providing free medical advice on a 24-hour basis. Meanwhile, we have remained sensitive to our customers’ evolving concerns. Aegon the Netherlands, for instance, has launched the ‘Blue Heart’ campaign to provide customers with flexibility around their insurance, pension, and mortgage payments. In China, we have included
COVID-19 coverage as part of our critical illness product range to help give people peace of mind.
Just as we have gone the extra mile for our customers, we have also reached out to our suppliers to provide additional support during the pandemic. In early 2020, Aegon worked with its outsourced IT teams in India to help them transition to working from home and ensure continuity of critical IT services.
Supporting Aegon’s communities
As a company that strives to be a good corporate citizen, we recognize the importance of offering immediate COVID-19-related support to the communities in which we operate. In 2020, our initial focus was on providing direct relief to local charities and supporting key workers on the front lines. In the United States, Aegon worked with its partners to provide personal protective equipment (PPE) to healthcare professionals. Our teams in Asia donated money to World Vision, a Hong Kong-based relief and development organization, for the purchase of face masks, as well as health education programs. Aegon the Netherlands also contributed EUR 250,000 for healthcare workers’ insurance through the Dutch Insurance Association.
Away from the frontlines, Aegon donated food and medical supplies to elderly people across Europe who have been affected by the pandemic. In the Netherlands, we gave our support to educational charities that are helping disadvantaged children with home-schooling by providing free laptops.
Around the world, Aegon employees have been closely involved in fundraising efforts to boost our community support initiatives. Many have also donated their time and expertise in other ways. Aegon the Netherlands, helped to spearhead a program led by Nibud (the Dutch National Institute for Family Finance Information) to train financial services workers to offer support and advice to people on managing their personal finances during the pandemic. Aegon employees have responded enthusiastically to this initiative, which aligns with our purpose of helping people achieve a lifetime of financial security.
Aegon Annual Report on Form 20-F 2020 |
Aegon: A leading provider of financial solutions11 |
Aegon is an integrated, diversified financial services group that offers innovative and effective investment, protection, and retirement solutions to customers. Our purpose is to help people achieve a lifetime of financial security. From our roots in the 19th century, we have grown to serve 30.4 million customers globally with EUR 921 billion of revenue-generating investments. Our holding company, Aegon N.V., is headquartered in The Hague, the Netherlands.
Main brands
Aegon
The Netherlands, UK, Spain, China, Hong Kong, Indonesia, Japan,
Thailand, Hungary, Poland, Romania, and Turkey1
Transamerica
US
Transamerica Life Bermuda Ltd.
Bermuda, Hong Kong, Singapore
Aegon Asset Management
Germany, Hong Kong, Hungary,1 Japan, the Netherlands,
Spain, UK, US
Joint ventures and associates
Brazil, China, France, Hong Kong, India, Indonesia, Malaysia,2 the Netherlands, Philippines,2 Portugal, Singapore, Spain, Thailand, and Vietnam2
◆ | The Aegon brand operates as Aegon Insights in Australia, China, Indonesia, Thailand, and Hong Kong. |
◆ | The Kames Capital brand in the UK and TKP Investments in the Netherlands were re-branded to Aegon Asset Management in 2020. |
◆ | We also operate under several other brands, including: Knab, TKP, Robidus, Aegon Cappital, and Nedasco (the Netherlands); World Financial Group (US, Canada); Origen Financial Services (UK); Futuready (Indonesia), and Transamerica Ventures. |
1 | In November 2020, Aegon agreed to sell its insurance, pension, and asset management businesses in Hungary, Poland, Romania, and Turkey to Vienna Insurance Group AG Wiener Versicherung Gruppe (VIG). |
2 | In early 2021, Aegon ceased funding of its GoBear joint venture, an independent insurance and banking comparison website. |
Aegon Annual Report on Form 20-F 2020 |
Aegon: A leading provider of financial solutions12 | ||
Aegon’s products and services include:
Insurance | Long-term savings related | Banking & mortgages | Asset management | |||
• Life (indexed universal life, whole life, and term) • Accident and health • Property and casualty | • Retirement plan services • Annuities • Mutual funds • Stable value solutions | • Digital banking services • Residential mortgages | • Retail and institutional investment management solutions • Retirement savings vehicles and strategies | |||
In 2020, we brought together our activities in Southern and Eastern Europe (SEE) and Asia, creating a new reporting segment, Aegon International. The five reporting segments are as follows:
◆ | Americas |
◆ | Aegon the Netherlands |
◆ | Aegon UK |
◆ | Aegon International |
◆ | Aegon Asset Management (AAM) |
As a global financial services group, Aegon is well equipped to share capital, talent, knowledge, processes, and technologies across geographies and business lines. In our three core markets (the United States, the United Kingdom, and the Netherlands), our three growth markets (Spain and Portugal, Brazil, and China) and AAM, we take a systematic approach to allocating capital toward profitable opportunities. Full details on our strategy can be found on page 37719.
Aegon N.V. is a Dutch public limited liability company. Our shares are listed on both Amsterdam (Euronext) and New York (NYSE) stock exchanges. Approximately three-quarters of our shareholders are from our three core markets: the United States, the Netherlands, and the United Kingdom. Shareholders meet at least once per year at our Annual General Meeting (AGM). In 2020, due to COVID-19 restrictions, the AGM was held virtually.
Sources of revenues and earnings
Aegon derives revenues and earnings from insurance premiums, investment returns, fees, and commissions received. We are well-diversified across these sources, which is important for our ability to pay attractive dividends and to invest in future growth.
We carefully manage our capital position to protect Aegon and our customers against fluctuations in global financial markets and changing business conditions. At the end of 2020, our Solvency II ratio – measuring our capital strength – stood at 196%. The capital ratios of our three main units ended 2020 above their respective operating levels. We hold significant capital buffers, both within the operating entities and at group level, to safeguard the interests of our policyholders, pay attractive dividends to shareholders, and take advantage of future business opportunities.
Diversified distribution channels
Aegon offers both direct and intermediary-assisted access to our products and services throughout all our divisions. In this way, we bring our customers the very best of the solutions offered by Aegon and our partners.
We offer simple solutions as well as more sophisticated ones. For simpler types of solutions, we are growing our direct distribution capabilities so we can engage with customers directly – for example, via our Dutch digital bank, Knab.
For more complex services and products, we use our network of business partners, including brokers, agents, banks, employee benefit consultants, and independent financial advisors. Our multi-channel approach to intermediary distribution serves a diverse array of customers, allowing us to provide tailored advice and advanced solutions.
Some of our distribution channels are owned by Aegon. For example, we serve customers through Origen Financial Services in the United Kingdom and through World Financial Group in the United States and Canada. We also develop e-commerce partnerships, for example in China.
Where our earnings come from
(underlying earnings before tax, in EUR millions)
1 | Total number includes Holding and others (not shown in chart). |
Aegon Annual Report on Form 20-F 2020 |
Our business environment13 |
Aegon operates in a complex environment. Our business is potentially sensitive to a wide range of social, economic, and environmental factors, all of which are constantly changing, and we are continuously adapting our business to this evolving environment. We capture these in our ‘Business Environment Scan’ process.
A challenging macroeconomic environment
Following relatively strong growth in 2019, global economic output in our markets contracted sharply during the first half of 2020 due to the COVID-19 pandemic. Full or partial lockdowns in many countries and regions played a significant part in curtailing economic activity. The subsequent easing of lockdown restrictions saw growth rebound in the second half of the year. However, the reintroduction of tougher measures to prevent the virus from spreading later in 2020 means that economic uncertainty – in many regions – will continue to persist into 2021.
The impact of the pandemic is being felt across the global economy. Public deficits and debt have been pushed up; meanwhile, temporary business closures and a disrupted value chain have created a range of challenges for parts of the private sector, with unemployment increasing accordingly. We also expect to see a rise in bankruptcies and non-performing loans; though, this threat has so far been mitigated by the proactive response of governments and central banks. These challenges are likely to persist, at least until vaccination programs against COVID-19 become widespread.
The overall economic fall-out will be far-reaching, and many forecasters expect the economic impact of the virus to be felt for several years to come. COVID-19-related government stimulus packages, on top of already relaxed monetary policies, could lead to delayed inflation. However, at the present time, low nominal interest rates make savings fundamentally less attractive and represent a major headwind to our businesses, particularly in the United States and Europe. While there is a risk of higher inflation in the longer term, we expect a ‘lower for longer’ interest rate environment to continue to shape our business strategies in the medium term.
The pandemic has aggravated other underlying economic trends, with disruptions to global supply chains forcing businesses
to revert to more localized ways of working. Meanwhile, we see a trend from globalization toward greater regionalization, as illustrated by strained China-US relations, as well as growing protectionist sentiment in Europe and other major economies.
Impact of COVID-19 on our customers
The past year has seen sharp increases in mortality rates worldwide, driven largely by COVID-19. Victims are mostly elderly or individuals who have underlying health conditions, including those in nursing homes. While governments worldwide have introduced measures to protect the most vulnerable, infections and deaths have remained consistently high in many regions. That said, COVID-19 induced mortality was lower amongst the insured population than in the wider population.
Another impact from COVID-19 on our Long-Term Care customers in the United States has been the concern with respect to nursing care. Transamerica has seen a reduction in the number of new Long-Term Care claims, which may be driven by hesitation of entering care facilities due to the higher presence of COVID-19.
Beside their physical health, people are also being impacted by the pandemic in other ways, with many individuals dealing with stress and poor mental health. Employment concerns are often part of this: 58% of US workers recently surveyed by the Transamerica Center for Retirement Studies® said COVID-19 has had an impact on their employment situation.
Governments have acted decisively to alleviate the pandemic’s impact on individuals. In many cases, and particularly in the United Kingdom and United States, measures have included allowing individuals to access their pension savings. While these actions reduce short-term financial stress for individuals, they leave people at an increased risk of poverty in old age.
At a time when many people are facing severe financial difficulties, there is an increased need for personalized solutions
Aegon Annual Report on Form 20-F 2020 |
Our business environment14 | ||
that can help individuals better manage their financial well-being. At Aegon, our focus throughout the COVID-19 pandemic has been on moving closer to our customers and finding new ways to meet their needs. This includes financial protection products that address the new challenges posed by the pandemic.
Increased pressure on retirement systems
Before the COVID-19 pandemic, retirement systems around the world had been undergoing severe financial strain as a result of increased longevity, population aging, and the prolonged low-interest rate environment. Government benefits, such as social security, have been facing severe funding shortages, and reforms are urgently needed. The traditional pension plans offered by employers have been replaced with employee-funded defined contribution plans, which may or may not be supplemented by employer contributions. Individuals are increasingly being expected to self-fund a greater portion of their retirement income, though relatively few are equipped to do so.
Although its long-term effects are still unclear, the pandemic has further exposed the fragility of retirement systems. Indeed, nearly one-quarter of US workers surveyed by the Transamerica Center for Retirement Studies® about the impact of the pandemic felt less confident about being able to retire comfortably.
There is an opportunity for social partners to resolve these pressing issues. Private retirement solutions have an increasingly important part to play, both in raising awareness and in educating the public on the need to save for retirement.
Employers also play a vital role in helping workers successfully prepare for retirement; a role that has become even more crucial and precarious amid the pandemic. They can support their employees by offering an employer-sponsored retirement plan and by encouraging workers to engage in retirement planning. However, employers must also be supported by public policy. The world’s response to COVID-19 illustrates the extent to which we – and our economic, health, and social security systems – are dependent on each other.
Retirement readiness
According to the results of Aegon’s Retirement Readiness Survey 2020, only one-quarter of workers feel they are on course to achieve the income they will need during their retirement (globally, this is an average of 67% of a worker’s current income). Around 44% of respondents say they are not on track, and the final one-third do not know whether they are on track.1
With individuals taking on increasing responsibility for funding their retirement, these responses demonstrate that more must be done to help people feel confident about the future. At Aegon, we endeavor to meet this need, which aligns with our purpose to help people achieve a lifetime of financial security.
1 | Percentages are shown to zero decimal places. Rounding percentages to the nearest whole number results in a sum of slightly over 100 percent. |
Aegon Annual Report on Form 20-F 2020 |
Our business environment15 | ||
Climate change and biodiversity loss
A series of climate-related events in 2020, including extensive wildfires in California, the Amazon rainforest, and Australia, drew further public attention to environmental issues, including the impact of climate change and loss of biodiversity.
While the direct physical risks of climate change to life insurers remain limited, evidence suggests that the associated risks are growing. A joint study by the Dutch Central Bank (DNB) and the Netherlands Environmental Assessment Agency (PBL), published in June 2020, highlighted the exposure of Dutch financial institutions to risks linked to biodiversity loss. According to the study, Dutch financial institutions worldwide have more than EUR 510 billion invested in companies with a high or very high dependency on one or more ecosystems, which represents 36% of the researched portfolio.
Climate-related risks may feature more heavily in future insurance regulations. In October 2020, the European Insurance and Occupational Pensions Authority (EIOPA) published a consultation on the use of climate change risk scenarios in Own Risk and Solvency Assessments (ORSAs) that stressed the need for forward-looking management of climate change-related risks. In a previous publication, DNB set out a series of best practices for integrating climate-related risks in ORSAs. There are also reputational risks to consider. Increased societal awareness around climate change has brought the perceived role of the insurance and wider financial services industry into sharp focus. Organizations that fail to address environmental, social, and governance (ESG) factors in their communications and actions may face long-term reputational consequences.
At the same time, with ESG and sustainability investments now accounting for more than one-quarter of assets under management worldwide, companies increasingly view sustainability as a key value driver. Asset managers, in particular, can support investors in developing their sustainable investment ambitions. More widely, today’s organizations increasingly recognize their responsibility to lead by example and encourage sustainable practices when engaging with customers.
Aegon Annual Report on Form 20-F 2020 |
Our business environment16 | ||
Aegon conducts a biennial Business Environment Scan (BES) to identify the opportunities and challenges with the most significant potential to influence the value created by our business, for example in terms of Aegon’s financial strength or competitive position.
The BES combines the materiality assessment with emerging risk identification. It looks beyond impact alone to assess the potential of topics to influence ongoing value creation, as shown by the materiality matrix below. In 2020, we re-evaluated and refreshed the BES by engaging with relevant internal and external experts, as well as selected stakeholders such as non-governmental organizations (NGOs), business partners, and customers. While we see many opportunities for our business, we are also mindful of potential challenges ahead. The BES takes into account the COVID-19 pandemic, for example, and its impact on Aegon’s business and wider market environment.
It is important to note that, while the BES incorporates findings from Aegon’s own overarching risk management process, the exercise is also informed by many other sources. The BES provides a ‘helicopter’ view of the material macro-scale headwinds and tailwinds specific to our business operations, as assessed by our experts and viewed by our stakeholders. For more information on our risk management approach, please see our dedicated risk management section on page 111 and the risk factors for Aegon N.V. on page 370.
Aegon Annual Report on Form 20-F 2020 |
Our business environment17 | ||
The following table elaborates on the opportunities and challenges posed by the eight material topics identified as both high impact and high likelihood by the BES.
Data protection and information security | Opportunity | Challenge | ||||||||
The increased pace of digital transformation brings greater benefits for Aegon’s business operations in terms of speed and costs. It also means we can provide more personalized and convenient products, as well as a better customer experience. Furthermore, by paying attention to issues of data protection and information security, we can establish strong, long-term customer relationships by building trust with the people we support. | Cyberattacks can cause damage to the interests of customers and stakeholders and undermine their trust in Aegon. Threats are becoming more sophisticated, and malicious actors are taking advantage of artificial intelligence (AI) and cloud computing to launch increasingly complex attacks. Moreover, data management requirements are evolving quickly: the potential for large fines from regulators and class action litigation is growing. Aegon must continue to invest in information security to protect our business, and our customers’ information, from an evolving cyberthreat landscape. | |||||||||
Customer propositions and technological innovation | Opportunity | Challenge | ||||||||
Aegon is exploring the potential of innovative technologies to help us offer our customers new solutions and improved levels of service. This approach involves close collaboration with fintech and insurtech companies to harness their knowledge and innovation capabilities. Technological advances allow us to be more flexible in our product offering, offering increasing focus on customer well-being, early diagnostics, and health tracking, among other areas. By moving to a service model based on preventive as well as protective services, we can adapt to the evolution of our traditional customer segments. With shifting socio-demographic categories and the emergence of new modes of employment (for example, ‘gig economy’ work and working from home), digital innovations will allow us to tailor our service offering around individuals’ needs. Meanwhile, we can continue to integrate our social purpose into our products, for instance by offering tailored solutions to vulnerable customers, such as people diagnosed with HIV, or by promoting savings plans and financial education to individuals impacted by the COVID-19 pandemic. | Customers increasingly expect a seamless digital journey with Aegon, and they expect us to play a proactive, positive role in society. To maintain our strong relationships with our partners and customers, we need to keep abreast of changes in our industry and in the digital landscape. Doing so allows us to stay ahead of our traditional competitors as well as an emerging generation of fintechs and insurtechs. Furthermore, since business development and innovation often take place at the business unit level, Aegon must ensure that all global business units and teams are working toward cohesive and consistent innovative customer solutions. | |||||||||
| Reputation | Opportunity | Challenge | |||||||
Aegon relies on the trust of all of our stakeholders. In the face of the COVID-19 pandemic, we have the opportunity to further prove our trustworthiness as a company by integrating environmental, social, and governance (ESG) considerations into our core business and by striving to have a positive impact on society at large. How we engage with our customers around ESG is also important. By communicating in a transparent and empathetic way, and offering our customers and stakeholders the support they need, we can ensure our reputation is protected and enhanced. We can also take advantage of social and digital media to spread our message to new audiences. Equally, it is important that we continue to select third-party providers that reflect positively on our brand and reputation. | Society expects insurers to pay attention to a wide range of ESG factors; failure to do so creates the possibility of long-term reputational damage from the perspective of customers and investors. It is particularly easy for trust to be lost in times of heightened tension such as the COVID-19 pandemic. To mitigate the potential for reputational damage, Aegon must remain mindful of the needs of all stakeholders when launching new or amending existing propositions. | |||||||||
Low rates, low economic growth and high debts | Opportunity | Challenge | ||||||||
Aegon has been working on the assumption of ‘lower for longer’ interest rates for some time, and we closely monitor credit rating and default developments. We are therefore well-positioned to manage through market dislocations to protect value for our stakeholders. Furthermore, the growing pressure on state finances as a result of weak economic growth and debt challenges, in part due to the impact of COVID-19, has led to a shift in responsibility for adequately saving for retirement, and subsequently converting savings into a lifetime income, to the individual. We are prepared to play a greater societal role in supporting individuals through retirement by taking steps to increase the range of products and solutions we offer and to expand our offering to new user groups beyond our traditional customer base. | The global economic outlook is uncertain in the wake of the COVID-19 pandemic, at least in the short term. The pandemic has pushed up public debt and deficits and raised the likelihood of non-performing loans. The possibility of a debt crisis and sustained low economic growth increases as the pandemic goes on, and with it the probability of a persistent low-interest-rate environment. The threat is difficult to mitigate as it depends on factors largely outside our control. However, we must be aware of its significance to our activities, including our role as an investor, and we must continue to monitor our counterparty and concentration risks. In this way, we can tailor our business strategies and investments to manage the situation. |
Aegon Annual Report on Form 20-F 2020 |
Our business environment18 | ||
Pandemic | Opportunity | Challenge | ||||||||
Major health crises, such as COVID-19, provide opportunities for Aegon to prove its relevance by helping customers concerned about their short- and long-term health. The pandemic is also an opportunity to show customers the importance of secure financial planning. Alongside our established long-term financial products, we can provide new preventive services such as health management and monitoring. We can also capitalize on the recent rapid developments in remote customer service and advice to improve digital and in-person customer journeys in the future. | The COVID-19 pandemic (and possible next waves, mutations, or other viruses) raises mortality rates and increases claim payouts in the short term. The pandemic also increases the likelihood of bankruptcy or receivership among Aegon’s corporate customers, which would impact our pensions business. The outbreak has also had wider economic impacts that affect us and the third parties we work with. To counter third-party risks and improve business continuity management, we have put in place enhanced monitoring and reporting procedures to identify issues at critical and high-risk third parties. Major health crises also threaten our human capital and the well-being of our employees. It is important that we retain the flexibility to adjust our ways of working and that we are able to support our staff and retain their engagement throughout future challenges. Embedding effective measures for transitioning to remote working in our crisis response plans allows us to react quickly to new health threats and maintain business continuity. | |||||||||
People skills | Opportunity | Challenge | ||||||||
With technology playing an ever-growing role in financial services, Aegon can establish itself as a leading employer that is home to a diverse and highly skilled workforce. Through interesting and forward-looking work, future-focused training opportunities – such as our Analytics Accelerator program – and strong inclusion, diversity, and engagement policies, we can attract and develop the wide range of talented people we need to drive our future growth strategy. | As our industry becomes increasingly technology-driven, skills shortages will become more prominent, creating a challenging recruitment environment. This situation is currently being exacerbated as so-called baby boomers (people born between 1946 and 1964) enter retirement. Aegon must be able to compete with different industries, as well as our direct competitors, to attract new talent. New hires must possess the skills required not only for today’s business but also for the financial services industry of the future. Technology is a key area of focus when it comes to selecting new employees and in the development of internal training programs for our current workforce, while risk management, financial modeling, and sales and marketing are also increasingly valuable skillsets. | |||||||||
| Trade wars, regionalization, and protectionism | Opportunity | Challenge | |||||||
At Aegon, we are able to use our geographic diversity (with activities in the United Kingdom, Europe, the Americas, and Asia) to our advantage. We invest in our regional teams to ensure Aegon is represented on the ground by market experts in our local financial markets. | We have little influence over global political processes, and potential barriers to accessing certain markets are beyond our control. We are active in markets in the United States, China, and the United Kingdom, where trade negotiations may continue to be particularly volatile in years ahead. This could pose problems for Aegon’s businesses in those regions. | |||||||||
Climate change and loss of biodiversity | Opportunity | Challenge | ||||||||
Aegon has robust systems in place to monitor the environmental impact of our direct business activities as well as our investments. By deploying and strengthening these resources, we can continue to take steps to ensure we have a positive impact on the planet and help safeguard the environment for future generations. At the same time, the further integration of ESG into our core strategy will allow us to support our customers by addressing their concerns around climate change and biodiversity loss by shifting our investment portfolio into more ESG-aligned areas. Taking a proactive stance on climate change and other environmental and ESG issues is likely to provide Aegon with long-term commercial opportunities: increasingly, companies that think and act responsibly enjoy a ‘sustainability premium’ that enables them to attract like-minded customers and employees. | We must continue to embed environmental considerations into our business and investment decisions, to avoid damaging the planet and to minimize the potential for negative impacts associated with environmental changes outside our control. At the same time, while direct physical risks to Aegon from exceptional environmental catastrophes and loss of biodiversity are limited, new regulatory requirements on climate change are highly likely to be relevant to our business. We will need to be ready to comply with any new regulations. We also recognize that environmental and other ESG-related topics are increasingly front of mind for Aegon’s stakeholders, and there is a possibility of reputational damage if we do not demonstrate our commitment to protecting the environment. |
Aegon Annual Report on Form 20-F 2020 |
Aegon’s strategy19 |
Our purpose is to help people achieve a lifetime of financial security. We do this by providing investments, protection, and retirement solutions that directly address the needs of a world where life expectancies are increasing, and careers and retirement are lengthening and becoming more flexible. While healthcare is increasingly effective, it is also becoming expensive as public and corporate sources of lifelong pensions and care are transferring risk to individuals in the face of financial pressure.
Focused portfolio and capital management
In 2020, Aegon embarked on the transformation of our organization, with a new strategic focus aimed at changing our performance trajectory and increasing value for our customers, shareholders, and other stakeholders. As part of our new direction, we are narrowing our strategic focus to selected core and growth markets, as well as one global asset management business. Aegon’s three core markets are the United States, the Netherlands, and the United Kingdom, which are among the largest retirement, investment, and protection markets in the world. Our growth markets are Spain and Portugal, Brazil, and China. Together, our core and growth markets represent more than 50% of global GDP.
As part of this document.focused approach, we will explore opportunities for expansion in these regions, including capitalizing on local growth opportunities, building strong local partnerships, and pursuing promising sales and distribution channels. Alongside this, Aegon Asset Management (AAM) – a key enabler for success – will implement a new global operating platform, allowing us to capitalize on economies of scale, realize synergies, and grow our third-party assets.
In small markets or markets where we have sub-scale or niche positions, we will manage capital tightly and have a bias to exit. The agreement to sell our Central & Eastern European (CEE) businesses exemplifies the actions we are taking to increase our focus.
In the fourth quarter of 2020, Aegon decided to restructure TLB as well as its business in India. TLB – a high-net-worth business operating in Hong Kong, Singapore, and Bermuda – has responded to challenging market conditions by rightsizing the organization through a variety of expense reduction initiatives. TLB will pivot to products that are not only capital-light, but will offer an attractive value proposition for its
customers as well. In India, unprofitable and sub-scale traditional sales channels have been closed, and the company’s focus is fully on digital distribution channels going forward.
Disciplined capital management
Within our core markets, our strategy is to distinguish between our Financial Assets and our Strategic Assets. We will reallocate capital from the former to the latter, as well as to our growth markets.
Strategic Assets are businesses with a greater potential for an attractive return on capital, and where we are well-positioned for growth. In these businesses, we will pursue opportunities to increase our customer base through new sales and customer retention, by improving both the customer and the advisor experience. In the United States, these businesses include Workplace Solutions, as well as selected product lines in the Individual Solutions division: Term Life, Whole Life, and Indexed Universal Life.
Aegon will also continue to sell mutual funds, stable value solutions and selected individual retirement products, such as accumulation variable annuities with limited interest rate sensitivity. In the Netherlands, Strategic Assets include defined contribution Workplace Solutions and mortgage origination, where we aim to maintain our leadership positions. We will also look to expand our niche position with our Dutch online bank, Knab, which will serve as a digital gateway to individual retirement solutions. In the United Kingdom, the business as a whole is considered a Strategic Asset, and we will continue to invest in our market-leading platform to improve the digital experience for customers, advisors and employers.
Financial Assets are blocks of business that are generally closed for new sales. They are capital intensive and offer relatively low returns, often due to the low interest rate environment. While continuing to serve our customers, we will run these businesses for optimal financial outcomes, maximizing the net present value of free cash flows and seeking opportunities to reduce and release capital. For example, in the Netherlands, we will no longer offer new defined benefit group pension products and individual life products, with the exception of direct annuities. In the United States, variable annuities with significant interest rate sensitive living and death benefit riders, stand-alone individual long-term care, and fixed annuities are considered to be Financial Assets. We are reviewing the potential to implement a dynamic hedging strategy for variable annuities with income and death benefit riders. Subsequently, we will consider a broad range of options for this block of business.
Aegon Annual Report on Form 20-F 2020 |
Aegon’s strategy20 | ||
Aligning our organization to our strategy.
To realize our transformation, we will shift to an intense organizational rhythm, and operate with a clear and more disciplined governance. This means that we will adapt our target operating model. A prime example of this adaption is that we are establishing dedicated teams to manage the Financial Assets in the United States and in the Netherlands. We will appoint executives to these teams who have the competencies, skills, and mindset to manage these books for optimal financial outcomes.
We will also speed up decision-making and install clear accountabilities. We will move to a concept of ‘accountability within a clear framework’. In this new model the Group sets strategy, allocates capital, defines risk appetite, sets targets, and drives strategy implementation. In addition, the Group determines functional mandates, sets policies and frameworks, and provides shareholder services. Business units develop local strategies within the group strategic framework, as well as operating plans to ensure their implementation.
In order to implement this transformation, we will invest in our execution capabilities and skills to nurture great talent across the Group and will hire new talent where appropriate. We need to ensure that talented people are in the right positions, and we need to enable them to continue developing.
We are working to materially improve our operating performance by reducing costs, expanding margins, and growing profitably. Our approach is supported by a rigorous and granular operating plan, which includes an expense savings program targeting a cost reduction of EUR 400 million by 2023 compared with 2019 levels, representing 13% of the addressable expense base. Of these savings, Aegon will reinvest EUR 150 million in business growth. In addition to the expense savings initiatives, activities targeting revenue growth are expected to contribute a total of EUR 150 million to earnings by 2023. These include growing in our affiliate distribution channels, optimizing pricing and products, improving customer retention, and increasing cross-selling, as well as increasing the conversion of assets under administration to assets managed in house by AAM.
Further to improving Aegon’s long-term profitability, we are taking steps to create a more robust and financially resilient business that offers greater predictability and stability in our performance and financial strength. In particular, we aim to limit interest rate sensitivity, as well as our sensitivity to other financial market movements, while strengthening our balance sheet and reducing debt. For example, we have put plans in place to reduce our economic interest rate exposure in the United States by one third to one half and we have implemented improvements to our internal model that mitigate the volatility caused by the basis risk between the reference portfolio used for the European Insurance and Occupational Pensions Authority (EIOPA) volatility adjustment and our own asset portfolio.
As part of our new strategic approach, we have identified several areas that will contribute to profitable growth and create value for our customers and shareholders over the coming years.
Growing our customer base
Aegon will continue to develop its extensive base of almost 30.4 million individual customers. We will do this by increasing market penetration and improving retention in markets where we are well-positioned for growth and that offer potential attractive returns on capital. Specifically, we will explore opportunities to grow Strategic Assets in our core markets and in our growth markets, examples of which are our life business in China and our bancassurance business in Spain and Portugal.
Enhanced customer experiences
By modernizing our business processes and technology, we can enhance the user experience, namely by introducing straight-through processing to execute customer requests much faster, while offering new and improved customer propositions.
We will also continue to invest in self-service capabilities for our customers, offering them choices in terms of how they interact with Aegon.
We believe high-quality digital tools go hand in hand with strong customer relationships, and we see these as two sides of the same coin. As we develop our front-end advisor and customer portals, we will make sure our interaction with customers remains human and empathetic. We have already made inroads in several of our core and growth markets. For example, in the United Kingdom, we are investing in our platform to improve the digital experience for our customers, while simultaneously enabling Aegon’s advisors and other colleagues to work more productively and efficiently.
Improving margins
We are identifying ways to improve margins by reducing expenses, increasing efficiency, and pursuing opportunities for profitable growth across Aegon’s different markets and business lines. Within our core markets, we have carefully identified specific opportunities for profitable growth, for example by expanding our use of proprietary investment solutions.
AAM’s move to a global operating platform will enable us to streamline our operations and improve profitability. Our new globalized approach will drive growth in affiliated channels and in third-party assets where competitive strength exists.
To support these actions and realize our growth objectives, we will continue to build a high-performance culture, invest in talent development, and focus on delivery. We intend to build on our strengths: our brands, our extensive global customer base, and our deep expertise in designing solutions, managing assets, and creating distribution networks. In this way, we are confident we will be able to better support our customers and fulfill our purpose.
Aegon Annual Report on Form 20-F 2020 |
Aegon’s strategy21 | ||
In 2020, we continued to work toward making Aegon a more digitized, customer-centric, and data-driven organization. Across our global business units, we are replacing legacy information technology (IT) infrastructures and processes with a more innovative, digitalized operating model. At the same time, we are developing a more agile working environment that will allow us to absorb new ideas and technologies into our core business more easily.
Set against this long-term digitization strategy, we are also mindful of the possible IT risks created by people working from home during the pandemic. We are therefore taking steps to minimize cyberthreats as well as other potential hazards.
Faster, smoother, more efficient
By transforming and digitalizing more of the customer-facing side of our business, we can offer existing Aegon customers a smoother and more cohesive experience. This will also create opportunities for innovative product offerings and open up new markets for our services. For example, in the UK Aegon launched a workplace app that is helping plan members improve their financial wellbeing, allowing them to view their pension information and to understand their investments even better.
More generally, we are improving the overall user journey for customers who want to do business online. From an operational perspective, a more automated, technology-driven approach will reduce costs and enhance critical functions such as sales and distribution, pricing, claims management, fraud detection, and risk analysis.
For example, as part of our qualitative-to-quantitative (Q2Q) underwriting pilot in Transamerica, we have launched a state-of-the-art electronic application for our intermediaries
which ensures that nearly all submissions are in good order and therefore enables agent-friendly and customer-friendly instant decision making for the vast majority of applications.
Doing more with data
A foundation of our digital transformation strategy is improving how we manage, process, and store data. We have set a three-year timeframe to transfer all our data assets from Aegon’s regional data centers to the cloud. With better and more cohesive stewardship and ownership, we can use our data in a more intelligent way to benefit customers and grow our business, while making sure we continue to comply fully with laws and regulations. For example, we have significantly improved our pricing models for mortgages and P&C insurance at Aegon The Netherlands which helped us to maintain the attractive economics amid intense competition.
People are also a key ingredient of our digital transformation strategy. We have built analytical teams in all major country units to ensure close alignment of these competencies with the local businesses.
Developing for the digital age
At the same time, we are helping existing Aegon employees develop their digital skills and knowledge. Our learning management system, which is open to all employees, offers a range of IT, compliance, and digital training options. We also offer in-depth training on specialist topics, including through our Analytics Accelerator program.
As well as deepening our internal talent, we are working closely with promising technology-driven companies in our industry to tap into their knowledge and innovation capabilities in fintech and insurtech. Within Aegon, our drive for digital transformation has already borne fruit in the form of new businesses, such as Knab, our wholly owned digital bank in the Netherlands.
Aegon Annual Report on Form 20-F 2020 |
Performance in 202022 |
Financial markets were turbulent during 2020 as a result of the COVID-19 pandemic. Interest rates dropped considerably in the United States, whereas equity markets and credit spreads were extremely volatile globally. This had a marked impact on Aegon’s financial results. Furthermore, excess mortality induced by the pandemic had a negative impact on our earnings in the United States. Overall, the Group demonstrated resilience, as demonstrated by the capital ratios of our main business units all being above their operating levels. New medium-term external targets were introduced in December 2020. Aegon has already made good progress toward these targets, as underscored by the expense savings and deleveraging achieved in 2020.
Financial targets and performance
Aegon’s underlying earnings before tax amounted to EUR 1,729 million in 2020, a decrease of 12% compared with 2019. All business units except the United States showed improved performance, partially driven by expense savings. Results in the United States decreased due to the direct and indirect effects of the COVID-19 pandemic, namely adverse mortality and lower interest rates. Net income amounted to EUR (135) million in 2020, versus EUR 1,236 million in 2019. The decrease was driven primarily by the adverse impact of assumption updates in the United States. As part of our annual assumptions review process, we lowered our interest rate assumption and updated our Life and Long-Term Care assumptions, which led to a stronger balance sheet. For further details, please refer to the Results of Operations section of this report.
In 2020, we took several actions to strengthen our balance sheet and improve the Company’s risk profile. In this context, we decided to retain the final dividend for 2019 and rebase the interim dividend from a level of 15 cents per share for 2019 to 6 cents for 2020. Rebasing the dividend ensures that it is sustainable and well covered by the free cash flows that we generate, even in reasonable stress scenarios. Free cash flows in excess of what was needed to cover shareholder dividends and holding company expenses were used to repay USD 500 million senior debt in December 2020. Furthermore, actions were taken to improve the capital positions of Aegon’s business units, as well as to reduce the volatility of their capital ratios. The capital ratios of each of Aegon’s main business units ended the year above their respective operating levels.
In December 2020, Aegon introduced new three-year financial targets, covering the period to 2023. The new targets reflect Aegon’s focus on deleveraging, reducing addressable expenses, generating free cash flows, and growing returns for the Company’s shareholders.
Non-financial performance
During 2020, Aegon had six non-financial indicators that were tied directly to specific aspects of our strategy. They also helped us address material topics and measure progress toward our objectives as both as a provider of financial services to our customers and as an employer.
Through these metrics, we can demonstrate an increase in the value we provided to our customers in 2020. Our total customer base increased by 1.4% to 30.4 million, an endorsement of our value proposition reflected by the loyalty of our existing customer base. This value is also reflected through the decisions of 4.6 million customers to entrust us in 2020, an 8% increase in the rate of new customer additions. These results are borne out by our Net Promoter Score (NPS) for 2020, which saw the proportion of our businesses performing above the average of our peers reach 32%.
With respect to the value we provide our employees, we are pleased to see that reflected in the marked increase in the employee engagement score in 2020, with a five point increase over 2019.
Aegon Annual Report on Form 20-F 2020 |
Performance in 202023 | ||
Of course, these indicators only tell a small part of our value creation story, with significant examples of success benefiting all our stakeholder groups. 2020 saw key environment, social, and governance (ESG) achievements through our responsible business approach. In terms of our business partners, we rolled out the EcoVadis platform to enhance our ability to evaluate the ESG performance of our suppliers and to use the leverage of our EUR 1.6 billion procurement spend for the benefit of wider
society. On an even larger scale, we are using the leverage of our investments to drive benefits for society; to this end we actively pursued 575 ESG-related engagements with companies in 2020, a 60% increase since 2018. We are also increasing the transparency of our portfolio, notably, in 2020 we extended the disclosure of the carbon footprint of our investments through the Task Force on Climate-related Financial Disclosures (TCFD) to cover our global General Account holdings.
External targets 2021 – 2023
Metric | Target | 2020 | 2019 | |||
Reduce leverage | EUR 5.0 – 5.5 billion of gross financial leverage | EUR 6.0 billion | EUR 6.7 billion | |||
Implement expense savings | EUR 400 million lower addressable expenses, compared to 2019 | EUR 136 million including a contribution from expense initiatives of over EUR 75 million | Not applicable, as this is the base year | |||
Increase free cash flows | EUR 1.4 – 1.6 billion cumulatively | EUR 530 million | EUR 923 million | |||
Distribute capital to shareholders | Around EUR 0.25 dividend per share over 2023 | EUR 0.12 per share | EUR 0.15 per share | |||
|
During 2020, Aegon had six non-financial indicators that were tied directly to specific aspects of our strategy. They also helped us address material topics and measure progress toward our
objectives as both an employer and a provider of financial services. In 2020, employee engagement increased markedly.
Underlying earnings and net income in 2020
Metric | 2020 | 2019 | ||
Underlying earnings before tax | EUR 1,729 million | EUR 1,969 million | ||
Net income | EUR (135) million | EUR 1,236 million | ||
|
Non-financial performance
Metric | 2020 | 2019 | change | Key stakeholder group supported | ||||
Net Promoter Score (NPS) coverage1 | 87% | 88% | -1 pp | Customers | ||||
Number of customers | 30.4 million | 29.9 million | 1% | Customers | ||||
Number of new customers | 4.6 million | 4.3 million | 8% | Customers | ||||
Percentage of customers with two or more products | 16% | 17% | -1 pp | Customers | ||||
Proportion of digitally connected customers | 41% | 36% | 4 pp | Customers | ||||
(% of total number of customers) | ||||||||
Employee engagement score | 72 | 67 | 5 pp | Employees | ||||
|
1 | NPS coverage includes businesses that use relational NPS (rNPS) for steering. |
pp | – percentage points |
For more information on these indicators, please refer to pages 36 (Customers) and 38 (Employees).
Aegon Annual Report on Form 20-F 2020 |
Responsible business24 |
Increasingly, the business community understands the urgent need to address critical environmental and social issues such as climate change, as well as the potential for sustainability, in particular, to be a key value driver. At Aegon, we recognize this long-term shift and the implications for our customers and other stakeholders. We have a robust environmental, social, and governance (ESG) foundation in place that underpins our commitment to doing business in a responsible manner and to facilitate the transition to a climate-resilient economy. Oversight of our approach is embedded into the highest levels of governance at Aegon. Aegon’s Responsible Business and Investment Committee (RBIC), chaired by Mark Mullin, Aegon Americas CEO and Aegon Management Board member, reviews
Aegon’s progress against its responsible business vision and commitments and provides advice to the Executive Board and Management Board.
For Aegon, ESG and responsible business are two sides of the same coin. As we continue to strengthen our ESG approach, we seek to do business in a responsible way, taking into account the needs of all our stakeholder groups and catering to individuals, society, and the environment. This approach covers the impact of our direct business activities, as well as the impact of our investments and those of our vendors and business partners. Good corporate citizenship provides us with a license to operate through meeting our stakeholders’ additional expectations of a responsible business.
Aegon’s dedication to responsible business led to the announcement in November 2020 of the creation of a new Global Corporate Sustainability Team, and the appointment of a Global Head of Corporate Sustainability, reporting directly into Aegon’s CEO, Lard Friese.
The Global Corporate Sustainability Team will renew the global sustainability vision for Aegon and oversee its integration into the developing new business strategy for the Group.
The success of that vision will be defined through the selection of measurable metrics and targets that capitalize both on the opportunities for new value creation that the ESG agenda brings and on the successful mitigation of identified value erosion for on-going sustainable value creation. The team will review the integration of ESG considerations into Aegon’s core business processes and will bring together the energy and talent of our business units to drive the success of our global sustainability vision.
Aegon Annual Report on Form 20-F 2020 |
Responsible business25 | ||
The gravity of the COVID-19 pandemic made it clear that meeting the challenges it presented would require society to pull together in ways hitherto unseen in generations. It has been humbling to see our colleagues across the world actively stepping up to contribute as individuals and as representatives of Aegon. Through the lens of a provider of financial services with a purpose of helping people achieve a lifetime of financial security, we reflected on a simple question; how can we optimize our contribution to help society though these times?
From the very onset of the pandemic, it was clear that there would be a heavy toll on the finances of people everywhere. To this end, we focused on leveraging the knowledge and expertise of our people to help mitigate this impact. Aegon the Netherlands approached Nibud (the Dutch National Institute for Family Finance Information), as part of its ‘Helpen met geldzaken’ (‘Help with your finances’) program, and from April 2020, our colleagues have been offered training on how to support friends and family
on managing their personal finances during the pandemic and beyond. Participants learn how to help people to create an overview of their incomings and outgoings, and to make better financial choices. They also learn what they can and cannot do as a volunteer and are given information about government measures relating to COVID-19.
Since first offering the training opportunity in April as a pilot with 20 participants, 74 colleagues immediately volunteered and since more than 500 Aegon colleagues at all levels of the Company have taken part. We quickly realized that the benefits of the program could be amplified through wider participation of the financial sector, and to this end we actively engaged with eight other insurance and banking providers. So far, more than 4,500 workers from across the financial industry have taken part. Aegon is now working to promote the training to other members of the Schuldeiserscoalitie (‘Creditors Coalition’), a coalition of Dutch companies committed to preventing their customers from getting into debt.
Our responsible business approach sets a minimum standard for all Aegon business units to follow, with our individual country units encouraged to take additional steps to tailor their approaches to their local markets. In 2020, Aegon the Netherlands outlined its enhanced responsible business strategy for 2020-2025 in its dedicated Responsible Business Report. Furthermore, Aegon the Netherlands is a founding member of the Spitsbergen Ambition, a collective of Dutch financial services organizations committed to combating climate change by financing activities and investments. The company is also a signatory to the 2019 Dutch National Climate Agreement alongside Aegon Asset Management’s unit in the Netherlands.
Risk management is an important aspect of our responsible business approach. We proactively identify and manage non-financial risks related to ESG that could potentially impact our business. To this end, we include non-financial risks, such as climate change, within our enterprise risk management (ERM) framework and take steps to mitigate their impact on Aegon and our wider stakeholder base.
Responsible products
Aegon helps individuals responsibly manage and prepare for retirement by providing a wide range of savings and investment products, as well as offering financial planning and advice. We also help people improve their financial awareness and literacy by providing information and orchestrating regular surveys and campaigns.
We engage with customers through multiple channels, including polls and surveys, conferences, panels, perception studies, and workshops. In all our interactions, whether virtual or face to face, we seek to create a personal connection with customers and to understand their lives, aspirations, and needs.
Close customer interactions enable us to reach untapped or underserved groups of people around the world, including individuals with specific needs who may not be part of the traditional market for our financial products and solutions. While we continue to build our middle- and higher-income customer base worldwide, we also work to bring financial services and our products to lower-income customers. In the United States, Transamerica offers Final Expense Whole Life Insurance to meet the needs of individuals on limited incomes whose families may not be able to afford the expenses associated with death and funeral services.
We are also working to extend insurance coverage to people who have previously been considered uninsurable. Our WinSocial program, run by our joint venture MAG Aegon in Brazil, offers insurance to people with diabetes. The initiative, which forms part of our Qualitative to Quantitative (Q2Q) pilot program (see next page), uses a mobile app and website to ask customers health and lifestyle questions before validating their responses via heart and glucose monitoring. We hope to broaden this initiative to cover other formerly uninsurable groups, including individuals with hypertension, HIV, and certain cancers. Furthermore, in our Transamerica business, we will roll out our new, digital underwriting capability along with significant customer experience upgrades across our core life products over the next two years.
Aegon Annual Report on Form 20-F 2020 |
Responsible business26 | ||
In line with Aegon’s purpose, we are exploring a faster and more efficient approach to underwriting under the banner of our Qualitative to Quantitative (Q2Q) pilot. This automation-based concept is being trialed with potential insurance customers in the United States, via Transamerica, as well as through our Brazilian joint venture, MAG. Q2Q involves moving an applicant from a very reduced set of questions, revolving around medical risk, to a resulting rate-class that both stratifies that risk and determines pricing, without the need for fluid samples or laboratory tests.
A clear advantage of this quantitative approach is that it can be applied consistently to all applicants, vastly reducing the potential for human bias. This is thanks to a systematic
method Aegon has developed for evaluating, and therefore preventing, so-called disparate impacts (when a data input or rule for its use in underwriting produces different results for protected population classes). For example, factors with the potential to create bias, such as or credit scores, are carefully identified and removed from the underwriting process.
We believe Q2Q represents a significant step forward for the insurance industry. We plan to share our observations from the pilot with our partners on an ongoing basis, as we work toward a common goal of meeting a crucial consumer need for a convenient, fair, and accurate underwriting process.
Smarter customer relationships
Aegon’s increased focus on digital transformation and customer centricity underpins our efforts to help individuals achieve a lifetime of financial security. By combining efficient, digitized interactions with humanized customer experiences, we can provide financially inclusive products and attend effectively to our customers’ needs during challenging periods in their lives.
Insurance for people living with HIV in Brazil
About 0.4% of Brazil’s population is living with HIV and AIDS. HIV-positive individuals are often considered uninsurable due to the risk of the condition developing into AIDS.
However, with the right monitoring regime and antiretroviral therapy treatment, HIV can often be controlled, making it a manageable chronic condition. Aegon research indicates that, as in the case of other chronic conditions such as diabetes mellitus, people living with HIV can be insurable if they can give evidence of sufficient control over their condition.
In the spirit of Aegon’s WinSocial pioneering offering of insurance to people living with diabetes mellitus, Aegon looks forward to leveraging its proprietary digital underwriting capabilities (Q2Q) to further expand opportunities for other individuals who have historically struggled to access fair treatment and insurance. We expect to begin issuing policies to qualifying individuals living with HIV in 2021.
Our customer experience experts are working to advance the digital solutions we provide, without overlooking the need for empathy and a human touch during critical interactions. For example, during the COVID-19 outbreak, Transamerica used its Voice of the Customer platform to gather the views of more than 3,000 employers on emergency legislation and shutdowns. A previously largely analog process was made 100% digital, which increased performance, accuracy, and ease of use. At Aegon Spain and MAG in Brazil, new digital environments were made available in 2020, enabling customers to obtain an overview of their products and services and take simple actions such as changing a payment method. This not only offers the digital convenience but also provides reassurance to our customers.
We use advanced technologies, such as data analytics, to help us gather customer data more intelligently via digital user platforms such as mobile phones. This allows us to further customize our products and solutions and drive down costs (see ‘Q2Q’ above).
Sophisticated data-driven insurance technologies can also help us better evaluate the risks of selling to customers, especially those with chronic medical needs. Ongoing digital health tracking using wearable technology and fitness applications can encourage customers to make healthier lifestyle choices. Digital health monitoring not only makes the underwriting process quicker, cheaper, and more accurate, but also enables us to build more sustained and engaged connections with our customers. Moreover, it allows us to reach and help new groups of people with more affordable, personalized products.
Aegon Annual Report on Form 20-F 2020 |
Responsible business27 | ||
Digital ethics: A growing area of debate
Data and artificial intelligence (AI) offer opportunities for insurance, but also raise important new questions for the industry. These technologies allow an increased level of insight for insurers when it comes to (potential) policyholders. On an ethical level, this situation poses unprecedented challenges to the traditional pillars of insuring non-certainty of a risk, statistical predictability, and mutual support or pooling across policyholders.
If data is not used in a controlled and compliant way – in terms of sources or invasions of privacy – by consumers or insurers, the relationship between the two parties is jeopardized. Fair insurance is then put at risk, undermining the crucial role it plays. The financial and/or reputational consequences can be dire.
In contrast, using data and algorithms in a controlled, responsible, and compliant way, with an appropriate contract between consumers and insurers, can enhance the societal role of insurance. Insurance can become accessible to segments of the population that were previously considered uninsurable. Policies can be dynamically adapted
to the specific circumstances of an individual, and ultimately move from indemnification to prevention.
At Aegon, we want to truly act on our purpose and therefore plan to use innovative data approaches, AI, and other technologies in certain areas. But we want to do so in a controlled, responsible, and compliant manner and we also expect the same from our customers and partners. Furthermore, thanks to our involvement in international industry forums where such issues are increasingly being debated (for example, EIOPA’s Consultative Expert Group on Digital Ethics), we believe Aegon can set an example when it comes to industry standards and can help shape the growing regulatory environment around data ethics.
We are mindful that some of the considerations around AI, digital technology, and data ethics may be controversial. We are therefore looking at the issues carefully, and from a variety of perspectives. Innovation raises questions that are sometimes uncomfortable or difficult to deal with. Nevertheless, we believe it is important to encourage such debates in order to make the most of the opportunities offered by new technologies, and identify smart, valuable, and ethical solutions for our customers.
Further to the need to comply with relevant laws and regulations, the social benefits of better financial inclusion are matched by the commercial and reputational advantages for Aegon. On the one hand, the costs of accessible digital underwriting solutions are much lower than in traditional, manual methods; on the other, we have found that customers who appreciate how we work to protect the more vulnerable in our society will recommend us to other people, building our reputation in our markets. Smarter customer relationships therefore create value for shareholders and customers alike.
Retirement research
Healthy aging and financial security in later life are at the heart of our business. Given the global trends of longer lifespans and aging societies, we believe we have a societal responsibility to help people plan effectively for old age and lead a longer, more active retirement. To support this ambition, Aegon conducts in-depth, practical research on financial planning, retirement, health, and insurance issues.
The Aegon Center for Longevity and Retirement (ACLR) was established to increase awareness of, and stimulate dialogs about, issues relating to longevity, population aging, and retirement security. Our aim is to see these themes included in policymaking agendas across the globe.
Together with the Transamerica Center for Retirement Studies® and the Instituto de Longevidade Mongeral Aegon, the ACLR conducts an annual survey on retirement readiness and attitudes in 15 countries. The survey has gathered information from more than 130,000 respondents during its nine-year history.
The 2020 survey and accompanying report focused on age-friendly employment and explored the important role of employers in helping workers successfully prepare for retirement. The report drew attention to employer-sponsored retirement and other welfare benefits, flexible work arrangements, and workplace wellness programs, among other initiatives.
Shifting responsibility for retirement
Longer lifespans are putting traditional, state-managed retirement systems under strain and shifting responsibility away from governments and employers toward individuals, who may not be fully equipped to plan for their financial security. The pandemic has further exposed the fragility of retirement systems run by governments that now find themselves needing to redirect funds toward supporting their economies.
Aegon’s products and services are focused on helping our customers to achieve a dignified retirement.
Aegon Annual Report on Form 20-F 2020 |
Responsible business28 | ||
At Aegon, our commitment to upholding environmental, social, and governance (ESG) considerations is demonstrated in our compensation and benefits policies at the highest levels. For example, we are incorporating inclusion and diversity targets into the remuneration of all Executive Board and Management Board members.
More widely, according to our Executive Board’s Remuneration Policy, 50% of a member’s variable compensation is related to non-financial performance indicators, of which at least one must be ESG-related and clearly support the wider interests of society. Such a target might, for example, focus on the organization’s carbon footprint, inclusion and diversity
practices, or risk management. The executives’ variable compensation is dependent on the fulfillment of this target as well as their other performance indicators. In 2021, our CEO, Lard Friese, will work toward specific performance objectives that focus on inclusion and diversity, and on further integrating ESG into Aegon’s strategy.
This is just the start: our aim is for commitments made at the top to filter through the rest of our businesses. This will see managers across our regions take responsibility for employee engagement and make sustainability a key objective that is embedded in everything they do.
Aegon is active in many international projects that aim to fulfill this goal; for example, an Organisation for Economic Co-operation and Development (OECD) working group on the future of work, and the Living, Learning, and Earning Longer initiative led by the World Economic Forum (WEF), the OECD, and US-based retirement interest group AARP. Within Aegon, our Silver Starters program (developed jointly with the Leyden Academy on Vitality and Ageing) provides online entrepreneurship coaching to over-50s, to promote lifelong learning and healthy attitudes to aging.
A key part of our responsibility to society is to reduce our impact on the environment. In 2015, Aegon signed the Paris Pledge for Action, affirming our commitment to the ambition set out by the Paris Agreement to limit global temperature rise to less than 2 degrees Celsius. We are also a supporter of the Task Force on Climate-related Financial Disclosures (TCFD).
As a financial services provider, we do not operate energy- or resource-intensive processes in the offices and data centers that comprise our direct business operations, nor are we aware of any environmental incidents relating to these activities. The environmental impact of our business activities relates primarily to the organizations in which we invest. To this end, it is important that we set high standards for ourselves in our responsible investment philosophy (see page 31).
For example, in January 2021, in response to the threat of climate change, Aegon UK announced its intention to achieve net-zero carbon emissions across its default pension fund ranges by 2050. Before then, the business aims to halve carbon emissions associated with its default funds by 2030. This commitment follows a survey of Aegon UK’s customers carried out in late 2020, in which nearly half of all respondents expressed their wish to see investing for a net-zero carbon future made mandatory.
Aegon’s other country units are working toward similar targets. In 2019, Aegon the Netherlands joined more than 50 leading Dutch companies in signing the Coalitie Anders Reizen: an agreement to reduce carbon emissions by 50% by 2030.
Carbon neutrality of our own operations
Aegon’s direct business operations in the Netherlands, the United Kingdom, and the United States have been carbon-neutral since 2016. Carbon neutrality was extended to cover the entire Group in 2019. We take a hierarchical approach to manage our greenhouse gas (GHG) emissions:
1. | We seek to reduce activities with a carbon footprint, namely fossil fuel consumption and air travel. |
2. | We look to substitute remaining activities with low-emission alternatives. |
3. | We offset any residual emissions. |
Aegon’s direct energy usage fell by 17.6% in 2020, as many Aegon employees worked from home throughout much of the year due to the COVID-19 pandemic. Our use of air travel was also greatly reduced as virtual conferencing tools such as Microsoft Teams replaced face-to-face meetings. On a pre-pandemic basis, our overall energy consumption fell by 5.5% year-on-year in 2019, supported by the rationalization of our property portfolio worldwide and the consolidation of our operations into more energy-efficient buildings.
Reduce: The first tier of our GHG reduction approach focuses on limiting activities that result in carbon emissions. We aim to capitalize on changes to our standard working practices as a result of COVID-19 to further reduce the footprint of our direct business operations. Our owned premises in the United Kingdom
Aegon Annual Report on Form 20-F 2020 |
Responsible business29 | ||
Aegon’s approach to climate change
Aegon believes governments, companies, and investors have a responsibility to mitigate the impacts of a changing climate and facilitate a transition to a climate-neutral economy.
We seek to incorporate climate considerations into management actions across our business. Aegon takes steps to mitigate the environmental impact of our direct operations, for example by minimizing our energy consumption and using renewable electricity. However, we have an even greater influence through our investments: climate change is a key topic within Aegon’s responsible investment framework, and we report the greenhouse gas (GHG) emissions associated with our General Account investments.
At Aegon, we strive for consistent disclosure with regard to climate change and sustainability and have been supportive of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) since 2017. We follow the TCFD’s four-pillar framework for our own reporting and we encourage the wider adoption of the framework by our investee companies and other partners. Aegon’s efforts to comply with the TCFD are presented in more detail in the TCFD disclosure on page 415, which also forms part of the directors’ report.
Governance
Our efforts to address climate change are overseen by the Climate Change Working Group (CCWG), under the instruction of Aegon’s Responsible Business and Investment Committee (RBIC). The CCWG is tasked with evaluating new climate developments affecting our business activities and recommending actions as necessary.
Strategy
Climate change is a fundamental consideration within Aegon’s responsible business strategy. Aegon is committed
to a responsible way of doing business, which includes making a lasting contribution to a healthy environment. We also address climate change through Aegon’s Group-wide Responsible Investment Policy, including through our active ownership approach. As an institutional investor, Aegon expects investee companies to make a concerted effort to minimize their environmental impact. We actively engage with the companies we invest in – both individually and collectively - through networks to encourage better climate-related risk practices, including emissions disclosure and target setting.
Risk management
Climate change is a long-term risk associated with high uncertainty regarding the timing, scope, and severity of potential impacts. Within our wider responsible investment approach, Aegon enforces strict climate-related criteria as part of our screening and engagement process for investee companies. These include measurement and reporting of climate impacts; consideration of transition and/or physical risks, plans, and targets to reduce emissions; and other sector- or situation-specific topics.
Metrics and targets
Aegon measures and reports annually on its operational carbon footprint. Our main operations in the United States, the Netherlands, and the United Kingdom have been carbon-neutral since 2016 by reducing their facility-level emissions and supporting offset projects in cooperation with the non-governmental organization (NGO) ClimateCare. In 2019, we extended the scope of our offsetting to cover all of our wholly owned operations. Our operational emissions are reported in full on page 409. Since 2018, we have also measured the carbon footprint of our General Account investments.
With regards to the carbon footprint associated with our investments, in 2020 we broadened our disclosure beyond the Netherlands to cover our global General Account, reaching 77% coverage of Corporate Fixed Income, and 98% coverage of Sovereign Fixed Income.
are certified to ISO 50001 (Energy Management Systems), and our Netherlands operations are working toward equivalent coverage to the same standard. In addition, Aegon’s UK premises are certified to ISO 14001 (Environmental Management Systems) and we are pursuing Energy Star Certification for all our owned US premises.
Substitute: Renewable energy forms the second tier of our GHG-reduction approach. We source ‘green tariff’ electricity for our European operations and purchase renewable energy certificates (RECs) for the electricity we consume in the United States. Year
to year, the share of renewable electricity within our wider mix is consistently greater than 95%. Solar panels have also been installed on the roof of our Aegonplein head office in The Hague, generating energy for neighboring homes and businesses.
Aegon Annual Report on Form 20-F 2020 |
Responsible business30 | ||
Offset: Under the final tier of our management approach, we purchase carbon offsets to mitigate any remaining GHG emissions from our wholly owned operations. In developing regions where we have a sizeable operational presence, we specifically support carbon offset projects that reflect our own footprint and align with our priority United Nations (UN) Sustainable Development Goals (SDGs) as well as our purpose. Examples of Aegon’s projects include a Verified Carbon Standard (VCS) deforestation initiative in Brazil, as well as a Voluntary Emission Reduction (VER) project in China to help eliminate atmospheric methane emissions.
Contribution to the UN Sustainable Development Goals
Aegon is committed to supporting the UN SDGs, both as a financial services provider and as an investor. We recognize that sustainable development is in the long-term interest of business and the global economy, but that a sustainable future for people and the planet will not be attainable without cooperation between the public and private sectors.
We focus on the SDGs most relevant to our business and, within these, we have selected the specific targets linked to our strategy. This is where we believe we can make a significant contribution to the international development agenda.
Sustainable Development Goal | ||||
Aegon strategic SDGs | ||||
No poverty End poverty in all its forms everywhere | Contribution to target 1.2 • Aegon the Netherlands colleagues have been offered training on how to advise friends and family on managing their personal finances during the pandemic and beyond (page 25) • Transamerica launched a comprehensive CARES Act Customer Support Initiative to encourage retirement plan sponsors to offer these new distribution options to participants requiring access to funds, putting customers’ minds at ease (page 36) • Aegon the Netherlands introduced a ‘Blue Heart’ program that enabled people facing financial difficulties, as a result of the pandemic, to postpone their payment (page 37) | |||
Good health and well-being Ensure healthy lives and promote well-being for all at all ages | Contribution to target 3.4/3.8/3.A • Our Silver Starters program (developed jointly with the Leyden Academy on Vitality and Ageing) provides online entrepreneurship coaching to over-50s, to promote lifelong learning and healthy attitudes to aging (page 28) • In our engagement process, we entered into a dialog with pharmaceutical companies involved in the development of COVID-19 treatments, to ensure fair access to essential medicines, and in particular, vaccines for people around the world (page 31) • Under COVID-19, Aegon International also accelerated hospitalization benefits in China and expanded benefit coverage to COVID-19 for customers in India (page 37) • Aegon excludes tobacco from its investments to help address health concerns over smoking (page 90) | |||
Affordable and clean energy Ensure access to affordable, reliable, sustainable and modern energy for all | Contribution to target 7.2/7.3 • The Aegon Asset Management Ethical Equity fund’s climate-related investments include companies involved in renewable energy, social and environmental infrastructure, and sustainable materials (page 417) • The ABN AMRO Aegon Global Impact Equities fund’s climate-related investments include companies involved in renewable energy production and its supply chain, sustainable manufacturing technologies, energy efficiency, building insulation, and the circular economy (page 417) | |||
Decent work and economic growth Promoted sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all | Contribution to target 8.5/8.7/8.10 • In the spirit of Aegon’s WinSocial pioneering offering of insurance to people living with diabetes mellitus, Aegon looks forward to leveraging its proprietary digital underwriting capabilities (Q2Q) to begin issuing policies to qualifying individuals living with HIV in 2021 (page 26) • Aegon was the first company in the Netherlands to make agreements with trade unions in its collective labor agreement on equal pay for men and women and Aegon UK has publicly reported its gender pay gap data since 2017, as required by law (page 39) • Aegon faces the most potential human rights risks in its indirect business relationships, which is why human they are at the core of newly updated Vendor Code of Conduct and our Responsible Investment Policy (page 44) | |||
Climate action Take urgent action to combat climate change and its impacts | Contribution to target 13.2/13.3 • Aegon the Netherlands is a signatory to the 2019 Dutch National Climate Agreement alongside Aegon Asset Management’s unit in the Netherlands (page 25) • In 2015, Aegon signed the Paris Pledge for Action, affirming our commitment to ensure that the ambition set out by the Paris Agreement is met or exceeded (page 28) • Aegon the Netherlands performed an assessment on the impact of climate change on the General Account asset values and the increase and timing of life and non-life insurance claims (page 416) • In 2018 we began to measure and report on the carbon footprint of our investments, with a focus on our proprietary investment portfolio in the Netherlands and new for 2020 is the first measurement of our global General Account holdings (page 418) |
Aegon Annual Report on Form 20-F |
Responsible investment31 |
At Aegon, we recognize that our responsibility extends beyond achieving strong financial returns, and that we must take action to ensure our investments do not negatively affect society or the planet. We apply this ethos to our own proprietary investments and use our influence to encourage similar standards in the accounts we manage. By taking an active approach to responsible investment, we seek to minimize risks and explore new opportunities to serve the interests of our customers and society at large.
On January 1, 2020, Aegon implemented its revised Group-wide Responsible Investment Policy, which determines how we manage our proprietary assets globally as part of the investment process for our General Account. As well as reiterating our previous environmental commitments, the updated policy further limits exposure to climate-damaging activities such as thermal coal production and usage.
The policy recognizes a broad range of recurring environmental, social, and governance (ESG) topics, from climate change to health and corporate governance. These topics are assessed regularly as part of the review process for our Responsible Investment Policy. The most recent review, in January 2021, further underscores our commitment to fighting loss of biodiversity, together with further improvements to our investment process.
In addition to incorporating ESG thinking into investment decisions for our General Account, we are committed to expanding our ESG offering in Separate Accounts, which we offer to policyholders and pension plan members as investment strategies.
Guided by our overarching Responsible Investment Policy, Aegon Asset Management (AAM) has established a Responsible Investment Framework that reflects these key elements including similar policies put forward by AAM’s clients.
Our Responsible Investment Framework is structured as follows:
◆ | ESG integration – Material ESG factors are fundamental to our investment decision-making across all AAM portfolios. By integrating ESG considerations into traditional financial analysis, the AAM research team arrives at an independent view of an issuer’s fundamentals. |
◆ | Active ownership – We actively engage with investee companies across a wide range of industries to improve their ESG profile and address sustainability issues, often in cooperation with other investors to maximize our influence. We also exercise any shareholder voting rights we have to support our engagement efforts and enhance long-term value creation for all stakeholders. |
◆ | Solutions – AAM provides a range of responsible investment solutions to pursue ESG objectives alongside financial returns. These solutions are categorized into four types: 1) exclusion-based strategies, 2) best-in-class strategies, 3) sustainability-themed strategies, and 4) impact investments. |
Engagements
In 2020, Aegon engaged with 575 companies on a wide range of issues, including; climate risk and reporting, critical health issues, and corporate governance, through AAM. Many of these engagements focused on the COVID-19 pandemic and the responses of our investee companies. In particular, we have sought to ensure companies provide adequate protection for their employees by taking suitable health and safety precautions. We also entered into a dialog with pharmaceutical companies involved in the development of COVID-19 treatments, to ensure fair access to essential medicines, and in particular, vaccines for people around the world.
2020 also drew attention to issues of diversity and racial equality in the United States and elsewhere. The growing awareness around diversity issues is in line with AAM’s ongoing engagements with investee companies with regard to inclusion and diversity. A priority during these discussions has been to encourage companies to provide more transparent disclosure in terms of their diversity policies, programs, and targets.
Aegon Annual Report on Form 20-F 2020 |
Responsible investment32 | ||
Engagement activity 2020
1 | General disclosure engagements are not all indicative of ESG concerns, for example dialog between AAM and a company to enable completion of an ESG asessment. |
2 | Global Industry Classification Standard (GICS) sector data. A limited number of target companies (<10%) straddle GICS sector categories and have been mapped manually. |
Milestone 1: Concerns flagged with a company.
Milestone 2: Company response (letter, e-mail, phone call) commencement of dialog.
Milestone 3: Concrete steps taken by the company to resolve flagged concerns.
Milestone 4: Engagement goal(s) achieved.
No further action required: Where (after dialog with the company) the assessment of flagged concerns changes and decision made to discontinue the engagement.
Exclusion list developments
In 2020, Aegon strengthened its Group-wide exclusion criteria within the Responsible Investment Policy. Aegon will no longer invest in companies that own more than 10 gigawatts of coal-fired electricity generation capacity and have plans to extend their capacity. We also exclude companies that produce more than 20 million tons of thermal coal annually and are actively expanding their coal-related operations from our investment universe. This is in addition to those deriving 30% or more of their revenue from the exploration, mining, or refining of thermal coal. This threshold will gradually be lowered over the coming years, to eventually reach 5% or below in 2029.
Responsible investment solutions
In December 2020, AAM joined forces with ABN AMRO Investment Solutions to launch the ABN AMRO Aegon Global Equity Impact Fund. The fund selects companies that demonstrate strong ESG performance, the exclusion of controversial activities, and positive impact.
As a signatory of the UN Principles for Responsible Investment (PRI), in 2020 AAM scored the highest possible rating (A+) for strategy and governance of responsible investment activities for the fourth consecutive year.
Aegon Annual Report on Form 20-F 2020 |
Responsible investment33 | ||
Several new responsible investing funds were also launched across our business units during 2020. In September, Transamerica and AAM’s US business jointly launched two new responsible investing bond mutual funds: the Transamerica Sustainable Bond and the Transamerica High Yield ESG funds. In December, Transamerica also replaced one of its sub-advisors on an existing equity strategy with AAM, and changed the strategy to Sustainable Equity Income, thereby giving Transamerica dedicated responsible investing offerings in both the fixed income and equity spaces. At the end of 2020, the Sustainable Equity Income strategy had assets of USD 1.2 billion across two funds: a retail fund and a series trust fund used in Transamerica’s variable annuity business.
Aegon UK also expanded its ESG solutions during 2020. Together with our investment partner, BlackRock, the Company increased its exposure to investments that have ESG credentials in the Aegon BlackRock LifePath portfolios that are available to workplace investors via our Aegon TargetPlan and Aegon Master Trust fund ranges. Between September 2020 and mid-2021, the number of ESG investments held by the LifePath portfolios will increase from 27% to 68% for LifePath investors planning to retire in 2050 and beyond.
Further information about AAM’s activities can be found in the dedicated Responsible Investment Report published by AAM.
Aegon’s business units, including Transamerica, Aegon the Netherlands, and Aegon UK, are guided by our Group-wide Responsible Investment Policy, which they implement through their respective investment activities. Equally, our business units are encouraged to take additional measures to reflect the preferences and standards of Aegon’s customers and other stakeholders in their respective local markets.
Several of our units have taken additional steps to strengthen their screening efforts. For example, in January 2021, Aegon UK announced its commitment to achieve net-zero carbon emissions across its default pension fund ranges by 2050. The company also intends to cut carbon emissions associated with default funds in half by 2030. In November 2020, Aegon the Netherlands joined a coalition of Dutch investors using satellites to target companies with deforestation in their supply chains. The coalition demands that companies publicly disclose supplier lists for palm oil and other agricultural ‘soft’ commodities. Companies that have been involved in deforestation in the past are required to take steps to mitigate their effects and avoid contributing further to this issue.
As part of our active engagement strategy, Aegon works with companies with the potential to contribute to the clean energy transition and the realization of the climate targets set by the 2015 Paris Agreement. In 2020, Aegon Asset Management (AAM) continued to engage with a leading multinational steelmaker to support its decarbonization plans and its implementation of greenhouse gas (GHG) reduction targets. This engagement has been well-received by the company’s management, and we held several meetings focused on carbon reduction. The interactions have been coordinated within the Institutional Investors Group on Climate Change (IIGCC), an investor-based workgroup aligned with the Paris Agreement. We believe our collaboration has had a positive impact. In October 2020, the steelmaker announced plans to build on its existing carbon-reduction ambitions, having made a Group-wide commitment to being carbon-neutral by 2050. The company has also introduced its first ‘green steel’ solutions for customers, which include steel produced via carbon-neutral processes as well as through the use of ‘green’ hydrogen generated from renewables. Aegon and other IIGCC-affiliated investors will continue to engage with the company on its transition plans in 2021, and the implementation of its sustainability targets. |
Our country units also commit to local initiatives and platforms aimed at promoting responsible business activity. In 2020, Aegon the Netherlands joined Platform Living Wage Financials (PLWF), an alliance of financial institutions that encourages investee companies to address the failure to pay a living wage in global supply chains. The company also joined the Access to Medicine Index, a research program that ranks leading pharmaceutical companies based on their efforts to ensure the sufficient availability of medicines for people in all regions and of all backgrounds and income levels.
Aegon Annual Report on Form 20-F 2020 |
Long-term value for our stakeholders34 |
We strive to create long-term value for multiple stakeholders, including customers, employees, business partners, investors, and society as a whole. Our core belief is that our business is beneficial to society and that the value we create is widely shared. However, we are mindful that certain decisions we make as a business may result in the erosion of value for stakeholders in some circumstances. The active identification and management of these potential consequences through our decision-making is important both in its own right and also in preserving a net balance of long-term value creation.
To meet the expectations of our stakeholders, we commit to being a good corporate citizen with a strong environmental,
social, and governance (ESG) foundation. For us, this foundation encompasses, among other things, investing and paying taxes in a responsible way, safeguarding data privacy and information security, respecting human rights, living up to the principles of sustainable procurement, and promoting inclusion and diversity. The ‘Responsible business’ chapter of this report provides more details for stakeholders about our ESG foundation.
Aegon defines its stakeholders as any individual or organization affected, or likely to be affected, by its business or that may, in turn, affect the environment in which Aegon operates. We recognize five main stakeholder groups.
Customers – individuals and corporate clients: By delivering reliable insurance solutions and effective |
investment management services, we help our customers protect their lives and legacies. Aegon also plays an important role as a pension platform, helping customers to manage long-term pension savings. Furthermore, we provide mortgage solutions for customers in the Netherlands, giving homebuyers access to essential financing.
Employees – full and part-time employees (current and retired), |
tied agents, trade unions, and other employee representative groups: As our business progresses and grows, we are better able to provide our employees with fulfilling careers, advancement opportunities, and educational support.
Business partners – distributors, joint venture partners, reinsurers, and suppliers of goods and services: |
We cultivate a strong relationship with our business partners by working together to create revenue streams and sharing intelligence and perspectives from markets around the world. We learn from our partners and optimize our business so that we can work together more effectively.
Investors – shareholders and bondholders: We want our |
investors to see sustainable benefits. Our bondholders have received timely coupon payments and principal repayment at maturity. In 2020, we made a considered decision to retain the final dividend for 2019 and to rebase the interim dividend for our equity holders from 15 cents to 6 cents per common share. This was to ensure that the dividend is sustainable and well covered by the free cash flows that we generate, even
in reasonable stress scenarios. Aegon targets an increase in capital returns to shareholders in the coming years on the back of a successful execution of its strategy.
Society – governments, regulators, charities, tax authorities, community groups, and other non-governmental organizations (NGOs), academia, and public institutions: |
Society is supported by dependable insurance solutions that help individuals protect their assets and aspirations. When we enable people to save for their own retirement, we also help reduce future burdens on public pension systems. More widely, we strive to be a good corporate citizen, starting by supporting the communities where we do business through our tax payments, charitable donations, and volunteer work.
In 2020, the value we delivered to Aegon’s stakeholders included:
◆ | EUR 57 billion to our customers in claims, benefits, and plan withdrawals. |
◆ | EUR 6.6 billion in commissions, fees, and other payments to intermediaries, suppliers, and reinsurers. |
◆ | EUR 2.0 billion to our employees in salaries, benefits, and training. |
◆ | EUR 370 million to our investors in dividends and interest payments. |
◆ | EUR 318 million in tax payments around the globe. |
◆ | EUR 9.7 million in support for local communities. |
◆ | 4,399 hours of volunteer work. |
◆ | EUR 213 billion of investments in responsible investment solutions. |
Aegon Annual Report on Form 20-F 2020 |
Long-term value for our stakeholders35 | ||
This chart is based on the Integrated Reporting (IR) framework of the International Integrated Reporting Council (IIRC). Each capital represents a store of value, which companies use and transform through their business activities. In this process, value may be created or depleted. For the purposes of this value chain, we have applied three of the five most material capitals to our business (financial, human and intellectual, and social and relationship). As a financial services company, we do not directly use or create natural or manufactured capital, though of course we may affect the value of both through our investments. For more information on the IR framework, see www.integratedreporting.org.
2017Financial capital: the funds to which Aegon has access, including debt and equity capital.
Human and intellectual capital: individual knowledge, skills, and capacities in Aegon’s workforce, as well as the Company’s institutional knowledge, processes, and expertise.
Social and relationship capital: relationships both within and outside the Company, including with customers, employees, suppliers, and other business partners.
Aegon Annual Report on Form 20-F 2020 |
Long-term value for our stakeholders36 | ||
In March 2020, the US government introduced the CARES Act, a USD 2.2 trillion COVID-19 economic stimulus package for individuals, businesses, and municipalities. One outcome was that US employers sponsoring eligible retirement plans were given the option of offering their employees access to retirement savings through COVID-19-related distributions and loans, along with certain tax waivers. While this was welcome news for many, it meant that employers were faced with complex new rules at an already difficult time.
In April, Transamerica launched a comprehensive CARES Act Customer Support Initiative to encourage retirement plan sponsors to offer these new distribution options to participants requiring access to funds, putting customers’ minds at ease.
There were five steps to Transamerica’s initiative:
1. | Waiving all retirement plan fees associated with COVID-19-related distributions, thus supporting retirement plan sponsors and COVID-19-impacted workers. |
2. | Waiving plan amendment fees for retirement plan sponsors who used Transamerica’s pre-approved document. |
3. | Establishing a team to handle requests from plan participants seeking advice about using their long-term retirement savings to meet short-term financial challenges. |
4. | Issuing a detailed summary of the CARES Act to help employers, employees, and their financial professionals navigate the new legislation, as well as providing guidance on the steps needed for plan sponsors to implement the CARES provisions. |
5. | Donating USD 500,000 to Direct Relief to support healthcare workers in their COVID-19 relief efforts. |
At Aegon, we know that people work hard over many years to build up their retirement funds, and that for customers affected by COVID-19, accessing retirement savings is a last resort at a time of unforeseen upheaval. The Transamerica initiative was a timely and practical response that supported our customers as they made difficult decisions, aligning with Aegon’s wider efforts to help people achieve a lifetime of financial security. By providing clarity on the new legislation and its implications, encouraging plan sponsors to act, and reassuring customers that they would not be penalized unfairly, we were able to help people in immediate financial difficulties access the money they needed to weather the crisis.
Aegon’s purpose is to help our customers achieve a lifetime of |
financial security. Part of this security is the peace of mind that comes from knowing we will be there when they need us most and we will respond with empathy and clarity. At Aegon, we know that all of our customer interactions count. We can build trust and value by connecting with people on a human level, by being both personal and informative, and by offering reassurance and care alongside timely and relevant advice so that people can make decisions that are right for them.
We have seen that increases in longevity and population aging are putting government-sponsored retirement benefits under severe financial strain. In many countries around the world, traditional defined benefit plans offered by employers are disappearing and being replaced by employee-funded defined contribution retirement plans. With these shifts, individuals are expected to take on increasing responsibility for self-funding a greater portion of their retirement income.
Workers are shouldering more of the weight of financial decision-making for their retirement savings compared with the past, and they need to make more informed decisions. Good financial
literacy skills are more important than ever, yet barely more than one-quarter (28%) of workers were able to answer three basic financial literacy questions correctly.1 Given what is at stake and the complexity involved, policymakers, the financial services industry, employers, and others must work collaboratively to further develop and offer access to lifetime income solutions.
Where our customers are
(total number of customers by location, in millions, end-2020)
1 | Aegon Retirement Readiness Survey 2020. |
Aegon Annual Report on Form 20-F 2020 |
Long-term value for our stakeholders37 | ||
At the same time, to support our customers it is important we deliver our products and services smoothly and efficiently At Aegon, we are harnessing new, digital tools and embracing more analytical, data-driven ways of working that allow us to get to know our customers better and meet their needs more effectively. As our underwriting processes evolve and improve, we can also extend our services to new areas of society. These include those who, for various reasons, may have previously been considered uninsurable.
Our response to the pandemic
Throughout 2020, our customers relied on us more than ever as the COVID-19 pandemic took its toll on lives, livelihoods, and well-being. We knew that how we responded to our customers’ needs in a time of great uncertainty would be a moment of truth for our organization. Our aim in all of our communications has been to make our customers feel informed, reassured, connected, and assisted. These four key requirements guided how we interacted and communicated with users of our services.
Around the world, our country units have responded to the pandemic in different ways. At Transamerica, we introduced a new initiative to help customers navigate the CARES Act (see page 36). Aegon International also accelerated hospitalization benefits in China and expanded benefit coverage to COVID-19 for customers in India. Elsewhere, Aegon the Netherlands introduced a ‘Blue Heart’ program that enabled people facing financial difficulties as a result of the pandemic to postpone their payments, reducing customers’ stress at a time when they need to put their health first.
Satisfaction and loyalty
Aegon’s commercial success has always relied on retaining customers and extending our relationship with them across multiple services. Our priority is to continuously improve customer satisfaction and loyalty. To measure our performance, we use the Net Promoter Score (NPS), measured through ‘touchpoint NPS’ (tNPS), ‘journey NPS’ (jNPS), and ‘relational NPS’ (rNPS) on a scale of -100 to +100. These are all used to steer and improve the quality of our internal processes and the customer service experience we deliver. NPS measurements are included in various management-level targets. Our relational NPS programs cover the vast majority of our customers (87%) across our different territories and businesses.
At Aegon, we took care to guide and support our customers during the difficulties they faced in 2020. Our success in improving our customers’ experience with us is shown by our NPS results, with an improved absolute and relative performance in Aegon’s three biggest markets: the United Kingdom, the United States, and the Netherlands.
In the Netherlands, rNPS reached an all-time high score in 2020. We can attribute this increase largely to a better emotional connection with customers, achieved through high-quality customer contact during the pandemic and our empathetic communication.
Aegon recognized for excellent
customer service in Spain
For the second year in a row, Aegon Spain was recognized in the Customer Service of the Year awards, winning awards in both the Health Insurance and Life Insurance categories.
The awards, granted by the Sottotempo association, recognize the innovation and quality of the service that Aegon offers our customers. This follows thorough discussions with customers regarding their thoughts on the customer service Aegon provides by telephone, as well as via email and web browsing. The discussions focused on aspects such as availability, quality of response, and technical quality, and also reflected on the ‘human’ quality of Aegon’s interactions with customers.
Aegon’s approach to be proudcustomer service in Spain reflects our wider ambition to remain close to our customers by providing support throughout the different stages of people’s lives, especially when they need it most.
In the United States, we used our rNPS survey as an opportunity to gather customer feedback about how communication in times of uncertainty affects brand loyalty and trust. The results were clear: those who indicated they had received some type of communication from Transamerica had an average NPS of +54, and 75% agreed with the statement “Transamerica is a brand I trust.” On the other hand, those who indicated they had received no communication had an average NPS of +2, and only 51% agreed that they trusted Transamerica. Overall, our relational score remained stable at its already high level, which also led to improvements in our market position.
In the United Kingdom, we also saw our response to the pandemic enhance relationships with our customers. Our tNPS performance has remained above target levels since the outbreak of the pandemic. We also maintained the strong improvements made to Aegon UK’s rNPS in previous years. And with our peers’ performance decreasing, our NPS position stood above the market average in 2020 (32%).
Overall, our relationship with customers – relative to our peers – improved in comparison with 2019, mainly driven by the performance of Aegon UK. The details of benchmarked rNPS are provided in Part IV of this report.
Aegon Annual Report on Form 20-F 2020 |
Long-term value for our stakeholders38 | ||
Engagement |
Aegon’s goal is to continue to form a worldwide community of talented employees who are deeply committed to our purpose. Following the outbreak of the COVID-19 pandemic, and the transition to working from home across our organization, it has become more important than ever that we keep our people feeling supported and engaged. We do this by ensuring our employee community is connected, healthy, and happy.
To promote the health and welfare of our employees, in 2020 we:
◆ | Focused on creating new opportunities for their career development; |
◆ | Introduced a new performance management process with a stronger focus on development; |
◆ | Promoted greater diversity within an inclusive workplace; and |
◆ | Fostered training and development to equip our employees with future-ready capabilities. |
Every year, we conduct a Global Employee Survey across our businesses. In 2020, we continued to growsee very high participation levels, with 82% of our employees providing responses. The survey included questions in four key categories: Engagement, Leadership, Inclusion, and Diversity. Our scores in all of these areas increased compared to the previous year. The Engagement score rose from 67% in 2019 to 72% in 2020, while Leadership increased from 55% to 63%. It is reassuring to see that Aegon’s employees reported feeling engaged and supported. Our 2020 Inclusion score, at 79% (up from 76% in 2019), is one point above our external benchmark. In the Diversity category, our overall score reached 73% (versus 69% in 2019), though responses to specific questions show that we need to gain a deeper understanding of the situation and increase our inclusion and diversity efforts. The results of the survey have been discussed with Aegon’s respective business unit leaders. In 2021, business unit leaders will work toward a personal or business target related to the implementation of follow-up actions to improve employee engagement.
Due to COVID-19, much of Aegon’s staff worked from home throughout most of 2020. We supported employees by providing furniture, as well as information technology (IT), tools, and hardware to enable a healthy and safe home-based working environment. We also introduced the ‘Working from Home’ framework to support staff during this period and set vitality and engagement as a priority. The focus areas of this program are: keep fit, keep connected, keep performing, keep motivated, and keep developing. We also recognize the potential impact of extended remote working on people’s mental health. In spring 2020, Aegon UK began a series of webinars to offer employees support on managing their mental well-being while working from home.
Although the framework is global, local units have been able to adapt it to fit their specific circumstances, thereby better supporting employees and keeping people connected. In several
country units, offers such as increased paid leave in 2020 and expanded flexible working arrangements, helped employees balance their work and personal lives. We also reimbursed additional costs related to working from home.
As the situation evolved, we started to explore future ways of working at Aegon. Like many organizations, we found multiple benefits to remote working, including greater flexibility and a better work-life balance for employees, more digitalization of processes, and reduced travel (which helps both employees and the environment). We conducted two employee surveys (in April and July 2020) to gain insights into how our people were faring during the crisis. On the basis of this feedback, Aegon is actively considering several measures for the future, including possible hybrid working models where offices may no longer be the default workspace for individuals, but would remain available for team collaboration.
Compensation and benefits
In a highly competitive labor market, our remuneration policy is designed to attract, motivate, and retain talented staff whose skills and values can help us achieve our strategy. Aegon’s Global Remuneration Framework stresses the importance of ‘pay for performance’, while ensuring incentives and variable pay do not compromise integrity or encourage excessive risk-taking. Both financial and non-financial metrics are used to assess performance; the mix between the two depends on the individual’s position and seniority. In 2020, we paid out EUR 2.0 billion in salaries and benefits to our 22,322 employees. We also provided a range of other benefits including, flexible working arrangements, company retirement plans, and parental leave, as well as paid time off for volunteering on community projects. Most of our businesses offer employee health programs; these include fitness programs and screening for serious illnesses such as cancer and heart disease, as well as programs to reduce workplace stress and improve mental well-being. Several of Aegon’s country-based business units also offer flexible options for purchasing or leasing a bike.
Where our employees work
(by reporting segment, end-2020)
Aegon Annual Report on Form 20-F 2020 |
Long-term value for our stakeholders39 | ||
In 2020, Aegon’s new ‘Perform and Develop’ approach to performance management came into effect across all of our business profitably, strengthenedunits. This global approach enables us to better measure and prioritize our employees’ development.
The new process, which is hosted on our Workday platform, sees us move away from the manager-led, backward- looking structure of biannual reviews, toward a more frequent and forward-looking approach, with ongoing dialogs led by employees. Goal-setting at the start of each year, now focuses on an employee’s ambitions relating to performance and development. During the year, the new system encourages check-ins with managers, two-way feedback, and discussions about goals as they evolve. End-of-year performance conversations now emphasize an employee’s impact, interests, and long-term career development.
The Perform and Develop system empowers Aegon employees at all levels of the organization to be open about their career aspirations and to take the lead on their own development. As well as giving employees greater ownership of their careers, the new process also brings other benefits: it encourages senior leaders to become more engaged as role models, and helps human resources teams with talent and performance management.
The launch of Perform and Develop has been supported by global and local training and communication materials, as well as digital nudges, to help colleagues make the most of the new system. Indeed, one Pulse Survey in September revealed that 64% of employees had talked about their performance goals with their manager in the past month, while 80% had received or given feedback.
Equal pay
Aegon was the first company in the Netherlands to make agreements with trade unions in its collective labor agreement on equal pay for men and women. We also recognize that, for some women, a shorter tenure or work history is the direct result of unaddressed inequalities throughout history.
Furthermore, since 2017 Aegon UK has publicly reported its gender pay gap data, which measures the difference between average earnings of male and female employees, expressed as a percentage of males’ earnings. The most recent annual Gender Pay Gap Report, published in April 2020, shows a mean gender pay gap of 34.7% for Aegon UK Corporate Services Limited in 2019, a slight improvement on the 2018 figure of 35%.
Development
Making sure our workforce has the right skills and competencies is vital for the success of our organization. More widely, we are aware of growing shortages of skills and talent across the financial services sector, which are becoming more acute as so-called baby boomers retire and the industry transitions to a more digitized way of working. Closer to home, the value of these skills is only amplified when combined with the deep organizational knowledge and strong capabilities of our employees, which are tailored to the specific functions of Aegon’s business operations. However, we note the difficulty of maintaining our employee development objectives in the context of an evolving organization. 2020 saw a 6% decrease in Aegon’s workforce, continuing a long-term trend, due to the strategic divestment of certain businesses and the transition of specific operational activities (with skilled
employees) to Aegon’s business partners. In addition, our digital transformation continues to provide opportunities for the automation of certain business processes. It is essential that we balance the requirement for on-going financial value creation with the preservation of critical knowledge and skills that support our future success, as well as the need to maintain an energizing environment where our employees feel valued.
To avoid potential skills gaps, Aegon seeks to attract new employees with a wide range of specialties and backgrounds. At the same time, it is essential we give our existing workforce opportunities to develop professionally and adapt to new digital tools and ways of working. We offer Aegon employees – at all levels – a wide range of training and career development programs, including through our Learning Management System.
Many of our trainings focus on IT and digital skills. One such example is our Analytics Accelerator program, which consists of online learning modules and virtual training sessions, available at foundational, manager, and expert levels. Other specialized trainings cover areas including products and sales, new regulations, risk management, responsible investment, information security, and data privacy. All employees have access to our Global Learning Catalog and are encouraged to use it to help shape their development journey. In 2020, we spent a total of EUR 11 million on training and development, equivalent to approximately EUR 500 per employee.
As the COVID-19 pandemic took hold, the number of employees participating in training programs fell, but has since risen to just under pre-pandemic levels. Likewise, in-person seminars and
Aegon Annual Report on Form 20-F 2020 |
Long-term value for our stakeholders40 | ||
lectures had to be cut back, but we were able to replace some courses with online versions, such as the Pulse Leadership program, and introduced new ones such as our Let’s Talk: Inclusion training (see next page). We continue to follow our 70-20-10 formula: 70% of an employee’s development takes place during the course of their everyday work, 20% happens via networking and informal learning, and the remaining 10% is made up of formal training.
In 2020, we introduced Absorb: our first, truly global learning management program for all employees, including those in our smaller units and joint ventures. This replaces the previous local systems, yet still allows Aegon’s different businesses to roll out contextually specific content. Absorb also hosts worldwide learning journeys that all employees can access. We continued to focus on analytics in 2020, and launched various programs tailored to different levels of the organization. We also rolled out several ‘deep dive’ digital and technology courses to enable employees to continue working on their core skills while working from home due to the pandemic.
At Aegon UK, our development program for aspiring managers received 32 applications from men and 33 from women in 2020. The first two cohorts will include 17 men and 19 women. By ensuring we have a good gender balance in our talent pipeline, we will ultimately build a more diverse pool of talent from which to select the leaders of the future, and create equal opportunities for men and women.
Inclusion and diversity
At Aegon, we recognize that our workforce is made up of people from a wide range of backgrounds. We want everyone to feel that they can bring their authentic self to work without fear of judgment or discrimination. By creating a safe and engaged environment where people are valued, respected, and committed to supporting each other, we can improve organizational effectiveness, make better and more inclusive decisions, and build our understanding of our customers.
Our approach to inclusion and diversity is to ensure our actions and policies are woven into all areas of our businesses and at all levels of the Company. At the top of the organization, Aegon CEO Lard Friese confirmed his commitment to the Company’s Statement on Inclusion & Diversity and will work toward a specific inclusion-related target as part of his 2021 objectives. Inclusion-related targets will also be included in the objectives of Aegon N.V. Management Board members and local management teams.
In 2020, Transamerica CEO Mark Mullin signed the national CEO Action for Diversity and Inclusion pledge, committing to actions to build trust and empowerment in the workplace. Transamerica was also recognized by the Diversity Best Practices Inclusion Index for the third year running, as well as being named one of the 100 Best Companies for Working Women for a second consecutive year. Meanwhile, Aegon UK signed up to the Race at Work Charter, part
Aegon Proud is one of our long-established employee resource groups (ERGs). During October, to celebrate Coming Out Day, the network hosted the 2020 Pride Photo Exhibition in the Netherlands. This exhibition was promoted by the global Aegon Proud community across all country units and was made available for all employees to view. The photos featured scenes from the lives of LGBTQ+ people from around the world, promoting the visibility of different identities and raising awareness of diversity. The exhibition took on a special importance this year with COVID-19 restrictions limiting traditional annual Pride gatherings, and accordingly the photos were also made available online to colleagues around the globe.
of a government initiative to boost racial equality in the workplace. The Charter sets out five specific calls to action and provides a framework for measuring diversity and improving inclusion.
Meanwhile, Aegon’s employees continue to take active ownership of inclusivity matters within the Company. As the Black Lives Matter movement gathered pace during 2020, employees at Transamerica founded Black Professionals for Change, a new employee resource group (ERG). The group is already having an impact, with a series of conversations called ‘Straight Talk on the Black Experience’ underway. The discussions provide a space for employees to share their personal stories and experiences. This new group is one of many company-sponsored ERGs that show our employees’ commitment to fostering positive change and an inclusive work environment.
In 2020, we asked the Central Agency for Statistics in the Netherlands (CBS) to measure the cultural diversity of Aegon the Netherlands using anonymized data on race and gender. The results show that we still have work to do for Aegon to be a true reflection of today’s society: only 13% of employees have a non-Western background, most of whom work in lower-level roles. The research also identified an overrepresentation of men in senior (and thus higher-paid) positions. Aegon the Netherlands is taking steps to address this, including by setting targets for the number of women in application procedures, making equality a more central factor in succession planning at the top of the company, and conducting an analysis of a possible glass ceiling. The CBS results will be used as a baseline measurement for future years but will also help us design a diversity policy that truly responds to the current reality of our organization.
Aegon Annual Report on Form 20-F 2020 |
Long-term value for our stakeholders41 | ||
Succeeding and building upon our former Global Ethics Line, Aegon Speak Up is a new program that aims to protect whistle-blowers and to encourage, guide, and support anyone who wants to report suspected or observed misconduct. We understand that the decision to speak up can be emotional, complex, and daunting, so Speak Up has been designed to be clear and accessible for use by anyone who works for, or on behalf of Aegon. Our step-by-step Toolkit prepares colleagues for what to expect and guides them through the process, whether they choose to make a report via the anonymous helpline, online, or in person. The Speak Up Toolkit is available as both a website and an app, and offers emotional support as well as practical information.
In 2020, we launched mandatory training on the Speak Up program for all employees. We provided a customized offering for four different user groups: leadership, management, all staff, and report handlers. By tailoring training to specific roles (for example, leaders’ and managers’ training includes sections on being receptive to people coming forward), we hope to empower employees, demystify the reporting process, and encourage people to look out for and speak up about misconduct.
Aegon also completed the universal roll-out of our Let’s Talk: Inclusion e-learning program on unconscious bias and how to identify and tackle it. This inclusion training is designed for all our employees (with a specific version for managers that addresses inclusive leadership) and comprises four learning modules as well as reference materials. The program also features ‘digital nudges’ that will prompt a change in thinking habits at key moments, for example during talent discussions and recruitment processes, to promote more inclusive decision-making. Take-up has been particularly strong at Aegon Asset Management (AAM), where training has been supported by a series of executive coaching sessions and team-based action-planning sessions.
Other steps we took in 2020 include the launch of a new global marketing pledge in pursuit of more inclusive communications messaging and greater diversity in our marketing. Inclusion and diversity are also integrated in Aegon’s core policies, including our new Statement on Human Rights, demonstrating our commitment to this important topic. This also shows how we are maturing in terms of this ambition.
At the global level, we continue to work toward achieving greater gender balance at Board level and have consistently achieved a good gender balance on our Supervisory Board. We recognize that more needs to be done to reduce gender disparities at the highest levels of our organization.
Promisingly, we exceeded our 2020 target of 30% female representation across our worldwide senior management, achieving 32%. This success in part can be attributed to a deliberate focus on more inclusive decision-making and gender-focused interventions within our units.
We will continue with our efforts to improve gender diversity in senior management positions, targeting 34% across Aegon at the end of 2021. We aim to achieve this by linking inclusion and diversity targets to the remuneration of Executive and Management Board members and developing an organization-wide five-year plan. Appropriate targets will be in place by the end of the first quarter of 2021, together with a clear ambition through 2025.
Aegon the Netherlands set a goal for 2020 to hire 10 new employees from disadvantaged backgrounds. While we did not achieve our ambition, we have identified the challenges we must overcome to make this program a success. We are determined to increase diversity in our recruitment and will make renewed efforts in 2021 and beyond. Furthermore, we have introduced a target of 30% for all new hires in the Netherlands to reflect the multitude of dimensions of people diversity, with a particular focus on gender and culture. Aegon’s progress on increasing ethnic diversity will be tracked through our continued partnership with CBS, which will provide analysis on an annual basis.
Compliance
We have long fostered a culture of ethical compliance.
Aegon’s Code of Conduct sets out rules and guidelines that shape and govern the actions of all our employees. It also commits us to complying with all legal and regulatory requirements and to prevent insider dealing, corruption, and bribery. In 2020, training on the Code of Conduct was completed by 97% of Aegon’s global workforce. We also carry out an annual systematic integrity risk analysis (SIRA) and take actions to address any gaps in performance.
In March 2020, we published our Financial Economic Crime Statement, in which we committed to complying with several Aegon policies on financial economic crime (FEC). These policies protect our businesses from involvement in crimes such as fraud, money laundering, and bribery, and are reviewed at least once every three years. We made it compulsory for all Aegon’s global employees to undertake our anti-money laundering training in 2020. Aegon is also committed to the Wolfsberg Group principles on Financial Crime Compliance.
Aegon Annual Report on Form 20-F 2020 |
Long-term value for our stakeholders42 | ||
Aegon strives to create mutually valuable relationships with all |
partners and suppliers. Brokers and financial advisors can build sustainable practices of their own by drawing on our insights and our products to serve their customers. In return, they bring insurance market intelligence and investment assets to Aegon, meaning we can create and distribute targeted product offerings to our customers.
We seek long-term strategic partnerships with suppliers that we believe have superior capabilities and/or can deliver a higher-quality service to our customers at a lower cost. Aegon has trusted, long-standing relationships in place with Tata Consultancy Services (TCS) for Transamerica and with Atos in the UK. In 2020, Aegon the Netherlands agreed on an administration contract with IBM for a portfolio of 800,000 individual life insurance policies, which will be managed using IBM’s cloud technologies.
Responsible procurement
As part of Aegon’s responsibility to our customers and investors, we are careful to make sure the partners and suppliers we work with are aligned with Aegon’s ethics, values, and standards. Our responsible procurement approach focuses on third party vendors who provide rights and protections to their workers who perform important outsourced functions for Aegon. Additionally, we also consider the role of diversity and minority suppliers within our supply chain.
Accordingly, in 2020, we replaced Aegon’s previous Sustainable Procurement Policy with a new Vendor Code of Conduct, which sets out the minimum standards our partners must commit to. This document reflects the consistent approach to responsible business that we aim to foster throughout our organization.
We have also started using SAP Ariba, a vendor lifecycle management platform for registering third parties and monitoring them through data feeds. Moreover, Aegon is an early adopter of Ariba Risk Management technology, which supports our third-party risk management processes and enables us to invite vendors to contribute to a risk assessment directly from the Ariba system.
In addition, Aegon now works with an external assessment company, EcoVadis, to evaluate the ESG risks involved in our partnerships with suppliers. The EcoVadis assessment categories are aligned with the standards laid out in our Vendor Code of Conduct, including key topics such as a supplier’s environmental policies and their labor, human rights, and ethics record. The EcoVadis results can be integrated into our Ariba platform, creating greater oversight of a vendor’s ESG credentials.
The outbreak of the COVID-19 pandemic was a test of Aegon’s supply chain, including for Transamerica’s outsourced teams in India. Some information technology (IT) workers lacked the equipment and internet access needed to transition to home-based working, but we worked with vendors to facilitate remote access for 635 workers and also brought in additional US-based staff to assist with the backlog that had resulted from the delay. To ensure continuity of services as the situation evolved, we monitored vendors across four areas: productivity, availability of resources, liquidity, and IT infrastructure. This allowed us to anticipate, manage, and resolve supply chain issues arising from the pandemic.
This partnership allows us to take a more proactive approach to responsible business. Should the external assessment reveal that a partner falls short of our expectations, we can work with them on corrective actions. This new system for risk management allows us more comprehensive oversight of our partners’ ESG policies, actions, and results. We are now better able to choose suppliers we can trust, and thus to be a good corporate citizen, creating sustainable value for the societies we operate in.
In 2020, we decided that we would assess our top 250 vendors by spend (representing 80% of Aegon’s total procurement spend). Within one year, we have valid EcoVadis scorecards for 67 of these accounts, covering 56% of the spend of these top vendor accounts. We will continue to increase the level of coverage over time.
In the future, our procurement process will prioritize the selection and contracting of vendors who share our values beyond the minimum standards and support us in upholding our values across the supply chain. By engaging with our suppliers, we encourage them to make positive changes to their operations and products for the benefit of wider society and the environment. While the consolidation of our suppliers and the management of our supplier base are important drivers of Aegon’s ESG and, in turn, economic performance, we are mindful not to exclude smaller, local suppliers with the potential to benefit our immediate communities.
Aegon Annual Report on Form 20-F 2020 |
Long-term value for our stakeholders43 | ||
In 2020, we delivered a total of EUR 370 million to Aegon investors. Of this, EUR 123 million was in dividends to |
shareholders and the remaining EUR 248 million was delivered to Aegon bondholders.
Payment of dividends depends ultimately on the Company’s capital position executedand available free cash flows. Before deciding on dividends, Aegon’s management team also assesses the prospects for financial performance. Against the uncertain economic backdrop of COVID-19 in 2020, we announced that we would retain the 2019 final dividend and that we had rebased our 2020 interim dividend at a lower level. This decision also allowed us to strengthen our balance sheet, as part of wider efforts to make Aegon a materially better, more enduring, and more profitable company in the years to come. Our goal is to deliver sustainable dividends to shareholders and, over time, to increase dividends in line with recurring free cash flows.
Shareholders may also derive (or lose) value from the performance of our shares. In 2020, Aegon’s stock price decreased by 20.5%. The wider European insurance sector performed better, with the Stoxx Europe 600 Insurance index ending the year down by 13.5%. We believe the reasons for the relative underperformance include the lower interest rates in the United States, to which we are more exposed than other European insurers. Our total shareholder return for the year amounted to a loss of 18.4% (this measure considers payment of dividends as well as share price performance).
Our purpose, to help people achieve a lifetime of financial |
security, also helps reduce future pressures on public pension systems by preparing individuals to take greater responsibility for funding their retirement. Moreover, Aegon’s long-running research into retirement readiness builds awareness of risks and provides insights and recommendations that benefit society. We also support our communities in a wide variety of ways.
Community investment
We support local communities through charitable donations and volunteer work. Our goals are to:
◆ | Serve and strengthen the communities where we do business and create a better quality of life for beneficiaries; |
◆ | Engage and involve employees; and |
◆ | Promote Aegon’s responsible business vision to all stakeholders. |
In 2020, Aegon’s Charitable Donations Standards were fully integrated into our charitable work. The new Standards set out our intent to align the majority of our donations not only with Aegon’s purpose, but also with our approach to responsible business.
The Standards require all country and business units to allocate at least 50% of their annual donations to causes that reflect two key themes: financial security and personal well-being. Financial security includes financial education and literacy for children and adults, in addition to later-life employment solutions. Personal well-being comprises longevity, physical fitness, mental vitality, disease prevention, and support for livable communities.
In a year when the health and finances of people globally faced the threat of COVID-19, Aegon acted to support our most vulnerable communities in direct and tangible ways.
During the spring lockdowns, Aegon’s initial response centered on providing immediate healthcare support and relief. Through donations to hospitals, our various business units funded medical supplies and resources in regions worldwide. In Asia, Aegon THTF, Aegon’s joint venture in China, donated RMB 1 million to the Leishenshan Hospital in Wuhan, at the epicenter of the outbreak. We also distributed 50,000 face masks. In Hungary, EUR 85,000 that had been earmarked for canceled Aegon events was redirected to two hospitals. Meanwhile, in the United States, we gave USD 500,000 to Direct Relief, an organization providing protective gear to frontline healthcare workers. Aegon the Netherlands joined other Dutch insurers in donating to a fund for healthcare workers and their families. The fund provides financial support to healthcare workers and/ or their families in the event of them suffering severe illness or death as a result of being infected with COVID-19.
As the COVID-19 situation unfolded, we began to channel our community investments into projects to alleviate the financial consequences of the pandemic, with special attention paid to people who needed help handling their finances. Additionally, Aegon UK is supporting local charities on the frontline of the crisis, such as food banks and organizations providing aid to the vulnerable elderly.
Overall, through our businesses, Aegon supports approximately 500 charities and good causes. Aegon’s donations in 2020 amounted to EUR 9.5 million, a 16% increase compared to 2019. In the United States, our donations are handled by the Aegon Transamerica Foundation, which donates on average 5% of its assets every year. In the United Kingdom, local donation decisions are made by our employee Charity Committee.
Aegon Annual Report on Form 20-F 2020 |
Long-term value for our stakeholders44 | ||
Volunteering
We encourage our employees to volunteer, with most of our people able to claim paid time off to work on community projects. In-person volunteering was restricted in 2020 due to COVID-19, and our annual company-wide Volunteer Friday was unavoidably canceled. Despite these constraints, 4,399 employee volunteer hours were recorded in 2020 (equivalent to EUR 0.2 million, based on volunteers’ average salaries).
Where possible, we adapted our charitable work to meet society’s needs during the pandemic. Some of our employees in the Netherlands received Nibud (the Dutch National Institute for Family Finance Information) training on budgeting and financial planning, which they then used to support their wider communities by sharing what they learned with family and friends, as well as through virtual volunteering efforts (see page 25 for further details).
Human rights
At Aegon, we are committed to the principle that all people are entitled to basic rights and freedoms, regardless of their nationality, gender, religion, race, or any other protected status. Basic rights and freedoms include civil rights, political rights, social and economic rights, cultural rights, the rights of minorities, the rights of women, and the rights of vulnerable groups, such as children and indigenous peoples.
As well as ensuring the rights and well-being of our own workers, Aegon’s Responsible Investment Policy seeks to ensure human and labor rights are suitably upheld by the companies we invest in. We also reach out to companies that we believe are at risk of breaching minimum standards for human rights, with a view of encouraging them to uphold human and workers’ rights.
Aegon is committed to the UN Universal Declaration of Human Rights, the principles on human rights and labor standards as set forth by the UN Global Compact, and the core standards of the International Labour Organization (ILO). This commitment is explicitly incorporated in numerous Aegon policies, such as the global Code of Conduct, the Statement on Inclusion & Diversity, the new Statement on Human Rights, and the Aegon Operational Risk Taxonomy. Aegon faces the most potential risks in indirect business relationships, which is why human rights are at the core of our Responsible Investment Policy and Vendor Code of Conduct.
In 2020, we carried out our biennial Human Rights Risk Assessment, through which we aim to identify, prevent, and mitigate adverse human rights impacts that may be linked to our operations, products, and services. As in 2018, the results showed no significant human rights risks in most of Aegon’s operating environments (including the United States, the United Kingdom, and the Netherlands). Turkey, Indonesia, India, and China still present the highest likelihood of human rights violations, followed by Brazil. We intend to review the methodology used in the assessment in future years.
We also developed a new and more comprehensive Statement on Human Rights in 2020, which emphasizes the importance of human rights as part of Aegon’s broader ESG approach to responsible business, investment, and procurement. It is designed to frame our ongoing stewardship of human rights, including both the direct impacts of our daily operations and the indirect impacts of our business activities. Aegon seeks to avoid causing or contributing to adverse human rights impacts in areas we can directly influence, and to address any such risks as they are identified. Each business unit’s management team is responsible for implementing the Statement in their local region, but we also encourage each unit to develop supplemental policies, governance, and activities to meet local requirements and stakeholder expectations. We will review and update Aegon’s global Statement annually as necessary.
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.
We publish 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’s business principles require identification and prudent management of risks. Accordingly, robust governance practices necessary to the management and control of tax affairs and risks are maintained. Tax risks are monitored through our Tax Control Framework. The risk response depends on the type of risk, likelihood and impact analysis, and the chance of repetition and reputational exposure. For instance, for tax reporting and compliance risks automated validations and review controls are in place. Specific controls are in place to ensure that tax dilemmas are dealt with in accordance with our Global Tax Policy. On a quarterly basis, local tax teams provide attestation that operations are compliant with the Global Tax Policy. The Tax Risk Oversight Committee has a final say on dilemmas that have been escalated to it. Where deemed necessary, tax authorities clearance is sought.
Aegon Annual Report on Form 20-F 2020 |
Long-term value for our stakeholders45 | ||
Taxes borne by Aegon, 2020 (in EUR million) | Taxes collected on behalf of others, 2020 (in EUR million) | |
1 | Includes state and withholding tax |
2 | Includes dividends, interest, royalties and others |
3 | Includes social security tax |
For a breakdown of corporate income tax by country/region, please see page 409. Some numbers may not add up due to rounding.
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 tax data management system in combination with automated tax reporting is in the process of being built. We strive for this technology to make tax reporting and compliance, such as preparation of Dutch corporate income tax and value added tax returns, more automatic.
We value transparency. 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; |
◆ | 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.
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.
Aegon Annual Report on Form 20-F 2020 |
Letter from our Supervisory Board Chairman46 |
Society faced a unique and challenging environment in 2020. Nevertheless, the Supervisory Board is satisfied that we fulfilled our responsibilities to Aegon and its stakeholders during the year.
From the early days of the COVID-19 outbreak, the Supervisory Board has been kept informed about the measures being taken to keep employees safe, and to maintain service to our customers at a time when they need Aegon most. Throughout the year we have also noted the resilience and dedication shown by our employees to ensure that our customers were well supported. We are paying close attention to the pressure that long-term working from home, amid lockdowns and other restrictions, can have on our employees. Aegon is taking steps to make things easier where it can.
Alongside the Supervisory Board’s usual oversight functions, key focus areas in 2020 were Aegon’s ability to navigate through the pandemic, the CEO transition, and the development and implementation of the new strategy.
CEO transition and implementation of the new strategy
Restrictions on public gatherings due to COVID-19 necessitated making use of the Dutch Emergency Act to make Aegon’s AGM in May 2020 accessible by electronic means. The meeting was held successfully with online interaction with our shareholders, who approved the appointment of Lard Friese as the new CEO.
Despite the challenges posed by the Working from Home environment, the Executive Board spent a considerable amount of time during 2020 regularly updating the Supervisory Board on the development of Aegon’s new strategy. The detailed proposals and clear presentations by management have allowed us to evaluate, challenge constructively and advise on each step, of which there have been several significant ones during 2020. An important decision was the divestment of Aegon’s businesses
in Central & Eastern Europe. This transaction helped millionsdefine the perimeter of the Group, while finding the right new owner for these businesses.
During Capital Markets Day on December 10, 2020, the leadership team presented the road map to improve Aegon’s performance, and detailed the actions that had already been taken. These choices are supported by a detailed operating plan that has been designed to reduce expenses, and reinvest capital towards growth.
We welcome the new strategic focus aimed at improving Aegon’s performance and increasing value for customers, shareholders, and other stakeholders.
We have full confidence in the leadership team, who have instilled an intense organizational rhythm to ensure a high-performance culture and the delivery on the plans and targets outlined at the Capital Markets Day. I am pleased that we will propose to the 2021 AGM that Matt Rider be reappointed as Chief Financial Officer for a four-year term to continue his contribution to Aegon’s transformation.
The Supervisory Board fully supports the increased emphasis on environmental, social and governance (ESG) issues within Aegon, as illustrated by the revised Group-wide Responsible Investment Policy. We will intensify oversight of the Company’s policies and performance on these subjects that are vital to both Aegon and wider society.
Strengthening the Supervisory Board
The Supervisory Board was fortunate to be able to draw upon diverse and deep experience when making important judgements during 2020. The appointments of two new members were approved by shareholders at the 2020 AGM. Caroline Ramsay has extensive management, finance, and audit experience at large insurance companies, while Thomas Wellauer has had a broad global career focused on operations.
Aegon Annual Report on Form 20-F 2020 |
Letter from our Supervisory Board Chairman47 | ||
The Nomination & Governance Committee has prioritized getting diversity with respect to gender, nationality, professional background, and technical expertise. To further strengthen the Supervisory Board, it is proposed to appoint Frans Blom, who has had a lengthy career in the management consulting industry, and Jack McGarry, who has extensive experience in the US insurance industry. Their appointments will be put to the 2021 AGM.
A detailed report on the Supervisory Board and its activities during 2020 can be found on page 58.
Note of thanks
On behalf of the Supervisory Board, I would like to thank all employees for the work undertaken in pursuit of Aegon’s purpose of helping people achieve a lifetime of financial security.
Our environmentFinally, we wish to thank all those who invest in Aegon for their continued trust and confidence.
Last year saw a welcome improvement in the world economy, with the 3% pickup in global growth the highest rate recorded since 2011. For Aegon, the macroeconomic backdrop was in general positive. Economic growth improved across the majority of our markets, and this was reflected in business and consumer confidence. Inflation remained relatively low and central bank policies moved slowly onto a path of normalization globally. The rise in interest rates, be it from a very low base, was a beneficial development not only for customers wishing to save for the future, but also for Aegon and the industry as a whole.
Political events were once again followed very closely by the financial community. Indeed, political developments in Aegon’s three largest markets continued to make headlines, with a new President taking office in the US, the formation of a new coalition inHague, the Netherlands, and the triggering of article 50 by the UK government to leave the EU. The regulatory world also continued to change rapidly. In the US, for instance, the Department of Labor implemented a new fiduciary rule to ensure customers’ best interests are served, whereas in the UK, changes to corporate tax rate policy required us to hold more capital.March 17, 2021
Our financial performance
2017 was a very positive year for Aegon from a financial perspective, and I am pleased that we are, as a result, well positioned to achieve our 2018 financial targets. In terms of our key financial metrics, our earnings were strong, we continued to generate solid sales – particularly in fee businesses, pension businesses, mutual funds and third-party asset management – and we made progress on our return on equity target.
Furthermore, recapitalizing our Dutch business and strengthening our group solvency ratio means that we are able to fully focus on continuing to implement our strategy, such as executing our expense savings program, which will lead to annual EUR 350 million cost savings byyear-end 2018. Most important of all, we paid out a total of close to EUR 50 billion in claims and benefits over the year, demonstrating how relevant our company is to the lives of our millions of customers
Our company’s transformation
Customers’ needs and expectations are continuously evolving and we are therefore changing the way we serve them. In 2017, we made significant progress across our company in becoming a more innovative and digital company, positioning us well for future growth.
In our largest market, the US, we continued our work to reduce expenses in order to boost earnings and modernize our business by investing in new technology. In early January of 2018, we announced that we would outsource the administration of our life, health, annuities and benefits businesses. This decision represents a major strategic step forward, as our customers will benefit from both enhanced digital capabilities and higher service levels. In addition, the divestment of the majority of ourrun-off businesses marked a major milestone in the strategic transformation of our US business.
The most important development in the Netherlands over the last year was the recapitalization of our Dutch business by injecting capital from the Group and divesting Unirobe Meeùs Groep. As a result, the unit is now strongly capitalized, is expected to generate healthy cash flows, and is positioned to pay a dividend to the group in 2018, which represents a very significant turnaround from only a year ago.
In the UK, we have transformed our business into the number one retail investment platform in the market, with over 1.2 million customers. Our main focus over the last year was continuing to integrate Cofunds and BlackRock’s defined contribution business, together with upgrading tens of thousands of customers from our backbook onto ourstate-of-the-art platform, which increased assets to more than GBP 117 billion. This growth is a direct result of our decision to reposition our UK business, and underlines the benefits of moving to afee-based business model.
During 2017, we took the decision to implement a new structure in our European asset management business to enhance synergies, become more agile and improve earnings. Furthermore, our asset management joint ventures in China and France have proven very successful in contributing to underlying earnings and the growth of our business.
The significant progress achieved in our largest markets was also replicated in our developing markets. In Asia, for instance, our Chinese joint venture has become profit-making due to the continued success of our critical illness product. Our Asianhigh-net-worth business has made a meaningful contribution to the group, upstreaming a special dividend of USD 200 million for the first time. Elsewhere, our business in India is a leader in the digital insurance market, and continues to set the standard for offering life insurance online. Perhaps most pleasing of all, we have made significant progress in terms of how we share
William L. Connelly Supervisory Board Chairman |
Aegon Annual Report on Form 20-F 2020 |
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 |
◆ | Supervisory Board |
◆ | Executive Board |
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 may 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, a Supervisory Board member can be reappointed again for a period of two years, and then extended by two years at the most. Supervisory Board members are no longer
Aegon Annual Report on Form 20-F |
ideas, information and innovation across our company. This means that customers in one market can benefit from what we have learned in another, demonstrating one of the key benefits of being active in such diverse markets.
Our communities
Being a responsible corporate citizen is a role we take very seriously. We manage over EUR 800 billion of investments and have a duty to invest responsibly. We also support our communities in other ways: raising global awareness about retirement issues; fulfilling our tax obligations; and helping to implement the UN’s 2030 Sustainable Development Goals and Paris Agreement on Climate Change. Further information about all these issues, together with an overview of our strategy, can be found in our 2017 Review, which is published online.
Our employees and shareholders
I am very proud of how our team of over 28,000 colleagues continued to deliver at a time of change. I would therefore like to pay tribute to their hard work and dedication over the last 12 months, and express my gratitude for all that they do to serve our customers. Our thanks also go to our investors, without whom we would not be able to meet our purpose. I am pleased
that we increased our full year 2017 dividend to 27 euro cents, and that by paying a sustainable and growing dividend we will be able to meet our target to return EUR 2.1 billion of capital to shareholders from 2016 to 2018.
Our organization
We are this year saying farewell to Aegon’s Supervisory Board Chairman, Rob Routs and fellow member of the Supervisory Board. Dirk Verbeek both of whom are stepping down at the Annual General meeting in May 2018. I would like to sincerely thank Rob and Dirk for the commitment, challenge and support they have provided over the last 10 years, and wish them well for the future.
Looking ahead
Our company has every reason to look forward with confidence. We are well on track to achieve our 2018 financial targets, and we have a compelling strategy. Moreover, the need for the financial security we help provide to millions of customers has never been so great. By continuing to transform and grow our business we will therefore be even better placed to help people around the world secure their financial future.
Alex Wynaendts
Chief Executive Officer and Chairman of the Executive Board of Aegon N.V.
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 2020, 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 seven members, all of whom qualify as independent in accordance with the Dutch Corporate Governance Code. It will be proposed to the shareholders to appoint Jack McGarry and Frans Blom as members of the Supervisory Board during the Annual General Meeting of Shareholders on June 3, 2021.
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:
◆ | Audit Committee; |
◆ | Risk Committee; |
◆ | 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 Lard Friese, who is Chief Executive Officer (CEO) and Chairman of the Executive Board, and Matt Rider, who is Chief Financial Officer (CFO). Lard Friese was appointed as member to the Executive Board during the Annual General Meeting of Shareholders on May 15, 2020, following which Alex Wynaendts resigned as member of the Executive Board and CEO 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 2020, 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 12 members, including the members of the Executive Board. Aegon’s Management Board is composed of Lard Friese, Matt Rider, Mark Bloom, Maarten Edixhoven, Mike Holliday-Williams, Allegra van Hövell-Patrizi, Marco Keim, Onno van Klinken, Carla Mahieu, Mark Mullin, Bas NieuweWeme and Duncan Russell.
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.
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, 2020, a total of 2,098,114,300 common shares and 571,795,040 common shares B had been issued.
Depository receipts for Aegon shares are not issued with the Company’s cooperation.
As per the Dutch act on conversion of bearer shares, all 16,040 bearer shares outstanding at December 2020 have been converted into registered shares held by the Company as per 1st January 2021. Until January 1, 2026 and upon request of a
Aegon Annual Report on Form 20-F |
Corporate governance50 | ||
holder of a certificate of a bearer share, the Company will provide the holder of such a valid certificate of a bearer share, with registered share as a replacement of the bearer share.
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 are one-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 as one-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, 2020, Vereniging Aegon, Aegon’s largest shareholder, held a total of 291,145,638 common shares and 558,910,640 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 2020, 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 14, 2020, Aegon N.V. repurchased 2,955,600 common shares B from Vereniging Aegon for the amount of EUR 228,911.22 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 15, 2020, Vereniging Aegon exercised its options rights to purchase in aggregate 2,154,000 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 15, 2020 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 term ‘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, BlackRock, Inc., EuroPacific Growth Capital Fund, Capital Research and Management Company and FMR LLC 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 February 26, 2021, Dodge & Cox International Stock Fund stated to hold 80,049,394 common shares, representing 3.0% of the issued capital as at December 31, 2020.
On February 11, 2021, Dodge & Cox’s filing with the US Securities and Exchange Commission (SEC) shows that Dodge & Cox holds 222,733,093 common shares, representing 8.6% of the issued and outstanding capital as at December 31, 2020, and has voting rights for 217,431,134 shares, representing 8.3% of the votes as at December 31, 2020.
Based on its last filing with the Dutch Autoriteit Financiële Markten as at January 27, 2021, EuroPacific Growth Capital Fund stated to hold 80,347,053 common shares, representing 3.0% of the issued capital as at December 31, 2020.
Based on its last filing with the Dutch Autoriteit Financiële Markten as at January 6, 2021, Capital Research and Management Company stated to hold 80,878,440 common shares, representing 3.0% of the issued capital as at December 31, 2020.
Based on its filing with the Dutch Autoriteit Financiële Markten as at June 10, 2015, FMR LLC, a US based investment management firm, stated to hold 81,510,408 shares, representing 3.0% of the issued capital as at December 31, 2020.
Based on its filing with the Dutch Autoriteit Financiële Markten as at February 9, 2021, BlackRock, Inc. stated to hold 129,522,983 shares, representing 4.8% of the issued capital as at December 31, 2020 and 158,656,993 voting rights, representing 5.9% of the issued capital as at December 31, 2020.
On January 28, 2021, BlackRock, Inc.’s filing with the US Securities and Exchange Commission (SEC) shows that BlackRock holds 164,131,698 common shares, representing 6.3% of the issued and outstanding capital as at December 31, 2020, and has voting rights for 145,558,389 shares, representing 5.6% of the votes as at December 31, 2020.
Aegon Annual Report on Form 20-F 2020 |
Corporate governance51 | ||
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.
It is the right of Vereniging Aegon to, at its own discretion, take the decision to exercise its full voting rights on common shares B. In case of a Special Cause, Vereniging Aegon also preserves its full voting rights on common shares B if the Executive Board invoked a “250-day period to consider” in circumstances as are expected to be determined in the Dutch Civil Code following adoption of a new act thereto by the Dutch government in 2021 or the “180-day period respond time” as provided for in the Dutch Corporate Governance Code.
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 fully paid-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 66 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 of two-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 requires a 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 with a 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.
Aegon Annual Report on Form 20-F 2020 |
Corporate governance52 | ||
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.
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 2020 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 are non-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, has a 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-F 2020 |
Composition of the Boards53 | ||
Members of the Executive Board
Alexander R. Wynaendts (1960,Lard Friese (1962, Dutch)
CEO and Chairman of the Executive and Management Boards of Aegon N.V.
Alex Wynaendts beganLard Friese earned a Master of Law degree at the University of Utrecht. He has worked most of his professional career in 1984 with ABN AMRO Bank, workingthe insurance industry, including ten years at Aegon between 1993 and 2003. He was employed by ING as from 2008, where he held various positions. In July 2014, upon the settlement of the Initial Public Offering of NN Group N.V., he became the CEO of NN Group. During his tenure at NN Group, he led a wide range
of businesses in AmsterdamEurope and LondonAsia and created a stable platform for growth and shareholder value.
He has extensive experience in the Dutch bank’s capital markets, assetareas of insurance, investment management, corporate financecustomer centricity, mergers & acquisitions, and private banking operations. In 1997,business transformation. Mr. Wynaendts joined Aegon as Senior Vice President for Group Business Development. HeFriese was appointed CEO Designate as aof March 1, 2020 and is appointed as member of Aegon’sthe Executive Board
in 2003, overseeing for a term of four years on the Company’s international growth strategy. In April 2007,AGM of May 15, 2020. Mr. Wynaendts was named Aegon’s Chief Operating Officer. A year later, he became CEO andFriese is 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 a member 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.
CompositionMembers of the Management Board
Alexander R. Wynaendts:Lard Friese: 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.
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.
Aegon Annual Report on Form 20-F 2020 |
Composition of the Boards54 | ||
Adrian Grace (1963,Mike Holliday-Williams (1970, British)
CEO of Aegon UK and member of the Management Board of Aegon N.V.
Adrian Grace held variousMike Holliday-Williams started his career with WHSmith in 1991 as a graduate trainee, working as a Retail Manager in many UK stores and in Business Development. In 1997 he joined Centrica where he had several general management and marketing roles at GE capital, Sage Group Inc.,in British Gas, before joining Barclays Bank as Chief Executivebecoming the Residential & Marketing Director of Centrica Telecoms/One.Tel in 2004.
In 2006 Mr Holliday-Williams joined RSA, becoming the Insurance Business in 2004, and HBOS asUK Managing Director of CommercialPersonal Lines in 2008, responsible for
Businesses
MORETH>N, Partnerships and the Broker businesses. In 2011 he moved to Copenhagen to become the CEO of RSA Group’s Scandinavian businesses, Codan A/S and Trygg-Hansa, he also became a member of the RSA Group Executive. In 2014, he moved to Direct Line Group (DLG) to became MD of the Personal Lines business, joining the Board of DLG in 2007. HeFeb 2017.
Mr. Holliday-Williams joined Aegon UK in 2009, and was appointed CEO of Aegon UK in 2011 andOctober 2019, to take over as CEO. He’s a member of theAegon’s 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.since March 2020.
Allegra van Hövell-Patrizi (1974, Italian)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)Group). Ms. Vanvan 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 ofCEO Aegon Continental EuropeInternational and member of the Management Board of Aegon N.V.
Marco Keim began his career with accountancy firm Coopers & Lybrand / 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
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 2017.2008. From 2017 to 2020, Mr. Keim was a Board member at the Verbond van Verzekeraars until December 2016.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 former member of the Supervisory Board of Eneco Holding N.V., and holds a Management Board position atVNO-NCW.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,
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.VN.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.
Aegon Annual Report on Form 20-F 2020 |
Composition of the Boards55 | ||
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 beenis a former member of the Supervisory Board of the Royal BAM Group since 2011, andGroup. Ms. Mahieu is a member of 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 from October 2017-October 2018 and served as a member of the Board’s Executive Committee through October 2019. He was re-appointedin October 2017.2020 and remains a member of their Board of Directors.
Sarah Russell (1962, Australian)Bas NieuweWeme (1972, Dutch)
Global 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 asBas NieuweWeme was appointed Global CEO of ABN AMRO’s asset management operations. Ms. Russell
joined Aegon Asset Management as CEOand Member of the Aegon N.V. Management Board in 2010,June 2019. Having obtained a Master of Laws (2000) and an Executive MBA in 2007, Mr. NieuweWeme has beenworked 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 Aegon’s Management Board since August 2016. Ms. Russell has been anon-executive director of Nordea Bank AB since 2010, holds a Supervisory Board member positionthe management
team at the Nederlandse Investeringsinstelling,PGIM Fixed Income and is Vice ChairmanGlobal Head of the Supervisory BoardInstitutional Relationship Group at PGIM, Prudential Financial’s global investment management business. He serves as vice-chairman of the supervisory board of La Banque PostalePostal Asset Management. Ms. RussellManagement and is a member of the Executive Board of Aegon Industrial Fund Management Co., Ltd (China).
He is also a Board member of the American ChamberBoard of Commerce, the Dutch Fund and Asset Management Association (DUFAS), 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.
Duncan Russell (1978, British)
Chief Transformation Officer and member of the Management Board of Aegon N.V.
Duncan Russell has worked most of his professional career in the financial services sector, lastly as CFO and Board member at Admiral Financial Services, the financial services subsidiary of Admiral Group, responsible for finance, analytics, funding, credit risk and pricing.
Before joining Admiral Group, Mr. Russell was Head of Group Strategy and Corporate Finance at NN Group N.V.,
the Netherlands, since May 2017.where he was responsible for capital management, treasury, M&A, and the group’s strategy.
Before joining NN Group N.V., Mr. Russell held various positions at financial services groups in London.
Mr. Russell was appointed Chief Transformation Officer and member of the Management Board of Aegon N.V. on September 1, 2020.
Aegon Annual Report on Form 20-F 2020 |
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 independent director at the Board of Directors of Singular Bank S.A. (formerly known as Self Trade Bank S.A., not listed) and an independent director at Amadeus IT Group S.A..
Mark A. Ellman (1957, American)
Member of the Nomination and Governance 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 America/ 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 Risk Committee and the Supervisory Board Nomination and Governance Committee. Mr. Ellman was a 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.
Caroline Ramsay (1962, British)
Chair of the Audit Committee
Member of the Risk Committee
Mrs. Ramsay gained a Master’s degree in Natural Sciences in 1984 at Cambridge. She started her professional career at KPMG in Ipswich and London, where she qualified as a Chartered Accountant in 1987. During her long career, Mrs. Ramsay gained substantial experience in Finance and Audit at large insurance companies. In addition to her strong financial background, Mrs. Ramsay acquired extensive managerial expertise in executive roles at Norwich Union plc (now Aviva plc) and RSA.
Mrs. Ramsay holds various Non-Executive Board positions. In 2013, she joined the board of Scottish Equitable – and as of 2017 also the boards of Aegon UK plc and Cofunds Ltd. – where she served as the Audit Committee Chair until 14 May 2020. Mrs. Ramsay was appointed to Aegon’s Supervisory Board in May 2020 and her current term ends in 2024. She is Chair of the Supervisory Board Audit Committee and a member of the Supervisory Board Risk Committee.
Mrs. Ramsay is a senior independent director of the Board of Brit Syndicates Ltd (not-listed), Standard Life UK Smaller Companies Trust Plc and of Tesco Underwriting Ltd. (non-listed). Mrs. Ramsay is a member of the FCA Regulatory Decisions Committee and Member of the Payment Systems Regulator’s Enforcement Decisions Committee.
Thomas Wellauer (1955, Swiss)
Member of the Audit Committee
Member of the Remuneration Committee
Thomas Wellauer started his professional career at McKinsey & Company, where he served as Senior Partner and Practice Leader. He held various executive management positions at multi-industries, including financial services, pharmaceuticals and chemicals. Among others, he served on the executive committees of Winterthur Insurance, Credit Suisse, Swiss Re, and Novartis. His most recent position from 2010 to 2019 was Group Chief Operating Officer of Swiss Re. During his career, Mr. Wellauer also served as independent director on the boards of several global companies such as Munich Re and Syngenta.
Mr. Wellauer was appointed to Aegon’s Supervisory Board in May 2020 and his current term ends in 2024. He is a member of the Supervisory Board Audit Committee and a member of the Supervisory Board Remuneration Committee.
Aegon Annual Report on Form 20-F |
Long-term value creation
To prosper, companies must create long-term value for society and their stakeholders. Aegon creates value in several ways, for instance as a provider of insurance and other financial services, and a responsible employer and business partner. Aegon also makes significant social and economic contributions through its returns to shareholders, its tax payments, its support for local communities and, most importantly, through the money the Company invests both for its own account and on behalf of its customers. Aegon’s aim is to be a responsible corporate citizen, fully aware of the impact the Company’s businesses have on its stakeholders and on society as a whole.
Aegon defines its stakeholders as: any individual or organization affected, or likely to be affected, by its business or that may, in turn, affect the environment in which we operate. Aegon recognizes five main stakeholder groups:
Most Aegon businesses operate in a highly-regulated environment. This environment may be affected by a number of factors: economic, financial, regulatory, social, environmental and employee-related. More information on the aspects relevant to Aegon can be found in thenon-financial statement on page 13.
Aegon’s ambition
Aegon’s purpose - to help people achieve a lifetime of financial security - forms the basis of the Company’s strategy. The central focus of the strategy is to further change the Company from a product-based to a customer need-driven company. This means serving diverse and evolving needs across the customer life cycle; aligning Aegon’s brand promise with being a trusted partner for financial solutions that are relevant, simple, rewarding, and convenient; and developing long-term customer relationships by providing guidance and advice, and identifying additional financial security needs at every stage of customers lives.
The aim of Aegon’s strategy is that the Company be a truly international enterprise with a common culture across its businesses of working together; that Aegon’s respective businesses learn from one another and replicate best practices to benefit customers; that it recognizes and addresses
opportunities in rapidly changing markets in a timely and agile way; and that it attracts, develops, and retains the best people who share its values and are committed to its purpose.
In order to do so, Aegon is focused on reducing complexity, eliminating duplication, improving accuracy, and increasing automation to realize cost efficiencies, allowing investments in its transformation to a digitally enabled, customer-centric company. Furthermore, the Company is focused on driving scale and establishing strong market positions in its current footprint, and strictly adhering to comprehensive standards that support the efficient use of capital by all its businesses. The different market segments, and starting positions of Aegon’s businesses nonetheless mean that they will experience different paths to meet the same goals. Expertise and knowledge available in Aegon’s established markets is utilized to position its businesses in emerging markets.
In summary, it is Aegon’s ambition to be regarded as a trusted partner for financial solutions at every stage of life in all its markets. That means being recognized by its customers, business partners, and society as a company that puts the interests of its customers first in all that it does; and being regarded as an employer of choice by employees, engaging and enabling them to succeed. In addition, the Company strives to meet shareholder’s expectations by generating strong returns, earnings and dividends.
Aegon’s strategic objectives
Aegon believes that it will achieve its ambition of becoming a trusted partner for financial solutions at every stage of life if it realizes the following strategic objectives:
Mr. Wellauer is Chairman of the Board of Directors of SIX Group (not-listed). In addition, he serves as Chairman of the Board of Trustees of the University Hospital Zurich Foundation and Chairman of the International Chamber of Commerce in Switzerland.
Corien M. Wortmann-Kool (1959, Dutch)
Vice Chair of the Supervisory Board
Member of the Audit Committee
Member of the Nomination and Governance Committee
Corien M. Wortmann-Kool is Chair 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 Chair 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 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 and a former member of the Supervisory Board of Het Kadaster until March 2021.
Dona D. Young (1954, American)
Chair of the Risk Committee
Member of the Audit 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 Chair 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 and serves as an independent member of the Advisory Board of Spahn and Rose (not listed) and as a member of the Board of Directors of USAA (not listed). Furthermore, Ms. Young is a member 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 a member of the Board of the National Association of Corporate Directors.
Aegon Annual Report on Form 20-F |
Aegon’s business model
Aegon’s overall business model has six basic stages (though these may vary according to product, local market and distribution channel):
Acquisitions & divestments
Acquisitions can accelerate the implementation of Aegon’s strategy, provide it with access to new technologies and provide the scale needed in markets in which it is already active. Aegon is selective when determining which businesses it would like to acquire, generally targeting acquisitions that fit the Company’s mission of securing the financial future of its customers, and that are aligned with its four strategic objectives. The Company uses several financial criteria for determining the attractiveness of acquisitions, including: return on capital, internal rate of return, capital generation, and capital fungibility. Similar strategic and financial criteria are applied when considering the potential divestment of existing activities.
Risks and opportunities for Aegon
Aegon has identified several risks to successfully executing its strategy, which are both financial andnon-financial in nature. The financial underwriting and operational risks are described in the ‘risk management’ section on page 94. Thenon-financial risks are described in thenon-financial statement on page 13. Opportunities with regards to the most significant topics and issues affecting Aegon’s business are also described in thenon-financial statement on page 13-14.
Operational and financial goals
Aegon has a number key financial targets, including:
Non-financial information is further described in thenon-financial statement on page 16 (Performance indicators).
Culture
Refer to page 16 for overview of cultural change program(Non-Financial Statement).
Supervisory Board
The Supervisory Board is entrusted with supervising and advising the Executive Board in regard to 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 seven members on December 31, 2020. 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 pages 48-52 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 2020 can be found on pages 56-57 of this Annual Report 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 three changes to the constellation of the Supervisory Board in 2020: During the 2020 Annual General Meeting, Mr. Thomas Wellauer and Ms. Caroline Ramsay were appointed as new Supervisory Board members for a term of four years as of May 15, 2020 (i.e. until the end of the AGM to be held in 2024). After having been a member of the Supervisory Board for twelve years, Mr Ben van de Veer retired as member of the Supervisory Board during the 2020 Annual General Meeting.
During the Annual General Meeting on June 3, 2021, the Supervisory Board will propose to the shareholder to appoint Mr. Jack McGarry and Mr. Frans Blom as members to the Supervisory Board for a term of four years as of June 3, 2021. 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.
An induction program for Supervisory Board members is in place and the program is being updated regularly in order to meet the needs of the specific Board members.
Aegon Annual Report on Form 20-F |
History and development of Aegon
Aegon is an international life insurance, pensions and asset management group. Its listed holding company, Aegon N.V., is a public limited liability company with its corporate seat and head office in the Netherlands.
The Company’s history dates back over 170 years. Aegon N.V. was formed in 1983 through the merger of AGO and Ennia, both of which were successors to insurance companies founded in the 1800s.
Aegon is headquartered in the Netherlands, and through its subsidiaries and joint ventures it employs over 28,000 people worldwide. Aegon’s common shares are listed on stock exchanges in Amsterdam (Euronext) and New York (NYSE). Aegon’s main operating units are separate legal entities that operate under the laws of their respective countries. The shares of these legal entities are directly or indirectly held by three intermediate holding companies incorporated under Dutch law: Aegon Europe Holding B.V., the holding company for all European activities; Aegon International B.V., which serves as a holding company for the Aegon Group companies of allnon-European countries; and Aegon Asset Management Holding B.V., the holding company for a number of its asset management entities.
Aegon exists to help people achieve a lifetime of financial security. It uses a multi-brand, multichannel distribution approach to meet its customers’ needs, and fosters an entrepreneurial spirit within its businesses, encouraging the development of innovative products and services.
Aegon has the following operating segments: the Americas, which includes the United States, Mexico and Brazil; the Netherlands; the United Kingdom; Central & Eastern Europe; Spain & Portugal; Asia and Aegon Asset Management. The separate operating segments of the Netherlands, the United Kingdom, Central & Eastern Europe and Spain & Portugal may be referred together as ‘Europe’, although Europe is not an operating segment.
of the Supervisory Board59 | ||
Selected financial dataExecutive Board
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 (IFRS).
ApplicationExecutive Board consists of Mr. Lard Friese, Chief Executive Officer (CEO) and Chairman of the accounting policies in the preparationExecutive Board, and Mr. Matthew J. Rider, Chief Financial Officer (CFO).
Members of the financial statements requires management to apply judgment involving assumptionsExecutive 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 estimates concerning future results or other developments, includinginformation about members of 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 thatExecutive Board are criticalavailable on https://aegon.com/about/governance/executive-board/executive-board-documentation/.
During the Annual General Meeting on May 15, 2020, Mr. Lard Friese was appointed as member to the presentationExecutive Board. Mr. Friese succeeded Mr. Wynaendts as Chief Executive Officer of the financial statements and that require complex estimatesCompany.
or significant judgment are described inBoard meetings
Attendance
In 2020, the notesSupervisory Board had twelve meetings: four related to the financial statements.
A summaryquarterly results; one to the annual report; and others related to strategy (including the budget and Medium Term Plan). Due to COVID-19, most meetings were held by video conference. Supervisory Board Committee meetings were usually held the day before the meetings of historical financial datathe full Supervisory Board. All Supervisory Board meetings were attended by all Board members. All committee meetings were attended by all committee members, except for one Risk Committee meeting that Mr. Ben Noteboom was unable to attend. An overview of Supervisory Board members’ attendance by meeting is provided in the table below. It is important to read this summary in conjunction with the consolidated financial statements and related notes (see pages144-305) of this Annual Report.
Selected consolidated income statement information | ||||||||||||||||||||
In EUR million (except per share amount) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Amounts based upon IFRS | ||||||||||||||||||||
Premium income | 22,826 | 23,453 | 22,925 | 19,864 | 19,939 | |||||||||||||||
Investment income | 7,338 | 7,788 | 8,525 | 8,148 | 7,909 | |||||||||||||||
Total revenues1) | 32,973 | 33,655 | 33,902 | 30,157 | 29,805 | |||||||||||||||
Income/ (loss) before tax | 2,534 | 610 | (514 | ) | 916 | 1,236 | ||||||||||||||
Net income/ (loss) | 2,469 | 438 | (431 | ) | 766 | 1,003 | ||||||||||||||
Earnings per common share | ||||||||||||||||||||
Basic | 1.14 | 0.15 | (0.27 | ) | 0.29 | 0.37 | ||||||||||||||
Diluted | 1.14 | 0.15 | (0.27 | ) | 0.29 | 0.37 | ||||||||||||||
Earnings per common share B | ||||||||||||||||||||
Basic | 0.03 | - | (0.01 | ) | 0.01 | 0.01 | ||||||||||||||
Diluted | 0.03 | - | (0.01 | ) | 0.01 | 0.01 |
Selected consolidated balance sheet information | ||||||||||||||||||||
In million EUR | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Amounts based upon IFRS | ||||||||||||||||||||
Total assets | 395,923 | 425,425 | 415,415 | 424,112 | 351,523 | |||||||||||||||
Insurance and investment contracts | 324,362 | 344,844 | 343,558 | 321,384 | 283,234 | |||||||||||||||
Borrowings including subordinated and trust pass-through securities | 14,532 | 14,076 | 13,361 | 15,049 | 12,009 | |||||||||||||||
Shareholders’ equity | 20,288 | 20,520 | 22,441 | 23,847 | 17,589 | |||||||||||||||
Number of common shares | ||||||||||||||||||||
In thousands | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Balance at January 1 | 2,074,549 | 2,147,037 | 2,145,948 | 2,131,459 | 1,972,030 | |||||||||||||||
Share issuance | - | - | - | - | 120,713 | |||||||||||||||
Stock dividends | 21,099 | 10,629 | 1,089 | 14,489 | 38,716 | |||||||||||||||
Shares withdrawn | - | (83,117 | ) | - | - | - | ||||||||||||||
Balance at end of period | 2,095,648 | 2,074,549 | 2,147,037 | 2,145,948 | 2,131,459 |
Number of common shares B | ||||||||||||||||||||
In thousands | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Balance at January 1 | 585,022 | 585,022 | 581,326 | 579,005 | - | |||||||||||||||
Share issuance | - | - | 3,696 | 2,320 | 579,005 | |||||||||||||||
Balance at end of period | 585,022 | 585,022 | 585,022 | 581,326 | 579,005 |
Dividends
Aegon declared interim and final dividends on common shares for the years 2013 through 2017 in the amounts set forth in the following table. The 2017 interim dividend amounted to EUR 0.13 per common share. The interim dividend was paid in cash or stock at the election of the shareholder. The interim dividend was payable as of September 15, 2017. At the General Meeting of Shareholders on May 18, 2018, the Supervisory Board will, absent unforeseen circumstances, propose a final dividend of EUR 0.14 per common share (at each shareholders option
in cash or in stock), which will bring the total dividend for 2017 to EUR 0.27. With respect to the Common Shares B, each which has financial rights attached to it of 1/40th of a Common Share, the proposed final dividend will be EUR 0.0035. After taking the interim-dividend 2017 of EUR per Common Share B into account, this will result in a total 2017 dividend of EUR 0.00675 per Common 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”)) on theUS-ex dividend day.
EUR per common share1) | USD per common share1) | |||||||||||||||||||||||
Year | Interim | Final | Total | Interim | Final | Total | ||||||||||||||||||
2013 | 0.11 | 0.11 | 0.22 | 0.15 | 0.15 | 0.30 | ||||||||||||||||||
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 | ||||||||||||||||||
2016 | 0.13 | 0.13 | 0.26 | 0.15 | 0.15 | 0.29 | ||||||||||||||||||
2017 | 0.13 | 0.14 2) | 0.27 | 0.15 |
Exchange rates
Fluctuations in the exchange rate between the euro and the US dollar will affect the dollar equivalent of the euro price of Aegon’s common shares traded on Euronext Amsterdam and, as a result, are likely to impact the market price of Aegon’s common shares in the United States. Such fluctuations will also affect any US dollar amounts received by holders of common shares upon conversion of any cash dividends paid in euros on Aegon’s common shares.
As of March 16, 2017, the USD exchange rate was EUR 1 = USD 1.2280.
The high and low exchange rates for the US dollar per euro for each of the last six months through February 2018 are set forth below:
Closing rates | Sept. 2017 | Oct. 2017 | Nov. 2017 | Dec. 2017 | Jan. 2018 | Feb. 2018 | ||||||||||||||||||
High (USD per EUR) | 1.2041 | 1.1847 | 1.1936 | 1.2022 | 1.2488 | 1.2482 | ||||||||||||||||||
Low (USD per EUR) | 1.1747 | 1.1580 | 1.1577 | 1.1725 | 1.1922 | 1.2211 |
The average exchange rates for the US dollar per euro for the five years ended December 31, 2017, calculated by using the average
of the exchange rates on the last day of each month during the period, are set forth below:
Year ended December 31, | Average rate 1) | |||
2013 | 1.3303 | |||
2014 | 1.3210 | |||
2015 | 1.1032 | |||
2016 | 1.1029 | |||
2017 | 1.1399 |
Introduction
To prosper, companies must create long-term value for society and their stakeholders. It’s from this value that a company derives its license to operate2. Aegon creates value in several ways: as a provider of insurance and other financial services, and a responsible employer and business partner. Aegon also makes significant social and economic contributions through its returns to shareholders, its tax payments, its support for local communities and, most importantly, through investments for both for its own account and on behalf of its customers. Aegon’s aim is to be a responsible corporate citizen, fully aware of the impact the Company’s businesses have on its stakeholders and on society as a whole.
Social and economic role of insurance
Insurance plays a very important role in strengthening social stability and in creating the conditions necessary for long-term economic growth. Insurance protects people, property and assets and, by doing so, allows individuals and businesses to take risks, and invest and plan for the future. By pooling risk, insurance increases social solidarity between individuals, groups and generations. Insurers are also significant long-term investors in the economy, financing both public and private sectors, creating new jobs and driving business growth.
Aegon’s businesses
Aegon is an international financial services, insurance, pension and asset management company. Its purpose is to help customers achieve a lifetime of financial security. Aegon’s main operations are located in the US, the Netherlands and the UK. The Company also has operations elsewhere in Europe, as well as in Asia and Latin America.
Aegon offers a range of financial products, including life insurance, savings and investments, retirement plans and property & casualty cover. Most of Aegon’s products and services are sold through brokers and other financial intermediaries, thoughdirect-to-customer sales have been increasing in recent years.
Business model
Please refer to page 9 of Aegon’s Strategy to view Aegon’s business model.
Stakeholders
As an international business, Aegon has many stakeholders. Their relationship with the Company depends not only on the
nature of each stakeholder’s organization or activities, but also the value created by that relationship (both for the stakeholder and for Aegon).
Aegon defines its stakeholders as: any individual or organization affected, or likely to be affected, by its business or that may, in turn, affect the environment in which the Company operates. Aegon recognizes five main stakeholder groups:
Aegon regularly engages its stakeholders, and uses their input to improve products and services, and to ensure the Company remains accountable and relevant.
Current operating environment
Most Aegon businesses operate in a highly-regulated environment. This environment may be affected by a number of factors: economic, financial, regulatory, social, political and environmental. Over the past year, Aegon’s operating environment has shown signs of improvement, particularly as a result of stronger financial markets and economic growth in the US, Europe and parts of Asia. Interest rates remain low, however. Insurance sector regulation, meanwhile, has become increasingly complex. There has also been a rise in political uncertainty, and rapid social change, driven by aging and the introduction of new digital technologies.
Material issues
Every year, Aegon identifies a number of material issues. This is done through a formal materiality exercise, involving both stakeholders and the Company’s senior management. Material issues 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. Results of the materiality exercise are incorporated into Aegon’s strategy and reporting processes3. For 2017, five material issues were identified; the risks and opportunities have been mapped against each issue, and actions taken are outlined below:
Value creation
Aegon creates both short and long-term value for its stakeholders. This value is often financial – through the payment
of claims and benefits to customers, for example. But it may also be economic, social or environmental:
To create this value, Aegon makes use of different resources or capitals4. These inputs include:
Strategy and objectives
Over the past year, Aegon has reorganized many of its businesses, reducing costs and selling operations no longer considered core. At the same time, the Company has strengthened its capital position, set out responsible business objectives, and invested in new areas that will transform customer service and bring future growth. With this strategy, the aim is to ensure Aegon remains profitable, relevant to its customers, and able to continue creating long-term financial, social and environmental value for all its stakeholders. For more details of our strategy, measures taken and performance, please see pages 8-9 and Aegon’s Review, available online.
Benefits and risks for stakeholders
Aegon’s strategy aims to create additional value for each of the Company’s main stakeholder groups:
In implementing these measures, there are risks for stakeholders. Prominent among them is the risk of job losses for employees, particularly those working in areas that can be easily automated (claims processing, underwriting, customer service, pricing etc.). Recent restructuring at the Company’s operations in the US, UK and Netherlands has brought job losses. Overall, Aegon’s workforce is likely to decline in the coming years. New jobs will be created in digital marketing, IT, analytics and a number of other specialized areas, but these will not be sufficient to compensate job losses elsewhere in the Company5. Other risks related to implementation include financial market performance (which may reduce targeted returns for investors), and changes to the scope of Aegon’s businesses (which may alter the Company’s relationship with certain customers and distributors).
Performance indicators
Measuring value creation is not always straightforward. Most financial value can be measured, but often social and environmental value is more difficult to quantify. Aegon also recognizes that, in creating value for one stakeholder group, it may deplete value for another group (for example, reducing headcount may result in lower costs and improved profit margins, creating value for shareholders and other investors, while overall value for employees is reduced).
Performance indicators
Stakeholder | Indicator | 2017 | 2016 | 2015 | 3-year trend | Value1) | ||||||||||||||||
Customers | Claims, benefits & plan withdrawals | €48 billion | €59 billion | €46 billion | + | Financial | ||||||||||||||||
Assets managed on behalf of policyholders | €194 billion | €204 billion | €200 billion | - | Social | |||||||||||||||||
Investors | Payments to investors (in the form of | €721 million | €774 million | €824 million | - | Financial | ||||||||||||||||
dividends and interest)2) | ||||||||||||||||||||||
Employees | Salaries and other social benefits | €2.23 billion | €2.29 billion | €2.28 billion | - | Social | ||||||||||||||||
Spending on training and career development | €14 million | €15 million | €14 million | Social | ||||||||||||||||||
Changes in size of workforce during year (headcount) | (1,062) | (2,150) | 2,748 | Social | ||||||||||||||||||
Business partners | Commissions paid to brokers and other financial intermediaries | €2.7 billion | €2.9 billion | €3.3 billion | - | Financial | ||||||||||||||||
Payments to suppliers of goods & services | €1.4 billion | €1.3billion | €1.3 billion | Financial | ||||||||||||||||||
Wider Community | Impact investments with specific environmental benefit Impact investments with specific social or | €0.8 billion | €0.4 billion | €0.6 billion | + | Environmental | ||||||||||||||||
health benefits | €7.2 billion | €6.8 billion | €7.0 billion | + | Social | |||||||||||||||||
Corporate income tax paid3) | €173 million | €116 million | €405 million | Social | ||||||||||||||||||
Tax collected on behalf of governments | €2.2 billion | €2.2 billion | NM | Social | ||||||||||||||||||
Community investment (donations and value | ||||||||||||||||||||||
of employee volunteering) | €8.9 million | €8.8 million | €8.6 million | + | Social |
Culture change
To execute its strategy successfully, Aegon realizes that it needs to adapt its corporate culture to new circumstances. In 2016, the Company introduced Future Fit. With this program, Aegon’s goal is to create a more flexible organization, able to adapt quickly to new ways of working and doing business. Future Fit is built on four themes:
These themes have been embedded into performance appraisals, training and remuneration; they also form part of Aegon’s leadership development, assessment and commitments. In addition, change plans aligned and connected with local business goals have been developed to drive the process of change in each of Aegon’s businesses. These and other actions will contribute to a culture focused on long-term value creation. The Management Board regularly discusses progress with the Supervisory Board. Implementation of Future Fit will be the responsibility primarily of Aegon’s local businesses. By the end of 2017, 70% of employees had attended a Future Fit workshop.
To support Future Fit, Aegon is investing in new technical skills. Aegon has identified core capabilities that it believes will be critical to future performance and value creation. These new skills will be either developed internally, through training and development programs6, or brought in through the creation of new jobs or partnerships with other companies.
With Future Fit, Aegon’s aim is to ensure employees also have the skills they will need in their future careers, whether within the Company or outside. Progress with Future Fit is currently tracked through regular employee surveys (this includes awareness of Future Fit, and performance against each of the four themes).
Policies, procedures and outcome7
Aegon’s system of governance is based on checks and balances. This helps the Company manage its business responsibly, protect long-term value creation, and take the best possible decisions for both itself and its stakeholders. As part of this overall approach, Aegon embeds social, environmental and financial considerations, where possible, in both formal procedures and other internal systems and processes. Doing so helps Aegon reduce risk, and ensure better business performance and more inclusive decision-making.
The Table below shows how various social and environmental issues are incorporated into Aegon decision-making processes,
as well as the measurement of outcomes, policies and metrics:
Social and environmental issues
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Many of Aegon’s internal policies and processes are based on the relevant international standards. These include: the OECD Guidelines for Multinational Enterprises, the UN Declaration of Human Rights, the UN Global Compact and the core standards of the International Labor Organization. In addition, Aegon is a signatory to other international agreements, including the
Extractives Industry Transparency Initiative, and the Principles for both Sustainable Insurance and Responsible Investment. Aegon also reports its contribution to the UN Sustainable Development Goals, adopted in 2015. Details may be found in the Company’s Review.
Americas
Life
Products offering protection against mortality, morbidity and longevity risks, including traditional and universal life, in addition to endowment, term, and whole life insurance products.
Accident & health
Products offering supplemental health, accidental death and dismemberment insurance, critical illness, cancer treatment, credit/disability, income protection, travel and long-term care insurance.
Mutual funds
Wide range of specialized mutual funds, including asset allocation, US equity, global/international equity, alternative investments, hybrid allocation, fixed income and target date funds.
Retirement plans
Comprehensive and customized retirement plan services to employers across the entire spectrum of defined benefit, defined contribution andnon-qualified deferred compensation plans. Includes services to individuals rolling over funds from other qualified retirement funds or Individual Retirement Accounts (IRAs).
Variable annuities
Variable annuities allow the holder to accumulate assets for retirement on atax-deferred basis and to participate in equity or bond market performance, in addition to receiving one of many payout options designed to provide income in retirement.
Fixed annuities
Fixed annuities allow customers to make alump-sum payment or a series of payments and receive income in the form of periodic payments that can begin immediately or after a period of time.
Stable value solutions
Synthetic Guaranteed Investment Contracts (GICs) in the United States offered primarily totax-qualified institutional entities such as 401(k) plans and other retirement plans.
Latin America
Europe
The Netherlands
United Kingdom
Central & Eastern Europe
Activities in the Czech Republic, Hungary, Poland, Romania, Slovakia, and Turkey. Includes life insurance, individual and group pension products, savings and investments, in addition to general insurance.
Spain & Portugal
Distribution partnerships with Santander in Spain & Portugal and with Liberbank in Spain. Includes life insurance, accident and health insurance, general insurance and investment products.
Asia
High net worth businesses
Life insurance marketed tohigh-net-worth individuals in Hong Kong and Singapore.
Aegon Insights
Full range of direct insurance solutions from product design, customer analytics insights, marketing campaign design and
multi-channel product distribution to policy administration and claims management.
Strategic partnerships
Joint ventures in China and India offering (term) life insurance and savings products, and in Japan offering variable annuities.
Aegon Asset Management
Americas
Investment products covering third-party customers, insurance-linked solutions, and Aegon’s own insurance companies.
The Netherlands
Investment products covering third-party customers, insurance-linked solutions, and Aegon’s own insurance companies in addition to manager selection and tailored advice on balance sheet solutions for the pension market.
United Kingdom
Fixed income, equities, real estate and multi-asset solutions to Aegon’s own insurance companies as well as external UK and international customers.
Rest of World
Asset management activities in Central & Eastern Europe and Spain & Portugal, in addition to results of the asset management holding.
Strategic partnerships
This Annual Report includes thenon-IFRS financial 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, Japan, Mexico, the Netherlands, Portugal and Spain and Aegon’s associates in Brazil, India, Mexico, the Netherlands and United Kingdom.
The table also includes thenon-IFRS financial 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. 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.
Underlying earnings geographically | ||||||||||||
Amounts in EUR millions | 2017 | 2016 | % | |||||||||
Net underlying earnings | 1,543 | 1,483 | 4 | |||||||||
Tax on underlying earnings | 559 | 429 | 30 | |||||||||
Underlying earnings before tax geographically | ||||||||||||
Americas | 1,381 | 1,249 | 11 | |||||||||
The Netherlands | 520 | 534 | (2) | |||||||||
United Kingdom | 116 | 59 | 98 | |||||||||
Central & Eastern Europe | 67 | 55 | 20 | |||||||||
Spain & Portugal | 4 | 8 | (47) | |||||||||
Europe | 707 | 655 | 8 | |||||||||
Asia | 49 | 21 | 131 | |||||||||
Asset Management | 136 | 149 | (9) | |||||||||
Holding and other activities | (170 | ) | (162 | ) | (5) | |||||||
Underlying earnings before tax | 2,103 | 1,913 | 10 | |||||||||
Fair value items | 142 | (840 | ) | n.m. | ||||||||
Gains / (losses) on investments | 413 | 340 | 21 | |||||||||
Net impairments | (39 | ) | (54 | ) | 28 | |||||||
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 | n.m. | |||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | 44 | 31 | 45 | |||||||||
Income tax | (110 | ) | (203 | ) | 46 | |||||||
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 |
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) | |||||||||
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 | 35,896 | 5,791 | n.m. | |||||||||
Central & Eastern Europe | 323 | 265 | 22 | |||||||||
Spain & Portugal | 36 | 31 | 15 | |||||||||
Europe | 44,316 | 12,773 | n.m. | |||||||||
Asia | 222 | 304 | (27) | |||||||||
Asset Management | 61,332 | 46,366 | 32 | |||||||||
Total gross deposits | 144,412 | 100,325 | 44 | |||||||||
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 |
Underlying earnings before tax by line of business | ||||||||||||
Amounts in EUR millions | 2017 | 2016 | % | |||||||||
Life | 939 | 779 | 21 | |||||||||
Individual Savings & Retirement | 520 | 534 | (3) | |||||||||
Pensions | 603 | 555 | 8 | |||||||||
Non-life | 64 | 34 | 85 | |||||||||
Asset management | 136 | 149 | (9) | |||||||||
Other | (158 | ) | (139 | ) | (14) | |||||||
Underlying earnings before tax | 2,103 | 1,913 | 10 |
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 2,103 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. The result from fair value items amounted to a gain of EUR 142 million. 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 2,103 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 2,103 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.
Fair value items
The results from fair value items amounted to a gain of EUR 142 million in 2017 compared with a loss of EUR 840 million in 2016. 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 52 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 39 million in 2017 primarily related to a single commercial mortgage loan in the United States and loan loss provisions in connection to growing consumer loan origination in the Netherlands.
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), 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 and defined benefit plan remeasurements, amounted to EUR 17.1 billion on December 31, 2017, or 8.33 per common share. The gross leverage ratio improved to 28.6% on December 31, 2017, compared with 29.8% 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 1.8 billion to the Group during 2017, including EUR 1.4 billion from the Americas, EUR 176 million from Asia and EUR 167 million from the United Kingdom. Aegon spent EUR 1.1 billion on capital injections, including EUR 1 billion into the Netherlands.
Results 2016 worldwide
Underlying earnings geographically | ||||||||||||
Amounts in EUR millions | 2016 | 2015 | % | |||||||||
Net underlying earnings | 1,483 | 1,481 | - | |||||||||
Tax on underlying earnings | 429 | 386 | 11 | |||||||||
Underlying earnings before tax geographically | ||||||||||||
Americas | 1,249 | 1,278 | (2) | |||||||||
The Netherlands | 534 | 537 | (1) | |||||||||
United Kingdom | 59 | (27 | ) | n.m. | ||||||||
Central & Eastern Europe | 55 | 37 | 51 | |||||||||
Spain & Portugal | 8 | 12 | (38) | |||||||||
Europe | 655 | 559 | 17 | |||||||||
Asia | 21 | 20 | 3 | |||||||||
Asset Management | 149 | 170 | (12) | |||||||||
Holding and other activities | (162 | ) | (161 | ) | - | |||||||
Underlying earnings before tax | 1,913 | 1,867 | 2 | |||||||||
Fair value items | (840 | ) | (651 | ) | (29) | |||||||
Gains / (losses) on investments | 340 | 346 | (2) | |||||||||
Net impairments | (54 | ) | 49 | n.m. | ||||||||
Other income / (charges) | (771 | ) | (2,180 | ) | 65 | |||||||
Run-off businesses | 54 | 88 | (39) | |||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | 641 | (482 | ) | n.m. | ||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | 31 | 33 | (6) | |||||||||
Income tax | (203 | ) | 51 | n.m. | ||||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | (31 | ) | (33 | ) | 6 | |||||||
Net income / (loss) | 438 | (431 | ) | n.m. | ||||||||
Commissions and expenses | 6,696 | 6,916 | (3) | |||||||||
of which operating expenses | 3,764 | 3,734 | 1 | |||||||||
New life sales | ||||||||||||
Amounts in EUR millions | 2016 | 2015 | % | |||||||||
Americas | 542 | 599 | (9) | |||||||||
The Netherlands | 111 | 130 | (15) | |||||||||
United Kingdom | 66 | 72 | (8) | |||||||||
Central & Eastern Europe | 83 | 91 | (9) | |||||||||
Spain & Portugal | 39 | 39 | 1 | |||||||||
Europe | 299 | 332 | (10) | |||||||||
Asia | 128 | 173 | (26) | |||||||||
Total recurring plus 1/10 single | 969 | 1,104 | (12) | |||||||||
Gross deposits (on and off balance) | ||||||||||||
Amounts in EUR millions | 2016 | 2015 | % | |||||||||
Americas | 40,881 | 36,999 | 10 | |||||||||
The Netherlands | 6,686 | 5,137 | 30 | |||||||||
United Kingdom | 5,791 | 6,096 | (5) | |||||||||
Central & Eastern Europe | 265 | 227 | 17 | |||||||||
Spain & Portugal | 31 | 29 | 8 | |||||||||
Europe | 12,773 | 11,489 | 11 | |||||||||
Asia | 304 | 408 | (25) | |||||||||
Asset Management | 46,366 | 33,722 | 37 | |||||||||
Total gross deposits | 100,325 | 82,618 | 21 |
Net deposits (on and off balance) | ||||||||||||
Amounts in EUR millions | 2016 | 2015 | % | |||||||||
Americas | (1,015 | ) | 7,754 | n.m. | ||||||||
The Netherlands | 1,909 | 1,885 | 1 | |||||||||
United Kingdom | (846 | ) | (1,096 | ) | 23 | |||||||
Central & Eastern Europe | 176 | 63 | 180 | |||||||||
Spain & Portugal | 20 | 17 | 20 | |||||||||
Europe | 1,260 | 869 | 45 | |||||||||
Asia | 259 | 353 | (27) | |||||||||
Asset Management | 2,964 | 8,235 | (64) | |||||||||
Total net deposits excludingrun-off businesses | 3,468 | 17,211 | (80) | |||||||||
Run-off businesses | (759 | ) | (833 | ) | 9 | |||||||
Total net deposits / (outflows) | 2,709 | 16,378 | (83) |
Worldwide revenues geographically 2016 Amounts in EUR millions | ||||||||||||||||||||||||||||||||||||||||||||||||
Total life insurance gross premiums | 7,363 | 2,015 | 9,888 | 399 | 191 | 12,493 | 1,121 | - | (78 | ) | 20,898 | (498 | ) | 20,400 | ||||||||||||||||||||||||||||||||||
Accident and health insurance premiums | 2,204 | 210 | 36 | 1 | 73 | 320 | 104 | - | (4 | ) | 2,624 | (15 | ) | 2,609 | ||||||||||||||||||||||||||||||||||
General insurance premiums | - | 266 | - | 179 | 92 | 536 | - | - | - | 536 | (92 | ) | 444 | |||||||||||||||||||||||||||||||||||
Total gross premiums | 9,567 | 2,491 | 9,924 | 578 | 355 | 13,348 | 1,225 | - | (82 | ) | 24,058 | (606 | ) | 23,453 | ||||||||||||||||||||||||||||||||||
Investment income | 3,717 | 2,135 | 1,661 | 45 | 45 | 3,886 | 232 | 3 | 3 | 7,841 | (54 | ) | 7,788 | |||||||||||||||||||||||||||||||||||
Fees and commission income | 1,651 | 350 | 95 | 36 | 14 | 495 | 61 | 632 | (242 | ) | 2,596 | (188 | ) | 2,408 | ||||||||||||||||||||||||||||||||||
Other revenue | 4 | - | - | - | 2 | 2 | - | 1 | 3 | 11 | (4 | ) | 7 | |||||||||||||||||||||||||||||||||||
Total revenues | 14,940 | 4,976 | 11,680 | 659 | 416 | 17,732 | 1,517 | 636 | (318 | ) | 34,507 | (852 | ) | 33,655 | ||||||||||||||||||||||||||||||||||
Number of employees, including agent employees | 11,943 | 4,464 | 2,673 | 2,317 | 600 | 10,054 | 5,579 | 1,474 | 330 | 29,380 |
Underlying earnings before tax by line of business | ||||||||||||
Amounts in EUR millions | 2016 | 2015 | % | |||||||||
Life | 779 | 774 | 1 | |||||||||
Individual Savings & Retirement | 534 | 604 | (12) | |||||||||
Pensions | 555 | 440 | 26 | |||||||||
Non-life | 34 | 17 | 99 | |||||||||
Asset management | 149 | 170 | (12) | |||||||||
Other | (139 | ) | (139 | ) | - | |||||||
Underlying earnings before tax | 1,913 | 1,867 | 2 |
Results 2016 worldwide
Aegon’s net income in 2016 improved to EUR 438 million compared with 2015. Underlying earnings before tax increased 2% compared with 2015 to EUR 1,913 million in 2016, primarily as a result of higher underlying earnings before tax from the United Kingdom. The net result in 2016 was impacted by a loss of EUR 840 million on fair value items, which was driven by accounting losses on hedging programs and underperformance of alternative investments. Realized gains of EUR 340 million in 2016 mainly related to normal trading in the investment portfolio. Other charges amounted to EUR 771 million in 2016, mainly driven by the EUR 682 million book loss on the divestment of the annuity portfolio in the United Kingdom.
Net income
The net income amounted to EUR 438 million in 2016 driven by underlying earnings before tax of EUR 1,913 million, and was impacted by the book loss on the divestment of the UK annuity portfolio and fair value losses, partly offset by gains on investments.
Underlying earnings before tax
Aegon’s underlying earnings before tax increased compared with 2015 to EUR 1,913 million in 2016. This was mainly driven by lower amortization of deferred policy acquisition costs (DPAC) in the United Kingdom following the write down of DPAC in the fourth quarter of 2015.
Fair value items
The results from fair value items amounted to a loss of EUR 840 million in 2016, and were mainly driven by fair value losses in the United States. EUR 521 million fair value losses in the United States in 2016 were driven by the loss on hedging programs and the underperformance of alternative investments. Included in the loss on hedging programs in the United States is the loss on fair value hedges without accounting match in the Americas (EUR 322 million). This was mainly driven by the loss on equity hedges, which were set up to protect Aegon’s capital position. Underperformance of fair value investments of EUR 226 million was primarily driven by investments related to hedge funds in the United States. Fair value losses of EUR 236 million in Europe in 2016 were driven by credit spreads movements, declining interest rates as a result of a mismatch on an IFRS basis between the valuation of interest rate hedges and liabilities, and declining interest rates as a result of the mismatch on an IFRS basis between certain interest rate hedges on the mortgage portfolio and the underlying mortgages. In addition, the loss on interest rate swaps was the main driver of the EUR 74 million fair value losses in 2016 at the holding.
Realized gains on investments
Realized gains on investments amounted to EUR 340 million in 2016 and were primarily related to a rebalancing of the investment portfolio in the United Kingdom and gains resulting from asset-liability management adjustments in the Netherlands.
Impairment charges
Net impairments of EUR 54 million in 2016 primarily related to investments in the energy industry in the United States.
Other charges
Other charges amounted to EUR 771 million in 2016. These were mostly caused by the book loss on the divestment of the annuity portfolio in the United Kingdom (EUR 682 million), and assumption changes and model updates (EUR 118 million).
Run-off businesses
The results ofrun-off businesses declined to EUR 54 million in 2016 mainly as a result of an adjustment to the intangible balances for BOLI/COLI business.
Income tax
Income tax amounted to EUR 203 million in 2016, and includedone-time tax benefits in the United States and the United Kingdom. The effective tax rate on underlying earnings before tax and total income for 2016 was 22% and 32%, respectively.
Commissions and expenses
Commissions and expenses decreased by 3% in 2016 compared with 2015 to EUR 6.7 billion, mainly driven by lower amortization of deferred policy acquisition costs in the United Kingdom. Operating expenses increased by 1% in 2016 compared with 2015 to EUR 3.8 billion. Increased variable personnel expenses compared with 2015 and the acquisition of the defined contribution business from Mercer more than offset expense savings.
Production
In 2016, compared with 2015, gross deposits were up 21% to EUR 100.3 billion, driven by higher gross deposits in asset management and Retirement Plans in the United States. Net deposits, excludingrun-off businesses, declined to EUR 3.5 billion in 2016 compared with 2015, mostly due to lower gross deposits in variable annuities, anticipated contract discontinuances from the business acquired from Mercer, and low asset management net flows. The latter were mainly driven by market insecurity following the Brexit vote and a reduction in flows from money market funds in China. New life sales declined by 12% compared with 2015 to EUR 969 million in 2016, mostly driven by lower universal life and term life production in the United States, fewer pensionbuy-out sales in the Netherlands, and lower sales in Asia as a result of Aegon’s strict pricing policy in a low rate environment. New premium production for accident & health and general insurance decreased by 9% compared with 2015 to EUR 954 million in 2016, mainly as a result of several product exits and a lower contribution from portfolio acquisitions.
Capital management
During 2016, shareholders’ equity decreased by EUR 1.9 billion to EUR 20.5 billion, as a result of a EUR 400 million share buyback and the impact from higher interest rates on revaluation reserves. During the year, the revaluation reserves decreased by EUR 1.1 billion to EUR 5.4 billion. Aegon’s shareholders’ equity, excluding revaluation reserves and defined benefit plan remeasurements, amounted to EUR 17.0 billion on December 31, 2016, or 8.31 per common share. The gross leverage ratio increased to 29.8% on December 31, 2016, compared with 28.4% at the end of 2015, which was mostly the result of the issuance of EUR 500 million senior unsecured notes. Excess cash in the holding increased from EUR 1.4 billion at the end of 2015 to EUR 1.5 billion on December 31, 2016, as net remittances from business units and the aforementioned issuance of senior unsecured notes more than offset the EUR 400 million share buyback, dividends to shareholders, interest payments and operating expenses.
On December 31, 2016, Aegon’s estimated Solvency II ratio amounted to 157%. The RBC ratio in the United States decreased from 460% atyear-end 2015 to ~440% on December 31, 2016 which primarily reflects dividends upstreamed to the holding. In the Netherlands, the estimated Solvency II ratio at the end of 2016 amounted to 135%. The estimated Solvency II ratio at the end of 2016 of Aegon United Kingdom amounted to 156%.
The Group Solvency II ratio and Aegon the Netherlands Solvency II ratio have been updated since the earlier public communications on February 17, 2017 as a result of a change in the calculation of the risk margin in the Netherlands.
The Solvency ratios as disclosed in this section represent Aegon’s estimates, are not final until filed with the regulator and subject to supervisory review. Solvency II capital ratios are still subject to final interpretations of Solvency II regulations including the assumptions underlying Aegon’s factor for the loss absorbing capacity of deferred taxes in the Netherlands of 75%.
Dividends from and capital contributions to business units
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.
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 proportionately consolidated joint ventures and associates included 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 certain proportionately consolidated joint ventures and 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) |
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 |
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.
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 the Transamerica 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.
Results 2016 Americas
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
2016 | 2015 | % | 2016 | 2015 | % | |||||||||||||||||||
Net underlying earnings | 1,059 | 1,100 | (4) | 956 | 991 | (4) | ||||||||||||||||||
Tax on underlying earnings | 323 | 318 | 2 | 292 | 286 | 2 | ||||||||||||||||||
Underlying earnings before tax by business | ||||||||||||||||||||||||
Life | 174 | 207 | (16) | 157 | 186 | (16) | ||||||||||||||||||
Accident & Health | 218 | 165 | 32 | 197 | 149 | 32 | ||||||||||||||||||
Retirement plans | 280 | 261 | 7 | 253 | 235 | 7 | ||||||||||||||||||
Mutual funds | 50 | 50 | - | 45 | 45 | - | ||||||||||||||||||
Variable annuities | 393 | 503 | (22) | 355 | 453 | (22) | ||||||||||||||||||
Fixed annuities | 172 | 131 | 31 | 155 | 118 | 32 | ||||||||||||||||||
Stable Value Solutions | 96 | 101 | (4) | 87 | 91 | (4) | ||||||||||||||||||
Latin America | 1 | 1 | (41) | 1 | 1 | (41) | ||||||||||||||||||
Underlying earnings before tax | 1,382 | 1,418 | (3) | 1,249 | 1,278 | (2) | ||||||||||||||||||
Fair value items | (577 | ) | (768 | ) | 25 | (521 | ) | (691 | ) | 25 | ||||||||||||||
Gains / (losses) on investments | (14 | ) | (83 | ) | 83 | (13 | ) | (74 | ) | 83 | ||||||||||||||
Net impairments | (33 | ) | 79 | n.m. | (30 | ) | 71 | n.m. | ||||||||||||||||
Other income / (charges) | (111 | ) | (1,013 | ) | 89 | (100 | ) | (913 | ) | 89 | ||||||||||||||
Run-off businesses | 60 | 98 | (39) | 54 | 88 | (39) | ||||||||||||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | 706 | (268 | ) | n.m. | 638 | (241 | ) | n.m. | ||||||||||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | 3 | 5 | (32) | 3 | 5 | (32) | ||||||||||||||||||
Income tax | (88 | ) | 7 | n.m. | (80 | ) | 6 | n.m. | ||||||||||||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | (3 | ) | (5 | ) | 32 | (3 | ) | (5 | ) | 32 | ||||||||||||||
Net income / (loss) | 618 | (261 | ) | n.m. | 559 | (235 | ) | n.m. | ||||||||||||||||
Life insurance gross premiums | 8,150 | 7,821 | 4 | 7,363 | 7,046 | 5 | ||||||||||||||||||
Accident and health insurance premiums | 2,440 | 2,515 | (3) | 2,204 | 2,266 | (3) | ||||||||||||||||||
Total gross premiums | 10,590 | 10,336 | 2 | 9,567 | 9,312 | 3 | ||||||||||||||||||
Investment income | 4,114 | 4,085 | 1 | 3,717 | 3,680 | 1 | ||||||||||||||||||
Fees and commission income | 1,828 | 1,891 | (3) | 1,651 | 1,704 | (3) | ||||||||||||||||||
Other revenues | 5 | 11 | (56) | 4 | 9 | (56) | ||||||||||||||||||
Total revenues | 16,537 | 16,322 | 1 | 14,940 | 14,705 | 2 | ||||||||||||||||||
Commissions and expenses | 4,532 | 4,489 | 1 | 4,095 | 4,044 | 1 | ||||||||||||||||||
of which operating expenses | 1,834 | 1,843 | (1) | 1,656 | 1,660 | - |
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
New life sales | 2016 | 2015 | % | 2016 | 2015 | % | ||||||||||||||||||
Life | 547 | 622 | (12) | 494 | 561 | (12) | ||||||||||||||||||
Latin America | 53 | 42 | 24 | 48 | 38 | 25 | ||||||||||||||||||
Total recurring plus 1/10 single | 600 | 665 | (10) | 542 | 599 | (9) | ||||||||||||||||||
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
2016 | 2015 | % | 2016 | 2015 | % | |||||||||||||||||||
New premium production accident and health insurance | 895 | 1,003 | (11) | 808 | 904 | (11) | ||||||||||||||||||
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
Gross deposits (on and off balance) | 2016 | 2015 | % | 2016 | 2015 | % | ||||||||||||||||||
Life | 8 | 7 | 21 | 8 | 6 | 21 | ||||||||||||||||||
Retirement plans | 35,137 | 27,833 | 26 | 31,743 | 25,075 | 27 | ||||||||||||||||||
Mutual funds | 5,467 | 5,084 | 8 | 4,939 | 4,580 | 8 | ||||||||||||||||||
Variable annuities | 4,375 | 7,857 | (44) | 3,952 | 7,079 | (44) | ||||||||||||||||||
Fixed annuities | 254 | 276 | (8) | 230 | 249 | (8) | ||||||||||||||||||
Latin America | 10 | 12 | (14) | 9 | 10 | (13) | ||||||||||||||||||
Total gross deposits | 45,251 | 41,069 | 10 | 40,881 | 36,999 | 10 | ||||||||||||||||||
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
Net deposits (on and off balance) | 2016 | 2015 | % | 2016 | 2015 | % | ||||||||||||||||||
Life | (40 | ) | (38 | ) | (6) | (37 | ) | (34 | ) | (7) | ||||||||||||||
Retirement plans | 268 | 7,945 | (97) | 242 | 7,158 | (97) | ||||||||||||||||||
Mutual funds | 38 | (6 | ) | n.m. | 34 | (5 | ) | n.m. | ||||||||||||||||
Variable annuities | (125 | ) | 2,416 | n.m. | (113 | ) | 2,177 | n.m. | ||||||||||||||||
Fixed annuities | (1,265 | ) | (1,711 | ) | 26 | (1,143 | ) | (1,541 | ) | 26 | ||||||||||||||
Latin America | 1 | - | 186 | 1 | - | 187 | ||||||||||||||||||
Total net deposits excludingrun-off businesses | (1,123 | ) | 8,607 | n.m. | (1,015 | ) | 7,754 | n.m. | ||||||||||||||||
Run-off businesses | (841 | ) | (925 | ) | 9 | (759 | ) | (833 | ) | 9 | ||||||||||||||
Total net deposits / (outflows) | (1,964 | ) | 7,682 | n.m. | (1,774 | ) | 6,920 | n.m. |
Weighted average rate | Closing rate as of | |||||||||||||||
Exchange rates Per 1 EUR | 2016 | 2015 | December 31, 2016 | December 31, 2015 | ||||||||||||
USD | 1.1069 | 1.1100 | 1.0548 | 1.0863 |
Results 2016 Americas
The net income from the Americas amounted to USD 618 million in 2016. Underlying earnings before tax in 2016 were stable compared with 2015 at USD 1.4 billion. Expense reductions and an improvement in claims experience compared with 2015 offset lower variable annuities underlying earnings before tax and the impact on recurring underlying earnings before tax of the actuarial assumption changes and model updates implemented in the third quarter of 2015. Gross deposits increased to USD 45.3 billion in 2016 compared with 2015, as a result of the deposits from the defined contribution business acquired from Mercer in 2015, which more than offset lower variable annuity deposits. New life sales declined to USD 600 million in 2016 compared with 2015 due to a decline in the recruitment of new agents and Aegon’s strict pricing policy, while new premium production for accident & health insurance was down to USD 0.9 billion compared with 2015 due to lower contribution from portfolio acquisitions and several product exits.
Net income
The net income amounted to USD 618 million in 2016, as underlying earnings before tax were partly offset by losses from fair value items. Underlying earnings before tax in 2016 were stable compared with 2015 at USD 1.4 billion. Results on fair value items amounted to a loss of USD 577 million in 2016, which was primarily related to underperformance of hedge fund investments and the impact on hedging programs as a result of higher equity markets. Income before tax fromrun-off businesses in 2016 amounted to USD 60 million, while realized losses on investments in 2016 amounted to USD 14 million. Net impairments amounted USD 33 million in 2016, primarily related to investments in the energy industry. Other charges of USD 111 million in 2016 mainly related to the net impact of assumption changes and model updates. These charges were mainly driven by the assumption changes and model updates in the US from long-term care, primarily resulting from experience updates for morbidity, termination rates and utilization assumptions. For the other business lines, assumption and model changes largely offset each other.
Underlying earnings before tax
Underlying earnings before tax in 2016 were stable compared with 2015 at USD 1.4 billion. Expense reductions and an improvement in claims experience compared with 2015 offset lower variable annuities underlying earnings before tax and the impact on recurring underlying earnings before tax of the actuarial assumption changes and model updates implemented in the third quarter of 2015.
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Commissions and expenses
Commissions and expenses increased by 1% compared with 2015 in 2016 to USD 4.5 billion. Operating expenses decreased by 1% compared with 2015 in 2016 to USD 1.8 billion. Expense savings and lower restructuring charges compared with 2015 were partly offset by increased variable personnel expense and the acquisition of the defined contribution business acquired from Mercer.
Production
Gross deposits increased by 10% in 2016 compared with 2015 to USD 45.3 billion. Higher gross deposits in Retirement Plans more than offset a decline in variable annuity deposits compared with 2015. Increased retirement plan gross deposits were mostly driven by the acquisition of the defined contribution business acquired from Mercer. Variable annuity gross deposits were down
by 44% in 2016 compared with 2015 to USD 4.4 billion, mainly driven by product adjustments implemented last year in response to the low interest rate environment and lower market demand as a result of the upcoming implementation of the Department of Labor fiduciary rule.
New life sales declined by 10% in 2016 to USD 600 million compared with 2015, as a result of lower universal life and term life sales. Lower universal life sales resulted from a decline in the recruitment of new agents. Sales of term life products declined as Aegon did not lower its pricing in line with a number of its competitors. New premium production for accident & health insurance was down 11% to USD 0.9 billion in 2016 compared with 2015, mainly resulting from a lower contribution from portfolio acquisitions and several product exits.
Overview of Americas
Aegon Americas operates under the Transamerica brand in the United States, and has joint venture operations in Brazil and Mexico and a small operation in Canada.
Aegon in the US
Transamerica is one of the leading life insurance organizations in the United States, and the largest of Aegon’s operating units worldwide. Its businesses in the US serve customers in all fifty states and the District of Columbia, and employ approximately 10,000 people. Most Aegon companies in the United States operate under the Transamerica brand. Its companies have existed since themid-19th century, and its primary offices are in Cedar Rapids, Iowa, Denver, Colorado and Baltimore, Maryland -with additional offices located throughout the United States.
Through its subsidiaries and affiliated companies, Aegon provides a wide range of life insurance, long-term care insurance, and voluntary benefits including supplemental health insurance, retirement plans, recordkeeping and advisory services, annuities and other long-term savings and investment products.
Aegon employs a variety of distribution channels to help customers access its products and services as suits their needs. These include brokerage, partner (including career/captive), institutional/workplace and wholesale distribution channels.
Aegon in Brazil
Aegon has a 50% interest in Mongeral Aegon Seguros e Previdência S.A. (hereafter referred to as Mongeral Aegon), Brazil’s fourth largest independent (i.e.non-bank affiliated) life insurer. To further capture growth prospects in Brazil, Mongeral Aegon and Bancoob (Banco Cooperativo do Brasil) established Sicoob Seguradora de Vida e Previdência, a new life insurance and pensions company dedicated to providing life insurance and pension products to the Sicoob system. As of December 2017, Aegon Brazil had 550 employees.
Aegon in Mexico
Aegon has a joint venture with Administradora Akaan S.A. de C.V. called Akaan-Aegon S.A.P.I. de C.V Operating as Akaan Transamerica, this Mexico City-based organization launched a series of mutual funds in October 2017, targeting family offices, high net worth individuals, and institutions. As of December 31, 2017, Aegon Mexico had 25 employees.
In 2006, Aegon acquired a 49% interest in Seguros Argos S.A. de C.V., a Mexican life insurance company (‘Seguros Argos’); and as such acquisition was completed, In 2017, the Mexican shareholders of Seguros Argos agreed to purchase Aegon’s shares for an undisclosed amount and end the Afore Argos joint venture. This was a mutual decision that allows both parties to pursue new opportunities and new relationships in Mexico.
Aegon in Canada
In Canada, Aegon operates an insurance agency under the name World Financial Group Insurance Agency of Canada Inc. (WFGIA), in addition to an affiliated securities dealer under the name WFG Securities, Inc. (WFGS). WFGIA offers life insurance and segregated funds, and WFGS offers mutual funds.
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. Business is conducted through its various subsidiaries. The use of the term ‘Aegon USA’ throughout this business overview refers to the operating subsidiaries in the United States, collectively or individually, through which Aegon conducts business. Aegon USA has operating licenses in every US state, in addition to the District of Columbia, Puerto Rico, the Virgin Islands and Guam.
Aegon USA’s primary insurance subsidiaries are:
Aegon USA is a functionally organized firm that aims to meet customers’ needs and 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. 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 lines, described in greater detail below, represent groups of products and services that Aegon USA offers through a number of distribution methods and sales channels. Products are also offered and distributed through
one or more of Aegon USA’s licensed insurance or brokerage subsidiary companies.
Overview of sales and distribution channels
Aegon USA’s distribution channels are organized so as to meet customer needs and offer solutions to the third-party 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 categories: Brokerage, Partner, Institutional / Workplace, and Wholesale.
Brokerage
Aegon USA offers protection products (life insurance and accident & health insurance) through third-party distribution outlets known as ‘Brokerage General Agents’ or ‘Independent Wholesale Organizations’. These are typicallynon-registered products sold through independent insurance agents. This channel offers life insurance (term life, universal life, variable universal life, index universal life and whole life insurance), long-term care and supplemental health products and services through approximately 65,000 independent brokerage distributors and financial institutions that target the affluent, emerging affluent and middle markets. These products are designed for family protection, business needs and legacy planning.
Partner
One of Aegon USA’s partners, ‘Transamerica Financial Network,’ provides advice and guidance to individuals to meet their protection and investment needs. With over 54,000 associates (World Financial Group), approximately 3,000 of which are registered broker-dealer and investment advisers (with Transamerica Financial Advisors Inc.), together with 1,700 agents (Transamerica Agency Network), Transamerica Financial Network offers insurance, annuities, mutual funds, retirement plans and managed accounts to individuals. This channel provides the same life and health products as the brokerage channel, with a focus on the middle and emerging affluent markets.
Institutional/Workplace
Aegon USA offers mutual funds, annuities, rollover individual retirement accounts (IRAs), life insurance (universal life, whole life and term life), supplemental health products (critical illness, cancer, hospital indemnity, supplemental medical expense, short-term disability, vision, and dental policies), accident products, and stable value solutions in this channel. The channel focuses on the sale of products to consumers through the employer segment, also known as the workplace. Aegon USA also offers individual products through institutions including large broker-dealer research and advisory platforms and large registered investment advisers.
Wholesale
Aegon USA offers annuities, mutual funds, retirement plans, life insurance and long-term care products through partnerships with independent broker-dealers that want a direct relationship with Aegon USA. The broker-dealer network is broken out into
three areas: banks, wirehouses, and independent financial planners. Aegon USA’s wholesalers are dedicated to one business line, but work closely together to refer advisors across Aegon USA’s multiple business lines with the intent of creating deeper partnerships with advisors and becoming even more relevant in the financial lives of customers.
Other
On December 8, 2016, Aegon announced that it would exit the Affinity and direct response channels of its accident and health lines, Transamerica wound-down its commitments and distribution operations throughout 2017 and will continue to do so in 2018.
Overview of business lines
Life
Aegon USA offers a comprehensive portfolio of protection solutions to customers in a broad range of market segments. Products offered include term life, universal life, variable universal life, index universal life and whole life insurance.
Term life insurance
Term life 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 life 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 paid to cover charges in the month that follows, which are called “monthly deductions”. In determining the monthly deduction rate to apply to a specific policy plan, Aegon USA takes a wide number of factors into account that impact the cost of providing the insurance, including but not limited to: interest rates, mortality, persistency, premium funding levels, taxes, and other expenses associated with such 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 each year.
Variable universal life insurance
Variable universal life insurance is cash-value life insurance that offers both a death benefit and cash value accumulation potential. The premium amount for variable universal life insurance is flexible and within contract limits may be changed by the consumer. Coverage amount may change as well. The investment feature usually includes‘sub-accounts,’ which provide
exposure to stocks and bonds. This exposure increases cash value return potential but also risk of additional premium requirements or lower coverage amounts over a universal life or permanent insurance policy.
Index universal life insurance
Index Universal Life (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 - for which interest is credited at a fixed rate - and Variable Universal Life, 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 living benefit riders that provide accelerated benefits for critical illnesses or chronic conditions, are both available on IUL.
Whole life insurance
Whole life 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 as well as casualty products.
Supplemental health insurance
Supplemental health insurance products include accidental death and dismemberment, accidental injury, cancer, critical illness, disability, hospital indemnity, Medicare Supplement, Medicare Part D prescription drug, retiree medical, and supplemental medical expense indemnity.
A number of these products provide policyholders with lump sum or specified payments if such 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 will be discontinued after a wind-down period.
Long-term care insurance
Long-term care (LTC) insurance products provide benefits to policyholders that require qualified LTC services as they are
unable to perform two or more specific activities of daily living or develop a severe cognitive impairment. LTC insurance helps protect a policyholder’s assets from the high cost of LTC services, and it may also help families better manage the financial, health and safety issues associated with LTC. The LTC product is offered as a standalone product or as a rider to certain life insurance products.
Casualty insurance
Casualty insurance products include travel, involuntary unemployment and bike insurance products that provide protection for covered trips, unemployment and damage/loss to bicycles, respectively. Following the announcement to exit the Affinity and direct response channels, these casualty products will be discontinued after a wind-down period.
Mutual funds
Mutual funds are professionally managed investment vehicles made up of a pool of money collected from many investors for the purpose of investing in different security types such as stocks, bonds, money market instruments and other securities. Transamerica offers mutual funds for many asset classes, including US equity, global/international equity, fixed income, and alternative investments, together with asset allocation and target date funds. Transamerica mutual funds utilize the portfolio management expertise of asset managers across the industry in asub-advised platform using managers both affiliated and not affiliated with Aegon. These managers are subject to a rigorous selection process and are monitored through a continuousdue-diligence process conducted by Transamerica Asset Management.
Exchange Traded Funds (ETFs) are a pooled investment vehicle with shares that investors can buy and sell throughout the day on an exchange. On August 2, 2017, Transamerica launched a suite of managed risk exchange-traded funds DeltaShares.
Variable annuities
Variable annuities allow the holder to accumulate assets for retirement on atax-deferred basis and to participate in equity or bond market performance. Additional insurance guarantees, also referred to as 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 investors to make alump-sum payment or a series of payments and receive income in the form of periodic payments that can begin immediately or after a period of time. Aegon USA hasde-emphasized traditional fixed deferred annuities, and is not actively marketing new sales. 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 as riders, can be added to fixed-index annuities, including GLBs. Aegon USA’s fixed-index annuity is distributed through third-party or affiliated broker-dealers and/or insurance agencies.
Retirement plans and IRAs
Comprehensive and customized retirement plan services are offered to employers across the entire spectrum of defined benefit, defined contribution andnon-qualified deferred compensation plans. Services are also offered to individuals rolling over funds from other qualified retirement funds or Individual Retirement Accounts (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 partners with plan advisors and third-party administrators to serve their customers. Transamerica Retirement Solutions is a top ten defined contribution record-keeper in the United States based on plan participants and assets.
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-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.
Tools are provided to help plan participants monitor their retirement accounts and engage in behavior to stay on track towards a funded retirement. Managed Advice® is an option that plan sponsors can make available to participants that provides investment advice to participants using the plan’sline-up.
For individual plan participants in transition due to a job loss or change or planned retirement, services are offered through the Transamerica Advice Center, a team of experienced registered representatives and investment advisor representatives. Services and products include IRAs, advisory services, annuities and access to other financial products and resources.
Stable Value Solutions
Synthetic Guaranteed Investment Contracts (GICs) 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 businesses in Latin America are comprised of a 50% interest in Mongeral Aegon Seguros e Previdência S.A., a Brazilian independent life insurer, and a 99.99% interest in Akaan-Aegon S.A.P.I. de C.V., a joint venture with Administradora Akaan S.A. de C.V., which operates as 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. To further capture growth prospects in Brazil, Mongeral Aegon and Bancoob (Banco Cooperativo do Brasil) established Sicoob Seguradora de Vida e Previdência, a new life insurance and pensions company dedicated to providing life insurance and pension products to 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. 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 2 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.
In 2017, the Mexican shareholders of Seguros Argos agreed to purchase Aegon’s shares for an undisclosed amount, ending the Seguros Argos joint venture. This was a mutual decision which allows both parties to pursue new opportunities and new relationships in Mexico.
Run-off businesses
On June 28, 2017, Aegon completed the divestment of its two largest USrun-off businesses, the payout annuity business and the Bank Owned / Corporate Owned Life Insurance business (BOLI/COLI) to Wilton Re. The transaction was 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 annuities 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. A number of the outstanding fixed rate funding agreements were effectively converted to a floating-rate via swap agreements when the contracts were issued. Contracts issued in foreign currencies were converted at issuance to US dollars through swap agreements when the contracts were issued to eliminate currency risk.
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 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 covers approximately half of the life reinsurance business Transamerica retained after it divested the vast majority of its life reinsurance business to SCOR in 2011. As part of the transaction, the Company will dissolve a related captive insurance company in place to finance redundant reserves, generally referred to as XXX term life insurance reserves, and will redeem operational leverage supporting that captive.
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, and defined contribution retirement plans.
In individual life insurance, leading competitors include AIG, Lincoln National, Nationwide, Prudential Financial, Pacific Life, Voya Financial, and John Hancock. LifeSecure and Mutual of Omaha are primary competitors 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, and Unum and Colonial Life.
Aegon USA’s primary competitors in the variable annuity market are AIG, AXA Equitable, Jackson National, Lincoln National, Nationwide and Prudential Financial.
The largest competitors in the mutual fund market include American Funds, Fidelity, Vanguard, JP Morgan Funds and T. Rowe Price.
In the institutional segment of the defined contribution market, Aegon USA’s main competitors are Fidelity, TIAA, Empower Retirement, Prudential Financial, MassMutual, Principal Financial, Charles Schwab, and Lincoln National. Aegon USA’s main competitors in the defined benefit segment are MassMutual, New York Life, Principal Financial 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.
Regulation and supervision
Aegon USA’s insurance companies and the business they conduct in the US 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 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.
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 include increased reporting of holding company activities, increased transparency and uniformity for certain captive reinsurance transactions, and requirements for companies to conduct an Own Risk and Solvency Assessment (ORSA). Aegon USA is subject to NAIC Actuarial Guidelines 48 and 49, which became fully effective in 2015 and 2016 respectively, and is also subject to Principle-based reserving requirements for life insurance, which became effective in 2017.
Emerging state issues that may impact Aegon USA include consideration of changes to accounting 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 project to update capital charges for asset default risk, 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 care is currently regulated by states as health insurance, although both state regulators and federal agencies are examining the current environment for the long-term care 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.
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, data 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 US and make recommendations 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 the area of data security, there has been increased scrutiny at a state, federal and international level following a number of high-profile data breaches of financial services and other companies. As a result, numerous regulators and legislators at every level are proposing or have already passed additional legal requirements with regard to information security and data breach.
In addition to financial services products, many supplemental health insurance products offered by Aegon USA, such as Medicare Supplement products, are subject to both federal and state regulation as health insurance. The Patient Protection and Affordable Care Act (ACA), enacted in 2011, significantly changed the regulation of health insurance and the delivery of health care in the United States, including in certain respects, the regulation and delivery of supplemental health insurance products. The President and Congress have signaled their intent to repeal all or part of the ACA in order to, among other things, eliminate the employer mandate and remove barriers to provider and product offerings. While removal of barriers to provider and product offerings would be generally favorable to Aegon USA’s supplemental health business, the likelihood that these efforts will be successful and actual impact of any such efforts on Aegon USA cannot be determined at this time.
Solvency II
The Solvency II requirements of the insurance and reinsurance activities of Aegon Americas have been consolidated into the Aegon Group Solvency II results through deduction and aggregation using available and required capital as per the local capital regimes. The US regulatory regimes have been granted provisional equivalence. The insurance regulatory regimes in the US, as well as Brazil and Mexico (which form part of the Aegon Americas operating segment) have been granted provisional equivalence under the Solvency II regime by the European Commission. The US insurance and reinsurance entities are included in Aegon’s group solvency calculation in accordance with local US (RBC) requirements. In 2017, Aegon obtained approval from the Dutch Central Bank (DNB) to amend the conversion methodology for its US business under Solvency II. This methodology is consistent with the European Insurance
and Occupational Pensions Authority’s (EIOPA) guidance on how to calculate group solvency in the context of equivalence. It includes lowering the conversion factor from 250% to 150% of the local RBC Company Action Level (CAL) as the Solvency Capital Requirement (SCR) equivalent, and reducing own funds by 100% RBC requirement to reflect transferability restrictions. This methodology is subject to annual review. The change in methodology leads to an increase in Aegon’s group solvency ratio by 13% points at the end of the second quarter of 2017, enhancing comparability with European peers and enhancing the quality of capital. The absolute and relative impact of this change in methodology may vary over time. Thenon-regulated US entities and the US holding companies are included in Aegon’s group Solvency II results through application of the Accounting Consolidation method under Solvency II, using Solvency II valuation and capital requirement calculations for these local balance sheets under the standard formula.
Securities Regulation
A number of Aegon USA subsidiaries are subject to regulation under the federal securities laws administered by the Securities and Exchange Commission (SEC) and aspects of states’ securities and other laws. Variable insurance policies, certain annuity contracts and registered management investment 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 these 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.
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.
In accordance with Dodd-Frank Act requirements, in January 2011 the SEC studied and recommended a harmonized standard of care for broker-dealers, investment advisors and persons associated with firms that provide personalized investment advice. Broker-dealers are currently subject to requirements to make suitable recommendations, while investment advisors are regulated as fiduciaries, required to put customer interests above their own. On June 1, 2017, the SEC requested public comments from retail investors and other interested parties on standards of conduct for investment advisers and broker-dealers. The current SEC Chair has signaled a desire to regulate a harmonized standard of care, and to coordinate with the Department of Labor (DOL) in a harmonized standard of care for financial professional providers of both retirement and retail savings, and
for investment products and services. Legislation has also been introduced in Congress that, if enacted, will provide for a best interest standard of care for financial professionals that offer retirement and retail savings and investment products across jurisdictional lines. In addition, Nevada has enacted, and other states have proposed, an enhanced standard of care for insurance agents and securities brokers registered in their states. Finally, the NAIC is considering the addition of best interest standard of care for the sale of variable annuities in its model law. The likelihood of any such regulation or enactment of such legislation cannot be determined at this time.
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.
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) and 457 plans, in addition to defined benefit plans, IRAs, 529 plans and other savings vehicles. Aegon USA also administers benefits distributed on 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.
In June 2017, the DOL conflicts of interest rule (the ‘DOL Rule’) became applicable. The compliance deadline for many parts of the DOL Rule, including the best interest contract exemption (the BIC) and other prohibited transaction exemptions (PTEs), has however been extended until July 2019, during which time the DOL will consider further changes to the DOL Rule. The DOL Rule significantly expands the scope of persons providing services and products to workplace retirement plans and IRAs to an impartial standard of conduct and also impacts the delivery of certain products, such as variable annuities offered in the qualified space. Impartial conduct standards include: acting in the clients’ best interest; receiving no more than reasonable compensation; and making no misleading statements.
The reassessment of the DOL Rule, ordered by the President, could lead to major revisions in the DOL Rule. In addition, several lawsuits brought by industry coalitions remain pending in the appellate courts.
Legislation to enhance the retirement security of Americans, and in particular, through workplace retirement plans, is being considered in Congress. The legislation would facilitate the use of multiple employer plans (MEPs), of which Aegon USA is a leading provider, as well as expand the safe harbor for automatic enrollment in plans, and reduce the burden of offering annuities either as anin-plan investment option or as the form of distribution from a plan. In addition, both the Treasury and the DOL have published, in final and proposed forms respectively, guidance to facilitate the offering of guaranteed lifetime income products. Furthermore, many states have sought to open their plans tonon-government workers who do not have access to an employer retirement savings plan.
Tax Treatment of Insurance Companies and their Products and Plans
Although the insurance business is regulated at state level, the US federal 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 to the federal tax code, generally effective as of January 1, 2018. Along with other changes, the new law lowered the corporate tax rate to 21 percent, eliminated the corporate alternative minimum tax, changed interest deductibility limitations (including by adding a new limitation on the deductibility of business interest expense) and moved the US to a partial territorial system of international business taxation. In addition, the new law introduces a ‘base erosion anti-abuse tax,’ 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 or other retirement savings products. The impact of the tax law changes do not significantly favor one life insurance product or structure to the detriment of another. Aegon USA is in the process of assessing the overall impact of the Tax Cuts and Jobs Act on its business and financial condition. There can be no assurance that the Tax Cuts and Jobs Act will not have a material adverse impact on Aegon’s businesses, results of operations, and financial position.
The Results 2017 Europe cover the following operating segments: The Netherlands, United Kingdom (including VA Europe), Central & Eastern Europe, Spain & Portugal.
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 | |||||||||||||||
2017 | ||||||||||||||||||||
Net underlying earnings | 399 | 96 | 58 | (2 | ) | 552 | ||||||||||||||
Tax on underlying earnings | 121 | 20 | 9 | 6 | 155 | |||||||||||||||
Underlying earnings before tax by product segment | 520 | 116 | 67 | 4 | 707 | |||||||||||||||
Fair value items | 30 | (82 | ) | - | - | (52 | ) | |||||||||||||
Gains / (losses) on investments | 184 | 62 | 1 | - | 248 | |||||||||||||||
Net impairments | (17 | ) | - | (2 | ) | - | (19 | ) | ||||||||||||
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 | ) | - | (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 | |||||||||||||||
Income statement - Underlying earnings Amounts in EUR millions | The Netherlands | United Kingdom | Central & Eastern Europe | Spain & Portugal | Europe | |||||||||||||||
2015 | ||||||||||||||||||||
Net underlying earnings | 419 | 31 | 26 | 6 | 482 | |||||||||||||||
Tax on underlying earnings | 118 | (58 | ) | 10 | 7 | 77 | ||||||||||||||
Underlying earnings before tax by product segment | 537 | (27 | ) | 37 | 12 | 559 | ||||||||||||||
Fair value items | 126 | (25 | ) | - | - | 101 | ||||||||||||||
Gains / (losses) on investments | 306 | 103 | 2 | - | 411 | |||||||||||||||
Net impairments | (20 | ) | - | (2 | ) | - | (22 | ) | ||||||||||||
Other income / (charges) | 27 | (1,247 | ) | (2 | ) | 17 | (1,205 | ) | ||||||||||||
Income / (loss) before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | 977 | (1,196 | ) | 35 | 29 | (156 | ) | |||||||||||||
Income tax | (223 | ) | 268 | (11 | ) | (7 | ) | 27 | ||||||||||||
Net income / (loss) | 753 | (928 | ) | 24 | 22 | (129 | ) | |||||||||||||
2015 | ||||||||||||||||||||
Revenues | ||||||||||||||||||||
Life insurance gross premiums | 2,240 | 8,465 | 477 | 174 | 11,356 | |||||||||||||||
Accident and health insurance premiums | 234 | 47 | 1 | 64 | 345 | |||||||||||||||
General insurance premiums | 473 | - | 164 | 80 | 717 | |||||||||||||||
Total gross premiums | 2,947 | 8,512 | 642 | 317 | 12,419 | |||||||||||||||
Investment income | 2,277 | 2,331 | 45 | 41 | 4,693 | |||||||||||||||
Fees and commission income | 351 | 98 | 39 | 13 | 501 | |||||||||||||||
Other revenues | - | - | - | 2 | 2 | |||||||||||||||
Total revenues | 5,575 | 10,941 | 726 | 373 | 17,615 | |||||||||||||||
Commissions and expenses | 1,053 | 907 | 264 | 144 | 2,368 | |||||||||||||||
of which operating expenses | 831 | 398 | 143 | 70 | 1,442 |
The results of operations Europe for 2017 and 2016 are based
on the figures of the separate operating segments that are
further disclosed on the following pages.
Results 2017 Europe
Amounts in EUR millions | 2017 | 2016 | % | |||||||||
Net underlying earnings | 552 | 548 | 1 | |||||||||
Tax on underlying earnings | 155 | 107 | 45 | |||||||||
Underlying earnings before tax by business / country | ||||||||||||
The Netherlands | 520 | 534 | (2) | |||||||||
United Kingdom | 116 | 59 | 98 | |||||||||
Central & Eastern Europe | 67 | 55 | 20 | |||||||||
Spain & Portugal | 4 | 8 | (47) | |||||||||
Underlying earnings before tax | 707 | 655 | 8 | |||||||||
Fair value items | (52 | ) | (236 | ) | 78 | |||||||
Gains / (losses) on investments | 248 | 342 | (27) | |||||||||
Net impairments | (19 | ) | (10 | ) | (83) | |||||||
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 in income 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 |
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 | |||||||||
Gross deposits (on and off balance) | 2017 | 2016 | % | |||||||||
The Netherlands | 8,061 | 6,686 | 21 | |||||||||
United Kingdom | 35,896 | 5,791 | n.m. | |||||||||
Central & Eastern Europe | 323 | 265 | 22 | |||||||||
Spain & Portugal | 36 | 31 | 15 | |||||||||
Total gross deposits | 44,316 | 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 |
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 707 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 with a loss of EUR 22 million in 2016. Drivers of this improvement were Other income, improved results on fair value items and a higher underlying earnings before tax. Other income of EUR 336 million in 2017 included a gain on the sale of UMG in the Netherlands, while the sale of the majority of the UK annuity portfolio was the main driver behind Other charges of EUR 658 million in 2016.
Net income for the Netherlands
Net income from Aegon’s businesses in the Netherlands amounted to EUR 818 million in 2017, largely driven by underlying earnings before tax of EUR 520 million. Results on fair value items improved compared with 2016 to a gain of EUR 30 million in 2017, as positive 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 partly offset by a fair value loss on the guarantee provision and hedging-related fair value losses. Realized gains of EUR 184 million in 2017 were the result of asset-liability management adjustments and normal trading activity in the investment portfolio. Impairments amounted to EUR 17 million in 2017 and were mostly driven by a loan loss provision related to growing consumer loan origination. Other income amounted to EUR 296 million in 2017. This reflects the EUR 208 million gain on the sale of UMG and EUR 101 million positive assumption changes and model updates mainly related to the guarantee provision in the Netherlands.
Net income for the United Kingdom
Net income from Aegon’s businesses in the United Kingdom amounted to EUR 81 million in 2017. The main driver was the underlying result before tax of EUR 116 million. Losses from fair value items of EUR 82 million were mainly caused by losses on equity hedging programs as a result of increased equity markets where hedges have been set up to protect against a decline in equity markets. Realized gains amounted to EUR 62 million in 2017 and reflect rebalancing of the investment portfolio, and the sale of bonds to fund remittances to the Group. Other income amounted to EUR 40 million, mainly driven by the net release of provisions following the
completion of the Part VII transfers of the annuity portfolios sold to Rothesay and Legal & General. This was partly offset by integration expenses for the acquired Cofunds and BlackRock’s defined contribution business and the impairment of intangible assets related to the announced sales of Aegon Ireland.
Net income for Central & Eastern Europe
Net income from Aegon’s businesses in Central & Eastern Europe (CEE) amounted to EUR 57 million in 2017 and reflect underlying earnings before tax of EUR 67 million.
Net income for Spain & Portugal
Net income from Aegon’s businesses in Spain & Portugal amounted to a loss of EUR 2 million in 2017 as underlying earnings before tax of EUR 4 million were more than offset by income tax of EUR 6 million.
Underlying earnings before tax
Underlying earnings before tax in 2017 increased by 8% compared with 2016 to EUR 707 million. This was driven by higher fee income in the United Kingdom and growth in CEE.
Underlying earnings before tax for the Netherlands
Underlying earnings before tax for the Netherlands in 2017 decreased by 2% compared with 2016 to EUR 520 million.
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 for Central & Eastern Europe
Underlying earnings before tax from Central & Eastern Europe increased to EUR 67 million in 2017, up from EUR 55 million in 2016. This increase was primarily driven by business growth, better underwriting 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 costs and project related expenses.
Commissions and expenses
Commissions and expenses increased by 4% compared with 2016 to EUR 2,141 million in 2017. Operating expenses increased by 11% compared with 2016 and amounted to EUR 1,610 million in 2017.
Commissions and expenses for the Netherlands
Commissions and expenses decreased compared with 2016 to EUR 930 million in 2017. Operating expenses were down compared with 2016 to EUR 818 million in 2017, reflecting the sale of UMG. Expense savings in the insurance businesses were more than offset by investments in growth.
Commissions and expenses for the United Kingdom
Commissions and expenses decreased by 14% in 2017 to EUR 757 million compared with 2017. Operating expenses increased by 39% in 2017 to EUR 546 million compared with 2016, mainly due to the inclusion of Cofunds and BlackRock’s defined contribution business and integration of related activities.
Commissions and expenses for Central & Eastern Europe
Commissions and expenses increased compared with 2016 to EUR 262 million in 2017. Operating expenses increased 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 compared with 2016 to EUR 192 million in 2017. Operating expenses increased
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 44.3 billion in 2017. The increase compared with 2016 was primarily driven by the higher platform sales in the United Kingdom.
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% compared with 2016 to EUR 8.1 billion in 2017, mainly driven by the growth of Knab, Aegon’s online bank. New life sales declined compared with 2016 to EUR 99 million in 2017, caused 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 general insurance production decreased compared with 2016 to EUR 15 million in 2017.
Production for the United Kingdom
Gross deposits increased from EUR 5.8 billion in 2016 to EUR 35.9 billion in 2017 as a result of higher platform sales, reflecting the inclusion of Cofunds. New life sales decreased compared with 2016 to EUR 37 million in 2017, mainly due to the sale of the majority of the annuity business in the second half of 2016.
Production for Central & Eastern Europe
In Central & Eastern Europe, new life sales in 2017 increased compared with 2016 to EUR 88 million, driven by sales growth in Turkey. For the general insurance business, there were higher sales compared with 2016 amounting to EUR 64 million in 2017, reflecting the acquisition of a portfolio in Hungary.
Production for Spain & Portugal
New life sales in Spain & Portugal in 2017 increased by 23% compared with 2016 and amounted to EUR 48 million, driven by increasing sales through the joint venture with Banco Santander. General insurance and accident & health insurance sales increased compared with 2016 to EUR 53 million in 2017, also as a result of higher sales from the joint ventures with Santander.
Results 2016 Europe
Amounts in EUR millions | 2016 | 2015 | % | |||||||||
Net underlying earnings | 548 | 482 | 14 | |||||||||
Tax on underlying earnings | 107 | 77 | 38 | |||||||||
Underlying earnings before tax by business / country | ||||||||||||
The Netherlands | 534 | 537 | (1) | |||||||||
United Kingdom | 59 | (27 | ) | n.m. | ||||||||
Central & Eastern Europe | 55 | 37 | 51 | |||||||||
Spain & Portugal | 8 | 12 | (38) | |||||||||
Underlying earnings before tax | 655 | 559 | 17 | |||||||||
Fair value items | (236 | ) | 101 | n.m. | ||||||||
Gains / (losses) on investments | 342 | 411 | (17) | |||||||||
Net impairments | (10 | ) | (22 | ) | 53 | |||||||
Other income / (charges) | (658 | ) | (1,205 | ) | 45 | |||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | 92 | (156 | ) | n.m. | ||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | 7 | 6 | 19 | |||||||||
Income tax | (114 | ) | 27 | n.m. | ||||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | (7 | ) | (6 | ) | (19) | |||||||
Net income / (loss) | (22 | ) | (129 | ) | 83 | |||||||
Life insurance gross premiums | 12,493 | 11,356 | 10 | |||||||||
Accident and health insurance premiums | 320 | 345 | (8) | |||||||||
General insurance premiums | 536 | 717 | (25) | |||||||||
Total gross premiums | 13,348 | 12,419 | 7 | |||||||||
Investment income | 3,886 | 4,693 | (17) | |||||||||
Fees and commission income | 495 | 501 | (1) | |||||||||
Other revenues | 2 | 2 | 47 | |||||||||
Total revenues | 17,732 | 17,615 | 1 | |||||||||
Commissions and expenses | 2,058 | 2,368 | (13) | |||||||||
of which operating expenses | 1,445 | 1,442 | - |
New life sales | ||||||||||||
Amounts in EUR millions | 2016 | 2015 | % | |||||||||
The Netherlands | 111 | 130 | (15) | |||||||||
United Kingdom | 66 | 72 | (8) | |||||||||
Central & Eastern Europe | 83 | 91 | (9) | |||||||||
Spain & Portugal | 39 | 39 | 1 | |||||||||
Total recurring plus 1/10 single | 299 | 332 | (10) | |||||||||
Amounts in EUR million | 2016 | 2015 | % | |||||||||
New premium production accident and health insurance | 34 | 28 | 22 | |||||||||
New premium production general insurance | 94 | 84 | 12 | |||||||||
Gross deposits (on and off balance) | 2016 | 2015 | % | |||||||||
The Netherlands | 6,686 | 5,137 | 30 | |||||||||
United Kingdom | 5,791 | 6,096 | (5) | |||||||||
Central & Eastern Europe | 265 | 227 | 17 | |||||||||
Spain & Portugal | 31 | 29 | 8 | |||||||||
Total gross deposits | 12,773 | 11,489 | 11 | |||||||||
Net deposits (on and off balance) | 2016 | 2015 | % | |||||||||
The Netherlands | 1,909 | 1,885 | 1 | |||||||||
United Kingdom | (846 | ) | (1,096 | ) | 23 | |||||||
Central & Eastern Europe | 176 | 63 | 180 | |||||||||
Spain & Portugal | 20 | 17 | 20 | |||||||||
Total net deposits / (outflows) | 1,260 | 869 | 45 | |||||||||
Weighted average rate | ||||||||||||
Exchange rates | ||||||||||||
Per 1 EUR | 2016 | 2015 | ||||||||||
Pound sterling | 0.8187 | 0.7256 | ||||||||||
Czech koruna | 27.0184 | 27.2662 | ||||||||||
Hungarian forint | 310.9128 | 309.3147 | ||||||||||
Polish zloty | 4.3616 | 4.1819 | ||||||||||
Romanian leu | 4.4889 | 4.4428 | ||||||||||
Turkish Lira | 3.3426 | 3.0206 | ||||||||||
Ukrainian Hryvnia | 28.3029 | 24.1414 |
Results 2016 Europe
The net result improved compared with 2015 to a loss of EUR 22 million in 2016 driven by higher underlying earnings before tax and lower losses from other charges, which more than offset a lower result from fair value items. The sale of the annuity portfolio of Aegon UK was the main driver behind Other charges of EUR 658 million in 2016. Underlying earnings before tax increased compared with 2015 to EUR 655 million in 2016. This was mainly the result of lower amortization of deferred policy acquisition costs in the United Kingdom related to upgrading customers to the new retirement platform.
Net income
The net loss amounted to EUR 22 million in 2016 compared with a loss of EUR 129 million in 2015. Drivers of the improvement were higher underlying earnings before tax and lower losses from other charges, which more than offset a lower result from fair value items. Other charges in 2015 included a write down of deferred policy acquisition costs in the United Kingdom. The sale of the UK annuity portfolio was the main driver behind Other charges of EUR 658 million in 2016.
Net income for the Netherlands
Net income from Aegon’s businesses in the Netherlands amounted to EUR 418 million in 2016, largely driven by underlying earnings before tax of EUR 534 million. Results on fair value items worsened compared with 2015 to a loss of EUR 228 million in 2016 as the impact of credit spreads movements, declining interest rates as a result of a mismatch on an IFRS basis between the valuation of interest rate hedges and liabilities, and declining interest rates as a result of the mismatch on an IFRS basis between certain interest rate hedges on the mortgage portfolio and the underlying mortgages more than offset positive real estate revaluations. Realized gains of EUR 189 million in 2016 were the result of asset-liability management adjustments and normal trading activity in the investment portfolio. Impairments amounted to EUR 12 million in 2016 and were mostly driven by the consumer loan portfolio. Other income amounted to EUR 44 million in 2016 and was driven by model updates.
Net income for the United Kingdom
Net income from Aegon’s businesses in the United Kingdom amounted to a loss of EUR 456 million in 2016. The sale of the annuity portfolio which resulted in a loss of EUR 678 million recorded in other charges, was the main driver behind this loss. Losses from fair value items of EUR 7 million were driven by losses on equity hedging programs which were only partly offset by fair value gains related to Aegon’s European variable annuities business. Positive components were realized gains which amounted to EUR 153 million in 2016 and were driven by rebalancing of the investment portfolio following the sale of the annuity portfolio, and underlying earnings before tax which amounted to EUR 59 million.
Net income for Central & Eastern Europe
Net income from Aegon’s businesses in Central & Eastern Europe (CEE) amounted to EUR 19 million in 2016. Underlying earnings before tax of EUR 55 million were partly offset by other charges which amounted to EUR 23 million in 2016 as a result of additions to a legal claims provision. Impairment reversals amounted to EUR 1 million in 2016.
Net income for Spain & Portugal
Net income from Aegon’s businesses in Spain & Portugal amounted to a loss of EUR 2 million in 2016 as underlying earnings before tax of EUR 8 million were more than offset by income tax of EUR 8 million, losses on fair value items of EUR 1 million and losses on investments of EUR 1 million.
Underlying earnings before tax
Underlying earnings before tax in 2016 increased 17% compared with 2015 to EUR 655 million. This was mainly driven by lower amortization of deferred policy acquisition costs in the United Kingdom related to upgrading customers to the retirement platform compared to 2015.
Underlying earnings before tax for the Netherlands
Underlying earnings before tax for the Netherlands in 2016 decreased by 1% compared with 2015 to EUR 534 million.
Underlying earnings before tax for the United Kingdom
Underlying earnings before tax in the United Kingdom amounted to EUR 59 million in 2016.
Underlying earnings before tax for Central & Eastern Europe
Underlying earnings before tax from Central & Eastern Europe increased to EUR 55 million in 2016, up from EUR 37 million in 2015. This increase was primarily driven by a normalization of surrender levels in Poland which led to a negative impact following product changes in 2015.
Underlying earnings before tax for Spain & Portugal
Underlying earnings before tax from Spain & Portugal decreased compared with 2015 to EUR 8 million in 2016. Higher results from the joint ventures with Banco Santander were offset by adverse claims experience and increased investments in the direct channel and new business initiatives.
Commissions and expenses
Commissions and expenses decreased by 13% compared with 2015 to EUR 2.1 billion in 2016. Operating expenses were stable compared with 2015 and amounted to EUR 1,445 million in 2016.
Commissions and expenses for the Netherlands
Commissions and expenses decreased compared with 2015 to EUR 975 million in 2016. Operating expenses were down compared with 2015 to EUR 821 million in 2016 as thenon-recurrence ofone-time charges in 2015 and expense savings were partly offset by investments in new business initiatives, Solvency II related expenses, and the cost of an IT project that will result in annual expense savings going forward.
Commissions and expenses for the United Kingdom
Commissions and expenses decreased by 27% in 2016 to EUR 667 million compared with 2015. Operating expenses decreased by 1% in 2016 to EUR 394 million compared with 2015, mainly due to favorable currency movements, partly offset by expenses related to the acquisitions of Cofunds and BlackRock’s defined contribution business.
Commissions and expenses for Central & Eastern Europe
Commissions and expenses decreased compared with 2015 to EUR 244 million in 2016. Operating expenses remained stable compared with 2015 at EUR 143 million in 2016.
Commissions and expenses for Spain & Portugal
Commissions and expenses increased compared with 2015 to EUR 172 million in 2016. Operating expenses increased compared with 2015 to EUR 88 million in 2016, mainly resulting from growth of Aegon’s joint ventures with Santander in Spain & Portugal and project-related expenses.
Production
Gross deposits increased by 11% compared with 2015 to EUR 12.8 billion in 2016. The increase compared with 2015 was primarily driven by the growth of Knab, Aegon’s online bank in the Netherlands.
New life sales declined by 10% compared with 2015 to EUR 299 million in 2016. The decline compared with 2015 was mainly the result of the absence of large pension buyouts in the Netherlands. New premium production for general and accident & health insurance increased compared with 2015 to EUR 129 million in 2016.
Production for the Netherlands
Gross deposits increased by 30% compared with 2015 to EUR 6.7 billion in 2016, mainly driven by the growth of Knab, Aegon’s online bank. New life sales declined compared with 2015 to EUR 111 million in 2016, which was a result of the absence of large pension buyouts. Premium production for accident & health increased compared with 2015 to EUR 14 million in 2016, while general insurance production decreased compared with 2015 to EUR 21 million in 2016.
Production for the United Kingdom
Gross deposits of EUR 5.8 billion in 2016 were mainly driven by the addition of new customers as the platform continues to grow. New life sales decreased compared with 2015 to EUR 66 million in 2016.
Production for Central & Eastern Europe
In Central & Eastern Europe, new life sales in 2016 declined compared with 2015 to EUR 83 million. Sales growth in Turkey was more than offset by lower sales in Poland resulting from changes in the product offering. For general insurance business there were higher sales compared with 2015 amounting to EUR 43 million in 2016.
Production for Spain & Portugal
New life sales in Spain & Portugal in 2016 remained stable compared with 2015 and amounted to EUR 39 million as increasing sales through the joint venture with Banco Santander were offset by declines in other channels. General insurance and accident & health insurance sales increased compared with 2015 to EUR 50 million in 2016, also as a result of higher sales from the joint ventures with Santander.
Overview of the Netherlands
Aegon has operated in the Netherlands for more than 170 years, and is a leading provider of life insurance and pensions, with approximately 3,100 employees. Aegon the Netherlands is headquartered in The Hague, and its other main offices are in Hoofddorp, Leeuwarden and Groningen.
Organizational structure
Aegon the Netherlands operates through a number of brands, including Knab, TKP Pension and Optas. Aegon is itself one of the most widely recognized brands in the Dutch financial services sector.
Aegon the Netherlands’ primary subsidiaries are:
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 which products and services are 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, focussing primarily in 2017 on achieving a better digital self-service. Aegon usually distributes most of its products and services through intermediaries. The own advisory channel, Aegon Advisory, and the number of times that advice has been given to customers is growing rapidly. Distribution channels such as online and the contact centers generated leads for Aegon Advisory.
Aegon the Netherlands also uses specific distribution channels to help customers access its products and services. The Pensions business line includes sales and account management, which serves large corporations and financial institutions, such as company and industry pension funds.
Aegon Bank uses the direct channel primarily for savings, whereas Aegon Schadeverzekering uses an online channel and
independent brokers to sell its products. Knab, Aegon’s online bank, enables customers to make their own choices about their personal financial situation, thereby helping them to achieve their financial goals. Additional services were added throughout 2017, including mortgage advice and Knab Verzekeren. Knab helps its customers to make smart decisions by providing them with a clear overview of their finances, and advises thempro-actively on products that can help them achieve their financial goals.
On November 1, 2017, Aegon successfully completed the sale of Unirobe Meeùs Groep (UMG) to Aon Groep Nederland for EUR 295 million. The transaction is consistent with Aegon’s strategic objective to optimize its portfolio across its businessess.
Overview of products per business line
Pensions
Aegon the Netherlands provides full-service pension solutions, administration-only services and life or disability insurances 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 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 cost 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 dependent on the life of the insured in order that their pension benefit is guaranteed. 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. Customers also have the opportunity on an annual basis to decide as to whether they wish to continue with their subscription. Larger group of customers are currently becoming more interested in these
low cost and flexible solutions which results in a significant flow from separate account and other5-year contracts to1-year subscription products.
These subscription products include anall-in defined benefit product with guaranteed benefits. The expected profit for the customer and anticipated investment returns are taken into account in the pricing of the product. Customers may contribute funds for future pension increases to a separate account. Next to defined benefit subscriptions Aegon the Netherlands also offers defined contribution products on a subscription basis. Profit sharing is based on investment returns on specified funds. All positive and negative risks, such as investment risk and longevity risk, are attributed to the employees.
Defined benefit group contracts or defined benefit subscriptions both provide a guarantee on the benefits paid. The longevity risk therefore lies with Aegon the Netherlands.
A decrease in the number of company and industry pension funds in the Netherlands is continuing. By law, the assets and liabilities of a terminated pension fund must be transferred to another pension provider. Aegon the Netherlands offers a pension fundbuy-out product for terminating pension funds. It takes on the guaranteed ornon-guaranteed liabilities, with or without annual pension increases, and receives alump-sum premium upfront. All risks related to the transferred benefits are carried by Aegon the Netherlands. Current market conditions lead to significantly fewerbuy-outs in the Dutch market than in recent years.
Most of Aegon the Netherlands’ pensions are sold through sales and account management and Aegon’s intermediary channel. Customers include individuals, company and industry pension funds, and small, medium and large corporations. 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. In addition, TKP Pensioen specializes in pension administration for company and industry pension funds, and also provides 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.
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 TKP. 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, a subsidiary of Aegon Asset Management.
Non-life accident and income protection insurance
Aegon the Netherlands offers disability and sick leave products to employers that cover sick leave payments for employees not covered by social security, and for which the employer bears the risk.
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 products pay benefits on the policy maturity date, subject to survival of the insured. Most policies also pay death benefits should the insured die 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 2013, the guarantee on new products was reduced to 0%.
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 die 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 products in the accumulation phase and products in the deaccumulation phase. Payout commences at a date determined in the policy, and usually continues until the death of the insured or the beneficiary. Premiums are paid at inception of the policy or during the accumulation phase of the policy. The contracts contain minimum guarantees of 3% or 4%, and prior to 1999, of 4%. Interest rebates are given on both single and regular premium annuity insurance, and may be based on a portfolio of Dutch government bonds - although other calculation benchmarks may also be applied. There are also profit-sharing schemes set by reference to external indexes based onpre-defined portfolios of Dutch government bonds.
Variable unit-linked products
These products have a minimum benefit guarantee, except for those premiums invested in equity funds, and the initial guarantee period is ten years. A certain type of unit-linked products called ‘tontine plans’ have a specific bonus structure. At the end of the year in which the insured dies, the policy balance is distributed to surviving policyholders that belong to the same tontine series, rather than to the policyholder’s estate. A death benefit is paid to the dependents in the event that the policyholder dies before the policy matures. Aegon the Netherlands manages tontine plans, but no longer sells them.
Mortgage loans
At present, Aegon the Netherlands mostly offers ‘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.
Investment contracts
Investment contracts are investment products that offer returns and generate fee income from the performance of the investments.
Non-life general insurance
Aegon the Netherlands’ commercial portfolio was sold to Allianz Benelux NV on January 18, 2016, and was subsequently transferred on July 1, 2016. Following this divestment, Aegon the Netherlands has focused exclusively on private lines in general insurance, with products offered providing cover for property, motor, travel, legal aid and casualty.
Aegon the Netherlands offers itsnon-life insurance products primarily through direct and intermediary channels. In addition,
sales and account management provides products for larger corporations in the Netherlands.
Savings and banking
Aegon Bank N.V. aims to achieve its vision and ambition through two business units: Aegon Bank and Knab.
Aegon Bank focuses on the ‘income’ and ‘housing’ market, together with seeking to reinforce the Aegon Netherlands-wide pensions offering. Customers are increasingly having to make provision for their current and future income and wealth since the government changed the rules for pension provisions.
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’ 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.
Knab aims to be the most customer-oriented bank in the Netherlands, by informing customers about their personal financial situation and enabling them to achieve their financial goals. It reflects the core of Aegon’s purpose, offering customers both insight and an overview of their finances through its financial planning tools and alerts. Furthermore, Knab offers a wide range of banking and investment products with a focus on wealth accumulation and payment services.
Distribution (owned)
The main distribution channel owned by Aegon the Netherlands was UMG, which Aegon sold in 2017. Aegon’s remaining owned distribution channel primarily consists of Nedasco, which offers financial advice to customers, including the sale of insurance, pensions, mortgage loans, financing, and savings and investment products.
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 / Delta Lloyd and Vivat. In addition, these markets are subject to rapid changing
dynamics, including the growing use of online distribution channels and the merger of NN Group with Delta Lloyd.
Aegon the Netherlands has been a key company in the total life market for many years, and was ranked second in 2017 based on gross premium income. The life insurance market in the Netherlands comprises pensions and life insurance. The top five companies in the Netherlands by gross premium income accounted for almost 85% (Ind. Life and Pension) of total premium income in 2017 in the insurance market. Following the merger of NN group and Delta Lloyd, 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, 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%, making it the nineth largest company in the market.
In the mortgage loans market, Aegon the Netherlands held a market share of approximately 9% based on new sales in 2017 (and 7% in 2016), 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, 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 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 is an opportunity for pension insurers, 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 economies of scale will be required to effectively serve this market and the number of providers is expected to shrink within a few years. Aegon the Netherlands has identified this market as an
opportunity for growth and intends to invest in maintaining its leadership position.
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 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
Insurance supervision in EU member states is based on EU legislation, which, up until December 31, 2015, was set out in the Solvency I framework. Effective as of January 1, 2016, EU insurance regulation is embedded in the Solvency II framework. The Solvency I framework consisted primarily of EU directives, which were transposed into national law, in the Netherlands in the Dutch Financial Supervision Act and lower level national rules, such as in particular the Decree on Prudential Rules for Financial Undertakings (Besluit prudentiële regels Wft or Bpr Wft).
The Solvency II framework also 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:
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., 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.
Solvency II
Aegon the Netherlands uses a Partial Internal Model (PIM) to calculate the solvency position of its insurance activities under Solvency II. The calculation includes the use of the volatility adjustment, but does not include the use of any transitional measures. The internal model was approved on November 26, 2015, by the supervisor regulator the DNB as part of the Internal Model Application Process. Following the Internal Model Application Process, Aegon the Netherlands made several major changes to its internal model, which have been approved by the DNB on July 12, 2017. These model changes are therefore now reflected in the solvency position of Aegon the Netherlands. In the second half of 2017, Aegon the Netherlands received EUR 1 billion capital injection from Aegon N.V. to strengthen its capital position.
Financial supervision of credit institutions
As of November 4, 2014, Aegon Bank N.V. has been 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 is one of the elements of the Banking Union. 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 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 subject to regulatory requirements. These include (among others) capital and liquidity requirements, the requirement to maintain a certain leverage ratio, governance
and reporting requirements in line with the requirements of EU Directive 2013/36/EU (CRD IV) and EU Regulation 575/2013 (CRR).
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 been 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. The CRD IV and CRR frameworks include requirements with respect to 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 ratio 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, the leverage ratio may not fall below 3%, although uncertainty still remains as to the exact percentage and the scope of the leverage ratio under CRD IV. With respect to the percentage, the Dutch government has announced that it wishes to implement a leverage ratio of at least 4% for large Dutch banks, which does not apply to Aegon Bank N.V The ultimate aim of Basel III/CRD IV is to reduce 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.
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 (the Banking Recovery and Resolution Directive, BRRD) and Regulation 806/2014 on the Single Resolution Mechanism (the SRM Regulation) form the European framework for recovery and resolution for (among others) ailing banks, certain investment firms and their holding companies. 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 recovery and resolution entered into force on January 1, 2016.
The BBRD provides for early intervention measures that may be imposed by the national competent authority 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, 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 also 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 authority would be able to place Aegon Bank N.V. under resolution. As part of the resolution scheme to be adopted
by the national resolution authority 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 required at all times 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 authority 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.
Overview of United Kingdom
Following the completed sale of its own annuity portfolio and announced sale of Aegon Ireland8, together with the acquisition of Cofunds and the BlackRock’s Defined Contribution business, Aegon UK is primarily a long-term savings and protection business, supporting customers who are retired or saving for their retirement. Products are sold through its online platform, which enables advisors, employers and individuals to buy and manage investments online, and also have a single view of investments. Aegon Ireland is a specialist provider and reinsurer of variable annuity (guarantee) products in the United Kingdom and Germany. It also offers offshore investment bonds in the United Kingdom.
Organizational structure
Aegon UK PLC (Aegon UK) 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 UK’s main offices are in Edinburgh, London and Witham. The main office of Aegon Ireland PLC (Aegon Ireland) is located in Dublin, Ireland, with a branch office in Frankfurt, Germany.
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. For this reason, during 2016 it made a number of strategic changes in order to align its business model with its strategy.
On May 3, 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 12 billion. This transaction will be finalized in 2018, once the legal ownership has been transferred through aso-called ‘Part VII transfer’.
On April 11, and May 23, 2016, respectively, Aegon announced the divestment of its own annuity portfolio to Rothesay Life on June 30, 2017, and Legal & General on September 22, 2017, following the Part VII transfers. These transactions were consistent with the Company’s ambition to free up capital fromnon-core businesses, and the capital position of the Company improved as a result of the transactions. Aegon has approximately GBP 0.7 billion annuity liabilities remaining through an inward reinsurance transaction.
On January 1, 2017, Aegon UK completed the acquisition of Cofunds, funding for which came from the divestment of the annuity portfolio. The transaction demonstrates Aegon’s commitment to the retail platform market. Intermediaries that use Cofunds will be upgraded to an enhanced version of Aegon’s platform, with approximately 79,000 customer upgraded in December.
On August 9, 2017, Aegon announced the sale of Aegon Ireland plc to AGER Bermuda 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 transaction is expected to be completed in 2018.
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 117 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.
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 guaranteed 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 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:
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 will see Aegon UK emerge with a market-leading position among intermediary platforms.
The process of migrating customers to Aegon’s technology platform began in December 2017, with the upgrading of 79,000 customers. The remaining 700,000 customers will be migrated during the course of 2018.
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) by utilizing successful partnerships, such as with Mercer. Services that Aegon UK offers include:
The strength of Aegon’s proposition has historically been in the small- tomedium-sized employer market. The acquisition of BlackRock’s defined contribution pension business expanded
Aegon UK’s market position in the large employer market. BlackRock’s main focus in this market is on Master Trust products, defined benefit target, investment-only business, and unbundled defined contribution pension schemes.
Customer capability
Aegon’s Retiready 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 existing Aegon UK customers that no longer have an advisor. The majority of customers receive the service having been ‘upgraded’ from Aegon UK’s existing business, thereby allowing long-standing 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 370,000 customers, with assets of around GBP 6.6 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 Ireland
Aegon Ireland reinsures Aegon UK’s Secure Retirement Income product, a guaranteed SIPP/drawdown product on the ARC platform. It also manages an existing book of variable annuity (guaranteed) contracts through Aegon UK’s retail advisor channel since 2006. In Germany, Aegon Ireland has its own branch office in Frankfurt and has a number of distributors and a customer service team.
Aegon Ireland offshore investment bonds are offered exclusively in the UK. They are not actively marketed, and are distributed through the ARC proposition, other third-party propositions, banks and financial advisors.
Overview of business Lines
Reporting for Aegon UK is organized along two business lines: ‘Life’ and ‘Pensions’. ‘Life’ comprises protection products sold to individuals and small- tomedium-sized companies (SMEs). ‘Pensions’ comprises a broad range of workplace and personal pensions in addition to investment products and variable annuities.
Aegon UK was reorganized in 2016 to ‘Digital Solutions’ and ‘Existing Business’, which have separate leadership teams.
The Digital Solutions business is responsible for Aegon UK’s new digital platform propositions sold through Retail Advisor and Workplace channels, together with the protection lines. The
majority of new assets going forward will be accumulated in this business. In addition, where appropriate, Aegon UK is upgrading customers from its Existing Business to Digital Solutions to ensure an enhanced customer experience, a more engaged relationship, and lower cost to serve.
The Existing Business 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.
Products
Aegon UK’s main product focus is on savings, investments, pensions and protection products.
Savings, Investments & Pensions
Aegon UK provides a full range of personal and corporate pensions and saving-related products. These include:
Protection products
Aegon UK offers a range of products for individual customers, including life cover, critical illness and income protection. 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. This also provides a strong overlap with the target customers for Aegon Retirement Choices, giving opportunities to leverage sales and promotional activity. In addition, Aegon UK offers a range of protection products for small- tomedium-sized companies that wish to insure key personnel. This is a key market for Aegon, and the Company currently protects 400,000 customers.
Traditional Pensions
Traditional Pensions include a variety of individual and corporate pensions, with-profits products and annuity products (via Legal
& General). These products are not actively marketed but have a large number of existing customers.
Competition
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.
One of the key drivers for competition is the considerable regulatory and legislative change that is continuing to create new commercial opportunities. For example, automatic enrolment (which requires all employers to offer pensions to their employees) is driving greater numbers of customers to save in a pension. The next step will be for legislative minimum contributions to increase.
In addition, in April 2015, the government removed all restrictions on individuals being able to access their pension pots, thereby significantly increasing the flexibility with which individuals can use their pension savings. Individuals are now no longer restricted to buying an annuity or entering drawdown, and can choose to withdraw some of their money and take flexible income through drawdown, or secure income via an annuity or guaranteed product. This development has had a substantial impact on theat-retirement market, with a large reduction in annuity sales and an increase in the purchase of income drawdown products, in addition to supporting a shift from traditional products to platforms better able to support the delivery of flexible solutions to customers.
Aegon’s competitors include traditional insurance companies, investment platforms and asset managers, with a key competitive dimension being the degree to which companies are vertically integrating either to own distribution or to createin-house investment solutions.
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).
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 UK vote to leave the European Union (EU) on June 23, 2016, has implications for the UK. Much financial regulation currently applicable in the UK derives from EU legislation. 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.
Aegon Ireland is registered as a life insurance company in Ireland under the European Communities (Life Assurance) Framework Regulations 1994 (the 1994 Regulations), which implement the Consolidated Life Directive in Ireland. Aegon Ireland is regulated by the Central Bank of Ireland. As an Irish-authorized life insurance company, Aegon Ireland may undertake life insurance business in any member state of the European Economic Area on either a freedom of services (FOS) or freedom of establishment (FOE) basis, subject to the notification requirements set out in the 1994 Regulations.
Aegon Ireland operates on an FOE basis in Germany (with a branch office in Frankfurt) and on an FOS basis in the UK, selling life insurance products in Class III (contracts linked to investment funds) and Class I (life insurance and contracts to pay annuities), excluding contracts written in Class II (contracts of insurance to provide a sum on marriage or on the birth of a child). Aegon Ireland must comply with the general good provisions that apply to insurers selling such policies in each jurisdiction.
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.
Under UK law, a company (other than existing conglomerates) is not permitted to conduct both life insurance andnon-life insurance business within one legal entity, nor is a company allowed to carry out both insurance and banking business within the same legal entity.
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 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.
The PRA may request additional information it considers necessary and may conduct an audit at any time. The PRA may also make recommendations for improvements, and may, ultimately, withdraw an insurance company’s license.
Solvency II
Under Solvency II, life insurance companies are required to maintain certain levels of shareholders’ equity in accordance with EU directives, and have to hold the level of capital required to withstand a 1 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 on December 14, 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 uses the matching adjustment in the calculation of the technical provisions for its annuities, and uses the volatility adjustment in the calculation of the technical provisions for the With Profits business with investment guarantees. Following the reinsurance of the majority of its annuity business in 2016, Aegon no longer uses the transitional measures on technical provisions.
Aegon Ireland uses the Standard Formula to calculate the solvency position of its insurance activities.
Overview of Central & Eastern Europe
Aegon has operations in the Central & Eastern European (CEE) countries of the Czech Republic, Hungary, Poland, Romania, Slovakia, and Turkey. It first entered the Central & Eastern European market in 1992 with the purchase of a majority stake in Hungary’s former state-owned insurance company, Állami Biztosító. Aegon Hungary is Aegon’s leading business in Central & Eastern Europe.
Organizational structure
Aegon’s main subsidiaries in Central & Eastern Europe are:
Overview of sales and distribution channels
Aegon operates through a number of different sales channels in Central & Eastern Europe. In the Czech Republic and in Slovakia, Aegon distributes mostly unit-linked and term life insurance policies with the help of broker sales partners. In Poland and Romania, unit-linked and different types of traditional life insurance products are distributed by tied agents and bank partners respectively. In Turkey, the most important sales channels are insurance brokers and tied agents, in addition to bank partners, which distribute savings and term life insurance products. As Aegon Hungary Insurance is a composite insurance entity, owning several subsidiaries that also operate in the financial services sector, the Group’s products are marketed via a broad range of channels. The most important of these are tied agents and insurance brokers, in addition to bank partners, call centers, key account managers and its online channel.
Overview of business lines
Life & Savings
Aegon companies in Central & Eastern Europe offer a range of life insurance and personal protection products. These include traditional life and unit-linked products. Unit-linked products 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 Poland, Aegon focuses on unit-linked as well as traditional life products. In line with the local regulatory and market developments, the products marketed have been modified in recent years.
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 9.
In both the Czech Republic and Slovakia, Aegon focuses 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.
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 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.
Also in Hungary, Aegon Hungary Home Savings and Loan Association provides a saving product combined with a preferential loan option, which is subsidized by the state during the saving period.
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.
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. Aegon is currently active in the (formerly mandatory) private pension market in Slovakia, Poland and Romania. In the voluntary pension market, Aegon is active in Hungary, Turkey and Romania.
As of December 31, 2017, 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. By end of May 2017, the pension fund under Aegon PTE S.A.‘s management had assets of PLN 6.93 billion (EUR 1.6 billion) and 890,000 members, whereas the fund managed by Nordea had assets of PLN 8.06 billion (EUR 1.9 billion) and 980,000 members. The merger of the two funds created the fourth largest Pillar 2 pension fund in the market10.
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 market11. 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 Poland since 2011.
Competition
In 2016, 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 market12. In Turkey, Aegon was ranked tenth in the life insurance market based on written premium at the end of Jul 201713. 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 2016 in the voluntary pension fund market in Hungary14. In December 2017, Aegon was ranked fifth in terms of managed assets and fourth in terms of number of participants in the Slovakian private pension market15. Based on May 2017 data, Aegon combined with Nordea was ranked fourth in terms of both the number of participants and managed assets in Poland16. In November 2017, Aegon was the fourth largest provider in the Romanian mandatory private pension market, both in terms of net assets under management and number of participants17.
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 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 (including Aegon Hungary Mortgage Finance Company). In addition, Aegon Hungary Mortgage Finance Company is under the supervision of the MNB, in exactly the same way as Aegon Hungary Home Savings and Loan Association.
Overview of Spain & Portugal
Aegon entered in 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:
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 73% of life sales, whereas brokers and direct customers account for 22% and 5% of the total respectively. Overall, the bancassurance channel accounts for 42.5% of the Spanish household market.
In the Portuguese market, approximately 68% (2016: 67%) of pure life risk premiums and 43% (2016: 43%) of household insurance premiums are written through bancassurance channels, where credit-related policies mostly related to mortgages play a significant role.
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 2,800 branches nationwide.
Aegon Spain’s agreement 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% of each entity. 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, S.A., a Portuguese insurance company that is part of the Santander International group, have partnered to distribute a number of insurance products. The partnership concerns the distribution of pure life risk and general insurance products (accident, home and commercial multi-risk insurance, and health) through over 500 branches nationwide - the largest network of its kind in the country. These products are developed through two insurance entities: Aegon Santander Portugal Vida, for pure life risk products; and Aegon Santander Portugal Não Vida, for general insurance products. Aegon 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% of each entity.
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 for Aegon Santander Portugal Vida and Aegon Santander Portugal Não Vida.
Aegon Spain and Liberbank
Liberbank, S.A. has a presence nationwide, 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. currently distributes its products through nearly 575 Liberbank, S.A. branches. Aegon Spain and Liberbank, S.A. are both shareholders of Liberbank Vida
y Pensiones, Seguros y Reaseguros, S.A Aegon’s share in this entity is 50%, and Liberbank, S.A. owns the remaining 50%.
Aegon Spain own network
Aegon Spain’s own network offers life insurance, health insurance, pension products and mutual funds. It uses two main distribution channels: its own network of brokers and agents for the products of its full subsidiaries, which comprises 90% of the total; and a direct channel, which comprises 10% of the total.
Overview of business lines
Aegon Spain focuses primarily on retail customers. It offers individual life, pensions, 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.
Life insurance & Pensions
Aegon Spain’s life insurance business comprises both individual and group protection and savings products, with individual products forming the larger part of the business.
Protection business includes primarily life, accident and disability cover, and products can be complemented with critical illness, income protection and other riders. Customers’ saving needs are serviced by Aegon Spain through its targeted offering 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 through its joint venture with Banco Santander. The offering focuses mainly on household protection and funeral insurance products.
Health
Health insurance is offered by Aegon Spain in Spain through its own network of brokers and agents, direct channels, and 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.
The gross premium written contribution in 2016 for each of Aegon Spain’s business lines was 54% for life insurance, 20% for accident and health insurance, and 26% for general insurance.
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 33% market share, and Zurich, with a 10% market share, followed by Mapfre, with a 7% 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. Mapfre leads thenon-life insurance market with a 14% market share, followed by Grupo Mutua Madrileña with a 14% market share, and Allianz with a 7% market share. Thenon-life market is more fragmented than the life one. Aegon Spain’s multi-risk business line is responsible fornon-life and has a market share of less than 1%.
With respect to the life insurance Portuguese market, Fidelidade and Ocidental Vida are the main players with a combined market share in 2017 of 53.1% (based on issued premiums of insurance contracts 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 15%. Seguradoras Unidas is the result of a merger of several insurance companies, including Tranquilidade and Açoreana.
Regulation and supervision
Insurance companies in Spain are required to report on a quarterly basis to 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 the Autoridade de Supervisão de Seguros e Fundos de Pensões (ASF). Insurance companies are required to report to the ASF on a monthly basis (issued premiums and claims costs per line of business) and more extensively on a quarterly basis. Portuguese regulations also incorporate all requirements from the relevant EU directives.
Catalonian political situation
In 2017, Spain experienced considerable political tension following the request for independence by the Regional Government of Catalonia, the application of article 155 of the Spanish Constitution by the Spanish Government, and the call for Regional Elections in December. Despite these events, markets were relatively calm. The spread of Spanish10-year Government bonds compared with the German Bund was very stable. From a risk perspective, Aegon’s business in Spain has no exposure on its balance sheet to regional government debt or regional banks. From a business perspective, the total business of Aegon Spain in Catalonia is moderate, representing around 10 to 12% of Aegon Spain’s total business. At the time of publication of this annual report, impacts have not been significant, although it remains difficult to assess any long-term business impact.
Solvency II
As of January 1, 2016, under Solvency II requirements, Aegon Spain has been using the Standard Formula to calculate the solvency position of its insurance activities. The calculation includes the use of the matching adjustment and volatility adjustment, depending on the underlying portfolio in addition to transitional measures on technical provisions.
Regularly risk scenarios are tested in order to check the solvency resilience and liquidity limitations of Aegon Spain, the results of which were satisfactory in all cases, and Aegon España and all Aegon entities in Spain are expected to remain adequately capitalized and to have sufficient liquidity.
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 proportionately consolidated joint ventures and associates included 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 certain proportionately consolidated joint ventures and 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 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 |
Results 2017 Asia
Net income in 2017 amounted to USD 6 million, which was mainly driven by improved 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 due to higher underlying earnings before tax from the High Net Worth businesses, Aegon Insights and China. Gross deposits decreased to USD 250 million in 2017 compared with USD 337 million in 2016, primarily due to sales of the recently launched foreign currency variable annuity being more than offset by lower JapaneseYen-denominated variable annuity sales. New life sales amounted to USD 170 million for 2017, mainly related to the critical illness product in China and the new direct sales strategy implemented in India.
Net income
Net income improved from a loss of USD 14 million in 2016 to USD 6 million in 2017, mainly due to increased underlying earnings before tax in the High Net Worth business, Aegon Insights and China. Fair value losses improved 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.
Underlying earnings before tax
In Asia, underlying earnings before tax improved by 136% compared with 2016 to USD 55 million in 2017.
Commissions and expenses
Commissions and expenses remained stable in 2017 compared with 2016 at USD 257 million. Operating expenses increased by 9% in 2017 compared with 2016 to USD 176 million. The increase in operating expenses was mainly driven by strong sales in China and India throughout the year and investments made to support future growth, partially offset by lower operating expenses in Aegon Insights as a result of discontinuing the outbound telemarketing business.
Production
New life sales increased by 20% in 2017 to USD 170 million compared with 2016.
Gross deposits in Asia declined to USD 250 million in 2017 compared with USD 337 million in 2016. Increased inflows from foreign currency variable annuities were more than offset by lower JapaneseYen-denominated variable annuity sales. The latter was the result of a pricing change 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 2017 compared with 2016 to USD 14 million as a result of running off the Aegon Insights outbound telemarketing business.
Results 2016 Asia
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
2016 | 2015 | % | 2016 | 2015 | % | |||||||||||||||||||
Net underlying earnings | (7 | ) | (4 | ) | (79) | (6 | ) | (3 | ) | (80) | ||||||||||||||
Tax on underlying earnings | 30 | 27 | 14 | 27 | 24 | 15 | ||||||||||||||||||
Underlying earnings before tax by business / country | ||||||||||||||||||||||||
High net worth businesses | 61 | 45 | 37 | 55 | 40 | 39 | ||||||||||||||||||
Aegon Insights | 1 | 5 | (86) | 1 | 5 | (88) | ||||||||||||||||||
Strategic partnerships | (39 | ) | (27 | ) | (42) | (35 | ) | (25 | ) | (41) | ||||||||||||||
Underlying earnings before tax | 23 | 23 | 3 | 21 | 20 | 3 | ||||||||||||||||||
Fair value items | (10 | ) | 7 | n.m. | (9 | ) | 7 | n.m. | ||||||||||||||||
Gains / (losses) on investments | 9 | 7 | 29 | 8 | 7 | 29 | ||||||||||||||||||
Net impairments | (1 | ) | - | n.m. | (1 | ) | - | n.m. | ||||||||||||||||
Other income / (charges) | (6 | ) | (68 | ) | 91 | (5 | ) | (61 | ) | 91 | ||||||||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | 16 | (31 | ) | n.m. | 14 | (27 | ) | n.m. | ||||||||||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | 2 | 3 | (38) | 2 | 3 | (37) | ||||||||||||||||||
Income tax | (30 | ) | (3 | ) | n.m. | (27 | ) | (3 | ) | n.m. | ||||||||||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | (2 | ) | (3 | ) | 38 | (2 | ) | (3 | ) | 37 | ||||||||||||||
Net income / (loss) | (14 | ) | (33 | ) | 58 | (13 | ) | (30 | ) | 58 | ||||||||||||||
Life insurance gross premiums | 1,240 | 1,902 | (35) | 1,121 | 1,713 | (35) | ||||||||||||||||||
Accident and health insurance premiums | 115 | 117 | (2) | 104 | 105 | (1) | ||||||||||||||||||
Total gross premiums | 1,355 | 2,019 | (33) | 1,225 | 1,819 | (33) | ||||||||||||||||||
Investment income | 257 | 216 | 19 | 232 | 194 | 19 | ||||||||||||||||||
Fees and commission income | 67 | 69 | (3) | 61 | 62 | (3) | ||||||||||||||||||
Total revenues | 1,680 | 2,304 | (27) | 1,517 | 2,076 | (27) | ||||||||||||||||||
Commissions and expenses | 257 | 268 | (4) | 232 | 242 | (4) | ||||||||||||||||||
of which operating expenses | 161 | 143 | 13 | 146 | 129 | 13 |
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
New life sales | 2016 | 2015 | % | 2016 | 2015 | % | ||||||||||||||||||
High net worth businesses | 88 | 151 | (42) | 79 | 136 | (42) | ||||||||||||||||||
Aegon Insights | - | 1 | (64) | - | 1 | (64) | ||||||||||||||||||
Strategic partnerships | 54 | 41 | 31 | 49 | 37 | 32 | ||||||||||||||||||
Total recurring plus 1/10 single | 142 | 193 | (26) | 128 | 173 | (26) | ||||||||||||||||||
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
Gross deposits (on and off balance) | 2016 | 2015 | % | 2016 | 2015 | % | ||||||||||||||||||
Strategic partnerships - China | 7 | 5 | 43 | 6 | 4 | 43 | ||||||||||||||||||
Strategic partnerships - Japan | 330 | 448 | (26) | 298 | 404 | (26) | ||||||||||||||||||
Total gross deposits | 337 | 453 | (26) | 304 | 408 | (25) | ||||||||||||||||||
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
Net deposits (on and off balance) | 2016 | 2015 | % | 2016 | 2015 | % | ||||||||||||||||||
Strategic partnerships - China | 5 | 3 | 48 | 4 | 3 | 49 | ||||||||||||||||||
Strategic partnerships - Japan | 282 | 388 | (27) | 255 | 350 | (27) | ||||||||||||||||||
Total net deposits / (outflows) | 287 | 392 | (27) | 259 | 353 | (27) | ||||||||||||||||||
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
2016 | 2015 | % | 2016 | 2015 | % | |||||||||||||||||||
New premium production accident and health insurance | 19 | 31 | (40) | 17 | 28 | (40) | ||||||||||||||||||
Weighted average rate | ||||||||||||||||||||||||
Exchange rates | ||||||||||||||||||||||||
Per 1 EUR | 2016 | 2015 | ||||||||||||||||||||||
US dollar | 1.1069 | 1.1100 | ||||||||||||||||||||||
Chinese Yuan Renminbi | 7.3364 | 6.9598 |
Results 2016 Asia
Net loss in 2016 amounted to USD 14 million, which was mainly driven by the increase in ownership from 26% to 49% in Aegon’s strategic partnership in India compared with 2015, hedging losses in the variable annuity business in Japan, and relatively high profits for tax purposes and limited tax benefits on losses. Underlying earnings before tax remained stable in 2016 compared with 2015 mainly as the result of higher underlying earnings before tax from the High Net Worth business offset by increased ownership in India. Gross deposits decreased to USD 337 million in 2016 compared with USD 453 million in 2015 primarily due to a pricing change on variable annuities in Japan to maintain profitability of new sales. New life sales for 2016 of USD 142 million mainly related to universal life products sold out of Hong Kong and Singapore.
Net income
Net loss in 2016 amounted to USD 14 million. Net losses improved from a loss of USD 33 million in 2015 mainly due to thenon-recurrence ofone-time charges in 2015 of USD 68 million primarily the result of a more detailed approach to modeled reinsurance premiums. Fair value losses increased compared with 2015 due to hedging as a result of the variable annuity business in Japan. Thenon-recurrence of charges and fair value losses were partially offset by higher income tax compared with 2015 due to the strong performance of Asia’s high net worth business out of Hong Kong and Singapore and limited tax benefits on losses in strategic partnerships.
Underlying earnings before tax
In Asia, underlying earnings before tax remained stable at USD 23 million in 2016 compared with 2015.
Commissions and expenses
Commissions and expenses decreased by 4% in 2016 compared with 2015 to USD 257 million driven by lower production levels. Operating expenses increased by 13% in 2016 compared with
2015 to USD 161 million. The increase in operating expenses was mainly driven by the investment made to support future growth, together with the increase in Aegon’s stake in its strategic partnership in India from 26% to 49%. On a comparable basis, operating expenses increased by 5% compared with 2015.
Production
New life sales decreased by 26% in 2016 to USD 142 million compared with 2015.
Gross deposits in Asia declined to USD 337 million in 2016 compared with USD 453 million in 2015. This was the result of a pricing change on the JapaneseYen-denominated variable annuity in order to maintain profitability of new sales.
New premium production in Asia’s accident & health declined 40% in 2016 compared with 2015 to USD 19 million, driven by the rationalization of unprofitable sales campaigns in Aegon Insights, especially in Indonesia.
Overview of Asia
Aegon Asia operates through three 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:
Joint ventures
Aegon operates in China through a joint venture with Tsinghua Tongfang Co. Ltd (THTF). The name of the joint venture is Aegon THTF Life Insurance Co. Ltd. (Aegon THTF). Aegon THTF is licensed to sell both life insurance and accident and health products in China. The company has expanded its network of offices and business in China since 2003. Having obtained 12 provincial licenses, its geographic presence provides access to a potential market of over 650 million people, primarily in the coastal provinces of eastern China.
Aegon has been operating in India through its joint venture life insurance company, Aegon Life Insurance Co. Ltd (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 has 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 is 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 in 2010 and based in Bermuda, SARe manages the guaranteed benefit risks of Aegon Sony Life’s products.
Wholly-owned subsidiaries
Transamerica Life Bermuda and its predecessors have been serving customers in Asia for over 80 years. TLB today primarily serves the wealth preservation and wealth transfer needs of thehigh-net-worth market segment in Asia through its offices in Hong Kong and Singapore, and Europe through its office in Bermuda.
Aegon Insights is a marketing and distribution services business in the Asia-Pacific region. The Aegon Insights business first
established operations in Australia in 1998, and currently maintains operations in Australia, China, Hong Kong, Indonesia, Japan and Thailand. Given changes in consumer preferences in some countries, changes were also made during 2017 to close active partner distribution relationships, while continuing 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 channels utilizing its own website ande-commerce 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 4,900 agents; and the bank distribution channel, which consists predominately of mega banks and regional banks.
TLB distributes its products tohigh-net-worth consumers exclusively through relationships with local and international brokers, in addition to private banks.
Overview of business lines
High-net-worth businesses
TLB’s main products consist of USD denominated Universal Life and USD Term Life Insurance plans for thehigh-net-worth market segment. Universal Life is TLB’s key product to meet the needs ofhigh-net-worth individuals for wealth preservation and wealth transfer to successive generations. In addition to the Universal Life products, Term Life products are also marketed tohigh-net-worth consumers, with protection offered at a guaranteed level rate for up to 30 years.
Aegon Insights
Aegon Insights primarily worked with local insurers to develop marketing and distribution solutions tailored to the needs of specific markets and customers. With changes in consumer preferences, the focus is on exploring opportunities in the emerging digital distribution landscape. Revenue is primarily generated through reinsurance arrangements and fee income from marketing services and product distribution. During 2017, Aegon made the strategic decision to discontinue the outbound telemarketing businesses.
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 sell whole-life critical illness products, while the agency channel and direct marketing channel also offer participating endowment products and personal accident products respectively. Regular premium critical illness, participating annuity and single premium universal life 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 all channels.Non-life sales are, however, concentrated in the group channel, where the main products are group medical policies.
In India, Aegon Life offers term life plans, traditional individual participating products, traditionalnon-participating savings products, and unit-linked life insurance plans through the direct sales force ande-sales channels.
In Japan, Aegon Sony Life sells variable annuities in JPY, USD 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.
Aegon also makes investments in digital distribution platforms in the Asia region to expand distribution capabilities.
Competition
China: Aegon THTF
As of November 30, 2017 there were 85 life insurance companies in the market, including 57 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 1.4% in terms of total premium.
India: Aegon Life
There were 24 licensed life insurers in India at the end of November 2017. While the state-owned Life Insurance Corporation of India continues to maintain a dominant share of new business premiums (April 2017 to November 2017), private sector companies have shown double-digit growth to obtain more than 30% of the individual recurring new business premiums written. Aegon Life India ranked twenty-
third in the individual recurring premium market (April 2017 to November 2017).
Japan: Aegon Sony Life
There are seven active companies in Japan’s variable annuities market. In 2017, Aegon Sony Life ranked third in terms of market share behindDai-ichi Frontier and Nippon.
Hong Kong and Singapore: TLB
TLB’s main competitors in Hong Kong and Singapore have traditionally been the global providers for thehigh-net-worth market, such as HSBC Life, Manulife Bermuda, and Sun Life Bermuda. The local branches of both Sun Life and Manulife, in addition to domestic insurers such as AIA, Great Eastern Life and FWD, are however increasingly developing very competitive offerings for the same market segment.
Regulation and supervision
China: Aegon THTF
The insurance industry in China is regulated by the China Insurance Regulatory Commission (CIRC). During 2017, the CIRC made several regulatory changes to ensure that the industry focused on protection products rather than high guarantee savings products. The CIRC also strengthened the regulation with regards tomis-selling, corporate governance, related party transactions, the use of insurance fund, product design, customer service and innovative business risks.
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.
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 2017 included the issuing of regulations with regards to: the registration of Insurance Marketing Firms; the payment of commission, remuneration or rewards to insurance agents; insurance web aggregator; the outsourcing activities by the Indian Insurers; and the role, responsibilities and appointment of Appointed Actuaries. IRDAI has also issued ‘circulars’, rules that provide additional clarify and information about claims processing, point of sale, report on persistency rate and renewal rate, investment regulation, and the implementation of Indian accounting standards.
Japan: Aegon Sony Life
The Financial Services Agency (FSA) is the government agency that supervises all insurance companies in Japan. New products and major product amendments are filed with, and approved by, the FSA, in addition to general policy provisions, statements of business procedure, and pricing and valuation.
On March 30, 2017, the FSA published the “Principles for Customer-Oriented Business Conduct” to help financial accumulation of household financial assets, and appropriate rules regarding markets and financial instruments exchanges. Many insurers, including Sony Life, have published their own principles and the measures that they have taken in response to the FSA principles.
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 Asia branches are located in Hong Kong and Singapore. The insurance industry 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 in June 2017). The IA will take over the regulation of insurance companies and insurance intermediaries from the three Self-Regulatory Organizations (SROs) through a statutory licensing regime in the next two to three years.
The insurance industry in Singapore is regulated by the Monetary Authority of Singapore (MAS). The MAS is an integrated regulator that oversees all 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 a number 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 & Investments Commission in Australia, and the Confederation of Insurance Brokers in Hong Kong. Aegon Insights keeps abreast of all changes or proposed changes to regulations in all of its markets. Where appropriate, it also implements industry standard compliance programs, such as Payment Card Industry Compliance in Australia and Privacy Mark in Japan.
Asia
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.
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 | |||||||||
The Netherlands | 15 | 14 | 6 | |||||||||
United Kingdom | 16 | 30 | (46) | |||||||||
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 in income before tax | 17 | 19 | (7) | |||||||||
Income tax | (42 | ) | (48 | ) | 11 | |||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included 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 other third-party | ||||||||||||
Americas | 10,567 | 4,536 | 133 | |||||||||
The Netherlands | 5,936 | 4,656 | 27 | |||||||||
United Kingdom | 4,482 | 4,831 | (7) | |||||||||
Rest of World1) | 127 | (317 | ) | n.m. | ||||||||
Strategic partnerships | 40,220 | 32,660 | 23 | |||||||||
Total gross flows other third-party | 61,332 | 46,366 | 32 | |||||||||
Net flows other 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 other 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 |
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 other third-party asset management increased by 32% to EUR 61 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.
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 other third-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 other third-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 other third-party were more than offset by outflows in the general account, primarily resulting from the divestment of the majority of therun-off businesses in the US, outflows in affiliates, and unfavorable currency movements.
Results 2016 Aegon Asset Management
Amounts in EUR millions | 2016 | 2015 | % | |||||||||
Net underlying earnings | 99 | 120 | (17) | |||||||||
Tax on underlying earnings | 50 | 50 | (2) | |||||||||
Underlying earnings before tax by business / country | ||||||||||||
Americas | 55 | 66 | (16) | |||||||||
The Netherlands | 14 | 11 | 28 | |||||||||
United Kingdom | 30 | 32 | (7) | |||||||||
Rest of World | (4 | ) | (4 | ) | (2) | |||||||
Strategic partnerships | 54 | 65 | (17) | |||||||||
Underlying earnings before tax | 149 | 170 | (12) | |||||||||
Fair value items | - | - | - | |||||||||
Gains / (losses) on investments | 3 | 3 | 8 | |||||||||
Net impairments | (5 | ) | - | n.m. | ||||||||
Other income / (charges) | (2 | ) | (1 | ) | (16) | |||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | 145 | 172 | (15) | |||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | 19 | 19 | (3) | |||||||||
Income tax | (48 | ) | (50 | ) | 5 | |||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | (19 | ) | (19 | ) | 3 | |||||||
Net income / (loss) | 97 | 121 | (20) | |||||||||
Management fees | 503 | 504 | - | |||||||||
Performance fees | 34 | 48 | (29) | |||||||||
Other | 63 | 61 | 3 | |||||||||
Total revenues | 601 | 614 | (2) | |||||||||
Commissions and expenses | 486 | 487 | - | |||||||||
of which operating expenses | 451 | 444 | 2 | |||||||||
Cost / income ratio | 75.1% | 72.3% | ||||||||||
Amounts in EUR millions | 2016 | 2015 | % | |||||||||
Gross flows other third-party | ||||||||||||
Americas | 4,536 | 2,329 | 95 | |||||||||
The Netherlands | 4,656 | 4,080 | 14 | |||||||||
United Kingdom | 4,831 | 7,538 | (36) | |||||||||
Rest of World1) | (317 | ) | (389 | ) | 19 | |||||||
Strategic partnerships | 32,660 | 20,165 | 62 | |||||||||
Total gross flows other third-party | 46,366 | 33,722 | 37 | |||||||||
Net flows other third-party | ||||||||||||
Americas | 499 | 307 | 63 | |||||||||
The Netherlands | 3,669 | 2,897 | 27 | |||||||||
United Kingdom | (865 | ) | 3,490 | n.m. | ||||||||
Rest of World1) | 62 | (27 | ) | n.m. | ||||||||
Strategic partnerships | (402 | ) | 1,568 | n.m. | ||||||||
Total net flows other third-party | 2,964 | 8,235 | (64) | |||||||||
1 Rest of world include intragroup eliminations from internalsub-advised agreements | ||||||||||||
Weighted average rate | ||||||||||||
Exchange rates | ||||||||||||
Per 1 EUR | 2016 | 2015 | ||||||||||
US dollar | 1.1069 | 1.1100 | ||||||||||
Pound sterling | 0.8187 | 0.7256 | ||||||||||
Hungarian forint | 310.9128 | 309.3147 | ||||||||||
Chinese Yuan Renminbi | 7.3364 | 6.9598 |
Results 2016 Aegon Asset Management
Net income in 2016 decreased compared with 2015 to EUR 97 million as a result of lower underlying earnings before tax compared with 2015. Lower underlying earnings before tax in 2016 compared with 2015 was mainly the result of lower underlying earnings before tax in 2016 compared with 2015 from Aegon’s Chinese asset management joint venture AIFMC due to the normalization of performance fees. Gross flows in other third-party asset management increased by 37% to EUR 46 billion in 2016 compared with 2015, mainly driven by higher gross inflows in the US, the Netherlands and Strategic partnerships.
Net income
Net income in 2016 declined 20% compared with 2015 to EUR 97 million. This was mainly driven by lower underlying earnings before tax in 2016 compared with 2015.
Underlying earnings before tax
Underlying earnings before tax decreased by 12% in 2016 compared with 2015 to EUR 149 million. This decline was mainly driven by lower underlying earnings before tax in 2016 compared with 2015 from Aegon’s Chinese asset management joint venture AIFMC due to the normalization of performance fees.
Commissions and expenses
Operating expenses increased by 2% in 2016 compared with 2015 to EUR 451 million. This increase was mainly the result of higher employee related expenses in 2016 compared with 2015 due to increased headcount to support growth strategy and the inclusion of costs related to the partnership with La Banque Postale Asset Management, which was only partly offset by currency movements. As a result of higher expenses and lower net income in 2016 compared with 2015, the cost/income ratio in 2016 increased by 3 percentage points to 75% compared with 2015. Annualized operating expenses as a percentage of average assets under management remained in 2016 stable compared with 2015 at 13 basis points.
Production
Gross inflows in other third-party increased by 37% in 2016 to EUR 46.4 billion compared with 2015. This was mainly the result of higher gross flows in AIFMC in 2016 compared with 2015, which were mainly driven by higher recognized gross inflows, the acquisition of La Banque Postale Asset Management, and higher gross flows in the US and the Netherlands.
Net other third-party inflows in 2016 decreased compared with 2015 to EUR 3.0 billion, as higher net flows in 2016 compared with 2015 in mainly the Netherlands were more than offset by net outflows in the United Kingdom and AIFCM.
Assets under management
Assets under management decreased by EUR 14 billion in 2016 to EUR 332 billion compared with the start of 2016. Favorable market movements and net inflows in other third-party were more than offset by outflows in affiliates, due to a contract loss in the US, outflows in the general account, primarily resulting from the divestment of the majority of the annuity book in the United Kingdom, and unfavorable currency movements.
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, Hungary and Spain. It operates under three main brands:
In addition, Aegon Asset Management operates two key strategic partnerships:
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), TKP Investments 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 local operating entities may include oversight through independentnon-executive directors.
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 Board is supported by the Governance Risk & Compliance Committee and the Human Resources Committee, together with a Global Strategic Change Committee. Members of the Global
Board are appointed by Aegon 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 To ensure the continued independence of the fiduciary services offered by TKP Investments, the respective teams have, since January 1, 2018, reported to the global CEO of Aegon Asset Management.
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: affiliated companies, direct to institutional clients, independent investment advisors, investment consultants, joint ventures and third-party investment platforms.
Overview of business lines
Aegon Asset Management has three distinct business lines.
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’s general account derivatives book of Aegon the Netherlands.
The majority of third-party business sourced through affiliates 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 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.
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.
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 and Robeco.
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-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.
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 regulated by the Dutch Central Bank (DNB) as a financial holding company according to the Dutch Financial Supervision Act (Wft). 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.
Solvency II
Solvency II requirements became effective for Aegon Group as of January 1, 2016. TheEU-domiciled asset management activities are accounted for in the Group Solvency II calculation using the requirements set by the Capital Requirements Directives IV (CRD IV). NonEU-domiciled activities are accounted for using local capital requirements.
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., Kames Capital plc and TKP Investments B.V.) have decided in principle to pay external research costs by their own means.
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 writes mortgages in The Netherlands that are initiated using long-term insurance funds. Products are priced using a market-consistent framework, and comprehensive asset-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) 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, 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 guide 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 and the European Market Infrastructure Regulation (EMIR) derivative regulations has led in recent years to Aegon transitioning a significant proportion of formerlyover-the-counter positions to clearing houses. Collateral and margin requirements have also 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 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.
Transamerica 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 Program’ is a largely option-based semi-static hedge that provides protection for distributable earnings 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.
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. 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
Aegon has a range of ALM programs in place across life andnon-life businesses in the Central & Eastern Europe region. Across the CEE units, ALM focuses on asset-liability matching in terms of duration and liquidity.
Spain & Portugal
Aegon has a range of ALM programs in place in Spain & Portugal across life andnon-life businesses. 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
SARe uses a sophisticated dynamic hedge program to manage guarantee risk included in variable annuity products associated with equity markets and interest rates.
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. Regular calls are conducted with reinsurance partners to manage relationships. 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
Aegon UK uses reinsurance to both manage risk and maximize financial value through returns achieved and efficient capital management. 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 & 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 programs currently in force are property catastrophe excess of loss treaty and excess of loss treaties for other risks.
Spain & Portugal
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 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.
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. 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.
Asia: Aegon Insights
Aegon Insights’ traditional business model primarily creates value by reinsurance of the third-party carrier partner through an Aegon risk carrier, whereby risk-based premium is acquired for the Group. Aegon Insights acts as an independent marketing services provider. This enables it to form partnerships with local insurers, particularly in locations in which Aegon does not have a local presence.
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:
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.
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 is designed in line with the Committee of Sponsoring Organizations of the Treadway Commission (COSO) model. 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 and risk tolerance
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 tolerance for risk is established in order to assist management in carrying out Aegon’s strategy using the resources available to Aegon Group. Aegon has defined four areas where risk tolerance plays an important role:
Risk identification and risk assessment
Aegon has identified a risk universe that captures all known material risks to which the Company is exposed. An Emerging Risk process is in place to ensureon-going appropriateness of both the risk universe and the risk management framework. 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 maintainedup-to-date. The risk metrics are embedded in Aegon’s key reports and are used for decision making.
Risk response
Aegon distinguishes the following risk responses:
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 and theday-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 Annual Report (see risk factors in the ‘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).
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Most significant risks
The most significant risks Aegon faces are changes in:
Description of risk types
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 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.
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 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 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 ‘Critical accounting estimates and judgment in applying accounting 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 from personnel,non-compliance to laws and regulations, and natural orman-made disasters. 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.
Cyber risk
Cyber security 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, therefore play an important role in reducing risk by establishing security controls that safeguard data, technology and operations, as well as activities outsourced to third parties. Aegon prioritizes its commitment of significant resources to protect and continually strengthen its existing security control environment and preventative tooling to minimize impact and exposure as new cyber threats and exposures emerge. Comprehensive evaluations and scenario testing of security controls - including detection and response capabilities - are frequently performed by both internal and external experts, and resulting vulnerabilities require risk-based action plans that are reported, 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. Moreover, regular updates are provided to Aegon’s Supervisory Board. Aegon takes cybercrime very seriously, and wherever applicable applies available safeguards to assure investors and customers that data, technology and operations are adequately protected.
Conduct Risk
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. In 2017, Aegon created and updated several policies with a specific focus on conduct risks (e.g. update of the Pricing and Product Development Policy), and continued to strengthen the Group-wide oversight of conduct risks, including the piloting of a broader set of conduct risk tests to support the Aegon Market Conduct Principles.
Risk governance framework
Aegon’s risk management is based on clear, well-defined risk governance. The goals of risk governance are to:
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 immediate 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 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. The main roles and responsibilities of the SBRC are to assist and advice the Supervisory Board and the Audit Committee of the Supervisory Board in fulfilling their oversight responsibilities regarding the effective operation and appropriateness of the ERM framework and internal controls system of Aegon N.V., and its subsidiaries and affiliates that comprise the Aegon Group. These include:
Furthermore, the SBRC regularly reviews risk exposures relating to capital, earnings and compliance with Group Risk policies. 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.
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. 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, 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), the Non-
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 framework setting and maintenance across all group-level balance sheet bases, including policies, standards, guidelines, methodologies and assumptions.
The ERMAAC can seek advice on significant framework development from temporary working groups comprised of subject-matter experts from across the Company’s businesses. These working groups are established by the ERMAAC, including their membership, scope of work and deliverables.
The NFRC exchanges information onnon-financial risk matters and prepares decision making for the GRCC or relevant Board, in line with applicable governance requirements. The NFRC receives and reviews the regular reports from the regions onnon-financial risk exposure, including issues related to regulatory compliance and conduct.
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:
In the context of these roles, the following responsibilities can be distinguished:
Advising on risk-related matters
Supporting and facilitating
Challenging and monitoring
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 and Conduct Risk Management (OCRM) Framework, and is considered wider 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 is based.
The internal control system was developed in accordance with regulations that Aegon must comply with (i.e. Sarbanes-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 Solvency II and IFRS 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 2017, 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 and the Audit Committee of the Supervisory Board, and the Supervisory Board, according to their roles and responsibilities as outlined in the respective frameworks and charters. No material weaknesses was observed, and no significant changes or major improvements were made or planned to the risk management and internal control systems following from material weaknesses.
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 three lines of defense are its business and support functions, the risk management department, and the audit function. 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 - which includes the risk management department, including the operational and conduct risk management function - facilitates and oversees the effectiveness and integrity of ERM across the Company. The third line of defense - the audit function - provides independent assurance opinions on the effectiveness of the internal control, risk management and governance systems.
Risk management in 2017
Solvency II is used to both measure and aggregate risk, and to calculate Aegon’s Solvency Capital Requirement. Solvency II metrics are embedded in Aegon’s key reports and used for risk management purposes. In 2017, Aegon published its first Solvency and Financial Condition Reports (SFCRs). These were prepared in accordance with the requirements of the Solvency II Directive and Delegated Regulation and relevant European Insurance and Occupational Pensions Authority (EIOPA) Guidelines. These reports cover the year ended December 31, 2016, and inform Aegon’s stakeholders about Aegon’s business and performance, system of governance, risk profile, valuation for solvency purposes, and capital management. SFCRs were published within the Aegon Group by Aegon N.V. and by various life,non-life and reinsurance companies established within the EU.
In 2017, a number of management actions were taken, particularly with regard to strengthening the solvency position of the Dutch insurance entities. These actions included Group support through a capital injection, portfolio optimization and risk profile improvements. The latter includedde-risking the General Account and hedging. Furthermore, the Capital Management Policy was updated, with an enhanced focus on protecting capital generation. The target capitalization zone was lifted and widened in order to further strengthen the Company’s ability to absorb market volatility.
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:
Aegon believes that the combination of these guiding principles strengthen 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 financial strength, continuity, steering the risk balance and the desired risk culture. 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 adequate solvency capital, 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 capitalization 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, the Solvency II regulatory framework determines the regulatory capital requirements. In Aegon’sNon-EEA (European Economic Arena) regions, (re)insurance entities domiciled in third-countries deemed (provisionally) equivalent (US Life insurance entities, Bermuda, Japan, Mexico and Brazil), the capital requirement is based on local capital requirements.
Please note that numbers and ratios related to Solvency II as disclosed in this section represent Aegon’s estimates and are subject to supervisory review. After discussions with the DNB, Aegon resolved a number of outstanding methodological matters with respect to its partial internal model in 2017. Following agreement on the interpretation of the DNB’s guidance on the loss absorbing capacity of deferred taxes(LAC-DT), Aegon has applied aLAC-DT factor in the Netherlands of 75% as of December 31, 2017. TheLAC-DT factor will be recalibrated on a quarterly basis using the agreed methodology. 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.
Adequate capitalization
To calculate its Group Solvency Ratio, Aegon applies a combination of the Group consolidation methods available under Solvency II which are 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. On August 8, 2017, Aegon received a confirmation from the Dutch Central Bank (DNB) to apply a revised method in calculating the Solvency II contribution of the Aegon US Insurance entities under Deduction & Aggregation (D&A), affecting Aegon’s tiering of capital, retrospectively as of the second quarter of 2017. It includes lowering the conversion factor from 250% to 150% Risk-Based Capital Company Action Level and reducing own funds by a 100% RBC Company Action Level requirement to reflect transferability restrictions. The methodology is subject to annual review. Under the new methodology, a 100% RBC CAL haircut is applied to own funds by decreasing Americas regulated entities deferred tax assets and subsequently reducing Tier 1 unrestricted capital. The allocation of restricted Tier 1 and Tier 2 capital instruments is based on the share of AC and D&A entities in the total available own funds (OF), instead of the total Solvency Capital Requirement (SCR) under the previous methodology. This methodology is consistent with EIOPA’s guidance on group solvency calculation in the context of equivalence, and in line with methods applied by other
European peer companies. As a consequence, this adjustment improves the comparability to capital positions of European insurance groups with substantial insurance activities in the US. The impact on Available Own Funds in 2016 is included in the table in the Capital quality section below. Aegon will manage its available capital on the new basis. Aegon Bank is excluded
from the Group Solvency ratio, as required by the Group Solvency II supervisor, the DNB.
As at December 31, 2017, Aegon’s estimated capital position was:
December 31, 2017 1), 3), 4), 5), 6) | December 31, 2016 2), 4), 5) | December 31, 2016 4), 5), 7) | ||||||
Group own funds | 15,628 | 15,957 | 18,119 | |||||
Group SCR | 7,774 | 9,401 | 11,563 | |||||
Group Solvency II ratio | 201% | 170% | 157% |
Aegon Group OF amounted to EUR 15,628 million on December 31, 2017 (2016: EUR 18,119 million). The decrease of EUR 2,491 million in OF since December 31, 2016, is mostly driven by the change in the treatment of the US insurance entities within Solvency II. This methodology change reduced the Group OF by EUR 2,162 million. Aside from this methodology change, during 2017, normalized capital generation by Aegon’s operating units was more than offset by the impact of the weakening of the US dollar against the euro, final dividend for 2016 and interim dividend for 2017 to shareholders and offsetting impacts from market movements, the divestment of the USrun-off business, the acquisition of Cofunds and the impact of the US tax reform.
Aegon Group Partial Internal Model (PIM) SCR amounted to EUR 7,774 million on December 31, 2017 (2016: EUR 11,563 million). The SCR decreased by EUR 2,162 million as a result of a change in the treatment of US insurance entities within Solvency II. Aside from this, the SCR was reduced by EUR 1,627 million driven by a weakening of the US dollar against the euro, the implementation of approved major model
changes to Aegon’s PIM, positive market movements and management actions, including the divestment of the majority of the USrun-off business, the divestment of the vast majority of UK annuity book and the divestment of UMG and separate account derisking in Aegon the Netherlands.
The Group Solvency II ratio improved by 44% to 201% in 2017. The transition to the new conversion methodology for the US under Solvency II had an impact of 13%. The solvency ratio increased by another 31% as a result of normalized capital generation, the implementation of approved major model changes to Aegon’s PIM and management actions including the divestment of the majority of the USrun-off businesses, the divestment of the UK annuity book, and the divestment of UMG and separate account derisking in Aegon the Netherlands. The increase in solvency ratio was partly offset by the impact of the external dividend and the US tax reform.
The capitalization levels of the most relevant country units are as follows:
Capitalization December 31, 2017 1), 2) | Capitalization December 31, 2016 2), 3) | |||
Aegon USA (Life entities) (RBC CAL) | 472% | 440% | ||
Aegon the Netherlands (Solvency II ratio) | 199% | 134% | ||
Aegon United Kingdom (Solvency II ratio) | 176% | 156% |
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 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 CAL risk-based capital requirement. This is the regulatory intervention level at which a company has to submit a 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 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. At the end of 2017, the combined risk-based capital ratio of Aegon’s life insurance subsidiaries in the United States was estimated to be 472% of the CAL risk-based capital requirement. As of January
1, 2016, 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 SCR equivalent for including the US life insurance and reinsurance entities into the Group solvency calculation. 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, 2017, is estimated to be 199% (2016: 163%). 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 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, but does not include the use of any transitional measures. 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 Bank18, on December 31, 2017, is estimated to be 199% (2016: 134%). This increase mainly reflects a capital injection from Aegon Group of EUR 1 billion, the sale of UMG, positive market impacts, and model adjustments approved by the DNB, which mainly related to adjusting the calculation of spread risk. These benefits were partly offset by higher capital requirements from an ongoing program of increasing the share of illiquid investments on the balance sheet of Aegon the Netherlands. The solvency position of the banking activities are calculated using the CRR/CRD IV framework. As at December 31, 2017, the factor of LAC DT is set at 75%, unchanged from 2016. 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, 2017, is estimated to be 176% (2016: 156%). This increase mainly reflects positive market impacts, the divestment of the vast majority of the annuity book, and model adjustments approved by the PRA, which related to operational and currency risk being included in the internal model,
Sensitivities
Aegon calculates sensitivities of its Solvency II ratios as part of its risk management framework. The following table provides an overview of the shocks to parameters used to assess the sensitivities, and their estimated impact on the Solvency II ratio as at December 31, 2017:
Scenario | Group | US | NL | UK | ||||||||||||||||||||||||||||||||
December 31, 2017 | December 31, 2016 | December 31, 2017 | December 31, 2016 | December 31, 2017 | December 31, 2016 | December 31, 2017 | December 31, 2016 | |||||||||||||||||||||||||||||
Equity markets | +20% | +10% | (1% | ) | +17% | (2% | ) | +5% | +2% | (10% | ) | 0% | ||||||||||||||||||||||||
Equity markets | (20% | ) | (5% | ) | (6% | ) | (10% | ) | (7% | ) | (5% | ) | (4% | ) | +12% | 0% | ||||||||||||||||||||
Interest rates | +100 bps | +12% | +2% | +12% | (6% | ) | +8% | +11% | +12% | +16% | ||||||||||||||||||||||||||
Interest rates | -100 bps | (16% | ) | (18% | ) | (21% | ) | (12% | ) | (11% | ) | (15% | ) | (16% | ) | (20% | ) | |||||||||||||||||||
Credit spreads1) | +100 bps | (2% | ) | +2% | 0% | 0% | (2% | ) | +6% | +13% | +17% | |||||||||||||||||||||||||
US credit defaults2) | ~+200 bps | (23% | ) | (17% | ) | (53% | ) | (22% | ) | - | - | - | - | |||||||||||||||||||||||
Ultimate Forward Rate | -50 bps | (4% | ) | (4% | ) | - | - | (12% | ) | (13% | ) | - | - | |||||||||||||||||||||||
Longevity shock | +5% | (10% | ) | (7% | ) | (9% | ) | (2% | ) | (12% | ) | (13% | ) | (3% | ) | (4% | ) | |||||||||||||||||||
NL loss absorbency of taxes factor | -25%pts | (6% | ) | (3% | ) | - | - | (11% | ) | (8% | ) | - | - |
Aegon is mainly exposed to movements in equity, interest rates, credit spreads and defaults/migrations, and longevity. The Group is exposed to losses in the downward equity scenario, which is driven by Aegon Americas and Aegon the Netherlands. This is partially offset by hedging gains in Aegon UK. In the US, the sensitivity to equities rising changed due an updated hedging strategy. The Group and its main operating units entities are exposed to a decrease in interest rates. The sensitivity towards lower interest rates is mainly caused by higher SCRs in NL and UK, and lower OF in the US due to additional reserves. Aegon the Netherlands and Aegon UK move in opposite directions with the widening of credit spreads. Aegon the Netherlands sees an
increase in SCR that drives the decrease in solvency ratio for the Group. This is partially offset by Aegon UK, where
liabilities reduce driven by the IAS 19 discount rate. In the US, the credit defaults reduce OF, decreasing the solvency position. Lower mortality rates (longevity) increase the longevity exposed liabilities. The higher liability values decrease OF in US and NL, as longevity is only partially hedged, and increase the SCR.
Rating agency ratings
Aegon’s objective is to maintain a very strong financial strength rating in its main operating units, and this plays an important role in determining the Company’s overall capital management strategy. Aegon maintains strong financial strength ratings from leading international rating agencies for its main operating units, and a strong credit rating for Aegon N.V..
Regular SB meeting | Audit Committee | Risk Committee | Combined Audit & Risk Committee | Remuneration Committee | Nomination & Governance Committee | Additional SB mtgs. /calls | Additional Nomination & Governance Committee calls | ||||||||||||||||||||||
William Connelly | 7/7 | - | - | - | 5/5 | 5/5 | 5/5 | ||||||||||||||||||||||
| 7/7 | 2/2 | 3/3 | 2/2 | - | ||||||||||||||||||||||||
| 2/2 | 5/5 | - | ||||||||||||||||||||||||||
| - | 2/3 | 2/2 | 5/5 | - | 5/5 | - | ||||||||||||||||||||||
Caroline Ramsay1) | 4/4 | 2/2 | 2/2 | 1/1 | - | - | |||||||||||||||||||||||
| 3/3 | - | |||||||||||||||||||||||||||
Ben van der Veer1) | 3/3 | 2/2 | - | 1/1 | - | 3/3 | 2/2 | 1/1 | |||||||||||||||||||||
| 2/2 | - | 1/1 | 2/2 | - | 3/3 | - | ||||||||||||||||||||||
Corien Wortmann | 7/7 | 4/4 | - | ||||||||||||||||||||||||||
| 2/2 | - | 5/5 | 5/5 | 1/1 | ||||||||||||||||||||||||
Dona Young | 7/7 | 4/4 | 3/3 | 2/2 | - | 5/5 | |||||||||||||||||||||||
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1 | Where a Supervisory Board member retired from the SB, stepped down from a Committee or was appointed during the year, only meetings during his / her tenure are taken into account. |
2 | Outstanding compensation for 4Q2019 has been paid out in 1Q2020. Outstanding compensation for 4Q2020 will be paid out in 1Q2021. |
Internal capital management framework
In managingBased on the capital adequacyagenda topics, members of the GroupExecutive Board and Management Board attended the Supervisory Board meetings held in 2020. Also, at the request of the Supervisory Board, other Company executives attended the meetings to provide reports and updates on specific topics. Representatives from Aegon’s external auditor PwC attended the March 2020 Supervisory Board meeting on Aegon’s 2019 Annual Report. PwC also attended all 2020 Audit Committee meetings including the combined Supervisory Board Audit and Risk Committee meetings. Regular Board meetings were preceded or followed by meetings attended only by the members of the Supervisory Board and the Chief Executive Officer. Furthermore, the Supervisory Board held meetings without Executive Board or Management Board members present.
Highlights and activities
Key topics discussed during the 2020 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, human resources items and the COVID-19 developments.
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 2021 meeting in the presence of the external auditor PwC. The Budget/Medium Term Plan 2021-2023 was discussed in November 2020 and approved ahead of the Capital Markets Day, December 10, 2020.
The Supervisory Board regularly discussed the long-term value creation strategy and transformation 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 units, Aegon’s capitalsegments. Furthermore, narrowing the strategic focus to selected core and growth markets was an additional important strategic priority that was 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 framework is built on, among other things, managing capitalizations towards targetof the business portfolio with acquisitions, the sale of underperforming businesses and the disposals of entities no longer consistent
capital management zones. Under Aegon’s capital management framework, the most relevant target capitalization zones are as follows:
Aegon Annual Report on Form 20-F 2020 |
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with Aegon’s strategy. During the year, the Board discussed various M&A and balance sheet transactions, including but not limited to the expansion of the life and non-life insurance partnership in Spain and the sale of the UK-based provider of accident insurance products, Stonebridge and the announced sale of the insurance, pension and asset management business in Hungary, Poland, Romania, and Turkey.
In 2020, Supervisory Board discussions included the following topics:
◆ | COVID-19 developments |
◆ | Strategy, including Aegon’s long-term value creation based on the three core markets, three growth markets and one global asset manager, its responsible business strategy and business reviews; |
◆ | Acquisitions, divestments and the strategic direction of Aegon’s businesses; |
◆ | Executive Board and senior management succession planning; |
◆ | Executive remuneration, including the remuneration framework; |
◆ | Composition of the Supervisory Board, including the Board’s effectiveness; |
◆ | Corporate Governance; |
◆ | Human resources, including talent development, results of the global employee survey and cultural change and behavior; |
◆ | Annual and quarterly results, dividends and the Company’s Medium Term Plan, including the 2021 budget, capital and funding plan; |
◆ | Capital generation and Solvency II |
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◆ | 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, IT Security, technological developments, and innovations. |
Results and budget
In February 2020, the Supervisory Board convened to discuss the fourth quarter 2019 results. In March 2020, the Supervisory Board reviewed and adopted Aegon’s 2019 Annual Report, the Consolidated Financial Statements of Aegon N.V., and the Financial Statements of Aegon N.V.. In May, August and November, the Supervisory Board reviewed Aegon’s first, second and third quarter 2020 results respectively.
In November 2020, the Supervisory Board and Management Board reviewed the Company’s Medium Term Plan, including the budget and capital plan for 2021. The Boards took note of the uncertainties and challenges in the coming years as described in the Plan. These included, among others: COVID-19 developments, increased regulatory requirements, lower interest rates, market volatility and equity markets, digital developments, and execution risk. The Board discussed Aegon’s capital generation and capital projections, together with the continued focus on cost efficiency. The Supervisory Board supported the Medium Term Plan and approved the Budget for 2021. The Board also approved the 2021 Funding Plan and authorized the Executive Board to execute on the Funding Plan in 2021.
Legal, compliance and regulatory affairs
In 2020, 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 General Counsel, the Global Head of Compliance and the Global Head of Operational and Conduct Risk Management. In particular, the Board discussed the state of the Legal and Compliance functions, General Data Protection Regulation developments, Compliance risks, Fraud and Financial crime including know your customer and ultimate beneficial owner requirements, anti money laundering standards and 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.
In December 2020, the Chairs of the Supervisory Board, Audit Committee and Risk Committee visited the group supervisor, the Dutch Central Bank (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 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 provided 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. Furthermore, the Board was updated on the IFRS 9 developments and participated in an IFRS 17 educational session.
Board review
The Supervisory Board undertakes a Board effectiveness review on an annual basis and an external assessment takes place at least once every three years. The 2020 (internal) assessment was based on a survey completed by Supervisory Board members and Management Board members, as well as interviews with all Supervisory Board members. The Board review assessed
Aegon Annual Report on Form 20-F 2020 |
Report of the Supervisory Board61 | ||
the functioning of the Board as a whole, the composition, processes and information, the functioning of the Committees and the interaction within the Board and with the Executive and Management Board. The results of the assessment were discussed in February 2021, and the Supervisory Board will act 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 Board and Management Board over the preceding calendar year in February 2021. In addition, the Executive Board evaluated its own functioning as a whole and that of the individual Executive Board members as well. The performance of the members of the Executive and Management Boards was also discussed regularly during the year. During these reviews, the Executive Board and the Supervisory Board also identified areas for which Board members - or the Board as a whole - could require training or education.
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:
◆ | Audit Committee; |
◆ | Risk Committee; |
◆ | 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, 2020, the composition of the Audit Committee was as follows:
◆ | Caroline Ramsay (Chair); |
◆ | Thomas Wellauer; |
◆ | Corien M. Wortmann-Kool; and |
◆ | Dona D. Young. |
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 Rule 10A-3 of the SEC, and it also confirmed that the Chair of the Audit Committee, Caroline Ramsay, qualified as a financial expert according to the Sarbanes-Oxley Act in the United States and her competence in accounting and auditing according to the Audit Committee Decree 2016 (‘Besluitinstellingauditcommissie’), section 2(3).
Role and responsibilities
As Aegon has both an Audit Committee and a Risk Committee, the risk management responsibilities outlined 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. |
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 https://aegon.com/contentassets/d837 d12c114040a2aab5bbde9e340d5e/aegon-supervisory-board-audit-committee-charter-2020.pdf.
Committee meetings
In 2020, the Audit Committee held six meetings, which included two combined meetings with the Risk Committee of the Supervisory Board in May and December 2020. Audit Committee meetings were attended by, amongst others, 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.
Aegon Annual Report on Form 20-F 2020 |
Report of the Supervisory Board62 | ||
Members of Aegon’s Group Risk, Group Legal, Group 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 2020 interim and full year financial statements, the Audit Committee:
◆ | Reviewed and discussed the management letter and follow up actions with the Executive and the Management Board, Internal Audit and PwC; |
Discussed PwC’s interim reports leading to a review opinion on the |
◆ | Received presentations on various topics by local business unit managers and chief financial officers; |
◆ | Reviewed and discussed areas of significant judgments in the preparation of the financial statements, including, in particular: Solvency II, investment valuation and impairments, accounting changes, economic and actuarial assumption setting, and model validations; and |
◆ | Reviewed and approved the internal and external audit plans for 2020 and monitored execution, including progress in respect of recommendations made. |
The Audit Committee was satisfied with the explanations provided by the Executive and Management Board, Internal Audit and PwC, and conclusions reached. Recurring items on the Audit Committee agenda in 2020 were Solvency II developments, controls, capital and liquidity, legal and compliance updates, and preparations for IFRS 9 and IFRS 17. Other items included tax updates, capital and funding plans and the performance review of the internal audit function and external auditor.
Risk management and internal controls
With respect to their oversight of internal controls (other than those where oversight is carried out via the Risk Committee), the Audit Committee:
◆ | 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 2020 included the Internal Audit strategy, audit planning process, Internal Audit charter, Internal Audit functional governance, quality assurance reviews, issue tracking and resolution, control environment, Information Security, Solvency II, third party management and administration partnerships, General Data Protection Regulation, performance management and integrity; |
◆ | Reviewed the internal control framework, among others with respect to the Sarbanes-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 2020. In addition, the Supervisory Board followed the recommendation of the Audit Committee to propose to the shareholder, during the Annual General Meeting on June 3, 2021, to re-appoint the external Auditor for the period 2021-2023. 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 Annexes A, B and C of the Audit Committee Charter on https://aegon.com/contentassets/d837d12c114040a2aab5bbde9e340d5e/aegon-supervisory-board-audit-committee-charter-2020.pdf.
The Risk Committee
Composition
On December 31, 2020, the composition of the Risk Committee was as follows:
◆ | Dona D. Young (Chair); |
◆ | Mark A. Ellman; |
◆ | Ben J. Noteboom; and |
◆ | Caroline Ramsay. |
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 assessment; |
◆ | Risk responses and internal control effectiveness; |
◆ | Risk monitoring; and |
◆ | Risk reporting. |
Furthermore, the Risk Committee regularly reviews risk exposures as they relate to capital, earnings, liquidity, operations, and compliance with risk policies. The Company’s risk management is an important topic for the Supervisory Board, and the challenge and oversight role of the Risk Committee was particularly important this year in light of the exceptional disruptive circumstances due to Brexit and the COVID-19 pandemic.
Aegon Annual Report on Form 20-F 2020 |
Report of the Supervisory Board63 | ||
For more information about the functioning of the Risk Committee, please see the Risk Committee Charter on https://aegon.com/contentassets/ f8c52ba9146b4f3789f992efb84a6750/aegon-supervisory-board-risk-committee-charter-2020.pdf.
Committee meetings
The Risk Committee works closely together with the Audit Committee and held two combined meetings, one in May and one in December 2020. The combined meetings focused on the systems of governance, third party & affiliate management, the Model Validation Plan, and IT Security.
The Risk Committee convened five times in 2020, including the combined meetings with the Audit Committee.
The Company’s Chief Executive Officer and Chief Risk Officer attended all the Committee meetings. The Chief Financial Officer had a standing invitation to attend the Committee meetings. The Chair of the Risk Committee granted the Global Chief Audit Executive a standing invitation to all the Risk Committee meetings. Other Management Board members and senior managers attended the meetings when relevant for the discussion.
Risk management and Internal controls
Recurring items on the Risk Committee agenda in 2020 were risk exposure information, risk policy compliance monitoring, risks associated with IT and information security, as well as risks associated with the pandemic and strategic 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 2020 by:
◆ | Discussing the quarterly risk dashboard, including all material group level risks, with the Executive Board, Chief Risk Officer, and relevant senior managers. The material group level risks consisted of financial, actuarial, and operational risks, including cybersecurity and information security risk. Specific attention was paid to the Compliance and Control roadmap of Aegon the Netherlands; |
◆ | Assessing a quarterly 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. A deep-dive was scheduled on the US programs; |
◆ | 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, including the DNB Focus! report and actions in the context of Recovery and Resolution regulation. The Risk Committee furthermore spent time on the market risk impact on the annual budget plan, reinsurance developments, updates on the IT security roadmap, the IT Risk Management
Framework, the assessment of the performance improvement program, 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 the financial markets in 2020 due to the COVID-19 pandemic, and to a number of important asset and liability management and hedging topics across the Group. The Risk Committee noted that the risk framework and the organization adapted well to evolving COVID-19 developments.
The Nomination and Governance Committee
Composition
On December 31, 2020, the composition of the Nomination and Governance Committee was as follows:
◆ | William L. Connelly (Chair); |
◆ | Mark Ellman; |
◆ | Corien M. Wortmann-Kool; and |
◆ | Dona D. Young. |
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 the appointment of 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 |
Committee meetings
Aegon’s Nomination and Governance Committee held six meetings in 2020. 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 senior management team developments and governance matters and structures. The Committee thereby paused on the internal board structures in Aegon’s material business units.
Aegon Annual Report on Form 20-F 2020 |
Report of the Supervisory Board64 | ||
The frequent monitoringNomination and Governance Committee also reviewed the important outside board positions of actualthe members of the Management and forecast capitalizationSupervisory Boards 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. The profiles of Supervisory Board members, as well as their capabilities also in terms of working collectively with other members of the Supervisory Board, were debated by the Committee. The existing and impending vacancies in the Supervisory Board were discussed (whereby it was considered important to enhance financial and Solvency II expertise) and resulted in (i) the appointment of Ms. Caroline Ramsay and Mr. Thomas Wellauer at the Annual Shareholder meeting of May 15, 2020 and (ii) the nomination of Mr. Jack McGarry and Mr. Frans Blom for appointment at the Annual Shareholder meeting on June 3, 2021.
A Supervisory Board Competency overview is published on aegon.com.
Executive and Management Board related activities
During 2020, the Nomination and Governance Committee discussed the CFO (re)appointment, reviewed the composition of the Management Board and was informed - and consulted on - the succession of Management Board vacancies, and on certain appointments of key management..
The Committee was also kept apprised of major organizational changes, developments in employee engagement, talent management and international mobility. The Supervisory Board was also informed about the annual Global Employee Survey, which was conducted at the end of 2020. The Supervisory Board discussed the outcome of this survey in detail in the first quarter of 2021.
Diversity
Enhancing diversity in the Executive, Management and Supervisory Boards 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 Boards. The purpose of the diversity policy is to have a more balanced and diverse composition of the Supervisory Board, the 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 and male representation in the Supervisory Board, the Executive Board and the Management Board.
In the current Supervisory Board composition, there are three female members out of seven members in total (meeting the recent target under Dutch law that at least 30% of the positions should be filled by women and at least 30% by men). For the Executive Board and Management Board such balanced gender composition has not been met.
When identifying candidates for open positions in the Executive and Supervisory Boards, the Committee actively searches for female candidates. It also instructs external search firms to present female candidates. 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, 2020, the composition of the Remuneration Committee was as follows:
◆ | Ben J. Noteboom (Chair); |
◆ | William L. Connelly; and |
◆ | Thomas Wellauer. |
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 Supervisory 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 considering 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 interests 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; and |
◆ | Preparing the information provided to shareholders on remuneration policies and practices, including the Remuneration Report. |
Aegon Annual Report on Form 20-F 2020 |
Report of the Supervisory Board65 | ||
Committee meetings
The Remuneration Committee had five meetings in 2020. 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 2020, the Remuneration Committee concluded on 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. These amended policies were adopted by the shareholders on the Annual General Meeting on May 15, 2020.
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 Material Risk Takers (Identified Staff). The above included:
◆ | Setting the outcome of the 2019 Group Performance Indicators and of the 2019 Individual Performance Indicators for Executive Board members, and allocating variable compensation related to 2019 where required; |
◆ | Setting the 2020 Individual Performance Indicators for Executive Board members; |
◆ | Setting the 2020 Group Performance Indicators and targets for remuneration purposes; |
◆ | Preparing for the 2021 performance indicators; |
◆ | Reviewing and/or approving the ex-ante risk assessments and ex-post assessments, any exemption requests under the remuneration policies and changes to the list of Material Risk Takers (Identified Staff); |
◆ | Addressing the impact of COVID-19 on targets and variable compensation; and |
◆ | Reviewing the related Remuneration Report. |
In addition, the Remuneration Committee discussed developments with respect to possible new regulations pertaining to remuneration.
Annual Accounts
This Annual Report includes the Annual Accounts for 2020, 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 2021 Annual General Meeting of Shareholders for adoption. The Supervisory Board recommends that shareholders adopt the annual accounts.
Acknowledgement
The members of the Supervisory Board would like to reiterate their appreciation for the dedication shown by the Executive Board, management, and all employees to Aegon and its customers during this unprecedented and challenging year.
The Hague, the Netherlands, March 17, 2021
William L. Connelly
Chairman of the Supervisory Board of Aegon N.V.
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report66 | ||
The 2020 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 Mr. Ben J. Noteboom, and was approved by the Supervisory Board. In the first chapter, the Remuneration Committee presents an overview of the business and remuneration highlights in 2020 and a look ahead to 2021. 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 2020 Supervisory Board Remuneration Report, which contains a summary of the Supervisory Board Remuneration Policy that applied to 2020 and the Supervisory Board remuneration over the recent years. In chapter four, the 2020 Executive Board Remuneration Report provides a summary of the Executive Board Remuneration Policy that was applicable in 2020, the Executive Board remuneration over the recent years and the 2021 Executive Board performance indicators.
1. Business and remuneration highlights
This chapter presents an overview of the business and remuneration highlights in 2020 and a look ahead to 2021.
2020 Business highlights
In 2020, Aegon introduced its new strategy and put in place a set of measures and new financial targets aimed at increasing value for all our stakeholders. This approach seeks to change Aegon’s performance trajectory over the coming years, improving
our business by reducing costs, and expanding margins and growing profitability. The first concrete steps to deliver on our plans were taken, such as the announcements to divest Stonebridge and our operations in Central & Eastern Europe, and restructuring our businesses in India, Hong Kong, and Singapore. Aegon also took measures to strengthen the balance sheet resulting in the capital ratios of its three main business units ending the year above their respective operating levels. (For a more detailed update, please see the ‘Letter from our CEO’ and the ‘Letter of Supervisory Board Chairman’ in this 2020 Annual Report on Form 20-F.)
In terms of business performance, 2020 was a challenging year. Aegon’s Return on Equity decreased in 2020 due to lower results in the Americas. This was largely due to the direct and indirect effects of the COVID-19 pandemic, namely adverse mortality and lower interest rates. These drivers also caused the Normalized Capital Generation for 2020 to decrease compared to 2019. Fees and Premium based Revenues in 2020 were broadly stable compared to 2019, as the positive impact from higher equity markets on fees was partly offset by outflows in lines of business such as Variable Annuities and Retirement Plans in the Americas. Market Consistent Value of New Business in 2020 decreased primarily due to the impact of lower interest rates on Variable Annuities in the Americas. Lower sales driven by the pandemic were also a contributing factor. The Relational Net Promoter Score increased by one point to 18 due to our NPS improvement plans and administration partnerships with third parties which increased service levels.
Business performance highlights | 2020 | 2019 | ||||||
Return on Equity (in %) | 8.5% | 9.5% | ||||||
Fees and Premium based Revenues (in EUR million) | 4,811 | 4,787 | ||||||
Normalized Capital Generation (in EUR million) | 1,340 | 1,569 | ||||||
Market Consistent Value of New Business (in EUR million) | 262 | 465 | ||||||
Relational Net Promoter Score | 18 | 17 |
In 2020 Aegon’s Supervisory Board consisted of the following members: Mr. William L. Connelly (Chairman), Ms. Corien M. Wortmann-Kool (Vice Chairman), Ms. Dona D. Young, Mr. Mark A. Ellman, Mr. Ben J. Noteboom, Mr. Ben van der Veer (until May 15, 2020), Mr. Thomas Wellauer (per May 15, 2020) and Ms. Caroline Ramsay (per May 15, 2020). At the Annual General Meeting of Shareholders on May 15, 2020 shareholders approved the appointment of Mr. Wellauer and Ms. Ramsay, while at the closure of the meeting the term of Mr. Van der Veer ended. During the Annual General Meeting of Shareholders on June 3, 2021, the Supervisory Board will propose to appoint Mr. Jack
McGarry and Mr. Frans Blom as members to the Supervisory Board for a term of four years as of June 3, 2021.
Aegon’s Executive Board consisted of the Chief Executive Officer, who served as Chairman, and the Chief Financial Officer in 2020: Mr. Alexander R. Wynaendts was the Chief Executive Officer from the beginning of 2020 until he was succeeded by Mr. Lard Friese after he was appointed to the Executive Board at the Annual General Meeting of Shareholders on May 15, 2020. Mr. Matthew J. Rider was the Chief Financial Officer and a member of the Executive Board during the full 2020 calendar year.
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report67 | ||
He was appointed as 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. During the Annual General Meeting of Shareholders on June 3, 2021, the Supervisory Board will propose to reappoint Mr. Rider as member to the Executive Board for a term of four years as of June 3, 2021.
Aegon’s Executive Board is assisted in its work by the Aegon’s Management Board, which has 12 members, including the members of the Executive Board. In 2020, Aegon’s Management Board was composed of Mr. Alex R. Wynaendts (until May 15, 2020), Mr. Lard Friese (per May 15, 2020), Mr. Matthew J. Rider, Mr. Mark Bloom, Mr. Mark Mullin, Mr. Marco Keim, Mr. Maarten Edixhoven, Mr. Adrian Grace (until March 31, 2020), Mr. Mike Holliday-Williams (per April 1, 2020), Mr. Bas NieuweWeme, Ms. Allegra van Hövell-Patrizi, Mr. Onno van Klinken, Ms. Carla Mahieu and Mr. Duncan Russell (per September 1, 2020).
2020 Remuneration highlights
Aegon’s shareholders adopted the Supervisory Board Remuneration Policy and the Executive Board Remuneration Policy at the Annual General Meeting of Shareholders on May 15, 2020 with 98.98% and 83.57% of the votes cast respectively. Both policies were amended to comply with the then new Dutch Act which implemented the European Shareholder Rights Directive, to increase the transparency, and to better substantiate the rationale for the design of the policies. Based on this new Act, both policies also required a qualified majority of 75% of the votes cast. After adoption, both policies came into force retroactively as of January 1, 2020.
The amendment to the Supervisory Board Remuneration Policy did not include any changes to the remuneration structure or fee levels for members of the Supervisory Board. It did add the option for the Supervisory Board to annually index the fees for economic developments in the Netherlands.
Compared to the previous Executive Board Remuneration Policy, the new policy increased the alignment of the Executive Board remuneration with the long-term interest of Aegon. The policy also took into account feedback received on Aegon’s previous Remuneration Policy and embedded new remuneration rules, such as:
◆ | Increasing the portion of variable compensation which is paid in Aegon shares from 50% to 66.66%. |
◆ | Simplifying the pay-out of variable compensation to consist of one upfront cash portion of 33.33% and one share portion of 66.66% which is deferred for 3 years (i.e. cliff-vesting, instead of previous practice of vesting in tranches). After vesting, the shares will be subject to an additional 2-year holding period. This increases the average period during which the allocated shares are restricted from 4.2 years to 5 years. |
◆ | Basing variable compensation on a mix of performance indicators which are measured either on a 1-year or a 3-year performance horizon, instead of a 1-year performance horizon only. |
◆ | Including performance indicators, such as Relative Total Shareholder Return and ESG (Environmental, Social, and Governance), both of which are relevant for Aegon, its shareholders, and other stakeholders. |
At the same Annual General Meeting, shareholders were asked to cast an advisory vote on the Remuneration Report for the first time. The 2019 Remuneration Report was approved with 83.79% of the votes cast. After the vote, Aegon collected feedback from several large shareholders to further improve the quality of the Remuneration Report. Based on this feedback, the Supervisory Board made a few changes to this remuneration highlight section, and disclosed more information on the calculation of variable compensation for the Executive Board in chapter four.
Aegon assessed its performance against the 2020 targets that were set prior to the COVID-19 crisis, and no changes to the rules for calculating variable compensation were made as a consequence of it. Aegon believes its mechanism for calculating variable compensation works properly, both in good and in challenging times, so no additional measures were needed. Due to the economic impact of COVID-19, most of the variable compensation that was allocated for 2020 has been lower compared to previous years, including that for the Executive Board members. Aegon also initiated a financial soundness risk assessment in relation to variable compensation which was awarded in previous years (for performance in 2016-2019),and was scheduled to be paid-out in 2020. After reviewing the assessment, the Supervisory Board concluded that payment of these awards would not materially impact the financial soundness of Aegon, and therefore approved the payment thereof.
In 2020 Aegon paid out EUR 167 million in variable compensation and 23 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 2020). These employees worked for Aegon’s Corporate Center, Aegon Americas, Aegon UK and Aegon Asset Management.
The Executive Board members did not receive a salary increase during 2020. For the period during which the individual served as Executive Board member in 2020, Mr. Friese received EUR 931,071 in fixed compensation (ca. 7.5 months), Mr. Wynaendts received EUR 495,931 (ca. 4.5 months) and Mr. Rider received EUR 940,950 (full year). For that same period, Mr. Friese was allocated EUR 2.0 million in total compensation, Mr. Wynaendts EUR 1.2 million (2019: EUR 3.9 million for the full year) and Mr. Rider EUR 2.0 million (2019: 2.1 million). In addition, Mr. Friese received a sign-on arrangement of EUR 1.23 million when he joined Aegon in March 2020, of which 50% is in cash and 50% in shares. Of this amount 55% has been paid in 2020.
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report68 | ||
The remainder will be paid in later years subject to continued employment (20% in 2021, 14% in 2022, 9% in 2023 and 3% in 2024). The sign-on arrangement was offered for a combination of reasons, including the market value of Mr. Friese, making the transfer from a direct competitor to Aegon more attractive and compensation for loss of income during the transfer period.
The 2020 CEO pay ratio was 32.2 (2019: 32.8, 2018: 42.2). This ratio was based on the annualized IFRS-EU remuneration expenses for Mr. Friese and employee expenses in 2020, which have been audited. The annualized annual expenses for Mr. Friese’s total compensation were EUR 3.5 million, including EUR 0.9 million for the sign-on arrangement (2019: EUR 3.8 million, 2018: EUR 4.4 million, both for Mr. Wynaendts). The average expenses for the employees’ total compensation were EUR 109,855 (2019: EUR 115,371, 2018: EUR 104,459), 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 1,995 million – EUR 3.5 million = EUR 1,991 million. |
◆ | Divided by the number of employees in scope, which are the total number of employees minus employees in joint ventures and associates (as their expenses are not included in Note 14) and minus the CEO: 22,322 – 4,193 – 1 = 18,128 employees. |
The Remuneration Committee took note that certain factors have influenced the CEO pay ratio, such as the compensation and sign-on package of the new CEO, lower pay-out of variable compensation to employees in 2020, the change to a defined contribution pension plan in the Netherlands per 2020 (was defined benefit) and significant differences in the geographical footprint of the Aegon’s employee population, leading to a slight decrease compared to last year.
Looking ahead to 2021
At the Annual General Meeting of Shareholders on June 3, 2021, Aegon will ask its shareholders to approve the reappointment of Mr. Rider to the Executive Board and cast an advisory vote on this Remuneration Report.
Mr. Rider’s fixed compensation will be increased by 5% per June 2021 (from EUR 940,950 to EUR 987,998), if shareholders approve his reappointment. His last increase was two years ago (2.5% per June 2019). The increase will keep Mr. Rider aligned with internal and external compensation levels, economic developments (e.g. inflation) and changes to the compensation levels of bothother senior managers within Europe and in the Netherlands. There are no other changes foreseen to the compensation packages of Mr. Friese and Mr. Rider in 2021.
Aegon will monitor the development of rules, regulations and guidance that could affect our remuneration policies. This includes the intended changes to the Dutch Financial Supervision Act, and the finalization of the European Committee’s 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’s Global Remuneration Framework (GRF) outlines 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 bothHuman Resources Strategy, the Aegon Group Remuneration Principles and the Aegon Group Remuneration Guidelines, which apply to all Aegon employees, including the Executive Board members. 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.
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 employees across the various countries and local businesses. All steps in the remuneration process are governed by the GRF and its operating units.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 within the Group:
◆ | Aegon remuneration is employee-oriented by fostering a sense of value and appreciation in each individual employee; promoting the short- 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 Annual Report on Form 20-F 2020 |
Remuneration Report69 | ||
◆ | 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 for non-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 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 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. |
Total compensation
Following from the Remuneration Principles, Aegon aims to offer experienced and competent employees a total compensation level which is consistent with the market in which Aegon operates and competes for similar employees. Total compensation typically consists of fixed compensation, variable compensation (where in line with the local market practice), pension and other benefits. Market survey information from reputable sources is used to regularly assess the competitiveness of compensation levels and practices which Aegon offers its employees.
Variable compensation
Variable compensation, if any, is capped at an appropriate level as a percentage of fixed compensation.
The Dutch 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 Capital Requirements Directive compensation ratio (i.e. 100% of fixed compensation). This provision was specifically created for corporate office employees of companies based in the Netherlands, which employ at least 75% of their employees abroad. In 2020, Aegon met this criterion and offered selected senior corporate office employees a variable compensation opportunity up to this maximum.
In line with 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 2020. Aegon’s capital was not adversely impacted by the maximum variable compensation that could be paid out.
Variable compensation for senior management is usually paid out in cash and shares over multiple years, and is subject to further conditions being fulfilled. Variable compensation already paid out may also be retrieved under certain circumstances (‘claw-back’).
Risk Management in 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 have a material impact on Aegon’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 additional remuneration requirements for three specific employee categories, as their roles and responsibilities require tailored risk mitigating measures and governance processes. These remuneration requirements are for: (i) the Executive Board; (ii) Material Risk Takers; and (iii) Control Staff. Given the rationale for having a separate policy for Material Risk Takers and the risk mitigating measures that are applied to the remuneration of these individuals, Risk Management is involved in deciding which positions are deemed Material Risk Takers. Furthermore, where exceptions to the policies are requested to reflect local practices or regulations, Risk Management and Compliance are involved 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 after pay-out of the award (when relevant).
Aegon endeavors to seek an appropriate balance of ex-ante and ex-post risk assessments to ensure effectiveness in both the short- and long-term risk-taking behavior of employees.
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report70 | ||
Remuneration of Material Risk Takers
Aegon selects Material Risk Takers for the Aegon N.V. legal entity (i.e. the holding company) based on 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 outlined in the applicable European Directive, its guidelines and local regulatory requirements (where available). This means that their personal objectives are subject to an ex-ante risk assessment at the start of the performance year. A minimum portion of their variable compensation will be deferred and paid in non-cash instruments (such as Aegon shares or investment in own funds). Before the allocation of variable compensation they are subject to an ex-ante risk assessment, while before pay-out of any deferred variable compensation they are subject to ex-post risk assessments. Based on these risk assessments, Aegon can adjust the intended or allocated variable compensation awards downward where deemed appropriate (however never upward).
3. 2020 Supervisory Board Remuneration Report
The 2020 Supervisory Board Remuneration Report has been prepared by the Remuneration Committee of the Supervisory Board in accordance with the Dutch Civil Code (article art 2:135b) and the Dutch 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 2020 and the Supervisory Board remuneration over the recent years.
Aegon’s Supervisory Board remuneration is subject to various rules and regulations, including the Dutch Financial Supervision Act, the Dutch Civil Code, the Dutch Corporate Governance Code and the Solvency II Legal Framework.
Supervisory Board Remuneration Policy in 2020
Aegon’s Supervisory Board Remuneration Policy is aimed at ensuring fair compensation and protecting the independence of the Supervisory Board members. The Supervisory Board Remuneration Policy that has been applied in 2020 was adopted at the Annual General Meeting of Shareholders on May 15, 2020. This policy will be subject to annual reviews by the Supervisory Board. 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 at least every four years.
The policy contributes to Aegon’s strategy, long-term interests, and sustainability through the remuneration of the Supervisory Board members in various ways:
◆ | The policy provides the Supervisory Board with the means to attract, motivate, and retain competent, diverse, and experienced Supervisory Board members for the long-term. This is essential for executing Aegon’s strategy and safeguarding and promoting its long-term interests and sustainability. |
◆ | Supervisory Board 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 Supervisory Board members in their supervisory role to focus on the long-term interest and sustainability of Aegon. |
◆ | The Supervisory Board 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. |
◆ | Supervisory Board 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. |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report71 | ||
The Supervisory Board took Aegon’s identity, purpose, and values into account when developing the policy and its changes:
◆ | Aegon is an international financial services group based in the Netherlands, that provides life insurance, pensions, and asset management. 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 Supervisory Board 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 Supervisory Board 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. being an Insurance firm in Europe and being a listed and financial company in the Netherlands). |
◆ | 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 are not explicitly reflected in the policy as a result of the 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 as the fee-based compensation structure for Supervisory Board members differs significantly from these internal compensation structures and levels.
The Supervisory Board members are entitled to the following fees (see also the table below):
◆ | 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. |
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 |
Each of these fees is a fixed amount. The Supervisory Board is allowed to annually index the fees for economic developments in the Netherlands, however the fees have not been indexed in 2020.
The Supervisory Board members do not receive any performance or equity-related compensation, and do not accrue pension rights with Aegon. These measures are designed to ensure the
Aegon Annual Report on Form 20-F 2020 |
independence of Supervisory Board members and to strengthen the overall effectiveness of Aegon’s corporate governance.
The Supervisory Board regularly assesses the competitiveness of the Supervisory Board’s remuneration structure and levels against peer companies with data provided by Willis Towers Watson. 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 that operate globally; and |
◆ | Location: Headquarters based in Europe, excluding UK (because the 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 differs from the European peer group for the Executive Board as a result of excluding the UK companies. The peer group is reviewed each year and may be updated accordingly. The last update of this peer group was in 2018.
In addition, the Supervisory Board selects a secondary peer group according to 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. This peer group is also reviewed each year and was last updated in 2019. ING, NN Group, ABN AMRO, DSM, and Wolters Kluwer were added and replaced ArcelorMittal, RELX Group, Royal Dutch Shell, Unibail-Rodamco-Westfield, and Unilever. This peer group is identical to the Dutch peer group for the Executive Board.
The Remuneration Committee may recommend changes to the fee levels of the Supervisory Board members, based on the results of a competitiveness review. Such recommendations would be 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.
The policy contains a temporary derogation clause, with rules which are in accordance with the Dutch Civil Code. This means derogation is only allowed in exceptional circumstances to serve the long-term interest and sustainability of Aegon or to assure its viability, for a limited period of time, when it stays in line with the general spirit of the policy and when the details are disclosed in the next remuneration report. This clause was not used in 2020.
Information on members of the Supervisory Board and the composition of its four committees can be found in the report of the Supervisory Board in this 2020 Annual Report on Form 20-F.
Aegon Annual Report on Form 20-F |
Remuneration Report 73 | ||
Supervisory Board remuneration in recent years
The capital management zonestable below show the fees that have been allocated and paid to the management interventions connectedSupervisory Board members in the calendar years 2018, 2019 and 2020 in accordance with the applicable Supervisory Board remuneration policy at this time. The IFRS expenses for
these fees are equal to these zones are set consistently throughout the Group, as illustratedamounts in the table below. In 2017,The total fees decreased to EUR 739 thousand (2019: EUR 865 thousand), mainly due to lower travel fees as meetings were held by video conference in response to COVID-19.
In EUR thousand | Year | Base fees | Attendance fees | Travel fees | Total fees | |||||||||||||||
William L. Connelly | 2020 | 95 | 45 | 4 | 144 | |||||||||||||||
2019 | 95 | 54 | 20 | 169 | ||||||||||||||||
2018 | 79 | 34 | 6 | 119 | ||||||||||||||||
Mark A. Ellman | 2020 | 55 | 39 | 4 | 98 | |||||||||||||||
2019 | 56 | 39 | 20 | 115 | ||||||||||||||||
2018 | 53 | 29 | 21 | 103 | ||||||||||||||||
Ben J. Noteboom | 2020 | 58 | 39 | - | 97 | |||||||||||||||
2019 | 58 | 39 | 6 | 103 | ||||||||||||||||
2018 | 55 | 25 | 6 | 86 | ||||||||||||||||
Corien M. Wortmann - Kool | 2020 | 63 | 48 | - | 111 | |||||||||||||||
2019 | 63 | 54 | 6 | 123 | ||||||||||||||||
2018 | 63 | 37 | 3 | 103 | ||||||||||||||||
Dona D. Young | 2020 | 66 | 57 | 4 | 127 | |||||||||||||||
2019 | 66 | 66 | 26 | 158 | ||||||||||||||||
2018 | 61 | 39 | 21 | 121 | ||||||||||||||||
Caroline Ramsay (per May 15, 2020) | 2020 | 38 | 21 | - | 59 | |||||||||||||||
Thomas Wellauer (per May 15, 2020) | 2020 | 33 | 21 | - | 54 | |||||||||||||||
Ben van der Veer (up to May 15, 2020) | 2020 | 22 | 27 | - | 49 | |||||||||||||||
2019 | 58 | 54 | 6 | 118 | ||||||||||||||||
2018 | 58 | 37 | 6 | 101 | ||||||||||||||||
Robert W. Dineen (up to Oct 11, 2019) | 2019 | 40 | 27 | 12 | 79 | |||||||||||||||
2018 | 52 | 28 | 21 | 101 | ||||||||||||||||
Dirk P.M. Verbeek (up to May 18, 2018) | 2018 | 19 | 10 | - | 29 | |||||||||||||||
Robert J. Routs (up to May 18, 2018) | 2018 | 36 | 12 | - | 48 | |||||||||||||||
Total | 2020 | 430 | 297 | 12 | 739 | |||||||||||||||
2019 | 436 | 333 | 96 | 865 | ||||||||||||||||
2018 | 474 | 251 | 84 | 809 | ||||||||||||||||
Total including 21% VAT | 2020 | 520 | 359 | 15 | 894 | |||||||||||||||
2019 | 527 | 403 | 116 | 1,046 | ||||||||||||||||
2018 | 574 | 304 | 102 | 979 |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 74 | ||
The table below presents the total fees that have been paid in the last five calendar years on an annualized basis and the year-on-year annual change in total fees. Additionally, the table shows the Aegon upwardly adjustednet income, a proxy of the capital management zones offinancial
and non-financial business performance, the inflation in the Netherlands and the UK,average employee compensation over the same period.
In EUR thousand | Annualized | 2016 | 2017 | 2018 | 2019 | 2020 | ||||||||||||||||
William L. Connelly (as of May 19, 2017) | Fees | - | 98 | 119 | 169 | 144 | ||||||||||||||||
Change | - | - | 22% | 42% | (15% | ) | ||||||||||||||||
Mark A. Ellman (as of May 19, 2017) | Fees | - | 114 | 103 | 115 | 98 | ||||||||||||||||
Change | - | - | (9% | ) | 12% | (15% | ) | |||||||||||||||
Ben J. Noteboom | Fees | 109 | 102 | 86 | 103 | 97 | ||||||||||||||||
Change | (7% | ) | (15% | ) | 20% | (6% | ) | |||||||||||||||
Caroline Ramsay (per May 15, 2020) | Fees | - | - | - | - | 94 | ||||||||||||||||
Change | - | - | - | - | n/a | |||||||||||||||||
Thomas Wellauer (per May 15, 2020) | Fees | - | - | - | - | 86 | ||||||||||||||||
Change | - | - | - | - | n/a | |||||||||||||||||
Corien M. Wortmann - Kool | Fees | 90 | 101 | 103 | 123 | 111 | ||||||||||||||||
Change | 12% | 2% | 19% | (10% | ) | |||||||||||||||||
Dona D. Young | Fees | 113 | 116 | 121 | 158 | 127 | ||||||||||||||||
Change | 2% | 4% | 31% | (20% | ) | |||||||||||||||||
Ben van der Veer (up to May 15, 2020) | Fees | 109 | 106 | 101 | 118 | 131 | ||||||||||||||||
Change | (3% | ) | (5% | ) | 17% | 11% | ||||||||||||||||
Robert W. Dineen (up to Oct 11, 2019) | Fees | 115 | 104 | 101 | 101 | - | ||||||||||||||||
Change | (10% | ) | (3% | ) | 1% | - | ||||||||||||||||
Dirk P.M. Verbeek (up to May 18, 2018) | Fees | 111 | 100 | 76 | - | - | ||||||||||||||||
Change | (10% | ) | (24% | ) | - | - | ||||||||||||||||
Robert J. Routs (up to May 18, 2018) | Fees | 140 | 134 | 125 | - | - | ||||||||||||||||
Change | (4% | ) | (7% | ) | - | - | ||||||||||||||||
Shemaya Levy (up to May 19, 2017) | Fees | 95 | 105 | - | - | - | ||||||||||||||||
Change | 11% | - | - | - | ||||||||||||||||||
Irving W. Bailey (up to May 20, 2016) | Fees | 139 | - | - | - | - | ||||||||||||||||
Change | - | - | - | - | ||||||||||||||||||
Aegon net income based on IFRS-EU | In EUR million | 586 | 2,358 | 741 | 1,525 | 55 | ||||||||||||||||
Aegon business performance 1) | Target = 100% | 91% | 121% | 106% | 79% | 57% | ||||||||||||||||
Inflation in the Netherlands | Consumer Price Index | 0.3% | 1.4% | 1.7% | 2.6% | 1.3% | ||||||||||||||||
Average employee compensation 2) | Total compensation | 97 | 102 | 104 | 115 | 110 | ||||||||||||||||
Annual change | 5% | 2% | 11% | (4% | ) |
1 | The weighted average Aegon financial and non-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. They have been exclusively based on their functions in the Supervisory Board, their functions in the Supervisory Board’s committees, their attendance and travel. There were no deviations from the policy in these years.
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.
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 75 | ||
4. 2020 Executive Board Remuneration Report
The 2020 Executive Board Remuneration Report has been prepared by the Remuneration Committee of the Supervisory Board in accordance with the Dutch Civil Code (article art 2:135b) and the Dutch 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 summary of the Executive Board Remuneration Policy that applied to 2020, the Executive Board remuneration over the recent years and the 2021 Executive Board performance indicators. The section on remuneration over the recent years is split into a) fixed compensation 2018-2020, b) conditional variable compensation 2020, c) provisional variable compensation 2020, d) variable compensation 2018-2020, e) pay-out of allocated variable compensation, f) pension contributions 2018-2020, g) benefits 2018-2020, h) total compensation in recent years.
Executive Board Remuneration Policy in 2020
The Supervisory Board has the overall responsibility for Aegon’s Remuneration Policies, including the Executive Board Remuneration Policy. The Executive Board Remuneration Policy that has been applied in 2020 was adopted at the Annual General Meeting of Shareholders on May 15, 2020. This policy will be subject to annual reviews by the Supervisory Board. 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 at least every four years.
The current policy contributes to Aegon’s strategy, long-term interests and sustainability through the remuneration of the Executive Board members in various ways:
◆ | The policy provides the Supervisory Board with the means to attract, motivate and retain competent and experienced Executive Board members for the long-term. This is essential for executing Aegon’s strategy and safeguarding and promoting its long-term interests and sustainability. |
◆ | The leading performance indicator categories for successful execution of our strategy are Capital, Growth and Strategy. To support the execution of Aegon’s strategy, the policy makes these performance indicator categories mandatory for the Executive Board member. |
◆ | Aegon strives to create long-term value for its stakeholders and the communities in which it operates. Due to the nature of our business, value created is often financial, but it may also be social, economic, or environmental. The policy directly aligns Executive Board member’s personal long-term interests with those of Aegon and its shareholders by paying a significant part of the Executive Board members’ variable compensation (two-thirds) in shares, which must be held for 5 years after completion of the performance period. The pay-out in these restricted shares is combined with prohibiting Executive Board members using personal hedging strategies or insurance, which could undermine this long-term alignment of interests. Additionally, Executive Board members are 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. |
◆ | Aegon is committed to doing business responsibly and in a sustainable way. Variable compensation of Executive Board members can be adjusted downwards (i.e. malus) or clawed-back in cases where certain performance has not been achieved in a sustainable way. This includes 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 Executive Board members to support this approach of doing business. |
Aegon’s Executive Board remuneration is subject to various rules and regulations, including 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 that 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 Aegon and personal performance, with at least 50% weight on non-financial performance. |
◆ | A substantial portion of any variable compensation award should be paid in a non-cash instrument (e.g. Aegon shares) and should be deferred for at least 3 years. Additionally, award shares should be restricted for 5 years. With a 3-year vesting period, this requires an additional holding period of 2-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. |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 76 | ||
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 Remuneration Committee may recommend policy changes to the Supervisory Board. In 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 proposed policy changes to the Annual General Meeting of Shareholders for adoption.
The policy contains a temporary derogation clause, with rules which are in accordance with the Dutch Civil Code. This means derogation is only allowed in exceptional circumstances to serve the long-term interest and sustainability of Aegon or to assure its viability, for a limited period of time, when it stays in line with the general spirit of the policy and when the details are disclosed in the next remuneration report. This clause was not used in 2020.
Total compensation
Total compensation for Executive Board members is defined in the Executive Board Remuneration Policy as a result thosecombination of fixed compensation, variable compensation, pension and other benefits. The Supervisory Board determines and regularly reviews the appropriate selection of remuneration elements and their (maximum) remuneration level for Executive Board members 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 and their levels are reviewed at least every four years. In its review, the Supervisory Board takes the specific role, responsibilities, experience and expertise of Executive Board members 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. |
◆ | 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. |
◆ | 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 Board member, and reports their findings to the Supervisory Board. |
The European Insurance peer group was selected by 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. |
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 in relation to Aegon’s size data (average market capitalization, employees, revenue and total assets). This peer group differs from the European peer group for the Supervisory Board, as the latter excludes UK companies where non-executive directors typically have different responsibilities compared to their continental European counterparts.
The Dutch peer group was selected by the following criteria:
◆ | 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, this 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 identical to the Dutch peer group for the Supervisory Board.
The Supervisory Board will review both peer groups annually and will amend them as necessary, 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.
The Remuneration Committee may recommend changes to the compensation levels of the Executive Board members in accordance with Remuneration Policy, based on the results of this annual total compensation review and on discussions with the Executive Board members regarding their remuneration level and structure. Such recommendations would subsequently be discussed by the Supervisory Board, which can approve, revise or reject them.
The Supervisory Board discussed and approved the 2020 total compensation for the Executive Board, after taking the Remuneration Committee’s review into consideration.
Fixed compensation
The fixed compensation for the Executive Board members is paid in monthly instalments. The policy allows the fixed compensation to be paid in cash and in shares. All Executive Board members received their 2020 fixed compensation in cash.
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 77 | ||
The Supervisory Board may offer permanent or temporary gross monthly fixed allowance when the Supervisory Board considers this an appropriate alternative for other remuneration elements. Mr. Wynaendts continued to receive a 2% fixed allowance to which he already was entitled until the end of his term. Mr. Friese and Mr. Rider are not entitled to an allowance.
Variable compensation
Executive Board members are eligible for variable compensation with a target level of 80% of the fixed compensation level (excluding allowances), with a threshold level of 50% and a maximum opportunity of 100% of fixed compensation level.
The variable compensation award is based on performance against a set of performance indicators, weights and target levels that have been set by the Supervisory Board at the start of the performance year. The performance indicators contribute to Aegon’s strategy, long-term interests and sustainability, within Aegon’s risk tolerance and should comply with the following rules:
◆ | It contains a mix of financial and non-financial performance indicators, with at least 50% weight allocated to the non-financial performance indicators in accordance with article 1:118.3 of the Dutch Financial Supervision Act; |
◆ | The maximum weight for unadjusted financial indicators is determined by the Global Remuneration Framework and is currently set at 50%. |
◆ | It contains a mix of Aegon and personal performance indicators, which can range in weight between 50-80% and 20-50% respectively, depending on the Aegon priorities of the performance year. |
◆ | At least 20% of the indicators has a retrospective 3-year performance horizon, while the remainder has a 1-year performance horizon; |
◆ | The indicators should cover the following mandatory performance indicator categories: Shareholders, Capital, Earnings, Growth, Stakeholders, ESG and Strategy. |
The Remuneration Committee and the Executive Board members prepare a proposal for the performance indicators, weights and target levels. These are subsequently reviewed by Aegon’s Risk Management team (i.e. the first ex-ante risk assessment) before the Supervisory Board approves these, 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; |
◆ | 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 Remuneration Committee sends the proposal and the ex-ante risk assessment to the Supervisory Board, which can approve, revise or reject the proposal. After approval, the Executive Board
members are granted their conditional variable compensation awards for the plan year. This conditional award equals their at target variable compensation level, split between 33.33% upfront cash and 66.66% deferred 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 plan year.
After the completion of the performance period, 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 actual performance results compared to target levels and takes a second ex-ante risk assessment by the Risk Management team into account. This risk assessment looks into whether there are reasons for a downward adjustment of the intended variable compensation award (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; |
◆ | Insufficient evidence of embedding good standards of practice; |
◆ | Significant deficiencies or material weaknesses relating to the Sarbanes-Oxley Act; and |
◆ | Reputation damage due to risk events. |
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 Board member.
The Remuneration Committee sends its recommendation and the second ex-ante risk assessment to the Supervisory Board, which 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.
The allocated variable compensation award is subsequently split between 33.33% upfront cash (i.e. paid in the year following the performance year) and 66.66% deferred shares. These shares are deferred for a 3-year period after allocation after which they cliff-vest. Before vesting, the Risk Management team executes an ex-post risk assessment which looks into whether there are reasons for a downward adjustment of the original variable compensation award (malus) which were not taken into account yet. This risk assessment takes the same criteria into consideration as the second ex-ante risk assessment. Based on this assessment, the Remuneration Committee subsequently prepares a recommendation how to pay-out the deferred portion (i.e. unchanged or adjusted downward). The Remuneration Committee sends its recommendation and the ex-post risk
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report78 | ||
assessment to the Supervisory Board. The Supervisory Board can approve, revise or reject the recommendation.
Claw-back provision
Aegon’s Supervisory Board can claw-back variable compensation that has already been paid to the Executive Board member in case of a material financial restatement or individual gross misconduct, after considering a risk assessment by Aegon’s Risk Management team which looks into whether in hindsight the paid amount should have been lower or nil. Examples of misconduct are, but not limited to, a 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 be set-off or settled against any current or future obligations as permitted by law.
Pension arrangements
The Executive Board members are entitled to pension contributions that equal 40% of their fixed compensation level, which consists of the following three parts:
◆ | Participation in Aegon’s defined contribution pension plan for NL-based employees, for their fixed income up to EUR 110,111 (2020 threshold set by Dutch law). |
◆ | Participation in Aegon’s defined contribution pension plan for NL-based employees, for their fixed income above EUR 110,111. |
◆ | An additional gross allowance for pension to make the sum of these three pension contributions equal to 40% of their fixed compensation level. |
The Executive Board members receive pension contributions that are somewhat higher compared to NL-based employees of similar age (ca. 10-15% difference). This is done to achieve a competitive total compensation level. Please note the Supervisory Board will consider discontinuing the additional gross allowance for new Executive Board members, while ensuring their total compensation level stays competitive, and including this as a policy change in the next update of the Executive Board Remuneration Policy.
Additionally, Mr. Wynaendts was entitled to an additional gross allowance for pension of 28% of his fixed compensation level as part of a grandfathered pension arrangement.
Other benefits
Other benefits include non-monetary benefits (e.g. company car), social security contributions by the employer, and tax expenses borne by 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 Supervisory Board.
Terms of Engagement
Members of the Executive Board are appointed for four years and may then be re-appointed for successive mandates also for a period of four years. Executive Board members have a board agreement with Aegon N.V., rather than an employment contract. Members of the Executive Board may terminate their board agreement with a notice period of three months. The Supervisory Board may terminate the board agreement by giving six months’ notice if it wishes to terminate the agreement.
The Supervisory Board may entitle Executive Board members to a termination payment up to or equal to the total annual fixed compensation level. This payment is not allowed in case of early termination at the initiative of the Executive Board member (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 Board members. Mr. Friese and Mr. Rider have a termination clause included in their board agreement. Mr. Wynaendts was not entitled to a termination payment when his board agreement was terminated in 2020.
Executive Board remuneration in recent years
In this section you will find the fixed compensation, variable compensation, pension, other benefits, and total compensation amounts of the Executive Board members. Please note that the 2020 compensation amounts for Mr. Friese and Mr. Wynaendts are pro-rated because of joining and leaving the Executive Board respectively on May 15, 2020, unless stated otherwise (e.g. when amounts are annualized).
Group.
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report79 | ||
A. Fixed compensation 2018-2020
In 2020, Mr. Friese received EUR 931 thousand in fixed compensation (annualized EUR 1,485 thousand), Mr. Wynaendts received EUR 496 thousand (annualized EUR 1,327 thousand) and Mr. Rider received EUR 941 thousand. None of the Executive Board members received an increase in their fixed compensation level in 2020. In addition to this and the table below, Mr. Friese received a sign-on arrangement of EUR 1,228 thousand when joining Aegon in March 2020, that was split between 50% in cash (EUR 617 thousand) and 50% in Aegon shares (161,333 shares). Of this amount 55% has been
paid in 2020. The higher capital buffers resulting from this upward adjustment enablesremainder will be paid in later years subject to continued employment (20% in 2021, 14% in 2022, 9% in 2023 and 3% in 2024). The IFRS-EU expenses for these unitsfixed compensation amounts were equal to better absorb market volatility, thereby improving the robustnessamounts in the table below, except for Mr. Friese in 2020 due to the nature of capital generationhis sign-on arrangement. The combined IFRS-EU expenses for his regular fixed compensation and dividend payments.sign-on arrangement were EUR 1,869 thousand (EUR 570 thousand for the cash-part of the sign-on arrangement and EUR 368 thousand for the share-part).
In EUR thousand | 2020 | 2019 | 2018 | |||||||||
Lard Friese1) | 931 | - | - | |||||||||
Alex Wynaendts2) | 496 | 1,314 | 1,295 | |||||||||
Matt Rider | 941 | 931 | 918 | |||||||||
Total fixed compensation | 2,368 | 2,245 | 2,213 |
1 | The disclosed amount for 2020 covers the period that Mr. Friese has been a member of the Executive Board (per May 15, 2020). The annualized amount is EUR 1,485 thousand (excluding sign-on amounts). |
2 | The disclosed amount for 2020 covers the period that Mr. Wynaendts was a member of the Executive Board (until May 15, 2020). The annualized amount is EUR 1,327 thousand. |
B. Conditional variable compensation 2020
In 2020, Mr. Friese, Mr. Wynaendts and Mr. Rider each had an at target variable compensation opportunity of 80% of their fixed compensation level at year-end (or end of term). The variable compensation award was based on the 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 2020 (or after their appointment). As a result, they would 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 4.083 for the shares:
Variable compensation opportunity 2020 | Threshold (50%) | Target (80%) | Maximum (100%) | |||||||||||
Lard Friese | Total (EUR thousand) | 466 | 745 | 931 | ||||||||||
in cash (EUR thousand) | 155 | 248 | 310 | |||||||||||
in shares | 76,012 | 121,619 | 152,024 | |||||||||||
Alex Wynaendts | Total (EUR thousand) | 248 | 397 | 496 | ||||||||||
in cash (EUR thousand) | 83 | 132 | 165 | |||||||||||
in shares | 40,487 | 64,779 | 80,974 | |||||||||||
Matt Rider | Total (EUR thousand) | 470 | 753 | 941 | ||||||||||
in cash (EUR thousand) | 157 | 251 | 314 | |||||||||||
in shares | 76,818 | 122,909 | 153,637 |
C. Provisional variable compensation 2020
Subject to the adoption of the annual accounts at the General Meeting of Shareholders on May 15, 2021, Mr. Friese has been awarded EUR 634 thousand in conditional variable compensation for the 2020 performance year (68% of fixed compensation), Mr. Wynaendts EUR 302 thousand (61% of fixed compensation)
and Mr. Rider EUR 640 thousand (68% of fixed compensation). Each variable compensation award will be paid for 33.33% in upfront cash and for 66.66% in shares which are deferred for three years and are subsequently subject to an additional holding period of two years.
Conditional variable compensation 2020 | Pay-out in 2021 | Pay-out in 2024 | ||||||
Lard Friese | Cash (EUR thousand) | 211 | ||||||
Shares | 103,580 | |||||||
Alex Wynaendts | Cash (EUR thousand) | 101 | ||||||
Shares | 49,346 | |||||||
Matt Rider | Cash (EUR thousand) | 213 | ||||||
Shares | 104,547 |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 80 | ||
The tables below show the results on each of the Aegon and personal indicators which determined the conditional variable compensation awards of Mr. Friese, Mr. Wynaendts and Mr. Rider and the related indicator definitions. The Aegon performance results were scored on a performance scale which was used to fund the 2020 bonus pools within Aegon: 50% for
the threshold (minimum), 100% for target level and 150% for the maximum level. The 2020 Aegon performance result on this performance scale was 57%. Converted to the performance scale that applied to the Executive Board members (i.e. with the target level at 80%) the 2020 Aegon performance result was 54%.
2020 Aegon performance indicators | Weight | Target | Result | In % | ||||||||||||
Relative Total Shareholder Return | 14% | #5 of 15 | #12 | 0% | ||||||||||||
Return on Equity | 14% | 10.0% | 8.5% | 0% | ||||||||||||
Fees and Premium based Revenues | 14% | 4,857 | 4,811 | 95% | ||||||||||||
Normalized Capital Generation (2yr: 2020 and 2019) | 14% | 2,632 | 2,883 | 124% | ||||||||||||
Market Consistent Value of New Business | 14% | 445 | 262 | 0% | ||||||||||||
Relational Net Promoter Score | 14% | 17 | 18 | 125% | ||||||||||||
Strategy Execution | 14% | 100% | 57% | 57% | ||||||||||||
Aegon result for employee bonus pools | 57% | |||||||||||||||
Aegon result for Executive Board members | 54% |
2020 Aegon | ||||||||||
Relative Total Shareholder Return | Aegon’s position relative to 7 US | |||||||||
Return on Equity | Return on equity indicates how good the company is in generating returns on the investment it received from its shareholders. Aegon’s Return on Equity is calculated by dividing underlying earnings after tax and after cost of leverage by average shareholders’ equity excluding revaluation reserve. | |||||||||
Fees and Premium based Revenues | Fee 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. | |||||||||
Normalized Capital Generation (2 years: 2019-2020) | The | |||||||||
Market Consistent Value of New Business | ||||||||||
Relational Net Promoter Score |
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Strategy Execution | ||||||||||
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1 | The US peers are Axa Equitable Holdings, Principal Financial Group, Unum Group, Lincoln National Corp, Prudential Financial, Brighthouse Financial and MetLife. The non-US peers are Athene Holding, NN Group, Swiss Life Holding, Assicurazioni Generali, Baloise Holding, Prudential and ASR Nederland. |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report81 | ||
Below you find the overview how the 2020 Aegon performance result of 54%, combined with the personal performance results, led to the overall 2020 variable compensation results for Mr. Friese, Mr. Wynaendts and Mr. Rider.
Lard Friese | Target | Result | ||
70% Aegon performance | Mix of financial and non-financial targets | 54% | ||
10% Strategy development | Deliver new Group Strategy | 100%. Delivered well-received and broadly supported Group Strategy at the Capital Markets Day, despite high operational pressure during the preparation caused by COVID-19. Appointed a Chief Transformation Officer and successfully found buyers for the CEE business and Stonebridge. Implemented several measures to improve balance sheet strength. | ||
10% COVID-19 crisis management | Safeguard continuity of the | 100%. Quickly expanded the continuous monitoring of | ||
10% Sustainable organization | Develop granular Operating Plan which addresses reducing costs, expanding margins, growing profitability and organizational health | 100%. Delivered granular Operating Plan with over 1,100 initiatives and over 15,000 milestones focused on the transformation of Aegon and improving its organizational health, which was fully integrated in the Mid Term Financial Planning. Shifted the company to intense rhythm of execution. | ||
Overall result | 68% |
Alex Wynaendts | Target | Result | ||
70% Aegon performance | Mix of financial and non-financial targets | 54% | ||
10% Strategy execution | Execution of the three projects that were deemed key for a successful execution of Aegon’s previous strategy (2019-2021) | 54%. One project was delivered on target, one was successful but behind schedule and the last did not meet its minimum target due to changes in priority. | ||
10% Sustainable Organization | Measures a combination of ESG related goals through personal goals on Employee Engagement and Inclusion & Diversity | 80%. Employee Engagement increased from 67% to 74% (mid-year) and action plans related to Inclusion & Diversity were completed. Percentage of women in senior management positions increased from 29% to 32%. | ||
10% Handover to successor | Contains two personal milestones for a successful handover to the new CEO | 95%. Delivered strong and complete hand-over to new CEO, in difficult circumstances due to the COVID-19. | ||
Overall result | 61% |
Matt Rider | Target | Result | ||
70% Aegon performance | Mix of financial and non-financial targets | 54% | ||
10% Finance strategy execution | Improve quality of financial management information and business control oversight | 100%. Completed all milestones and provided important financial management information to support the new Group Strategy and granular Operating Plan. | ||
10% Finance Transformation | Deliver Finance Transformation plan, including IFRS 9 / 17 implementation | 100%. Delivered all milestones within budget and created additional efficiencies. | ||
10% Sustainable Organization | Employee Engagement, governance during CEO transition and Control Environment | 100%. Employee Engagement increased in both the Finance Function and Corporate Center, high levels of governance were safeguarded during the transition and the Control Environment result exceeded its target level. | ||
Overall result | 68% |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 82 | ||
D. Variable compensation 2018-2020
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 2020 (the so called ‘ex-post assessment’)
or to lower the payout of the upfront payment of the 2019 performance year variable compensation in 2020 (the so called ‘ex-ante assessment’). The second table contains the expenses for the conditional variable compensation awards, as recognized under the IFRS accounting treatment in the income statement.
In EUR thousand | 2020 | 2019 | 2018 | |||||||||
Lard Friese1) | 634 | - | - | |||||||||
Alex Wynaendts2) | 302 | 1,048 | 1,062 | |||||||||
Matt Rider | 640 | 743 | 760 | |||||||||
Total conditional variable compensation | 1,577 | 1,791 | 1,822 |
1 | The disclosed amount for 2020 covers the period that Mr. Friese has been a member of the Executive Board (per May 15, 2020). The annualized amount is EUR 1,010 thousand. |
2 | The disclosed amount for 2020 covers the period that Mr. Wynaendts was a member of the Executive Board (until May 15, 2020). The annualized amount is EUR 812 thousand. |
In EUR thousand | 2020 | 2019 | 2018 | |||||||||
Lard Friese1) | 282 | - | - | |||||||||
Alex Wynaendts2) | 497 | 976 | 962 | |||||||||
Matt Rider | 528 | 627 | 545 | |||||||||
Total conditional variable compensation IFRS expenses | 1,307 | 1,604 | 1,507 |
1 | The disclosed amount for 2020 covers the period that Mr. Friese has been a member of the Executive Board (per May 15, 2020). The annualized amount is EUR 449 thousand. |
2 | The disclosed amount for 2020 covers the period that Mr. Wynaendts was a member of the Executive Board (until May 15, 2020). The annualized amount is EUR 1,334 thousand. |
Minimum solvency requirementsE. Pay-out of allocated variable compensation
Insurance lawsThe following tables show for each current and regulationsformer Executive Board member how much variable compensation has been paid in local regulatory jurisdictions often contain minimum regulatory capital requirements. For insurance companiesshares and cash respectively in 2018, 2019 and 2020 and how much conditional variable compensation is scheduled to be paid-out in the European Union, Solvency II formally defines a lower capital requirement: the Minimum Capital Requirement (MCR). An irreparable breachcoming years. The vesting price of the MCR would leadshare were:
EUR 5.848 on May 18, 2018, EUR 4.287 on May 17, 2019, and EUR 2.079 on May 15, 2020. Shares allocated for plan years up to a withdrawal of the insurance license. Similarly,and including 2019 are subject to an additional three-year holding period after pay-out. Shares 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.plan years from 2020 onwards are subject to an additional two-year holding period after pay-out.
Years of vesting | ||||||||||||||||||||||||||||||||||||
Shares by plan year | Grant Price 1) | Allocated | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | |||||||||||||||||||||||||||
Lard Friese 2020 | EUR 4.083 | 103,580 | - | - | - | - | - | - | 103,580 | |||||||||||||||||||||||||||
Total number of shares | 103,580 | - | - | - | - | - | - | 103,580 | ||||||||||||||||||||||||||||
Alex Wynaendts 2014 | EUR 6.739 | 10,164 | 10,164 2) | - | - | - | - | - | - | |||||||||||||||||||||||||||
2015 | EUR 6.106 | 30,220 | 15,110 | 15,110 | - | - | - | - | - | |||||||||||||||||||||||||||
2016 | EUR 5.128 | 61,083 | 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 | - | |||||||||||||||||||||||||||
2020 | EUR 4.083 | 49,346 | - | - | - | - | - | - | 49,346 | |||||||||||||||||||||||||||
Total number of shares | 484,292 | 89,367 | 96,651 | 112,228 | 66,696 | 44,830 | 25,174 | 49,346 | ||||||||||||||||||||||||||||
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 | - | |||||||||||||||||||||||||||
2020 | EUR 4.083 | 104,547 | - | - | - | - | - | - | 104,547 | |||||||||||||||||||||||||||
Total number of shares | 311,592 | 19,015 | 37,618 | 59,255 | 41,409 | 31,901 | 17,847 | 104,547 | ||||||||||||||||||||||||||||
Darryl Button 2014 | EUR 6.739 | 8,652 | 8,652 | - | - | - | - | - | - | |||||||||||||||||||||||||||
2015 | EUR 6.106 | 23,622 | 11,811 | 11,811 | - | - | - | - | - | |||||||||||||||||||||||||||
2016 | EUR 5.128 | 44,424 | 14,808 | 14,808 | 14,808 | - | - | - | - | |||||||||||||||||||||||||||
Total number of shares | 76,698 | 35,271 | 26,619 | 14,808 | - | - | - | - |
1 | 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 2020 plan year, this is the VWAP for the period December 15, 2019 to January 15, 2020. |
2 | 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 to reflect the outcome of a regulatory matter relating to the company. |
Aegon Annual Report on Form 20-F 2020 |
With
Remuneration Report83 | ||
Years of vesting | ||||||||||||||||||||||||||||||||
Cash by plan year (in EUR) | Allocated | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | ||||||||||||||||||||||||
Lard Friese 2020 | 211,431 | - | - | - | 211,431 | - | - | - | ||||||||||||||||||||||||
Total cash | 211,431 | - | - | - | 211,431 | - | - | - | ||||||||||||||||||||||||
Alex Wynaendts 2014 | 68,497 | 68,497 1) | - | - | - | - | - | - | ||||||||||||||||||||||||
2015 | 184,522 | 92,261 | 92,261 | - | - | - | - | - | ||||||||||||||||||||||||
2016 | 313,236 | 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 | - | ||||||||||||||||||||||||
2020 | 100,725 | - | - | - | 100,725 | - | - | - | ||||||||||||||||||||||||
Total cash | 2,295,613 | 494,590 | 523,873 | 534,913 | 426,450 | 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 | - | ||||||||||||||||||||||||
2020 | 213,404 | - | - | - | - | - | - | 213,404 | ||||||||||||||||||||||||
Total cash | 1,214,011 | 99,756 | 201,809 | 274,402 | 200,120 | 150,242 | 74,278 | 213,404 | ||||||||||||||||||||||||
Darryl Button 2014 | 60,024 | 60,024 | - | - | - | - | - | - | ||||||||||||||||||||||||
2015 | 156,862 | 78,431 | 78,431 | - | - | - | - | - | ||||||||||||||||||||||||
2016 | 224,022 | 74,674 | 74,674 | 74,674 | - | - | - | - | ||||||||||||||||||||||||
Total cash | 440,908 | 213,129 | 153,105 | 74,674 | - | - | - | - |
1 | In line with the Aegon Group Global Remuneration Framework, it was agreed to adjust Mr Wynaendt’s 2014 variable compensation award downwards by EUR 22,832 to reflect the outcome of a regulatory matter relating to the company. |
The Executive Board members have a time-based shareholding requirement of 5 years after the introductioninitial allocation of Solvency IItheir variable compensation in shares (i.e. a 3-year deferral period before vesting and an additional 2-year holding period after vesting). Mr. Friese and Mr. Rider voluntarily agreed to at least hold on to the shares received as compensation to an equivalent of 100% of their fixed compensation level, once they have reached that level. This concerns the total net number of shares which have been allocated to them, but that have not been sold (i.e. includes the net number of shares in the deferral period and holding period). After the allocation of the 2020 variable compensation award, Mr. Friese will hold 42% of his fixed compensation in net shares and Mr. Rider 78%. Please note Mr. Rider received 50% of his variable compensation in shares for EEA countries, Aegon viewsthe 2017-2019 period, while per the new 2020 Executive Board Remuneration Policy all Executive Board members receive 67% of their variable compensation in deferred shares.
F. Pension contributions 2018-2020
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.
Mr. Friese (from May 2020), Mr. Wynaendts (from June 2019) and Mr. Rider received pension contributions which equaled to 40% of their fixed compensation level. Up to and including May 2019, Mr. Wynaendts participated in a defined benefit arrangement. This arrangement included a back service liability which reflected the increase of his fixed compensation in 2016 and 2018, as well as low interest rates and the final settlement made in May 2019. Additionally, Mr. Wynaendts was entitled to a gross payment of 28% of his fixed compensation level as part of a grandfathered pension arrangement.
In EUR thousand | 2020 | 2019 | 2018 | |||||||||
Lard Friese1) | 373 | - | - | |||||||||
Alex Wynaendts2) | 337 | 1,302 | 2,463 | |||||||||
Matt Rider | 376 | 373 | 367 | |||||||||
Total pension contributions | 1,086 | 1,675 | 2,830 |
1 | The disclosed amount for 2020 covers the period that Mr. Friese has been a member of the Executive Board (per May 15, 2020). The annualized amount is EUR 594 thousand. |
2 | The disclosed amount for 2020 covers the period that Mr. Wynaendts was a member of the Executive Board (until May 15, 2020). The annualized amount is EUR 906 thousand. |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 84 | ||
In EUR thousand | 2020 | 2019 | 2018 | |||||||||
Lard Friese1) | 373 | - | - | |||||||||
Alex Wynaendts2) | 337 | 1,243 | 1,952 | |||||||||
Matt Rider | 376 | 387 | 379 | |||||||||
Total pension IFRS expenses | 1,086 | 1,630 | 2,331 |
1 | The disclosed amount for 2020 covers the period that Mr. Friese has been a member of the Executive Board (per May 15, 2020). The annualized amount is EUR 594 thousand. |
2 | The disclosed amount for 2020 covers the period that Mr. Wynaendts was a member of the Executive Board (until May 15, 2020). The annualized amount is EUR 906 thousand. |
G. Benefits 2018-2020
Other benefits include non-monetary benefits (e.g. company car), social security contributions by the employer, and tax expenses
borne by the employer. The IFRS expenses for these minimum regulatory capital requirements asbenefits are equal to the level at which regulators will formally require managementamounts in the table below.
In EUR thousand | 2020 | 2019 | 2018 | |||||||||
Lard Friese1) | 49 | - | - | |||||||||
Alex Wynaendts2) | 97 | 252 | 195 | |||||||||
Matt Rider | 67 | 77 | 46 | |||||||||
Total benefits | 213 | 329 | 240 |
1 | The disclosed amount for 2020 covers the period that Mr. Friese has been a member of the Executive Board (per May 15, 2020). The annualized amount is EUR 77 thousand. |
2 | The disclosed amount for 2020 covers the period that Mr. Wynaendts was a member of the Executive Board (until May 15, 2020). The annualized amount is EUR 261 thousand. |
H. Total compensation in recent years
The total compensation for Mr. Friese related to provide regulatory recovery plans. For the US insurance entities this is set at 100% CAL,2020 was EUR 3.3 million (including sign-on arrangement), for Mr. Wynaendts EUR 1.2 million (2019: EUR 3.9 million; 2018: EUR 5.0 million) and for insurance companiesMr. Rider EUR 2.0 million (2019: EUR 2.1 million; 2018: EUR 2.1 million). The total remuneration for the members of the Executive Board over 2020 was EUR 6.5 million (2019: EUR 6.0 million; 2018: EUR 7.1 million).
The total expenses recognized under IFRS accounting treatment in the income statement for Mr. Friese related to 2020 were EUR 2.6 million, for Mr. Wynaendts EUR 1.4 million (2019: 3.8 million; 2018: EUR 4.4 million) and for Mr. Rider EUR 1.9 million (2019: EUR 2.0 million; 2018: EUR 1.9 million). Total IFRS expenses for the members of the Executive Board over 2020 were EUR 5.9 million (2019: 5.8 million; 2018: EUR 6.3 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 Union this is setguidelines on the standardized presentation of the remuneration report, you find the remuneration which was awarded and due to the Executives in 2020 and 2019 in the table below. The variable compensation amounts differ from the amounts disclosed in the tables above, as they include the pay-out of variable compensation in cash and shares in the 2020 and 2019 calendar years. These have been awarded for previous performance years. Also the shares are included at 100% SCR.
the value when they were paid (i.e. vested), which might differ from the initial grant price. Please note that several amounts are pro-rated for the period during which the individual served as Executive Board member. The minimum regulatory capital requirements, as viewed by Aegon, for its main operating unitsfixed compensation and Pension amounts are equal to the capitalization levels as at December 31, 2017,amounts that are included in the following table:tables above.
Fixed | Variable | One-off | Pension | Total | Ratio Fixed/ Variable 3) | |||||||||||||||||||||||||
Salary | Benefits | Upfront1) | Deferred2) | |||||||||||||||||||||||||||
Lard Friese | ||||||||||||||||||||||||||||||
2020 4) | 931 | 49 | - | - | 565 | - | 1,545 | 63% / 37% | ||||||||||||||||||||||
Alex Wynaendts | ||||||||||||||||||||||||||||||
20205) | 496 | 97 | 314 | 454 | - | 337 | 1,699 | 55% / 45% | ||||||||||||||||||||||
2019 | 1,314 | 252 | 381 | 557 | - | 1,302 | 3,806 | 75% / 25% | ||||||||||||||||||||||
Matt Rider | ||||||||||||||||||||||||||||||
2020 | 941 | 67 | 223 | 175 | - | 376 | 1,782 | 78% / 22% | ||||||||||||||||||||||
2019 | 931 | 77 | 272 | 91 | - | 373 | 1,744 | 79% / 21% |
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 2019 variable compensation award that were paid in 2020. |
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 2016-2018 variable compensation awards that were paid in 2020. |
3 | Fixed (the numerator) is calculated as the sum of Salary, Benefits and Pension divided by the Total. Variable (the denominator) is the sum of Upfront, Deferred and One-off divided by the Total. |
4 | The salary, benefits and pension amounts cover the pro-rated period as an Executive Board member during 2020 (from May 15 to December 31). The one-off item concerns the upfront part of the sign-on arrangement (EUR 427 thousand in cash and 66,526 shares). |
5 | The salary, benefits and pension amounts cover the pro-rated period as an Executive Board member during 2020 (from January 1 to May 15), while the variable amounts were paid in relation to full-year performance periods in 2016-2019. |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 85 | ||
The table below presents the total compensation that has been paid in the last five calendar years on an annualized basis and the year-on-year annual change in total compensation. Please note that therefore several amounts have been annualized, while in practice these were pro-rated for the period during which the individual served as Executive
Board member. Additionally, the table show the Aegon net income, a proxy of the financial and non-financial business performance, the vesting price of the Aegon shares, the inflation in the Netherlands and the average employee compensation over the same period.
In EUR thousand | Annualized | 2016 | 2017 | 2018 | 2019 | 2020 | ||||||||||||||||
Lard Friese | Awarded and due | - | - | - | - | 2,719 | ||||||||||||||||
Change | - | - | - | - | ||||||||||||||||||
Alex Wynaendts (up to May 15, 2020) | Awarded and due | 4,455 | 4,431 | 4,969 | 3,806 | 3,268 | ||||||||||||||||
Change | (1% | ) | 12% | (23% | ) | (14% | ) | |||||||||||||||
Matt Rider (as of May 19, 2017) | Awarded and due | - | 1,357 | 1,670 | 1,799 | 1,824 | ||||||||||||||||
Change | - | 23% | 8% | 1% | ||||||||||||||||||
Darryl Button (up to Dec 1, 2016) | Awarded and due | 2,370 | - | - | - | - | ||||||||||||||||
Change | - | - | - | - | ||||||||||||||||||
Aegon net income based on IFRS-EU | In EUR million | 586 | 2,358 | 741 | 1,525 | 55 | ||||||||||||||||
Aegon business performance 1) | Target = 100% | 91% | 121% | 106% | 79% | 57% | ||||||||||||||||
Vesting price Aegon shares | In EUR | 4.502 | 4.423 | 5.848 | 4.287 | 2.079 | ||||||||||||||||
Inflation in the Netherlands | Consumer Price Index | 0.3% | 1.4% | 1.7% | 2.6% | 1.3% | ||||||||||||||||
Average employee compensation 2) | Total compensation | 97 | 102 | 104 | 115 | 110 | ||||||||||||||||
Annual change | 5% | 2% | 11% | (4% | ) |
1 | The weighted average Aegon financial and non-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. |
2021 Executive Board performance indicators
Looking ahead to the 2021 performance years, the 2021 performance indicators for Mr. Friese and Mr. Rider are presented in the tables below.
| ||||||
Aegon | 14% | Free Cash Flow | 1 year1) | |||
7% | Relative Total Shareholder Return | 2 year (2020-2021)2) | ||||
7% | Addressable Expenses | 1 year3) | ||||
7% | Underlying Earnings Before Tax | 1 year | ||||
7% | Market Consistent Value of New Business | 1 year | ||||
7% | Operating Plan Earnings Contribution | 1 year | ||||
Aegon Non-financial | 21% | Operating Plan Execution | 1 year | |||
Personal | 10% | Strategic Roadmap Development | 1 year | |||
10% | Execution of capital initiatives in line with Strategic Roadmap | 1 year | ||||
5% | Women in Senior Management | 1 year | ||||
5% | ESG Strategy Development | 1 year | ||||
Total | 100% | |||||
| ||||||
|
1 | Will become a retrospective 3-year performance period from 2023 onwards. It is phased in with a 1-year performance period (2021) for the |
2 | Will become a retrospective 3-year performance period from 2022 onwards. This year is the last transition year, which has a retrospective 2-year performance period (2020-2021). |
3 | Will become a retrospective 3-year performance period from 2023 onwards. It is phased in with a 1-year performance period (2021) for the 2021 plan year and a 2-year performance period (2021-2022) for the 2022 plan year. |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 86 | ||
Matt Rider | Weight | Performance indicators | Performance period | |||
Aegon financial | 14% | Free Cash Flow | 1 year1) | |||
7% | Relative Total Shareholder Return | 2 year (2020-2021)2) | ||||
7% | Addressable Expenses | 1 year3) | ||||
7% | Underlying Earnings Before Tax | 1 year | ||||
7% | Market Consistent Value of New Business | 1 year | ||||
7% | Operating Plan Earnings Contribution | 1 year | ||||
Aegon Non-financial | 21% | Operating Plan Execution | 1 year | |||
Personal | 15% | Finance Strategy Execution | 1 year | |||
5% | Strategic Roadmap Development | 1 year | ||||
5% | Execution of capital initiatives in line with Strategic Roadmap | 1 year | ||||
5% | Women in Senior Management | 1 year | ||||
Total | 100% |
1 | Will become a retrospective 3-year performance period from 2023 onwards. It is phased in with a 1-year performance period (2021) for the 2021 plan year and a 2-year performance period (2021-2022) for the 2022 plan year. |
2 | Will become a retrospective 3-year performance period from 2022 onwards. This year is the last transition year, which has a retrospective 2-year performance period (2020-2021). |
3 | Will become a retrospective 3-year performance period from 2023 onwards. It is phased in with a 1-year performance period (2021) for the 2021 plan year and a 2-year performance period (2021-2022) for the 2022 plan year. |
Scope | Performance indicators | Definition | ||
Aegon financial | Free Cash Flow | Free cash flow represents cash flow from remittances from the units less the Holding funding and operating expenses. The 2021 target is based on the 2021-2023 target which was disclosed at the Capital Market Day in December 2020. | ||
Relative TSR | Aegon’s | |||
Addressable Expenses | Represents those expenses reflected in underlying earnings, excluding deferable acquisition expenses, expenses in joint ventures and associates and expenses related to operations in CEE countries. The 2021 target is based on the 2021-2023 target which was disclosed at the Capital Market Day in December 2020. | |||
Underlying Earnings Before Tax | 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. The target is based on the approved 2021 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 based on the approved 2021 budget. | |||
Operating Plan Earnings Contribution | Measures the expected run-rate earnings contribution for initiatives which move to the execution phase in 2021 compared to the overall internal contribution target which was set in the granular operating plan for 2021. | |||
Aegon non-financial | Operating Plan Execution | Measures the timely completion of milestones and the total degree of milestone completed in 2021, including milestones related to organizational health, compared to targets which were agreed in the granular operating plan. | ||
Lard Friese | Strategic Roadmap Development | Develop Strategic Roadmap for strategic assets and growth markets. | ||
Execution of capital initiatives in line with Strategic Roadmap | Complete management actions in relation to financial assets, sub-scale businesses and other ventures. | |||
Women in Senior Management | Increase the number of women in Aegon’s senior management layer worldwide to at least 34%. | |||
ESG Strategy Development | Further integrate ESG into Group Strategy. | |||
Matt Rider | Finance Strategy Execution | Complete the 2021 milestones from the Finance Strategy. | ||
Strategic Roadmap Development | Support development of strategic roadmap for strategic assets and growth markets. | |||
Execution of capital initiatives in line with Strategic Roadmap | Support completion management actions in relation to financial assets, sub-scale businesses and other ventures. | |||
Women in Senior Management | Increase the number of women in Aegon’s senior management layer worldwide to at least 34%. |
1 | The US peers are Axa Equitable Holdings, Principal Financial Group, Unum Group, Lincoln National Corp, Prudential Financial, Brighthouse Financial and MetLife. The non-US peers are Athene Holding, NN Group, Swiss Life Holding, Assicurazioni Generali, Baloise Holding, Prudential and ASR Nederland. |
Aegon Annual Report on Form 20-F 2020 |
Non-financial policies, procedures and outcomes87 | ||
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. The capitalization levelCode of Conduct contains basic principles governing our workplace, social responsibility and shareholders’ equitybusiness conduct. The aim of the operating units can be impactedthese policies and procedures is to protect stakeholders by various factors (e.g. general economic conditions, capital markets risks, underwriting risk factors, changesensuring we are aware in government regulations, legalour decision-making of all relevant financial and arbitrational 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.non-
In practice – and for upstreaming purposes – Aegon manages the capitalization of its operating units towards the capitalization
target rangesfinancial factors. We monitor implementation and take remedial action where necessary to ensure full compliance. We have a dedicated Non-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 environment, social and governance (ESG) risks are incorporated into Aegon’s decision-making processes, as identified in Aegon’s capital framework. These ranges are both in excesswell as the measurement of the minimum regulatory requirements contained in the applicable regulations,outcomes, policies and in excess of the minimum requirements stated in the table above.metrics.
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. Aegon also announced the divestment of its business in Ireland, which is expected to be completed in the first half of 2018.
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 of 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, its consequences and the status of development of the International Capital Standards, see page 110.
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 items and restricted Tier 1 items. The latter category contains own fund items subject to the restrictions of article 82 (3) of the Solvency II Delegated Regulation, which includes grandfathered Tier 1 own fund items. 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.
Aegon updated the method to calculate the Solvency II contribution of the Aegon US insurance and reinsurance entities under D&A, to the Group. This methodology is consistent with the European Insurance and Occupational Pensions Authority’s (EIOPA) guidance on group solvency calculation with regards to equivalence and in line wth methods applied by other European peer compnaies. Furthermore, Aegon applied a revised method to allocate centrally issued subordinated debt between the AC and D&A parts of the Group. The allocation of Aegon Group’s 2016 subordinate debt was based on the Solvency II PIM SCR, but has been changed to an available own funds basis. In addition to increasing Aegon Group’s Solvency II ratio, the new methodology also had a positive effect on capital quality, mainly by reducing the share of Tier 3 own funds, and increasing the share of unrestricted Tier 1 own funds.
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| Indicators (used to monitor compliance and/or outcomes) | Performance 2020 | ||||
Article 3.1.b(i) | Business | Code of Conduct | ||||||
Environmental, | conduct | |||||||
social and personnel matters | and ethics |
|
Total number of
fraud involving employees, intermediaries and |
| ||||
|
| • Significant fines amounted to EUR 8.2 million; in the Americas, Transamerica had two fines related to the sale of 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. | ||||||
• Also contains provisions for reporting suspected illegal and unethical behavior | • Percentage of employees completing training on Code of Conduct. | • 97% of employees completed mandatory Code of Conduct training (up from 95% the previous year). | ||||||
• Training on the Code is obligatory for all employees. | • Overall there is satisfactory progress with 76% of the Group and strategic business unit actions completed and an
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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 the Speak Up program , allowing employees and those outside the Company to report suspected infringements of the Code of Conduct in complete confidence. | • Policy attestation for bribery and corruption risk (Conflict of Interest and Gift & Entertainment policies). | • 86% compliance with Aegon bribery and corruption policies (down from 89% 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. |
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 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 ringfenced for the policyholder, and therefore unavailable to Aegon’s shareholders.
Restricted Tier 1 capital consists of Aegon’s junior perpetual capital securities and perpetual cumulative subordinated bonds,
both of which are grandfathered. Tier 1 restricted capital is subject to tiering restrictions.
Aegon’s Tier 2 capital consists of its grandfathered dated subordinated notes, and deferred tax asset balances related to the inclusion of (provisional) equivalent regimes in Aegon’s Solvency II calculation. Both restricted Tier 1 and Tier 2 capital are subject to tiering restrictions.
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 33
CONTINUATION > Aegon Annual Report on Form 20-F 2020 |
EU Directive on Non- | Area | Policy or guideline | Indicators (used to monitor compliance and/or outcomes) | Performance 2020 | ||||
Article 3.1.b(i) | Community | Charitable Donations Standards |
‘Other equity instruments’ and note 34 ‘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 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 ratio.
When applying the eligibility restrictions, Aegon determines its tiering limits based on:
Environmental, | ||||||||
social and personnel matters | • Covers Aegon’s objectives with regard to community investment, including priority areas, selection criteria, governance and approval | • Cash donations to charities and other good causes | • Cash donations totaled EUR 9.5 million, an increase of 16.4% from EUR 8.2 million. | |||||
• Also details Aegon’s contribution to humanitarian aid | • Value of employee volunteering hours granted | • Value of employee volunteering totaled EUR 0.2 million, a decrease of 77.8% from EUR 0.9 million. | ||||||
• Value of community investment as % net income | • Total value of community investment amounted to EUR 9.7 million, an increase from EUR 9.0 million. Total community investment represented 17.6 % of our net income, up from 0.6% in 2019. The increase was due mainly to the | |||||||
Article 3.1.b(i) Environmental, social and personnel matters | Data protection | Global Information Security Policy • Sets out Company’s approach to cyber threats and data protection | • Maintenance of an internal IT Control Framework, and action items to address gaps in performance are documented and monitored | • Institutions like Aegon will continue to remain subject to information security attacks. | ||||
• Applies to all Aegon businesses | • The internal IT Control Framework is regularly mapped and updated to embed new and updated market standards | • To Aegon’s knowledge, the security attacks and events it experienced in 2020 were not material in nature. | ||||||
• Supported by mandatory training in data and cyber security | • Periodic attestation to the internal IT Control Framework, with certain exceptions as applicable by country unit, for among other reasons adequate implementation timelines | |||||||
• Oversight by Global Chief Information Security Officer | ||||||||
Article 3.1.b(i) Environmental, | Inclusion and | Statement on Inclusion & Diversity | ||||||
social and personnel matters | diversity | • Applies to all Aegon businesses worldwide | • Proportion of women in workforce | • Women accounted for 50% of Aegon’s workforce (up from 49%). | ||||
• Diversity also included in the Code of Conduct | • Proportion of women in senior management and at Supervisory, Executive or Management Board level | • Women accounted for 32% of the |
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The table below shows the composition of Aegon’s available and eligible own funds, taking into consideration tiering restrictions.Aegon’s Supervisory, Executive and Management Boards
December 31, 20171) | December 31, 2016 1) | December 31, 2016 | ||||||||||||||||||||||
Available own funds | Eligible own funds | Available own funds | Eligible own funds | Available own funds | Eligible own funds | |||||||||||||||||||
Unrestricted Tier 1 | 10,428 | 10,428 | 10,081 | 10,081 | 10,656 | 10,656 | ||||||||||||||||||
Restricted Tier 1 | 3,540 | 2,451 | 3,817 | 2,373 | 3,817 | 2,517 | ||||||||||||||||||
Tier 2 | 1,213 | 2,302 | 1,291 | 2,735 | 2,008 | 3,309 | ||||||||||||||||||
Tier 3 | 448 | 448 | 768 | 768 | 1,638 | 1,638 | ||||||||||||||||||
Total Tiers | 15,628 | 15,628 | 15,957 | 15,957 | 18,119 | 18,119 |
As a result of applying the restrictions to the available own funds, there was an overflow from Tier 1 restricted own funds to Tier 2 in the eligible own funds as of December 31, 2017.
Aegon’s use of leverage
Aegon uses leverage in order to lower the cost of capital that supports businesses in the Aegon Group, thereby contributing to a more effective use of capital and realizing capital efficiencies. 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:
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, subordinated and senior debt. Aegon’s total capitalization consists of the following components:
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 46 ‘Capital Management and Solvency’ to 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
CONTINUATION > Aegon Annual Report on Form 20-F 2020 |
EU Directive on Non- | Area | Policy or guideline | Indicators (used to monitor compliance and/or outcomes) | Performance 2020 | ||||
Article 3.1.b(i) | Environment | Environmental Policy | ||||||
Environmental, | ||||||||
social and personnel matters | • Emphasizes importance of minimizing damage to the environment through the Company’s use of energy and other resources2) | • Greenhouse gas (GHG) emissions from business operations (metric tons carbon dioxide-equivalent (CO2e)) | • Gross / location-based GHG emissions totaled 41,205 metric tons, down 30.5% compared with 2019. Net / market-based GHG emissions totaled 7,237 metric tons, down 59.4%. The significant decrease in emissions was due to lower energy consumption at our premises and reduced air travel as a result of changes to working practices in response to the COVID-19 pandemic. Accordingly, net / market-based emissions per employee were 57.9% lower at 0.4 metric tons, and 49.5% lower per EUR million revenue at 0.3 metric tons. | |||||
• Commits Aegon, where possible, to using renewable or sustainable sources of energy | • Energy consumption and air travel | • Electricity consumption decreased 15.1% from 88.9 GWh in 2019 to 75.5 GWh. | ||||||
• Gas consumption decreased 26.5% from 25.4 GWh in 2019 to 18.7 GWh. | ||||||||
• Air travel decreased 76.0% from 89.4 million km in 2019 to 22.1 million km. | ||||||||
• Renewable energy | • Consumption of renewable electricity as a proportion of total electricity consumption increased to 99% (74.7 GWh) compared with 97% (86.1 GWh) in 2019. | |||||||
• Consumption of renewable energy as a proportion of total energy consumption increased to 79% (74.7 GWh) compared with 75% (86.1 GWh) in 2019. | ||||||||
Article 3.1.b(ii) Respect for human rights | Human rights | Statement on Human Rights • Based on the UN Declaration of Human Rights, core standards of the International Labor Organization and the principles of the UN Global Compact. • 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 standards. • Consideration for human rights is built into Aegon’s Responsible Investment Policy, Vendor Code of Conduct and the Statement on Inclusion and Diversity. Other Company policies also cover aspects of human rights, including: • Code of Conduct • Speak Up • Gift and Entertainment • Conflict of Interest • Employment Screening • Anti-money laundering • Sanctions • Anti-fraud • Distribution Risk management • Third Party Risk management • Aegon UK also issues a modern slavery statement (in line with the UK government’s 2015 Modern Slavery Act). | • Results of Aegon’s biennial global Human Rights Risk Assessment (conducted internally and based on external sources3)). The assessment scores Aegon’s countries against a combination of ten publicly available indicators: • Civil and political rights • Corruption • Human development • Health coverage • Business environment • Illicit economy • Gender development • Working conditions • Rule of law • Internet inclusion | • Our 2020 assessment identified four ‘Aegon’ countries where the operating environment presents a meaningful human rights risk: • China • India • Indonesia • Turkey • These risks relate essentially to outside political factors. In the US, the Netherlands and 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 management4) focusing on indicators where Aegon has the greatest potential to minimize the human rights faced by the company. The aim, with these measures, is to ensure Aegon’s overall human rights risk remains low. | ||||
CONTINUATION > Aegon Annual Report on Form 20-F |
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EU Directive on Non- | Area | Policy or guideline | Indicators (used to monitor compliance and/or outcomes) | Performance 2020 | ||||
Article 3.1.b(i) | Investment | Responsible Investment Policy |
to financing Aegon’s mortgage portfolios through securitizations, warehouse facilities, covered bonds, and the funding of US Regulation XXX and Guideline AXXX redundant reserves.
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:
Environmental, |
social and personnel matters | • Covers all major asset classes | • Total investments in responsible investment solutions (RIS) | • Our responsible investment solutions totaled EUR 213 billion. | |||||
• Sets out minimum social and environmental standards for Aegon’s investments Under the policy, Aegon excludes investment in some areas, including controversial weapons, tobacco, oil sands and certain coal mining companies. Aegon’s 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 (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 engagement with issuers, focused on ESG issues. Throughout 2020, we refreshed our company-wide Responsible Investment Policy which we put into force as of January 2021. In this policy, next to reiterating all our previous environmental commitments, we further limit our coal-related investments through broadening the exclusion criteria for coal producers and companies with coal-fired electricity generation capacity. | • Companies engaged with as part of Aegon’s approach to responsible investment | • 49% of our engagements addressed corporate governance matters, including corruption, remuneration and board structure. • 20% of our engagements addressed social issues including health, human rights (diversity, living wage, access to medicine, COVID-19 and its adverse impacts, for example on working conditions). • 24% of our engagements addressed issues concerning the environment, with climate change constituting the most common discussion theme. | ||||||
Article 3.1.b(i) Environmental, social and personnel matters | Occupational health and safety | Global Health & Safety Statement | ||||||
• Commits Aegon to upholding high health and safety standards in its offices | • Number of work-related injuries and illnesses | • Work-related injuries and illnesses decreased by 74.5% to 47, from 184 the previous year. | ||||||
• Aim is to limit work-related injuries and illnesses (including stress) to an absolute minimum | • Absentee rate | • Employee absenteeism decreased to 1.7%, from 1.8% the previous year. | ||||||
Article 3.1.b(i) | Procurement | Vendor Code of Conduct | ||||||
Environmental, | ||||||||
social and personnel matters | • Sets the standards for the business relationship between Aegon and its vendors in order to enable Aegon manage the most material environment, social and governance risks associated with our procurement of goods and services under the following categories: • Corporate governance • Human rights • Labor rights and good health & well-being • Climate change and biodiversity • Aegon requires its vendors to comply with the Standards and assesses the ESG-related performance of those vendors against the standards, and may monitor for performance improvement. | • Top 250 suppliers (representing 80% of total procurement spend) scored for environment, social and governance performance through the EcoVadis platform. | • By the end of 2020, 67 of Aegon’s in-scope suppliers (top 250 representing 84% total spend) had so far been assessed for ESG performance through our implementation of the EcoVadis rating platform. This equates to 56% of the in-scope procurement spend. In the previous year, 41% of our total procurement spend was covered by the former Supplier Sustainability Declaration process. | |||||
Article 3.1.b(i) | Product | Pricing and Product Development Policy | ||||||
Environmental, | development | |||||||
social and personnel matters | • Sets out market conduct principles, aimed at ensuring fair treatment of customers and reasonable distribution of returns between customers, intermediaries and shareholders. | • Percentage compliance with terms of Pricing and Product Development Policy | • 93% compliance with requirements of Pricing and Product Development Policy (down from 94% the previous year), due to increased policy granularity. |
All external financing provided to captives to support statutory reserves is disclosed in note 39 ‘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 48 ‘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.
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.
Aegon also has access to domestic and international money markets through its EUR 2.5 billion commercial paper programs. As at December 31, 2017, Aegon had EUR 72 million outstanding under these programs (2016: EUR 128 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 a LOC facility of USD 2.6 billion. On February 28, 2018, the company refinanced its syndicated revolving credit facility. The new facility matures in 2023. The LOC facility matures in 2021. 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.
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.
At the holding company Aegon N.V., liquidity is sourced from internal dividends from operating units and through the capital markets. The main sources and uses of liquidity at the holding company Aegon N.V. are dividends 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.
CONTINUATION > Aegon Annual Report on Form 20-F 2020 |
EU Directive on Non- | Area | Policy or guideline | Indicators (used to monitor compliance and/or outcomes) | Performance 2020 | ||||
Article 3.1.b(i) Environmental, social and personnel matters | Remuneration | 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 and non-financial performance metrics (including employee engagement and customer loyalty scores) | • Percentage of compliance with requirements of the Global Remuneration Framework | • 95% compliance with requirements of the Global Remuneration Framework (up from 94% compliance the previous year)5. | ||||||
Article 3.1.b(i) | Tax | Global Tax Policy | ||||||
Environmental, | ||||||||
social and personnel matters | • 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) | • EUR 319 million paid by Aegon in tax and; | |||||
• Taxes collected on behalf of others | • another EUR 2.51 billion in taxes collected on behalf of others. |
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, 2017, Aegon held a balance of EUR 1.4 billion in excess cash in the holding, compared with EUR 1.5 billion on December 31, 2016. The decrease of EUR 0.1 billion reflects the net impact of dividends from subsidiaries and capital injections in subsidiaries, divestments, acquisitions, the issuance of senior unsecured notes, holding expenses and capital returns to shareholders. During 2017, an injection of EUR 1 billion was made into Aegon the Netherlands to strengthen its capital position. This cash outflow was partly offset by dividends from Aegon Americas and Aegon UK. The EUR 1,359 million includes dividends from Aegon Americas’ regular capital upstream and capital releases as a result of the divestment of thepay-out annuity and BOLI/ COLI businesses. The EUR 167 million from Aegon UK was funded from the capital release related to the divestment of the annuity portfolio. The EUR 176 million from Asia was funded through capital efficiencies programs. The proceeds of the issuance of EUR 500 million senior unsecured notes at-16 basis points yield on August 30, 2017, offset the redemption of EUR 500 million 3% senior unsecured notes on July 18, 2017.
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.
1 | Includes any fines in excess of EUR 100,000. |
2 | Aegon no longer collects data on water consumption. As an office-based company, our water use is not material. |
3 | The methodology for Aegon’s Human Rights Risk Assessment is derived from the UN Declaration of Human Rights. The assessment uses publicly available data from ten non-governmental organizations specializing in human rights and which have a reputation for conducting fair and appropriate assessments and include Freedom House, Transparency International, UN Development Program, the World Bank and the World Health Organization. |
4 | These measures include effective access to Speak Up, 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. |
5 | 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 20-F 2020 |
Aegon’s Code of Conduct embodies the Company’s values and helps ensure that all employees act ethically and responsibly and is available at https://aegon.com/investors/compliance/code-of-conduct/?page=1.
It prescribes a mandatory set of standards 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 and employees of all Aegon companies around the world (regardless of the contractual basis of their employment), including associate companies, joint ventures and other co-operative ventures.
All Aegon employees must certify that they have read and understood the Code of Conduct, and agree to abide by it. Employees are also required to follow a mandatory e-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 creating and maintaining an open and supportive culture, one where 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, and inappropriate, unethical, fraudulent or illegal 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 - who, in good faith and with due care, report concerns of poor practice, inappropriate, unethical or illegal behavior - against any form of retaliation. 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 20-F |
Regulation and supervision 93 | ||
Regulation and Supervisionsupervision
IndividualIndividually regulated Aegon companies are each subject to prudential supervision in their respective home countries. Insurance(Re)insurance companies and banking companies, together with a numberAegon Bank (KNAB), as well as some 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 areas a whole is subject to prudential requirements on a consolidatedgroup basis, including capital, internal governance, risk management, reporting and reporting requirements. Such additionaldisclosure requirements, lead, in certain circumstances,pursuant to duplicative requirements, such as the simultaneous application of consolidated banking requirements and Solvency II group solvency requirements.and the Financial Conglomerates Directive. Eligible capital to cover solvency requirements includes shareholders’ equity, perpetual capital securities, and dated subordinated debt.
Solvency IIExecutive Board
Introduction
The Solvency II framework imposes prudential requirements at group level as well as onAegon’s Executive Board is charged with the individual EU insuranceoverall management of the Company and reinsurance companies inis therefore responsible for achieving Aegon’s aims and developing the Aegon Group. Insurance supervision is exercised by local supervisors on the individual insurancestrategy 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 accountits associated risk profile, in addition to overseeing any relevant sustainability issues and the correlation between these risks.development of the Company’s earnings. Each member has duties related to his or her specific area of expertise.
The Solvency II framework is structured along three pillars. Pillar 1 comprises quantitative requirements (including technical provisions, valuationAegon’s Articles of assets and liabilities, solvency requirements and own fund requirements). Pillar 2 requirements include governance and risk management requirements, and requirementsAssociation determine that 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,certain decisions the Solvency II framework is complemented by requirements that apply at group level (group supervision). This means that a number of requirementsExecutive Board must seek prior approval 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.
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 Supervisory Board and/or reinsurance company’s balance sheet ability to withstand a1-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 combinationGeneral Meeting of Shareholders. In addition, the Supervisory Board may also subject other Executive Board decisions to its prior approval.
Composition of the standard formulaExecutive Board
Aegon’s Executive Board consists of Lard Friese, who is Chief Executive Officer (CEO) and an internal model, and requires approvalChairman of the supervisory authorities)Executive Board, and Matt Rider, who is Chief Financial Officer (CFO). An internal model is developedLard Friese was appointed as member to the Executive Board during the Annual General Meeting of Shareholders on May 15, 2020, following which Alex Wynaendts resigned as member of the Executive Board and CEO of the Company.
The number of Executive Board members and their terms of employment are determined by the insurance or reinsurance company in question, and should better reflectCompany’s Supervisory Board. Executive Board members are appointed by the actual risk profileGeneral Meeting of Shareholders for a four-year term, following nomination by the Supervisory Board.
The members of the insurance or reinsurance companyExecutive Board have an engagement agreement with the Company rather than an employment
contract. The Company’s Remuneration Policy for the standard formula. Aegon (asExecutive Board limits exit arrangements to a group) uses a PIM.maximum of one year of the fixed component of the salary.
In addition2020, 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 SCR, insurance and reinsurance companies should also calculate a Minimum Capital Requirement (MCR). This represents a lower levelmembers of financial security than the SCR, below which the level of eligible own funds heldExecutive Board.
Management Board
Aegon’s Executive Board is assisted in its work by the insurance or reinsurance company is not allowed to drop. An irreparable breachCompany’s Management Board, which has 12 members, including the members of the MCR would lead toExecutive Board. Aegon’s Management Board is composed of Lard Friese, Matt Rider, Mark Bloom, Maarten Edixhoven, Mike Holliday-Williams, Allegra van Hövell-Patrizi, Marco Keim, Onno van Klinken, Carla Mahieu, Mark Mullin, Bas NieuweWeme and Duncan Russell.
Aegon’s Management Board works in unison with the withdrawalExecutive 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 insurance or reinsurance company’s license.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.
InsuranceIn the relationship between the Supervisory Board and reinsurance companies are required to hold eligible own funds against the SCRManagement Board, the CEO shall be the first contact for the Supervisory Board and MCR. Own funds capital is divided into three tiersits Chairman. Further, the members of the Boards will act in accordance with the qualityprovisions 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.
The capital of the own funds. The lower tiersCompany
Aegon has an authorized capital of own funds (tiers 2EUR 1,080 million, divided into 6 billion common shares and 3) represent3 billion common shares B, each with a limited partnominal value of EUR 0.12. As of December 31, 2020, a total of 2,098,114,300 common shares and 571,795,040 common shares B had been issued.
Depository receipts for Aegon shares are not issued with the eligible own funds,Company’s cooperation.
As per the Dutch act on conversion of bearer shares, all 16,040 bearer shares outstanding at December 2020 have been converted into registered shares held by the Company as excess lower tier capitalper 1st January 2021. Until January 1, 2026 and upon request of a
Aegon Annual Report on Form 20-F 2020 |
holder of a certificate of a bearer share, the Company will provide the holder of such a valid certificate of a bearer share, with registered share as a replacement of the bearer share.
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 are one-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 as one-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, 2020, Vereniging Aegon, Aegon’s largest shareholder, held a total of 291,145,638 common shares and 558,910,640 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 2020, 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 14, 2020, Aegon N.V. repurchased 2,955,600 common shares B from Vereniging Aegon for the amount of EUR 228,911.22 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 15, 2020, Vereniging Aegon exercised its options rights to purchase in aggregate 2,154,000 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 15, 2020 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 term ‘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, BlackRock, Inc., EuroPacific Growth Capital Fund, Capital Research and Management Company and FMR LLC 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 February 26, 2021, Dodge & Cox International Stock Fund stated to hold 80,049,394 common shares, representing 3.0% of the issued capital as at December 31, 2020.
On February 11, 2021, Dodge & Cox’s filing with the US Securities and Exchange Commission (SEC) shows that Dodge & Cox holds 222,733,093 common shares, representing 8.6% of the issued and outstanding capital as at December 31, 2020, and has voting rights for 217,431,134 shares, representing 8.3% of the votes as at December 31, 2020.
Based on its last filing with the Dutch Autoriteit Financiële Markten as at January 27, 2021, EuroPacific Growth Capital Fund stated to hold 80,347,053 common shares, representing 3.0% of the issued capital as at December 31, 2020.
Based on its last filing with the Dutch Autoriteit Financiële Markten as at January 6, 2021, Capital Research and Management Company stated to hold 80,878,440 common shares, representing 3.0% of the issued capital as at December 31, 2020.
Based on its filing with the Dutch Autoriteit Financiële Markten as at June 10, 2015, FMR LLC, a US based investment management firm, stated to hold 81,510,408 shares, representing 3.0% of the issued capital as at December 31, 2020.
Based on its filing with the Dutch Autoriteit Financiële Markten as at February 9, 2021, BlackRock, Inc. stated to hold 129,522,983 shares, representing 4.8% of the issued capital as at December 31, 2020 and 158,656,993 voting rights, representing 5.9% of the issued capital as at December 31, 2020.
On January 28, 2021, BlackRock, Inc.’s filing with the US Securities and Exchange Commission (SEC) shows that BlackRock holds 164,131,698 common shares, representing 6.3% of the issued and outstanding capital as at December 31, 2020, and has voting rights for 145,558,389 shares, representing 5.6% of the votes as at December 31, 2020.
Aegon Annual Report on Form 20-F |
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 credits or guarantees). The MCR must be covered entirely byon-balance sheet items (‘basic own funds’).
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, reinsurance and other risk mitigating techniques. Risk management relating to Solvency II is discussed in further detail in the section Risk management on page 93. 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-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 more detailed reporting and disclosure requirements than formerly prescribed under the Solvency I framework. 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 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 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 entities in the group calculation (as opposed to the Accounting Consolidation method, which is the default method under Solvency II). However, subject to certain conditions, entities in other financial sectors may be included in accordance with the accounting consolidation method. In particular, this may
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.
It is the right of Vereniging Aegon to, at its own discretion, take the decision to exercise its full voting rights on common shares B. In case of a Special Cause, Vereniging Aegon also preserves its full voting rights on common shares B if the Executive Board invoked a “250-day period to consider” in circumstances as are expected to be determined in the Dutch Civil Code following adoption of a new act thereto by the Dutch government in 2021 or the “180-day period respond time” as provided for in the Dutch Corporate Governance Code.
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 fully paid-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 66 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 of two-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 requires a 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 with a 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.
Aegon Annual Report on Form 20-F |
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 Europe in the EU Capital Requirements Directive (CRD IV) and EU Capital Requirements Regulation (CRR) on a solo-basis and on consolidated basis, whereby consolidation takes place at the level of Aegon Bank N.V The prudential requirements (including CRD IV and CRR) are described in more detailed on page 61.
As referred to in the ‘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.
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.
Globally systemically important insurer(G-SII)
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). The FSB reviews 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 that the measures will continue to apply to theG-SIIs that were on the 2016 list. Consequently, Aegon continues to be designated at the time of publication of this annual report.
As a result of theG-SII designation, Aegon is subject to an additional layer of direct supervision at group level. 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 develop a liquidity risk management plan, a systemic risk management plan, and an ex ante recovery plan. In accordance with these requirements, Aegon submitted plans to DNB, and to theG-SII crisis management group (CMG) that was established for Aegon and is updating these plans on an annual basis. The CMG is required to: enter into a cross-border cooperation agreement; develop a resolution plan based on a resolution strategy (within 18 months); and undertake a resolvability assessment (within 24 months).
International Capital Standards (ICS)
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 convergence on the development 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. The 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
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.
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 2020 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 are non-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, has a 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-F |
monitoring period to assess whether the aggregation approach can be considered as outcome-equivalent for implementation of ICS in the US.
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 made to the regulatory frameworks 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.
Members of the Executive Board
Lard Friese (1962, Dutch)
CEO and Chairman of the Executive and Management Boards of Aegon N.V.
Lard Friese earned a Master of Law degree at the University of Utrecht. He has worked most of his professional career in the insurance industry, including ten years at Aegon between 1993 and 2003. He was employed by ING as from 2008, where he held various positions. In July 2014, upon the settlement of the Initial Public Offering of NN Group N.V., he became the CEO of NN Group. During his tenure at NN Group, he led a wide range
of businesses in Europe and Asia and created a stable platform for growth and shareholder value.
He has extensive experience in the areas of insurance, investment management, customer centricity, mergers & acquisitions, and business transformation. Mr. Friese was appointed CEO Designate as of March 1, 2020 and is appointed as member of the Executive Board for a term of four years on the AGM of May 15, 2020. Mr. Friese is Chairman of Aegon’s Executive Board and Management Board
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
Lard Friese: 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.
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.
Aegon Annual Report on Form 20-F |
Composition of the Boards54 | ||
Mike Holliday-Williams (1970, British)
CEO of Aegon UK and member of the Management Board of Aegon N.V.
Mike Holliday-Williams started his career with WHSmith in 1991 as a graduate trainee, working as a Retail Manager in many UK stores and in Business Development. In 1997 he joined Centrica where he had several general management and marketing roles in British Gas, before becoming the Residential & Marketing Director of Centrica Telecoms/One.Tel in 2004.
In 2006 Mr Holliday-Williams joined RSA, becoming the UK Managing Director of Personal Lines in 2008, responsible for
MORETH>N, Partnerships and the Broker businesses. In 2011 he moved to Copenhagen to become the CEO of RSA Group’s Scandinavian businesses, Codan A/S and Trygg-Hansa, he also became a member of the RSA Group Executive. In 2014, he moved to Direct Line Group (DLG) to became MD of the Personal Lines business, joining the Board of DLG in Feb 2017.
Mr. Holliday-Williams joined Aegon UK in October 2019, to take over as CEO. He’s a member of Aegon’s Management Board since March 2020.
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 former 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.
Aegon Annual Report on Form 20-F 2020 |
Composition of the Boards55 | ||
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 is a former member of the Supervisory Board of the Royal BAM Group. Ms. Mahieu is a member of 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 from October 2017-October 2018 and served as a member of the Board’s Executive Committee through October 2019. He was re-appointed in October 2020 and remains a member of their Board of Directors.
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 and is a member of the Executive Board of Aegon Industrial Fund Management Co., Ltd (China).
He is also a member of the Board of the Dutch Fund and Asset Management Association (DUFAS), 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.
Duncan Russell (1978, British)
Chief Transformation Officer and member of the Management Board of Aegon N.V.
Duncan Russell has worked most of his professional career in the financial services sector, lastly as CFO and Board member at Admiral Financial Services, the financial services subsidiary of Admiral Group, responsible for finance, analytics, funding, credit risk and pricing.
Before joining Admiral Group, Mr. Russell was Head of Group Strategy and Corporate Finance at NN Group N.V.,
the Netherlands, where he was responsible for capital management, treasury, M&A, and the group’s strategy.
Before joining NN Group N.V., Mr. Russell held various positions at financial services groups in London.
Mr. Russell was appointed Chief Transformation Officer and member of the Management Board of Aegon N.V. on September 1, 2020.
Aegon Annual Report on Form 20-F 2020 |
Composition of the Boards56 | ||
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 independent director at the Board of Directors of Singular Bank S.A. (formerly known as Self Trade Bank S.A., not listed) and an independent director at Amadeus IT Group S.A..
Mark A. Ellman (1957, American)
Member of the Nomination and Governance 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 America/ 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 Risk Committee and the Supervisory Board Nomination and Governance Committee. Mr. Ellman was a 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.
Caroline Ramsay (1962, British)
Chair of the Audit Committee
Member of the Risk Committee
Mrs. Ramsay gained a Master’s degree in Natural Sciences in 1984 at Cambridge. She started her professional career at KPMG in Ipswich and London, where she qualified as a Chartered Accountant in 1987. During her long career, Mrs. Ramsay gained substantial experience in Finance and Audit at large insurance companies. In addition to her strong financial background, Mrs. Ramsay acquired extensive managerial expertise in executive roles at Norwich Union plc (now Aviva plc) and RSA.
Mrs. Ramsay holds various Non-Executive Board positions. In 2013, she joined the board of Scottish Equitable – and as of 2017 also the boards of Aegon UK plc and Cofunds Ltd. – where she served as the Audit Committee Chair until 14 May 2020. Mrs. Ramsay was appointed to Aegon’s Supervisory Board in May 2020 and her current term ends in 2024. She is Chair of the Supervisory Board Audit Committee and a member of the Supervisory Board Risk Committee.
Mrs. Ramsay is a senior independent director of the Board of Brit Syndicates Ltd (not-listed), Standard Life UK Smaller Companies Trust Plc and of Tesco Underwriting Ltd. (non-listed). Mrs. Ramsay is a member of the FCA Regulatory Decisions Committee and Member of the Payment Systems Regulator’s Enforcement Decisions Committee.
Thomas Wellauer (1955, Swiss)
Member of the Audit Committee
Member of the Remuneration Committee
Thomas Wellauer started his professional career at McKinsey & Company, where he served as Senior Partner and Practice Leader. He held various executive management positions at multi-industries, including financial services, pharmaceuticals and chemicals. Among others, he served on the executive committees of Winterthur Insurance, Credit Suisse, Swiss Re, and Novartis. His most recent position from 2010 to 2019 was Group Chief Operating Officer of Swiss Re. During his career, Mr. Wellauer also served as independent director on the boards of several global companies such as Munich Re and Syngenta.
Mr. Wellauer was appointed to Aegon’s Supervisory Board in May 2020 and his current term ends in 2024. He is a member of the Supervisory Board Audit Committee and a member of the Supervisory Board Remuneration Committee.
Aegon Annual Report on Form 20-F 2020 |
Composition of the Boards57 | ||
Mr. Wellauer is Chairman of the Board of Directors of SIX Group (not-listed). In addition, he serves as Chairman of the Board of Trustees of the University Hospital Zurich Foundation and Chairman of the International Chamber of Commerce in Switzerland.
Corien M. Wortmann-Kool (1959, Dutch)
Vice Chair of the Supervisory Board
Member of the Audit Committee
Member of the Nomination and Governance Committee
Corien M. Wortmann-Kool is Chair 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 Chair 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 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 and a former member of the Supervisory Board of Het Kadaster until March 2021.
Dona D. Young (1954, American)
Chair of the Risk Committee
Member of the Audit 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 Chair 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 and serves as an independent member of the Advisory Board of Spahn and Rose (not listed) and as a member of the Board of Directors of USAA (not listed). Furthermore, Ms. Young is a member 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 a member of the Board of the National Association of Corporate Directors.
Aegon Annual Report on Form 20-F 2020 |
Report of the Supervisory Board 58 | ||
Supervisory Board
The Supervisory Board is entrusted with supervising and advising the Executive Board onin regard to 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 nineseven members on December 31, 2017.2020. 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 Identified Staff, and for staff inHeads of Group Control Functions.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 pages 131-13548-52 of this Annual Report and in the Corporate Governance Statement published on aegon.com.
Composition of the Supervisory Board and
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 2020 can be found on pages 56-57 of this Annual Report 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 three changes to the constellation of the Supervisory Board in 2020: During the 2020 Annual General Meeting, Mr. Thomas Wellauer and Ms. Caroline Ramsay were appointed as new Supervisory Board members for a term of four years as of May 15, 2020 (i.e. until the end of the AGM to be held in 2024). After having been a member of the Supervisory Board for twelve years, Mr Ben van de Veer retired as member of the Supervisory Board during the 2020 Annual General Meeting.
During the Annual General Meeting on June 3, 2021, the Supervisory Board will propose to the shareholder to appoint Mr. Jack McGarry and Mr. Frans Blom as members to the Supervisory Board for a term of four years as of June 3, 2021. 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.
An induction program for Supervisory Board members is in place and the program is being updated regularly in order to meet the needs of the specific Board members.
Aegon Annual Report on Form 20-F 2020 |
Report of the Supervisory Board59 | ||
Executive Board
The Executive Board consists of Mr. Lard Friese, Chief Executive Officer (CEO) and Chairman of the Executive Board, and Mr. 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 https://aegon.com/about/governance/executive-board/executive-board-documentation/.
During the Annual General Meeting on May 15, 2020, Mr. Lard Friese was appointed as member to the Executive Board. Mr. Friese succeeded Mr. Wynaendts as Chief Executive Officer of the Company.
Board meetings
Attendance
In 2020, the Supervisory Board had twelve meetings: four related to the quarterly results; one to the annual report; and others related to strategy (including the budget and Medium Term Plan). Due to COVID-19, most meetings were held by video conference. Supervisory Board Committee meetings were usually held the day before the meetings of the full Supervisory Board. All Supervisory Board meetings were attended by all Board members. All committee meetings were attended by all committee members, except for one Risk Committee meeting that Mr. Ben Noteboom was unable to attend. An overview of Supervisory Board members’ attendance by meeting is provided in the table below.
Name | Regular SB meeting | Audit Committee | Risk Committee | Combined Audit & Risk Committee | Remuneration Committee | Nomination & Governance Committee | Additional SB mtgs. /calls | Additional Nomination & Governance Committee calls | ||||||||||
William Connelly | 7/7 | - | - | - | 5/5 | 5/5 | 5/5 | 1/1 | ||||||||||
Mark Ellman1) | 7/7 | 2/2 | 3/3 | 2/2 | - | 2/2 | 5/5 | - | ||||||||||
Ben Noteboom | 7/7 | - | 2/3 | 2/2 | 5/5 | - | 5/5 | - | ||||||||||
Caroline Ramsay1) | 4/4 | 2/2 | 2/2 | 1/1 | - | - | 3/3 | - | ||||||||||
Ben van der Veer1) | 3/3 | 2/2 | - | 1/1 | - | 3/3 | 2/2 | 1/1 | ||||||||||
Thomas Wellauer1) | 4/4 | 2/2 | - | 1/1 | 2/2 | - | 3/3 | - | ||||||||||
Corien Wortmann | 7/7 | 4/4 | - | 2/2 | - | 5/5 | 5/5 | 1/1 | ||||||||||
Dona Young | 7/7 | 4/4 | 3/3 | 2/2 | - | 5/5 | 5/5 | 1/1 |
1 | Where a Supervisory Board member retired from the SB, stepped down from a Committee or was appointed during the year, only meetings during his / her tenure are taken into account. |
2 | Outstanding compensation for 4Q2019 has been paid out in 1Q2020. Outstanding compensation for 4Q2020 will be paid out in 1Q2021. |
Based on the agenda topics, members of the Executive Board and Management Board attended the Supervisory Board meetings held in 2020. Also, at the request of the Supervisory Board, other Company executives attended the meetings to provide reports and updates on specific topics. Representatives from Aegon’s external auditor PwC attended the March 2020 Supervisory Board meeting on Aegon’s 2019 Annual Report. PwC also attended all 2020 Audit Committee meetings including the combined Supervisory Board Audit and Risk Committee meetings. Regular Board meetings were preceded or followed by meetings attended only by the members of the Supervisory Board and the Chief Executive Officer. Furthermore, the Supervisory Board held meetings without Executive Board or Management Board members present.
Highlights and activities
Key topics discussed during the 2020 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, human resources items and the COVID-19 developments.
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 2021 meeting in the presence of the external auditor PwC. The Budget/Medium Term Plan 2021-2023 was discussed in November 2020 and approved ahead of the Capital Markets Day, December 10, 2020.
The Supervisory Board regularly discussed the long-term value creation strategy and transformation 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, narrowing the strategic focus to selected core and growth markets was an additional important strategic priority that was 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 with acquisitions, the sale of underperforming businesses and the disposals of entities no longer consistent
Aegon Annual Report on Form 20-F 2020 |
Report of the Supervisory Board60 | ||
with Aegon’s strategy. During the year, the Board discussed various M&A and balance sheet transactions, including but not limited to the expansion of the life and non-life insurance partnership in Spain and the sale of the UK-based provider of accident insurance products, Stonebridge and the announced sale of the insurance, pension and asset management business in Hungary, Poland, Romania, and Turkey.
In 2020, Supervisory Board discussions included the following topics:
◆ | COVID-19 developments |
◆ | Strategy, including Aegon’s long-term value creation based on the three core markets, three growth markets and one global asset manager, its responsible business strategy and business reviews; |
◆ | Acquisitions, divestments and the strategic direction of Aegon’s businesses; |
◆ | Executive Board and senior management succession planning; |
◆ | Executive remuneration, including the remuneration framework; |
◆ | Composition of the Supervisory Board, including the Board’s effectiveness; |
◆ | Corporate Governance; |
◆ | Human resources, including talent development, results of the global employee survey and cultural change and behavior; |
◆ | Annual and quarterly results, dividends and the Company’s Medium Term Plan, including the 2021 budget, capital and funding plan; |
◆ | Capital generation and Solvency II capital position, including regulatory capital reports and management actions reflecting COVID-19 impacts and developments in the financial markets during 2020; |
◆ | 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; |
◆ | 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, IT Security, technological developments, and innovations. |
Results and budget
In February 2020, the Supervisory Board convened to discuss the fourth quarter 2019 results. In March 2020, the Supervisory Board reviewed and adopted Aegon’s 2019 Annual Report, the Consolidated Financial Statements of Aegon N.V., and the Financial Statements of Aegon N.V.. In May, August and November, the Supervisory Board reviewed Aegon’s first, second and third quarter 2020 results respectively.
In November 2020, the Supervisory Board and Management Board reviewed the Company’s Medium Term Plan, including the budget and capital plan for 2021. The Boards took note of the uncertainties and challenges in the coming years as described in the Plan. These included, among others: COVID-19 developments, increased regulatory requirements, lower interest rates, market volatility and equity markets, digital developments, and execution risk. The Board discussed Aegon’s capital generation and capital projections, together with the continued focus on cost efficiency. The Supervisory Board supported the Medium Term Plan and approved the Budget for 2021. The Board also approved the 2021 Funding Plan and authorized the Executive Board to execute on the Funding Plan in 2021.
Legal, compliance and regulatory affairs
In 2020, 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 General Counsel, the Global Head of Compliance and the Global Head of Operational and Conduct Risk Management. In particular, the Board discussed the state of the Legal and Compliance functions, General Data Protection Regulation developments, Compliance risks, Fraud and Financial crime including know your customer and ultimate beneficial owner requirements, anti money laundering standards and 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.
In December 2020, the Chairs of the Supervisory Board, Audit Committee and Risk Committee visited the group supervisor, the Dutch Central Bank (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 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 provided 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. Furthermore, the Board was updated on the IFRS 9 developments and participated in an IFRS 17 educational session.
Board review
The Supervisory Board undertakes a Board effectiveness review on an annual basis and an external assessment takes place at least once every three years. The 2020 (internal) assessment was based on a survey completed by Supervisory Board members and Management Board members, as well as interviews with all Supervisory Board members. The Board review assessed
Aegon Annual Report on Form 20-F 2020 |
Report of the Supervisory Board61 | ||
the functioning of the Board as a whole, the composition, processes and information, the functioning of the Committees and the interaction within the Board and with the Executive and Management Board. The results of the assessment were discussed in February 2021, and the Supervisory Board will act 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 Board and Management Board over the preceding calendar year in February 2021. In addition, the Executive Board evaluated its own functioning as a whole and that of the individual Executive Board members as well. The performance of the members of the Executive and Management Boards was also discussed regularly during the year. During these reviews, the Executive Board and the Supervisory Board also identified areas for which Board members - or the Board as a whole - could require training or education.
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:
◆ | Audit Committee; |
◆ | Risk Committee; |
◆ | 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, 2020, the composition of the Audit Committee was as follows:
◆ | Caroline Ramsay (Chair); |
◆ | Thomas Wellauer; |
◆ | Corien M. Wortmann-Kool; and |
◆ | Dona D. Young. |
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 Rule 10A-3 of the SEC, and it also confirmed that the Chair of the Audit Committee, Caroline Ramsay, qualified as a financial expert according to the Sarbanes-Oxley Act in the United States and her competence in accounting and auditing according to the Audit Committee Decree 2016 (‘Besluitinstellingauditcommissie’), section 2(3).
Role and responsibilities
As Aegon has both an Audit Committee and a Risk Committee, the risk management responsibilities outlined 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. |
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 https://aegon.com/contentassets/d837 d12c114040a2aab5bbde9e340d5e/aegon-supervisory-board-audit-committee-charter-2020.pdf.
Committee meetings
In 2020, the Audit Committee held six meetings, which included two combined meetings with the Risk Committee of the Supervisory Board in May and December 2020. Audit Committee meetings were attended by, amongst others, 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.
Aegon Annual Report on Form 20-F 2020 |
Report of the Supervisory Board62 | ||
Members of Aegon’s Group Risk, Group Legal, Group 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 2020 interim and full year financial statements, the Audit Committee:
◆ | Reviewed and discussed the management letter and follow up actions with the Executive and the Management Board, Internal Audit and PwC; |
◆ | Discussed PwC’s interim 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; |
◆ | Reviewed and discussed areas of significant judgments in the preparation of the financial statements, including, in particular: Solvency II, investment valuation and impairments, accounting changes, economic and actuarial assumption setting, and model validations; and |
◆ | Reviewed and approved the internal and external audit plans for 2020 and monitored execution, including progress in respect of recommendations made. |
The Audit Committee was satisfied with the explanations provided by the Executive and Management Board, Internal Audit and PwC, and conclusions reached. Recurring items on the Audit Committee agenda in 2020 were Solvency II developments, controls, capital and liquidity, legal and compliance updates, and preparations for IFRS 9 and IFRS 17. Other items included tax updates, capital and funding plans and the performance review of the internal audit function and external auditor.
Risk management and internal controls
With respect to their oversight of internal controls (other than those where oversight is carried out via the Risk Committee), the Audit Committee:
◆ | 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 2020 included the Internal Audit strategy, audit planning process, Internal Audit charter, Internal Audit functional governance, quality assurance reviews, issue tracking and resolution, control environment, Information Security, Solvency II, third party management and administration partnerships, General Data Protection Regulation, performance management and integrity; |
◆ | Reviewed the internal control framework, among others with respect to the Sarbanes-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 2020. In addition, the Supervisory Board followed the recommendation of the Audit Committee to propose to the shareholder, during the Annual General Meeting on June 3, 2021, to re-appoint the external Auditor for the period 2021-2023. 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 Annexes A, B and C of the Audit Committee Charter on https://aegon.com/contentassets/d837d12c114040a2aab5bbde9e340d5e/aegon-supervisory-board-audit-committee-charter-2020.pdf.
The Risk Committee
Composition
On December 31, 2020, the composition of the Risk Committee was as follows:
◆ | Dona D. Young (Chair); |
◆ | Mark A. Ellman; |
◆ | Ben J. Noteboom; and |
◆ | Caroline Ramsay. |
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 assessment; |
◆ | Risk responses and internal control effectiveness; |
◆ | Risk monitoring; and |
◆ | Risk reporting. |
Furthermore, the Risk Committee regularly reviews risk exposures as they relate to capital, earnings, liquidity, operations, and compliance with risk policies. The Company’s risk management is an important topic for the Supervisory Board, and the challenge and oversight role of the Risk Committee was particularly important this year in light of the exceptional disruptive circumstances due to Brexit and the COVID-19 pandemic.
Aegon Annual Report on Form 20-F 2020 |
Report of the Supervisory Board63 | ||
For more information about the functioning of the Risk Committee, please see the Risk Committee Charter on https://aegon.com/contentassets/ f8c52ba9146b4f3789f992efb84a6750/aegon-supervisory-board-risk-committee-charter-2020.pdf.
Committee meetings
The Risk Committee works closely together with the Audit Committee and held two combined meetings, one in May and one in December 2020. The combined meetings focused on the systems of governance, third party & affiliate management, the Model Validation Plan, and IT Security.
The Risk Committee convened five times in 2020, including the combined meetings with the Audit Committee.
The Company’s Chief Executive Officer and Chief Risk Officer attended all the Committee meetings. The Chief Financial Officer had a standing invitation to attend the Committee meetings. The Chair of the Risk Committee granted the Global Chief Audit Executive a standing invitation to all the Risk Committee meetings. Other Management Board members and senior managers attended the meetings when relevant for the discussion.
Risk management and Internal controls
Recurring items on the Risk Committee agenda in 2020 were risk exposure information, risk policy compliance monitoring, risks associated with IT and information security, as well as risks associated with the pandemic and strategic 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 2020 by:
◆ | Discussing the quarterly risk dashboard, including all material group level risks, with the Executive Board, Chief Risk Officer, and relevant senior managers. The material group level risks consisted of financial, actuarial, and operational risks, including cybersecurity and information security risk. Specific attention was paid to the Compliance and Control roadmap of Aegon the Netherlands; |
◆ | Assessing a quarterly 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. A deep-dive was scheduled on the US programs; |
◆ | 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, including the DNB Focus! report and actions in the context of Recovery and Resolution regulation. The Risk Committee furthermore spent time on the market risk impact on the annual budget plan, reinsurance developments, updates on the IT security roadmap, the IT Risk Management
Framework, the assessment of the performance improvement program, 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 the financial markets in 2020 due to the COVID-19 pandemic, and to a number of important asset and liability management and hedging topics across the Group. The Risk Committee noted that the risk framework and the organization adapted well to evolving COVID-19 developments.
The Nomination and Governance Committee
Composition
On December 31, 2020, the composition of the Nomination and Governance Committee was as follows:
◆ | William L. Connelly (Chair); |
◆ | Mark Ellman; |
◆ | Corien M. Wortmann-Kool; and |
◆ | Dona D. Young. |
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 the appointment of 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. |
Committee meetings
Aegon’s Nomination and Governance Committee held six meetings in 2020. 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 senior management team developments and governance matters and structures. The Committee thereby paused on the internal board structures in Aegon’s material business units.
Aegon Annual Report on Form 20-F 2020 |
Report of the Supervisory Board64 | ||
The Nomination and Governance Committee also reviewed the important outside board positions of the members of the Management and Supervisory Boards 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. The profiles of Supervisory Board members, as well as their capabilities also in terms of working collectively with other members of the Supervisory Board, were debated by the Committee. The existing and impending vacancies in the Supervisory Board were discussed (whereby it was considered important to enhance financial and Solvency II expertise) and resulted in (i) the appointment of Ms. Caroline Ramsay and Mr. Thomas Wellauer at the Annual Shareholder meeting of May 15, 2020 and (ii) the nomination of Mr. Jack McGarry and Mr. Frans Blom for appointment at the Annual Shareholder meeting on June 3, 2021.
A Supervisory Board Competency overview is published on aegon.com.
Executive and Management Board related activities
During 2020, the Nomination and Governance Committee discussed the CFO (re)appointment, reviewed the composition of the Management Board and was informed - and consulted on - the succession of Management Board vacancies, and on certain appointments of key management..
The Committee was also kept apprised of major organizational changes, developments in employee engagement, talent management and international mobility. The Supervisory Board was also informed about the annual Global Employee Survey, which was conducted at the end of 2020. The Supervisory Board discussed the outcome of this survey in detail in the first quarter of 2021.
Diversity
Enhancing diversity in the Executive, Management and Supervisory Boards 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 Boards. The purpose of the diversity policy is to have a more balanced and diverse composition of the Supervisory Board, the 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 and male representation in the Supervisory Board, the Executive Board and the Management Board.
In the current Supervisory Board composition, there are three female members out of seven members in total (meeting the recent target under Dutch law that at least 30% of the positions should be filled by women and at least 30% by men). For the Executive Board and Management Board such balanced gender composition has not been met.
When identifying candidates for open positions in the Executive and Supervisory Boards, the Committee actively searches for female candidates. It also instructs external search firms to present female candidates. 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, 2020, the composition of the Remuneration Committee was as follows:
◆ | Ben J. Noteboom (Chair); |
◆ | William L. Connelly; and |
◆ | Thomas Wellauer. |
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 Supervisory 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 considering 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 interests 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; and |
◆ | Preparing the information provided to shareholders on remuneration policies and practices, including the Remuneration Report. |
Aegon Annual Report on Form 20-F 2020 |
Report of the Supervisory Board65 | ||
Committee meetings
The Remuneration Committee had five meetings in 2020. 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 2020, the Remuneration Committee concluded on 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. These amended policies were adopted by the shareholders on the Annual General Meeting on May 15, 2020.
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 Material Risk Takers (Identified Staff). The above included:
◆ | Setting the outcome of the 2019 Group Performance Indicators and of the 2019 Individual Performance Indicators for Executive Board members, and allocating variable compensation related to 2019 where required; |
◆ | Setting the 2020 Individual Performance Indicators for Executive Board members; |
◆ | Setting the 2020 Group Performance Indicators and targets for remuneration purposes; |
◆ | Preparing for the 2021 performance indicators; |
◆ | Reviewing and/or approving the ex-ante risk assessments and ex-post assessments, any exemption requests under the remuneration policies and changes to the list of Material Risk Takers (Identified Staff); |
◆ | Addressing the impact of COVID-19 on targets and variable compensation; and |
◆ | Reviewing the related Remuneration Report. |
In addition, the Remuneration Committee discussed developments with respect to possible new regulations pertaining to remuneration.
Annual Accounts
This Annual Report includes the Annual Accounts for 2020, 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 2021 Annual General Meeting of Shareholders for adoption. The Supervisory Board recommends that shareholders adopt the annual accounts.
Acknowledgement
The members of the Supervisory Board would like to reiterate their appreciation for the dedication shown by the Executive Board, management, and all employees to Aegon and its customers during this unprecedented and challenging year.
The Hague, the Netherlands, March 17, 2021
William L. Connelly
Chairman of the Supervisory Board of Aegon N.V.
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report66 | ||
The 2020 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 Mr. Ben J. Noteboom, and was approved by the Supervisory Board. In the first chapter, the Remuneration Committee presents an overview of the business and remuneration highlights in 2020 and a look ahead to 2021. 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 2020 Supervisory Board Remuneration Report, which contains a summary of the Supervisory Board Remuneration Policy that applied to 2020 and the Supervisory Board remuneration over the recent years. In chapter four, the 2020 Executive Board Remuneration Report provides a summary of the Executive Board Remuneration Policy that was applicable in 2020, the Executive Board remuneration over the recent years and the 2021 Executive Board performance indicators.
1. Business and remuneration highlights
This chapter presents an overview of the business and remuneration highlights in 2020 and a look ahead to 2021.
2020 Business highlights
In 2020, Aegon introduced its new strategy and put in place a set of measures and new financial targets aimed at increasing value for all our stakeholders. This approach seeks to change Aegon’s performance trajectory over the coming years, improving
our business by reducing costs, and expanding margins and growing profitability. The first concrete steps to deliver on our plans were taken, such as the announcements to divest Stonebridge and our operations in Central & Eastern Europe, and restructuring our businesses in India, Hong Kong, and Singapore. Aegon also took measures to strengthen the balance sheet resulting in the capital ratios of its three main business units ending the year above their respective operating levels. (For a more detailed update, please see the ‘Letter from our CEO’ and the ‘Letter of Supervisory Board Chairman’ in this 2020 Annual Report on Form 20-F.)
In terms of business performance, 2020 was a challenging year. Aegon’s Return on Equity decreased in 2020 due to lower results in the Americas. This was largely due to the direct and indirect effects of the COVID-19 pandemic, namely adverse mortality and lower interest rates. These drivers also caused the Normalized Capital Generation for 2020 to decrease compared to 2019. Fees and Premium based Revenues in 2020 were broadly stable compared to 2019, as the positive impact from higher equity markets on fees was partly offset by outflows in lines of business such as Variable Annuities and Retirement Plans in the Americas. Market Consistent Value of New Business in 2020 decreased primarily due to the impact of lower interest rates on Variable Annuities in the Americas. Lower sales driven by the pandemic were also a contributing factor. The Relational Net Promoter Score increased by one point to 18 due to our NPS improvement plans and administration partnerships with third parties which increased service levels.
Business performance highlights | 2020 | 2019 | ||||||
Return on Equity (in %) | 8.5% | 9.5% | ||||||
Fees and Premium based Revenues (in EUR million) | 4,811 | 4,787 | ||||||
Normalized Capital Generation (in EUR million) | 1,340 | 1,569 | ||||||
Market Consistent Value of New Business (in EUR million) | 262 | 465 | ||||||
Relational Net Promoter Score | 18 | 17 |
In 2020 Aegon’s Supervisory Board consisted of the following members: Mr. William L. Connelly (Chairman), Ms. Corien M. Wortmann-Kool (Vice Chairman), Ms. Dona D. Young, Mr. Mark A. Ellman, Mr. Ben J. Noteboom, Mr. Ben van der Veer (until May 15, 2020), Mr. Thomas Wellauer (per May 15, 2020) and Ms. Caroline Ramsay (per May 15, 2020). At the Annual General Meeting of Shareholders on May 15, 2020 shareholders approved the appointment of Mr. Wellauer and Ms. Ramsay, while at the closure of the meeting the term of Mr. Van der Veer ended. During the Annual General Meeting of Shareholders on June 3, 2021, the Supervisory Board will propose to appoint Mr. Jack
McGarry and Mr. Frans Blom as members to the Supervisory Board for a term of four years as of June 3, 2021.
Aegon’s Executive Board consisted of the Chief Executive Officer, who served as Chairman, and the Chief Financial Officer in 2020: Mr. Alexander R. Wynaendts was the Chief Executive Officer from the beginning of 2020 until he was succeeded by Mr. Lard Friese after he was appointed to the Executive Board at the Annual General Meeting of Shareholders on May 15, 2020. Mr. Matthew J. Rider was the Chief Financial Officer and a member of the Executive Board during the full 2020 calendar year.
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report67 | ||
He was appointed as 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. During the Annual General Meeting of Shareholders on June 3, 2021, the Supervisory Board will propose to reappoint Mr. Rider as member to the Executive Board for a term of four years as of June 3, 2021.
Aegon’s Executive Board is assisted in its work by the Aegon’s Management Board, which has 12 members, including the members of the Executive Board. In 2020, Aegon’s Management Board was composed of Mr. Alex R. Wynaendts (until May 15, 2020), Mr. Lard Friese (per May 15, 2020), Mr. Matthew J. Rider, Mr. Mark Bloom, Mr. Mark Mullin, Mr. Marco Keim, Mr. Maarten Edixhoven, Mr. Adrian Grace (until March 31, 2020), Mr. Mike Holliday-Williams (per April 1, 2020), Mr. Bas NieuweWeme, Ms. Allegra van Hövell-Patrizi, Mr. Onno van Klinken, Ms. Carla Mahieu and Mr. Duncan Russell (per September 1, 2020).
2020 Remuneration highlights
Aegon’s shareholders adopted the Supervisory Board Remuneration Policy and the Executive Board Remuneration Policy at the Annual General Meeting of Shareholders on May 15, 2020 with 98.98% and 83.57% of the votes cast respectively. Both policies were amended to comply with the then new Dutch Act which implemented the European Shareholder Rights Directive, to increase the transparency, and to better substantiate the rationale for the design of the policies. Based on this new Act, both policies also required a qualified majority of 75% of the votes cast. After adoption, both policies came into force retroactively as of January 1, 2020.
The amendment to the Supervisory Board Remuneration Policy did not include any changes to the remuneration structure or fee levels for members of the Supervisory Board. It did add the option for the Supervisory Board to annually index the fees for economic developments in the Netherlands.
Compared to the previous Executive Board Remuneration Policy, the new policy increased the alignment of the Executive Board remuneration with the long-term interest of Aegon. The policy also took into account feedback received on Aegon’s previous Remuneration Policy and embedded new remuneration rules, such as:
◆ | Increasing the portion of variable compensation which is paid in Aegon shares from 50% to 66.66%. |
◆ | Simplifying the pay-out of variable compensation to consist of one upfront cash portion of 33.33% and one share portion of 66.66% which is deferred for 3 years (i.e. cliff-vesting, instead of previous practice of vesting in tranches). After vesting, the shares will be subject to an additional 2-year holding period. This increases the average period during which the allocated shares are restricted from 4.2 years to 5 years. |
◆ | Basing variable compensation on a mix of performance indicators which are measured either on a 1-year or a 3-year performance horizon, instead of a 1-year performance horizon only. |
◆ | Including performance indicators, such as Relative Total Shareholder Return and ESG (Environmental, Social, and Governance), both of which are relevant for Aegon, its shareholders, and other stakeholders. |
At the same Annual General Meeting, shareholders were asked to cast an advisory vote on the Remuneration Report for the first time. The 2019 Remuneration Report was approved with 83.79% of the votes cast. After the vote, Aegon collected feedback from several large shareholders to further improve the quality of the Remuneration Report. Based on this feedback, the Supervisory Board made a few changes to this remuneration highlight section, and disclosed more information on the calculation of variable compensation for the Executive Board in chapter four.
Aegon assessed its performance against the 2020 targets that were set prior to the COVID-19 crisis, and no changes to the rules for calculating variable compensation were made as a consequence of it. Aegon believes its mechanism for calculating variable compensation works properly, both in good and in challenging times, so no additional measures were needed. Due to the economic impact of COVID-19, most of the variable compensation that was allocated for 2020 has been lower compared to previous years, including that for the Executive Board members. Aegon also initiated a financial soundness risk assessment in relation to variable compensation which was awarded in previous years (for performance in 2016-2019),and was scheduled to be paid-out in 2020. After reviewing the assessment, the Supervisory Board concluded that payment of these awards would not materially impact the financial soundness of Aegon, and therefore approved the payment thereof.
In 2020 Aegon paid out EUR 167 million in variable compensation and 23 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 2020). These employees worked for Aegon’s Corporate Center, Aegon Americas, Aegon UK and Aegon Asset Management.
The Executive Board members did not receive a salary increase during 2020. For the period during which the individual served as Executive Board member in 2020, Mr. Friese received EUR 931,071 in fixed compensation (ca. 7.5 months), Mr. Wynaendts received EUR 495,931 (ca. 4.5 months) and Mr. Rider received EUR 940,950 (full year). For that same period, Mr. Friese was allocated EUR 2.0 million in total compensation, Mr. Wynaendts EUR 1.2 million (2019: EUR 3.9 million for the full year) and Mr. Rider EUR 2.0 million (2019: 2.1 million). In addition, Mr. Friese received a sign-on arrangement of EUR 1.23 million when he joined Aegon in March 2020, of which 50% is in cash and 50% in shares. Of this amount 55% has been paid in 2020.
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report68 | ||
The remainder will be paid in later years subject to continued employment (20% in 2021, 14% in 2022, 9% in 2023 and 3% in 2024). The sign-on arrangement was offered for a combination of reasons, including the market value of Mr. Friese, making the transfer from a direct competitor to Aegon more attractive and compensation for loss of income during the transfer period.
The 2020 CEO pay ratio was 32.2 (2019: 32.8, 2018: 42.2). This ratio was based on the annualized IFRS-EU remuneration expenses for Mr. Friese and employee expenses in 2020, which have been audited. The annualized annual expenses for Mr. Friese’s total compensation were EUR 3.5 million, including EUR 0.9 million for the sign-on arrangement (2019: EUR 3.8 million, 2018: EUR 4.4 million, both for Mr. Wynaendts). The average expenses for the employees’ total compensation were EUR 109,855 (2019: EUR 115,371, 2018: EUR 104,459), 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 1,995 million – EUR 3.5 million = EUR 1,991 million. |
◆ | Divided by the number of employees in scope, which are the total number of employees minus employees in joint ventures and associates (as their expenses are not included in Note 14) and minus the CEO: 22,322 – 4,193 – 1 = 18,128 employees. |
The Remuneration Committee took note that certain factors have influenced the CEO pay ratio, such as the compensation and sign-on package of the new CEO, lower pay-out of variable compensation to employees in 2020, the change to a defined contribution pension plan in the Netherlands per 2020 (was defined benefit) and significant differences in the geographical footprint of the Aegon’s employee population, leading to a slight decrease compared to last year.
Looking ahead to 2021
At the Annual General Meeting of Shareholders on June 3, 2021, Aegon will ask its shareholders to approve the reappointment of Mr. Rider to the Executive Board and cast an advisory vote on this Remuneration Report.
Mr. Rider’s fixed compensation will be increased by 5% per June 2021 (from EUR 940,950 to EUR 987,998), if shareholders approve his reappointment. His last increase was two years ago (2.5% per June 2019). The increase will keep Mr. Rider aligned with internal and external compensation levels, economic developments (e.g. inflation) and changes to the compensation levels of other senior managers within Europe and in the Netherlands. There are no other changes foreseen to the compensation packages of Mr. Friese and Mr. Rider in 2021.
Aegon will monitor the development of rules, regulations and guidance that could affect our remuneration policies. This includes the intended changes to the Dutch Financial Supervision Act, and the finalization of the European Committee’s 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’s Global Remuneration Framework (GRF) outlines the Aegon Group Human Resources Strategy, the Aegon Group Remuneration Principles and the Aegon Group Remuneration Guidelines, which apply to all Aegon employees, including the Executive Board members. 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.
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 employees 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 within the Group:
◆ | Aegon remuneration is employee-oriented by fostering a sense of value and appreciation in each individual employee; promoting the short- 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 Annual Report on Form 20-F 2020 |
Remuneration Report69 | ||
◆ | 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 for non-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 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 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. |
Total compensation
Following from the Remuneration Principles, Aegon aims to offer experienced and competent employees a total compensation level which is consistent with the market in which Aegon operates and competes for similar employees. Total compensation typically consists of fixed compensation, variable compensation (where in line with the local market practice), pension and other benefits. Market survey information from reputable sources is used to regularly assess the competitiveness of compensation levels and practices which Aegon offers its employees.
Variable compensation
Variable compensation, if any, is capped at an appropriate level as a percentage of fixed compensation.
The Dutch 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 Capital Requirements Directive compensation ratio (i.e. 100% of fixed compensation). This provision was specifically created for corporate office employees of companies based in the Netherlands, which employ at least 75% of their employees abroad. In 2020, Aegon met this criterion and offered selected senior corporate office employees a variable compensation opportunity up to this maximum.
In line with 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 2020. Aegon’s capital was not adversely impacted by the maximum variable compensation that could be paid out.
Variable compensation for senior management is usually paid out in cash and shares over multiple years, and is subject to further conditions being fulfilled. Variable compensation already paid out may also be retrieved under certain circumstances (‘claw-back’).
Risk Management in 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 have a material impact on Aegon’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 additional remuneration requirements for three specific employee categories, as their roles and responsibilities require tailored risk mitigating measures and governance processes. These remuneration requirements are for: (i) the Executive Board; (ii) Material Risk Takers; and (iii) Control Staff. Given the rationale for having a separate policy for Material Risk Takers and the risk mitigating measures that are applied to the remuneration of these individuals, Risk Management is involved in deciding which positions are deemed Material Risk Takers. Furthermore, where exceptions to the policies are requested to reflect local practices or regulations, Risk Management and Compliance are involved 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 after pay-out of the award (when relevant).
Aegon endeavors to seek an appropriate balance of ex-ante and ex-post risk assessments to ensure effectiveness in both the short- and long-term risk-taking behavior of employees.
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report70 | ||
Remuneration of Material Risk Takers
Aegon selects Material Risk Takers for the Aegon N.V. legal entity (i.e. the holding company) based on 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 outlined in the applicable European Directive, its guidelines and local regulatory requirements (where available). This means that their personal objectives are subject to an ex-ante risk assessment at the start of the performance year. A minimum portion of their variable compensation will be deferred and paid in non-cash instruments (such as Aegon shares or investment in own funds). Before the allocation of variable compensation they are subject to an ex-ante risk assessment, while before pay-out of any deferred variable compensation they are subject to ex-post risk assessments. Based on these risk assessments, Aegon can adjust the intended or allocated variable compensation awards downward where deemed appropriate (however never upward).
3. 2020 Supervisory Board Remuneration Report
The 2020 Supervisory Board Remuneration Report has been prepared by the Remuneration Committee of the Supervisory Board in accordance with the Dutch Civil Code (article art 2:135b) and the Dutch 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 2020 and the Supervisory Board remuneration over the recent years.
Aegon’s Supervisory Board remuneration is subject to various rules and regulations, including the Dutch Financial Supervision Act, the Dutch Civil Code, the Dutch Corporate Governance Code and the Solvency II Legal Framework.
Supervisory Board Remuneration Policy in 2020
Aegon’s Supervisory Board Remuneration Policy is aimed at ensuring fair compensation and protecting the independence of the Supervisory Board members. The Supervisory Board Remuneration Policy that has been applied in 2020 was adopted at the Annual General Meeting of Shareholders on May 15, 2020. This policy will be subject to annual reviews by the Supervisory Board. 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 at least every four years.
The policy contributes to Aegon’s strategy, long-term interests, and sustainability through the remuneration of the Supervisory Board members in various ways:
◆ | The policy provides the Supervisory Board with the means to attract, motivate, and retain competent, diverse, and experienced Supervisory Board members for the long-term. This is essential for executing Aegon’s strategy and safeguarding and promoting its long-term interests and sustainability. |
◆ | Supervisory Board 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 Supervisory Board members in their supervisory role to focus on the long-term interest and sustainability of Aegon. |
◆ | The Supervisory Board 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. |
◆ | Supervisory Board 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. |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report71 | ||
The Supervisory Board took Aegon’s identity, purpose, and values into account when developing the policy and its changes:
◆ | Aegon is an international financial services group based in the Netherlands, that provides life insurance, pensions, and asset management. 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 Supervisory Board 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 Supervisory Board 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. being an Insurance firm in Europe and being a listed and financial company in the Netherlands). |
◆ | 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 are not explicitly reflected in the policy as a result of the 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 as the fee-based compensation structure for Supervisory Board members differs significantly from these internal compensation structures and levels.
The Supervisory Board members are entitled to the following fees (see also the table below):
◆ | 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. |
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 |
Each of these fees is a fixed amount. The Supervisory Board is allowed to annually index the fees for economic developments in the Netherlands, however the fees have not been indexed in 2020.
The Supervisory Board members do not receive any performance or equity-related compensation, and do not accrue pension rights with Aegon. These measures are designed to ensure the
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 72 | ||
independence of Supervisory Board members and to strengthen the overall effectiveness of Aegon’s corporate governance.
The Supervisory Board regularly assesses the competitiveness of the Supervisory Board’s remuneration structure and levels against peer companies with data provided by Willis Towers Watson. 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 that operate globally; and |
◆ | Location: Headquarters based in Europe, excluding UK (because the 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 differs from the European peer group for the Executive Board as a result of excluding the UK companies. The peer group is reviewed each year and may be updated accordingly. The last update of this peer group was in 2018.
In addition, the Supervisory Board selects a secondary peer group according to 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. This peer group is also reviewed each year and was last updated in 2019. ING, NN Group, ABN AMRO, DSM, and Wolters Kluwer were added and replaced ArcelorMittal, RELX Group, Royal Dutch Shell, Unibail-Rodamco-Westfield, and Unilever. This peer group is identical to the Dutch peer group for the Executive Board.
The Remuneration Committee may recommend changes to the fee levels of the Supervisory Board members, based on the results of a competitiveness review. Such recommendations would be 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.
The policy contains a temporary derogation clause, with rules which are in accordance with the Dutch Civil Code. This means derogation is only allowed in exceptional circumstances to serve the long-term interest and sustainability of Aegon or to assure its viability, for a limited period of time, when it stays in line with the general spirit of the policy and when the details are disclosed in the next remuneration report. This clause was not used in 2020.
Information on members of the Supervisory Board and the composition of its four committees can be found in the report of the Supervisory Board in this 2020 Annual Report on Form 20-F.
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 73 | ||
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 2018, 2019 and 2020 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 total fees decreased to EUR 739 thousand (2019: EUR 865 thousand), mainly due to lower travel fees as meetings were held by video conference in response to COVID-19.
In EUR thousand | Year | Base fees | Attendance fees | Travel fees | Total fees | |||||||||||||||
William L. Connelly | 2020 | 95 | 45 | 4 | 144 | |||||||||||||||
2019 | 95 | 54 | 20 | 169 | ||||||||||||||||
2018 | 79 | 34 | 6 | 119 | ||||||||||||||||
Mark A. Ellman | 2020 | 55 | 39 | 4 | 98 | |||||||||||||||
2019 | 56 | 39 | 20 | 115 | ||||||||||||||||
2018 | 53 | 29 | 21 | 103 | ||||||||||||||||
Ben J. Noteboom | 2020 | 58 | 39 | - | 97 | |||||||||||||||
2019 | 58 | 39 | 6 | 103 | ||||||||||||||||
2018 | 55 | 25 | 6 | 86 | ||||||||||||||||
Corien M. Wortmann - Kool | 2020 | 63 | 48 | - | 111 | |||||||||||||||
2019 | 63 | 54 | 6 | 123 | ||||||||||||||||
2018 | 63 | 37 | 3 | 103 | ||||||||||||||||
Dona D. Young | 2020 | 66 | 57 | 4 | 127 | |||||||||||||||
2019 | 66 | 66 | 26 | 158 | ||||||||||||||||
2018 | 61 | 39 | 21 | 121 | ||||||||||||||||
Caroline Ramsay (per May 15, 2020) | 2020 | 38 | 21 | - | 59 | |||||||||||||||
Thomas Wellauer (per May 15, 2020) | 2020 | 33 | 21 | - | 54 | |||||||||||||||
Ben van der Veer (up to May 15, 2020) | 2020 | 22 | 27 | - | 49 | |||||||||||||||
2019 | 58 | 54 | 6 | 118 | ||||||||||||||||
2018 | 58 | 37 | 6 | 101 | ||||||||||||||||
Robert W. Dineen (up to Oct 11, 2019) | 2019 | 40 | 27 | 12 | 79 | |||||||||||||||
2018 | 52 | 28 | 21 | 101 | ||||||||||||||||
Dirk P.M. Verbeek (up to May 18, 2018) | 2018 | 19 | 10 | - | 29 | |||||||||||||||
Robert J. Routs (up to May 18, 2018) | 2018 | 36 | 12 | - | 48 | |||||||||||||||
Total | 2020 | 430 | 297 | 12 | 739 | |||||||||||||||
2019 | 436 | 333 | 96 | 865 | ||||||||||||||||
2018 | 474 | 251 | 84 | 809 | ||||||||||||||||
Total including 21% VAT | 2020 | 520 | 359 | 15 | 894 | |||||||||||||||
2019 | 527 | 403 | 116 | 1,046 | ||||||||||||||||
2018 | 574 | 304 | 102 | 979 |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 74 | ||
The table below presents the total fees that have been paid in the last five calendar years on an annualized basis and the year-on-year annual change in total fees. Additionally, the table shows the Aegon net income, a proxy of the financial
and non-financial business performance, the inflation in the Netherlands and the average employee compensation over the same period.
In EUR thousand | Annualized | 2016 | 2017 | 2018 | 2019 | 2020 | ||||||||||||||||
William L. Connelly (as of May 19, 2017) | Fees | - | 98 | 119 | 169 | 144 | ||||||||||||||||
Change | - | - | 22% | 42% | (15% | ) | ||||||||||||||||
Mark A. Ellman (as of May 19, 2017) | Fees | - | 114 | 103 | 115 | 98 | ||||||||||||||||
Change | - | - | (9% | ) | 12% | (15% | ) | |||||||||||||||
Ben J. Noteboom | Fees | 109 | 102 | 86 | 103 | 97 | ||||||||||||||||
Change | (7% | ) | (15% | ) | 20% | (6% | ) | |||||||||||||||
Caroline Ramsay (per May 15, 2020) | Fees | - | - | - | - | 94 | ||||||||||||||||
Change | - | - | - | - | n/a | |||||||||||||||||
Thomas Wellauer (per May 15, 2020) | Fees | - | - | - | - | 86 | ||||||||||||||||
Change | - | - | - | - | n/a | |||||||||||||||||
Corien M. Wortmann - Kool | Fees | 90 | 101 | 103 | 123 | 111 | ||||||||||||||||
Change | 12% | 2% | 19% | (10% | ) | |||||||||||||||||
Dona D. Young | Fees | 113 | 116 | 121 | 158 | 127 | ||||||||||||||||
Change | 2% | 4% | 31% | (20% | ) | |||||||||||||||||
Ben van der Veer (up to May 15, 2020) | Fees | 109 | 106 | 101 | 118 | 131 | ||||||||||||||||
Change | (3% | ) | (5% | ) | 17% | 11% | ||||||||||||||||
Robert W. Dineen (up to Oct 11, 2019) | Fees | 115 | 104 | 101 | 101 | - | ||||||||||||||||
Change | (10% | ) | (3% | ) | 1% | - | ||||||||||||||||
Dirk P.M. Verbeek (up to May 18, 2018) | Fees | 111 | 100 | 76 | - | - | ||||||||||||||||
Change | (10% | ) | (24% | ) | - | - | ||||||||||||||||
Robert J. Routs (up to May 18, 2018) | Fees | 140 | 134 | 125 | - | - | ||||||||||||||||
Change | (4% | ) | (7% | ) | - | - | ||||||||||||||||
Shemaya Levy (up to May 19, 2017) | Fees | 95 | 105 | - | - | - | ||||||||||||||||
Change | 11% | - | - | - | ||||||||||||||||||
Irving W. Bailey (up to May 20, 2016) | Fees | 139 | - | - | - | - | ||||||||||||||||
Change | - | - | - | - | ||||||||||||||||||
Aegon net income based on IFRS-EU | In EUR million | 586 | 2,358 | 741 | 1,525 | 55 | ||||||||||||||||
Aegon business performance 1) | Target = 100% | 91% | 121% | 106% | 79% | 57% | ||||||||||||||||
Inflation in the Netherlands | Consumer Price Index | 0.3% | 1.4% | 1.7% | 2.6% | 1.3% | ||||||||||||||||
Average employee compensation 2) | Total compensation | 97 | 102 | 104 | 115 | 110 | ||||||||||||||||
Annual change | 5% | 2% | 11% | (4% | ) |
1 | The weighted average Aegon financial and non-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. They have been exclusively based on their functions in the Supervisory Board, their functions in the Supervisory Board’s committees, their attendance and travel. There were no deviations from the policy in these years.
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.
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 75 | ||
4. 2020 Executive Board Remuneration Report
The 2020 Executive Board Remuneration Report has been prepared by the Remuneration Committee of the Supervisory Board in accordance with the Dutch Civil Code (article art 2:135b) and the Dutch 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 summary of the Executive Board Remuneration Policy that applied to 2020, the Executive Board remuneration over the recent years and the 2021 Executive Board performance indicators. The section on remuneration over the recent years is split into a) fixed compensation 2018-2020, b) conditional variable compensation 2020, c) provisional variable compensation 2020, d) variable compensation 2018-2020, e) pay-out of allocated variable compensation, f) pension contributions 2018-2020, g) benefits 2018-2020, h) total compensation in recent years.
Executive Board Remuneration Policy in 2020
The Supervisory Board has the overall responsibility for Aegon’s Remuneration Policies, including the Executive Board Remuneration Policy. The Executive Board Remuneration Policy that has been applied in 2020 was adopted at the Annual General Meeting of Shareholders on May 15, 2020. This policy will be subject to annual reviews by the Supervisory Board. 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 at least every four years.
The current policy contributes to Aegon’s strategy, long-term interests and sustainability through the remuneration of the Executive Board members in various ways:
◆ | The policy provides the Supervisory Board with the means to attract, motivate and retain competent and experienced Executive Board members for the long-term. This is essential for executing Aegon’s strategy and safeguarding and promoting its long-term interests and sustainability. |
◆ | The leading performance indicator categories for successful execution of our strategy are Capital, Growth and Strategy. To support the execution of Aegon’s strategy, the policy makes these performance indicator categories mandatory for the Executive Board member. |
◆ | Aegon strives to create long-term value for its stakeholders and the communities in which it operates. Due to the nature of our business, value created is often financial, but it may also be social, economic, or environmental. The policy directly aligns Executive Board member’s personal long-term interests with those of Aegon and its shareholders by paying a significant part of the Executive Board members’ variable compensation (two-thirds) in shares, which must be held for 5 years after completion of the performance period. The pay-out in these restricted shares is combined with prohibiting Executive Board members using personal hedging strategies or insurance, which could undermine this long-term alignment of interests. Additionally, Executive Board members are 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. |
◆ | Aegon is committed to doing business responsibly and in a sustainable way. Variable compensation of Executive Board members can be adjusted downwards (i.e. malus) or clawed-back in cases where certain performance has not been achieved in a sustainable way. This includes 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 Executive Board members to support this approach of doing business. |
Aegon’s Executive Board remuneration is subject to various rules and regulations, including 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 that 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 Aegon and personal performance, with at least 50% weight on non-financial performance. |
◆ | A substantial portion of any variable compensation award should be paid in a non-cash instrument (e.g. Aegon shares) and should be deferred for at least 3 years. Additionally, award shares should be restricted for 5 years. With a 3-year vesting period, this requires an additional holding period of 2-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. |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 76 | ||
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 Remuneration Committee may recommend policy changes to the Supervisory Board. In 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 proposed policy changes to the Annual General Meeting of Shareholders for adoption.
The policy contains a temporary derogation clause, with rules which are in accordance with the Dutch Civil Code. This means derogation is only allowed in exceptional circumstances to serve the long-term interest and sustainability of Aegon or to assure its viability, for a limited period of time, when it stays in line with the general spirit of the policy and when the details are disclosed in the next remuneration report. This clause was not used in 2020.
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. The Supervisory Board determines and regularly reviews the appropriate selection of remuneration elements and their (maximum) remuneration level for Executive Board members 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 and their levels are reviewed at least every four years. In its review, the Supervisory Board takes the specific role, responsibilities, experience and expertise of Executive Board members 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. |
◆ | 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. |
◆ | 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 Board member, and reports their findings to the Supervisory Board. |
The European Insurance peer group was selected by 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. |
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 in relation to Aegon’s size data (average market capitalization, employees, revenue and total assets). This peer group differs from the European peer group for the Supervisory Board, as the latter excludes UK companies where non-executive directors typically have different responsibilities compared to their continental European counterparts.
The Dutch peer group was selected by the following criteria:
◆ | 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, this 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 identical to the Dutch peer group for the Supervisory Board.
The Supervisory Board will review both peer groups annually and will amend them as necessary, 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.
The Remuneration Committee may recommend changes to the compensation levels of the Executive Board members in accordance with Remuneration Policy, based on the results of this annual total compensation review and on discussions with the Executive Board members regarding their remuneration level and structure. Such recommendations would subsequently be discussed by the Supervisory Board, which can approve, revise or reject them.
The Supervisory Board discussed and approved the 2020 total compensation for the Executive Board, after taking the Remuneration Committee’s review into consideration.
Fixed compensation
The fixed compensation for the Executive Board members is paid in monthly instalments. The policy allows the fixed compensation to be paid in cash and in shares. All Executive Board members received their 2020 fixed compensation in cash.
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 77 | ||
The Supervisory Board may offer permanent or temporary gross monthly fixed allowance when the Supervisory Board considers this an appropriate alternative for other remuneration elements. Mr. Wynaendts continued to receive a 2% fixed allowance to which he already was entitled until the end of his term. Mr. Friese and Mr. Rider are not entitled to an allowance.
Variable compensation
Executive Board members are eligible for variable compensation with a target level of 80% of the fixed compensation level (excluding allowances), with a threshold level of 50% and a maximum opportunity of 100% of fixed compensation level.
The variable compensation award is based on performance against a set of performance indicators, weights and target levels that have been set by the Supervisory Board at the start of the performance year. The performance indicators contribute to Aegon’s strategy, long-term interests and sustainability, within Aegon’s risk tolerance and should comply with the following rules:
◆ | It contains a mix of financial and non-financial performance indicators, with at least 50% weight allocated to the non-financial performance indicators in accordance with article 1:118.3 of the Dutch Financial Supervision Act; |
◆ | The maximum weight for unadjusted financial indicators is determined by the Global Remuneration Framework and is currently set at 50%. |
◆ | It contains a mix of Aegon and personal performance indicators, which can range in weight between 50-80% and 20-50% respectively, depending on the Aegon priorities of the performance year. |
◆ | At least 20% of the indicators has a retrospective 3-year performance horizon, while the remainder has a 1-year performance horizon; |
◆ | The indicators should cover the following mandatory performance indicator categories: Shareholders, Capital, Earnings, Growth, Stakeholders, ESG and Strategy. |
The Remuneration Committee and the Executive Board members prepare a proposal for the performance indicators, weights and target levels. These are subsequently reviewed by Aegon’s Risk Management team (i.e. the first ex-ante risk assessment) before the Supervisory Board approves these, 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; |
◆ | 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 Remuneration Committee sends the proposal and the ex-ante risk assessment to the Supervisory Board, which can approve, revise or reject the proposal. After approval, the Executive Board
members are granted their conditional variable compensation awards for the plan year. This conditional award equals their at target variable compensation level, split between 33.33% upfront cash and 66.66% deferred 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 plan year.
After the completion of the performance period, 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 actual performance results compared to target levels and takes a second ex-ante risk assessment by the Risk Management team into account. This risk assessment looks into whether there are reasons for a downward adjustment of the intended variable compensation award (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; |
◆ | Insufficient evidence of embedding good standards of practice; |
◆ | Significant deficiencies or material weaknesses relating to the Sarbanes-Oxley Act; and |
◆ | Reputation damage due to risk events. |
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 Board member.
The Remuneration Committee sends its recommendation and the second ex-ante risk assessment to the Supervisory Board, which 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.
The allocated variable compensation award is subsequently split between 33.33% upfront cash (i.e. paid in the year following the performance year) and 66.66% deferred shares. These shares are deferred for a 3-year period after allocation after which they cliff-vest. Before vesting, the Risk Management team executes an ex-post risk assessment which looks into whether there are reasons for a downward adjustment of the original variable compensation award (malus) which were not taken into account yet. This risk assessment takes the same criteria into consideration as the second ex-ante risk assessment. Based on this assessment, the Remuneration Committee subsequently prepares a recommendation how to pay-out the deferred portion (i.e. unchanged or adjusted downward). The Remuneration Committee sends its recommendation and the ex-post risk
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report78 | ||
assessment to the Supervisory Board. The Supervisory Board can approve, revise or reject the recommendation.
Claw-back provision
Aegon’s Supervisory Board can claw-back variable compensation that has already been paid to the Executive Board member in case of a material financial restatement or individual gross misconduct, after considering a risk assessment by Aegon’s Risk Management team which looks into whether in hindsight the paid amount should have been lower or nil. Examples of misconduct are, but not limited to, a 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 be set-off or settled against any current or future obligations as permitted by law.
Pension arrangements
The Executive Board members are entitled to pension contributions that equal 40% of their fixed compensation level, which consists of the following three parts:
◆ | Participation in Aegon’s defined contribution pension plan for NL-based employees, for their fixed income up to EUR 110,111 (2020 threshold set by Dutch law). |
◆ | Participation in Aegon’s defined contribution pension plan for NL-based employees, for their fixed income above EUR 110,111. |
◆ | An additional gross allowance for pension to make the sum of these three pension contributions equal to 40% of their fixed compensation level. |
The Executive Board members receive pension contributions that are somewhat higher compared to NL-based employees of similar age (ca. 10-15% difference). This is done to achieve a competitive total compensation level. Please note the Supervisory Board will consider discontinuing the additional gross allowance for new Executive Board members, while ensuring their total compensation level stays competitive, and including this as a policy change in the next update of the Executive Board Remuneration Policy.
Additionally, Mr. Wynaendts was entitled to an additional gross allowance for pension of 28% of his fixed compensation level as part of a grandfathered pension arrangement.
Other benefits
Other benefits include non-monetary benefits (e.g. company car), social security contributions by the employer, and tax expenses borne by 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 Supervisory Board.
Terms of Engagement
Members of the Executive Board are appointed for four years and may then be re-appointed for successive mandates also for a period of four years. Executive Board members have a board agreement with Aegon N.V., rather than an employment contract. Members of the Executive Board may terminate their board agreement with a notice period of three months. The Supervisory Board may terminate the board agreement by giving six months’ notice if it wishes to terminate the agreement.
The Supervisory Board may entitle Executive Board members to a termination payment up to or equal to the total annual fixed compensation level. This payment is not allowed in case of early termination at the initiative of the Executive Board member (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 Board members. Mr. Friese and Mr. Rider have a termination clause included in their board agreement. Mr. Wynaendts was not entitled to a termination payment when his board agreement was terminated in 2020.
Executive Board remuneration in recent years
In this section you will find the fixed compensation, variable compensation, pension, other benefits, and total compensation amounts of the Executive Board members. Please note that the 2020 compensation amounts for Mr. Friese and Mr. Wynaendts are pro-rated because of joining and leaving the Executive Board respectively on May 15, 2020, unless stated otherwise (e.g. when amounts are annualized).
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report79 | ||
A. Fixed compensation 2018-2020
In 2020, Mr. Friese received EUR 931 thousand in fixed compensation (annualized EUR 1,485 thousand), Mr. Wynaendts received EUR 496 thousand (annualized EUR 1,327 thousand) and Mr. Rider received EUR 941 thousand. None of the Executive Board members received an increase in their fixed compensation level in 2020. In addition to this and the table below, Mr. Friese received a sign-on arrangement of EUR 1,228 thousand when joining Aegon in March 2020, that was split between 50% in cash (EUR 617 thousand) and 50% in Aegon shares (161,333 shares). Of this amount 55% has been
paid in 2020. The remainder will be paid in later years subject to continued employment (20% in 2021, 14% in 2022, 9% in 2023 and 3% in 2024). The IFRS-EU expenses for these fixed compensation amounts were equal to the amounts in the table below, except for Mr. Friese in 2020 due to the nature of his sign-on arrangement. The combined IFRS-EU expenses for his regular fixed compensation and sign-on arrangement were EUR 1,869 thousand (EUR 570 thousand for the cash-part of the sign-on arrangement and EUR 368 thousand for the share-part).
In EUR thousand | 2020 | 2019 | 2018 | |||||||||
Lard Friese1) | 931 | - | - | |||||||||
Alex Wynaendts2) | 496 | 1,314 | 1,295 | |||||||||
Matt Rider | 941 | 931 | 918 | |||||||||
Total fixed compensation | 2,368 | 2,245 | 2,213 |
1 | The disclosed amount for 2020 covers the period that Mr. Friese has been a member of the Executive Board (per May 15, 2020). The annualized amount is EUR 1,485 thousand (excluding sign-on amounts). |
2 | The disclosed amount for 2020 covers the period that Mr. Wynaendts was a member of the Executive Board (until May 15, 2020). The annualized amount is EUR 1,327 thousand. |
B. Conditional variable compensation 2020
In 2020, Mr. Friese, Mr. Wynaendts and Mr. Rider each had an at target variable compensation opportunity of 80% of their fixed compensation level at year-end (or end of term). The variable compensation award was based on the 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 2020 (or after their appointment). As a result, they would 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 4.083 for the shares:
Variable compensation opportunity 2020 | Threshold (50%) | Target (80%) | Maximum (100%) | |||||||||||
Lard Friese | Total (EUR thousand) | 466 | 745 | 931 | ||||||||||
in cash (EUR thousand) | 155 | 248 | 310 | |||||||||||
in shares | 76,012 | 121,619 | 152,024 | |||||||||||
Alex Wynaendts | Total (EUR thousand) | 248 | 397 | 496 | ||||||||||
in cash (EUR thousand) | 83 | 132 | 165 | |||||||||||
in shares | 40,487 | 64,779 | 80,974 | |||||||||||
Matt Rider | Total (EUR thousand) | 470 | 753 | 941 | ||||||||||
in cash (EUR thousand) | 157 | 251 | 314 | |||||||||||
in shares | 76,818 | 122,909 | 153,637 |
C. Provisional variable compensation 2020
Subject to the adoption of the annual accounts at the General Meeting of Shareholders on May 15, 2021, Mr. Friese has been awarded EUR 634 thousand in conditional variable compensation for the 2020 performance year (68% of fixed compensation), Mr. Wynaendts EUR 302 thousand (61% of fixed compensation)
and Mr. Rider EUR 640 thousand (68% of fixed compensation). Each variable compensation award will be paid for 33.33% in upfront cash and for 66.66% in shares which are deferred for three years and are subsequently subject to an additional holding period of two years.
Conditional variable compensation 2020 | Pay-out in 2021 | Pay-out in 2024 | ||||||
Lard Friese | Cash (EUR thousand) | 211 | ||||||
Shares | 103,580 | |||||||
Alex Wynaendts | Cash (EUR thousand) | 101 | ||||||
Shares | 49,346 | |||||||
Matt Rider | Cash (EUR thousand) | 213 | ||||||
Shares | 104,547 |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 80 | ||
The tables below show the results on each of the Aegon and personal indicators which determined the conditional variable compensation awards of Mr. Friese, Mr. Wynaendts and Mr. Rider and the related indicator definitions. The Aegon performance results were scored on a performance scale which was used to fund the 2020 bonus pools within Aegon: 50% for
the threshold (minimum), 100% for target level and 150% for the maximum level. The 2020 Aegon performance result on this performance scale was 57%. Converted to the performance scale that applied to the Executive Board members (i.e. with the target level at 80%) the 2020 Aegon performance result was 54%.
2020 Aegon performance indicators | Weight | Target | Result | In % | ||||||||||||
Relative Total Shareholder Return | 14% | #5 of 15 | #12 | 0% | ||||||||||||
Return on Equity | 14% | 10.0% | 8.5% | 0% | ||||||||||||
Fees and Premium based Revenues | 14% | 4,857 | 4,811 | 95% | ||||||||||||
Normalized Capital Generation (2yr: 2020 and 2019) | 14% | 2,632 | 2,883 | 124% | ||||||||||||
Market Consistent Value of New Business | 14% | 445 | 262 | 0% | ||||||||||||
Relational Net Promoter Score | 14% | 17 | 18 | 125% | ||||||||||||
Strategy Execution | 14% | 100% | 57% | 57% | ||||||||||||
Aegon result for employee bonus pools | 57% | |||||||||||||||
Aegon result for Executive Board members | 54% |
2020 Aegon performance indicators | Definition | |
Relative Total Shareholder Return | Aegon’s position relative to 7 US and 7 non-US peers when looking at Total Shareholder Return for a 1-year’s 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 Revenue1). The target was position 5, while the threshold was set at the median position. | |
Return on Equity | Return on equity indicates how good the company is in generating returns on the investment it received from its shareholders. Aegon’s Return on Equity is calculated by dividing underlying earnings after tax and after cost of leverage by average shareholders’ equity excluding revaluation reserve. | |
Fees and Premium based Revenues | Fee 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. | |
Normalized Capital Generation (2 years: 2019-2020) | The movement in our capital position (on a Solvency II basis) during a retrospective 2-year period in the normal course of business net of market impacts (e.g. changes to interest rates, credit spreads, equity returns) and one-time effects. Impacts from dividends and capital injections that do not generate capital but do affect Own Funds are excluded from capital generation. | |
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. | |
Relational Net Promoter Score | 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. | |
Strategy Execution | Measures the execution of the three projects that were deemed key for a successful execution of Aegon’s previous strategy (2019-2021). |
1 | The US peers are Axa Equitable Holdings, Principal Financial Group, Unum Group, Lincoln National Corp, Prudential Financial, Brighthouse Financial and MetLife. The non-US peers are Athene Holding, NN Group, Swiss Life Holding, Assicurazioni Generali, Baloise Holding, Prudential and ASR Nederland. |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report81 | ||
Below you find the overview how the 2020 Aegon performance result of 54%, combined with the personal performance results, led to the overall 2020 variable compensation results for Mr. Friese, Mr. Wynaendts and Mr. Rider.
Lard Friese | Target | Result | ||
70% Aegon performance | Mix of financial and non-financial targets | 54% | ||
10% Strategy development | Deliver new Group Strategy | 100%. Delivered well-received and broadly supported Group Strategy at the Capital Markets Day, despite high operational pressure during the preparation caused by COVID-19. Appointed a Chief Transformation Officer and successfully found buyers for the CEE business and Stonebridge. Implemented several measures to improve balance sheet strength. | ||
10% COVID-19 crisis management | Safeguard continuity of the company financially, operationally and take measures to limit impact on employees | 100%. Quickly expanded the continuous monitoring of financial and operational impacts through the Global Crisis Management structure, which ensured operational resilience and continuity of client servicing. Employee Engagement increased from 67% to 72% (year-end), delivered a plan on the future ways of working in the office and at home and the high level of compliance was maintained during and after the switch to working from home. Regulatory solvency levels of the three main business units ended the year above their operating levels and well above their regulatory requirements. | ||
10% Sustainable organization | Develop granular Operating Plan which addresses reducing costs, expanding margins, growing profitability and organizational health | 100%. Delivered granular Operating Plan with over 1,100 initiatives and over 15,000 milestones focused on the transformation of Aegon and improving its organizational health, which was fully integrated in the Mid Term Financial Planning. Shifted the company to intense rhythm of execution. | ||
Overall result | 68% |
Alex Wynaendts | Target | Result | ||
70% Aegon performance | Mix of financial and non-financial targets | 54% | ||
10% Strategy execution | Execution of the three projects that were deemed key for a successful execution of Aegon’s previous strategy (2019-2021) | 54%. One project was delivered on target, one was successful but behind schedule and the last did not meet its minimum target due to changes in priority. | ||
10% Sustainable Organization | Measures a combination of ESG related goals through personal goals on Employee Engagement and Inclusion & Diversity | 80%. Employee Engagement increased from 67% to 74% (mid-year) and action plans related to Inclusion & Diversity were completed. Percentage of women in senior management positions increased from 29% to 32%. | ||
10% Handover to successor | Contains two personal milestones for a successful handover to the new CEO | 95%. Delivered strong and complete hand-over to new CEO, in difficult circumstances due to the COVID-19. | ||
Overall result | 61% |
Matt Rider | Target | Result | ||
70% Aegon performance | Mix of financial and non-financial targets | 54% | ||
10% Finance strategy execution | Improve quality of financial management information and business control oversight | 100%. Completed all milestones and provided important financial management information to support the new Group Strategy and granular Operating Plan. | ||
10% Finance Transformation | Deliver Finance Transformation plan, including IFRS 9 / 17 implementation | 100%. Delivered all milestones within budget and created additional efficiencies. | ||
10% Sustainable Organization | Employee Engagement, governance during CEO transition and Control Environment | 100%. Employee Engagement increased in both the Finance Function and Corporate Center, high levels of governance were safeguarded during the transition and the Control Environment result exceeded its target level. | ||
Overall result | 68% |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 82 | ||
D. Variable compensation 2018-2020
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 2020 (the so called ‘ex-post assessment’)
or to lower the payout of the upfront payment of the 2019 performance year variable compensation in 2020 (the so called ‘ex-ante assessment’). The second table contains the expenses for the conditional variable compensation awards, as recognized under the IFRS accounting treatment in the income statement.
In EUR thousand | 2020 | 2019 | 2018 | |||||||||
Lard Friese1) | 634 | - | - | |||||||||
Alex Wynaendts2) | 302 | 1,048 | 1,062 | |||||||||
Matt Rider | 640 | 743 | 760 | |||||||||
Total conditional variable compensation | 1,577 | 1,791 | 1,822 |
1 | The disclosed amount for 2020 covers the period that Mr. Friese has been a member of the Executive Board (per May 15, 2020). The annualized amount is EUR 1,010 thousand. |
2 | The disclosed amount for 2020 covers the period that Mr. Wynaendts was a member of the Executive Board (until May 15, 2020). The annualized amount is EUR 812 thousand. |
In EUR thousand | 2020 | 2019 | 2018 | |||||||||
Lard Friese1) | 282 | - | - | |||||||||
Alex Wynaendts2) | 497 | 976 | 962 | |||||||||
Matt Rider | 528 | 627 | 545 | |||||||||
Total conditional variable compensation IFRS expenses | 1,307 | 1,604 | 1,507 |
1 | The disclosed amount for 2020 covers the period that Mr. Friese has been a member of the Executive Board (per May 15, 2020). The annualized amount is EUR 449 thousand. |
2 | The disclosed amount for 2020 covers the period that Mr. Wynaendts was a member of the Executive Board (until May 15, 2020). The annualized amount is EUR 1,334 thousand. |
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 2018, 2019 and 2020 and how much conditional variable compensation is scheduled to be paid-out in the coming years. The vesting price of the share were:
EUR 5.848 on May 18, 2018, EUR 4.287 on May 17, 2019, and EUR 2.079 on May 15, 2020. Shares allocated for plan years up to and including 2019 are subject to an additional three-year holding period after pay-out. Shares for plan years from 2020 onwards are subject to an additional two-year holding period after pay-out.
Years of vesting | ||||||||||||||||||||||||||||||||||||
Shares by plan year | Grant Price 1) | Allocated | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | |||||||||||||||||||||||||||
Lard Friese 2020 | EUR 4.083 | 103,580 | - | - | - | - | - | - | 103,580 | |||||||||||||||||||||||||||
Total number of shares | 103,580 | - | - | - | - | - | - | 103,580 | ||||||||||||||||||||||||||||
Alex Wynaendts 2014 | EUR 6.739 | 10,164 | 10,164 2) | - | - | - | - | - | - | |||||||||||||||||||||||||||
2015 | EUR 6.106 | 30,220 | 15,110 | 15,110 | - | - | - | - | - | |||||||||||||||||||||||||||
2016 | EUR 5.128 | 61,083 | 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 | - | |||||||||||||||||||||||||||
2020 | EUR 4.083 | 49,346 | - | - | - | - | - | - | 49,346 | |||||||||||||||||||||||||||
Total number of shares | 484,292 | 89,367 | 96,651 | 112,228 | 66,696 | 44,830 | 25,174 | 49,346 | ||||||||||||||||||||||||||||
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 | - | |||||||||||||||||||||||||||
2020 | EUR 4.083 | 104,547 | - | - | - | - | - | - | 104,547 | |||||||||||||||||||||||||||
Total number of shares | 311,592 | 19,015 | 37,618 | 59,255 | 41,409 | 31,901 | 17,847 | 104,547 | ||||||||||||||||||||||||||||
Darryl Button 2014 | EUR 6.739 | 8,652 | 8,652 | - | - | - | - | - | - | |||||||||||||||||||||||||||
2015 | EUR 6.106 | 23,622 | 11,811 | 11,811 | - | - | - | - | - | |||||||||||||||||||||||||||
2016 | EUR 5.128 | 44,424 | 14,808 | 14,808 | 14,808 | - | - | - | - | |||||||||||||||||||||||||||
Total number of shares | 76,698 | 35,271 | 26,619 | 14,808 | - | - | - | - |
1 | 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 2020 plan year, this is the VWAP for the period December 15, 2019 to January 15, 2020. |
2 | 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 to reflect the outcome of a regulatory matter relating to the company. |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report83 | ||
Years of vesting | ||||||||||||||||||||||||||||||||
Cash by plan year (in EUR) | Allocated | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | ||||||||||||||||||||||||
Lard Friese 2020 | 211,431 | - | - | - | 211,431 | - | - | - | ||||||||||||||||||||||||
Total cash | 211,431 | - | - | - | 211,431 | - | - | - | ||||||||||||||||||||||||
Alex Wynaendts 2014 | 68,497 | 68,497 1) | - | - | - | - | - | - | ||||||||||||||||||||||||
2015 | 184,522 | 92,261 | 92,261 | - | - | - | - | - | ||||||||||||||||||||||||
2016 | 313,236 | 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 | - | ||||||||||||||||||||||||
2020 | 100,725 | - | - | - | 100,725 | - | - | - | ||||||||||||||||||||||||
Total cash | 2,295,613 | 494,590 | 523,873 | 534,913 | 426,450 | 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 | - | ||||||||||||||||||||||||
2020 | 213,404 | - | - | - | - | - | - | 213,404 | ||||||||||||||||||||||||
Total cash | 1,214,011 | 99,756 | 201,809 | 274,402 | 200,120 | 150,242 | 74,278 | 213,404 | ||||||||||||||||||||||||
Darryl Button 2014 | 60,024 | 60,024 | - | - | - | - | - | - | ||||||||||||||||||||||||
2015 | 156,862 | 78,431 | 78,431 | - | - | - | - | - | ||||||||||||||||||||||||
2016 | 224,022 | 74,674 | 74,674 | 74,674 | - | - | - | - | ||||||||||||||||||||||||
Total cash | 440,908 | 213,129 | 153,105 | 74,674 | - | - | - | - |
1 | In line with the Aegon Group Global Remuneration Framework, it was agreed to adjust Mr Wynaendt’s 2014 variable compensation award downwards by EUR 22,832 to reflect the outcome of a regulatory matter relating to the company. |
The Executive Board members have a time-based shareholding requirement of 5 years after the initial allocation of their variable compensation in shares (i.e. a 3-year deferral period before vesting and an additional 2-year holding period after vesting). Mr. Friese and Mr. Rider voluntarily agreed to at least hold on to the shares received as compensation to an equivalent of 100% of their fixed compensation level, once they have reached that level. This concerns the total net number of shares which have been allocated to them, but that have not been sold (i.e. includes the net number of shares in the deferral period and holding period). After the allocation of the 2020 variable compensation award, Mr. Friese will hold 42% of his fixed compensation in net shares and Mr. Rider 78%. Please note Mr. Rider received 50% of his variable compensation in shares for the 2017-2019 period, while per the new 2020 Executive Board Remuneration Policy all Executive Board members receive 67% of their variable compensation in deferred shares.
F. Pension contributions 2018-2020
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.
Mr. Friese (from May 2020), Mr. Wynaendts (from June 2019) and Mr. Rider received pension contributions which equaled to 40% of their fixed compensation level. Up to and including May 2019, Mr. Wynaendts participated in a defined benefit arrangement. This arrangement included a back service liability which reflected the increase of his fixed compensation in 2016 and 2018, as well as low interest rates and the final settlement made in May 2019. Additionally, Mr. Wynaendts was entitled to a gross payment of 28% of his fixed compensation level as part of a grandfathered pension arrangement.
In EUR thousand | 2020 | 2019 | 2018 | |||||||||
Lard Friese1) | 373 | - | - | |||||||||
Alex Wynaendts2) | 337 | 1,302 | 2,463 | |||||||||
Matt Rider | 376 | 373 | 367 | |||||||||
Total pension contributions | 1,086 | 1,675 | 2,830 |
1 | The disclosed amount for 2020 covers the period that Mr. Friese has been a member of the Executive Board (per May 15, 2020). The annualized amount is EUR 594 thousand. |
2 | The disclosed amount for 2020 covers the period that Mr. Wynaendts was a member of the Executive Board (until May 15, 2020). The annualized amount is EUR 906 thousand. |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 84 | ||
In EUR thousand | 2020 | 2019 | 2018 | |||||||||
Lard Friese1) | 373 | - | - | |||||||||
Alex Wynaendts2) | 337 | 1,243 | 1,952 | |||||||||
Matt Rider | 376 | 387 | 379 | |||||||||
Total pension IFRS expenses | 1,086 | 1,630 | 2,331 |
1 | The disclosed amount for 2020 covers the period that Mr. Friese has been a member of the Executive Board (per May 15, 2020). The annualized amount is EUR 594 thousand. |
2 | The disclosed amount for 2020 covers the period that Mr. Wynaendts was a member of the Executive Board (until May 15, 2020). The annualized amount is EUR 906 thousand. |
G. Benefits 2018-2020
Other benefits include non-monetary benefits (e.g. company car), social security contributions by the employer, and tax expenses
borne by the employer. The IFRS expenses for these benefits are equal to the amounts in the table below.
In EUR thousand | 2020 | 2019 | 2018 | |||||||||
Lard Friese1) | 49 | - | - | |||||||||
Alex Wynaendts2) | 97 | 252 | 195 | |||||||||
Matt Rider | 67 | 77 | 46 | |||||||||
Total benefits | 213 | 329 | 240 |
1 | The disclosed amount for 2020 covers the period that Mr. Friese has been a member of the Executive Board (per May 15, 2020). The annualized amount is EUR 77 thousand. |
2 | The disclosed amount for 2020 covers the period that Mr. Wynaendts was a member of the Executive Board (until May 15, 2020). The annualized amount is EUR 261 thousand. |
H. Total compensation in recent years
The total compensation for Mr. Friese related to 2020 was EUR 3.3 million (including sign-on arrangement), for Mr. Wynaendts EUR 1.2 million (2019: EUR 3.9 million; 2018: EUR 5.0 million) and for Mr. Rider EUR 2.0 million (2019: EUR 2.1 million; 2018: EUR 2.1 million). The total remuneration for the members of the Executive Board over 2020 was EUR 6.5 million (2019: EUR 6.0 million; 2018: EUR 7.1 million).
The total expenses recognized under IFRS accounting treatment in the income statement for Mr. Friese related to 2020 were EUR 2.6 million, for Mr. Wynaendts EUR 1.4 million (2019: 3.8 million; 2018: EUR 4.4 million) and for Mr. Rider EUR 1.9 million (2019: EUR 2.0 million; 2018: EUR 1.9 million). Total IFRS expenses for the members of the Executive Board over 2020 were EUR 5.9 million (2019: 5.8 million; 2018: EUR 6.3 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 2020 and 2019 in the table below. The variable compensation amounts differ from the amounts disclosed in the tables above, as they include the pay-out of variable compensation in cash and shares in the 2020 and 2019 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 several amounts are pro-rated for the period during which the individual served as Executive Board member. The fixed compensation and Pension amounts are equal to the amounts that are included in the tables above.
Fixed | Variable | One-off | Pension | Total | Ratio Fixed/ Variable 3) | |||||||||||||||||||||||||
Salary | Benefits | Upfront1) | Deferred2) | |||||||||||||||||||||||||||
Lard Friese | ||||||||||||||||||||||||||||||
2020 4) | 931 | 49 | - | - | 565 | - | 1,545 | 63% / 37% | ||||||||||||||||||||||
Alex Wynaendts | ||||||||||||||||||||||||||||||
20205) | 496 | 97 | 314 | 454 | - | 337 | 1,699 | 55% / 45% | ||||||||||||||||||||||
2019 | 1,314 | 252 | 381 | 557 | - | 1,302 | 3,806 | 75% / 25% | ||||||||||||||||||||||
Matt Rider | ||||||||||||||||||||||||||||||
2020 | 941 | 67 | 223 | 175 | - | 376 | 1,782 | 78% / 22% | ||||||||||||||||||||||
2019 | 931 | 77 | 272 | 91 | - | 373 | 1,744 | 79% / 21% |
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 2019 variable compensation award that were paid in 2020. |
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 2016-2018 variable compensation awards that were paid in 2020. |
3 | Fixed (the numerator) is calculated as the sum of Salary, Benefits and Pension divided by the Total. Variable (the denominator) is the sum of Upfront, Deferred and One-off divided by the Total. |
4 | The salary, benefits and pension amounts cover the pro-rated period as an Executive Board member during 2020 (from May 15 to December 31). The one-off item concerns the upfront part of the sign-on arrangement (EUR 427 thousand in cash and 66,526 shares). |
5 | The salary, benefits and pension amounts cover the pro-rated period as an Executive Board member during 2020 (from January 1 to May 15), while the variable amounts were paid in relation to full-year performance periods in 2016-2019. |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 85 | ||
The table below presents the total compensation that has been paid in the last five calendar years on an annualized basis and the year-on-year annual change in total compensation. Please note that therefore several amounts have been annualized, while in practice these were pro-rated for the period during which the individual served as Executive
Board member. Additionally, the table show the Aegon net income, a proxy of the financial and non-financial business performance, the vesting price of the Aegon shares, the inflation in the Netherlands and the average employee compensation over the same period.
In EUR thousand | Annualized | 2016 | 2017 | 2018 | 2019 | 2020 | ||||||||||||||||
Lard Friese | Awarded and due | - | - | - | - | 2,719 | ||||||||||||||||
Change | - | - | - | - | ||||||||||||||||||
Alex Wynaendts (up to May 15, 2020) | Awarded and due | 4,455 | 4,431 | 4,969 | 3,806 | 3,268 | ||||||||||||||||
Change | (1% | ) | 12% | (23% | ) | (14% | ) | |||||||||||||||
Matt Rider (as of May 19, 2017) | Awarded and due | - | 1,357 | 1,670 | 1,799 | 1,824 | ||||||||||||||||
Change | - | 23% | 8% | 1% | ||||||||||||||||||
Darryl Button (up to Dec 1, 2016) | Awarded and due | 2,370 | - | - | - | - | ||||||||||||||||
Change | - | - | - | - | ||||||||||||||||||
Aegon net income based on IFRS-EU | In EUR million | 586 | 2,358 | 741 | 1,525 | 55 | ||||||||||||||||
Aegon business performance 1) | Target = 100% | 91% | 121% | 106% | 79% | 57% | ||||||||||||||||
Vesting price Aegon shares | In EUR | 4.502 | 4.423 | 5.848 | 4.287 | 2.079 | ||||||||||||||||
Inflation in the Netherlands | Consumer Price Index | 0.3% | 1.4% | 1.7% | 2.6% | 1.3% | ||||||||||||||||
Average employee compensation 2) | Total compensation | 97 | 102 | 104 | 115 | 110 | ||||||||||||||||
Annual change | 5% | 2% | 11% | (4% | ) |
1 | The weighted average Aegon financial and non-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. |
2021 Executive Board performance indicators
Looking ahead to the 2021 performance years, the 2021 performance indicators for Mr. Friese and Mr. Rider are presented in the tables below.
Lard Friese | Weight | Performance indicators | Performance period | |||
Aegon financial | 14% | Free Cash Flow | 1 year1) | |||
7% | Relative Total Shareholder Return | 2 year (2020-2021)2) | ||||
7% | Addressable Expenses | 1 year3) | ||||
7% | Underlying Earnings Before Tax | 1 year | ||||
7% | Market Consistent Value of New Business | 1 year | ||||
7% | Operating Plan Earnings Contribution | 1 year | ||||
Aegon Non-financial | 21% | Operating Plan Execution | 1 year | |||
Personal | 10% | Strategic Roadmap Development | 1 year | |||
10% | Execution of capital initiatives in line with Strategic Roadmap | 1 year | ||||
5% | Women in Senior Management | 1 year | ||||
5% | ESG Strategy Development | 1 year | ||||
Total | 100% |
1 | Will become a retrospective 3-year performance period from 2023 onwards. It is phased in with a 1-year performance period (2021) for the 2021 plan year and a 2-year performance period (2021-2022) for the 2022 plan year. |
2 | Will become a retrospective 3-year performance period from 2022 onwards. This year is the last transition year, which has a retrospective 2-year performance period (2020-2021). |
3 | Will become a retrospective 3-year performance period from 2023 onwards. It is phased in with a 1-year performance period (2021) for the 2021 plan year and a 2-year performance period (2021-2022) for the 2022 plan year. |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 86 | ||
Matt Rider | Weight | Performance indicators | Performance period | |||
Aegon financial | 14% | Free Cash Flow | 1 year1) | |||
7% | Relative Total Shareholder Return | 2 year (2020-2021)2) | ||||
7% | Addressable Expenses | 1 year3) | ||||
7% | Underlying Earnings Before Tax | 1 year | ||||
7% | Market Consistent Value of New Business | 1 year | ||||
7% | Operating Plan Earnings Contribution | 1 year | ||||
Aegon Non-financial | 21% | Operating Plan Execution | 1 year | |||
Personal | 15% | Finance Strategy Execution | 1 year | |||
5% | Strategic Roadmap Development | 1 year | ||||
5% | Execution of capital initiatives in line with Strategic Roadmap | 1 year | ||||
5% | Women in Senior Management | 1 year | ||||
Total | 100% |
1 | Will become a retrospective 3-year performance period from 2023 onwards. It is phased in with a 1-year performance period (2021) for the 2021 plan year and a 2-year performance period (2021-2022) for the 2022 plan year. |
2 | Will become a retrospective 3-year performance period from 2022 onwards. This year is the last transition year, which has a retrospective 2-year performance period (2020-2021). |
3 | Will become a retrospective 3-year performance period from 2023 onwards. It is phased in with a 1-year performance period (2021) for the 2021 plan year and a 2-year performance period (2021-2022) for the 2022 plan year. |
Scope | Performance indicators | Definition | ||
Aegon financial | Free Cash Flow | Free cash flow represents cash flow from remittances from the units less the Holding funding and operating expenses. The 2021 target is based on the 2021-2023 target which was disclosed at the Capital Market Day in December 2020. | ||
Relative TSR | Aegon’s position relative to 7 US and 7 non-US peers when looking at Total Shareholder Return for a retrospective 2-year performance period (2020-2021). 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 Revenue8). The target is position 5, while the threshold is set at the median position. | |||
Addressable Expenses | Represents those expenses reflected in underlying earnings, excluding deferable acquisition expenses, expenses in joint ventures and associates and expenses related to operations in CEE countries. The 2021 target is based on the 2021-2023 target which was disclosed at the Capital Market Day in December 2020. | |||
Underlying Earnings Before Tax | 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. The target is based on the approved 2021 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 based on the approved 2021 budget. | |||
Operating Plan Earnings Contribution | Measures the expected run-rate earnings contribution for initiatives which move to the execution phase in 2021 compared to the overall internal contribution target which was set in the granular operating plan for 2021. | |||
Aegon non-financial | Operating Plan Execution | Measures the timely completion of milestones and the total degree of milestone completed in 2021, including milestones related to organizational health, compared to targets which were agreed in the granular operating plan. | ||
Lard Friese | Strategic Roadmap Development | Develop Strategic Roadmap for strategic assets and growth markets. | ||
Execution of capital initiatives in line with Strategic Roadmap | Complete management actions in relation to financial assets, sub-scale businesses and other ventures. | |||
Women in Senior Management | Increase the number of women in Aegon’s senior management layer worldwide to at least 34%. | |||
ESG Strategy Development | Further integrate ESG into Group Strategy. | |||
Matt Rider | Finance Strategy Execution | Complete the 2021 milestones from the Finance Strategy. | ||
Strategic Roadmap Development | Support development of strategic roadmap for strategic assets and growth markets. | |||
Execution of capital initiatives in line with Strategic Roadmap | Support completion management actions in relation to financial assets, sub-scale businesses and other ventures. | |||
Women in Senior Management | Increase the number of women in Aegon’s senior management layer worldwide to at least 34%. |
1 | The US peers are Axa Equitable Holdings, Principal Financial Group, Unum Group, Lincoln National Corp, Prudential Financial, Brighthouse Financial and MetLife. The non-US peers are Athene Holding, NN Group, Swiss Life Holding, Assicurazioni Generali, Baloise Holding, Prudential and ASR Nederland. |
Aegon Annual Report on Form 20-F 2020 |
Non-financial policies, procedures and outcomes87 | ||
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. The 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 dedicated Non-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 environment, social and governance (ESG) risks are incorporated into Aegon’s decision-making processes, as well as the measurement of outcomes, policies and metrics.
EU Directive on Non- | Area | Policy or guideline | Indicators (used to monitor compliance and/or outcomes) | Performance 2020 | ||||
Article 3.1.b(i) | Business | Code of Conduct | ||||||
Environmental, | conduct | |||||||
social and personnel matters | and ethics | • Applies to all employees worldwide | • Total number of incidents of fraud involving employees, intermediaries and third parties | • Incidents of possible fraud involving employees, intermediaries and third parties decreased to 4,014. The decrease is related to a decrease in the number of attempted account takeovers in the US. We are comfortable that the controls implemented in 2018 are effective as very few attempts have been successful. | ||||
• Covers topics such as data protection, environmental responsibility, human rights and money laundering | • Significant fines1) to address cases of mis-selling | • Significant fines amounted to EUR 8.2 million; in the Americas, Transamerica had two fines related to the sale of 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. | ||||||
• Also contains provisions for reporting suspected illegal and unethical behavior | • Percentage of employees completing training on Code of Conduct. | • 97% of employees completed mandatory Code of Conduct training (up from 95% the previous year). | ||||||
• Training on the Code is obligatory for all employees. | • Overall there is satisfactory progress with 76% of the Group and strategic business unit actions completed and an additional 4% of actions progressing within their deadlines. Nineteen action items were postponed to 2021. Carried-over actions constitute non-material items that do not pose regulatory or compliance risks, with targeted completion for early 2021. | |||||||
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 the Speak Up program , allowing employees and those outside the Company to report suspected infringements of the Code of Conduct in complete confidence. | • Policy attestation for bribery and corruption risk (Conflict of Interest and Gift & Entertainment policies). | • 86% compliance with Aegon bribery and corruption policies (down from 89% 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. |
CONTINUATION > Aegon Annual Report on Form 20-F 2020 |
Non-financial policies, procedures and outcomes88 | ||
EU Directive on Non- | Area | Policy or guideline | Indicators (used to monitor compliance and/or outcomes) | Performance 2020 | ||||
Article 3.1.b(i) | Community | Charitable Donations Standards | ||||||
Environmental, | investment | |||||||
social and personnel matters | • Covers Aegon’s objectives with regard to community investment, including priority areas, selection criteria, governance and approval | • Cash donations to charities and other good causes | • Cash donations totaled EUR 9.5 million, an increase of 16.4% from EUR 8.2 million. | |||||
• Also details Aegon’s contribution to humanitarian aid | • Value of employee volunteering hours granted | • Value of employee volunteering totaled EUR 0.2 million, a decrease of 77.8% from EUR 0.9 million. | ||||||
• Value of community investment as % net income | • Total value of community investment amounted to EUR 9.7 million, an increase from EUR 9.0 million. Total community investment represented 17.6 % of our net income, up from 0.6% in 2019. The increase was due mainly to the decrease in net income for 2020. | |||||||
Article 3.1.b(i) Environmental, social and personnel matters | Data protection | Global Information Security Policy • Sets out Company’s approach to cyber threats and data protection | • Maintenance of an internal IT Control Framework, and action items to address gaps in performance are documented and monitored | • Institutions like Aegon will continue to remain subject to information security attacks. | ||||
• Applies to all Aegon businesses | • The internal IT Control Framework is regularly mapped and updated to embed new and updated market standards | • To Aegon’s knowledge, the security attacks and events it experienced in 2020 were not material in nature. | ||||||
• Supported by mandatory training in data and cyber security | • Periodic attestation to the internal IT Control Framework, with certain exceptions as applicable by country unit, for among other reasons adequate implementation timelines | |||||||
• Oversight by Global Chief Information Security Officer | ||||||||
Article 3.1.b(i) Environmental, | Inclusion and | Statement on Inclusion & Diversity | ||||||
social and personnel matters | diversity | • Applies to all Aegon businesses worldwide | • Proportion of women in workforce | • Women accounted for 50% of Aegon’s workforce (up from 49%). | ||||
• Diversity also included in the Code of Conduct | • Proportion of women in senior management and at Supervisory, Executive or Management Board level | • Women accounted for 32% of the Company’s senior management (up from 29%). For details of our Supervisory, Executive and Management Board members, see pages 53-57, and 407. | ||||||
• Diversity targets in place for Aegon’s Supervisory, Executive and Management Boards |
CONTINUATION > Aegon Annual Report on Form 20-F 2020 |
Non-financial policies, procedures and outcomes89 | ||
EU Directive on Non- | Area | Policy or guideline | Indicators (used to monitor compliance and/or outcomes) | Performance 2020 | ||||
Article 3.1.b(i) | Environment | Environmental Policy | ||||||
Environmental, | ||||||||
social and personnel matters | • Emphasizes importance of minimizing damage to the environment through the Company’s use of energy and other resources2) | • Greenhouse gas (GHG) emissions from business operations (metric tons carbon dioxide-equivalent (CO2e)) | • Gross / location-based GHG emissions totaled 41,205 metric tons, down 30.5% compared with 2019. Net / market-based GHG emissions totaled 7,237 metric tons, down 59.4%. The significant decrease in emissions was due to lower energy consumption at our premises and reduced air travel as a result of changes to working practices in response to the COVID-19 pandemic. Accordingly, net / market-based emissions per employee were 57.9% lower at 0.4 metric tons, and 49.5% lower per EUR million revenue at 0.3 metric tons. | |||||
• Commits Aegon, where possible, to using renewable or sustainable sources of energy | • Energy consumption and air travel | • Electricity consumption decreased 15.1% from 88.9 GWh in 2019 to 75.5 GWh. | ||||||
• Gas consumption decreased 26.5% from 25.4 GWh in 2019 to 18.7 GWh. | ||||||||
• Air travel decreased 76.0% from 89.4 million km in 2019 to 22.1 million km. | ||||||||
• Renewable energy | • Consumption of renewable electricity as a proportion of total electricity consumption increased to 99% (74.7 GWh) compared with 97% (86.1 GWh) in 2019. | |||||||
• Consumption of renewable energy as a proportion of total energy consumption increased to 79% (74.7 GWh) compared with 75% (86.1 GWh) in 2019. | ||||||||
Article 3.1.b(ii) Respect for human rights | Human rights | Statement on Human Rights • Based on the UN Declaration of Human Rights, core standards of the International Labor Organization and the principles of the UN Global Compact. • 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 standards. • Consideration for human rights is built into Aegon’s Responsible Investment Policy, Vendor Code of Conduct and the Statement on Inclusion and Diversity. Other Company policies also cover aspects of human rights, including: • Code of Conduct • Speak Up • Gift and Entertainment • Conflict of Interest • Employment Screening • Anti-money laundering • Sanctions • Anti-fraud • Distribution Risk management • Third Party Risk management • Aegon UK also issues a modern slavery statement (in line with the UK government’s 2015 Modern Slavery Act). | • Results of Aegon’s biennial global Human Rights Risk Assessment (conducted internally and based on external sources3)). The assessment scores Aegon’s countries against a combination of ten publicly available indicators: • Civil and political rights • Corruption • Human development • Health coverage • Business environment • Illicit economy • Gender development • Working conditions • Rule of law • Internet inclusion | • Our 2020 assessment identified four ‘Aegon’ countries where the operating environment presents a meaningful human rights risk: • China • India • Indonesia • Turkey • These risks relate essentially to outside political factors. In the US, the Netherlands and 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 management4) focusing on indicators where Aegon has the greatest potential to minimize the human rights faced by the company. The aim, with these measures, is to ensure Aegon’s overall human rights risk remains low. | ||||
CONTINUATION > Aegon Annual Report on Form 20-F 2020 |
�� | Non-financial policies, procedures and outcomes90 | |
EU Directive on Non- | Area | Policy or guideline | Indicators (used to monitor compliance and/or outcomes) | Performance 2020 | ||||
Article 3.1.b(i) | Investment | Responsible Investment Policy | ||||||
Environmental, | ||||||||
social and personnel matters | • Covers all major asset classes | • Total investments in responsible investment solutions (RIS) | • Our responsible investment solutions totaled EUR 213 billion. | |||||
• Sets out minimum social and environmental standards for Aegon’s investments Under the policy, Aegon excludes investment in some areas, including controversial weapons, tobacco, oil sands and certain coal mining companies. Aegon’s 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 (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 engagement with issuers, focused on ESG issues. Throughout 2020, we refreshed our company-wide Responsible Investment Policy which we put into force as of January 2021. In this policy, next to reiterating all our previous environmental commitments, we further limit our coal-related investments through broadening the exclusion criteria for coal producers and companies with coal-fired electricity generation capacity. | • Companies engaged with as part of Aegon’s approach to responsible investment | • 49% of our engagements addressed corporate governance matters, including corruption, remuneration and board structure. • 20% of our engagements addressed social issues including health, human rights (diversity, living wage, access to medicine, COVID-19 and its adverse impacts, for example on working conditions). • 24% of our engagements addressed issues concerning the environment, with climate change constituting the most common discussion theme. | ||||||
Article 3.1.b(i) Environmental, social and personnel matters | Occupational health and safety | Global Health & Safety Statement | ||||||
• Commits Aegon to upholding high health and safety standards in its offices | • Number of work-related injuries and illnesses | • Work-related injuries and illnesses decreased by 74.5% to 47, from 184 the previous year. | ||||||
• Aim is to limit work-related injuries and illnesses (including stress) to an absolute minimum | • Absentee rate | • Employee absenteeism decreased to 1.7%, from 1.8% the previous year. | ||||||
Article 3.1.b(i) | Procurement | Vendor Code of Conduct | ||||||
Environmental, | ||||||||
social and personnel matters | • Sets the standards for the business relationship between Aegon and its vendors in order to enable Aegon manage the most material environment, social and governance risks associated with our procurement of goods and services under the following categories: • Corporate governance • Human rights • Labor rights and good health & well-being • Climate change and biodiversity • Aegon requires its vendors to comply with the Standards and assesses the ESG-related performance of those vendors against the standards, and may monitor for performance improvement. | • Top 250 suppliers (representing 80% of total procurement spend) scored for environment, social and governance performance through the EcoVadis platform. | • By the end of 2020, 67 of Aegon’s in-scope suppliers (top 250 representing 84% total spend) had so far been assessed for ESG performance through our implementation of the EcoVadis rating platform. This equates to 56% of the in-scope procurement spend. In the previous year, 41% of our total procurement spend was covered by the former Supplier Sustainability Declaration process. | |||||
Article 3.1.b(i) | Product | Pricing and Product Development Policy | ||||||
Environmental, | development | |||||||
social and personnel matters | • Sets out market conduct principles, aimed at ensuring fair treatment of customers and reasonable distribution of returns between customers, intermediaries and shareholders. | • Percentage compliance with terms of Pricing and Product Development Policy | • 93% compliance with requirements of Pricing and Product Development Policy (down from 94% the previous year), due to increased policy granularity. |
CONTINUATION > Aegon Annual Report on Form 20-F 2020 |
Non-financial policies, procedures and outcomes91 | ||
EU Directive on Non- | Area | Policy or guideline | Indicators (used to monitor compliance and/or outcomes) | Performance 2020 | ||||
Article 3.1.b(i) Environmental, social and personnel matters | Remuneration | 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 and non-financial performance metrics (including employee engagement and customer loyalty scores) | • Percentage of compliance with requirements of the Global Remuneration Framework | • 95% compliance with requirements of the Global Remuneration Framework (up from 94% compliance the previous year)5. | ||||||
Article 3.1.b(i) | Tax | Global Tax Policy | ||||||
Environmental, | ||||||||
social and personnel matters | • 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) | • EUR 319 million paid by Aegon in tax and; | |||||
• Taxes collected on behalf of others | • another EUR 2.51 billion in taxes collected on behalf of others. |
1 | Includes any fines in excess of EUR 100,000. |
2 | Aegon no longer collects data on water consumption. As an office-based company, our water use is not material. |
3 | The methodology for Aegon’s Human Rights Risk Assessment is derived from the UN Declaration of Human Rights. The assessment uses publicly available data from ten non-governmental organizations specializing in human rights and which have a reputation for conducting fair and appropriate assessments and include Freedom House, Transparency International, UN Development Program, the World Bank and the World Health Organization. |
4 | These measures include effective access to Speak Up, 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. |
5 | 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 20-F 2020 |
Code of Conduct 92 | ||
Aegon’s Code of Conduct embodies the Company’s values and helps ensure that all employees act ethically and responsibly and is available at https://aegon.com/investors/compliance/code-of-conduct/?page=1.
It prescribes a mandatory set of standards 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 and employees of all Aegon companies around the world (regardless of the contractual basis of their employment), including associate companies, joint ventures and other co-operative ventures.
All Aegon employees must certify that they have read and understood the Code of Conduct, and agree to abide by it. Employees are also required to follow a mandatory e-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 creating and maintaining an open and supportive culture, one where 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, and inappropriate, unethical, fraudulent or illegal 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 - who, in good faith and with due care, report concerns of poor practice, inappropriate, unethical or illegal behavior - against any form of retaliation. 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 20-F 2020 |
Regulation and supervision 93 | ||
Individually regulated Aegon companies are each subject to prudential supervision in their respective home countries. (Re)insurance companies and Aegon Bank (KNAB), as well as some of the investment undertakings in the Group, are required to maintain a minimum solvency margin based on local requirements. In addition, the Group as a whole is subject to prudential requirements on a group basis, including capital, internal governance, risk management, reporting and disclosure requirements, pursuant to Solvency II and the Financial Conglomerates Directive. Eligible capital to cover solvency requirements includes shareholders’ equity, perpetual capital securities, and dated subordinated debt.
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 Lard Friese, who is Chief Executive Officer (CEO) and Chairman of the Executive Board, and Matt Rider, who is Chief Financial Officer (CFO). Lard Friese was appointed as member to the Executive Board during the Annual General Meeting of Shareholders on May 15, 2020, following which Alex Wynaendts resigned as member of the Executive Board and CEO 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 2020, 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 12 members, including the members of the Executive Board. Aegon’s Management Board is composed of Lard Friese, Matt Rider, Mark Bloom, Maarten Edixhoven, Mike Holliday-Williams, Allegra van Hövell-Patrizi, Marco Keim, Onno van Klinken, Carla Mahieu, Mark Mullin, Bas NieuweWeme and Duncan Russell.
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.
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, 2020, a total of 2,098,114,300 common shares and 571,795,040 common shares B had been issued.
Depository receipts for Aegon shares are not issued with the Company’s cooperation.
As per the Dutch act on conversion of bearer shares, all 16,040 bearer shares outstanding at December 2020 have been converted into registered shares held by the Company as per 1st January 2021. Until January 1, 2026 and upon request of a
Aegon Annual Report on Form 20-F 2020 |
Corporate governance50 | ||
holder of a certificate of a bearer share, the Company will provide the holder of such a valid certificate of a bearer share, with registered share as a replacement of the bearer share.
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 are one-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 as one-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, 2020, Vereniging Aegon, Aegon’s largest shareholder, held a total of 291,145,638 common shares and 558,910,640 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 2020, 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 14, 2020, Aegon N.V. repurchased 2,955,600 common shares B from Vereniging Aegon for the amount of EUR 228,911.22 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 15, 2020, Vereniging Aegon exercised its options rights to purchase in aggregate 2,154,000 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 15, 2020 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 term ‘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, BlackRock, Inc., EuroPacific Growth Capital Fund, Capital Research and Management Company and FMR LLC 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 February 26, 2021, Dodge & Cox International Stock Fund stated to hold 80,049,394 common shares, representing 3.0% of the issued capital as at December 31, 2020.
On February 11, 2021, Dodge & Cox’s filing with the US Securities and Exchange Commission (SEC) shows that Dodge & Cox holds 222,733,093 common shares, representing 8.6% of the issued and outstanding capital as at December 31, 2020, and has voting rights for 217,431,134 shares, representing 8.3% of the votes as at December 31, 2020.
Based on its last filing with the Dutch Autoriteit Financiële Markten as at January 27, 2021, EuroPacific Growth Capital Fund stated to hold 80,347,053 common shares, representing 3.0% of the issued capital as at December 31, 2020.
Based on its last filing with the Dutch Autoriteit Financiële Markten as at January 6, 2021, Capital Research and Management Company stated to hold 80,878,440 common shares, representing 3.0% of the issued capital as at December 31, 2020.
Based on its filing with the Dutch Autoriteit Financiële Markten as at June 10, 2015, FMR LLC, a US based investment management firm, stated to hold 81,510,408 shares, representing 3.0% of the issued capital as at December 31, 2020.
Based on its filing with the Dutch Autoriteit Financiële Markten as at February 9, 2021, BlackRock, Inc. stated to hold 129,522,983 shares, representing 4.8% of the issued capital as at December 31, 2020 and 158,656,993 voting rights, representing 5.9% of the issued capital as at December 31, 2020.
On January 28, 2021, BlackRock, Inc.’s filing with the US Securities and Exchange Commission (SEC) shows that BlackRock holds 164,131,698 common shares, representing 6.3% of the issued and outstanding capital as at December 31, 2020, and has voting rights for 145,558,389 shares, representing 5.6% of the votes as at December 31, 2020.
Aegon Annual Report on Form 20-F 2020 |
Corporate governance51 | ||
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.
It is the right of Vereniging Aegon to, at its own discretion, take the decision to exercise its full voting rights on common shares B. In case of a Special Cause, Vereniging Aegon also preserves its full voting rights on common shares B if the Executive Board invoked a “250-day period to consider” in circumstances as are expected to be determined in the Dutch Civil Code following adoption of a new act thereto by the Dutch government in 2021 or the “180-day period respond time” as provided for in the Dutch Corporate Governance Code.
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 fully paid-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 66 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 of two-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 requires a 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 with a 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.
Aegon Annual Report on Form 20-F 2020 |
Corporate governance52 | ||
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.
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 2020 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 are non-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, has a 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-F 2020 |
Composition of the Boards53 | ||
Members of the Executive Board
Lard Friese (1962, Dutch)
CEO and Chairman of the Executive and Management Boards of Aegon N.V.
Lard Friese earned a Master of Law degree at the University of Utrecht. He has worked most of his professional career in the insurance industry, including ten years at Aegon between 1993 and 2003. He was employed by ING as from 2008, where he held various positions. In July 2014, upon the settlement of the Initial Public Offering of NN Group N.V., he became the CEO of NN Group. During his tenure at NN Group, he led a wide range
of businesses in Europe and Asia and created a stable platform for growth and shareholder value.
He has extensive experience in the areas of insurance, investment management, customer centricity, mergers & acquisitions, and business transformation. Mr. Friese was appointed CEO Designate as of March 1, 2020 and is appointed as member of the Executive Board for a term of four years on the AGM of May 15, 2020. Mr. Friese is Chairman of Aegon’s Executive Board and Management Board
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
Lard Friese: 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.
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.
Aegon Annual Report on Form 20-F 2020 |
Composition of the Boards54 | ||
Mike Holliday-Williams (1970, British)
CEO of Aegon UK and member of the Management Board of Aegon N.V.
Mike Holliday-Williams started his career with WHSmith in 1991 as a graduate trainee, working as a Retail Manager in many UK stores and in Business Development. In 1997 he joined Centrica where he had several general management and marketing roles in British Gas, before becoming the Residential & Marketing Director of Centrica Telecoms/One.Tel in 2004.
In 2006 Mr Holliday-Williams joined RSA, becoming the UK Managing Director of Personal Lines in 2008, responsible for
MORETH>N, Partnerships and the Broker businesses. In 2011 he moved to Copenhagen to become the CEO of RSA Group’s Scandinavian businesses, Codan A/S and Trygg-Hansa, he also became a member of the RSA Group Executive. In 2014, he moved to Direct Line Group (DLG) to became MD of the Personal Lines business, joining the Board of DLG in Feb 2017.
Mr. Holliday-Williams joined Aegon UK in October 2019, to take over as CEO. He’s a member of Aegon’s Management Board since March 2020.
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 former 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.
Aegon Annual Report on Form 20-F 2020 |
Composition of the Boards55 | ||
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 is a former member of the Supervisory Board of the Royal BAM Group. Ms. Mahieu is a member of 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 from October 2017-October 2018 and served as a member of the Board’s Executive Committee through October 2019. He was re-appointed in October 2020 and remains a member of their Board of Directors.
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 and is a member of the Executive Board of Aegon Industrial Fund Management Co., Ltd (China).
He is also a member of the Board of the Dutch Fund and Asset Management Association (DUFAS), 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.
Duncan Russell (1978, British)
Chief Transformation Officer and member of the Management Board of Aegon N.V.
Duncan Russell has worked most of his professional career in the financial services sector, lastly as CFO and Board member at Admiral Financial Services, the financial services subsidiary of Admiral Group, responsible for finance, analytics, funding, credit risk and pricing.
Before joining Admiral Group, Mr. Russell was Head of Group Strategy and Corporate Finance at NN Group N.V.,
the Netherlands, where he was responsible for capital management, treasury, M&A, and the group’s strategy.
Before joining NN Group N.V., Mr. Russell held various positions at financial services groups in London.
Mr. Russell was appointed Chief Transformation Officer and member of the Management Board of Aegon N.V. on September 1, 2020.
Aegon Annual Report on Form 20-F 2020 |
Composition of the Boards56 | ||
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 independent director at the Board of Directors of Singular Bank S.A. (formerly known as Self Trade Bank S.A., not listed) and an independent director at Amadeus IT Group S.A..
Mark A. Ellman (1957, American)
Member of the Nomination and Governance 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 America/ 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 Risk Committee and the Supervisory Board Nomination and Governance Committee. Mr. Ellman was a 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.
Caroline Ramsay (1962, British)
Chair of the Audit Committee
Member of the Risk Committee
Mrs. Ramsay gained a Master’s degree in Natural Sciences in 1984 at Cambridge. She started her professional career at KPMG in Ipswich and London, where she qualified as a Chartered Accountant in 1987. During her long career, Mrs. Ramsay gained substantial experience in Finance and Audit at large insurance companies. In addition to her strong financial background, Mrs. Ramsay acquired extensive managerial expertise in executive roles at Norwich Union plc (now Aviva plc) and RSA.
Mrs. Ramsay holds various Non-Executive Board positions. In 2013, she joined the board of Scottish Equitable – and as of 2017 also the boards of Aegon UK plc and Cofunds Ltd. – where she served as the Audit Committee Chair until 14 May 2020. Mrs. Ramsay was appointed to Aegon’s Supervisory Board in May 2020 and her current term ends in 2024. She is Chair of the Supervisory Board Audit Committee and a member of the Supervisory Board Risk Committee.
Mrs. Ramsay is a senior independent director of the Board of Brit Syndicates Ltd (not-listed), Standard Life UK Smaller Companies Trust Plc and of Tesco Underwriting Ltd. (non-listed). Mrs. Ramsay is a member of the FCA Regulatory Decisions Committee and Member of the Payment Systems Regulator’s Enforcement Decisions Committee.
Thomas Wellauer (1955, Swiss)
Member of the Audit Committee
Member of the Remuneration Committee
Thomas Wellauer started his professional career at McKinsey & Company, where he served as Senior Partner and Practice Leader. He held various executive management positions at multi-industries, including financial services, pharmaceuticals and chemicals. Among others, he served on the executive committees of Winterthur Insurance, Credit Suisse, Swiss Re, and Novartis. His most recent position from 2010 to 2019 was Group Chief Operating Officer of Swiss Re. During his career, Mr. Wellauer also served as independent director on the boards of several global companies such as Munich Re and Syngenta.
Mr. Wellauer was appointed to Aegon’s Supervisory Board in May 2020 and his current term ends in 2024. He is a member of the Supervisory Board Audit Committee and a member of the Supervisory Board Remuneration Committee.
Aegon Annual Report on Form 20-F 2020 |
Composition of the Boards57 | ||
Mr. Wellauer is Chairman of the Board of Directors of SIX Group (not-listed). In addition, he serves as Chairman of the Board of Trustees of the University Hospital Zurich Foundation and Chairman of the International Chamber of Commerce in Switzerland.
Corien M. Wortmann-Kool (1959, Dutch)
Vice Chair of the Supervisory Board
Member of the Audit Committee
Member of the Nomination and Governance Committee
Corien M. Wortmann-Kool is Chair 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 Chair 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 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 and a former member of the Supervisory Board of Het Kadaster until March 2021.
Dona D. Young (1954, American)
Chair of the Risk Committee
Member of the Audit 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 Chair 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 and serves as an independent member of the Advisory Board of Spahn and Rose (not listed) and as a member of the Board of Directors of USAA (not listed). Furthermore, Ms. Young is a member 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 a member of the Board of the National Association of Corporate Directors.
Aegon Annual Report on Form 20-F 2020 |
Report of the Supervisory Board 58 | ||
Supervisory Board
The Supervisory Board is entrusted with supervising and advising the Executive Board in regard to 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 seven members on December 31, 2020. 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 pages 48-52 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 20172020 can be found on pages 120-122.56-57 of this Annual Report 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 ofthree changes to the constellation of the Supervisory Board in 2017. Shemaya Levy stepped down as a member of2020: During the Board on May 19, 2017, after he reached the end of his third2020 Annual General Meeting, Mr. Thomas Wellauer and final term. The Board benefitted greatly from Mr. Levy’s knowledge and contributions. On May 19, 2017, shareholders approved the reappointment of Dona Young to the Board for another term of four years. She has also taken over the role of Shemaya Levy as Chairman of the Risk Committee. In addition, the proposed Board members William Connelly and Mark EllmanMs. Caroline Ramsay were appointed as new Supervisory Board members for a term of four years as of May 15, 2020 (i.e. until the end of the Supervisory Board at the Annual General Meeting of Shareholders on May 19, 2017.
On December 14, 2017, Aegon announced that Rob Routs, Chairman of the Supervisory Board, decidedAGM to step down, after 10 years of service, at the Annual General Meeting of Shareholders on May 18, 2018. The Supervisory Board elected William Connelly as its next Chairman following the Annual General Meeting.
On February 15, 2018, Aegon announced that Dirk Verbeek,be held in 2024). After having been a member of the Supervisory Board decided to step down after 10for twelve years, Mr Ben van de Veer retired as member of service, at the Supervisory Board during the 2020 Annual General Meeting.
During the Annual General Meeting of Shareholders on May 18, 2018. TheJune 3, 2021, the Supervisory Board is in the process of selecting new candidates for appointment and will propose any such candidate in due course for approval to the Company’s shareholders.
shareholder to appoint Mr. Jack McGarry and Mr. Frans Blom as members to the Supervisory Board for a term of four years as of June 3, 2021. In compliance with the Dutch Corporate Governance Code, members of the Supervisory Board are appointed by shareholders for a term of four years. From 2018 on, theThe option will existexists 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.
An induction program for Supervisory Board members is in place and the program is being updated regularly in order to meet the needs of the specific Board members.
Aegon Annual Report on Form 20-F 2020 |
Report of the Supervisory Board59 | ||
Executive Board
The Executive Board consists of Alexander R. Wynaendts,Mr. Lard Friese, Chief Executive Officer (CEO) and Chairman of the Executive Board, and Mr. Matthew J. Rider, Chief Financial Officer (CFO). Matthew J. Rider joined Aegon in January 2017 and was formally appointed as member of the Executive Board during the Annual General Meeting of Shareholders on May 19, 2017.
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.https://aegon.com/about/governance/executive-board/executive-board-documentation/.
During the Annual General Meeting on May 15, 2020, Mr. Lard Friese was appointed as member to the Executive Board. Mr. Friese succeeded Mr. Wynaendts as Chief Executive Officer of the Company.
Board meetings
Attendance
In 2017,2020, the Supervisory Board had seven regular(face-to-face)twelve meetings: four related to the quarterly results; one to the annual report; and twoothers related to strategy (including the budget and Medium Term Plan). In addition, four conference calls took place, three
of whichDue to COVID-19, most meetings were updates in between theface-to-face meetings.held by video conference. 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 members, except for one Supervisory Board strategy meeting that Ben van der Veer was unable to attend.members. All committee meetings were attended by all committee members, except for one Risk Committee meeting that Dona Young and Bob Dineen were unable to attend, and the Audit Committee deep dive meeting in October which Bob DineenMr. Ben Noteboom was unable to attend. An overview of Supervisory Board members’ attendance by meeting is provided in the table below.
Name | Regular SB meeting | Audit Committee | Risk Committee | Committee | Remuneration Committee | Nomination & Governance Committee | Additional SB mtgs. /calls |
| Additional Nomination &
| |||||||||||||||||||
| 7/7 | - | - | - | 5/5 | |||||||||||||||||||||||
| 5/5 | 1/1 | ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||
Mark Ellman1) | 7/7 | 2/2 | 3/3 | 2/2 | - | 2/2 | 5/5 | - | ||||||||||||||||||||
Ben Noteboom | 7/7 | - | 2/3 | 2/2 | 5/5 | - | 5/5 | - | ||||||||||||||||||||
Caroline Ramsay1) | 4/4 | 2/2 | 2/2 | 1/1 | - | - | 3/3 | - | ||||||||||||||||||||
Ben van der Veer1) | 3/3 | 2/2 | - | 1/1 | - | 3/3 | 2/2 | 1/1 | ||||||||||||||||||||
Thomas Wellauer1) | 4/4 | 2/2 | - | 1/1 | ||||||||||||||||||||||||
| - | 3/3 | - | |||||||||||||||||||||||||
Corien Wortmann | 7/7 | 4/4 | - | 2/2 | - | 5/5 | ||||||||||||||||||||||
| 5/5 | 1/1 | ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||
Dona Young | 7/7 | 4/4 | 3/3 | 2/2 | - | 5/5 | 5/5 | 1/1 |
1 | Where a Supervisory Board member retired from the |
2 | Outstanding compensation for 4Q2019 has been paid out in 1Q2020. Outstanding compensation for 4Q2020 will be paid out in 1Q2021. |
MembersBased on the agenda topics, members of the Executive Board and Management Board attended the Supervisory Board meetings held in 2017 when relevant with regard to the meeting agenda. At2020. 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 20172020 Supervisory Board meeting on Aegon’s 2019 Annual Report. PwC also attended all 20172020 Audit Committee meetings except forincluding the October deep dive meeting in the Netherlands focused on Aegon the Netherlands.combined Supervisory Board Audit and Risk Committee meetings. 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.members present.
Highlights and activities
Key topics discussed during the 20172020 Supervisory Board meetings were Aegon’s quarterly results and (annual)semi-annual and annual reporting, Aegon’s strategy, the main business risks, IT, regulatory developments, acquisitions and divestments, and human resources items.items and the COVID-19 developments.
Quarterly results were discussed on the basis of feedback from the Audit Committee. The full-year results reported in the this
Annual Report were discussed in the March 20182021 meeting in the presence of the external auditor PwC. At the Supervisory Board meeting in December 2017, the budget for 2018 was approved and the The Budget/Medium Term Plan 2021-2023 was discussed.
After approvingdiscussed in November 2020 and approved ahead of the corporate strategy inCapital Markets Day, December 2015, the10, 2020.
The Supervisory Board regularly discussed the long-term value creation strategy and transformation 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, digitizationnarrowing the strategic focus to selected core and the cultural transformation of the business weregrowth markets was an additional important strategic prioritiespriority that werewas discussed during the Supervisory Board meetings.
Acquisitions and divestments were regularly discussed in the context of the execution of the strategy. The Supervisory Board supportedsupports the active management of the business portfolio withadd-on acquisitions, the sale of underperforming businesses and the disposals of entities no longer consistent
Aegon Annual Report on Form 20-F 2020 |
Report of the Supervisory Board60 | ||
with Aegon’s strategy. While acquisitions and divestments of EUR 50 million or more require Supervisory Board approval, smalleradd-ons and divestments were also discussed. During the year, the Board discussed various M&A and balance sheet transactions, including but not limited to the divestmentexpansion of Aegon Ireland,the life and non-life insurance partnership in Spain and the sale of the Unirobe Meeùs Groep in the NetherlandsUK-based provider of accident insurance products, Stonebridge and the divestmentannounced sale of the two largest USrun-off businesses, the payout annuityinsurance, pension and asset management business in Hungary, Poland, Romania, and the Bank Owned / Corporate Owned Life Insurance business.
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.Turkey.
In 2017,2020, Supervisory Board discussions included the following topics:
◆ | COVID-19 developments |
◆ | Strategy, including Aegon’s long-term value creation based on the three core markets, three growth markets and one global asset manager, its responsible business strategy and business reviews; |
◆ | Acquisitions, divestments and the strategic direction of Aegon’s |
◆ | Executive Board and senior management succession planning; |
◆ | Executive remuneration, including the |
◆ | Composition of the Supervisory Board, including the Board’s effectiveness; |
◆ | Corporate Governance; |
◆ | Human resources, including talent development, results of the global employee survey and cultural change and |
◆ | Annual and quarterly results, dividends and the Company’s Medium Term Plan, including the |
◆ | Capital generation and Solvency II capital position, including regulatory capital reports and management actions reflecting COVID-19 impacts and developments in the |
◆ | 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 |
◆ |
◆ | Regulatory changes at both a regional and global level; |
◆ | Customer due diligence processes; |
◆ | Tax policy and tax developments; and |
◆ | Technology, including the technology strategy, |
Results and budget
In February 2017,2020, the Supervisory Board convened to discuss the fourth quarter 20162019 results. In March 2017,2020, the Supervisory Board reviewed and adopted Aegon’s 20162019 Annual Report, the Consolidated Financial Statements of Aegon N.V., and the Financial Statements of Aegon N.V., and the Annual Review of 2016.
N.V.. In May, August and November, the Supervisory Board reviewed Aegon’s first, second and third quarter 20172020 results respectively.
In December 2017,November 2020, the Supervisory Board and Management Board reviewed the Company’s Medium Term Plan, including the budget and capital plan for 2018.2021. The Boards took note of the uncertainties and challenges in the coming years as described in the Plan. These included, among others: COVID-19 developments, increased regulatory requirements, lowlower interest rates, market volatility and equity markets, digital developments, and the changing distribution landscape.execution 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 budgetBudget for 2018.2021. The Board also approved the 2018 funding plan2021 Funding Plan and authorized the Executive Board to execute on the funding planFunding Plan in 2018.2021.
Legal, compliance and regulatory affairs
In 2017,2020, 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 General Counsel, the Global Head of 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 possible settlement in connection with a previously disclosed investigation by the US SecuritiesFinancial crime including know your customer and Exchange Commission (SEC).ultimate beneficial owner requirements, anti money laundering standards and 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. The new members of
In December 2020, the Supervisory Board and Executive Board took the Dutch financial sector oath.
The Supervisory Board also discussed the new Dutch Corporate Governance Code 2016 and the analysis on how the Company was impacted by the new Code and what was needed to comply with the new Code. The Supervisory Board approved an amended Executive Board Charter, Supervisory Board Charter and Supervisory Board Committee Charters to reflect the clauses of the new Dutch Corporate Code 2016.
The ChairmenChairs of the Supervisory Board, Audit Committee and Risk Committee visited the group supervisor, (Dutchthe Dutch Central Bank DNB) in the first half of 2017(DNB), for their regular annual meeting to discuss issues with regards to strategy, risk management and compliance.meeting.
Educational sessions
The Board and its Committees received updates and presentations on topics ranging fromincluding developments in acquisitions and divestments, corporate governance and compliance, roles and responsibilities of the Board and the management and remuneration regulations for the insurance sector, to sustainabilityresponsible 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 employees in the UK and the US and was furthermore in particular informed on the strategic direction of Aegon’s activities in Europe, Asia and Asset Management. In addition,Furthermore, the Board was updated on the IFRS 9 developments aroundand participated in an IFRS 17 and followed an educational program dedicated to digital developments and digital customer solutions. The Audit Committee furthermore held a meeting dedicated to a detailed discussion program on Aegon the Netherlands.session.
Board review
The Supervisory Board undertakes a Board effectiveness review on an annual basis and an external assessment takes place at least once every three years. In 2015, an externalThe 2020 (internal) assessment was based on a survey completed by Supervisory Board members and Management Board members, as well as interviews with all Supervisory Board members. The Board review assessed
Aegon Annual Report on Form 20-F 2020 |
Report of the Supervisory Board61 | ||
the functioning of the Board as a whole, the composition, processes and information, the functioning of the Committees and the interaction within the Board and with the Executive and Management Board. The results of the assessment were discussed in February 2021, and the Supervisory Board was conducted in which each member of the Board was interviewedwill act on the basis of a completed questionnaire. In 2016observations and 2017 a self-assessment was undertaken by the Board. This Board review assessed the collective performancerecommendations that were then discussed and effectiveness of the Board and its Committees, and the performance of the Chairman. In doing so, it addressed the composition, competencies, expertise and profile of the Board, the meeting processes and procedures, the mutual interaction, dynamics and communicationwere listed in the Board, andassessment report.
Outside the Board’s key areas of supervision. The 2017 questionnaire further addressed events from which lessons could be learned and reviewed the mutual interaction between the Supervisory Board and the Executive Board and Management Board. With regard to this mutual interaction, the 2017 Supervisory Board review also included input from the Management Board. The Supervisory Board discussed the outcome of the self-assessment in detail in the absencepresence of the Executive Board, and Management Board in February 2018, and agreed that it and its Committees functioned well and fulfilled its duties and responsibilities in a satisfactory way. During the same meeting, the Supervisory Board listed the priorities andfollow-up for the Board to address in 2018.
The performance of the members of the Executive Board was discussed regularly during 2017. The Supervisory Board reviewed the performance (results) of the individual members of the Executive Board and Management Board over the preceding calendar year in January 2017.February 2021. In addition, the SupervisoryExecutive Board evaluated its own functioning as a whole and that of the individual Executive Board members as well. The performance of the members of the Executive and Management Boards was also discussed regularly during the cooperationyear. During these reviews, the Executive Board and communication between the Supervisory Board and Managementalso identified areas for which Board in 2017.members - or the Board as a whole - could require training or education.
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:
◆ | Audit Committee; |
◆ | Risk Committee; |
◆ | 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, 2017,2020, the composition of the Audit Committee was as follows:
◆ |
◆ |
◆ | Corien M. Wortmann-Kool; and |
◆ | Dona D. Young. |
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 ChairmanChair of the Audit Committee, Ben van der Veer,Caroline Ramsay, qualified as a financial expert according to the Sarbanes OxleySarbanes-Oxley Act in the United States and hisher competence in accounting and auditing according to the Audit Committee Decree 2016 (‘Besluitinstellingauditcommissie’), section 2(3).
Role and responsibilities
As Aegon has both an Audit Committee and a Risk Committee, the risk management responsibilities statedoutlined 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. |
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.https://aegon.com/contentassets/d837 d12c114040a2aab5bbde9e340d5e/aegon-supervisory-board-audit-committee-charter-2020.pdf.
Committee meetings
In 2017,2020, the Audit Committee held sevensix meetings, one of which was aincluded two combined meetingmeetings with the Risk Committee of the Supervisory Board in May and December 2017. As part of regular deep-dive sessions, a separate meeting took place in October in the Netherlands dedicated to Aegon’s business in the Netherlands. Topics for discussion included the Dutch market developments, the capital generation, operational management and digital solutions within Aegon the Netherlands.2020. Audit Committee meetings were attended by, amongst others, the members of the Audit Committee, Aegon’s Chief Financial Officer, the Head of Corporate Financial Center, the Chief Risk Officer, the internal auditor,Chief Internal Auditor, and partners of PwC, Aegon’s external auditor.
Aegon Annual Report on Form 20-F 2020 |
Report of the Supervisory Board62 | ||
Members of Aegon’s Group Risk, Group Legal, Group 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 20172020 interim and full year financial statements, the Audit Committee:
◆ | Reviewed and discussed the management letter and follow up actions with |
◆ | Discussed PwC’s |
◆ | Received presentations on various topics by local business unit managers and chief financial officers; |
◆ | Reviewed and discussed areas of significant judgments in the preparation of the financial statements, including, in particular: Solvency II, investment valuation and impairments, accounting changes, economic and actuarial assumption setting, and model |
◆ | Reviewed and approved the internal and external audit plans for 2020 and monitored execution, including progress in respect of recommendations made. |
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 20172020 were Solvency II developments, controls, capital and liquidity, legal and compliance updates, and preparations for IFRS 9 and IFRS 17. Other items included tax updates, capital and funding plans and the performance review of the internal audit function and external auditor.
Risk management and internal controls
With respect to their oversight of accounting risk management and internal controls (provided they did not pertain to the work and responsibilities of(other than those where oversight is carried out via the Risk Committee), the Audit Committee:
◆ | 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 |
◆ | Reviewed the internal control framework, among others with respect to the |
◆ | 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 andfor 2020. In addition, the audit planSupervisory Board followed the recommendation of the Audit Committee to propose to the shareholder, during the Annual General Meeting on June 3, 2021, to re-appoint the external Auditor for 2017.the period 2021-2023. 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.https://aegon.com/contentassets/d837d12c114040a2aab5bbde9e340d5e/aegon-supervisory-board-audit-committee-charter-2020.pdf.
The Audit Committee Charter was furthermore discussed and revised as a result of the new Dutch Corporate Governance Code in November 2017.
The Risk Committee
Composition
On December 31, 2017,2020, the composition of the Risk Committee was as follows:
◆ | Dona D. Young |
◆ | Mark A. Ellman; |
◆ | Ben J. Noteboom; and |
◆ |
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 assessment; |
◆ | Risk responses and internal control effectiveness; |
◆ | Risk monitoring; and |
◆ | Risk |
Furthermore, the Risk Committee regularly reviews risk exposures as they relate to capital, earnings, liquidity, operations, and compliance with risk policies. The Company’s risk management is an important topic for the Supervisory Board.Board, and the challenge and oversight role of the Risk Committee was particularly important this year in light of the exceptional disruptive circumstances due to Brexit and the COVID-19 pandemic.
Aegon Annual Report on Form 20-F 2020 |
Report of the Supervisory Board63 | ||
For more information about the functioning of the Risk Committee, please see the Risk Committee Charter on aegon.com.https://aegon.com/contentassets/ f8c52ba9146b4f3789f992efb84a6750/aegon-supervisory-board-risk-committee-charter-2020.pdf.
Committee meetings
The Risk Committee works closely together with the Audit Committee and has an annualheld two combined meeting, whichmeetings, one in 2017 was heldMay and one in December. ThisDecember 2020. The combined meetingmeetings focused on internal reporting changes, the Group risk appetite,systems of governance, third party & affiliate management, the resilience of the Group, the evaluation of internal controlsModel Validation Plan, and information technology security.IT Security.
The Risk Committee convened five times in 2017,2020, including the combined meetingmeetings with the Audit Committee.
The Company’s Chief Executive Officer and Chief Risk Officer attendattended all the Committee meetings. The Chief Financial Officer had a standing invitation to attend the Committee meetings and attendedmeetings. The Chair of the Risk Committee granted the Global Chief Audit Executive a standing invitation to all the meetings in 2017 as well.Risk Committee meetings. Other Management Board members and senior managers attended the meetings when relevant for the discussion.
Risk management and Internal controls
Recurring items on the Risk Committee agenda in 20172020 were risk exposure information, and risk policy compliance monitoring.monitoring, risks associated with IT and information security, as well as risks associated with the pandemic and strategic 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 20172020 by:
◆ | Discussing the quarterly risk dashboard, including all material group level risks, with the Executive Board, |
◆ | Assessing a quarterly |
◆ | 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, the Group ORSAFocus! report and actions in the consequencescontext of Recovery and actions followingResolution regulation. The Risk Committee furthermore spent time on the designationmarket risk impact on the annual budget plan, reinsurance developments, updates on the IT security roadmap, the IT Risk Management
Framework, the assessment of Aegon as aG-SIIthe performance improvement program, the strategic human resources program Future Fit and on risks and approaches in November 2015.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 the financial markets in 2017. Furthermore,2020 due to theCOVID-19 pandemic, and to a number of important asset and liability management and hedging topics across the Group. The Risk Committee discussednoted that the implications ofrisk framework and the new Dutch Corporate Governance Code on its work, and approved an updated Risk Committee Charter that reflects the requirements of the new Dutch Corporate Governance Code.organization adapted well to evolving COVID-19 developments.
The Nomination and Governance Committee
Composition
On December 31, 2017,2020, the composition of the Nomination and Governance Committee was as follows:
◆ |
◆ |
◆ | Corien M. |
◆ | Dona D. Young. |
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 the appointment of 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. |
Committee meetings
Aegon’s Nomination and Governance Committee held six meetings in 2017.2020. 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 senior management team developments and governance matters and structures. The Committee thereby paused on the Company’s responsibleinternal board structures in Aegon’s material business strategy. In addition, the Nomination and Governance Committee discussed the new Dutch Corporate Governance Code and the implications for the Charters of the Executive Board, the Supervisory Board and the Supervisory Board Committees. The Nomination and Governance Committee furthermore advised the Supervisory Board to approve the updated Charters of the Executive Board, the Supervisory Board and the Supervisory Board Committees, including the Charter of the Nomination and Governance Committee.units.
Aegon Annual Report on Form 20-F 2020 |
Report of the Supervisory Board64 | ||
The Nomination and Governance Committee also reviewed the important outside board positions of the members of the Management and Supervisory Board,Boards 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 profileprofiles of Supervisory Board members, as well as their capabilities also in terms of working collectively with other members of the Supervisory Board, were debated by the Committee. Furthermore, theThe existing and impending vacancies in the Supervisory Board were discussed (whereby it was considered important to enhance financial and a search processSolvency II expertise) and resulted in (i) the appointment of Ms. Caroline Ramsay and Mr. Thomas Wellauer at the Annual Shareholder meeting of May 15, 2020 and (ii) the nomination of Mr. Jack McGarry and Mr. Frans Blom for fulfilling those vacancies was commenced.appointment at the Annual Shareholder meeting on June 3, 2021.
A Supervisory Board Competency overview is published on aegon.com.
Executive and Management Board related activities
During 2017,2020, the Nomination and Governance Committee discussed the CFO (re)appointment, reviewed the composition of the Executive Board and Management Board, together with the functioning and effectiveness 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 and senior management level both inwas informed - and consulted on - the eventsuccession of emergencyManagement Board vacancies, and when positions open up in the future. The CEO also discussed changes in the global senior management team with the Nomination and Governanceon certain appointments of key management..
Committee during the year. The Committee was also kept appraisedapprised 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 2017.2020. The Supervisory Board discussed the outcome of this survey in detail in the February 2018 Supervisory Board meeting.first quarter of 2021.
Diversity
Enhancing diversity in the Executive, Management and
Supervisory BoardBoards 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.
Boards. 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’ requirementExecutive 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 and male representation in the Supervisory Board, the Executive Board and the Management Board.
In the current Supervisory Board composition, there are three female members out of seven members in total (meeting the recent target 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 Overviewoverview and in Chapter 7 (Diversity) of the Corporate Governance Statement - as published on aegon.com.
The Remuneration Committee
Composition
On December 31, 2017,2020, the composition of the Remuneration Committee was as follows:
◆ | Ben J. Noteboom |
◆ | William L. Connelly; and |
◆ |
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 Supervisory 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 considering 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 interestinterests of its shareholders, investors and other stakeholders. This includes:
◆ | Reviewing the Aegon Group Global Remuneration Framework and making recommendations on the |
◆ | Overseeing the remuneration of the Executive Board and Heads of Group Control functions; |
◆ | Preparing recommendations regarding variable compensation both at the beginning and |
◆ | Preparing the information provided to shareholders on remuneration policies and practices, including the Remuneration Report. |
Aegon Annual Report on Form 20-F 2020 |
Report of the Supervisory Board65 | ||
Committee meetings
The Remuneration Committee had sixfive meetings in 2017.2020. 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 2017,2020, the Remuneration Committee concluded on 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. These amended policies were adopted by the shareholders on the Annual General Meeting on May 15, 2020.
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. ThisMaterial Risk Takers (Identified Staff). The above included:
◆ | Setting the |
◆ | Setting the 2020 Individual Performance Indicators for Executive Board members; |
◆ | Setting the 2020 Group Performance Indicators and targets for remuneration purposes; |
◆ | Preparing for the |
◆ | Reviewing and/or approving theex-ante risk assessments andex-post assessments, any exemption requests under the remuneration policies and changes to the list of |
◆ | Addressing the impact of COVID-19 on targets and variable compensation; and |
Furthermore, the Committee discussed the results of the audit by the Internal Audit Department on the application of the Remuneration Framework.
◆ | Reviewing the related Remuneration Report. |
In addition, the Remuneration Committee discussed possible developments with regardsrespect to possible new regulations pertaining to remuneration and discussed the new Dutch Corporate Governance Code and the implications for the work of the Remuneration Committee. The Remuneration Committee approved an updated Remuneration Committee Charter that reflects the requirements of the new Dutch Corporate Governance Code.remuneration.
Annual Accounts
This Annual Report includes the Annual Accounts for 2017,2020, 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 20182021 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’sreiterate their appreciation for the dedication shown by the Executive Board, management, and all employees for all they do to serve Aegon’s millions ofAegon and its customers during this unprecedented 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.challenging year.
The Hague, the Netherlands, March 22, 2018.17, 2021
Robert J. RoutsWilliam L. Connelly
Chairman of the Supervisory Board of Aegon N.V.
Aegon Annual Report on Form 20-F 2020 |
The 2020 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 Mr. Ben J. Noteboom, and was approved by the Supervisory Board. In the first chapter, the Remuneration Committee presents an overview of the business and remuneration highlights in 2020 and a look ahead to 2021. 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 2020 Supervisory Board Remuneration Report, which contains a summary of the Supervisory Board Remuneration Policy that applied to 2020 and the Supervisory Board remuneration over the recent years. In chapter four, the 2020 Executive Board Remuneration Report provides a summary of the Executive Board Remuneration Policy that was applicable in 2020, the Executive Board remuneration over the recent years and the 2021 Executive Board performance indicators.
1. Business and remuneration highlights
This chapter presents an overview of the business and remuneration highlights in 2020 and a look ahead to 2021.
2020 Business highlights
In 2020, Aegon introduced its new strategy and put in place a set of measures and new financial targets aimed at increasing value for all our stakeholders. This approach seeks to change Aegon’s performance trajectory over the coming years, improving
our business by reducing costs, and expanding margins and growing profitability. The first concrete steps to deliver on our plans were taken, such as the announcements to divest Stonebridge and our operations in Central & Eastern Europe, and restructuring our businesses in India, Hong Kong, and Singapore. Aegon also took measures to strengthen the balance sheet resulting in the capital ratios of its three main business units ending the year above their respective operating levels. (For a more detailed update, please see the ‘Letter from our CEO’ and the ‘Letter of Supervisory Board Chairman’ in this 2020 Annual Report on Form 20-F.)
In terms of business performance, 2020 was a challenging year. Aegon’s Return on Equity decreased in 2020 due to lower results in the Americas. This was largely due to the direct and indirect effects of the COVID-19 pandemic, namely adverse mortality and lower interest rates. These drivers also caused the Normalized Capital Generation for 2020 to decrease compared to 2019. Fees and Premium based Revenues in 2020 were broadly stable compared to 2019, as the positive impact from higher equity markets on fees was partly offset by outflows in lines of business such as Variable Annuities and Retirement Plans in the Americas. Market Consistent Value of New Business in 2020 decreased primarily due to the impact of lower interest rates on Variable Annuities in the Americas. Lower sales driven by the pandemic were also a contributing factor. The Relational Net Promoter Score increased by one point to 18 due to our NPS improvement plans and administration partnerships with third parties which increased service levels.
Business performance highlights | 2020 | 2019 | ||||||
Return on Equity (in %) | 8.5% | 9.5% | ||||||
Fees and Premium based Revenues (in EUR million) | 4,811 | 4,787 | ||||||
Normalized Capital Generation (in EUR million) | 1,340 | 1,569 | ||||||
Market Consistent Value of New Business (in EUR million) | 262 | 465 | ||||||
Relational Net Promoter Score | 18 | 17 |
In 2020 Aegon’s Supervisory Board consisted of the following members: Mr. William L. Connelly (Chairman), Ms. Corien M. Wortmann-Kool (Vice Chairman), Ms. Dona D. Young, Mr. Mark A. Ellman, Mr. Ben J. Noteboom, Mr. Ben van der Veer (until May 15, 2020), Mr. Thomas Wellauer (per May 15, 2020) and Ms. Caroline Ramsay (per May 15, 2020). At the Annual General Meeting of Shareholders on May 15, 2020 shareholders approved the appointment of Mr. Wellauer and Ms. Ramsay, while at the closure of the meeting the term of Mr. Van der Veer ended. During the Annual General Meeting of Shareholders on June 3, 2021, the Supervisory Board will propose to appoint Mr. Jack
McGarry and Mr. Frans Blom as members to the Supervisory Board for a term of four years as of June 3, 2021.
Aegon’s Executive Board consisted of the Chief Executive Officer, who served as Chairman, and the Chief Financial Officer in 2020: Mr. Alexander R. Wynaendts was the Chief Executive Officer from the beginning of 2020 until he was succeeded by Mr. Lard Friese after he was appointed to the Executive Board at the Annual General Meeting of Shareholders on May 15, 2020. Mr. Matthew J. Rider was the Chief Financial Officer and a member of the Executive Board during the full 2020 calendar year.
Aegon Annual Report on Form 20-F |
Members of the Supervisory Board
Robert J. Routs (1946, Dutch)
Chairman of the Supervisory Board
Chairman of the Nomination and Governance Committee Member of the Remuneration Committee
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 Shareholders19. Mr. Routs is Chairman of the Supervisory Board Nomination and Governance Committee and a member of the Supervisory Board Remuneration Committee.
Mr. Routs is also Chairman of the Supervisory Board of Royal DSM N.V. and sits on the Board of Directors of ATCO Ltd., A.P.Møller-Mærsk A/S and AECOM Technology Corporation. He is a formernon-executive director at UPM and former Vice Chairman of the Supervisory Board of Royal KPN N.V.
William L. Connelly (1958, French)
Member of the Audit 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 his current term ends in 2021. He is a member of the Supervisory Board Audit Committee and 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 Audit 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 2018. He is a member of the Supervisory Board Audit Committee and the Supervisory Board Risk Committee.
Mr. Dineen is also 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.
He was appointed as 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. During the Annual General Meeting of Shareholders on June 3, 2021, the Supervisory Board will propose to reappoint Mr. Rider as member to the Executive Board for a term of four years as of June 3, 2021.
Aegon’s Executive Board is assisted in its work by the Aegon’s Management Board, which has 12 members, including the members of the Executive Board. In 2020, Aegon’s Management Board was composed of Mr. Alex R. Wynaendts (until May 15, 2020), Mr. Lard Friese (per May 15, 2020), Mr. Matthew J. Rider, Mr. Mark Bloom, Mr. Mark Mullin, Mr. Marco Keim, Mr. Maarten Edixhoven, Mr. Adrian Grace (until March 31, 2020), Mr. Mike Holliday-Williams (per April 1, 2020), Mr. Bas NieuweWeme, Ms. Allegra van Hövell-Patrizi, Mr. Onno van Klinken, Ms. Carla Mahieu and Mr. Duncan Russell (per September 1, 2020).
2020 Remuneration highlights
Aegon’s shareholders adopted the Supervisory Board Remuneration Policy and the Executive Board Remuneration Policy at the Annual General Meeting of Shareholders on May 15, 2020 with 98.98% and 83.57% of the votes cast respectively. Both policies were amended to comply with the then new Dutch Act which implemented the European Shareholder Rights Directive, to increase the transparency, and to better substantiate the rationale for the design of the policies. Based on this new Act, both policies also required a qualified majority of 75% of the votes cast. After adoption, both policies came into force retroactively as of January 1, 2020.
The amendment to the Supervisory Board Remuneration Policy did not include any changes to the remuneration structure or fee levels for members of the Supervisory Board. It did add the option for the Supervisory Board to annually index the fees for economic developments in the Netherlands.
Compared to the previous Executive Board Remuneration Policy, the new policy increased the alignment of the Executive Board remuneration with the long-term interest of Aegon. The policy also took into account feedback received on Aegon’s previous Remuneration Policy and embedded new remuneration rules, such as:
◆ | Increasing the portion of variable compensation which is paid in Aegon shares from 50% to 66.66%. |
◆ | Simplifying the pay-out of variable compensation to consist of one upfront cash portion of 33.33% and one share portion of 66.66% which is deferred for 3 years (i.e. cliff-vesting, instead of previous practice of vesting in tranches). After vesting, the shares will be subject to an additional 2-year holding period. This increases the average period during which the allocated shares are restricted from 4.2 years to 5 years. |
◆ | Basing variable compensation on a mix of performance indicators which are measured either on a 1-year or a 3-year performance horizon, instead of a 1-year performance horizon only. |
◆ | Including performance indicators, such as Relative Total Shareholder Return and ESG (Environmental, Social, and Governance), both of which are relevant for Aegon, its shareholders, and other stakeholders. |
At the same Annual General Meeting, shareholders were asked to cast an advisory vote on the Remuneration Report for the first time. The 2019 Remuneration Report was approved with 83.79% of the votes cast. After the vote, Aegon collected feedback from several large shareholders to further improve the quality of the Remuneration Report. Based on this feedback, the Supervisory Board made a few changes to this remuneration highlight section, and disclosed more information on the calculation of variable compensation for the Executive Board in chapter four.
Aegon assessed its performance against the 2020 targets that were set prior to the COVID-19 crisis, and no changes to the rules for calculating variable compensation were made as a consequence of it. Aegon believes its mechanism for calculating variable compensation works properly, both in good and in challenging times, so no additional measures were needed. Due to the economic impact of COVID-19, most of the variable compensation that was allocated for 2020 has been lower compared to previous years, including that for the Executive Board members. Aegon also initiated a financial soundness risk assessment in relation to variable compensation which was awarded in previous years (for performance in 2016-2019),and was scheduled to be paid-out in 2020. After reviewing the assessment, the Supervisory Board concluded that payment of these awards would not materially impact the financial soundness of Aegon, and therefore approved the payment thereof.
In 2020 Aegon paid out EUR 167 million in variable compensation and 23 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 2020). These employees worked for Aegon’s Corporate Center, Aegon Americas, Aegon UK and Aegon Asset Management.
The Executive Board members did not receive a salary increase during 2020. For the period during which the individual served as Executive Board member in 2020, Mr. Friese received EUR 931,071 in fixed compensation (ca. 7.5 months), Mr. Wynaendts received EUR 495,931 (ca. 4.5 months) and Mr. Rider received EUR 940,950 (full year). For that same period, Mr. Friese was allocated EUR 2.0 million in total compensation, Mr. Wynaendts EUR 1.2 million (2019: EUR 3.9 million for the full year) and Mr. Rider EUR 2.0 million (2019: 2.1 million). In addition, Mr. Friese received a sign-on arrangement of EUR 1.23 million when he joined Aegon in March 2020, of which 50% is in cash and 50% in shares. Of this amount 55% has been paid in 2020.
Aegon Annual Report on Form 20-F |
Shemaya Levy (1947, French)
Vice Chairman of the Supervisory Board
Chairman of the Risk Committee
Member of the Nomination and Governance Committee
Shemaya Levy is retired Executive Vice President and Chief Financial Officer of the Renault Group. He was appointed
to Aegon’s Supervisory Board in 2005, and his final term ended in May 2017. He was Chairman of the Supervisory Board Risk Committee and a member of the Supervisory Board Nomination and Governance Committee.
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.
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.
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 N.V., RELX PLC and RELX Group PLC. He is also a member of the Supervisory Board of Royal FrieslandCampina N.V. (not listed), and 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
Member of the Nomination and Governance Committee
Dirk P.M. Verbeek is a former Executive Board member and former vice president Emeritus of Aon Group. Mr. Verbeek was appointed to Aegon’s Supervisory Board in 200820. He is a member of the Supervisory Board Risk Committee and the Supervisory Board Nomination and Governance Committee.
Mr. Verbeek is a member of the Advisory Council of CVC Benelux (not listed) and OVG Real Estate (not listed), and member of the INSEAD Dutch Council. Mr. Verbeek was a member of the Supervisory Board of Aon Groep Nederland B.V. (not listed) until July 2017, and Chairman of the Supervisory Board of Robeco Groep N.V. (not listed) until December 2015.
68 | ||
The remainder will be paid in later years subject to continued employment (20% in 2021, 14% in 2022, 9% in 2023 and 3% in 2024). The Corien M. Wortmann-Kool (1959, Dutch)sign-on arrangement was offered for a combination of reasons, including the market value of Mr. Friese, making the transfer from a direct competitor to Aegon more attractive and compensation for loss of income during the transfer period.
Vice ChairmanThe 2020 CEO pay ratio was 32.2 (2019: 32.8, 2018: 42.2). This ratio was based on the annualized IFRS-EU remuneration expenses for Mr. Friese and employee expenses in 2020, which have been audited. The annualized annual expenses for Mr. Friese’s total compensation were EUR 3.5 million, including EUR 0.9 million for the sign-on arrangement (2019: EUR 3.8 million, 2018: EUR 4.4 million, both for Mr. Wynaendts). The average expenses for the employees’ total compensation were EUR 109,855 (2019: EUR 115,371, 2018: EUR 104,459), 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 1,995 million – EUR 3.5 million = EUR 1,991 million. |
◆ | Divided by the number of employees in scope, which are the total number of employees minus employees in joint ventures and associates (as their expenses are not included in Note 14) and minus the CEO: 22,322 – 4,193 – 1 = 18,128 employees. |
The Remuneration Committee took note that certain factors have influenced the CEO pay ratio, such as the compensation and sign-on package of the Supervisory Board
Membernew CEO, lower pay-out of variable compensation to employees in 2020, the change to a defined contribution pension plan in the Netherlands per 2020 (was defined benefit) and significant differences in the geographical footprint of the Audit CommitteeAegon’s employee population, leading to a slight decrease compared to last year.
MemberLooking ahead to 2021
At the Annual General Meeting of Shareholders on June 3, 2021, Aegon will ask its shareholders to approve the Nominationreappointment of Mr. Rider to the Executive Board and Governance Committeecast an advisory vote on this Remuneration Report.
Corien M. Wortmann-Kool is ChairmanMr. Rider’s fixed compensation will be increased by 5% per June 2021 (from EUR 940,950 to EUR 987,998), if shareholders approve his reappointment. His last increase was two years ago (2.5% per June 2019). The increase will keep Mr. Rider aligned with internal and external compensation levels, economic developments (e.g. inflation) and changes to the compensation levels of other senior managers within Europe and in the BoardNetherlands. There are no other changes foreseen to the compensation packages of Stichting Pensioenfonds ABP,Mr. Friese and Mr. Rider in 2021.
Aegon will monitor the development of rules, regulations and guidance that could affect our remuneration policies. This includes the intended changes to the Dutch public sector collective pension fund. Ms. Wortmann-Kool is a former MemberFinancial Supervision Act, and the finalization of the European Parliament and Vice PresidentCommittee’s guidelines on Financial, Economic and Environmental affairs for the EPP Group (European People’s Party). She was appointedstandardized presentation of the remuneration report.
2. Remuneration at Aegon in general
This chapter contains a general introduction to Aegon’s Supervisory BoardGlobal Remuneration Framework, Human Resources Strategy, Remuneration Principles, the concepts of total compensation and variable compensation, Risk Management in May 2014,relation to remuneration and her current term ends in 2018. She
is Vice Chairmanremuneration 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 vice president of the European People’s Party. She was a member of the Supervisory Board ofMercedes-Benz Netherlands (not listed) until 2014.
Dona D. Young (1954, American)
Member of the Audit Committee
Chairman of theMaterial Risk 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 a member of the Supervisory Board
Audit Committee and Chairman of the Supervisory Board Risk Committee.
Ms. Young is member and Lead Director of the Board of Directors of Foot Locker, Inc Furthermore, Ms. Young is Chair 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.
Global Remuneration PrinciplesFramework
TheAegon’s Global Remuneration Framework (GRF) outlines the Aegon Group Global Remuneration Principles provide the foundation for remuneration policies and practices throughout Aegon. They are applied regionally and/or locally.
The key pillars ofHuman Resources Strategy, the Aegon Group Remuneration Principles and the Aegon Group Remuneration Guidelines, which apply to all Aegon employees, including the Executive Board members. 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.
Aegon’s remuneration policies are as follows: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 employees 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 within the Group:
◆ | Aegon remuneration is employee-oriented |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report69 | ||
◆ | Aegon remuneration is performance-related |
◆ | 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 |
◆ | 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. |
The key pillars outlined above are set out in Aegon’s Global Remuneration Framework (GRF). The GRF covers all Aegon staff. It contains the guiding principles for remuneration and therefore supports the consistent setting of sound and effective remuneration policies throughout the Aegon Group. The GRF is 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 the Remuneration Policy for the Executive Board. These policies define specific terms and conditions for the employment of various groups of staff. All steps in the remuneration process are governed by the GRF and its underlying policies. Staff from Human Resources, Risk Management, Compliance and Audit are involved in all steps of the process.
2017 was a year with relatively few changes to the remuneration regulations impacting Aegon. For this reason, the Company’s remuneration practices and processes did not change materially comparedconsistent with the previous performance period.market in which Aegon operates and competes for similar employees. Total compensation typically consists of fixed compensation, variable compensation (where in line with the local market practice), pension and other benefits. Market survey information from reputable sources is used to regularly assess the competitiveness of compensation levels and practices which Aegon offers its employees.
Variable compensation
Variable compensation, if any, is capped at an appropriate level as a percentage of fixed compensation.
The Dutch Code introduced, among other things, caps on variable compensation that go beyond the maximums suggested by European legislation, and require at least 50% of the performance indicators used for determining variable compensation to be of anon-financial nature. In addition, the regulations limit the use of financial retention and severance arrangements.
The Wbfo 2015Financial Supervision Act has a provision that makes it possible to apply a variable compensation maximum that is aligned with the European CRD IV compensation ratio (100% of fixed compensation at maximum level). This has been specifically created for all people working for the corporate office of companies with a strong international nature. In 2017, Aegon met the applicable criteria. Although the regular maximum levels of variable compensation apply in the Netherlands, Aegon has offered selected senior staff at its corporate officeoffer employees up to a maximum variable compensation opportunity that is equal to the European Capital Requirements Directive compensation ratio (i.e. 100% of fixed compensation). This provision was specifically created for corporate office employees of companies based in the Netherlands, which employ at least 75% of their employees abroad. In 2020, Aegon met this criterion and offered selected senior corporate office employees a variable compensation opportunity up to this maximum.
In line with CRD IV remuneration ratios.
For compensation of staff outside Europe, the CompanyDutch Financial Supervision Act, Aegon has obtained shareholder approval at the Annual General Meeting of Shareholders of May 20, 2016 to payoffer a maximum ofvariable compensation opportunity up to 200% of base salary as variablefixed compensation for performance delivered byto selected senior staffemployees outside Europe in positions that, based on local market practice, could exceed thereceive variable compensation that exceeds 100% of base salary variable compensation set outfixed compensation. Within this mandate, Aegon offered selected senior employees outside Europe such an opportunity in the legislation. The Company’s2020. Aegon’s capital iswas not adversely impacted by the maximum variable compensation that could be paid out.
In line with the Wbfo, Aegon wishes to disclose the total amount of variableVariable compensation paid in performance year 2017.
The total amount of variable compensationfor senior management is usually paid out in 2017 was EUR 197 million. In 2017, the total annualcash and shares over multiple years, and is subject to further conditions being fulfilled. Variable compensation already paid out to 17 people was equal to or higher than EUR 1 million. These people worked for Aegon’s Global Corporate Office, Aegon Americas, Aegon UK and Aegon Asset Management.may also be retrieved under certain circumstances (‘claw-back’).
Role of risk management and complianceRisk Management in 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 have a material impact on the Company’sAegon’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 taken prior toaimed at various moments in the payoutvariable compensation process: when the targets are set, before a variable compensation award is allocated, before deferred parts of compensation to individual employees (regardlessthe award are paid and after pay-out of whether the compensation is deferred) as well as after payouts, or allocated but deferred payments (before vesting of these payments) to ensure sustainability of performance, are consideredex-post measures.award (when relevant).
Aegon endeavors to seek an appropriate balance ofex-ante andex-post risk assessments to ensure effectiveness in both the short- and long-term risk takingrisk-taking behavior of employees.
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report70 | ||
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 outlined in the applicable European Directive, its guidelines and local regulatory requirements (where available). This means that their personal objectives are subject to an ex-ante risk assessment at the aim is for totalstart of the performance year. A minimum portion of their variable compensation will be deferred and paid in non-cash instruments (such as Aegon shares or investment in own funds). Before the allocation of variable compensation they are subject to an ex-ante risk assessment, while before pay-out of any deferred variable compensation they are subject to ex-post risk assessments. Based on these risk assessments, Aegon can adjust the intended or allocated variable compensation awards downward where deemed appropriate (however never upward).
3. 2020 Supervisory Board Remuneration Report
The 2020 Supervisory Board Remuneration Report has been prepared by the Remuneration Committee of the Supervisory Board in accordance with the Dutch Civil Code (article art 2:135b) and the Dutch 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 2020 and the Supervisory Board remuneration for experienced and competent employees to be consistent with those inover the markets in which Aegon operates and competes for employees. Total compensation typically consists of base salaries and -recent years.
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 base pay. Variable compensation for senior management is usually paid out in cash and shares over multiple years, andAegon’s Supervisory Board remuneration is subject to further conditions being fulfilled. Additional holding periods may apply to shares after they have vested, restricting their sale for a further one to three years. Variable compensation already paid out may also be retrieved under certain circumstances (‘Claw-back’).
Invarious rules and regulations, including the following sections more detailed information is provided onDutch Financial Supervision Act, the compensation practice forDutch Civil Code, the Supervisory BoardDutch Corporate Governance Code and the Executive Board.Solvency II Legal Framework.
Supervisory Board Remuneration Policy 2017in 2020
Aegon’s Supervisory Board Remuneration Policy for members of its Supervisory Board is aimed at ensuring fair compensation and protecting the independence of the Board’sSupervisory Board members. TermsThe Supervisory Board Remuneration Policy that has been applied in 2020 was adopted at the Annual General Meeting of Shareholders on May 15, 2020. This policy will be subject to annual reviews by the Supervisory Board. 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 at least every four years.
The policy contributes to Aegon’s strategy, long-term interests, and conditions for memberssustainability through the remuneration of the Supervisory Board are part of Aegon’s broader Remuneration Policy, and are the responsibility of the Company’s Remuneration Committee.members in various ways:
Fees and entitlements
Members
◆ | The policy provides the Supervisory Board with the means to attract, motivate, and retain competent, diverse, and experienced Supervisory Board members for the long-term. This is essential for executing Aegon’s strategy and safeguarding and promoting its long-term interests and sustainability. |
◆ | Supervisory Board 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 Supervisory Board members in their supervisory role to focus on the long-term interest and sustainability of Aegon. |
◆ | The Supervisory Board 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. |
◆ | Supervisory Board 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. |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report71 | ||
The Supervisory Board took Aegon’s identity, purpose, and values into account when developing the policy and its changes:
◆ | Aegon is an international financial services group based in the Netherlands, that provides life insurance, pensions, and asset management. 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 Supervisory Board 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 Supervisory Board 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. being an Insurance firm in Europe and being a listed and financial company in the Netherlands). |
◆ | 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 are not explicitly reflected in the policy as a result of the 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 as the fee-based compensation structure for Supervisory Board members differs significantly from these internal compensation structures and levels.
The Supervisory Board members are entitled to the following:following fees (see also the table below):
◆ | 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. |
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 |
Each of these fees is a fixed amount. Members of Aegon’sThe Supervisory Board is allowed to annually index the fees for economic developments in the Netherlands, however the fees have not been indexed in 2020.
The Supervisory Board members do not receive any performance or equity-related compensation, and do not accrue pension rights with the Company.Aegon. These measures are designed to ensure the
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 72 | ||
independence of Supervisory Board members and to strengthen the overall effectiveness of Aegon’s corporate governance.
UnderThe Supervisory Board regularly assesses the competitiveness of the Supervisory Board’s remuneration structure and levels against peer companies with data provided by Willis Towers Watson. 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 that operate globally; and |
◆ | Location: Headquarters based in Europe, excluding UK (because the non-executive directors typically have different responsibilities compared to their continental European counterparts). |
Based on these criteria the current policy,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 differs from the European peer group for the Executive Board as approveda result of excluding the UK companies. The peer group is reviewed each year and may be updated accordingly. The last update of this peer group was in 2018.
In addition, the Supervisory Board selects a secondary peer group according to 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. This peer group is also reviewed each year and was last updated in 2019. ING, NN Group, ABN AMRO, DSM, and Wolters Kluwer were added and replaced ArcelorMittal, RELX Group, Royal Dutch Shell, Unibail-Rodamco-Westfield, and Unilever. This peer group is identical to the Dutch peer group for the Executive Board.
The Remuneration Committee may recommend changes to the fee levels of the Supervisory Board members, based on the results of a competitiveness review. Such recommendations would be 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 on May 15, 2013, membersof Shareholders.
The policy contains a temporary derogation clause, with rules which are in accordance with the Dutch Civil Code. This means derogation is only allowed in exceptional circumstances to serve the long-term interest and sustainability of Aegon or to assure its viability, for a limited period of time, when it stays in line with the general spirit of the Supervisory Boardpolicy and when the details are entitled todisclosed in the following payments:next remuneration report. This clause was not used in 2020.
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Information on members of the Supervisory Board and the composition of Aegon’sits four committees - Audit, Nomination and Governance, Remuneration and Risk - can be found on pages 115 - 119.
Details on the remuneration of the Supervisory Board over the course of 2017 can be found in the Supervisory Board Remuneration Report 2017 on page 304.
Executive Board Remuneration in 2017
The following section describes how the Company applies the principlesreport of good governance relating to Directors remuneration. It was prepared by the Remuneration Committee of Aegon N.V. (the Committee) in accordance with the Dutch Code (the Dutch Code), and was approved by Aegon N.V.’s Supervisory Board.
Executive Board remuneration
Aegon’s Executive Board is remunerated on the basis of the principles described in Aegon’s GRF. Aegon’s remuneration policy for members of the Executive Board is derived from this framework and sets out terms and conditions for members of the Company’s Executive Board.
The Executive Board Remuneration Policy was adopted at the General Meeting of Shareholders on May 12, 2011. The Policy will remain in force until such time as the Supervisory Board proposes changes or amendments. Any material changes in the Executive Board Remuneration Policy will be referred to the General Meeting of Shareholders for adoption. The implementation of the current policy during 2017 is described in the Executive Board Remunerationthis 2020 Annual Report on pages 129 - 130.Form 20-F.
In determining the expected level of pay for each Executive Board member, scenarios have been considered in which the minimum, maximum and at target pay was assessed. In these scenario’s the share component in the variable pay element has been assessed at the plan year’s grant price.
In addition to thepay-out scenario, the 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 2017 this ratio is 41.7 (2016: 41.9; 2015: 44.0). The committee is conscious of the significant difference in the geographical footprint of the Company’s employee population, which may impact the outcome of the ratio. The composition of the Company and the way this is affected by restructuring and other organisational changes (e.g. major acquisitions or divestments) will also have an impact.
Through the implementation of the Executive Board Remuneration policy, the Company is able to reward the members of the Executive Board in line with the Aegon Group Remuneration Principles, as described earlier. In particular, the variable compensation element in the remuneration ensures a clear link between individual pay and (both short- and long-term) company performance. The objectives set for each Executive Board member are derived from the Company’s strategy (including the long-term value creation objective embedded therein) and focussed on the role of the Executive. The targets support the achievement of the operational- and financial-goals to which the Company has committed itself. Performance is assessed following the year.Pay-out of variable compensation is based on the assessed performance.
The amount of variable compensation actually allocated in relation to the performance delivered during 2017 is based on the achievement against the objectives and targets that were set at the start of the year. The objectives are an elaborate set of financial IFRS(non-Risk adjusted), financial market Consistent (risk-adjusted), andnon-financial, personal-, and strategic, sustainability measures linked to the Company strategy. These include Underlying Earnings, ROE, MCVNB, Capital Generation, ROERC(pre-tax), Cultural transformation, responsible business and control environment.
Aegon Annual Report on Form 20-F 2020 |
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 2018, 2019 and 2020 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 total fees decreased to EUR 739 thousand (2019: EUR 865 thousand), mainly due to lower travel fees as meetings were held by video conference in response to COVID-19.
In EUR thousand | Year | Base fees | Attendance fees | Travel fees | Total fees | |||||||||||||||
William L. Connelly | 2020 | 95 | 45 | 4 | 144 | |||||||||||||||
2019 | 95 | 54 | 20 | 169 | ||||||||||||||||
2018 | 79 | 34 | 6 | 119 | ||||||||||||||||
Mark A. Ellman | 2020 | 55 | 39 | 4 | 98 | |||||||||||||||
2019 | 56 | 39 | 20 | 115 | ||||||||||||||||
2018 | 53 | 29 | 21 | 103 | ||||||||||||||||
Ben J. Noteboom | 2020 | 58 | 39 | - | 97 | |||||||||||||||
2019 | 58 | 39 | 6 | 103 | ||||||||||||||||
2018 | 55 | 25 | 6 | 86 | ||||||||||||||||
Corien M. Wortmann - Kool | 2020 | 63 | 48 | - | 111 | |||||||||||||||
2019 | 63 | 54 | 6 | 123 | ||||||||||||||||
2018 | 63 | 37 | 3 | 103 | ||||||||||||||||
Dona D. Young | 2020 | 66 | 57 | 4 | 127 | |||||||||||||||
2019 | 66 | 66 | 26 | 158 | ||||||||||||||||
2018 | 61 | 39 | 21 | 121 | ||||||||||||||||
Caroline Ramsay (per May 15, 2020) | 2020 | 38 | 21 | - | 59 | |||||||||||||||
Thomas Wellauer (per May 15, 2020) | 2020 | 33 | 21 | - | 54 | |||||||||||||||
Ben van der Veer (up to May 15, 2020) | 2020 | 22 | 27 | - | 49 | |||||||||||||||
2019 | 58 | 54 | 6 | 118 | ||||||||||||||||
2018 | 58 | 37 | 6 | 101 | ||||||||||||||||
Robert W. Dineen (up to Oct 11, 2019) | 2019 | 40 | 27 | 12 | 79 | |||||||||||||||
2018 | 52 | 28 | 21 | 101 | ||||||||||||||||
Dirk P.M. Verbeek (up to May 18, 2018) | 2018 | 19 | 10 | - | 29 | |||||||||||||||
Robert J. Routs (up to May 18, 2018) | 2018 | 36 | 12 | - | 48 | |||||||||||||||
Total | 2020 | 430 | 297 | 12 | 739 | |||||||||||||||
2019 | 436 | 333 | 96 | 865 | ||||||||||||||||
2018 | 474 | 251 | 84 | 809 | ||||||||||||||||
Total including 21% VAT | 2020 | 520 | 359 | 15 | 894 | |||||||||||||||
2019 | 527 | 403 | 116 | 1,046 | ||||||||||||||||
2018 | 574 | 304 | 102 | 979 |
Aegon Annual Report on Form 20-F |
Remuneration Report 74 | ||
The actual target levels are regarded commercially sensitive and are therefore not disclosedtable below presents the total fees that have been paid in the last five calendar years on an objective by objective basis. Instead,annualized basis and the performance onyear-on-year annual change in total fees. Additionally, the 2017 mixtable shows the Aegon net income, a proxy of financial- the financial
andnon-financial targets is disclosed. For Mr Wynaendts this was 28.7% (of 32.5% possible)business performance, the inflation in the Netherlands and the average employee compensation over the same period.
In EUR thousand | Annualized | 2016 | 2017 | 2018 | 2019 | 2020 | ||||||||||||||||
William L. Connelly (as of May 19, 2017) | Fees | - | 98 | 119 | 169 | 144 | ||||||||||||||||
Change | - | - | 22% | 42% | (15% | ) | ||||||||||||||||
Mark A. Ellman (as of May 19, 2017) | Fees | - | 114 | 103 | 115 | 98 | ||||||||||||||||
Change | - | - | (9% | ) | 12% | (15% | ) | |||||||||||||||
Ben J. Noteboom | Fees | 109 | 102 | 86 | 103 | 97 | ||||||||||||||||
Change | (7% | ) | (15% | ) | 20% | (6% | ) | |||||||||||||||
Caroline Ramsay (per May 15, 2020) | Fees | - | - | - | - | 94 | ||||||||||||||||
Change | - | - | - | - | n/a | |||||||||||||||||
Thomas Wellauer (per May 15, 2020) | Fees | - | - | - | - | 86 | ||||||||||||||||
Change | - | - | - | - | n/a | |||||||||||||||||
Corien M. Wortmann - Kool | Fees | 90 | 101 | 103 | 123 | 111 | ||||||||||||||||
Change | 12% | 2% | 19% | (10% | ) | |||||||||||||||||
Dona D. Young | Fees | 113 | 116 | 121 | 158 | 127 | ||||||||||||||||
Change | 2% | 4% | 31% | (20% | ) | |||||||||||||||||
Ben van der Veer (up to May 15, 2020) | Fees | 109 | 106 | 101 | 118 | 131 | ||||||||||||||||
Change | (3% | ) | (5% | ) | 17% | 11% | ||||||||||||||||
Robert W. Dineen (up to Oct 11, 2019) | Fees | 115 | 104 | 101 | 101 | - | ||||||||||||||||
Change | (10% | ) | (3% | ) | 1% | - | ||||||||||||||||
Dirk P.M. Verbeek (up to May 18, 2018) | Fees | 111 | 100 | 76 | - | - | ||||||||||||||||
Change | (10% | ) | (24% | ) | - | - | ||||||||||||||||
Robert J. Routs (up to May 18, 2018) | Fees | 140 | 134 | 125 | - | - | ||||||||||||||||
Change | (4% | ) | (7% | ) | - | - | ||||||||||||||||
Shemaya Levy (up to May 19, 2017) | Fees | 95 | 105 | - | - | - | ||||||||||||||||
Change | 11% | - | - | - | ||||||||||||||||||
Irving W. Bailey (up to May 20, 2016) | Fees | 139 | - | - | - | - | ||||||||||||||||
Change | - | - | - | - | ||||||||||||||||||
Aegon net income based on IFRS-EU | In EUR million | 586 | 2,358 | 741 | 1,525 | 55 | ||||||||||||||||
Aegon business performance 1) | Target = 100% | 91% | 121% | 106% | 79% | 57% | ||||||||||||||||
Inflation in the Netherlands | Consumer Price Index | 0.3% | 1.4% | 1.7% | 2.6% | 1.3% | ||||||||||||||||
Average employee compensation 2) | Total compensation | 97 | 102 | 104 | 115 | 110 | ||||||||||||||||
Annual change | 5% | 2% | 11% | (4% | ) |
1 | The weighted average Aegon financial and non-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. They have been exclusively based on their functions in the Supervisory Board, their functions in the Supervisory Board’s committees, their attendance and travel. There were no deviations from the policy in these years.
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 financial objectivesfees for their actual attendance and 61.7% (of 67.5% possible) for thenon-financial objectives. For Mr Rider this was 28.7% (of 32.5% possible) for the financial objectives and 60.4% (of 67.5% possible) for thenon-financial objectives.travel during that quarter.
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 75 | ||
Role of4. 2020 Executive Board Remuneration Report
The 2020 Executive Board Remuneration Report has been prepared by the Remuneration Committee of the Supervisory Board in accordance with the Dutch Civil Code (article art 2:135b) and the Dutch 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 summary of the Executive Board Remuneration Policy that applied to 2020, the Executive Board remuneration over the recent years and the 2021 Executive Board performance indicators. The section on remuneration over the recent years is split into a) fixed compensation 2018-2020, b) conditional variable compensation 2020, c) provisional variable compensation 2020, d) variable compensation 2018-2020, e) pay-out of allocated variable compensation, f) pension contributions 2018-2020, g) benefits 2018-2020, h) total compensation in recent years.
Executive Board Remuneration Policy in 2020
The Supervisory Board has the overall responsibility for the Company’sAegon’s Remuneration Policies, including the Executive Board Remuneration Policy. MembersThe Executive Board Remuneration Policy that has been applied in 2020 was adopted at the Annual General Meeting of Shareholders on May 15, 2020. This policy will be subject to annual reviews by the Supervisory Board. 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 at least every four years.
The current policy contributes to Aegon’s strategy, long-term interests and sustainability through the remuneration of the Executive Board members in various ways:
◆ | The policy provides the Supervisory Board with the means to attract, motivate and retain competent and experienced Executive Board members for the long-term. This is essential for executing Aegon’s strategy and safeguarding and promoting its long-term interests and sustainability. |
◆ | The leading performance indicator categories for successful execution of our strategy are Capital, Growth and Strategy. To support the execution of Aegon’s strategy, the policy makes these performance indicator categories mandatory for the Executive Board member. |
◆ | Aegon strives to create long-term value for its stakeholders and the communities in which it operates. Due to the nature of our business, value created is often financial, but it may also be social, economic, or environmental. The policy directly aligns Executive Board member’s personal long-term interests with those of Aegon and its shareholders by paying a significant part of the Executive Board members’ variable compensation (two-thirds) in shares, which must be held for 5 years after completion of the performance period. The pay-out in these restricted shares is combined with prohibiting Executive Board members using personal hedging strategies or insurance, which could undermine this long-term alignment of interests. Additionally, Executive Board members are 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. |
◆ | Aegon is committed to doing business responsibly and in a sustainable way. Variable compensation of Executive Board members can be adjusted downwards (i.e. malus) or clawed-back in cases where certain performance has not been achieved in a sustainable way. This includes 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 Executive Board members to support this approach of doing business. |
Aegon’s Executive Board remuneration is subject to various rules and regulations, including 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 that 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 Aegon and personal performance, with at least 50% weight on non-financial performance. |
◆ | A substantial portion of any variable compensation award should be paid in a non-cash instrument (e.g. Aegon shares) and should be deferred for at least 3 years. Additionally, award shares should be restricted for 5 years. With a 3-year vesting period, this requires an additional holding period of 2-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. |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 76 | ||
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 Remuneration Committee may recommend policy changes to the Supervisory Board. In 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 proposed policy changes to the Annual General Meeting of Shareholders for adoption.
The policy contains a temporary derogation clause, with rules which are drawnin accordance with the Dutch Civil Code. This means derogation is only allowed in exceptional circumstances to serve the long-term interest and sustainability of Aegon or to assure its viability, for a limited period of time, when it stays in line with the general spirit of the policy and when the details are disclosed in the next remuneration report. This clause was not used in 2020.
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. The Supervisory Board determines and regularly reviews the appropriate selection of remuneration elements and their (maximum) remuneration level for Executive Board members 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 and their levels are reviewed at least every four years. In its review, the Supervisory Board takes the specific role, responsibilities, experience and expertise of Executive Board members 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. |
◆ | 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. |
◆ | 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 Board member, and reports their findings to the Supervisory Board. |
The European Insurance peer group was selected by 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. |
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 in relation to Aegon’s size data (average market capitalization, employees, revenue and total assets). This peer group differs from the European peer group for the Supervisory Board, as the latter excludes UK companies where non-executive directors typically have different responsibilities compared to their continental European counterparts.
The Dutch peer group was selected by the following criteria:
◆ | 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, this 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 identical to the Dutch peer group for the Supervisory Board.
Each year, Aegon’s Remuneration Committee reviews Aegon’s remuneration policiesThe Supervisory Board will review both peer groups annually and will amend them as necessary, within the above-mentioned selection criteria, to ensure they remaincontinue to provide a reliable basis for comparison. Any change to the peer group will be disclosed in line with prevailing international standards. This review is based partly on information provided by Aegon’s external advisor, Towers Watson. The advisor does not, however, advise individual members of the Executive and Supervisory Boards.Remuneration Report.
The Remuneration Committee may recommend changes to the policies to the Supervisory Board.
Review of the Remuneration Policy
Aegon’s Executive Board Remuneration Policy is reviewed every year by the Remuneration Committee. The policy applies to all members of Aegon’s Executive Board.
Ensuring pay remains competitive
The Company regularly compares itscompensation levels of executive remuneration with those of other comparable companies. Companies included in the peer group are chosen according to the following criteria:
The peer group was updated in 2015. It comprises the following fourteen companies: Allianz, Aviva, Axa, CNP Assurances, Generali, Legal & General, Mapfre, Münchener Rückversicherung, NN Group, Old Mutual, Prudential plc., Standard Life, Swiss Re and Zurich Financial Services.
In addition, a reference group is used in order to monitor alignment with the general industry in the Netherlands. This is comprised of the 12 leading companies listed on Euronext Amsterdam, excluding financial services providers. The Supervisory Board regularly reviews the composition of the two groups in order to ensure that they continue to provide a reliable and suitable basis for comparison.
Total compensation
For each member of the Executive Board Aegon’s Supervisory Board determines a maximum total compensation, reflecting the specific roles and responsibilities of the individual. Each year, the Supervisory Board reviews total compensation levels to ensure they remain competitive and to provide proper, risk-based incentives to members of Aegon’s Executive Board. To ensure Executive Board members are compensated in accordance with Remuneration Policy, based on the desired market positioning, alignment to the desired market position needs to be addressed over time, in accordance with applicable rules, regulationsresults of this annual total compensation review and codes.
Consistenton discussions with the Executive Board Remuneration Policy,members regarding their remuneration level and structure. Such recommendations would subsequently be discussed by the total direct compensation for ExecutiveSupervisory Board, members consists of fixed compensation and variable compensation.which can approve, revise or reject them.
The Supervisory Board conducts regular scenario analyses to determine the long-term effect on the level and structure of compensation granted to members of the Executive Board. The Supervisory Board (Remuneration Committee) discussed and endorsedapproved the 20172020 total compensation for the Executive Board.Board, after taking the Remuneration Committee’s review into consideration.
Fixed compensation
It is the responsibility of the Supervisory Board to determineThe fixed compensation for members of the Executive Board based on their qualifications, experiencemembers is paid in monthly instalments. The policy allows the fixed compensation to be paid in cash and expertise.
Variable compensation
Aegon believes that variable compensation strengthens the commitment ofin shares. All Executive Board members to the
Company’s objectives, business strategy, risk tolerance and long-term performance. Variable compensation is based on a number of individual and company performance indicators that are linked to these items. The 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.
Performance is determined by using a mix of financial andnon-financial indicators. For the CEO and CFO the mix of individual and company performance measures is 37.5% to 62.5% and 27.5% to 72.5% respectively. The type of performance indicators are selected in accordance with the long-term goals of the Company. The level of the indicators should be challenging but achievable. The targets and levels are agreed by the Supervisory Board.
Performance is assessed by Aegon’s Remuneration Committee and validated by the full Supervisory Board. Each year, aone-year target is set for each performance indicator. By paying half of the variablereceived their 2020 fixed compensation in cash and the other half in shares, together with adding deferral and additional holding periods to the variable compensation that is allocated, Aegon believes that the long-term interests of Executive Board members are aligned with the interests of Aegon and its stakeholders.cash.
Aegon Annual Report on Form 20-F 2020 |
77 | ||
AllThe Supervisory Board may offer permanent or temporary gross monthly fixed allowance when the Supervisory Board considers this an appropriate alternative for other remuneration elements. Mr. Wynaendts continued to receive a 2% fixed allowance to which he already was entitled until the end of his term. Mr. Friese and Mr. Rider are not entitled to an allowance.
Variable compensation
Executive Board members are eligible for variable compensation with a target level of 80% of the fixed compensation level (excluding allowances), with a threshold level of 50% and a maximum opportunity of 100% of fixed compensation level.
The variable compensation award is conditionally grantedbased on performance against a set of performance indicators, weights and target levels that have been set by the Supervisory Board at the beginningstart of eachthe performance period.year. The number of conditionallyperformance indicators contribute to Aegon’s strategy, long-term interests and sustainability, within Aegon’s risk tolerance and should comply with the following rules:
◆ | It contains a mix of financial and non-financial performance indicators, with at least 50% weight allocated to the non-financial performance indicators in accordance with article 1:118.3 of the Dutch Financial Supervision Act; |
◆ | The maximum weight for unadjusted financial indicators is determined by the Global Remuneration Framework and is currently set at 50%. |
◆ | It contains a mix of Aegon and personal performance indicators, which can range in weight between 50-80% and 20-50% respectively, depending on the Aegon priorities of the performance year. |
◆ | At least 20% of the indicators has a retrospective 3-year performance horizon, while the remainder has a 1-year performance horizon; |
◆ | The indicators should cover the following mandatory performance indicator categories: Shareholders, Capital, Earnings, Growth, Stakeholders, ESG and Strategy. |
The Remuneration Committee and the Executive Board members prepare a proposal for the performance indicators, weights and target levels. These are subsequently reviewed by Aegon’s Risk Management team (i.e. the first ex-ante risk assessment) before the Supervisory Board approves these, 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; |
◆ | 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 Remuneration Committee sends the proposal and the ex-ante risk assessment to the Supervisory Board, which can approve, revise or reject the proposal. After approval, the Executive Board
members are granted shares is calculated usingtheir conditional variable compensation awards for the value of oneplan year. This conditional award equals their at target variable compensation level, split between 33.33% upfront cash and 66.66% deferred Aegon share atshares. The grant price for the beginning of this period. This valueshares is equal to the volume weighted average price on the Euronext Amsterdam stock exchange for the period December 15 to January 15. 15 at the start of the plan year.
After the performance year, the Company assesses the realized performance against the performance indicators and compares the minimum, target and maximum levelscompletion of the performance indicators withperiod, the realized performance. The amountRemuneration Committee prepares a recommendation for the allocation of conditionala variable compensation that can be allocatedaward to each Executive Board member. This recommendation is then established. Variable compensation is allocated oncebased on the accounts for the financial year in question have been adoptedactual performance results compared to target levels and takes a second ex-ante risk assessment by the Company’s general meetingRisk Management team into account. This risk assessment looks into whether there are reasons for a downward adjustment of shareholders and after anex-ante assessment.
The allocatedthe intended variable compensation consists of equal parts of cash and shares, ofaward (malus) which 40% is paid out (or vests) in the year following the performance year, and 60% is deferred to later years. This deferred portion remains conditional until it vests.
The deferred parts vest in equal tranches over a three-year period. After anex-post assessment, which may lower the vesting parts, these individual parts 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).
The variable compensation payout can be illustrated by the following example and the table below. For every 1,000 variable compensation that is allocated following the performance period, 400 is paid out/vested in the year following that performance year (N in the following table). This part will be paid 50% in cash (=200) and 50% in shares vesting immediately (=200 / 5.246 = 38 shares). The remaining 600 is deferred and vests according to apre-defined schedule.
Information on the expenses recognized for variable compensation and the status of awards are provided in note 53 of this report.
Variable compensation over 2017
At an aggregated level, payments are made as follows21.were not take into account yet, such as:
◆ |
◆ |
Objectives | Performance indicator | Maximum % of variable compensation | ||||||
Mr. Wynaendts | Mr. Rider | |||||||
Group financial IFRS based | Group underlying earnings after tax, return on equity | 15.0% | 15.0% | |||||
Group financial risk adjusted based | Group market consistent value of new business | 17.5% | 17.5% | |||||
Normalized operational free cash flow | ||||||||
Grouppre-tax return on economic required capital | ||||||||
Group non financial business indicators | Objectives measuring corporate responsibility, strategy implementation and sustainability | 30.0% | 40.0% | |||||
Objectives measuring Aegon’s control environment | ||||||||
Personal objectives | Individual basket of strategic and personal objectives related to Aegon’s strategy | 37.5% | 27.5% |
Risk adjustment methodology(ex-ante)
At the end of the performance period, but prior to allocation of variable compensation, the Supervisory Board assesses whether (downward) modifications are needed. For this purpose, quantitative and qualitative measures at group, regional unit and individual level are taken into account, such as:
◆ | Breaches of laws and regulations; |
◆ |
◆ | Significant deficiencies or material weaknesses relating to the Sarbanes-Oxley Act; and |
◆ | Reputation damage due to risk events. |
Ex-postIn this assessment possible risk mitigating behaviors are also taken into account, such as remaining within risk limits, risk reduction, risk avoidance, risk transfer and discretionary adjustmentsrisk response by the Executive Board member.
The Remuneration Committee sends its recommendation and the second ex-ante risk assessment to the Supervisory Board, uses its judgment inwhich can approve, revise or reject the assessmentrecommendation. This Supervisory Board decision includes validating that, when taken together, the results of the outcome of strategic/personal targets to ensure that, taken together, theyperformance indicators represent a fair reflection of the overall performance of the Executive Board member over the performance period.year.
In addition,The allocated variable compensation award is subsequently split between 33.33% upfront cash (i.e. paid in the Supervisory Board appliesyear following the performance year) and 66.66% deferred shares. These shares are deferred for a 3-year period after allocation after which they cliff-vest. Before vesting, the Risk Management team executes anex-post risk assessment to deferred payoutswhich looks into whether there are reasons for a downward adjustment of the original variable compensation award (malus) which were not taken into account yet. This risk assessment takes the same criteria into consideration as the second ex-ante risk assessment. Based on this assessment, the Remuneration Committee subsequently prepares a recommendation how to determine whether allocated (that is, unvested) variable compensation should become unconditional (meaning it vests)pay-out the deferred portion (i.e. unchanged or should be adjusted. Thisadjusted downward). The Remuneration Committee sends its recommendation and the ex-post assessment is based on informed judgment by the Supervisory Board, taking into account significant and exceptional circumstances that are not (sufficiently) reflected in the initially applied performance indicators.risk
Implementation of this authority is on the basis of criteria such as:
Aegon Annual Report on Form 20-F 2020 |
assessment to the Supervisory Board. The Supervisory Board askscan approve, revise or reject the Remuneration Committee to review these criteria in detail prior to each vesting and to document its findings. Based on this analysis, the Committee may then put forward a proposal to the Supervisory Board
to adjust unvested variable compensation. Deferred variable compensation may only be adjusted downwards.Ex-post, risk-based assessments concern deferred variable compensation, not fixed compensation.
Circuit breaker
For each performance indicator, variable compensation is only paid if the threshold level set for that performance indicator is reached.recommendation.
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 Board member 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 Aegon’s Risk Management team which looks into whether in hindsight the paid amount should have been lower or nil. Examples of misconduct are, but not limited to, a 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 be set-off or settled against any current or future obligations as permitted by law.
Pension arrangements
Members of Aegon’sThe Executive Board members are offeredentitled to pension arrangements and retirement benefits. Benefits offered are consistent withcontributions that equal 40% of their fixed compensation level, which consists of the following three parts:
◆ | Participation in Aegon’s defined contribution pension plan for NL-based employees, for their fixed income up to EUR 110,111 (2020 threshold set by Dutch law). |
◆ | Participation in Aegon’s defined contribution pension plan for NL-based employees, for their fixed income above EUR 110,111. |
◆ | An additional gross allowance for pension to make the sum of these three pension contributions equal to 40% of their fixed compensation level. |
The Executive Board members’ agreements. Details on themembers receive pension contributions that are somewhat higher compared to NL-based employees of similar age (ca. 10-15% difference). This is done to achieve a competitive total compensation level. Please note the Supervisory Board will consider discontinuing the additional gross allowance for new Executive Board over the course of 2017 can be foundmembers, while ensuring their total compensation level stays competitive, and including this as a policy change in the Remuneration of membersnext update of the Executive Board on page 303.Remuneration Policy.
The arrangements withAdditionally, Mr. Wynaendts include retirement provisions that allow benefitswas entitled to be taken at the endan additional gross allowance for pension of the term. This retirement arrangement stem from pre Executive Board membership. The arrangement with Mr. Rider is similar to the arrangements for other staff in the Netherlands and consists28% of his fixed compensation level as part of a grandfathered pension arrangement.
so-calledOther benefits
Other benefits include non-monetary career average defined benefits plan up to EUR 103,317 (2017 threshold) base salary(e.g. company car), social security contributions by the employer, and a defined contribution plan for the amount above EUR 103,317. Details are not disclosed due to the individual nature of such arrangement.
Loanstax expenses borne by 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 Engagement Agreementa board agreement with Aegon N.V., rather than a contract of employment.
an employment contract. Members of the Executive Board may terminate their engagementboard agreement with a notice period of three months. The CompanySupervisory Board may terminate the board agreement by giving six months’ notice if it wishes to terminate the agreement of Mr. Wynaendts, and three months’ notice if it wishes to terminate the agreement of Mr. Rider.agreement.
The arrangements with currentSupervisory Board may entitle Executive Board members to a termination payment up to or equal to the total annual fixed compensation level. This payment is not allowed in case of early termination at the initiative of the Executive Board contain provisions for severance payments inmember (unless due to imputable acts or omissions of Aegon), imputable acts or omissions by the event that their agreement is terminated as a resultExecutive or failure of a merger or takeover. The Supervisory Board has taken appropriate steps to ensureAegon during the arrangements of membersappointment term of the Executive Board aremembers. Mr. Friese and Mr. Rider have a termination clause included in line withtheir board agreement. Mr. Wynaendts was not entitled to a termination payment when his board agreement was terminated in 2020.
Executive Board remuneration in recent years
In this section you will find the fixed compensation, variable compensation, pension, other benefits, and total compensation amounts of the Executive Board Remuneration Policy.
Currently, it is expectedmembers. Please note that the terms2020 compensation amounts for Mr. Friese and Mr. Wynaendts are pro-rated because of joining and leaving the Executive Board respectively on May 15, 2020, unless stated otherwise (e.g. when amounts are annualized).
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report79 | ||
A. Fixed compensation 2018-2020
In 2020, Mr. Friese received EUR 931 thousand in fixed compensation (annualized EUR 1,485 thousand), Mr. Wynaendts received EUR 496 thousand (annualized EUR 1,327 thousand) and Mr. Rider received EUR 941 thousand. None of the engagement agreements will remain largely unchanged during 2018.
Executive Board Remuneration Report
Atmembers received an increase in their fixed compensation level in 2020. In addition to this and the endtable below, Mr. Friese received a sign-on arrangement of December 2017, Aegon’s Executive Board had two members:EUR 1,228 thousand when joining Aegon in March 2020, that was split between 50% in cash (EUR 617 thousand) and 50% in Aegon shares (161,333 shares). Of this amount 55% has been
paid in 2020. The remainder will be paid in later years subject to continued employment (20% in 2021, 14% in 2022, 9% in 2023 and 3% in 2024). The IFRS-EU expenses for these fixed compensation amounts were equal to the amounts in the table below, except for Mr. Friese in 2020 due to the nature of his sign-on arrangement. The combined IFRS-EU expenses for his regular fixed compensation and sign-on arrangement were EUR 1,869 thousand (EUR 570 thousand for the cash-part of the sign-on arrangement and EUR 368 thousand for the share-part).
In EUR thousand | 2020 | 2019 | 2018 | |||||||||
Lard Friese1) | 931 | - | - | |||||||||
Alex Wynaendts2) | 496 | 1,314 | 1,295 | |||||||||
Matt Rider | 941 | 931 | 918 | |||||||||
Total fixed compensation | 2,368 | 2,245 | 2,213 |
The disclosed amount for 2020 covers the |
The disclosed amount for 2020 covers the |
Fixed compensation
Mr. Wynaendts’ fixed compensation remained unchanged in 2017 at EUR 1,269,478. The annual fixed compensation of Aegon’s CFO was agreed at EUR 900,000, and remained unchanged in 2017.
B. Conditional variable compensation awards 20172020
In 2020, Mr. Friese, Mr. Wynaendts and Mr. Rider each had an at target variable compensation opportunity of 80% of their fixed compensation level at year-end (or end of term). The variable compensation award was based on the 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 2020 (or after their appointment). As a result, they would 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 4.083 for the shares:
Variable compensation opportunity 2020 | Threshold (50%) | Target (80%) | Maximum (100%) | |||||||||||
Lard Friese | Total (EUR thousand) | 466 | 745 | 931 | ||||||||||
in cash (EUR thousand) | 155 | 248 | 310 | |||||||||||
in shares | 76,012 | 121,619 | 152,024 | |||||||||||
Alex Wynaendts | Total (EUR thousand) | 248 | 397 | 496 | ||||||||||
in cash (EUR thousand) | 83 | 132 | 165 | |||||||||||
in shares | 40,487 | 64,779 | 80,974 | |||||||||||
Matt Rider | Total (EUR thousand) | 470 | 753 | 941 | ||||||||||
in cash (EUR thousand) | 157 | 251 | 314 | |||||||||||
in shares | 76,818 | 122,909 | 153,637 |
C. Provisional variable compensation 2020
Subject to the adoption of the annual accounts at the General Meeting of Shareholders on May 18, 2018,15, 2021, Mr. Friese has been awarded EUR 634 thousand in conditional variable compensation for Executive Board members is setthe 2020 performance year (68% of fixed compensation), Mr. Wynaendts EUR 302 thousand (61% of fixed compensation)
and Mr. Rider EUR 640 thousand (68% of fixed compensation). Each variable compensation award will be paid for 33.33% in upfront cash and for 66.66% in shares based on both their individualwhich are deferred for three years and the Company’s performance. Targets for the performance indicators have been set in lineare subsequently subject to an additional holding period of two years.
Conditional variable compensation 2020 | Pay-out in 2021 | Pay-out in 2024 | ||||||
Lard Friese | Cash (EUR thousand) | 211 | ||||||
Shares | 103,580 | |||||||
Alex Wynaendts | Cash (EUR thousand) | 101 | ||||||
Shares | 49,346 | |||||||
Matt Rider | Cash (EUR thousand) | 213 | ||||||
Shares | 104,547 |
with
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 80 | ||
The tables below show the agreedresults on each of the Aegon and personal indicators which determined the conditional variable compensation targets and 2017 company budgets.
Performance as reported on the financial andnon-financial Group performance indicators and targets resulted in a performance scoreawards of 56.6% (maximum 62.50%) for Mr. Wynaendts and 64.4% (maximum 72.5%) for Mr. Rider. The performance on individual (strategic) objectives resulted in apay-out of 33.8% and 24.8% forFriese, Mr. Wynaendts and Mr. Rider respectively (maximum 37.50% and 27.50% respectively)the related indicator definitions. The Aegon performance results were scored on a performance scale which was used to fund the 2020 bonus pools within Aegon: 50% for
the threshold (minimum), 100% for target level and 150% for the maximum level. The 2020 Aegon performance result on this performance scale was 57%. The amounts and number of shares below are reflective of period for which Mr. Rider has been part ofConverted to the performance scale that applied to the Executive Board.Board members (i.e. with the target level at 80%) the 2020 Aegon performance result was 54%.
2020 Aegon performance indicators | Weight | Target | Result | In % | ||||||||||||
Relative Total Shareholder Return | 14% | #5 of 15 | #12 | 0% | ||||||||||||
Return on Equity | 14% | 10.0% | 8.5% | 0% | ||||||||||||
Fees and Premium based Revenues | 14% | 4,857 | 4,811 | 95% | ||||||||||||
Normalized Capital Generation (2yr: 2020 and 2019) | 14% | 2,632 | 2,883 | 124% | ||||||||||||
Market Consistent Value of New Business | 14% | 445 | 262 | 0% | ||||||||||||
Relational Net Promoter Score | 14% | 17 | 18 | 125% | ||||||||||||
Strategy Execution | 14% | 100% | 57% | 57% | ||||||||||||
Aegon result for employee bonus pools | 57% | |||||||||||||||
Aegon result for Executive Board members | 54% |
2020 Aegon performance indicators | Definition | |
Relative Total Shareholder Return | Aegon’s position relative to 7 US and 7 non-US peers when looking at Total Shareholder Return for a 1-year’s 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 Revenue1). The target was position 5, while the threshold was set at the median position. | |
Return on Equity | Return on equity indicates how good the company is in generating returns on the investment it received from its shareholders. Aegon’s Return on Equity is calculated by dividing underlying earnings after tax and after cost of leverage by average shareholders’ equity excluding revaluation reserve. | |
Fees and Premium based Revenues | Fee 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. | |
Normalized Capital Generation (2 years: 2019-2020) | The movement in our capital position (on a Solvency II basis) during a retrospective 2-year period in the normal course of business net of market impacts (e.g. changes to interest rates, credit spreads, equity returns) and one-time effects. Impacts from dividends and capital injections that do not generate capital but do affect Own Funds are excluded from capital generation. | |
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. | |
Relational Net Promoter Score | 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. | |
Strategy Execution | Measures the execution of the three projects that were deemed key for a successful execution of Aegon’s previous strategy (2019-2021). |
1 | The US peers are Axa Equitable Holdings, Principal Financial Group, Unum Group, Lincoln National Corp, Prudential Financial, Brighthouse Financial and MetLife. The non-US peers are Athene Holding, NN Group, Swiss Life Holding, Assicurazioni Generali, Baloise Holding, Prudential and ASR Nederland. |
Aegon Annual Report on Form 20-F 2020 |
Over
Remuneration Report81 | ||
Below you find the overview how the 2020 Aegon performance year 2017, Mr. Wynaendts was awarded EUR 1,147,100 in total conditional variable compensation. Mr. Rider was awarded EUR 498,783.
Forty percentresult of 54%, combined with the personal performance results, led to the overall 2020 variable compensation related to performance year 2017 is payable in 2018. This is split 50/50 in a cash payment and in an allocation of shares.
In 2018,results for Mr. Friese, Mr. Wynaendts and Mr. Rider are eligible to receive a cash payment of EUR 229,420 and EUR 99,758 respectively.
The number of shares to be made available in 2018 is 43,732 for Mr. Wynaendts and 19,017 for Mr. Rider. With regard to vested shares (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), a retention (holding) period of a further three years is applicable before they are at the disposal of the Executive Board members.
The remaining part of variable compensation for the performance year 2017 (60% of the total, which for Mr. Wynaendts equates to EUR 344,130 and 65,598 shares, and for Mr. Rider equates to EUR 149,633 and 28,522 shares) is to be paid out in future years, subject toex-post assessments, which may result in downward adjustments and be subject to meeting additional conditions. In each of the years 2019, 2020 and 2021, 20% of the total variable compensation may be made available. Any payout is split 50/50 in a cash payment and an allocation of shares (vesting). After vesting (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), a retention (holding) period is applicable for a further three years, before shares are at the disposal of the Executive Board members.
Lard Friese | Result | |||
70% Aegon performance | Mix of financial and non-financial targets | 54% | ||
10% Strategy development | Deliver new Group Strategy | 100%. Delivered well-received and broadly supported Group Strategy at the Capital Markets Day, despite high operational pressure during the preparation caused by COVID-19. Appointed a Chief Transformation Officer and successfully found buyers for the CEE business and Stonebridge. Implemented several measures to improve balance sheet strength. | ||
10% COVID-19 crisis management | Safeguard continuity of the company financially, operationally and take measures to limit impact on employees | 100%. Quickly expanded the continuous monitoring of financial and operational impacts through the Global Crisis Management structure, which ensured operational resilience and continuity of client servicing. Employee Engagement increased from 67% to 72% (year-end), delivered a plan on the future ways of working in the office and at home and the high level of compliance was maintained during and after the switch to working from home. Regulatory solvency levels of the three main business units ended the year above their operating levels and well above their regulatory requirements. | ||
10% Sustainable organization | Develop granular Operating Plan which addresses reducing costs, expanding margins, growing profitability and organizational health | 100%. Delivered granular Operating Plan with over 1,100 initiatives and over 15,000 milestones focused on the transformation of Aegon and improving its organizational health, which was fully integrated in the Mid Term Financial Planning. Shifted the company to intense rhythm of execution. | ||
Overall result | 68% |
Alex Wynaendts | Target | Result | ||
70% Aegon performance | Mix of financial and non-financial targets | 54% | ||
10% Strategy execution | Execution of the three projects that were deemed key for a successful execution of Aegon’s previous strategy (2019-2021) | 54%. One project was delivered on target, one was successful but behind schedule and the last did not meet its minimum target due to changes in priority. | ||
10% Sustainable Organization | Measures a combination of ESG related goals through personal goals on Employee Engagement and Inclusion & Diversity | 80%. Employee Engagement increased from 67% to 74% (mid-year) and action plans related to Inclusion & Diversity were completed. Percentage of women in senior management positions increased from 29% to 32%. | ||
10% Handover to successor | Contains two personal milestones for a successful handover to the new CEO | 95%. Delivered strong and complete hand-over to new CEO, in difficult circumstances due to the COVID-19. | ||
Overall result | 61% |
Matt Rider | Target | Result | ||
70% Aegon performance | Mix of financial and non-financial targets | 54% | ||
10% Finance strategy execution | Improve quality of financial management information and business control oversight | 100%. Completed all milestones and provided important financial management information to support the new Group Strategy and granular Operating Plan. | ||
10% Finance Transformation | Deliver Finance Transformation plan, including IFRS 9 / 17 implementation | 100%. Delivered all milestones within budget and created additional efficiencies. | ||
10% Sustainable Organization | Employee Engagement, governance during CEO transition and Control Environment | 100%. Employee Engagement increased in both the Finance Function and Corporate Center, high levels of governance were safeguarded during the transition and the Control Environment result exceeded its target level. | ||
Overall result | 68% |
Aegon Annual Report on Form 20-F |
Remuneration Report 82 | ||
Impact ofex-ante andex-post assessment on attribution of variableD. Variable compensation 2018-2020
NoThe amounts in the first table represent the total conditional variable compensation from previousawards allocated in relation to the performance years payable in 2017 has been adjusted downwards in 2017.
year concerned. No circumstances have been identified to lower payout of the deferred payment from prior performance years that vest in 20172020 (the so called‘ex-post assessment’)
or to lower the payout of theup-front upfront payment of the 20162019 performance year variable compensation that vests in 20172020 (the so called‘ex-ante assessment’). The second table contains the expenses for the conditional variable compensation awards, as recognized under the IFRS accounting treatment in the income statement.
In EUR thousand | 2020 | 2019 | 2018 | |||||||||
Lard Friese1) | 634 | - | - | |||||||||
Alex Wynaendts2) | 302 | 1,048 | 1,062 | |||||||||
Matt Rider | 640 | 743 | 760 | |||||||||
Total conditional variable compensation | 1,577 | 1,791 | 1,822 |
1 | The disclosed amount for 2020 covers the period that Mr. Friese has been a member of the Executive Board (per May 15, 2020). The annualized amount is EUR 1,010 thousand. |
2 | The disclosed amount for 2020 covers the period that Mr. Wynaendts was a member of the Executive Board (until May 15, 2020). The annualized amount is EUR 812 thousand. |
In EUR thousand | 2020 | 2019 | 2018 | |||||||||
Lard Friese1) | 282 | - | - | |||||||||
Alex Wynaendts2) | 497 | 976 | 962 | |||||||||
Matt Rider | 528 | 627 | 545 | |||||||||
Total conditional variable compensation IFRS expenses | 1,307 | 1,604 | 1,507 |
1 | The disclosed amount for 2020 covers the period that Mr. Friese has been a member of the Executive Board (per May 15, 2020). The annualized amount is EUR 449 thousand. |
2 | The disclosed amount for 2020 covers the period that Mr. Wynaendts was a member of the Executive Board (until May 15, 2020). The annualized amount is EUR 1,334 thousand. |
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 2018, 2019 and 2020 and how much conditional variable compensation is scheduled to be paid-out in the coming years. The vesting price of the share were:
EUR 5.848 on May 18, 2018, EUR 4.287 on May 17, 2019, and EUR 2.079 on May 15, 2020. Shares allocated for plan years up to and including 2019 are subject to an additional three-year holding period after pay-out. Shares for plan years from 2020 onwards are subject to an additional two-year holding period after pay-out.
Years of vesting | ||||||||||||||||||||||||||||||||||||
Shares by plan year | Grant Price 1) | Allocated | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | |||||||||||||||||||||||||||
Lard Friese 2020 | EUR 4.083 | 103,580 | - | - | - | - | - | - | 103,580 | |||||||||||||||||||||||||||
Total number of shares | 103,580 | - | - | - | - | - | - | 103,580 | ||||||||||||||||||||||||||||
Alex Wynaendts 2014 | EUR 6.739 | 10,164 | 10,164 2) | - | - | - | - | - | - | |||||||||||||||||||||||||||
2015 | EUR 6.106 | 30,220 | 15,110 | 15,110 | - | - | - | - | - | |||||||||||||||||||||||||||
2016 | EUR 5.128 | 61,083 | 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 | - | |||||||||||||||||||||||||||
2020 | EUR 4.083 | 49,346 | - | - | - | - | - | - | 49,346 | |||||||||||||||||||||||||||
Total number of shares | 484,292 | 89,367 | 96,651 | 112,228 | 66,696 | 44,830 | 25,174 | 49,346 | ||||||||||||||||||||||||||||
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 | - | |||||||||||||||||||||||||||
2020 | EUR 4.083 | 104,547 | - | - | - | - | - | - | 104,547 | |||||||||||||||||||||||||||
Total number of shares | 311,592 | 19,015 | 37,618 | 59,255 | 41,409 | 31,901 | 17,847 | 104,547 | ||||||||||||||||||||||||||||
Darryl Button 2014 | EUR 6.739 | 8,652 | 8,652 | - | - | - | - | - | - | |||||||||||||||||||||||||||
2015 | EUR 6.106 | 23,622 | 11,811 | 11,811 | - | - | - | - | - | |||||||||||||||||||||||||||
2016 | EUR 5.128 | 44,424 | 14,808 | 14,808 | 14,808 | - | - | - | - | |||||||||||||||||||||||||||
Total number of shares | 76,698 | 35,271 | 26,619 | 14,808 | - | - | - | - |
1 | 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 2020 plan year, this is the VWAP for the period December 15, 2019 to January 15, 2020. |
2 | 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 to reflect the outcome of a regulatory matter relating to the company. |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report83 | ||
Years of vesting | ||||||||||||||||||||||||||||||||
Cash by plan year (in EUR) | Allocated | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | ||||||||||||||||||||||||
Lard Friese 2020 | 211,431 | - | - | - | 211,431 | - | - | - | ||||||||||||||||||||||||
Total cash | 211,431 | - | - | - | 211,431 | - | - | - | ||||||||||||||||||||||||
Alex Wynaendts 2014 | 68,497 | 68,497 1) | - | - | - | - | - | - | ||||||||||||||||||||||||
2015 | 184,522 | 92,261 | 92,261 | - | - | - | - | - | ||||||||||||||||||||||||
2016 | 313,236 | 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 | - | ||||||||||||||||||||||||
2020 | 100,725 | - | - | - | 100,725 | - | - | - | ||||||||||||||||||||||||
Total cash | 2,295,613 | 494,590 | 523,873 | 534,913 | 426,450 | 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 | - | ||||||||||||||||||||||||
2020 | 213,404 | - | - | - | - | - | - | 213,404 | ||||||||||||||||||||||||
Total cash | 1,214,011 | 99,756 | 201,809 | 274,402 | 200,120 | 150,242 | 74,278 | 213,404 | ||||||||||||||||||||||||
Darryl Button 2014 | 60,024 | 60,024 | - | - | - | - | - | - | ||||||||||||||||||||||||
2015 | 156,862 | 78,431 | 78,431 | - | - | - | - | - | ||||||||||||||||||||||||
2016 | 224,022 | 74,674 | 74,674 | 74,674 | - | - | - | - | ||||||||||||||||||||||||
Total cash | 440,908 | 213,129 | 153,105 | 74,674 | - | - | - | - |
1 | In line with the Aegon Group Global Remuneration Framework, it was agreed to adjust Mr Wynaendt’s 2014 variable compensation award downwards by EUR 22,832 to reflect the outcome of a regulatory matter relating to the company. |
The Executive Board members have a time-based shareholding requirement of 5 years after the initial allocation of their variable compensation in shares (i.e. a 3-year deferral period before vesting and an additional 2-year holding period after vesting). Mr. Friese and Mr. Rider voluntarily agreed to at least hold on to the shares received as compensation to an equivalent of 100% of their fixed compensation level, once they have reached that level. This concerns the total net number of shares which have been allocated to them, but that have not been sold (i.e. includes the net number of shares in the deferral period and holding period). After the allocation of the 2020 variable compensation award, Mr. Friese will hold 42% of his fixed compensation in net shares and Mr. Rider 78%. Please note Mr. Rider received 50% of his variable compensation in shares for the 2017-2019 period, while per the new 2020 Executive Board Remuneration Policy all Executive Board members receive 67% of their variable compensation in deferred shares.
Future changesF. Pension contributions 2018-2020
No material changesThe allocated amounts in the first table represent the total pension contributions made in relation to the executive board remuneration policy are foreseenperformance year concerned. The second table contains the expenses for 2018. Compensation for individualspension, as recognized under the IFRS accounting treatment in the financial sector,income statement.
Mr. Friese (from May 2020), Mr. Wynaendts (from June 2019) and Mr. Rider received pension contributions which equaled to 40% of their fixed compensation level. Up to and including May 2019, Mr. Wynaendts participated in particulara defined benefit arrangement. This arrangement included a back service liability which reflected the increase of his fixed compensation in 2016 and 2018, as well as low interest rates and the final settlement made in May 2019. Additionally, Mr. Wynaendts was entitled to a gross payment of 28% of his fixed compensation level as part of a grandfathered pension arrangement.
In EUR thousand | 2020 | 2019 | 2018 | |||||||||
Lard Friese1) | 373 | - | - | |||||||||
Alex Wynaendts2) | 337 | 1,302 | 2,463 | |||||||||
Matt Rider | 376 | 373 | 367 | |||||||||
Total pension contributions | 1,086 | 1,675 | 2,830 |
1 | The disclosed amount for 2020 covers the period that Mr. Friese has been a member of the Executive Board (per May 15, 2020). The annualized amount is EUR 594 thousand. |
2 | The disclosed amount for 2020 covers the period that Mr. Wynaendts was a member of the Executive Board (until May 15, 2020). The annualized amount is EUR 906 thousand. |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 84 | ||
In EUR thousand | 2020 | 2019 | 2018 | |||||||||
Lard Friese1) | 373 | - | - | |||||||||
Alex Wynaendts2) | 337 | 1,243 | 1,952 | |||||||||
Matt Rider | 376 | 387 | 379 | |||||||||
Total pension IFRS expenses | 1,086 | 1,630 | 2,331 |
1 | The disclosed amount for 2020 covers the period that Mr. Friese has been a member of the Executive Board (per May 15, 2020). The annualized amount is EUR 594 thousand. |
2 | The disclosed amount for 2020 covers the period that Mr. Wynaendts was a member of the Executive Board (until May 15, 2020). The annualized amount is EUR 906 thousand. |
G. Benefits 2018-2020
Other benefits include non-monetary benefits (e.g. company car), social security contributions by the employer, and tax expenses
borne by the employer. The IFRS expenses for those that materially influencethese benefits are equal to the risk profileamounts in the table below.
In EUR thousand | 2020 | 2019 | 2018 | |||||||||
Lard Friese1) | 49 | - | - | |||||||||
Alex Wynaendts2) | 97 | 252 | 195 | |||||||||
Matt Rider | 67 | 77 | 46 | |||||||||
Total benefits | 213 | 329 | 240 |
1 | The disclosed amount for 2020 covers the period that Mr. Friese has been a member of the Executive Board (per May 15, 2020). The annualized amount is EUR 77 thousand. |
2 | The disclosed amount for 2020 covers the period that Mr. Wynaendts was a member of the Executive Board (until May 15, 2020). The annualized amount is EUR 261 thousand. |
H. Total compensation in recent years
The total compensation for Mr. Friese related to 2020 was EUR 3.3 million (including sign-on arrangement), for Mr. Wynaendts EUR 1.2 million (2019: EUR 3.9 million; 2018: EUR 5.0 million) and for Mr. Rider EUR 2.0 million (2019: EUR 2.1 million; 2018: EUR 2.1 million). The total remuneration for the members of the organization, does however continueExecutive Board over 2020 was EUR 6.5 million (2019: EUR 6.0 million; 2018: EUR 7.1 million).
The total expenses recognized under IFRS accounting treatment in the income statement for Mr. Friese related to be a focus2020 were EUR 2.6 million, for Mr. Wynaendts EUR 1.4 million (2019: 3.8 million; 2018: EUR 4.4 million) and for Mr. Rider EUR 1.9 million (2019: EUR 2.0 million; 2018: EUR 1.9 million). Total IFRS expenses for the members of regulatory attention. Aegon will ensure compliance ifthe Executive Board over 2020 were EUR 5.9 million (2019: 5.8 million; 2018: EUR 6.3 million).
All remuneration that has been paid and when new regulations are approved. Any such regulations may require further deferralallocated 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 extension of holding periods, which Aegon will apply to new allocationsExecutives in 2020 and 2019 in the table below. The variable compensation amounts differ from the amounts disclosed in the tables above, as they include the pay-out of variable compensation going forward.in cash and shares in the 2020 and 2019 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 several amounts are pro-rated for the period during which the individual served as Executive Board member. The fixed compensation and Pension amounts are equal to the amounts that are included in the tables above.
Fixed | Variable | One-off | Pension | Total | Ratio Fixed/ Variable 3) | |||||||||||||||||||||||||
Salary | Benefits | Upfront1) | Deferred2) | |||||||||||||||||||||||||||
Lard Friese | ||||||||||||||||||||||||||||||
2020 4) | 931 | 49 | - | - | 565 | - | 1,545 | 63% / 37% | ||||||||||||||||||||||
Alex Wynaendts | ||||||||||||||||||||||||||||||
20205) | 496 | 97 | 314 | 454 | - | 337 | 1,699 | 55% / 45% | ||||||||||||||||||||||
2019 | 1,314 | 252 | 381 | 557 | - | 1,302 | 3,806 | 75% / 25% | ||||||||||||||||||||||
Matt Rider | ||||||||||||||||||||||||||||||
2020 | 941 | 67 | 223 | 175 | - | 376 | 1,782 | 78% / 22% | ||||||||||||||||||||||
2019 | 931 | 77 | 272 | 91 | - | 373 | 1,744 | 79% / 21% |
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 2019 variable compensation award that were paid in 2020. |
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 2016-2018 variable compensation awards that were paid in 2020. |
3 | Fixed (the numerator) is calculated as the sum of Salary, Benefits and Pension divided by the Total. Variable (the denominator) is the sum of Upfront, Deferred and One-off divided by the Total. |
4 | The salary, benefits and pension amounts cover the pro-rated period as an Executive Board member during 2020 (from May 15 to December 31). The one-off item concerns the upfront part of the sign-on arrangement (EUR 427 thousand in cash and 66,526 shares). |
5 | The salary, benefits and pension amounts cover the pro-rated period as an Executive Board member during 2020 (from January 1 to May 15), while the variable amounts were paid in relation to full-year performance periods in 2016-2019. |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 85 | ||
The table below presents the total compensation that has been paid in the last five calendar years on an annualized basis and the year-on-year annual change in total compensation. Please note that therefore several amounts have been annualized, while in practice these were pro-rated for the period during which the individual served as Executive
Board member. Additionally, the table show the Aegon net income, a proxy of the financial and non-financial business performance, the vesting price of the Aegon shares, the inflation in the Netherlands and the average employee compensation over the same period.
In EUR thousand | Annualized | 2016 | 2017 | 2018 | 2019 | 2020 | ||||||||||||||||
Lard Friese | Awarded and due | - | - | - | - | 2,719 | ||||||||||||||||
Change | - | - | - | - | ||||||||||||||||||
Alex Wynaendts (up to May 15, 2020) | Awarded and due | 4,455 | 4,431 | 4,969 | 3,806 | 3,268 | ||||||||||||||||
Change | (1% | ) | 12% | (23% | ) | (14% | ) | |||||||||||||||
Matt Rider (as of May 19, 2017) | Awarded and due | - | 1,357 | 1,670 | 1,799 | 1,824 | ||||||||||||||||
Change | - | 23% | 8% | 1% | ||||||||||||||||||
Darryl Button (up to Dec 1, 2016) | Awarded and due | 2,370 | - | - | - | - | ||||||||||||||||
Change | - | - | - | - | ||||||||||||||||||
Aegon net income based on IFRS-EU | In EUR million | 586 | 2,358 | 741 | 1,525 | 55 | ||||||||||||||||
Aegon business performance 1) | Target = 100% | 91% | 121% | 106% | 79% | 57% | ||||||||||||||||
Vesting price Aegon shares | In EUR | 4.502 | 4.423 | 5.848 | 4.287 | 2.079 | ||||||||||||||||
Inflation in the Netherlands | Consumer Price Index | 0.3% | 1.4% | 1.7% | 2.6% | 1.3% | ||||||||||||||||
Average employee compensation 2) | Total compensation | 97 | 102 | 104 | 115 | 110 | ||||||||||||||||
Annual change | 5% | 2% | 11% | (4% | ) |
1 | The weighted average Aegon financial and non-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. |
2021 Executive Board performance indicators
Looking ahead to the 2021 performance years, the 2021 performance indicators for Mr. Friese and Mr. Rider are presented in the tables below.
Performance period | ||||||
Aegon financial | 14% | Free Cash Flow | 1 year1) | |||
7% | Relative Total Shareholder Return | 2 year (2020-2021)2) | ||||
7% | Addressable Expenses | 1 year3) | ||||
7% | Underlying Earnings Before Tax | 1 year | ||||
7% | Market Consistent Value of New Business | 1 year | ||||
7% | Operating Plan Earnings Contribution | 1 year | ||||
Aegon Non-financial | 21% | Operating Plan Execution | 1 year | |||
Personal | 10% | Strategic Roadmap Development | 1 year | |||
10% | Execution of capital initiatives in line with Strategic Roadmap | 1 year | ||||
5% | Women in Senior Management | 1 year | ||||
5% | ESG Strategy Development | 1 year | ||||
Total | 100% |
1 | Will become a retrospective 3-year performance period from 2023 onwards. It is phased in with a 1-year performance period (2021) for the 2021 plan year and a 2-year performance period (2021-2022) for the 2022 plan year. |
2 | Will become a retrospective 3-year performance period from 2022 onwards. This year is the last transition year, which has a retrospective 2-year performance period (2020-2021). |
3 | Will become a retrospective 3-year performance period from 2023 onwards. It is phased in with a 1-year performance period (2021) for the 2021 plan year and a 2-year performance period (2021-2022) for the 2022 plan year. |
Aegon Annual Report on Form 20-F 2020 |
Remuneration Report 86 | ||
Matt Rider | Weight | Performance indicators | Performance period | |||
Aegon financial | 14% | Free Cash Flow | 1 year1) | |||
7% | Relative Total Shareholder Return | 2 year (2020-2021)2) | ||||
7% | Addressable Expenses | 1 year3) | ||||
7% | Underlying Earnings Before Tax | 1 year | ||||
7% | Market Consistent Value of New Business | 1 year | ||||
7% | Operating Plan Earnings Contribution | 1 year | ||||
Aegon Non-financial | 21% | Operating Plan Execution | 1 year | |||
Personal | 15% | Finance Strategy Execution | 1 year | |||
5% | Strategic Roadmap Development | 1 year | ||||
5% | Execution of capital initiatives in line with Strategic Roadmap | 1 year | ||||
5% | Women in Senior Management | 1 year | ||||
Total | 100% |
1 | Will become a retrospective 3-year performance period from 2023 onwards. It is phased in with a 1-year performance period (2021) for the 2021 plan year and a 2-year performance period (2021-2022) for the 2022 plan year. |
2 | Will become a retrospective 3-year performance period from 2022 onwards. This year is the last transition year, which has a retrospective 2-year performance period (2020-2021). |
3 | Will become a retrospective 3-year performance period from 2023 onwards. It is phased in with a 1-year performance period (2021) for the 2021 plan year and a 2-year performance period (2021-2022) for the 2022 plan year. |
Scope | Performance indicators | Definition | ||
Aegon financial | Free Cash Flow | Free cash flow represents cash flow from remittances from the units less the Holding funding and operating expenses. The 2021 target is based on the 2021-2023 target which was disclosed at the Capital Market Day in December 2020. | ||
Relative TSR | Aegon’s position relative to 7 US and 7 non-US peers when looking at Total Shareholder Return for a retrospective 2-year performance period (2020-2021). 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 Revenue8). The target is position 5, while the threshold is set at the median position. | |||
Addressable Expenses | Represents those expenses reflected in underlying earnings, excluding deferable acquisition expenses, expenses in joint ventures and associates and expenses related to operations in CEE countries. The 2021 target is based on the 2021-2023 target which was disclosed at the Capital Market Day in December 2020. | |||
Underlying Earnings Before Tax | 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. The target is based on the approved 2021 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 based on the approved 2021 budget. | |||
Operating Plan Earnings Contribution | Measures the expected run-rate earnings contribution for initiatives which move to the execution phase in 2021 compared to the overall internal contribution target which was set in the granular operating plan for 2021. | |||
Aegon non-financial | Operating Plan Execution | Measures the timely completion of milestones and the total degree of milestone completed in 2021, including milestones related to organizational health, compared to targets which were agreed in the granular operating plan. | ||
Lard Friese | Strategic Roadmap Development | Develop Strategic Roadmap for strategic assets and growth markets. | ||
Execution of capital initiatives in line with Strategic Roadmap | Complete management actions in relation to financial assets, sub-scale businesses and other ventures. | |||
Women in Senior Management | Increase the number of women in Aegon’s senior management layer worldwide to at least 34%. | |||
ESG Strategy Development | Further integrate ESG into Group Strategy. | |||
Matt Rider | Finance Strategy Execution | Complete the 2021 milestones from the Finance Strategy. | ||
Strategic Roadmap Development | Support development of strategic roadmap for strategic assets and growth markets. | |||
Execution of capital initiatives in line with Strategic Roadmap | Support completion management actions in relation to financial assets, sub-scale businesses and other ventures. | |||
Women in Senior Management | Increase the number of women in Aegon’s senior management layer worldwide to at least 34%. |
1 | The US peers are Axa Equitable Holdings, Principal Financial Group, Unum Group, Lincoln National Corp, Prudential Financial, Brighthouse Financial and MetLife. The non-US peers are Athene Holding, NN Group, Swiss Life Holding, Assicurazioni Generali, Baloise Holding, Prudential and ASR Nederland. |
Aegon Annual Report on Form 20-F 2020 |
Non-financial policies, procedures and outcomes87 | ||
procedures and outcomes
Aegon is incorporated and based in the Netherlands. As a company, establishedAegon is committed to doing business responsibly. We have internal policies, procedures and listedframeworks setting out how decisions should be made in the Netherlands,areas such as procurement, investment, tax, product development, remuneration and information security. We also have a Code of Conduct, which applies to all Aegon must comply with Dutch lawemployees worldwide. The Code of Conduct contains basic principles governing our workplace, social responsibility and business conduct. The aim of these policies and procedures is subject to the Dutch Corporate Governance Code.protect stakeholders by ensuring we are aware in our decision-making of all relevant financial and non-
Aegon is governed by three corporate bodies:
Aegon also hasfinancial factors. We monitor implementation and take remedial action where necessary to ensure full compliance. We have a Management Board. This works in unison with the Executive Board,dedicated Non-Financial Risk Committee, meeting monthly. The Committee’s members are drawn from Aegon’s Legal, Compliance and helps to oversee operational issuesRisk departments, among others.
The table below shows how various environment, social and the implementation ofgovernance (ESG) risks are incorporated into 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 suchdecision-making processes, as well as the adoptionmeasurement of annual accounts, the approval of dividend paymentsoutcomes, policies and (re)appointments to the Supervisory Board and Executive Board of Aegon.metrics.
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, the Supervisory Board member can be reappointed again for a period of two years, and then extended by two 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
EU Directive on Non- | Area | Policy or guideline | Indicators (used to monitor compliance and/or outcomes) | Performance 2020 | ||||
Article 3.1.b(i) | Business | Code of Conduct |
Meeting of Shareholders. In 2017, 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 nine members, all of whom qualify as independent in accordance with the Dutch Corporate Governance Code.
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:
Environmental, |
social and | and ethics | • Applies to all employees worldwide | • Total number of incidents of fraud involving employees, intermediaries and third parties | • Incidents of possible fraud involving employees, intermediaries and third parties decreased to 4,014. The decrease is related to a decrease in the number of attempted account takeovers in the US. We are comfortable that the controls implemented in 2018 are effective as very few attempts have been successful. | ||||
• Covers topics such as data protection, environmental responsibility, human rights and money laundering | • Significant fines1) to address cases of mis-selling | • Significant fines amounted to EUR 8.2 million; in the Americas, Transamerica had two fines related to the sale of 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. | ||||||
• Also contains provisions for reporting suspected illegal and unethical behavior | • Percentage of employees completing training on Code of Conduct. | • 97% of employees completed mandatory Code of Conduct training (up from 95% the previous year). | ||||||
• Training on the Code is obligatory for all employees. | • Overall there is satisfactory progress with 76% of the Group and strategic business unit actions completed and an additional 4% of actions progressing within their deadlines. Nineteen action items were postponed to 2021. Carried-over actions constitute non-material items that do not pose regulatory or compliance risks, with targeted completion for early 2021. | |||||||
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 the Speak Up program , allowing employees and those outside the Company to report suspected infringements of the Code of Conduct in complete confidence. | • Policy attestation for bribery and corruption risk (Conflict of Interest and Gift & Entertainment policies). | • 86% compliance with Aegon bribery and corruption policies (down from 89% 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. |
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, having been appointed to the Executive Board at the Annual General Meeting of the Company on May 19, 2017.
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 2017, 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 the 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 ten members, including the members of the Executive Board. Aegon’s Management Board is composed of Alex Wynaendts, Matthew J. Rider, Mark Bloom, Adrian Grace, Allegra van Hövell-Patrizi, Marco Keim, Onno van Klinken, Carla Mahieu, Mark Mullin and Sarah Russell.
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 relation between the Management Board and the Supervisory 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, the members of the Management Board 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.
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 2017, a total of 2,095,648,244 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 common 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
CONTINUATION > Aegon Annual Report on Form 20-F 2020 |
EU Directive on Non- | Area | Policy or guideline | Indicators (used to monitor compliance and/or outcomes) | Performance 2020 | ||||
Article 3.1.b(i) | Community | Charitable Donations Standards | ||||||
Environmental, | investment | |||||||
social and personnel matters | • Covers Aegon’s objectives with regard to community investment, including priority areas, selection criteria, governance and approval | • Cash donations to charities and other good causes | • Cash donations totaled EUR 9.5 million, an increase of 16.4% from EUR 8.2 million. | |||||
• Also details Aegon’s contribution to humanitarian aid | • Value of employee volunteering hours granted | • Value of employee volunteering totaled EUR 0.2 million, a decrease of 77.8% from EUR 0.9 million. | ||||||
• Value of community investment as % net income | • Total value of community investment amounted to EUR 9.7 million, an increase from EUR 9.0 million. Total community investment represented 17.6 % of our net income, up from 0.6% in 2019. The increase was due mainly to the decrease in net income for 2020. | |||||||
Article 3.1.b(i) Environmental, social and personnel matters | Data protection | Global Information Security Policy • Sets out Company’s approach to cyber threats and data protection | • Maintenance of an internal IT Control Framework, and action items to address gaps in performance are documented and monitored | • Institutions like Aegon will continue to remain subject to information security attacks. | ||||
• Applies to all Aegon businesses | • The internal IT Control Framework is regularly mapped and updated to embed new and updated market standards | • To Aegon’s knowledge, the security attacks and events it experienced in 2020 were not material in nature. | ||||||
• Supported by mandatory training in data and cyber security | • Periodic attestation to the internal IT Control Framework, with certain exceptions as applicable by country unit, for among other reasons adequate implementation timelines | |||||||
• Oversight by Global Chief Information Security Officer | ||||||||
Article 3.1.b(i) Environmental, | Inclusion and | Statement on Inclusion & Diversity | ||||||
social and personnel matters | diversity | • Applies to all Aegon businesses worldwide | • Proportion of women in workforce | • Women accounted for 50% of Aegon’s workforce (up from 49%). | ||||
• Diversity also included in the Code of Conduct | • Proportion of women in senior management and at Supervisory, Executive or Management Board level | • Women accounted for 32% of the Company’s senior management (up from 29%). For details of our Supervisory, Executive and Management Board members, see pages 53-57, and 407. | ||||||
• Diversity targets in place for Aegon’s Supervisory, Executive and Management Boards |
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, 2017, Vereniging Aegon, Aegon’s largest shareholder, held a total of 279,236,609 common shares and 569,676,480 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 2017, three transactions were concluded between Aegon N.V. and Vereniging Aegon under or in connection with the 1983 Merger Agreement. 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 May 19, 2017, Vereniging Aegon exercised its options rights to purchase in aggregate 1,979,260 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 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 (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, in connection with the distribution of dividend in stock.
From October 2, 2017, to December 15, 2017, Aegon N.V. repurchased 51,864,626 common shares to neutralize the dilutive effect of the 2016 final and 2017 interim dividends in stock. Following the completion of this Share Buy Back Program, Aegon N.V. repurchased 13,042,612 Common Shares B from Vereniging Aegon for the amount of EUR 1.7 million,
(1/40th of the Value Weight Average Price of the Common Shares of the 5 trading days preceding this transaction) on December 15, 2017. 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%.
To Aegon’s knowledge based on the filings made with the Dutch Autoriteit Financiële Markten, the US based investment management firm Dodge & Cox International Stock Fund holds a capital and voting interest in Aegon of over 5%.
Based on its last filing with the Dutch Autoriteit Financiële Markten as at September 22, 2016, Dodge & Cox International Stock Fund stated to hold 134,654,439 common shares, which represent 5.2% of the issued and outstanding capital and of the votes as at December 31, 2017.
On February 20, 2018, Dodge & Cox’s filing with the
US Securities and Exchange Commission (SEC) shows that Dodge & Cox holds 256,029,115 common shares, representing 9.8% of the issued and outstanding capital as at December 31, 2017, and has voting rights for 250,384,686 shares, representing 9.6% of the votes as at December 31, 2017.
Based on its filing with the Dutch Autoriteit Financiële Markten as at May 26 2017, BlackRock, Inc. stated to hold 59,827,512 shares, representing 2.3% of the issued and outstanding capital as at December 31, 2017 and 79,077,402 voting rights, representing 3.0% of the votes as at December 31, 2017.
On February 20, 2018, BlackRock, Inc.’s filing with the US Securities and Exchange Commission (SEC) shows that BlackRock holds 119,424,291 common shares, representing 4.6% of the issued and outstanding capital as at December 31, 2017, and has voting rights for 107,367,731 shares, representing 4.1% of the votes as at December 31, 2017.
Based on its filing with the Dutch Autoriteit Financiële Markten as at June 10, 2015, Franklin Resources, Inc (FRI). stated to hold 81,510,408 shares, representing 3.1% of the issued and outstanding capital and of the votes as of December 31, 2017.
On February 20, 2018, the filing of Franklin Resources, Inc. (FRI), a US based investment management firm, with the SEC shows that FRI holds 156,591,360 common shares and voting rights, representing 6.0% of the issued and outstanding capital, as at December 31, 2017.
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
CONTINUATION > Aegon Annual Report on Form 20-F 2020 |
EU Directive on Non- | Area | Policy or guideline | Indicators (used to monitor compliance and/or outcomes) | Performance 2020 | ||||
Article 3.1.b(i) | Environment | Environmental Policy | ||||||
Environmental, | ||||||||
social and personnel matters | • Emphasizes importance of minimizing damage to the environment through the Company’s use of energy and other resources2) | • Greenhouse gas (GHG) emissions from business operations (metric tons carbon dioxide-equivalent (CO2e)) | • Gross / location-based GHG emissions totaled 41,205 metric tons, down 30.5% compared with 2019. Net / market-based GHG emissions totaled 7,237 metric tons, down 59.4%. The significant decrease in emissions was due to lower energy consumption at our premises and reduced air travel as a result of changes to working practices in response to the COVID-19 pandemic. Accordingly, net / market-based emissions per employee were 57.9% lower at 0.4 metric tons, and 49.5% lower per EUR million revenue at 0.3 metric tons. | |||||
• Commits Aegon, where possible, to using renewable or sustainable sources of energy | • Energy consumption and air travel | • Electricity consumption decreased 15.1% from 88.9 GWh in 2019 to 75.5 GWh. | ||||||
• Gas consumption decreased 26.5% from 25.4 GWh in 2019 to 18.7 GWh. | ||||||||
• Air travel decreased 76.0% from 89.4 million km in 2019 to 22.1 million km. | ||||||||
• Renewable energy | • Consumption of renewable electricity as a proportion of total electricity consumption increased to 99% (74.7 GWh) compared with 97% (86.1 GWh) in 2019. | |||||||
• Consumption of renewable energy as a proportion of total energy consumption increased to 79% (74.7 GWh) compared with 75% (86.1 GWh) in 2019. | ||||||||
Article 3.1.b(ii) Respect for human rights | Human rights | Statement on Human Rights • Based on the UN Declaration of Human Rights, core standards of the International Labor Organization and the principles of the UN Global Compact. • 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 standards. • Consideration for human rights is built into Aegon’s Responsible Investment Policy, Vendor Code of Conduct and the Statement on Inclusion and Diversity. Other Company policies also cover aspects of human rights, including: • Code of Conduct • Speak Up • Gift and Entertainment • Conflict of Interest • Employment Screening • Anti-money laundering • Sanctions • Anti-fraud • Distribution Risk management • Third Party Risk management • Aegon UK also issues a modern slavery statement (in line with the UK government’s 2015 Modern Slavery Act). | • Results of Aegon’s biennial global Human Rights Risk Assessment (conducted internally and based on external sources3)). The assessment scores Aegon’s countries against a combination of ten publicly available indicators: • Civil and political rights • Corruption • Human development • Health coverage • Business environment • Illicit economy • Gender development • Working conditions • Rule of law • Internet inclusion | • Our 2020 assessment identified four ‘Aegon’ countries where the operating environment presents a meaningful human rights risk: • China • India • Indonesia • Turkey • These risks relate essentially to outside political factors. In the US, the Netherlands and 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 management4) focusing on indicators where Aegon has the greatest potential to minimize the human rights faced by the company. The aim, with these measures, is to ensure Aegon’s overall human rights risk remains low. | ||||
CONTINUATION > Aegon Annual Report on Form 20-F |
�� | ||
EU Directive on Non- | Area | Policy or guideline | Indicators (used to monitor compliance and/or outcomes) | Performance 2020 | ||||
Article 3.1.b(i) | Investment | Responsible Investment Policy |
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:
Environmental, | ||||||||
social and personnel matters | • Covers all major asset classes | • Total investments in responsible investment solutions (RIS) | • Our responsible investment solutions totaled EUR 213 billion. | |||||
• Sets out minimum social and environmental standards for Aegon’s investments Under the policy, Aegon excludes investment in some areas, including controversial weapons, tobacco, oil sands and certain coal mining companies. Aegon’s approach in this area is overseen by our Responsible Business and Investment Committee (‘RBIC’), which is chaired by a |
• Companies engaged with as part of Aegon’s approach to responsible investment | • 49% of our engagements addressed corporate governance matters, including corruption, remuneration and board structure. • 20% of our engagements addressed social issues including health, human rights (diversity, living wage, access to medicine, COVID-19 and its adverse impacts, for example on working conditions). • 24% of our engagements addressed issues concerning the environment, with climate change constituting the most common discussion theme. | |||||||
Article 3.1.b(i) Environmental, social and personnel matters | Occupational health and safety | Global Health & Safety Statement | ||||||
• Commits Aegon to upholding high health and safety standards in its offices | • Number of work-related injuries and illnesses | • Work-related injuries and illnesses decreased by 74.5% to 47, from 184 the previous year. | ||||||
• Aim is to limit work-related injuries and illnesses (including stress) to an absolute minimum | • Absentee rate | • Employee absenteeism decreased to 1.7%, from 1.8% the previous year. | ||||||
Article 3.1.b(i) | Procurement | Vendor Code of Conduct | ||||||
Environmental, | ||||||||
social and personnel matters | • Sets the standards for the business • Corporate governance • Human rights • Labor rights and good health & well-being • Climate change and biodiversity • Aegon requires its vendors to comply with the Standards and assesses the ESG-related performance of those vendors against the standards, and may monitor for performance improvement. | • Top 250 suppliers (representing 80% of total procurement spend) scored for environment, social and governance performance through the EcoVadis platform. | • By the end of 2020, 67 of Aegon’s in-scope suppliers (top 250 representing 84% total spend) had so far been assessed for ESG performance through our implementation of the EcoVadis rating platform. This equates to 56% of the in-scope procurement spend. In the previous year, 41% of our total procurement spend was covered by the | |||||
Article 3.1.b(i) | Product | Pricing and | ||||||
Environmental, | development | |||||||
social and personnel matters | • Sets out market conduct principles, aimed at ensuring fair treatment of customers and reasonable distribution of returns between customers, intermediaries and shareholders. | • Percentage compliance with terms of Pricing and Product Development Policy | • 93% compliance with requirements of Pricing and Product Development Policy (down from 94% the previous year), due to increased policy granularity. |
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 123 and note 53 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 requires atwo-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 with atwo-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.
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 2017 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
CONTINUATION > Aegon Annual Report on Form 20-F 2020 |
EU Directive on Non- | Area | Policy or guideline | Indicators (used to monitor compliance and/or outcomes) | Performance 2020 | ||||
Article 3.1.b(i) Environmental, social and personnel matters | Remuneration | 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 and non-financial performance metrics (including employee engagement and customer loyalty scores) | • Percentage of compliance with requirements of the Global Remuneration Framework | • 95% compliance with requirements of the Global Remuneration Framework (up from 94% compliance the previous year)5. | ||||||
Article 3.1.b(i) | Tax | Global Tax Policy | ||||||
Environmental, | ||||||||
social and personnel matters | • 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) | • EUR 319 million paid by Aegon in tax and; | |||||
• Taxes collected on behalf of others | • another EUR 2.51 billion in taxes collected on behalf of others. |
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.
1 | Includes any fines in excess of EUR 100,000. |
2 | Aegon no longer collects data on water consumption. As an office-based company, our water use is not material. |
3 | The methodology for Aegon’s Human Rights Risk Assessment is derived from the UN Declaration of Human Rights. The assessment uses publicly available data from ten non-governmental organizations specializing in human rights and which have a reputation for conducting fair and appropriate assessments and include Freedom House, Transparency International, UN Development Program, the World Bank and the World Health Organization. |
4 | These measures include effective access to Speak Up, 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. |
5 | 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 20-F 2020 |
Code of Conduct 92 | ||
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, has atwo-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’s ‘CodeCode of Conduct’ is a code of ethics that outlinesConduct embodies the Company’s values and helps ensure that all employees act ethically and responsibly and is available at https://aegon.com/investors/compliance/code-of-conduct/?page=1.
It prescribes a mandatory set of standards for how Aegon employees should conduct business, comply with all applicable laws and regulations, and exercise sound judgment in reaching ethical principlesbusiness decisions in relation to various subjects. This codethe long-term interests of our stakeholders.
Aegon’s Code of Conduct applies to all directors, officers and employees of all Aegon companies around the world (regardless of the contractual basis of their employment), including associate companies, joint ventures and other co-operative ventures.
All Aegon employees of all Aegon companies. This includes members ofmust certify that they have read and understood the Executive Board, the Management Board and the Supervisory Board of Aegon N.V., as well as other executive andnon-executive or supervisory directors of Aegon companies.
Aegon’s Code of Conduct, is available on aegon.com. The Code outlines Aegon’s clear commitmentand agree to abide by it. Employees are also required to follow a customer centric approach, and reflects Aegon’s core values: Working Together; Bringing Clarity and Exceeding Expectations. The Code of Conduct was updated in 2017. All Aegon employees sign the Code
of Conduct to declare their compliance with the Code. Moreover, the rolling out of a new Code of Conductmandatory e-learning for all Aegon companies began in 2017 and will continue in 2018.
In order to supporthelp embed the Code, Aegon has engaged a vendor to supply a tool that enables employees and third parties to report actual or potential violationsprinciples of the Code onin 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 creating and maintaining an open and supportive culture, one where 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, and inappropriate, unethical, fraudulent or illegal 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 basis. Employees are encouragedmethod to raise concerns.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. SuspectedAs part of an open and supportive culture, Aegon will protect employees - who, in good faith and with due care, report concerns of poor practice, inappropriate, unethical or illegal behavior - against any form of retaliation. 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 20-F 2020 |
Regulation and supervision 93 | ||
Individually regulated Aegon companies are each subject to prudential supervision in their respective home countries. (Re)insurance companies and Aegon Bank (KNAB), as well as some of the investment undertakings in the Group, are required to maintain a minimum solvency margin based on local requirements. In addition, the Group as a whole is subject to prudential requirements on a group basis, including capital, internal governance, risk management, reporting and disclosure requirements, pursuant to Solvency II and the Financial Conglomerates Directive. 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.
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 or 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 own funds (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 withstand a 1-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 fraudsrisk 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. Insurance and reinsurance companies are required to hold eligible own funds against the SCR and MCR. Own funds capital is divided 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
Aegon Annual Report on Form 20-F 2020 |
Regulation and supervision94 | ||
is disregarded for purposes of calculating SCR. Furthermore, the SCR may consist of limited amounts of off-balance sheet own funds (‘ancillary own funds’ such as letters of credit or guarantees). The MCR must be covered entirely by tier 1 and tier 2 on-balance sheet items (‘basic own funds’).
For the US insurance entities, Authorized 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). 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 111. 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 capital add-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 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 to EU-licensed insurance or reinsurance undertakings, and not to the Group as a whole, which does not have a license).
Pillar 3
Solvency II included detailed reporting and disclosure requirements. These requirements include non-public supervisory reporting on a regular (usually tri-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 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 capital requirement), which can be considered to be the MCR at group level. Although entities that are not subject to solo supervision under Solvency II (such as entities in other financial sectors, non-financial entities, and regulated and non-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.
Aegon Annual Report on Form 20-F 2020 |
Regulation and supervision95 | ||
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 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 to which diversification can be taken into account in the group capital requirements, although for certain types of entities, such as credit institutions or investment firms, diversification at the group level is limited under both calculation methods. Under the Accounting Consolidation method the group is essentially treated as one economic unit whereas the Deduction and 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, DNB may require groups to deduct any participation from the own funds eligible for the Group Solvency ratio. As of 2020, as required by DNB, Aegon includes its participation in Aegon Bank N.V. in the Group Solvency ratio, pursuant to new guidance, issued by DNB during 2020, using Basel III requirements (as implemented in Europe) in the EU Capital Requirements Directive (CRD IV) and EU Capital Requirements Regulation (CRR), that Aegon Bank N.V. is subject to. The prudential requirements (including CRD IV and CRR) are described in more detail on page 356.
As referred to in the ‘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 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 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.
Absent any regulatory guidance to the contrary, Aegon’s UK insurance subsidiaries will continue to be included in the Group Solvency II calculation in accordance with Solvency II standards, including Aegon’s approved Partial Internal Model. Aegon will monitor the developments regarding a potential equivalence decision by the European Commission relating to the United Kingdom as well as the developments in the UK insurance regulatory system.
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 2020 review
In December 2020 EIOPA issued its final opinion in respect of the technical advice requested by the European Commission in the context of the Solvency II 2020 review. In line with the draft technical advice and the questions raised by the European Commission, the opinion covers, among others, the following areas:
◆ | Long-term guarantee (LTG) measures and measures to better reflect equity risk; |
◆ | Specific methods, assumptions and standard parameters used when calculating the Solvency Capital Requirement under the standard formula; |
◆ | Technical provisions (including changes to the calculation of the risk margin), |
◆ | Own funds; |
◆ | Calculation of the Minimum Capital Requirement; |
◆ | Reporting and disclosure |
◆ | Proportionality; |
◆ | Group supervision; |
◆ | Freedom to provide services and freedom of establishment (on a cross-border basis and through branch offices); |
◆ | Macro-prudential policy; |
◆ | Recovery and resolution; |
◆ | Insurance guarantee schemes, and |
◆ | Other items related to the supervision of insurance and reinsurance undertakings. |
Aegon Annual Report on Form 20-F 2020 |
Regulation and supervision96 | ||
The next step is for the European Commission to develop a legislative proposal that is currently expected to be published in the beginning of the 4th quarter of 2021. While the EIOPA Opinion is important input for the European Commission, it will develop its own opinion which elements of the EIOPA Opinion it will take into account and how these will be reflected in the legislative proposal. Subsequently, the co-legislators at European level will assess the proposal in order to arrive at final text, resulting in amendments to the Solvency II Directive and Solvency II Delegated Regulation.
DNB guidance issued during 2020
During 2020, DNB changed its earlier guidance with respect to the treatment of credit institutions in the calculation of group solvency in accordance with Solvency II requirements. As of the 4th quarter of 2020, Aegon is required to include Aegon Bank into group solvency in accordance with Solvency II rules (using CRD IV/CRR capital requirements).
During 2020 DNB amended its guidance with respect to the modeling of deferred taxes (and to the Loss Absorbing Capacity of Deferred Taxes or “LAC DT” - in particular) for the solvency capital calculation pursuant to Solvency II. This was following amendments to the Solvency II Delegated regulation, published in the Official Journal of the EU on June 18, 2019, referred to as the Solvency II 2018 review.
Sustainability and Solvency II
In March 2018, the European Commission adopted its Action Plan on Sustainable Finance. This action plan is part of broader efforts to connect finance with the European and global economy for the benefit of the planet and wider society. Specifically, the Action Plan aims to: (1) reorient capital flows towards sustainable investment in order to achieve sustainable and inclusive growth, (2) manage financial risks stemming from climate change, resource depletion, environmental degradation and social issues; and (3) foster transparency and long-termism in financial and economic activity.
As part of the Action Plan, EIOPA has provided the European Commission in April 2019 with technical advice on the integration of sustainability risks and factors in the delegated acts under Solvency II and the Insurance Distribution Directive (IDD). This advice focused primarily on qualitative requirements in Solvency II and the IDD. The Solvency II advice includes recommendations on the integration of sustainability risks in risk management, including in the calculation of the overall solvency needs in the context of the Own Risk and Solvency Assessment (ORSA) and in the application of the prudent person principle, applicable to the investment of insurers’ assets. In the context of the IDD, the advice focused on the integration of policyholder preferences with respect to sustainability when acquiring insurance products. In addition, the European Commission requested EIOPA’s views on the integration of sustainability, in particular climate-related developments, into the Solvency II framework focusing on quantitative requirements. EIOPA provided its opinion
in September 2019, which the European Commission is expected to take into account in the Solvency II 2020 review. A formal legislative proposal by the European Commission in the context of the Solvency II 2020 review is currently expected to be released in the second half of 2021.
Furthermore, in November 2019, DNB published its expectations for the Own Risk and Solvency Assessment (ORSA) with respect to sustainability. In November 2020 EIOPA has published a consultation on the use of climate change risk scenarios in the ORSA in the form of a draft supervisory opinion. According to EIOPA, supervisors such as DNB should expect insurers, in the ORSA, to subject material climate change risks to at least two long-term climate scenarios. The final EIOPA opinion is expected to be published in the spring of 2021.
Financial conglomerate supervision
Since October 2009, Aegon has been subject to supplemental group supervision by 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 – supplemental group supervision pursuant to the Financial Conglomerates Directive has become significantly less relevant.
Recovery and resolution and systemic risk
G-SII designation
On November 3, 2015, Aegon was 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). Up until 2019, the FSB reviewed the G-SII designation annually. However, the FSB, in consultation with the IAIS and national authorities, decided not to publish a new list of G-SIIs for 2017 or 2018. In November 2019, in recognition of the fact that the Holistic Framework (see below) 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, based on the initial years of experience with the application of the Holistic Framework, review the need to either discontinue or re-establish an annual identification of G-SIIs.
Due to its G-SII status, Aegon was subject to an additional layer of direct supervision at the group level. In accordance with these requirements, Aegon submitted a liquidity risk management plan, a systemic risk management plan, and an ex ante recovery plan to DNB and to the crisis management group (CMG) that was established. In spite of the suspension of the identification of G-SIIs, these requirements, which are included in the holistic
Aegon Annual Report on Form 20-F 2020 |
Regulation and supervision97 | ||
framework for the assessment and mitigation of systemic risk in the insurance sector, continue in practice. Aegon continues to update these plans on an annual basis. In addition, the Aegon Group’s Resolution Authority (the Dutch Central Bank) is responsible for the development of Aegon’s resolution plan.
Holistic Framework for the assessment and mitigation of systemic risk in the insurance sector, and ComFrame
In November 2019, the IAIS adopted the Holistic Framework for the assessment and mitigation of systemic risk in the insurance sector. Some of the provisions of the Holistic Framework are included in the IAIS Insurance Core Principles (that apply to all insurers), while others are included in ComFrame (the Common Framework for the Supervision of Internationally Active Insurance Groups, or IAIGs).
The Holistic Framework consists of an enhanced set of supervisory policy measures and powers of intervention, an annual IAIS global monitoring exercise which includes a collective discussion of the outcomes and associated supervisory responses, and an assessment of consistent implementation of 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 that provides supervisory minimum requirements tailored to the international activities and sizes of IAIGs. ComFrame builds on the Insurance Core Principles that are applicable to the supervision of all insurers. The provisions of both ComFrame and the Insurance Core Principles must be implemented in local legislation in order to have a binding effect.
If the FSB were to discontinue the annual identification of G-SIIs after the review of the Holistic Framework in November 2022 or, alternatively, Aegon would not be identified as a G-SII, Aegon would still be subject to ComFrame and ICS, to the extent these would be implemented in 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, 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, the prohibition of starting certain new business activities, changes to the legal or operational structure of the group, or the 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, a bail-in tool is introduced, that allows for the write-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 the bail-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 of G-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 the G-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. As part of the Solvency II 2020 review, it is likely that the European Commission will propose to introduce a recovery and resolution regime at European level, based on minimum harmonization, which means that local regimes should meet minimum standards, set at European level.
Aegon Annual Report on Form 20-F 2020 |
Regulation and supervision98 | ||
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 of bail-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 superseded. 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 institution. 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, 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, would be privately disclosed to our group supervisor, reported to the IAIS, and discussed by supervisors at Aegon’s supervisory college. 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.
IBOR transition
The future of IBORs (Interbank Offered Rates) such as Euribor 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.
Aegon recognizes that IBOR transitions potentially have implications for all reporting units, including our insurance, asset management and banking activities. Despite ongoing 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 is described in transition plans and include among others project solutions and actions, timelines, and ownership to ensure timely preparation and implementation. Aegon is well underway with the implementation of the actions as described in the transition plans. In July 2020, the discount rates used for EUR-denominated cleared derivatives were switched from EONIA to €STR. In the US, the cleared market has switched discount rates from Fed Funds to SOFR in October 2020.
Geopolitical environment
Just before the Brexit transition period ended after 31 December 2020, the European Union and the United Kingdom agreed on a new “Trade and Cooperation Agreement” outlining their post-Brexit relationship. Overall, the agreement does not make provisions for financial services firms in the UK to access the single market of the European Union and contains few provisions specific to financial services. Nevertheless, the main risks for Aegon have been mitigated and a Memorandum of Understanding between the European Union and the United Kingdom is pending (expected by the end of the first quarter of 2021) which should provide further clarity on equivalence. Over the past years, Aegon has implemented various actions to reduce the potential effects of a cliff-edge scenario (e.g., for derivatives & clearing, cross-border policies and data transfer) and although there is still some residual risk, there is no major impact on the organization at the moment. Preparations have been made for the known events that may occur, however, there is an awareness that Brexit might still result in unforeseen events that could have impact even after the transition deal has ended. Hence, the developments are being monitored closely.
Aegon Annual Report on Form 20-F 2020 |
Capital and liquidity management99 | ||
management
Guiding principles
The management of capital and liquidity is of vital importance for 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 the Holding 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 strengthens 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 Enterprise Risk Management (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
In 2020, Aegon updated its Capital Management Policy for the Group to simplify the policy while maintaining strong
capital positions at the Group and in the units. Aegon’s capital management framework is based on adequate capitalization of its operating units, Cash Capital at Holding and leverage.
Capital adequacy of Aegon’s operating units
Aegon manages capital in operating units at levels sufficient to absorb moderate shocks without impacting the remittances to the Group. These moderate shocks could be caused by various factors, including general economic conditions, capital markets risks, underwriting risk factors, changes in government regulations, legal and arbitration proceedings. To mitigate the impact of such factors on the ability of operating units to transfer funds, Aegon establishes an operating level of capital in each of the units: 150% SCR for Solvency II units and 400% Risk-Based Capital (RBC) Company Action Level (CAL) in the US, which includes additional capital in excess of regulatory capital requirements. Aegon manages capital in the units to this operating level over-the-cycle.
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. In addition to an operating level, Aegon establishes a minimum dividend payment level of capital in each of the units: 135% SCR for Solvency II and 350% RBC CAL in the US. As long as the capital position of the unit is above this minimum dividend payment level, the unit is expected to pay remittances to the Group.
When the operating unit’s capital position approaches the minimum dividend payment level, capital management tools are used to ensure that units will remain well capitalized. The frequent monitoring of actual and forecasted capitalization levels of its operating units is an important element in Aegon’s capital framework in order to actively steer and manage towards maintaining adequate capitalization levels.
The regulatory capital requirement, minimum dividend payment level, operating level and actual capitalization for Aegon’s main operating units at December 31, 2020, are included in the following table:
Capital requirements | Regulatory capital requirement | Minimum dividend payment level | Operating level | Actual capitalization | Excess over regulatory capital requirement | |||||||||||||||
United States (RBC ratio) | 100% RBC CAL | 350% | 400% | 432% RBC CAL | EUR 5.9 bln | |||||||||||||||
Aegon Levensverzekering N.V. (Solvency II ratio) | 100% SII SCR | 135% | 150% | 159% SII SCR | EUR 2.0 bln | |||||||||||||||
Scottish Equitable Plc (Solvency II ratio) | 100% SII SCR | 135% | 150% | 156% SII SCR | EUR 1.0 bln |
Aegon Annual Report on Form 20-F 2020 |
Capital and liquidity management100 | ||
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 (NAIC) have adopted 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 CAL risk-based capital requirement. This is the regulatory intervention level below which a company must 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 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 a company.
At the end of 2020, the combined risk-based capital ratio of Aegon’s life insurance subsidiaries in the United States was estimated to be 432% (2019: 470%) of the CAL risk-based capital requirement. The decrease was mainly due to negative market impacts driven by the decline of interest rates and adverse mortality experience impacted by the COVID-19. This was partly offset by the positive impact of earnings from existing business in excess of new business strain and various one-time items, including a refinement of the application of the new variable annuity framework, various mergers and restructuring of reinsurance captives and the sale of the Transamerica Pyramid property.
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 the Deduction & Aggregation method using available and required capital as per the RBC regime. Aegon uses 150% of the local RBC CAL as the Solvency II SCR equivalent for including the US life insurance and reinsurance entities into the Group solvency calculation, and in addition, reducing Own Funds by an amount equal to 100% RBC Company Action Level requirement to reflect transferability restrictions. The US conversion methodology is subject to periodic review and approval by the DNB. The non-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 for these entities.
Aegon Levensverzekering N.V. (NL Life)
Aegon Levensverzekering N.V. uses a Partial Internal Model (PIM) to calculate the solvency position under Solvency II. The calculation includes the use of the volatility adjustment (VA), but does not include the use of any transitional measures. The initial internal model of NL Life was approved on November 26, 2015, by the supervisor, the DNB, as part of the Internal Model Application Process. The Solvency II position of NL Life, on December 31, 2020, is estimated to be 159% (2019: 164%). The decrease was mainly driven by widening of mortgage spreads and the negative impact from a decrease in the loss-absorbing capacity of deferred taxes (LAC-DT). NL Life decided to lower the LAC-DT from 65% to 45% to reduce the sensitivity of this factor to economic variances. Increased investments in corporate credits and remittances paid to Group also lowered the Solvency II ratio. This decrease was partly offset by the normalized capital generation on in-force business, favorable impact from assumption changes, and the impact from a change in the internal model to reduce the sensitivity of the solvency ratio to credit spread movements.
Scottish Equitable Plc (SE Plc)
Scottish Equitable Plc (SE Plc) uses a Partial Internal Model (PIM) to calculate the solvency position under Solvency II. The calculation includes the use of both the matching adjustment (for annuities) and the volatility adjustment (for the with-profits fund). The initial internal model of Aegon UK was approved on December 14, 2015 by the insurance supervisor PRA as part of the Internal Model Application Process. The Solvency II position of SE Plc on December 31, 2020, is estimated to be 156% (2019: 148%). The increase was primarily driven by a favorable impact from the update of the expense assumptions, reflecting the cost reduction initiatives. The normalized capital generation had a further positive impact. This was partly offset by negative market impacts, mainly driven by lower interest rates.
Since January 31, 2020, the United Kingdom is no longer a member of the European Union. Absent any regulatory guidance to the contrary, Aegon’s UK insurance subsidiaries will continue to be included in the Group Solvency II calculation in accordance with Solvency II standards, including Aegon’s approved Partial Internal Model. For more details, reference is made to the section “Regulation and Supervision”.
Improving risk-return profile
Aegon continues to take measures to improve its risk-return profile. In 2020, several actions were taken to strengthen the capital position and reduce the volatility of the local capital positions.
The Dutch life business implemented internal model changes and invested more in corporate bonds to mitigate volatility caused by the basis risk between the EIOPA VA reference portfolio and its own asset portfolio. Furthermore, it was decided to lower the factor applied when calculating the loss-absorbing capacity of deferred taxes (LAC-DT) from 65% to 45% to reduce the sensitivity of this factor to economic variances going forward.
Aegon Annual Report on Form 20-F 2020 |
Capital and liquidity management101 | ||
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 the 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 2020 Aegon initiated a program to materially reduce linear interest rate risk in the US. 25% of this plan had been executed by the end of 2020, primarily by lengthening the duration of its asset portfolio. Aegon has an active global reinsurance program in order to optimize the risk-return profile of other insurance risks. In addition, Aegon monitors the risk-return profile of new business written, withdrawing products that do not meet the required hurdle rates for all stakeholders including policyholders and shareholders.
Aegon is considering taking further actions to improve its risk-return profile by potentially further hedging the legacy variable annuities block in the US, which will allow us to more actively consider a broad range of options for this block of business.
Furthermore, Aegon announced the sale of the insurance, pension and asset management business in Hungary, Poland, Romania and Turkey to Vienna Insurance Group AG (VIG) and the sale of Stonebridge, a UK-based provider of accident insurance products, both of which were not considered core to Aegon’s strategy.
Cash Capital at Holding and liquidity management
Liquidity management is a fundamental building block of Aegon’s overall financial planning and capital allocation processes. Liquidity is coordinated centrally at Aegon N.V., through Cash Capital at Holding, and managed both centrally and at the operating unit level.
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 remittances to the holding company. In order to ensure the holding company’s ability to fulfil its cash obligations, to maintain sufficient flexibility to provide capital and liquidity support to Aegon’s operating units, and to provide stability in external dividends, the Company manages Cash Capital at Holding, including Aegon’s centrally managed (unregulated) holding companies, to an operating range of EUR 0.5 to EUR 1.5 billion.
The main sources of liquidity in Cash Capital at Holding are remittances from operating units and divestitures. In addition, contingent internal and external liquidity programs are maintained to provide additional safeguards against extreme unexpected liquidity stresses.
Aegon uses these cash flows from its operating units to pay for holding expenses, including funding costs. The remaining free cash flow is available to execute the Company’s strategy to strengthen the balance sheet through deleveraging, to make
capital injections into units as required, to fund dividends on its shares, and to return capital to shareholders if possible, all subject to maintaining targeted Cash Capital at Holding. 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 units are subject to local insurance regulations that could restrict remittances to be paid to the holding company. There is no requirement or assurance that Aegon will declare and pay any dividends.
As at December 31, 2020, Aegon held a balance of EUR 1.1 billion in Cash Capital at Holding, compared to EUR 1.2 billion on December 31, 2019. The decrease of EUR 50 million reflects the net impact of remittances from operating units and capital injections in operating units, divestitures, earn-out payments and the redemption of senior unsecured notes, holding expenses and capital returns to shareholders. During 2020 Aegon redeemed the maturing USD 500 million senior notes with a coupon of 5.75% issued in 2005.
Proceeds from the sale of Aegon joint ventures in Japan of EUR 153 million were received in 2020 as well as remittances from Aegon Americas (EUR 465 million) and Aegon Netherlands (EUR 175 million). Remittances from other operating units were more than offset by capital injections and investments, amounting to a net outflow of EUR 13 million. These capital injections mainly related to the expansion of Aegon’s life and non-life insurance partnership with Banco Santander following its acquisition of Banco Popular.
During 2020, payments related to 2020 interim dividend and the corresponding share buybacks amounted to EUR 122 million and holding and funding expenses amounted to EUR 297 million.
Liquidity management
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. 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 maintains a liquidity policy that requires all business units to project and assess their sources and uses of liquidity over a two-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.
Aegon Annual Report on Form 20-F 2020 |
Capital and liquidity management 102 | ||
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.
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. In managing the use leverage throughout the Group, Aegon has implemented a Leverage Use Framework that is part of Aegon’s broader Enterprise Risk Management framework.
Financial leverage
In 2020, Aegon reduced its gross financial leverage by USD 500 million to EUR 6.0 billion through the redemption of a senior note in December 2020 and aims to reduce its gross financial leverage from the current level to the range of EUR 5.0 – 5.5 billion over the period of 2021 to 2023. This reduction of leverage will strengthen the balance sheet, reduce Aegon’s risk profile and make Aegon more resilient.
The following are metrics that Aegon assesses in managing leverage:
◆ | Gross financial leverage ratio; |
◆ | Fixed charge coverage; |
◆ | Various rating agency leverage metrics; and |
◆ | Other metrics, including gross financial leverage divided by normalized capital generation. |
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, 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 Long Term Incentive Plans not yet 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.
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 use of a 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. |
In 2020 Aegon’s exposure to captives was significantly reduced to streamline and simplify Aegon’s legal organization structure in the US and to strengthen the cash flow testing sufficiency through higher statutory reserves. Letters of Credit (LOCs) issued by third parties provided to captives to provide collateral to affiliated insurers are disclosed in note 45 ‘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 be re-financed to achieve financial goals.
Funding and back-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.
Aegon also has access to domestic and international money markets through its EUR 2.5 billion commercial paper programs. As at December 31, 2020, Aegon had EUR 72 million outstanding under these programs (2019: EUR 58 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 an LOC facility of USD 2.4 billion. The syndicated revolving credit facility matures in 2025. The LOC facility matures in 2024. In addition, Aegon also maintains various shorter-dated bilateral backup
Aegon Annual Report on Form 20-F 2020 |
Capital and liquidity management103 | ||
liquidity facilities in addition to committed and uncommitted LOC facilities.
Rating agency ratings
Aegon’s objective is to maintain very strong financial strength ratings 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 several international rating agencies for its main operating units, and a strong credit rating for Aegon N.V..
Following Aegon’s request, Fitch Ratings withdrew its ratings of Aegon N.V., Aegon USA and Aegon UK on December 1, 2020. At that time Fitch Ratings also affirmed the ratings as A- for Aegon N.V.’s long-term issuer rating, BBB+ for Aegon N.V.’s senior debt rating, BBB- for Aegon N.V.’s subordinated debt rating, F2 for Aegon N.V.’s commercial paper rating, A+ for Aegon USA’s financial strength rating and A+ for Aegon UK’s financial strength rating.
Aegon the | ||||||||
December 31, 2020 | Aegon N.V. | Aegon USA | Netherlands | Aegon UK | ||||
S&P Global1) | ||||||||
Financial strength | - | A+ | A+ | A+ | ||||
Long-term issuer | A- | - | - | - | ||||
Senior debt | A- | - | - | - | ||||
Subordinated debt | BBB | - | - | - | ||||
Commercial paper | A-2 | - | - | - | ||||
Moody’s Investors Service1) | ||||||||
Financial strength | - | A1 | - | - | ||||
Long-term issuer | A3 | - | - | - | ||||
Senior debt | A3 | - | - | - | ||||
Subordinated debt | Baa1 | - | - | - | ||||
Commercial paper | P-2 | - | - | - | ||||
A.M. Best1) | ||||||||
Financial strength | - | A | - | - |
1 | S&P Global and A.M. Best have a stable outlook on the ratings. Moody’s Investors Service has a negative outlook on the ratings. |
Aegon Group Solvency Ratio
The Solvency II regulatory framework determines the regulatory capital requirements for EU-domiciled insurance and reinsurance entities. In Aegon’s Non-EEA (European Economic Area) regions, (re)insurance entities domiciled in third-countries deemed (provisionally) equivalent (US life insurance entities, Bermuda, and Brazil), the capital requirement is based on local capital requirements. For more information about recent developments on Solvency II, please refer to section ‘Regulation and supervision’.
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 the EEA-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. On July 11, 2020, DNB published industry-wide guidelines regarding the treatment of banks in Group Solvency II calculation. As a consequence, Aegon has included Aegon Bank in the calculation of its Group Solvency as per December 31, 2020. Before December 31, 2020 Aegon Bank was excluded from the Group Solvency II ratio. The 2019 year-end Solvency II ratio excluding Aegon Bank was 201%. If Aegon Bank were included, the 2019 comparative ratio would be 198%.
As at December 31, 2020, Aegon’s estimated capital position was:
December 31, 2020 1) | December 31, 20192) | |||||
Group Own Funds | 18,582 | 18,470 | ||||
Group SCR | 9,473 | 9,173 | ||||
Group Solvency II ratio | 196% | 201% |
1 | The Solvency II ratios are estimates, are not final until filed with the respective supervisory authority. |
2 | For 2019, the Group Solvency II ratio excludes Aegon Bank. The 2019 Group Solvency II ratio including Aegon Bank is 198% (Own Funds: EUR 19,207 million; SCR: EUR 9,707 million). |
Aegon Annual Report on Form 20-F 2020 |
Capital and liquidity management 104 | ||
Aegon Group Own Funds amounted to EUR 18,582 million on December 31, 2020 (2019: EUR 18,470 million1). The increase of EUR 112 million in Own Funds since December 31, 2019, was mostly driven by the positive impact from expected return on in-force business and the inclusion of Aegon Bank. The positive impact was partly offset by unfavorable market impacts triggered by the COVID-19 pandemic, reflected by a sharp decrease in interest rates, compounded by negative credit variances partly caused by widening of mortgage spreads.
Aegon’s Group Partial Internal Model (PIM) Solvency Capital Requirement (SCR) amounted to EUR 9,473 million on December 31, 2020 (2019: EUR 9,173 million2). The SCR increased by EUR 300 million since December 31, 2019 and was mainly due to new business strain and the inclusion of Aegon Bank, which was partly offset by the release of in-force SCR.
As a result of the above changes in Own Funds and PIM SCR, the Group Solvency II ratio declined by 5%-points to 196%
in 2020. Beginning in 2020, the foreseen final dividend of EUR 125 million has been deducted from Group Own Funds, a change that was made to better align with the practice of European peers.
Sensitivities
Aegon calculates sensitivities of its Solvency II ratios as part of its capital management framework. The following table provides an overview of the sensitivities (downward and upward) to certain parameters and their estimated impact on the Solvency II ratio. Please note that the sensitivities listed in the tables 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 table.
Scenario | Group | Americas1) | NL Life | SE Plc | ||||||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||||
Equity markets | -25% | (11% | ) | (12% | ) | (29% | ) | (27% | ) | (5% | ) | (7% | ) | (5% | ) | (5% | ) | |||||||||||||||||||
Equity markets | +25% | 7% | 12% | 20% | 33% | 1% | 2% | (1% | ) | 4% | ||||||||||||||||||||||||||
Interest rates | -50bps | 0% | (4% | ) | (3% | ) | (13% | ) | 9% | 6% | (1% | ) | (2% | ) | ||||||||||||||||||||||
Interest rates | +50bps | 1% | 4% | 4% | 13% | (8% | ) | (6% | ) | 1% | 3% | |||||||||||||||||||||||||
Govt spreads excl EIOPA VA2) | -50bps | 3% | 10% | n.a. | n.a. | 3% | 25% | 5% | 6% | |||||||||||||||||||||||||||
Govt spreads excl EIOPA VA2) | +50bps | (2% | ) | (9% | ) | n.a. | n.a. | (2% | ) | (25% | ) | (5% | ) | (3% | ) | |||||||||||||||||||||
Non-govt spreads excl EIOPA VA2) | -50bps | 0% | 1% | (1% | ) | (3% | ) | 9% | 20% | (10% | ) | (9% | ) | |||||||||||||||||||||||
Non-govt spreads excl EIOPA VA2) | +50bps | 0% | (2% | ) | 1% | 4% | (10% | ) | (20% | ) | 6% | 10% | ||||||||||||||||||||||||
US Credit Defaults | +200bps | (18% | ) | (19% | ) | (38% | ) | (37% | ) | n.a. | n.a. | n.a. | n.a. | |||||||||||||||||||||||
UFR | -15bps | (2% | ) | (2% | ) | n.a. | n.a. | (6% | ) | (6% | ) | n.a. | n.a. | |||||||||||||||||||||||
Longevity | +5% | (7% | ) | (4% | ) | (12% | ) | (3% | ) | (10% | ) | (9% | ) | (3% | ) | (3% | ) | |||||||||||||||||||
Mortgage spreads | -50bps | 2% | 6% | n.a. | n.a. | 6% | 15% | n.a. | n.a. | |||||||||||||||||||||||||||
Mortgage spreads | +50bps | (2% | ) | (5% | ) | n.a. | n.a. | (6% | ) | (14% | ) | n.a. | n.a. | |||||||||||||||||||||||
EIOPA VA | -5bps | 0% | (3% | ) | n.a. | n.a. | (1% | ) | (10% | ) | n.a. | n.a. | ||||||||||||||||||||||||
EIOPA VA | +5bps | 0% | 3% | n.a. | n.a. | 1% | 10% | n.a. | n.a. |
1 | The sensitivities presented for Americas include US regulated (life) companies, non-regulated holding companies and the employee pension plan. The sensitivities are presented on a Solvency II basis, after application of the conversion methodology to US regulated (life) companies. |
2 | Spread sensitivities as at December 31, 2019 excluding VA (Volatility Adjustment) have been approximated for reference purposes. |
Equity Sensitivities
The Group is exposed to the risk of a fall in equity markets in Aegon Americas driven by adverse impacts on the solvency ratio in Aegon Americas, Aegon the Netherlands and Aegon 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 markets, Own Funds decrease due to the need to set up higher reserves for the Variable Annuity product, partly offset by payoffs on equity hedge programs. Furthermore, declining equity markets result in a reduction to the assets backing employee pension plan liabilities and a decrease in the value of private equity and hedge fund investments. The decrease in the sensitivity to the equity
1 | This 2019 published Group Own Funds excludes Aegon Bank. The 2019 Group Own Funds including Aegon Bank is EUR 19,207 million. |
2 | This 2019 published Group SCR excludes Aegon Bank. The 2019 Group SCR including Aegon Bank is EUR 9,707 million. |
Aegon Annual Report on Form 20-F 2020 |
Capital and liquidity management 105 | ||
up scenario since 2019 is due to an update to the macro hedge program which in the past protected the RBC ratio against extreme falls in equity markets. The new program is designed to provide payoffs in less severe down equity markets, while giving up some gains in up equity markets.
For NL Life, losses in the down shock are driven by the private equity investments in the general account. The asymmetry between up and down shocks is caused by the impact of guarantees and the associated hedges and the impact of the symmetric adjuster on the equity capital which has a prescribed flooring and capping on the shock.
For SE Plc, under an equity down scenario, the reduction in Own Funds is partly offset by the reduction in SCR with the main exposures coming from the Staff Pension scheme and the unitized business. The asymmetry in the exposure is affected by the hedging and treatment of staff pension scheme surplus under IAS19.
Interest Rates Sensitivities
The Group has limited ratio sensitivity to interest rate movements driven by driven by hedging programs in place.
In Aegon Americas, a decrease in interest rates results in a need to set up higher reserves for Variable Annuity and Universal Life products, partly offset by payoffs from interest rate hedge programs. Own Funds decrease further from an increase in employee pension plan liabilities relative to the invested assets. The opposite occurs in rising interest rate scenarios. The decrease in the sensitivity to interest rates is the result of a refinement to the application of the new variable annuity framework and the various mergers that took place over the year.
NL Life is over-hedged on a Solvency II Own Funds basis leading to Own Funds losses when rates go up and Own Funds gains when rates go down. This results in Aegon the Netherlands’ solvency ratio being exposed to rising interest rate scenario.
For SE Plc, exposure to interest rate down scenarios is caused by higher required capital on mortality, expense and policyholder lapse risks which are partly offset by gains on the swaps held in the general account.
Spread Sensitivities
In order to simplify the interpretation of spread sensitivities, the knock-on effects of the EIOPA VA are not reflected in the spread sensitivities shown here. The non-government spread sensitivities include the shocks on mortgages, corporates bonds and structured instruments. With the approval of DNB, starting 4Q 2020, the spread sensitivities reflect the change to the internal model that was made to reduce the sensitivity of the Dutch life solvency ratio to credit spread movements. This impacts the sensitivities shown for non-government spreads, government spreads, mortgage spreads and EIOPA VA.
The Group is exposed to widening of spreads across non-government, government, and mortgage instruments due to lower asset valuation. For Aegon Americas, exposure to narrowing of spreads arises from a lower discount rate for valuing the employee pension plan liabilities. This is partly offset by the impact on Variable Annuities where narrowing credit spreads increase the value of separate account assets resulting in a release of reserves reflecting a lower cost of Variable Annuities guarantees.
Exposure to government spread sensitivities is contributed by NL Life and SE Plc both of which are exposed to spreads widening due to the reduction in the value of their fixed income assets.
Group is exposed to mortgage spreads widening, due to exposure in NL Life, which has an adverse impact on the asset valuation. Aegon Americas credit defaults sensitivity reflects the combined impact of credit defaults and adverse credit rating migrations on assets held in the general account portfolio.
Longevity Sensitivities
The Group is exposed to higher longevity driven by Aegon Americas, NL Life, and SE Plc, due to the higher liability valuation since longevity is only partially hedged. Higher longevity also increases the SCR requirements held by these units. The increase in longevity scenario in Aegon Americas is driven by the need to set up additional reserves for the Long Term Care business under the scenario following the assumption updates during the year.
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 capital and restricted Tier 1 capital. The latter category contains Own Funds instruments subject to the restrictions of article 82 (3) of the Solvency II Delegated Regulation, which includes grandfathered Tier 1 Own Funds instruments. Based on agreements with its supervisory authorities, Aegon applies a fungibility and transferability restriction with respect to charitable trusts within Aegon Americas. These restrictions, applied to Aegon’s basic Own Funds, result in Aegon’s Available Own Funds. Aegon used to have a restriction equal to the Own Funds of Aegon Bank, which is reversed as per December 31, 2020 based on the industry-wide guidelines published by DNB regarding the treatment of banks in Solvency II ratios.
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
Aegon Annual Report on Form 20-F 2020 |
Capital and liquidity management 106 | ||
dividends that meet the IFRS definition of a liability or have been approved by the Board, but that have yet to be 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 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 are grandfathered. Perpetual contingent convertible securities are Solvency II compliant liabilities which were issued in 2019. Restricted Tier 1 capital is subject to eligibility restrictions to qualify as Eligible Own Funds.
Aegon’s Tier 2 capital consists of the subordinated notes issued 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 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 31 ‘Other equity instruments’ and note 32 ‘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. Tier 3 capital is subject to eligibility restrictions to qualify as Eligible Own Funds.
Eligible Own Funds
Under Solvency II regulation, restrictions apply to the eligibility of restricted Tier 1, Tier 2 and Tier 3 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 the 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 (AC) 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 (D&A) method. If a prudential regime of an equivalent or provisionally equivalent third-country applies, such as the regulatory regimes in the United States, the Own Funds brought in by the Deduction & Aggregation method are 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. |
The table below shows the composition of Aegon’s Available and Eligible Own Funds, taking into consideration tiering restrictions.
The Available Own Funds are equal to the Eligible Own Funds per December 31, 2020. No overflow from restricted Tier 1 to Tier
2 Own Funds is applied per year end 2020 and 2019.
December 31, 2020 | December 31, 2019 | |||||||||||||||
Available Own Funds | Eligible Own Funds | Available Own Funds | Eligible Own Funds | |||||||||||||
Unrestricted Tier 1 | 12,972 | 12,972 | 12,724 | 12,724 | ||||||||||||
Restricted Tier 1 | 2,571 | 2,571 | 2,614 | 2,614 | ||||||||||||
Tier 2 | 2,340 | 2,340 | 2,370 | 2,370 | ||||||||||||
Tier 3 | 700 | 700 | 762 | 762 | ||||||||||||
Total Tiers | 18,582 | 18,582 | 18,470 | 18,470 |
1 | This 2019 published Group Own Funds excludes Aegon Bank. The 2019 Group Own Funds including Aegon Bank are EUR 19,207 million. |
Aegon Annual Report on Form 20-F 2020 |
Asset liability management 107 | ||
Aegon writes long-term life insurance business in the US, Europe and Asia. The product suite includes savings and annuity products that feature a guaranteed level of benefit. Aegon also issues mortgage loans in the Netherlands that are initiated using long-term insurance funds. Products are priced using a market-consistent framework and comprehensive asset 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 range of products) to derivative-based semi-static and dynamic hedges (to match variable annuities).
The Enterprise Risk Management (ERM) framework includes several risk policies that govern ALM strategies, such as the Investment and Counterparty Risk Policy (ICRP). The ICRP governs the management of investment risks associated with credit, equity, property, alternative asset classes, interest rate and currency risk in addition to option markets, implied volatility risk, interest rate options and swaptions.
As well as product-level ALM programs, subsidiary businesses are required by the ICRP to maintain overarching entity-level ALM strategies that set the direction and limits for the aggregated 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, which guides ALM strategy, several 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 in 2010 and the European Market Infrastructure Regulation (EMIR) derivative regulations in 2013 has led to Aegon transitioning a significant proportion of formerly over-the-counter positions to clearing houses in recent years. Collateral and margin requirements increased, introducing the potential for liquidity strain, which must be carefully managed. Market volatility can cause collateral requirements to increase rapidly, which means that it is always important to have sufficient high-quality collateral available. Regular liquidity stress testing is used to monitor required liquidity and ensure that sufficient funding is available.
Americas
The investment choices of Aegon’s companies in the United States are subject to regulation dependent upon the laws of the applicable state in which each 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. Transamerica has commenced a multi-year program to gradually lengthen the duration of the assets to provide a closer match to the liability duration.
In the United States, Aegon has written a significant volume of variable annuity business, which is managed using sophisticated dynamic hedging techniques. Clearly defined hedge strategies (CDHS) cover first order ‘delta’ and ‘rho’ of withdrawal benefit (GMWB) guarantees, together with higher order programs partially covering ‘gamma’ and ‘vega’ sensitivities. Legacy variable annuity income benefit (GMIB) and death benefit (GMDB) guarantees are currently covered by the ‘Macro Hedge Program’ which provides additional protection for regulatory capital against a sharp fall in equity markets. The potential for extending CDHS coverage to hedge the legacy variable annuities using a dynamic strategy is being reviewed in 2021.
In the United States, Aegon 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.
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. A strategic asset allocation is used to manage the asset portfolio. A derivative-based hedge program reduces residual interest rate and other market risk exposures. The hedge program for embedded guarantees is monitored daily in order to offset liability sensitivities and also to protect against volatility in best estimate economic cost of these guarantee liabilities.
Aegon Annual Report on Form 20-F 2020 |
Asset liability management 108 | ||
Derivatives are central to Aegon’s hedging strategy, and the derivatives market has been subject to many changes in recent years. These include the introduction of the EMIR directive 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.
United Kingdom
Aegon UK primarily uses ALM to protect Solvency II Own Funds. This is achieved by using a unit matching program to guard against fluctuations in best estimate liabilities. Equity options, interest rate and inflation swaps are also used to reduce the 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 after 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.
Aegon International
Across the Central & Eastern European units, ALM focuses on asset-liability matching in terms of duration and liquidity. In Spain and 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 TLB’s products.
Aegon Annual Report on Form 20-F 2020 |
Reinsurance ceded 109 | ||
Aegon uses reinsurance to primarily manage and diversify risk, limit volatility, improve capital positions, limit maximum losses and gain access to reinsurer support. 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 using multiple reinsurers within certain reinsurance agreements.
There are no material problems with reinsurance recoverability. Aegon has exposure to Scottish Re US (SRUS), whose ultimate parent is in liquidation and which itself is in rehabilitation with the Delaware regulator since March 2019. Aegon is continuing discussions with the receiver and the regulator to assess options provided in the rehabilitation plan, as well as liquidation. Transamerica has set up a valuation allowance of USD 143 million (EUR 125 million) in relation to the ongoing rehabilitation process. 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 was protected by a trust account and had assessed that the trust assets were sufficient to cover the reserves and receivables from SHIP on Aegon’s balance sheet. In December 2020, Aegon completed the recapture of the reserves with SHIP and the transfer of the assets under the management of Aegon Asset Management. SHIP will retain a remainder interest in the trust assets should there be any left over after all obligations are paid.
External reinsurance counterparties are, in general, major global reinsurers. At the same time, local reinsurers are utilized to ensure a balance for local capacity and diversification. The role of Corporate Center and use of reinsurance by region is explained in more details below:
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 and reinsurers as required by the Policy. Reports are shared with the Global Risk and Capital Committee, Group Management Board and Supervisory Board Risk Committee as appropriate.
Americas
Aegon Americas manages its life insurance exposure through various types of agreements with reinsurers. It relies heavily on quota-share and excess-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. In most recent years, Americas has also used Excess of Loss Reinsurance to support reserves considered as excessive or redundant supporting secondary guarantees of Universal Life or Term business.
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. Aegon the Netherlands no longer writes new term life assurance, but the existing reinsurance arrangements remain in force. 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. For non-life, Aegon the Netherlands historically only reinsured 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. In December 2020, Aegon reinsured part of its disability business for the self-employed on a quota share business.
United Kingdom
Aegon UK uses reinsurance to both manage risk and maximize financial 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.
Aegon International
Central and Eastern Europe
Aegon uses reinsurance for its life and non-life businesses in order to mitigate insurance risk. The majority of treaties in force for Aegon’s operations in Central & Eastern Europe are non-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 program currently in force is a property catastrophe excess of loss treaty.
Aegon Annual Report on Form 20-F 2020 |
Reinsurance ceded 110 | ||
Spain and Portugal
Aegon Spain has a ‘one Aegon’ reinsurance management policy. This means that both its joint ventures in Spain and 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 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, 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. As part of the acquisition of Allianz Popular Vida in the second quarter of 2020, Aegon reinsured the savings business with Santander Seguros.
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
Aegon Life uses reinsurance for part of the mortality and morbidity risks of the policies it sells.
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. TLB entered into a reinsurance treaty to provide further protection for the local solvency position in Singapore.
Aegon Annual Report on Form 20-F 2020 |
Risk management111 | ||
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-return trade-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 Annual Report on Form 20-F, as they are relevant throughout the Company, for its various activities and its financial results. Relevant sections are: Aegon’s business environment on page 13; note 4 on Financial Risks in the notes to the consolidated financial statements on page 189; and Risk factors on page 370.
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 in 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. The risk appetite statement is linked to Aegon’s purpose of helping people achieve a lifetime of financial security. Aegon’s risk appetite statement emphasizes that Aegon businesses:
“Fulfil our promises towards our customers and other stakeholders by delivering sustainable and 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:
◆ | Capital generation, to ensure free capital generation remains sufficiently in line with projections. |
◆ | Solvency and liquidity, to ensure that Aegon remains solvent and liquid even under adverse scenarios. |
◆ | Risk balance, to ensure a healthy balance of risk exposures that supports delivering on our capital generation and return on capital targets. |
◆ | 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. |
The tolerances are further developed into measures, limits and thresholds mustthat 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 kept up to date. The risk metrics are embedded in Aegon’s key reports and are used for decision making.
Risk response
Aegon distinguishes the following risk responses:
◆ | Management can accept the risk when the risk exposure is within the set risk tolerance; and |
◆ | Management can decide to control, transfer or avoid the risk when an exposure exceeds the established risk tolerance or if cost-benefit analysis supports further actions. |
Aegon Annual Report on Form 20-F 2020 |
Risk management112 | ||
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 be reported to Group Regulatory Compliance. All fraud mattersincludes risk policy compliance and incident and compliance reporting. Finally, the main risks derived from Aegon’s strategy and the day-to-day business are investigated and correctivediscussed, as well as forward looking points for attention. If necessary, mitigating actions are taken as appropriate.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 Annual Report on Form 20-F (see risk factors in the ‘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 | 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 or man-made disasters, and cybercrime. | Low - Accepted as a necessary condition of conducting business, but mitigated as much as possible in an economically efficient manner. |
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); |
◆ | Underwriting risk (particularly related to longevity and policyholder behavior); and |
◆ | Operational risks (particularly related to reputation and continuity of operations). |
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-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.
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
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Risk management113 | ||
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 (EUR), 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-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 work hand-in-hand with a strong underwriting process. Aegon’s earnings depend, to a significant degree, on the extent to which claims experience is consistent with assumptions used to price products and establish technical liabilities. Changes in, among other things, morbidity, mortality, longevity trends and policyholder behavior may have a considerable impact on the Company’s income. Assumptions used to price products and establish technical liabilities are reviewed on a regular basis. Please refer to note 3 Critical accounting estimates and judgment in applying accounting 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, actions by personnel, non-compliance to laws and regulations, and natural or man-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: business risk; legal, regulatory, conduct and compliance risks; tax risk; financial crime risk; processing risk; information technology and business disruption risk; people risk; and facility 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 chapter on non-financial policies, procedures, and outcomes for an overview of how various environmental, social and governance topics are incorporated in decision making processes and policies throughout the Company.
Information security risk
Information security risk has been recognized by Aegon as an important operational risk. Aegon’s global information security program is intended to establish security controls that safeguard data, technology, and operations, as well as activities outsourced to third parties. Aegon recognizes the need to 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 management recognizes the need to establish and maintain adequate information security systems that are capable of addressing potential cyber security attacks.
Conduct risk
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.
Fraud risk
Aegon is committed to a strong anti-fraud program to protect its clients and assets from fraudulent behavior by 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) 2020, all regions provided insight in their local anti-fraud programs and indicated that controls with regard to internal, external and intermediary fraud were properly designed and operating effectively.
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Risk management114 | ||
Environmental, Social & Governance (ESG) risk
ESG risks are covered by Aegon’s risk universe and in 2020 climate risk was more explicitly recognized in the risk universe, given its increasing relevance and the need to manage the impact on Aegon’s risk profile. Risk management regularly interacts and cooperates on ESG risks, including climate risk, with the Global Corporate Sustainability Team reporting into the CEO and the Climate Change Working Group (CCWG) of the Responsible Business and Investment Committee chaired by a member of Aegon’s Management Board. This is covered in more detail in the Responsible Business section and the Task Force on Climate-related Financial Disclosures (TCFD) section of this report. Of note for 2020 were the recognition of climate change and loss of biodiversity as material topics in the Aegon Business environment scan.
Pandemic risk - COVID-19
COVID-19 impacts the company through financial markets and underwriting developments (mortality rates), and also has operational risks. From the onset of the COVID-19 pandemic, targeted control assessments were conducted across all regions to monitor the operational risk impact of the pandemic. The assessments showed that the controls continued to operate effectively. The assessments covered the impact on core business processes, the working from home environment and the related information security risk, service levels to customers, and the health of employees. In addition, ongoing attention was directed at third party risk with the aim to monitor financial health, security and capacity aspects as well as to provide support where needed, to avoid negative knock-on effect for Aegon.
Business environment scan
In addition to the management of described risk types, Aegon performs a business environment scan. The aim is to identify topics, including opportunities and new and developing challenges, which could have significant impact on value creation and Aegon’s financial strength, competitive position, or reputation. The scan essentially functions as a materiality assessment and is meant as a check on the ongoing appropriateness of the risk universe, to ensure completeness of Aegon’s risk assessment and to provide input for ongoing strategy development.
The business environment scan is performed on a biennial basis, with annual updates for significant changes.
Topic identification, mapping and selection are based on desk research, interviews with experts and management selection. Outcomes can be used for materiality reporting, as input for Aegon’s strategy process and for possible follow-up in terms of further analysis, tracking or as a global project. For more information on the materiality reporting refer to the section: Aegon’s business environment on page 13.
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 62 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.
Aegon Annual Report on Form 20-F 2020 |
Risk management115 | ||
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 is 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 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 and 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 three sub-committees: the ERM framework, Accounting and Actuarial Committee (ERMAAC), the Non-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 with non-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 regarding non-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 the 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; |
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Risk management116 | ||
◆ | 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; |
◆ | 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 PIM is and remains appropriate to the Company’s risk profile and informing the Management Board and the Supervisory Board about the on-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 assurance on the integrity of models through model validations and maintenance of model validation policies and standards; and |
◆ | 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 and non-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, which is considered more encompassing in scope than the 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-Oxley Act and Solvency II). Aegon’s control activities should ensure 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 2020, 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 Board. No material weaknesses were observed,
Aegon Annual Report on Form 20-F 2020 |
Risk management117 | ||
and no significant changes or major improvements were made or planned to the risk management and internal control systems following from the review.
Three ‘Lines’ organizational structure
Aegon’s risk management structure is organized along three ‘lines’ 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, 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 includes the risk management function and the compliance function. The risk management function facilitates and oversees the effectiveness and integrity of ERM across the Company while the compliance function ensures that the Company complies with laws and regulations, to meet legitimate expectations from stakeholders and by doing so ensures the integrity of its organization, clients, employees and markets. The third line - the audit function - provides independent assurance on the effectiveness and integrity of the internal control, risk management and governance functions.
Aegon Annual Report on Form 20-F 2020 |
Controls and procedures118 | ||
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, 2017,2020, 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 the report of the external auditor.
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, 2017.2020.
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, 2017.2020. 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, 2017,2020, was audited by PricewaterhouseCoopers Accountants N.V., an independent registered public accounting firm, as stated in theirthe auditor’s report included on page 332.the Annual Report on Form 20-F (page 338).
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, 2017,2020, 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 ‘Business Overview’ sections ‘Results of operations’, ‘Risk management’ and ‘Capital and liquidity management’, ‘Risk management’, ‘Results of operations’ and ‘Business 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,capital at Holding, management concluded that the going concern assumption is appropriate.
The Hague, the Netherlands, March 22, 201817, 2021
The Executive Board of Aegon N.V.
Lard Friese, CEO | Matthew J. Rider, CFO |
Aegon Annual Report on Form 20-F 2020 |
Table of contents
Aegon Annual Report on Form 20-F |
Report of Independent Registered
Public Accounting Firm
To: The Annual General Meeting of Shareholders’ and Supervisory Board of Aegon N.V.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. 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 audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
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 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.
PricewaterhouseCoopers Accountants N.V.
Amsterdam, The Netherlands,
March 22, 2018
143 | ||||||
144 | ||||||
Consolidated statement of comprehensive income of Aegon N.V. | 145 | |||||
146 | ||||||
147 | ||||||
150 | ||||||
Notes to the consolidated financial statements | ||||||
1 | General information | 151 | ||||
2 | Summary of significant accounting policies | 151 | ||||
3 | Critical accounting estimates and judgment in applying accounting policies | 173 | ||||
4 | Financial risks | 175 | ||||
5 | Segment information | 202 | ||||
6 | Premium income and premiums paid to reinsurers | 213 | ||||
7 | Investment income | 213 | ||||
8 | Fee and commission income | 214 | ||||
9 | Income from reinsurance ceded | 214 | ||||
10 | Results from financial transactions | 214 | ||||
11 | Other income | 216 | ||||
12 | Policyholder claims and benefits | 216 | ||||
13 | Profit sharing and rebates | 216 | ||||
14 | Commissions and expenses | 216 | ||||
15 | Impairment charges / (reversals) | 218 | ||||
16 | Interest charges and related fees | 219 | ||||
17 | Other charges | 219 | ||||
18 | Income tax | 220 | ||||
19 | Earnings per share | 221 | ||||
20 | Dividend per common share | 222 | ||||
21 | Cash and cash equivalents | 223 |
Financial statements of Aegon N.V. | ||||||
314 |
Income statement of Aegon N.V. | |||||
| ||||||
307 | ||||||
308 | ||||||
Notes to the financial statements | ||||||
1 | General information | 309 | ||||
2 | Summary of significant accounting policies | 309 | ||||
3 | Investment income | 309 | ||||
4 | Results from financial transactions | 310 | ||||
5 | Commissions and expenses | 310 | ||||
6 | Interest charges and related fees | 310 | ||||
7 | Income tax | 310 | ||||
8 | Shares in group companies | 310 | ||||
9 | Loans to group companies | 311 | ||||
10 | Receivables | 311 | ||||
11 | Other assets | 311 | ||||
12 | Share capital | 311 | ||||
13 | Shareholders’ equity | 313 | ||||
14 | Other equity instruments | 316 | ||||
15 | Subordinated borrowings | 317 | ||||
16 | Long-term borrowings | 318 | ||||
17 | Other liabilities | 318 | ||||
18 | Commitments and contingencies | 318 | ||||
19 | Number of employees | 318 | ||||
20 | Accountants remuneration | 318 | ||||
21 | Events after the reporting period | 319 | ||||
22 | Proposal for profit appropriation | 319 | ||||
Other information | ||||||
320 | ||||||
321 |
Additional information | ||||||
343 | Overview of Americas | |||||
351 | Overview of the Netherlands | |||||
357 | Overview of United Kingdom | |||||
362 | Overview of International | |||||
368 | Overview of Aegon Asset Management | |||||
370 | Risk factors Aegon N.V. | |||||
393 | Compliance with regulations | |||||
394 | ||||||
394 | ||||||
395 | ||||||
396 | ||||||
398 | ||||||
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404 | ||||||
Purchases of equity securities by the issuer and affiliated purchasers | ||||||
Other Non-financial information | ||||||
406 | Non-financial data | |||||
411 | ||||||
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◆ | ||||||
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415 | ||||||
421 | ||||||
423 | ||||||
426 | Glossary | |||||
432 | Abbreviations | |||||
433 | Disclaimer | |||||
435 | Contact | |||||
436 | Documents on display | |||||
437 | ||||||
Aegon Annual Report on Form 20-F 2020 |
Selected financial data 122 | ||
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 pages 148-312) of this Annual Report.
Selected consolidated income statement information
In EUR million (except per share amount) | 2020 | 20192) | 20182) | 20172) | 20162) | |||||||||||||||
Amounts based upon IFRS | ||||||||||||||||||||
Premium income | 16,099 | 18,138 | 19,316 | 22,826 | 23,453 | |||||||||||||||
Investment income | 7,149 | 7,531 | 7,035 | 7,338 | 7,788 | |||||||||||||||
Total revenues 1) | 25,657 | 28,197 | 28,914 | 32,973 | 33,655 | |||||||||||||||
Income/ (loss) before tax | (364) | 1,453 | 746 | 2,534 | 609 | |||||||||||||||
Net income/ (loss) | (135) | 1,236 | 707 | 2,469 | 438 | |||||||||||||||
Earnings per common share | ||||||||||||||||||||
Basic | (0.09) | 0.56 | 0.29 | 1.14 | 0.15 | |||||||||||||||
Diluted | (0.09) | 0.56 | 0.29 | 1.14 | 0.15 | |||||||||||||||
Earnings per common share B | ||||||||||||||||||||
Basic | (0.00) | 0.01 | 0.01 | 0.03 | - | |||||||||||||||
Diluted | (0.00) | 0.01 | 0.01 | 0.03 | - |
1 | Excluded from the income statements prepared in accordance with IFRS are receipts related to investment-type annuity products and investment contracts. |
2 | Amounts have been restated to reflect the voluntary change in accounting policies related to deferred cost of reinsurance (DCoR) adopted by Aegon effective January 1, 2020. Refer to note 2.1.2 Voluntary changes in accounting policies for details about this change. |
Selected consolidated balance sheet information
In million EUR | 2020 | 20191) | 20181) | 20171) | 20161) | |||||||||||||||
Amounts based upon IFRS | ||||||||||||||||||||
Total assets | 443,814 | 439,769 | 392,008 | 395,923 | 424,625 | |||||||||||||||
Insurance and investment contracts | 370,286 | 371,014 | 329,974 | 324,392 | 344,170 | |||||||||||||||
Borrowings including subordinated and trust pass-through securities | 10,735 | 11,650 | 13,583 | 14,532 | 14,076 | |||||||||||||||
Shareholders’ equity | 22,018 | 21,842 | 19,189 | 20,266 | 20,426 |
1 | Amounts have been restated to reflect the voluntary change in accounting policies related to deferred cost of reinsurance (DCoR) adopted by Aegon effective January 1, 2020. Refer to note 2.1.2 Voluntary changes in accounting policies for details about this change. |
Aegon Annual Report on Form 20-F 2020 |
Selected financial data123 | ||
Number of common shares
In thousands | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||
Balance at January 1 | 2,105,139 | 2,095,648 | 2,095,648 | 2,074,549 | 2,147,037 | |||||||||||||||
Share issuance | - | - | - | - | - | |||||||||||||||
Stock dividends | 2,466 | 9,491 | - | 21,099 | 10,629 | |||||||||||||||
Shares withdrawn | (9,491) | - | - | - | (83,117) | |||||||||||||||
Balance at end of period | 2,098,114 | 2,105,139 | 2,095,648 | 2,095,648 | 2,074,549 |
Number of common shares B
In thousands | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||
Balance at January 1 | 585,022 | 585,022 | 585,022 | 585,022 | 585,022 | |||||||||||||||
Shares withdrawn | (13,227) | - | - | - | - | |||||||||||||||
Balance at end of period | 571,795 | 585,022 | 585,022 | 585,022 | 585,022 |
Dividends
Aegon declared interim and final dividends on common shares for the years 2016 through 2020 in the amounts set forth in the following table. The 2020 interim dividend amounted to EUR 0.06 per common share and EUR 0.0015 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 18, 2020. At the General Meeting of Shareholders currently scheduled for June 3, 2021, the Executive Board will, in line with its earlier announcement and barring unforeseen circumstances, propose a final dividend of EUR 0.06 per common share (at each shareholders
option in cash or in stock), and EUR 0.0015 per common share B, which has financial rights attached to it of 1/40th of a common share. This will bring the total dividend for 2020 to EUR 0.12 per common share and EUR 0.003 per common share B. In case of a final dividend, this 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. 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’)) on the US-ex dividend day.
EUR per common share 1) | USD per common share 1) | |||||||||||||||||||||||
Year | Interim | Final | Total | Interim | Final | Total | ||||||||||||||||||
2016 | 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 | ||||||||||||||||||
2018 | 0.14 | 0.15 | 0.29 | 0.16 | 0.17 | 0.33 | ||||||||||||||||||
2019 | 0.15 | 0.00 2) | 0.15 | 0.17 | - | 0.17 | ||||||||||||||||||
2020 | 0.06 | 0.06 3) | 0.12 | 0.07 |
1 | Paid at each shareholders’ option in cash or in stock. |
2 | Aegon forewent the 2019 final dividend of EUR 0.16 to strengthen its balance sheet and improve its risk profile. |
3 | Proposed. |
Aegon Annual Report on Form 20-F 2020 |
Results of operations 124 | ||
This Annual Report on Form 20-F includes the non-IFRS financial measure underlying earnings before tax. The reconciliation of this measure to the most comparable IFRS measure is presented in note 5 ‘Segment information’ of the consolidated financial statements. This non-IFRS measure is calculated by consolidating on a proportionate basis the revenues and expenses of Aegon’s joint ventures in China, India, Japan, the Netherlands, Portugal and Spain and Aegon’s associates in Brazil, France, the Netherlands and United Kingdom.
The information on the following tables also includes the non-IFRS financial measure net underlying earnings. This is the after-tax equivalent of underlying earnings before tax. The reconciliation of net underlying earnings to the most comparable IFRS measure is presented in this section. Aegon believes that these non-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 the non-IFRS measures presented in this report. While many other insurers in Aegon’s peer group present substantially similar non-IFRS measures, the non-IFRS measures presented in this document may nevertheless differ from the non-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 the non-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.
For the discussion on our operating results for the year ended December 31, 2018, including certain comparative discussion on our operating results for the years ended December 31, 2018 and December 31, 2019, please refer to the section Results of operations on pages 122 to 142 in Aegon’s 2019 Annual Report on Form 20-F.
Aegon Annual Report on Form 20-F 2020 |
Results of operations – Worldwide 125 | ||
Underlying earnings geographically
Amounts in EUR millions | 2020 | 2019 | % | |||||||||
Net underlying earnings | 1,437 | 1,648 | (13) | |||||||||
Tax on underlying earnings | 293 | 321 | (9) | |||||||||
Underlying earnings before tax geographically | ||||||||||||
Americas | 820 | 1,125 | (27) | |||||||||
The Netherlands | 665 | 648 | 3 | |||||||||
United Kingdom | 144 | 139 | 3 | |||||||||
International | 156 | 144 | 8 | |||||||||
Asset Management | 182 | 139 | 31 | |||||||||
Holding and other activities | (237) | (228 | ) | (4) | ||||||||
Underlying earnings before tax | 1,729 | 1,969 | (12) | |||||||||
Fair value items | (750) | (601 | ) | (25) | ||||||||
Gains / (losses) on investments | 150 | 405 | (63) | |||||||||
Net impairments | (237) | (22 | ) | n.m. | ||||||||
Other income / (charges) | (1,239) | (281 | ) | n.m. | ||||||||
Run-off businesses | 29 | 23 | 27 | |||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | (317) | 1,493 | n.m. | |||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | 47 | 40 | 18 | |||||||||
Income tax | 181 | (257 | ) | n.m. | ||||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | (47) | (40 | ) | (18) | ||||||||
Net income | (135) | 1,236 | n.m. | |||||||||
Operating expenses | 3,852 | 3,929 | (2) |
New life sales
Amounts in EUR millions | 2020 | 2019 | % | |||||||||
Americas | 380 | 419 | (9) | |||||||||
The Netherlands | 92 | 136 | (33) | |||||||||
United Kingdom | 33 | 41 | (19) | |||||||||
International | 227 | 264 | (14) | |||||||||
Total recurring plus 1/10 single | 731 | 861 | (15) |
Amounts in EUR millions | 2020 | 2019 | % | |||||||||
New premium production accident and health insurance | 186 | 230 | (19) | |||||||||
New premium production property & casualty insurance | 126 | 129 | (2) |
Gross deposits (on and off balance)
Amounts in EUR millions | 2020 | 2019 | % | |||||||||
Americas | 37,820 | 40,406 | (6) | |||||||||
The Netherlands | 16,399 | 13,207 | 24 | |||||||||
United Kingdom | 8,599 | 9,749 | (12) | |||||||||
International | 320 | 358 | (11) | |||||||||
Asset Management | 135,375 | 80,939 | 67 | |||||||||
Total gross deposits | 198,513 | 144,660 | 37 |
Aegon Annual Report on Form 20-F 2020 |
Results of operations – Worldwide 126 | ||
Net deposits (on and off balance)
Amounts in EUR millions | 2020 | 2019 | % | |||||||||
Americas | (17,938) | (29,371 | ) | 39 | ||||||||
The Netherlands | 1,758 | 1,445 | 22 | |||||||||
United Kingdom | (3,587) | (3,487 | ) | (3) | ||||||||
International | 155 | 20 | n.m. | |||||||||
Asset Management | 5,912 | 6,841 | (14) | |||||||||
Total net deposits excluding run-off businesses | (13,700) | (24,551 | ) | 44 | ||||||||
Run-off businesses | (63) | (578 | ) | 89 | ||||||||
Total net deposits / (outflows) | (13,763) | (25,130 | ) | (45) |
Worldwide revenues geographically 2020
Amounts in EUR millions | Americas | The Netherlands | United Kingdom | International | Asset Management | Holding and other activities | Segment total | Associates and Joint Ventures eliminations | Consolidated | |||||||||||||||||||||||||||
Total life insurance gross premiums | 7,105 | 1,619 | 4,833 | 1,095 | - | 1 | 14,654 | (726 | ) | 13,929 | ||||||||||||||||||||||||||
Accident and health insurance premiums | 1,380 | 245 | 25 | 193 | - | - | 1,844 | (59 | ) | 1,784 | ||||||||||||||||||||||||||
Property & casualty insurance premiums | - | 130 | - | 388 | - | - | 519 | (132 | ) | 386 | ||||||||||||||||||||||||||
Total gross premiums | 8,485 | 1,994 | 4,858 | 1,677 | - | 1 | 17,016 | (917 | ) | 16,099 | ||||||||||||||||||||||||||
Investment income | 2,986 | 2,083 | 1,795 | 362 | 7 | (20 | ) | 7,212 | (63 | ) | 7,149 | |||||||||||||||||||||||||
Fee and commission income | 1,653 | 255 | 194 | 50 | 750 | (189 | ) | 2,713 | (308 | ) | 2,405 | |||||||||||||||||||||||||
Other revenue | 7 | - | - | 1 | 2 | 3 | 14 | (10 | ) | 4 | ||||||||||||||||||||||||||
Total revenues | 13,131 | 4,332 | 6,847 | 2,091 | 759 | (204 | ) | 26,955 | (1,298 | ) | 25,657 | |||||||||||||||||||||||||
Number of employees, including agent employees | 7,960 | 3,521 | 2,307 | 6,598 | 1,527 | 409 | 22,322 |
Worldwide revenues geographically 2019
Amounts in EUR millions | Americas | The Netherlands | United Kingdom | International | Asset Management | Holding and other activities | Segment total | Associates and Joint Ventures eliminations | Consolidated | |||||||||||||||||||||||||||
Total life insurance gross premiums | 7,279 | 1,765 | 6,282 | 1,289 | - | 3 | 16,617 | (691 | ) | 15,926 | ||||||||||||||||||||||||||
Accident and health insurance premiums | 1,416 | 228 | 28 | 201 | - | - | 1,872 | (50 | ) | 1,823 | ||||||||||||||||||||||||||
General insurance premiums | - | 130 | - | 382 | - | - | 512 | (122 | ) | 390 | ||||||||||||||||||||||||||
Total gross premiums | 8,694 | 2,123 | 6,309 | 1,872 | - | 3 | 19,002 | (864 | ) | 18,138 | ||||||||||||||||||||||||||
Investment income | 3,172 | 2,224 | 1,830 | 379 | 5 | (15 | ) | 7,595 | (64 | ) | 7,531 | |||||||||||||||||||||||||
Fee and commission income | 1,757 | 237 | 197 | 109 | 627 | (187 | ) | 2,740 | (218 | ) | 2,523 | |||||||||||||||||||||||||
Other revenue | 8 | - | - | 2 | 1 | 5 | 16 | (10 | ) | 6 | ||||||||||||||||||||||||||
Total revenues | 13,631 | 4,583 | 8,337 | 2,362 | 633 | (194 | ) | 29,352 | (1,155 | ) | 28,197 | |||||||||||||||||||||||||
Number of employees, including agent employees | 8,570 | 3,582 | 2,261 | 7,393 | 1,535 | 416 | 23,757 |
Aegon Annual Report on Form 20-F 2020 |
Results of operations – Worldwide 127 | ||
Results 2020 worldwide
Aegon’s net result decreased compared with 2019 to a loss of EUR 135 million in 2020. Underlying earnings before tax decreased by 12% compared with 2019 to EUR 1,729 million in 2020, as a result of the impact of lower interest rates and adverse mortality experience in the Americas, which was partly attributable to COVID-19 as a cause of death. These impacts were partly offset by higher earnings from the other units, supported by expense savings. Furthermore, other charges increased compared with 2019 driven by assumption changes in the Americas. In addition, net impairments increased and the loss from fair value items increased compared with 2019, reflecting the adverse economic impact from the COVID-19 pandemic.
Net income
Net income amounted to a loss of EUR 135 million in 2020. Underlying earnings before tax together with gains on investments and the result from run-off businesses were more than offset by fair value losses, net impairments and other charges, resulting in a loss before tax of EUR 317 million. Income tax was a benefit of EUR 181 million, and mainly reflects the tax benefit on the net loss in the Americas.
Underlying earnings before tax
Aegon’s underlying earnings before tax decreased by 12% compared with 2019 to EUR 1,729 million in 2020. This was mainly driven by the Americas as a result of the impact of lower interest rates and adverse mortality experience in the Life business. This was partly offset by higher earnings from the other units, supported by expense savings.
◆ | Underlying earnings before tax in the Americas decreased by 27% compared with 2019 to EUR 820 million in 2020. This was mainly caused by the impact of lower interest rates, and adverse mortality experience in the Life business, which was partly attributable to COVID-19 as a cause of death. Favorable morbidity experience as a result of COVID-19, mostly related to the closed block of Long-Term Care insurance, as well as higher investment income and higher fees as a result of favorable equity market performance in Variable Annuities, were offset by the impact of lower interest rates and lower account balances in Fixed Annuities and the impact of outflows and contract discontinuances in Retirement Plans. |
◆ | Underlying earnings before tax from the Netherlands increased by 3% compared with 2019 to EUR 665 million in 2020, as expense savings across all segments and higher earnings in the Banking and the Service business more than offset lower non-life earnings. Lower operating expenses were driven by the impact of moving from a defined benefit plan to a defined contribution plan for the future pension accrual of Aegon’s own employees. |
◆ | In the United Kingdom, underlying earnings before tax improved by 3% compared with 2019 to EUR 144 million in 2020. This was driven by higher underlying earnings before tax from the Digital Solutions business as a result of lower expenses and higher fee income from continued growth in platform assets, reflecting growth in the Workplace channel. |
◆ | Underlying earnings before tax from Asset Management increased by 31% compared with 2019 to EUR 182 million in 2020. This increase was mainly driven by the performance of Aegon’s Chinese asset management joint venture, Aegon Industrial Fund Management Company (AIFMC). This more than offset lower underlying earnings before tax in Aegon’s Global Platforms in 2020 compared with 2019. |
◆ | Total Holdings costs amounted to EUR 237 million in 2020 compared with EUR 228 million in 2019. This is mainly due to the refinancing of debt. Aegon redeemed perpetual securities, for which the interest expense used to be recorded directly through equity, and issued dated (Tier 2) instruments, for which the interest expense is recorded through the profit & loss statement. This led to an unfavorable impact on underlying earnings before tax, even though the refinancing resulted in lower coupons. |
Fair value items
The loss from fair value items amounted to EUR 750 million in 2020. Fair value losses in the Americas were the main driver. These losses resulted from the macro hedge program net of reserve movements as a result of equity markets movements over the year, and from losses on unhedged risks and unhedged volatility in the Life business.
Realized gains on investments
Realized gains on investments amounted to EUR 150 million in 2020, driven by the Americas and Aegon International. These gains reflect normal trading activity and portfolio adjustments to lengthen the duration of the investment portfolio in Aegon International.
Aegon Annual Report on Form 20-F 2020 |
Results of operations – Worldwide 128 | ||
Impairment charges
Net impairments of EUR 237 million in 2020 were primarily caused by impairments on bonds in the Americas - mainly in the energy and communications sectors - and on the unsecured loan portfolio in the Netherlands.
Other charges
Other charges amounted to EUR 1,239 million in 2020, driven by the Americas. The Americas recorded other charges of EUR 1,110 million in 2020 mainly due to unfavorable impacts from model and assumption changes. Assumption changes resulted from a more conservative view on certain economic and non-economic parameters in actuarial models. In addition, the Americas incurred other charges due to a valuation allowance related to the ongoing rehabilitation process of a reinsurer, the restructuring of captives, and a provision for a settlement of class action litigation related to monthly deduction rate adjustments on certain universal life policies. For the Holdings, other charges amounted to EUR 130 million and resulted primarily from IFRS 9 / 17 implementation expenses. Assumption updates in the Netherlands resulted in other income, which offset restructuring charges in the various units as well as expenses to ensure compliance with anti-money laundering regulation and a provision related to the resolution of pending litigation, both in the Netherlands.
Run-off businesses
The results of run-off businesses increased compared with 2019 to a gain of EUR 29 million in 2020, which included a one-time benefit.
Income tax
Income tax was a benefit of EUR 92 million, mainly as a result of the tax benefit on the net loss in the United States. Furthermore, the tax benefit reflects regular tax exempt income items and the use of tax credits.
Operating expenses
Operating expenses decreased by 2% compared with 2019 to EUR 3.9 billion in 2020. This decrease primarily reflects a reduction in expenses resulting from the performance improvement plan and lower pension costs in the Netherlands. Furthermore, expenses benefited from lower travel, marketing, and sales activities due to the impact of the COVID-19 pandemic. These were partly offset by higher IFRS 9 / 17 implementation expenses and increased restructuring expenses compared with 2019.
Production
Gross deposits were up by 37% compared with 2019 to EUR 199 billion in 2020, mainly driven by higher deposits in Aegon’s Chinese joint venture AIFMC. In addition, Aegon witnessed continued momentum in the Netherlands at online bank Knab and Aegon Cappital, the company’s Premium Pension Institute selling new style defined contribution pension products. Net outflows during 2020 amounted to EUR 13.8 billion and were primarily due to outflows in the Americas in the Retirement Plan business following contract discontinuances and higher participant withdrawals. Furthermore, the United Kingdom showed net outflows driven by the institutional platform. This was partly offset by net inflows in the Netherlands from its online bank and defined contribution business, and continued net inflows in Asset Management, primarily driven by the strategic partnership AIFMC. New life sales declined by 15% compared with 2019 to EUR 731 million in 2020. In the Americas, this was mainly driven by lower Whole Life sales compared with 2019, as a result of the decision to make product changes and sunset certain legacy products. In the Netherlands, this was caused by lower individual life single premium production compared with 2019 as Aegon exited that market in March 2020, and lower recurring premium pension sales compared with 2019 due to the low interest rate environment. In Aegon International, new life sales decreased compared with 2019 due to the continuing challenging market circumstances and the COVID-19 lockdown. New premium production for Accident & Health and property & casualty insurance decreased by 13% compared with 2019 to EUR 312 million in 2020, as 2019 included a single large disability contract in the United States. The remaining decline results largely from the decision to exit the individual Medicare supplement market in the United States.
Capital management
During 2020, shareholders’ equity increased by EUR 0.2 billion to EUR 22.0 billion, as lower interest rates and their impact on the revaluation reserve more than offset the adverse impact of currency movements. Aegon’s shareholders’ equity, excluding revaluation reserves, non-controlling interests and share options not yet exercised amounted to EUR 14.7 billion on December 31, 2020, or EUR 7.06 per common share.
Gross financial leverage based on IFRS as adopted by the EU improved to EUR 6.0 billion on December 31, 2020, compared with EUR 6.7 billion at the end of 2019, which was mostly the result of the repayment of USD 500 million senior debt in December 2020. Cash capital at the holding declined from EUR 1.2 billion at the end of 2019 to EUR 1.1 billion at the end of 2020. Free Cash Flows amounted to EUR 530 million for 2020. These Free Cash Flows were used to reduce leverage and pay dividends to Aegon’s shareholders. Capital injections of EUR 201 million mainly related to the expansion of Aegon’s life and non-life insurance partnership with Banco Santander following its acquisition of Banco Popular, and more than offset EUR 153 million proceeds from the sale of Aegon’s stake in joint ventures in Japan.
Aegon Annual Report on Form 20-F 2020 |
Results of operations – Worldwide 129 | ||
On December 31, 2020, Aegon’s estimated Solvency II ratio amounted to 196%, down from 201% at the end of 2019. This decrease was driven by adverse market movements triggered by the COVID-19 pandemic and the inclusion of Aegon Bank in the calculation of the Group Solvency II ratio in accordance with industry-wide guidelines from the Dutch Central Bank. The estimated RBC ratio in the United States decreased to 432% on December 31, 2020, from 470% on December 31, 2019. This resulted from the adverse impact from market movements, in particular lower interest rates, and dividend payments to the US intermediate holding company. These more than offset the benefit from management actions, including the sale of the Transamerica Pyramid. The estimated Solvency II ratio of the Dutch Life business at the end of 2020
amounted to 159%, down from 164% at the end of 2019. The decline reflects Aegon’s decision to lower the factor applied when calculating the loss-absorbing capacity of deferred taxes (LAC-DT) from 65% to 45%, increased investments in corporate credits and volatility in the separate account business. The estimated Solvency II ratio for Scottish Equitable PLC amounted to 156% at the end of 2020, up from 148% at the end of 2019. The increase was primarily driven by the update of the expense assumptions in the second half of 2020, reflecting the benefit of cost reduction initiatives. This more than offset adverse market variances, driven mostly by lower interest rates. The capital ratios as disclosed in this section represent Aegon’s estimates, are not final until filed with the regulator, and are subject to supervisory review.
Aegon Annual Report on Form 20-F 2020 |
Results of operations – Americas130 | ||
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
2020 | 2019 | % | 2020 | 2019 | % | |||||||||||||||||||
Net underlying earnings | 845 | 1,084 | (22) | 740 | 968 | (24) | ||||||||||||||||||
Tax on underlying earnings | 91 | 176 | (48) | 79 | 157 | (49) | ||||||||||||||||||
Underlying earnings before tax by business | ||||||||||||||||||||||||
Life | (139) | 187 | n.m. | (122) | 167 | n.m. | ||||||||||||||||||
Accident & Health | 360 | 241 | 50 | 316 | 215 | 47 | ||||||||||||||||||
Retirement Plans | 95 | 160 | (41) | 83 | 143 | (42) | ||||||||||||||||||
Mutual Funds | 30 | 37 | (21) | 26 | 33 | (23) | ||||||||||||||||||
Variable Annuities | 448 | 423 | 6 | 392 | 378 | 4 | ||||||||||||||||||
Fixed Annuities | 51 | 110 | (54) | 45 | 99 | (55) | ||||||||||||||||||
Stable Value Solutions | 80 | 85 | (6) | 70 | 76 | (8) | ||||||||||||||||||
Latin America | 11 | 15 | (28) | 10 | 14 | (29) | ||||||||||||||||||
Underlying earnings before tax | 936 | 1,260 | (26) | 820 | 1,125 | (27) | ||||||||||||||||||
Fair value items | (576) | 304 | n.m. | (505) | 272 | n.m. | ||||||||||||||||||
Gains / (losses) on investments | 106 | 140 | (24) | 93 | 125 | (26) | ||||||||||||||||||
Net impairments | (166) | 16 | n.m. | (146) | 14 | n.m. | ||||||||||||||||||
Other income / (charges) | (1,267) | (174 | ) | n.m. | (1,110) | (156 | ) | n.m. | ||||||||||||||||
Run-off businesses | 33 | 26 | 29 | 29 | 23 | 27 | ||||||||||||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | (935) | 1,571 | n.m. | (819) | 1,403 | n.m. | ||||||||||||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | 5 | 6 | (6) | 5 | 5 | (8) | ||||||||||||||||||
Income tax | 324 | (246 | ) | n.m. | 284 | (220 | ) | n.m. | ||||||||||||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | (5) | (6 | ) | 6 | (5) | (5 | ) | 8 | ||||||||||||||||
Net income | (611) | 1,324 | n.m. | (535) | 1,183 | n.m. | ||||||||||||||||||
Life insurance gross premiums | 8,111 | 8,150 | - | 7,105 | 7,279 | (2) | ||||||||||||||||||
Accident and health insurance premiums | 1,575 | 1,585 | (1) | 1,380 | 1,416 | (3) | ||||||||||||||||||
Total gross premiums | 9,686 | 9,735 | - | 8,485 | 8,694 | (2) | ||||||||||||||||||
Investment income | 3,408 | 3,552 | (4) | 2,986 | 3,172 | (6) | ||||||||||||||||||
Fee and commission income | 1,887 | 1,968 | (4) | 1,653 | 1,757 | (6) | ||||||||||||||||||
Other revenues | 8 | 8 | - | 7 | 8 | (2) | ||||||||||||||||||
Total revenues | 14,990 | 15,263 | (2) | 13,131 | 13,631 | (4) | ||||||||||||||||||
Operating expenses | 1,784 | 1,756 | 2 | 1,562 | 1,569 | (0) |
New life sales
Amounts in USD millions | �� | Amounts in EUR millions | ||||||||||||||||||||||
2020 | 2019 | % | 2020 | 2019 | % | |||||||||||||||||||
Life | 358 | 396 | (10) | 314 | 354 | (11) | ||||||||||||||||||
Latin America | 75 | 73 | 2 | 66 | 66 | - | ||||||||||||||||||
Total recurring plus 1/10 single | 433 | 469 | (8) | 380 | 419 | (9) |
Aegon Annual Report on Form 20-F 2020 |
Results of operations – Americas 131 | ||
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
2020 | 2019 | % | 2020 | 2019 | % | |||||||||||||||||||
New premium production accident and health insurance | 154 | 194 | (21) | 135 | 174 | (22) |
Gross deposits (on and off balance)
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
2020 | 2019 | % | 2020 | 2019 | % | |||||||||||||||||||
Life | 7 | 6 | 1 | 6 | 6 | (1) | ||||||||||||||||||
Retirement Plans | 30,622 | 34,320 | (11) | 26,823 | 30,651 | (12) | ||||||||||||||||||
Mutual Funds | 8,839 | 6,137 | 44 | 7,742 | 5,481 | 41 | ||||||||||||||||||
Variable Annuities | 2,681 | 3,711 | (28) | 2,348 | 3,315 | (29) | ||||||||||||||||||
Fixed Annuities | 848 | 704 | 20 | 743 | 628 | 18 | ||||||||||||||||||
Latin America | 180 | 364 | (51) | 157 | 325 | (52) | ||||||||||||||||||
Total gross deposits | 43,175 | 45,242 | (5) | 37,820 | 40,406 | (6) |
Net deposits (on and off balance)
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
2020 | 2019 | % | 2020 | 2019 | % | |||||||||||||||||||
Life | (73) | (56 | ) | (30) | (64) | (50 | ) | (27) | ||||||||||||||||
Retirement Plans | (17,387) | (28,816 | ) | 40 | (15,230) | (25,736 | ) | 41 | ||||||||||||||||
Mutual Funds | 1,064 | (317 | ) | n.m. | 932 | (283 | ) | n.m. | ||||||||||||||||
Variable Annuities | (3,454) | (2,822 | ) | (22) | (3,026) | (2,521 | ) | (20) | ||||||||||||||||
Fixed Annuities | (649) | (1,042 | ) | 38 | (569) | (931 | ) | 39 | ||||||||||||||||
Latin America | 21 | 167 | (87) | 18 | 149 | (88) | ||||||||||||||||||
Total net deposits excluding run-off businesses | (20,478) | (32,886 | ) | 38 | (17,938) | (29,371 | ) | 39 | ||||||||||||||||
Run-off businesses | (72) | (647 | ) | (89) | (63) | (578 | ) | (89) | ||||||||||||||||
Total net deposits / (outflows) | (20,550) | (33,534 | ) | 39 | (18,001) | (29,949 | ) | 40 |
Exchange rates
Weighted average rate | Closing rate as of | |||||||||||||||
Per 1 EUR | 2020 | 2019 | December 31, 2020 | December 31, 2019 | ||||||||||||
USD | 1.1416 | 1.1197 | 1.2236 | 1.1225 |
Aegon Annual Report on Form 20-F 2020 |
Results of operations – Americas 132 | ||
Results 2020 Americas
Aegon’s businesses in the Americas reported a net loss of USD 611 million in 2020. Underlying earnings before tax decreased by 26% compared with 2019 to USD 936 million in 2020 mainly caused by the impact of lower interest rates, adverse mortality experience in the Life business, which was in part attributable to COVID-19, and lower fee income from outflows in Retirement Plans. Gross deposits decreased to USD 43.2 billion in 2020 compared with USD 45.2 billion in 2019, as higher gross deposits in Mutual Funds were more than offset by lower gross deposits in Retirement Plans and Variable Annuities. New life sales declined by 8% to USD 433 million in 2020 compared with USD 469 million in 2019 due to lower Whole Life sales, which more than offset increased term life and Indexed Universal Life sales. New premium production for Accident & Health insurance was down 21% compared with 2019 to USD 154 million in 2020, reflecting the strategic decision to exit the individual Medicare supplement market and the sale of a single large disability contract in 2019.
Net income
Aegon’s businesses in the Americas reported a net loss of USD 611 million in 2020 compared with a net income of USD 1.3 billion in 2019. The decline in net result was largely driven by lower underlying earnings, one-time impacts from assumptions changes, net impairments, and COVID-19 pandemic related market impacts on fair value items. Underlying earnings before tax in 2020 of USD 936 million decreased by 26% compared with 2019. Results on fair value items amounted to a loss of USD 576 million in 2020, which was primarily related to the following items:
◆ | Hedges without an accounting match under IFRS resulted in a loss of USD 468 million. This was driven by the macro hedge program net of reserve movements as a result of equity markets movements over the year, and losses on unhedged risks and unhedged volatility in Indexed Universal Life. |
◆ | Fair value investments amounted to a loss of USD 156 million, mainly driven by a USD 71 million mark-to-market loss from valuation updates related to the Pyramid building complex in San Francisco, and underperformance of credit derivatives due to credit spread widening, partly offset by alternative investments in limited partnerships with energy exposure outperforming long-term expected return. |
◆ | The result on fair value hedges with an accounting match amounted to a gain of USD 47 million caused by gains on unhedged risks. |
Realized gains on investments were USD 106 million resulting from normal trading activity in a low interest rates environment. Net impairments amounted to a loss of USD 166 million, reflecting corporate bond impairments mainly in the energy and
communications sectors, partly offset by recoveries on residential mortgage backed securities. Income before tax from run-off businesses in 2020 was a profit of USD 33 million, which included a one-time benefit. Other charges of USD 1.3 billion in 2020 were composed of a charge related to assumption changes of USD 919 million, a valuation allowance of USD 143 million related to the ongoing rehabilitation process of a reinsurer, USD 128 million one-time charges for the restructuring of captives, a USD 64 million provision for a settlement of class action litigation related to monthly deduction rate adjustments on certain universal life policies, and by other restructuring and transformation charges. This was partly offset by a one-time gain of USD 81 million related to the closure of a separate account stable value product that had been shrinking steadily due to the availability of more attractive proprietary product offerings with higher margins in the Retirement Plan business. The charge related to assumption changes were made following the annual assumption review, leading to changes in certain economic and non-economic parameters in actuarial models. Firstly, from a prudent lowering of the long-term interest rate assumption from 4.25% to 2.75% while maintaining the 10-year grading period, this included the related separate account bond return assumption adjustment. Secondly, assumptions in the Life business were reviewed, primarily related to Universal Life premium persistency and mortality rates. Thirdly, assumptions for the Long-Term Care book were set more conservatively, including halving of the morbidity improvement assumption. Finally, also mortality and policyholder behavior assumptions in the Variable and Fixed Annuity business were adjusted.
Aegon Annual Report on Form 20-F 2020 |
Results of operations – Americas 133 | ||
Underlying earnings before tax
Underlying earnings before tax in 2020 decreased by 26% compared with 2019 to USD 936 million mainly caused by the impact of lower interest rates, adverse mortality experience in the Life business, and lower fee income from outflows and contract discontinuances in Retirement Plans.
◆ | Underlying earnings before tax from Life resulted in a loss of USD 139 million in 2020 compared with a profit of USD 187 million in 2019. Life earnings were impacted by adverse mortality experience of USD 261 million, which was driven by larger claims at older ages in Universal Life products and elevated claims in traditional and Term Life products. USD 121 million of these claims can specifically be attributed to COVID-19 as a direct cause of death, and part of the remaining adverse mortality experience is likely attributable to the pandemic as well. Adverse persistency in 2020 was USD 45 million, mainly from Term Life policies. Lower interest rates and changes in the asset portfolio drove unfavorable intangible adjustments of USD 145 million. Furthermore, low interest rates led to a reduction in investment income partly compensated by higher investment volumes. |
◆ | Accident & Health underlying earnings before tax increased by 50% to USD 360 million in 2020 compared with USD 241 million in 2019, mainly due to favorable morbidity experience of USD 167 million, mostly related to the closed block of Long-Term Care insurance and impacts to it of the COVID-19 pandemic. |
◆ | Retirement Plans underlying earnings before tax were down 41% to USD 95 million in 2020 compared with USD 160 million in 2019. This resulted mainly from lower fees from outflows, partly compensated by stronger equity market performance in 2020 compared to 2019. |
◆ | Underlying earnings before tax from Mutual Funds declined from USD 37 million in 2019 to USD 30 million in 2020. This was caused by higher commissions payments from increased sales, and non-recurrence of one-time income item in 2019. |
◆ | Underlying earnings before tax from Variable Annuities increased by 6% to USD 448 million in 2020 compared with USD 423 million in 2019, driven by higher investment income on reserves, and higher fees as a result of favorable equity market performance, partly offset by net outflows. |
◆ | Fixed Annuity underlying earnings before tax decreased by 54% compared with 2019 to USD 51 million in 2020, mainly due to the impact of lower interest rates and lower account balances. |
◆ | Underlying earnings before tax from Stable Value Solutions amounted to USD 80 million in 2020 compared with USD 85 million in 2019 caused by margin pressure in a competitive market. |
◆ | Latin America reported lower underlying earnings before tax with USD 11 million in 2020 compared to USD 15 million in 2019, reflecting currency exchange rate changes and impacts of the COVID-19 pandemic, partially compensated by an increase in premiums and sales in Brazil. |
Operating expenses
Operating expenses increased by 2% compared with 2019 to USD 1.8 billion in 2020 reflecting investments in customer service, increased spend for technology, an increase in restructuring charges, and contractually pre-agreed increases in administration expense associated with the operations administration partnerships. This was partly offset by expense savings initiatives and lower expenses for travel, marketing, and sales activities due to COVID-19 related restrictions and cancellations.
Production
Gross deposits decreased to USD 43.2 billion in 2020 compared with USD 45.2 billion in 2019, as higher gross deposits in Mutual funds and Fixed Annuities were more than offset by lower gross deposits in Retirement Plans, Variable Annuities, and from Latin America. Net outflows amounted to USD 20.5 billion in 2020, mainly caused by Retirement Plans due to a number of large contract discontinuances and participant withdrawals. Variable Annuities and Fixed Annuities saw outflows as these books mature.
New life sales declined by 8% to USD 433 million in 2020 compared with USD 469 million in 2019. Term Life pricing actions taken in late 2019 helped to improve sales, but were more than offset by lower Whole Life sales as a result of the decision to make product changes and sunset certain legacy products. Indexed Universal Life sales increased benefitting from changes in non-medical underwriting guidelines and increased sales at World Financial Group. New premium production for Accident & Health insurance was down 21% compared with 2019 to USD 154 million in 2020, reflecting the strategic decision to exit the individual Medicare supplement market and the sale of a single large disability contract in 2019.
Aegon Annual Report on Form 20-F 2020 |
Results of operations – The Netherlands 134 | ||
Amounts in EUR millions | 2020 | 2019 | % | |||||||||
Net underlying earnings | 495 | 494 | - | |||||||||
Tax on underlying earnings | 170 | 154 | 10 | |||||||||
Underlying earnings before tax by business | ||||||||||||
Life | 466 | 497 | (6) | |||||||||
Non-life | 13 | 31 | (59) | |||||||||
Service business | 74 | 18 | n.m. | |||||||||
Banking | 113 | 102 | 10 | |||||||||
Underlying earnings before tax | 665 | 648 | 3 | |||||||||
Fair value items | (230 | ) | (741 | ) | 69 | |||||||
Gains / (losses) on investments | 14 | 240 | (94) | |||||||||
Net impairments | (49 | ) | (26 | ) | (90) | |||||||
Other income / (charges) | 78 | (1 | ) | n.m. | ||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | 478 | 121 | n.m. | |||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | - | - | n.m. | |||||||||
Income tax | (107 | ) | (27 | ) | n.m. | |||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | - | - | n.m. | |||||||||
Net income | 371 | 94 | n.m. | |||||||||
Life insurance gross premiums | 1,619 | 1,765 | (8) | |||||||||
Accident and health insurance premiums | 245 | 228 | 8 | |||||||||
Property & casualty insurance | 130 | 130 | - | |||||||||
Total gross premiums | 1,994 | 2,123 | (6) | |||||||||
Investment income | 2,083 | 2,224 | (6) | |||||||||
Fee and commission income | 255 | 237 | 8 | |||||||||
Other revenues | - | - | n.m. | |||||||||
Total revenues | 4,332 | 4,583 | (5) | |||||||||
Operating expenses | 763 | 809 | (6) |
New Life Sales
Amounts in EUR millions | 2020 | 2019 | % | |||||||||
Life | 92 | 136 | (33) | |||||||||
Total recurring plus 1/10 single | 92 | 136 | (33) |
Amounts in EUR millions | 2020 | 2019 | % | |||||||||
New premium production accident and health insurance | 16 | 16 | 5 | |||||||||
New premium production property & casualty insurance | 15 | 12 | 22 |
Aegon Annual Report on Form 20-F 2020 |
Results of operations – The Netherlands 135 | ||
Gross deposits (on and off balance)
Amounts in EUR millions | 2020 | 2019 | % | |||||||||
Service business | 946 | 713 | 33 | |||||||||
Banking | 15,453 | 12,494 | 24 | |||||||||
Total gross deposits | 16,399 | 13,207 | 24 |
Net deposits (on and off balance)
Amounts in EUR millions | 2020 | 2019 | % | |||||||||
Service business | 798 | 586 | 36 | |||||||||
Banking | 960 | 860 | 12 | |||||||||
Total net deposits | 1,758 | 1,445 | 22 |
Aegon Annual Report on Form 20-F 2020 |
Results of operations – The Netherlands 136 | ||
Results 2020 The Netherlands
Net income increased by EUR 277 million compared with 2019 to EUR 371 million in 2020. This was primarily driven by fair value losses in 2019 due to an increase in the Liability Adequacy Test (LAT) deficit driven by credit spread movements that did not reoccur in 2020. Underlying earnings before tax increased by 3% compared with 2019 to EUR 665 million in 2020 as expense savings across all segments and higher earnings in the Banking and the Service businesses more than offset underwriting results in the Life and Non-Life businesses.
Net income
Net income amounted to EUR 371 million in 2020, driven primarily by underlying earnings before tax of EUR 665 million. The result from fair value items was a loss of EUR 230 million in 2020 whereas in 2019 a loss of EUR 741 million was recorded, primarily as the result from an increase in the LAT deficit. The 2020 fair value items included a EUR 670 million gain on hedges. This was mainly driven by gains on derivatives as a result of lower interest rates. The gains on these derivatives were a partial offset against the negative impact of lower interest rates on the LAT deficit, for which in total fair value losses of EUR 1.1 billion were recorded in 2020. Fair value items in 2020 furthermore included a gain on investments of EUR 86 million and a gain on the guarantee provision of EUR 144 million, mainly due to an increase of the own credit spread used to discount liabilities. Net impairment charges amounted to EUR 49 million and mainly related to the Bank’s unsecured loan portfolio and the impairment of an associate company of Aegon. Other income in 2020 amounted to EUR 78 million, and was driven by a positive impact from assumption updates. This was partly offset by restructuring charges for various initiatives to make the organization more efficient and effective as well as expenses to ensure compliance with anti-money laundering regulation, and a provision related to the resolution of pending litigation. Income tax in 2020 amounted to a charge of EUR 107 million, while income before tax was EUR 478 million in 2020, resulting in an effective tax rate on income before tax of 22.4%. The effective tax rate reflects the fact that the Dutch nominal tax rate will remain at 25% as from 2021, resulting in a reversal of earlier impacts from the previously anticipated lowering of the tax rate to 21.7%.
Underlying earnings before tax
Underlying earnings before tax from Aegon’s operations in the Netherlands increased by 3% compared with 2019 to EUR 665 million compared with the first half of 2019.
◆ | Life earnings declined by 6% compared with 2019 to EUR 466 million in 2020, largely due to higher reinsurance costs following the longevity reinsurance transaction in December 2019 as well as the negative impact from a change in the treatment of longevity and mortality results in underlying results. These drivers were partly offset by lower operating expenses, driven by the impact of moving from a defined benefit plan to a defined contribution plan for the future pension accrual of Aegon’s own employees, and by higher investment margins, partly as a result of increasing the allocation to corporate credit within the investment portfolio. |
◆ | Earnings from Non-life decreased by 59% compared with 2019 to EUR 13 million in 2020. One-time effects were the main driver. In 2020, an additional provision of EUR 14 million was set up for disability insurance, while 2019 contained a favorable one-time reserve release of EUR 12 million. These one-time effects more than offset the favorable impact from better claims experience for sick leave and lower pension costs. |
◆ | Banking earnings rose by 10% compared with 2019 to EUR 113 million in 2020, driven by higher fee income and lower operating expenses due to lower pension costs. |
◆ | Earnings from the Service business increased to EUR 74 million in 2020 from EUR 18 million in 2019, driven by lower operating expenses, due to expense savings and lower pension costs, as well as higher fee income, reflecting portfolio growth. |
Aegon Annual Report on Form 20-F 2020 |
Results of operations – The Netherlands 137 | ||
Operating expenses
Operating expenses in 2020 decreased by 6% to EUR 763 million compared with 2019, mainly as a result of lower pension costs as employees began accruing pension benefits in a defined contribution plan instead of the now closed defined benefit plan. This was partly offset by higher restructuring expenses.
Production
Gross deposits increased by 24% compared with 2019 to EUR 16.4 billion in 2020, driven by continued momentum at online bank Knab and Aegon Cappital, the company’s Premium Pension Institute selling new style defined contribution pension products. Net deposits increased by 22% compared with 2019 to EUR 1.8 billion in 2020, reflecting increases at both online bank Knab and Aegon Cappital. Compared with 2019, new life
sales decreased by 33% to EUR 92 million in 2020, caused by lower individual life single premium production as Aegon exited that market in March 2020, and lower recurring premium pension sales due to the low interest rate environment. Furthermore, sales in 2019 were elevated arising from a pension buy-out, as well as higher sales from a purchase of additional yearly pension increases by an existing customer. New premium production for accident and health insurance was up by 5% compared with 2019 to EUR 16 million in 2020, resulting from increased disability sales. New premium production for property & casualty insurance increased by 22% compared with 2019 to EUR 15 million in 2020. This was driven by better commercial momentum in all product lines except for travel insurance, where COVID-19 had a negative impact.
Aegon Annual Report on Form 20-F 2020 |
Results of operations – United Kingdom 138 | ||
Amounts in GBP millions | Amounts in EUR millions | |||||||||||||||||||||||
2020 | 2019 | % | 2020 | 2019 | % | |||||||||||||||||||
Net underlying earnings | 126 | 141 | (11) | 142 | 161 | (12) | ||||||||||||||||||
Tax on underlying earnings | 2 | (19 | ) | n.m. | 2 | (21 | ) | n.m. | ||||||||||||||||
Underlying earnings before tax by business | ||||||||||||||||||||||||
Digital Solutions | 45 | 36 | 25 | 51 | 41 | 23 | ||||||||||||||||||
Existing Business | 82 | 86 | (4) | 93 | 98 | (5) | ||||||||||||||||||
Underlying earnings before tax | 128 | 122 | 5 | 144 | 139 | 3 | ||||||||||||||||||
Fair value items | (2 | ) | (115 | ) | 99 | (2 | ) | (131 | ) | 99 | ||||||||||||||
Gains / (losses) on investments | - | 3 | (85) | - | 3 | (85) | ||||||||||||||||||
Other income / (charges) | (61 | ) | (33 | ) | (83) | (68 | ) | (38 | ) | (80) | ||||||||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | 66 | (23 | ) | n.m. | 74 | (27 | ) | n.m. | ||||||||||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | - | - | n.m. | - | - | n.m. | ||||||||||||||||||
Income tax | (6 | ) | (6 | ) | (5) | (7 | ) | (7 | ) | (3) | ||||||||||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | - | - | n.m. | - | - | n.m. | ||||||||||||||||||
Net income | 60 | (29 | ) | n.m. | 67 | (34 | ) | n.m. | ||||||||||||||||
Life insurance gross premiums | 4,298 | 5,509 | (22) | 4,833 | 6,282 | (23) | ||||||||||||||||||
Accident and health insurance premiums | 23 | 24 | (8) | 25 | 28 | (9) | ||||||||||||||||||
Total gross premiums | 4,320 | 5,533 | (22) | 4,858 | 6,309 | (23) | ||||||||||||||||||
Investment income | 1,596 | 1,605 | (1) | 1,795 | 1,830 | (2) | ||||||||||||||||||
Fee and commission income | 172 | 173 | - | 194 | 197 | (2) | ||||||||||||||||||
Total revenues | 6,089 | 7,311 | (17) | 6,847 | 8,337 | (18) | ||||||||||||||||||
Operating expenses | 406 | 466 | (13) | 456 | 531 | (14) |
New life sales
Amounts in GBP millions | Amounts in EUR millions | |||||||||||||||||||||||
2020 | 2019 | % | 2020 | 2019 | % | |||||||||||||||||||
Digital Solutions | 30 | 36 | (18 | ) | 33 | 41 | (19) | |||||||||||||||||
Total recurring plus 1/10 single | 30 | 36 | (18 | ) | 33 | 41 | (19) |
Gross deposits (on and off balance)
Amounts in GBP millions | Amounts in EUR millions | |||||||||||||||||||||||
2020 | 2019 | % | 2020 | 2019 | % | |||||||||||||||||||
Digital Solutions | 6,003 | 6,661 | (10 | ) | 6,751 | 7,595 | (11) | |||||||||||||||||
Existing Business | 1,643 | 1,889 | (13 | ) | 1,848 | 2,154 | (14) | |||||||||||||||||
Total gross deposits | 7,646 | 8,550 | (11) | 8,599 | 9,749 | (12) |
Aegon Annual Report on Form 20-F 2020 |
Results of operations – United Kingdom 139 | ||
Net deposits (on and off balance)
Amounts in GBP millions | Amounts in EUR millions | |||||||||||||||||||||||
2020 | 2019 | % | 2020 | 2019 | % | |||||||||||||||||||
Digital Solutions | (2,539 | ) | (2,041 | ) | (24) | (2,855 | ) | (2,328 | ) | (23) | ||||||||||||||
Existing Business | (651 | ) | (1,017 | ) | 36 | (732 | ) | (1,160 | ) | 37 | ||||||||||||||
Total net deposits | (3,190 | ) | (3,058 | ) | (4) | (3,587 | ) | (3,487 | ) | (3) |
Exchange rates
Weighted average rate | Closing rate as of | |||||||||||||||
Per 1 EUR | 2020 | 2019 | December 31, 2020 | December 31, 2019 | ||||||||||||
Pound Sterling | 0.8892 | 0.8770 | 0.8951 | 0.8473 |
Aegon Annual Report on Form 20-F 2020 |
Results of operations – United Kingdom 140 | ||
Results 2020 United Kingdom
Net income in 2020 amounted to GBP 60 million, which is an increase compared to the net loss of EUR 29 million in 2019. The improvement is driven by the non-recurrence of fair value losses on hedges that impacted the 2019 results. Underlying earnings before tax in 2020 amounted to GBP 128 million which is an increase of GBP 6 million compared with 2019, and was driven by higher underlying earnings before tax from the Digital Solutions business.
Net income
Net income in 2020 amounted to GBP 60 million, as underlying earnings before tax were partially offset by Other charges. Underlying earnings before tax rose by 5% compared with 2019 to GBP 128 million in 2020. Other charges amounted to GBP 61 million and included transition and conversion charges related to the agreement with Atos for administration services related to the Existing Business, charges for the Cofunds integration, and impairments of intangibles related to the Cofunds acquisition in 2017 and related to Stonebridge, following the announced sale of the business. There was a partial offset from income related to policyholder taxes, which were fully offset by higher income taxes. Income before tax in 2020 amounted to GBP 66 million and the income tax amounted to GBP 6 million. The latter includes a charge related to the aforementioned policyholder taxes.
Underlying earnings before tax
Underlying earnings before tax rose by 5% compared with 2019 to GBP 128 million in 2020.
◆ | Underlying earnings before tax from Digital Solutions increased to GBP 45 million in 2020, from GBP 36 million in 2019. This was mainly driven by higher fee income from platform assets, reflecting growth in the Workplace channel, and lower expenses. Lower earnings from the protection and distribution business were a partial offset, driven by the COVID-19 pandemic. |
◆ | Underlying earnings before tax from the Existing Business declined by 4% compared with 2019 to GBP 82 million in 2020, due to the gradual run-off of the underlying portfolios despite an improvement in persistency in the unit-linked and traditional pension portfolios. This was in part offset by favorable mortality experience in the retained annuity portfolio. |
Operating expenses
Operating expenses amounted to GBP 406 million in 2020, which was a decrease of 13% compared with 2019. This decrease was driven by both lower restructuring expenses and expense savings.
Production
Gross deposits decreased by 11% compared with 2019 to GBP 7.6 billion in 2020. This was driven mostly by the institutional business, which can be lumpy and has low margins. Gross deposits for other channels were broadly in line with 2019 despite headwinds from the COVID-19 pandemic. Net outflows amounted to GBP 3.2 billion compared with GBP 3.1 billion in 2019. Net outflows were driven mainly by the institutional business. The Workplace platform showed positive net deposits and while for the Retail platform net outflows were recorded in 2020, an improvement was shown compared with 2019. New life sales decreased by 18% compared with 2019 to GBP 30 million in 2020, reflecting the impact on protection sales as a result of the COVID-19 pandemic.
Aegon Annual Report on Form 20-F 2020 |
Results of operations – International 141 | ||
Amounts in EUR millions | 2020 | 2019 | % | |||||||||
Net underlying earnings | 125 | 105 | 19 | |||||||||
Tax on underlying earnings | 31 | 40 | (22) | |||||||||
Underlying earnings before tax by business / country | ||||||||||||
Spain and Portugal | 53 | 42 | 28 | |||||||||
Hungary | 46 | 43 | 6 | |||||||||
TLB | 49 | 64 | (23) | |||||||||
China | 18 | 14 | 23 | |||||||||
Other | (10 | ) | (18 | ) | 48 | |||||||
Underlying earnings before tax | 156 | 144 | 8 | |||||||||
Fair value items | 1 | 2 | (58) | |||||||||
Gains / (losses) on investments | 46 | 36 | 27 | |||||||||
Net impairments | (16 | ) | (0 | ) | n.m. | |||||||
Other income / (charges) | (1 | ) | 15 | n.m. | ||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | 186 | 198 | (6) | |||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | 3 | 14 | (79) | |||||||||
Income tax | (22 | ) | (33 | ) | (34) | |||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | (3 | ) | (14 | ) | (79) | |||||||
Net income | 164 | 165 | - | |||||||||
Life insurance gross premiums | 1,095 | 1,289 | (15) | |||||||||
Accident and health insurance premiums | 193 | 201 | (4) | |||||||||
Property & casualty insurance premiums | 388 | 382 | 2 | |||||||||
Total gross premiums | 1,677 | 1,872 | (10) | |||||||||
Investment income | 362 | 379 | (5) | |||||||||
Fee and commission income | 50 | 109 | (54) | |||||||||
Other revenues | 1 | 2 | (26) | |||||||||
Total revenues | 2,091 | 2,362 | (11) | |||||||||
Operating expenses | 400 | 422 | (5) |
New life sales
Amounts in EUR millions | 2020 | 2019 | % | |||||||||
Spain and Portugal | 43 | 54 | (20) | |||||||||
Hungary | 20 | 23 | (15) | |||||||||
TLB | 8 | 33 | (75) | |||||||||
China | 91 | 92 | (1) | |||||||||
Other | 65 | 63 | 3 | |||||||||
Total recurring plus 1/10 single | 227 | 264 | (14) |
Amounts in EUR millions | 2020 | 2019 | % | |||||||||
New premium production accident and health insurance | 35 | 41 | (14) | |||||||||
New premium production property & casualty insurance | 111 | 117 | (5) |
Aegon Annual Report on Form 20-F 2020 |
Results of operations – International 142 | ||
Gross deposits (on and off balance)
Amounts in EUR millions | 2020 | 2019 | % | |||||||||
Spain and Portugal | 15 | 21 | (30) | |||||||||
Hungary | 50 | 90 | (44) | |||||||||
China | 9 | 7 | 29 | |||||||||
Other | 246 | 241 | 2 | |||||||||
Total gross deposits | 320 | 358 | (11) |
Net deposits (on and off balance)
Amounts in EUR millions | 2020 | 2019 | % | |||||||||
Spain and Portugal | 3 | 3 | 1 | |||||||||
Hungary | 17 | (87 | ) | n.m. | ||||||||
China | 3 | 1 | 179 | |||||||||
Other | 131 | 103 | 27 | |||||||||
Total net deposits | 155 | 20 | n.m. |
Exchange rates
Weighted average rate | Closing rate as of | |||||||||||||||
Per 1 EUR | 2020 | 2019 | December 31, 2020 | December 31, 2019 | ||||||||||||
USD | 1.1416 | 1.1197 | 1.2236 | 1.1225 | ||||||||||||
Chinese Yuan Renminbi | 7.8726 | 7.7221 | 8.0018 | 7.8190 | ||||||||||||
Czech Koruna | 26.4557 | 25.6503 | 26.2620 | 25.4140 | ||||||||||||
Hungarian Florint | 351.1554 | 324.7099 | 362.6850 | 330.7100 | ||||||||||||
Polish Zloty | 4.4433 | 4.2966 | 4.5589 | 4.2512 | ||||||||||||
Romanian Leu | 4.8370 | 4.7437 | 4.8675 | 4.7862 | ||||||||||||
Turkish Lira | 8.0394 | 6.3584 | 9.0940 | 6.6800 | ||||||||||||
Ukrainian Hryvnia | 30.8293 | 28.9514 | 34.6693 | 26.7245 |
Aegon Annual Report on Form 20-F 2020 |
Results of operations – International143 | ||
Results 2020 International
Net income remained level in 2020 at EUR 164 million. Underlying earnings before tax increased by 8% compared with 2019 to EUR 156 million in 2020. The increase in underlying earnings before tax was driven by higher earnings in Spain and Portugal and lower losses in the Other segment. This was partly offset by lower earnings from Aegon’s high-net-worth business, TLB.
Net income
Net income remained level in 2020 at EUR 164 million. An increase in underlying earnings before tax and realized gains on investments was offset by higher impairments and other charges for 2020 compared with 2019. Fair value items amounted to a loss of EUR 1 million in 2020. Realized gains on investments increased from EUR 36 million in 2019 to EUR 46 million in 2020. Realized gains in 2020 were driven by asset sales in TLB in order to lengthen the duration of the investment portfolio and normal trading activity. Net impairments of EUR 16 million were the result of bankruptcies and restructurings in TLB’s asset portfolio and a write-off of a stake in an e-broker investment.
Other charges amounted to EUR 1 million in 2020. Included in this is a EUR 53 million gain on the sale of Aegon’s stake in the variable annuity joint ventures in Japan. This was mostly offset by the charge resulting from the lowering of the long-term interest rate assumption in TLB, a software impairment in Hungary and restructuring charges. In addition, there were other charges related to the expansion of the joint ventures in Spain and a recapture of reinsurance blocks. Income tax in 2020 was EUR 22 million, a decrease of EUR 11 million compared with 2019. This decrease was due to a benefit from a change in the taxation of commission payments.
Underlying earnings before tax
Underlying earnings before tax from International amounted to EUR 156 million in 2020, which was EUR 12 million or 8% higher compared with 2019. Higher earnings in Spain and Portugal and lower losses in the Other segment more than offset lower results at TLB.
◆ | Underlying earnings before tax from Spain and Portugal were EUR 53 million, which was 28% higher compared with 2019. This was driven by the ongoing growth of the life portfolio in the joint ventures, as well as better technical results, mainly due to fewer health insurance claims because of the lockdowns related to the COVID-19 pandemic. |
◆ | TLB, the high-net-worth business, recorded underlying earnings before tax of EUR 49 million, a decrease of EUR 15 million compared with 2019. This was mostly caused by adverse mortality experience. Lower sales and the impact of lower interest rates also had a negative impact on earnings which was partly offset by expense savings and higher surrender benefits. |
◆ | Underlying earnings before tax from Hungary increased by 6% compared with 2019 to EUR 46 million in 2020. This was the result of business growth and increased underwriting results in non-life. |
◆ | Underlying earnings before tax from China increased by 23% compared with 2019 to EUR 18 million in 2020. The increase was the result of ongoing growth of in-force business. |
◆ | For the Others segment, the result improved to a loss of EUR 10 million, an EUR 8 million increase compared with 2019. This was mainly due to expense savings in the business and synergies realized. Another factor was the sale of Aegon’s 50% stake in the loss-making variable annuity joint ventures in Japan, which closed in January 2020. |
Operating expenses
Operating expenses in 2020 decreased by 6% compared with 2019 to EUR 400 million. They benefitted from expense savings as well as pandemic induced lower sales and marketing efforts. The lower operating expenses also benefitted from the sale of Aegon’s stake in the Japanese joint ventures and the depreciation of the Hungarian Forint. Combined these more than offset an increase in operating expenses in China caused by higher personnel costs as a result of business growth.
Aegon Annual Report on Form 20-F |
Results of operations – International 144 | ||
Production
Gross deposits were EUR 320 million for 2020, this represents an 11% decrease compared with 2019. This was driven by the sale of non-core activities in Hungary in 2019, which more than offset growth in pension contributions in Hungary and in Romania as part of the Others segment in the year 2020.
Net deposits amounted to EUR 155 million for 2020 and showed an increase of EUR 130 million when compared with 2019. The main driver was the sale of non-core activities in Hungary.
Total new life sales declined by 14% compared with 2019 to EUR 227 million in 2020 due to lower sales in TLB.
◆ | New life sales from China joint venture remained level for 2020. |
◆ | For TLB, new life sales decreased by EUR 25 million due to the continuing challenging market circumstances and the COVID-19 lockdown. |
◆ | Spain and Portugal were negatively impacted in the bancassurance channel by lockdown measures. |
◆ | Higher new life sales in the Others segment were driven by higher production in Turkey as a result of distribution growth and a strong utilization of digital tools for the tied network and brokers. |
New premium production for accident and health insurance amounted to EUR 35 million in 2020, a decrease by 14% compared with 2019. New premium production for property & casualty insurance amounted to EUR 111 million in 2020, and decreased by 5% compared with 2019. Both were impacted adversely by the lockdown measures, mainly in Spain and Portugal and in Hungary.
Aegon Annual Report on Form 20-F 2020 |
Results of operations – Aegon Asset Management 145 | ||
Results 2020 Aegon Asset Management
Amounts in EUR millions | 2020 | 2019 | % | |||||||||
Net underlying earnings | 130 | 102 | 29 | |||||||||
Tax on underlying earnings | 51 | 37 | 36 | |||||||||
Underlying earnings before tax by line of business | ||||||||||||
Global Platforms | 43 | 62 | (32) | |||||||||
Strategic Partnerships | 136 | 69 | 97 | |||||||||
Other | 3 | 8 | (57) | |||||||||
Underlying earnings before tax | 182 | 139 | 31 | |||||||||
Fair value items | 22 | - | n.m. | |||||||||
Gains / (losses) on investments | 1 | - | n.m. | |||||||||
Net impairments | (1 | ) | - | n.m. | ||||||||
Other income / (charges) | (8 | ) | (7 | ) | 16 | |||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | 195 | 133 | 47 | |||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | 40 | 21 | 86 | |||||||||
Income tax | (44 | ) | (36 | ) | (23 | ) | ||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax | (40 | ) | (21 | ) | (86 | ) | ||||||
Net income | 151 | 97 | 56 | |||||||||
Management fees | 506 | 501 | 1 | |||||||||
Performance fees | 105 | 22 | n.m. | |||||||||
Other | 65 | 62 | 4 | |||||||||
Total revenues | 676 | 584 | 16 | |||||||||
Operating expenses | 485 | 445 | 9 | |||||||||
Cost / income ratio | (71.8% | ) | (76.5% | ) | ||||||||
Gross deposits (on and off balance) | ||||||||||||
Amounts in EUR millions | 2020 | 2019 | % | |||||||||
Global Platforms | 19,381 | 15,942 | 22 | |||||||||
Strategic Partnerships | 115,570 | 64,580 | 79 | |||||||||
Other | 425 | 417 | 2 | |||||||||
Total gross flows other third-party | 135,375 | 80,939 | 67 | |||||||||
Net flows other third-party | ||||||||||||
Global Platforms | 497 | 1,944 | (74) | |||||||||
Strategic Partnerships | 5,385 | 5,046 | 7 | |||||||||
Other | 31 | (149 | ) | n.m. | ||||||||
Total net flows other third-party | 5,912 | 6,841 | (14) |
Exchange rates
Weighted average rate | Closing rate as of | |||||||||||||||
Per 1 EUR | 2020 | 2019 | December 31, 2020 | December 31, 2019 | ||||||||||||
USD | 1.1416 | 1.1197 | 1.2236 | 1.1225 | ||||||||||||
Pound Sterling | 0.8892 | 0.8770 | 0.8951 | 0.8473 | ||||||||||||
Hungarian Florint | 351.1554 | 324.7099 | 362.6850 | 330.7100 | ||||||||||||
Chinese Yuan Renminbi | 7.8726 | 7.7221 | 8.0018 | 7.8190 |
Aegon Annual Report on Form 20-F 2020 |
Results of operations – Aegon Asset Management146 | ||
Results 2020 Aegon Asset Management
Net income increased by 56% compared with 2019 to EUR 151 million in 2020. This was driven by increased underlying earnings before tax in Strategic Partnerships and fair value gains on investments. Supported by continued net inflows from Strategic Partnerships, Asset Management achieved positive external third-party net inflows for the ninth consecutive year. Net flows in external third-party asset management amounted to EUR 5.9 billion in 2020. Net flows decreased by 14% compared with 2019 driven by Global Platforms, which was mainly attributable to redemptions as a result of the economic uncertainty caused by the COVID-19 pandemic.
Net income
Net income increased by 56% compared with 2019 to EUR 151 million in 2020. This was driven by higher underlying earnings before tax and fair value gains on investments of EUR 22 million in 2020.
Underlying earnings before tax
Underlying earnings before tax increased by 31% compared with 2019 to EUR 182 million in 2020. This increase was mainly driven by the performance of Aegon’s Chinese asset management joint venture, AIFMC. This more than offset lower underlying earnings before tax in Aegon’s Global Platforms in 2020 compared with 2019.
◆ | Underlying earnings before tax from Strategic Partnerships increased to EUR 136 million in 2020 compared with EUR 69 million in 2019. This was mainly driven by higher performance fees, net of performance-based compensation, in AIFMC in 2020. |
◆ | Underlying earnings before tax from Global Platforms decreased to EUR 43 million in 2020 compared with EUR 62 million in 2019. This was mainly caused by lower management fees for the Fixed Income Platform, in part driven by outflows. Earnings growth in the Dutch Mortgage Fund and asset backed securities were a partial offset. |
◆ | Underlying earnings from the Other segment decreased to EUR 3 million in 2020 compared with EUR 8 million in 2019. The decrease was mainly driven by performance fees in 2019 that did not reoccur in 2020. |
Operating expenses
Operating expenses increased by 9% compared with 2019 to EUR 485 million in 2020. The increase mainly stems from higher performance-based compensation in AIFMC and higher expenses driven by AIFMC’s business growth. For Global Platforms, expenses reduced, as lower personnel and travel expenses more than offset higher investments in IT. The cost/ income ratio in 2020 decreased by 5% compared with 2019 as higher management and performance fees more than offset performance-based compensation.
Exchange ratProduction
External third-party gross inflows increased by 67% compared with 2019 to EUR 135 billion in 2020. This increase resulted from higher gross inflows in Strategic Partnerships, which increased by EUR 51 billion in 2020. This was driven by new fund launches at AIFMC in 2020, and inflows into existing AIFMC funds as a result of increased investor confidence throughout 2020. Global Platform recorded gross flows of EUR 19.4 billion in 2020, which was an increase of EUR 3.4 billion compared with 2019, mainly through the Fixed Income Platform.
2020 was the ninth consecutive full year of positive external third-party net inflows for Asset Management. Net external third-party inflows decreased by 14% compared with 2019 to EUR 5.9 billion in 2020. The decrease of net inflows was driven by Global Platforms. The decrease in net inflows is mainly attributed to redemptions in the Fixed Income and Fiduciary Services & Multi Management Platforms as a result of the economic uncertainty caused by the COVID-19 pandemic. Net deposits from Strategic Partnerships increased compared with 2019 driven by continued net inflows at AIFMC.
Assets under management
Assets under management increased by 10% compared with 2019 to EUR 388 billion in 2020. This was driven by favorable market movements, as markets saw an increase due to monetary stimulus and positive news flows on the COVID-19 vaccine rollout. Third-party net inflows contributed as well to the increase in assets under management.
Furthermore, a transaction involving Aegon’s asset management joint venture with La Banque Postale added to the increase in assets under management. La Banque Postale Asset Management has combined its fixed-income and insurance asset management with Natixis’ subsidiary Ostrum Asset Management. Aegon’s share in the underlying earnings before tax of its asset management joint venture with La Banque Postale remains unchanged. However, Aegon’s share in terms of assets under management increased by EUR 10 billion.
Aegon Annual Report on Form 20-F 2020 |
Exchange rates147 | ||
Exchange rates at December 31,
2017 | 2016 | |||||||||||||||||||||||||||
EUR | USD | GBP | EUR | USD | GBP | |||||||||||||||||||||||
1 | EUR | - | 1.2008 | 0.8877 | - | 1.0548 | 0.8536 | |||||||||||||||||||||
1 | USD | 0.8328 | - | 0.7393 | 0.9480 | - | 0.8093 | |||||||||||||||||||||
1 | GBP | 1.1265 | 1.3527 | - | 1.1715 | 1.2357 | - |
Weighted average exchange rates
2020 | 2019 | 2018 | ||||||||||||||||||||||||||||||||||
EUR | USD | GBP | EUR | USD | GBP | EUR | USD | GBP | ||||||||||||||||||||||||||||
1 EUR | - | 1.2236 | 0.8951 | - | 1.1225 | 0.8473 | - | 1.1432 | 0.8976 | |||||||||||||||||||||||||||
1 USD | 0.8173 | - | 0.7315 | 0.8909 | - | 0.7548 | 0.8747 | - | 0.7852 | |||||||||||||||||||||||||||
1 GBP | 1.1172 | 1.3670 | - | 1.1802 | 1.3248 | - | 1.1141 | 1.2736 | - | |||||||||||||||||||||||||||
Weighted average exchange rates | ||||||||||||||||||||||||||||||||||||
2020 | 2019 | 2018 | ||||||||||||||||||||||||||||||||||
EUR | USD | GBP | EUR | USD | GBP | EUR | USD | GBP | ||||||||||||||||||||||||||||
1 EUR | - | 1.1416 | 0.8892 | - | 1.1197 | 0.8770 | - | 1.1816 | 0.8844 | |||||||||||||||||||||||||||
1 USD | 0.8760 | - | 0.7789 | 0.8931 | - | 0.7832 | 0.8463 | - | 0.7485 | |||||||||||||||||||||||||||
1 GBP | 1.1246 | 1.2839 | - | 1.1403 | 1.2767 | - | 1.1307 | 1.3360 | - |
2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||||||||
EUR | USD | GBP | EUR | USD | GBP | EUR | USD | GBP | ||||||||||||||||||||||||||||||
1 | EUR | - | 1.1291 | 0.8758 | - | 1.1069 | 0.8187 | - | 1.1100 | 0.7256 | ||||||||||||||||||||||||||||
1 | USD | 0.8857 | - | 0.7757 | 0.9034 | - | 0.7396 | 0.9009 | - | 0.6537 | ||||||||||||||||||||||||||||
1 | GBP | 1.1418 | 1.2892 | - | 1.2214 | 1.3520 | - | 1.3782 | 1.5298 | - |
Aegon Annual Report on Form 20-F 2020 |
Consolidated financial statements of Aegon N.V.148 | ||
Consolidated incomeConsolidated income statement of Aegon N.V.
For the year ended December 31
Amounts in EUR million (except per share data) | Note | 2017 | 2016 | 2015 | ||||||||||||
Premium income | 6 | 22,826 | 23,453 | 22,925 | ||||||||||||
Investment income | 7 | 7,338 | 7,788 | 8,525 | ||||||||||||
Fee and commission income | 8 | 2,802 | 2,408 | 2,438 | ||||||||||||
Other revenues | 7 | 7 | 14 | |||||||||||||
Total revenues | 32,973 | 33,655 | 33,902 | |||||||||||||
Income from reinsurance ceded | 9 | 4,288 | 3,687 | 3,321 | ||||||||||||
Results from financial transactions | 10 | 20,250 | 15,753 | 521 | ||||||||||||
Other income | 11 | 540 | 66 | 83 | ||||||||||||
Total income | 58,052 | 53,162 | 37,827 | |||||||||||||
Premiums paid to reinsurers | 6 | 3,431 | 3,176 | 2,979 | ||||||||||||
Policyholder claims and benefits | 12 | 45,599 | 41,974 | 26,443 | ||||||||||||
Profit sharing and rebates | 13 | 23 | 49 | 31 | ||||||||||||
Commissions and expenses | 14 | 5,925 | 6,351 | 6,598 | ||||||||||||
Impairment charges / (reversals) | 15 | 42 | 95 | 1,251 | ||||||||||||
Interest charges and related fees | 16 | 435 | 347 | 412 | ||||||||||||
Other charges | 17 | 235 | 700 | 774 | ||||||||||||
Total charges
|
| 55,689
|
|
| 52,693
|
|
| 38,489
|
| |||||||
Income before share in profit / (loss) of joint ventures, associates and tax | 2,363 | 470 | (661 | ) | ||||||||||||
Share in profit / (loss) of joint ventures | 161 | 137 | 142 | |||||||||||||
Share in profit / (loss) of associates | 11 | 3 | 5 | |||||||||||||
Income / (loss) before tax | 2,534 | 610 | (514 | ) | ||||||||||||
Income tax (expense) / benefit | 18 | (65 | ) | (172 | ) | 83 | ||||||||||
Net income / (loss) | 2,469 | 438 | (431 | ) | ||||||||||||
Net income / (loss) attributable to: | ||||||||||||||||
Owners of Aegon N.V. | 2,469 | 437 | (432 | ) | ||||||||||||
Non-controlling interests | - | - | 1 | |||||||||||||
Earnings per share (EUR per share) | 19 | |||||||||||||||
Basic earnings per common share | 1.14 | 0.15 | (0.27 | ) | ||||||||||||
Basic earnings per common share B | 0.03 | - | (0.01 | ) | ||||||||||||
Diluted earnings per common share | 1.14 | 0.15 | (0.27 | ) | ||||||||||||
Diluted earnings per common share B | 0.03 | - | (0.01 | ) |
Amounts in EUR million (except per share data) | Note | 2020 | 20191) | 20181) | ||||||||||||
Premium income | 6 | 16,099 | 18,138 | 19,316 | ||||||||||||
Investment income | 7 | 7,149 | 7,531 | 7,035 | ||||||||||||
Fee and commission income | 8 | 2,405 | 2,523 | 2,558 | ||||||||||||
Other revenues | 4 | 6 | 5 | |||||||||||||
Total revenues | 25,657 | 28,197 | 28,914 | |||||||||||||
Income from reinsurance ceded | 9 | 3,965 | 3,586 | 3,791 | ||||||||||||
Results from financial transactions | 10 | 21,397 | 35,386 | (11,701 | ) | |||||||||||
Other income | 11 | 68 | 200 | 8 | ||||||||||||
Total income | 51,087 | 67,370 | 21,013 | |||||||||||||
Premiums paid to reinsurers | 6 | 2,703 | 2,434 | 2,663 | ||||||||||||
Policyholder claims and benefits | 12 | 42,006 | 56,856 | 10,614 | ||||||||||||
Profit sharing and rebates | 13 | 8 | 17 | 23 | ||||||||||||
Commissions and expenses | 14 | 5,983 | 6,153 | 6,224 | ||||||||||||
Impairment charges / (reversals) | 15 | 391 | 169 | 78 | ||||||||||||
Interest charges and related fees | 16 | 505 | 513 | 507 | ||||||||||||
Other charges | 17 | 150 | 1 | 375 | ||||||||||||
Total charges
|
| 51,746
|
|
| 66,142
|
|
| 20,483
|
| |||||||
Income before share in profit / (loss) of joint ventures, associates and tax | (659 | ) | 1,228 | 530 | ||||||||||||
Share in profit / (loss) of joint ventures | 25 | 184 | 214 | 210 | ||||||||||||
Share in profit / (loss) of associates | 25 | 111 | 12 | 6 | ||||||||||||
Income / (loss) before tax | (364 | ) | 1,453 | 746 | ||||||||||||
Income tax (expense) / benefit | 18 | 229 | (217 | ) | (39 | ) | ||||||||||
Net income / (loss) | (135 | ) | 1,236 | 707 | ||||||||||||
Net income / (loss) attributable to: | ||||||||||||||||
Owners of Aegon N.V. | (146 | ) | 1,235 | 706 | ||||||||||||
Non-controlling interests | 11 | - | 1 | |||||||||||||
Earnings per share (EUR per share) | 19 | |||||||||||||||
Basic earnings per common share | (0.09 | ) | 0.56 | 0.29 | ||||||||||||
Basic earnings per common share B | (0.00 | ) | 0.01 | 0.01 | ||||||||||||
Diluted earnings per common share | (0.09 | ) | 0.56 | 0.29 | ||||||||||||
Diluted earnings per common share B | (0.00 | ) | 0.01 | 0.01 |
1 | Amounts have been restated to reflect the voluntary change in accounting policies related to deferred cost of reinsurance (DCoR) adopted by Aegon effective January 1, 2020. Refer to note 2.1.2 Voluntary changes in accounting policies for details about this change. |
Aegon Annual Report on Form 20-F |
Consolidated financial statements of Aegon N.V.149 | ||
Consolidated statementConsolidated statement of comprehensive income of Aegon N.V.
For the year ended December 31
Amounts in EUR million | 2017 | 2016 | 2015 | |||||||||
Net income / (loss) | 2,469 | 438 | (431 | ) | ||||||||
Items that will not be reclassified to profit or loss: | ||||||||||||
Changes in revaluation reserve real estate held for own use | 8 | 8 | 13 | |||||||||
Remeasurements of defined benefit plans | 224 | (392 | ) | 240 | ||||||||
Income tax relating to items that will not be reclassified | (166 | ) | 86 | (77 | ) | |||||||
Items that may be reclassified subsequently to profit or loss: | ||||||||||||
Gains / (losses) on revaluation of available-for-sale investments | 1,283 | 854 | (2,175 | ) | ||||||||
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments | (1,330 | ) | (2,122 | ) | (485 | ) | ||||||
Changes in cash flow hedging reserve | (853 | ) | (54 | ) | 446 | |||||||
Movement in foreign currency translation and net foreign investment hedging reserves | (2,149 | ) | 69 | 1,419 | ||||||||
Equity movements of joint ventures | (15 | ) | 9 | (8 | ) | |||||||
Equity movements of associates | (5 | ) | 3 | (1 | ) | |||||||
Disposal of group assets | 7 | - | (544 | ) | ||||||||
Income tax relating to items that may be reclassified | 951 | 225 | 783 | |||||||||
Other | 9 | 12 | 9 | |||||||||
Total other comprehensive income / (loss) | (2,038 | ) | (1,301 | ) | (380 | ) | ||||||
Total comprehensive income / (loss) | 431 | (863 | ) | (811 | ) | |||||||
Total comprehensive income/ (loss) attributable to: | ||||||||||||
Owners of Aegon N.V. | 435 | (878 | ) | (811 | ) | |||||||
Non-controlling interests | (3 | ) | 15 | - |
Amounts in EUR million | 2020 | 20191) | 20181) | |||||||||
Net income / (loss) | (135 | ) | 1,236 | 707 | ||||||||
Items that will not be reclassified to profit or loss: | ||||||||||||
Changes in revaluation reserve real estate held for own use | 20 | (4 | ) | (32 | ) | |||||||
Remeasurements of defined benefit plans | (360 | ) | (612 | ) | (134 | ) | ||||||
Income tax relating to items that will not be reclassified | 138 | 92 | (8 | ) | ||||||||
Items that may be reclassified subsequently to profit or loss: | ||||||||||||
Gains / (losses) on revaluation of available-for-sale investments | 2,990 | 3,477 | (2,144 | ) | ||||||||
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments | 13 | (412 | ) | 66 | ||||||||
Changes in cash flow hedging reserve | (247 | ) | (8 | ) | 5 | |||||||
Movement in foreign currency translation and net foreign investment hedging reserves | (1,489 | ) | 314 | 602 | ||||||||
Equity movements of joint ventures | 12 | 8 | 9 | |||||||||
Equity movements of associates | 7 | 4 | (1 | ) | ||||||||
Disposal of group assets | (8 | ) | (1 | ) | 36 | |||||||
Income tax relating to items that may be reclassified | (616 | ) | (634 | ) | 494 | |||||||
Other | 47 | 13 | (2 | ) | ||||||||
Total other comprehensive income / (loss) | 507 | 2,237 | (1,109 | ) | ||||||||
Total comprehensive income / (loss) | 372 | 3,473 | (402 | ) | ||||||||
Total comprehensive income/ (loss) attributable to: | ||||||||||||
Owners of Aegon N.V. | 316 | 3,474 | (403 | ) | ||||||||
Non-controlling interests | 55 | (1 | ) | 2 |
1 | Amounts have been restated to reflect the voluntary change in accounting policies related to deferred cost of reinsurance (DCoR) adopted by Aegon effective January 1, 2020. Refer to note 2.1.2 Voluntary changes in accounting policies for details about this change. |
Aegon Annual Report on Form 20-F 2020 |
Consolidated financial statements of Aegon N.V.150 | ||
Consolidated statement of financial position of Aegon N.V.
As at December 31
Amounts in EUR million | Note | 2017 | 2016 | |||||||||
Assets | ||||||||||||
Cash and cash equivalents | 21 | 10,768 | 11,347 | |||||||||
Assets held for sale | 22 | 5,249 | 8,705 | |||||||||
Investments | 23 | 136,804 | 156,303 | |||||||||
Investments for account of policyholders | 24 | 194,063 | 203,610 | |||||||||
Derivatives | 25 | 5,912 | 8,318 | |||||||||
Investments in joint ventures | 26 | 1,712 | 1,614 | |||||||||
Investments in associates | 27 | 308 | 270 | |||||||||
Reinsurance assets | 28 | 19,202 | 11,208 | |||||||||
Defined benefit assets | 41 | 55 | 51 | |||||||||
Deferred tax assets | 43 | 79 | 87 | |||||||||
Deferred expenses | 29 | 10,135 | 11,423 | |||||||||
Other assets and receivables | 30 | 10,002 | 10,667 | |||||||||
Intangible assets | 31 | 1,633 | 1,820 | |||||||||
Total assets | 395,923 | 425,425 | ||||||||||
Equity and liabilities | ||||||||||||
Shareholders’ equity | 32 | 20,288 | 20,520 | |||||||||
Other equity instruments | 33 | 3,794 | 3,797 | |||||||||
Issued capital and reserves attributable to owners of Aegon N.V. | 24,082 | 24,318 | ||||||||||
Non-controlling interests | 20 | 23 | ||||||||||
Group equity | 24,102 | 24,341 | ||||||||||
Subordinated borrowings | 34 | 764 | 767 | |||||||||
Trust pass-through securities | 35 | 133 | 156 | |||||||||
Insurance contracts | 36 | 110,818 | 119,569 | |||||||||
Insurance contracts for account of policyholders | 36 | 122,168 | 120,929 | |||||||||
Investment contracts | 37 | 16,943 | 19,572 | |||||||||
Investment contracts for account of policyholders | 37 | 74,434 | 84,774 | |||||||||
Derivatives | 25 | 7,130 | 8,878 | |||||||||
Borrowings | 39 | 13,635 | 13,153 | |||||||||
Provisions | 40 | 210 | 173 | |||||||||
Defined benefit liabilities | 41 | 4,005 | 4,817 | |||||||||
Deferred gains | 42 | 13 | 64 | |||||||||
Deferred tax liabilities | 43 | 1,029 | 2,201 | |||||||||
Liabilities held for sale | 22 | 5,003 | 8,816 | |||||||||
Other liabilities | 44 | 15,208 | 16,978 | |||||||||
Accruals | 45 | 329 | 237 | |||||||||
Total liabilities
|
| 371,821
|
|
| 401,084
|
| ||||||
Total equity and liabilities | 395,923 | 425,425 |
Amounts in EUR million | Note | 2020 | 20191) | January 1, 20191) | ||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents | 21 | 8,372 | 12,263 | 8,744 | ||||||||||||
Investments | 22 | 156,541 | 145,976 | 138,625 | ||||||||||||
Investments for account of policyholders | 23 | 224,172 | 226,374 | 194,353 | ||||||||||||
Derivatives | 24 | 13,986 | 11,157 | 7,615 | ||||||||||||
Investments in joint ventures | 25 | 1,376 | 1,983 | 1,745 | ||||||||||||
Investments in associates | 25 | 1,264 | 363 | 327 | ||||||||||||
Reinsurance assets | 26 | 18,910 | 20,253 | 19,877 | ||||||||||||
Defined benefit assets | 39 | 43 | 1 | - | ||||||||||||
Deferred tax assets | 40 | 101 | 193 | 125 | ||||||||||||
Deferred expenses | 27 | 8,799 | 10,806 | 10,914 | ||||||||||||
Other assets and receivables | 28 | 8,865 | 8,842 | 7,955 | ||||||||||||
Intangible assets | 29 | 1,386 | 1,559 | 1,727 | ||||||||||||
Total assets | 443,814 | 439,769 | 392,008 | |||||||||||||
Equity and liabilities | ||||||||||||||||
Shareholders’ equity | 30 | 22,018 | 21,842 | 19,189 | ||||||||||||
Other equity instruments | 31 | 2,569 | 2,571 | 3,320 | ||||||||||||
Issued capital and reserves attributable to owners of Aegon N.V. | 24,586 | 24,413 | 22,510 | |||||||||||||
Non-controlling interests | 75 | 20 | 22 | |||||||||||||
Group equity | 24,661 | 24,433 | 22,531 | |||||||||||||
Subordinated borrowings | 32 | 2,085 | 2,207 | 1,389 | ||||||||||||
Trust pass-through securities | 33 | 126 | 136 | 133 | ||||||||||||
Insurance contracts | 34 | 122,146 | 122,885 | 114,716 | ||||||||||||
Insurance contracts for account of policyholders | 34 | 135,441 | 135,710 | 117,113 | ||||||||||||
Investment contracts | 35 | 21,075 | 18,594 | 18,048 | ||||||||||||
Investment contracts for account of policyholders | 35 | 91,624 | 93,826 | 80,097 | ||||||||||||
Derivatives | 24 | 14,617 | 11,616 | 7,230 | ||||||||||||
Borrowings | 37 | 8,524 | 9,307 | 12,061 | ||||||||||||
Provisions | 38 | 309 | 214 | 320 | ||||||||||||
Defined benefit liabilities | 39 | 4,636 | 4,360 | 3,989 | ||||||||||||
Deferred gains | 10 | 11 | 12 | |||||||||||||
Deferred tax liabilities | 40 | 1,424 | 1,229 | 529 | ||||||||||||
Other liabilities | 41 | 16,685 | 14,816 | 13,451 | ||||||||||||
Accruals | 42 | 451 | 426 | 388 | ||||||||||||
Total liabilities | 419,153 | 415,336 | 369,476 | |||||||||||||
Total equity and liabilities | 443,814 | 439,769 | 392,008 |
1 | Amounts have been restated to reflect the voluntary change in accounting policies related to deferred cost of reinsurance (DCoR) adopted by Aegon effective January 1, 2020. Refer to note 2.1.2 Voluntary changes in accounting policies for details about this change. |
Aegon Annual Report on Form 20-F 2020 |
Consolidated financial statements of Aegon N.V.151 | ||
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 instru- ments | | | Issued capital and reserves1) | | | 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 | ||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||
Remeasurements of defined benefit plans | - | - | - | 224 | - | - | 224 | - | 224 | |||||||||||||||||||||||||||||||
Income tax relating to items that will not be reclassified | - | - | 9 | (175 | ) | - | - | (166 | ) | - | (166 | ) | ||||||||||||||||||||||||||||
Items that may be reclassified subsequently to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Gains / (losses) on revaluation of available-for-sale investments | - | - | 1,283 | - | - | - | 1,283 | - | 1,283 | |||||||||||||||||||||||||||||||
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments | - | - | (1,330 | ) | - | - | - | (1,330 | ) | - | (1,330 | ) | ||||||||||||||||||||||||||||
Changes in cash flow hedging reserve | - | - | (853 | ) | - | - | - | (853 | ) | - | (853 | ) | ||||||||||||||||||||||||||||
Movements in foreign currency translation and net foreign investment hedging reserves | - | - | (452 | ) | 102 | (1,800 | ) | - | (2,149 | ) | - | (2,149 | ) | |||||||||||||||||||||||||||
Equity movements of joint ventures | - | - | - | - | (15 | ) | - | (15 | ) | - | (15 | ) | ||||||||||||||||||||||||||||
Equity movements of associates | - | - | - | - | (5 | ) | - | (5 | ) | - | (5 | ) | ||||||||||||||||||||||||||||
Disposal of group assets | - | - | - | - | 7 | - | 7 | - | 7 | |||||||||||||||||||||||||||||||
Income tax relating to items that may be reclassified | - | - | 874 | - | 76 | - | 951 | - | 951 | |||||||||||||||||||||||||||||||
Other | - | 13 | - | - | - | - | 13 | (3 | ) | 9 | ||||||||||||||||||||||||||||||
Total other comprehensive income / (loss)
|
| -
|
|
| 13
|
|
| (461
| )
|
| 151
|
|
| (1,737
| )
|
| -
|
|
| (2,034
| )
|
| (3
| )
|
| (2,038
| )
| |||||||||||||
Total comprehensive income / (loss) for 2017 | - | 2,482 | (461 | ) | 151 | (1,737 | ) | - | 435 | (3 | ) | 431 | ||||||||||||||||||||||||||||
Shares issued | 3 | - | - | - | - | - | 3 | - | 3 | |||||||||||||||||||||||||||||||
Issuance and purchase of treasury shares | - | (105 | ) | - | - | - | - | (105 | ) | - | (105 | ) | ||||||||||||||||||||||||||||
Dividends paid on common shares | (142 | ) | (296 | ) | - | - | - | - | (439 | ) | - | (439 | ) | |||||||||||||||||||||||||||
Dividend withholding tax reduction | - | 2 | - | - | - | - | 2 | - | 2 | |||||||||||||||||||||||||||||||
Coupons on perpetual securities | - | (103 | ) | - | - | - | - | (103 | ) | - | (103 | ) | ||||||||||||||||||||||||||||
Coupons on non-cumulative subordinated notes | - | (28 | ) | - | - | - | - | (28 | ) | - | (28 | ) | ||||||||||||||||||||||||||||
Incentive plans | - | 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 |
Consolidated statement of changes in equity of Aegon N.V.
For the year ended December 31, 20162020
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 | 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- control- ling interests | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At January 1, 2016 | 8,387 | 7,832 | 6,471 | (1,532 | ) | 1,283 | 3,800 | 26,241 | 9 | 26,250 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At January 1, 20202) | 7,536 | 10,374 | 5,873 | (2,397 | ) | 456 | 2,571 | 24,413 | 20 | 24,433 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income / (loss) recognized in the income statement | - | 437 | - | - | - | - | 437 | - | 438 | - | (146 | ) | - | - | - | - | (146 | ) | 11 | (135 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | - | - | 20 | - | - | - | 20 | - | 20 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Remeasurements of defined benefit plans | - | - | - | (392 | ) | - | - | (392 | ) | - | (392 | ) | - | - | - | (360 | ) | - | - | (360 | ) | - | (360 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax relating to items that will not be reclassified | - | - | (3 | ) | 89 | - | - | 86 | - | 86 | - | - | (2 | ) | 140 | - | - | 138 | - | 138 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Items that may be reclassified subsequently to profit or loss: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gains / (losses) on revaluation of available-for-sale investments | - | - | 854 | - | - | - | 854 | - | 854 | - | - | 2,990 | - | - | - | 2,990 | - | 2,990 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments | - | - | (2,122 | ) | - | - | - | (2,122 | ) | - | (2,122 | ) | - | - | 13 | - | - | - | 13 | - | 13 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in cash flow hedging reserve | - | - | (54 | ) | - | - | - | (54 | ) | - | (54 | ) | - | - | (247 | ) | - | - | - | (247 | ) | - | (247 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Movements in foreign currency translation and net foreign investment hedging reserves | - | - | (38 | ) | 16 | 91 | - | 69 | - | 69 | - | - | (556 | ) | 83 | (1,015 | ) | - | (1,489 | ) | - | (1,489 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity movements of joint ventures | - | - | - | - | 9 | - | 9 | - | 9 | - | - | - | - | 12 | - | 12 | - | 12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity movements of associates | - | - | - | - | 3 | - | 3 | - | 3 | - | - | - | - | 7 | - | 7 | - | 7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disposal of group assets | - | - | - | - | (7 | ) | - | (8 | ) | - | (8 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax relating to items that may be reclassified | - | - | 264 | - | (39 | ) | - | 225 | - | 225 | - | - | (610 | ) | - | (7 | ) | - | (616 | ) | - | (616 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | - | (2 | ) | - | - | - | - | (2 | ) | 14 | 12 | - | 2 | - | - | 1 | - | 3 | 44 | 47 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total other comprehensive income / (loss)
|
| -
|
|
| (2
| )
|
| (1,090
| )
|
| (288
| )
|
| 64
|
|
| -
|
|
| (1,315
| )
|
| 14
|
|
| (1,301
| )
| - | 2 | 1,607 | (137 | ) | (1,009 | ) | - | 462 | 44 | 507 | ||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income / (loss) for 2016 | - | 435 | (1,090 | ) | (288 | ) | 64 | - | (878 | ) | 15 | (863 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued | 1 | - | - | - | - | - | 1 | - | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive income / (loss) for 2020 | - | (144 | ) | 1,607 | (137 | ) | (1,009 | ) | - | 316 | 55 | 371 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares withdrawn | (10 | ) | (372 | ) | - | - | - | - | (382 | ) | - | (382 | ) | (3 | ) | 3 | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance and purchase of treasury shares | - | (27 | ) | - | - | - | - | (27 | ) | - | (27 | ) | - | 3 | - | - | - | - | 3 | - | 3 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance and redemption of other equity instruments | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid on common shares | (186 | ) | (304 | ) | - | - | - | - | (490 | ) | - | (490 | ) | (54 | ) | (64 | ) | - | - | - | - | (118 | ) | - | (118 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividend withholding tax reduction | - | (2 | ) | - | - | - | - | (2 | ) | - | (2 | ) | - | 1 | - | - | - | - | 1 | - | 1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Coupons on perpetual securities | - | (105 | ) | - | - | - | - | (105 | ) | - | (105 | ) | - | (38 | ) | - | - | - | - | (38 | ) | - | (38 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Coupons on non-cumulative subordinated notes | - | (28 | ) | - | - | - | - | (28 | ) | - | (28 | ) | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Incentive plans | - | (9 | ) | - | - | - | (3 | ) | (12 | ) | - | (12 | ) | - | 10 | - | - | - | (3 | ) | 8 | - | 8 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2016 | 32, 33 | 8,193 | 7,419 | 5,381 | (1,820 | ) | 1,347 | 3,797 | 24,318 | 23 | 24,341 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31, 2020 | 30, 31 | 7,480 | 10,145 | 7,480 | (2,534 | ) | (553 | ) | 2,569 | 24,586 | 75 | 24,661 |
1 | Issued capital and reserves attributable to owners of Aegon N.V. |
2 | Amounts have been restated to reflect the voluntary change in accounting policies related to deferred cost of reinsurance (DCoR) adopted by Aegon effective January 1, 2020. Refer to note 2.1.2 Voluntary changes in accounting policies for details about this change. |
Aegon Annual Report on Form 20-F 2020 |
Consolidated financial statements of Aegon N.V. 152 | ||
Consolidated statement of changes in equity of Aegon N.V.
For the year ended December 31, 2019
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, 20192) | 7,808 | 9,648 | 3,435 | (1,850 | ) | 149 | 3,320 | 22,510 | 22 | 22,531 | ||||||||||||||||||||||||||||||
Mandatory change in accounting policy3) | - | (44 | ) | - | - | - | - | (44 | ) | - | (44 | ) | ||||||||||||||||||||||||||||
At January 1, 2019 (restated) | 7,808 | 9,604 | 3,435 | (1,850 | ) | 149 | 3,320 | 22,466 | 22 | 22,487 | ||||||||||||||||||||||||||||||
Net income / (loss) recognized in the income statement | - | 1,235 | - | - | - | - | 1,235 | - | 1,236 | |||||||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
Items that will not be reclassified to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Changes in revaluation reserve real estate held for own use | - | 32 | (36 | ) | - | - | - | (4 | ) | - | (4 | ) | ||||||||||||||||||||||||||||
Remeasurements of defined benefit plans | - | - | - | (612 | ) | - | - | (612 | ) | - | (612 | ) | ||||||||||||||||||||||||||||
Income tax relating to items that will not be reclassified | - | (7 | ) | 8 | 90 | - | - | 92 | - | 92 | ||||||||||||||||||||||||||||||
Items that may be reclassified subsequently to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Gains / (losses) on revaluation of available-for-sale investments | - | - | 3,477 | - | - | - | 3,477 | - | 3,477 | |||||||||||||||||||||||||||||||
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments | - | - | (412 | ) | - | - | - | (412 | ) | - | (412 | ) | ||||||||||||||||||||||||||||
Changes in cash flow hedging reserve | - | - | (8 | ) | - | - | - | (8 | ) | - | (8 | ) | ||||||||||||||||||||||||||||
Movements in foreign currency translation and net foreign investment hedging reserves | - | - | 37 | (25 | ) | 302 | - | 314 | - | 314 | ||||||||||||||||||||||||||||||
Equity movements of joint ventures | - | - | - | - | 8 | - | 8 | - | 8 | |||||||||||||||||||||||||||||||
Equity movements of associates | - | - | - | - | 4 | - | 4 | - | 4 | |||||||||||||||||||||||||||||||
Disposal of group assets | - | - | - | - | (1 | ) | - | (1 | ) | - | (1 | ) | ||||||||||||||||||||||||||||
Income tax relating to items that may be reclassified | - | - | (629 | ) | - | (5 | ) | - | (634 | ) | - | (634 | ) | |||||||||||||||||||||||||||
Other | - | 15 | - | - | - | - | 15 | (2 | ) | 13 | ||||||||||||||||||||||||||||||
Total other comprehensive income / (loss) | - | 40 | 2,438 | (547 | ) | 307 | - | 2,239 | (2 | ) | 2,237 | |||||||||||||||||||||||||||||
Total comprehensive income / (loss) for 2019 | - | 1,276 | 2,438 | (547 | ) | 307 | - | 3,474 | (1 | ) | 3,473 | |||||||||||||||||||||||||||||
Shares issued | 1 | - | - | - | - | - | 1 | - | 1 | |||||||||||||||||||||||||||||||
Issuance and purchase of treasury shares | - | (30 | ) | - | - | - | - | (30 | ) | - | (30 | ) | ||||||||||||||||||||||||||||
Issuance and redemption of other equity instruments | - | (81 | ) | - | - | - | (744 | ) | (825 | ) | - | (825 | ) | |||||||||||||||||||||||||||
Dividends paid on common shares | (273 | ) | (309 | ) | - | - | - | - | (583 | ) | - | (583 | ) | |||||||||||||||||||||||||||
Dividend withholding tax reduction | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||
Coupons on perpetual securities | - | (88 | ) | - | - | - | - | (88 | ) | - | (88 | ) | ||||||||||||||||||||||||||||
Coupons on non-cumulative subordinated notes | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||
Incentive plans | - | 2 | - | - | - | (5 | ) | (3 | ) | - | (3 | ) | ||||||||||||||||||||||||||||
At December 31, 20192) | 30, 31 | 7,536 | 10,374 | 5,873 | (2,397 | ) | 456 | 2,571 | 24,413 | 20 | 24,433 |
1 | Issued capital and reserves attributable to owners of Aegon N.V. |
2 | Amounts have been restated to reflect the voluntary change in accounting policies related to deferred cost of reinsurance (DCoR) adopted by Aegon effective January 1, 2020. Refer to note 2.1.2 Voluntary changes in accounting policies for details about this change. |
3 | Mandatory change in accounting policy in 2019 mainly due to impact of adopting IFRS 16 on Leases. A modified retrospective approach was applied and therefore prior periods were not restated. |
Aegon Annual Report on Form 20-F |
| ||
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 reserves1) | Non- controlling interests | Total | ||||||||||||||||||||||||||||||
At January 1, 2018 (as previously stated) | 8,053 | 9,374 | 4,898 | (1,669 | ) | (390 | ) | 3,794 | 24,059 | 20 | 24,079 | |||||||||||||||||||||||||||||
Voluntary change in accounting policy | 2.1.2 | - | (6 | ) | 1 | - | - | - | (5 | ) | - | (5 | ) | |||||||||||||||||||||||||||
At January 1, 2018 (restated)2) | 8,053 | 9,368 | 4,899 | (1,669 | ) | (390 | ) | 3,794 | 24,054 | 20 | 24,074 | |||||||||||||||||||||||||||||
Net income / (loss) recognized in the income statement | - | 706 | - | - | - | - | 706 | 1 | 707 | |||||||||||||||||||||||||||||||
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 of available-for-sale investments | - | - | (2,144 | ) | - | - | - | (2,144 | ) | - | (2,144 | ) | ||||||||||||||||||||||||||||
(Gains) / losses transferred to income statement on disposal and impairment of available-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 | - | - | 515 | (20 | ) | - | 494 | 494 | ||||||||||||||||||||||||||||||||
Other | - | (3 | ) | - | - | - | - | (3 | ) | 1 | (2 | ) | ||||||||||||||||||||||||||||
Total other comprehensive income / (loss) | - | (3 | ) | (1,464 | ) | (182 | ) | 539 | - | (1,110 | ) | 1 | (1,109 | ) | ||||||||||||||||||||||||||
Total comprehensive income / (loss) for 2018 | - | 704 | (1,464 | ) | (182 | ) | 539 | - | (403 | ) | 2 | (402 | ) | |||||||||||||||||||||||||||
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 on non-cumulative subordinated notes | - | (11 | ) | - | - | - | - | (11 | ) | - | (11 | ) | ||||||||||||||||||||||||||||
Incentive plans | - | - | - | - | - | (2 | ) | (2 | ) | - | (2 | ) | ||||||||||||||||||||||||||||
At December 31, 20182) | 30, 31 | 7,808 | 9,648 | 3,435 | (1,850 | ) | 149 | 3,320 | 22,510 | 22 | 22,531 |
1 | Issued capital and reserves attributable to owners of Aegon N.V. |
2 | Amounts have been restated to reflect the voluntary change in accounting policies related to deferred cost of reinsurance (DCoR) adopted by Aegon effective January 1, 2020. Refer to note 2.1.2 Voluntary changes in accounting policies for details about this change. |
Aegon Annual Report on Form 20-F 2020 |
Consolidated financial statements of Aegon N.V.154 | ||
Consolidated cash flow statement of changes in equity of Aegon N.V.
For the year ended December 31 2015
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, 2015 | 8,597 | 8,639 | 8,308 | (1,611 | ) | (86 | ) | 3,827 | 27,674 | 9 | 27,683 | |||||||||||||||||||||||||||||
Net income / (loss) recognized in the income statement | - | (432 | ) | - | - | - | - | (432 | ) | 1 | (431 | ) | ||||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
Items that will not be reclassified to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Changes in revaluation reserve real estate held for own use | - | - | 13 | - | - | - | 13 | - | 13 | |||||||||||||||||||||||||||||||
Remeasurements of defined benefit plans | - | - | - | 240 | - | - | 240 | - | 240 | |||||||||||||||||||||||||||||||
Income tax relating to items that will not be reclassified | - | - | (2 | ) | (75 | ) | - | - | (77 | ) | - | (77 | ) | |||||||||||||||||||||||||||
Items that may be reclassified subsequently to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Gains / (losses) on revaluation of available-for-sale investments | - | - | (2,175 | ) | - | - | - | (2,175 | ) | - | (2,175 | ) | ||||||||||||||||||||||||||||
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments | - | - | (485 | ) | - | - | - | (485 | ) | - | (485 | ) | ||||||||||||||||||||||||||||
Changes in cash flow hedging reserve | - | - | 446 | - | - | - | 446 | - | 446 | |||||||||||||||||||||||||||||||
Movements in foreign currency translation and net foreign investment hedging reserves | - | - | - | (86 | ) | 1,505 | - | 1,419 | - | 1,419 | ||||||||||||||||||||||||||||||
Equity movements of joint ventures | - | - | - | - | (8 | ) | - | (8 | ) | - | (8 | ) | ||||||||||||||||||||||||||||
Equity movements of associates | - | - | - | - | (1 | ) | - | (1 | ) | - | (1 | ) | ||||||||||||||||||||||||||||
Disposal of group assets2) | - | - | (468 | ) | - | (76 | ) | - | (544 | ) | - | (544 | ) | |||||||||||||||||||||||||||
Income tax relating to items that may be reclassified | - | - | 836 | - | (52 | ) | - | 783 | - | 783 | ||||||||||||||||||||||||||||||
Other | - | 10 | - | - | - | - | 10 | (1 | ) | 9 | ||||||||||||||||||||||||||||||
Total other comprehensive income / (loss)
|
| -
|
|
| 10
|
|
| (1,837
| )
|
| 79
|
|
| 1,369
|
|
| -
|
|
| (379
| )
|
| (1
| )
|
| (380
| )
| |||||||||||||
Total comprehensive income / (loss) for 2015 | - | (422 | ) | (1,837 | ) | 79 | 1,369 | - | (811 | ) | - | (811 | ) | |||||||||||||||||||||||||||
Shares issued and withdrawn | 1 | - | - | - | - | - | 1 | - | 1 | |||||||||||||||||||||||||||||||
Issuance and purchase of treasury shares | - | 52 | - | - | - | - | 52 | - | 52 | |||||||||||||||||||||||||||||||
Dividends paid on common shares | (211 | ) | (292 | ) | - | - | - | - | (503 | ) | - | (503 | ) | |||||||||||||||||||||||||||
Dividend withholding tax reduction | - | 1 | - | - | - | - | 1 | - | 1 | |||||||||||||||||||||||||||||||
Coupons on perpetual securities | - | (111 | ) | - | - | - | - | (111 | ) | - | (111 | ) | ||||||||||||||||||||||||||||
Coupons on non-cumulative subordinated notes | - | (28 | ) | - | - | - | - | (28 | ) | - | (28 | ) | ||||||||||||||||||||||||||||
Share options and incentive plans | - | (7 | ) | - | - | - | (27 | ) | (33 | ) | - | (33 | ) | |||||||||||||||||||||||||||
At December 31, 2015 | 32, 33 | 8,387 | 7,832 | 6,471 | (1,532 | ) | 1,283 | 3,800 | 26,241 | 9 | 26,250 |
Amounts in EUR million | Note | 2020 | 20193) | 20183) | ||||||||||||
Income / (loss) before tax | (364 | ) | 1,453 | 746 | ||||||||||||
Results from financial transactions | (22,092 | ) | (35,933 | ) | 11,516 | |||||||||||
Amortization and depreciation | 722 | 1,184 | 1,315 | |||||||||||||
Impairment losses | 382 | 160 | 68 | |||||||||||||
Income from joint ventures | (184 | ) | (214 | ) | (210 | ) | ||||||||||
Income from associates | (111 | ) | (12 | ) | (6 | ) | ||||||||||
Release of cash flow hedging reserve | (109 | ) | (97 | ) | (80 | ) | ||||||||||
Other | 9 | 26 | 145 | |||||||||||||
Adjustments of non-cash items | (21,383 | ) | (34,886 | ) | 12,748 | |||||||||||
Insurance and investment liabilities | 6,975 | 3,755 | 1,994 | |||||||||||||
Insurance and investment liabilities for account of policyholders | 11,005 | 26,512 | (21,751 | ) | ||||||||||||
Accrued expenses and other liabilities | 655 | 352 | (2,384 | ) | ||||||||||||
Accrued income and prepayments | (1,315 | ) | (1,057 | ) | 709 | |||||||||||
Changes in accruals | 17,319 | 29,562 | (21,432 | ) | ||||||||||||
Purchase of investments (other than money market investments) | (44,637 | ) | (40,014 | ) | (31,279 | ) | ||||||||||
Purchase of derivatives | 924 | (214 | ) | (1,525 | ) | |||||||||||
Disposal of investments (other than money market investments) | 31,875 | 40,187 | 29,192 | |||||||||||||
Disposal of derivatives | 1,771 | 2,880 | (597 | ) | ||||||||||||
Net purchase of investments for account of policyholders | 8,865 | 7,605 | 10,819 | |||||||||||||
Net change in cash collateral | 2,425 | (332 | ) | 1,029 | ||||||||||||
Net purchase of money market investments | 363 | 1,089 | 823 | |||||||||||||
Cash flow movements on operating items not reflected in income | 1,585 | 11,200 | 8,462 | |||||||||||||
Tax (paid)/ received | (7 | ) | (18 | ) | (9 | ) | ||||||||||
Other | (5 | ) | (9 | ) | 1 | |||||||||||
Net cash flows from operating activities | 21 | (2,854 | ) | 7,302 | 517 | |||||||||||
Purchase of individual intangible assets (other than VOBA and future servicing rights) | (40 | ) | (46 | ) | (42 | ) | ||||||||||
Purchase of equipment and real estate for own use | (80 | ) | (102 | ) | (81 | ) | ||||||||||
Acquisition of subsidiaries, net of cash | (15 | ) | (1 | ) | (89 | ) | ||||||||||
Acquisition/capital contributions joint ventures and associates | (305 | ) | (269 | ) | (146 | ) | ||||||||||
Disposal of intangible asset | 3 | 1 | 2 | |||||||||||||
Disposal of equipment | 7 | 63 | 14 | |||||||||||||
Disposal of subsidiaries and businesses, net of cash | - | 137 | (200 | ) | ||||||||||||
Disposal joint ventures and associates | 154 | 1 | 7 | |||||||||||||
Dividend received from joint ventures and associates | 138 | 130 | 97 | |||||||||||||
Net cash flows from investing activities | 21 | (139 | ) | (86 | ) | (438 | ) | |||||||||
Issuance of treasury shares | - | 1 | - | |||||||||||||
Issuance of perpetuals | - | 496 | - | |||||||||||||
Purchase of treasury shares | (59 | ) | (318 | ) | (248 | ) | ||||||||||
Proceeds from TRUPS 1), Subordinated borrowings and borrowings | 3,444 | 4,923 | 4,185 | |||||||||||||
Repayment of TRUPS 1), Subordinated borrowings and borrowings | (3,985 | ) | (7,014 | ) | (5,211 | ) | ||||||||||
Repayment of perpetuals | - | (1,343 | ) | (200 | ) | |||||||||||
Repayment of non-cumulative subordinated note | - | - | (443 | ) | ||||||||||||
Dividends paid | (63 | ) | (309 | ) | (328 | ) | ||||||||||
Coupons on perpetual securities | (55 | ) | (112 | ) | (136 | ) | ||||||||||
Payment of Right-of-use Assets | (60 | ) | (54 | ) | (14 | ) | ||||||||||
Net cash flows from financing activities | 21 | (778 | ) | (3,730 | ) | (2,395 | ) | |||||||||
Net increase / (decrease) in cash and cash equivalents 2) | (3,770 | ) | 3,486 | (2,317 | ) | |||||||||||
Net cash and cash equivalents at the beginning of the year | 12,263 | 8,744 | 11,026 | |||||||||||||
Effects of changes in exchange rate | (121 | ) | 33 | 35 | ||||||||||||
Net cash and cash equivalents at the end of the year | 21 | 8,372 | 12,263 | 8,744 |
1 | Trust pass-through securities. |
2 |
Consolidated cash flow statement of Aegon N.V.
For the year ended December 31
Amounts in EUR million | Note | 2017 | 2016 | 2015 | ||||||||||||
Income / (loss) before tax | 2,534 | 610 | (514 | ) | ||||||||||||
Results from financial transactions | (23.445 | ) | (16,294 | ) | (896 | ) | ||||||||||
Amortization and depreciation | 781 | 1,208 | 1,519 | |||||||||||||
Impairment losses | 84 | 88 | 1,261 | |||||||||||||
Income from joint ventures | (161 | ) | (137 | ) | (142 | ) | ||||||||||
Income from associates | (11 | ) | (3 | ) | (5 | ) | ||||||||||
Release of cash flow hedging reserve | (739 | ) | (59 | ) | (39 | ) | ||||||||||
Other | (620 | ) | 577 | 476 | ||||||||||||
Adjustments of non-cash items | (24.112 | ) | (14,621 | ) | 2,174 | |||||||||||
Insurance and investment liabilities | (613 | ) | 2,640 | 3,381 | ||||||||||||
Insurance and investment liabilities for account of policyholders | 12,988 | 10,716 | (3,343 | ) | ||||||||||||
Accrued expenses and other liabilities | 309 | 2,610 | (1,843 | ) | ||||||||||||
Accrued income and prepayments | (1,797 | ) | (2,812 | ) | (1,387 | ) | ||||||||||
Changes in accruals | 10,887 | 13,153 | (3,192 | ) | ||||||||||||
Purchase of investments (other than money market investments) | (32,057 | ) | (34,873 | ) | (38,290 | ) | ||||||||||
Purchase of derivatives | 752 | (831 | ) | (1,003 | ) | |||||||||||
Disposal of investments (other than money market investments) | 35.512 | 33,246 | 36,619 | |||||||||||||
Disposal of derivatives | (878 | ) | 2,373 | 3,099 | ||||||||||||
Net purchase of investments for account of policyholders | 8,869 | 5,160 | 4,371 | |||||||||||||
Net change in cash collateral | (455 | ) | (1,347 | ) | (2,569 | ) | ||||||||||
Net purchase of money market investments | (659 | ) | 532 | 648 | ||||||||||||
Cash flow movements on operating items not reflected in income | 11.082 | 4,260 | 2,875 | |||||||||||||
Tax paid | 173 | (116 | ) | (405 | ) | |||||||||||
Other | (12 | ) | 34 | (23 | ) | |||||||||||
Net cash flows from operating activities | 21 | 553 | 3,319 | 914 | ||||||||||||
Purchase of individual intangible assets (other than VOBA and future servicing rights) | (34 | ) | (22 | ) | (52 | ) | ||||||||||
Purchase of equipment and real estate for own use | (72 | ) | (69 | ) | (90 | ) | ||||||||||
Acquisition of subsidiaries, net of cash | (52 | ) | (2 | ) | (66 | ) | ||||||||||
Acquisition joint ventures and associates | (121 | ) | (112 | ) | (173 | ) | ||||||||||
Disposal of intangible asset | 1 | - | - | |||||||||||||
Disposal of equipment | 5 | 3 | 8 | |||||||||||||
Disposal of subsidiaries and businesses, net of cash | (1,054 | ) | (1,082 | ) | 542 | |||||||||||
Disposal joint ventures and associates | 2 | 3 | 371 | |||||||||||||
Dividend received from joint ventures and associates | 129 | 203 | 76 | |||||||||||||
Net cash flows from investing activities | 21 | (1,196 | ) | (1,078 | ) | 615 | ||||||||||
Issuance of share capital | - | - | 1 | |||||||||||||
Issuance of treasury shares | 2 | - | - | |||||||||||||
Purchase of treasury shares | (266 | ) | (623 | ) | (213 | ) | ||||||||||
Proceeds from TRUPS1), Subordinated borrowings and borrowings | 9,170 | 3,711 | 1,821 | |||||||||||||
Repayment of TRUPS1), Subordinated borrowings and borrowings | (7,918 | ) | (3,070 | ) | (3,916 | ) | ||||||||||
Dividends paid | (294 | ) | (306 | ) | (292 | ) | ||||||||||
Coupons on perpetual securities | (138 | ) | (140 | ) | (148 | ) | ||||||||||
Coupons on non-cumulative subordinated notes | (37 | ) | (38 | ) | (38 | ) | ||||||||||
Net cash flows from financing activities | 21 | 519 | (465 | ) | (2,785 | ) | ||||||||||
Net increase / (decrease) in cash and cash equivalents2) | (125 | ) | 1,776 | (1,257 | ) | |||||||||||
Net cash and cash equivalents at the beginning of the year | 11,347 | 9,593 | 10,649 | |||||||||||||
Effects of changes in exchange rate | (196 | ) | (23 | ) | 200 | |||||||||||
Net cash and cash equivalents at the end of the year | 21 | 11,026 | 11,346 | 9,593 |
Included in net increase / (decrease) in cash and cash equivalents are interest received |
3 | Amounts have been restated to reflect the voluntary change in accounting policies related to deferred cost of reinsurance (DCoR) adopted by Aegon effective January 1, 2020. Refer to note 2.1.2 Voluntary changes in accounting policies for details about this change. |
The cash flow statement is prepared according to the indirect method.
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statementsNote 1155 | ||
Notes to theconsolidated financial statements
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 28,00022,000 people worldwide (2016:(2019: over 29,000)23,000).
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 debt securities when and as these payments become due and payable, whether 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 Summary of significantSignificant 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 Form 20-F.
The consolidated financial statements have been prepared in accordance with the historical cost convention as modified by the revaluation of investment(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 20172020 is provided below in note 2.1.1 Adoption of new IFRS2.1.1. Aegon also adopted voluntary changes in accounting standards.policies, effective January 1, 2020, disclosed in note 2.1.2. The consolidated financial statements are presented in euroeuros 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. Certain amounts in prior years may have been reclassified to conform
With regard to the current year presentation. These reclassifications had no effect on net income shareholders’ equity or earnings per share.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 22, 2018.17, 2021. The financial statements will be put for adoption to the Annual General Meeting of Shareholders on May 18, 2018.June 3, 2021. The shareholders’ meeting can decide not to adopt the financial statements but cannot amend them.
Other thenthan 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-F 2020 |
Notes to the consolidated financial statements Note 2156 | ||
Recognition and Measurement’ regarding hedge accounting for portfolio hedges of interest rate risk. Under IFRS-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’versionout’ 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.
A reconciliation between IFRS and IFRS-EU is included in the table below.
Shareholders’ equity | Net income | Shareholders’ equity | Net income | |||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2017 | 2016 | 2015 | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | |||||||||||||||||||||||||||||||||||||
In accordance with IFRS | 20,288 | 20,520 | 22,441 | 2,469 | 438 | (431 | ) | 22,018 | 21,842 | 19,189 | (135) | 1,236 | 707 | |||||||||||||||||||||||||||||||||||
Adjustment of EU ‘IAS 39’ carve-out | 368 | 510 | 315 | (142 | ) | 195 | (120 | ) | 1,054 | 774 | 399 | 280 | 375 | 31 | ||||||||||||||||||||||||||||||||||
Tax effect of the adjustment | (83 | ) | (117 | ) | (71 | ) | 34 | (47 | ) | 27 | (257) | (167) | (81) | (90) | (86) | 3 | ||||||||||||||||||||||||||||||||
Effect of the adjustment after tax | 285 | 393 | 244 | (108 | ) | 149 | (92 | ) | 798 | 607 | 318 | 190 | 289 | 34 | ||||||||||||||||||||||||||||||||||
In accordance with IFRS-EU | 20,573 | 20,913 | 22,684 | 2,361 | 586 | ` (523 | ) | 22,815 | 22,449 | 19,507 | 55 | 1,525 | 741 |
2.1.1 Adoption of new IFRS accounting standards and amendments effective in 2020
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 2017,2020, the following 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:mandatory:
Accounting standard/ amendment/ interpretation | IASB effective date | Impact for Aegon | ||||||
| January 1, | 2020 | Low | |||||
Definition of Material (Amendments to IAS | January 1, | 2020 | Low | |||||
| January 1, | Low | ||||||
Early adopted: | ||||||||
Covid-19-Related Rent Concessions (Amendment to IFRS 16) | June 1 , 2020 | Low |
None of these amendments to existing standards are significantly impacting the financial position or the consolidated financial statements.
2.1.2 Voluntary change in accounting policy effective in 2020
Effective January 1, 2020, Aegon adopted a voluntary accounting policy change related to the deferred cost of reinsurance, which is applied retrospectively for all periods presented.
Reinsurance accounting
As of January 1, 2020, Aegon has voluntarily changed 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.
Under the previous accounting policy, the amortization of the deferred cost of reinsurance is based solely on assumptions relating to the underlying insurance contracts. Under the new accounting policy, for products sold in the Americas and Asia where the amortization is based on expected gross profit margins (EGPs), these EGPs are 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 are unlocked prospectively. The accounting policy on the amortization of similar intangibles, such as deferred policy acquisition costs, are updated accordingly.
The new policy was 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.
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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 2 157 | ||
2.1.2
Impact of voluntary changes in accounting policies on the consolidated income statement | Note | December 31, 2019 (as previously reported) 1) | Change in accounting policy related to Reinsurance Accounting | December 31, 2019 (restated) | December 31, 2018 (as previously reported) 1) | Change in accounting policy related to Reinsurance Accounting | December 31, 2018 (restated) | |||||||||||||||||||||
Income from reinsurance ceded | 9 | 3,532 | 54 | 3,586 | 3,740 | 52 | 3,791 | |||||||||||||||||||||
Policyholder claims and benefits | 12 | 56,797 | 58 | 56,856 | 10,557 | 57 | 10,614 | |||||||||||||||||||||
Commissions and expenses | 14 | 6,153 | (1 | ) | 6,153 | 6,224 | - | 6,224 | ||||||||||||||||||||
Income tax benefit/(expense) | 18 | (218 | ) | 1 | (217 | ) | (40 | ) | 1 | (39 | ) | |||||||||||||||||
Impact on net income | 1,239 | (3 | ) | 1,236 | 711 | (4 | ) | 707 | ||||||||||||||||||||
Net income/(loss) attributable to: | ||||||||||||||||||||||||||||
Owners of Aegon N.V. | 1,239 | (3 | ) | 1,235 | 710 | (4 | ) | 706 | ||||||||||||||||||||
Non-controlling interests | - | - | - | 1 | - | 1 | ||||||||||||||||||||||
Earnings per share(EUR per share) | 19 | |||||||||||||||||||||||||||
Basic earnings per common share | 0.56 | - | 0.56 | 0.29 | - | 0.29 | ||||||||||||||||||||||
Basic earnings per common share B | 0.01 | - | 0.01 | 0.01 | - | 0.01 | ||||||||||||||||||||||
Diluted earnings per common share | 0.56 | - | 0.56 | 0.29 | - | 0.29 | ||||||||||||||||||||||
Diluted earnings per common share B | 0.01 | - | 0.01 | 0.01 | - | 0.01 | ||||||||||||||||||||||
Earnings per common share calculation | 19 | |||||||||||||||||||||||||||
Net income/(loss) attributable to owner | 1,239 | (3 | ) | 1,235 | 710 | (4 | ) | 706 | ||||||||||||||||||||
Coupons on perpetual securities | (88 | ) | - | (88 | ) | (102 | ) | - | (102 | ) | ||||||||||||||||||
Coupon on non-cumulative subordinated notes | - | - | - | (11 | ) | - | (11) | |||||||||||||||||||||
Net income/(loss) attributable to owners for basic earnings per share calculation | 1,151 | (3 | ) | 1,148 | 597 | (4 | ) | 594 | ||||||||||||||||||||
Weighted average number of common shares outstanding (in million) | 2,042 | - | 2,042 | 2,036 | - | 2,036 | ||||||||||||||||||||||
Weighted average number of common shares B outstanding (in million) | 572 | - | 572 | 571 | - | 571 |
1 | As reported in Aegon’s Annual Report on Form 20-F dated March 18, 2020. |
Impact of voluntary changes in accounting policies on the consolidated statement of comprehensive income | Note | December 31, 2019 (as previously reported) 1) | Change in accounting policy related to Reinsurance Accounting | December 31, 2019 (restated) | December 31, 2018 (as previously reported) 1) | Change in accounting policy related to Reinsurance Accounting | December 31, 2018 (restated) | |||||||||||||||||||||
Net income / (loss) | 1,239 | (3 | ) | 1,236 | 711 | (4 | ) | 707 | ||||||||||||||||||||
Items that may be reclassified to profit or loss: | ||||||||||||||||||||||||||||
Gains / (losses) on revaluation of available-for-sale investments | 3,471 | 7 | 3,477 | (2,142 | ) | (2 | ) | (2,144 | ) | |||||||||||||||||||
Movement in foreign currency translation and net foreign investment hedging reserves | 314 | - | 314 | 602 | - | 602 | ||||||||||||||||||||||
Income tax relating to items that may be reclassified | (632 | ) | (1 | ) | (634 | ) | 494 | - | 494 | |||||||||||||||||||
Net effect comprehensive income | 3,471 | 2 | 3,473 | (396 | ) | (6 | ) | (402 | ) | |||||||||||||||||||
Total comprehensive income / (loss) attributable to: | ||||||||||||||||||||||||||||
Owners of Aegon N.V. | 3,472 | 2 | 3,474 | (398 | ) | (6 | ) | (403 | ) | |||||||||||||||||||
Non-controlling interests | (1 | ) | - | (1 | ) | 2 | - | 2 |
1 | As reported in Aegon’s Annual Report on Form 20-F dated March 18, 2020. |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 2 158 | ||
Impact of voluntary changes in statement of financial position | Note | December 31, 2019 (as previously reported) 1) | Change in accounting policy related to Reinsurance Accounting | December 31, 2019 (restated) | December 31, 2018 (as previously reported) 1) | Change in accounting policy related to Reinsurance Accounting | December 31, 2018 (restated) | |||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Reinsurance assets | 26 | 20,835 | (582 | ) | 20,253 | 20,507 | (630 | ) | 19,877 | |||||||||||||||||||
Deferred expenses | 27 | 10,804 | 2 | 10,806 | 10,910 | 4 | 10,914 | |||||||||||||||||||||
Other assets and receivables | 28 | 8,841 | 1 | 8,842 | 7,954 | 1 | 7,955 | |||||||||||||||||||||
Intangible assets | 29 | 1,559 | - | 1,559 | 1,727 | - | 1,727 | |||||||||||||||||||||
Equity and liabilities | ||||||||||||||||||||||||||||
Shareholders’ equity | 30 | 21,850 | (8 | ) | 21,842 | 19,200 | (10 | ) | 19,189 | |||||||||||||||||||
Insurance contracts | 34 | 123,454 | (569 | ) | 122,885 | 115,328 | (612 | ) | 114,716 | |||||||||||||||||||
Deferred tax liability | 40 | 1,227 | 2 | 1,229 | 529 | - | 529 | |||||||||||||||||||||
Other liabilities | 41 | 14,819 | (4 | ) | 14,816 | 13,454 | (2 | ) | 13,451 |
1 | As reported in Aegon’s Annual Report on Form 20-F dated March 18, 2020. |
Impact of voluntary changes in accounting policies on the statement of changes in equity | Note | December 31, 2019 (as previously reported) 1) | Change in accounting policy related to Reinsurance Accounting | December 31, 2019 (restated) | December previously | Change in accounting policy related to Reinsurance Accounting | December 31, 2018 (restated) | |||||||||||||||||||||
Share capital | 30.1 | 7,536 | - | 7,536 | 7,808 | - | 7,808 | |||||||||||||||||||||
Retained earnings | 30 | 10,386 | (12 | ) | 10,374 | 9,657 | (9 | ) | 9,648 | |||||||||||||||||||
Revaluation reserves | 30.4 | 5,868 | 5 | 5,873 | 3,436 | (1 | ) | 3,435 | ||||||||||||||||||||
Remeasurement of defined benefit plans | 30.5 | (2,397 | ) | - | (2,397 | ) | (1,850 | ) | - | (1,850 | ) | |||||||||||||||||
Other reserves | 30.6 | 456 | (1 | ) | 456 | 149 | - | 149 | ||||||||||||||||||||
Shareholders’ equity | 21,850 | (8 | ) | 21,842 | 19,200 | (10 | ) | 19,189 |
1 | As reported in Aegon’s Annual Report on Form 20-F dated March 18, 2020. |
The voluntary accounting policy change has no impact on the net cash flows from operating activities, investing activities nor from financing activities as presented in the cash flow statement.
Applying the new accounting policy in 2020 has led to an increase in net income of EUR 42 million, an increase in shareholders’ equity of EUR 22 million, an increase in reinsurance assets of EUR 66 million, a decrease in deferred expenses of EUR 24 million, a decrease in other assets and receivables of EUR 2 million, an increase in insurance contracts of EUR 16 million and an increase in deferred tax liabilities of EUR 2 million. As a result, the basic and diluted earnings per common share increased with EUR 0.02. The basic and diluted earnings per common share B remain unchanged as disclosed on the face of the income statement.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 2 159 | ||
2.1.3 Future adoption of new IFRS accounting standards and amendments
The following standards and amendments to existing standards, published prior to January 1, 2018,2021, were not early adopted by the Group, but will be applied in future years:
Accounting standard/ amendment/ interpretation | IASB effective date | Early adopted by Aegon | Impact for Aegon | |||||||||
IFRS
| January 1, | 2023 | No | See below for comments | ||||||||
IFRS 9 Financial instruments
| January 1, 2018
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| 1) | No | See below for comments | |||||||
Prepayment Features with Negative Compensation (Amendments to IFRS 9) | January 1, 2019 1) | No | See below for comments | |||||||||
Extension of the Temporary Exemption from Applying IFRS 9 | ||||||||||||
(Amendments to IFRS 4 Insurance Contracts) | January 1, 2021 | No | See below for comments | |||||||||
Interest Rate Benchmark Reform – Phase 2 | ||||||||||||
(Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) | January 1, 2021 | No | See below for comments | |||||||||
| January 1, 2022 | No | Low | |||||||||
Property, Plant and Equipment: Proceeds before Intended Use | ||||||||||||
(Amendments to IAS 16) | January 1, 2022 | No | Low | |||||||||
Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37) | January 1, 2022 | No | Low | |||||||||
Annual Improvements to IFRS Standards 2018–2020 | January 1, 2022 | No | Low | |||||||||
Classification of Liabilities as Current or Non-current (Amendments to IAS 1) | January 1, 2023 | 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 | ||||||||||||
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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 will replacereplaces 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.
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.
In order for an entityOn June 25, 2020, the IASB decided, next to be eligible fora number of significant amendments to the Standard, to defer the effective date of IFRS 17 to annual reporting periods beginning on or after January 1, 2023. As a consequence of the IFRS 17 deferral, the IASB also agreed to revise the fixed expiry date of the temporary exemption it must havefrom IFRS 9 in IFRS 4 to allow entities to continue applying the temporary exemption from IFRS 9 until January 1, 2023.
An entity is eligible to apply the temporary exemption if the carrying amount of its liabilities connected with insurance activities whose carrying value comprises either greater than 90% of the total carrying value of all liabilities or less than or equal to 90% but greater than 80%, and the insurer does not have significant activities unrelated to insurance. is
◆ | Greater than 90% of the total carrying value of all liabilities; or |
◆ | Between 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.exception as 94% of its liabilities are connected with insurance activities. As a result, Aegon will not implementelected to make 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 in combination with IFRS 17 is not yet clear, however an initial impact assessment resulted in the expectation that it will have
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 2 160 | ||
a significant impact on shareholders’ equity, income and/or other comprehensive income and disclosures. An implementation project haswas started in 2017 and will beis combined with the implementation of IFRS17IFRS 17 Insurance Contracts.
By qualifying for and electing the temporary exemption, the IFRS 15 Revenue from Contracts4 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 Customersentities applying IFRS 9. This information is presented below:
In May 2014,Fair value changes
The table below presents an overview of the IASB issued IFRS 15 Revenue from Contracts with Customers. IFRS 15 will replace IAS 18 Revenue,fair value of the classes of financial assets as of December 31, 2020, as well as other interpretations issuedthe 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. |
2020 | 2019 | |||||||||||||||||||
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 | ||||||||||||||||
Shares 1) | SPPI | 51 | 2 | 70 | 1 | |||||||||||||||
Other | 623 | 8 | 810 | 54 | ||||||||||||||||
Debt securities | SPPI | 92,836 | 5,461 | 82,014 | 6,218 | |||||||||||||||
Other | 6,514 | 6 | 4,839 | (770 | ) | |||||||||||||||
Money Markets and other short-term investments | SPPI | 2,657 | - | 2,724 | - | |||||||||||||||
Other | 2,011 | - | 2,603 | - | ||||||||||||||||
Mortgage loans | SPPI | 43,258 | 72 | 42,567 | 930 | |||||||||||||||
Other | - | - | - | - | ||||||||||||||||
Private loans | SPPI | 5,261 | 213 | 5,152 | 284 | |||||||||||||||
Other | 50 | 13 | 200 | (18 | ) | |||||||||||||||
sDeposits with financial institutions | SPPI | 92 | - | 142 | - | |||||||||||||||
Other | - | - | - | - | ||||||||||||||||
Policy loans | SPPI | 1 | - | - | - | |||||||||||||||
Other | 1,800 | 12 | 2,024 | - | ||||||||||||||||
Other financial assets | SPPI | - | - | 36 | - | |||||||||||||||
Other | 4,946 | (145 | ) | 5,388 | (100 | ) | ||||||||||||||
At December 31 | 160,100 | 5,644 | 148,570 | 6,598 |
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 note 22.1 Financial assets, excluding derivatives.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 2 161 | ||
Credit Risk
The table below details the credit risk rating grades, as of December 31, 2020, 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 | |||||||||||||||||||||||||||
2020 | ||||||||||||||||||||||||||||||||||||
Shares – Carried at fair value | - | - | - | 17 | 24 | 7 | 3 | 51 | ||||||||||||||||||||||||||||
Debt securities – Carried at fair value | 28,970 | 9,869 | 23,615 | 26,310 | 2,119 | 938 | 1,015 | 2 | 92,836 | |||||||||||||||||||||||||||
Money market and other short-term investments- carried at fair value | 136 | 129 | 2,178 | 213 | - | - | - | - | 2,657 | |||||||||||||||||||||||||||
Mortgage loans– Carried at amortized cost | 1,066 | 3,494 | 3,369 | 695 | 78 | - | - | 30,596 | 39,298 | |||||||||||||||||||||||||||
Private loans – Carried at amortized cost | 1,913 | 74 | 142 | 1,098 | 46 | - | - | 1,068 | 4,341 | |||||||||||||||||||||||||||
Other financial assets – Carried at fair value | - | - | 6 | 1 | - | 45 | 1 | 41 | 93 | |||||||||||||||||||||||||||
At December 31 | 32,085 | 13,565 | 29,309 | 28,334 | 2,267 | 989 | 1,018 | 31,707 | 139,275 | |||||||||||||||||||||||||||
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 |
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 the IFRIC (International Financial Reporting Interpretations Committee) and SIC (Standing Interpretations Committee) regarding revenue unless the contracts are within the scope of other standards (for example, financial instruments, insurance contracts or lease contracts)Aegon1. The standard outlinesfinancial assets are categorized by asset class with a carrying amount and fair value measured in accordance with IAS 39 measurement requirements.
2020 | 2019 | |||||||||||||||
SPPI compliant financial assets rated BB or below | Carrying amount | Fair value | Carrying amount | Fair value | ||||||||||||
Shares – Carried at fair value | 34 | 34 | 27 | 27 | ||||||||||||
Debt securities – Carried at fair value | 4,073 | 4,073 | 3,894 | 3,894 | ||||||||||||
Mortgage loans – Carried at amortized cost | 30,674 | 33,828 | 29,593 | 33,132 | ||||||||||||
Private loans – Carried at amortized cost | 1,114 | 1,210 | 1,431 | 1,488 | ||||||||||||
Deposits with financial institutions – Carried at amortized cost | 85 | 86 | 76 | 76 | ||||||||||||
Other financial assets – Carried at fair value | 1 | 1 | 35 | 35 | ||||||||||||
At December 31 | 35,982 | 39,232 | 35,056 | 38,652 |
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 20-F 2020 |
Notes to the consolidated financial statements Note 2 162 | ||
Investments in joint ventures and associates
All Aegon’s equity accounted investments remain to apply IAS 39. Except Santander Vida Seguros y Reaseguros S.A. (‘Santander Spain Life’) and Amvest Residential Core Fund, Aegon does not hold any other individually material joint-venture or associate. As most of Amvest Residential Core Fund financial assets are measured at fair value through profit or loss, there is no material difference between the principles an entity shall applyfinancial statements of Amvest Residential Core Fund 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 is not disclosed for these entities. The additional information for Santander Spain Life is presented below:
2020 | 2019 | |||||||||||||||||||
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 | ||||||||||||||||
Debt securities | SPPI | 169 | 119 | 51 | 5 | |||||||||||||||
Other | 1 | - | - | - | ||||||||||||||||
Money Markets and other short-term investments | SPPI | - | - | - | - | |||||||||||||||
Other | 37 | - | 8 | - | ||||||||||||||||
At December 31 | 207 | 119 | 60 | 5 |
SPPI compliant financial assets at carrying value | AAA | AA | A | BBB | BB | B | CCC or lower | Not Rated | Total | |||||||||||||||||||||||||||
2020 | ||||||||||||||||||||||||||||||||||||
Debt securities – Carried at fair value | 9 | 19 | 106 | 35 | - | - | - | - | 169 | |||||||||||||||||||||||||||
At December 31 | 9 | 19 | 106 | 35 | - | - | - | - | 169 | |||||||||||||||||||||||||||
2019 | ||||||||||||||||||||||||||||||||||||
Debt securities – Carried at fair value | 1 | 7 | 34 | 10 | - | - | - | - | 51 | |||||||||||||||||||||||||||
At December 31 | 1 | 7 | 34 | 10 | - | - | - | - | 51 |
Subsidiaries, joint ventures and associates applying IFRS 9 in their statutory accounts
Information on the application of IFRS 9 by principal subsidiaries and joint ventures that for statutory purposes cannot elect to measure and recognize revenue anddefer the related cash flows. The core principle is that an entity will recognize revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. In April 2016, the IASB issued amendments to IFRS 15 to address several implementation issues discussed by the Transition Resource Group (TRG). The amendments are intended to clarify the requirements in IFRS 15, not to change the standard. IFRS 15 and the amendments is effective for the Group from January 1, 2018, using either of two methods: a full retrospective approach with certain practical expedients or a modified retrospective approach with the cumulative effect of initially applying this standard recognized at the date of initial application with certain additional disclosures. Aegon has evaluatedIFRS 9 can be found in the impact that adoptionpublicly available statutory annual reports on www.aegon.nl and/or the Chamber of this standardCommerce. This information is expected to have onnot part of the Group’saudited consolidated financial statements and came to the conclusion that this impact will be very limited because insurance revenue is not in scope of IFRS 15 and because the other types of revenue are already materially compliant with this standard. Since IFRS 15 will have very limited impact on the Group’s financial statements, Aegon chose to apply the modified retrospective approach as transition method.N.V.. The related entities are:
IFRS 16 Leases
IFRS 16 Leases which replaces IAS 17 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 requires 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 a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. 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 is evaluating the impact that adoption of this Standard is expected to have on the Group’s financial statements.
◆ | Aegon Bank N.V. |
◆ | Aegon Hypotheken B.V. |
◆ | Aegon Asset Management Holding B.V. |
◆ | Amvest Vastgoed B.V. |
◆ | Amvest Development Fund B.V. |
◆ | Amvest Living & Care Fund |
◆ | Amvest Residential Core Fund |
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.
On June 25, 2020, the IASB decided, next to a number of significant amendments to the Standard, to defer the effective date of IFRS 17 is effective forto annual reporting periods beginning on or after January 1, 2021. 2023. 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, 2023.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 2163 | ||
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 choices have
been made asBased on the final amendments of June 2020 quantitative assessments are performed and expected to continue during 2021. The outcome of these quantitative assessments will form the accountingbasis for final methodology and policy options provided in IFRS 17, however, it is expected that thechoices. The impact of the initial application on Aegon’s financial statements is expected to be significant.
Interest rate benchmark reform
In 2019, Aegon elected to early adopt the ‘Interest Rate Benchmark Reform – Phase 1 (Amendments to IFRS 9, IAS 39 and IFRS 7)’ issued in September 2019. In accordance with the transition provisions, the Phase 1 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 reform) 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.
In August 2020, the IASB issued the ‘Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)’, which address issues that might affect financial reporting during the IBOR reform, including the effects of changes to contractual cash flows or hedging relationships arising from the replacement of an interest rate benchmark with an alternative benchmark rate. The Phase 2 amendments have no impact for the Group in 2020. Aegon continues to follow the developments of IBOR reform, and will assess the impact for the Group when further information becomes available.
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 at their share in the fair value of the net assets on the acquisition date and subsequently adjusted for the non-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 including non-controlling interests is recognized in the income statement.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 2164 | ||
Transactions with non-controlling interests
Transactions with non-controlling interests are accounted for as transactions with owners. Therefore disposals to non-controlling interests and acquisitions from non-controlling interests, not resulting in losing or gaining control of the subsidiary are recorded 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.
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 as non-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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 2165 | ||
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 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 in non-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 other non-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 on non-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.
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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 2166 | ||
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.
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.f Liability adequacy testing.
When unrealized gains or losses arise on available-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 directlyin other comprehensive income 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 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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 2167 | ||
2.7 Investments
General account investments comprise financial assets, excluding derivatives, as well as investments in real estate.
a. Financial assets, excluding derivatives
Financial assets are recognized on theat trade date (except for Private placements that are recognized at settlement date) when the Group becomes a party to the contractual provisions of the instrument andinstruments. 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 as available-for-sale.
All remaining non-derivative financial assets are classified as available-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 assets held-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.
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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 2168 | ||
Derecognition
A financial asset is derecognized when the contractual rights to the asset’s cash flows expire andor when the Group retains the right to receive cash flows from the asset orbut has an obligation to pay any received cash flows in full without delay to a third party and 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 other comprehensive income 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.
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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 2169 | ||
2.9 Derivatives
a. Definition
Derivatives are financial instruments of which the value changes in response to an underlying variable, that often 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 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. |
◆ | Hedge accounting is not discontinued during the period of IBOR-related uncertainty solely because the retrospective effectiveness falls outside the required 80-125% 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. |
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,
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 2170 | ||
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 a non-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, 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.
d. Brexit
Since January 31, 2020, the United Kingdom (UK) is no longer a member of the European Union. Just before the Brexit transition period ended after December 31, 2020, the European Union and the United Kingdom agreed on a new “Trade and Cooperation Agreement” outlining their post-Brexit relationship. Overall, the deal is light on financial services. Aegon no longer enters into new derivatives transactions with UK counterparties, repapered with EU 27 counterparties and clearing members and transferred a large majority of its derivatives that were cleared at the London Clearing House to EU 27 clearing members and to Eurex in Frankfurt.
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.
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 recognized in other comprehensive income 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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 2171 | ||
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.
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.
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
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 2172 | ||
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 on a country-by-country basis 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 on available-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 directlyin other comprehensive income 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. 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). 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.
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, 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 and in-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
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statementsNote 2173 | ||
(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 of non-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 shareholders’ equityother 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, 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 first written-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. All non-impaired assets measured at amortized cost are then grouped by credit risk characteristics and collectively tested for impairment.
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 as available-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
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statementsNote 2174 | ||
on debt instruments that are classified as available-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 as available-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 an available-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 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 arewere identified as a compound instrument due to the nature of this financial instrument. For these non-cumulative subordinated notes, Aegon hashad an unconditional right to avoid delivering cash or another financial asset to settle the coupon payments. The redemption of the principal iswas however not at the discretion of Aegon and therefore Aegon hashad 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 arewere separated into liability components and equity components. The liability component for the non-cumulative subordinated notes iswas 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 iswas recognized in the income statement. The liability component is derecognized when the Group’s obligation under the contract expires, is discharged or is cancelled. At initial recognition the equity component iswas 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 iswas translated into euro using historical exchange rates. With effect on May 15, 2018, Aegon has exercised its right to redeem USD 525 million non-cumulative subordinated notes, subsequently leading to their redemption. As the Group’s obligation under the contract has expired, the liability and equity components of the non-cumulative subordinated notes have been 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 arewere directly attributable to the issuing or buying back of the compound instruments arewere recognized proportionate to the equity component and liability component, net of tax.
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statementsNote 2175 | ||
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 for non-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 of non-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 the non-cumulative subordinated notes is related to the redemption amount. For further information on the accounting policy of the non-cumulative subordinated notes refer to note 2.17 Equity.
2.19 Insurance contracts
Insurance contracts are accounted for under IFRS 4 Insurance 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.
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.
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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 2176 | ||
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.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.
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.
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
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 2177 | ||
insurance contracts include benefits that are contractually based on the investment returns realized by the insurer. In addition, realization of gains or losses on available-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 on available-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. For non-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 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 and non-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 assets were allocated to the insurance portfolio are included in the LAT.
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 leadslead 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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 2178 | ||
The adequacy of the non-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 are re-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 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.
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.
These segments are based on the business as presented in internal reports that are regularly reviewed by the Executive Board which is regarded as the chief operating decision maker.
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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 2179 | ||
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 management’s best estimate of future variables.estimates. 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 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.
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 shallare not allowed to be reclassified to profit or loss in a subsequent period.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 2180 | ||
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 beis 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 to pre-defined conditions such as the grant price of the Groupshares and (business and personal) performance criteria. The number of shares that will vest partly depends on Aegon’s relative total shareholder return in comparison with the choice of settlement.a peer group.
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. In addition, where the relative total shareholder return is included in the performance criteria, this factor represents a market condition and hence is taken into account when estimating the fair value of the shares granted.
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
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 net settled component of long-term share-based plans) a liability will be recognized usingdeduction 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 settled award based on the elapsed portion of the vesting period. For modifications of the terms and conditions of equity-settled plans that result 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.instruments withheld.
2.23 Deferred gains
Initial fees and front-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.
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 judgment 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
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 2181 | ||
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 considers tax-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 and non-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.
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 as no-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 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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 2182 | ||
2.28 Fee and commission income
Fees and commissions from investment management services and mutual funds services where 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 service provider (including mortgage loan fee business)an insurance broker selling insurance contracts of other insurance companies to policyholders and fromreceiving direct sales activitiescommission as well as commissions over time when the same policyholders renew their contracts. These commissions are recognized only when received as revenue over the period in which the servicespolicyholders’ renewals are performed or for sales activities where services have been rendered.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.
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 other non-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).
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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 2183 | ||
2.33 Leases
As of January 1, 2019, 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.
Policy applicable from January 1, 2019
As a lessee
The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-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. The right-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 the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of real estate and equipment. In addition, the right-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 presents right-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 of low-value assets The Group has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-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.
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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 3184 | ||
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.
Uncertainty resulting from COVID-19
During 2020 the world saw substantial disruption caused by the COVID-19 pandemic. Alongside related market volatility and impacts on mortality and morbidity, there continued to be general uncertainty with respect to how the pandemic would play out and what the resulting economic consequences might be.
While some lines of business saw lower premiums and deposits and higher incurred claims over the course of 2020, Aegon currently believes there is insufficient credible experience with which to update actuarial assumptions for COVID-19 specifically. In certain businesses, Aegon has incurred losses related to COVID-19. In the Americas, Aegon recorded unfavorable life mortality results of EUR 110 million which can be specifically attributed to COVID-19 based on the cause of death reported on the death certificate. However, actual COVID-19 related deaths were likely higher as not all of the deceased were tested for COVID-19 and/or were reported as COVID-19 deaths.
Aegon experienced positive morbidity results in its Long Term Care (LTC) block during 2020, a portion of which is believed to have been driven by COVID-19. Elevated claim terminations among customers in LTC facilities, some of which was likely caused by COVID-19, led to greater releases of reserves than expected. At the same time, there was a material decrease in the number of new LTC claims which may have been driven by the fear of COVID-19. However, there is a likelihood that as the COVID-19 pandemic situation improves, there may be an increase in these eligible, but currently deferred claims. As a result, Aegon has established an additional, Incurred But Not Reported, liability of EUR 34 million as of year end.
Impairment losses were higher than in previous reporting periods which was mainly driven by COVID-19 impacts. Impairment assessments were performed, and as a result of the uncertainty in the market and adverse impact of COVID-19, Aegon recorded impairments primarily in the energy, energy maintenance technologies, and communications sectors (refer to note 15 Impairment charges/(reversals) for more details). Allowance for credit losses on consumer loan portfolios and other asset classes remained low. In certain cases, customers could defer payments for three to six months. Throughout 2020 there were no significant contract modifications that would have led to the derecognition of the original asset or the establishment of an additional liability due to COVID-19.
Revised sales and earnings projections have been considered in the periodic impairment assessment of non-financial assets, which has led to the write-off of EUR 14 million customer-related intangibles.
As part of its normal process, Aegon has updated its sensitivity analysis for the impact of changes in financial assumptions on its IFRS equity and net income included in note 4 Financial risks.
Overall there were no significant impacts from COVID-19 on Level-III measurements. Note 44 Fair value, provides additional information on the fair valuation methods and assumptions applied, as well as movements or transfers in fair value hierarchy.
The COVID-19 pandemic had a negative impact on the Group Solvency II ratio as a result of negative market and underwriting impacts. Negative market impacts are mainly caused by a sharp decrease in interest rates, compounded by negative credit variances partly caused by widening of mortgage spreads. The higher mortality related to COVID-19 in Americas resulted in a negative underwriting result partly offset by better results on LTC. As part of its normal process, Aegon has updated its sensitivity analysis for the impact of economic and non-economic assumptions on its Solvency II ratio included in the Capital and liquidity management section.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 3 185 | ||
Management’s assessment of going concern
The consolidated financial statements of Aegon have been set up assuming a going concern basis of accounting based 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, 2020, were assessed in order to reach the going concern assumption. The main areas assessed are the financial performance, capital adequacy, financial position and flexibility, liquidity, ability to access capital markets, leverage ratios and the level of cash capital in the holding. Considering all these areas management concluded that the going concern assumption for Aegon is appropriate in preparing the consolidated financial statements.
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. To the extent that the deficiency relates to unrealized gains and losses on available-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.
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
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 3186 | ||
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 typically in the thirdsecond quarter for the US and in the fourth quarter for Europe and Asia, 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 2017,2020, Aegon implemented actuarial assumption and model updates resulting in a net EUR 276580 million charge to income before tax (2016:(2019: EUR 118196 million charge). ReferThis is mainly related to note 5 Segment informationAegon’s businesses in the Americas and the Netherlands. Assumption changes and model updates in the Americas led to a net negative impact of EUR 805 million. This reflects a charge of EUR 460 million related to the lowering the long-term interest rate assumption and the corresponding adjustment of the separate account bond return assumptions. During 2020, the long-term interest assumption was assumed to have a grading over 10 years to 2.75%, which was a change from the previous assumption during 2018 and 2019 of a grading over 10 years to 4.25%. Non-economic assumption changes resulted in a charge of EUR 345 million, mainly related to Universal Life premium persistency and an increase in mortality rate assumptions, as well as lowering the morbidity improvement assumption for further details.Long-Term Care from 1.5% per year for the next 15 years to 0.75% for the same period. Assumption changes and model updates in the Netherlands led to a favorable impact of EUR 225 million mainly related to favorable longevity assumption changes, partially offset by adverse impacts from mortgage prepayment model and expense assumption updates.
For the years 20152018 through 2017,2020, 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 for 10-year US Treasury yields was 4.25% and the uniform grading period was 10 years. The long term credit spread assumption, net of assumed defaults and expenses, on our most common corporate bonds is 114bps. The 90-day Treasury yield was 1.39%0.15%, 0.51%1.55% and 0.16%2.37% at December 31, 2017, 20162020, 2019 and 2015,2018 respectively. During 2016 and 20172020 the 90-day Treasury yield was assumed to have a uniform grading over 10 years to 2.5%. In 2015,1.5%, which was a change from the 90-day Treasury yield was assumed to remain level for six months followed by a 9.5 year gradeassumption during 2018 and 2019 of 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 130108 million (2016:(2019: EUR 158111 million). The DPAC and VOBA balances for these products in the United States amounted to EUR 2.72.4 billion at December 31, 2017 (2016:2020 (2019: EUR 3.02.7 billion).
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 265124 million (2016:(2019: EUR 223204 million). A relative 20% increase in the lapse rate assumption would increase net income by approximately EUR 7889 million (2016:(2019: EUR 60126 million).
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 3 187 | ||
Any reasonably possible changes in the other assumptions Aegon uses to determine EGP margins (i.e. maintenance expenses, inflation and disability)expenses) would reduce net income by less than EUR 11 million (2019: EUR 13 million).
Sensitivity on long term care (LTC) products in the United States
After tax sensitivities of significant product liability assumptions on the LTC IFRS after-tax Gross Present Value Reserve (GPV) are indicated below. The GPV is the liability as determined on a best estimate assumption basis. The morbidity improvement assumption for Long-Term Care has been lowered from 1.5% to 0.75% per year for the next 15 years.
A 5% increase in the utilization rates with regard to Aegon’s LTC products would result in a GPV increase of approximately EUR 186 million (per(2019: EUR 178 million). A 5% decrease in the utilization rates with regard to Aegon’s LTC products would result in a GPV decrease of approximately EUR 193 million (2019: EUR 178 million).
Removing the morbidity improvement assumption, change) (2016:which is a component of the utilization assumption, would result in a GPV increase of approximately EUR 12278 million (2019: EUR 535 million), of which EUR 173 million (2019: EUR 445 million) relates to the loss recognition block.
Reducing expected mortality by 10% would result in a GPV increase of approximately EUR 113 million (2019: EUR 89 million). Increasing expected mortality by 10% would result in a GPV decrease of approximately EUR 105 million (2019: EUR 89 million).
Removing future mortality improvement would result in a GPV decrease of approximately EUR 99 million (2019: EUR 89 million).
Sensitivity on liability adequacy test (LAT) in the Netherlands
At December 31, 2020 the liability adequacy test (LAT) of Aegon the Netherlands resulted in a deficiency. 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 (shadow loss recognition) and certain differences between the fair value and the book value of assets measured at amortized cost, mainly residential mortgages. Please also refer to Note 2.19f Liability adequacy testing for further details on the accounting policy.
The LAT deficit per December 31, 2020 in Aegon the Netherlands amounted to EUR 7.0 billion (2019: EUR 5.1 billion), which was partially offset by the shadow loss recognition of EUR 4.5 billion (2019: EUR 3.4 billion), resulting in a net deficit of EUR 2.5 billion (2019: EUR 1.7 billion).
During 2020, the LAT deficit of Aegon the Netherlands worsened from EUR 1.7 billion to EUR 2.5 billion, which led to the recognition of additional insurance contracts liabilities per December 31, 2020 of EUR 0.8 billion. The LAT deficit was negatively impacted by the impact of lower interest rate of EUR 1.5 billion (2019: EUR 1.3 billion) and adverse credit spread movements (widening mortgage spreads, tightened liquidity premium) of EUR 0.3 billion (2019: EUR 0.8 billion). This was partly offset by other favorable impacts (model and assumption updates and portfolio changes) totaling EUR 1.0 billion (2019: EUR 0.2 billion negative).
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 3.9 billion (2019: EUR 3.5 billion). A decrease of 100 bps would result in an increase in LAT deficit of approximately EUR 5.2 billion (2019: EUR 4.7 billion).
An increase of 50 bps in bond credit spread would lead to an increase in LAT deficit of EUR 0.2 billion (2019: EUR 0.2 billion). A decrease of 50 bps would result in a decrease in LAT deficit of EUR 0.3 billion (2019: EUR 0.2 billion).
An increase of 50 bps in mortgage spread would result in an increase in LAT deficit of EUR 0.6 billion (2019: EUR 0.6 billion). A decrease of 50 bps would result in a decrease in LAT deficit of EUR 0.6 billion (2019: EUR 0.6 billion).
An increase of 5 bps in liquidity premium would lead to a decrease in LAT deficit of EUR 0.2 billion. A decrease of 5 bps would result in an increase in LAT deficit of EUR 0.2 billion.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 3 188 | ||
Given the LAT deficit at December 31, 2020, 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; |
◆ | 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 and non-financial) could result in a different estimate of fair value at the reporting date.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4 189 | ||
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 and non-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.
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 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.clearing house.
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 of non-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 on locked-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’‘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-F 2020 |
Notes to the consolidated financial statements Note 4 190 | ||
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. |
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:
◆ | Credit risk |
◆ | Equity market risk and other investment risks |
◆ | Interest rate risk |
◆ | Currency exchange risk |
◆ | Liquidity risk |
Currency exchange rateCredit risk
As an international group,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 subjectexposed to foreign currency translation risk. Foreign currency exposure exists mainly when policies are denominated in currencies other than the issuer’s functional currency. Currencycredit 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 investment portfolios backing insuranceeconomy, downturns in real estate values, operational failure and investment liabilities is managed using asset liability matching principles. Assets allocated to equityfraud. 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 kept in local currencies toexcluded as the extent shareholders’ equity is required to satisfy regulatory and self-imposed capital requirements. Therefore, currency exchange rate fluctuations will affectpolicyholder bears the level of shareholders’ equity as a result of translation of subsidiaries into euro,credit risk associated with the investments.
The table that follows shows the Group’s presentation currency. Aegon holds the remainder of itsmaximum 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 45 and 46 for further information on capital base (perpetual capital securities, subordinatedcommitments 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 impactscontingencies and on shareholders’ equity and leverage ratios. Aegon does not hedge the income streams from the main non-euro units and, as a result, earningscollateral given, which 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 Currency 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 byexpose 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.
Information on Aegon’s three year historical net income/(loss) and shareholders’ equity in functional currency are shown in the table below:credit risk.
2017 | 2016 | 2015 | ||||||||||
Net income | ||||||||||||
Americas (in USD) | 1,762 | 618 | (261 | ) | ||||||||
The Netherlands (in EUR) | 818 | 418 | 753 | |||||||||
United Kingdom (in GBP) | 71 | (346 | ) | (674 | ) | |||||||
Central & Eastern Europe (in EUR) | 57 | 19 | 24 | |||||||||
Spain & Portugal (in EUR) | (2 | ) | (2 | ) | 22 | |||||||
Asia (in USD) | 6 | (14 | ) | (33 | ) | |||||||
Asset Management (in EUR) | 48 | 97 | 121 | |||||||||
Equity in functional currency | ||||||||||||
Americas (in USD) | 17,712 | 17,103 | 17,609 | |||||||||
The Netherlands (in EUR) | 6,558 | 5,101 | 5,263 | |||||||||
United Kingdom (in GBP) | 1,905 | 1,845 | 2,981 | |||||||||
Central & Eastern Europe (in EUR) | 402 | 378 | 396 | |||||||||
Spain & Portugal (in EUR) | 433 | 451 | 464 | |||||||||
Asia (in USD) | 1,169 | 1,281 | 674 | |||||||||
Asset Management (in EUR) | 397 | 422 | 444 |
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 | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
USD | 1.20 | 1.05 | 1.09 | 1.21 | 1.38 | |||||||||||||||
GBP | 0.89 | 0.85 | 0.74 | 0.78 | 0.83 |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4191 | ||
2020 | 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 | 99,350 | - | - | 245 | - | - | - | 245 | - | 99,105 | ||||||||||||||||||||||||||||||
Money market and other short-term investments - carried at fair value | 4,667 | - | 330 | - | - | - | - | 330 | 19 | 4,357 | ||||||||||||||||||||||||||||||
Mortgage loans - carried at amortized cost | 38,244 | 2,685 | - | 60 | 64,028 | - | - | 66,772 | 28,655 | 126 | ||||||||||||||||||||||||||||||
Private loans - carried at amortized cost | 4,358 | 45 | - | - | - | - | - | 45 | - | 4,313 | ||||||||||||||||||||||||||||||
Other loans - carried at amortized cost | 1,917 | - | - | - | - | - | 1,786 | 1,786 | 1,293 | 1,424 | ||||||||||||||||||||||||||||||
Other financial assets - carried at fair value | 3,641 | - | - | - | - | - | - | - | - | 3,641 | ||||||||||||||||||||||||||||||
Derivatives | 13,238 | 4,873 | 60 | 29 | - | 8,373 | - | 13,336 | 135 | 38 | ||||||||||||||||||||||||||||||
Reinsurance assets | 18,910 | - | 3,578 | 117 | - | - | - | 3,694 | - | 15,216 | ||||||||||||||||||||||||||||||
At December 31 | 184,326 | 7,603 | 3,967 | 450 | 64,028 | 8,373 | 1,786 | 86,207 | 30,101 | 128,220 |
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 overcollateral - ization) | 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 | 20,253 | - | 3,884 | 105 | - | - | - | 3,989 | - | 16,263 | ||||||||||||||||||||||||||||||
At December 31 | 171,764 | 5,365 | 4,294 | 468 | 61,159 | 8,186 | 2,008 | 81,481 | 27,884 | 118,167 |
Debt securities
Several bonds in Aegon’s Americas’ portfolio are guaranteed by Monoline insurers. This is shown in the table above in the column ‘Letters of credit / guarantees’.
Money market and short-term investments
The collateral reported for the money market and short-term investments are related to tri-party repurchase agreements (repos). Within tri-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-F 2020 |
Notes to the consolidated financial statements Note 4 192 | ||
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 of NHG-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 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 26 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 22.1 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-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-F 2020 |
Notes to the consolidated financial statements Note 4 193 | ||
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 companies’ foreignRisk and Capital Committee (GRCC). The policy is reviewed regularly.
At December 31, 2020, there was one violation of the Credit Name Limit Policy at Group level (2019: two). This related to the Republic of Turkey and is being closely monitored. The breach will be resolved by the disposal of Aegon Turkey, which is expected to close in the course of 2021.
At December 31, 2020, Aegon’s largest corporate credit exposures are to Wilton Re Holdings Ltd, American United Mutual Insurance, SCOR and Reinsurance Group of America and Munich Re. 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.
Aegon group level long-term counterparty exposure limits are as follows:
Group limits per credit rating
Amounts in EUR million | 2020 | 2019 | ||||||
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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4 194 | ||
Credit rating general account reinsurance assets 2020 | Americas | The Netherlands | United Kingdom | International | ||||||||||||||||||||||||||||
Amortized | Amortized | Amortized | Amortized | |||||||||||||||||||||||||||||
cost | Fair value | cost | Fair value | cost | Fair value | cost | Fair value | |||||||||||||||||||||||||
AAA | 1,066 | 15,551 | 1,913 | 14,362 | - | 43 | - | 925 | ||||||||||||||||||||||||
AA | 3,494 | 4,112 | 74 | 7,663 | - | 605 | - | 617 | ||||||||||||||||||||||||
A | 3,369 | 21,741 | 46 | 14,421 | - | 337 | 49 | 2,604 | ||||||||||||||||||||||||
BBB | 631 | 21,049 | 1,098 | 4,031 | - | 173 | (4 | ) | 3,242 | |||||||||||||||||||||||
BB | 56 | 1,847 | 46 | 248 | - | 1 | - | 230 | ||||||||||||||||||||||||
B | - | 611 | - | 100 | - | - | 45 | 302 | ||||||||||||||||||||||||
CCC or lower | - | 556 | - | 15 | - | - | 1 | 12 | ||||||||||||||||||||||||
Assets not rated | 1,775 | 3,360 | 30,492 | 1,464 | - | 848 | 30 | 80 | ||||||||||||||||||||||||
Total | 10,390 | 68,828 | 33,669 | 42,305 | - | 2,008 | 120 | 8,014 | ||||||||||||||||||||||||
Past due and / or impaired assets | 87 | 1,130 | 212 | 14 | - | - | - | 88 | ||||||||||||||||||||||||
At December 31 | 10,477 | 69,958 | 33,882 | 42,319 | - | 2,008 | 120 | 8,102 |
Credit rating general account investments, excluding reinsurance assets 2020 | Asset Management | Total 2020 1) | ||||||||||||||||||||||
Amortized | Amortized | Total carrying | ||||||||||||||||||||||
cost | Fair value | cost | Fair value | value | ||||||||||||||||||||
AAA | - | 159 | 2,980 | 31,042 | 34,021 | |||||||||||||||||||
AA | - | 3 | 3,567 | 13,001 | 16,568 | |||||||||||||||||||
A | - | 4 | 3,464 | 39,123 | 42,586 | |||||||||||||||||||
BBB | - | 15 | 1,725 | 28,510 | 30,235 | |||||||||||||||||||
BB | - | 16 | 102 | 2,372 | 2,473 | |||||||||||||||||||
B | - | 8 | 45 | 1,022 | 1,067 | |||||||||||||||||||
CCC or lower | - | 2 | 1 | 585 | 586 | |||||||||||||||||||
Assets not rated | - | 1 | 32,336 | 5,984 | 38,320 | |||||||||||||||||||
Total | - | 208 | 44,219 | 121,637 | 165,856 | |||||||||||||||||||
Past due and / or impaired assets | - | - | 300 | 1,238 | 1,538 | |||||||||||||||||||
At December 31 | - | 208 | 44,519 | 122,875 | 167,394 |
1 | Includes investments of Holding and other activities. |
Credit rating general account investments, excluding reinsurance assets 2019 | Americas | The Netherlands | United Kingdom | International | ||||||||||||||||||||||||||||
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 | - | 1,047 | ||||||||||||||||||||||||
AA | 3,671 | 4,162 | 82 | 7,625 | - | 624 | - | 601 | ||||||||||||||||||||||||
A | 3,580 | 19,752 | 47 | 8,271 | - | 307 | 61 | 2,852 | ||||||||||||||||||||||||
BBB | 275 | 19,062 | 970 | 1,758 | - | 120 | 5 | 3,102 | ||||||||||||||||||||||||
BB | 15 | 1,314 | 49 | 97 | - | 1 | - | 168 | ||||||||||||||||||||||||
B | 4 | 926 | - | 2 | - | - | 36 | 312 | ||||||||||||||||||||||||
CCC or lower | - | 677 | - | - | - | - | - | 13 | ||||||||||||||||||||||||
Assets not rated | 1,971 | 4,028 | 30,306 | 1,493 | - | 959 | 58 | 89 | ||||||||||||||||||||||||
Total | 10,827 | 64,584 | 33,251 | 32,589 | - | 2,103 | 160 | 8,185 | ||||||||||||||||||||||||
Past due and / or impaired assets | 95 | 1,051 | 210 | 19 | - | - | - | 9 | ||||||||||||||||||||||||
At December 31 | 10,922 | 65,635 | 33,460 | 32,609 | - | 2,103 | 160 | 8,194 |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4 195 | ||
Credit rating general account investments, excluding reinsurance assets 2019 | Asset Management | Total 2019 1) | ||||||||||||||||||||||
Amortized cost | Fair value | Amortized cost | Fair value | Total carrying value | ||||||||||||||||||||
AAA | - | 164 | 3,110 | 29,322 | 32,431 | |||||||||||||||||||
AA | - | 2 | 3,752 | 13,014 | 16,766 | |||||||||||||||||||
A | - | 11 | 3,688 | 31,206 | 34,895 | |||||||||||||||||||
BBB | - | 15 | 1,249 | 24,058 | 25,307 | |||||||||||||||||||
BB | - | 27 | 64 | 1,678 | 1,742 | |||||||||||||||||||
B | - | 34 | 40 | 1,274 | 1,314 | |||||||||||||||||||
CCC or lower | - | 9 | - | 699 | 699 | |||||||||||||||||||
Assets not rated | - | 5 | 32,383 | 6,789 | 39,172 | |||||||||||||||||||
Total | - | 266 | 44,286 | 108,040 | 152,327 | |||||||||||||||||||
Past due and / or impaired assets | - | - | 305 | 1,101 | 1,406 | |||||||||||||||||||
At December 31 | - | 266 | 44,591 | 109,142 | 153,732 |
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 2020 | Carrying value 2019 | |||||||
AAA | - | - | ||||||
AA | 9,025 | 10,193 | ||||||
A | 9,430 | 9,713 | ||||||
Below A | 34 | 40 | ||||||
Not rated | 421 | 307 | ||||||
At December 31 | 18,910 | 20,253 |
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 2020 | Americas | The Netherlands | United Kingdom | International | Asset Manage- ment | Total 2020 1) | Of which past due and / or impaired assets | |||||||||||||||||||||
Residential mortgage-backed securities (RMBSs) | 2,317 | 165 | - | 80 | 3 | 2,565 | 736 | |||||||||||||||||||||
Commercial mortgage-backed securities (CMBSs) | 2,970 | 12 | 122 | 495 | - | 3,599 | 9 | |||||||||||||||||||||
Asset-backed securities (ABSs) - CDOs | 422 | 1,703 | - | 35 | - | 2,159 | 1 | |||||||||||||||||||||
ABSs – Other | 1,584 | 11 | 74 | 294 | 2 | 1,965 | 9 | |||||||||||||||||||||
Financial - Banking | 6,144 | 4,520 | 164 | 1,034 | 2 | 11,863 | 9 | |||||||||||||||||||||
Financial - Other | 9,080 | 706 | 78 | 744 | 135 | 10,760 | 35 | |||||||||||||||||||||
Industrial | 25,070 | 6,154 | 210 | 3,073 | 11 | 34,518 | 255 | |||||||||||||||||||||
Utility | 4,872 | 401 | 78 | 610 | - | 5,960 | 143 | |||||||||||||||||||||
Government bonds | 11,282 | 17,208 | 434 | 1,658 | 46 | 30,627 | 4 | |||||||||||||||||||||
At December 31 | 63,739 | 30,880 | 1,160 | 8,022 | 199 | 104,018 | 1,200 |
1 | Includes investments of Holding and other activities. |
Aegon Annual Report on Form 20-F 2020 |
�� | Notes to the consolidated financial statements Note 4 196 | |
Credit risk concentrations – Government | Americas | The Netherlands | United Kingdom | International | Asset Management | Total 2020 1) | ||||||||||||||||||||||
United States | 10,623 | 61 | - | 503 | 2 | 11,189 | ||||||||||||||||||||||
Netherlands | - | 6,505 | - | - | - | 6,505 | ||||||||||||||||||||||
United Kingdom | - | 3 | 368 | - | 17 | 387 | ||||||||||||||||||||||
Austria | - | 1,318 | - | 9 | - | 1,326 | ||||||||||||||||||||||
Belgium | - | 1,255 | - | 5 | - | 1,260 | ||||||||||||||||||||||
Finland | - | 42 | - | - | - | 42 | ||||||||||||||||||||||
France | - | 1,779 | 34 | 3 | - | 1,816 | ||||||||||||||||||||||
Germany | - | 4,869 | - | - | - | 4,869 | ||||||||||||||||||||||
Hungary | 2 | - | - | 375 | 1 | 378 | ||||||||||||||||||||||
Luxembourg | - | 950 | - | 1 | - | 951 | ||||||||||||||||||||||
Spain | - | 146 | - | 208 | - | 354 | ||||||||||||||||||||||
Rest of Europe | 87 | 165 | - | 434 | 3 | 689 | ||||||||||||||||||||||
Rest of world | 567 | 115 | 32 | 115 | 24 | 854 | ||||||||||||||||||||||
Supranational | 3 | - | - | 4 | - | 7 | ||||||||||||||||||||||
At December 31 | 11,282 | 17,208 | 434 | 1,658 | 46 | 30,627 |
1 | Includes investments of Holding and other activities. |
Credit risk concentrations – Credit rating 2020 2) | Government bonds | Corporate bonds | RMBSs CMBSs ABSs | Other | Total 2020 1) | |||||||||||||||||||||||||||
AAA | 22,335 | 766 | 6,256 | 1,585 | 30,942 | |||||||||||||||||||||||||||
AA | 5,657 | 4,181 | 1,352 | - | 11,190 | |||||||||||||||||||||||||||
A | 1,056 | 26,438 | 1,224 | - | 28,718 | |||||||||||||||||||||||||||
BBB | 1,175 | 26,769 | 320 | - | 28,264 | |||||||||||||||||||||||||||
BB | 90 | 2,055 | 133 | - | 2,279 | |||||||||||||||||||||||||||
B | 308 | 639 | 53 | - | 1,000 | |||||||||||||||||||||||||||
CCC or lower | 6 | 282 | 949 | - | 1,237 | |||||||||||||||||||||||||||
Assets not rated | - | 2 | 2 | 385 | 388 | |||||||||||||||||||||||||||
At December 31 | 30,627 | 61,132 | 10,289 | 1,970 | 104,018 |
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 2019 | Americas | The Netherlands | United Kingdom | International | Asset Management | 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 | 389 | - | 2,258 | 1 | |||||||||||||||||||||
Financial - Banking | 6,561 | 2,684 | 154 | 1,152 | 3 | 10,554 | 4 | |||||||||||||||||||||
Financial - Other | 8,885 | 191 | 38 | 813 | 154 | 10,096 | 4 | |||||||||||||||||||||
Industrial | 23,158 | 2,243 | 234 | 3,142 | 57 | 28,835 | 61 | |||||||||||||||||||||
Utility | 3,760 | 136 | 67 | 447 | 1 | 4,411 | 52 | |||||||||||||||||||||
Government bonds | 9,558 | 16,072 | 449 | 1,376 | 44 | 27,500 | 2 | |||||||||||||||||||||
At December 31 | 59,882 | 22,773 | 1,143 | 8,106 | 260 | 92,180 | 1,046 |
1 | Includes investments of Holding and other activities. |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4 197 | ||
Credit risk concentrations – Government bonds per country of risk 2019 | Americas | The Netherlands | United Kingdom | International | Asset Management | Total 2019 1) | ||||||||||||||||||||||
United States | 8,893 | 1 | - | 314 | 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 | - | 342 | 3 | 646 | ||||||||||||||||||||||
Rest of world | 576 | 17 | 32 | 90 | 22 | 737 | ||||||||||||||||||||||
Supranational | 1 | - | - | - | - | 1 | ||||||||||||||||||||||
At December 31 | 9,558 | 16,072 | 449 | 1,376 | 44 | 27,500 |
1 | Includes investments of Holding and other activities. |
Credit risk concentrations – Credit rating 2019 2) | Government bonds | Corporate bonds | RMBSs CMBSs ABSs | Other | Total 2019 1) | |||||||||||||||||||||||||||
AAA | 20,324 | 719 | 6,344 | 1,861 | 29,248 | |||||||||||||||||||||||||||
AA | 4,903 | 3,514 | 1,429 | 2 | 9,848 | |||||||||||||||||||||||||||
A | 899 | 22,416 | 1,378 | - | 24,693 | |||||||||||||||||||||||||||
BBB | 949 | 22,137 | 284 | - | 23,371 | |||||||||||||||||||||||||||
BB | 110 | 1,292 | 122 | - | 1,524 | |||||||||||||||||||||||||||
B | 297 | 956 | 27 | - | 1,280 | |||||||||||||||||||||||||||
CCC or lower | 18 | 309 | 1,197 | - | 1,524 | |||||||||||||||||||||||||||
Assets not rated | - | 3 | 3 | 686 | 691 | |||||||||||||||||||||||||||
At December 31 | 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 – mortgage loans 2020 | Americas | The Netherlands | United Kingdom | International | Asset Management | Total 2020 | Of which past due and / or impaired assets | |||||||||||||||||||||
Agricultural | 59 | - | - | - | - | 59 | - | |||||||||||||||||||||
Apartment | 4,169 | - | - | - | - | 4,169 | 86 | |||||||||||||||||||||
Industrial | 1,240 | - | - | - | - | 1,240 | - | |||||||||||||||||||||
Office | 1,624 | - | - | - | - | 1,625 | - | |||||||||||||||||||||
Retail | 1,383 | 7 | - | - | - | 1,390 | 1 | |||||||||||||||||||||
Other commercial | 223 | 25 | - | - | - | 248 | 1 | |||||||||||||||||||||
Residential | 8 | 29,505 | - | 1 | - | 29,514 | 173 | |||||||||||||||||||||
At December 31 | 8,706 | 29,537 | - | 1 | - | 38,244 | 261 |
Credit risk concentrations – mortgage loans 2019 | Americas | The Netherlands | United Kingdom | International | Asset Management | Total 2019 | 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 |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4 198 | ||
The fair value of Aegon Americas commercial and agricultural mortgage loan portfolio as per December 31, 2020, amounted to EUR 9,518 million (2019: EUR 9,447 million). The loan to value (LTV) amounted to approximately 55% (2019: 53%). Of the portfolio 1% (2019: 1%) is in delinquency (defined as 60 days in arrears). In 2020, Aegon Americas recognized EUR 1 million of net impairments (2019: EUR 0 million net impairments) on this portfolio. In 2020, there were no foreclosures (2019: EUR 0 million) and no impairments or recoveries associated with foreclosed loans (2019: EUR 0 million).
The fair value of Aegon the Netherlands mortgage loan portfolio as per December 31, 2020, amounted to EUR 33,761 million (2019: EUR 33,111 million). The LTV amounted to approximately 66% (2019: 67%). A significant part of the portfolio 45% (2019: 49%) is government guaranteed. Of the portfolio, 0.1% (2019: 0.1%) is in delinquency (defined as 60 days in arrears). Impairments in 2020 amounted to EUR 0 million (2019: EUR 0 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 45 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 has non-controlling interests in individual unconsolidated structured entities. Furthermore these investments are not originated by Aegon.
Except for commitments as noted in note 45 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 2020 | December 31, 2020 | |||||||||||||||
2020 | Interest income | Total gains and losses on sale of assets | Total | Investments | ||||||||||||
Residential mortgage-backed securities | 120 | 25 | 144 | 2,565 | ||||||||||||
Commercial mortgage-backed securities | 128 | 92 | 220 | 3,599 | ||||||||||||
Asset-backed securities | 38 | (5 | ) | 34 | 2,159 | |||||||||||
ABSs - Other | 79 | 104 | 183 | 1,965 | ||||||||||||
Total | 366 | 215 | 581 | 10,289 |
Total income 2019 | December 31, 2019 | |||||||||||||||
2019 | Interest income | Total gains and losses on sale of assets | Total | Investments | ||||||||||||
Residential mortgage-backed securities | 140 | 97 | 237 | 2,729 | ||||||||||||
Commercial mortgage-backed securities | 138 | 182 | 320 | 4,153 | ||||||||||||
Asset-backed securities | 47 | (1 | ) | 45 | 1,642 | |||||||||||
ABSs - Other | 87 | 81 | 168 | 2,258 | ||||||||||||
Total | 412 | 358 | 769 | 10,782 |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4 199 | ||
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’s available-for-sale (AFS) portfolios, are as follows as of December 31, 2020, and December 31, 2019.
2020 | Amortized cost | Unrealized gains | Unrealized losses | Total fair value | Fair value of instruments with unrealized gains | Fair value of unrealized losses | ||||||||||||||||||
Debt securities, money market instruments and other | ||||||||||||||||||||||||
United States government | 8,336 | 2,608 | (9 | ) | 10,935 | 10,661 | 274 | |||||||||||||||||
Dutch government | 4,769 | 1,736 | - | 6,505 | 6,502 | 3 | ||||||||||||||||||
Other government | 9,085 | 3,660 | (8 | ) | 12,736 | 12,465 | 271 | |||||||||||||||||
Mortgage-backed securities | 5,678 | 482 | (69 | ) | 6,092 | 5,314 | 777 | |||||||||||||||||
Asset-backed securities | 3,980 | 158 | (17 | ) | 4,121 | 2,789 | 1,332 | |||||||||||||||||
Corporate | 45,986 | 7,404 | (98 | ) | 53,292 | 51,252 | 2,039 | |||||||||||||||||
Money market investments | 4,559 | - | (1 | ) | 4,558 | 4,136 | 422 | |||||||||||||||||
Other | 1,032 | 39 | (75 | ) | 996 | 616 | 380 | |||||||||||||||||
Total | 83,426 | 16,087 | (277 | ) | 99,235 | 93,736 | 5,499 | |||||||||||||||||
Of which held by Aegon Americas and NL | 74,880 | 14,938 | (249 | ) | 89,569 | 84,593 | 4,976 |
2019 | Amortized cost | Unrealized gains | Unrealized losses | Total fair value | Fair value of instruments with unrealized gains | Fair value of 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 |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4 200 | ||
Unrealized bond losses by sector
The composition by industry category of Aegon’s available-for-sale (AFS) debt securities, money market investments and other in an unrealized loss position at December 31, 2020, and December 31, 2019, is presented in the following table:
December 31, 2020 | December 31, 2019 | |||||||||||||||
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) | 142 | (17 | ) | 413 | (18 | ) | ||||||||||
Commercial mortgage-backed securities (CMBSs) | 543 | (40 | ) | 494 | (6 | ) | ||||||||||
Asset-backed securities (ABSs) - CDOs backed by ABS, Corp. bonds, Bank loans | 1,183 | (13 | ) | 662 | (5 | ) | ||||||||||
ABSs - Other | 123 | (3 | ) | 242 | (4 | ) | ||||||||||
Financial Industry - Banking | 149 | (7 | ) | 349 | (20 | ) | ||||||||||
Financial Industry - Insurance | 85 | (7 | ) | 104 | (5 | ) | ||||||||||
Financial Industry - Other | 536 | (9 | ) | 615 | (15 | ) | ||||||||||
Industrial | 1,141 | (60 | ) | 1,293 | (105 | ) | ||||||||||
Utility | 333 | (9 | ) | 249 | (10 | ) | ||||||||||
Government | 361 | (10 | ) | 453 | (23 | ) | ||||||||||
Other | 380 | (75 | ) | 279 | (117 | ) | ||||||||||
Total held by Aegon Americas and NL | 4,976 | (249 | ) | 5,153 | (327 | ) | ||||||||||
Held by other segments | 523 | (28 | ) | 650 | (18 | ) | ||||||||||
Total | 5,499 | (277 | ) | 5,803 | (345 | ) |
As of December 31, 2020, there are EUR 14,938 million (2019: EUR 10,493 million) of gross unrealized gains and EUR 249 million (2019: EUR 327 million) of gross unrealized losses in the AFS debt securities, money markets and other portfolio of Aegon Americas and Aegon the Netherlands.
2020 was a tale of two regimes: fear and contraction followed by optimism and growth. Both the economy and markets fell precipitously in the first quarter with the global spread of COVID-19. In the US, Stay-at-home orders started in mid-March and auto production ceased at the same time. Furthermore, in markets the Federal Reserve (FED) eased the Federal Funds Target Rate by 100 bps, the U.S. 10-year treasury rate fell 120 bps to 70 bps, oil prices dropped from $70 a barrel to $20, the S&P 500 fell 34% and credit spreads widened. In the economy, nonfarm payrolls fell by 22 million jobs or 14% in the first couple of months of 2020, while nominal GDP contracted by 10% in the first half of 2020.
Around the end of April markets and the economy began to turn. This was fueled by optimism that by following safety procedures outlined by epidemiologists the economy would normalize. The US started easing stay-at-home orders and businesses began reopening. Ford and GM resumed Auto production in mid-May. The result was that by June the S&P 500 was down only 8%, corporate bond spreads, which had widened from 125 to 366, had tightened back to 175 and employment had increased by 8 million jobs since earlier in the year. As the summer progressed, optimism grew that vaccines would be available as early as the US presidential election and life would become close to normal in the second half of 2020. As summer turned to fall, however, the recovery slowed with certain sectors recovering while others struggled. Although durable and non-durable goods consumption exceeded pre-pandemic levels by the third quarter, service related consumption lagged. Durables were up 13% and non-durables 4% while the larger services segment contracted by 8%. This reflected the ongoing pressure on businesses in dining, travel, leisure, and retail. Capital investment was also still down for the year by the end of the third quarter.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4 201 | ||
By November 2020 the S&P 500 was up 14% for the corporate bond spreads at 117 are tighter than in February, oil was over $50 a barrel and in total 13 million jobs were added from the employment low. In the second half of December, a second wave of COVID-19 virus infection was sweeping Europe and the US, and the economy started to slow as lockdowns were reinstituted in many locations. Some vaccines were approved, people were being inoculated and the US congress approved USD 900 million of fiscal stimulus to hopefully bridge the gap to normalization. Although the next six months is expected to be difficult, the market expects strong earnings and GDP growth in the second half of 2021. The market also expects to see the FED on hold for several years, due to low inflation concerns, long-term economic damage and full recovery in employment and aggregate consumer demand. Rates are priced to remain low and inflation subdued.
The European economy contracted sharply during 2020. The lockdowns implemented in the first half of the year led to an unprecedented large fall in GDP. Activity did rebound sharply in summer when restrictions were, for a large part, lifted. However, a sharp rise in COVID-19 infections in the autumn again led to lockdowns and restrictions being implemented. These were less detrimental compared to those in the first half, but nonetheless resulted in a second fall in output.
Governments intervened to limit the economic fallout. Fiscal authorities implemented employment and business support schemes, such that sectors most impacted would suffer less permanent damage. This resulted in large deficits and another jump in government debt levels. The ECB ensured a proper functioning financial market by implementing a new QE program, which was several times enlarged during the year. At the same time, the introduction of Pandemic Emergency Long Term Refinancing Operations (PELTRO) provided commercial banks with sufficient liquidity at favorable rates, to support the bank lending channel. The European Union eventually approved the formation of a EUR 750bln “recovery fund” after disagreements about the size and the conditionalities attached. This was perceived positively by financial markets as it reduces the risk of European disintegration and supports countries most impacted.
Since January 31, 2020, the United Kingdom is no longer a member of the European Union. Just before the Brexit transition period ended after December 31, 2020, the European Union and the United Kingdom agreed on a new “Trade and Cooperation Agreement” outlining their post-Brexit relationship.
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.
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 disclosed separately. Furthermore, quality ratings of investment portfolios are based on a composite of the main rating agencies (S&P and Moody’s) and Aegon’s internal rating of the counterparty.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4 202 | ||
Residential mortgage-backed securities
Aegon Americas and Aegon the Netherlands hold EUR 2,413 million (2019: EUR 2,533 million) of residential mortgage-backed securities available-for-sale (RMBS), of which EUR 2,248 million (2019: EUR 2,222 million) is held by Aegon Americas and EUR 165 million (2019: EUR 311 million) by Aegon the Netherlands. Residential mortgage-backed securities are securitizations of underlying pools of non-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 Americas RMBS available-for-sale (AFS) portfolio.
AFS RMBS by quality | AAA | AA | A | BBB | <BBB | Total amortized cost | Total fair value | |||||||||||||||||||||
GSE guaranteed | 1,081 | 2 | 1 | - | - | 1,083 | 1,101 | |||||||||||||||||||||
Prime jumbo | 4 | 14 | 1 | - | 13 | 31 | 38 | |||||||||||||||||||||
Alt-A | 9 | 83 | 11 | 8 | 177 | 288 | 352 | |||||||||||||||||||||
Negative amortization floaters | - | 2 | - | 6 | 302 | 311 | 367 | |||||||||||||||||||||
Other housing | 3 | 15 | 5 | 4 | 278 | 306 | 389 | |||||||||||||||||||||
At December 31, 2020 | 1,097 | 116 | 18 | 18 | 770 | 2,020 | 2,248 | |||||||||||||||||||||
Of which insured | - | 8 | 16 | 4 | 63 | 90 | 84 | |||||||||||||||||||||
AFS RMBS by quality | AAA | AA | A | BBB | <BBB | Total amortized cost | Total fair value | |||||||||||||||||||||
GSE guaranteed | 735 | 43 | - | - | - | 778 | 782 | |||||||||||||||||||||
Prime jumbo | 6 | 16 | 1 | 2 | 32 | 56 | 62 | |||||||||||||||||||||
Alt-A | 48 | 59 | 15 | 10 | 242 | 373 | 462 | |||||||||||||||||||||
Negative amortization floaters | - | 2 | - | 9 | 382 | 394 | 468 | |||||||||||||||||||||
Other housing | 2 | 9 | 2 | 7 | 317 | 337 | 449 | |||||||||||||||||||||
At December 31, 2019 | 790 | 129 | 18 | 28 | 973 | 1,938 | 2,222 | |||||||||||||||||||||
Of which insured | - | - | 16 | 4 | 88 | 109 | 100 |
A significant part of Aegon Americas RMBS holdings are rated below BBB, as the issuance took place before the United States housing downturn that started in 2007.
Additionally, Aegon Americas has investments in RMBS of EUR 69 million (2019: EUR 67 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 a loan-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 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.
Prepayments 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 73% with a weighted average of approximately 10% (2019: 8%), the increase compared to prior year is related to a change in the model from using ‘delinquent’ loans to using ‘defaulted’ loans. Assumed loan defaults range from 0% to 39% with a weighted average of approximately 20% (2019: 20%) and are dependent on the specific security’s collateral attributes and historical performance, while loss severity assumptions range from approximately -150% to 105%, with a weighted average of approximately 49% (2019: 50%).
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4 203 | ||
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 analyze 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 loss on available-for-sale RMBS of Aegon Americas and Aegon the Netherlands amounted to EUR 17 million (2019: EUR 18 million), of which EUR 17 million (2019: EUR 18 million) relates to positions of Aegon Americas. The total net unrealized gain on available-for-sale RMBS was EUR 232 million (2019: EUR 288 million), including a EUR 228 million (2019: EUR 284 million) net unrealized gain relating to positions of Aegon Americas.
The United States’ non-agency RMBS saw significant spread widening across deal types during the first quarter of 2020 primarily driven by pandemic-induced economic contraction, broad market volatility and mortgage Real Estate Investment Trust (REIT) liquidations. Spreads have tightened substantially to near pre-pandemic levels in the second half of 2020, facilitated by unprecedented monetary and fiscal stimulus. Government fiscal stimulus, temporary loan forbearance programs and accumulated home equity have moderated collateral performance deterioration. Approximately 40% of COVID-19 related delinquencies have cured and another round of government assistance as well as enhanced unemployment benefits should further support recovery in the mortgage market.
In general, the European housing market was strong at the start of the year against solid economic fundamentals. The shutdowns that followed the outbreak of the COVID-19 pandemic had a sharp negative impact on these economic fundamentals. Most financial assets weakened considerably in March, after which an improvement followed. This also holds for asset backed securities. Spreads on these assets rose significantly in March, after which a gradual spread normalization followed. This recovery was helped by the ECB which increased its asset purchase program, including ABS. This means that spreads have fallen from their March peaks, but spreads are still slightly higher than at the beginning of 2020, leading to a marginally positive total return over 2020.
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 2020 | Level II | Level III | Total 2019 | |||||||||||||||||||
RMBS | 2,224 | 24 | 2,248 | 2,188 | 34 | 2,222 |
Commercial mortgage-backed securities
As of December 31, 2020, Aegon Americas and Aegon the Netherlands hold EUR 2,982 million (2019: EUR 3,440 million) of AFS commercial mortgage-backed securities (CMBS), of which EUR 2,970 million (2019: EUR 3,427 million) is held by Aegon Americas and EUR 12 million (2019: EUR 13 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 on available-for-sale CMBS of Aegon Americas amounted to EUR 40 million as of December 31, 2020 (2019: EUR 6 million). The total net unrealized gain on the available-for-sale CMBS as of December 31, 2020, is EUR 133 million (2019: EUR 157 million), of which EUR 133 million (2019: EUR 104 million) relates to positions of Aegon Americas. The COVID-19 pandemic had an immediate impact on commercial real estate and the CMBS sector, especially in the hospitality and retail segments where shelter-in-place orders had a profound impact on property cash flows. CMBS hospitality and retail delinquency rates experienced a dramatic increase in the second quarter; however, have found stabilization and improvement in the second half of 2020 driven by debt service relief and the reopening of the economy. Despite forced selling and uncertainty driving spread volatility at the onset of the crisis, CMBS spreads in the senior part of the capital structure have retraced and found support. Although subordinated and lower quality spreads have also retraced some of their widening, they remain wide from a historical perspective due to credit uncertainty and elevated risk of ratings migration.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4 204 | ||
The tables below summarize the credit quality of Aegon America’s available-for-sale (AFS) CMBS portfolio. Additionally, as of December 31, 2020, Aegon Americas has no investments in CMBS (2019: 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 | | |||||||||||||||||
CMBS | 2,013 | 600 | 138 | 34 | 51 | 2,836 | 2,970 | |||||||||||||||||||||
At December 31, 2020 | 2,013 | 600 | 138 | 34 | 51 | 2,836 | 2,970 |
CMBS by quality | AAA | AA | A | BBB | <BBB | | Total amortized cost | | | Total fair value | | |||||||||||||||||
CMBS | 2,540 | 639 | 109 | 7 | 29 | 3,323 | 3,427 | |||||||||||||||||||||
At December 31, 2019 | 2,540 | 639 | 109 | 7 | 29 | 3,323 | 3,427 |
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 a loan-by-loan,bottom-up approach. For non-conduit securities, CMBS asset specialists 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, 2020.
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 2020 | Level II | Level III | Total 2019 | |||||||
CMBS | 2,970 | - | 2,970 | 3,427 | - | 3,427 |
Asset-backed securities
Aegon Americas and Aegon the Netherlands hold EUR 3,718 million (2019: EUR 3,332 million) of AFS ABS instruments of which EUR 2,004 million (2019: EUR 2,239 million) is held by Aegon Americas and EUR 1,714 million (2019: EUR 1,093 million) by Aegon the Netherlands. Additionally, as of December 31, 2020, Aegon Americas has investments in ABS of EUR 2 million (2019: EUR 3 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 on available-for-sale ABS of Aegon Americas and Aegon the Netherlands amounted to EUR 17 million as of December 31, 2020 (2019: EUR 9 million). Aegon Americas has EUR 11 million (2019: EUR 5 million) of this gross unrealized loss and Aegon the Netherlands, EUR 6 million (2019: EUR 3 million).
In the United States, spreads of asset-backed securities widened in March and April upon the emergence of the COVID-19 pandemic and the resulting economic slowdown. However, spreads tightened substantially throughout 2020 beginning in May and June, especially in on-the-run asset-backed sectors, as businesses have reopened and with reduced supply of new issue ABS bonds. Government provided stimulus to the consumer mitigated collateral performance deterioration in 2020, however, weakness in consumer oriented ABS sectors could re-emerge if additional government stimulus is not enacted and unemployment levels remain high in 2021.
In 2020, the European ABS market was shaken up by the global spread of the COVID-19 pandemic. Especially in March and the beginning of April, there were severe spread widening across all European ABS sectors. In May there was a very strong rebound in spreads across all ABS sectors in line with the strong sentiment in the broader financial markets. The strong sentiment was
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4 205 | ||
supported by the substantial fiscal and monetary support, slowly re-opening of the economy and the abating fear of a second wave of COVID-19 infections. In November, the market recovered further on the back of positive news about vaccine developments.
The breakdown by quality of the available-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 | |||||||||||||||||||||
Credit cards | 43 | 1 | - | - | - | 44 | 57 | |||||||||||||||||||||
Autos | 32 | 47 | 2 | 22 | 40 | 142 | 145 | |||||||||||||||||||||
Small business loans | - | - | - | - | 12 | 12 | 12 | |||||||||||||||||||||
CDOs backed by ABS, Corp. bonds, Bank loans | 1,802 | 197 | 39 | 41 | 47 | 2,126 | 2,124 | |||||||||||||||||||||
Other ABS | 350 | 99 | 740 | 103 | 6 | 1,298 | 1,379 | |||||||||||||||||||||
At December 31, 2020 | 2,227 | 344 | 781 | 165 | 104 | 3,622 | 3,717 |
ABS US and NL | AAA | AA | A | BBB | <BBB | Total amortized cost | Total fair value | |||||||||||||||||||||
Credit cards | 66 | 1 | - | - | - | 67 | 77 | |||||||||||||||||||||
Autos | 147 | - | 72 | 2 | - | 220 | 222 | |||||||||||||||||||||
Small business loans | - | - | 2 | 6 | 13 | 21 | 21 | |||||||||||||||||||||
CDOs backed by ABS, Corp. bonds, Bank loans | 1,201 | 229 | 45 | 42 | 49 | 1,567 | 1,569 | |||||||||||||||||||||
Other ABS | 429 | 98 | 760 | 104 | 9 | 1,400 | 1,444 | |||||||||||||||||||||
At December 31, 2019 | 1,843 | 329 | 878 | 154 | 71 | 3,274 | 3,332 |
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 Netherlands available-for-sale (AFS) ABS instruments were determined as follows:
Level II | Level III | Total 2020 | Level II | Level III | Total 2019 | |||||||||||||||||||
ABSs | 3,541 | 176 | 3,717 | 2,668 | 664 | 3,332 |
Unrealized loss by maturity
The table below shows the composition by maturity of all available-for-sale debt securities in an unrealized loss position held by Aegon Americas and Aegon the Netherlands.
December 31, 2020 | December 31, 2019 | |||||||||||||||
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 | 708 | (9 | ) | 247 | (1 | ) | ||||||||||
Over 1 through 5 years | 1,242 | (55 | ) | 983 | (26 | ) | ||||||||||
Over 5 through 10 years | 955 | (40 | ) | 1,175 | (47 | ) | ||||||||||
Over 10 years | 1,326 | (71 | ) | 2,002 | (135 | ) | ||||||||||
Total | 4,230 | (174 | ) | 4,407 | (210 | ) |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4 206 | ||
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, 2020 | December 31, 2019 | |||||||||||||||
Debt securities | Carrying value of securities with unrealized losses | Unrealized losses | Carrying value of securities with unrealized losses | Unrealized losses | ||||||||||||
AAA | 1,604 | (13 | ) | 1,340 | (10 | ) | ||||||||||
AA | 411 | (13 | ) | 452 | (8 | ) | ||||||||||
A | 759 | (17 | ) | 662 | (13 | ) | ||||||||||
BBB | 787 | (36 | ) | 1,345 | (58 | ) | ||||||||||
BB | 304 | (31 | ) | 181 | (17 | ) | ||||||||||
B | 184 | (15 | ) | 186 | (25 | ) | ||||||||||
Below B | 182 | (49 | ) | 240 | (78 | ) | ||||||||||
Total | 4,230 | (174 | ) | 4,407 | (210 | ) |
The table below provides the length of time an available-for-sale security has been below cost and the respective unrealized loss.
At December 31, 2020 | ||||||||||||||||
Debt securities | Investment grade carrying value of securities with unrealized losses | Below investment grade carrying value | Investment grade unrealized loss | Below investment grade unrealized loss | ||||||||||||
0 – 6 months | 1,640 | 97 | (25 | ) | (10 | ) | ||||||||||
6 – 12 months | 1,073 | 363 | (26 | ) | (37 | ) | ||||||||||
> 12 months | 847 | 210 | (28 | ) | (48 | ) | ||||||||||
Total | 3,560 | 670 | (79 | ) | (95 | ) |
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 | ) |
The unrealized loss increased during 2020 mainly due to widening credit spreads and increasing US Treasury rates.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4 207 | ||
Aging and severity unrealized losses
The table below provides the length of time a below investment grade security has been in an unrealized loss position and the percentage of carrying value (CV) to amortized cost in Aegon Americas and Aegon the Netherlands.
2020 | 2019 | |||||||||||||||
Aging and severity unrealized losses debt securities | Carrying value | Unrealized losses | Carrying value | Unrealized losses | ||||||||||||
CV 70-100% of amortized cost | 94 | (2 | ) | 131 | (6 | ) | ||||||||||
CV 40-70% of amortized cost | - | - | 1 | (1 | ) | |||||||||||
CV < 40% of amortized cost | 3 | (7 | ) | - | - | |||||||||||
0-6 months | 97 | (10 | ) | 132 | (7 | ) | ||||||||||
CV 70-100% of amortized cost | 349 | (26 | ) | 43 | (3 | ) | ||||||||||
CV 40-70% of amortized cost | 14 | (11 | ) | 1 | (1 | ) | ||||||||||
CV < 40% of amortized cost | - | - | - | - | ||||||||||||
6-12 months | 363 | (37 | ) | 45 | (4 | ) | ||||||||||
CV 70-100% of amortized cost | 43 | (4 | ) | 175 | (21 | ) | ||||||||||
CV 40-70% of amortized cost | 5 | (4 | ) | 33 | (22 | ) | ||||||||||
CV < 40% of amortized cost | - | - | 4 | (9 | ) | |||||||||||
12-24 months | 48 | (8 | ) | 213 | (52 | ) | ||||||||||
CV 70-100% of amortized cost | 143 | (17 | ) | 192 | (24 | ) | ||||||||||
CV 40-70% of amortized cost | 17 | (20 | ) | 13 | (9 | ) | ||||||||||
CV < 40% of amortized cost | 2 | (3 | ) | 14 | (25 | ) | ||||||||||
> 24 months
|
| 162
|
|
| (41
| )
|
| 219
|
|
| (58
| )
| ||||
Total | 670 | (95 | ) | 608 | (121 | ) |
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, 2020, and December 31, 2019.
Gross realized gains and (losses) | Gross realized gains | Gross realized losses | ||||||
December 31, 2020 | ||||||||
Debt securities | 161 | (49 | ) | |||||
December 31, 2019 | ||||||||
Debt securities | 405 | (66 | ) |
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 | ||||||||||||
0 -12 months | >12 months | Total | ||||||||||
December 31, 2020 | ||||||||||||
Debt securities | (35 | ) | (13 | ) | (49 | ) | ||||||
December 31, 2019 | ||||||||||||
Debt securities | (32 | ) | (34 | ) | (66 | ) |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4 208 | ||
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, 2020, and December 31, 2019, is presented in the table below. Those issuers with impairments or recoveries above EUR 25 million are specifically noted.
2020 | 2019 | |||||||
(Impairment) / recovery | (Impairment) / recovery | |||||||
Impairments: | ||||||||
Other (none individually greater than EUR 25 million) | (156 | ) | (49 | ) | ||||
Subtotal | (156 | ) | (49 | ) | ||||
Recoveries: | ||||||||
Total recoveries | 26 | 66 | ||||||
Sub-total | 26 | 66 | ||||||
Net (impairments) and recoveries | (130 | ) | 17 |
Net (impairments) and recoveries
Net impairments for the twelve months ended December 31, 2020, totaled EUR 130 million (2019: EUR 17 million net recoveries).
For the twelve months ended December 31, 2020, Aegon recognized impairments of EUR 156 million (2019: EUR 49 million) mostly related to impairments on public fixed income holdings.
For the twelve months ended December 31, 2020, Aegon recognized EUR 26 million (2019: EUR 66 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 on non-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 the non-cash collateral for its own operations.
2020 | 2019 | |||||||||||||||||||||||||||||||
Past due but not impaired assets | 0-6 months | 6-12 months | > 1 year | Total | 0-6 months | 6-12 months | > 1 year | Total | ||||||||||||||||||||||||
Debt securities - carried at fair value | 369 | 34 | 9 | 412 | 70 | 21 | 10 | 101 | ||||||||||||||||||||||||
Mortgage loans | 169 | 55 | 1 | 226 | 198 | 3 | - | 201 | ||||||||||||||||||||||||
Other loans | 24 | 8 | 5 | 36 | 35 | 4 | 4 | 43 | ||||||||||||||||||||||||
Accrued interest | 5 | 1 | 1 | 8 | 1 | - | 1 | 2 | ||||||||||||||||||||||||
Other financial assets - carried at fair value | - | - | - | - | 22 | - | - | 22 | ||||||||||||||||||||||||
At December 31 | 567 | 98 | 16 | 681 | 326 | 28 | 16 | 370 |
Impaired financial assets | | Carrying amount 2020 | | Carrying amount 2019 | ||||
Shares | 38 | 30 | ||||||
Debt securities - carried at fair value | 789 | 945 | ||||||
Mortgage loans | 36 | 58 | ||||||
Other loans | 3 | 3 | ||||||
Other financial assets - carried at fair value | 2 | 4 | ||||||
At December 31 | 867 | 1,039 |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4 209 | ||
Equity instruments classified as available-for-sale
Objective evidence of impairment of an investment in an equity instrument classified as available-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 21 million of impairment charges for the twelve months ended December 31, 2020 (2019: EUR 7 million) for Aegon Americas and Aegon the Netherlands.
As of December 31, 2020, there are EUR 58 million of gross unrealized gains and EUR 14 million of gross unrealized losses in the equity portfolio of Aegon Americas and Aegon the Netherlands (2019: EUR 47 million of gross unrealized gains and EUR 24 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 | ||||||||||||||||||||||
December 31, 2020 Shares |
| 222 |
| 266 | 44 | 237 | 58 | 29 | (14 | ) | ||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||||||
Shares | 290 | 312 | 23 | 254 | 47 | 58 | (24 | ) |
The composition of shares by industry sector in an unrealized loss position held by Aegon Americas and Aegon the Netherlands at December 31, 2020, and December 31, 2019 is presented in the following table.
2020 | 2019 | |||||||||||||||
Unrealized losses on shares | Carrying value of instruments with unrealized losses | Unrealized losses | Carrying value of instruments with unrealized losses | Unrealized losses | ||||||||||||
Financials | 24 | (10 | ) | 28 | (10 | ) | ||||||||||
Other | 5 | (4 | ) | 30 | (14 | ) | ||||||||||
Total | 29 | (14 | ) | 58 | (24 | ) |
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 2020 and 2019.
In million EUR | 0-6 months | |||
2020 Shares | (4 | ) | ||
2019 Shares | (2 | ) |
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 denominatedliabilities. Asset exposure exists through direct equity investment, where Aegon bears all or most of the volatility in foreign currenciesreturns and investment performance risk. Equity market exposure is not material.also present in insurance and investment contracts for policyholders where funds are invested in equities, backing variable annuities, unit-linked products and mutual funds. Although most of the risk remains with the policyholder, lower investment returns can reduce the asset management fee earned by Aegon on the asset balance in these products. In addition, some of this business has minimum return or accumulation guarantees.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4 210 | ||
The investment in real estate for the Americas decreased from 2020 to 2019 following the sale of the Transamerica Pyramid property. Refer to note 22.2 for detailed disclosures.
The general account equity, real estate and other non-fixed-income portfolio of Aegon is as follows:
Equity, real estate and non-fixed income exposure | Americas | The Netherlands | United Kingdom | International | Asset Management | Holding and other activities | Total 2020 | |||||||||||||||||||||
Equity funds | 154 | 40 | - | 68 | 8 | - | 270 | |||||||||||||||||||||
Common shares 1) | 161 | - | 34 | 6 | - | 16 | 218 | |||||||||||||||||||||
Preferred shares | 127 | - | - | - | - | 27 | 155 | |||||||||||||||||||||
Investments in real estate | 37 | 2,331 | - | 16 | - | - | 2,385 | |||||||||||||||||||||
Hedge funds | 74 | - | - | - | - | - | 75 | |||||||||||||||||||||
Other alternative investments | 1,557 | 381 | - | - | - | 7 | 1,945 | |||||||||||||||||||||
Other financial assets | 1,104 | 1,046 | 800 | 6 | 1 | - | 2,957 | |||||||||||||||||||||
At December 31 | 3,215 | 3,799 | 834 | 97 | 10 | 51 | 8,005 |
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 | International | Asset Management | Holding and other activities | Total 2019 | |||||||||||||||||||||
Equity funds | 161 | 35 | - | 63 | - | - | 259 | |||||||||||||||||||||
Common shares 1) | 130 | - | 17 | 15 | 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 | 106 | 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. |
Market risk concentrations – shares | Americas | The Netherlands | United Kingdom | International | Asset Management | Total 2020 1) | Of which impaired assets | |||||||||||||||||||||
Communication | 1 | - | - | - | - | 4 | - | |||||||||||||||||||||
Consumer | 4 | - | - | - | 1 | 6 | - | |||||||||||||||||||||
Financials | 368 | 14 | - | 5 | 3 | 400 | 3 | |||||||||||||||||||||
Funds | - | 1,363 | 34 | 63 | - | 1,470 | 14 | |||||||||||||||||||||
Industries | 42 | - | - | 1 | 1 | 44 | 12 | |||||||||||||||||||||
Other | 27 | - | - | 6 | 3 | 56 | 7 | |||||||||||||||||||||
At December 31 | 442 | 1,376 | 34 | 74 | 9 | 1,979 | 35 |
1 | Includes investments of Holding and other activities. |
Market risk concentrations – shares | Americas | The Netherlands | United Kingdom | International | Asset Management | Total 2019 1) | Of which impaired assets | |||||||||||||||||||||
Communication | 26 | - | - | - | - | 32 | - | |||||||||||||||||||||
Consumer | 7 | - | - | - | - | 9 | 2 | |||||||||||||||||||||
Financials | 416 | 3 | - | 14 | 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 | 84 | 5 | 2,221 | 30 |
1 | Includes investments of Holding and other activities. |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4 211 | ||
The table that follows sets forth the closing levels of certain major indices at the end of the last five years.
2020 | 2019 | 2018 | 2017 | 2016 | ||||||||||||||||
S&P 500 | 3,756 | 3,231 | 2,507 | 2,674 | 2,239 | |||||||||||||||
Nasdaq | 12,888 | 8,973 | 6,635 | 6,903 | 5,383 | |||||||||||||||
FTSE 100 | 6,461 | 7,542 | 6,728 | 7,688 | 7,143 | |||||||||||||||
AEX | 625 | 605 | 488 | 545 | 483 |
The sensitivity analysis in the following table shows an estimate of the effect of movements in the exchange rates of Aegon’s non-euro currencies relative to the euro on net income and shareholders’ equity.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. Net income and shareholders’ equity in 2020 are generally less sensitive compared to 2019 mainly reflecting the new Macro Hedge program in the Americas executed in July 2020.
Sensitivity analysis of net income and shareholders’ equity to translation riskequity markets
Movement of currency exchange rates1) | Estimated approximate effects on net income2) | Estimated approximate effects on shareholders’ equity | ||||||
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% of non-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% of non-euro currencies relative to the euro | (184 | ) | (1,868 | ) | ||||
2016 | ||||||||
Increase by 15% of USD currencies relative to the euro | 87 | 2,179 | ||||||
Increase by 15% of GBP currencies relative to the euro | (3 | ) | 259 | |||||
Increase by 15% of non-euro currencies relative to the euro | 79 | 2,537 | ||||||
Decrease by 15% of USD currencies relative to the euro | (61 | ) | (1,558 | ) | ||||
Decrease by 15% of GBP currencies relative to the euro | (55 | ) | (170 | ) | ||||
Decrease by 15% of non-euro currencies relative to the euro | (110 | ) | (1,794 | ) |
Immediate change of | Estimated approximate effects on net income | Estimated approximate effects on shareholders’ equity | ||||||
2020 | ||||||||
Equity increase 10% | 146 | 394 | ||||||
Equity decrease 10% | (208) | (199) | ||||||
Equity increase 25% | 291 | 725 | ||||||
Equity decrease 25% | (541) | (715) | ||||||
2019 | ||||||||
Equity increase 10% | 307 | 450 | ||||||
Equity decrease 10% | (374) | (525) | ||||||
Equity increase 25% | 721 | 1,083 | ||||||
Equity decrease 25% | (456) | (837) |
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
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4 212 | ||
to closely manage its interest rate risk exposure. Aegon operates an Interest RateInvestment & Counterparty Risk policy that limits the amount 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.
The following table shows interest rates at the end of each of the last five years.
2017 | 2016 | 2015 | 2014 | 2013 | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||||||||||||||||||
3-month US LIBOR | 1.69% | 1.00% | 0.61% | 0.26% | 0.25% | 0.24% | 1.91% | 2.81% | 1.69% | 1.00% | ||||||||||||||||||||||||||||||
3-month EURIBOR | (0.33% | ) | (0.32% | ) | (0.13% | ) | 0.08% | 0.29% | (0.55% | ) | (0.38% | ) | (0.31% | ) | (0.33% | ) | (0.32% | ) | ||||||||||||||||||||||
10-year US Treasury | 2.41% | 2.43% | 2.27% | 2.17% | 3.03% | 0.91% | 1.91% | 2.69% | 2.41% | 2.43% | ||||||||||||||||||||||||||||||
10-year Dutch government | 0.53% | 0.35% | 0.79% | 0.68% | 2.23% | (0.48% | ) | (0.06% | ) | 0.39% | 0.53% | 0.35% |
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, timingTiming 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 the available-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 | ||||||||||||
2017 | ||||||||||||||||
2020 | ||||||||||||||||
Shift up 100 basis points | (282 | ) | (2,620 | ) | 813 | 1,690 | ||||||||||
Shift down 100 basis points | 200 | 2,160 | 1,174 | 1,352 | ||||||||||||
2016 | ||||||||||||||||
2019 | ||||||||||||||||
Shift up 100 basis points | 364 | (2,257 | ) | 945 | (2,688 | ) | ||||||||||
Shift down 100 basis points | (300 | ) | 2,020 | (1,236 | ) | 1,847 |
The estimated effectDue to the low interest rate environment in 2020 the impact on net income due to movements of the yield curve has increasedand shareholders’ equity became less sensitive compared to 2016 due to changes in the hedging strategy on guarantee provisions by Aegon the Netherlands. 2019.
The hedge strategy targets minimal mismatch according to the Aegon economic framework which(which broadly aligns with Solvency II Own FundsFunds) and stabilizestablizes Solvency II ratio volatility. The IFRS impact of the changed hedge strategy has led to increased sensitivity of net income.
CreditCurrency exchange rate risk
As premiumsan 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 depositsinvestment liabilities is managed using asset liability matching principles. Assets allocated to equity 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 equalkept in local currencies to the returnextent shareholders’ equity is required to satisfy regulatory and self-imposed capital requirements. Therefore, currency exchange rate fluctuations will affect the level of principalshareholders’ 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 interest.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 is exposeddoes not hedge the income streams from the main non-euro units and, as a result, earnings may fluctuate due 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, downturnscurrency translation. As Aegon has significant business segments in the economy, downturns in real estate values, operational failureAmericas and fraud. During financial downturns, Aegon can incur defaults or other reductions in the valueUnited 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 securitiesfluctuations.
Aegon operates an Investment & Counterparty Risk Policy which applies currency risk exposure limits both at Group and loans,regional levels, and under 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 assets for further information on collateral given, which may exposedirect currency speculation or program trading by country units is not allowed unless explicit approval has been granted by the Group to credit risk.Risk and Capital Committee and the Management Board. Assets should be held in the functional currency
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4213 | ||
2017 | 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 | 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 | ||||||||||||||||||||||||||||||
2016 | 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 over- collateral- ization) | Net exposure | ||||||||||||||||||||||||||||||
Debt securities - carried at fair value | 103,169 | - | - | 392 | - | - | - | 392 | - | 102,777 | ||||||||||||||||||||||||||||||
Money market and other short-term investments - carried at fair value | 7,093 | - | 815 | - | - | - | - | 815 | 27 | 6,306 | ||||||||||||||||||||||||||||||
Mortgage loans - carried at amortized cost | 33,696 | 2,319 | - | 760 | 49,448 | - | - | 52,527 | 19,198 | 366 | ||||||||||||||||||||||||||||||
Private loans - carried at amortized cost | 3,166 | 67 | - | - | - | - | - | 67 | - | 3,099 | ||||||||||||||||||||||||||||||
Other loans - carried at amortized cost | 2,441 | - | - | - | - | - | 2,197 | 2,197 | 1,326 | 1,570 | ||||||||||||||||||||||||||||||
Other financial assets - carried at fair value | 3,425 | - | - | - | - | - | - | - | - | 3,425 | ||||||||||||||||||||||||||||||
Derivatives | 7,916 | 1,606 | 407 | - | - | 5,841 | - | 7,855 | 47 | 109 | ||||||||||||||||||||||||||||||
Reinsurance assets | 11,206 | - | 5,064 | 171 | - | - | - | 5,235 | - | 5,971 | ||||||||||||||||||||||||||||||
At December 31 | 172,113 | 3,992 | 6,287 | 1,322 | 49,448 | 5,841 | 2,197 | 69,087 | 20,598 | 123,623 |
Debt securities
Several bonds in Aegon’s USA’s portfolio are guaranteed by monoline insurers. This is shown in the table above in the column ‘Letters of credit / guarantees’. Further information on the monoline 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 to tri-party repurchase agreements (repos). Within tri-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.
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 valuebusiness written or hedged back to that currency. Where this is typically estimated internally using various professionally accepted valuation methodologies. Internal appraisals are performed by qualified, professionally accredited personnel. International valuation standards are usednot possible or practical, remaining currency exposure should be sufficiently documented 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 of NHG-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 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 28 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 23.1 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 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 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 thetotal exposure at both group level and for individual country units. The limits also vary by a rating system, which is a composite of the main rating agencies (S&P, Moody’s
Information on Aegon’s three year historical net income/(loss) 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, 2017 there was no violations of the Credit Name Limit Policy at Group level. At December 31, 2016 there were two violations of the Credit Name Limit Policy at Group level. These violations have been resolvedshareholders’ equity in 2017 by reducing the exposure of one and by approving an exemption for the other.
At December 31, 2017 Aegon’s largest corporate credit exposures are to Wilton Re Holdings Ltd, American United Mutual Insurance, Barclays and Citigroup. Aegon had large government exposures, the largest being in the USA, the Netherlands and Germany. Highly rated government bonds and government exposure domestically issued and owned in localfunctional currency are excluded from the Credit Name Limit Policy.
Aegon group level long-term counterparty exposure limits are as follows:
Group limits per credit rating | ||||||||
Amounts in EUR million | 2017 | 2016 | ||||||
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 presentedshown 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 isbelow:
2020 | 2019 | 2018 | ||||||||||
Net income | ||||||||||||
Americas (in USD) | (611 | ) | 1,324 | 61 | ||||||||
United Kingdom (in GBP) | 60 | (29 | ) | 35 | ||||||||
Equity in functional currency | ||||||||||||
Americas (in USD) | 19,127 | 18,123 | 15,115 | |||||||||
United Kingdom (in GBP) | 1,391 | 1,358 | 1,671 |
The exchange rates for US only)dollar 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 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 20171) | ||||||||||||||||||||||||||
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 |
Americas | The Netherlands | United Kingdom | Central & Eastern Europe | Spain & Portugal | ||||||||||||||||||||||||||||||||||||
Credit rating general account investments, excluding reinsurance assets 2016 | Amortized cost | Fair value | Amortized cost | Fair value | Amortized cost | Fair value | Amortized cost | Fair value | Amortized cost | Fair value | ||||||||||||||||||||||||||||||
AAA | 1,560 | 21,580 | 1,628 | 13,020 | - | 171 | - | 2 | - | 12 | ||||||||||||||||||||||||||||||
AA | 3,214 | 6,102 | 86 | 6,011 | - | 1,158 | - | 1 | - | 58 | ||||||||||||||||||||||||||||||
A | 3,281 | 25,147 | 12 | 3,397 | - | 549 | 8 | 116 | 48 | 157 | ||||||||||||||||||||||||||||||
BBB | 481 | 21,461 | 850 | 2,402 | - | 85 | 20 | 433 | (6 | ) | 436 | |||||||||||||||||||||||||||||
BB | 70 | 1,964 | 18 | 107 | - | 90 | 56 | 80 | - | 18 | ||||||||||||||||||||||||||||||
B | - | 1,207 | - | 10 | - | 2 | 4 | 1 | - | 3 | ||||||||||||||||||||||||||||||
CCC or lower | - | 1,049 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Assets not rated | 2,196 | 3,847 | 25,133 | 4,792 | - | 215 | 111 | 44 | 3 | 3 | ||||||||||||||||||||||||||||||
Total | 10,802 | 82,357 | 27,727 | 29,740 | - | 2,269 | 201 | 676 | 45 | 687 | ||||||||||||||||||||||||||||||
Past due and / or impaired assets | 17 | 1,397 | 390 | 77 | - | - | 102 | 2 | - | - | ||||||||||||||||||||||||||||||
At December 31 | 10,820 | 83,755 | 28,117 | 29,817 | - | 2,269 | 303 | 678 | 45 | 687 |
Asia | Asset Management | Total 20161) | ||||||||||||||||||||||||||
Credit rating general account investments, excluding reinsurance assets 2016 | Amortized cost | Fair value | Amortized cost | Fair value | Amortized cost | Fair value | Total carrying value | |||||||||||||||||||||
AAA | - | 950 | - | - | 3,189 | 35,758 | 38,946 | |||||||||||||||||||||
AA | - | 402 | - | - | 3,300 | 13,731 | 17,032 | |||||||||||||||||||||
A | - | 1,823 | - | - | 3,349 | 31,204 | 34,553 | |||||||||||||||||||||
BBB | - | 1,904 | - | - | 1,346 | 26,721 | 28,067 | |||||||||||||||||||||
BB | - | 132 | - | - | 145 | 2,391 | 2,536 | |||||||||||||||||||||
B | - | 57 | - | - | 5 | 1,279 | 1,284 | |||||||||||||||||||||
CCC or lower | - | 28 | - | - | - | 1,078 | 1,078 | |||||||||||||||||||||
Assets not rated | 18 | - | - | 90 | 27,460 | 9,267 | 36,727 | |||||||||||||||||||||
Total | 18 | 5,297 | - | 90 | 38,793 | 121,429 | 160,222 | |||||||||||||||||||||
Past due and / or impaired assets | - | 13 | - | - | 510 | 1,489 | 1,999 | |||||||||||||||||||||
At December 31 | 18 | 5,310 | - | 90 | 39,303 | 122,918 | 162,221 |
The following table shows the credit quality of the gross positions in the statement of financial positionUK pound per euro for general account reinsurance assets specifically:
Carrying value 2017 | Carrying value 2016 | |||||||||
AAA | - | 7 | ||||||||
AA | 13,379 | 7,724 | ||||||||
A | 5,242 | 3,120 | ||||||||
Below A | 24 | 18 | ||||||||
Not rated | 555 | 338 | ||||||||
At December 31 | 19,200 | 11,206 |
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 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 |
Credit risk concentrations – Government bonds per country of risk 2017 | Americas | The Netherlands | United Kingdom | Central & Eastern Europe | Spain & Portugal | Asia | Asset Management | Total 2017 1) | ||||||||||||||||||||||||
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 |
Credit risk concentrations – Credit rating 20172) | Government bonds | Corporate bonds | RMBSs CMBSs ABSs | Other | Total 2017 1) | |||||||||||||||
AAA | 21,855 | 792 | 7,102 | 3,157 | 32,906 | |||||||||||||||
AA | 5,462 | 2,879 | 1,700 | - | 10,040 | |||||||||||||||
A | 311 | 20,765 | 1,443 | - | 22,520 | |||||||||||||||
BBB | 1,198 | 19,045 | 396 | 6 | 20,646 | |||||||||||||||
BB | 269 | 1,395 | 178 | - | 1,842 | |||||||||||||||
B | 152 | 1,011 | 111 | - | 1,273 | |||||||||||||||
CCC or lower | 2 | 309 | 1,516 | - | 1,828 | |||||||||||||||
Assets not rated | - | 3 | - | 95 | 98 | |||||||||||||||
At December 31 | 29,249 | 46,199 | 12,446 | 3,258 | 91,153 |
Credit risk concentrations – debt securities and money market investments 2016 | Americas | The Netherlands | United Kingdom | Central & Eastern Europe | Spain & Portugal | Asia | Asset Manage- ment | Total 2016 1) | Of which past due and / or impaired assets | |||||||||||||||||||||||||||
Residential mortgage-backed securities | ||||||||||||||||||||||||||||||||||||
(RMBSs) | 3,583 | 649 | 19 | - | - | 80 | - | 4,331 | 1,267 | |||||||||||||||||||||||||||
Commercial mortgage-backed securities | ||||||||||||||||||||||||||||||||||||
(CMBSs) | 5,340 | 44 | 195 | - | - | 576 | - | 6,155 | 8 | |||||||||||||||||||||||||||
Asset-backed securities (ABSs) - CDOs backed by ABS, Corp. bonds, Bank loans | 1,066 | 2,437 | - | - | - | 29 | - | 3,532 | 7 | |||||||||||||||||||||||||||
ABSs – Other | 2,324 | 276 | 97 | - | 1 | 373 | - | 3,072 | 36 | |||||||||||||||||||||||||||
Financial - Banking | 8,457 | 1,194 | 157 | 67 | 110 | 800 | - | 10,785 | 4 | |||||||||||||||||||||||||||
Financial - Other | 10,487 | 282 | 118 | 6 | 120 | 465 | 87 | 11,588 | - | |||||||||||||||||||||||||||
Industrial | 29,364 | 2,824 | 332 | 7 | 126 | 2,367 | - | 35,020 | 65 | |||||||||||||||||||||||||||
Utility | 4,704 | 392 | 67 | 3 | 43 | 280 | - | 5,490 | 7 | |||||||||||||||||||||||||||
Government bonds | 12,406 | 15,642 | 1,068 | 553 | 282 | 339 | - | 30,289 | 4 | |||||||||||||||||||||||||||
At December 31 | 77,730 | 23,741 | 2,054 | 636 | 683 | 5,310 | 87 | 110,262 | 1,399 |
Credit risk concentrations – Government bonds per country of risk 2016 | Americas | The Netherlands | United Kingdom | Central & Eastern Europe | Spain & Portugal | Asia | Asset Manage- ment | Total 2016 1) | ||||||||
United States | 11,738 | 22 | - | - | - | 300 | - | 12,060 | ||||||||
Netherlands | - | 5,374 | - | - | 4 | - | - | 5,378 | ||||||||
United Kingdom | - | - | 948 | 2 | - | - | - | 949 | ||||||||
Austria | - | 1,171 | - | - | 4 | - | - | 1,175 | ||||||||
Belgium | - | 1,119 | 25 | - | 7 | - | - | 1,151 | ||||||||
Finland | - | 935 | - | - | - | - | - | 935 | ||||||||
France | - | 1,356 | 36 | - | 5 | - | - | 1,397 | ||||||||
Germany | - | 4,138 | 29 | - | - | - | - | 4,167 | ||||||||
Hungary | 4 | - | - | 360 | - | - | - | 364 | ||||||||
Luxembourg | - | 872 | - | - | 4 | - | - | 876 | ||||||||
Spain | - | 112 | - | 2 | 221 | - | - | 335 | ||||||||
Rest of Europe | 118 | 484 | - | 189 | 18 | - | - | 808 | ||||||||
Rest of world | 506 | 59 | 30 | - | 20 | 39 | - | 654 | ||||||||
Supranational | 40 | - | - | - | - | - | - | 40 | ||||||||
At December 31 | 12,406 | 15,642 | 1,068 | 553 | 282 | 339 | - | 30,289 |
Credit risk concentrations – Credit rating 20162) | Government bonds | Corporate bonds | RMBSs CMBSs ABSs | Other | Total 2016 1) | |||||||||||||||
AAA | 22,620 | 912 | 9,809 | 2,362 | 35,704 | |||||||||||||||
AA | 5,682 | 4,835 | 2,645 | - | 13,161 | |||||||||||||||
A | 569 | 26,291 | 1,740 | - | 28,599 | |||||||||||||||
BBB | 1,166 | 24,662 | 540 | 3 | 26,370 | |||||||||||||||
BB | 158 | 1,943 | 274 | - | 2,376 | |||||||||||||||
B | 91 | 1,023 | 145 | - | 1,260 | |||||||||||||||
CCC or lower | 4 | 386 | 1,937 | - | 2,326 | |||||||||||||||
Assets not rated | - | 4 | - | 462 | 466 | |||||||||||||||
At December 31 | 30,289 | 60,055 | 17,090 | 2,827 | 110,262 |
Credit risk concentrations – mortgage loans 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 | |||||||||||||||||||||||||||
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 |
Credit risk concentrations – mortgage loans 2016 | Americas | | The Netherlands | | | United Kingdom | | | Central & Eastern Europe | | | Spain & Portugal | | Asia | | Asset Manage- ment | | | Total 2016 1) |
| | Of which past due and / or impaired assets | | |||||||||||||
Agricultural | 101 | - | - | - | - | - | - | 101 | 11 | |||||||||||||||||||||||||||
Apartment | 3,525 | - | - | - | - | - | - | 3,525 | - | |||||||||||||||||||||||||||
Industrial | 838 | - | - | - | - | - | - | 838 | - | |||||||||||||||||||||||||||
Office | 1,869 | 1 | - | - | - | - | - | 1,869 | 1 | |||||||||||||||||||||||||||
Retail | 1,889 | 12 | - | - | - | - | - | 1,901 | 5 | |||||||||||||||||||||||||||
Other commercial | 397 | 41 | - | - | - | - | - | 438 | - | |||||||||||||||||||||||||||
Residential | 23 | 24,793 | - | 207 | 1 | - | - | 25,023 | 448 | |||||||||||||||||||||||||||
At December 31 | 8,641 | 24,847 | - | 207 | 1 | - | - | 33,696 | 464 |
The fair value of Aegon Americas commercial and agricultural mortgage loan portfolio as per December 31, 2017, amounted to EUR 7,132 million (2016: EUR 8,789 million). The loan to value (LTV) amounted to approximately 55% (2016: 54%). Of the portfolio 0.06% (2016: nil) is in delinquency (defined as 60 days in arrears). In 2017, Aegon Americas recognized EUR 19 million impairments (net of recoveries) (2016: nil) on this portfolio. In 2017, Aegon Americas foreclosed upon, or recovered no amount of real estate (2016: EUR 15 million). The 2017 additional impairments associated with these loans at the time of foreclosure amounted to EUR 0.2 million (2016: EUR 2 million).
The fair value of Aegon the Netherlands mortgage loan portfolio as per December 31, 2017, amounted to EUR 30,926 million (2016: EUR 29,479 million). The LTV amounted to approximately 76% (2016: 83%). A significant part of the portfolio 51% (2016: 57%) is government guaranteed. Of the portfolio, 0.2% (2016: 0.4%) is in delinquency (defined as 60 days in arrears). Impairments in 2017 amounted to EUR 8 million (2016: EUR 5 million release). 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 48 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 has non-controlling interests in individual unconsolidated structured entities. Furthermore these investments are not originated by Aegon.
Except for commitments as noted in note 48 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 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 | ||||||||||||
Total income 2016 | December 31, 2016 | |||||||||||||||
2016 | Interest income | Total gains and losses on sale of assets | Total | Investments | ||||||||||||
Residential mortgage-backed securities | 215 | 61 | 276 | 4,331 | ||||||||||||
Commercial mortgage-backed securities | 191 | 28 | 219 | 6,155 | ||||||||||||
Asset-backed securities | 64 | 12 | 75 | 3,532 | ||||||||||||
ABSs - Other | 85 | 7 | 92 | 3,072 | ||||||||||||
Total | 555 | 107 | 662 | 17,090 |
Monoline insurers
EUR 264 million (2016: EUR 413 million) of the bonds in Aegon USA’s 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 264 million indirect exposure on the Monoline insurers, 31% relates to Municipal Bond Insurance Association, Inc. (MBIA), 13% to Ambac Financial Group, inc. (AMBAC), and 43% to Assured Guaranty Corporation (AGC) (2016: 37% related to MBIA, 14% to AMBAC, and 39% to AGC).
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’s available-for-sale (AFS) portfolios, are as follows as of December 31, 2017, and December 31, 2016
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, NL and UK | 74,672 | 6,665 | (464 | ) | 80,873 | 68,385 | 12,488 |
2016 | | 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 | 11,452 | 882 | (343) | 11,990 | 7,012 | 4,979 | ||||||||||||||||||
Dutch government | 4,164 | 1,215 | (5) | 5,374 | 5,286 | 87 | ||||||||||||||||||
Other government | 11,788 | 1,096 | (20) | 12,865 | 12,278 | 586 | ||||||||||||||||||
Mortgage-backed securities | 10,099 | 453 | (156) | 10,396 | 6,543 | 3,853 | ||||||||||||||||||
Asset-backed securities | 6,568 | 88 | (64) | 6,592 | 4,192 | 2,399 | ||||||||||||||||||
Corporate | 50,431 | 4,073 | (668) | 53,837 | 42,361 | 11,476 | ||||||||||||||||||
Money market investments | 6,776 | - | - | 6,776 | 6,758 | 18 | ||||||||||||||||||
Other | 1,019 | 228 | (41) | 1,206 | 1,168 | 38 | ||||||||||||||||||
Total | 102,298 | 8,035 | (1,297) | 109,036 | 85,599 | 23,436 | ||||||||||||||||||
Of which held by Aegon Americas, NL and UK | 95,806 | 7,739 | (1,217 | ) | 102,329 | 81,335 | 20,993 |
Unrealized bond losses by sector
The composition by industry category of Aegon’s available-for-sale (AFS) debt securities, money market investments and other in an unrealized loss position at December 31, 2017, and December 31, 2016, is presented in the following table:
December 31, 2017 | December 31, 2016 | |||||||||||||||
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) | 732 | (30 | ) | 1,588 | (83 | ) | ||||||||||
Commercial mortgage-backed securities (CMBSs) | 1,140 | (22 | ) | 2,027 | (67 | ) | ||||||||||
Asset-backed securities (ABSs) - CDOs backed by ABS, Corp.bonds, Bank loans | 87 | (2 | ) | 958 | (11 | ) | ||||||||||
ABSs - Other | 603 | (13 | ) | 1,130 | (43 | ) | ||||||||||
Financial Industry - Banking | 663 | (39 | ) | 1,679 | (135 | ) | ||||||||||
Financial Industry - Insurance | 231 | (7 | ) | 554 | (34 | ) | ||||||||||
Financial Industry - Other | 1,411 | (10 | ) | 618 | (28 | ) | ||||||||||
Industrial | 3,330 | (132 | ) | 6,216 | (369 | ) | ||||||||||
Utility | 375 | (14 | ) | 836 | (45 | ) | ||||||||||
Government | 3,722 | (123 | ) | 5,349 | (361 | ) | ||||||||||
Other | 193 | (73 | ) | 38 | (41 | ) | ||||||||||
Total held by Aegon Americas, NL and UK | 12,488 | (464 | ) | 20,993 | (1,217 | ) | ||||||||||
Held by other segments | 1,371 | (29 | ) | 2,443 | (80 | ) | ||||||||||
Total | 13,858 | (493 | ) | 23,436 | (1,297 | ) |
As of December 31, 2017, there are EUR 6,665 million (December 31, 2016: EUR 7,739 million) of gross unrealized gains and EUR 464 million (December 31, 2016: EUR 1,217 million) of gross unrealized losses in the AFS debt securities, money markets and other portfolio of Aegon Americas, Aegon the Netherlands and Aegon UK. Two issuers each represent more than 4% of the total unrealized loss position. The unrealized loss relates to securities issued by the government of the United States of America and Belfius Bank.
Financial and credit market conditions were stronger during 2017. Developed-world growth showed continued signs of acceleration, allowing policy makers to slow or even reverse accommodative credit market conditions. Emerging Market economies have stabilized and improved somewhat with more stable commodities prices. Global equity markets produced very strong returns. The US dollar weakened after strengthening significantly in 2016. The US Federal Reserve tightened the Fed Funds rate by 50 basis points in the first half of 2017, and by another 25 basis points in December, reflecting strong labor market conditions. Long-term US Treasury rates, after rising sharply late in 2016, fell very modestly. Corporate default rates remained low due to readily available access to funding and to healthy corporate balance sheet fundamentals. Credit spreads tightened. Oil prices rose slightly, after having weakened in the first half of 2017. Tighter credit spreads and lower US treasury rates increased the market values of fixed income holdings.
The Eurozone has experienced a period of strong growth. Consumption was supported by the rapid decline in unemployment, while investments grew strongly due to a supportive global economic backdrop. Spain and Germany were the fastest growing large economies. Inflation pressures were again absent. Wage growth did pick up slightly, but not enough to push inflation above the target of the European Central Bank. The central bank therefore maintained its accommodative stance, but did decide to taper its purchase program further from EUR 60 billion to EUR 30 billion per month. Growth in the UK slowed down, due to uncertainty surrounding Brexit. The French elections resulted in a victory for Mr. Macron, who is likely to pursue a pro-European course. Catalonian politicians tried to gain independence from Spain via a referendum. However, so far their efforts did not result in more autonomy. Italy reformed its electoral law and announced to hold elections in March 2018. The UK triggered Article 50 in March which set the Brexit negotiation process in motion. Prime minister May called early elections soon afterward, in which she wasn’t able to achieve her desired majority. At the end of the year, the EU and the UK managed to agree on a deal covering citizen’s rights, the Irish border and the financial settlement. This allowed the negotiations to proceed to the next stage, which will mainly cover a transition period and a trade agreement.
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.
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 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, Aegon the Netherlands and Aegon UK hold EUR 3,557 million (December 31, 2016: EUR 4,162 million) of residential mortgage-backed securities available-for-sale (RMBS), of which EUR 2,985 million (December 31, 2016: EUR 3,494 million) is held by Aegon Americas, EUR 556 million (December 31, 2016: EUR 649 million) by Aegon the Netherlands, and EUR 17 million (December 31, 2016: EUR 19 million) by Aegon UK. Residential mortgage-backed securities are securitizations of underlying pools of non-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 USA’s RMBS available-for-sale (AFS) portfolio.
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 | 771 | 500 | - | - | - | 1,272 | 1,271 | |||||||||||||||||||||
Prime jumbo | - | 1 | 1 | 11 | 170 | 182 | 194 | |||||||||||||||||||||
Alt-A | - | 39 | 27 | 11 | 403 | 479 | 572 | |||||||||||||||||||||
Negative amortization floaters | - | - | - | 1 | 679 | 679 | 712 | |||||||||||||||||||||
Other housing | - | 50 | 71 | 43 | 519 | 683 | 745 | |||||||||||||||||||||
At December 31, 2016 | 771 | 589 | 98 | 65 | 1,771 | 3,295 | 3,494 | |||||||||||||||||||||
Of which insured | - | - | 43 | 8 | 203 | 254 | 237 |
A significant part of Aegon USA’s RMBS holdings are rated < BBB, as the issuances took place before the United States housing downturn that started in 2007.
Additionally, Aegon USA has investments in RMBS of EUR 40 million (December 31, 2016: EUR 89 million), which are classified as fair value through profit or loss.
RMBS of Aegon USA 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 a loan-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 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.
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 29% with a weighted average of approximately 5.5% (December 31, 2016: 4.6%), assumed defaults on delinquent loans range from 51% to 88% with a weighted average of approximately 77.6% (December 31, 2016: 79.4%), assumed defaults on current loans are dependent on the specific security’s collateral attributes and historical performance, while loss severity assumptions range from approximately 24% to 75%, with a weighted average of approximately 58.3% (December 31, 2016: 57.6%).
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 uses its own proprietary cash flow tools to analyse and stress test RMBS transactions. The key input parameters are default rates and loss given default assumptions, which are established based 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 loss on available-for-sale RMBS of Aegon Americas, Aegon the Netherlands and Aegon UK amounted to EUR 30 million (December 31, 2016: 83 million), of which EUR 29 million (December 31, 2016: EUR 78 million) relates to positions of Aegon USA, and the total net unrealized gain on available-for-sale RMBS was EUR 284 million (December 31, 2016: EUR 210 million), including a EUR 268 million (December 31, 2016: EUR 199 million) net unrealized gain relating to positions of Aegon USA. The housing market in the United States continues to be robust, evidenced by rising home prices and strong sales volume although the pace of improvement is slowing compared to initial post-financial crisis years. The housing market is still benefiting from improving employment, historically low inventory, rising household formation rates, income growth, and modest credit easing. This is manifesting itself in lower borrower delinquencies, increased recoveries upon liquidation, and shorter timelines to sell properties. These factors have contributed to continued credit spread tightening across the asset class.
The housing market showed further improvement in Europe in 2017. Housing prices rose and affordability remained high. Economic growth continues to pick up and supports the positive trend in the labour market. This is clearly beneficial for consumer risk in general and retail mortgages in particular. A general theme in Europe is that mostly legacy collateral gets securitised, while a large part of the funding for new origination is obtained outside the structured credit market. As a result the underlying collateral in most of our holdings is deleveraging, loan-to-values decline and prepayment speeds are increasing. The improving fundamentals, the deleveraging of the collateral, the negative net supply (together with increasing demand) and the shortening of our ABS holdings resulted in tightening 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 USA’s available-for-sale (AFS) RMBS instruments were determined as follows:
Level II | Level III | Total 2017 | Level II | Level III | Total 2016 | |||||||||||||||||||
RMBS | 2,931 | 54 | 2,985 | 3,419 | 75 | 3,494 |
Commercial mortgage-backed securities
As of December, 31, 2017, Aegon Americas, Aegon the Netherlands and Aegon UK hold EUR 3,549 million (December 31, 2016: EUR 5,579 million) of AFS commercial mortgage-backed securities (CMBS), of which EUR 3,375 million (December 31, 2016: EUR 5,340 million) is held by Aegon USA, EUR 146 million (December 31, 2016: EUR 195 million) by Aegon UK and EUR 28 million (December 31, 2016: EUR 44 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 on available-for-sale CMBS of Aegon Americas amounted to EUR 22 million as of December 31, 2017 (December 31, 2016: EUR 67 million). The total net unrealized gain on the available-for-sale CMBS as of December 31, 2017, is EUR 81 million (December 31, 2016: EUR 87 million), of which EUR 36 million (December 31, 2016: EUR 34 million) relates to positions of Aegon USA, followed by Aegon UK at EUR 44 million. CMBS fundamentals remain supportive with commercial property prices above their prior peak. Commercial real estate valuation increases have slowed. The delinquency rate has started to fall as loan resolutions outpace new defaults and positive net supply increases the total outstanding balance. Liquidity remains reasonable for the CMBS market; however, credit spreads on legacy subordinate CMBS tranches remain at wide levels.
The tables below summarize the credit quality of Aegon USA’s available-for-sale (AFS) CMBS portfolio. Additionally, Aegon USA has no investments in CMBS (December 31, 2016: 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 | |||||||||||||||||||||
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 | |||||||||||||||||||||
CMBS by quality | AAA | AA | A | BBB | <BBB | Total amortized cost | Total fair value | |||||||||||||||||||||
CMBS | 4,295 | 688 | 141 | 73 | 105 | 5,301 | 5,337 | |||||||||||||||||||||
CMBS and CRE CDOs | - | - | - | - | 5 | 5 | 3 | |||||||||||||||||||||
At December 31, 2016 | 4,295 | 688 | 141 | 73 | 110 | 5,306 | 5,340 |
CMBS of Aegon USA 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 a loan-by-loan, bottom-up approach. For non-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, 2017.
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 USA’s available-for-sale (AFS) CMBS instruments were determined as follows:
Level II | Level III | Total 2017 | Level II | Level III | Total 2016 | |||||||||||||||||||
CMBS | 3,372 | 3 | 3,375 | 5,337 | 3 | 5,340 |
Asset-backed securities
Aegon Americas, Aegon the Netherlands and Aegon UK hold EUR 4,314 million (December 31, 2016: EUR 6,188 million) of AFS ABS instruments of which EUR 2,429 million (December 31, 2016: EUR 3,377 million) is held by Aegon USA, EUR 1,799 million (December 31, 2016: EUR 2,714 million) by Aegon the Netherlands and EUR 88 million (December 31, 2016 EUR 97 million) by Aegon UK. Additionally, Aegon Americas has investments in ABS of EUR 10 million (December 31, 2016: EUR 13 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 on available-for-sale ABS of Aegon Americas, Aegon the Netherlands and Aegon UK amounted to EUR 15 million as of December 31, 2017 (December 31, 2016: EUR 54 million). Aegon USA has EUR 12 million (December 31, 2016: EUR 44 million) of this gross unrealized loss and Aegon the Netherlands EUR 2 million (December 31, 2016: EUR 10 million). In the United States, increasing investor demand has been met with new issuance in the asset-backed sector. The combination of these factors has led to varied performance by sector with most sectors exhibiting tighter credit spreads over the course of the year. During 2017, the European ABS spreads tightened considerably on the backdrop of a benign macro environment. The majority of European ABS sectors is now trading at their tightest levels since the financial crisis. The more basic sectors are slowly approaching their all-time lows helped by very low issuance volumes and the support of the European Central Bank asset backed securities purchase program. Due to the ample liquidity provided through the different programs of the Central Banks issuance levels for European ABS will remain subdued and in combination with further improving fundamentals this leads to continued downward pressure on spreads going forward.
The breakdown by quality of the available-for-sale (AFS) ABS portfolio of Aegon USA, Aegon the Netherlands and Aegon UK is as follows:
ABS US, NL and UK | 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 | 738 | 81 | 6 | 1,395 | 1,438 | |||||||||||||||||||||
At December 31, 2017 | 2,357 | 503 | 1,029 | 238 | 114 | 4,242 | 4,314 | |||||||||||||||||||||
ABS US, NL and UK | AAA | AA | A | BBB | <BBB | Total amortized cost | Total fair value | |||||||||||||||||||||
Credit cards | 482 | 28 | 35 | 30 | - | 575 | 589 | |||||||||||||||||||||
Autos | 277 | 9 | 46 | 42 | - | 375 | 374 | |||||||||||||||||||||
Small business loans | - | 1 | 7 | 6 | 104 | 118 | 116 | |||||||||||||||||||||
CDOs backed by ABS, Corp. bonds, Bank loans | 2,108 | 790 | 368 | 134 | 94 | 3,493 | 3,504 | |||||||||||||||||||||
Other ABS | 627 | 165 | 697 | 85 | 22 | 1,596 | 1,606 | |||||||||||||||||||||
At December 31, 2016 | 3,495 | 992 | 1,153 | 296 | 220 | 6,156 | 6,188 |
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 USA, Aegon the Netherlands and Aegon UK available-for-sale (AFS) ABS instruments were determined as follows:
Corporate - Financial sector
The Corporate - Financial sector is further subdivided into banking, brokerage, insurance, REIT’s and Financial - Other sub-sectors. A majority of the gross unrealized loss in Aegon’s available-for-sale portfolio is from the banking sub-sector.
Level II | Level III | Total 2017 | Level II | Level III | Total 2016 | |||||||||||||||||||
ABSs | 3,411 | 903 | 4,314 | 4,880 | 1,309 | 6,188 |
Corporate - Financial sector - Banking sub-sector
The Banking sub-sector in Aegon’s portfolio is relatively large, diverse, and of high quality. Aegon Americas, Aegon the Netherlands and Aegon UK hold EUR 6,793 million (December 31, 2016: EUR 8,527 million) of AFS bonds issued by banks. In aggregate, the gross unrealized loss on these bonds amounted to EUR 39 million (December 31, 2016: EUR 135 million) and the net unrealized gain on these bonds amounted to EUR 323 million (December 31, 2016: EUR 188 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 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.
Within the Banking sub-sector, Aegon holds EUR 629 million (December 31, 2016: EUR 750 million) of deeply subordinated securities with deferrable coupons that have an associated unrealized loss of EUR 10 million (December 31, 2016: EUR 93 million).
There are no individual issuers rated below investment grade in the Banking sub-sector which have unrealized losses greater than EUR 25 million.
Government bonds
Aegon Americas, Aegon the Netherlands and Aegon UK’s government issued available-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, 2017.
There are no individual issuers rated below investment grade in the government sector which have unrealized loss positions greater than EUR 25 million.
Unrealized loss by maturity
The table below shows the composition by maturity of all available-for-sale debt securities in an unrealized loss position held by Aegon Americas, Aegon the Netherlands and Aegon UK.
December 31, 2017 | December 31, 2016 | |||||||||||||||
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 | 466 | (6 | ) | 742 | (13 | ) | ||||||||||
Over 1 through 5 years | 1,937 | (31 | ) | 2,444 | (73 | ) | ||||||||||
Over 5 through 10 years | 4,580 | (95 | ) | 6,097 | (197 | ) | ||||||||||
Over 10 years | 4,263 | (258 | ) | 11,656 | (892 | ) | ||||||||||
Total | 11,246 | (391 | ) | 20,938 | (1,176 | ) | ||||||||||
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, Aegon the Netherlands and Aegon UK.
|
| |||||||||||||||
December 31, 2017 | December 31, 2016 | |||||||||||||||
Debt securities | Carrying value of securities with unrealized losses | Unrealized losses | Carrying value of securities with unrealized losses | Unrealized losses | ||||||||||||
AAA | 4,924 | (135 | ) | 8,536 | (422 | ) | ||||||||||
AA | 1,037 | (17 | ) | 1,581 | (48 | ) | ||||||||||
A | 1,775 | (45 | ) | 3,599 | (154 | ) | ||||||||||
BBB | 2,339 | (70 | ) | 5,249 | (288 | ) | ||||||||||
BB | 507 | (39 | ) | 920 | (128 | ) | ||||||||||
B | 323 | (32 | ) | 345 | (40 | ) | ||||||||||
Below B | 341 | (54 | ) | 706 | (96 | ) | ||||||||||
Total | 11,246 | (391 | ) | 20,938 | (1,176 | ) | ||||||||||
The table below provides the length of time an available-for-sale security has been below cost and the respective unrealized loss.
|
| |||||||||||||||
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 | 4,106 | 485 | (46 | ) | (15 | ) | ||||||||||
6 – 12 months | 1,479 | 62 | (9 | ) | (5 | ) | ||||||||||
> 12 months | 4,490 | 624 | (211 | ) | (105 | ) | ||||||||||
Total | 10,076 | 1,171 | (266 | ) | (125 | ) | ||||||||||
At December 31, 2016 | ||||||||||||||||
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 | 14,848 | 587 | (635 | ) | (30 | ) | ||||||||||
6 – 12 months | 190 | 198 | (6 | ) | (20 | ) | ||||||||||
> 12 months | 3,929 | 1,186 | (270 | ) | (213 | ) | ||||||||||
Total | 18,966 | 1,971 | (912 | ) | (263 | ) |
The unrealized loss improved during 2017 due to tightening credit spreads and declining long term interest rates, which was offset slightly by rising short term interest 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, Aegon the Netherlands and Aegon UK.
2017 | 2016 | |||||||||||||||
Aging and severity unrealized losses debt securities | Carrying value | Unrealized losses | Carrying value | Unrealized losses | ||||||||||||
CV 70-100% of amortized cost | 482 | (13 | ) | 585 | (27 | ) | ||||||||||
CV 40-70% of amortized cost | 3 | (2 | ) | 2 | (2 | ) | ||||||||||
CV < 40% of amortized cost | - | - | 1 | (2 | ) | |||||||||||
0-6 months | 485 | (15 | ) | 587 | (30 | ) | ||||||||||
CV 70-100% of amortized cost | 62 | (5 | ) | 196 | (18 | ) | ||||||||||
CV 40-70% of amortized cost | - | - | 3 | (2 | ) | |||||||||||
CV < 40% of amortized cost | - | - | - | - | ||||||||||||
6-12 months | 62 | (5 | ) | 198 | (20 | ) | ||||||||||
CV 70-100% of amortized cost | 67 | (10 | ) | 475 | (55 | ) | ||||||||||
CV 40-70% of amortized cost | 8 | (4 | ) | 3 | (2 | ) | ||||||||||
CV < 40% of amortized cost | - | - | - | (3 | ) | |||||||||||
12-24 months | 75 | (13 | ) | 478 | (60 | ) | ||||||||||
CV 70-100% of amortized cost | 511 | (63 | ) | 582 | (71 | ) | ||||||||||
CV 40-70% of amortized cost | 30 | (16 | ) | 119 | (67 | ) | ||||||||||
CV < 40% of amortized cost | 8 | (12 | ) | 7 | (15 | ) | ||||||||||
> 24 months
|
| 549
|
|
| (92
| )
|
| 708
|
|
| (153
| )
| ||||
Total | 1,171 | (125 | ) | 1,971 | (263 | ) |
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, Aegon the Netherlands and Aegon UK
The following table provides the realized gains and losses on the debt securities of Aegon Americas, Aegon the Netherlands and Aegon UK for the twelve months ended December 31, 2017, and December 31, 2016. Gross realised gains in 2017 decreased compared to 2016 due to the sale of the UK annuity portfolio in 2016.
Gross realized gains and (losses) | Gross realized gains | Gross realized losses | ||||||
December 31, 2017 | ||||||||
Debt securities | 1,876 | (173 | ) | |||||
December 31, 2016 | ||||||||
Debt securities | 2,257 | (323 | ) |
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 | ||||||||||||
0 -12 months | >12 months | Total | ||||||||||
December 31, 2017 | ||||||||||||
Debt securities | (137 | ) | (36 | ) | (173 | ) | ||||||
December 31, 2016 | ||||||||||||
Debt securities | (221 | ) | (103 | ) | (323 | ) |
Impairment losses and recoveries
The composition of Aegon Americas, Aegon the Netherlands and Aegon UK’s bond impairment losses and recoveries by issuer for the periods ended December 31, 2017, and December 31, 2016, is presented in the table below. Those issuers with impairments or recoveries above EUR 25 million are specifically noted.
2017 | 2016 | |||||||
(Impairment) / recovery | (Impairment) / recovery | |||||||
Impairments: | ||||||||
Other (none individually greater than EUR 25 million) | (16 | ) | (52 | ) | ||||
Subtotal | (16 | ) | (52 | ) | ||||
Recoveries: | ||||||||
Total recoveries | 16 | 42 | ||||||
Sub-total
|
| 16
|
|
| 42
|
| ||
Net (impairments) and recoveries | - | (11 | ) |
Net (impairments) and recoveries
Net impairments for the twelve months ended December 31, 2017, totalled EUR 0 million (twelve months ended December 31, 2016: EUR 11 million net recoveries).
For the twelve months ended December 31, 2017, Aegon recognized EUR 16 million (twelve months ended December 31, 2016: EUR 42 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 on non-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 the non-cash collateral for its own operations.
2017 | 2016 | |||||||||||||||||||||||||||||||
Past due but not impaired assets | 0-6 months | 6-12 months | > 1 year | Total | 0-6 months | 6-12 months | > 1 year | Total | ||||||||||||||||||||||||
Debt securities - carried at fair value | 49 | 14 | 28 | 91 | 58 | 9 | 7 | 73 | ||||||||||||||||||||||||
Mortgage loans | 111 | 2 | 4 | 117 | 80 | 4 | 3 | 87 | ||||||||||||||||||||||||
Other loans | 31 | 1 | 3 | 35 | 29 | 4 | 2 | 36 | ||||||||||||||||||||||||
Accrued interest | - | 1 | 1 | 1 | - | - | 1 | 1 | ||||||||||||||||||||||||
At December 31 | 191 | 18 | 35 | 244 | 167 | 17 | 13 | 197 |
Impaired financial assets | Carrying amount 2017 | Carrying amount 2016 | ||||||
Shares | 48 | 81 | ||||||
Debt securities - carried at fair value | 1,063 | 1,326 | ||||||
Mortgage loans | 262 | 377 | ||||||
Private Loans | - | 6 | ||||||
Other loans | 3 | 3 | ||||||
Other financial assets - carried at fair value | 6 | 9 | ||||||
At December 31 | 1,381 | 1,803 |
Equity instruments classified as available-for-sale
Objective evidence of impairment of an investment in an equity instrument classified as available-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 2 million of impairment charges for the twelve months ended December 31, 2017 (twelve months ended December 31, 2016: EUR 1 million) for Aegon Americas, Aegon the Netherlands and Aegon UK.
As of December 31, 2017, there are EUR 62 million of gross unrealized gains and EUR 13 million of gross unrealized losses in the equity portfolio of Aegon (December 31, 2016: EUR 202 million of gross unrealized gains and EUR 13 million of gross unrealized losses). There is one security held by Aegon, issued by Cobank, which had an unrealized loss above EUR 5 million. The table below represents the unrealized gains and losses on share positions held by Aegon Americas, Aegon the Netherlands and Aegon UK.
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, 2017 | ||||||||||||||||||||||||||||
Shares | 386 | 434 | 49 | 401 | 62 | 34 | (13 | ) | ||||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||||||
Shares | 596 | 786 | 190 | 722 | 202 | 64 | (13 | ) |
The composition of shares by industry sector in an unrealized loss position held by Aegon Americas, Aegon the Netherlands and Aegon UK at December 31, 2017, and December 31, 2016 is presented in the following table.
2017 | 2016 | |||||||||||||||
Unrealized losses on shares | Carrying value of instruments with unrealized losses | Unrealized losses | Carrying value of instruments with unrealized losses | Unrealized losses | ||||||||||||
Financials | 19 | (12 | ) | 54 | (12 | ) | ||||||||||
Other | 14 | (2 | ) | 10 | - | |||||||||||
Total | 34 | (13 | ) | 64 | (13 | ) |
Impairment losses on shares
The table below provides the length of time the shares held by Aegon Americas, Aegon the Netherlands and Aegon UK were below cost prior to their impairment in 2017 and 2016.
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Equity market risk and other investments risk
Fluctuations in the equity, real estate and capital markets have affected Aegon’s profitability, capital position and sales of equity related products in the past and may continue to do so. Exposure to equity, real estate and capital markets exists in both assets and liabilities. Asset exposure exists through direct equity investment, where Aegon bears all or most of the volatility in returns and investment performance risk. Equity market exposure is also present in insurance and investment contracts for policyholders where funds are invested in equities, backing variable annuities, unit-linked products and mutual funds. Although most of the risk remains with the policyholder, lower investment returns can reduce the asset management fee earned by Aegon on the asset balance in these products. In addition, some of this business has minimum return or accumulation guarantees.
The general account equity, real estate and other non-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 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. | ||||||||||||||||||||||||||||||||||
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 | Total 2016 | |||||||||||||||||||||||||
Equity funds | 154 | 494 | 27 | 37 | - | - | - | - | 711 | |||||||||||||||||||||||||
Common shares1) | 410 | - | 58 | 5 | 4 | - | - | 41 | 518 | |||||||||||||||||||||||||
Preferred shares | 229 | - | - | - | - | - | - | - | 229 | |||||||||||||||||||||||||
Investments in real estate | 743 | 1,238 | - | 3 | 15 | - | - | - | 1,999 | |||||||||||||||||||||||||
Hedge funds | 1,165 | 1 | - | - | - | - | 2 | - | 1,168 | |||||||||||||||||||||||||
Other alternative investments | 1,207 | 156 | - | - | - | - | - | 21 | 1,385 | |||||||||||||||||||||||||
Other financial assets | 588 | 41 | 98 | 1 | - | - | 1 | - | 729 | |||||||||||||||||||||||||
At December 31 | 4,496 | 1,930 | 182 | 45 | 19 | - | 4 | 62 | 6,739 | |||||||||||||||||||||||||
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.
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Market risk concentrations – shares | Americas | The Netherlands | United Kingdom | Central & Eastern Europe | Spain & Portugal | Asia | Asset Manage- ment | Total 2017 1) | 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. | ||||||||||||||||||||||||||||||||||
Market risk concentrations – shares | Americas | The Netherlands | United Kingdom | Central & Eastern Europe | Spain & Portugal | Asia | Asset Manage- | Total 2016 1) | Of which impaired assets | |||||||||||||||||||||||||
Communication | 43 | - | - | - | - | - | - | 43 | - | |||||||||||||||||||||||||
Consumer | 41 | - | - | - | - | - | - | 41 | - | |||||||||||||||||||||||||
Financials | 675 | 4 | 1 | - | 2 | - | - | 682 | 2 | |||||||||||||||||||||||||
Funds | - | 326 | 84 | 33 | 2 | - | - | 506 | 79 | |||||||||||||||||||||||||
Industries | 21 | - | - | - | - | - | - | 22 | - | |||||||||||||||||||||||||
Other | 12 | 4 | - | 2 | - | - | 2 | 20 | - | |||||||||||||||||||||||||
At December 31 | 793 | 334 | 84 | 35 | 4 | - | 2 | 1,315 | 81 | |||||||||||||||||||||||||
1 Includes investments of Holding and other activities. |
The table that follows sets forth the closing levels of certain major indices at the end of the last five years.year ends are set forth in the table below:
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||
S&P 500 | 2,674 | 2,239 | 2,044 | 2,059 | 1,848 | |||||||||||||||
Nasdaq | 6,903 | 5,383 | 5,007 | 4,736 | 4,177 | |||||||||||||||
FTSE 100 | 7,688 | 7,143 | 6,242 | 6,566 | 6,749 | |||||||||||||||
AEX | 545 | 483 | 442 | 424 | 402 |
Closing rates | 2020 | 2019 | 2018 | 2017 | 2016 | |||||||||||||||
USD | 1.22 | 1.12 | 1.14 | 1.20 | 1.05 | |||||||||||||||
GBP | 0.90 | 0.85 | 0.90 | 0.89 | 0.85 |
Aegon Group companies’ foreign currency exposure from monetary assets and liabilities denominated in foreign currencies (that is, other than the entity’s functional currency), is not material.
The sensitivity analysis in the following table shows an estimate of the effect of movements in the exchange rates of Aegon’s non-euro currencies relative to the euro on net income and shareholders’ equity.
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. The increase in Aegon’s sensitivity compared with the prior year is due to a different payoff profile resulting from a change in the hedging strategy.translation risk
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 | ||||||
2017 | ||||||||
Equity increase 10% | 317 | 405 | ||||||
Equity decrease 10% | (316 | ) | (405 | ) | ||||
Equity increase 20% | 647 | 820 | ||||||
Equity decrease 20% | (660 | ) | (839 | ) | ||||
2016 | ||||||||
Equity increase 10% | 158 | 291 | ||||||
Equity decrease 10% | (227 | ) | (360 | ) | ||||
Equity increase 20% | 324 | 587 | ||||||
Equity decrease 20% | (338 | ) | (604 | ) |
Movement of currency exchange rates 1) | Estimated approximate effects on net income | Estimated approximate effects on shareholders’ equity | ||||||
2020 | ||||||||
Increase by 15% of USD currencies relative to the euro | (93 | ) | 2,848 | |||||
Increase by 15% of GBP currencies relative to the euro | (43 | ) | 1,015 | |||||
Increase by 15% of non-euro currencies relative to the euro | (52 | ) | 3,219 | |||||
Decrease by 15% of USD currencies relative to the euro | 74 | (2,066 | ) | |||||
Decrease by 15% of GBP currencies relative to the euro | (51 | ) | 631 | |||||
Decrease by 15% of non-euro currencies relative to the euro | 45 | (2,325 | ) | |||||
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% of non-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% of non-euro currencies relative to the euro | (150 | ) | (2,094 | ) |
1 | The effect of currency exchange movements is reflected as a one-time shift up or down in the value of the non-euro currencies relative to the euro on December 31. |
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 ourthe use of collateralized financial derivatives to mitigate risk.other risks.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4 214 | ||
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 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 34,39333,465 million of general account investments in cash, money market products and government bonds that are readily saleable or redeemable on demand (2016:(2019: EUR 35,84131,066 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 to back-up credit facilities, as disclosed in note 3937 Borrowings, amounting to EUR 3,3673,288 million which were unused at the end of the reporting period (2016:(2019: EUR 3,8853,403 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 (for non- derivatives) | On demand | < 1 yr amount | 1 < 5 yrs amount | 5 < 10 yrs amount | > 10 yrs amount | Total amount | ||||||||||||||||||
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 | ||||||||||||||||||
2016 | ||||||||||||||||||||||||
Trust pass-through securities | - | 10 | 39 | 131 | 81 | 261 | ||||||||||||||||||
Subordinated loans | - | 28 | 112 | 84 | 1,198 | 1,422 | ||||||||||||||||||
Borrowings | - | 2,072 | 5,146 | 1,535 | 6,693 | 15,446 | ||||||||||||||||||
Investment contracts1) | 12,695 | 1,110 | 2,040 | 1,093 | 1,985 | 18,923 | ||||||||||||||||||
Investment contracts for account of policyholders1) | 35,239 | 2,885 | - | - | 466 | 38,591 | ||||||||||||||||||
Other financial liabilities | 6,743 | 2,224 | 839 | 12 | 26 | 9,844 | ||||||||||||||||||
1 Excluding investment contracts with discretionary participating features.
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.
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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 | ||||||||||||||||||
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 | ||||||||||||||||||
2016 | ||||||||||||||||||||||||
Insurance contracts | - | 4,522 | 18,361 | 18,712 | 135,679 | 177,275 | ||||||||||||||||||
Insurance contracts for account of policyholders | - | 7,719 | 32,577 | 33,490 | 114,545 | 188,331 | ||||||||||||||||||
Investment contracts | - | 5,278 | 7,574 | 2,814 | 9,635 | 25,303 | ||||||||||||||||||
Investment contracts for account of policyholders | 292 | 10,328 | 25,850 | 22,867 | 63,798 | 123,136 |
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 | ||||||||||||||||||
2020 | ||||||||||||||||||||||||
Trust pass-through securities | - | 8 | 33 | 91 | 58 | 191 | ||||||||||||||||||
Subordinated loans | - | 103 | 382 | 283 | 2,842 | 3,610 | ||||||||||||||||||
Borrowings | - | 1,033 | 6,627 | 747 | 1,002 | 9,410 | ||||||||||||||||||
Lease liabilities | - | 45 | 97 | 60 | 76 | 278 | ||||||||||||||||||
Other financial liabilities | 5,333 | 2,238 | 197 | 100 | 126 | 7,993 | ||||||||||||||||||
Total financial liabilities (excluding investment/insurance contracts) | 5,333 | 3,427 | 7,337 | 1,282 | 4,105 | 21,482 | ||||||||||||||||||
Investment contracts 1) | 16,699 | 2,458 | 1,878 | 1,072 | 795 | 22,903 | ||||||||||||||||||
Investment contracts for account of policyholders 1) | 30,515 | 27,513 | 8 | 4 | 3 | 58,043 | ||||||||||||||||||
Total investment contracts | 47,214 | 29,971 | 1,886 | 1,077 | 798 | 80,946 | ||||||||||||||||||
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 | ||||||||||||||||||
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 | ||||||||||||||||||
Investment contracts 1) | 14,281 | 1,930 | 1,888 | 1,001 | 795 | 19,895 | ||||||||||||||||||
Investment contracts for account of policyholders 1) | 32,463 | 26,298 | 6 | 3 | 2 | 58,772 | ||||||||||||||||||
Total investment contracts | 46,744 | 28,228 | 1,894 | 1,004 | 797 | 78,667 |
1 | Excluding investment contracts with discretionary participating features. |
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
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 4 215 | ||
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 contracts 1) | On demand | < 1 yr amount | 1 < 5 yrs amount | 5 < 10 yrs amount | > 10 yrs amount | Total amount | ||||||||||||||||||
2020 | ||||||||||||||||||||||||
Insurance contracts | - | 4,269 | 16,104 | 18,382 | 119,092 | 157,847 | ||||||||||||||||||
Insurance contracts for account of policyholders | - | 10,546 | 37,153 | 35,257 | 117,005 | 199,961 | ||||||||||||||||||
Investment contracts | - | 8,733 | 8,000 | 2,998 | 3,957 | 23,688 | ||||||||||||||||||
Investment contracts for account of policyholders | 165 | 12,004 | 27,435 | 28,318 | 72,063 | 139,986 | ||||||||||||||||||
165 | 35,552 | 88,693 | 84,955 | 312,117 | 521,482 | |||||||||||||||||||
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 |
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 |
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 derivatives 1) (Contractual cash flows) 2017 | On demand | < 1 yr amount | 1 < 5 yrs amount | 5 < 10 yrs amount | > 10 yrs amount | Total amount | ||||||||||||||||||||||||||||||||||||||||||
Maturity analysis relating to derivatives 1) (Contractual cash flows) | On demand | < 1 yr amount | 1 < 5 yrs amount | 5 < 10 yrs amount | > 10 yrs amount | Total amount | ||||||||||||||||||||||||||||||||||||||||||
2020 | ||||||||||||||||||||||||||||||||||||||||||||||||
Gross settled | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash inflows | - | 14,646 | 7,024 | 10,658 | 18,916 | 51,245 | - | 23,118 | 3,073 | 3,119 | 7,554 | 36,863 | ||||||||||||||||||||||||||||||||||||
Cash outflows | - | (14,766 | ) | (6,367 | ) | (9,890 | ) | (18,447 | ) | (49,471 | ) | - | (23,429 | ) | (2,267 | ) | (1,974 | ) | (4,782 | ) | (32,451 | ) | ||||||||||||||||||||||||||
Net settled | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash inflows | - | 129 | 783 | 1,033 | 2,428 | 4,374 | - | 612 | 2,293 | 2,870 | 5,418 | 11,193 | ||||||||||||||||||||||||||||||||||||
Cash outflows | - | (67 | ) | (332 | ) | (543 | ) | (5,870 | ) | (6,812 | ) | - | (797 | ) | (1,784 | ) | (2,258 | ) | (6,604 | ) | (11,444 | ) | ||||||||||||||||||||||||||
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. |
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Maturity analysis relating to derivatives 1) (Contractual cash flows) 2016 | On demand | < 1 yr amount | 1 < 5 yrs amount | 5 < 10 yrs amount | > 10 yrs amount | Total amount | ||||||||||||||||||||||||||||||||||||||||||
2019 | ||||||||||||||||||||||||||||||||||||||||||||||||
Gross settled | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash inflows | - | 18,933 | 6,154 | 10,862 | 19,084 | 55,034 | - | 17,162 | 3,098 | 4,470 | 11,628 | 36,357 | ||||||||||||||||||||||||||||||||||||
Cash outflows | - | (19,794 | ) | (6,435 | ) | (9,807 | ) | (18,227 | ) | (54,263 | ) | - | (17,056 | ) | (2,922 | ) | (3,570 | ) | (10,071 | ) | (33,619 | ) | ||||||||||||||||||||||||||
Net settled | ||||||||||||||||||||||||||||||||||||||||||||||||
Cash inflows | - | 222 | 1,014 | 1,635 | 3,984 | 6,855 | - | 865 | 3,091 | 3,537 | 6,798 | 14,292 | ||||||||||||||||||||||||||||||||||||
Cash outflows | - | (123 | ) | (417 | ) | (789 | ) | (7,278 | ) | (8,607 | ) | - | (983 | ) | (2,594 | ) | (2,832 | ) | (7,716 | ) | (14,126 | ) |
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 45 Commitments and contingencies.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 5216 | ||
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 |
◆ | The Netherlands: which covers businesses activities from Aegon the Netherlands; |
◆ | United |
◆ |
◆ | Asset Management: one operating segment which covers business activities from |
◆ | Holding and other activities: one operating segment which includes financing, |
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 2020. As per January 1, 2020 activities in Southern and Eastern Europe and Asia have been brought together in a new operating segment, International.
The change in segment reporting does not have an impact on the financial position, results of operations or cash flows of Aegon. The tables presented in this document have been updated to reflect this change.
Performance Measure
AAegon uses the non-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.
ImpactIncluded 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 assumption and model updates
In 2017 a charge of EUR 276 million (2016: EUR 118 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 402 million and were mainly driven by a charge of EUR 303 million (USD 343 million) from the conversion of the largest block of universal life business to a new model. The model allows for modeling policyholder behavior and other assumptions on a policy by policy basis, whereas in the previous model this was done at a cohort level. A model change in fixed annuities discount rate, resulted in a charge of EUR 44 million (USD 50 million) and other assumption changes and model updates led to a charge of EUR 54 million (USD 61 million). In the Netherlands, assumption changes and model updates led to a gain of EUR 101 million, which mainly relates to the guarantee provision.
During 2016 Aegon implemented actuarial assumption and model updates resulting in a net EUR 118 million charge (2015: EUR 131 million charge) to incomeunderlying earnings before tax.
Fair value items
Fair value items include the over- or underperformance of investments and guarantees held at fair value for which the expected long-termmanagement’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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 5217 | ||
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 long-term expectedbest estimate investment return on assets. Based on current holdings and asset returns, the long-term expected return on an annual basis is 8-10%3-10%, 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. Included in underlying earnings before tax is a long-term expected return on these products and excluded is any over- or underperformance compared to management’s expected return.
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 VA Europe (included in United Kingdom) and Japan are excluded from underlying earnings before tax, and the long-termbecause management’s best estimate expected return for these guarantees is set at zero. In addition, fair value items include market related results on ourthe 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
IncludesRealized gains or losses on investments includes realized gains and losses on available-for-sale investments, mortgage loans and other loan portfolios.
Impairment charges/reversals(reversals)
Impairment chargescharges/(reversals) include impairments on available-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 on available-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) in non-underlying earnings.
Other income or charges
Other income or charges includes the following:
◆ |
◆ |
◆ |
In the Consolidated income statement, thesethe 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
Includes underlyingRun-off businesses include results of business units where management in earlier years has decided to exit the market and to run -offrun-off the existing block of business. This line only includes results related to the run-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. The size of these remaining blocks is small and in 2021 this segment, along with all other businesses, will be included as part of the main lines of business in underlying earnings.
Share in earnings of joint ventures and associates
Earnings from Aegon’s joint ventures in China, India, the Netherlands, Mexico, Spain Portugal, China and JapanPortugal, and Aegon’s associates in India, Brazil, France, the Netherlands and United Kingdom Mexico and France are reported on anas underlying earnings before tax basis.tax.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 5218 | ||
The following table presents Aegon’s segment results.
Income statement - Underlying earnings |
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| Americas | The Netherlands | United Kingdom | International | Asset Management | Holding activities | Eliminations | Segment total | Joint ventures and associates eliminations | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Underlying earnings before tax | 1,381 | 520 | 116 | 67 | 4 | 49 | 136 | (170 | ) | - | 2,103 | 61 | 2,163 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2020 Underlying earnings before tax | 820 | 665 | 144 | 156 | 182 | (237 | ) | 1 | 1,729 | 31 | 1,761 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value items | 170 | 30 | (82 | ) | - | - | - | - | 24 | - | 142 | (97 | ) | 45 | (505 | ) | (230 | ) | (2 | ) | 1 | 22 | (36 | ) | - | (750 | ) | (87 | ) | (837 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Realized gains / (losses) on investments | 157 | 184 | 62 | 1 | - | 4 | 3 | - | - | 413 | (5 | ) | 408 | 93 | 14 | - | 46 | 1 | (3 | ) | - | 150 | (8 | ) | 142 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Impairment charges | (38 | ) | (27 | ) | - | (2 | ) | - | (1 | ) | - | (3 | ) | - | (71 | ) | - | (71 | ) | (173 | ) | (50 | ) | - | (16 | ) | (1 | ) | (25 | ) | - | (265 | ) | 1 | (264 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Impairment reversals | 22 | 10 | - | - | - | - | - | - | - | 32 | - | 32 | 27 | 1 | - | - | - | - | - | 28 | - | 28 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other income / (charges) | (353 | ) | 296 | 40 | - | - | (19 | ) | (49 | ) | 16 | - | (68 | ) | (4 | ) | (72 | ) | (1,110 | ) | 78 | (68 | ) | (1 | ) | (8 | ) | (130 | ) | - | (1,239 | ) | 15 | (1,224 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Run-off businesses | 30 | - | - | - | - | - | - | - | - | 30 | - | 30 | 29 | - | - | - | - | - | - | 29 | - | 29 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income / (loss) before tax | 1,369 | 1,013 | 137 | 66 | 4 | 33 | 90 | (134 | ) | - | 2,579 | (44 | ) | 2,534 | (819 | ) | 478 | 74 | 186 | 195 | (433 | ) | 1 | (317 | ) | (47 | ) | (364 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax (expense) / benefit | 198 | (196 | ) | (56 | ) | (9 | ) | (6 | ) | (28 | ) | (42 | ) | 29 | - | (110 | ) | 44 | (65 | ) | 284 | (107 | ) | (7 | ) | (22 | ) | (44 | ) | 78 | - | 181 | 47 | 229 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income / (loss) | 1,567 | 818 | 81 | 57 | (2 | ) | 5 | 48 | (105 | ) | - | 2,469 | - | 2,469 | (535 | ) | 371 | 67 | 164 | 151 | (355 | ) | 1 | (135 | ) | - | (135 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inter-segment underlying earnings | (78 | ) | (111 | ) | (87 | ) | (11 | ) | (1 | ) | (1 | ) | 214 | 73 | (40 | ) | (87 | ) | (86 | ) | (35 | ) | 193 | 62 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Life insurance gross premiums | 7,437 | 1,857 | 9,603 | 411 | 208 | 983 | - | 7 | (9 | ) | 20,498 | (546 | ) | 19,952 | 7,105 | 1,619 | 4,833 | 1,095 | - | 4 | (3 | ) | 14,654 | (726 | ) | 13,929 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accident and health insurance | 2,115 | 203 | 32 | 1 | 83 | 97 | - | - | - | 2,531 | (20 | ) | 2,511 | 1,380 | 245 | 25 | 193 | - | - | - | 1,844 | (59 | ) | 1,784 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
General insurance | - | 148 | - | 216 | 103 | - | - | 1 | (1 | ) | 466 | (103 | ) | 363 | - | 130 | - | 388 | - | - | - | 519 | (132 | ) | 386 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total gross premiums | 9,553 | 2,208 | 9,635 | 628 | 394 | 1,080 | - | 8 | (10 | ) | 23,496 | (670 | ) | 22,826 | 8,485 | 1,994 | 4,858 | 1,677 | - | 5 | (3 | ) | 17,016 | (917 | ) | 16,099 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment income | 3,368 | 2,172 | 1,517 | 49 | 37 | 246 | 4 | 295 | (291 | ) | 7,396 | (58 | ) | 7,338 | 2,986 | 2,083 | 1,795 | 362 | 7 | 261 | (281 | ) | 7,212 | (63 | ) | 7,149 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fee and commission income | 1,919 | 326 | 235 | 43 | 17 | 63 | 609 | - | (221 | ) | 2,991 | (189 | ) | 2,802 | 1,653 | 255 | 194 | 50 | 750 | (9 | ) | (180 | ) | 2,713 | (308 | ) | 2,405 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other revenues | 5 | - | - | - | 3 | 1 | - | 4 | - | 13 | (5 | ) | 7 | 7 | - | - | 1 | 2 | 3 | - | 14 | (10 | ) | 4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total revenues | 14,844 | 4,706 | 11,387 | 720 | 450 | 1,390 | 613 | 308 | (522 | ) | 33,895 | (922 | ) | 32,973 | 13,131 | 4,332 | 6,847 | 2,091 | 759 | 260 | (465 | ) | 26,955 | (1,298 | ) | 25,657 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inter-segment revenues | - | (1 | ) | - | - | - | 3 | 222 | 298 | 1 | 21 | - | - | 188 | 264 |
Other charges amounted to EUR 1,239 million in 2020, driven by the Americas. The Americas recorded other charges of EUR 1,110 million in 2020 mainly due to unfavorable impacts from model and assumption changes. In addition, the Americas incurred other charges due to a valuation allowance related to the ongoing rehabilitation process of a reinsurer, the restructuring of captives, and a provision for a settlement of class action litigation related to monthly deduction rate adjustments on certain universal life policies.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 5219 | ||
Income statement - Underlying earnings | Americas | The Netherlands | United Kingdom | International | Asset Management | Holding activities | Eliminations | Segment total | Joint ventures and associates eliminations | Consolidated | ||||||||||||||||||||||||||||||
2019 Underlying earnings before tax | 1,125 | 648 | 139 | 144 | 139 | (228 | ) | 1 | 1,969 | 50 | 2,019 | |||||||||||||||||||||||||||||
Fair value items | 272 | (741 | ) | (131 | ) | 2 | - | (4 | ) | - | (601 | ) | (88 | ) | (689 | ) | ||||||||||||||||||||||||
Realized gains / (losses) on investments | 125 | 240 | 3 | 36 | - | 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 | ) | 15 | (7 | ) | (95 | ) | - | (281 | ) | - | (281 | ) | |||||||||||||||||||||||
Run-off businesses | 23 | - | - | - | - | - | - | 23 | - | 23 | ||||||||||||||||||||||||||||||
Income / (loss) before tax | 1,403 | 121 | (27 | ) | 198 | 133 | (335 | ) | 1 | 1,493 | (40 | ) | 1,453 | |||||||||||||||||||||||||||
Income tax (expense) / benefit | (220 | ) | (27 | ) | (7 | ) | (33 | ) | (36 | ) | 65 | - | (257 | ) | 40 | (217 | ) | |||||||||||||||||||||||
Net income / (loss) | 1,183 | 94 | (34 | ) | 165 | 97 | (270 | ) | 1 | 1,236 | - | 1,236 | ||||||||||||||||||||||||||||
Inter-segment underlying earnings | (61 | ) | (105 | ) | (87 | ) | (19 | ) | 193 | 79 | ||||||||||||||||||||||||||||||
Revenues 2019 | ||||||||||||||||||||||||||||||||||||||||
Life insurance gross premiums | 7,279 | 1,765 | 6,282 | 1,289 | - | 11 | (8 | ) | 16,617 | (691 | ) | 15,926 | ||||||||||||||||||||||||||||
Accident and health insurance | 1,416 | 228 | 28 | 201 | - | - | - | 1,872 | (50 | ) | 1,823 | |||||||||||||||||||||||||||||
General insurance | - | 130 | - | 382 | - | 1 | (1 | ) | 512 | (122 | ) | 390 | ||||||||||||||||||||||||||||
Total gross premiums | 8,694 | 2,123 | 6,309 | 1,872 | - | 12 | (9 | ) | 19,002 | (864 | ) | 18,138 | ||||||||||||||||||||||||||||
Investment income | 3,172 | 2,224 | 1,830 | 379 | 5 | 269 | (284 | ) | 7,595 | (64 | ) | 7,531 | ||||||||||||||||||||||||||||
Fee and commission income | 1,757 | 237 | 197 | 109 | 627 | - | (187 | ) | 2,740 | (218 | ) | 2,523 | ||||||||||||||||||||||||||||
Other revenues | 8 | - | - | 2 | 1 | 5 | - | 16 | (10 | ) | 6 | |||||||||||||||||||||||||||||
Total revenues | 13,631 | 4,583 | 8,337 | 2,362 | 633 | 286 | (480 | ) | 29,352 | (1,155 | ) | 28,197 | ||||||||||||||||||||||||||||
Inter-segment revenues | 1 | 12 | - | - | 187 | 280 |
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 | ) | 1 | (113 | ) | - | (112 | ) | |||||||||||||||||||||||||||||
Impairment reversals | 42 | 17 | - | - | - | - | - | - | (1 | ) | 58 | - | 58 | |||||||||||||||||||||||||||||||||||
Other income / (charges) | (100 | ) | 44 | (678 | ) | (23 | ) | - | (5 | ) | (2 | ) | (6 | ) | - | (771 | ) | - | (771 | ) | ||||||||||||||||||||||||||||
Run-off businesses | 54 | - | - | - | - | - | - | - | - | 54 | - | 54 | ||||||||||||||||||||||||||||||||||||
Income / (loss) before tax | 638 | 526 | (474 | ) | 34 | 6 | 14 | 145 | (249 | ) | - | 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 | ) | - | 438 | - | 438 | ||||||||||||||||||||||||||||||||
Inter-segment underlying 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 |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 5220 | ||
Income statement - Underlying earnings | Americas | The Netherlands | United Kingdom | International | Asset Management | Holding activities | Eliminations | Segment total | Joint ventures and associates eliminations | Consolidated | ||||||||||||||||||||||||||||||
2018 Underlying earnings before tax | 1,217 | 615 | 128 | 145 | 151 | (189 | ) | 1 | 2,069 | 72 | 2,142 | |||||||||||||||||||||||||||||
Fair value items | (613 | ) | 250 | 59 | 9 | - | 5 | - | (291 | ) | (119 | ) | (409 | ) | ||||||||||||||||||||||||||
Realized gains / (losses) on investments | (204 | ) | 46 | 83 | (8 | ) | 2 | 4 | - | (77 | ) | (2 | ) | (79 | ) | |||||||||||||||||||||||||
Impairment charges | (46 | ) | 4 | - | (7 | ) | - | (9 | ) | - | (58 | ) | - | (58 | ) | |||||||||||||||||||||||||
Impairment reversals | 37 | 2 | - | 1 | - | - | - | 39 | - | 39 | ||||||||||||||||||||||||||||||
Other income / (charges) | (397 | ) | (132 | ) | (252 | ) | (33 | ) | (5 | ) | (57 | ) | - | (875 | ) | 1 | (874 | ) | ||||||||||||||||||||||
Run-off businesses | (14 | ) | - | - | - | - | - | - | (14 | ) | - | (14 | ) | |||||||||||||||||||||||||||
Income / (loss) before tax | (19 | ) | 784 | 19 | 107 | 149 | (247 | ) | 1 | 794 | (47 | ) | 746 | |||||||||||||||||||||||||||
Income tax (expense) / benefit | 71 | (136 | ) | 20 | (43 | ) | (44 | ) | 46 | - | (86 | ) | 47 | (39 | ) | |||||||||||||||||||||||||
Net income / (loss) | 52 | 648 | 38 | 64 | 105 | (201 | ) | 1 | 707 | - | 707 | |||||||||||||||||||||||||||||
Inter-segment underlying earnings | (73 | ) | (101 | ) | (82 | ) | (23 | ) | 198 | 80 | ||||||||||||||||||||||||||||||
Revenues 2018 | ||||||||||||||||||||||||||||||||||||||||
Life insurance gross premiums | 7,004 | 1,632 | 7,509 | 1,402 | - | 9 | (7 | ) | 17,548 | (579 | ) | 16,969 | ||||||||||||||||||||||||||||
Accident and health insurance | 1,571 | 219 | 29 | 195 | - | - | - | 2,015 | (36 | ) | 1,979 | |||||||||||||||||||||||||||||
General insurance | - | 136 | - | 343 | - | 1 | (1 | ) | 479 | (112 | ) | 367 | ||||||||||||||||||||||||||||
Total gross premiums | 8,575 | 1,987 | 7,539 | 1,940 | - | 10 | (8 | ) | 20,042 | (727 | ) | 19,316 | ||||||||||||||||||||||||||||
Investment income | 3,125 | 2,265 | 1,346 | 351 | 5 | 286 | (284 | ) | 7,095 | (59 | ) | 7,035 | ||||||||||||||||||||||||||||
Fee and commission income | 1,826 | 211 | 198 | 121 | 632 | - | (206 | ) | 2,782 | (224 | ) | 2,558 | ||||||||||||||||||||||||||||
Other revenues | 5 | - | - | 2 | 1 | 4 | - | 12 | (6 | ) | 5 | |||||||||||||||||||||||||||||
Total revenues | 13,530 | 4,463 | 9,083 | 2,414 | 638 | 300 | (499 | ) | 29,930 | (1,016 | ) | 28,914 | ||||||||||||||||||||||||||||
Inter-segment revenues | 1 | 2 | - | - | 206 | 290 |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 5221 | ||
Income statement - Underlying earnings | ||||||||||||||||||||||||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||||||||||||||||||
Underlying earnings before tax | 1,278 | 537 | (27 | ) | 37 | 12 | 20 | 170 | (163 | ) | 2 | 1,867 | 34 | 1,901 | ||||||||||||||||||||||||||||||||||
Fair value items | (691 | ) | 126 | (25 | ) | - | - | 7 | - | (68 | ) | - | (651 | ) | (59 | ) | (710 | ) | ||||||||||||||||||||||||||||||
Realized gains / (losses) on investments | (74 | ) | 306 | 103 | 2 | - | 7 | 3 | - | - | 346 | (8 | ) | 338 | ||||||||||||||||||||||||||||||||||
Impairment charges | (43 | ) | (25 | ) | - | (2 | ) | - | - | - | - | - | (70 | ) | (21 | ) | (91 | ) | ||||||||||||||||||||||||||||||
Impairment reversals | 114 | 5 | - | - | - | - | - | - | - | 119 | - | 119 | ||||||||||||||||||||||||||||||||||||
Other income / (charges) | (913 | ) | 27 | (1,247 | ) | (2 | ) | 17 | (61 | ) | (1 | ) | - | - | (2,180 | ) | 21 | (2,159 | ) | |||||||||||||||||||||||||||||
Run-off businesses | 88 | - | - | - | - | - | - | - | - | 88 | - | 88 | ||||||||||||||||||||||||||||||||||||
Income / (loss) before tax | (241 | ) | 977 | (1,196 | ) | 35 | 29 | (27 | ) | 172 | (230 | ) | 2 | (482 | ) | (33 | ) | (514 | ) | |||||||||||||||||||||||||||||
Income tax (expense) / benefit | 6 | (223 | ) | 268 | (11 | ) | (7 | ) | (3 | ) | (50 | ) | 71 | - | 51 | 33 | 83 | |||||||||||||||||||||||||||||||
Net income / (loss) | (235 | ) | 753 | (928 | ) | 24 | 22 | (30 | ) | 121 | (159 | ) | 2 | (431 | ) | - | (431 | ) | ||||||||||||||||||||||||||||||
Inter-segment underlying earnings | (220 | ) | (55 | ) | (63 | ) | (14 | ) | - | 77 | 264 | 10 | ||||||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||||||||||||||||||
Life insurance gross premiums | 7,046 | 2,240 | 8,465 | 477 | 174 | 1,713 | - | 4 | (106 | ) | 20,013 | (431 | ) | 19,583 | ||||||||||||||||||||||||||||||||||
Accident and health insurance | 2,266 | 234 | 47 | 1 | 64 | 105 | - | 6 | (6 | ) | 2,717 | (14 | ) | 2,703 | ||||||||||||||||||||||||||||||||||
General insurance | - | 473 | - | 164 | 80 | - | - | 2 | - | 720 | (80 | ) | 640 | |||||||||||||||||||||||||||||||||||
Total gross premiums | 9,312 | 2,947 | 8,512 | 642 | 317 | 1,819 | - | 13 | (112 | ) | 23,450 | (524 | ) | 22,925 | ||||||||||||||||||||||||||||||||||
Investment income | 3,680 | 2,277 | 2,331 | 45 | 41 | 194 | 7 | 392 | (391 | ) | 8,576 | (51 | ) | 8,525 | ||||||||||||||||||||||||||||||||||
Fee and commission income | 1,704 | 351 | 98 | 39 | 13 | 62 | 650 | - | (284 | ) | 2,633 | (195 | ) | 2,438 | ||||||||||||||||||||||||||||||||||
Other revenues | 9 | - | - | - | 2 | - | - | 7 | - | 19 | (5 | ) | 14 | |||||||||||||||||||||||||||||||||||
Total revenues | 14,705 | 5,575 | 10,941 | 726 | 373 | 2,076 | 657 | 412 | (787 | ) | 34,677 | (775 | ) | 33,902 | ||||||||||||||||||||||||||||||||||
Inter-segment revenues | 24 | 2 | - | - | - | 101 | 261 | 399 |
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.
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.
Presentation Non-Underlying Earnings | Note | 2020 | 2019 | 2018 | ||||||||||||||||||||||||||||
Underlying earnings before tax | 1,729 | 1,969 | 2,069 | |||||||||||||||||||||||||||||
Elimination of share in earnings of joint ventures and associates | 31 | 50 | 72 | |||||||||||||||||||||||||||||
Note | 2017 | 2016 | 2015 | |||||||||||||||||||||||||||||
Underlying earnings before tax | 2,103 | 1,913 | 1,867 | |||||||||||||||||||||||||||||
Elimination of share in earnings of joint ventures and associates | 61 | 48 | 34 | |||||||||||||||||||||||||||||
Premium income | 6 | 3 | - | - | ||||||||||||||||||||||||||||
Rental income | 7 | (68 | ) | (76 | ) | (72 | ) | |||||||||||||||||||||||||
Dividend income | 7 | (40 | ) | 9 | 30 | |||||||||||||||||||||||||||
Fee and commission income | 8 | (5 | ) | - | - | |||||||||||||||||||||||||||
Recovered claims and benefits | 9 | (143 | ) | 7 | 2 | |||||||||||||||||||||||||||
Change in valuation of reinsurance ceded | 9 | 86 | - | - | ||||||||||||||||||||||||||||
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives | 10 | (437 | ) | (783 | ) | (571 | ) | 10 | (302 | ) | (17 | ) | (295 | ) | ||||||||||||||||||
Net fair value change on borrowings and other financial liabilities | 10 | 2 | 7 | 6 | ||||||||||||||||||||||||||||
Realized gains and losses on financial investments | 10 | 431 | 327 | 349 | 10 | 132 | 399 | (92 | ) | |||||||||||||||||||||||
Gains and (losses) on investments in real estate | 10 | 193 | 70 | 145 | 10 | 74 | 317 | 261 | ||||||||||||||||||||||||
Net fair value change of derivatives | 10 | (134 | ) | (277 | ) | (29 | ) | 10 | 613 | 163 | (67 | ) | ||||||||||||||||||||
Net foreign currency gains and (losses) | 10 | 5 | 30 | (5 | ) | 10 | - | - | (2 | ) | ||||||||||||||||||||||
Realized gains and (losses) on repurchased debt | 10 | 1 | 1 | 2 | 10 | - | - | 1 | ||||||||||||||||||||||||
Other income | 11 | 540 | 66 | 83 | 11 | 68 | 200 | 8 | ||||||||||||||||||||||||
Change in valuation of liabilities for insurance contracts | 12 | (254 | ) | (144 | ) | (602 | ) | 12 | (1,611 | ) | (1,231 | ) | (341 | ) | ||||||||||||||||||
Change in valuation of liabilities for investment contracts | 12 | (19 | ) | (18 | ) | - | 12 | (7 | ) | (13 | ) | 13 | ||||||||||||||||||||
Policyholder claims and benefits - Other | 12 | 34 | 45 | 17 | 12 | 19 | 50 | (9 | ) | |||||||||||||||||||||||
Commissions and expenses | 14 | 256 | 75 | 130 | 14 | (426 | ) | (319 | ) | (428 | ) | |||||||||||||||||||||
Impairment (charges) reversals | 15 | (40 | ) | (97 | ) | (1,250 | ) | 15 | (318 | ) | (105 | ) | (20 | ) | ||||||||||||||||||
Interest charges and related fees | 16 | (82 | ) | 21 | - | |||||||||||||||||||||||||||
Other charges | 17 | (235 | ) | (700 | ) | (774 | ) | 17 | (150 | ) | (1 | ) | (375 | ) | ||||||||||||||||||
Run-off businesses | 5 | 30 | 54 | 88 | 5 | 29 | 23 | (14 | ) | |||||||||||||||||||||||
Income / (loss) before tax | 2,534 | 610 | (514 | ) | (364 | ) | 1,453 | 746 |
◆ | 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 |
◆ | Net fair value change of derivatives is reported as part of the respective line in |
◆ | Net foreign currency gains and (losses) are reported as part of the respective line in |
◆ | Change in valuation of liabilities for insurance contracts is reported as part of the respective line in |
◆ | Change in valuation of liabilities for investment contracts is reported as part of the respective line in |
◆ | Policyholder claims and benefits - Other are reported as part of the |
◆ | Commissions and expenses include: 1) Restructuring charges of EUR |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 5222 | ||
◆ | Impairment (charges) reversals include: 1) Impairment charges and reversals on financial assets, excluding receivables of EUR |
◆ | 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 2020 assumption changes and model updates amounted to a negative impact of EUR 580 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 805 million. This reflects a charge of EUR 460 million related to the lowering the long-term interest rate assumption from 4.25% to 2.75% and the corresponding adjustment of the separate account bond return assumptions. Non-economic assumption changes resulted in a charge of EUR 345 million, mainly related to Universal Life premium persistency and an increase in mortality rate assumptions, as well as lowering the morbidity improvement assumption for Long-Term Care from 1.5% to 0.75% per year for the next 15 years. Assumption changes and model updates in the Netherlands led to a favorable impact of EUR 225 million mainly related to favorable longevity assumption changes, partially offset by adverse impacts from mortgage prepayment model and expense assumption 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 expenses 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.
Other selected income statement items | Americas | The Netherlands | United Kingdom | International | Asset Management | Holding and other | Total | |||||||||||||||||||||
2020 | ||||||||||||||||||||||||||||
Amortization of deferred expenses, VOBA and future servicing rights | 637 | - | 119 | 97 | - | - | 854 | |||||||||||||||||||||
Depreciation | 56 | 20 | 9 | 12 | 2 | 1 | 101 | |||||||||||||||||||||
Impairment charges / (reversals) on financial assets, excluding receivables | 151 | 86 | - | 15 | - | 11 | 262 | |||||||||||||||||||||
Impairment charges / (reversals) on non-financial assets and receivables | 72 | 21 | 17 | - | 4 | 14 | 128 | |||||||||||||||||||||
2019 | ||||||||||||||||||||||||||||
Amortization of deferred expenses, VOBA and future servicing rights | 687 | 4 | 117 | 66 | - | - | 875 | |||||||||||||||||||||
Depreciation | 44 | 18 | 12 | 11 | 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 | 853 | 25 | 119 | 74 | - | - | 1,071 | |||||||||||||||||||||
Depreciation | 38 | 12 | 14 | 12 | 1 | 2 | 80 | |||||||||||||||||||||
Impairment charges / (reversals) on financial assets, excluding receivables | (9 | ) | 34 | - | 6 | - | - | 31 | ||||||||||||||||||||
Impairment charges / (reversals) on non-financial assets and receivables | 19 | 16 | 1 | 1 | - | 9 | 46 |
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statementsNote 5223 | ||
Number of employees | Americas | The Netherlands | United Kingdom | International | Asset Management | Holding and activities | Total | |||||||||||||||||||||
2020 | ||||||||||||||||||||||||||||
Number of employees - headcount | 7,960 | 3,521 | 2,307 | 6,598 | 1,527 | 409 | 22,322 | |||||||||||||||||||||
Of which Aegon’s share of employees in joint ventures and associates | 669 | - | 47 | 3,294 | 183 | - | 4,193 | |||||||||||||||||||||
2019 | ||||||||||||||||||||||||||||
Number of employees - headcount | 8,570 | 3,582 | 2,261 | 7,393 | 1,535 | 416 | 23,757 | |||||||||||||||||||||
Of which Aegon’s share of employees in joint ventures and associates | 651 | - | 62 | 4,276 | 173 | - | 5,162 | |||||||||||||||||||||
2018 | ||||||||||||||||||||||||||||
Number of employees - headcount | 8,824 | 3,548 | 3,135 | 9,181 | 1,464 | 390 | 26,543 | |||||||||||||||||||||
Of which Aegon’s share of employees in joint ventures and associates | 559 | - | 58 | 6,069 | 168 | - | 6,854 |
Summarized assets and liabilities per segment | Americas | The Netherlands | United Kingdom | International | Asset Management | Holding and other activities | Eliminations | Total | ||||||||||||||||||||||||
2020 | ||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Cash and Cash equivalents | 903 | 5,689 | 257 | 211 | 374 | 938 | - | 8,372 | ||||||||||||||||||||||||
Investments | 77,431 | 68,561 | 1,994 | 8,238 | 208 | 108 | - | 156,541 | ||||||||||||||||||||||||
Investments for account of policyholders | 104,374 | 25,603 | 93,240 | 959 | - | - | (3 | ) | 224,172 | |||||||||||||||||||||||
Investments in joint ventures | - | 327 | - | 846 | 204 | - | - | 1,376 | ||||||||||||||||||||||||
Investments in associates | 60 | 1,004 | 8 | 35 | 151 | 21 | (15 | ) | 1,264 | |||||||||||||||||||||||
Deferred expenses | 7,555 | 136 | 819 | 289 | - | - | - | 8,799 | ||||||||||||||||||||||||
Other assets | 26,552 | 13,642 | 2,664 | 1,905 | 171 | 33,252 | (34,896 | ) | 43,290 | |||||||||||||||||||||||
Total assets | 216,875 | 114,962 | 98,982 | 12,482 | 1,109 | 34,319 | (34,914 | ) | 443,814 | |||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Insurance contracts | 69,392 | 44,242 | 1,458 | 8,542 | - | - | (1,488 | ) | 122,146 | |||||||||||||||||||||||
Insurance contracts for account of policyholders | 76,506 | 25,085 | 33,078 | 772 | - | - | - | 135,441 | ||||||||||||||||||||||||
Investment contracts | 8,156 | 12,732 | 185 | 2 | - | - | - | 21,075 | ||||||||||||||||||||||||
Investment contracts for account of policyholders | 27,868 | 2,473 | 61,092 | 191 | - | - | - | 91,624 | ||||||||||||||||||||||||
Other liabilities | 19,265 | 24,249 | 1,614 | 573 | 515 | 9,658 | (7,007 | ) | 48,867 | |||||||||||||||||||||||
Total liabilities | 201,188 | 108,780 | 97,427 | 10,080 | 515 | 9,658 | (8,495 | ) | 419,153 |
Other selected income statement items |
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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) on non-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) on non-financial assets and receivables | 7 | (2 | ) | 31 | (1 | ) | - | - | - | - | - | 36 | ||||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||||||||||
Amortization of deferred expenses, VOBA and future servicing rights | 731 | 39 | 377 | 80 | - | 34 | - | - | - | 1,261 | ||||||||||||||||||||||||||||||
Depreciation | 31 | 17 | 23 | 9 | 2 | 1 | - | - | - | 84 | ||||||||||||||||||||||||||||||
Impairment charges / (reversals) on financial assets, excluding receivables | (68 | ) | 20 | - | 2 | 21 | - | - | - | - | (24 | ) | ||||||||||||||||||||||||||||
Impairment charges / (reversals) on non-financial assets and receivables | - | 2 | 1,274 | - | - | - | - | - | - | 1,275 | ||||||||||||||||||||||||||||||
Number of employees | ||||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||||||||||
Number of employees - headcount | 12,701 | 4,503 | 2,478 | 2,470 | 534 | 7,163 | 1,382 | 299 | 31,530 | |||||||||||||||||||||||||||||||
Of which Aegon’s share of employees in joint ventures and associates | 545 | - | - | - | 33 | 6,780 | 141 | - | 7,499 |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 5224 | ||
Summarized assets and liabilities per segment | Americas | The Netherlands | United Kingdom | International | Asset Management | Holding and other activities | Eliminations | Total | ||||||||||||||||||||||||
2019 | ||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Cash and Cash equivalents | 822 | 9,627 | 305 | 243 | 166 | 1,100 | - | 12,263 | ||||||||||||||||||||||||
Investments | 75,076 | 59,983 | 2,034 | 8,373 | 266 | 244 | - | 145,976 | ||||||||||||||||||||||||
Investments for account of policyholders | 107,963 | 25,491 | 91,848 | 1,076 | - | - | (4 | ) | 226,374 | |||||||||||||||||||||||
Investments in joint ventures | - | 1,159 | - | 668 | 153 | 3 | - | 1,983 | ||||||||||||||||||||||||
Investments in associates | 79 | 106 | 9 | 28 | 129 | 21 | (10 | ) | 363 | |||||||||||||||||||||||
Deferred expenses | 8,996 | 360 | 913 | 536 | - | - | - | 10,806 | ||||||||||||||||||||||||
Other assets | 26,533 | 11,996 | 2,546 | 2,141 | 126 | 31,502 | (32,839 | ) | 42,005 | |||||||||||||||||||||||
Total assets | 219,469 | 108,722 | 97,655 | 13,065 | 840 | 32,871 | (32,853 | ) | 439,769 | |||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Insurance contracts | 73,234 | 40,554 | 1,518 | 9,217 | - | 17 | (1,655 | ) | 122,885 | |||||||||||||||||||||||
Insurance contracts for account of policyholders | 77,988 | 25,328 | 31,559 | 836 | - | - | - | 135,710 | ||||||||||||||||||||||||
Investment contracts | 6,662 | 11,716 | 211 | 4 | - | - | - | 18,594 | ||||||||||||||||||||||||
Investment contracts for account of policyholders | 29,976 | 2,301 | 61,305 | 244 | - | - | - | 93,826 | ||||||||||||||||||||||||
Other liabilities | 15,465 | 22,636 | 1,459 | 553 | 322 | 8,421 | (4,534 | ) | 44,322 | |||||||||||||||||||||||
Total liabilities | 203,324 | 102,535 | 96,052 | 10,853 | 322 | 8,438 | (6,189 | ) | 415,336 |
Aegon Annual Report on Form 20-F |
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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 | International | Asset Management | Holding and other activities | Eliminations | Total | ||||||||||||||||||||||||
2020 | ||||||||||||||||||||||||||||||||
Shares | 442 | 1,376 | 34 | 74 | 9 | 44 | - | 1,979 | ||||||||||||||||||||||||
Debt securities | 59,419 | 30,880 | 1,077 | 7,926 | 48 | 1 | - | 99,350 | ||||||||||||||||||||||||
Loans | 10,477 | 33,882 | - | 120 | - | 40 | - | 44,519 | ||||||||||||||||||||||||
Other financial assets | 7,056 | 91 | 883 | 102 | 152 | 23 | - | 8,308 | ||||||||||||||||||||||||
Investments in real estate | 37 | 2,331 | - | 16 | - | - | - | 2,385 | ||||||||||||||||||||||||
Investments general account | 77,431 | 68,561 | 1,994 | 8,238 | 208 | 108 | - | 156,541 | ||||||||||||||||||||||||
Shares | - | 8,227 | 16,877 | 187 | - | - | (3 | ) | 25,288 | |||||||||||||||||||||||
Debt securities | - | 12,150 | 7,579 | 156 | - | - | - | 19,885 | ||||||||||||||||||||||||
Unconsolidated investment funds | 104,374 | 706 | 63,084 | 613 | - | - | - | 168,777 | ||||||||||||||||||||||||
Other financial assets | - | 4,520 | 5,232 | 3 | - | - | - | 9,755 | ||||||||||||||||||||||||
Investments in real estate | - | - | 467 | - | - | - | - | 467 | ||||||||||||||||||||||||
Investments for account of policyholders | 104,374 | 25,603 | 93,240 | 959 | - | - | (3 | ) | 224,172 | |||||||||||||||||||||||
Investments on balance sheet | 181,805 | 94,164 | 95,234 | 9,197 | 208 | 108 | (3 | ) | 380,713 | |||||||||||||||||||||||
Off-balance sheet investments third parties | 215,216 | 6,144 | 119,347 | 6,752 | 192,098 | - | (336 | ) | 539,220 | |||||||||||||||||||||||
Total revenue-generating investments | 397,021 | 100,308 | 214,580 | 15,948 | 192,307 | 108 | (339 | ) | 919,933 | |||||||||||||||||||||||
Investments | ||||||||||||||||||||||||||||||||
Available-for-sale | 63,864 | 25,972 | 1,494 | 8,088 | 134 | 28 | - | 99,580 | ||||||||||||||||||||||||
Loans | 10,477 | 33,882 | - | 120 | - | 40 | - | 44,519 | ||||||||||||||||||||||||
Financial assets at fair value through profit or loss | 107,427 | 31,979 | 93,272 | 973 | 74 | 40 | (3 | ) | 233,762 | |||||||||||||||||||||||
Investments in real estate | 37 | 2,331 | 467 | 16 | - | - | - | 2,853 | ||||||||||||||||||||||||
Total investments on balance sheet | 181,805 | 94,164 | 95,234 | 9,197 | 208 | 108 | (3 | ) | 380,713 | |||||||||||||||||||||||
Investments in joint ventures | - | 327 | - | 846 | 204 | - | - | 1,376 | ||||||||||||||||||||||||
Investments in associates | 60 | 1,004 | 8 | 35 | 151 | 21 | (15 | ) | 1,264 | |||||||||||||||||||||||
Other assets | 35,010 | 19,467 | 3,740 | 2,405 | 545 | 34,190 | (34,896 | ) | 60,461 | |||||||||||||||||||||||
Consolidated total assets | 216,875 | 114,962 | 98,982 | 12,482 | 1,109 | 34,319 | (34,914 | ) | 443,814 |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 6226 | ||
Investments | Americas | The Netherlands | United Kingdom | International 1) | Asset Management | Holding and other activities | Eliminations | Total | ||||||||||||||||||||||||
2019 | ||||||||||||||||||||||||||||||||
Shares | 499 | 1,443 | 17 | 84 | 5 | 173 | - | 2,221 | ||||||||||||||||||||||||
Debt securities | 54,970 | 22,773 | 1,055 | 7,962 | 93 | 1 | - | 86,853 | ||||||||||||||||||||||||
Loans | 10,922 | 33,460 | - | 160 | - | 48 | - | 44,591 | ||||||||||||||||||||||||
Other financial assets | 8,032 | 78 | 962 | 148 | 168 | 21 | - | 9,410 | ||||||||||||||||||||||||
Investments in real estate | 653 | 2,229 | - | 19 | - | - | - | 2,901 | ||||||||||||||||||||||||
Investments general account | 75,076 | 59,983 | 2,034 | 8,373 | 266 | 244 | - | 145,976 | ||||||||||||||||||||||||
Shares | - | 8,490 | 16,583 | 218 | - | - | (4 | ) | 25,288 | |||||||||||||||||||||||
Debt securities | 877 | 11,652 | 8,043 | 173 | - | - | - | 20,744 | ||||||||||||||||||||||||
Unconsolidated investment funds | 106,926 | 695 | 61,738 | 680 | - | - | - | 170,039 | ||||||||||||||||||||||||
Other financial assets | 161 | 4,653 | 4,898 | 4 | - | - | - | 9,716 | ||||||||||||||||||||||||
Investments in real estate | - | - | 586 | - | - | - | - | 586 | ||||||||||||||||||||||||
Investments for account of policyholders | 107,963 | 25,491 | 91,848 | 1,076 | - | - | (4 | ) | 226,374 | |||||||||||||||||||||||
Investments on balance sheet | 183,039 | 85,474 | 93,882 | 9,449 | 266 | 244 | (4 | ) | 372,350 | |||||||||||||||||||||||
Off-balance sheet investments third parties | 220,039 | 4,802 | 123,904 | 6,463 | 170,158 | - | (818 | ) | 524,547 | |||||||||||||||||||||||
Total revenue-generating investments | 403,078 | 90,276 | 217,786 | 15,911 | 170,424 | 244 | (822 | ) | 896,897 | |||||||||||||||||||||||
Investments | ||||||||||||||||||||||||||||||||
Available-for-sale | 59,899 | 19,591 | 1,556 | 8,172 | 153 | 32 | - | 89,404 | ||||||||||||||||||||||||
Loans | 10,922 | 33,460 | - | 160 | - | 48 | - | 44,591 | ||||||||||||||||||||||||
Financial assets at fair value through profit or loss | 111,565 | 30,193 | 91,740 | 1,098 | 113 | 164 | (4 | ) | 234,867 | |||||||||||||||||||||||
Investments in real estate | 653 | 2,229 | 586 | 19 | - | - | - | 3,487 | ||||||||||||||||||||||||
Total investments on balance sheet | 183,039 | 85,474 | 93,882 | 9,449 | 266 | 244 | (4 | ) | 372,350 | |||||||||||||||||||||||
Investments in joint ventures | - | 1,159 | - | 668 | 153 | 3 | - | 1,983 | ||||||||||||||||||||||||
Investments in associates | 79 | 106 | 9 | 28 | 129 | 21 | (10 | ) | 363 | |||||||||||||||||||||||
Other assets | 36,351 | 21,983 | 3,764 | 2,920 | 292 | 32,603 | (32,839 | ) | 65,073 | |||||||||||||||||||||||
Consolidated total assets | 219,469 | 108,722 | 97,655 | 13,065 | 840 | 32,871 | (32,853 | ) | 439,769 |
1 | Due to the 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. |
6 Premium income and premiums paid to reinsurers
2020 | 2019 | 2018 | ||||||||||
Life insurance | 13,929 | 15,926 | 16,969 | |||||||||
Non-life insurance | 2,171 | 2,212 | 2,346 | |||||||||
Total premium income | 16,099 | 18,138 | 19,316 | |||||||||
- Accident and health insurance | 1,784 | 1,823 | 1,979 | |||||||||
- General insurance | 386 | 390 | 367 | |||||||||
Non-life insurance premium income | 2,171 | 2,212 | 2,346 |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote | ||
Premium income decreased by EUR 2,039 million in 2020 (2019: EUR 1,178 million decrease) mainly driven by reduced new business related to COVID-19 and a reduction of upgraded Life insurance policies to the retirement platform in the UK, which represents EUR 1,327 million (2019: EUR 1,777 million; 2018: EUR 3,439 million) of total premium income Life insurance.
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 |
2020 | 2019 | 2018 | ||||||||||
Life insurance | 2,541 | 2,276 | 2,500 | |||||||||
Non-life insurance | 162 | 158 | 163 | |||||||||
Total premiums paid to reinsurers | 2,703 | 2,434 | 2,663 | |||||||||
- Accident and health insurance | 137 | 138 | 152 | |||||||||
- General insurance | 25 | 19 | 11 | |||||||||
Non-life insurance premiums paid to reinsurers | 162 | 158 | 163 |
Summarized assets and liabilities per segment | ||||||||||||||||||||||||||||||||||||||||
2016 | ||||||||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||
Cash and Cash equivalents | 928 | 7,410 | 1,010 | 47 | 92 | 271 | 183 | 1,407 | - | 11,347 | ||||||||||||||||||||||||||||||
Assets held for sale | - | - | 8,705 | - | - | - | - | - | - | 8,705 | ||||||||||||||||||||||||||||||
Investments | 93,046 | 53,788 | 2,236 | 983 | 747 | 5,328 | 90 | 85 | - | 156,303 | ||||||||||||||||||||||||||||||
Investments for account of policyholders | 107,341 | 27,985 | 66,786 | 1,418 | 88 | - | - | - | (7 | ) | 203,610 | |||||||||||||||||||||||||||||
Investments in joint ventures | 7 | 877 | - | - | 495 | 134 | 99 | - | - | 1,614 | ||||||||||||||||||||||||||||||
Investments in associates | 95 | 21 | 8 | 2 | - | 21 | 125 | (1 | ) | - | 270 | |||||||||||||||||||||||||||||
Deferred expenses | 9,351 | 84 | 1,084 | 71 | 1 | 832 | - | - | - | 11,423 | ||||||||||||||||||||||||||||||
Other assets | 20,725 | 7,766 | 1,920 | 174 | 77 | 2,018 | 109 | 29,308 | (29,946 | ) | 32,152 | |||||||||||||||||||||||||||||
Total assets | 231,493 | 97,931 | 81,747 | 2,696 | 1,500 | 8,604 | 607 | 30,800 | (29,952 | ) | 425,425 | |||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||
Insurance contracts | 75,942 | 34,900 | 1,747 | 558 | 722 | 7,466 | - | 20 | (1,785 | ) | 119,569 | |||||||||||||||||||||||||||||
Insurance contracts for account of policyholders | 75,328 | 26,275 | 18,112 | 1,126 | 89 | - | - | - | - | 120,929 | ||||||||||||||||||||||||||||||
Investment contracts | 10,148 | 9,043 | 355 | 24 | - | 2 | - | - | - | 19,572 | ||||||||||||||||||||||||||||||
Investment contracts for account of policyholders | 32,013 | 3,160 | 49,309 | 292 | - | - | - | - | - | 84,774 | ||||||||||||||||||||||||||||||
Liabilities held for sale | - | - | 8,816 | - | - | - | - | - | - | 8,816 | ||||||||||||||||||||||||||||||
Other liabilities | 21,837 | 19,445 | 1,249 | 318 | 238 | (78 | ) | 180 | 6,438 | (2,203 | ) | 47,424 | ||||||||||||||||||||||||||||
Total liabilities | 215,268 | 92,822 | 79,586 | 2,318 | 1,049 | 7,390 | 180 | 6,458 | (3,988 | ) | 401,084 |
2020 | 2019 | 2018 | ||||||||||
Interest income | 5,426 | 5,835 | 5,783 | |||||||||
Dividend income | 1,609 | 1,571 | 1,124 | |||||||||
Rental income | 114 | 125 | 129 | |||||||||
Total investment income | 7,149 | 7,531 | 7,035 | |||||||||
Interest income accrued on impaired financial assets | 70 | 146 | 160 | |||||||||
Interest income on financial assets that are not carried through Fair value through profit or loss | 4,688 | 4,943 | 4,811 |
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: | 2020 | 2019 | 2018 | |||||||||
Shares | 1,609 | 1,571 | 1,124 | |||||||||
Debt securities and money market instruments | 3,663 | 3,959 | 3,899 | |||||||||
Loans | 1,710 | 1,779 | 1,704 | |||||||||
Real estate | 114 | 125 | 129 | |||||||||
Other | 53 | 97 | 181 | |||||||||
Total | 7,149 | 7,531 | 7,035 |
Investment income is split into: | 2020 | 2019 | 2018 | |||||||||
Investment income related to general account | 5,005 | 5,291 | 5,268 | |||||||||
Investment income for account of policyholders | 2,145 | 2,240 | 1,767 | |||||||||
Total | 7,149 | 7,531 | 7,035 | |||||||||
Investment income from financial assets held for general account: | ||||||||||||
Available-for-sale | 3,075 | 3,267 | 3,180 | |||||||||
Loans | 1,710 | 1,779 | 1,704 | |||||||||
Financial assets designated at fair value through profit or loss | 130 | 125 | 212 | |||||||||
Real estate | 87 | 83 | 82 | |||||||||
Derivatives | (7 | ) | 39 | 72 | ||||||||
Other | 9 | (2 | ) | 18 | ||||||||
Total | 5,005 | 5,291 | 5,268 |
Investment income on derivatives for 2020 is negative as the income is more than offset by the expenses resulting from normal trading and the unwind of certain hedging programs.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote | ||
2020 | 2019 | 2018 | ||||||||||
Fee income from asset management | 1,725 | 1,824 | 1,853 | |||||||||
Commission income | 580 | 585 | 594 | |||||||||
Other | 99 | 114 | 112 | |||||||||
Total fee and commission income | 2,405 | 2,523 | 2,558 | |||||||||
Included in fee and commission income: | ||||||||||||
Fees on trust and fiduciary activities | 221 | 225 | 215 |
9 Income from reinsurance ceded
2020 | 2019 | 2018 | ||||||||||
Recovered claims and benefits | 3,250 | 3,367 | 3,127 | |||||||||
Change in technical provisions | 310 | 1 | 424 | |||||||||
Commissions | 406 | 218 | 241 | |||||||||
Total | 3,965 | 3,586 | 3,791 |
10 Results from financial transactions
Results from financial transactions comprise: | 2020 | 2019 | 2018 | |||||||||
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives | 191 | 279 | (79 | ) | ||||||||
Realized gains and (losses) on financial investments | 132 | 399 | (92 | ) | ||||||||
Gains and (losses) on investments in real estate | 74 | 317 | 261 | |||||||||
Net fair value change of derivatives | 128 | 1,130 | (545 | ) | ||||||||
Net fair value change on account of policyholder financial assets at fair value through profit or loss | 20,982 | 33,188 | (11,326 | ) | ||||||||
Net fair value change on investments in real estate for account of policyholders | (36 | ) | (18 | ) | 5 | |||||||
Net foreign currency gains and (losses) | (93 | ) | 77 | 44 | ||||||||
Net fair value change on borrowings and other financial liabilities | 18 | 15 | 29 | |||||||||
Realized gains and (losses) on repurchased debt | - | - | 1 | |||||||||
Total | 21,397 | 35,386 | (11,701 | ) |
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives comprise: | 2020 | 2019 | 2018 | |||||||||
Shares | (42 | ) | 99 | 69 | ||||||||
Debt securities and money market investments | 30 | 85 | (143 | ) | ||||||||
Other | 203 | 95 | (5 | ) | ||||||||
Total | 191 | 279 | (79 | ) |
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: | 2020 | 2019 | 2018 | |||||||||
Shares | 3 | 11 | 25 | |||||||||
Debt securities and money market investments | 153 | 372 | (147 | ) | ||||||||
Loans | 20 | 32 | 16 | |||||||||
Other | (43 | ) | (16 | ) | 14 | |||||||
Total | 132 | 399 | (92 | ) |
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| Form 20-F 2020 |
Notes to the consolidated financial statementsNote | |||
Investments |
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2016 | ||||||||||||||||||||||||||||||||||||||||
Shares | 793 | 334 | 84 | 35 | 4 | - | 2 | 62 | - | 1,314 | ||||||||||||||||||||||||||||||
Debt securities | 70,766 | 23,741 | 2,036 | 633 | 683 | 5,310 | - | - | - | 103,169 | ||||||||||||||||||||||||||||||
Loans | 10,820 | 28,117 | - | 303 | 45 | 18 | - | - | - | 39,303 | ||||||||||||||||||||||||||||||
Other financial assets | 9,924 | 358 | 115 | 10 | - | - | 88 | 23 | - | 10,519 | ||||||||||||||||||||||||||||||
Investments in real estate | 743 | 1,238 | - | 3 | 15 | - | - | - | - | 1,999 | ||||||||||||||||||||||||||||||
Investments general account | 93,046 | 53,788 | 2,236 | 983 | 747 | 5,328 | 90 | 85 | - | 156,303 | ||||||||||||||||||||||||||||||
Shares | - | 9,689 | 15,503 | 295 | 13 | - | - | - | (7 | ) | 25,492 | |||||||||||||||||||||||||||||
Debt securities | 4,779 | 15,434 | 9,847 | 235 | 10 | - | - | - | - | 30,305 | ||||||||||||||||||||||||||||||
Unconsolidated investment funds | 102,534 | - | 36,600 | 879 | 64 | - | - | - | - | 140,077 | ||||||||||||||||||||||||||||||
Other financial assets | 27 | 2,862 | 4,150 | 9 | 1 | - | - | - | - | 7,049 | ||||||||||||||||||||||||||||||
Investments in real estate | - | - | 686 | - | - | - | - | - | - | 686 | ||||||||||||||||||||||||||||||
Investments for account of policyholders | 107,341 | 27,985 | 66,786 | 1,418 | 88 | - | - | - | (7 | ) | 203,610 | |||||||||||||||||||||||||||||
Investments on balance sheet | 200,387 | 81,774 | 69,021 | 2,401 | 834 | 5,328 | 90 | 85 | (7 | ) | 359,914 | |||||||||||||||||||||||||||||
Off-balance sheet investments third parties | 240,072 | 952 | 5,333 | 3,154 | 507 | 2,734 | 130,889 | - | (864 | ) | 382,776 | |||||||||||||||||||||||||||||
Total revenue-generating investments | 440,458 | 82,725 | 74,354 | 5,556 | 1,342 | 8,061 | 130,979 | 85 | (871 | ) | 742,690 | |||||||||||||||||||||||||||||
Investments | ||||||||||||||||||||||||||||||||||||||||
Available-for-sale | 77,918 | 23,044 | 2,152 | 660 | 687 | 5,289 | 87 | 23 | - | 109,860 | ||||||||||||||||||||||||||||||
Loans | 10,820 | 28,117 | - | 303 | 45 | 18 | - | - | - | 39,303 | ||||||||||||||||||||||||||||||
Financial assets at fair value through profit or loss | 110,906 | 29,374 | 66,183 | 1,436 | 88 | 21 | 4 | 62 | (7 | ) | 208,066 | |||||||||||||||||||||||||||||
Investments in real estate | 743 | 1,238 | 686 | 3 | 15 | - | - | - | - | 2,685 | ||||||||||||||||||||||||||||||
Total investments on balance sheet | 200,387 | 81,774 | 69,021 | 2,401 | 834 | 5,328 | 90 | 85 | (7 | ) | 359,914 | |||||||||||||||||||||||||||||
Investments in joint ventures | 7 | 877 | - | - | 495 | 134 | 99 | - | - | 1,614 | ||||||||||||||||||||||||||||||
Investments in associates | 95 | 21 | 8 | 2 | - | 21 | 125 | (1 | ) | - | 270 | |||||||||||||||||||||||||||||
Other assets | 31,003 | 15,260 | 12,718 | 293 | 170 | 3,122 | 293 | 30,715 | (29,946 | ) | 63,627 | |||||||||||||||||||||||||||||
Consolidated total assets | 231,493 | 97,931 | 81,747 | 2,696 | 1,500 | 8,604 | 607 | 30,800 | (29,952 | ) | 425,425 |
Realized gains and losses on financial investments comprise: | 2020 | 2019 | 2018 | |||||||||
Available-for-sale investments | 112 | 368 | (108 | ) | ||||||||
Loans | 20 | 32 | 16 | |||||||||
Total | 132 | 399 | (92 | ) |
Net fair value change of derivatives comprise: | 2020 | 2019 | 2018 | |||||||||
Net fair value change on economic hedges where no hedge accounting is applied | 2,182 | 2,281 | 272 | |||||||||
Net fair value change on bifurcated embedded derivatives | (2,053 | ) | (1,153 | ) | (824 | ) | ||||||
Ineffective portion of hedge transactions to which hedge accounting is applied | - | 1 | 7 | |||||||||
Total | 128 | 1,130 | (545 | ) |
6Premium income and premiums paid to reinsurers
The ineffective portion of hedge transactions to which hedge accounting is applied comprises: | 2020 | 2019 | 2018 | |||||||||
Fair value change on hedging instruments in a fair value hedge | 10 | (1 | ) | 13 | ||||||||
Fair value change on hedged items in a fair value hedge | (10 | ) | 2 | (8 | ) | |||||||
Ineffectiveness fair value hedge | - | 1 | 5 | |||||||||
Ineffectiveness cash flow hedges | - | - | 2 | |||||||||
Total | - | 1 | 7 |
2017 | 2016 | 2015 | ||||||||||
Life insurance | 19,952 | 20,400 | 19,583 | |||||||||
Non-life insurance | 2,874 | 3,053 | 3,342 | |||||||||
Total premium income | 22,826 | 23,453 | 22,925 | |||||||||
- Accident and health insurance | 2,511 | 2,609 | 2,703 | |||||||||
- General insurance | 363 | 444 | 640 | |||||||||
Non-life insurance premium income | 2,874 | 3,053 | 3,342 | |||||||||
2017 | 2016 | 2015 | ||||||||||
Life insurance | 3,214 | 2,932 | 2,694 | |||||||||
Non-life insurance | 217 | 244 | 286 | |||||||||
Total premiums paid to reinsurers | 3,431 | 3,176 | 2,979 | |||||||||
- Accident and health insurance | 205 | 238 | 268 | |||||||||
- General insurance | 13 | 7 | 18 | |||||||||
Non-life insurance paid to reinsurers | 217 | 244 | 286 |
Premium income Life insurance includes EUR 5,139 million (2016: EUR 5,255 million) of premiums related to insurance policies upgraded to the retirement platform in the UK.
2017 | 2016 | 2015 | ||||||||||
Interest income | 6,052 | 6,479 | 7,087 | |||||||||
Dividend income | 1,164 | 1,180 | 1,306 | |||||||||
Rental income | 121 | 129 | 133 | |||||||||
Total investment income | 7,338 | 7,788 | 8,525 | |||||||||
Investment income related to general account | 5,394 | 5,737 | 6,099 | |||||||||
Investment income for account of policyholders | 1,944 | 2,051 | 2,426 | |||||||||
Total | 7,338 | 7,788 | 8,525 | |||||||||
Included in interest income is EUR 190 million (2016: EUR 230 million; 2015: EUR 223 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 5,056 million (2016: EUR 5,642 million; 2015: EUR 5,951 million).
|
| |||||||||||
Total investment income from: | 2017 | 2016 | 2015 | |||||||||
Shares | 1,164 | 1,180 | 1,306 | |||||||||
Debt securities and money market instruments | 4,248 | 4,838 | 5,332 | |||||||||
Loans | 1,686 | 1,752 | 1,760 | |||||||||
Real estate | 121 | 129 | 133 | |||||||||
Other | 119 | (111 | ) | (6 | ) | |||||||
Total | 7,338 | 7,788 | 8,525 |
Investment income from financial assets held for general account: | 2017 | 2016 | 2015 | |||||||||
Available-for-sale | 3,467 | 4,007 | 4,235 | |||||||||
Loans | 1,686 | 1,752 | 1,760 | |||||||||
Financial assets designated at fair value through profit or loss | 148 | 80 | 115 | |||||||||
Real estate | 71 | 69 | 61 | |||||||||
Derivatives | 31 | (139 | ) | (96 | ) | |||||||
Other | (10 | ) | (32 | ) | 25 | |||||||
Total | 5,394 | 5,737 | 6,099 |
2017 | 2016 | 2015 | ||||||||||
Fee income from asset management | 2,126 | 1,702 | 1,648 | |||||||||
Commission income | 535 | 562 | 614 | |||||||||
Other | 140 | 144 | 176 | |||||||||
Total fee and commission income | 2,802 | 2,408 | 2,438 |
Included in fee and commission income is EUR 190 million of fees on trust and fiduciary activities (2016: EUR 55 million; 2015: EUR 56 million). The increase of EUR 134 million in 2017 compared to 2016 was mainly driven by the acquisition of Cofunds in UK in January 2017.
9Income from reinsurance ceded
2017 | 2016 | 2015 | ||||||||||
Recovered claims and benefits | 3,669 | 3,477 | 2,784 | |||||||||
Change in technical provisions | 497 | (26 | ) | 309 | ||||||||
Commissions | 122 | 236 | 227 | |||||||||
Total | 4,288 | 3,687 | 3,321 |
Income from reinsurance ceded is generated from reinsurance activities directly related to premiums paid to reinsurers in note 6, therefore both should be viewed concurrently.
10Results from financial transactions
Results from financial transactions comprise: | 2017 | 2016 | 2015 | |||||||||
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives | 232 | (42 | ) | (35 | ) | |||||||
Realized gains and (losses) on financial investments | 431 | 327 | 349 | |||||||||
Gains and (losses) on investments in real estate | 193 | 70 | 145 | |||||||||
Net fair value change of derivatives | (1,159 | ) | 239 | 123 | ||||||||
Net fair value change on for account of policyholder financial assets at fair value through profit or loss | 20,524 | 15,121 | (110 | ) | ||||||||
Net fair value change on investments in real estate for account of policyholders | 38 | (26 | ) | 67 | ||||||||
Net foreign currency gains and (losses) | (20 | ) | 41 | (29 | ) | |||||||
Net fair value change on borrowings and other financial liabilities | 10 | 21 | 9 | |||||||||
Realized gains and (losses) on repurchased debt | 1 | 1 | 2 | |||||||||
Total | 20,250 | 15,753 | 521 |
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives comprise: | 2017 | 2016 | 2015 | |||||||||
Shares | 25 | 4 | - | |||||||||
Debt securities and money market investments | 127 | 8 | (24 | ) | ||||||||
Other | 80 | (54 | ) | (12 | ) | |||||||
Total | 232 | (42 | ) | (35 | ) | |||||||
Other mainly includes net fair value changes of alternative investments. | ||||||||||||
Realized gains and losses on financial investments comprise: | 2017 | 2016 | 2015 | |||||||||
Shares | 165 | 46 | 44 | |||||||||
Debt securities and money market investments | 242 | 211 | 346 | |||||||||
Loans | 20 | 16 | 20 | |||||||||
Other | 3 | 54 | (60 | ) | ||||||||
Total | 431 | 327 | 349 | |||||||||
Realized gains and losses on financial investments comprise: | 2017 | 2016 | 2015 | |||||||||
Available-for-sale investments | 411 | 311 | 330 | |||||||||
Loans | 20 | 16 | 20 | |||||||||
Total | 431 | 327 | 349 | |||||||||
Net fair value change of derivatives comprise: | 2017 | 2016 | 2015 | |||||||||
Net fair value change on economic hedges where no hedge accounting is applied | 70 | 793 | (500 | ) | ||||||||
Net fair value change on bifurcated embedded derivatives | (1,231 | ) | (565 | ) | 614 | |||||||
Ineffective portion of hedge transactions to which hedge accounting is applied | 2 | 12 | 8 | |||||||||
Total | (1,159 | ) | 239 | 123 | ||||||||
The ineffective portion of hedge transactions to which hedge accounting is applied comprises: | 2017 | 2016 | 2015 | |||||||||
Fair value change on hedging instruments in a fair value hedge | (12 | ) | (29 | ) | (49 | ) | ||||||
Fair value change on hedged items in a fair value hedge | 15 | 35 | 54 | |||||||||
Ineffectiveness fair value hedge | 3 | 7 | 5 | |||||||||
Ineffectiveness cash flow hedges | - | 5 | 4 | |||||||||
Total | 2 | 12 | 8 | |||||||||
Net fair value change on for account of policyholder financial assets at fair value through profit or loss comprise: | 2017 | 2016 | 2015 | |||||||||
Shares | 2,372 | 2,462 | 706 | |||||||||
Debt securities and money market investments | 166 | 1,682 | (529 | ) | ||||||||
Unconsolidated investment funds | 17,720 | 10,496 | (356 | ) | ||||||||
Derivatives | 94 | 252 | 69 | |||||||||
Other | 171 | 230 | - | |||||||||
Total | 20,524 | 15,121 | (110 | ) |
Net fair value change on for account of policyholder financial assets at fair value through profit or loss comprise: | 2020 | 2019 | 2018 1) | |||||||
Shares | 1,396 | 4,591 | (2,318 | ) | ||||||
Debt securities and money market investments | 588 | 863 | (421 | ) | ||||||
Unconsolidated investment funds | 17,681 | 26,450 | (8,158 | ) | ||||||
Derivatives | 1,318 | 1,284 | (429 | ) | ||||||
Total | 20,982 | 33,188 | (11,326 | ) |
Net fair value change on for account of policyholder financial assets at fair value through profit or loss increaseddecreased in 20172020 compared to 2016,2019, mainly from less favorable equity markets results, which were partly offset by losses from interest rates movements.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 borrowings and other financial liabilities | 2020 | 2019 | 2018 | |||||||||
Borrowings | 16 | 8 | 23 | |||||||||
Other financial liabilities | 2 | 7 | 6 | |||||||||
Total | 18 | 15 | 29 |
2017 | 2016 | 2015 | ||||||||||
Other income | 540 | 66 | 83 |
2020 | 2019 | 2018 | ||||||||||
Other income | 68 | 200 | 8 |
Other income in 20172020 of EUR 54068 million mainly related toincludes a book gain of EUR 23153 million (USD 250 million) fromon the divestment of the payout annuity and the BOLI/COLI businessesjoint ventures in Japan.
Other income in 2019 of EUR 200 million includes a gain of EUR 101 million on pension plan amendments in the Americas andNetherlands following the move from a defined benefit plan to a defined contribution plan, as well as a book gain of EUR 20870 million on the saledivestment of the Unirobe Meeùs Groep. Furthermore, a release of an expense reserve of EUR 82 million (GBP 71 million) was recorded that was embeddedbusiness in the liabilities for insurance contracts following the completion of the Part VII transfer to Rothesay Life. Also EUR 17 million (GBP 14 million) related to the completion of the Part VII transfer of annuities reinsured to Legal & General in 2016 was included. For more details refer to note 51 Business combinations.Slovakia and Czech Republic.
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 5148 Business combinations for more details.details on these divestments.
Other income in 2015 included a release of EUR 38 million of the earn out provision regarding Liberbank in Spain. In addition, other income included the results from the sale of Clark Consulting and the 25.1% share in Seven Investment Management (7IM). The 7IM transaction led to a net gain of EUR 10 million (GBP 7 million) and was recorded as an associate in the books of Aegon. The sale of Clark Consulting led to a book gain of EUR 7 million (USD 8 million). Please see also note 51 Business combinations for more details.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 12 230 | ||
12 Policyholder claims and benefits
2017 | 2016 | 2015 | 2020 | 2019 | 2018 | |||||||||||||||||||
Benefits and claims paid life | 23,634 | 23,877 | 23,130 | 16,016 | 18,824 | 19,673 | ||||||||||||||||||
Benefits and claims paid non-life | 1,903 | 2,052 | 2,128 | 1,489 | 1,635 | 1,658 | ||||||||||||||||||
Change in valuation of liabilities for insurance contracts | 22,741 | 16,193 | 7,880 | 22,433 | 30,679 | (2,582 | ) | |||||||||||||||||
Change in valuation of liabilities for investment contracts | (2,644 | ) | (104 | ) | (6,678 | ) | 2,086 | 5,768 | (8,143 | ) | ||||||||||||||
Other | (34 | ) | (45 | ) | (17 | ) | (19 | ) | (50 | ) | 9 | |||||||||||||
Total | 45,599 | 41,974 | 26,443 | 42,006 | 56,856 | 10,614 |
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 contractscontracts’’ and ‘‘Change in valuation of liabilities for investment contractscontracts’’ reflect changesmovements in technical provisions resulting from net“Net fair value changeschange on for account of policyholder financial assets at fair value through profit or loss” included in note 10 Results from financial transactions of EUR 20,52420,982 million (2016:positive (2019: EUR 15,12133,188 million 2015:positive, 2018: EUR (110) million)11,326 million negative). In addition, the line ‘‘Change in valuation of liabilities for insurance contractscontracts’’ includes an increase of technical provisions for life insurance contracts of EUR 6013,412 million (2016:(2019: increase of EUR 2,3492,490 million, 2015:2018: increase of EUR 3,4101,460 million).
2017 | 2016 | 2015 | 2020 | 2019 | 2018 | |||||||||||||||||||
Surplus interest bonuses | 2 | 4 | 2 | 2 | 2 | 2 | ||||||||||||||||||
Profit appropriated to policyholders | 21 | 45 | 29 | 7 | 15 | 21 | ||||||||||||||||||
Total | 23 | 49 | 31 | 8 | 17 | 23 |
2017 | 2016 | 2015 | 2020 | 2019 | 2018 | |||||||||||||||||||
Commissions | 2,661 | 2,929 | 3,313 | 2,283 | 2,423 | 2,445 | ||||||||||||||||||
Employee expenses | 2,234 | 2,287 | 2,280 | 1,995 | 2,149 | 2,061 | ||||||||||||||||||
Administration expenses | 1,424 | 1,273 | 1,278 | 1,593 | 1,537 | 1,477 | ||||||||||||||||||
Deferred expenses | (980 | ) | (1,203 | ) | (1,533 | ) | (741 | ) | (832 | ) | (831 | ) | ||||||||||||
Amortization of deferred expenses | 543 | 880 | 1,143 | 767 | 755 | 928 | ||||||||||||||||||
Amortization of VOBA and future servicing rights | 43 | 184 | 117 | 87 | 120 | 144 | ||||||||||||||||||
Total | 5,925 | 6,351 | 6,598 | 5,983 | 6,153 | 6,224 | ||||||||||||||||||
Included in administration expenses: | ||||||||||||||||||||||||
Depreciation of equipment, software and real estate held for own use | 101 | 87 | 80 |
Employee expenses | 2020 | 2019 | 2018 | |||||||||
Salaries | 1,316 | 1,321 | 1,261 | |||||||||
Post-employment benefit costs | 199 | 287 | 277 | |||||||||
Social security charges | 125 | 127 | 120 | |||||||||
Other personnel costs | 318 | 378 | 367 | |||||||||
Shares | 37 | 36 | 36 | |||||||||
Total | 1,995 | 2,149 | 2,061 | |||||||||
Included in employee expenses: | ||||||||||||
Defined contribution expenses | 36 | 43 | 44 |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 14231 | |||
Included in administration expenses is an amount of EUR 105 million of depreciation that relates to equipment, software and real estate held for own use (2016: EUR 89 million; 2015: EUR 84 million). Minimum lease payments recognized as expense amounted to EUR 18 million (2016: EUR 17 million; 2015: EUR 19 million).
Employee expenses | 2017 | 2016 | 2015 | |||||||||
Salaries | 1,470 | 1,471 | 1,462 | |||||||||
Post-employment benefit costs | 318 | 338 | 335 | |||||||||
Social security charges | 151 | 155 | 145 | |||||||||
Other personnel costs | 267 | 294 | 320 | |||||||||
Shares, share appreciation rights, share options | 28 | 28 | 17 | |||||||||
Total | 2,234 | 2,287 | 2,280 |
An amount of EUR 46 million is included in employee expenses relating to defined contributions (2016: EUR 46 million; 2015: EUR 51 million).
Long-term incentive plansLong Term Incentive Plans
Senior managersSelected senior employees within Aegon, who have not been classified as ‘Identified Staff’‘Material Risk Takers’, have beencan be granted the conditional right to receive Aegon shares if certain performance indicators are met and depending on continued employment of the individual employee to whom the rights have been granted. The shares were conditionally granted at the beginningstart of the year ata 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, indicators apply over athe employee’s unit performance period of one year and consist ofindividual performance on predefined financial and non-financial performance indicators and targets, set byas well as the Supervisory Board orcontinued employment of the local remuneration committees. Following the performance year, shares areemployee.
Once allocated, based on actual performance. A vesting period of two years applies after which the shares are transferreddeferred and cliff-vest two years after allocation as soon as the Integrated Annual Report has been adopted by the shareholders at the Annual General Meeting in the last deferral year. Employees are not eligible to receive dividend during the individual employees.deferral period. In specific circumstances Aegon’s Supervisory Board willcan reclaim variable compensation that has already been paid outallocated (but still unvested) or vested.vested (claw back).
Variable compensation Identified StaffCompensation Material Risk Takers
Members of the Executive Board and the Management Board as well as other selected jobholders have been definedsenior 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 Capital Requirements Directives). In line with these rules, variable compensation for Material Risk Takers is partially paid out directly after allocation in cash and partly in Aegon shares. These shares are deferred and cliff-vest three years after allocation as soon as the rules applicable to them and their interpretationIntegrated Annual Report has been adopted by relevant supervisory authorities. Of these, the Dutch 2015 Act on compensationshareholders at the Annual General Meeting 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. The rules have been adopted in Aegon’s Global Remuneration Framework. After the performance period, and based on the framework, variable compensation, if any, is partially made available and partly deferred. Variable compensation is paid in both cash and in Aegon N.V. shares.last deferral year. The shares wereare conditionally granted at the beginningstart of the year atperformance 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 and non-financial performance indicators apply over a performance period of one year and consist of Group and/or reporting unit targets, (both financial and non-financial) set byas well as the Supervisory Board or the local remuneration committees and personal/strategic targets. The conditional grant of variable compensation is also dependent on continued employment of the individual employee to whomemployee.
Before allocation and vesting, the rights have been granted. An ex-post assessment is applicable to determine whether allocated (unvested) variable compensation should become unconditional or should be adjusted. In addition, in specific circumstances Aegon’s Supervisory Board will reclaim variable compensation that has already been paid out or vested. can decide to adjust an award downwards based on the annual ex-ante and ex-post risk assessments respectively, which takes into account significant and exceptional circumstances which were not (sufficiently) reflected in the initial performance assessment. Employees are not eligible to receive dividend during the deferral period.
For members of the Executive Board and the Management Board all variable compensation has vested after three years following the performance period. At vesting, the variable compensation is transferred to the individual employees. Additional holding periods of up to three years may apply for vested shares. Members of the Executive Board, and the members of the Management Board who are based in the Netherlands are not entitled to execute any transactions regarding the shares for aare subject to an additional holding period of three years following vesting (withtwo 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)shares. In specific circumstances Aegon’s Supervisory Board can reclaim variable compensation that has already vested (claw back).
In compliance with regulations under Dutch law, no transactions regardingShares as Fixed Compensation
Selected members of the Management Board as well as other senior employees receive part of their fixed compensation in Aegon shares each pay round, next to receiving fixed compensation in cash. 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. Once allocated these shares are unconditional and do not depend on the continued employment of the employee. However, the shares are deferred and cliff-vest three years after allocation as soon as the Integrated Annual Report has been adopted by the shareholders at the Annual General Meeting in the last deferral year. Employees are not eligible to receive dividend during the deferral period.
Shares as part of a Sign-on Arrangement
Employees may be exercisedoffered a sign-on arrangement when joining Aegon, including the allocation of Aegon shares, within the applicable rules and regulations. Once allocated these shares depend on the continued employment of the employee. These shares are deferred and typically cliff-vest after one, two or three years after allocation as soon as the Integrated Annual Report has been adopted by the shareholders at the Annual General Meeting in closed periods.the last deferral year. Employees are not eligible to receive dividend during the deferral period.
The following overview contains the cumulative number of shares and their status in relation to active Long Term Incentive Plans, variable compensation allocated to Material Risk Takers, shares allocated as fixed compensation and shares allocated as part of a sign-on arrangement.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 15232 | |||
Number of shares per plan year
Below an overview is provided of shares provided in active plans for Long-term incentive and Variable compensation Identified Staff.
2007 | 20111) | 20121) | 20131) | 20141) | 20151) | 20161) | 20171) | Total | ||||||||||||||||||||||||||||
Number of shares conditionally granted2) | 18,506 | 4,075,460 | 9,195,284 | 5,735,046 | 5,306,037 | 5,178,633 | 6,809,814 | 6,722,418 | 43,041,198 | |||||||||||||||||||||||||||
Number of shares allocated | 18,506 | 6,452,535 | 13,392,200 | 8,536,076 | 4,714,569 | 4,942,275 | 7,155,420 | - | 45,211,581 | |||||||||||||||||||||||||||
Unvested at January 1, 2016 | 9,253 | - | 6,584,783 | 7,458,390 | 4,372,405 | 5,178,633 | - | - | 23,603,464 | |||||||||||||||||||||||||||
Number of shares conditionally granted2) | - | - | - | - | - | - | 6,809,814 | - | 6,809,814 | |||||||||||||||||||||||||||
Number of shares allocated | 280 | - | - | (45,557 | ) | 16,937 | (330,501 | ) | - | - | (358,841 | ) | ||||||||||||||||||||||||
Number of shares forfeited | - | - | 76,435 | 141,013 | 95,977 | 15,985 | - | - | 329,410 | |||||||||||||||||||||||||||
Number of shares vested | 9,533 | - | 6,508,348 | 3,167,260 | 111,521 | 278,510 | - | - | 10,075,172 | |||||||||||||||||||||||||||
Unvested at December 31, 2016 | - | - | - | 4,104,560 | 4,181,844 | 4,553,637 | 6,809,814 | - | 19,649,855 | |||||||||||||||||||||||||||
Number of shares conditionally granted2) | - | - | - | - | - | - | - | 6,722,418 | 6,722,418 | |||||||||||||||||||||||||||
Number of shares allocated | - | - | - | - | 49,780 | - | 345,606 | - | 395,386 | |||||||||||||||||||||||||||
Number of shares forfeited | - | - | - | - | 42,580 | 116,505 | 136,506 | - | 295,591 | |||||||||||||||||||||||||||
Number of shares vested | - | - | - | 4,104,560 | 1,887,728 | 122,638 | 427,485 | - | 6,542,411 | |||||||||||||||||||||||||||
Unvested at December 31, 2017 | - | - | - | - | 2,301,316 | 4,314,494 | 6,591,429 | 6,722,418 | 19,929,657 | |||||||||||||||||||||||||||
Average share price used for grant in EUR3) | 4.727 | 3.126 | 4.917 | 6.739 | 6.106 | 5.128 | 5.246 | |||||||||||||||||||||||||||||
Fair value of shares at grant date in EUR | | 3.915 to 4.581 | | | 2.260 to 2.886 | | | 3.900 to 4.684 | | | 5.840 to 6.658 | | | 5.159 to 6.018 | | 3.990 to 4.898 | 4.040 to 4.933 |
2016 | 2017 | 2018 | 2019 | 2020 | Total | |||||||||||||||||||
Conditionally granted 1) | 6,809,814 | 6,722,418 | 6,513,984 | 7,378,113 | 8,381,086 | 35,805,415 | ||||||||||||||||||
Allocated 2) | 7,155,420 | 7,461,564 | 6,123,546 | 6,761,360 | 27,501,890 |
1 | The at target number of shares which were conditionally granted for |
2 | The allocated number of shares |
Number of shares per plan year
2016 | 2017 | 2018 | 2019 | 2020 | Total | |||||||||||||||||||
Unvested at January 1, 2019 | 6,243,971 | 7,244,231 | 6,680,355 | - | - | 20,168,557 | ||||||||||||||||||
Conditionally granted as variable compensation1) | - | - | - | 7,378,113 | - | 7,378,113 | ||||||||||||||||||
Allocated2) | 22,580 | 30,730 | (390,438 | ) | 958,501 | - | 621,373 | |||||||||||||||||
Forfeited | (44,746 | ) | (331,606 | ) | (169,383 | ) | - | - | (545,735 | ) | ||||||||||||||
Vested | (2,530,968 | ) | (426,360 | ) | (457,079 | ) | (6,600 | ) | - | (3,421,007 | ) | |||||||||||||
Unvested at December 31, 2019 | 3,690,837 | 6,516,995 | 5,663,455 | 8,330,014 | - | 24,201,301 | ||||||||||||||||||
Conditionally granted as variable compensation1) | - | - | - | - | 8,381,086 | 8,381,086 | ||||||||||||||||||
Allocated 2) | - | 4,436 | 38,502 | (616,753 | ) | 954,850 | 381,035 | |||||||||||||||||
Forfeited | (10,376 | ) | (55,039 | ) | (199,587 | ) | (94,970 | ) | (17,644 | ) | (377,616 | ) | ||||||||||||
Vested | (3,680,461 | ) | (2,604,178 | ) | (250,819 | ) | (277,523 | ) | (66,526 | ) | (6,879,507 | ) | ||||||||||||
Unvested at December 31, 2020 | - | 3,862,214 | 5,251,551 | 7,340,768 | 9,251,766 | 25,706,299 | ||||||||||||||||||
Grant price (in EUR) 3) | 5.128 | 5.246 | 5.405 | 4.162 | 4.083 | |||||||||||||||||||
3.990 to | 4.040 to | 4.143 to | 2.741 to | 1.794 to | ||||||||||||||||||||
Fair value of shares at grant date (in EUR) 4) | 4.898 | 4.933 | 5.054 | 3.737 | 3.796 |
1 | The at target number of |
2 | Shares allocated in the same year are a combination of shares allocated as fixed compensation and sign-on shares which have been allocated during that |
3 | This |
4 | These fair values were adjusted for expected dividend (for which the participants are not eligible during the deferral period) and for the impact of relative total shareholder return as performance indicator for variable compensation (where applicable). The fair values for sign-on shares differed from the other shares when the commencement date was after January 2. |
For the vested tranches from 2016 onwards Aegon introducedapplies a net settlement option for participants in order to meet their income tax obligations.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. The net settlement option does not change the share based payment right of the participants, therefore there is no incremental fair value, nor a related recognition of incremental fair value.
Refer to note 53 Related party transactionsthe Remuneration Report for detailed information on conditional shares granted to the Executive Board.
15 Impairment charges / (reversals)
Impairment charges / (reversals) comprise: | 2017 | 2016 | 2015 | 2020 | 2019 | 2018 | ||||||||||||||||||
Impairment charges on financial assets, excluding receivables | 74 | 117 | 95 | 291 | 133 | 71 | ||||||||||||||||||
Impairment reversals on financial assets, excluding receivables | (32 | ) | (58 | ) | (119 | ) | (29 | ) | (73 | ) | (39 | ) | ||||||||||||
Impairment charges and reversals on non-financial assets and receivables | - | 36 | 1,275 | 128 | 109 | 46 | ||||||||||||||||||
Total | 42 | 95 | 1,251 | 391 | 169 | 78 |
In 2015, impairment charges and reversals on non-financial assets and receivables include a charge of EUR 1,274 million mainly related to deferred acquisition costs in the UK. Recoverability of capitalized deferred policy acquisition costs was affected by the restructuring of the organization.
Impairment charges on financial assets, excluding receivables, from: | 2020 | 2019 | 2018 | |||||||||
Shares | 42 | 7 | 5 | |||||||||
Debt securities and money market instruments | 162 | 50 | 30 | |||||||||
Loans | 87 | 76 | 35 | |||||||||
Total | 291 | 133 | 71 |
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statementsNote 16233 | |||
The interest
Impairment reversals on financial assets, excluding receivables, from: | 2020 | 2019 | 2018 | |||||||||
Debt securities and money market instruments | (26 | ) | (67 | ) | (34 | ) | ||||||
Loans | (2 | ) | (5 | ) | (3 | ) | ||||||
Other | (1 | ) | (1 | ) | (2 | ) | ||||||
Total | (29 | ) | (73 | ) | (39 | ) |
Impairment charges accrued on financial assets in 2020 were mainly driven by Americas impairments on public fixed income holdings, primarily in the energy sector, as a consequence of the weakening demand related to the nationwide lockdown due to COVID-19.
Impairment charges on non-financial assets and liabilities thatreceivables in 2020 amount to EUR 128 million and are not carried at fair value through profit or lossmainly related to a valuation allowance due to the ongoing rehabilitation process of a reinsurer of Aegon Americas for EUR 68 million and the impairment of an associate company of Aegon the Netherlands for EUR 17 million.
Impairment charges/(reversals) on non-financial assets and receivables in 2019 amounted to EUR 162109 million (2016:and were mainly related to a write-off of VOBA and DPAC amounting to EUR 176 million; 2015:76 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 included the dilution of the capital injections in India (ALIC) of EUR 269 million).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 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.
16 Interest charges and related fees
2020 | 2019 | 2018 | ||||||||||
Subordinated loans | 110 | 88 | 62 | |||||||||
Trust pass-through securities | 9 | 8 | 8 | |||||||||
Borrowings | 194 | 252 | 300 | |||||||||
Other | 191 | 164 | 136 | |||||||||
Total | 505 | 513 | 507 | |||||||||
Included in interest charges and related fees: | ||||||||||||
Interest charges accrued on financial liabilities not carried at fair value through profit or loss | 232 | 298 | 143 |
Other includes interest charges on short term borrowings and bank fees.
2017 | 2016 | 2015 | ||||||||||
Other charges | 235 | 700 | 774 |
2020 | 2019 | 2018 | ||||||||||
Other charges | 150 | 1 | 375 |
Other charges in 20172020 of EUR 235150 million are mainly relatedriven by Americas charges of EUR 91 million (USD 104 million) related to Universal Life gross legal settlements. Furthermore, other charges include a provision of EUR 45 million related to the bookresolution of pending litigation in the Netherlands. Refer to note 38 Provisions and note 45 Commitments and contingencies for further details.
Other charges in 2018 of EUR 375 million include the gross settlement amount of a class 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%
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 18234 | ||
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 EUR 140 million (USD 166 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 EUR 10593 million (USD 119110 million) regardingrelated to the divestment of athe 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 the Americas2011 and 2017.
Furthermore, other charges in 2018 include a chargeloss 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. In addition, an impairment of deferred transaction costs of EUR 3693 million (GBP 3281 million) was recorded as a result offrom the saledivestment of Aegon Ireland plc, which is subject to customary regulatory approvals.Plc. For more details on the divestment of a block of US reinsurance run off business and Aegon Ireland plc.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.
Other charges of EUR 774 million in 2015 mainly relate to the book loss on the sale of Aegon’s Canadian life insurance business. For the sale of Canada refer to note 51 Business combinations.
Note | 2017 | 2016 | 2015 | |||||||||||||
Current tax | ||||||||||||||||
Current year | 220 | 33 | 111 | |||||||||||||
Adjustments to prior years | 47 | (46 | ) | (70 | ) | |||||||||||
267 | (13 | ) | 42 | |||||||||||||
Deferred tax | 43 | |||||||||||||||
Origination / (reversal) of temporary differences | 397 | 102 | (169 | ) | ||||||||||||
Changes in tax rates / bases | (550 | ) | 93 | (22 | ) | |||||||||||
Changes in deferred tax assets as a result of recognition / write off of previously not recognized / recognized tax losses, tax credits and deductible temporary differences | (45 | ) | (54 | ) | (8 | ) | ||||||||||
Non-recognition of deferred tax assets | 41 | 33 | 22 | |||||||||||||
Adjustments to prior years | (45 | ) | 12 | 53 | ||||||||||||
(201 | ) | 185 | (125 | ) | ||||||||||||
Income tax for the period (income) / charge | 65 | 172 | (83 | ) | ||||||||||||
Adjustments to prior years include shifts between current and deferred tax. | ||||||||||||||||
Reconciliation between standard and effective income tax: | 2017 | 2016 | 2015 | |||||||||||||
Income before tax | 2,534 | 610 | (514 | ) | ||||||||||||
Income tax calculated using weighted average applicable statutory rates | 745 | 239 | (57 | ) | ||||||||||||
Difference due to the effects of: | ||||||||||||||||
Non-taxable income | (157 | ) | (126 | ) | 43 | |||||||||||
Non-tax deductible expenses | 28 | 21 | 49 | |||||||||||||
Changes in tax rate/base | (550 | ) | 93 | (22 | ) | |||||||||||
Different tax rates on overseas earnings | (1 | ) | 8 | 6 | ||||||||||||
Tax credits | (67 | ) | (41 | ) | (100 | ) | ||||||||||
Other taxes | 67 | 38 | 14 | |||||||||||||
Adjustments to prior years | 2 | (34 | ) | (17 | ) | |||||||||||
Origination and change in contingencies | 9 | 8 | 3 | |||||||||||||
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 | (45 | ) | (54 | ) | (8 | ) | ||||||||||
Non-recognition of deferred tax assets | 41 | 33 | 22 | |||||||||||||
Tax effect of (profit) / losses from joint ventures and associates | (7 | ) | (7 | ) | (8 | ) | ||||||||||
Other | (1 | ) | (6 | ) | (8 | ) | ||||||||||
(680 | ) | (67 | ) | (27 | ) | |||||||||||
Income tax for the period (income) / charge | 65 | 172 | (83 | ) |
Note | 2020 | 2019 | 2018 | |||||||||||||
Current tax | ||||||||||||||||
Current year | (105 | ) | 118 | 53 | ||||||||||||
Adjustments to prior years | (205 | ) | (14 | ) | (36 | ) | ||||||||||
(310 | ) | 103 | 17 | |||||||||||||
Deferred tax | 40 | |||||||||||||||
Origination / (reversal) of temporary differences | (99 | ) | 68 | 23 | ||||||||||||
Changes in tax rates / bases | (11 | ) | 33 | (30 | ) | |||||||||||
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 | 12 | 4 | (35 | ) | ||||||||||||
Non-recognition of deferred tax assets | 7 | 17 | 17 | |||||||||||||
Adjustments to prior years | 171 | (8 | ) | 48 | ||||||||||||
81 | 114 | 22 | ||||||||||||||
Income tax for the period (income) / charge | (229 | ) | 217 | 39 |
Adjustments to prior years include shifts between current and deferred tax.
Reconciliation between standard and effective income tax: | 2020 | 2019 | 2018 | |||||||||
Income/(loss) before tax | (364 | ) | 1,453 | 746 | ||||||||
Income tax calculated using weighted average applicable statutory tax rates | (99 | ) | 292 | 177 | ||||||||
Difference due to the effects of: | ||||||||||||
Non-taxable income | (46 | ) | (76 | ) | (80 | ) | ||||||
Non-tax deductible expenses | 22 | 22 | 28 | |||||||||
Changes in tax rate/base | (11 | ) | 33 | (30 | ) | |||||||
Tax credits | (57 | ) | (67 | ) | (68 | ) | ||||||
Other taxes | (2 | ) | 57 | 29 | ||||||||
Adjustments to prior years | (33 | ) | (22 | ) | 11 | |||||||
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 | 12 | 4 | (35 | ) | ||||||||
Non-recognition of deferred tax assets | 7 | 17 | 17 | |||||||||
Tax effect of (profit) / losses from joint ventures and associates | (17 | ) | (11 | ) | (9 | ) | ||||||
Other | (4 | ) | (32 | ) | (1 | ) | ||||||
(130 | ) | (75 | ) | (138 | ) | |||||||
Income tax for the period (income) / charge | (229 | ) | 217 | 39 |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 18235 | ||
The weighted average applicable statutory tax rate for 20172020 is 29.4% (2016: 39.2%; 2015: 11.0%27.1% (2019: 20.1%, 2018: 23.7%). The decrease in the weighted average applicable statutory tax rate compared to 2016 is caused by relatively more income before tax in the Netherlands and the UK versus income before tax in the US. The weighted average applicable statutory tax rate increased compared to 2019 due to relatively high income in 2015 was impacted by a disproportional loss2020 from equity accounted joint ventures and associates - compared to the total consolidated income - which is presented net of tax in the UK.consolidated income statement.
Non-taxable income in 2017 includes the tax exempt sale proceeds2020 is comprised of the Dutch Unirobe Meeùs Group. Non-taxableregular non-taxable items such as the dividend received deduction in the United States and the participation exemption in the Netherlands. Compared to 2019 non-taxable income decreased due to less exempt income in 2015 was negatively impacted by the non-deductible loss onNetherlands and the saleUnited Kingdom.
In the Netherlands, the enacted future corporate income tax rate will remain 25% (instead of Aegon’s Canadian life insurance business.
Changesthe earlier enacted 21.7% as from January 1, 2021) thereby reversing the beneficial tax rate impact of 2018 and 2019. In the United Kingdom, the previously enacted reduction in tax rate/base in 2017 highly benefited by the decreaserate was also repealed leading to an increase of the US corporate income tax rate from 35%17% to 21% as from January 1, 2018.
Changes19% which resulted in tax rate/base in 2016 was heavily impacted by the release of profits from other comprehensive income (OCI) to income statement in the UK. These profits were taxed in the past against high historic tax rates and were released from OCI to the income statement against a lower statutorybeneficial tax rate in 2016. The difference caused a negative impact in changes in tax rate/base.
In the UK, the corporate income tax rate decreased to 19% as per April 1, 2017. The beneficial impact of this change was reflected in the 2015 change in tax rate/base. The tax rate will continue to 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.impact.
Tax credits in 2017 increased by US foreign tax credits. Tax credits in 2015 includesmainly include tax benefits relatedfrom United States investments that provide affordable housing to solar investmentsindividuals and families that meet median household income requirements.
Other taxes are lower than previous years due to unfavorable equity markets which yielded lower policyholder taxes in the US.United Kingdom and state tax benefits in the United States due to negative income.
Adjustments to prior yearsyear mainly consist of a shift between current and deferred tax in 2016 included a one-timethe Netherlands due to the recalculation of the technical insurance provisions for tax purposes.
In 2019 ‘Other’ mainly relates to the one-off tax benefit in the US caused byUnited Kingdom due to the revisedrelease of the historic deferred tax deduction for dividends received on prior filed tax returns.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.
2017 | 2016 | 2015 | 2020 | 2019 | 2018 | |||||||||||||||||||||||||||
Items that will not be reclassified to profit and loss: | ||||||||||||||||||||||||||||||||
Changes in revaluation reserve real estate held for own use | 9 | (3 | ) | (2 | ) | (2 | ) | 1 | 7 | |||||||||||||||||||||||
Remeasurements of defined benefit plans | (175 | ) | 89 | (75 | ) | 140 | 90 | (15 | ) | |||||||||||||||||||||||
(166 | ) | 86 | (77 | ) | 138 | 92 | (8 | ) | ||||||||||||||||||||||||
Items that may be reclassified subsequently to profit and loss: | ||||||||||||||||||||||||||||||||
Gains / losses on revaluation of available-for-sale investments | (134 | ) | (187 | ) | 810 | |||||||||||||||||||||||||||
Gains / losses transferred to the income statement on disposal and impairment of available-for-sale investments | 441 | 427 | 124 | |||||||||||||||||||||||||||||
(Gains) / losses on revaluation of available-for-sale investments | (666 | ) | (726 | ) | 531 | |||||||||||||||||||||||||||
(Gains) / losses transferred to the income statement on disposal and impairment of available-for-sale investments | 2 | 94 | (17 | ) | ||||||||||||||||||||||||||||
Changes in cash flow hedging reserve | 567 | 24 | (98 | ) | 54 | 3 | 1 | |||||||||||||||||||||||||
Movement in foreign currency translation and net foreign investment hedging reserve | 76 | (39 | ) | (52 | ) | (7 | ) | (5 | ) | (20 | ) | |||||||||||||||||||||
951 | 225 | 783 | (616 | ) | (634 | ) | 494 | |||||||||||||||||||||||||
Total income tax related to components of other comprehensive income | 785 | 311 | 706 | (479 | ) | (542 | ) | 487 | ||||||||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||
Income tax related to equity instruments and other | ||||||||||||||||||||||||||||||||
Income tax related to equity instruments | 33 | 44 | 44 | 46 | ||||||||||||||||||||||||||||
Other | 14 | (3 | ) | - | ||||||||||||||||||||||||||||
Total income tax recognised directly in retained earnings | 58 | 41 | 46 |
The income tax related to components of OCI includes 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.
2020 | 2019 | 2018 | ||||||||||||||
Income tax related to equity instruments and other | ||||||||||||||||
Income tax related to equity instruments | 31 | 18 | 51 | 38 | ||||||||||||
Other | 1 | (1 | ) | (12 | ) | |||||||||||
Total income tax recognized directly in retained earnings | 19 | 50 | 26 |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 19236 | ||
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 and non-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).
2017 | 2016 | 2015 | ||||||||||
Net income / (loss) attributable to owners | 2,469 | 437 | (432 | ) | ||||||||
Coupons on perpetual securities | (103 | ) | (105 | ) | (111 | ) | ||||||
Coupons on non-cumulative subordinated notes | (28 | ) | (28 | ) | (28 | ) | ||||||
Net income / (loss) attributable to owners for basic earnings per share calculation | 2,338 | 304 | (571 | ) | ||||||||
Net income / (loss) attributable to common shareholders | 2,321 | 302 | (567 | ) | ||||||||
Net income / (loss) attributable to common shareholders B | 16 | 2 | (4 | ) | ||||||||
Weighted average number of common shares outstanding (in million) | 2,042 | 2,048 | 2,101 | |||||||||
Weighted average number of common shares B outstanding (in million) | 575 | 575 | 584 | |||||||||
Basic earnings per common share (EUR per share) | 1.14 | 0.15 | (0.27 | ) | ||||||||
Basic earnings per common share B (EUR per share) | 0.03 | - | (0.01 | ) |
2020 | 2019 | 2018 | ||||||||||
Net income / (loss) attributable to owners of Aegon N.V. | (146) | 1,235 | 706 | |||||||||
Coupons on perpetual securities | (38) | (88 | ) | (102 | ) | |||||||
Coupons on non-cumulative subordinated notes | - | - | (11 | ) | ||||||||
Net income / (loss) attributable to owners for basic earnings per share calculation | (184) | 1,148 | 594 | |||||||||
Net income / (loss) attributable to common shareholders | (182) | 1,140 | 589 | |||||||||
Net income / (loss) attributable to common shareholders B | (1) | 8 | 4 | |||||||||
Weighted average number of common shares outstanding (in million) | 2,044 | 2,042 | 2,036 | |||||||||
Weighted average number of common shares B outstanding (in million) | 561 | 572 | 571 | |||||||||
Basic earnings per common share (EUR per share) | (0.09) | 0.56 | 0.29 | |||||||||
Basic earnings per common share B (EUR per share) | (0.00) | 0.01 | 0.01 |
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.
Final dividend 20172020
It will be proposed toAt the Annual General Meeting of Shareholders on May 18, 2018, absentcurrently scheduled for June 3, 2021, the Executive Board will, in line with its earlier announcement and barring unforeseen circumstances, to paypropose a final dividend for the year 20172020 of EUR 0.140.06 per common share and EUR 0.0015 per common share B, which has financial rights attached to it of 1/40th of a common share. If approved and in combination with the interim dividend 2020 of EUR 0.06 per common share, Aegon’s total dividend over 2020 will amount to EUR 0.12 per common share. After taking into account the interim dividend 20172020 of EUR 0.130.0015 per common share B, Aegon’s total dividend over 2020 will amount to EUR 0.003 per common share B.
Interim dividend 2020
The interim dividend 2020 was paid in cash or stock at the election of the shareholder. Approximately 52% of holders of common shares elected to receive the cash dividend. The remaining 48% of shareholders elected to receive the interim dividend in stock. The cash dividend amounted to EUR 0.06 per common share, 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 in value. The dividend was payable as of September 18, 2020. The interim dividend 2020 for common shares B amounted to 1/40th of the dividend paid on common shares.
To neutralize the dilutive effect of the 2020 interim dividend paid in shares, Aegon executed a program to repurchase 24,028,645 common shares. The repurchase of shares commenced on October 1, 2020 and was completed on October 27, 2020. Aegon engaged a third party to execute the transactions on its behalf. The common shares were repurchased at a maximum of the average of the daily volume-weighted average prices during the repurchase period.
Final dividend 2019
At the Annual General Meeting of Shareholders on May 15, 2020 it was decided to forego the 2019 final dividend. Aegon decided to comply with the call made by European Insurance and Occupational Pensions Authority (EIOPA) and Dutch Central Bank (DNB) to postpone all dividend distributions on April 2, 2020. Furthermore, in 2020 Aegon took several actions to strengthen its balance sheet and improve its risk profile. In this will resultcontext, Aegon decided to retain the final dividend for 2019. Taking into account the interim dividend paid in September 2019, this results in a total 2017dividend for the financial year 2019 of EUR 0.15 per common share and EUR 0.00375 per common share B, paid in September 2019.
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
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 21237 | ||
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 are held as treasury shares and are used to cover future stock dividends.
Final dividend 2018
At the Annual General Meeting of Shareholders on May 17, 2019 a final dividend was approved for the year 2018 of EUR 0.15 per common share payable in either cash or stock. After taking into account the interim dividend 2018 of EUR 0.14 per common share, which results in a total 2018 dividend of EUR 0.270.29 per common share. With respect to the common shares B, each of which has financial rights attached to it of 1/40th of a common share, the proposed final dividend will beamounted to EUR 0.0035.0.00375. After taking into account the interim dividend 20172018 of EUR 0.003250.0035 per common share B, into account, this will resultwhich results in a total 20172018 dividend of EUR 0.006750.00725 per common share B.
Interim dividend 2017
The interim dividend 2017 was paid in cash or stock at the election of the shareholder. Approximately 57%55% 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% have45% opted for stock dividend. The final dividend was payable as of June 23, 2017.21, 2019. 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.
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 are held as treasury shares and are 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 16, 2016.21, 2018. The interim dividend 20162018 for common shares B amounted to 1/40th of the dividend paid on common shares.
To neutralize the dilutive effect of the 20162018 interim dividend paid in shares, Aegon executed a program to repurchase 30,765,22424,133,950 common shares. Between October 3, 2016,1, 2018, and November 11, 2016,9, 2018, 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.
Final dividend 2015
The Annual General Meeting of Shareholders on May 20, 2016, approved a final dividend over 2015 of EUR 0.13 per common share payable in either cash or stock, related to the second half of 2015. Approximately 57% of holders of common shares elected to receive the cash dividend. The remaining 43% have opted for stock dividend. The final dividend was payable as of June 24, 2016. The stock dividend amounted to one new Aegon common share for every 30 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.
To neutralize the dilutive effect of the 2015 final dividend paid in shares, Aegon executed a program to repurchase 29,258,662 common shares. Between July 4, 2016, and August 12, 2016, these common shares were repurchased at an average price of EUR 3.5054 per share. These shares will be held as treasury shares and will be used to cover future stock dividends.
Interim dividend 2015
The interim dividend 2015 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 0.12 per common share, the stock dividend amounted to one new Aegon common share for every 45 common shares held. The stock dividend and cash dividend are approximately equal in value. The interim dividend was payable as of September 18, 2015. The interim dividend 2015 for common shares B amounted to 1/40th of the dividend paid on common shares.
Aegon repurchased common shares to neutralize the dilutive effect of the 2015 interim dividend paid in shares. Aegon executed a program to repurchase 20,136,673 common shares. Between September 16, 2015, and October 13, 2015, these common shares were repurchased at an average price of EUR 5.27775.43 per share. These shares are held as treasury shares and will beare used to cover future stock dividends.
2017 | 2016 | 2015 | 2020 | 2019 | 2018 | |||||||||||||||||||
Cash at bank and in hand | 3,720 | 3,727 | 2,199 | 4,907 | 4,619 | 3,725 | ||||||||||||||||||
Short-term deposits | 2,544 | 3,666 | 3,614 | 2,214 | 2,518 | 2,524 | ||||||||||||||||||
Money market investments | 4,496 | 3,939 | 3,318 | 1,247 | 5,116 | 2,493 | ||||||||||||||||||
Short-term collateral | 7 | 16 | 463 | 4 | 11 | 2 | ||||||||||||||||||
At December 31 | 10,768 | 11,347 | 9,594 | 8,372 | 12,263 | 8,744 | ||||||||||||||||||
Cash collateral related to securities lending, repurchase agreements and margins on derivatives transactions | 9,208 | 7,166 | 6,248 | |||||||||||||||||||||
Income from security lending programs | 9 | 6 | 8 | |||||||||||||||||||||
Weighted effective interest rate on short-term deposits | (0.64%) | (0.38%) | (0.39%) | |||||||||||||||||||||
Average maturity on short-term deposits | 10 | 19 | 28 |
The carrying amounts disclosed reasonably approximate the fair values as at the year-end.
EUR 7 billion (2016: EUR 8 billion) ofFor cash collateral is received related to securities lending, repurchase agreements and margins on derivatives transactions. Atransactions, a corresponding liability to repay the cash is recognized in other liabilities (note 44(refer to note 41 Other liabilities). ReferAlso, 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 7 million (2016: EUR 16 million) of theShort-term collateral relates to cash collateral received is included in cash and cash equivalents and the remainder is included in other asset classes as that collateral
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 21238 | ||
is typically reinvested. Aegon earns a share of the spread between the collateral earnings and the rebate paid to the borrower of the securities. Due to the sale of the UK annuity portfoliosecurities which is reflected in 2016 the short term collateral has decreased significantly since then. Income from securities lending programs was approximately EUR 11 million (2016: EUR 13 million; 2015: EUR 8 million).programs.
The weighted effective interest rate on short-term deposits was 0.32% negative (2016: 0.17% negative) and these deposits have an average maturity of 31 days (2016: 23 days).
For the purposes of the cash flow statement, cash and cash equivalents comprise the following:
Note | 2017 | 2016 | 2015 | |||||||||||||
Cash and cash equivalents | 10,768 | 11,347 | 9,594 | |||||||||||||
Cash classified as Assets held for sale | 22 | 260 | - | - | ||||||||||||
Bank overdrafts | 44 | (2 | ) | (1 | ) | - | ||||||||||
Bank overdrafts classified as Liabilities held for sale | (1 | ) | - | - | ||||||||||||
Net cash and cash equivalents | 11,026 | 11,346 | 9,593 |
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 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)2018 up to 18 September 2019). The year-end minimum required balance on deposit by the Dutch Central Bank was EUR 6784 million (2016:(2019: EUR 6379 million). These deposits are therefore not freely available.
Summary cash flow statement | 2017 | 2016 | 2015 | |||||||||
Net cash flows from operating activities | 553 | 3,319 | 914 | |||||||||
Net cash flows from investing activities | (1,196 | ) | (1,078 | ) | 615 | |||||||
Net cash flows from financing activities | 519 | (465 | ) | (2,785 | ) | |||||||
Net increase in cash and cash equivalents | (125 | ) | 1,776 | (1,257 | ) |
Net cash and cash equivalents at December 31, 2017, are negatively impacted by effects of changes in exchange rates of EUR 196 million (2016: EUR 23 million negative; 2015: EUR 200 million positive).
Summary cash flow statement | 2020 | 2019 | 2018 | |||||||||
Net cash flows from operating activities | (2,854) | 7,302 | 517 | |||||||||
Net cash flows from investing activities | (139) | (86 | ) | (438 | ) | |||||||
Net cash flows from financing activities | (778) | (3,730 | ) | (2,395 | ) | |||||||
Net increase in cash and cash equivalents | (3,770) | 3,486 | (2,317 | ) | ||||||||
Net cash and cash equivalents are impacted by: | ||||||||||||
Positive (negative) effects of changes in exchange rates | (121) | 33 | 35 |
Analysis of cash flows
20172020 compared to 20162019
Net cash flows from operating activities
Total net cash flowsflow from operating activities decreased by EUR 2,76610,156 million to a EUR 5532,854 million inflow (2016: 3,319outflow (2019: EUR 7,302 million inflow). The decrease is mainly drivenmain movements are the cash inflows regarding insurance and investment liabilities general account and for account of policyholders (refer to note 34 Insurance contracts and note 35 Investment contracts), cash inflows from disposal of investments (other than money market investments, refer to note 22 Investments), partially offset 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.(refer to note 10 Results from financial transactions).
Net cash flows from investing activities
Net cash flows from investing activities decreased by EUR 11853 million to a EUR 1,196139 million outflow (2016:(2019: EUR 1,07886 million outflow). The total consideration paid for acquisitions, including cashacquisitions/capital contributions in acquired entities,joint ventures and associates, was EUR 52305 million. The total consideration received for disposals, excluding transferred assets and reinsurance assets from reinsurance transactions, was EUR 299154 million. Total consideration receivedThe outflow in cash and cash equivalents amounted to EUR 306 million, as an earn-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 decrease2020 is mainly driven by the aquisition of Cofunds Ltd., the divestmentexpansion of the payout annuity business and Bank Owned Life Insurance / Corporate Owned Life Insurance business (BOLI/COLI) andjoint venture arrangement with Banco Santander in Spain, offset by the sale of Unirobe Meeùs Groep (UMG)its 50% stake in the variable annuity joint ventures in Japan (refer to note 5148 Business combinations).
Net cash flows from financing activities
Net cash flowsflow from financing activities increased by EUR 9842,952 million to a EUR 519778 million inflow (2016:outflow (2019: EUR 4653,730 million outflow). The increase is mainly a result of proceeds andlower repayments of borrowings and other equity instruments redeemed (refer to note 31 Other equity instruments) offset by lower proceeds (refer to the table below and note 3937 Borrowings).
20162019 compared to 20152018
Net cash flows from operating activities
Total net cash flowsflow from operating activities increased by EUR 2,4056,785 million to a EUR 3,3197,302 million inflow (2015:(2018: EUR 914517 million inflow). The increase is mainly driven by highermain movements are the cash inflows fromregarding insurance and investment liabilities general account and for account of policyholderspolicyholder (refer to note 34 Insurance contracts and an increase in changes in other liabilities. Thesenote 35 Investment contracts), cash inflows are partlyfrom 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 a decrease inoutflow from results from financial transactions.transactions (refer to note 10 Results from financial transactions).
Net cash flows from investing activities
Net cash flows from investing activities decreasedincreased by EUR 1,693352 million to a EUR 1,07886 million outflow (2015:(2018: EUR 615438 million inflow)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 69155 million. Total consideration received in cash and cash equivalents amounted to EUR 56 million as an earn-out of EUR 13 million was part of the total consideration. Transferred cash and cash equivalents amounts to an outflow of EUR 1,13017 million as a result of reinsurance transactions and disposal of entities over which control is lost. The decreaseoutflow in 2019 is mainly driven by net cash outflows relatedthe expansion of the joint venture arrangement with Banco Santander
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 22239 | ||
in Spain and capital injections to support growth in Amvest, offset by the sale of Aegon’s UK annuity portfoliooff the businesses in Czech Republic and the commercial non-life insurance business in Aegon NederlandSlovakia (refer to note 5148 Business combinations).
Net cash flows from financing activities
Net cash flowsflow from financing activities increaseddecreased by EUR 2,3201,335 million to a EUR 4653,730 million outflow (2015:(2018: EUR 2,7852,395 million outflow). The increasedecrease is a result of proceeds and repayments of borrowings (refer to the table below and note 3937 Borrowings). This was partly offset by the share buyback program, executed in 2016, and other equity instruments redeemed (refer to neutralize the dilutive effect of the cancellation of the preferred shares in 2013.note 31 Other equity instruments).
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 | Cash flows | Non-cash changes | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of debt from financing activities | | At January 1, 2017 | | Addition | Repayment | | Realized gains / losses in income statement | | | Movements related to fair value hedges | | | Amorti- zation | | Other | | Net exchange difference | | | At December 31, 2017 | | At January 1, 2020 | Addition | Repayment | Realized gains / losses in income statement | Movements fair value | Amortization | Net exchange difference | At December 31, 2020 | |||||||||||||||||||||||||||||||||||||||
Subordinated borrowings | 767 | - | - | - | - | 6 | - | (9 | ) | 764 | 2,207 | - | - | - | - | 3 | (125 | ) | 2,085 | |||||||||||||||||||||||||||||||||||||||||||||||||
Trust pass-through securities | 156 | - | - | - | (4 | ) | - | - | (19 | ) | 133 | 136 | - | - | - | 2 | - | (11 | ) | 126 | ||||||||||||||||||||||||||||||||||||||||||||||||
Borrowings | 13,153 | 9,170 | (7,918 | ) | (10 | ) | - | (1 | ) | 1 | (760 | ) | 13,635 | 9,307 | 3,444 | (3,985 | ) | (16 | ) | 1 | 1 | (228 | ) | 8,524 | ||||||||||||||||||||||||||||||||||||||||||||
Assets held to hedge Trust pass-through securities | 22 | - | - | (4 | ) | - | - | - | (2 | ) | 15 | 11 | - | - | 2 | - | - | (1 | ) | 12 | ||||||||||||||||||||||||||||||||||||||||||||||||
Assets held to hedge Borrowings | - | 63 | - | (1 | ) | - | - | - | 62 |
Cash flows | Non-cash changes | |||||||||||||||||||||||||||||||
Reconciliation of debt from financing activities | At January 1, 2019 | Addition | Repayment | Realized gains / losses in income statement | Movements related to fair value hedges | Amortization | 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 | 10 | - | - | 1 | - | - | - | 11 |
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, 2017, this relates to the assets and liabilities of Aegon Ireland plc.
In 2017, following court approval on the Part VII transfer(22), the sale of the UK annuity portfolio to Rothesay Life and Legal & General has been completed. As a consequence the related assets and liabilities are no longer classified as assets and liabilities held for sale at year-end 2017. Also refer to note 51 Business combinations.
Aegon Ireland plc., also referred to as VA Europe, is included in the UK segment (note 5 Segment information). For more information related to the sale transaction, refer to note 51 Business combinations.
The table below presents the major types of assets and liabilities of Aegon Ireland plc. included in assets and liabilities classified as held for sale on the consolidated statement of financial position.
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As of December 31, 2017, there are no unrealized gains relating to non-current assets and disposal groups classified as held for sale included in other comprehensive income.
Fair value measurement
The fair value hierarchy of financial assets and liabilities (measured at fair value), which are presented as held for sale is included below. The fair value hierarchy consists of three levels. Reference is made to note 3 Critical accounting estimates and judgment in applying accounting policies for more details on the fair value hierarchy.
Level I | Level II | Level III | Total 2017 | |||||||||||||
Assets carried at fair value | ||||||||||||||||
Fair value through profit or loss | ||||||||||||||||
Shares | 139 | - | - | 139 | ||||||||||||
Investments for account of policyholders | 1,699 | 3,076 | - | 4,775 | ||||||||||||
Derivatives | - | 57 | - | 57 | ||||||||||||
Total assets at fair value | 1,837 | 3,133 | - | 4,971 | ||||||||||||
Liabilities carried at fair value | ||||||||||||||||
Investment contracts for account of policyholders | - | 3,518 | - | 3,518 | ||||||||||||
Derivatives | - | 41 | 33 | 74 | ||||||||||||
Total liabilities at fair value | - | 3,559 | 33 | 3,592 |
Investments for general account comprise financial assets, excluding derivatives, as well as investments in real estate.
Note | 2017 | 2016 | Note | 2020 | 2019 | |||||||||||||||||||
Available-for-sale (AFS) | 88,170 | 109,860 | 99,580 | 89,404 | ||||||||||||||||||||
Loans | 39,368 | 39,303 | 44,519 | 44,591 | ||||||||||||||||||||
Financial assets at fair value through profit or loss (FVTPL) | 7,119 | 5,142 | 10,057 | 9,080 | ||||||||||||||||||||
Total financial assets, excluding derivatives | 23.1 | 134,658 | 154,304 | 22.1 | 154,156 | 143,075 | ||||||||||||||||||
Investments in real estate | 23.2 | 2,147 | 1,999 | 22.2 | 2,385 | 2,901 | ||||||||||||||||||
Total investments for general account | 136,804 | 156,303 | 156,541 | 145,976 |
The decrease of EUR 19.6 billion in financial assets, for general account, excluding derivatives compared to December 31, 2016 is mainly driven by the disposal of debt securities related to the divestments of the pay-out annuity and BOLI/COLI businesses and the block of life reinsurance in the Americas. In addition, the balance is affected by foreign exchange rates translation adjustments. Refer to note 51 Business combinations for the disposals of BOLI/COLI businesses and the block of life reinsurance in the Americas.
Refer to note 47 Fair value for information on fair value measurement. Loans are held at amortized cost, but the estimated fair value is also disclosed in note 47.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote | ||
23.122.1 Financial assets, excluding derivatives
AFS | FVTPL | Loans | Total | Fair value | AFS | FVTPL | Loans | Total | Fair value | |||||||||||||||||||||||||||||||
2017 | ||||||||||||||||||||||||||||||||||||||||
2020 | ||||||||||||||||||||||||||||||||||||||||
Shares | 490 | 1,062 | - | 1,551 | 1,551 | 345 | 1,634 | - | 1,979 | 1,979 | ||||||||||||||||||||||||||||||
Debt securities | 80,200 | 4,144 | - | 84,344 | 84,344 | 93,681 | 5,669 | - | 99,350 | 99,350 | ||||||||||||||||||||||||||||||
Money market and other short-term investments | 6,690 | 119 | - | 6,809 | 6,809 | 4,558 | 109 | - | 4,667 | 4,667 | ||||||||||||||||||||||||||||||
Mortgage loans | - | - | 33,562 | 33,562 | 38,076 | - | - | 38,244 | 38,244 | 43,258 | ||||||||||||||||||||||||||||||
Private loans | - | - | 3,642 | 3,642 | 4,181 | - | - | 4,358 | 4,358 | 5,280 | ||||||||||||||||||||||||||||||
Deposits with financial institutions | - | - | 139 | 139 | 139 | - | - | 92 | 92 | 92 | ||||||||||||||||||||||||||||||
Policy loans | - | - | 1,897 | 1,897 | 1,897 | - | - | 1,801 | 1,801 | 1,801 | ||||||||||||||||||||||||||||||
Other | 791 | 1,795 | 127 | 2,713 | 2,713 | 996 | 2,645 | 25 | 3,665 | 3,665 | ||||||||||||||||||||||||||||||
At December 31, 2017 | 88,170 | 7,119 | 39,368 | 134,658 | 139,711 | |||||||||||||||||||||||||||||||||||
At December 31, 2020 | 99,580 | 10,057 | 44,519 | 154,156 | 160,093 | |||||||||||||||||||||||||||||||||||
2016 | ||||||||||||||||||||||||||||||||||||||||
2019 | ||||||||||||||||||||||||||||||||||||||||
Shares | 824 | 490 | - | 1,314 | 1,314 | 409 | 1,813 | - | 2,221 | 2,221 | ||||||||||||||||||||||||||||||
Debt securities | 101,054 | 2,115 | - | 103,169 | 103,169 | 82,918 | 3,934 | - | 86,853 | 86,853 | ||||||||||||||||||||||||||||||
Money market and other short-term investments | 6,776 | 317 | - | 7,093 | 7,093 | 5,169 | 158 | - | 5,327 | 5,327 | ||||||||||||||||||||||||||||||
Mortgage loans | - | - | 33,696 | 33,696 | 38,499 | - | - | 37,750 | 37,750 | 42,567 | ||||||||||||||||||||||||||||||
Private loans | - | - | 3,166 | 3,166 | 3,569 | - | - | 4,487 | 4,487 | 5,159 | ||||||||||||||||||||||||||||||
Deposits with financial institutions | - | - | 129 | 129 | 129 | - | - | 141 | 141 | 141 | ||||||||||||||||||||||||||||||
Policy loans | - | - | 2,207 | 2,207 | 2,207 | - | - | 2,024 | 2,024 | 2,024 | ||||||||||||||||||||||||||||||
Other | 1,206 | 2,219 | 104 | 3,529 | 3,529 | 908 | 3,175 | 188 | 4,272 | 4,272 | ||||||||||||||||||||||||||||||
At December 31, 2016 | 109,860 | 5,142 | 39,303 | 154,304 | 159,510 | |||||||||||||||||||||||||||||||||||
At December 31, 2019 | 89,404 | 9,080 | 44,591 | 143,075 | 148,563 |
Of the debt securities, money market and other short-term investments, mortgage loans and private loans EUR 13,749 million is current (2016: EUR 15,729 million).
2020 | 2019 | |||||||
Current portion: | ||||||||
Debt securities, money market and other short-term investments, mortgage and private loans | 14,671 | 14,654 |
Refer to note 4744 Fair value for informationfurther details on fair value measurement.
Loan allowance
Movement on the loan allowance account during the year were as follows:
2017 | 2016 | 2020 | 2019 | |||||||||||||
At January 1 | (137 | ) | (142 | ) | (165 | ) | (138 | ) | ||||||||
Addition charged to income statement | (50 | ) | (23 | ) | (87 | ) | (76 | ) | ||||||||
Reversal to income statement | 13 | 14 | 2 | 5 | ||||||||||||
Amounts written off | 10 | 17 | 62 | 44 | ||||||||||||
Net exchange differences | 3 | - | ||||||||||||||
Other | (4 | ) | (3 | ) | ||||||||||||
At December 31 | (165 | ) | (137 | ) | (188 | ) | (165 | ) |
Refer to note 49 Transfers of financial assets for a discussion of collateral received and paid.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote | ||
23.222.2 Investments in real estate
2017 | 2016 | 2020 | 2019 | |||||||||||||
At January 1 | 1,999 | 1,990 | 2,901 | 2,700 | ||||||||||||
Additions | 239 | 89 | 148 | 179 | ||||||||||||
Subsequent expenditure capitalized | 10 | 12 | 2 | 16 | ||||||||||||
Transfers from other headings | 1 | 34 | ||||||||||||||
Disposals | (202 | ) | (215 | ) | (726 | ) | (331 | ) | ||||||||
Fair value gains / (losses) | 193 | 70 | 74 | 317 | ||||||||||||
Net exchange differences | (89 | ) | 19 | (14 | ) | 9 | ||||||||||
Other | (4 | ) | (1 | ) | - | 11 | ||||||||||
At December 31 | 2,147 | 1,999 | 2,385 | 2,901 | ||||||||||||
Investments in real estate held by: | ||||||||||||||||
Americas | 37 | 653 | ||||||||||||||
The Netherlands | 2,331 | 2,229 | ||||||||||||||
Value of Aegon’s properties which were appraised in the current year | 99% | 100% | ||||||||||||||
Appraisals performed by independent external appraisers | 99% | 99% |
95%Aegon Americas sold its remaining leased commercial real estate investment properties in 2020.
On October 29, 2020, Aegon’s subsidiary in the Americas completed the sale of the valuePyramid building complex in San Francisco, California for USD 650 million (EUR 569 million), while retaining the naming rights. As part of Aegon’s properties, both for general accountthe sale transaction, Transamerica issued mortgage loans supporting the property at commercial rates in the amount of USD 427 million (EUR 374 million). During 2020, the valuation of the property declined prior to the sale closing resulting in a valuation loss of USD 74 million (EUR 65 million). At closing, an additional loss of USD 7 million (EUR 6 million) was recognized primarily due to the write off of prepaid lease commissions and for account of policyholders, were appraised (2016: 78%), of which 99% was performed by independent external appraisers (2016: 98%).
Of thestraight-line rent balances. These losses have been recorded in Note 10 Results from financial transactions in Gains and (losses) on investments in real estate EUR 633 million (2016: EUR 743 million) is held by Aegon Americas and EUR 1,494 million (2016: EUR 1,238 million) is held by Aegon the Netherlands.
Aegon USA has entered into a commercial property portfolio, consisting of office, retail and industrial buildings. These non-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.estate.
Aegon the Netherlands has entered intoinvested 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 of non-cancellable lease rights.
Rental income of EUR 71 million (2016: EUR 69 million; 2015: EUR 61 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 21 million (2016: EUR 79 million; 2015: EUR 97 million). In 2017, EUR 1 million of direct operating expenses is related to investment properties that did not generate rental income during the period (2016: EUR 1 million; 2015: 1 million).
Transfers from other headings mainly reflect the properties that were foreclosed during the year. The associated mortgage loans were previously reported as part of investments.
2020 | 2019 | 2018 | ||||||||||
Rental income reported as part of investment income | 87 | 83 | 82 | |||||||||
Direct operating expenses (Including repairs and maintenance expenses): | ||||||||||||
- From investment property that generated rental income | 47 | 59 | 63 | |||||||||
- From investment property that did not generate rental income | 2 | 2 | 2 |
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 or for repairs, maintenance or enhancements.property.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote | ||
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 | 2017 | 2016 | ||||||||||
Shares | 25,370 | 25,492 | ||||||||||
Debt securities | 24,836 | 30,305 | ||||||||||
Money market and other short-term investments | 2,340 | 1,231 | ||||||||||
Deposits with financial institutions | 2,946 | 2,951 | ||||||||||
Unconsolidated investment funds | 134,132 | 140,077 | ||||||||||
Other | 3,786 | 2,868 | ||||||||||
Total investments for account of policyholders at fair value through profit or loss, excluding derivatives | 193,409 | 202,924 | ||||||||||
Investments in real estate | 24.1 | 655 | 686 | |||||||||
Total investments for account of policyholders | 194,063 | 203,610 |
The decrease in investments for account of policyholders compared to December 31, 2016 is mainly caused by the reclassification to held for sale of Aegon Ireland plc. and negative foreign exchange rates translation adjustments. Refer to note 51 Business combinations for the sale of Aegon Ireland plc.
Note | 2020 | 2019 | ||||||||||
Shares | 25,288 | 25,288 | ||||||||||
Debt securities | 19,885 | 20,744 | ||||||||||
Money market and other short-term investments | 1,051 | 1,805 | ||||||||||
Deposits with financial institutions | 4,185 | 3,278 | ||||||||||
Unconsolidated investment funds | 168,777 | 170,039 | ||||||||||
Other | 4,520 | 4,634 | ||||||||||
Total investments for account of policyholders at fair value through profit or loss, excluding derivatives | 223,705 | 225,788 | ||||||||||
Investments in real estate | 23.1 | 467 | 586 | |||||||||
Total investments for account of policyholders | 224,172 | 226,374 |
Refer to note 4744 Fair value for a summary of all financial assets and financial liabilities at fair value through profit or loss.
24.123.1 Investments in real estate for account of policyholders
2017 | 2016 | 2020 | 2019 | |||||||||||||
At January 1 | 686 | 1,022 | 586 | 612 | ||||||||||||
Additions | 7 | 74 | ||||||||||||||
Subsequent expenditure capitalized | 3 | 7 | 4 | 2 | ||||||||||||
Disposals | (53 | ) | (260 | ) | (56 | ) | (43 | ) | ||||||||
Fair value gains / (losses) | 38 | (26 | ) | (36 | ) | (18 | ) | |||||||||
Net exchange differences | (26 | ) | (131 | ) | (31 | ) | 34 | |||||||||
At December 31 | 655 | 686 | 467 | 586 |
The investment property isproperties are leased out under operating leases.
Rental income of EUR 50 million (2016: EUR 60 million; 2015: EUR 72 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 4 million in 2017 (2016: EUR 5 million, 2015: EUR 7 million).
2020 | 2019 | 2018 | ||||||||||
Rental income reported as part of investment income | 27 | 42 | 47 | |||||||||
Direct operating expenses from investment in real estate for account of policyholders | 8 | 6 | 4 |
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 or for repairs, maintenance or enhancements.property.
Derivative asset | Derivative liability | Derivative asset | Derivative liability | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
Derivatives for general account | ||||||||||||||||||||||||||||||||
Derivatives not designated in a hedge | 5,081 | 6,533 | 6,716 | 8,280 | 12,617 | 10,134 | 13,661 | 11,060 | ||||||||||||||||||||||||
Derivatives designated as fair value hedges | 32 | 45 | 48 | 119 | 88 | 21 | 20 | 26 | ||||||||||||||||||||||||
Derivatives designated as cash flow hedges | 393 | 1,234 | 233 | 250 | 338 | 390 | 608 | 320 | ||||||||||||||||||||||||
Derivatives designated as Net foreign investment hedges | 57 | 104 | 57 | 123 | ||||||||||||||||||||||||||||
5,563 | 7,916 | 7,053 | 8,771 | |||||||||||||||||||||||||||||
Derivatives desginated as Net foreign investment hedges | 196 | 112 | 161 | 96 | ||||||||||||||||||||||||||||
13,238 | 10,658 | 14,450 | 11,501 | |||||||||||||||||||||||||||||
Derivatives for account of policyholders | ||||||||||||||||||||||||||||||||
Derivatives not designated in a hedge | 349 | 402 | 76 | 107 | 747 | 499 | 167 | 114 | ||||||||||||||||||||||||
Total derivatives 1) | 13,986 | 11,157 | 14,617 | 11,616 | ||||||||||||||||||||||||||||
Of which: | ||||||||||||||||||||||||||||||||
349 | 402 | 76 | 107 | |||||||||||||||||||||||||||||
Total derivatives1) | 5,912 | 8,318 | 7,130 | 8,878 | ||||||||||||||||||||||||||||
Current | 673 | 581 | 4,220 | 2,300 |
1 | Refer to note |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 24243 | ||
The fair value of derivatives on both the asset and liability side of the consolidated statement of financial position decreasedincreased during 20172020 mainly due to changes in interest rates and other market movements duringchanges in the year,credit spread, as well as purchases, disposals and maturities. The divestment of the payout annuity business and Bank Owned Life Insurance / Corporate Owned Life Insurance (BOLI/ COLI) business in the Americas contributedRefer to the decrease of derivative assets with EUR 259 million compared to December 31, 2016. See note 4744 Fair value for details on fair value measurement of derivatives.
Of the derivatives EUR 495 million (2016: EUR 1,030 million) and EUR 949 million (2016: EUR 2,537 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 decreaseddecrease more than a pre-determined percentage compared with the base scenario at the moment of signing the contract.
The above mentioned transactionsderivatives 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.
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 | 2017 | 2016 | 2017 | 2016 | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||
Derivatives held as an economic hedge | 4,933 | 6,398 | 4,774 | 6,122 | 12,595 | 10,118 | 8,629 | 7,854 | ||||||||||||||||||||||||
Bifurcated embedded derivatives | 13 | 12 | 1,937 | 2,192 | 22 | 16 | 5,032 | 3,197 | ||||||||||||||||||||||||
Other | 134 | 124 | 5 | (35 | ) | - | - | - | 9 | |||||||||||||||||||||||
Total | 5,081 | 6,533 | 6,716 | 8,280 | 12,617 | 10,134 | 13,661 | 11,060 |
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.
CDSsCredit Default Swaps
Aegon has entered into free-standing credit derivative transactions. The positions outstanding at the end of the year were:
2017 | 2016 | |||||||||||||||||||||||||||||||
Notional | Fair value | Notional | Fair value | |||||||||||||||||||||||||||||
CDSs | 3,606 | 92 | 4,466 | 51 | ||||||||||||||||||||||||||||
2017 | 2016 | 2020 | 2019 | |||||||||||||||||||||||||||||
Credit derivative disclosure by quality | Notional | Fair value | Notional | Fair value | Notional | Fair value | Notional | Fair value | ||||||||||||||||||||||||
AAA | 4 | - | 1 | - | 13 | - | 10 | - | ||||||||||||||||||||||||
AA | 83 | 2 | 483 | 2 | 168 | 4 | 106 | 3 | ||||||||||||||||||||||||
A | 750 | 15 | 763 | 7 | 762 | 9 | 915 | 13 | ||||||||||||||||||||||||
BBB | 2,392 | 68 | 2,849 | 41 | 2,677 | 46 | 3,258 | 70 | ||||||||||||||||||||||||
BB | 357 | 8 | 243 | - | 205 | 4 | 97 | 3 | ||||||||||||||||||||||||
B or lower | 21 | - | 128 | 3 | 121 | - | 58 | - | ||||||||||||||||||||||||
Total | 3,606 | 92 | 4,466 | 51 | 3,945 | 63 | 4,444 | 89 |
Certain derivatives are used to add risk by selling protection in the form of single name and index based credit default swaps. Another strategy used is to synthetically replicate corporate and government credit exposures with credit derivatives. This involves the purchase of high quality, low risk assets and the sale of credit derivatives. The table above provides a breakdown toin credit quality of these credit derivatives. The credit ratings relate to the underlying exposures of these credit derivatives.
Derivatives designated as fair value hedges
Aegon’s fair value hedges consist mainly ofincludes 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
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 24244 | ||
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.
For the years ended December 31, 2017, 2016,2020, 2019 and 2015, Aegon recognized2018, the gains and (losses) related to the ineffectiveness portion of designated fair value hedges of EUR (6) million, EUR 26 million and EUR (17) million respectively. No portion of derivatives was excluded when assessing hedge effectiveness.
2020 | 2019 | 2018 | ||||||||||
Gains (losses) related to the ineffectiveness portion of designated fair value hedges | - | 1 | 5 |
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 cash flows from the interest rate movements for terms up to 2824 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 2623 years. The cash flows from these hedging instruments are expected to affect the profit and loss for approximately the next 3532 years. For the year ended December 31, 2017,2020, the contracts for which cash flow hedge accounting was terminated resulted in deferred gains of EUR 598186 million (2016:(2019: EUR 407112 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 businesses. Refer to note 51 Business combinations for more details regarding this divestment. Outside of this transaction no other2020, 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 1930 years. These agreements involve the exchange of the underlying principal amounts.
For the year ended December 31, 2017, Aegon recognized EUR 0 million of hedge ineffectiveness on cash flow hedges (2016: EUR 5 million gain; 2015: EUR 4 million gain). In 2017, EUR 113 million loss was reclassified from equity into investment income (2016: EUR 37 million loss, 2015: EUR 13 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 63 million gain.
Hedge ineffectiveness and reclassification of gains (losses) | 2020 | 2019 | 2018 | |||||||||
Hedge ineffectiveness on cash flow hedges | - | - | 2 | |||||||||
Gains (losses) reclassified from equity into the income statement | 74 | 51 | (62 | ) | ||||||||
Expected deferred gain (loss) to be reclassified from equity into net income during the next 12 months | 92 | 89 | 9 |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 24245 | ||
The periods when the cash flows are expected to occur are as follows:
< 1 year | 1 – 5 years | 5 – 10 years | > 10 years | 2020 Total | ||||||||||||||||||||||||||||||||||||
< 1 year | 1 – 5 years | 5 – 10 years | > 10 years | 2017 Total | ||||||||||||||||||||||||||||||||||||
Cash inflows | 78 | 315 | 312 | 5,648 | 6,352 | 268 | 761 | 767 | 5,402 | 7,197 | ||||||||||||||||||||||||||||||
Cash outflows | - | 1 | 4 | - | 5 | - | 4 | - | - | 4 | ||||||||||||||||||||||||||||||
Net cash flows | 78 | 314 | 309 | 5,648 | 6,348 | 267 | 757 | 767 | 5,402 | 7,193 | ||||||||||||||||||||||||||||||
< 1 year | 1 – 5 years | 5 – 10 years | > 10 years | 2016 Total | < 1 year | 1 – 5 years | 5 – 10 years | > 10 years | 2019 Total | |||||||||||||||||||||||||||||||
Cash inflows | 319 | 1,326 | 888 | 8,338 | 10,870 | 597 | 928 | 875 | 5,764 | 8,165 | ||||||||||||||||||||||||||||||
Cash outflows | - | 1 | 4 | - | 5 | - | 1 | 3 | - | 4 | ||||||||||||||||||||||||||||||
Net cash flows | 318 | 1,325 | 883 | 8,338 | 10,864 | 597 | 927 | 872 | 5,764 | 8,160 |
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 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. 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. We are currently implementing the actions as described in the transition plans. In July 2020 the discount rates of EUR cleared derivatives switched from EONIA to €STR which impacted the valuation of derivatives for which compensation was exchanged. We are in discussions with our counterparties on amending the EUR CSAs from EONIA to €STR. In the US, the cleared market has switched discount rates from Fed Funds to SOFR in October 2020. The switch in discount rates is expected to lead to increased liquidity in the new risk free rates.
The majority of the fair value and cash flow hedges are directly exposed to changes in benchmark rates (predominantly Euribor and USD Libor) where it is not clear until when these benchmark rates will be continued and/or 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 1,482 million, 2019: 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.
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statementsNote | ||
2625 Investments in joint ventures and associates
Joint ventures | Associates | |||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
At January 1 | 1,614 | 1,561 | 1,983 | 1,745 | 364 | 327 | ||||||||||||||||||
Additions | 81 | 92 | 254 | 151 | 59 | 39 | ||||||||||||||||||
Disposals | (105 | ) | (1 | ) | (5 | ) | - | |||||||||||||||||
Share in net income | 161 | 137 | 184 | 214 | 111 | 12 | ||||||||||||||||||
Share in changes in joint ventures equity (note 32.6) | (15 | ) | 9 | |||||||||||||||||||||
Dividend | (118 | ) | (196 | ) | ||||||||||||||||||||
Share in changes in equity (note 30.6) | 12 | 8 | 7 | 4 | ||||||||||||||||||||
Impairment losses | (4 | ) | - | (20 | ) | (7 | ) | |||||||||||||||||
Dividends | (94 | ) | (120 | ) | (44 | ) | (10 | ) | ||||||||||||||||
Net exchange difference | (17 | ) | (4 | ) | (7 | ) | 2 | (28 | ) | (1 | ) | |||||||||||||
Transfer (to)/from other headings | (836 | ) | - | 818 | - | |||||||||||||||||||
Other | 7 | 15 | (11 | ) | (16 | ) | 1 | - | ||||||||||||||||
At December 31 | 1,712 | 1,614 | 1,376 | 1,983 | 1,264 | 363 |
AllDuring 2020, there were several changes in the composition of the investments in joint ventures in associates. The additions to joint ventures are mainly explained by the expansion of Aegon’s partnership with Santander in Spain. The disposals mainly relates to the completion of the sale of Aegon’s 50% stake in the variable annuity joint ventures in Japan. Please refer to note 48 for further details. In addition, as a result of a dilution in voting rights, Aegon’s investment in Amvest Residential Core Fund was reclassified from joint ventures to associates.
With 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 be non-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 20-F 2020 |
Notes to the consolidated financial statements Note 25247 | ||
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)Santander Vida Seguros y Reaseguros S.A. (‘Santander Spain Life’) a material joint venture and is therefore presented separately.
AMVEST | Other Joint ventures | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Summarized statement of financial position | ||||||||||||||||
Cash and cash equivalents | 109 | 135 | 342 | 373 | ||||||||||||
Other current assets | 166 | 237 | 721 | 737 | ||||||||||||
Total current assets | 276 | 372 | 1,063 | 1,110 | ||||||||||||
Non-current assets
|
| 3,173
|
|
| 2,519
|
|
| 6,521
|
|
| 6,375
|
| ||||
Total assets | 3,449 | 2,891 | 7,584 | 7,485 | ||||||||||||
Current financial liabilities excluding trade payables and other provisions | - | - | 30 | 60 | ||||||||||||
Other current liabilities | 133 | 149 | 503 | 403 | ||||||||||||
Total current liabilities | 133 | 149 | 533 | 464 | ||||||||||||
Non-current financial liabilities excluding trade payables and other provisions | 643 | 476 | 220 | 292 | ||||||||||||
Other non-current liabilities | - | - | 5,871 | 5,721 | ||||||||||||
Total non-current financial liabilities | 643 | 476 | 6,091 | 6,013 | ||||||||||||
Total liabilities | 776 | 625 | 6,624 | 6,477 | ||||||||||||
Net assets | 2,673 | 2,266 | 960 | 1,009 | ||||||||||||
Summarized statement of comprehensive income | ||||||||||||||||
Revenue | 91 | 86 | 1,420 | 1,248 | ||||||||||||
Results from financial transactions | 275 | 205 | (1 | ) | 1 | |||||||||||
Depreciation and amortization | - | - | (20 | ) | (12 | ) | ||||||||||
Interest income | - | - | 186 | 48 | ||||||||||||
Interest expense | (5 | ) | (7 | ) | (3 | ) | (3 | ) | ||||||||
Profit or loss | 357 | 275 | 160 | 122 | ||||||||||||
Income tax (expense) or income | (1 | ) | (10 | ) | (74 | ) | (47 | ) | ||||||||
Post-tax profit or (loss) | 357 | 266 | 86 | 75 | ||||||||||||
Other comprehensive income | - | 7 | (32 | ) | 13 | |||||||||||
Total comprehensive income | 357 | 273 | 54 | 89 | ||||||||||||
Dividends received | 49 | 95 | 69 | 101 |
Santander Spain Life | Other Joint ventures | |||||||||||||||
2020 | 2019 | 2020 | 20191) | |||||||||||||
Summarized statement of financial position | ||||||||||||||||
Cash and cash equivalents | 14 | 15 | 425 | 612 | ||||||||||||
Other current assets | 35 | 30 | 1,011 | 1,268 | ||||||||||||
Total current assets | 50 | 44 | 1,463 | 1,880 | ||||||||||||
Non-current assets | 700 | 364 | 6,569 | 7,766 | ||||||||||||
Total assets | 750 | 408 | 8,005 | 9,645 | ||||||||||||
Current financial liabilities excluding trade payables and other provisions | - | - | - | 17 | ||||||||||||
Other current liabilities | 79 | 14 | 805 | 728 | ||||||||||||
Total current liabilities | 79 | 14 | 805 | 745 | ||||||||||||
Non-current financial liabilities excluding trade payables and other provisions | - | - | 50 | 529 | ||||||||||||
Other non-current liabilities | 272 | 175 | 4,996 | 6,708 | ||||||||||||
Total non-current financial liabilities | 272 | 175 | 5,046 | 7,237 | ||||||||||||
Total liabilities | 351 | 189 | 5,851 | 7,982 | ||||||||||||
Net assets | 399 | 219 | 2,154 | 1,663 | ||||||||||||
Summarized statement of comprehensive income | ||||||||||||||||
Revenue | 357 | 383 | 2,642 | 1,479 | ||||||||||||
Results from financial transactions | (4 | ) | 1 | 20 | 299 | |||||||||||
Depreciation and amortization | (18 | ) | (9 | ) | (13 | ) | (4 | ) | ||||||||
Interest income | 3 | 2 | 13 | 53 | ||||||||||||
Interest expense | - | - | - | (19 | ) | |||||||||||
Profit or loss | 57 | 122 | 409 | 187 | ||||||||||||
Income tax (expense) or income | (14 | ) | (27 | ) | (35 | ) | (43 | ) | ||||||||
Post-tax profit or (loss) | 43 | 95 | 375 | 144 | ||||||||||||
Other comprehensive income | 2 | 1 | 10 | 13 | ||||||||||||
Total comprehensive income | 45 | 95 | 384 | 157 | ||||||||||||
Dividends received | 19 | 26 | 76 | 68 |
1 | ||||
The comparative figures have been adjusted following the classification of material joint ventures and associates for 2020. |
An overview of the summarized financial information of the carrying amount of the joint ventures is as follows:
Santander Spain Life | Other Joint ventures | |||||||||||||||||||||||||||||||
AMVEST | Other Joint ventures | 2020 | 2019 | 2020 | 20191) | |||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||||||
Net assets of joint venture as presented above | 2,673 | 2,266 | 960 | 1,009 | 399 | 219 | 2,154 | 1,663 | ||||||||||||||||||||||||
Net assets of joint venture excluding goodwill | 2,673 | 2,266 | 587 | 626 | 66 | 2 | 1,760 | 1,501 | ||||||||||||||||||||||||
Group share of net assets of joint venture, excluding goodwill | 1,008 | 877 | 312 | 338 | 34 | 2 | 766 | 765 | ||||||||||||||||||||||||
Goodwill on acquisition | - | - | 373 | 383 | 333 | 217 | 244 | 162 | ||||||||||||||||||||||||
Carrying amount | 1,008 | 877 | 685 | 721 | 366 | 220 | 1,011 | 928 |
The difference in the carrying value of investments in joint ventures of EUR 1,712 million (2016: EUR 1,614 million) and the total of the carrying value of joint ventures presented above of EUR 1,693 million (2016: EUR 1,598 million) relates to joint ventures with a negative carrying value of EUR 18 million (2016: EUR 16 million) which have been reclassified to Provisions.
1 | The comparative figures have been adjusted following the classification of material joint ventures and associates for 2020. |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 25248 | ||
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.
The following table includes the summarized financial information of the joint ventures based on the Group’s relative holding.
AMVEST | Other Joint ventures | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Post-tax profit or loss | 126 | 106 | 35 | 28 | ||||||||||||
Other comprehensive income | - | 2 | (14 | ) | 7 | |||||||||||
Total comprehensive income | 126 | 108 | 20 | 34 |
Santander Spain Life | Other Joint ventures | |||||||||||||||
2020 | 2019 | 2020 | 20191) | |||||||||||||
Post-tax profit or loss | 22 | 48 | 170 | (176 | ) | |||||||||||
Other comprehensive income | 1 | - | (10 | ) | 6 | |||||||||||
Total comprehensive income | 23 | 49 | 159 | (170 | ) |
2017 | 2016 | |||||||
At January 1 | 270 | 242 | ||||||
Additions | 73 | 20 | ||||||
Disposals | (15 | ) | (4 | ) | ||||
Share in net income | 11 | 3 | ||||||
Share in changes in associate’s equity (note 32.6) | (5 | ) | 3 | |||||
Impairment losses | (1 | ) | - | |||||
Dividend | (11 | ) | (7 | ) | ||||
Net exchange difference | (13 | ) | 13 | |||||
At December 31 | 308 | 270 |
All associates are unlisted and are accounted for using the equity method and are considered to be non-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.
1 | The comparative figures have been adjusted following the classification of material joint ventures and associates for 2020. |
Summarized financial information of associates
The summarized financial information presented in the following table presents the material associates on a 100% basis. Aegon considers its investment in Amvest Residential Core Fund a material associate and is therefore presented below.
2017 | 2016 | |||||||
Post-tax profit or loss | 9 | 3 | ||||||
Other comprehensive income | (5 | ) | 3 | |||||
Total comprehensive income | 3 | 7 | ||||||
Carrying amount | 308 | 270 |
Amvest Residential Core Fund | ||||||||
2020 | 2019 | |||||||
Summarized statement of financial position | ||||||||
Current assets | 34 | 28 | ||||||
Non-current assets | 3,876 | 3,641 | ||||||
Total assets | 3,910 | 3,669 | ||||||
Current liabilities | 55 | 94 | ||||||
Non-current liabilities | 671 | 619 | ||||||
Total current liabilities | 726 | 713 | ||||||
| ||||||||
Net assets | 3,184 | 2,956 | ||||||
Summarized statement of comprehensive income | ||||||||
Revenue | 104 | 95 | ||||||
Interest expense | - | (8 | ) | |||||
Profit or loss | 281 | 341 | ||||||
Income tax (expense) or income | - | - | ||||||
Post-tax profit or (loss) | 281 | 341 | ||||||
Other comprehensive income | - | - | ||||||
Total comprehensive income | 281 | 341 | ||||||
Dividends received | 32 | 26 |
The summarized financial information of associates presented abovebelow is based on the Group’s relative holding.
Amvest Residential Core Fund | Other Associates | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Post-tax profit or loss | 80 | 97 | 23 | 7 | ||||||||||||
Other comprehensive income | - | - | 7 | (7 | ) | |||||||||||
Total comprehensive income | 80 | 97 | 31 | (1 | ) | |||||||||||
Carrying amount | 919 | 836 | 345 | 363 |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote | ||
Assets arising from reinsurance contracts related to: | 2017 | 2016 | 2020 | 2019 | ||||||||||||
Life insurance general account | 17,419 | 9,714 | 17,421 | 18,464 | ||||||||||||
Life insurance for account of policyholders | 2 | 2 | ||||||||||||||
Non-life insurance | 1,327 | 1,481 | 1,144 | 1,376 | ||||||||||||
Investment contracts | 453 | 11 | 345 | 412 | ||||||||||||
At December 31 | 19,202 | 11,208 | 18,910 | 20,253 | ||||||||||||
Current | 16 | 13 | ||||||||||||||
Non-current | 18,895 | 20,239 |
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 13 million is current (2016: EUR 15 million).
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, 2020 | 18,464 | - | 18,464 | |||||||||
Gross premium and deposits – existing and new business | 2,080 | - | 2,080 | |||||||||
Unwind of discount / interest credited | 839 | - | 839 | |||||||||
Insurance liabilities released | (2,529 | ) | - | (2,529 | ) | |||||||
Fund charges released | (103 | ) | - | (103 | ) | |||||||
Changes to valuation of expected future benefits | 195 | - | 195 | |||||||||
Net exchange differences | (1,536 | ) | - | (1,536 | ) | |||||||
Disposal of a business | - | - | - | |||||||||
Transfer to/from insurance contracts | 8 | - | 8 | |||||||||
Other movements | 4 | - | 4 | |||||||||
At December 31, 2020 | 17,421 | - | 17,421 | |||||||||
At January 1, 2019 | 18,082 | 2 | 18,084 | |||||||||
Gross premium and deposits – existing and new business | 2,170 | - | 2,170 | |||||||||
Unwind of discount / interest credited | 887 | - | 887 | |||||||||
Insurance liabilities released | (2,968 | ) | - | (2,968 | ) | |||||||
Fund charges released | (85 | ) | - | (85 | ) | |||||||
Changes to valuation of expected future benefits | (16 | ) | - | (16 | ) | |||||||
Net exchange differences | 357 | - | 357 | |||||||||
Disposal of a business | - | (2 | ) | (2 | ) | |||||||
Transfer to/from insurance contracts | 22 | - | 22 | |||||||||
Other movements | 16 | - | 16 | |||||||||
At December 31, 2019 | 18,464 | - | 18,464 |
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, 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 | |||||||||
At January 1, 2016 | 9,677 | 64 | 9,741 | |||||||||
Gross premium and deposits – existing and new business | 13,108 | 897 | 14,005 | |||||||||
Unwind of discount / interest credited | 783 | 23 | 806 | |||||||||
Insurance liabilities released | (5,965 | ) | 15 | (5,950 | ) | |||||||
Fund charges released | (11 | ) | - | (11 | ) | |||||||
Changes to valuation of expected future benefits | 38 | - | 38 | |||||||||
Policy transfers | (14 | ) | - | (14 | ) | |||||||
Net exchange differences | 183 | (6 | ) | 177 | ||||||||
Transfers to disposal groups | (8,085 | ) | (991 | ) | (9,076 | ) | ||||||
At December 31, 2016 | 9,714 | 2 | 9,716 |
Movements during the year in reinsurance assets relating to non-life insurance: | 2020 | 2019 | ||||||
At January 1 | 1,376 | 1,356 | ||||||
Gross premium and deposits – existing and new business | 97 | 99 | ||||||
Unwind of discount / interest credited | 87 | 88 | ||||||
Insurance liabilities released | (191 | ) | (127 | ) | ||||
Changes in unearned premiums | (38 | ) | (30 | ) | ||||
Incurred related to current year | 20 | 80 | ||||||
Incurred related to prior years | 32 | 56 | ||||||
Release for claims settled current year | (24 | ) | (23 | ) | ||||
Release for claims settled prior years | (130 | ) | (124 | ) | ||||
Change in IBNR | 4 | (19 | ) | |||||
Net exchange differences | (103 | ) | 25 | |||||
Other movements | 13 | (4 | ) | |||||
At December 31 | 1,144 | 1,376 |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 27 | ||
Movements during the year in reinsurance assets relating to non-life insurance: | 2017 | 2016 | ||||||
At January 1 | 1,481 | 1,503 | ||||||
Gross premium and deposits – existing and new business | 99 | 111 | ||||||
Unwind of discount / interest credited | 89 | 89 | ||||||
Insurance liabilities released | (129 | ) | (148 | ) | ||||
Changes to valuation of expected future benefits | 28 | (57 | ) | |||||
Changes in unearned premiums | (42 | ) | (37 | ) | ||||
Incurred related to current year | 85 | 66 | ||||||
Incurred related to prior years | 37 | 30 | ||||||
Release for claims settled current year | (19 | ) | (12 | ) | ||||
Release for claims settled prior years | (119 | ) | (117 | ) | ||||
Change in IBNR | (8 | ) | (2 | ) | ||||
Shadow accounting adjustment | 6 | 19 | ||||||
Net exchange differences | (180 | ) | 41 | |||||
Portfolio transfers and acquisitions | 2 | - | ||||||
Other movements | (4 | ) | (5 | ) | ||||
At December 31 | 1,327 | 1,481 | ||||||
Assets arising from reinsurance contracts related to: | 2017 | 2016 | ||||||
Normal course of business | 6,648 | 7,609 | ||||||
Exit of a business | 12,553 | 3,599 | ||||||
At December 31 | 19,202 | 11,208 |
Reinsurance assets increased by EUR 8.0 billion compared to December 31, 2016 mainly due to the divestment of the payout annuity, BOLI/COLI businesses and a block of life reinsurance business in the US. For more details on the divestment of these businesses refer to note 51 Business combinations.
The assets arising from reinsurance contracts related to the exit of a business per December 31, 2017 and 2016 relate, next to the above mentioned divestments, also to the sale of Aegon’s life reinsurance business from Transamerica Reinsurance (TARe) to SCOR, completed on August 9, 2011. The divestment of TARe consists of a series of reinsurance agreements between various statutory insurance entities and SCOR for the US domestic business.
Assets arising from reinsurance contracts related to: | 2020 | 2019 | ||||||
Normal course of business | 6,485 | 6,519 | ||||||
Exit of a business | 12,426 | 13,734 | ||||||
At December 31 | 18,910 | 20,253 |
2020 | 2019 | |||||||||||||||
2017 | 2016 | |||||||||||||||
DPAC for insurance contracts and investment contracts with discretionary participation features | 9,688 | 10,882 | 8,253 | 9,974 | ||||||||||||
Deferred cost of reinsurance | 41 | 60 | 141 | 389 | ||||||||||||
Deferred transaction costs for investment management services | 406 | 481 | 404 | 442 | ||||||||||||
At December 31 | 10,135 | 11,423 | 8,799 | 10,806 | ||||||||||||
Current | 838 | 1,080 | 679 | 884 | ||||||||||||
Non-current | 9,297 | 10,343 | 8,120 | 9,921 |
2020 | 2019 | |||||||||||||||||||||||
Deferred | Deferred | Deferred | Deferred | |||||||||||||||||||||
costs of | transaction | costs of | transaction | |||||||||||||||||||||
DPAC | reinsurance | costs | DPAC | reinsurance | costs | |||||||||||||||||||
At January 1 | 9,974 | 389 | 442 | 10,461 | 23 | 431 | ||||||||||||||||||
Costs deferred during the year | 725 | (4) | 20 | 807 | 360 | 24 | ||||||||||||||||||
Amortization through income statement | (753) | (24) | (23) | (754) | 17 | (22) | ||||||||||||||||||
Shadow accounting adjustments | (950) | (17) | - | (659) | (11) | - | ||||||||||||||||||
Impairments | - | - | - | (65) | - | - | ||||||||||||||||||
Net exchange differences | (739) | (1) | (36) | 223 | - | 9 | ||||||||||||||||||
Disposal of Group Assets | - | - | - | (35) | - | - | ||||||||||||||||||
Other | (4) | (202) | - | (5) | - | - | ||||||||||||||||||
At December 31 | 8,253 | 141 | 404 | 9,974 | 389 | 442 |
In December 2019, Aegon the Netherlands entered into a longevity reinsurance contract with Canada Life Reinsurance. The divestmentcontract 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. A deferred cost of reinsurance of EUR 360 million was recognized with regard to this reinsurance contract, which will be amortized over the duration of the payout annuityunderlying insurance contracts.
In 2020, a model change and BOLI/COLI businessupdated parameters regarding education and mortality experience factors in Aegon the Netherlands led to a decrease in the Americas resulted in a write offdeferred cost of deferred policy acquisition costsreinsurance of EUR 205 million. In addition, deferred policy acquisition costs are predominantly impacted by unfavorable currency translation adjustments.214 million, which is included in the line Other.
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 | |||||||||
DPAC | Deferred costs of reinsurance | Deferred transaction costs | ||||||||||
At January 1, 2016 | 10,457 | 72 | 467 | |||||||||
Costs deferred during the year | 1,157 | - | 46 | |||||||||
Disposal of group assets | (9 | ) | - | - | ||||||||
Amortization through income statement | (837 | ) | (14 | ) | (28 | ) | ||||||
Shadow accounting adjustments | 38 | - | - | |||||||||
Impairments | (31 | ) | - | - | ||||||||
Net exchange differences | 119 | 1 | (3 | ) | ||||||||
Other | (12 | ) | - | - | ||||||||
At December 31, 2016 | 10,882 | 60 | 481 |
In the following table a breakdown is provided of DPAC balances by line of business and reporting segment:
Note | 2020 | 2019 | ||||||||||
Real estate held for own use and equipment | 28.1 | 472 | 489 | |||||||||
Receivables | 28.2 | 6,826 | 6,656 | |||||||||
Accrued income | 28.3 | 1,356 | 1,442 | |||||||||
Right-of-use assets | 28.4 | 211 | 255 | |||||||||
At December 31 | 8,865 | 8,842 |
30.128.1 Real estate held for own use and equipment
Net book value | General account real estate held for own use | Equipment | Total | |||||||||
At January 1, 2016 | 338 | 237 | 575 | |||||||||
At December 31, 2016 | 332 | 241 | 572 | |||||||||
At December 31, 2017 | 307 | 223 | 530 | |||||||||
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 | |||||||||
Cost | ||||||||||||
At January 1, 2016 | 442 | 544 | 986 | |||||||||
Additions | 8 | 58 | 67 | |||||||||
Acquired through business combinations | - | - | - | |||||||||
Capitalized subsequent expenditure | 2 | - | 2 | |||||||||
Disposals | (1 | ) | (11 | ) | (12 | ) | ||||||
Unrealized gains/(losses) through equity | 8 | - | 8 | |||||||||
Transfer to investments in real estate | (15 | ) | - | (15 | ) | |||||||
Transfers to disposal groups | - | - | - | |||||||||
Net exchange differences | 8 | 2 | 10 | |||||||||
Other | - | - | - | |||||||||
At December 31, 2016 | 453 | 593 | 1,046 | |||||||||
Accumulated depreciation and impairment losses | ||||||||||||
At January 1, 2016 | 104 | 307 | 411 | |||||||||
Depreciation through income statement | 9 | 54 | 63 | |||||||||
Disposals | - | (9 | ) | (9 | ) | |||||||
Impairment losses | 7 | - | 7 | |||||||||
Impairment losses reversed | - | - | - | |||||||||
Transfers to disposal groups | - | - | - | |||||||||
Net exchange differences | 2 | - | 2 | |||||||||
Other | - | - | - | |||||||||
At December 31, 2016 | 121 | 352 | 474 |
Total real estate held for own use and equipment | 2020 | 2019 | ||||||
General account real estate held for own use | 209 | 208 | ||||||
Equipment | 263 | 281 | ||||||
At December 31 | 472 | 489 |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 28�� 251 | ||
General account real estate held for own use | 2020 | 2019 | ||||||
Net book value | ||||||||
At January 1 | 208 | 263 | ||||||
Additions | 9 | - | ||||||
Capitalized subsequent expenditure | (2 | ) | (4 | ) | ||||
Disposals | (5 | ) | (62 | ) | ||||
Unrealized gains/(losses) through equity | 20 | (4 | ) | |||||
Realized gains/(losses) through income statement | (5 | ) | 10 | |||||
Depreciation through income statement | (5 | ) | (5 | ) | ||||
Impairment losses | (4 | ) | - | |||||
Impairment losses reversed | 1 | 6 | ||||||
Net exchange differences | (8 | ) | 3 | |||||
At December 31 | 209 | 208 | ||||||
Gross carrying value | 269 | 276 | ||||||
Accumulated depreciation and impairment losses | (60 | ) | (68 | ) | ||||
Net book value | 209 | 208 | ||||||
General account real estate held for own use: | ||||||||
Carrying amount under a historical cost model | 201 | 231 | ||||||
% of real estate appraised in the current year | 93% | 51% | ||||||
% of appraisals performed by independent external appraisers | 99% | 99% |
General account real estate held for own use are mainly held by Aegon USAAmericas and Aegon the Netherlands, with relatively smaller holdings at Aegon Hungary and Aegon Spain. The carrying value under a historical cost model amounted to EUR 319 million (2016: EUR 350 million).
30% of the value of the general account real estate held for own use was last revalued in 2017 (2016: 35%), based on market value appraisals by qualified internal and external appraisers. 95% of the appraisals in 2017 were performed by independent external appraisers (2016: 97%).
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.
Equipment | 2020 | 2019 | ||||||
Net book value | ||||||||
At January 1 | 281 | 235 | ||||||
Additions | 73 | 105 | ||||||
Disposals | (1 | ) | (2 | ) | ||||
Depreciation through income statement | (71 | ) | (60 | ) | ||||
Net exchange differences | (19 | ) | 4 | |||||
Other | - | (2 | ) | |||||
At December 31 | 263 | 281 | ||||||
Gross carrying value | 628 | 624 | ||||||
Accumulated depreciation and impairment losses | (365 | ) | (343 | ) | ||||
Net book value | 263 | 281 |
None of the equipment is held for lease (2016:(2019: 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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 28252 | ||
30.228.2 Receivables
2017 | 2016 1) | 2020 | 2019 | |||||||||||||
Loans to associates | 12 | 2 | 9 | 16 | ||||||||||||
Loans to joint ventures | 13 | 7 | ||||||||||||||
Receivables from policyholders | 999 | 1,187 | 637 | 945 | ||||||||||||
Receivables from brokers and agents | 400 | 459 | 264 | 288 | ||||||||||||
Receivables from reinsurers | 2,708 | 1,979 | 733 | 777 | ||||||||||||
Cash outstanding from assets sold | 46 | 67 | 112 | 320 | ||||||||||||
Trade receivables | 910 | 1,434 | 1,956 | 1,484 | ||||||||||||
Cash collateral | 1,545 | 1,457 | 997 | 1,383 | ||||||||||||
Reverse repurchase agreements | 230 | 77 | - | 76 | ||||||||||||
Income tax receivable | 85 | 477 | 285 | 102 | ||||||||||||
Other | 1,190 | 1,463 | 1,921 | 1,301 | ||||||||||||
Provision for doubtful debts | (48 | ) | (79 | ) | (88 | ) | (34) | |||||||||
At December 31 | 8,091 | 8,530 | 6,826 | 6,656 | ||||||||||||
Current | 8,061 | 8,487 | 6,801 | 6,613 | ||||||||||||
Non-current | 30 | 44 | 25 | 43 |
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:
2020 | 2019 | |||||||||||||||
2017 | 2016 | |||||||||||||||
At January 1 | (79 | ) | (107 | ) | (34 | ) | (41) | |||||||||
Additions charged to earnings | (6 | ) | (5 | ) | (71 | ) | (9) | |||||||||
Unused amounts reversed through the income statement | 4 | 7 | 2 | 8 | ||||||||||||
Disposal of business | - | 4 | ||||||||||||||
Used during the year | 31 | 26 | 8 | 5 | ||||||||||||
Net exchange differences | 2 | - | 6 | - | ||||||||||||
At December 31 | (48 | ) | (79 | ) | (88 | ) | (34) | |||||||||
30.3 Accrued income | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Accrued interest | 1,357 | 1,543 | ||||||||||||||
Other | 25 | 22 | ||||||||||||||
At December 31 | 1,382 | 1,565 |
Of accrued28.3 Accrued income EUR 1,364 million is current (2016: EUR 1,547 million).
2020 | 2019 | |||||||
Accrued interest | 1,352 | 1,436 | ||||||
Other | 4 | 6 | ||||||
At December 31 | 1,356 | 1,442 | ||||||
Current | 1,356 | 1,442 | ||||||
Non-current | - | - |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 28 | ||
28.4 | Right-of-use assets |
Real estate for own use | Equipment | Other | Total | |||||||||||||
Net book value | ||||||||||||||||
At January 1, 2020 | 227 | 25 | 3 | 255 | ||||||||||||
Additions | 17 | 3 | 2 | 23 | ||||||||||||
Disposals | (2 | ) | - | - | (2 | ) | ||||||||||
Modification of lease contracts | 1 | - | - | 1 | ||||||||||||
Depreciation through income statement | (38 | ) | (12 | ) | (2 | ) | (52 | ) | ||||||||
Net exchange differences | (12 | ) | (2 | ) | - | (13 | ) | |||||||||
At December 31, 2020 | 193 | 15 | 3 | 211 | ||||||||||||
Gross carrying value | 262 | 37 | 7 | 306 | ||||||||||||
Accumulated depreciation and impairment losses | (69 | ) | (22 | ) | (4 | ) | (95 | ) | ||||||||
Net book value 2020 | 193 | 15 | 3 | 211 | ||||||||||||
Net book value | ||||||||||||||||
At January 1, 2019 | 213 | 18 | 5 | 235 | ||||||||||||
Additions | 40 | 19 | 1 | 59 | ||||||||||||
Modification of lease contracts | 2 | - | - | 3 | ||||||||||||
Depreciation through income statement | (35 | ) | (13 | ) | (2 | ) | (50 | ) | ||||||||
Net exchange differences | 8 | - | - | 8 | ||||||||||||
At December 31, 2019 | 227 | 25 | 3 | 255 | ||||||||||||
Gross carrying value | 262 | 37 | 5 | 305 | ||||||||||||
Accumulated depreciation and impairment losses | (36 | ) | (13 | ) | (2 | ) | (50 | ) | ||||||||
Net book value 2019 | 227 | 25 | 3 | 255 |
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-F 2020 |
Notes to the consolidated financial statements Note 29 254 | ||
Net book value | Goodwill | VOBA | Future servicing rights | Software | Other | Total | ||||||||||||||||||
At January 1, 2016 | 299 | 1,472 | 57 | 61 | 12 | 1,901 | ||||||||||||||||||
At December 31, 2016
|
| 294
|
|
| 1,399
|
|
| 64
|
|
| 50
|
|
| 12
|
|
| 1,820
|
| ||||||
At December 31, 2017 | 293 | 1,153 | 99 | 51 | 36 | 1,633 | ||||||||||||||||||
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 | ||||||||||||||||||
Cost | ||||||||||||||||||||||||
At January 1, 2016 | 507 | 7,462 | 314 | 381 | 105 | 8,769 | ||||||||||||||||||
Additions | - | 2 | - | 16 | 3 | 21 | ||||||||||||||||||
Acquisitions through business combinations | (8 | ) | - | 12 | - | - | 4 | |||||||||||||||||
Capitalized subsequent expenditure | - | - | - | 3 | - | 3 | ||||||||||||||||||
Disposals | - | - | - | (3 | ) | - | (3 | ) | ||||||||||||||||
Net exchange differences | 4 | 112 | 1 | (35 | ) | 1 | 83 | |||||||||||||||||
At December 31, 2016 | 503 | 7,576 | 327 | 362 | 109 | 8,876 | ||||||||||||||||||
Accumulated amortization, depreciation and impairment losses | ||||||||||||||||||||||||
At January 1, 2016 | 208 | 5,990 | 257 | 320 | 93 | 6,868 | ||||||||||||||||||
Amortization through income statement | - | 178 | 6 | 25 | 2 | 211 | ||||||||||||||||||
Shadow accounting adjustments | - | (89 | ) | - | - | - | (89 | ) | ||||||||||||||||
Disposals | - | - | - | (3 | ) | - | (3 | ) | ||||||||||||||||
Net exchange differences | - | 98 | (1 | ) | (30 | ) | 2 | 69 | ||||||||||||||||
At December 31, 2016 | 209 | 6,177 | 263 | 311 | 97 | 7,056 |
Goodwill | VOBA | Future servicing rights | Software | Other | Total | |||||||||||||||||||
Net book value | ||||||||||||||||||||||||
At January 1, 2020 | 392 | 952 | 84 | 69 | 61 | 1,559 | ||||||||||||||||||
Additions | - | - | - | 33 | 11 | 44 | ||||||||||||||||||
Capital expenditure | - | - | - | 11 | - | 11 | ||||||||||||||||||
Business combinations, disposals and other changes | 8 | - | - | (10 | ) | - | (2 | ) | ||||||||||||||||
Amortization through income statement | - | (79 | ) | (7 | ) | (18 | ) | (7 | ) | (112 | ) | |||||||||||||
Impairment losses | - | - | - | (6 | ) | (17 | ) | (23 | ) | |||||||||||||||
Shadow accounting adjustments | - | 15 | - | - | - | 15 | ||||||||||||||||||
Net exchange differences | (25 | ) | (73 | ) | (5 | ) | - | (2 | ) | (105 | ) | |||||||||||||
At December 31, 2020 | 375 | 815 | 71 | 79 | 45 | 1,386 | ||||||||||||||||||
Gross carrying value | 537 | 6,447 | 339 | 379 | 174 | 7,875 | ||||||||||||||||||
Accumulated amortization, depreciation and impairment losses | (161 | ) | (5,632 | ) | (268 | ) | (300 | ) | (129 | ) | (6,489 | ) | ||||||||||||
Net book value 2020 | 375 | 815 | 71 | 79 | 45 | 1,386 | ||||||||||||||||||
Net book value | ||||||||||||||||||||||||
At January 1, 2019 | 384 | 1,123 | 91 | 64 | 64 | 1,727 | ||||||||||||||||||
Additions | - | - | - | 35 | 4 | 39 | ||||||||||||||||||
Capital expenditure | - | - | - | 14 | - | 14 | ||||||||||||||||||
Business combinations, disposals and other changes | - | - | - | (9 | ) | - | (9 | ) | ||||||||||||||||
Amortization through income statement | - | (112 | ) | (8 | ) | (16 | ) | (7 | ) | (143 | ) | |||||||||||||
Impairment losses | (3 | ) | (11 | ) | - | (20 | ) | - | (34 | ) | ||||||||||||||
Shadow accounting adjustments | - | (72 | ) | - | - | - | (72 | ) | ||||||||||||||||
Net exchange differences | 10 | 24 | 1 | 1 | 1 | 37 | ||||||||||||||||||
At December 31, 2019 | 392 | 952 | 84 | 69 | 61 | 1,559 | ||||||||||||||||||
Gross carrying value | 567 | 7,003 | 366 | 371 | 173 | 8,479 | ||||||||||||||||||
Accumulated amortization, depreciation and impairment losses | (175 | ) | (6,051 | ) | (282 | ) | (301 | ) | (111 | ) | (6,920 | ) | ||||||||||||
Net book value 2019 | 392 | 952 | 84 | 69 | 61 | 1,559 |
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 (2016: 8 years).business ranges between 50 and 80 years. Future servicing rights are amortized over an averagea period upof 10 to 30 years of which 1413 years remain at December 31, 2017 (2016: 92020 (2019: 15 years). Software is generally depreciated over an average period of 3 to 5 years. At December 31, 2017, the remaining average amortization period was 4 years (2016: 3 years).
Goodwill increased by EUR 56 million and “customer intangibles” by EUR 29 million (included in the line “Other”) following the acquisition of Cofunds Ltd. in January 2017.
Future servicing rights increased by EUR 36 million following the acquisition of the Nordea second-pillar pension fund in August 2017.
The line disposals reflects the divestment of the payout annuity and BOLI/COLI business in the Americas and Unirobe Meeùs Groep in the Netherlands impacting goodwill by EUR 27 million, VOBA by EUR 11 million and software by EUR 3 million.
Refer(no changes compared to note 51 Business combinations on the acquisitions of Cofunds Ltd and Nordea second-pillar pension fund. As well as the divestments of the payout annuity and BOLI/COLI business, and Unirobe Meeùs Groep.2019).
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 wereamount was 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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 30255 | ||
A geographical summary of the cash-generating units to which the goodwill is allocated is as follows:
Goodwill | 2017 | 2016 | 2020 | 2019 | ||||||||||||
Americas | 174 | 198 | 168 | 183 | ||||||||||||
Central & Eastern Europe | 34 | 36 | ||||||||||||||
The Netherlands | 97 | 89 | ||||||||||||||
United Kingdom | 54 | 57 | ||||||||||||||
International | 26 | 29 | ||||||||||||||
Asset Management | 31 | 36 | 31 | 34 | ||||||||||||
United Kingdom | 54 | - | ||||||||||||||
The Netherlands | - | 25 | ||||||||||||||
At December 31 | 293 | 294 | 375 | 392 |
Goodwill in Aegon USAAmericas 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 USAAmericas have been actuarially determined based on business plans covering a period of typically three years and pre-tax risk adjusted discount rates. TheBased on the value in use tests, goodwill in the USAAmericas for the group of annuities cash-generating units (2020: EUR 116 million: 2019: EUR 127 million) and the retirement plans cash-generating unit (2020: EUR 52 million: 2019: EUR 56 million) remain unchanged from prior year except for the impact of currency translation adjustments (2017: EUR 121 million: 2016: EUR 131 million) and the retirement plans cash-generating unit (2017: EUR 52 million: 2016: EUR 57 million).adjustments. The value in use tests assume business plans covering a period of three3 years further extrapolated to ten10 years, where the new business levels for years 4-10 assumed a 0% growth rate (2016:(2019: 0%). The pre-tax adjusted discount rate was 17%7.6% for both annuities and 18% for retirement plans as determined at date of acquisition.plans.
To determineFor Aegon the recoverable amounts of theNetherlands, goodwill was allocated to Robidus - a cash generating units of Aegon Central & Eastern Europe (CEE),unit whose value in use was calculated, and compared to theexceeds its carrying amounts. Valuevalue. The value in use has been determinedcalculations were based on a business planplans covering a period of typically 3five years, that, in certain instances was further extrapolated to 20 years where the new business levels for years 4-20 assumed a growth rate based on the business plan of the third year, prudentially decreased by 20% (2016: 20%). Other key assumptions used for the calculation were pre-tax risk adjusted discount rate of 8.3%-14.6% (2016: 7.4%-15.9%)7.6%, 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 projectionspost-tax discount rate of future trends.
For Aegon UK, goodwill was allocated to one cash-generating unit – Cofunds Ltd.7.2%, whose value in use EUR 263 million exceeded its carrying value. This was determined using a management approved business plan spanning 3 years and terminal growth rate prudentially assumed at 3%1%. Other key assumptions were post-tax discount rate of 10.8%The goodwill arises mainly from new customers, future software platform developments, synergies, and pre-tax discount rate of 11.8% used to adjust cash flows forecast.assembled workforce.
VOBA
The movement in VOBA over 2017 can be summarized and compared to 2016 as follows:
2017 | 2016 | |||||||
At January 1 | 1,399 | 1,472 | ||||||
Additions | 6 | 2 | ||||||
Disposals | (11 | ) | - | |||||
Amortization / depreciation through income statement | (63 | ) | (178 | ) | ||||
Shadow accounting adjustments | (26 | ) | 89 | |||||
Net exchange differences | (153 | ) | 14 | |||||
At December 31 | 1,153 | 1,399 |
A geographical summary of the lines of business to which the VOBA is allocated is as follows:
VOBA | Americas | The Netherlands | United Kingdom | Asia | Total | |||||||||||||||
2017 | ||||||||||||||||||||
Life | 883 | - | - | 1 | 884 | |||||||||||||||
Individual savings and retirement products | 144 | - | - | - | 144 | |||||||||||||||
Pensions | 7 | 17 | 98 | - | 122 | |||||||||||||||
Run-off businesses | 4 | - | - | - | 4 | |||||||||||||||
Total VOBA | 1,038 | 17 | 98 | 1 | 1,153 | |||||||||||||||
2016 | ||||||||||||||||||||
Life | 1,028 | - | - | 10 | 1,038 | |||||||||||||||
Individual savings and retirement products | 181 | - | - | - | 181 | |||||||||||||||
Pensions | 10 | 22 | 118 | - | 149 | |||||||||||||||
Distribution | - | 8 | - | - | 8 | |||||||||||||||
Run-off businesses | 23 | - | - | - | 23 | |||||||||||||||
Total VOBA | 1,242 | 30 | 118 | 10 | 1,399 |
Issued share capital and reserves attributable to shareholders of Aegon N.V.
Note | 2017 | 2016 | 2015 | Note | 2020 | 2019 | 2018 | |||||||||||||||||||||||||
Share capital – par value | 32.1 | 322 | 319 | 328 | 30.1 | 320 | 323 | 322 | ||||||||||||||||||||||||
Share premium | 32.2 | 7,731 | 7,873 | 8,059 | 30.2 | 7,160 | 7,213 | 7,487 | ||||||||||||||||||||||||
Total share capital | 8,053 | 8,193 | 8,387 | 7,480 | 7,536 | 7,808 | ||||||||||||||||||||||||||
Retained earnings | 9,699 | 7,609 | 8,100 | 10,327 | 10,655 | 9,985 | ||||||||||||||||||||||||||
Treasury shares | 32.3 | (325 | ) | (190 | ) | (269 | ) | 30.3 | (181 | ) | (281 | ) | (337 | ) | ||||||||||||||||||
Total retained earnings | 9,374 | 7,419 | 7,832 | 10,145 | 10,374 | 9,648 | ||||||||||||||||||||||||||
Revaluation reserves | 32.4 | 4,920 | 5,381 | 6,471 | 30.4 | 7,480 | 5,873 | 3,435 | ||||||||||||||||||||||||
Remeasurement of defined benefit plans | 32.5 | (1,669 | ) | (1,820 | ) | (1,532 | ) | 30.5 | (2,534 | ) | (2,397 | ) | (1,850 | ) | ||||||||||||||||||
Other reserves | 32.6 | (390 | ) | 1,347 | 1,283 | 30.6 | (553 | ) | 456 | 149 | ||||||||||||||||||||||
Total shareholders’ equity | 20,288 | 20,520 | 22,441 | 22,018 | 21,842 | 19,189 |
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.
In June 2017, Aegon distributed to its shareholders who elected stock dividend a total number of 26,916,371 common shares in respect to the final dividend for 2016. This stock dividend distribution was paid from treasury shares (note 32.3 Treasury shares).
In June 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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statementsNote 30256 | ||||
2020 | 2019 | 2018 | ||||||||||
Share capital transactions relating to common shares | Number of shares (thousands) | Number of shares (thousands) | Number of shares (thousands) | |||||||||
Transactions in 2020: | ||||||||||||
Interim dividend 2020 1) | (22,947 | ) | ||||||||||
Share buyback program (interim dividend 2020) | 24,029 | |||||||||||
Transactions in 2019: | ||||||||||||
Final dividend 2018 1) | (32,874 | ) | ||||||||||
Share buyback program (final dividend 2018) | 32,874 | |||||||||||
Interim dividend 2019 1) | (35,370 | ) | ||||||||||
Share buyback program (interim dividend 2019) | 43,150 | |||||||||||
Transactions in 2018: | ||||||||||||
Final dividend 2017 1) | (21,954 | ) | ||||||||||
Share buyback program (final dividend 2017) | 21,954 | |||||||||||
Interim dividend 2018 1) | (24,134 | ) | ||||||||||
Share buyback program (interim dividend 2018) | 24,134 |
1 | Dividend distribution paid from treasury shares (note 30.3) |
30.1 Share capital – par value
2020 | 2019 | 2018 | ||||||||||
Common shares | 252 | 253 | 251 | |||||||||
Common shares B | 69 | 70 | 70 | |||||||||
At December 31 | 320 | 323 | 322 | |||||||||
Common shares | 2020 | 2019 | 2018 | |||||||||
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 | 2020 | 2019 | 2018 | |||||||||
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 | |||||||||||||||
Number of shares (thousands) | Total amount | Number of shares (thousands) | Total amount | |||||||||||||
At January 1, 2018 | 2,095,648 | 251 | 585,022 | 70 | ||||||||||||
Dividend | - | - | - | - | ||||||||||||
At December 31, 2018 | 2,095,648 | 251 | 585,022 | 70 | ||||||||||||
Dividend | 9,491 | 1 | - | - | ||||||||||||
At December 31, 2019 | 2,105,139 | 253 | 585,022 | 70 | ||||||||||||
Shares withdrawn | (9,491 | ) | (1 | ) | (13,227 | ) | (2 | ) | ||||||||
Dividend | 2,466 | - | - | - | ||||||||||||
At December 31, 2020 | 2,098,114 | 252 | 571,795 | 69 |
The common shares and common shares B withdrawn in 2020 are the result of the cancellation of 9,491 and 13,227 shares, respectively, following the repurchase by the Company in connection with the share buyback program. This share buy back program was executed following the 2019 interim dividend distribution in order to reduce the number of own shares, which are not used to cover obligations arising from share-based incentive plans or other obligations.
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statements Note | ||
In September 2017, Aegon distributed to its shareholders 24,948,255 common shares as interim dividend 2017 in the form of stock. This stock dividend distribution was paid from treasury shares (note 32.3 Treasury shares) and with the issuance of 21,099,402 common shares with a par value of EUR 0.12
In December 2017, Aegon completed a share buyback program to neutralize the dilutive effect of the 2016 final dividend and 2017 interim dividend paid in shares, and repurchased a total of 51,864,626 common shares.
Furthermore, in December 2017, Aegon repurchased 13,042,592 common shares B from Vereniging Aegon to keep the voting rights of Vereniging Aegon on the agreed level.
In June 2016, Aegon distributed to its shareholders who elected stock dividend a total number of 29,258,662 common shares in respect to the final dividend for 2015. This stock dividend distribution was paid from treasury shares (note 32.3 Treasury shares) and with the issuance of 9,121,989 common shares with a par value of EUR 0.12.
In September 2016, Aegon distributed to its shareholders 30,765,224 common shares as interim dividend 2016 in the form of stock. This stock dividend distribution was paid from treasury shares (note 32.3 Treasury shares) and with the issuance of 1,506,562 common shares with a par value of EUR 0.12.
In 2016, following each distribution of stock dividend, Aegon completed a share buyback program to neutralize the dilutive effect of the 2015 final dividend and 2016 interim dividend paid in shares, and repurchased a total of 60,023,886 common shares.
Aegon also executed a EUR 400 million share buyback program in which 83,116,535 common shares were repurchased. These common shares have been repurchased as part of a program to neutralize the dilutive effect of the cancellation of the preferred shares in 2013. All 83,116,535 common shares repurchased under this program were cancelled in September 2016.
Furthermore, in June 2016, Aegon repurchased 17,324,960 common shares B from Vereniging Aegon to keep the voting rights of Vereniging Aegon on the agreed level.
In June 2015, Aegon distributed to its shareholders who elected stock dividend a total number of 16,279,933 common shares in respect to the final dividend for 2014. This stock dividend distribution was fully paid from treasury shares (note 32.3 Treasury shares).
In September 2015, Aegon distributed to its shareholders 20,136,673 common shares as interim dividend 2015 in the form of stock. This stock dividend distribution was paid from 19,047,358 treasury shares (note 32.3 Treasury shares) and with the issuance of 1,089,315 common shares with a par value of EUR 0.12.
In 2015, following each distribution of stock dividend, Aegon completed a share buyback program to neutralize the dilutive effect of the 2014 final dividend and 2015 interim dividend paid in shares, and repurchased a total of 36,416,606 common shares.
Furthermore, in 2015, Aegon issued a total of 3,696,440 common shares B with a par value of EUR 0.12 to compensate for the dilution of Vereniging Aegon’s shareholding caused by the issuance of shares on January 1, 2015 and May 21, 2015, in connection with the Long Term Incentive Plans for senior management.
32.1 Share capital – par value
2017 | 2016 | 2015 | ||||||||||
Common shares | 251 | 249 | 258 | |||||||||
Common shares B | 70 | 70 | 70 | |||||||||
At December 31 | 322 | 319 | 328 | |||||||||
Common shares | 2017 | 2016 | 2015 | |||||||||
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 | 2017 | 2016 | 2015 | |||||||||
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 | |||||||||||||||
Number of shares | Number of shares | |||||||||||||||
(thousands) | Total amount | (thousands) | Total amount | |||||||||||||
At January 1, 2015 | 2,145,948 | 258 | 581,326 | 70 | ||||||||||||
Shares issued | - | - | 3,696 | - | ||||||||||||
Dividend | 1,089 | - | - | - | ||||||||||||
At December 31, 2015 | 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 | ||||||||||||
Dividend | 21,099 | 3 | - | - | ||||||||||||
At December 31, 2017 | 2,095,648 | 251 | 585,022 | 70 |
Weighted average number of common shares (thousands) | Weighted average number of common shares B (thou- sands) | |||||||
2015 | 2,146,261 | 583,608 | ||||||
2016 | 2,129,074 | 585,022 | ||||||
2017 | 2,080,792 | 585,022 |
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) | |||||||
2018 | 2,095,648 | 585,022 | ||||||
2019 | 2,098,326 | 585,022 | ||||||
2020 | 2,101,749 | 579,312 |
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 of 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.
32.230.2 Share premium
2017 | 2016 | 2015 | 2020 | 2019 | 2018 | |||||||||||||||||||
At January 1 | 7,873 | 8,059 | 8,270 | 7,213 | 7,487 | 7,731 | ||||||||||||||||||
Share dividend | (142 | ) | (186 | ) | (211 | ) | (54 | ) | (273 | ) | (244 | ) | ||||||||||||
At December 31 | 7,731 | 7,873 | 8,059 | 7,160 | 7,213 | 7,487 | ||||||||||||||||||
Share premium relating to: | ||||||||||||||||||||||||
- Common shares | 6,078 | 6,220 | 6,406 | 5,507 | 5,560 | 5,834 | ||||||||||||||||||
- Common shares B | 1,653 | 1,653 | 1,653 | 1,653 | 1,653 | 1,653 | ||||||||||||||||||
Total share premium | 7,731 | 7,873 | 8,059 | 7,160 | 7,213 | 7,487 |
The share premium account reflects the balance of paid-in amounts above par value at issuance of new shares less the amounts charged for share dividends.
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statements Note | ||
32.330.3 Treasury shares
On the reporting date, Aegon N.V. and its subsidiaries held 65,650,650 (2016: 48,780,045)53,747,701 (2019: 66,583,671) of its own common shares and 15,345,680 (2016: 17,324,960)12,884,400 (2019: 25,309,920) own common shares B with a par value of EUR 0.12 each.
Movements in the number of treasury common shares ofheld by Aegon N.V. were as follows:
2017 | 2016 | 2015 | ||||||||||||||||||||||
Number of shares (thousands) | Amount | Number of shares (thousands) | Amount | Number of shares (thousands) | Amount | |||||||||||||||||||
At January 1 | 47,473 | 178 | 42,998 | 257 | 49,537 | 306 | ||||||||||||||||||
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 | ||||||||||||||||||||||
Transactions in 2015: | ||||||||||||||||||||||||
Sale: 1 transaction, price EUR 7.24 | (7,628 | ) | (47 | ) | ||||||||||||||||||||
Sale: 1 transaction, price EUR 6.62 | (16,280 | ) | (93 | ) | ||||||||||||||||||||
Purchase: transactions, average price EUR 6.63 | 16,280 | 108 | ||||||||||||||||||||||
Sale: 1 transaction, price EUR 5.40 | (19,047 | ) | (123 | ) | ||||||||||||||||||||
Purchase: transactions, average price EUR 5.28 | 20,137 | 106 | ||||||||||||||||||||||
At December 31 | 64,488 | 314 | 47,473 | 178 | 42,998 | 257 |
2020 | 2019 | 2018 | ||||||||||||||||||||||
Number of shares (thousands) | Amount | Number of shares (thousands) | Amount | Number of shares (thousands) | Amount | |||||||||||||||||||
At January 1 | 65,540 | 269 | 61,418 | 326 | 64,488 | 314 | ||||||||||||||||||
Transactions in 2020: | ||||||||||||||||||||||||
Sale: transactions, average price 4.52 | (4,445 | ) | (20 | ) | ||||||||||||||||||||
Shares withdrawn: 1 transaction average price 4.52 | (9,491 | ) | (43 | ) | ||||||||||||||||||||
Sale: 1 transaction, average price 4.13 | (22,947 | ) | (95 | ) | ||||||||||||||||||||
Purchase: 1 transaction average price 2.46 | 24,029 | 59 | ||||||||||||||||||||||
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 | ||||||||||||||||||||||
At December 31 | 52,686 | 171 | 65,540 | 269 | 61,418 | 326 |
Movements in the number of treasury common shares B ofheld by Aegon N.V. were as follows:
2017 | 2016 | 2015 | ||||||||||||||||||||||
Number of shares (thousands) | Amount | Number of shares (thousands) | Amount | Number of shares (thousands) | Amount | |||||||||||||||||||
At January 1 | 17,325 | 2 | - | - | - | - | ||||||||||||||||||
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 | ||||||||||||||||||||||
Transactions in 2016: | ||||||||||||||||||||||||
Purchase: transactions, average price EUR 0.11 | 17,325 | 2 | ||||||||||||||||||||||
Transactions in 2015: | ||||||||||||||||||||||||
- | - | - | - | - | - | - | ||||||||||||||||||
At December 31 | 15,346 | 2 | 17,325 | 2 | - | - |
2020 | 2019 | 2018 | ||||||||||||||||||||||
Number of shares (thousands) | Amount | Number of shares (thousands) | Amount | Number of shares (thousands) | Amount | |||||||||||||||||||
At January 1 | 25,310 | 3 | 13,856 | 2 | 15,346 | 2 | ||||||||||||||||||
Transactions in 2020: | ||||||||||||||||||||||||
Sale: 1 transaction, average price 0.13 | (2,154 | ) | | - | | |||||||||||||||||||
Shares withdrawn: 1 transaction average price 0.13 | (13,227 | ) | (2 | ) | ||||||||||||||||||||
Purchase: 1 transaction average price 0.08 | 2,956 | - | ||||||||||||||||||||||
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
| )
|
| -
|
| ||||||||||||||||||
At December 31 | 12,884 | 1 | 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 (de)recognized at the consideration paid or received.
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statements Note | ||
2017 | 2016 | 2015 | 2020 | 2019 | 2018 | |||||||||||||||||||||||||||||||||||||||||||
Number of shares (thousands) | Total amount | Number of shares (thousands) | Total amount | Number of shares (thousands) | Total amount | 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. | 64,488 | 314 | 47,473 | 178 | 42,998 | 257 | 52,686 | 171 | 65,540 | 269 | 61,418 | 326 | ||||||||||||||||||||||||||||||||||||
Held by subsidiaries | 1,162 | 9 | 1,307 | 10 | 1,534 | 12 | 1,062 | 9 | 1,043 | 9 | 1,144 | 9 | ||||||||||||||||||||||||||||||||||||
Common shares B | ||||||||||||||||||||||||||||||||||||||||||||||||
Held by Aegon N.V. | 15,346 | 2 | 17,325 | 2 | - | - | 12,884 | 1 | 25,310 | 3 | 13,856 | 2 | ||||||||||||||||||||||||||||||||||||
At December 31 | 80,996 | 325 | 66,105 | 190 | 44,532 | 269 | 66,632 | 181 | 91,893 | 281 | 76,419 | 337 |
Weighted average number of treasury shares, including treasury shares held by subsidiaries (thousands) | Weighted average number of treasury shares B (thousands) | |||||||
2015 | 45,097 | - | ||||||
2016 | 81,570 | 9,893 | ||||||
2017 | 38,490 | 9,841 |
Weighted average number of treasury shares, including treasury shares held by subsidiaries (thousands) | Weighted average number of treasury shares B (thousands) | |||||||
2018 | 60,129 | 14,415 | ||||||
2019 | 56,467 | 13,070 | ||||||
2020 | 58,224 | 18,386 |
32.430.4 Revaluation reserves
Available-for-sale investments | Real estate held for own use | Cash flow hedging reserve | Total | Available-for-sale investments | Real estate held for own use | Cash flow hedging reserve | Total | |||||||||||||||||||||||||
At January 1, 2017 | 3,418 | 59 | 1,904 | 5,381 | ||||||||||||||||||||||||||||
At January 1, 2020 | 4,352 | 19 | 1,502 | 5,873 | ||||||||||||||||||||||||||||
Gross revaluation | 1,310 | 8 | (115 | ) | 1,203 | 5,728 | 20 | (141 | ) | 5,607 | ||||||||||||||||||||||
Shadow accounting adjustment | (2,738 | ) | - | - | (2,738 | ) | ||||||||||||||||||||||||||
Net (gains) / losses transferred to income statement | 13 | - | (106 | ) | (94 | ) | ||||||||||||||||||||||||||
Foreign currency translation differences | (443 | ) | (2 | ) | (111 | ) | (556 | ) | ||||||||||||||||||||||||
Tax effect | (664 | ) | (2 | ) | 54 | (612 | ) | |||||||||||||||||||||||||
At December 31, 2020 | 6,248 | 35 | 1,197 | 7,480 | ||||||||||||||||||||||||||||
At January 1, 2019 | 1,910 | 46 | 1,479 | 3,435 | ||||||||||||||||||||||||||||
Gross revaluation | 6,619 | (4 | ) | 89 | 6,705 | |||||||||||||||||||||||||||
Shadow accounting adjustment | (3,142 | ) | - | - | (3,142 | ) | ||||||||||||||||||||||||||
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 | (632 | ) | 8 | 3 | (621 | ) | ||||||||||||||||||||||||||
At December 31, 2019 | 4,352 | 19 | 1,502 | 5,873 | ||||||||||||||||||||||||||||
At January 1, 2018 | 3,428 | 68 | 1,402 | 4,899 | ||||||||||||||||||||||||||||
Gross revaluation | (3,449 | ) | (32 | ) | 85 | (3,397 | ) | |||||||||||||||||||||||||
Shadow accounting adjustment | 1,304 | - | - | 1,304 | ||||||||||||||||||||||||||||
Net (gains) / losses transferred to income statement | (1,330 | ) | - | (738 | ) | (2,069 | ) | 66 | - | (80 | ) | (14 | ) | |||||||||||||||||||
Foreign currency translation differences | (228 | ) | (8 | ) | (216 | ) | (452 | ) | 46 | 2 | 71 | 119 | ||||||||||||||||||||
Tax effect | 308 | 9 | 567 | 883 | 514 | 7 | 1 | 522 | ||||||||||||||||||||||||
Other | (28 | ) | - | 1 | (27 | ) | - | - | - | 1 | ||||||||||||||||||||||
At December 31, 2017 | 3,450 | 68 | 1,402 | 4,920 | ||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||
At January 1, 2015 | 6,741 | 42 | 1,525 | 8,308 | ||||||||||||||||||||||||||||
Gross revaluation | (2,479 | ) | 8 | 278 | (2,193 | ) | ||||||||||||||||||||||||||
Net (gains) / losses transferred to income statement | (485 | ) | - | (13 | ) | (498 | ) | |||||||||||||||||||||||||
Disposal of a business | (468 | ) | - | - | (468 | ) | ||||||||||||||||||||||||||
Foreign currency translation differences | 307 | 5 | 181 | 492 | ||||||||||||||||||||||||||||
Tax effect | 934 | (2 | ) | (98 | ) | 833 | ||||||||||||||||||||||||||
Other | (3 | ) | - | - | (3 | ) | ||||||||||||||||||||||||||
At December 31, 2015 | 4,546 | 52 | 1,873 | 6,471 | ||||||||||||||||||||||||||||
At December 31, 2018 | 1,910 | 46 | 1,479 | 3,435 |
The revaluation accounts for both available-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 (for available-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.
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statementsNote | ||
The closing balances of the revaluation reserve for available-for-sale investments relate to the following instruments:
2017 | 2016 | 2015 | 2020 | 2019 | 2018 | |||||||||||||||||||
Shares | 40 | 130 | 139 | 46 | 25 | 22 | ||||||||||||||||||
Debt securities | 3,423 | 3,245 | 4,354 | 6,218 | 4,353 | 1,911 | ||||||||||||||||||
Other | (14 | ) | 43 | 53 | (17 | ) | (26 | ) | (23 | ) | ||||||||||||||
Revaluation reserve for available-for-sale investments | 3,450 | 3,418 | 4,546 | 6,248 | 4,352 | 1,910 |
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 of non-financial assets or liabilities.
32.530.5 Remeasurement of defined benefit plans
2017 | 2016 | 2015 | 2020 | 2019 | 2018 | |||||||||||||||||||
At January 1 | (1,820 | ) | (1,532 | ) | (1,611 | ) | (2,397 | ) | (1,850 | ) | (1,669 | ) | ||||||||||||
Remeasurements of defined benefit plans | 224 | (392 | ) | 234 | (360 | ) | (612 | ) | (134 | ) | ||||||||||||||
Tax effect | (175 | ) | 89 | (75 | ) | 140 | 90 | (15 | ) | |||||||||||||||
Net exchange differences | 102 | 16 | (86 | ) | 83 | (25 | ) | (32 | ) | |||||||||||||||
Disposal of a business | - | - | 6 | |||||||||||||||||||||
Total remeasurement of defined benefit plans | (1,669 | ) | (1,820 | ) | (1,532 | ) | (2,534 | ) | (2,397 | ) | (1,850 | ) |
32.630.6 Other reserves
Foreign currency translation reserve | Net foreign investment hedging reserve | Equity movements of joint ventures and associates | Total | Foreign currency reserve | Net foreign investment hedging reserve | Equity movements of joint ventures and associates | Total | |||||||||||||||||||||||||
At January 1, 2017 | 1,734 | (418 | ) | 31 | 1,347 | |||||||||||||||||||||||||||
At January 1, 2020 | 799 | (374 | ) | 31 | 456 | |||||||||||||||||||||||||||
Movement in foreign currency translation and net foreign investment hedging reserves | (1,929 | ) | 129 | - | (1,800 | ) | (1,209 | ) | 195 | - | (1,015 | ) | ||||||||||||||||||||
Disposal of a business | 7 | - | - | 7 | (5 | ) | - | (2 | ) | (7 | ) | |||||||||||||||||||||
Tax effect | 108 | (32 | ) | - | 76 | 12 | (19 | ) | - | (7 | ) | |||||||||||||||||||||
Equity movements of joint ventures | - | - | (15 | ) | (15 | ) | - | - | 12 | 12 | ||||||||||||||||||||||
Equity movements of associates | - | - | (5 | ) | (5 | ) | - | - | 7 | 7 | ||||||||||||||||||||||
At December 31, 2017 | (80 | ) | (321 | ) | 11 | (390 | ) | |||||||||||||||||||||||||
At December 31, 2020 | (402 | ) | (199 | ) | 48 | (553 | ) | |||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||
At January 1, 2015 | 268 | (382 | ) | 27 | (86 | ) | ||||||||||||||||||||||||||
At January 1, 2019 | 499 | (370 | ) | 19 | 149 | |||||||||||||||||||||||||||
Movement in foreign currency translation and net foreign investment hedging reserves | 1,687 | (181 | ) | - | 1,505 | 311 | (10 | ) | - | 301 | ||||||||||||||||||||||
Disposal of a business | (127 | ) | 51 | - | (76 | ) | (1 | ) | - | - | (1 | ) | ||||||||||||||||||||
Tax effect | (98 | ) | 45 | - | (52 | ) | (10 | ) | 5 | - | (5 | ) | ||||||||||||||||||||
Equity movements of joint ventures | - | - | (8 | ) | (8 | ) | - | - | 8 | 8 | ||||||||||||||||||||||
Equity movements of associates | - | - | (1 | ) | (1 | ) | - | - | 4 | 4 | ||||||||||||||||||||||
At December 31, 2015 | 1,731 | (467 | ) | 19 | 1,283 | |||||||||||||||||||||||||||
At December 31, 2019 | 799 | (374 | ) | 31 | 456 | |||||||||||||||||||||||||||
At January 1, 2018 | (80 | ) | (321 | ) | 11 | (390 | ) | |||||||||||||||||||||||||
Movement in foreign currency translation and net foreign investment hedging reserves | 561 | (46 | ) | (3 | ) | 512 | ||||||||||||||||||||||||||
Disposal of a business | 50 | (14 | ) | - | 36 | |||||||||||||||||||||||||||
Tax effect | (32 | ) | 12 | - | (20 | ) | ||||||||||||||||||||||||||
Equity movements of joint ventures | - | - | 8 | 8 | ||||||||||||||||||||||||||||
Equity movements of associates | - | - | 2 | 2 | ||||||||||||||||||||||||||||
Other | - | - | 1 | 1 | ||||||||||||||||||||||||||||
At December 31, 2018 | 499 | (370 | ) | 19 | 149 |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 31261 | ||
The foreign currency translation reserve includes the currency results from investments in non-euro denominated subsidiaries. The amounts are released to the income statement upon the sale of the subsidiary.
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.
Junior perpetual capital securities | Perpetual cumulative subordinated bonds | Share options and incentive plans1) | Non-cumulative subordinated notes | Total | ||||||||||||||||
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 | |||||||||||||||
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 | |||||||||||||||
At January 1, 2015 | 3,008 | 454 | 94 | 271 | 3,827 | |||||||||||||||
Shares granted / Share options cost incurred | - | - | 26 | - | 26 | |||||||||||||||
Shares vested / Share options forfeited | - | - | (53 | ) | - | (53 | ) | |||||||||||||
At December 31, 2015 | 3,008 | 454 | 68 | 271 | 3,800 |
Perpetual contingent convertible securities | Junior perpetual capital securities | Perpetual cumulative subordinated bonds | Non-cumulative subordinated notes 1) | Long Term Plans 2) | Total | |||||||||||||||||||
At January 1, 2020 | 500 | 1,564 | 454 | - | 53 | 2,571 | ||||||||||||||||||
Shares granted | - | - | - | - | 22 | 22 | ||||||||||||||||||
Shares vested | - | - | - | - | (25 | ) | (25 | ) | ||||||||||||||||
At December 31, 2020 | 500 | 1,564 | 454 | - | 50 | 2,569 | ||||||||||||||||||
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 | 271 | 61 | 3,794 | ||||||||||||||||||
Shares granted | - | - | - | - | 16 | 16 | ||||||||||||||||||
Shares vested | - | - | - | - | (19 | ) | (19 | ) | ||||||||||||||||
Securities redeemed | - | (200 | ) | - | (271 | ) | - | (471 | ) | |||||||||||||||
At December 31, 2018 | - | 2,808 | 454 | - | 58 | 3,320 |
1 | With effect on May 15, 2018, Aegon has exercised its right to redeem USD 525 million non-cumulative subordinated notes, subsequently leading to their redemption. |
2 | Long Term Incentive Plans include the shares |
Junior perpetual capital securities | Coupon rate | Coupon date, as of | Year of next call | 2017 | 2016 | 2015 | ||||||||||||||
USD 500 million | 6.50% | Quarterly, December 15 | 2018 | 424 | 424 | 424 | ||||||||||||||
USD 250 million | floating LIBOR rate1) | Quarterly, December 15 | 2018 | 212 | 212 | 212 | ||||||||||||||
USD 500 million | floating CMS rate2) | Quarterly, July 15 | 2018 | 402 | 402 | 402 | ||||||||||||||
USD 1 billion | 6.375% | Quarterly, June 15 | 2018 | 821 | 821 | 821 | ||||||||||||||
EUR 950 million | floating DSL rate3) | Quarterly, July 15 | 2018 | 950 | 950 | 950 | ||||||||||||||
EUR 200 million | 6.0% | Annually, July 21 | 2018 | 200 | 200 | 200 | ||||||||||||||
At December 31 | 3,008 | 3,008 | 3,008 |
Perpetual contingent convertible securities | Coupon rate | Coupon date | Year of next call | 2020 | 2019 | 2018 | ||||||||||||||||||
EUR 500 million | 5.625%1) | | Semi-annually, April 15 |
| 2029 | 500 | 500 | - | ||||||||||||||||
At December 31 | 500 | 500 | - |
1 | The coupon is fixed at 5.625% until the first call date and reset thereafter to a 5 year mid swap plus a margin of 5.207%. |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 31262 | ||
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 | Year of next call | 2020 | 2019 | 2018 | ||||||||||||||||||
USD 500 million | 6.50% | Quarterly, December 15 | Called in 2019 | - | - | 424 | ||||||||||||||||||
USD 250 million | floating LIBOR rate 1) | Quarterly, December 15 | 2021 | 212 | 212 | 212 | ||||||||||||||||||
USD 500 million | floating CMS rate 2) | Quarterly, July 15 | 2021 | 402 | 402 | 402 | ||||||||||||||||||
USD 1 billion | 6.375% | Quarterly, June 15 | Called in 2019 | - | - | 821 | ||||||||||||||||||
EUR 950 million | floating DSL rate 3) | Quarterly, July 15 | 2021 | 950 | 950 | 950 | ||||||||||||||||||
At December 31 | 1,564 | 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 prevailing ten-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 prevailing ten-year Dutch government bond yield plus a spread of ten basis points, with a maximum of 8%. |
The interest rate exposure on some of these securities has been swapped to a three-month LIBOR and/or EURIBOR based yield.
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
| Coupon rate | Coupon date | Year of next call | 2020 | 2019 | 2018 | ||||||||||||||||||
EUR 203 million | 4.260% 1), 4) | Annually, March 4 | 2021 | 203 | 203 | 203 | ||||||||||||||||||
EUR 114 million | 1.506% 2), 4) | Annually, June 8 | 2025 | 114 | 114 | 114 | ||||||||||||||||||
EUR 136 million | 1.425% 3), 4) | Annually, October 14 | 2028 | 136 | 136 | 136 | ||||||||||||||||||
At December 31 | 454 | 454 | 454 |
Perpetual cumulative subordinated bonds | Coupon rate | Coupon date | Year of next call | 2017 | 2016 | 2015 | ||||||||||||||
EUR 136 million | 5.185% 1), 4) | Annual, October 14 | 2018 | 136 | 136 | 136 | ||||||||||||||
EUR 203 million | 4.260% 2), 4) | Annual, March 4 | 2021 | 203 | 203 | 203 | ||||||||||||||
EUR 114 million | 1.506% 3), 4) | Annual, June 8 | 2025 | 114 | 114 | 114 | ||||||||||||||
At December 31 | 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. Per March 4, 2021 the coupon has been reset to 0.496%. |
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 of ten-year Dutch government securities plus a spread of 85 basis points. |
TheThese 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 | 2017 | 2016 | 2015 | ||||||||||||||||
USD 525 million | 8% | Quarterly, February 15 | 2018 | 271 | 271 | 271 | ||||||||||||||||
At December 31 | 271 | 271 | 271 |
On February 7, 2012, Aegon issued USD 525 million in aggregate principal amount of 8.00% non-cumulative subordinated notes, due 2042, in an underwritten public offering in the United States registered with the US Securities and Exchange Commission. The subordinated notes bear interest at a fixed rate of 8.00% and have been priced at 100% of their principal amount. Any cancelled interest payments will not be cumulative.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 32263 | ||
Coupon rate | Coupon date | Issue / Maturity | Year of next call | 2020 | 2019 | |||||||||||||||||
Fixed to floating subordinated notes | ||||||||||||||||||||||
EUR 700 million | 4%2) | Annually, April 25 | 2014/44 | 2024 | 697 | 697 | ||||||||||||||||
USD 800 million | 5.5%3) | Semi-annually, April 11 | 2018/48 | 2028 | 648 | 707 | ||||||||||||||||
Fixed subordinated notes | ||||||||||||||||||||||
USD 925 million 1) | 5.1% | Quarterly, March 15 | 2019/49 | 2024 | 740 | 804 | ||||||||||||||||
At December 31 | 2,085 | 2,207 | ||||||||||||||||||||
Fair value of subordinated borrowings | 2,351 | 2,416 |
1 | Issued by a subsidiary of, and guaranteed by Aegon N.V. |
2 | The coupon is fixed at 4% until the first call date and floating therefafter with a 3 months Euribor plus a margin of 335bps. |
3 | The coupon is fixed at 5.5% until the first call date and floating thereafter with a 6 month USD LIBOR plus a margin of 3.539%. |
These securities are subordinated and rank senior to the junior perpetual capital securities equally withand the perpetual cumulative subordinated bonds and fixed floating subordinated notes, and junior to all other liabilities. The conditions of the securities contain certain provisions for optional and required cancellation of interest payments. The securities have a stated maturity of 30 years, however, Aegon has the right to call the securities for redemption at par on any coupon payment date. In 2017 Aegon had this right for the first time, but it was not exercised.
These notes are recognized as a compound instrument due to the nature of this financial instrument. Compound instruments are separated into an equity component and a liability component. At December 31, 2017, the equity component amounted to EUR 271 million (2016: EUR 271 million), subordinated borrowings amounted to EUR 69 million (2016: EUR 72 million) and a deferred tax liability amounting to EUR 92 million (2016: EUR 106 million).
Refer to note 34 Subordinated borrowings for details of the component classified as subordinated borrowings.
Coupon rate | Coupon date | Year of next call | 2017 | 2016 | ||||||||||||
Fixed floating subordinated notes | ||||||||||||||||
EUR 700 million | 4% | Annually, April 25 | 2024 | 695 | 695 | |||||||||||
Non-cumulative subordinated notes | ||||||||||||||||
USD 525 million | 8% | Quarterly, February 15 | 2018 | 69 | 72 | |||||||||||
At December 31 | 764 | 767 |
On April 25, 2014, Aegon issued EUR 700 million of subordinated notes, first callable on April 25, 2024, and maturing on April 25, 2044. The coupon is fixed at 4% until the first call date and floating thereafter.
Subordinated borrowings include a liability of EUR 69 million (2016: EUR 72 million) relating to the USD 525 million non-cumulative subordinated notes issued on February 7, 2012. The liability component of the non-cumulative subordinated notes is related to the
redemption amount. For further information on the non-cumulative subordinated notes and their subordination refer to note 33 Other equity instruments.
These securities are subordinated and rank senior to the junior perpetual capitalcontingent 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.
The fair value of these loans amounted to EUR 953 million (2016: EUR 844 million).
3533 Trust pass-through securities
Coupon rate | Coupon date | Year of issue | Year of maturity | Year of next call | 2017 | 2016 | Coupon rate | Coupon date | Issue / Maturity | Year of next call | 2020 | 2019 | ||||||||||||||||||||||||||||||||||||
USD 225 million 1) | 7.65% | Semi-annually, December 1 | 1996 | 2026 | n.a. | 91 | 109 | 7.65% | Semi-annually, December 1 | 1996/2026 | n.a. | 85 | 92 | |||||||||||||||||||||||||||||||||||
USD 190 million1) | 7.625% | Semi-annually, November 15 | 1997 | 2037 | n.a. | 41 | 47 | 7.625% | Semi-annually, November 15 | 1997/2037 | n.a. | 40 | 44 | |||||||||||||||||||||||||||||||||||
At December 31 | 133 | 156 | 126 | 136 | ||||||||||||||||||||||||||||||||||||||||||||
Fair value of trust pass-through securities | 142 | 144 |
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 137 million (2016: EUR 141 million).
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 liabilities,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 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, andAegon 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.management and that were priced into the products.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 34264 | ||
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 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. Increases in mortality rates lead to an increase in the level of benefits and claims. These underwriting sensitivities were run using a permanent shock applied to all of Aegon’s products, both products exposed to an increase and products exposed to a decrease in the rates. From theThe table below we can seeindicates 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
2017 | 2016 | |||||||||||||||
Sensitivity analysis of net income and shareholders’ equity to changes in various underwriting risks Estimated approximate effect | On shareholders’ equity | On net income | On shareholders’ equity | On net income | ||||||||||||
20% increase in lapse rates | 69 | 94 | 47 | 36 | ||||||||||||
20% decrease in lapse rates | (124 | ) | (155 | ) | (104 | ) | (91 | ) | ||||||||
10% increase in mortality rates | 514 | 91 | 548 | 153 | ||||||||||||
10% decrease in mortality rates | (1,011 | ) | (577 | ) | (1,039 | ) | (582 | ) | ||||||||
10% increase in morbidity rates | (492 | ) | (463 | ) | (521 | ) | (445 | ) | ||||||||
10% decrease in morbidity rates | 189 | 142 | 184 | 127 |
2020 | 2019 | |||||||||||||||
Estimated approximate effect | On shareholders’ equity | On net income | On shareholders’ equity | On net income | ||||||||||||
20% increase in lapse rates | (151 | ) | 156 | 152 | 143 | |||||||||||
20% decrease in lapse rates | 47 | (157 | ) | (169 | ) | (156 | ) | |||||||||
5% increase in mortality rates | 52 | 344 | 261 | 192 | ||||||||||||
5% decrease in mortality rates | (217 | ) | (354 | ) | (322 | ) | (240 | ) | ||||||||
10% increase in morbidity rates | (225 | ) | (235 | ) | (370 | ) | (376 | ) | ||||||||
10% decrease in morbidity rates | 134 | 140 | 191 | 196 |
Aegon the Netherlands partially hedges and reinsures the risk of future longevity increases in the Netherlands related to a part of its insurance liabilities. Over the past years Aegon the Netherlands has initiated a number of transactions to hedge this risk via both longevity index derivatives and reinsurance contracts.Netherlands.
36.234.2 Insurance contracts for general account
2017 | 2016 | 2020 | 2019 | |||||||||||||
Life insurance | 98,422 | 105,763 | 109,062 | 109,310 | ||||||||||||
Non-life insurance | ||||||||||||||||
- Unearned premiums and unexpired risks | 5,447 | 5,822 | 6,117 | 6,002 | ||||||||||||
- Outstanding claims | 2,206 | 2,226 | 2,120 | 2,417 | ||||||||||||
- Incurred but not reported claims | 830 | 1,018 | 881 | 772 | ||||||||||||
Incoming reinsurance | 3,913 | 4,739 | 3,965 | 4,385 | ||||||||||||
At December 31 | 110,818 | 119,569 | 122,146 | 122,885 | ||||||||||||
2017 | 2016 | |||||||||||||||
Non-life insurance: | ||||||||||||||||
- Accident and health insurance | 8,225 | 8,821 | ||||||||||||||
- General insurance | 259 | 245 | ||||||||||||||
Total non-life insurance | 8,484 | 9,066 |
2020 | 2019 | |||||||
Non-life insurance: | ||||||||
- Accident and health insurance | 8,887 | 8,955 | ||||||
- General insurance | 231 | 235 | ||||||
Total non-life insurance | 9,118 | 9,190 |
Aegon Annual Report on Form 20-F 2020 |
Movements during the year in life insurance: | 2020 | 2019 | ||||||
At January 1 | 109,310 | 101,840 | ||||||
Disposals | - | (44 | ) | |||||
Portfolio transfers and acquisitions | (29 | ) | (8 | ) | ||||
Gross premium and deposits – existing and new business | 6,758 | 6,913 | ||||||
Unwind of discount / interest credited | 3,725 | 3,795 | ||||||
Insurance liabilities released | (9,557 | ) | (9,867 | ) | ||||
Changes in valuation of expected future benefits | 1,918 | 800 | ||||||
Loss recognized as a result of liability adequacy testing | 903 | 1,587 | ||||||
Shadow accounting adjustments | 1,419 | 1,948 | ||||||
Net exchange differences | (5,842 | ) | 1,260 | |||||
Transfer (to) / from reinsurance assets | (12 | ) | 18 | |||||
Transfer (to) / from insurance contracts for account of policyholders | 465 | 1,050 | ||||||
Other | 3 | 17 | ||||||
At December 31 | 109,062 | 109,310 |
The LAT deficit per December 31, 2020 in Aegon the Netherlands amounted to EUR 7.0 billion (2019: EUR 5.1 billion), which was partially offset by the shadow loss recognition of EUR 4.5 billion (2019: EUR 3.4 billion), resulting in a net deficit of EUR 2.5 billion (2019: EUR 1.7 billion).
During 2020, the net LAT deficit of Aegon the Netherlands worsened from EUR 1.7 billion to EUR 2.5 billion, which led to the recognition of additional insurance contracts liabilities per December 31, 2020 of EUR 0.8 billion. The LAT deficit was negatively impacted by the impact of lower interest rate of EUR 1.5 billion (2019: EUR 1.3 billion) and adverse credit spread movements (widening mortgage spreads, tightened liquidity premium) of EUR 0.3 billion (2019: EUR 0.8 billion). This was partly offset by other favorable impacts (model and assumptions updates and portfolio changes) totaling EUR 1.0 billion (2019: EUR 0.2 billion negative).
As a result of the current deficit, changes in the LAT of Aegon the Netherlands, triggered by up or down movements in interest rates, are directly recognized in the income statement. However, net income is less sensitive to interest rate movements as the results from interest rate hedging are also recognized in net income.
Furthermore, as a result of the current negative LAT deficit position, results are 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.
Sensitivity analysis of net income and shareholders’ equity | Estimated approximate effects on net income | Estimated approximate effects on shareholders’ equity | ||||||
2020 | ||||||||
Shift up 50 basis points - Bond credit spreads | (185 | ) | (1,998 | ) | ||||
Shift down 50 basis points - Bond credit spreads | 172 | 1,873 | ||||||
Shift up 50 basis points - Mortgage spreads | (449 | ) | (449 | ) | ||||
Shift down 50 basis points - Mortgage spreads | 476 | 477 | ||||||
Shift up 5 basis points - Liquidity premium | 162 | 159 | ||||||
Shift down 5 basis points - Liquidity premium | (164 | ) | (161 | ) | ||||
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 | ) |
Aegon Annual Report on Form 20-F |
Movements during the year in non-life insurance: | 2020 | 2019 | ||||||
At January 1 | 9,190 | 8,499 | ||||||
Portfolio transfers and acquisitions | 6 | - | ||||||
Gross premiums – existing and new business | 1,551 | 1,594 | ||||||
Unwind of discount / interest credited | 499 | 481 | ||||||
Insurance liabilities released | (1,080 | ) | (1,087 | ) | ||||
Changes in valuation of expected future claims | 77 | (7 | ) | |||||
Change in unearned premiums | (724 | ) | (720 | ) | ||||
Change in unexpired risks | 2 | 2 | ||||||
Incurred related to current year | 670 | 718 | ||||||
Incurred related to prior years | 259 | 316 | ||||||
Release for claims settled current year | (257 | ) | (292 | ) | ||||
Release for claims settled prior years | (860 | ) | (788 | ) | ||||
Shadow accounting adjustments | 385 | 422 | ||||||
Change in IBNR | 117 | (73 | ) | |||||
Net exchange differences | (709 | ) | 131 | |||||
Other | (6 | ) | (5 | ) | ||||
At December 31 | 9,118 | 9,190 |
Movements during the year in incoming reinsurance: | 2020 | 2019 | ||||||
At January 1 | 4,385 | 4,377 | ||||||
Gross premium and deposits – existing and new business | 1,306 | 1,397 | ||||||
Unwind of discount / interest credited | 203 | 211 | ||||||
Insurance liabilities released | (1,656 | ) | (1,668 | ) | ||||
Changes in valuation of expected future benefits | 66 | (30 | ) | |||||
Shadow accounting adjustments | 8 | 12 | ||||||
Loss recognized as a result of liability adequacy | 10 | 3 | ||||||
Net exchange differences | (358 | ) | 81 | |||||
Other | 2 | 2 | ||||||
At December 31 | 3,965 | 4,385 |
34.3 Insurance contracts for account of policyholders
Insurance contracts for account of policyholders | 2020 | 2019 | ||||||
At January 1 | 135,710 | 117,113 | ||||||
Disposal of a business | - | (196 | ) | |||||
Portfolio transfers and acquisitions | (64 | ) | (10 | ) | ||||
Gross premium and deposits – existing and new business | 7,030 | 9,122 | ||||||
Unwind of discount / interest credited | 13,858 | 19,780 | ||||||
Insurance liabilities released | (10,160 | ) | (11,103 | ) | ||||
Fund charges released | (1,644 | ) | (1,677 | ) | ||||
Changes in valuation of expected future benefits | (266 | ) | 861 | |||||
Transfer (to) / from insurance contracts | (465 | ) | (1,050 | ) | ||||
Net exchange differences | (8,558 | ) | 2,868 | |||||
Other | - | 2 | ||||||
At December 31 | 135,441 | 135,710 |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note | ||
Movements during the year in life insurance: | 2017 | 2016 | ||||||
At January 1 | 105,763 | 109,884 | ||||||
Acquisitions | - | 7 | ||||||
Disposals | - | (99 | ) | |||||
Portfolio transfers and acquisitions | 139 | 97 | ||||||
Gross premium and deposits – existing and new business | 6,498 | 6,356 | ||||||
Unwind of discount / interest credited | 4,200 | 4,050 | ||||||
Insurance liabilities released | (9,247 | ) | (10,033 | ) | ||||
Changes in valuation of expected future benefits | (1,145 | ) | 820 | |||||
Loss recognized as a result of liability adequacy testing | 843 | - | ||||||
Shadow accounting adjustments | 92 | 2,053 | ||||||
Net exchange differences | (8,598 | ) | 812 | |||||
Transfer (to) / from reinsurance assets | 23 | - | ||||||
Transfer (to) / from insurance contracts for account of policyholders | 135 | 1 | ||||||
Transfers to disposal groups1) | (239 | ) | (8,190 | ) | ||||
Other | (43 | ) | 5 | |||||
At December 31 | 98,422 | 105,763 | ||||||
1 Linked to the sale of Aegon UK’s annuity portfolio, reported in Assets held for sale, refer to note 22 Assets and liabilities held for sale and note 51 Business combinations. |
| |||||||
|
| |||||||
Movements during the year in non-life insurance: | 2017 | 2016 | ||||||
At January 1 | 9,066 | 8,616 | ||||||
Disposals | - | (334 | ) | |||||
Portfolio transfers and acquisitions | 5 | - | ||||||
Gross premiums – existing and new business | 1,893 | 2,140 | ||||||
Unwind of discount / interest credited | 444 | 426 | ||||||
Insurance liabilities released | (1,065 | ) | (1,186 | ) | ||||
Changes in valuation of expected future claims | 173 | 44 | ||||||
Change in unearned premiums | (1,017 | ) | (1,093 | ) | ||||
Change in unexpired risks | 3 | 2 | ||||||
Incurred related to current year | 750 | 684 | ||||||
Incurred related to prior years | 231 | 354 | ||||||
Release for claims settled current year | (287 | ) | (253 | ) | ||||
Release for claims settled prior years | (717 | ) | (843 | ) | ||||
Shadow accounting adjustments | 76 | 289 | ||||||
Change in IBNR | (79 | ) | (15 | ) | ||||
Net exchange differences | (986 | ) | 242 | |||||
Other | (5 | ) | (5 | ) | ||||
At December 31 | 8,484 | 9,066 | ||||||
Movements during the year in incoming reinsurance: | 2017 | 2016 | ||||||
At January 1 | 4,739 | 4,542 | ||||||
Gross premium and deposits – existing and new business | 1,625 | 1,700 | ||||||
Unwind of discount / interest credited | 175 | 179 | ||||||
Insurance liabilities released | (2,005 | ) | (1,904 | ) | ||||
Change in unearned premiums | 1 | 4 | ||||||
Changes in valuation of expected future benefits | (57 | ) | 59 | |||||
Shadow accounting adjustments | (1 | ) | - | |||||
Loss recognized as a result of liability adequacy | (1 | ) | 9 | |||||
Net exchange differences | (558 | ) | 138 | |||||
Other | (4 | ) | 13 | |||||
At December 31 | 3,913 | 4,739 |
36.3 Insurance contracts for account of policyholders
Insurance contracts for account of policyholders | 2017 | 2016 | ||||||
At January 1 | 120,929 | 112,679 | ||||||
Portfolio transfers and acquisitions | (259 | ) | (353 | ) | ||||
Gross premium and deposits – existing and new business | 12,144 | 12,931 | ||||||
Unwind of discount / interest credited | 13,349 | 7,085 | ||||||
Insurance liabilities released | (10,882 | ) | (8,206 | ) | ||||
Fund charges released | (1,746 | ) | (1,725 | ) | ||||
Changes in valuation of expected future benefits | 100 | 268 | ||||||
Transfer (to) / from insurance contracts | (135 | ) | (1 | ) | ||||
Transfer (to) / from investment contracts for account of policyholders | - | (808 | ) | |||||
Transfers to disposal groups | (1,359 | ) | (1,002 | ) | ||||
Net exchange differences | (10,289 | ) | 55 | |||||
Other | 317 | 6 | ||||||
At December 31 | 122,168 | 120,929 |
Included in Transfers to disposal groups for 2017 is the sale of Aegon Ireland plc. business which is classified as held for sale per year-end 2017. As a result, the Insurance contracts for account of policyholders are no longer included in the 2017 ending balance. For 2016 the sale of Aegon UK’s annuity portfolio was included here. Refer to note 22 Assets and liabilities held for sale and note 51 Business combinations.
Included in Other is 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.
37.135.1 Investment contracts for general account
Without discretionary participation features | With discretionary participation features | Total | Without discretionary participation features | With discretionary participation features | Total | |||||||||||||||||||
At January 1, 2017 | 19,217 | 355 | 19,572 | |||||||||||||||||||||
Portfolio transfers and acquisitions | 55 | - | 55 | |||||||||||||||||||||
At January 1, 2020 | 18,382 | 211 | 18,594 | |||||||||||||||||||||
Deposits | 8,432 | - | 8,432 | 16,189 | - | 16,189 | ||||||||||||||||||
Withdrawals | (8,455 | ) | - | (8,455 | ) | (16,047 | ) | - | (16,047 | ) | ||||||||||||||
Investment contracts liabilities released | - | (64 | ) | (64 | ) | - | (15 | ) | (15 | ) | ||||||||||||||
Interest credited | 268 | - | 268 | 246 | - | 246 | ||||||||||||||||||
Net exchange differences | (1,102 | ) | (13 | ) | (1,114 | ) | (698 | ) | (11 | ) | (709 | ) | ||||||||||||
Transfer to/from other headings | 21 | - | 21 | |||||||||||||||||||||
Transfer (to)/from other headings | 2,828 | - | 2,828 | |||||||||||||||||||||
Other | (1,771 | ) | - | (1,771 | ) | (12 | ) | - | (12 | ) | ||||||||||||||
At December 31, 2017 | 16,665 | 278 | 16,943 | |||||||||||||||||||||
At December 31, 2020 | 20,889 | 185 | 21,075 | |||||||||||||||||||||
At January 1, 2016 | 17,260 | 457 | 17,718 | |||||||||||||||||||||
Portfolio transfers and acquisitions | 105 | - | 105 | |||||||||||||||||||||
At January 1, 2019 | 17,825 | 223 | 18,048 | |||||||||||||||||||||
Deposits | 7,200 | - | 7,200 | 13,234 | - | 13,234 | ||||||||||||||||||
Withdrawals | (6,059 | ) | - | (6,059 | ) | (13,768 | ) | - | (13,768 | ) | ||||||||||||||
Investment contracts liabilities released | - | (42 | ) | (42 | ) | - | (23 | ) | (23 | ) | ||||||||||||||
Interest credited | 267 | - | 267 | 247 | - | 247 | ||||||||||||||||||
Net exchange differences | 294 | (61 | ) | 233 | 128 | 12 | 140 | |||||||||||||||||
Transfer (to)/from other headings | 724 | - | 724 | |||||||||||||||||||||
Other | 150 | - | 150 | (7 | ) | - | (7 | ) | ||||||||||||||||
At December 31, 2016 | 19,217 | 355 | 19,572 | |||||||||||||||||||||
At December 31, 2019 | 18,382 | 211 | 18,594 |
The value of investment contracts for general account decreased in 2017 mainly due to a paydown of USD 2 billion to the Federal Home Loan Bank visible under “other” relating to advances on spread products, and due to net exchange differences.
Investment contracts consist of the following: | 2020 | 2019 | ||||||
Institutional guaranteed products | 295 | 339 | ||||||
Fixed annuities | 7,786 | 6,237 | ||||||
Savings accounts | 12,540 | 11,517 | ||||||
Investment contracts with discretionary participation features | 185 | 211 | ||||||
Other | 268 | 289 | ||||||
At December 31 | 21,075 | 18,594 |
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statementsNote | ||||
Investment contracts consist of the following: | 2017 | 2016 | ||||||
Institutional guaranteed products | 1,053 | 3,223 | ||||||
Fixed annuities | 5,714 | 6,809 | ||||||
Savings accounts | 9,568 | 8,814 | ||||||
Investment contracts with discretionary participation features | 278 | 355 | ||||||
Other | 331 | 371 | ||||||
At December 31 | 16,943 | 19,572 |
37.235.2 Investment contracts for account of policyholders
Without discretionary participation features | With discretionary participation features | Total | Without discretionary participation features | With discretionary participation features | Total | |||||||||||||||||||||||
At January 1, 2017 | 42,803 | 41,971 | 84,774 | |||||||||||||||||||||||||
At January 1, 2020 | 59,956 | 33,870 | 93,826 | |||||||||||||||||||||||||
Gross premium and deposits – existing and new business | 5,393 | 1,313 | 6,706 | 11,116 | 786 | 11,902 | ||||||||||||||||||||||
Withdrawals | (7,654 | ) | - | (7,654 | ) | (10,404 | ) | - | (10,404 | ) | ||||||||||||||||||
Interest credited | 4,589 | 4,558 | 9,147 | 5,902 | 2,895 | 8,797 | ||||||||||||||||||||||
Investment contracts liabilities released | - | (9,006 | ) | (9,006 | ) | - | (3,457 | ) | (3,457 | ) | ||||||||||||||||||
Fund charges released | (176 | ) | - | (176 | ) | (196 | ) | - | (196 | ) | ||||||||||||||||||
Net exchange differences | (4,272 | ) | (1,570 | ) | (5,842 | ) | (4,008 | ) | (1,808 | ) | (5,816 | ) | ||||||||||||||||
Transfers to disposal groups | (3,498 | ) | - | (3,498 | ) | |||||||||||||||||||||||
Transfer (to)/from other headings | (2,740 | ) | (287 | ) | (3,027 | ) | ||||||||||||||||||||||
Other | (16 | ) | - | (16 | ) | (1 | ) | - | (1 | ) | ||||||||||||||||||
At December 31, 2017 | 37,169 | 37,265 | 74,434 | |||||||||||||||||||||||||
At December 31, 2020 | 59,625 | 31,999 | 91,624 | |||||||||||||||||||||||||
At January 1, 2016 | 40,365 | 49,754 | 90,119 | |||||||||||||||||||||||||
At January 1, 2019 | 49,847 | 30,250 | 80,097 | |||||||||||||||||||||||||
Gross premium and deposits – existing and new business | 6,553 | 1,724 | 8,277 | 10,545 | 1,066 | 11,610 | ||||||||||||||||||||||
Withdrawals | (6,393 | ) | - | (6,393 | ) | (10,228 | ) | - | (10,228 | ) | ||||||||||||||||||
Interest credited | 2,649 | 7,280 | 9,929 | 9,244 | 5,511 | 14,755 | ||||||||||||||||||||||
Investment contracts liabilities released | - | (10,841 | ) | (10,841 | ) | - | (4,815 | ) | (4,815 | ) | ||||||||||||||||||
Fund charges released | (209 | ) | - | (209 | ) | (142 | ) | - | (142 | ) | ||||||||||||||||||
Net exchange differences | (12 | ) | (6,754 | ) | (6,767 | ) | 1,898 | 1,858 | 3,755 | |||||||||||||||||||
Transfer (to) / from insurance contracts for account of policyholders | - | 808 | 808 | |||||||||||||||||||||||||
Transfer (to)/from other headings | (1,210 | ) | - | (1,210 | ) | |||||||||||||||||||||||
Other | (149 | ) | - | (149 | ) | 1 | - | 1 | ||||||||||||||||||||
At December 31, 2016 | 42,803 | 41,971 | 84,774 | |||||||||||||||||||||||||
At December 31, 2019 | 59,956 | 33,870 | 93,826 |
TransfersTransfer (to) / from other headings in 2020 mainly related to disposal groups relates to the Aegon Ireland plc. business which is classified as held for sale per year-end 2017. As a result, the investment contracts for account of policyholders are no longer includedtransferred to investment contracts for general account and were primarily driven by contact conversions in the 2017 ending balance. Refer to note 22 Assets and liabilities held for sale and note 51 Business combinations.retirement plans business in the US.
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 |
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 |
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 |
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 |
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 (note(refer to note 2.19).
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 a tax-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%) 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 forif the invested amount is in equity investments only.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 36269 | ||
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:
2017 | 2016 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
United States 1) | The Nether- lands2) | United Kingdom | Total 3) | United States 1) | The Nether- lands2) | United Kingdom | Total 3) | United States 1) | The Netherlands 2) | Total 3) | United States 1) | The Netherlands 2) | Total 3) | |||||||||||||||||||||||||||||||||||||||||||||||||||
At January 1 | 405 | 1,555 | 68 | 2,028 | 510 | 1,432 | 56 | 1,998 | 1,296 | 1,735 | 3,031 | 766 | 1,678 | 2,445 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Incurred guarantee benefits4) | (114 | ) | (8 | ) | (37 | ) | (158 | ) | (113 | ) | 123 | - | 10 | 1,638 | 297 | 1,935 | 518 | 57 | 575 | |||||||||||||||||||||||||||||||||||||||||||||
Paid guarantee benefits | (1 | ) | - | - | (1 | ) | (1 | ) | - | 12 | 11 | (2 | ) | - | (2 | ) | (1 | ) | - | (1 | ) | |||||||||||||||||||||||||||||||||||||||||||
Transfers to disposal groups | - | - | (30 | ) | (30 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net exchange differences | (42 | ) | - | (2 | ) | (44 | ) | 10 | - | - | 10 | (217 | ) | - | (217 | ) | 13 | - | 13 | |||||||||||||||||||||||||||||||||||||||||||||
At December 31 | 247 | 1,547 | - | 1,794 | 405 | 1,555 | 68 | 2,028 | 2,715 | 2,032 | 4,747 | 1,296 | 1,735 | 3,031 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Account value5) | 33,371 | 8,805 | - | 42,175 | 35,374 | 8,957 | 1,350 | 45,681 | 32,870 | 8,968 | 41,838 | 34,503 | 8,626 | 43,130 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net amount at risk6) | 94 | 1,737 | - | 1,831 | 222 | 1,972 | 68 | 2,262 | 661 | 2,427 | 3,088 | 236 | 2,002 | 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 |
4 | Incurred guarantee benefits mainly comprise the effect of guarantees from new contracts, releases related to expired out-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 decreaseincrease of incurred guarantee benefits in 2020 mainly relates to decreasing interest rates, partly offset by overall rising equity markets rising, fairmarkets. The decreased account value movements due to increasingin 2020 was mainly driven by foreign currency translation differences, partly offset by decreasing interest rates and tightening of treasury swaps spreads.rising equity markets.
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, 2017,2020, the reinsured account value was 2.0EUR 1.7 billion (2016:(2019: EUR 2.41.8 billion) and the guaranteed remaining balance was EUR 1.20.8 billion (2016:(2019: EUR 1.51.1 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, 2017,2020, the contract had a value of EUR 3446 million (2016:(2019: EUR 5037 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 contractcontracts 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 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.
The guarantees in the United Kingdom relate to the Aegon Ireland plc. business which is classified as held for sale per year-end 2017 and as a result the guarantees are no longer included in the 2017 ending balance.
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, 2017,2020, amounted to EUR 270186 million (2016:(2019: EUR 328234 million).
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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 36270 | ||
The GMIB feature provides for minimum payments if the contract holder elects to convert to an immediate payout annuity. The guaranteed amount is calculated using the total deposits made by the contract holder, less any withdrawals and sometimes includes a roll-up or step-up feature that increases the value of the guarantee with interest or with increases in the account value.
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:
2017 | 2016 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||||||||||||
GMDB 1) | GMIB 2) | Total 4) | GMDB 1) | GMIB 2) | Total 4) | GMDB 1) | GMIB 2) | Total 4) | GMDB 1) | GMIB 2) | Total 4) | |||||||||||||||||||||||||||||||||||||
At January 1 | 531 | 849 | 1,381 | 544 | 816 | 1,359 | 448 | 686 | 1,133 | 519 | 906 | 1,425 | ||||||||||||||||||||||||||||||||||||
Incurred guarantee benefits5) | (49 | ) | (121 | ) | (171 | ) | 48 | 83 | 130 | 144 | 44 | 189 | (27 | ) | (210 | ) | (238 | ) | ||||||||||||||||||||||||||||||
Paid guarantee benefits | (60 | ) | (26 | ) | (86 | ) | (75 | ) | (74 | ) | (148 | ) | (61 | ) | (34 | ) | (95 | ) | (53 | ) | (27 | ) | (81 | ) | ||||||||||||||||||||||||
Net exchange differences | (58 | ) | (94 | ) | (153 | ) | 15 | 25 | 40 | (43 | ) | (57 | ) | (100 | ) | 10 | 17 | 27 | ||||||||||||||||||||||||||||||
At December 31 | 364 | 608 | 972 | 531 | 849 | 1,381 | 488 | 638 | 1,127 | 448 | 686 | 1,133 | ||||||||||||||||||||||||||||||||||||
GMDB 1),3) | GMIB 2),3) | GMDB 1),3) | GMIB 2),3) | GMDB 1) | GMIB 2) | GMDB 1),3) | GMIB 2),3) | |||||||||||||||||||||||||||||||||||||||||
Account value6) | 52,070 | 5,270 | 54,821 | 5,628 | 52,481 | 5,337 | 54,411 | 5,331 | ||||||||||||||||||||||||||||||||||||||||
Net amount at risk7) | 1,309 | 474 | 2,615 | 684 | 919 | 542 | 1,268 | 688 | ||||||||||||||||||||||||||||||||||||||||
Average attained age of contract holders | 69 | 70 | 69 | 69 | 70 | 72 | 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 |
5 | Incurred guarantee benefits mainly comprise the effect of guarantees from new contracts, releases related to expired out-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 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 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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 36271 | ||
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:
2017 | 2016 | |||||||
GMI 1), 2) | GMI 1), 2) | |||||||
At January 1 | 5,542 | 4,741 | ||||||
Incurred guarantee benefits3) | (823 | ) | 801 | |||||
At December 31 | 4,719 | 5,542 | ||||||
Account value4) | 18,754 | 19,467 | ||||||
Net amount at risk5) | 4,440 | 5,017 |
2020 | 2019 | |||||||||||
GMI 1), 2) | GMI 1), 2) | |||||||||||
At January 1 | 6,422 | 5,063 | ||||||||||
Incurred guarantee benefits 3) | 1,551 | 1,358 | ||||||||||
At December 31 | 7,973 | 6,422 | ||||||||||
Account value 4) | 20,202 | 19,985 | ||||||||||
Net amount at risk 5) | 7,931 | 6,335 |
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 |
3 | Incurred guarantee benefits mainly comprise the effect of guarantees from new contracts, releases related to expired out-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 23.1%22.6% at December 31, 2017,2020, and 24.0%21.1% at December 31, 2016.2019. 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 lossgain before tax of EUR 75539 million (2016: loss(2019: gain of EUR 61424 million) to earnings. The main drivers of this lossgain before tax are a fair value lossgain on hedges related to the guarantee reserves of EUR 1.4173,199 million (2016:(2019: EUR 325 million gain) and a loss of EUR 243 million related to increasing own credit spread (2016: EUR 4041,840 million gain), partly offset by a gain of EUR 1.147380 million related to aan increase in equity markets (2016:(2019: EUR 6711,585 million gain), a gain of EUR 234 million related to widening own credit spread (2019: EUR 42 million gain) positiveand other and DPAC offset contributed a gain of EUR 305 million (2019: EUR 273 million gain). These gains are partly offset by negative results related to increasesdecreases in risk free rates of EUR 1693,775 million (2016:(2019: EUR 1.1593,281 million loss) and DPAC offset, a gainloss of EUR 81134 million related to decreasesincreases in equity volatilities (2016:volatility (2019: EUR 712 million gain) and other contributed a gain of EUR 205 million (2016: EUR 279 million loss).
Guarantee reserves decreasedincreased by EUR 1.1213,230 million in 2017 (2016:2020 (2019: increase of EUR 8631,937 million) to EUR 12,875 million (2019: EUR 9,645 million).
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 37272 | ||
| ||||||||
2020 | 2019 | |||||||
Capital funding | 1,241 | 1,745 | ||||||
Operational funding | 7,283 | 7,562 | ||||||
At December 31 | 8,524 | 9,307 | ||||||
Current | 950 | 4,969 | ||||||
Non-current | 7,574 | 4,338 | ||||||
Fair value of borrowings | 9,165 | 9,783 |
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.
The difference between the contractually required payment at maturity date and the carrying amount of the borrowings amounted to EUR 15 million negative (2019: EUR 40 million negative).
Capital funding
During 2020, the capital funding decreased related to the repayment of USD 500 million senior notes with a coupon rate of 5.75%.
A detailed composition of capital funding is included in the following table:
2017 | 2016 | |||||||||||||||||||
Capital funding | 2,280 | 2,386 | ||||||||||||||||||
Operational funding | 11,355 | 10,766 | ||||||||||||||||||
At December 31 | 13,635 | 13,153 | ||||||||||||||||||
Current | 1,692 | 1,902 | ||||||||||||||||||
Non-current | 11,943 | 11,251 | ||||||||||||||||||
Fair value of borrowings | 14,035 | 13,545 | ||||||||||||||||||
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 On July 18, 2017 Aegon redeemed unsecured notes with a coupon of 3%, issued in 2012. The principal amount of EUR 500 million was repaid with accrued interest. On August 30, 2017 Aegon issued senior unsecured notes of EUR 500 million, due August 30, 2018. The notes were issued under Aegon’s USD 6 billion debt issuance program at a price of 100.157%, and will carry a coupon of 0.00%.
A detailed composition of capital funding is included in the following table:
|
| |||||||||||||||||||
(sorted at maturity) | Coupon rate | Coupon date | Issue / Maturity | 2017 | 2016 | |||||||||||||||
EUR 500 million Unsecured Notes | 3% | July 18 | 2012 / 17 | - | 500 | |||||||||||||||
EUR 500 million Unsecured Notes | 0% | August 30 | 2017 / 18 | 500 | - | |||||||||||||||
EUR 75 million Medium-Term Notes1) | 4.625% | December 9 | 2004 / 19 | 82 | 84 | |||||||||||||||
USD 500 million Senior Notes1),2) | 5.75% | Semi-annually | 2005 / 20 | 455 | 526 | |||||||||||||||
EUR 500 million Senior Unsecured Notes | 1.00% | December 8 | 2016 / 23 | 495 | 495 | |||||||||||||||
GBP 250 million Medium-Term Notes | 6.125% | December 15 | 1999 / 31 | 279 | 291 | |||||||||||||||
GBP 400 million Senior Unsecured Notes | 6.625% | Semi-annually | 2009 / 39 | 445 | 462 | |||||||||||||||
Other | 24 | 28 | ||||||||||||||||||
At December 31 | 2,280 | 2,386 |
(sorted at maturity) | Coupon rate | Coupon date | Issue / Maturity | 2020 | 2019 | |||||||||||||||
USD 500 million Senior Notes 1), 2) | 5.75% | Semi-annually | 2005 /20 | - | 461 | |||||||||||||||
EUR 500 million Senior Unsecured Notes | 1.00% | December 8 | 2016 /23 | 498 | 497 | |||||||||||||||
GBP 250 million Medium-Term Notes | 6.125% | December 15 | 1999 /31 | 278 | 293 | |||||||||||||||
GBP 400 million Senior Unsecured Notes | 6.625% | Semi-annually | 2009 /39 | 442 | 467 | |||||||||||||||
Other | 24 | 26 | ||||||||||||||||||
At December 31 | 1,241 | 1,745 |
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.
Operational funding
During 2017, the2020, operational funding increaseddecreased by EUR 0.60.3 billion mainly due to new FHLB advancesthe redemption of ‘SAECURE 15’ of EUR 1.30.9 billion and twothe redemption of a covered bond issuancesfor EUR 0.7 billion. This is partly offset by an increase in other mortgage loan funding of EUR 0.7 billion and the issuance of a covered bond in the Netherlands of EUR 0.5 billion.
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 Junethe US. In addition, a further decrease was driven by the redemption of ‘SAECURE 14’ of EUR 0.9 billion and November 2017.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 redemptionissuance of SeacureEUR 500 million senior non-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.
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statements Note | ||
Coupon rate | Coupon date | Issue / Maturity | 2020 | 2019 | ||||||||||||||||
Revolving Loan Facility Warehouse Mortgage Loans 1) | Floating | Monthly | 2020 /22 | 1,545 | 817 | |||||||||||||||
EUR 1,443 million “SAECURE 15” RMBS Note 1), 2) | Floating | Quarterly | 2014 /20 | - | 917 | |||||||||||||||
EUR 875 million “SAECURE 16” RMBS Note 1), 3) | Floating | Quarterly | 2018 /23 | 758 | 820 | |||||||||||||||
EUR 512 million “SAECURE 18” RMBS Note 1), 4) | Floating | Quarterly | 2019/25 | 422 | 491 | |||||||||||||||
EUR 750 million Conditional Pass-Through Covered Bond 1), 5) | 0.267% | Annual | 2015 /20 | - | 749 | |||||||||||||||
EUR 500 million Conditional Pass-Through Covered Bond 1), 6) | 0.250% | Annual | 2016 /23 | 498 | 498 | |||||||||||||||
EUR 500 million Conditional Pass-Through Covered Bond 1), 7) | 0.375% | Annual | 2017 /24 | 498 | 498 | |||||||||||||||
EUR 500 million Conditional Pass-Through Covered Bond 1), 8) | 0.010% | Annual | 2020 /25 | 508 | - | |||||||||||||||
EUR 500 million Conditional Pass-Through Covered Bond 1), 9) | 0.750% | Annual | 2017 /27 | 491 | 489 | |||||||||||||||
FHLB Secured borrowings 1) | Floating | Quarterly | 2020 /23 | 2,055 | 1,777 | |||||||||||||||
Aegon Bank Senior Non-Preferred debt 1) | Fixed | Annual | 2019/24 | 498 | 497 | |||||||||||||||
Other | 9 | 8 | ||||||||||||||||||
At December 31 | 7,283 | 7,562 |
1 | Issued by a subsidiary of Aegon N.V. |
2 | The “SAECURE 15” RMBS Note was redeemed in 2020. |
3 | 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. |
4 | 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. |
5 | These Covered bonds were redeemed in 2020. |
6 | The maturity date is May 25, 2023; the extended due for payment date is May 25, 2055. |
7 | The maturity date is November 21, 2024; the extended due for payment date is November 21, 2056. |
8 | The maturity date is November 16, 2025; the extended due for payment date is November 16, 2057. |
9 | The maturity date is June 27, 2027; the extended due for payment date is June 27, 2059. |
Other
Per December 31, 2020 there were no more borrowings measured at fair value (2019: EUR 461 million).
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.
During 2016, Aegon redeemed EUR 450 million of ECB LTRO, EUR 225 million of ECB MRO, EUR 737 million of regular borrowings and repurchased the mortgage loans from SAECURE 9 and SAECURE 10 for EUR 1,658 million. In addition, Aegon entered into a USD 3 billion new liquidity program from the Federal Home Loan Bank and issued a EUR 500 million covered bond.
Coupon rate | Coupon date | Issue / Maturity | 2017 | 2016 | ||||||||||||||||
Revolving Loan Facility Warehouse Mortgage Loans1) | Floating | Monthly | - / 2018-20 | 729 | 423 | |||||||||||||||
EUR 1,365 million “SAECURE 12” RMBS Note1),2) | Floating | Quarterly | 2012 / 17 | - | 1,030 | |||||||||||||||
EUR 1,123 million “SAECURE 13” RMBS Note1),3) | Floating | Quarterly | 2013 / 18 | 750 | 862 | |||||||||||||||
EUR 1,367 million “SAECURE 14” RMBS Note1),4) | Floating | Quarterly | 2014 / 19 | 994 | 1,126 | |||||||||||||||
EUR 1,443 million “SAECURE 15” RMBS Note1),5) | Floating | Quarterly | 2014 / 20 | 1,164 | 1,284 | |||||||||||||||
EUR 750 million Conditional Pass-Through Covered Bond1),6) | 0.267% | Annual | 2015 / 20 | 747 | 747 | |||||||||||||||
EUR 500 million Conditional Pass-Through Covered Bond1),7) | 0.250% | Annual | 2016 / 23 | 496 | 495 | |||||||||||||||
EUR 500 million Conditional Pass-Through Covered Bond1),8) | 0.750% | Annual | 2017 / 27 | 486 | - | |||||||||||||||
EUR 500 million Conditional Pass-Through Covered Bond1),9) | 0.375% | Annual | 2017 / 24 | 497 | - | |||||||||||||||
USD 1.54 billion Variable Funding Surplus Note10),11) | Floating | Quarterly | 2006 / 36 | 1,322 | 1,505 | |||||||||||||||
USD 550 million Floating Rate Guaranteed Note10),12) | Floating | Quarterly | 2007 / 37 | - | 450 | |||||||||||||||
FHLB Secured borrowings1) | Floating | Quarterly | 2016 / 46 | 4,160 | 2,839 | |||||||||||||||
Other | 10 | 3 | ||||||||||||||||||
At December 31 | 11,355 | 10,766 | ||||||||||||||||||
1 Issued by a subsidiary of Aegon N.V. 2 The Notes were called for redemption on the first optional redemption date (30 October 2017). 3 The first optional redemption date is 28 February 2018; the legal maturity date is 30 November 2093. Notes are fully collateralized by mortgage loans which are part of Aegon’s general account investments. 4 The first optional redemption date is 30 January 2019; the legal maturity date is 30 January 2092. Notes are fully collateralized by mortgage loans which are part of Aegon’s general account investments. 5 The first optional redemption date is 30 January 2020; the legal maturity date is 30 January 2092. Notes are fully collateralized by mortgage loans which are part of Aegon’s general account investments. 6 The maturity date is 1 December 2020; the extended due for payment date is 1 December 2052. 7 The maturity date is 25 May 2023; the extended due for payment date is 25 May 2055. 8 The maturity date is 27 June 2027; the extended due for payment date is 27 June 2059. 9 The maturity date is 21 November 2024; the extended due for payment date is 21 November 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 48 Commitments and contingencies. 12 This debenture was issued by a wholly owned captive that was consolidated in the Aegon N.V. consolidated financial statements. It was repaid on 28 December 2017.
Other Included in borrowings is EUR 536 million relating to borrowings measured at fair value (2016: EUR 610 million). For the year 2017, Aegon’s credit spread had a negative impact of EUR 15 million on income before tax (2016: negative impact of EUR 1 million) and a negative impact of EUR 10 million on shareholders’ equity (2016: negative impact of EUR 1 million). The cumulative negative impact of Aegon’s credit spread for borrowings in portfolio at year-end, based on observable market data, on income before tax amounted to EUR 27 million (2016: EUR 12 million).
The difference between the contractually required payment at maturity date and the carrying amount of the borrowings amounted to EUR 9 million (2016: EUR 39 million).
|
| |||||||||||||||||||
Undrawn committed borrowing facilities: | 2017 | 2016 | ||||||||||||||||||
Floating-rate | ||||||||||||||||||||
- Expiring within one year | 197 | 463 | ||||||||||||||||||
- Expiring beyond one year | 3,170 | 3,422 | ||||||||||||||||||
At December 31 | 3,367 | 3,885 |
Undrawn committed borrowing facilities: | 2020 | 2019 | ||||||
Floating-rate | ||||||||
- Expiring within one year | 666 | 516 | ||||||
- Expiring beyond one year | 2,622 | 2,887 | ||||||
At December 31 | 3,288 | 3,403 |
There were no defaults or breaches of conditions during the period.
2020 | 2019 | |||||||
At January 1 | 214 | 320 | ||||||
Additional provisions | 180 | 42 | ||||||
Disposals | (38 | ) | (60 | ) | ||||
Unused amounts reversed through the income statement | (1 | ) | (3 | ) | ||||
Used during the year | (32 | ) | (90 | ) | ||||
Net exchange differences | (15 | ) | 5 | |||||
At December 31 | 309 | 214 | ||||||
Current | 253 | 137 | ||||||
Non-current | 56 | 77 |
The provisions as at December 31, 2020 mainly consist of litigation provisions of EUR 191 million (2019: EUR 90 million) mainly related to a settlement in the US relating to increases in monthly deduction rates on universal life products and a reached agreement, subject to conditions precedent, in the Netherlands concerning the Vliegwiel product (refer to note 45 Commitments and contingencies), restructuring provisions of EUR 54 million (2019: EUR 43 million) and other provisions of EUR 63 million (2019: EUR 81 million) including the remaining provision related to the harbor workers’ former pension fund Optas.
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statements Note | ||
40 Provisions39 Defined benefit plans
2017 | 2016 | |||||||||||||||||||||||
At January 1 | 173 | 175 | ||||||||||||||||||||||
Additional provisions | 107 | 92 | ||||||||||||||||||||||
Disposals | (72 | ) | (33 | ) | ||||||||||||||||||||
Unused amounts reversed through the income statement | - | (3 | ) | |||||||||||||||||||||
Used during the year | 12 | (55 | ) | |||||||||||||||||||||
Net exchange differences | (9 | ) | (3 | ) | ||||||||||||||||||||
At December 31 | 210 | 173 | ||||||||||||||||||||||
Current | 151 | 88 | ||||||||||||||||||||||
Non-current | 60 | 85 | ||||||||||||||||||||||
The remaining provisions mainly consist of litigation provisions of EUR 92 million (2016: EUR 11 million) including EUR 85 million in anticipation of a possible settlement in connection with an investigation by the SEC, refer to Note 48 Commitments and contingencies, restructuring provisions of EUR 27 million (2016: EUR 39 million), provisions regarding fees payable upon purchase and surrender of unit-linked policies in the Polish Life Insurance portfolio of EUR 20 million (2016: EUR 24 million) and other provisions of EUR 71 million (2016: EUR 74 million) including the remaining provision related to the harbor workers’ former pension fund Optas. The provision for unearned commission decreased to EUR 0 million (2016: EUR 25 million) due to the sale of Unirobe Meeùs Groep.
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| |||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
Retirement benefit plans | 3,657 | 4,453 | ||||||||||||||||||||||
Other post-employment benefit plans | 293 | 314 | ||||||||||||||||||||||
Total defined benefit plans | 3,950 | 4,767 | ||||||||||||||||||||||
Retirement benefit plans in surplus | 55 | 51 | ||||||||||||||||||||||
Other post-employment benefit plans in surplus | - | - | ||||||||||||||||||||||
Total defined benefit assets | 55 | 51 | ||||||||||||||||||||||
Retirement benefit plans in deficit | 3,712 | 4,503 | ||||||||||||||||||||||
Other post-employment benefit plans in deficit | 293 | 314 | ||||||||||||||||||||||
Total defined benefit liabilities | 4,005 | 4,817 | ||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
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 | ||||||||||||||||||
At January 1 | 4,453 | 314 | 4,767 | 4,135 | 296 | 4,430 | ||||||||||||||||||
Defined benefit expenses | 242 | 19 | 262 | 302 | 22 | 324 | ||||||||||||||||||
Remeasurements of defined benefit plans | (233 | ) | 10 | (224 | ) | 388 | 5 | 392 | ||||||||||||||||
Acquisition of subsidiary | - | - | - | - | 3 | 3 | ||||||||||||||||||
Contributions paid | (163 | ) | - | (163 | ) | (250 | ) | - | (250 | ) | ||||||||||||||
Benefits paid | (108 | ) | (19 | ) | (128 | ) | (106 | ) | (18 | ) | (125 | ) | ||||||||||||
Net exchange differences | (133 | ) | (31 | ) | (164 | ) | (15 | ) | 7 | (8 | ) | |||||||||||||
Other | (400 | ) | - | (400 | ) | - | - | - | ||||||||||||||||
At December 31 | 3,657 | 293 | 3,950 | 4,453 | 314 | 4,767 |
Other 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 policyholders following the sale of UMG in November 2017.
2020 | 2019 | |||||||
Retirement benefit plans | 4,318 | 4,076 | ||||||
Other post-employment benefit plans | 275 | 283 | ||||||
Total defined benefit plans | 4,593 | 4,359 | ||||||
Retirement benefit plans in surplus | 43 | 1 | ||||||
Total defined benefit assets | 43 | 1 | ||||||
Retirement benefit plans in deficit | 4,361 | 4,077 | ||||||
Other post-employment benefit plans in deficit | 275 | 283 | ||||||
Total defined benefit liabilities | 4,636 | 4,360 |
2020 | 2019 | |||||||||||||||||||||||
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 | ||||||||||||||||||
At January 1 | 4,076 | 283 | 4,359 | 3,714 | 275 | 3,989 | ||||||||||||||||||
Defined benefit expenses | 104 | 18 | 122 | 227 | 17 | 244 | ||||||||||||||||||
Remeasurements of defined benefit plans | 350 | 10 | 360 | 607 | 5 | 612 | ||||||||||||||||||
Contributions paid | (54 | ) | - | (54 | ) | (298 | ) | - | (298) | |||||||||||||||
Benefits paid | (103 | ) | (16 | ) | (119 | ) | (100 | ) | (18 | ) | (118) | |||||||||||||
Net exchange differences | (61 | ) | (19 | ) | (80 | ) | 14 | 4 | 18 | |||||||||||||||
Other | 5 | - | 5 | (89 | ) | - | (88) | |||||||||||||||||
At December 31 | 4,318 | 275 | 4,593 | 4,076 | 283 | 4,359 |
The amounts recognized in the statement of financial position are determined as follows:
2017 | 2016 | |||||||||||||||||||||||
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 | 4,389 | - | 4,389 | 4,834 | - | 4,834 | ||||||||||||||||||
Fair value of plan assets | (3,622 | ) | - | (3,622 | ) | (3,793 | ) | - | (3,793 | ) | ||||||||||||||
767 | - | 767 | 1,041 | - | 1,041 | |||||||||||||||||||
Present value of wholly unfunded obligations1) | 2,890 | 293 | 3,183 | 3,412 | 314 | 3,726 | ||||||||||||||||||
At December 31 | 3,657 | 293 | 3,950 | 4,453 | 314 | 4,767 | ||||||||||||||||||
1 As all pension obligations are insured at subsidiary Aegon Levensverzekering almost all assets held by Aegon Nederland backing retirement benefits of EUR 2,457 million (2016: EUR 2,796 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 2017 and 2016.
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| |||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||
Defined benefit expenses | Retirement benefit plans | Other post- employment benefit plans | Total | Retirement benefit plans | Other post- employment benefit plans | Total | ||||||||||||||||||
Current year service cost | 148 | 11 | 158 | 127 | 13 | 140 | ||||||||||||||||||
Net interest on the net defined benefit liability (asset) | 99 | 10 | 109 | 123 | 11 | 134 | ||||||||||||||||||
Past service cost | (5 | ) | (1 | ) | (6 | ) | 53 | (2 | ) | 50 | ||||||||||||||
Total defined benefit expenses | 242 | 19 | 262 | 302 | 22 | 324 | ||||||||||||||||||
2015 | ||||||||||||||||||||||||
Retirement benefit plans | Other post- employment benefit plans | Total | ||||||||||||||||||||||
Current year service cost | 134 | 10 | 144 | |||||||||||||||||||||
Net interest on the net defined benefit liability (asset) | 119 | 10 | 129 | |||||||||||||||||||||
Past service cost | (7 | ) | 20 | 13 | ||||||||||||||||||||
Total defined benefit expenses | 246 | 40 | 286 | |||||||||||||||||||||
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 | 2017 | 2016 | ||||||||||||||||||||||
At January 1 | 8,560 | 8,000 | ||||||||||||||||||||||
Acquisition of subsidiary | - | 3 | ||||||||||||||||||||||
Current year service cost | 158 | 140 | ||||||||||||||||||||||
Interest expense | 230 | 267 | ||||||||||||||||||||||
Remeasurements of the defined benefit obligations: | ||||||||||||||||||||||||
- Actuarial gains and losses arising from changes in demographic assumptions |
| 30 | (211 | ) | ||||||||||||||||||||
- Actuarial gains and losses arising from changes in financial assumptions |
| 29 | 894 | |||||||||||||||||||||
Past service cost | (6 | ) | 50 | |||||||||||||||||||||
Contributions by plan participants | 12 | 11 | ||||||||||||||||||||||
Benefits paid | (523 | ) | (461 | ) | ||||||||||||||||||||
Net exchange differences | (519 | ) | (133 | ) | ||||||||||||||||||||
Other | (400 | ) | - | |||||||||||||||||||||
At December 31 | 7,572 | 8,560 |
2020 | 2019 | |||||||||||||||||||||||
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 | 4,858 | - | 4,858 | 4,807 | - | 4,807 | ||||||||||||||||||
Fair value of plan assets | (4,466 | ) | - | (4,466 | ) | (4,420 | ) | - | (4,420 | ) | ||||||||||||||
392 | - | 392 | 386 | - | 386 | |||||||||||||||||||
Present value of wholly unfunded obligations 1) | 3,926 | 275 | 4,201 | 3,690 | 283 | 3,973 | ||||||||||||||||||
At December 31 | 4,318 | 275 | 4,593 | 4,076 | 283 | 4,359 |
1 | As all pension obligations are insured at subsidiary Aegon Levensverzekering almost all assets held by Aegon Nederland backing retirement benefits of EUR 2,845 millions (2019: EUR 2,736 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 2020 and 2019.
2020 | 2019 | |||||||||||||||||||||||
Defined benefit expenses | Retirement benefit plans | Other post- employment benefit plans | Total | Retirement benefit plans | Other post- employment benefit plans | Total | ||||||||||||||||||
Current year service cost | 52 | 11 | 63 | 148 | 8 | 157 | ||||||||||||||||||
Net interest on the net defined benefit liability (asset) | 52 | 7 | 59 | 80 | 9 | 89 | ||||||||||||||||||
Past service cost | 1 | - | 1 | (1 | ) | - | (1 | ) | ||||||||||||||||
Total defined benefit expenses | 104 | 18 | 122 | 227 | 17 | 244 |
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statements Note | ||
2018 | ||||||||||||
Retirement benefit plans | Other post- employment benefit plans | Total | ||||||||||
Current year service cost | 121 | 10 | 131 | |||||||||
Net interest on the net defined benefit liability (asset) | 87 | 8 | 96 | |||||||||
Past service cost | (16 | ) | (5 | ) | (21 | ) | ||||||
Total defined benefit expenses | 192 | 13 | 206 |
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 | 2020 | �� 2019 | ||||||
At January 1 | 8,779 | 7,514 | ||||||
Current year service cost | 63 | 157 | ||||||
Interest expense | 175 | 221 | ||||||
Remeasurements of the defined benefit obligations: | ||||||||
- Actuarial gains and losses arising from changes in demographic assumptions | (51 | ) | 40 | |||||
- Actuarial gains and losses arising from changes in financial assumptions | 859 | 1,126 | ||||||
Past service cost | 1 | (1 | ) | |||||
Contributions by plan participants | - | 8 | ||||||
Benefits paid | (362 | ) | (353 | ) | ||||
Net exchange differences | (409 | ) | 144 | |||||
Other | 5 | (76 | ) | |||||
At December 31 | 9,059 | 8,779 |
Movements during the year in plan assets for retirement benefit plans | Movements during the year in plan assets for retirement benefit plans | 2017 | 2016 | 2020 | 2019 | |||||||||||||||||||||||||||||||||||
At January 1 | 3,793 | 3,569 | 4,420 | 3,525 | ||||||||||||||||||||||||||||||||||||
Interest income (based on discount rate) | 121 | 134 | 116 | 133 | ||||||||||||||||||||||||||||||||||||
Remeasurements of the net defined liability (asset) | Remeasurements of the net defined liability (asset) |
| 283 | 290 | 448 | 566 | ||||||||||||||||||||||||||||||||||
Contributions by employer | 175 | 261 | 54 | 306 | ||||||||||||||||||||||||||||||||||||
Benefits paid | (396 | ) | (336 | ) | (243 | ) | (235 | ) | ||||||||||||||||||||||||||||||||
Net exchange differences | (355 | ) | (125 | ) | (329 | ) | 126 | |||||||||||||||||||||||||||||||||
At December 31 | 3,622 | 3,793 | 4,466 | 4,420 | ||||||||||||||||||||||||||||||||||||
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2017 | 2016 | |||||||||||||||||||||||||||||||||||||||
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 | 127 | 4 | 131 | 4% | 206 | 14 | 219 | 6% | ||||||||||||||||||||||||||||||||
Debt instrument | 397 | 411 | 809 | 22% | 570 | 713 | 1,283 | 34% | ||||||||||||||||||||||||||||||||
Derivatives | - | 254 | 254 | 7% | - | 179 | 179 | 5% | ||||||||||||||||||||||||||||||||
Investment funds | 5 | 2,027 | 2,032 | 56% | 4 | 1,701 | 1,705 | 45% | ||||||||||||||||||||||||||||||||
Structured securities | - | - | - | 0% | - | 3 | 3 | 0% | ||||||||||||||||||||||||||||||||
Other | 25 | 372 | 397 | 11% | 12 | 392 | 405 | 11% | ||||||||||||||||||||||||||||||||
At December 31 | 554 | 3,068 | 3,622 | 100% | 792 | 3,001 | 3,793 | 100% |
2020 | 2019 | |||||||||||||||||||||||||||||||
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 | 154 | - | 154 | 3% | 160 | 3 | 164 | 4% | ||||||||||||||||||||||||
Debt instrument | 450 | 717 | 1,167 | 26% | 465 | 361 | 826 | 19% | ||||||||||||||||||||||||
Real estate | - | 110 | 110 | 2% | - | 119 | 119 | 3% | ||||||||||||||||||||||||
Derivatives | - | 16 | 16 | 0% | - | 57 | 57 | 1% | ||||||||||||||||||||||||
Investment funds | 2 | 2,449 | 2,451 | 55% | 3 | 2,484 | 2,487 | 56% | ||||||||||||||||||||||||
Other | 3 | 563 | 567 | 13% | 15 | 752 | 767 | 17% | ||||||||||||||||||||||||
At December 31 | 610 | 3,856 | 4,466 | 100% | 644 | 3,776 | 4,420 | 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,
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 39276 | ||
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 629436 million at December 31, 2017 (2016:2020 (2019: EUR 742388 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 as sub-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 20172020 or 2016.2019. However, with the Aegon N.V. Management Board approval of a proposal from Transamerica Corporation, Transamerica Corporation made a pension plan contribution of EUR 89223 million in September 2017 (EUR 226 million in September 2016)2019 that was over and above the minimum required funding levels as set forth by the Internal Revenue Code. In 2020, Transamerica Corporation did not make a pension plan contribution.
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 257249 million (2016:(2019: EUR 286272 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 227214 million (2016:(2019: EUR 246217 million).
The weighted average duration of the defined benefit obligation is 13.212.9 years (2016: 13.3(2019: 12.6 years).
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 39277 | ||
The principal actuarial assumptions that apply for the year ended December 31 are as follows:
Actuarial assumptions used to determine defined benefit obligations at year-end | 2017 | 2016 | 2020 | 2019 | ||||||||||||
Demographic actuarial assumptions | ||||||||||||||||
Mortality | US mortality table1) | US mortality table2) | US mortality table1) | US mortality table1) | ||||||||||||
Financial actuarial assumptions | ||||||||||||||||
Discount rate | 3.55% | 4.10% | ||||||||||||||
Discount rate2) | 2.47%/2.18% | 3.23%/3.02% | ||||||||||||||
Salary increase rate | 3.85% | 3.87% | 4.00% | 4.00% | ||||||||||||
Health care trend rate | 7.40% | 7.25% | 6.30% | 6.60% |
1 | 2020 assumption -PRI-2012 Employee, Healthy Annuitant and Contingent Survivor Tables (90% white collar/10% blue collar) projected with Scale |
2 | Aegon USA has separate discount rates beginning with |
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 per year-end:
Estimated approximate effects on the defined benefit obligation | ||||||||
2020 | 2019 | |||||||
Demographic actuarial assumptions | ||||||||
10% increase in mortality rates | (86 | ) | (83 | ) | ||||
10% decrease in mortality rates | 95 | 92 | ||||||
Financial actuarial assumptions | ||||||||
100 basis points increase in discount rate | (422 | ) | (417 | ) | ||||
100 basis points decrease in discount rate | 521 | 514 | ||||||
100 basis points increase in salary increase rate | 29 | 29 | ||||||
100 basis points decrease in salary increase rate | (25 | ) | (27 | ) | ||||
100 basis points increase in health care trend rate | 13 | 12 | ||||||
100 basis points decrease in health care trend rate | (12 | ) | (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 | % | |||||||
Debt instruments | 47-58 | % | ||||||
Other | 20-28 | % |
Estimated approximate effects on the defined benefit obligation | ||||||||
2017 | 2016 | |||||||
Demographic actuarial assumptions | ||||||||
10% increase in mortality rates | (76 | ) | (77 | ) | ||||
10% decrease in mortality rates | 83 | 84 | ||||||
Financial actuarial assumptions | ||||||||
100 basis points increase in discount rate | (402 | ) | (440 | ) | ||||
100 basis points decrease in discount rate | 498 | 546 | ||||||
100 basis points increase in salary increase rate | 38 | 42 | ||||||
100 basis points decrease in salary increase rate | (33 | ) | (37 | ) | ||||
100 basis points increase in health care trend rate | 15 | 16 | ||||||
100 basis points decrease in health care trend rate | (13 | ) | (14 | ) | ||||
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 | 22-30% | |||||||
Debt instruments | 42-53% | |||||||
Other | 22-31% |
Aegon the Netherlands
Aegon Nederlandthe Netherlands 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 Nederland.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 Nederlandthe 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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 39278 | ||
Furthermore, the specific statutory requirements governing the administration of group pension schemes have been laid down in the Pension Act (Pensioenwet / Pw). Insurers are subject to prudential supervision pursuant to the Financial Supervision Act (Wet op het financieel 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.
As at December 31, 2019, Aegon the Netherlands amended the defined benefit pension plan for their own employees. As of January 1, 2020, the defined benefit pension plan is closed for new members and there will be no further accrual of benefits to existing members. Entitlements before January 1, 2020, will remain unchanged and the indexation for those accruals will remain in force.
The contributions to the retirement benefit plan of Aegon Nederlandthe 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.pension. The defined benefit plans were unfunded by EUR 2,6283,658 million at December 31, 2017. (2016:2020. (2019: EUR 3,1213,413 million). The defined benefit plans are largely backed by investment, although these assets do not qualify as ‘plan assets’ as defined by IFRSIFRS. The average remaining duration of the defined benefits obligation is 19.622.5 years (2016: 19.7(2019: 21.9 years).
As a consequence ofAegon the sale of UMG to Aon Groep Nederland during 2017, the defined benefit obligation (DBO) and the assets backing the DBO related to UMG have been derecognized. This resulted in a decrease of the ‘DBO’ and ‘insurance contracts for general account’ of EUR 478 million. On the other hand, the pension contract between UMG and Aegon Levensverzekering N.V. is no longer
eliminated. This resulted in an increase of the ‘insurance contracts for risk of policy holders’ and ‘investments for account of policy holders’ of EUR 442 million.
Aegon NederlandNetherlands also has a post-retirement medical plan that contributes to the health care coverage of employees and beneficiaries after retirement. For this plan, Aegon Nederlandthe 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 Nederlandthe Netherlands has the obligation to interpret the provisions of the plans, and to comply with any statutory reporting and disclosure requirements. Finally, Aegon Nederlandthe Netherlands 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 6561 million at December 31, 2017 (2016:2020 (2019: EUR 6865 million). The weighted average duration of the other post-employment benefit plans is 11.911.1 years (2016: 10.8(2019: 12.4 years).
Plan amendments
The minimum tax-qualified retirement age for occupational retirement plans in the Netherlands is triggered by an increase in average life expectancy as determined by the Central Bureau of Statistics. Effective January 1, 2018, the tax-qualified retirement age in combination with the maximum annual benefit accrual of 1.875% becomes 68. As a result Aegon has changed the retirement age of its pension plan from 67 to 68 years 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 at year-end | 2017 | 2016 | ||||||
Demographic actuarial assumptions | ||||||||
Mortality | NL mortality table 1) | NL mortality table 2) | ||||||
Financial actuarial assumptions | ||||||||
Discount rate | 2.09% | 1.79% | ||||||
Salary increase rate3) | Curve 2017 | Curve 2016 | ||||||
Indexation3) | 44.10% of Curve 2017 | 45.20% of Curve 2016 | ||||||
1 Dutch Actuarial Society 2017 prospective mortality table with minor methodology adjustments. 2 Dutch Actuarial Society 2013 prospective mortality table with minor methodology adjustments. These tables are regularly assessed against the most recent mortality trends. 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 per year-end:
|
| |||||||
Estimated approximate effects on the defined benefit obligation | ||||||||
2017 | 2016 | |||||||
Demographic actuarial assumptions | ||||||||
10% increase in mortality rates | (69 | ) | (83 | ) | ||||
10% decrease in mortality rates | 77 | 94 | ||||||
Financial actuarial assumptions | ||||||||
100 basis points increase in discount rate | (447 | ) | (545 | ) | ||||
100 basis points decrease in discount rate | 605 | 732 | ||||||
100 basis points increase in salary increase rate | 4 | 19 | ||||||
100 basis points decrease in salary increase rate | (4 | ) | (19 | ) | ||||
25 basis points increase in indexation | 140 | 170 | ||||||
25 basis points decrease in indexation | (128 | ) | (158 | ) |
Actuarial assumptions used to determine defined benefit obligations at year-end | 2020 | 2019 | ||||||
Demographic actuarial assumptions | ||||||||
Mortality | NL mortality table 1) | NL mortality table 1) | ||||||
Financial actuarial assumptions | ||||||||
Discount rate | 0.51% | 0.94% | ||||||
Salary increase rate 2) | Curve 2020 | Curve 2019 | ||||||
Indexation 3) | 55.6% of Curve 2020 | 59.2 % of Curve 2019 |
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 per year-end:
1 | Aegon Nederland deducts employee contributions from the total pension expenses. |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 39279 | ||
Estimated approximate effects on the defined benefit obligation | ||||||||
2020 | 2019 | |||||||
Demographic actuarial assumptions | ||||||||
10% increase in mortality rates | (110 | ) | (100 | ) | ||||
10% decrease in mortality rates | 124 | 112 | ||||||
Financial actuarial assumptions | ||||||||
100 basis points increase in discount rate | (703 | ) | (645 | ) | ||||
100 basis points decrease in discount rate | 977 | 893 | ||||||
100 basis points increase in salary increase rate | - | 1 | ||||||
25 basis points increase in indexation | 213 | 194 | ||||||
25 basis points decrease in indexation | (192 | ) | (177 | ) |
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 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 13743 million at December 31, 2017 (2016:2020 (2019: EUR 2981 million deficit)surplus). During 2020, EUR 54 million (2019: EUR 83 million) of contributions were paid into the scheme.
The investment strategy for the scheme is determined by the trustees in consultation with Aegon UK. Currently 40%30% of assets are invested in growth assets (i.e. primarily equities) and 60%70% are income and 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.
The scheme purchased a buy-in policy in the name of the Trustee to cover full scheme benefits for a group of pensioners in 2019. The liability (and matching asset) calculated on the year end assumptions has been included in the funded position as at 31 December 2020.
The weighted average duration of the defined benefit obligation is 23.122.0 years (2016: 23.0(2019: 21.6 years).
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 40280 | ||
The principal actuarial assumptions that apply for the year ended December 31 are as follows:
Actuarial assumptions used to determine defined benefit obligations at year-end | 2017 | 2016 | 2020 | 2019 | ||||||||||||
Demographic actuarial assumptions | ||||||||||||||||
Mortality | UK mortality table 1) | UK mortality table 1) | UK mortality table | 1) | UK mortality table | 2) | ||||||||||
Financial actuarial assumptions | ||||||||||||||||
Discount rate | 2.56% | 2.69% | 1.45 | % | 2.08 | % | ||||||||||
Price inflation | 3.29% | 3.37% | 2.95 | % | 3.08 | % | ||||||||||
1 Club Vita tables Scheme memberhsip CMI 2014 1.5%/1.25% p.a.
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 per year-end: |
| |||||||||||||||
Estimated approximate effects on the defined benefit obligation | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Demographic actuarial assumptions | ||||||||||||||||
10% increase in mortality rates | (44 | ) | (51 | ) | ||||||||||||
10% decrease in mortality rates | 50 | 58 | ||||||||||||||
Financial actuarial assumptions | ||||||||||||||||
100 basis points increase in discount rate | (299 | ) | (371 | ) | ||||||||||||
100 basis points decrease in discount rate | 412 | 513 | ||||||||||||||
100 basis points increase in price inflation | 169 | 213 | ||||||||||||||
100 basis points decrease in price inflation | (248 | ) | (289 | ) |
1 | Club Vita tables based on analysis of Scheme membership CMI 2019 1.5%/1.25% p.a. (males/females) |
2 | Club Vita tables based on analysis of Scheme membership CMI 2019 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 per year-end:
Estimated approximate effects on the defined benefit obligation | ||||||||
2020 | 2019 | |||||||
Demographic actuarial assumptions | ||||||||
10% increase in mortality rates | (55 | ) | (48 | ) | ||||
10% decrease in mortality rates | 63 | 54 | ||||||
Financial actuarial assumptions | ||||||||
100 basis points increase in discount rate | (330 | ) | (306 | ) | ||||
100 basis points decrease in discount rate | 448 | 414 | ||||||
100 basis points increase in price inflation | 172 | 130 | ||||||
100 basis points decrease in price inflation | (316 | ) | (281 | ) |
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 the next annual period is: | ||||
Equity instruments | 29.5% | |||
Debt instruments | 70.5% |
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.
2017 | 2016 | |||||||
At January 1 | 64 | 112 | ||||||
Income deferred | 1 | 4 | ||||||
Disposals | - | (31 | ) | |||||
Release to income statement | (5 | ) | (6 | ) | ||||
Net exchange differences | (2 | ) | (14 | ) | ||||
Transfers to disposal groups | (45 | ) | - | |||||
At December 31 | 13 | 64 |
Transfers to disposal groups relates to the Aegon Ireland plc. business which is classified as held for sale per year-end 2017 and as a result the deferred gains are no longer included in the 2017 ending balance.
2017 | 2016 | 2020 | 2019 | |||||||||||||
Deferred tax assets | 79 | 87 | 101 | 193 | ||||||||||||
Deferred tax liabilities | 1,029 | 2,201 | 1,424 | 1,229 | ||||||||||||
Total net deferred tax liability / (asset) | 950 | 2,113 | 1,323 | 1,036 |
Deferred tax assets comprise temporary differences on: | 2017 | 2016 | ||||||
Financial assets | (20 | ) | (22 | ) | ||||
Insurance and investment contracts | (19 | ) | (55 | ) | ||||
Deferred expenses, VOBA and other intangible assets | (140 | ) | (148 | ) | ||||
Defined benefit plans | 26 | 54 | ||||||
Losses | 176 | 221 | ||||||
Other | 57 | 37 | ||||||
At December 31 | 79 | 87 |
Deferred tax liabilities comprise temporary differences on: | 2017 | 2016 | ||||||
Real estate | 554 | 541 | ||||||
Financial assets | 1,724 | 3,143 | ||||||
Insurance and investment contracts | (1,806 | ) | (3,042 | ) | ||||
Deferred expenses, VOBA and other intangible assets | 1,752 | 3,150 | ||||||
Defined benefit plans | (268 | ) | (592 | ) | ||||
Losses | (120 | ) | (188 | ) | ||||
Other | (807 | ) | (812 | ) | ||||
At December 31 | 1,029 | 2,201 |
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statements Note | ||
Deferred tax assets comprise temporary differences on: | 2020 | 2019 | ||||||
Real Estate | - | (520 | ) | |||||
Financial assets | 13 | 76 | ||||||
Insurance and investment contracts | (5 | ) | 440 | |||||
Deferred expenses, VOBA and other intangible assets | (110 | ) | (112 | ) | ||||
Defined benefit plans | - | 7 | ||||||
Tax losses and credits carried forward | 321 | 183 | ||||||
Other | (118 | ) | 119 | |||||
At December 31 | 101 | 193 |
Deferred tax liabilities comprise temporary differences on: | 2020 | 2019 | ||||||
Real estate | 663 | 124 | ||||||
Financial assets | 2,169 | 1,550 | ||||||
Insurance and investment contracts | (1,539 | ) | (1,030 | ) | ||||
Deferred expenses, VOBA and other intangible assets | 1,323 | 1,662 | ||||||
Defined benefit plans | (206 | ) | (249 | ) | ||||
Tax losses and credits carried forward | (502 | ) | (551 | ) | ||||
Other | (484 | ) | (279 | ) | ||||
At December 31 | 1,424 | 1,229 |
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.
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 | ||||||||||||||||||||
At January 1, 2016 | 434 | 2,735 | (2,500 | ) | 3,008 | (688 | ) | (500 | ) | (261 | ) | 2,227 | ||||||||||||||||||||
Charged to income statement | 99 | 596 | (380 | ) | 222 | 135 | 57 | (543 | ) | 185 | ||||||||||||||||||||||
Charged to equity | 3 | (264 | ) | (2 | ) | 2 | (85 | ) | - | (2 | ) | (350 | ) | |||||||||||||||||||
Net exchange differences | 5 | 84 | (108 | ) | 69 | (6 | ) | 34 | (45 | ) | 34 | |||||||||||||||||||||
Transfer to current income tax | - | 16 | - | - | - | - | - | 16 | ||||||||||||||||||||||||
Other | - | (1 | ) | 2 | (3 | ) | (1 | ) | 1 | 3 | - | |||||||||||||||||||||
At December 31, 2016 | 541 | 3,165 | (2,988 | ) | 3,298 | (645 | ) | (409 | ) | (849 | ) | 2,113 |
Real estate | Financial assets | Insurance and investment | Deferred expenses, VOBA and other | Defined benefit plans | Tax losses and credits carried | Other | Total | |||||||||||||||||||||||||
At January 1, 2020 | 644 | 1,474 | (1,470 | ) | 1,774 | (256 | ) | (734 | ) | (397 | ) | 1,036 | ||||||||||||||||||||
Acquisitions / Additions | - | - | - | 2 | - | - | - | 2 | ||||||||||||||||||||||||
Charged to income statement | 20 | 289 | (102 | ) | (213 | ) | 169 | (13 | ) | (67 | ) | 81 | ||||||||||||||||||||
Charged to OCI | 2 | 597 | - | - | (140 | ) | - | 4 | 464 | |||||||||||||||||||||||
Net exchange differences | (3 | ) | (204 | ) | 105 | (130 | ) | 21 | 56 | 27 | (128 | ) | ||||||||||||||||||||
Transfer (to)/from current income tax | - | - | - | - | - | (132 | ) | - | (132 | ) | ||||||||||||||||||||||
Transfer (to) /from other headings | - | - | (66 | ) | - | - | - | 66 | - | |||||||||||||||||||||||
At December 31, 2020 | 663 | 2,156 | (1,533 | ) | 1,433 | (206 | ) | (823 | ) | (366 | ) | 1,323 | ||||||||||||||||||||
At January 1, 2019 | 519 | 814 | (1,433 | ) | 1,913 | (269 | ) | (314 | ) | (837 | ) | 394 | ||||||||||||||||||||
Charged to income statement | 125 | 25 | (20 | ) | (177 | ) | 108 | 63 | (11 | ) | 114 | |||||||||||||||||||||
Charged to OCI | (8 | ) | 629 | - | - | (90 | ) | - | (9 | ) | 521 | |||||||||||||||||||||
Net exchange differences | 1 | 9 | (17 | ) | 37 | (5 | ) | (9 | ) | (17 | ) | (2 | ) | |||||||||||||||||||
Disposal of a business | - | - | - | - | - | - | 2 | 2 | ||||||||||||||||||||||||
Transfer (to)/from other headings | - | - | - | - | - | (473 | ) | 473 | - | |||||||||||||||||||||||
Other | 7 | (3 | ) | - | - | - | - | 3 | 7 | |||||||||||||||||||||||
At December 31, 2019 | 644 | 1,474 | (1,470 | ) | 1,774 | (256 | ) | (734 | ) | (398 | ) | 1,036 |
The decrease ofIn 2020, the United States corporate income tax rate from 35% to 21% as from January 1, 2018 with an impactincrease 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 primarily related to an increase of unrealized profits in 2017respect of EUR 1,163 million.financial assets mainly due to market movements.
The transfer toTransfer to/from current income tax relates to transfers from deferred to current tax, in relation to own equity instruments.
Transfer to/from other headings in 2017 includes transfers between two reporting segments.
In 2016, there were considerable movements in the net deferred tax schedule. The major components consisted of:asset for the loss carry forward position of the Dutch fiscal unit in 2020.
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 851,346 million; tax EUR 15230 million (2016:related to tax losses carried forward (2019: gross EUR 5051,379 million; tax EUR 90236 million) and an amount of tax EUR 405 million related to tax credits carried forward (2019; tax EUR 391 million) the realization of the deferred tax asset is dependent on the projection of future taxable profitsprofits. Furthermore, in addition the realization of the deferred tax asset is also dependent
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 41282 | ||
on income from existing business in excess of the profits arising from the reversal of existing taxable temporary differences. If in the near future estimates of projected taxable income are revised during the carry forward period, the amount of deferred corporate income tax assets considered probable could change. The recognition of the deferred tax assets is based on Aegon’s long-term projections including sensitivities and tax planning strategies.
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 | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
< 5 years | 89 | 101 | 22 | 26 | ||||||||||||
> 5 – 10 years | 137 | 130 | 18 | 16 | ||||||||||||
> 10 – 15 years | - | 1 | 25 | 33 | ||||||||||||
> 15 – 20 years | - | - | - | - | ||||||||||||
Indefinitely | 499 | 396 | 111 | 94 | ||||||||||||
At December 31 | 725 | 628 | 177 | 170 |
Gross amounts1) | Not recognized deferred tax assets | |||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||
< 5 years | 71 | 79 | 18 | 20 | ||||||||||
³ 5 – 10 years | 12 | 18 | 4 | 4 | ||||||||||
³ 10 – 15 years | 18 | 27 | 57 | 51 | ||||||||||
³ 15 – 20 years | 4 | 1 | - | - | ||||||||||
Indefinitely | 514 | 488 | 114 | 107 | ||||||||||
At December 31 | 619 | 613 | 192 | 182 | ||||||||||
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 |
|
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 31 million; tax EUR 5 million (2019: gross EUR 406 million; tax EUR 99 million) the following amounts 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:differences.
Gross amounts | Deferred tax assets | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Deferred corporate income tax asset dependent on retaining bonds and similar investments until the earlier of market recovery or maturity1) | - | 816 | - | 286 | ||||||||||||
Deferred corporate income tax asset dependent on future taxable profits | 261 | 362 | 46 | 64 | ||||||||||||
At December 31 | 261 | 1,179 | 46 | 350 |
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 4320 million; tax EUR 84 million (2016:(2019: gross EUR 7032 million; tax EUR 136 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 1,7711,769 million; tax EUR 441 million (2016:(2019: gross EUR 1,7701,774 million; tax EUR 441 million)383 million calculated at the enacted rates).
All deferred corporate income taxes are non-current by nature.
Deferred tax assets and liabilities are expected to be recovered after more than one year after the balance sheet date.
2017 | 20161) | |||||||
Payables due to policyholders | 1,184 | 1,337 | ||||||
Payables due to brokers and agents | 385 | 428 | ||||||
Payables out of reinsurance | 3,010 | 2,443 | ||||||
Social security and taxes payable | 125 | 125 | ||||||
Investment creditors | 1,228 | 1,437 | ||||||
Cash collateral on derivative transactions | 2,335 | 2,841 | ||||||
Cash collateral on securities lended | 3,277 | 3,633 | ||||||
Cash collateral - other | 43 | 50 | ||||||
Repurchase agreements | 1,373 | 1,489 | ||||||
Commercial paper | 72 | 128 | ||||||
Bank overdrafts | 2 | 1 | ||||||
Other creditors | 2,174 | 3,067 | ||||||
At December 31 | 15,208 | 16,978 | ||||||
Current | 14,992 | 16,101 | ||||||
Non-current | 216 | 877 |
2020 | 2019 | |||||||
Payables due to policyholders | 1,135 | 1,363 | ||||||
Payables due to brokers and agents | 399 | 296 | ||||||
Payables out of reinsurance | 1,218 | 1,597 | ||||||
Social security and taxes payable | 110 | 117 | ||||||
Income tax payable | 2 | (1 | ) | |||||
Investment creditors | 1,068 | 940 | ||||||
Cash collateral on derivative transactions | 6,118 | 4,243 | ||||||
Cash collateral on securities lended | 2,053 | 2,146 | ||||||
Cash collateral - other | 74 | 59 | ||||||
Repurchase agreements | 962 | 719 | ||||||
Short term deposits | 105 | - | ||||||
Commercial paper | 72 | 58 | ||||||
Lease liabilities | 266 | 311 | ||||||
Other creditors | 3,100 | 2,968 | ||||||
At December 31 | 16,685 | 14,816 | ||||||
Current | 16,111 | 14,093 | ||||||
Non-current | 575 | 722 |
The carrying amounts disclosed reasonably approximate the fair values at year-end, given the predominantly current nature of the other liabilities.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 42283 | ||
2017 | 2016 | 2020 | 2019 | |||||||||||||
Accrued interest | 183 | 131 | 241 | 292 | ||||||||||||
Accrued expenses | 147 | 106 | 210 | 134 | ||||||||||||
At December 31 | 329 | 237 | 451 | 426 |
The carrying amounts disclosed reasonably approximate the fair values as at the year-end.
4643 Capital management and solvency
After receiving a confirmation from the Dutch Central Bank (DNB) Aegon started to apply a revised method in calculating the Solvency II contribution of the Aegon US Insurance entities under Deduction & Aggregation (D&A), affecting Aegon’s tiering of capital in 2017. It includes lowering the conversion factor from 250% to 150% Risk-Based Capital Company Action Level and reducing own funds by a 100% RBC Company Action Level requirement to reflect transferability restrictions. The methodology is subject to annual review. This methodology is consistent with EIOPA’s guidance on group solvency calculation in the context of equivalence, and in line with methods applied by other European peer companies. As a consequence, this adjustment improves the comparability to capital positions of European insurance groups with substantial insurance activities in the US. The impact on Available Own Funds in 2016 is included in the table in the Capital quality section below. Aegon manages its available capital on the new basis.
Strategic importance
Aegon’s approach towards capital management plays a vital role in supporting the execution of its strategy. NextThe key capital management priority is to ensuringensure adequate capitalization to cover Aegon’s obligations towards its policyholders capital management priorities also include the shift ofand debtholders while providing sustainable dividends to shareholders. This priority is accomplished by allocating capital to products that offer higherhigh growth and return prospects, the shift from capital intensive spread business to capital light fee business and Aegon’s aim to provide for a sustainable dividend to shareholders, which can grow over time if the Company’s performance so allows.prospects.
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 ERMEnterprise Risk Management (ERM) framework ensures that the Aegon Group and its operating companies are adequately capitalized and that obligations towards policyholders are always adequately met. Firmly embeddedEmbedded in this larger framework is Aegon’s capital management policy. The update in 2020 simplified the policy while ensuring that strong capital positions are maintained at the Group and in the units. Aegon’s capital management framework buildsis based on a setadequate capitalization of key pillars:its operating units, Cash Capital at Holding and leverage.
Aegon manages capital in the useoperating units to their respective operating levels, sufficient to absorb moderate shocks and pay sustainable remittances to the Group, and above their minimum dividend payment levels. Cash Capital at Holding is maintained within an operating range of internal target capital management zones, an internal target range for the useEUR 0.5 – 1.5 billion and covers holding expenses, near-term dividends, and contingencies, such as potential recapitalization of units. Furthermore, Aegon aims to reduce its gross financial leverage from the current level of EUR 6.0 billion to the range of EUR 5.0 – 5.5 billion over the period of 2021 to 2023. This reduction of leverage will strengthen the balance sheet, reduce Aegon’s risk profile 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 adequacytherefore make Aegon more resilient.
The frequent monitoring of actual and forecasted capitalization levels 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 Group Solvency Ratio
To calculate its Group Solvency Ratio, Aegon applies a combination of the Aegon Group consolidation methods available under Solvency II: the Accounting Consolidation (AC) 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 itsDeduction & Aggregation (D&A) based methods. Solvency II capital requirements are mainly used for the European Economic Area (EEA)-based insurance and reinsurance entities, applying the AC method. Local requirements are used for insurance and reinsurance entities in relation(provisionally) equivalent third-country jurisdictions. Since January 31, 2020, the United Kingdom is no longer a member of the European Union. Absent any regulatory guidance to the required capital. Undercontrary, Aegon’s capital management framework the own funds are managed such thatUK insurance subsidiaries will continue to be included in the Group Solvency II ratio remains withincalculation in accordance with Solvency II standards, including Aegon’s approved Partial Internal Model. For more details, reference is made to the target rangesection “Regulation and Supervision”. On July 11 2020, DNB published industry-wide guidelines regarding the treatment of 150% - 200% evenbanks in an adverse event. This target range was updatedGroup Solvency II calculation. As a consequence, Aegon has included Aegon Bank in the second quartercalculation of 2017 (previous target range: 140% - 170%) in line with a revision of Aegon’s group capital management policyits Group Solvency on December 31, 2020.
The Group Solvency II ratio is calculated as the ratio between the Eligible Own Funds and the methodology change mentioned above.Solvency Capital Requirement (SCR). The Eligible Own Funds equal to the Available Own Funds after applying any Own Funds eligibility restrictions.
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statements Note | ||
The Group SCR is calculated based on Solvency II Partial Internal Model (PIM), which includes the SCR of AC entities, the D&A entities and the Other Financial Sector entities (including Aegon Bank). The SCR amount (or 100% Solvency II ratio) reflects a level of Eligible Own Funds that enables insurance and reinsurance entities to absorb significant losses (1-in-200 year events) and gives reasonable assurance to policyholders and beneficiaries that payments will be made as they fall due. On December 31, 2020, Aegon’s estimated capital position was:
December 31, 2020 1) | December 31, 20192) | |||||||
Group Own Funds | 18,582 | 18,470 | ||||||
Group SCR | 9,473 | 9,173 | ||||||
Group Solvency II ratio | 196% | 201% |
1 | The Solvency II ratios are estimates, are not final until filed with the respective supervisory authority. |
2 | For 2019, the Group Solvency II ratio excludes Aegon Bank. The 2019 Group Solvency II ratio including Aegon Bank is 198% (Own Funds: EUR 19,207 million; SCR: EUR 9,707 million). |
Aegon Group Eligible Own Funds amounted to EUR 18,582 million on December 31, 2020 (2019: EUR 18,470 million1). The increase of EUR 112 million in Own Funds since December 31, 2019, was mostly driven by the positive impact from expected return on in-force business and the inclusion of Aegon Bank. The positive impact was partly offset by unfavorable market impacts triggered by the COVID-19 pandemic, reflected by a sharp decrease in interest rates, compounded by negative credit variances partly caused by widening of mortgage spreads.
Aegon’s Group PIM SCR amounted to EUR 9,473 million on December 31, 2020 (2019: EUR 9,173 million2). The SCR increased by EUR 300 million since December 31, 2019 and was mainly due to new business strain and the inclusion of Aegon Bank, which was partly offset by the release of in-force SCR. As a result of the above changes in Eligible Own Funds and PIM SCR, the Group Solvency II ratio declined by 5%-points to 196% in 2020.
Minimum solvencyregulatory 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).CLA.
During 2017,2020, 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 the 100% Solvency II ratio.solvency requirements.
Capital quality
Aegon’s capital consists of 3 Tiers as an indication of its quality, with Tier 1 capital ranking the highest. The Available Own Funds is an estimate, has not been filed with the regulator and is subject to supervisory review. It is to be noted that the Group own fundsOwn 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.
1 | This 2019 published Group Own Funds excludes Aegon Bank. The 2019 Group Own Funds including Aegon Bank is EUR 19,207 million. |
2 | This 2019 published Group SCR excludes Aegon Bank. The 2019 Group SCR including Aegon Bank is EUR 9,707 million. |
Aegon Annual Report on Form 20-F2020 |
Notes to the consolidated financial statements Note 43285 | ||
The below table provides the composition of Aegon’s available own fundsAvailable Own Funds across Tiers:
Available own funds | December 31, 2017 1) Available own funds | December 31, 2016 1) Available own funds | December 31, 2016 2) Available own funds | |||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||||||
Available Own Funds | Available Own Funds | Percentage total | Available Own Funds1) | Percentage total | ||||||||||||||||||||||||
Tier 1 (Unrestricted Tier 1 + Restricted Tier 1) | 15,542 | 84% | 15,338 | 83% | ||||||||||||||||||||||||
Unrestricted Tier 1 | 10,428 | 10,081 | 10,656 | 12,972 | 70% | 12,724 | 69% | |||||||||||||||||||||
Restricted Tier 1 | 3,540 | 3,817 | 3,817 | 2,571 | 14% | 2,614 | 14% | |||||||||||||||||||||
Junior Perpetual Capital Securities | 1,563 | 8% | 1,617 | 9% | ||||||||||||||||||||||||
Perpetual Cumulative Securities | 475 | 3% | 479 | 3% | ||||||||||||||||||||||||
Perpetual Contingent Convertible Securities | 532 | 3% | 518 | 3% | ||||||||||||||||||||||||
Tier 2 | 1,213 | 1,291 | 2,008 | 2,340 | 13% | 2,370 | 13% | |||||||||||||||||||||
Subordinated notes issued by Aegon Funding Corp | 818 | 4% | 823 | 4% | ||||||||||||||||||||||||
Subordinated liabilities Aegon NV | 754 | 4% | 773 | 4% | ||||||||||||||||||||||||
Grandfathered subordinated notes | 768 | 4% | 774 | 4% | ||||||||||||||||||||||||
Tier 3 | 448 | 768 | 1,638 | 700 | 4% | 762 | 4% | |||||||||||||||||||||
Total available own funds | 15,628 | 15,957 | 18,119 | |||||||||||||||||||||||||
Total Available Own Funds | 18,582 | 18,470 |
1 | This 2019 published Group Available Own Funds excludes Aegon Bank. The |
Under the revised methodology Aegon’s own funds reduced by EUR 2.2 billion atOn December 31, 2016. This is reflected through eliminating deferred tax balances recorded in Tier 3 for an amount of EUR 0.9 billion and Tier 2 for an amount of EUR 0.7 billion and eliminating unrestricted Tier 1 of EUR 0.6 billion.
As at December 31, 2017,2020, Tier 1 capital accounted for 89%amounted to EUR 15,542 million, which includes EUR 2,571 million restricted Tier 1 capital. Restricted Tier 1 capital consists of own funds (2016: 87%; number based on revised method), including EUR 3,047 million ofAegon’s junior perpetual capital securities (2016:(2020: EUR 3,3091,563 million) and EUR 493 million of, perpetual cumulative subordinated bonds (2016:(2020: EUR 508475 million), and perpetual contingent convertible security (2020: EUR 532 million). Both junior perpetual capital securities and perpetual cumulative subordinated bonds are grandfathered. Perpetual contingent convertible securities are Solvency II compliant liabilities which are both classified as grandfathered restrictedwere issued in 2019. Restricted Tier 1 capital.capital is subject to eligibility restrictions to qualify as Eligible Own Funds.
As atOn December 31, 2017,2020, Tier 2 capital accounted for 8%amounted to EUR 2,340 million. This consists of own funds (2016: 8%; number based on revised method), including EUR 441 million of non-cumulativethe subordinated notes (2016:issued by Aegon Funding Company LLC (AFC) in 2019 (2020: EUR 503818 million), the Solvency II compliant subordinated liabilities that were issued during 2018 (2020: EUR754 million), and EUR 772 million of fixed floatinggrandfathered subordinated notes (2016:(2020: EUR 788768 million) which are both classified as grandfathered Tier 2 capital. Changes in. Tier 2 capital comparedis subject to previous year is mainly relatedeligibility restrictions to foreign currency movements.qualify as Eligible Own Funds.
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.until December 31, 2025. 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, 20172020 is comprised of deferred tax assets balances related to Solvency II entities.
IFRS equity compares to Solvency II Own Funds as follows:
2020 | 20193) | |||||||
IFRS Shareholders’ Equity | 22,018 | 21,842 | ||||||
IFRS adjustments for Other Equity instruments and non controlling interests | 2,644 | 2,591 | ||||||
IFRS Group Equity | 24,661 | 24,433 | ||||||
Solvency II revaluations & reclassifications | (8,621 | ) | (7,599 | ) | ||||
Transferability restrictions 1) | (1,766 | ) | (1,973 | ) | ||||
Excess of Assets over Liabilities | 14,274 | 14,861 | ||||||
Availability adjustments | 4,416 | 4,446 | ||||||
Fungibility adjustments 2) | (108 | ) | (838 | ) | ||||
Available Own Funds | 18,582 | 18,470 | ||||||
1 This includes the transferability restriction related to the RBC CAL conversion methodology. 2 The 2019 fungability adjustment contains the exclusion of Aegon Bank. 3 For 2019, Group Available Own Funds excludes Aegon Bank. The 2019 Group Available Own Funds including Aegon Bank is EUR 19,207 million. |
|
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statementsNote | ||
IFRS equity compares to Solvency II own funds as follows:
December 31, 2017 1) | December 31, 2016 1) | December 31, 2016 2) | ||||||||||
Shareholders’ Equity | 20,288 | 20,520 | 20,520 | |||||||||
IFRS adjustments for Other Equity instruments and non controlling interests | 3,813 | 3,821 | 3,821 | |||||||||
Group Equity | 24,102 | 24,341 | 24,341 | |||||||||
Solvency II revaluations | (5,416 | ) | (5,241 | ) | (5,241 | ) | ||||||
Excess of Assets over Liabilities | 18,685 | 19,100 | 19,100 | |||||||||
Availability adjustments | (606 | ) | (361 | ) | (361 | ) | ||||||
Fungibility restrictions2) | (693 | ) | (619 | ) | (619 | ) | ||||||
Transferability restrictions3) | (1,758 | ) | (2,162 | ) | - | |||||||
Available own funds | 15,628 | 15,957 | 18,119 |
The Solvency II revaluations and reclassification of EUR 5,4168,621 million negative (2016:(2019: EUR 5,2417,599 million negative) mainly stem from the difference in valuation and presentation between IFRS and Solvency II frameworks, whichframeworks. The change in Solvency II revaluations per December 31, 2020 compared to December 31, 2019 is mainly driven by lower interest rates during 2020, increasing the revaluation reserves in Aegon US. 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, |
◆ | 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 |
◆ | The Net Asset Value of subsidiaries that are included under the |
◆ | Reclassification of subordinated liabilities of EUR 3,366 million negative (2019: EUR 3,372 negative). |
The transferability restrictions reflect the restrictions on 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 fundsOwn 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 (if applicable).dividend.
FungibilityFinally, the fungibility restrictions limit the availability of own fundsOwn 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 to a temporary restriction in relation to the sale of Aegon Ireland (the difference between the sale price and Aegon Ireland’s own funds are considered not available at Group level until completion of the sale, expected in the first half of 2018) and Aegon Bank which is under a different regulatory regime but under the same Supervisory Authority and therefore are excluded for Solvency II purposes.
Finally, Transferability restrictions reflect the restrictions on US Life Companies DTA and capping of Tier 1 unrestricted own funds as a consequence of the new RBC CAL conversion methodology as described above.
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’sAegon assesses its gross financial leverage position based on various leverage metrics, including the gross financial leverage ratio, which 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 of 6-8x 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 |
◆ | Non-controlling interests and |
◆ | Total financial leverage. |
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statements Note | ||
As at December 31, 2017, Aegon’s total capitalization amounted to EUR 24.4 billion (EUR 24.8 billion on December 31, 2016), its gross financial leverage ratio was 28.6% (29.8% on December 31, 2016) and its fixed charge coverage was 8.0x (7.2x on December 31, 2016).
The following table shows the composition of the total capitalization and the calculation of the gross financial leverage ratio:
The following table shows the composition of Aegon’s total capitalization, the calculation of the gross financial leverage ratio and its fixed charge coverage:
| 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 | 2017 | 2016 | Note | 2020 | 2019 | |||||||||||||||||||
Total shareholders’ equity - based on IFRS as adopted by the EU | 2 | 20,573 | 20,913 | 30 | 22,815 | 22,449 | ||||||||||||||||||
Non-controlling interests, share options and incentive plans not yet exercised | 33, SOFP 2) | 81 | 88 | |||||||||||||||||||||
Non-controlling interests and Long Term Incentive Plans not yet vested | 31, SOFP 2) | 126 | 73 | |||||||||||||||||||||
Revaluation reserves | 32 | (4,920 | ) | (5,381 | ) | 30 | (7,480 | ) | (5,873 | ) | ||||||||||||||
Remeasurement of defined benefit plans | 32 | 1,669 | 1,820 | |||||||||||||||||||||
Shareholders’ capital | 17,401 | 17,440 | ||||||||||||||||||||||
Adjusted shareholders’ equity | 15,461 | 16,649 | ||||||||||||||||||||||
Perpetual contingent convertible securities | 31 | 500 | 500 | |||||||||||||||||||||
Junior perpetual capital securities | 33 | 3,008 | 3,008 | 31 | 1,564 | 1,564 | ||||||||||||||||||
Perpetual cumulative subordinated bonds | 33 | 454 | 454 | 31 | 454 | 454 | ||||||||||||||||||
Non-cumulative subordinated notes (Other equity instruments) | 33 | 271 | 271 | |||||||||||||||||||||
Fixed floating subordinated notes | 34 | 695 | 695 | 32 | 1,345 | 1,403 | ||||||||||||||||||
Non-cumulative subordinated notes (Subordinated borrowings) | 34 | 69 | 72 | |||||||||||||||||||||
Fixed subordinated notes | 32 | 740 | 804 | |||||||||||||||||||||
Trust pass-through securities | 35 | 133 | 156 | 33 | 126 | 136 | ||||||||||||||||||
Currency revaluation other equity instruments1) | 40 | 340 | (1 | ) | 54 | |||||||||||||||||||
Hybrid leverage | 4,669 | 4,996 | 4,728 | 4,916 | ||||||||||||||||||||
Senior debt3) | 39 | 2,312 | 2,414 | 37 | 1,241 | 1,738 | ||||||||||||||||||
Senior leverage | 2,312 | 2,414 | 1,241 | 1,738 | ||||||||||||||||||||
Total gross financial leverage | 6,982 | 7,409 | 5,969 | 6,653 | ||||||||||||||||||||
Total capitalization | 24,383 | 24,849 | 21,430 | 23,303 | ||||||||||||||||||||
Gross financial leverage ratio | 28.6% | 29.8% | 27.9% | 28.6% | ||||||||||||||||||||
Fixed Charge Coverage | 8.3 x | 7.7 x |
1 | Other equity instruments that are denominated in foreign currencies are, for purpose of calculating hybrid leverage, revalued to the period-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 |
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 2017.
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 13,74912,797 million as at December 31, 2017 (2016:2020 (2019: EUR 11,99613,556 million). The following table shows the composition of the total distributable items:
Distributable items1) | 2017 | 2016 | ||||||
Equity attributable to shareholders - based on IFRS as adopted by the EU | 20,573 | 20,913 | ||||||
Not distributable items: | ||||||||
Share capital | (322 | ) | (319 | ) | ||||
Statutory reserves2) | (6,502 | ) | (8,598 | ) | ||||
At December 31 | 13,749 | 11,996 |
Distributable items | 2020 | 2019 | ||||||
Equity attributable to shareholders based on IFRS as adopted by the EU | 22,815 | 22,449 | ||||||
Non-distributable items: | ||||||||
Share capital | (320 | ) | (323 | ) | ||||
Legal reserves 1) | (9,697 | ) | (8,570 | ) | ||||
At December 31 | 12,797 | 13,556 | ||||||
1 The legal reserves in respect of the foreign currency translation reserve (FCTR), group companies and the positive revaluations in the revaluation reserves, cannot be freely distributed. |
| |||||||
Besides the distributable items under Dutch law, a second restriction on the possibility to distribute dividends stems from Solvency II (Dutch Supervision act).
|
| |||||||
Distributable reserves | 2020 | 2019 | ||||||
Reserves available for financial surpervision purposes | 18,582 | 18,470 | ||||||
Solvency requirement under the Financial Supervision Act | 9,473 | 9,173 | ||||||
Total distributable reserves on the basis of solvency requirements | 9,109 | 9,297 |
The freely distributable reserves is the minimum of distributable items under Dutch law and the freely distributable capital on the basis of solvency requirements and amounted to EUR 9,109 million as at December 31, 2020 (2019: EUR 9,297 million).
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statements Note | ||
The ability of Aegon’s subsidiaries,operating units, principally insurance companies, to pay dividendsremittances to the holding company is constrained by the requirement for these subsidiariesoperating units 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,operating units, local insurance supervisors are able to restrict and/or prohibit the transfer of dividendsremittances to the holding company. In addition, the ability of subsidiariesoperating units to pay dividendsremittances to the holding company can be constrained by the requirement for these subsidiariesoperating units to hold sufficient shareholders’ equity as determined by law. The capitalization level and shareholders’ equity of the subsidiariesoperating units 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 of operating units to pay dividends,transfer funds, Aegon establishes an operating level of capital in each of the subsidiaries holdunits, 150% SCR for Solvency II units and 400% RBC CAL in the US, which includes additional capital in excess of regulatory capital requirements. Aegon manages capital in the levels required by local insurance regulations, as reflected in Aegon’s target capitalization ranges.units to this operating level over-the-cycle.
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 20-F |
Notes to the consolidated financial statements Note | ||
Fair value hierarchy
The table below provides an analysis of assets and liabilities recorded at fair value on a recurring basis by level of the fair value hierarchy:
Level I | Level II | Level III | Total 2017 | Level I | Level II | Level III | Total 2020 | |||||||||||||||||||||||||
Assets carried at fair value | ||||||||||||||||||||||||||||||||
Available-for-sale | ||||||||||||||||||||||||||||||||
Shares | 51 | 151 | 288 | 490 | 90 | 82 | 173 | 345 | ||||||||||||||||||||||||
Debt securities | 26,338 | 52,415 | 1,447 | 80,200 | 28,300 | 64,914 | 467 | 93,681 | ||||||||||||||||||||||||
Money market and other short-term instruments | 1,664 | 5,026 | - | 6,690 | 832 | 3,726 | - | 4,558 | ||||||||||||||||||||||||
Other investments at fair value | - | 208 | 583 | 791 | - | 415 | 581 | 996 | ||||||||||||||||||||||||
28,053 | 57,800 | 2,318 | 88,170 | 29,222 | 69,136 | 1,221 | 99,580 | |||||||||||||||||||||||||
Fair value through profit or loss | ||||||||||||||||||||||||||||||||
Shares | 226 | 232 | 604 | 1,062 | 80 | 226 | 1,329 | 1,634 | ||||||||||||||||||||||||
Debt securities | 1,964 | 2,175 | 4 | 4,144 | 168 | 5,260 | 242 | 5,669 | ||||||||||||||||||||||||
Money market and other short-term instruments | 17 | 102 | - | 119 | 17 | 93 | - | 109 | ||||||||||||||||||||||||
Other investments at fair value | 1 | 539 | 1,255 | 1,795 | 1 | 470 | 2,174 | 2,645 | ||||||||||||||||||||||||
Investments for account of policyholders1) | 115,323 | 76,302 | 1,784 | 193,409 | 118,057 | 104,635 | 1,012 | 223,705 | ||||||||||||||||||||||||
Derivatives | 68 | 5,787 | 57 | 5,912 | 34 | 13,930 | 22 | 13,986 | ||||||||||||||||||||||||
Investments in real estate | - | - | 2,147 | 2,147 | - | - | 2,385 | 2,385 | ||||||||||||||||||||||||
Investments in real estate for policyholders | - | - | 655 | 655 | - | - | 467 | 467 | ||||||||||||||||||||||||
117,599 | 85,137 | 6,506 | 209,241 | |||||||||||||||||||||||||||||
118,356 | 124,613 | 7,631 | 250,600 | |||||||||||||||||||||||||||||
Revalued amounts | ||||||||||||||||||||||||||||||||
Real estate held for own use | - | - | 307 | 307 | - | - | 209 | 209 | ||||||||||||||||||||||||
- | - | 209 | 209 | |||||||||||||||||||||||||||||
| -
|
|
| -
|
|
| 307
|
|
| 307
|
| |||||||||||||||||||||
Total assets at fair value | 145,652 | 142,937 | 9,130 | 297,718 | 147,578 | 193,750 | 9,061 | 350,389 | ||||||||||||||||||||||||
Liabilities carried at fair value | ||||||||||||||||||||||||||||||||
Investment contracts for account of policyholders2) | - | 36,950 | 219 | 37,169 | - | 59,637 | (12 | ) | 59,625 | |||||||||||||||||||||||
Borrowings3) | - | 536 | - | 536 | ||||||||||||||||||||||||||||
Derivatives | 34 | 5,251 | 1,845 | 7,130 | 61 | 9,654 | 4,902 | 14,617 | ||||||||||||||||||||||||
Total liabilities at fair value | 34 | 42,738 | 2,064 | 44,835 | 61 | 69,291 | 4,890 | 74,242 |
1 | The investments for account of policyholders |
2 | The investment contracts for account of policyholders |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 44290 | ||
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 policyholders 1) | 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 policyholders 2) | - | 59,759 | 197 | 59,956 | ||||||||||||
Borrowings 3) | - | 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 include investments carried at fair value through profit or loss. |
2 | The investment contracts for account of policyholders 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. |
Note that the investment contracts for account of policyholders previously reported as Level I have been reclassified to Level II, as the value of these liabilities is directly derived from the fair value of the linked investments for account of policyholders. The comparative numbers have been adjusted accordingly. These reclassifications had no effect on net income, shareholders’ equity or earnings per share.
Level I | Level II | Level III | Total 2016 | |||||||||||||
Assets carried at fair value | ||||||||||||||||
Available-for-sale | ||||||||||||||||
Shares | 119 | 312 | 393 | 824 | ||||||||||||
Debt securities | 29,386 | 69,702 | 1,966 | 101,054 | ||||||||||||
Money market and other short-term instruments | - | 6,776 | - | 6,776 | ||||||||||||
Other investments at fair value | - | 453 | 754 | 1,206 | ||||||||||||
29,504 | 77,243 | 3,112 | 109,860 | |||||||||||||
Fair value through profit or loss | ||||||||||||||||
Shares | 288 | 152 | 50 | 490 | ||||||||||||
Debt securities | 27 | 2,082 | 6 | 2,115 | ||||||||||||
Money market and other short-term instruments | - | 317 | - | 317 | ||||||||||||
Other investments at fair value | 1 | 961 | 1,257 | 2,219 | ||||||||||||
Investments for account of policyholders1) | 125,997 | 75,202 | 1,726 | 202,924 | ||||||||||||
Derivatives | 41 | 8,169 | 108 | 8,318 | ||||||||||||
Investments in real estate | - | - | 1,999 | 1,999 | ||||||||||||
Investments in real estate for policyholders | - | - | 686 | 686 | ||||||||||||
126,355 | 86,883 | 5,831 | 219,069 | |||||||||||||
Revalued amounts | ||||||||||||||||
Real estate held for own use | - | - | 332 | 332 | ||||||||||||
| -
|
|
| -
|
|
| 332
|
|
| 332
|
| |||||
Total assets at fair value | 155,860 | 164,126 | 9,275 | 329,261 | ||||||||||||
Liabilities carried at fair value | ||||||||||||||||
Investment contracts for account of policyholders2) | - | 42,627 | 176 | 42,803 | ||||||||||||
Borrowings3) | - | 610 | - | 610 | ||||||||||||
Derivatives | 64 | 6,347 | 2,467 | 8,878 | ||||||||||||
Total liabilities at fair value | 64 | 49,584 | 2,643 | 52,290 |
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 2017 | Total 2016 | Total 2020 | Total 2019 | |||||||||||||||||||||||||||||
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 | - | 5 | 69 | - | 46 | 12 | 3 | ||||||||||||||||||||||||
Money markets and other short-term instruments | - | 1,664 | - | - | ||||||||||||||||||||||||||||
- | 46 | 12 | 3 | |||||||||||||||||||||||||||||
13 | 1,666 | 5 | 69 | |||||||||||||||||||||||||||||
Fair value through profit or loss | ||||||||||||||||||||||||||||||||
Shares | 124 | 19 | - | - | - | - | 8 | 8 | ||||||||||||||||||||||||
Investments for account of policyholders | 12 | 30 | 3 | (1 | ) | - | - | - | 8 | |||||||||||||||||||||||
136 | 49 | 3 | (1 | ) | - | - | 8 | 16 | ||||||||||||||||||||||||
Total assets at fair value | 149 | 1,714 | 8 | 68 | - | 46 | 20 | 19 | ||||||||||||||||||||||||
Investment contracts for account of policyholders | 1 | - | - | - | ||||||||||||||||||||||||||||
Total liabilities carried at fair value | 1 | - | - | - | ||||||||||||||||||||||||||||
Total Liabilities carried at fair value | - | - | - | - |
Transfers are identified based on transaction volume and frequency, which are indicative of an active market.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 44291 | ||
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 | 393 | 54 | (46 | ) | 68 | (112 | ) | (35 | ) | (34 | ) | - | - | - | - | 288 | - | |||||||||||||||||||||||||||||||||||
Debt securities | 1,966 | 39 | (2 | ) | 678 | (149 | ) | (890 | ) | (186 | ) | - | 203 | (211 | ) | - | 1,447 | - | ||||||||||||||||||||||||||||||||||
Other investments at fair value | 754 | (112 | ) | (109 | ) | 194 | (48 | ) | (9 | ) | (87 | ) | - | 1 | - | - | 583 | - | ||||||||||||||||||||||||||||||||||
3,112 | (19 | ) | (158 | ) | 939 | (309 | ) | (935 | ) | (307 | ) | - | 205 | (211 | ) | - | 2,318 | - | ||||||||||||||||||||||||||||||||||
Fair value through profit or loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | 50 | (11 | ) | - | 583 | (18 | ) | - | - | - | - | - | - | 604 | (11 | ) | ||||||||||||||||||||||||||||||||||||
Debt securities | 6 | - | - | - | - | - | (1 | ) | - | - | - | - | 4 | 1 | ||||||||||||||||||||||||||||||||||||||
Other investments at fair value | 1,257 | 23 | - | 378 | (350 | ) | - | (162 | ) | - | 341 | (233 | ) | - | 1,255 | 20 | ||||||||||||||||||||||||||||||||||||
Investments for account of policyholders | 1,726 | 11 | - | 671 | (622 | ) | - | (27 | ) | - | 32 | (8 | ) | - | 1,784 | 30 | ||||||||||||||||||||||||||||||||||||
Derivatives | 108 | (33 | ) | - | - | - | - | (2 | ) | (16 | ) | - | - | - | 57 | (21 | ) | |||||||||||||||||||||||||||||||||||
Investments in real estate | 1,999 | 193 | - | 246 | (202 | ) | - | (89 | ) | - | - | - | - | 2,147 | 77 | |||||||||||||||||||||||||||||||||||||
Investments in real estate for policyholders | 686 | 38 | - | 10 | (53 | ) | - | (26 | ) | - | - | - | - | 655 | 38 | |||||||||||||||||||||||||||||||||||||
5,831 | 220 | - | 1,889 | (1,245 | ) | - | (306 | ) | (16 | ) | 374 | (241 | ) | - | 6,506 | 134 | ||||||||||||||||||||||||||||||||||||
Revalued amounts | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Real estate held for own use | 332 | (2 | ) | 8 | (3 | ) | (4 | ) | - | (24 | ) | - | - | - | - | 307 | (3 | ) | ||||||||||||||||||||||||||||||||||
| 332
|
|
| (2
| )
|
| 8
|
|
| (3
| )
|
| (4
| )
|
| -
|
|
| (24
| )
|
| -
|
|
| -
|
|
| -
|
|
| -
|
|
| 307
|
|
| (3
| )
| ||||||||||||||
Total assets at fair value | 9,275 | 199 | (150 | ) | 2,826 | (1,558 | ) | (935 | ) | (638 | ) | (16 | ) | 578 | (452 | ) | - | 9,130 | 131 | |||||||||||||||||||||||||||||||||
Liabilities carried at fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment contracts for account of policyholders | 176 | 7 | - | 60 | (21 | ) | - | (12 | ) | - | 10 | (2 | ) | - | 219 | (2 | ) | |||||||||||||||||||||||||||||||||||
Derivatives | 2,467 | (828 | ) | - | - | 300 | - | (75 | ) | 10 | - | - | (30 | ) | 1,845 | (745 | ) | |||||||||||||||||||||||||||||||||||
2,643 | (821 | ) | - | 60 | 279 | - | (87 | ) | 10 | 10 | (2 | ) | (30 | ) | 2,064 | (747 | ) |
Assets carried at fair value | At January 1, 2020 | Acquisitions through business combinations | Disposal of a business | Total gains / losses in income statement1 | 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, 2020 | Total unrealized gains and (losses) for the period recorded in the P&L for instruments held at December 31, 20203 | |||||||||||||||||||||||||||||||||||||||||||||
Available-for-sale | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | 157 | - | - | (27 | ) | 24 | 49 | (15 | ) | (1 | ) | (12 | ) | - | - | (2 | ) | - | 173 | - | ||||||||||||||||||||||||||||||||||||||||
Debt securities | 1.074 | - | - | 3 | (19 | ) | 155 | (11 | ) | (34 | ) | (32 | ) | - | 26 | (695 | ) | - | 467 | - | ||||||||||||||||||||||||||||||||||||||||
Money markets and other short-term instruments | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
Other investments at fair value | 482 | - | - | (140 | ) | 28 | 302 | (19 | ) | (22 | ) | (50 | ) | - | - | - | - | 581 | - | |||||||||||||||||||||||||||||||||||||||||
1.712 | - | - | (163 | ) | 34 | 505 | (45 | ) | (56 | ) | (94 | ) | - | 26 | (697 | ) | - | 1.221 | - | |||||||||||||||||||||||||||||||||||||||||
Fair value through profit or loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | 1.401 | - | - | (132 | ) | - | 160 | (97 | ) | - | (3 | ) | - | - | - | - | 1.329 | (98 | ) | |||||||||||||||||||||||||||||||||||||||||
Debt securities | 4 | - | - | - | - | 276 | (37 | ) | - | - | - | - | - | - | 242 | - | ||||||||||||||||||||||||||||||||||||||||||||
Other investments at fair value | 2.049 | - | - | 122 | - | 432 | (250 | ) | - | (184 | ) | - | 16 | (13 | ) | - | 2.173 | (1 | ) | |||||||||||||||||||||||||||||||||||||||||
Investments for account of policyholders | 1.805 | - | - | 3 | - | (168 | ) | (607 | ) | - | (20 | ) | - | - | - | - | 1.012 | 37 | ||||||||||||||||||||||||||||||||||||||||||
Derivatives | 56 | - | - | (33 | ) | - | - | - | - | - | - | - | - | - | 22 | (32 | ) | |||||||||||||||||||||||||||||||||||||||||||
Investments in real estate | 2.901 | - | - | 65 | - | 150 | (717 | ) | - | (14 | ) | - | - | - | - | 2.385 | 196 | |||||||||||||||||||||||||||||||||||||||||||
Investments in real estate for policyholders | 586 | - | - | (36 | ) | - | 4 | (56 | ) | - | (31 | ) | - | - | - | - | 467 | (52 | ) | |||||||||||||||||||||||||||||||||||||||||
8.802 | - | - | (11 | ) | - | 854 | (1.765 | ) | - | (251 | ) | - | 16 | (13 | ) | - | 7.631 | 51 | ||||||||||||||||||||||||||||||||||||||||||
Revalued amounts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real estate held for own use | 208 | - | - | (9 | ) | 18 | 5 | (5 | ) | - | (8 | ) | - | - | - | - | 209 | - | ||||||||||||||||||||||||||||||||||||||||||
208 | - | - | (9 | ) | 18 | 5 | (5 | ) | - | (8 | ) | - | - | - | - | 209 | - | |||||||||||||||||||||||||||||||||||||||||||
Total assets at fair value | 10.722 | - | - | (183 | ) | 51 | 1.364 | (1.815 | ) | (57 | ) | (354 | ) | - | 42 | (710 | ) | - | 9.061 | 51 | ||||||||||||||||||||||||||||||||||||||||
Liabilities carried at fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment contracts for account of policyholders | 197 | - | - | 9 | - | (200 | ) | (16 | ) | - | (3 | ) | - | - | - | - | (12 | ) | 7 | |||||||||||||||||||||||||||||||||||||||||
Derivatives | 3.081 | - | - | 2.073 | (9 | ) | - | (15 | ) | - | (228 | ) | - | - | - | - | 4.902 | 314 | ||||||||||||||||||||||||||||||||||||||||||
3.278 | - | - | 2.082 | (9 | ) | (200 | ) | (31 | ) | - | (231 | ) | - | - | - | - | 4.890 | 321 |
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 / (losses) on revaluation of available-for-sale investments, (Gains) / losses transferred to the income statement on disposal and impairment of available-for-sale investments and Changes in revaluation reserve real estate held for own use of the statement of other comprehensive income. |
3 | Total gains / (losses) for the period during which the financial instrument was in Level III. |
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statementsNote | ||
Assets carried at fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Available-for-sale | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | 293 | 27 | (7 | ) | 161 | (92 | ) | (1 | ) | 11 | - | - | - | - | 393 | - | ||||||||||||||||||||||||||||||||||||
Debt securities | 4,144 | 1 | 92 | 443 | (262 | ) | (287 | ) | 39 | - | 651 | (2,854 | ) | - | 1,966 | - | ||||||||||||||||||||||||||||||||||||
Other investments at fair value | 928 | (177 | ) | 20 | 240 | (133 | ) | (141 | ) | 18 | - | - | (1 | ) | - | 754 | - | |||||||||||||||||||||||||||||||||||
5,365 | (150 | ) | 105 | 845 | (487 | ) | (429 | ) | 68 | - | 651 | (2,856 | ) | - | 3,112 | - | ||||||||||||||||||||||||||||||||||||
Fair value through profit or loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | - | 3 | - | 48 | - | - | - | - | - | - | - | 50 | 3 | |||||||||||||||||||||||||||||||||||||||
Debt securities | 6 | (1 | ) | - | - | - | - | - | - | - | - | - | 6 | - | ||||||||||||||||||||||||||||||||||||||
Other investments at fair value | 1,265 | (44 | ) | - | 178 | (277 | ) | - | 35 | - | 419 | (321 | ) | - | 1,257 | (42 | ) | |||||||||||||||||||||||||||||||||||
Investments for account of policyholders | 1,745 | 22 | - | 469 | (395 | ) | - | (35 | ) | - | 8 | (88 | ) | - | 1,726 | 23 | ||||||||||||||||||||||||||||||||||||
Derivatives | 222 | (285 | ) | - | 75 | 108 | - | (12 | ) | - | - | - | - | 108 | (287 | ) | ||||||||||||||||||||||||||||||||||||
Investments in real estate | 1,990 | 70 | - | 120 | (215 | ) | - | 19 | 15 | - | - | - | 1,999 | 118 | ||||||||||||||||||||||||||||||||||||||
Investments in real estate for policyholders | 1,022 | (26 | ) | - | 81 | (260 | ) | - | (131 | ) | - | - | - | - | 686 | 22 | ||||||||||||||||||||||||||||||||||||
6,250 | (261 | ) | - | 971 | (1,039 | ) | - | (123 | ) | 15 | 427 | (409 | ) | - | 5,831 | (163 | ) | |||||||||||||||||||||||||||||||||||
Revalued amounts | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Real estate held for own use | 338 | (9 | ) | 8 | 5 | - | - | 6 | (15 | ) | - | - | - | 332 | 5 | |||||||||||||||||||||||||||||||||||||
| 338
|
|
| (9
| )
|
| 8
|
|
| 5
|
|
| -
|
|
| -
|
|
| 6
|
|
| (15
| )
|
| -
|
|
| -
|
|
| -
|
|
| 332
|
|
| 5
|
| ||||||||||||||
Total assets at fair value | 11,954 | (420 | ) | 113 | 1,821 | (1,527 | ) | (429 | ) | (49 | ) | - | 1,077 | (3,264 | ) | - | 9,275 | (159 | ) | |||||||||||||||||||||||||||||||||
Liabilities carried at fair value | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment contracts for account of policyholders | 156 | (14 | ) | - | 45 | (12 | ) | - | 2 | - | - | (2 | ) | - | 176 | 1 | ||||||||||||||||||||||||||||||||||||
Derivatives | 2,104 | 542 | - | - | (207 | ) | - | 28 | - | - | - | - | 2,467 | 562 | ||||||||||||||||||||||||||||||||||||||
2,260 | 528 | - | 45 | (219 | ) | - | 31 | - | - | (2 | ) | - | 2,643 | 563 |
Assets carried at fair value | At January 1, 2019 | Acquisitions through business combinations | Disposal of a business | Total gains / losses in income statement1 | 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 | ) | - | 0 | - | - | - | - | 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 | ) | - | 2 | - | - | - | - | 197 | (10 | ) | |||||||||||||||||||||||||||||||||||||||||||
Derivatives | 2.489 | - | - | 597 | 4 | - | (22 | ) | - | 14 | - | - | - | - | 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 / (losses) on revaluation of available-for-sale investments, (Gains) / losses transferred to the income statement on disposal and impairment of available-for-sale investments and Changes in revaluation reserve real estate held for own use of the statement of other comprehensive income. |
3 | Total gains / (losses) for the period during which the financial instrument was in Level III. |
During 2017,2020, 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 58842 million (2016:(2019: EUR 1,077263 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 2017,2020, Aegon transferred EUR 454710 million (full year 2016:(2019: EUR 3,266517 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 20-F |
Notes to the consolidated financial statementsNote | ||
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.
Valuation technique 1) | Significant unobservable input 2) | December 31, 2020 | Range (weighted average) | December 31, 2019 | Range (weighted average) | |||||||||||||||||||||||||||||||||||||||
Assets carried at fair value | Valuation technique 1) | Significant unobservable input2) | December 31, 2017 | Range (weighted average) | December 31, 2016 | Range (weighted average) | ||||||||||||||||||||||||||||||||||||||
Available-for-sale | ||||||||||||||||||||||||||||||||||||||||||||
Shares | Net asset value 3) | n.a. | 231 | n.a. | 262 | n.a. | Net asset value | n.a. | 136 | n.a. | 119 | n.a. | ||||||||||||||||||||||||||||||||
Other | n.a. | 57 | n.a. | 131 | n.a. | Other | n.a. | 37 | n.a. | 38 | n.a. | |||||||||||||||||||||||||||||||||
288 | 393 | 173 | 157 | |||||||||||||||||||||||||||||||||||||||||
Debt securities | Broker quote | n.a. | 1,034 | n.a. | 1,389 | n.a. | Broker quote | n.a. | 374 | n.a. | 818 | n.a. | ||||||||||||||||||||||||||||||||
Discounted cash flow | Credit spread | 29 | 2.38% | 25 | 3.24% | |||||||||||||||||||||||||||||||||||||||
1.04% - 2.72% | 1.30% - 3.37% | Discounted cash flow | Constant Prepayment Rate | 6 | n.a. | 7 | 25.00% | |||||||||||||||||||||||||||||||||||||
Discounted cash flow | Credit spread | 116 | (2.64%) | 221 | (3.08%) | Discounted cash flow | Constant Prepayment Rate | 24 | 8.57% | 30 | 7.82% | |||||||||||||||||||||||||||||||||
Other | n.a. | 297 | n.a. | 355 | n.a. | Other | n.a. | 34 | n.a. | 193 | n.a. | |||||||||||||||||||||||||||||||||
1,447 | 1,966 | 467 | 1,074 | |||||||||||||||||||||||||||||||||||||||||
Other investments at fair value | ||||||||||||||||||||||||||||||||||||||||||||
Tax credit investments | Discounted cash flow | Discount rate | 528 | 5.8% | 676 | 5.6% | Discounted cash flow | Discount rate | 517 | 6.55% | 435 | 6.48% | ||||||||||||||||||||||||||||||||
Investment funds | Net asset value 3) | n.a. | 31 | n.a. | 45 | n.a. | Net asset value | n.a. | 12 | n.a. | 14 | n.a. | ||||||||||||||||||||||||||||||||
Other | Other | n.a. | 24 | n.a. | 32 | n.a. | Other | n.a. | 52 | n.a. | 33 | n.a. | ||||||||||||||||||||||||||||||||
583 | 754 | 581 | 482 | |||||||||||||||||||||||||||||||||||||||||
At December 31 | 2,318 | 3,112 | 1,221 | 1,712 | ||||||||||||||||||||||||||||||||||||||||
Fair value through profit or loss | ||||||||||||||||||||||||||||||||||||||||||||
Shares | Other | n.a. | 604 | n.a. | 50 | n.a. | Other | n.a. | 1,329 | n.a. | 1,401 | n.a. | ||||||||||||||||||||||||||||||||
Debt securities | Other | n.a. | 4 | n.a. | 6 | n.a. | Other | n.a. | 3 | n.a. | 4 | n.a. | ||||||||||||||||||||||||||||||||
Debt securities | Broker quote | n.a. | 239 | n.a. | - | n.a. | ||||||||||||||||||||||||||||||||||||||
609 | 56 | 1,571 | 1,405 | |||||||||||||||||||||||||||||||||||||||||
Other investments at fair value | ||||||||||||||||||||||||||||||||||||||||||||
Investment funds | Net asset value 3) | n.a. | 1,246 | n.a. | 1,252 | n.a. | Net asset value | n.a. | 2,095 | n.a. | 1,984 | n.a. | ||||||||||||||||||||||||||||||||
Other | Other | n.a. | 9 | n.a. | 5 | n.a. | Other | n.a. | 79 | n.a. | 65 | n.a. | ||||||||||||||||||||||||||||||||
1,255 | 1,257 | 2,174 | 2,049 | |||||||||||||||||||||||||||||||||||||||||
Derivatives | ||||||||||||||||||||||||||||||||||||||||||||
Longevity swap | Discounted cash flow | Mortality | 24 | n.a. | 27 | n.a. | Discounted cash flow | Mortality | 22 | n.a. | 55 | n.a. | ||||||||||||||||||||||||||||||||
Longevity swap | -/- 0.21% - | |||||||||||||||||||||||||||||||||||||||||||
Discounted cash flow | Risk free rate | - | - | 73 | 1.67% (1.01%) | |||||||||||||||||||||||||||||||||||||||
Other | Other | n.a. | 30 | n.a. | 4 | n.a. | ||||||||||||||||||||||||||||||||||||||
54 | 104 | 22 | 55 | |||||||||||||||||||||||||||||||||||||||||
Real estate | ||||||||||||||||||||||||||||||||||||||||||||
Investments in real estate | Direct capitalization | Capitalization | 3.0% - 10.0% | 4.8% - 10.5% | Direct capitalization | Capitalization rate | - | n.a. | 580 | 4.25% - 5.5% | ||||||||||||||||||||||||||||||||||
technique | rate | 496 | (5.9%) | 568 | (6.3%) | technique | (3.3% | ) | ||||||||||||||||||||||||||||||||||||
Appraisal value | n.a. | 1,495 | n.a. | 1,237 | n.a. | Appraisal value | n.a. | 2,331 | n.a. | 2,229 | n.a. | |||||||||||||||||||||||||||||||||
Other | n.a. | 155 | n.a. | 193 | n.a. | Other | n.a. | 54 | n.a. | 92 | n.a. | |||||||||||||||||||||||||||||||||
2,147 | 1,999 | 2,385 | 2,901 | |||||||||||||||||||||||||||||||||||||||||
At December 31 | 4,065 | 3,415 | 6,152 | 6,410 | ||||||||||||||||||||||||||||||||||||||||
Revalued amounts | ||||||||||||||||||||||||||||||||||||||||||||
Real estate held for own use | Direct capitalization | Capitalization | 6.0% - 10.0% | 6.5% - 9.5% | Direct capitalization | Capitalization rate | 28 | 8.00% - 9.50% | 54 | 7.75% - 9.50% | ||||||||||||||||||||||||||||||||||
technique | rate | 157 | (7.9%) | 178 | (7.9%) | technique | (8.80%) | (9.00% | ) | |||||||||||||||||||||||||||||||||||
Appraisal value | n.a. | 115 | n.a. | 120 | n.a. | Appraisal value | n.a. | 104 | n.a. | 108 | n.a. | |||||||||||||||||||||||||||||||||
Other | n.a. | 35 | n.a. | 34 | n.a. | Other | n.a. | 77 | n.a. | 46 | n.a. | |||||||||||||||||||||||||||||||||
At December 31 | 307 | 332 | 209 | 208 | ||||||||||||||||||||||||||||||||||||||||
Total assets at fair value4) | 6,689 | 6,859 | 7,582 | 8,330 | ||||||||||||||||||||||||||||||||||||||||
Liabilities carried at fair value | ||||||||||||||||||||||||||||||||||||||||||||
Derivatives | ||||||||||||||||||||||||||||||||||||||||||||
Embedded derivatives in | Own credit | 0.2% - 0.3% | 0.4% - 0.5% | |||||||||||||||||||||||||||||||||||||||||
insurance contracts | Discounted cash flow | spread | 1,831 | (0.22%) | 2,083 | (0.4%) | Discounted cash flow | Own credit spread | 4,902 | 0.25% | 3,072 | 0.2% - 0.3% (0.24% | ) | |||||||||||||||||||||||||||||||
Longevity swap | Discounted cash flow | Mortality | 10 | n.a. | - | n.a. | Discounted cash flow | Mortality | - | n.a. | 9 | n.a. | ||||||||||||||||||||||||||||||||
Other | Other | n.a. | 3 | n.a. | 384 | n.a. | ||||||||||||||||||||||||||||||||||||||
Total liabilities at fair value | 1,845 | 2,467 | 4,902 | 3,081 |
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 |
3 |
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 nil (2019: EUR |
For reference purposes, the valuation techniques included in the table above are described in more detail on the following pages.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 44294 | ||
Effect of changes in significant unobservable assumptions to reasonably possible alternatives
From all significant unobservable inputs, ownOwn credit spread, as included in the discount rate for embedded derivatives in insurance contracts, is considered significant.as a significant unobservable input. 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 205 basis points included in the discount rate.
December 31, 2017 | Effect of reasonably possible alternative assumptions (+/-) | December 31, 2016 | Effect of reasonably possible alternative assumptions (+/-) | |||||||||||||||||||||||||||||||||||||
Increase | Decrease | Increase | Decrease | December 31, 2020 | Effect of reasonably possible alternative assumptions (+/-) | December 31, 2019 | Effect of reasonably possible alternative assumptions (+/-) 1) | |||||||||||||||||||||||||||||||||
Increase | Decrease | Increase | Decrease | |||||||||||||||||||||||||||||||||||||
Financial liabilities carried at fair value | ||||||||||||||||||||||||||||||||||||||||
Embedded derivatives in insurance contracts | 1,831 | 125 | (120 | ) | 2,083 | 205 | (194 | ) | 4,902 | 48 | (48 | ) | 3,072 | 43 | (42 | ) |
1 | The comparative figures have been adjusted to reflect the effect of 5 basis points. |
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.
2017 | Carrying amount December 31, 2017 | Estimated fair value hierarchy | Total estimated fair value December 31, 2017 | |||||||||||||||||||||||||||||||||||||
2020 | Carrying amount December 31, 2020 | Estimated fair value hierarchy | Total estimated fair value December 31, 2020 | |||||||||||||||||||||||||||||||||||||
Level I | Level II | Level III | Level I | Level II | Level III | |||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||
Mortgage loans - held at amortized cost | 33,562 | - | - | 38,076 | 38,076 | 38,244 | - | 1 | 43,257 | 43,258 | ||||||||||||||||||||||||||||||
Private loans - held at amortized cost | 3,642 | - | 64 | 4,117 | 4,181 | 4,358 | - | 38 | 5,242 | 5,280 | ||||||||||||||||||||||||||||||
Other loans - held at amortized cost | 2,164 | 6 | 1,991 | 166 | 2,164 | 1,917 | 41 | 1,850 | 26 | 1,917 | ||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||
Subordinated borrowings - held at amortized cost | 764 | 791 | 162 | - | 953 | 2,085 | 1,517 | 834 | - | 2,351 | ||||||||||||||||||||||||||||||
Trust pass-through securities - held at amortized cost | 133 | - | 137 | - | 137 | 126 | - | 51 | 91 | 142 | ||||||||||||||||||||||||||||||
Borrowings – held at amortized cost | 13,099 | 2,116 | 28 | 11,355 | 13,499 | 8,524 | 1,766 | 2,083 | 5,315 | 9,165 | ||||||||||||||||||||||||||||||
Investment contracts - held at amortized cost | 16,665 | - | 9,676 | 7,356 | 17,031 | 20,889 | - | - | 20,382 | 20,382 |
2016 | Carrying amount December 31, 2016 | Estimated fair value hierarchy | Total estimated fair value December 31, 2016 | |||||||||||||||||||||||||||||||||||||
2019 | Carrying amount December 31, 2019 | Estimated fair value hierarchy | Total estimated 31, 2019 | |||||||||||||||||||||||||||||||||||||
Level I | Level II | Level III | Level I | Level II | Level III | |||||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||||
Mortgage loans - held at amortized cost | 33,696 | - | - | 38,498 | 38,499 | 37,750 | - | 1 | 42,566 | 42,567 | ||||||||||||||||||||||||||||||
Private loans - held at amortized cost | 3,166 | - | 52 | 3,516 | 3,569 | 4,487 | - | 65 | 5,094 | 5,159 | ||||||||||||||||||||||||||||||
Other loans - held at amortized cost | 2,441 | - | 2,292 | 148 | 2,441 | 2,353 | 45 | 2,080 | 228 | 2,353 | ||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||
Subordinated borrowings - held at amortized cost | 767 | 703 | 140 | - | 844 | 2,207 | 1,560 | 855 | - | 2,416 | ||||||||||||||||||||||||||||||
Trust pass-through securities - held at amortized cost | 156 | - | 141 | - | 141 | 136 | - | 144 | - | 144 | ||||||||||||||||||||||||||||||
Borrowings – held at amortized cost | 12,543 | 2,138 | 31 | 10,766 | 12,935 | 8,845 | 1,728 | 30 | 7,565 | 9,322 | ||||||||||||||||||||||||||||||
Investment contracts - held at amortized cost | 19,217 | - | 8,951 | 10,797 | 19,748 | 18,382 | - | - | 18,964 | 18,964 |
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-F |
Notes to the consolidated financial statements Note | ||
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. Fair valuesFor 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, arethe 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. Also for unquoted shares the net asset value may 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.
Available-for-sale shares include shares in a Federal Home Loan Bank (FHLB) for an amount of EUR 20493 million (2016:
(2019: EUR 23791 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.
Investment funds: Real estate funds, private equity funds and hedge funds
The fair values of investments held in non-quoted investment funds are determined by management after taking into consideration information provided by the fund managers. Aegon reviews the valuations each month and performs analytical procedures and trending analyses to ensure the fair values are appropriate. The net asset value is considered the best valuation method that approximates the fair value of the funds.
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. Thequotes, the majority of brokers’ quoteswhich are non-binding. As part of the pricing process, Aegon assesses the appropriateness of each quote (i.e. as to whether the quote is based on observable market transactions or not) to determine the most appropriate estimate of fair value. Lastly,
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 performs in-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.
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-F 2020 |
Notes to the consolidated financial statements Note 44296 | ||
Aegon’s portfolio of private placement securities (held at fair value under the classification of available-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 the 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 decreased to 2.6%2.4% (December 31, 2016: 3.1%2019: 2.5%).
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 increased to 5.8%6.6% (December 31, 2016: 5.6%2019: 6.5%).
Investment funds: Real estate funds, private equity funds and hedge funds
The fair values of investments held in non-quoted investment funds are determined by management after taking into consideration information provided by the fund managers. Aegon reviews the valuations each month and performs analytical procedures and trending analyses to ensure the fair values are appropriate. The net asset value is considered the best valuation method that approximates the fair value of the funds.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 44297 | ||
Mortgage loans, policy loans and private loans (held at amortized costcost))
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.
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.
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 for over-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 are so-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 a cost-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 decreasedincreased to 0.2% (2016: 0.4%0.25% (2019: 0.24%).
The expected returns are based on risk-free rates. Aegon added a premium to reflect the credit spread as required. The credit spread is set by using the Credit default swap (CDS) spreads of a reference portfolio of life insurance companies (including Aegon), adjusted to reflect the subordination of senior debt holders at the holding company level to the position of policyholders at the operating
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statements Note | ||
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 4.25%Rate. In the Netherlands, the ultimate forward rate is 3.65% from the last liquid point. In 2020, Aegon changed its ultimate forward rate in the US from 4.25% to 3.55%. 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 bothLevel 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) such as credit spreads and issuer yield curves and unobservable market inputs (Level III) such as an illiquidity discount and credit quality adjustments. Aegon uses a discounted cash flow method including yield curves such as deposit rates, floating rates, 3-month swap rates, and the US Treasury yield curve. In addition, Aegon includes own credit spread based on Aegon’s credit default swap curve. The trust past-through securities have been classified asLevel III of the fair value hierarchy.
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 20-F 2020 |
Notes to the consolidated financial statements Note 44299 | ||
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.
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 and 3-month swap rates. In addition, Aegon includes own credit spread based on Aegon’s credit default swap curve.
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.
2017 | 2016 | |||||||||||||||||||||||||||||||
Trading | Designated | Trading | Designated | 2020 | 2019 | |||||||||||||||||||||||||||
Trading | Designated | Trading | Designated | |||||||||||||||||||||||||||||
Investments for general account | 78 | 7,042 | 66 | 5,076 | 114 | 9,943 | 277 | 8,803 | ||||||||||||||||||||||||
Investments for account of policyholders | - | 193,409 | - | 202,924 | - | 223,705 | - | 225,788 | ||||||||||||||||||||||||
Derivatives with positive values not designated as hedges | 5,430 | - | 6,935 | - | 13,364 | - | 10,634 | - | ||||||||||||||||||||||||
Total financial assets at fair value through profit or loss | 5,508 | 200,451 | 7,001 | 208,001 | 13,479 | 233,647 | 10,910 | 234,591 | ||||||||||||||||||||||||
Investment contracts for account of policyholders | - | 37,169 | - | 42,803 | - | 59,625 | - | 59,956 | ||||||||||||||||||||||||
Derivatives with negative values not designated as hedges | 6,792 | - | 8,386 | - | 13,828 | - | 11,175 | - | ||||||||||||||||||||||||
Borrowings | - | 536 | - | 610 | - | - | - | 461 | ||||||||||||||||||||||||
Total financial liabilities at fair value through profit or loss | 6,792 | 37,705 | 8,386 | 43,413 | 13,828 | 59,625 | 11,175 | 60,417 |
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 and private equity funds) for which the performance is assessed internally on a total return basis. In addition, some investments for general account 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 as available-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 insurerAegon 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.
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 (note 39(refer to note 37 Borrowings).
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statements Note | ||
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:
2017 | 2016 | |||||||||||||||
Trading | Designated | Trading | Designated | |||||||||||||
Net gains and (losses) | 13,924 | 5,679 | 6,509 | 8,815 |
2020 | 2019 | |||||||
Trading | Designated | Trading | Designated | |||||
Net gains and (losses) | 18,090 | 3,215 | 21,020 | 13,574 |
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 2018.2021. 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.
2017 | 2016 | |||||||||||||||||||||||
Purchase | Sale | Purchase | Sale | 2020 | 2019 | |||||||||||||||||||
Purchase | Sale | Purchase | Sale | |||||||||||||||||||||
Real estate | 196 | 39 | - | 44 | 180 | 14 | 168 | 3 | ||||||||||||||||
Mortgage loans | 3,152 | 69 | 424 | 78 | 1,469 | 122 | 859 | 79 | ||||||||||||||||
Private loans | 705 | - | 44 | - | 172 | - | 394 | - | ||||||||||||||||
Other | 2,373 | - | 1,314 | - | 1,310 | - | 1,824 | - |
Commitments increased in 2017 as a result of Aegon’s strategy to generate higher yield on its investments. Aegon has committed itself, through certain subsidiaries, to invest in real estate, private loans, mortgagesmortgage 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. Mortgage loansloan commitments represent undrawn mortgage loan facilityfacilities provided and outstanding proposals on mortgages. The sale of mortgage loans relates to pre-announced redemptions on mortgage loans. Private loans representsrepresent deals on Aegon’s portfolio of private placement securities that Aegon has committed to, but which have not yet settled and funded. Other commitments include future purchases of interests in investment funds and limited partnerships.
Future lease payments
2017 | 2016 | |||||||||||||||||||||||
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 | 74 | 143 | 201 | 88 | 189 | 231 | ||||||||||||||||||
Operating lease rights | 41 | 104 | 27 | 53 | 124 | 32 |
< 1 year amounts | 1 < 2 years amounts | 2 < 3 years amounts | 3 < 4 years amounts | 4 < 5 years amounts | > 5 years amounts | |||||||
2020 | ||||||||||||
Operating lease rights | 8 | 6 | 5 | 4 | 4 | 22 |
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 |
The operating lease rights relate to non-cancellable commercial property leases.
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statements Note | ||
Other commitments and contingencies
2017 | 2016 | |||||||||||||||
2020 | 2019 | |||||||||||||||
Guarantees | 483 | 682 | 364 | 380 | ||||||||||||
Standby letters of credit | 12 | 29 | 11 | 12 | ||||||||||||
Share of contingent liabilities incurred in relation to interests in joint ventures | 39 | 40 | 7 | 14 | ||||||||||||
Other guarantees | 16 | 18 | 11 | 13 | ||||||||||||
Other commitments and contingent liabilities | 32 | 12 | 7 | 7 |
Guarantees include those guarantees associated with the sale of investments in low-income housing tax credit partnerships in the United States.States, which can be called upon if there is a deficiency in the tax benefits delivered to the investor or if Aegon is in default under a material provision of the contract. 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
Pursuant to a series of agreements between affiliates of Transamerica Corporation and Long Term Care Group (LTCG), an independent third party administrator, Transamerica transferred to LTCG the administration and claims management of its long term care insurance business line, enabling Transamerica to accelerate the enhancement of its digital capabilities and modernize 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 represent compensation for administering Transamerica’s long term care product line including 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.
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 fees 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 49 million (period 2021-2022) 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.
In November 2018, Aegon UK announced an extended partnership with Atos BPS Ltd (Atos) to service and administer its Existing Business (non-Platform customers). The agreement is a 15-year contract under which Aegon UK pays Atos to administer around 1.4 million customers, which took effect on June 1, 2019 as planned. At year-end 2020, outstanding transition and conversion charges are estimated to amount to approximately GBP 21 million, which are expected to be recorded over the next two 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 January 1, 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.
Transamerica Corporation, a wholly-owned subsidiary of Aegon N.V., has provided 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, 2017, this amounted to EUR 1,793 million (2016 EUR: 2,002 million).
Aegon Annual Report on Form 20-F 2020 |
Aegon International B.V., a wholly-owned subsidiary of Aegon N.V., has entered into a contingent capital letter for an amount of JPY 6.5 billion (EUR 49 million) to support its joint venture Aegon Sony Life Insurance Company meeting local statutory requirements.
Notes to the consolidated financial statements Note 45302 | ||
Aegon N.V. has guaranteed and is severally liable for the following:
◆ | Due and punctual payment of payables |
◆ | Due and punctual payment of payables |
◆ | 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 |
◆ | 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. |
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, securities, investment management, investment advisory and annuities businesses as well as Aegon’s corporate compliance, including compliance with employment, sanctions, anti-corruption andregulations applicable to it as a corporate entity.
Due to the geographic spread of its business, Aegon Group may be subject to tax regulations.
Aegon subsidiaries regularly receive inquiries from local regulators and policyholder advocatesaudits or litigation in various jurisdictions, includingjurisdictions. Although uncertainties are provided for adequately in the United States,tax position, the Netherlands, andultimate outcome of the United Kingdom. In some cases, Aegon subsidiaries have modified business practicestax audits of litigation may result in response to inquiries or findings of inquiries. Regulators may seek fines or penalties, or changes toan outcome that differs from the way Aegon operates.amounts provided for.
Insurance companies and their affiliated regulated entities are routinely subject to litigation, investigation and regulatory activity by various governmental review involvingand enforcement authorities, individual claimants and policyholder advocate groups in the jurisdictions in which Aegon does business, including the United States, the Netherlands, Poland and the United Kingdom. These actions may involve issues such as,including, but not limited to, product feesemployment or distribution relationships; operational and costs, includinginternal controls and processes; investment returns; sales practices; transparency and adequacy of disclosure ofproduct disclosures including regarding initial costs, ongoing costs, and costs due on policy surrender as well as changes to costs over time; employment or distribution relationships; operationalenvironmental and internal controls and processes; environmentalclimate change related matters; competition and antitrust matters; data privacy; information security; intellectual property; and anti-money laundering, anti-bribery and economic sanctions compliance.
ManyGovernment and regulatory investigations may result in the institution of Aegon’sadministrative, 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. Regulators may also seek changes to the way Aegon operates. In some cases, Aegon subsidiaries have modified business practices in response to inquiries.
Customers of certain Aegon 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. 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. OnceLitigation exposure 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, adverse publicity 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 business.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 45303 | ||
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 vigorously when it believes claims are without merit. Aegon has also settled and will seek to settle certain claims, including through policy modifications, as it believes appropriate. While Aegon intends to resist claims, there can be no assurance that claims brought against Aegon will not have a material adverse impact on its businesses, results of operations, and financial position.
Proceedings in which Aegon is involved
The SEC is conducting a formal investigation related to certain investment strategies offered through mutual funds, variable products and separately managed accounts. These strategies used quantitative models developed by one of the former portfolio managers of Aegon’s US investment management business units. Among other things, the investigation relates to the operation of and/or the existence of errors in the quantitative models in question and related disclosures. The funds and strategies under review were sub-advised, advised or marketed by Aegon’s US group companies. The models are no longer being used, although some of the funds are still being offered. The quantitative strategies are no longer being offered. Aegon is cooperating fully with the investigation. Aegon believes that the investigation will conclude in 2018, and has taken a provision of EUR 85 million in anticipation of a possible settlement with the SEC. This amount is partly recorded in the Americas (EUR 45 million) and partly in Aegon Asset Management (EUR 40 million). Government investigations, including this one, 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. While Aegon is unable to predict what actions, if any, might be taken and is unable to predict the costs to or other impact on Aegon of any such action, there can be no assurances that this matter or other government investigations will not have a material and adverse effect on Aegon’s reputation, financial position, results of operations or liquidity.
Aegon and other US insurers have been sued for charging fees on products offered in 401(k) platforms which allegedly were higher than fees charged on other products available in the market. In February 2018, the US Court of Appeals for the Ninth Circuit reversed the District Court’s order denying Transamerica companies’ motion to dismiss and directed the District Court to grant the motion to dismiss and vacated class certification. Plaintiffs may appeal.Several US insurers, including Aegon subsidiary Transamerica Life Insurance Company (“TLIC”),subsidiaries, have also been named in class actions as well as individual litigation relating to increases in monthly deduction rates increases(‘‘MDR’’) on universal life products. Plaintiffs generally allege that the ratesincreases were increasedmade to recoup past losses rather than to cover the future costs of providing insurance coverage. TheAegon’s subsidiary in the US has agreed to settle two such class action against TLIC is pendingactions that had been venued in the US federal district courtDistrict Court for the Central District of California. The settlement in the first case, approved in January 2019,arose from increases implemented in 2015-2016. Over 99% of affected policyholders participated in that 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 are ongoing. Resolution of this class action ended a number of other related cases, including other federal and state class actions. In the first phasesecond case, Aegon’s subsidiary agreed to settle a class action lawsuit arising out of oneMDR increases in 2017 and 2018. The court approved that settlement on September 16, 2020. Opt-outs in this case represent less than 7% of the value of the settlement fund. On October 15, 2020, two opt-out policyholders whose objections to the settlement were overruled by the trial court filed an appeal. The appeal has delayed implementation of the settlement. The settlement fund was reduced proportionally for opt outs, although Aegon continues to hold a provision for these policyholders. In the only individual casescase against TLICAegon’s subsidiary to reach trial the(in 2017), a jury found that thea 2013 increase to a certain group of policies was improper. That case remains ongoing.The jury verdict was affirmed on appeal, which ended the case. 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 these matters,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 2017,December 2020, there remained a provision of USD 1.56 million remained in provisions,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’s US operations alsoUS-based subsidiaries may face employment-related lawsuits from time to time. For example, several US-basedAegon recently defendedsubsidiaries have been named in a suit filed by self-employed independent insurance agents associated with one of Aegon’s financial marketing units who have claimedclass action alleging that they are, in fact, employeesthe business model for a part of the organization. The court granted Aegon’s motion to only allow individualbusiness inappropriately characterizes distributors as independent contractors instead of employees. Depending on the outcome, these lawsuits, along with similar claims to move forwardagainst other companies and cease collectiveregulatory action proceedingscould result in this case. Management believessignificant settlements or judgments, and could necessitate a change in the distribution model, which would be costly and could have a material impact on the financial results for that part of the potential direct financial exposure in this case is not material. This lawsuit was resolved favorably to Aegon.Aegon US business.
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 as pre-judgment interest of approximately USD 120 million. On appeal this decision was reversed on procedural grounds and remanded back to the trial court for further consideration.which ruled to dismiss the case; however, the Plaintiff appealed the trial court’s ruling. The appeal is still 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 2017,2020, a provision of EUR 2010 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.
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. DevelopmentsAegon has made improvements across its product lines, including after settlements reached in similar cases against other Dutch insurers currently before regulators2009 with Stichting Woekerpolis and courts mayStichting Verliespolis. Aegon also affect Aegon.decided to reduce
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 46304 | ||
future policy costs for the large majority of 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-linkedunit 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. This claim is being vigorously defended. In June 2017 (and revised in December 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 placed in force.in-force. Most of the claims of Vereniging Woekerpolis.nlWoekerpolis. 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. The Court of Appeal has stayed the proceedings and indicated to decide on March 30, 2021 on the continuation of the proceedings. 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 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 Stichting 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. Aegon defends itself vigorously against these claims. In October 2017, the district court of The Hague foundruled 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. In February 2020, the Court of Appeal rejected all claims filed by Platform Aandelenlease against Aegon Bank. This ruling has become final.
In the Netherlands, Aegon is also 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 Financial Services Complaints Authority (‘Klachteninstituut Financiële Dienstverlening’), with numerous cases having been initiated by Leaseproces B.V. In December 2020 Aegon reached an agreement on a settlement with Leaseproces B.V. for those customers with Vliegwiel and Sprintplan products who are represented by Leaseproces B.V. The casesettlement is now pending atsubject to conditions precedent and further operational details have yet to be agreed. Execution of the courtsettlement is expected in 2021. Aegon has taken a provision for the settlement. However, the outcome of appeal of The Hague. At this time,the settlement and any (potential) legal proceedings in relation to Vliegwiel and Sprintplan products is uncertain, and therefore Aegon is unable to estimate the range ora potential maximum liability.liability at this time. 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 and non-cash collateral. The transferred assets are not derecognized. The obligation to repay the cash collateral is recognized as a liability. The non-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-F 2020 |
Notes to the consolidated financial statements Note 46305 | ||
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.
2020 | ||||||||||||||||||||||||
2017 | Financial assets at fair value | |||||||||||||||||||||||
Available-for-sale financial assets | Financial assets at fair value through profit or loss | Available-for-sale financial assets | through profit or loss | |||||||||||||||||||||
Shares | Debt securities | Debt securities | Investments for account of policyholders | Shares | Debt securities | Debt securities | Investments for account of policyholders | |||||||||||||||||
Carrying amount of transferred assets | 114 | 5.805 | 54 | 384 | 64 | 3,068 | 11 | 153 | ||||||||||||||||
Carrying amount of associated liabilities | 122 | 5,929 | 55 | 93 | 71 | 3,166 | 14 | - |
2016 | 2019 | |||||||||||||||||||||||
Available-for-sale financial assets | Financial assets at fair value through profit or loss | Available-for-sale financial assets | Financial assets at fair value through profit or loss | |||||||||||||||||||||
Shares | Debt securities | Debt securities | Investments for account of policyholders | Shares | Debt securities | Debt securities | Investments for account of policyholders | |||||||||||||||||
Carrying amount of transferred assets | 226 | 5,298 | 20 | 194 | 144 | 3,127 | 20 | 161 | ||||||||||||||||
Carrying amount of associated liabilities | 242 | 5,400 | 21 | 204 | 155 | 3,304 | 21 | 4 |
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 in pre-designated high quality investments. The sum of cash and non-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 entirelyentirety as per year-end 2020 and as per year-end 2017 and 2016.2019.
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 | 2017 | 2016 | 2020 | 2019 | ||||||||
Carrying amount of transferred financial assets | 4,987 | 4,262 | 2,320 | 2,734 | ||||||||
Fair value of cash collateral received | 3,277 | 3,633 | 2,053 | 2,146 | ||||||||
Fair value of non-cash collateral received | 1,847 | 1,077 | 393 | 780 | ||||||||
Net exposure | (138 | ) | (448 | ) | (126) | (192) | ||||||
Non-cash collateral that can be sold or repledged in the absence of default | 1,550 | 991 | 236 | 618 | ||||||||
Non-cash collateral that has been sold or transferred | - | - | - | - |
Reverse repurchase agreements | 2017 | 2016 | ||||||
Cash paid for reverse repurchase agreements | 4,859 | 4,075 | ||||||
Fair value of non-cash collateral received | 4,885 | 4,103 | ||||||
Net exposure | (25 | ) | (27 | ) | ||||
Non-cash collateral that can be sold or repledged in the absence of default | 4,166 | 3,288 | ||||||
Non-cash collateral that has been sold or transferred | - | - |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 46306 | ||
Reverse repurchase agreements | 2020 | 2019 | ||||||
Cash paid for reverse repurchase agreements | 1,180 | 4,980 | ||||||
Fair value of non-cash collateral received | 1,199 | 5,003 | ||||||
Net exposure | (19 | ) | (23 | ) | ||||
Non-cash collateral that can be sold or repledged in the absence of default | 869 | 4,640 | ||||||
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 of over-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.
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 other non-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 | 2017 | 2016 | 2020 | 2019 | ||||||||||||
General account (contingent) liabilities | 5,588 | 6,440 | 2,832 | 2,664 | ||||||||||||
Collateral pledged | 6,951 | 8,115 | 4,090 | 3,726 | ||||||||||||
Net exposure | (1,363 | ) | (1,675 | ) | (1,258 | ) | (1,061 | ) | ||||||||
Non-cash collateral that can be sold or repledged by the counterparty | - | - | - | - | ||||||||||||
Assets pledged for repurchase agreements | 2017 | 2016 | ||||||||||||||
Cash received on repurchase agreements | 1,373 | 1,489 | ||||||||||||||
Collateral pledged (transferred financial assets) | 1,370 | 1,477 | ||||||||||||||
Net exposure | 3 | 12 |
Assets pledged for repurchase agreements | 2020 | 2019 | ||||||
Cash received on repurchase agreements | 962 | 719 | ||||||
Collateral pledged (transferred financial assets) | 975 | 718 | ||||||
Net exposure | (13) | - |
As part of Aegon’s mortgage loan funding program in the Netherlands, EUR 6.54.4 billion (2016:(2019: EUR 6.85.5 billion) has been pledged as security for notes issued (note 39(refer to note 37 Borrowings). In addition, the notes of SAECURE 17 and SAECURE 19 are held intercompany and are eliminated against the notes issued by the special purpose entity (SPE) in the consolidation process. Per December 31, 2020, as part of SAECURE 17, EUR 575 million has been posted as collateral with respect to the longevity reinsurance contract with Canada Life Reinsurance (2019: EUR 510 million).The notes from SAECURE 19 are European Central Bank eligible retained notes and therefore generated increased liquidity capacity. Additionally, in order to trade derivatives on the various exchanges, Aegon posts margin as collateral. The amount of collateral pledged for derivative transactions was EUR 2,234 million (2016:2.3 billion (2019: EUR 2,688 million)2.4 billion).
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 47307 | ||
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 to set-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 position | Net amount | ||||||||||||||||||||
Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements | Financial instruments | Cash collateral received | ||||||||||||||||||||||
2017 | ||||||||||||||||||||||||
Derivatives | 5,823 | - | 5,823 | 4,973 | 821 | 30 | ||||||||||||||||||
At December 31 | 5,823 | - | 5,823 | 4,973 | 821 | 30 | ||||||||||||||||||
2016 | ||||||||||||||||||||||||
Derivatives | 8,114 | - | 8,114 | 6,427 | 1,486 | 201 | ||||||||||||||||||
At December 31 | 8,114 | - | 8,114 | 6,427 | 1,486 | 201 |
Financial assets subject | Gross | Gross amounts of | Net amounts of | Related amounts not set off in the | ||||||||||
to offsetting, | amounts of | recognized financial | financial assets | statements of financial position | ||||||||||
enforceable master | recognized | liabilities set off in | presented in the | Cash collateral | ||||||||||
netting arrangements | financial | the statement of | statement of | Financial | received (excluding | Net | ||||||||
and similar agreements | assets | financial position | financial position | instruments | surplus collateral) | amount | ||||||||
2020 | ||||||||||||||
Derivatives | 14,030 | - | 14,030 | 8,778 | 5,224 | 27 | ||||||||
At December 31 | 14,030 | - | 14,030 | 8,778 | 5,224 | 27 | ||||||||
2019 | ||||||||||||||
Derivatives | 11,220 | - | 11,220 | 8,261 | 2,837 | 122 | ||||||||
At December 31 | 11,220 | - | 11,220 | 8,261 | 2,837 | 122 |
Financial liabilities | Gross | Gross amounts of | Net amounts of | Related amounts not set off in the | ||||||||||||||||||||||||||||||||||
subject to offsetting, | amounts of | recognized financial | financial liabilities | statements of financial position | ||||||||||||||||||||||||||||||||||
enforceable master | recognized | assets set off in the | presented in the | Cash collateral | ||||||||||||||||||||||||||||||||||
netting arrangements | financial | statement of | statement of | Financial | pledged (excluding | Net | ||||||||||||||||||||||||||||||||
and similar agreements | 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 position | Net amount | ||||||||||||||||||||||||||||||||||
Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements | Financial instruments | Cash collateral pledged (excluding surplus collateral) | ||||||||||||||||||||||||||||||||||||
2017 | ||||||||||||||||||||||||||||||||||||||
2020 | ||||||||||||||||||||||||||||||||||||||
Derivatives | 5,185 | - | 5,185 | 5,145 | 2 | 38 | 9,633 | - | 9,633 | 9,436 | 170 | 28 | ||||||||||||||||||||||||||
At December 31 | 5,185 | - | 5,185 | 5,145 | 2 | 38 | 9,633 | - | 9,633 | 9,436 | 170 | 28 | ||||||||||||||||||||||||||
2016 | ||||||||||||||||||||||||||||||||||||||
2019 | ||||||||||||||||||||||||||||||||||||||
Derivatives | 6,689 | - | 6,689 | 6,570 | 20 | 99 | 8,556 | - | 8,556 | 8,433 | 43 | 80 | ||||||||||||||||||||||||||
At December 31 | 6,689 | - | 6,689 | 6,570 | 20 | 99 | 8,556 | - | 8,556 | 8,433 | 43 | 80 |
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 20172020 and 2016.2019.
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’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 of over-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.
Acquisitions
20172020
On JanuaryJuly 30, 2020, Aegon announced the completion of the expansion of its partnership with Santander in Spain. This follows the agreement signed on July 3, 2018 between Aegon and Banco Santander to expand their life and non-life insurance partnership, following Banco Santander’s acquisition of Banco Popular. Aegon’s insurance joint ventures with Banco Santander in Spain completed the acquisition of the in force term life policies previously sold through Banco Popular branches as well as the right to write new term life and selected lines of non-life policies through the former Banco Popular branches now owned by Banco Santander. The transaction was closed following satisfaction of all closing conditions, including the termination of existing alliances of Banco Popular. For its 51% stake in the expansion of the joint venture with Banco Santander, Aegon paid an upfront amount of EUR 187 million – lower than the EUR 215 million communicated in July 2018 mainly due to the results of the in-force portfolio which accrued to Santander till closing. Furthermore, the previously agreed contingent payment of up to EUR 75 million is due in 2024, subject to the performance of the partnership.
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 48308 | ||
2019
There were no significant acquisitions in 2019.
2018
On July 1, 2017,2018, 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 on the performance of the partnership. The consideration will be funded from Cash Capital at Holding. 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 Cofunds Ltd., following regulatory approval. The purchaseRobidus, a leading income protection service provider in the Netherlands. Under the terms of the Cofunds Ltd. business was done through a saleagreement, Aegon acquired 94.4% and purchase agreementvoting interests of the company with the remainder to acquire all the shares and platform assets.be retained by Robidus’ management team. The total consideration of the acquisition amounted to GBP 147 million (EUR 171 million). TheEUR 103 million. Based on the purchase price allocation the fair value of the net assets amounted to GBP 99EUR 18 million, (EUR 116 million),resulting in a goodwill of EUR 85 million.
Divestments/Disposals
2020
On November 29, 2020, Aegon agreed to sell its insurance, pension and asset management business in Hungary, Poland, Romania and Turkey for EUR 830 million to Vienna Insurance Group AG Wiener Versicherung Gruppe (VIG). This will result in an increase in IFRS equity of EUR 505 million, of which GBP 25EUR 362 million (EUR 29 million) related to “customer intangibles”, resulting in goodwill of GBP 48 million (EUR 56 million). The value ofis recognized as a book gain based on the transferred customer investments under management as per January 1, 2017 amounted to approximately GBP 82 billion (EUR 96 billion) and is not recognizedbalance sheet position on Aegon’s statement of financial position.
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).
2016
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.2020, excluding transaction costs. The transaction is subject to a Part VII transfer of the underlying assets and liabilities to Aegon, which is subject to regulatory and court approval.antitrust approvals customary for transactions of this nature and is expected to close in the course of 2021.
On August 11, 2016October 9, 2020, Aegon announced the acquisitionsale of Cofunds from Legal & General forStonebridge, a UK-based provider of accident insurance products. The net proceeds of approximately GBP 14060 million (EUR 16465 million). The purchase consist of the Cofunds Ltd business is done throughpurchase price and dividends related to the transaction, and exclude a contingent consideration of up to GBP 10 million. The proceeds are equal to one times Stonebridge’s Solvency II Own Funds at year-end 2019. The sale was completed on February 28, 2021 and purchase agreement to acquire all the shareshad no material impact on Aegon’s capital position and platform assets. results.
On January 1, 201729, 2020, Aegon completed the acquisitionsale of Cofunds, following regulatory approval.
20152019
On June 4, 2015 Aegon completed a strategic asset management partnership with La Banque Postale. Under the terms of the agreement, Aegon has acquired a 25% stake in La Banque Postale Asset Management (LBPAM) for a consideration of EUR 117 million.
On September 25, 2015, Aegon announced that it has acquired Mercer’s US defined contribution record-keeping business. On December 31, 2015,January 8, 2019, Aegon completed the acquisition after obtaining regulatory approval.sale of its businesses in Czech Republic and Slovakia. The total purchase pricebusinesses 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 decreased. In 2018, the underlying earnings before tax of the combined operations amounted to EUR 70 million (USD 78 million), consisting of EUR 64 million (USD 71 million) cash and EUR 6 million (USD 7 million) contingent consideration. Cash position of Mercer amounts to nil on acquisition date.17 million.
2018
On December 7, 2015, Aegon announced that it has increased its investment in Aegon Religare Life Insurance Company ARLI from 26 percent to 49 percent. The company has been renamed as Aegon Life Insurance Company Ltd.
Divestments/Disposals
2017
On June 28, 2017,April 3, 2018, Aegon completed its transactionthe sale of Aegon Ireland plc to divest its two largest run-off businesses in the Americas, the payout annuity business and Bank Owned Life Insurance/ Corporate Owned Life Insurance business (BOLI/COLI). Under the termsAthora Holding Ltd. agreed to on August 9, 2017. The net proceeds of the agreement, Aegon’s Transamerica life subsidiaries has reinsured USD 14 billion of liabilities.transaction amounted to GBP 177 million (EUR 202 million). The transaction resulted indivestment led to a book gainloss of USD 250GBP 81 million (EUR 23193 million), reported in the line other income in the condensed consolidated income statement. The book gain consisted of a lossnote 17 Other charges. This divestment had no material impact 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.underlying earnings before tax going forward. Upon disposal, an amount of USD 979GBP 31 million (EUR 90536 million) and USD 1,018 million (EUR 941 million) respectively related to revaluation reservesthe foreign currency translation and cash flownet foreign investment hedging reservesreserve 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).
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 August 9, 2017, Aegon agreed to sell Aegon Ireland plc. The sales price will amount to 81% of the Solvency II Own Funds of Aegon Ireland at the end of 2017. This transaction further optimizes its portfolio of businesses. As the transaction is contingent on certain closing and market conditions until closing of the transaction, the book loss is uncertain. This divestment is expected to have an immaterial impact on income before tax and underlying earnings before tax going forward. The transaction is subject to customary regulatory approvals and is expected to close in the first half of 2018.
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, 2017,7, 2018, Aegon agreed to divest athe last substantial block of its US life reinsurance business and to dissolve a related captive insurance company.SCOR Global Life. Under the terms of the agreement, Aegon’s Transamerica life subsidiaries reinsured approximately USD 750700 million of liabilities.liabilities through SCOR. The transaction covers approximately halfcovered the block 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 commercial non-life insurance business, which includes the proxy2011 and coinsurance run-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.2017. 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 salehad a one-time benefit of USD 50 million on July 1, 2016, which resulted in a gain of EUR 11 million.Transamerica’s capital position.
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statements Note | ||
On May 13, 2016,August 15, 2018, Aegon completed the salehas agreed to sell its business in Czech Republic and Slovakia for EUR 155 million to NN Group. The business consists mainly of certain assets of Transamerica Financial Advisors, a full service independent broker-dealerunit linked life insurance coverage, term life products 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 month earn-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 losspension 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 GBP 530 million (EUR 682 million), reported in the line other charges in the consolidated income statement.combined operations amounted to EUR 17 million. The transaction resultedhas closed early 2019.
Aegon entered into a series of agreements under which it disposed of its Hungarian mortgage business, captured 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 wereseparate legal entity. The sale was 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 paidOctober 2018, 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.was not material. This transactiondivestment has no material impact on the consolidated numbers of Aegon.underlying earnings before tax going forward.
2015
On March 3, 2015, Aegon completed the sale of its 35% share in La Mondiale Participations following the granting of approval by the French Competition Authority (Autorité de la Concurrence). The agreement to sell Aegon’s stake in La Mondiale Participations to La Mondiale for EUR 350 million was announced on November 24, 2014. Proceeds from the sale were added to Aegon’s excess cash buffer, and increased the group’s Insurance Group Directive (IGD) solvency ratio by over 4 percentage points at the time of the sale.
On July 31, 2015, Aegon completed the sale of its Canadian life insurance business following regulatory approval. The agreement to sell Aegon’s Canadian life insurance business for an amount of CAD 600 million (EUR 428 million) was announced on October 16, 2014. The transaction resulted in a book loss of CAD 1,054 million (EUR 751 million) recorded and presented as part of ‘other charges’, please refer to Note 17 Other charges. Aegon used the proceeds of this transaction for the redemption of the USD 500 million 4.625% senior bond which was due in December 2015.
The results of the Canadian operations reflect amounts previously recorded in Other Comprehensive Income that were reclassified into the income statement including CAD 178 million (EUR 127 million) release of the foreign currency translation reserve, CAD (72) million (EUR (51) million) release of the net foreign investment hedging reserve and CAD 668 million (EUR 476 million) for the release of the available for sale reserve. The net cash proceeds were CAD 543 million (EUR 387 million) consisting of CAD 600 million (EUR 428 million) cash received and the cash and cash equivalents included in the sale of CAD 57 million (EUR 41 million). Expenses related to the transaction, including cost of sale, amounted to CAD 11 million (EUR 8 million).
On September 1, 2015, Aegon completed the sale of Clark Consulting following regulatory approval. The agreement to sell Clark Consulting for USD 177.5 million (EUR 160 million) was announced on July 10, 2015 and resulted in a gain of USD 8 million (EUR 7 million). The cash and cash equivalents included at the time of the sales amounted to USD 13 million (EUR 12 million).
On September 7, 2015, Aegon completed the sale of its 25.1% share in platform provider and discretionary fund manager Seven Investment Management (7IM) for GBP 19 million (EUR 26 million). This transaction has led to a net gain of GBP 7 million (EUR 10 million). 7IM was recorded as an associate in the books of Aegon.
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 Casualty Insurance Company, Cedar Rapids, Iowa (United States); |
◆ | Transamerica Financial Life Insurance Company, |
◆ | Transamerica Life Insurance Company, Cedar Rapids, Iowa (United States) |
The Netherlands
◆ | Aegon Bank N.V., The Hague; |
◆ | Aegon Cappital B.V., Groningen; |
◆ | Aegon Hypotheken B.V., The Hague; |
◆ | Aegon Levensverzekering N.V., The Hague; |
◆ | Aegon Schadeverzekering N.V., The Hague; |
◆ | Aegon Spaarkas N.V., The Hague; |
◆ |
◆ | Robidus Groep B.V., Zaandam; |
◆ | TKP Pensioen B.V., |
United Kingdom
◆ | Aegon Investment Solutions Ltd., Edinburgh; |
◆ | Aegon Investments Ltd., London; |
◆ | Scottish Equitable plc, Edinburgh; |
◆ | Cofunds Limited, London. |
Central & Eastern EuropeInternational
◆ | Aegon Magyarország Általános Biztosító Zá |
◆ | Aegon Towarzystwo |
◆ | 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.); |
Spain & Portugal
◆ | Aegon España S.A.U. de Seguros y Reaseguros, Madrid (Spain); |
Asia
◆ | Transamerica Life (Bermuda) Ltd., Hamilton (Bermuda) |
Asset Management
◆ | Aegon |
◆ |
Asset Management
◆ | Aegon Asset Management Holding B.V., The Hague (The Netherlands); |
◆ | Aegon Investment Management B.V, The Hague (The Netherlands); |
◆ | Aegon Asset Management UK plc, Edinburgh (United Kingdom); |
◆ | Aegon Magyarország Befektetési Alapkezelõ Zártkörûen Mûködõ Részvénytársaság (Aegon Hungary Asset Management Company ZrtA), Budapest (Hungary). |
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 50310 | ||
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 except for Akaan where Aegon has 50% of the voting power.
Americas
The Netherlands
◆ | AMVEST Vastgoed, |
◆ | AMVEST Living & Care Fund, Amsterdam (50%); |
◆ | AMVEST Development Fund, Amsterdam (50%). |
Spain & PortugalInternational
◆ | 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) |
Asia
◆ | Aegon THTF Life Insurance Co., Ltd., Shanghai (China) |
◆ |
Asset Management
◆ | Aegon Industrial Fund Management Co., Ltd, Shanghai (China) |
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) |
The Netherlands
◆ | AMVEST Residential Core Fund, Amsterdam (29%). |
Asset Management
◆ | La Banque Postale Asset Management, Paris (France) |
Refer to note 2725 Investments in joint ventures and associates for further details on these investments.
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.
None of the transaction listed hereunder qualify as a Material Transaction, i.e. a transaction entered into by the Company where the information regarding the transaction on its own or taken together with other transactions entered into in the course of the same financial year with the same party, constitutes inside information as defined in article 7 of the MAR.
On December 19, 201711, 2020 Aegon N.V. repurchased 13,042,5922,955,600 common shares B from Vereniging Aegon for the amount of EUR 1,725,169.73228,911.22 based on 1/40th40th of the Value Weight Average Price of the common shares of the five trading days preceding this
Aegon Annual Report on Form 20-F 2020 |
Notes to the consolidated financial statements Note 50311 | ||
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,May 15, 2020, 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 1,979,2602,154,000 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, 2017,15, 2020, in connection with the Long Term Incentive Plans for senior management.
On June 6, 2016December 23, 2019 Aegon N.V. repurchased 17,324,96013,227,120 common shares B from Vereniging Aegon for the amount of EUR 1,968,332,1,384,046 based on 1/40th of the Value Weight Average Price of the common shares ofon the 5five 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.
On November 13, 2015,17, 2019, Vereniging Aegon exercised its options rights to purchase in aggregate 7601,773,680 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 a correction to Aegon’sthe issuance of shares on May 21, 2015,17, 2019, in connection with the Long Term Incentive Plans for senior management.
On May 21, 2015,18, 2018, Vereniging Aegon exercised its options rights to purchase in aggregate 3,686,0001,489,200 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 by the issuance of shares on May 21, 2015,18, 2018, in connection with the Long Term Incentive Plans for senior management.
On January 1, 2015, Vereniging Aegon exercised its options rights to purchase in aggregate 9,680 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 issuance of shares on January 1, 2015, in connection with the Long Term Incentive Plans for senior management.
Remuneration of members of the Supervisory Board, Executive Board and Key Management Board
The Management Board, which assistsfollowing table includes 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, Chief Risk Officer, Chief Technology Officer, Global Head HR and General Counsel. In April 2017, the members of the Management Board decreased by one due to the retirement of the CEO of Aegon Central & Eastern Europe.
The totalexpenses for remuneration, for the members of the Management Board over 2017 was EUR 19.8 million (2016: EUR 18.6 million; 2015: EUR 15.2 million), consisting of EUR 7.4 million (2016: EUR 7.0 million; 2015: EUR 6.3 million) fixed compensation, EUR 7.8 million variable compensation awards (2016: EUR 6.4 million; 2015: EUR 4.9 million), EUR 0.9 million (2016: EUR 1.9 million; 2015: EUR 1.6 million) other benefits and EUR 3.7 million (2016: EUR 3.4 million; 2015: EUR 2.5 million) pension premiums. Amounts arewith amounts reflective of time spent on the Management Board.
Expenses as recognized under IFRSRemuneration expenses
2020 | 2019 | 2018 | ||||||||||
Supervisory Board | 0.9 | 1.0 | 1.0 | |||||||||
Executive Board | 5.9 | 5.8 | 6.3 | |||||||||
Key Management | 24.5 | 26.4 | 21.5 | |||||||||
In fixed compensation | 14.0 | 14.5 | 9.4 | |||||||||
In cash based variable compensation | 3.3 | 3.6 | 3.6 | |||||||||
In share based variable compensation | 2.9 | 3.2 | 3.3 | |||||||||
In pension contributions | 3.2 | 3.9 | 4.3 | |||||||||
In other benefits | 1.2 | 1.2 | 0.9 |
In 2019 the fixed compensation amount of the Key Management included EUR 717 thousand 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 6.3 million (2016: EUR 6.0 million; 2015: EUR 5.0 million) and EUR 3.7 million (2016: EUR 3.2 million; 2015: EUR 3.4 million) for pensions. Total IFRS expenses for theseverance payments. The Key Management consists of all members of the Supervisory Board, Executive Board and Management Board over 2017 were EUR 18.3 million (2016: EUR 18.7 million; 2015: EUR 16.8 million). The amount is reflective(see the chapter Composition of time spent on the Management Board.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, rewards 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 rewards earned during a certain performance year instead of what was received in a certain year.
Fixed compensation
In EUR thousand | 2017 | 2016 | 2015 | |||||||||
Alex Wynaendts | 1,269 | 1,269 | 1,154 | |||||||||
Matt Rider1) | 560 | - | - | |||||||||
Darryl Button | - | 933 | 991 | |||||||||
Total fixed compensation | 1,829 | 2,202 | 2,145 |
Conditional variable compensation awards
In EUR thousand | 2017 | 2016 | 2015 | |||||||||
Alex Wynaendts | 1,147 | 1,044 | 923 | |||||||||
Matt Rider1) | 499 | - | - | |||||||||
Darryl Button2) | - | 747 | 784 | |||||||||
Total conditional variable compensation awards | 1,646 | 1,791 | 1,707 |
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 2017 and previous performance years, expenses under IFRS for Mr. Wynaendts amounted to EUR 1,092 (2016: EUR 956; 2015: EUR 900). For Mr. Rider the expenses under IFRS amounted to EUR 293.
2017
Over the performance year 2017, Mr. Wynaendts was awarded EUR 1,147 in total conditional variable compensation. Mr. Rider was awarded EUR 499.
Variable compensation is split 50/50 in a cash payment 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, less the number of shares to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the 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 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 to ex-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 an allocation of shares vesting. The vested shares, less the number of shares to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the 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.
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.
Variable compensation is split 50/50 in a cash payment and an allocation of shares. Of the variable compensation related to performance year 2016, 40% is payable in 2017. Accordingly, Mr. Wynaendts and Mr. Button will receive a cash payment of EUR 209 and EUR 149 respectively. The number of shares to be made available in 2017 relating to performance year 2016 is 40,722 and 29,614 for Mr. Wynaendts and Mr. Button respectively. The vested shares, less the number of shares to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the 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 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 to ex-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 an allocation of shares vesting. The vested shares, less the number of shares to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the 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.
2015
Over the performance year 2015, Mr. Wynaendts was awarded EUR 923 in total conditional variable compensation. Mr. Button was awarded EUR 784.
Variable compensation is split 50/50 in a cash payment and an allocation of shares. Of the variable compensation related to performance year 2015, 40% is payable in 2016. Accordingly, Mr. Wynaendts and Mr. Button will receive a cash payment of EUR 185 and EUR 157 respectively. The number of shares to be made available in 2016 relating to performance year 2015 is 30,219 and 23,621 for Mr. Wynaendts and Mr. Button respectively. The vested shares, less the number of shares to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the 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 for the performance year 2015 (60%), for Mr. Wynaendts EUR 277 and 45,330 shares and for Mr. Button EUR 235 and 35,433 shares, is to be paid out in equal portions in 2017, 2018 and 2019, subject to ex-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 an allocation of shares vesting. The vested shares, less the number of shares to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the 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 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 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | |||||||||||||||||||||||||
Alex Wynaendts | ||||||||||||||||||||||||||||||||
2007 | 9,253 8) | - | 9,253 | - | - | - | - | - | ||||||||||||||||||||||||
20111) | 17,304 | 17,304 | - | - | - | - | - | - | ||||||||||||||||||||||||
20122) | 65,110 | 32,555 | 32,555 | - | - | - | - | - | ||||||||||||||||||||||||
20133) | 62,943 | 20,981 | 20,981 | 20,981 | - | - | - | - | ||||||||||||||||||||||||
20144) | 67,761 | 27,105 | 13,552 | 13,552 | 13,552 | - | - | - | ||||||||||||||||||||||||
20155) | 75,549 | - | 30,219 | 15,110 | 15,110 | 15,110 | - | - | ||||||||||||||||||||||||
20166) | 101,805 | - | - | 40,722 | 20,361 | 20,361 | 20,361 | - | ||||||||||||||||||||||||
20177) | 109,330 | - | - | - | 43,732 | 21,866 | 21,866 | 21,866 | ||||||||||||||||||||||||
Total number of shares9) | 509,055 | 97,945 | 106,560 | 90,365 | 92,755 | 57,337 | 42,227 | 21,866 | ||||||||||||||||||||||||
Matt Rider | ||||||||||||||||||||||||||||||||
20177) | 47,539 | - | - | - | 19,015 | 9,508 | 9,508 | 9,508 | ||||||||||||||||||||||||
Total number of shares9) | 47,539 | - | - | - | 19,015 | 9,508 | 9,508 | 9,508 | ||||||||||||||||||||||||
Darryl Button | ||||||||||||||||||||||||||||||||
20133) | 28,716 | 9,572 | 9,572 | 9,572 | - | - | - | - | ||||||||||||||||||||||||
20144) | 43,258 | 17,302 | 8,652 | 8,652 | 8,652 | - | - | - | ||||||||||||||||||||||||
20155) | 59,054 | - | 23,621 | 11,811 | 11,811 | 11,811 | - | - | ||||||||||||||||||||||||
20166) | 74,038 | - | - | 29,614 | 14,808 | 14,808 | 14,808 | - | ||||||||||||||||||||||||
20177) | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Total number of shares9) | 205,066 | 26,874 | 41,845 | 59,649 | 35,271 | 26,619 | 14,808 | - | ||||||||||||||||||||||||
Jan J. Nooitgedagt | ||||||||||||||||||||||||||||||||
20111) | 11,250 | 11,250 | - | - | - | - | - | - | ||||||||||||||||||||||||
20122) | 44,740 | 22,370 | 22,370 | - | - | - | - | - | ||||||||||||||||||||||||
20133) | 26,478 | 8,826 | 8,826 | 8,826 | - | - | - | - | ||||||||||||||||||||||||
Total number of shares9) | 82,468 | 42,446 | 31,196 | 8,826 | - | - | - | - | ||||||||||||||||||||||||
Cash (in EUR) | ||||||||||||||||||||||||||||||||
Alex Wynaendts | ||||||||||||||||||||||||||||||||
2011 | 81,795 | 81,795 | - | - | - | - | - | - | ||||||||||||||||||||||||
2012 | 203,536 | 101,768 | 101,768 | - | - | - | - | - | ||||||||||||||||||||||||
2013 | 309,489 | 103,163 | 103,163 | 103,163 | - | - | - | - | ||||||||||||||||||||||||
2014 | 456,643 | 182,656 | 91,329 | 91,329 | 91,329 | - | - | - | ||||||||||||||||||||||||
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 | ||||||||||||||||||||||||
Total cash | 2,608,378 | 469,382 | 480,782 | 495,577 | 517,422 | 311,383 | 219,122 | 114,710 | ||||||||||||||||||||||||
Matt Rider | ||||||||||||||||||||||||||||||||
2017 | 249,390 | - | - | - | 99,756 | 49,878 | 49,878 | 49,878 | ||||||||||||||||||||||||
Total cash | 249,390 | - | - | - | 99,756 | 49,878 | 49,878 | 49,878 | ||||||||||||||||||||||||
CONTINUED > |
Conditional granted performance related remuneration | Timing of vesting, subject to targets and conditions | |||||||||||||||||||||||||||||||
Cash (in EUR) | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | |||||||||||||||||||||||||
Darryl Button | ||||||||||||||||||||||||||||||||
2013 | 140,301 | 46,767 | 46,767 | 46,767 | - | - | - | - | ||||||||||||||||||||||||
2014 | 300,120 | 120,048 | 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 | - | ||||||||||||||||||||||||
2017 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Total cash | 1,205,945 | 166,815 | 263,653 | 334,569 | 213,129 | 153,105 | 74,674 | - | ||||||||||||||||||||||||
Jan J. Nooitgedagt | ||||||||||||||||||||||||||||||||
2011 | 53,180 | 53,180 | - | - | - | - | - | - | ||||||||||||||||||||||||
2012 | 139,858 | 69,929 | 69,929 | - | - | - | - | - | ||||||||||||||||||||||||
2013 | 130,188 | 43,396 | 43,396 | 43,396 | - | - | - | - | ||||||||||||||||||||||||
Total cash | 323,226 | 166,505 | 113,325 | 43,396 | - | - | - | - |
Other benefits
In EUR thousand | 2017 | 2016 | 2015 | |||||||||
Alex Wynaendts | 165 | 178 | 151 | |||||||||
Matt Rider1) | 59 | - | - | |||||||||
Darryl Button2) | - | 739 | 528 | |||||||||
Total other benefits | 224 | 917 | 679 |
Other benefits include non-monetary benefits (e.g. company car), social security contributions by the employer, and tax expenses borne by the Group.
Pension contributions
Pension contributions reflect the expenses related to the pension accrual over the financial year disclosed in the table, excluding back service charges.
In EUR thousand | 2017 | 2016 | 2015 | |||||||||
Alex Wynaendts1) | 1,670 | 1,631 | 1,219 | |||||||||
Matt Rider2) | 224 | - | - | |||||||||
Darryl Button3) | - | 375 | 215 | |||||||||
Total pension contributions | 1,894 | 2,006 | 1,434 |
The amounts as presented in the table are the pension contributions in the related book year. The 2017 and 2016 contributions for Mr. Wynaendts to the Aegon pension funds reflect the increase to his fixed salary in 2016 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 1,733 (2016: EUR 1,666; 2015: EUR 1,962). Service cost for Mr. Rider amounted to EUR 175 (2016: nil; 2015: 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 2017 was EUR 4,683 (2016: EUR 4,538; 2015: EUR 3,446) and for Mr. Rider EUR 1,342. The total remuneration for the members of the Executive Board over 2017 was EUR 6.0 million (2016: EUR 7.3 million; 2015: EUR 6.0 million). Total expenses recognized under IFRS accounting treatment in the income statement for Mr. Wynaendts related to 2017 was EUR 4,258 (2016: EUR 4,086; 2015: EUR 4,167) and for Mr. Rider EUR 1,088 (2016: nil; 2015: nil). Total IFRS expenses for the members of the Executive Board over 2017 was EUR 5.3 million (2016: EUR 8.0 million; 2015: 7.1 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, 20172020 by Mr. WynaendtsFriese amount to 448,601 (2016: 401,948).36,001 (2019: N/A) and by Mr. Rider was appointed as CFO and member of Aegon’s Executive Board per May 19, 2017. Mr. Rider held no shares on December 31, 2017.to 78,164 (2019: 42,972). 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. WynaendtsFriese or Mr. Rider.
Remuneration of active and retired members of the Supervisory Board
In EUR | 2017 | 2016 | 2015 | |||||||||
Robert J. Routs | 134,000 | 140,000 | 143,000 | |||||||||
William L. Connelly (as of May 19, 2017) | 60,125 | - | - | |||||||||
Robert W. Dineen | 104,000 | 115,000 | 121,000 | |||||||||
Mark A. Ellman (as of May 19, 2017) | 70,125 | - | - | |||||||||
Ben J. Noteboom (as of May 20, 2015) | 101,500 | 109,000 | 69,250 | |||||||||
Ben van der Veer | 106,000 | 109,000 | 115,000 | |||||||||
Dirk P.M. Verbeek | 100,000 | 111,000 | 112,125 | |||||||||
Corien M. Wortmann-Kool | 100,750 | 90,000 | 96,000 | |||||||||
Dona D. Young | 115,500 | 113,000 | 121,000 | |||||||||
Total for active members | 892,000 | 787,000 | 777,375 | |||||||||
Leo M. van Wijk (up to May 20, 2015) | - | - | 38,625 | |||||||||
Irving W. Bailey, II (up to May 20, 2016) | - | 53,625 | 135,000 | |||||||||
Shemaya Levy (up to May 19, 2017) | 40,375 | 95,250 | 101,000 | |||||||||
Total remuneration | 932,375 | 935,875 | 1,052,000 | |||||||||
VAT liable on Supervisory Board remuneration | 195,799 | 196,534 | 220,920 | |||||||||
Total | 1,128,174 | 1,132,409 | 1,272,920 |
Aegon’s Supervisory Board members are entitled to the following:
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
Aegon Annual Report on Form 20-F |
Notes to the consolidated financial statements Note | ||
Common shares held by Supervisory Board members
Shares held in Aegon at December 31 | 2017 | 2016 | 2020 | 2019 | ||||||||||||
Robert W. Dineen | 10,000 | 10,000 | ||||||||||||||
Ben J. Noteboom | 23,500 | 23,500 | 23,500 | 23,500 | ||||||||||||
Ben van der Veer | 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 | 36,760 | 38,210 |
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.
5451 Events after the reporting period
On January 11, 2018,February 28, 2021, Aegon announced that its subsidiary insuccessfully completed the Americas, Transamerica, has entered into andivestment of Stonebridge, a UK-based provider of accident insurance products to Global Premium Holdings group, part of Embignell group. Under the terms of the agreement, with Tata Consultancy Services (TCS)Aegon sold Stonebridge for a consideration of approximately GBP 60 million, consisting of the purchase price and dividends related to administer the company’s US insurancetransaction. This excludes a contingent consideration of up to GBP 10 million. The transaction will not have a material impact on Aegon’s capital position and annuity business lines. The agreement is expected to be completed by the second quarter of 2018.
The Hague, the Netherlands, March 22, 2018results.
The Hague, the Netherlands, March 17, 2021 | ||
Supervisory Board | Executive Board | |
| ||
William L. Connelly | ||
| Lard Friese | |
Mark A. Ellman | Matthew J. Rider | |
Ben J. Noteboom | ||
| ||
| ||
Corien M. Wortmann-Kool | ||
Dona D. Young |
Aegon Annual Report on Form 20-F 2020 |
Financial statements of Aegon N.V. | ||||
314 | ||||
315 | ||||
316 | ||||
316 | ||||
317 | ||||
317 | ||||
317 | ||||
317 | ||||
318 | ||||
318 | ||||
318 | ||||
318 | ||||
319 | ||||
319 | ||||
320 | ||||
323 | ||||
324 | ||||
324 | ||||
325 | ||||
325 | ||||
325 | ||||
325 | ||||
325 | ||||
326 |
Table of contents
Financial statements of Aegon N.V. | ||||||
307 | ||||||
308 | ||||||
Notes to the financial statements | ||||||
1 | General information | 309 | ||||
2 | Summary of significant accounting policies | 309 | ||||
3 | Investment income | 309 | ||||
4 | Results from financial transactions | 310 | ||||
5 | Commissions and expenses | 310 | ||||
6 | Interest charges and related fees | 310 | ||||
7 | Income tax | 310 | ||||
8 | Shares in group companies | 310 | ||||
9 | Loans to group companies | 311 | ||||
10 | Receivables | 311 | ||||
11 | Other assets | 311 | ||||
12 | Share capital | 311 | ||||
13 | Shareholders’ equity | 313 | ||||
14 | Other equity instruments | 316 | ||||
15 | Subordinated borrowings | 317 | ||||
16 | Long-term borrowings | 318 | ||||
17 | Other liabilities | 318 | ||||
18 | Commitments and contingencies | 318 | ||||
19 | Number of employees | 318 | ||||
20 | Accountants remuneration | 318 | ||||
21 | Events after the reporting period | 319 | ||||
22 | Proposal for profit appropriation | 319 |
Other information | ||||
327 | ||||
328 | ||||
331 | ||||
332 | ||||
336 | ||||
337 | ||||
Auditor’s report on the Annual Reporton Form 20-F |
Aegon Annual Report on Form 20-F 2020 |
Financial statements of Aegon N.V.314 | ||
Income statement of Aegon N.V.
For the year ended December 31
Amounts in EUR million | Note | 2017 | 2016 | |||||||||
Income | ||||||||||||
Investment Income | 3 | 83 | 121 | |||||||||
Total revenues | 83 | 121 | ||||||||||
Results from financial transactions | 4 | 56 | (68 | ) | ||||||||
Total income | 139 | 53 | ||||||||||
Charges | ||||||||||||
Commissions and expenses | 5 | 82 | 68 | |||||||||
Interest charges and related fees | 6 | 100 | 106 | |||||||||
Total charges
|
| 182
|
|
| 174
|
| ||||||
Income before tax | (43 | ) | (121 | ) | ||||||||
Income Tax | 7 | 1 | 25 | |||||||||
Income after tax | (42 | ) | (96 | ) | ||||||||
Net income/(loss) group companies | 2,511 | 533 | ||||||||||
Net income / (loss) | 2,469 | 437 |
Amounts in EUR million | Note | 2020 | 2019 1) | |||||||||
Income | ||||||||||||
Investment Income | 3 | 10 | 47 | |||||||||
Total revenues | 10 | 47 | ||||||||||
Results from financial transactions | 4 | 2 | (15 | ) | ||||||||
Total income | 12 | 32 | ||||||||||
Charges | ||||||||||||
Commissions and expenses | 5 | 71 | 74 | |||||||||
Interest charges and related fees | 6 | 126 | 139 | |||||||||
Total charges
|
| 197
|
|
| 213
|
| ||||||
Income before tax | (185 | ) | (181 | ) | ||||||||
Income Tax | 7 | 39 | 40 | |||||||||
Income after tax | (146 | ) | (141 | ) | ||||||||
Net income/(loss) group companies | 8 | - | 1,376 | |||||||||
Net income / (loss) | (146 | ) | 1,235 |
1 | Amounts have been restated to reflect the voluntary change in accounting policies related to deferred cost of reinsurance (DCoR) adopted by Aegon effective January 1, 2020. Refer to note 2 Significant accounting policies for details about this change. |
Aegon Annual Report on Form 20-F 2020 |
Financial statements of Aegon N.V.315 | ||
Statement of financial position of Aegon N.V.
As at December 31
Before profit appropriation, amounts in EUR million | Note | 2017 | 2016 | |||||||||
Non-current assets | ||||||||||||
Financial fixed assets | ||||||||||||
Shares in group companies | 8 | 23,117 | 22,219 | |||||||||
Loans to group companies | 9 | 2,690 | 4,123 | |||||||||
25,807 | 26,342 | |||||||||||
Current assets | ||||||||||||
Receivables | ||||||||||||
Receivables from group companies | 10 | 36 | 80 | |||||||||
Other receivables | 10 | 146 | 219 | |||||||||
Other | 11 | 74 | 140 | |||||||||
Accrued interest and rent | 8 | 15 | ||||||||||
264 | 454 | |||||||||||
Cash and cash equivalents | ||||||||||||
Cash and cash equivalents | 1,068 | 879 | ||||||||||
Total assets | 27,139 | 27,675 | ||||||||||
Shareholders’ equity | ||||||||||||
Share capital | 12 | 322 | 319 | |||||||||
Paid-in surplus | 13 | 7,731 | 7,873 | |||||||||
Revaluation account | 13 | 5,017 | 5,450 | |||||||||
Remeasurement of defined benefit plans of group companies | 13 | (1,669 | ) | (1,820 | ) | |||||||
Legal reserves – foreign currency translation reserve | 13 | (401 | ) | 1,316 | ||||||||
Legal reserves in respect of group companies | 13 | 1,122 | 1,169 | |||||||||
Retained earnings, including treasury shares | 13 | 5,696 | 5,776 | |||||||||
Net income / (loss) | 13 | 2,469 | 437 | |||||||||
20,288 | 20,520 | |||||||||||
Other equity instruments | 14 | 3,794 | 3,797 | |||||||||
Total equity | 24,082 | 24,318 | ||||||||||
Non-current liabilities | ||||||||||||
Subordinated borrowings | 15 | 764 | 767 | |||||||||
Long-term borrowings | 16 | 1,801 | 1,832 | |||||||||
2,565 | 2,599 | |||||||||||
Current liabilities | 17 | |||||||||||
Short term deposits | 73 | 128 | ||||||||||
Loans from group companies | 62 | 62 | ||||||||||
Payables to group companies | 123 | 140 | ||||||||||
Deferred tax liability | 89 | 159 | ||||||||||
Other | 125 | 242 | ||||||||||
Accruals and deferred income | 22 | 29 | ||||||||||
| 494
|
|
| 760
|
| |||||||
Total liabilities
|
| 3,059
|
|
| 3,359
|
| ||||||
Total equity and liabilities | 27,139 | 27,675 |
Before profit appropriation, amounts in EUR million | Note | 2020 | 2019 1) | |||||||||
Non-current assets | ||||||||||||
Financial fixed assets | ||||||||||||
Shares in group companies | 8 | 24,846 | 25,037 | |||||||||
Loans to group companies | 9 | 1,392 | 1,337 | |||||||||
Other non-current assets | 10 | 148 | - | |||||||||
26,386 | 26,374 | |||||||||||
Current assets | ||||||||||||
Receivables | ||||||||||||
Receivables from group companies | 11 | 56 | 112 | |||||||||
Other receivables | 11 | 100 | 175 | |||||||||
Other current assets | 12 | 198 | 124 | |||||||||
Accrued interest and rent | 9 | 13 | ||||||||||
363 | 424 | |||||||||||
Cash and cash equivalents | ||||||||||||
Cash and cash equivalents | 887 | 1,032 | ||||||||||
Total assets | 27,636 | 27,830 | ||||||||||
Shareholders’ equity | ||||||||||||
Share capital | 13 | 320 | 323 | |||||||||
Paid-in surplus | 14 | 7,160 | 7,213 | |||||||||
Revaluation account | 14 | 7,491 | 6,120 | |||||||||
Legal reserves – foreign currency translation reserve | 14 | (601 | ) | 426 | ||||||||
Legal reserves in respect of group companies | 14 | 1,710 | 1,703 | |||||||||
Retained earnings, including treasury shares | 14 | 8,617 | 7,218 | |||||||||
Remeasurement of defined benefit plans of group companies | 14 | (2,534 | ) | (2,397 | ) | |||||||
Net income / (loss) | 14 | (146 | ) | 1,235 | ||||||||
22,018 | 21,842 | |||||||||||
Other equity instruments | 15 | 2,569 | 2,571 | |||||||||
Total equity | 24,586 | 24,413 | ||||||||||
Non-current liabilities | ||||||||||||
Subordinated borrowings | 16 | 1,345 | 1,403 | |||||||||
Long-term borrowings | 17 | 1,218 | 1,257 | |||||||||
2,563 | 2,660 | |||||||||||
Current liabilities | 18 | |||||||||||
Loans from group companies | 6 | 6 | ||||||||||
Payables to group companies | 44 | 484 | ||||||||||
Other current liabilities | 406 | 236 | ||||||||||
Accruals and deferred income | 30 | 31 | ||||||||||
486 | 757 | |||||||||||
Total liabilities | 3,049 | 3,417 | ||||||||||
Total equity and liabilities | 27,636 | 27,830 |
1 | Amounts have been restated to reflect the voluntary change in accounting policies related to deferred cost of reinsurance (DCoR) adopted by Aegon effective January 1, 2020. Refer to note 2 Significant accounting policies for details about this change. |
Aegon Annual Report on Form 20-F |
Notes to the financial statements of Aegon N.V.Note 1316 | ||
Notes to the financial statements
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 28,00022,000 people worldwide (2016:(2019: over 29,000)23,000).
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 debts securities when and as these payments become due and payable, wheather 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 Summary of significantSignificant 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 on available-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 Summary of significantSignificant accounting policies of the consolidated financial statements for the description of the accounting policies applied.
3 Investment incomeImpact of the voluntary change in accounting policy effective in 2020 on previous periods is provided in the following tables, including references to the notes that are impacted by the change in accounting policy.
2017 | 2016 | |||||||
Interest income from intercompany loans | 65 | 104 | ||||||
Interest income from derivatives | 18 | 17 | ||||||
Total Investment Income | 83 | 121 |
Impact of voluntary changes in accounting policies on the income statement | Note | | December 31, 2019 (as previously reported) 1) | | | Change in accounting policy related to Reinsurance Accounting | | | December 31, 2019 (restated) | | ||||||
Net income/(loss) group companies | 8 | 1,379 | (3 | ) | 1,376 | |||||||||||
Impact on net income | 1,239 | (3 | ) | 1,235 |
1 | As reported in Aegon’s 2019 Annual report on Form 20-F dated March 18, 2020. |
Impact of voluntary changes in accounting policies on the statement of financial position | Note | | December 31, 2019 (as previously reported) 1) | | | Change in accounting policy related to Reinsurance Accounting |
| | December 31, 2019 (restated) | | ||||||
Assets | ||||||||||||||||
Shares in group companies | 8 | 25,045 | (8 | ) | 25,037 | |||||||||||
Equity and liabilities | ||||||||||||||||
Shareholders’ equity | 14 | 21,850 | (8 | ) | 21,842 |
1 | As reported in Aegon’s 2019 Annual report on Form 20-F dated March 18, 2020. |
Aegon Annual Report on Form 20-F |
Notes to the financial statements of Aegon N.V.Note | ||
Impact of voluntary changes in accounting policies on the statement of changes in equity | Note | | December 31, 2019 (as previously reported) 1) | | | Change in accounting policy related to Reinsurance Accounting | | | December 31, 2019 (restated) | | ||||||
Share capital | 13 | 323 | - | 323 | ||||||||||||
Paid-in surplus | 14 | 7,213 | - | 7,213 | ||||||||||||
Revaluation account | 14 | 6,116 | 5 | 6,120 | ||||||||||||
Legal reserves – foreign currency translation reserve | 14 | 426 | - | 426 | ||||||||||||
Legal reserves in respect of group companies | 14 | 1,703 | - | 1,703 | ||||||||||||
Retained earnings, including treasury shares | 14 | 7,227 | (9 | ) | 7,218 | |||||||||||
Remeasurement of defined benefit plans of group companies | 14 | (2,397 | ) | - | (2,397 | ) | ||||||||||
Net income / (loss) | 14 | 1,239 | (3 | ) | 1,235 | |||||||||||
Shareholders’ equity | 21,850 | (8 | ) | 21,842 |
1 | As reported in Aegon’s 2019 Annual report on Form 20-F dated March 18, 2020. |
2020 | 2019 | |||||||
Interest income from intercompany loans | 16 | 51 | ||||||
Interest income from derivatives | (6 | ) | (4 | ) | ||||
Total | 10 | 47 |
4 Results from financial transactions
2017 | 2016 | |||||||||||||||
Results from financial transactions comprise: | ||||||||||||||||
2020 | 2019 | |||||||||||||||
Net fair value change of derivatives | 56 | (68 | ) | (2 | ) | (22 | ) | |||||||||
Net foreign currency gains and (losses) | - | (2 | ) | 4 | 3 | |||||||||||
Net fair value change on borrowings and other financial liabilities | - | 2 | - | 4 | ||||||||||||
Total | 56 | (68 | ) | 2 | (15 | ) |
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.
2017 | 2016 | |||||||
Employee expenses | 80 | 80 | ||||||
Administration expenses | 78 | 73 | ||||||
Cost sharing | (76 | ) | (85 | ) | ||||
Total | 82 | 68 | ||||||
| ||||||||
2017 | 2016 | |||||||
Subordinated borrowings | 34 | 34 | ||||||
Borrowings | 62 | 68 | ||||||
Other | 4 | 4 | ||||||
Total | 100 | 106 | ||||||
| ||||||||
2017 | 2016 | |||||||
Current Tax | ||||||||
- Current Tax | 1 | 25 | ||||||
Income tax for the period (income) / charge | 1 | 25 | ||||||
Reconciliation between standard and effective tax | ||||||||
Income before tax | (43 | ) | (121 | ) | ||||
Tax on income | 11 | 30 | ||||||
Differences due to the effect of: | ||||||||
Non deductible expenses | (11 | ) | (6 | ) | ||||
Total | 1 | 25 | ||||||
| ||||||||
2017 | 2016 | |||||||
At January 1 | 22,219 | 23,992 | ||||||
Capital contributions and acquisitions | 1,006 | 210 | ||||||
Divestments and capital repayments | (698 | ) | (895 | ) | ||||
Dividend received | (120 | ) | (181 | ) | ||||
Net income / (loss) for the financial year | 2,511 | 533 | ||||||
Revaluations | (1,799 | ) | (1,440 | ) | ||||
At December 31 | 23,117 | 22,219 |
2020 | 2019 | |||||||
Employee expenses | 86 | 88 | ||||||
Administration expenses | 58 | 77 | ||||||
Cost sharing to group companies | (72 | ) | (91 | ) | ||||
Total | 71 | 74 |
6 Interest charges and related fees
2020 | 2019 | |||||||
Subordinated borrowings | 67 | 80 | ||||||
Borrowings | 50 | 57 | ||||||
Other | 8 | 2 | ||||||
Total | 126 | 139 |
Aegon Annual Report on Form 20-F 2020 |
Notes to the financial statements of Aegon N.V. Note 7 318 | ||
2020 | 2019 | |||||||
Current Tax | ||||||||
Current Tax | 39 | 40 | ||||||
Income tax for the period (income) / charge | 39 | 40 | ||||||
Reconciliation between standard and effective tax | ||||||||
Income before tax | (185 | ) | (181 | ) | ||||
Tax on income on Dutch corporate income tax rate | 46 | 45 | ||||||
Differences due to the effect of: | ||||||||
Non deductible expenses | (7 | ) | (6 | ) | ||||
Total | 39 | 40 |
2020 | 2019 | |||||||
At January 1 | 25,037 | 22,099 | ||||||
Restated opening balance 1) | - | (10 | ) | |||||
At January 1 (restated) | 25,037 | 22,089 | ||||||
Capital contributions and acquisitions | 96 | 231 | ||||||
Divestments and capital repayments | - | (6 | ) | |||||
Dividend received | (735 | ) | (872 | ) | ||||
Net income / (loss) for the financial year | - | 1,376 | ||||||
Revaluations | 448 | 2,219 | ||||||
At December 31 | 24,846 | 25,037 |
1 | Amounts have been restated to reflect the voluntary change in accounting policies related to deferred cost of reinsurance (DCoR) adopted by Aegon effective January 1, 2020. Refer to note 2 Significant accounting policies for details about this change. |
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.
2017 | 2016 | |||||||||||||||
Loans to group companies – long-term | ||||||||||||||||
2020 | 2019 | |||||||||||||||
At January 1 | 1,934 | 3,137 | 1,337 | 2,487 | ||||||||||||
Additions / (repayments) | (427 | ) | (1,248 | ) | 110 | (1,194 | ) | |||||||||
Transfer to short term | (829 | ) | - | |||||||||||||
Other changes | (239 | ) | 45 | (56 | ) | 45 | ||||||||||
At December 31 | 439 | 1,934 | 1,392 | 1,337 | ||||||||||||
Loans to group companies – short-term | ||||||||||||||||
At January 1 | 2,189 | 1,392 | ||||||||||||||
Additions / (repayments) | (563 | ) | 746 | |||||||||||||
Transfer from long term | 829 | - | ||||||||||||||
Other changes | (204 | ) | 51 | |||||||||||||
At December 31 | 2,251 | 2,189 | ||||||||||||||
Total | 2,690 | 4,123 | ||||||||||||||
Current | 788 | 957 | ||||||||||||||
Non-current | 604 | 380 |
The other changes in 2017 in Loans to group companies mainly relate to currency exchange rate fluctuations.
10 Non-current assets
Other non-current assets in 2020 included a deferred tax asset of EUR 148 million.
Receivables from group companies and other receivables have a maturity of less than one year. Other receivables include an income tax receivable of EUR 130 million (2016: EUR 219 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 entityunit are jointly and severally liable for any taxes receivable or payable by the Dutch tax grouping.
Other receivables in 2019 included an income tax receivable of EUR 134 million.
Aegon Annual Report on Form 20-F 2020 |
Notes to the financial statements of Aegon N.V. Note 12319 | ||
Other current assets include derivatives with positive fair values of EUR 70196 million (2016:(2019: EUR 135120 million).
Issued and outstanding capital | 2017 | 2016 | 2020 | 2019 | ||||||||||||
Common shares | 251 | 249 | 252 | 253 | ||||||||||||
Common shares B | 70 | 70 | 69 | 70 | ||||||||||||
Total share capital | 322 | 319 | 320 | 323 | ||||||||||||
Common shares | 2017 | 2016 | 2020 | 2019 | ||||||||||||
Authorized share capital | 720 | 720 | 720 | 720 | ||||||||||||
Number of authorized shares (in million) | 6,000 | 6,000 | 6,000 | 6,000 | ||||||||||||
Par value in cents per share | 12 | 12 | 12 | 12 | ||||||||||||
Common shares B | 2017 | 2016 | 2020 | 2019 | ||||||||||||
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 19, 2017,For detailed information on the transactions between Aegon N.V. repurchased 13,042,592 common shares B fromand Vereniging Aegon forrefer to note 50 Related party transactions in the amount of EUR 1,725,169.73 based on 1/40thconsolidated financial statements 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 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.
In 2016, Vereniging Aegon decided not to exercise its option rights to purchase common shares B, since its special cause voting rights at the time of the issuance of shares in connection with the Long Term Incentive Plans for senior management already exceeded 32.6% due to the execution of the EUR 400 million Share Buyback program. As a consequence, such issuance of shares would not result in dilution of Vereniging Aegon’s voting rights.Group.
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 (thousands) | Total amount | Number of shares (thousands) | Total amount | |||||||||||||||||||||||||
At January 1, 2016 | 2,147,037 | 258 | 585,022 | 70 | ||||||||||||||||||||||||||||
At January 1, 2019 | 2,095,648 | 251 | 585,022 | 70 | ||||||||||||||||||||||||||||
Dividend | 10,629 | 1 | - | - | 9,491 | 1 | - | - | ||||||||||||||||||||||||
At December 31, 2019 | 2,105,139 | 253 | 585,022 | 70 | ||||||||||||||||||||||||||||
Shares withdrawn | (83,117 | ) | (10 | ) | - | - | (9,491 | ) | (1 | ) | (13,227 | ) | (2 | ) | ||||||||||||||||||
At December 31, 2016 | 2,074,549 | 249 | 585,022 | 70 | ||||||||||||||||||||||||||||
Dividend | 21,099 | 3 | - | - | 2,466 | - | - | - | ||||||||||||||||||||||||
At December 31, 2017 | 2,095,648 | 251 | 585,022 | 70 | ||||||||||||||||||||||||||||
At December 31, 2020 | 2,098,114 | 252 | 571,795 | 69 |
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) | |||||||
2016 | 2,129,074 | 585,022 | ||||||
2017 | 2,080,792 | 585,022 |
Weighted average number | Weighted average number | |||||||
of common shares (thousands) | of common shares B (thousands) | |||||||
2019 | 2,098,326 | 585,022 | ||||||
2020 | 2,101,749 | 579,312 |
The shares repurchased by Aegon N.V. during the share-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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the financial statements of Aegon N.V. Note 14 320 | ||
Long-term incentive plan, share appreciation rights and share optionsplans
For detailed information on the Long Term Incentive Plans share appreciation rights and share options granted to senior executives and other Aegon employees, 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 and share option rights,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 66.
Share capital | Paid-in surplus | Revaluation account | Legal reserves FCTR | Legal reserves group companies | Retained earnings | Remeasurement of group | Treasury shares | Net income/ (loss) | Total | |||||||||||||||||||||||||||||||
At January 1, 20201)
| 323 | 7,213 | 6,120 | 426 | 1,703 | 7,499 | (2,397 | ) | (281 | ) | 1,235 | 21,842 | ||||||||||||||||||||||||||||
Net income 2019 retained | - | - | - | - | - | 1,235 | - | - | (1,235 | ) | - | |||||||||||||||||||||||||||||
Net income 2020 | - | - | - | - | - | - | - | - | (146 | ) | (146 | ) | ||||||||||||||||||||||||||||
Total net income / (loss) | - | - | - | - | - | 1,235 | - | - | (1,382 | ) | (146 | ) | ||||||||||||||||||||||||||||
Foreign currency translation differences and movement in foreign investment hedging reserves | - | - | (1,027 | ) | - | - | 83 | - | - | (945 | ) | |||||||||||||||||||||||||||||
Changes in revaluation in subsidiaries | - | - | 1,589 | - | - | - | - | - | - | 1,589 | ||||||||||||||||||||||||||||||
Changes in revaluation reserve real estate held for own use | - | - | 18 | - | - | 18 | ||||||||||||||||||||||||||||||||||
Remeasurement of defined benefit plans of group companies | - | - | - | - | - | - | (220 | ) | - | - | (220 | ) | ||||||||||||||||||||||||||||
Changes and transfer to legal reserve | - | - | (235 | ) | - | 6 | 245 | - | - | - | 17 | |||||||||||||||||||||||||||||
Other | - | - | - | - | - | 2 | - | - | - | 2 | ||||||||||||||||||||||||||||||
Other comprehensive income / (loss) | - | - | 1,371 | (1,027 | ) | 6 | 247 | (137 | ) | - | - | 460 | ||||||||||||||||||||||||||||
Shares issued | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Shares withdrawn | (3 | ) | - | - | - | - | (42 | ) | - | 45 | - | - | ||||||||||||||||||||||||||||
Dividends paid on common shares | - | (54 | ) | - | - | - | (64 | ) | - | - | - | (118 | ) | |||||||||||||||||||||||||||
Dividend withholding tax reduction | - | - | - | - | - | 1 | - | - | - | 1 | ||||||||||||||||||||||||||||||
Issuance and purchase of treasury shares | - | - | - | - | - | (52 | ) | - | 55 | - | 3 | |||||||||||||||||||||||||||||
Coupons on perpetual securities | - | - | - | - | - | (38 | ) | - | - | - | (38 | ) | ||||||||||||||||||||||||||||
Incentive plans | - | - | - | - | - | 10 | - | - | - | 10 | ||||||||||||||||||||||||||||||
At December 31, 2020 | 320 | 7,160 | 7,491 | (601 | ) | 1,710 | 8,798 | (2,534 | ) | (181 | ) | (146 | ) | 22,018 |
1 | Amounts have been restated to reflect the voluntary change in accounting policies related to deferred cost of reinsurance (DCoR) adopted by Aegon effective January 1, 2020. Refer to note 2 Significant accounting policies for details about this change. |
Aegon Annual Report on Form 20-F |
Notes to the financial statements of Aegon N.V.Note | ||
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At January 1, 2017 | 319 | 7,873 | 5,450 | (1,820 | ) | 1,316 | 1,169 | 5,966 | (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 | - | - | - | 102 | (1,717 | ) | - | - | - | - | (1,615 | ) | ||||||||||||||||||||||||||||
Changes in revaluation subsidiaries | - | - | (461 | ) | - | - | - | - | - | - | (461 | ) | ||||||||||||||||||||||||||||
Remeasurement of defined benefit plans of group companies | - | - | - | 49 | - | - | - | - | - | 49 | ||||||||||||||||||||||||||||||
Transfer to legal reserve | - | - | 28 | - | - | (47 | ) | (1 | ) | - | - | (20 | ) | |||||||||||||||||||||||||||
Other | - | - | - | - | - | - | 12 | - | - | 12 | ||||||||||||||||||||||||||||||
Other comprehensive income / (loss) | - | - | (433 | ) | 151 | (1,717 | ) | (47 | ) | 11 | - | - | (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 | (1,669 | ) | (401 | ) | 1,122 | 6,022 | (325 | ) | 2,469 | 20,288 |
Share capital | Paid-in surplus | Revaluation account | Legal reserves FCTR | Legal reserves group companies | Retained earnings | Remeasurement of group | Treasury shares | Net income/ (loss) | Total | |||||||||||||||||||||||||||||||
At January 1, 2019 (as previously stated) | 322 | 7,486 | 3,540 | 130 | 1,326 | 7,872 | (1,850 | ) | (337 | ) | 710 | 19,200 | ||||||||||||||||||||||||||||
Mandatory change in accounting policy 1) | - | - | - | - | - | (44 | ) | - | (44 | ) | ||||||||||||||||||||||||||||||
Voluntary change in accounting policy 2) | - | - | (1 | ) | - | - | (6 | ) | - | - | (3 | ) | (10 | ) | ||||||||||||||||||||||||||
At January 1, 2019 (restated) | 322 | 7,486 | 3,539 | 130 | 1,326 | 7,822 | (1,850 | ) | (337 | ) | 706 | 19,146 | ||||||||||||||||||||||||||||
Net income 2018 retained | - | - | - | - | - | 706 | - | - | (706 | ) | - | |||||||||||||||||||||||||||||
Net income 2019 | - | - | - | - | - | - | - | - | 1,235 | 1,235 | ||||||||||||||||||||||||||||||
Total net income / (loss) | - | - | - | - | - | 706 | - | - | 528 | 1,235 | ||||||||||||||||||||||||||||||
Foreign currency translation differences and movement in foreign investment hedging reserves | - | - | 296 | - | - | (25 | ) | - | - | 271 | ||||||||||||||||||||||||||||||
Changes in revaluation subsidiaries | - | - | 2,465 | - | - | - | - | - | - | 2,465 | ||||||||||||||||||||||||||||||
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) | - | - | 2,582 | 296 | 377 | (469 | ) | (547 | ) | - | - | 2,240 | ||||||||||||||||||||||||||||
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 | 6,120 | 426 | 1,703 | 7,499 | (2,397 | ) | (281 | ) | 1,235 | 21,842 |
1 | ||||
Mandatory change in accounting policy in 2019 mainly due to impact of adopting IFRS 16 on |
2 | ||
Amounts have been restated to reflect the | ||
effective January 1, 2020. Refer to note 2 Significant accounting policies for details about this change. |
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At January 1, 2016 | 328 | 8,059 | 6,551 | (1,532 | ) | 1,264 | 1,048 | 7,423 | (269 | ) | (432 | ) | 22,440 | |||||||||||||||||||||||||||
Net income 2015 retained | - | - | - | - | - | - | (432 | ) | - | 432 | - | |||||||||||||||||||||||||||||
Net income 2016 | - | - | - | - | - | - | - | - | 437 | 437 | ||||||||||||||||||||||||||||||
Total net income / (loss) | - | - | - | - | - | - | (432 | ) | - | 869 | 437 | |||||||||||||||||||||||||||||
Foreign currency translation differences and movement in foreign investment hedging reserves | - | - | - | 16 | 52 | - | - | - | - | 68 | ||||||||||||||||||||||||||||||
Changes in revaluation subsidiaries | - | - | (1,090 | ) | - | - | - | - | - | - | (1,090 | ) | ||||||||||||||||||||||||||||
Remeasurement of defined benefit plans of group companies | - | - | - | (304 | ) | - | - | - | - | - | (304 | ) | ||||||||||||||||||||||||||||
Transfer to legal reserve | - | - | (11 | ) | - | - | 121 | (97 | ) | - | - | 13 | ||||||||||||||||||||||||||||
Other | - | - | - | - | - | - | (2 | ) | - | - | (2 | ) | ||||||||||||||||||||||||||||
Other comprehensive income / (loss) | - | - | (1,101 | ) | (288 | ) | 52 | 121 | (99 | ) | - | - | (1,316 | ) | ||||||||||||||||||||||||||
Shares issued | 1 | - | - | - | - | - | - | - | - | 1 | ||||||||||||||||||||||||||||||
Shares withdrawn | (10 | ) | - | - | - | - | - | (372 | ) | - | - | (382 | ) | |||||||||||||||||||||||||||
Dividend common shares | - | (186 | ) | - | - | - | - | (304 | ) | - | - | (490 | ) | |||||||||||||||||||||||||||
Dividend withholding tax reduction | - | - | - | - | - | - | (2 | ) | - | - | (2 | ) | ||||||||||||||||||||||||||||
Treasury shares | - | - | - | - | - | - | (106 | ) | 79 | - | (27 | ) | ||||||||||||||||||||||||||||
Coupons and premium on convertible core capital securities and coupon on perpetual securities, net of tax | - | - | - | - | - | - | (133 | ) | - | - | (133 | ) | ||||||||||||||||||||||||||||
Repurchased and sold own shares | - | - | - | - | - | - | (9 | ) | - | - | (9 | ) | ||||||||||||||||||||||||||||
At December 31, 2016 | 319 | 7,873 | 5,450 | (1,820 | ) | 1,316 | 1,169 | 5,966 | (190 | ) | 437 | 20,520 |
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 5,3807,988 million (2016:(2019: EUR 6,1136,443 million) of items with positive revaluation and of EUR 363496 million (2016:(2019: EUR 663323 million) of items with negative revaluation.
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.
Aegon Annual Report on Form 20-F 2020 |
Notes to the financial statements of Aegon N.V. Note 14322 | ||
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 65,650,65053,747,701 (2019: 66,583,671) of its own common shares (2016: 48,780,045)and 12,884,400 (2019: 25,309,920) own common shares B 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 15,345,680 of its own common shares B (2016:17,324,960) with a nominal value of 0.12 each.
Movements in the number of treasury common shares ofheld by Aegon N.V. were as follows:
2017 | 2016 | |||||||||||||||
Number of shares (thousands) | Amount | Number of shares (thousands) | Amount | |||||||||||||
At January 1 | 47,473 | 178 | 42,998 | 257 | ||||||||||||
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 | 64,488 | 314 | 47,473 | 178 |
2020 | 2019 | |||||||||||||||
Number of shares | Number of shares | |||||||||||||||
(thousands) | Amount | (thousands) | Amount | |||||||||||||
At January 1 | 65,540 | 269 | 61,418 | 326 | ||||||||||||
Transactions in 2020: | ||||||||||||||||
Sale: transactions, average price EUR 4.52 | (4,445 | ) | (20 | ) | ||||||||||||
Shares witdrawn: 1 transaction, average price EUR 4.52 | (9,491 | ) | (43 | ) | ||||||||||||
Sale: 1 transaction, average price EUR 4.13 | (22,947 | ) | (95 | ) | ||||||||||||
Purchase: 1 transaction, average price EUR 2.46 | 24,029 | 59 | ||||||||||||||
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 | ||||||||||||||
At December 31 | 52,686 | 171 | 65,540 | 269 |
Movements in the number of treasury common shares B ofheld by Aegon N.V. were as follows:
2017 | 2016 | |||||||||||||||
Number of shares (thousands) | Amount | Number of shares (thousands) | Amount | |||||||||||||
At January 1 | 17,325 | 2 | - | - | ||||||||||||
Transactions in 2017: | ||||||||||||||||
Sale: transaction, average price EUR 0.11 | (1,979 | ) | - | |||||||||||||
Sale: transaction, average price EUR 0.11 | (13,043 | ) | (1 | ) | ||||||||||||
Purchase: transaction, average price EUR 0.13 | 13,043 | 2 | ||||||||||||||
Transactions in 2016: | ||||||||||||||||
Purchase: transactions, average price EUR 0.11 | 17,325 | 2 | ||||||||||||||
At December 31 | 15,346 | 2 | 17,325 | 2 |
2020 | 2019 | |||||||||||||||
Number of shares | Number of shares | |||||||||||||||
(thousands) | Amount | (thousands) | Amount | |||||||||||||
At January 1 | 25,310 | 3 | 13,856 | 2 | ||||||||||||
Transactions in 2020: | ||||||||||||||||
Sale: 1 transaction, average price EUR 0.13 | (2,154 | ) | - | |||||||||||||
Shares withdrawn: 1 transaction, average price EUR 0.13 | (13,227 | ) | (2 | ) | ||||||||||||
Purchase: 1 transaction, average price EUR 0.08 | 2,956 | - | ||||||||||||||
Transactions in 2019: | ||||||||||||||||
Sale: 1 transaction, average price EUR 0.12 | (1,774 | ) | - | |||||||||||||
Purchase: 1 transaction, average price EUR 0.10 | 13,227 | 1 | ||||||||||||||
At December 31 | 12,884 | 1 | 25,310 | 3 |
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.
2017 | 2016 | 2020 | 2019 | |||||||||||||||||||||||||||||
Number of shares (thousands) | Total amount | 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. | 64,488 | 314 | 47,473 | 178 | 52,686 | 171 | 65,540 | 269 | ||||||||||||||||||||||||
Held by subsidiaries | 1,163 | 9 | 1,307 | 10 | 1,062 | 9 | 1,043 | 9 | ||||||||||||||||||||||||
Common shares B | ||||||||||||||||||||||||||||||||
Held by Aegon N.V. | 15,346 | 2 | 17,325 | 2 | 12,884 | 1 | 25,310 | 3 | ||||||||||||||||||||||||
At December 31 | 80,996 | 325 | 66,105 | 190 | 66,632 | 181 | 91,893 | 281 |
The consideration for the related shares is deducted from or added to the retained earnings.
Aegon Annual Report on Form 20-F |
Notes to the financial statements of Aegon N.V.Note | ||
Junior perpetual capital securities | Perpetual cumulative subordinated bonds | Share options and incentive plans | Non-cumula- tive subordinated notes | Total | ||||||||||||||||
At January 1, 2017 | 3,008 | 454 | 65 | 271 | 3,797 | |||||||||||||||
Shares granted / Share options cost incurred | - | - | 26 | - | 26 | |||||||||||||||
Shares vested / Share options forfeited | - | - | (30 | ) | - | (30 | ) | |||||||||||||
At December 31, 2017 | 3,008 | 454 | 61 | 271 | 3,794 | |||||||||||||||
At January 1, 2016 | 3,008 | 454 | 68 | 271 | 3,801 | |||||||||||||||
Shares granted / Share options cost incurred | - | - | 13 | - | 13 | |||||||||||||||
Shares vested / Share options forfeited | - | - | (16 | ) | - | (16 | ) | |||||||||||||
At December 31, 2016 | 3,008 | 454 | 65 | 271 | 3,797 |
Junior perpetual capital securities | Coupon rate | Coupon date, as of | Year of next call | 2017 | 2016 | |||||||||||||||
USD 500 million | 6.50% | | Quarterly, December 15 |
| 2018 | 424 | 424 | |||||||||||||
USD 250 million | | floating LIBOR rate1) | | | Quarterly, December 15 |
| 2018 | 212 | 212 | |||||||||||
USD 500 million | | floating CMS rate2) | | | Quarterly, July 15 |
| 2018 | 402 | 402 | |||||||||||
USD 1 billion | 6.375% | | Quarterly, June 15 |
| 2018 | 821 | 821 | |||||||||||||
EUR 950 million | | floating DSL rate3) | | | Quarterly, July 15 |
| 2018 | 950 | 950 | |||||||||||
EUR 200 million | 6.0% | | Annually, July 21 | | 2018 | 200 | 200 | |||||||||||||
At December 31 | 3,008 | 3,008 |
Perpetual contingent convertible securities | Junior perpetual capital securities | Perpetual cumulative subordinated bonds | Long Term Incentive Plans 1) | Total | ||||||||||||||||
At January 1, 2020 | 500 | 1,564 | 454 | 53 | 2,571 | |||||||||||||||
Shares granted | - | - | - | 22 | 22 | |||||||||||||||
Shares vested | - | - | - | (25 | ) | (25 | ) | |||||||||||||
At December 31, 2020 | 500 | 1,564 | 454 | 50 | 2,569 | |||||||||||||||
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 |
1 | Long Term Incentive Plans include the shares granted to personnel which are not yet vested. |
Perpetual contingent convertible securities | Coupon rate | Coupon date | Year of next call | 2020 | 2019 | |||||||||||||||
EUR 500 million | 5.625%1) | Semi-annually, April 15 | 2029 | 500 | 500 | |||||||||||||||
At December 31 | 500 | 500 |
1 | The coupon is fixed at 5.625% until the first call date and reset thereafter to a 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 | Year of next call | 2020 | 2019 | |||||||||||
USD 250 million | floating LIBOR rate 1) | Quarterly, December 15 | 2021 | 212 | 212 | |||||||||||
USD 500 million | floating CMS rate 2) | Quarterly, July 15 | 2021 | 402 | 402 | |||||||||||
EUR 950 million | floating DSL rate 3) | Quarterly, July 15 | 2021 | 950 | 950 | |||||||||||
At December 31 | 1,564 | 1,564 |
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 prevailing ten-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 prevailing ten-year Dutch government bond yield plus a spread of ten basis points, with a maximum of 8%. |
The interest rate exposure on some of these securities has been swapped to a three-month LIBOR and/or EURIBOR based yield.
Aegon Annual Report on Form 20-F 2020 |
Notes to the financial statements of Aegon N.V. Note 16324 | ||
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 | 2017 | 2016 | Coupon rate | Coupon date | Year of next call | 2020 | 2019 | ||||||||||||||||||||||||||
EUR 136 million | 5.185%1), 4) | Annual, October 14 | 2018 | 136 | 136 | |||||||||||||||||||||||||||||||
EUR 203 million | 4.260%2), 4) | Annual, March 4 | 2021 | 203 | 203 | 4.260% 1), 4) | Annually, March 4 | 2021 | 203 | 203 | ||||||||||||||||||||||||||
EUR 114 million | 1.506%3), 4) | Annual, June 8 | 2025 | 114 | 114 | 1.506% 2), 4) | Annually, June 8 | 2025 | 114 | 114 | ||||||||||||||||||||||||||
EUR 136 million | 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. Per March 4, 2021 the coupon has been reset to 0.496%. |
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 of ten-year Dutch government securities plus a spread of 85 basis points. |
TheThese 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, as of | Year of next call | 2017 | 2016 | |||||||||||||||
USD 525 million | 8 | % | | Quarterly, February 15 | | 2018 | 271 | 271 | ||||||||||||
At December 31 | 271 | 271 |
On February 7, 2012, Aegon issued USD 525 million in aggregate principal amount of 8.00% non-cumulative subordinated notes, due 2042, in an underwritten public offering in the United States registered with the US Securities and Exchange Commission. The subordinated notes bear interest at a fixed rate of 8.00% and have been priced at 100% of their principal amount. Any cancelled interest payments will not be cumulative.
The securities are 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 contain certain provisions for optional and required cancellation of interest payments. The securities have a stated maturity of 30 years, however, Aegon has the right to call the securities for redemption at par for the first time on the first coupon date in August 2017, or on any coupon payment date thereafter.
These notes are recognized as a compound instrument due to the nature of this financial instrument. Compound instruments are separated into an equity component and a liability component. At December 31, 2017, the equity component amounted to EUR 271 million (2016: EUR 271 million), subordinated borrowings amounted to EUR 69 million (2016: EUR 72 million) and a deferred tax liability amounting to EUR 92 million (2016: EUR 106 million).
Refer to note 15 Subordinated borrowings for details of the component classified as subordinated borrowings.
Coupon rate | Coupon date | Year of next call | 2017 | 2016 | ||||||||||||||||
Fixed floating subordinated notes | ||||||||||||||||||||
EUR 700 million | 4% | Annually, April 25 | 2024 | 695 | 695 | |||||||||||||||
Non-cumulative subordinated notes | ||||||||||||||||||||
USD 525 million | 8% | Quarterly, February 15 | 2018 | 69 | 72 | |||||||||||||||
At December 31 | 764 | 767 |
Fixed to floating subordinated notes | Coupon rate | Coupon date | Issue / Maturity | Year of next call | 2020 | 2019 | ||||||||||||||||||
EUR 700 million | 4%1) | Annually, April 25 | 2014/44 | 2024 | 698 | 697 | ||||||||||||||||||
USD 800 million | 5.5%2) | Semi-annually, April 11 | 2018/48 | 2028 | 648 | 707 | ||||||||||||||||||
At December 31 | 1,345 | 1,403 | ||||||||||||||||||||||
Fair value of subordinated borrowings | 1,517 | 1,560 |
On April 25, 2014, Aegon issued EUR 700 million of subordinated notes, first callable on April 25, 2024, and maturing on April 25, 2044. The coupon is fixed at 4% until the first call date and floating thereafter.
Subordinated borrowings include a liability of EUR 69 million (2016: EUR 72 million) relating to the USD 525 million non-cumulative subordinated notes issued on February 7, 2012. The liability component of the non-cumulative subordinated notes is related to the redemption amount. For further information on the non-cumulative subordinated notes and their subordination refer to note 14 Other equity instruments.
1 | The coupon is fixed at 4% until the first call date and floating therefafter with a 3 months Euribor plus a margin of 335bps. |
2 | The coupon is fixed at 5.5% until the first call date and floating thereafter with a 6 month USD LIBOR plus a margin of 3.539%. |
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.
2020 | 2019 | |||||||
Remaining terms less than 1 year | - | - | ||||||
Remaining terms 1 - 5 years | 498 | 497 | ||||||
Remaining terms 5 - 10 years | - | - | ||||||
Remaining terms over 10 years | 720 | 760 | ||||||
At December 31 | 1,218 | 1,257 | ||||||
Fair value of long-term borrowings | 1,766 | 1,728 |
The fair valuerepayment periods of these loans amountedborrowings vary from 3 years up to EUR 953 million (2016: EUR 844 million).18 years. The interest rates vary from 1.000% to 6.625% per annum.
Aegon Annual Report on Form 20-F |
Notes to the financial statements of Aegon N.V.Note | ||
2017 | 2016 | |||||||
Remaining terms less than 1 year | 500 | 500 | ||||||
Remaining terms 1 - 5 years | 82 | 84 | ||||||
Remaining terms 5 - 10 years | - | - | ||||||
Remaining terms over 10 years | 1,219 | 1,248 | ||||||
At December 31 | 1,801 | 1,832 |
The repayment periods of borrowings vary from within one year up to a maximum of 22 years. The interest rates vary from 0.000% to 6.625% per annum. The market value of the long-term borrowings amounted to EUR 2,198 million (2016: EUR 2,221 million).
17 Other18 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 97250 million (2016:(2019: EUR 233165 million).
1819 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. as co-applicant with its captive insurance companies that are subsidiaries of Transamerica Corporation and Commonwealth General Corporation. At December 31, |
◆ | Due and punctual payment of payables due under letter of credit agreements or guarantees provided for subsidiaries of Transamerica Corporation at December 31, |
◆ | 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 |
◆ | 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. |
There were no employees employed by Aegon N.V. in 2017 (2016:2020 (2019: nil).
Of which PricewaterhouseCoopers | ||||||||||||||||||||||||||||||||
Total remuneration | Accountants N.V. (NL) | Total remuneration of the group | Of which PricewaterhouseCoopers Accountants N.V. (NL) | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
Audit fees | 42 | 27 | 13 | 9 | 34 | 32 | 9 | 9 | ||||||||||||||||||||||||
Audit-related fees | 3 | 3 | 1 | 1 | 5 | 6 | 2 | 1 | ||||||||||||||||||||||||
Total | 46 | 30 | 14 | 10 | 40 | 38 | 11 | 11 |
The total remuneration22 Events after the reporting period
On February 28, 2021, Aegon successfully completed the divestment of Stonebridge, a UK-based provider of accident insurance products to Global Premium Holdings group, part of Embignell group. Under the terms of the independent auditor has increased compared to last year. This increase isagreement, Aegon sold Stonebridge for a consideration of approximately GBP 60 million, consisting of the purchase price and dividends related to the transaction. This excludes a contract renewalcontingent consideration of up to GBP 10 million. The transaction will not have a material impact on Aegon’s capital position and to additional audit work that was provided, related to a model conversion in the US and to the conversion to IFRS 9 in the Netherlands. In addition, the total remuneration for 2016 did not yet include the fees for the audit of the 2016 Solvency II figures, as these fees were invoiced in and booked in 2017.results.
Aegon Annual Report on Form 20-F |
Notes to the financial statements of Aegon N.V.Note | ||
21 Events after the reporting period
There were no events after the reporting period.
2223 Proposal for profit appropriation
At the Annual General Meeting of Shareholders on May 18, 2018,currently scheduled for June 3, 2021, the Executive Board will, absentin line with its earlier announcement and barring unforeseen circumstances, propose a final dividend for 20172020 of EUR 0.140.06 per common share and EUR 0.00350.0015 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 quoted ex-dividend on May 22, 2018,June 7, 2021, for the shares listed on the New York Stock Exchange and on May 22, 2018,June 7, 2021, for shares listed on Euronext. The record date for the dividend will be May 23, 2018.June 8, 2021. Shareholders can elect to receive a dividend in cash or in shares during the dividend election period, which will run from May 29, 2018June 14, 2021 up to and including June 15, 2018.30, 2020. The dividend will be payable as of June 22, 2018.July 7, 2021.
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 15, 201830, 2021 after 5.30 p.m. (CET), based on the average share price on Euronext Amsterdam in the five trading days from June 11, 201824, 2021 up to and including June 15, 2018.30, 2021.
2017 | 2016 | 2020 | 2019 | |||||||||||||
Final dividend on common shares | 286 | 265 | 124 | 329 | ||||||||||||
Earnings to be retained | 2,183 | 172 | - | 906 | ||||||||||||
To be deducted from retained earnings | (269 | ) | - | |||||||||||||
Net income attributable to owners of Aegon N.V. | 2,469 | 437 | (146 | ) | 1,235 |
The Hague, the Netherlands, March 22, 201817, 2021
Supervisory Board | Executive Board | |||||
William L. Connelly | ||||||
Lard Friese | ||||||
Mark A. Ellman | Matthew J. Rider | |||||
Ben J. Noteboom | ||||||
Corien M. Wortmann-Kool | ||||||
Dona D. Young |
Aegon Annual Report on Form 20-F 2020 |
Other information Profit appropriation327 | ||
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 readare 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. |
|
Aegon Annual Report on Form 20-F 2020 |
Other informationMajor shareholders328 | ||
General
As of December 31, 2017,2020, 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 2,095.648,2442,098,114,300 common shares and 585,022,160571,795,040 common shares B issued. Of the issued common shares, 64,488,094291,145,638 common shares and 15,345,680558,910,640 common shares B were held by Vereniging Aegon as treasury shares and 1,162,556 treasury1,061,820 common shares were held by itsAegon’s 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 a one-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, 2017, 2782020, 254 million common shares were held in the form of New York Registry shares. As of December 31, 2017,2020, there were approximately 16,96613,232 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.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.Aegon. 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.Aegon. This enabled Vereniging Aegon to maintain voting control at the General Meeting of Shareholders of Aegon N.V.Aegon. 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 additional paid-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.’sAegon’s common shares decreased from approximately 37% to approximately 12% and its beneficialaggregate ownership interest in Aegon N.V.’sAegon’s voting shares decreased from approximately 52% to approximately 33%.
OnIn May 9, 2003, Aegon’s shareholders approved certain changes to Aegon’s corporate governance structure. Preferred shares withstructure, introducing a nominal valuesecond class of EUR 0.12 were converted into 211,680,000 new class Apreferred shares. Both classes of preferred shares withhad 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 also 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 Cause’, as defined below.
In May 2003, At that time 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.Aegon. 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 120,713,389a mix of 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
Aegon Annual Report on Form 20-F 2020 |
Other informationMajor shareholders329 | ||
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 and 2014 Vereniging Aegon purchased in aggregate 15,012,025 common shares B under its call option right.
On January 1, 2015,May 18, 2018, Vereniging Aegon exercised its options rights to purchase in aggregate 9,6801,489,200 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 by Aegon’sthe issuance of shares on January 1, 2015,May 18, 2018, in connection with the Long Term Incentive Plans for senior management.
On May 21, 2015,17, 2019, Vereniging Aegon exercised its options rights to purchase in aggregate 3,686,0001,773,680 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’sthe issuance of shares on May 21, 2015,17, 2019, in connection with the Long Term Incentive Plans for senior management.
AndOn December 23, 2019, Aegon repurchased 13,227,120 common shares B from Vereniging Aegon for the amount of EUR 1,384,046 based on November 13, 2015, and1/40th 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 with its special cause voting rights of 32.6% following the completion of the Share Buy Back Program, initiated by Aegon in October 2019 to neutralize the dilutive effect of November 13, 2015,the distribution of interim dividend 2019 in stock.
On May 15, 2020, Vereniging Aegon exercised its options rights to purchase in aggregate 7602,154,000 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 a correction to Aegon’sthe issuance of shares on May 21, 2015,15, 2020, in connection with the Long Term Incentive Plans for senior management.
On May 19, 2016,December 14, 2020, Aegon N.V. repurchased 13,450,8352,955,600 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. repurchased 17,324,960 Common Shares B from Vereniging Aegon for the amount of EUR 1,968,332,228,911.22 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 shareholdingholding of voting shares by Vereniging Aegon in Aegon N.V. with its special cause voting rights of 32.6%.
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 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 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 20172020 to neutralize the dilutive effect of the distribution of final dividend 2016 in stock and interim dividend 20172020 in stock.
Development of shareholding in Aegon N.V.
Number of shares held by Vereniging Aegon | Common | Common B | ||||||
At January 1, 2017 | 279,236,609 | 567,697,200 | ||||||
Exercise option right common shares B - May 2017 | - | 1,979,260 | ||||||
Exercise option right common shares B - June 2017 | - | 13,042,612 | ||||||
Repurchase common shares B - December 2017 | - | (13,042,592) | ||||||
At December 31, 2017 | 279,236,609 | 569,676,480 |
Accordingly, at December 31, 2017,2020, the voting power of Vereniging Aegon under normal circumstances amounted to approximately 14.34%14.82%, based on the number of outstanding and voting shares (excluding issued common shares held in treasury by Aegon N.V.)Aegon). 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, 2017,2020, the General Meeting of Members of Vereniging Aegon consisted of eighteenseventeen members. The majority of the voting rights is with the sixteenfifteen 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.Aegon.
Vereniging Aegon has an Executive Committee consisting of eightseven members, sixtwo 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.Aegon. 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
Aegon Annual Report on Form 20-F 2020 |
Other informationMajor shareholders330 | ||
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.Aegon. 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, the US based investment management firm Dodge & Cox International StockBlackRock, Inc., EuroPacific Growth Capital Fund, holdsCapital Research and Management Company and FMR LLC hold a capital andor voting interest in Aegon of over 5%.3% or more.
Based on its last filing with the Dutch Autoriteit Financiële Markten as at September 22, 2016,February 26, 2021, Dodge & Cox International Stock Fund stated to hold 134,654,43980,049,394 common shares, which represent 5.2%representing 3.0 of the issued and outstanding capital and of the votes as at December 31, 2017. 2020.
On February 20, 2018,11, 2021, Dodge & Cox’s filing with the US Securities and Exchange Commission (SEC) shows that Dodge & Cox holds 256,029,115222,733,093 common shares, representing 9.8%8.6% of the issued and outstanding capital as at December 31, 20172020, and has voting rights for 250,384,686217,431,134 shares, representing 9.6%8.3% of the votes as at December 31, 2017.2020.
Based on its last filing with the Dutch Autoriteit Financiële Markten as at May 26, 2017, BlackRock, Inc.January 27, 2021, EuroPacific Growth Capital Fund stated to hold 59,827,51280,347,053 common shares, representing 2.3 %3.0% of the issued and outstanding capital as at December 31, 20172020.
Based on its last filing with the Dutch Autoriteit Financiële Markten as at January 6, 2021, Capital Research and 79,077,402 voting rights,Management Company stated to hold 80,078,440 common shares, representing 3.0% of the votes as at December 31, 2017. On February 20, 2018, BlackRock, Inc.’s filing with the SEC shows that BlackRock holds 119,424,291 common shares, representing 4.6% of the issued and outstanding capital as at December 31, 2017, and has voting rights for 107,367,731 shares, representing 4.1% of the votes as at December 31, 2017.2020.
Based on its filing with the Dutch Autoriteit Financiële Markten as at June 10, 2015, Franklin Resources, Inc (FRI).FMR LLC, a US based investment management firm, stated to hold 81,510,408 shares, representing 3.1%3.0% of the issued and outstanding capital andas at December 31, 2020.
Based on its filing with the Dutch Autoriteit Financiële Markten as at February 9, 2021, BlackRock, Inc. stated to hold 129,522,983 shares, representing 4.8% of the votesissued capital as ofat December 31, 2017. On February 20, 2018, the filing of Franklin Resources, Inc. (FRI), a US based investment management firm, with the SEC shows that FRI holds 156,591,360 common shares2020 and 158,656,993 voting rights, representing 6.0%5.9% of the issued capital as at December 31, 2020.
On January 28, 2021, BlackRock, Inc.’s filing with the US Securities and Exchange Commission (SEC) shows that BlackRock holds 164,131,698 common shares, representing 6.3% of the issued and outstanding capital as at December 31, 2017.2020, and has voting rights for 145,558,389 shares, representing 5.6% of the votes as at December 31, 2020.
Aegon Annual Report on Form 20-F 2020 |
Other financial informationSchedule I331 | ||
Schedules to the financial statements
Index to schedules
Schedule | I—Summary of Investments other than Investments in Related Parties as at December 31, | |
Schedule | II—Condensed Financial Information of Registrant (Parent Company Only) | |
Schedule | II—Statement of Financial Position as of December 31, | |
Schedule | II—Income Statement (Loss) for the years ended December 31, | |
Schedule | II—Condensed Cash Flow Statement for the years ended December 31, | |
Schedule | II—Dividends from and Capital Contributions to Business Units for the years ended December 31, | |
Schedule | III—Supplementary Insurance Information for the years ended December 31, | |
Schedule | IV—Reinsurance for the years ended December 31, | |
Schedule | V—Valuation and Qualifying Accounts for the years ended December 31, |
Summary of investments other than investments in related parties
As at December 31, 2020
As at December 31, 2017 | ||||||||||||
Amounts in million EUR | Cost1) | Fair value | Book value | |||||||||
Shares: | ||||||||||||
Available-for-sale | 436 | 490 | 490 | |||||||||
Fair value through profit or loss | 1,021 | 1,062 | 1,062 | |||||||||
Bonds: | ||||||||||||
Available-for-sale and held-to-maturity: | ||||||||||||
US government | 8,011 | 8,846 | 8,846 | |||||||||
Dutch government | 4,799 | 5,781 | 5,781 | |||||||||
Other government | 11,746 | 12,568 | 12,568 | |||||||||
Mortgage backed | 7,326 | 7,694 | 7,694 | |||||||||
Asset backed | 4,624 | 4,698 | 4,698 | |||||||||
Corporate | 37,168 | 40,613 | 40,613 | |||||||||
Money market investments | 6,690 | 6,690 | 6,690 | |||||||||
Other | 765 | 791 | 791 | |||||||||
Subtotal | 81,130 | 87,681 | 87,681 | |||||||||
Bonds: | ||||||||||||
Fair value through profit or loss | 4,150 | 4,144 | 4,144 | |||||||||
Other investments at fair value through profit or loss | 1,898 | 1,914 | 1,914 | |||||||||
Mortgages | 33,562 | 38,076 | 33,562 | |||||||||
Private loans | 3,642 | 4,181 | 3,642 | |||||||||
Deposits with financial institutions | 139 | 139 | 139 | |||||||||
Policy loans | 1,897 | 1,897 | 1,897 | |||||||||
Other | 127 | 127 | 127 | |||||||||
Subtotal | 39,368 | 44,422 | 39,368 | |||||||||
Real estate: | ||||||||||||
Investments in real estate | 2,147 | 2,147 | ||||||||||
Total | 141,858 | 136,804 |
Amounts in EUR million | Cost1) | Fair value | Book value | |||||||||
Shares: | ||||||||||||
Available-for-sale | 291 | 345 | 345 | |||||||||
Fair value through profit or loss | 1,679 | 1,634 | 1,634 | |||||||||
Bonds: | ||||||||||||
Available-for-sale and held-to-maturity: | ||||||||||||
US government | 8,336 | 10,935 | 10,935 | |||||||||
Dutch government | 4,769 | 6,505 | 6,505 | |||||||||
Other government | 9,085 | 12,736 | 12,736 | |||||||||
Mortgage backed | 5,678 | 6,092 | 6,092 | |||||||||
Asset backed | 3,980 | 4,121 | 4,121 | |||||||||
Corporate | 45,986 | 53,292 | 53,292 | |||||||||
Money market investments | 4,559 | 4,558 | 4,558 | |||||||||
Other | 1,032 | 996 | 996 | |||||||||
Subtotal | 83,426 | 99,235 | 99,235 | |||||||||
Bonds: | ||||||||||||
Fair value through profit or loss | 5,606 | 5,669 | 5,669 | |||||||||
Other investments at fair value through profit or loss | 2,332 | 2,754 | 2,754 | |||||||||
Mortgages | 38,244 | 43,258 | 38,244 | |||||||||
Private loans | 4,358 | 5,280 | 4,358 | |||||||||
Deposits with financial institutions | 92 | 92 | 92 | |||||||||
Policy loans | 1,801 | 1,801 | 1,801 | |||||||||
Other | 25 | 25 | 25 | |||||||||
Subtotal | 44,519 | 50,456 | 44,519 | |||||||||
Real estate: | ||||||||||||
Investments in real estate | - | 2,385 | 2,385 | |||||||||
Total | 137,852 | 162,478 | 156,541 |
1 | Cost is defined as original cost for available-for-sale shares and amortized cost for available-for-sale and held-to-maturity bonds |
Aegon Annual Report on Form 20-F 2020 |
Other financial informationSchedule II332 | ||
Condensed financial information of registrant
Statement of financial position of Aegon N.V.
As at December 31
Before profit appropriation, amounts in EUR million | Note | 2017 | 2016 | 2020 | 20191 | |||||||||||||||
Non-current assets | ||||||||||||||||||||
Financial fixed assets | ||||||||||||||||||||
Shares in group companies | 8 | 23,117 | 22,219 | 24,846 | 25,037 | |||||||||||||||
Loans to group companies | 9 | 2,690 | 4,123 | 1,392 | 1,337 | |||||||||||||||
Other non-current assets | 148 | - | ||||||||||||||||||
25,807 | 26,342 | 26,386 | 26,374 | |||||||||||||||||
Current assets | ||||||||||||||||||||
Receivables | ||||||||||||||||||||
Receivables from group companies | 10 | 36 | 80 | 56 | 112 | |||||||||||||||
Other receivables | 10 | 146 | 219 | 100 | 175 | |||||||||||||||
Other | 11 | 74 | 140 | |||||||||||||||||
Other current assets | 198 | 124 | ||||||||||||||||||
Accrued interest and rent | 8 | 15 | 9 | 13 | ||||||||||||||||
264 | 454 | 363 | 424 | |||||||||||||||||
Cash and cash equivalents | ||||||||||||||||||||
Cash and cash equivalents | 1,068 | 879 | 887 | 1,032 | ||||||||||||||||
Total assets | 27,139 | 27,675 | 27,636 | 27,830 | ||||||||||||||||
Shareholders’ equity | ||||||||||||||||||||
Share capital | 12 | 322 | 319 | 320 | 323 | |||||||||||||||
Paid-in surplus | 13 | 7,731 | 7,873 | 7,160 | 7,213 | |||||||||||||||
Revaluation account | 13 | 5,017 | 5,450 | 7,491 | 6,120 | |||||||||||||||
Remeasurement of defined benefit plans of group companies | 13 | (1,669 | ) | (1,820 | ) | |||||||||||||||
Legal reserves – foreign currency translation reserve | 13 | (401 | ) | 1,316 | (601 | ) | 426 | |||||||||||||
Legal reserves in respect of group companies | 13 | 1,122 | 1,169 | 1,710 | 1,703 | |||||||||||||||
Retained earnings, including treasury shares | 13 | 5,696 | 5,776 | 8,617 | 7,218 | |||||||||||||||
Remeasurement of defined benefit plans of group companies | (2,534 | ) | (2,397 | ) | ||||||||||||||||
Net income / (loss) | 13 | 2,469 | 437 | (146 | ) | 1,235 | ||||||||||||||
20,288 | 20,520 | 22,018 | 21,842 | |||||||||||||||||
Other equity instruments | 14 | 3,794 | 3,797 | 2,569 | 2,571 | |||||||||||||||
Total equity | 24,082 | 24,318 | 24,586 | 24,413 | ||||||||||||||||
Non-current liabilities | ||||||||||||||||||||
Subordinated borrowings | 15 | 764 | 767 | 1,345 | 1,403 | |||||||||||||||
Long-term borrowings | 16 | 1,801 | 1,832 | 1,218 | 1,257 | |||||||||||||||
2,565 | 2,599 | 2,563 | 2,660 | |||||||||||||||||
Current liabilities | 17 | |||||||||||||||||||
Short term deposits | 73 | 128 | ||||||||||||||||||
Loans from group companies | 62 | 62 | 6 | 6 | ||||||||||||||||
Payables to group companies | 123 | 140 | 44 | 484 | ||||||||||||||||
Deferred tax liability | 89 | 159 | ||||||||||||||||||
Other | 125 | 242 | ||||||||||||||||||
Other current liabilities | 406 | 236 | ||||||||||||||||||
Accruals and deferred income | 22 | 29 | 30 | 31 | ||||||||||||||||
| 494
|
|
| 760
|
|
| 486
|
|
| 757
|
| |||||||||
Total liabilities
|
| 3,059
|
|
| 3,359
|
| 3,049 | 3,417 | ||||||||||||
Total equity and liabilities | 27,139 | 27,675 | 27,636 | 27,830 |
1 | Amounts have been restated to reflect the voluntary change in accounting policies related to deferred cost of reinsurance (DCoR) adopted by Aegon effective January 1, 2020. Refer to note 2 Significant accounting policies of the financial statements of Aegon N.V. for details about this change. |
Aegon Annual Report on Form 20-F 2020 |
Other financial informationSchedule II333 | ||
IncomeCondensed income statement of Aegon N.V.
For the year ended December 31
Amounts in EUR million | 2017 | 2016 | 2015 | 2020 | 2019 | 2018 | ||||||||||||||||||
Net income / (loss) group companies | 2,511 | 533 | (394 | ) | - | 1,376 | 828 | |||||||||||||||||
Other income / (loss) | (42 | ) | (96 | ) | (38 | ) | (146 | ) | (141 | ) | (122 | ) | ||||||||||||
Net income / (loss) | 2,469 | 437 | (432 | ) | (146 | ) | 1,235 | 706 |
Condensed cash flow statement of Aegon N.V.
For the year ended December 31
Amounts in EUR million | 2017 | 2016 | 2015 | 2020 | 2019 | 2018 | ||||||||||||||||||
Income / (loss) before tax | 2,468 | 411 | (454 | ) | 185 | 1,196 | 705 | |||||||||||||||||
Adjustments | (3,676 | ) | (231 | ) | 1,920 | 330 | (1,526 | ) | (288 | ) | ||||||||||||||
Net cash flows from operating activities | (1,208 | ) | 180 | 1,466 | (515 | ) | (330 | ) | 418 | |||||||||||||||
Dividends and capital repayments of subsidiaries, associates and joint ventures | 700 | 895 | - | 606 | 647 | 824 | ||||||||||||||||||
Other | (1 | ) | (2 | ) | (5 | ) | (1 | ) | (1 | ) | (1 | ) | ||||||||||||
Net cash flows from investing activities | 700 | 893 | (5 | ) | 605 | 646 | 822 | |||||||||||||||||
Issuance of perpetuals | - | 496 | - | |||||||||||||||||||||
Issuance of treasury shares | 2 | - | - | - | 1 | - | ||||||||||||||||||
Purchase of treasury shares | (266 | ) | (623 | ) | (213 | ) | (59 | ) | (318 | ) | (248 | ) | ||||||||||||
Issuance and repurchase of borrowings | (58 | ) | 1,074 | 294 | ||||||||||||||||||||
Repayment of perpetuals | - | (1,343 | ) | (200 | ) | |||||||||||||||||||
Repayment of non-cumulative subordinated note | - | - | (443 | ) | ||||||||||||||||||||
Dividends paid | (294 | ) | (306 | ) | (292 | ) | (63 | ) | (309 | ) | (328 | ) | ||||||||||||
Issuance, repurchase and coupons of perpetual securities | (138 | ) | (140 | ) | (148 | ) | ||||||||||||||||||
Issuance, repurchase and coupons of non-cumulative subordinated notes | (37 | ) | (38 | ) | (38 | ) | ||||||||||||||||||
Issuance and repurchase of borrowings | 1,429 | 604 | (1,115 | ) | ||||||||||||||||||||
Coupons on perpetual securities | (55 | ) | (112 | ) | (136 | ) | ||||||||||||||||||
Coupons on non-cumulative subordinated notes | - | - | (14 | ) | ||||||||||||||||||||
Net cash flows from financing activities
|
| 696
|
|
| (503
| )
|
| (1,806
| )
| (235 | ) | (512 | ) | (1,076 | ) | |||||||||
Net increase / (decrease) in cash and cash equivalents | 188 | 570 | (346 | ) | (146 | ) | (196 | ) | 165 |
Five-year schedule of maturities of debt
As at December 31
2017 | 2016 | |||||||||||||||
Amounts in million EUR | Subordi- nated borrowings | Long-term Borrowings | Subordinated borrowings | Long-term Borrowings | ||||||||||||
Remaining terms less than 1 year | - | 500 | - | 500 | ||||||||||||
Remaining terms 1 - 2 years | - | 82 | - | - | ||||||||||||
Remaining terms 2 - 3 years | - | - | - | 84 | ||||||||||||
Remaining terms 3 - 4 years | - | - | - | - | ||||||||||||
Remaining terms 4 - 5 years | - | - | - | - | ||||||||||||
Remaining terms longer than 5 years | 764 | 1,219 | 767 | 1,248 | ||||||||||||
At December 31 | 764 | 1,801 | 767 | 1,832 |
2020 | 2019 | |||||||||||||||
Amounts in EUR million | Subordinated borrowings | Long-term Borrowings | Subordinated borrowings | Long-term Borrowings | ||||||||||||
Remaining terms less than 1 year | - | - | - | - | ||||||||||||
Remaining terms 1 - 2 years | - | - | - | - | ||||||||||||
Remaining terms 2 - 3 years | - | 498 | - | - | ||||||||||||
Remaining terms 3 - 4 years | - | - | - | 497 | ||||||||||||
Remaining terms 4 - 5 years | - | - | - | - | ||||||||||||
Remaining terms longer than 5 years | 1,345 | 720 | 1,403 | 760 | ||||||||||||
At December 31 | 1,345 | 1,218 | 1,403 | 1,257 |
DividendsRemittances from and capital contributions to business units
Aegon received EUR 1.80.8 billion of dividendsremittances from its business units during 2017, mainly from Americas, United Kingdom, Asset Management, Central & Eastern Europe and Spain & Portugal. 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 20162020 from the Americas, asset management, Central & Eastern Europethe Netherlands, United Kingdom, International, and Spain & Portugal.Asset Management. Aegon spent EUR 0.2 billion on capital contributions.contributions, mainly on International.
Aegon received EUR 1.11.2 billion of dividendsremittances from its business units during 2015, almost all of which2019 from the Americas.Americas, United Kingdom, International and asset management. Aegon spent EUR 0.30.4 billion on capital contributions, mainly on International and acquisitions.the Netherlands.
Aegon received EUR 1.4 billion of remittances from its business units during 2018, mainly from Americas, the Netherlands, United Kingdom, International and Asset Management. Aegon spent EUR 0.1 billion on capital contributions.
��
Aegon Annual Report on Form 20-F 2020 |
Other financial informationSchedule III334 | ||
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 | |||||||||||||||||||||||||||||||||||
2017 | ||||||||||||||||||||||||||||||||||||||||
Segment Amounts in EUR million | Deferred policy acquisition costs | Future policy benefits | Unearned premiums | Other policy claims and benefits | Premium revenue | |||||||||||||||||||||||||||||||||||
2020 | ||||||||||||||||||||||||||||||||||||||||
Americas | 8,188 | 171,122 | 5,241 | 1,982 | 9,383 | 7,181 | 174,167 | 5,897 | 1,858 | 8,326 | ||||||||||||||||||||||||||||||
The Netherlands | 76 | 62,446 | 61 | 932 | 2,208 | 136 | 70,915 | 50 | 1,026 | 1,994 | ||||||||||||||||||||||||||||||
United Kingdom | 903 | 65,052 | 14 | 6 | 9,635 | 789 | 95,788 | 20 | 5 | 4,858 | ||||||||||||||||||||||||||||||
Central & Eastern Europe | 70 | 1,910 | 23 | 86 | 628 | |||||||||||||||||||||||||||||||||||
Spain & Portugal | 1 | 796 | - | 15 | 155 | |||||||||||||||||||||||||||||||||||
Asia | 490 | 4,969 | 100 | 15 | 816 | |||||||||||||||||||||||||||||||||||
International | 289 | 9,245 | 150 | 112 | 919 | |||||||||||||||||||||||||||||||||||
Holding and other activities | - | 16 | 8 | - | 1 | - | - | - | - | 1 | ||||||||||||||||||||||||||||||
Eliminations 1) | - | (1,488 | ) | - | - | - | ||||||||||||||||||||||||||||||||||
Total | 9,729 | 306,311 | 5,447 | 3,036 | 22,826 | 8,395 | 348,627 | 6,117 | 3,001 | 16,099 | ||||||||||||||||||||||||||||||
2016 | ||||||||||||||||||||||||||||||||||||||||
2019 | ||||||||||||||||||||||||||||||||||||||||
Americas | 8,958 | 185,654 | 5,625 | 2,151 | 9,433 | 8,589 | 179,972 | 5,770 | 2,117 | 8,515 | ||||||||||||||||||||||||||||||
The Netherlands | 84 | 63,526 | 59 | 977 | 2,491 | 360 | 67,382 | 56 | 944 | 2,123 | ||||||||||||||||||||||||||||||
United Kingdom | 996 | 69,505 | 11 | 6 | 9,924 | 878 | 94,570 | 18 | 5 | 6,309 | ||||||||||||||||||||||||||||||
Central & Eastern Europe | 71 | 1,905 | 18 | 75 | 578 | |||||||||||||||||||||||||||||||||||
Spain & Portugal | 1 | 799 | - | 12 | 148 | |||||||||||||||||||||||||||||||||||
Asia | 832 | 5,558 | 105 | 22 | 882 | |||||||||||||||||||||||||||||||||||
International | 536 | 10,023 | 156 | 122 | 1,188 | |||||||||||||||||||||||||||||||||||
Holding and other activities | - | 16 | 4 | - | (2) | - | 16 | 1 | - | 3 | ||||||||||||||||||||||||||||||
Eliminations 1) | - | (1,655 | ) | - | - | - | ||||||||||||||||||||||||||||||||||
Total | 10,942 | 326,964 | 5,822 | 3,244 | 23,453 | 10,363 | 350,307 | 6,002 | 3,188 | 18,138 | ||||||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||||||||||
2018 | ||||||||||||||||||||||||||||||||||||||||
Americas | 8,330 | 177,742 | 4,977 | 1,991 | 9,195 | 8,814 | 166,054 | 5,125 | 2,100 | 8,403 | ||||||||||||||||||||||||||||||
The Netherlands | 97 | 59,779 | 108 | 1,316 | 2,947 | 66 | 60,046 | 62 | 934 | 1,987 | ||||||||||||||||||||||||||||||
United Kingdom | 1,264 | 83,417 | 12 | 5 | 8,512 | 859 | 76,255 | 16 | 5 | 7,539 | ||||||||||||||||||||||||||||||
Central & Eastern Europe | 84 | 1,890 | 15 | 70 | 642 | |||||||||||||||||||||||||||||||||||
Spain & Portugal | 1 | 797 | - | 10 | 133 | |||||||||||||||||||||||||||||||||||
Asia | 745 | 4,127 | 88 | 20 | 1,494 | |||||||||||||||||||||||||||||||||||
International | 744 | 10,169 | 136 | 118 | 1,385 | |||||||||||||||||||||||||||||||||||
Holding and other activities | 9 | 89 | 2 | 1 | 2 | - | 12 | 2 | - | 2 | ||||||||||||||||||||||||||||||
Eliminations 1) | - | (1,648 | ) | - | - | - | ||||||||||||||||||||||||||||||||||
Total | 10,530 | 327,841 | 5,202 | 3,414 | 22,925 | 10,483 | 310,889 | 5,341 | 3,158 | 19,316 |
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.
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 | |||||||||||||||
2017 | ||||||||||||||||||||
Americas | 3,362 | 8,585 | 552 | 2,953 | 6,387 | |||||||||||||||
The Netherlands | 2,173 | 4,430 | 19 | 925 | 2,192 | |||||||||||||||
United Kingdom | 1,516 | 11,796 | 111 | 646 | 9,266 | |||||||||||||||
Central & Eastern Europe | 49 | 416 | 54 | 207 | 614 | |||||||||||||||
Spain & Portugal | 31 | 153 | - | 93 | 150 | |||||||||||||||
Asia | 203 | 153 | 33 | 95 | 778 | |||||||||||||||
Asset Management | - | - | - | 159 | - | |||||||||||||||
Holding and other activities | 5 | 5 | - | 76 | 8 | |||||||||||||||
Total | 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 | |||||||||||||||
2015 | ||||||||||||||||||||
Americas | 3,672 | 8,240 | 593 | 3,357 | 6,643 | |||||||||||||||
The Netherlands | 2,274 | 4,641 | 30 | 1,039 | 2,934 | |||||||||||||||
United Kingdom | 2,331 | 11,541 | 319 | 588 | 8,038 | |||||||||||||||
Central & Eastern Europe | 45 | 563 | 80 | 184 | 631 | |||||||||||||||
Spain & Portugal | 34 | 151 | - | 74 | 128 | |||||||||||||||
Asia | 165 | 119 | 30 | 128 | 1,564 | |||||||||||||||
Asset Management | - | - | - | 117 | - | |||||||||||||||
Holding and other activities | 4 | 2 | 3 | 57 | 7 | |||||||||||||||
Total | 8,525 | 25,259 | 1,055 | 5,543 | 19,946 |
Aegon Annual Report on Form 20-F 2020 |
Column A | Column G | Column H | Column I | Column J | Column K | |||||||||||||||
Segment Amounts in EUR million | Net investment income | Benefits, claims and losses | Amortization of deferred policy acquisition costs | Other operating expenses | Premiums written | |||||||||||||||
2020 | ||||||||||||||||||||
Americas | 2,984 | 7,171 | 547 | 3,127 | 5,930 | |||||||||||||||
The Netherlands | 2,083 | 3,244 | - | 837 | 1,931 | |||||||||||||||
United Kingdom | 1,795 | 6,278 | 102 | 529 | 4,670 | |||||||||||||||
International | 307 | 810 | 105 | 350 | 860 | |||||||||||||||
Asset Management | - | - | - | 382 | - | |||||||||||||||
Holding and other activities | 4 | 7 | - | 185 | 5 | |||||||||||||||
Eliminations 1) | (24 | ) | (5 | ) | - | (180 | ) | - | ||||||||||||
Total | 7,149 | 17,505 | 753 | 5,230 | 13,396 | |||||||||||||||
2019 | ||||||||||||||||||||
Americas | 3,166 | 8,484 | 583 | 3,181 | 6,360 | |||||||||||||||
The Netherlands | 2,224 | 3,416 | 3 | 880 | 2,090 | |||||||||||||||
United Kingdom | 1,830 | 7,722 | 100 | 607 | 6,120 | |||||||||||||||
International | 325 | 834 | 68 | 376 | 1,122 | |||||||||||||||
Asset Management | - | - | - | 388 | - | |||||||||||||||
Holding and other activities | - | 5 | - | 153 | 12 | |||||||||||||||
Eliminations 1) | (15 | ) | (3 | ) | - | (187 | ) | - | ||||||||||||
Total | 7,531 | 20,459 | 754 | 5,399 | 15,704 | |||||||||||||||
2018 | ||||||||||||||||||||
Americas | 3,121 | 7,767 | 722 | 3,219 | 6,069 | |||||||||||||||
The Netherlands | 2,265 | 3,547 | 20 | 792 | 1,960 | |||||||||||||||
United Kingdom | 1,346 | 9,221 | 101 | 604 | 7,299 | |||||||||||||||
International | 301 | 795 | 71 | 404 | 1,315 | |||||||||||||||
Asset Management | - | - | - | 371 | - | |||||||||||||||
Holding and other activities | 6 | 6 | - | 127 | 10 | |||||||||||||||
Eliminations 1) | (4 | ) | (5 | ) | - | (206 | ) | - | ||||||||||||
Total | 7,035 | 21,331 | 913 | 5,311 | 16,653 |
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 20-F |
Reinsurance
Amounts in million EUR | Gross amount | Ceded to other companies | Assumed from other companies | Net amount | % of amount net | |||||||||||||||
For the year ended December 31, 2017 | ||||||||||||||||||||
Life insurance in force | 863,686 | 709,326 | 525,201 | 679,561 | 77% | |||||||||||||||
Premiums | ||||||||||||||||||||
Life insurance | 18,324 | 3,214 | 1,628 | 16,738 | 10% | |||||||||||||||
Non-life insurance | 2,849 | 217 | 25 | 2,657 | 1% | |||||||||||||||
Total premiums | 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% | |||||||||||||||
For the year ended December 31, 2015 | ||||||||||||||||||||
Life insurance in force | 1,008,787 | 961,485 | 658,594 | 705,896 | 93% | |||||||||||||||
Premiums | ||||||||||||||||||||
Life insurance | 17,971 | 2,694 | 1,612 | 16,889 | 10% | |||||||||||||||
Non-life insurance | 3,332 | 286 | 11 | 3,057 | 0% | |||||||||||||||
Total premiums | 21,302 | 2,979 | 1,623 | 19,946 | 8% |
Reinsurance
Amounts in EUR million | Gross amount | Ceded to other companies | Assumed from other companies | Net amount | % of amount assumed to net | |||||||||||||||
For the year ended December 31, 2020 | ||||||||||||||||||||
Life insurance in force | 895,593 | 599,091 | 408,201 | 704,703 | 58% | |||||||||||||||
Premiums | ||||||||||||||||||||
Life insurance | 12,619 | 2,541 | 1,310 | 11,387 | 12% | |||||||||||||||
Non-life insurance | 2,165 | 162 | 5 | 2,008 | 0% | |||||||||||||||
Total premiums | 14,784 | 2,703 | 1,315 | 13,396 | 10% | |||||||||||||||
For the year ended December 31, 2019 | ||||||||||||||||||||
Life insurance in force | 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% | |||||||||||||||
Non-life insurance | 2,330 | 163 | 16 | 2,183 | 1% | |||||||||||||||
Total premiums | 17,856 | 2,663 | 1,459 | 16,653 | 9% |
Aegon Annual Report on Form 20-F |
Other financial informationSchedule V337 | ||
Valuation and qualifying accounts
Amounts in million EUR | 2017 | 2016 | 2015 | |||||||||||||||||||||
Amounts in EUR million | 2020 | 2019 | 2018 | |||||||||||||||||||||
Balance at January 1 | 215 | 249 | 363 | 199 | 179 | 213 | ||||||||||||||||||
Addition charged to earnings | 40 | 5 | 30 | 154 | 72 | 35 | ||||||||||||||||||
Amounts written off and other changes | (37 | ) | (40 | ) | (152 | ) | (70 | ) | (53 | ) | (70 | ) | ||||||||||||
Currency translation | (5 | ) | 1 | 8 | (7 | ) | - | 1 | ||||||||||||||||
Balance at December 31 | 213 | 215 | 249 | 276 | 199 | 179 | ||||||||||||||||||
The provisions can be analyzed as follows: | ||||||||||||||||||||||||
Mortgages | 48 | 40 | 56 | 6 | 6 | 19 | ||||||||||||||||||
Other loans | 116 | 97 | 86 | 182 | 159 | 118 | ||||||||||||||||||
Receivables | 48 | 79 | 107 | 88 | 34 | 41 | ||||||||||||||||||
Total | 213 | 215 | 249 | 276 | 199 | 179 |
Aegon Annual Report on Form 20-F 2020 |
Auditor’s report on the Annual Report on Form 20-F | 338 | |||||
Annual Report on Form 20-F
Report of Independent Registered Public Accounting Firm
To theTo: The Supervisory Board, the Executive 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, 20172020 and 2016,2019, 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, 2017,2020, including the related notes and schedules to the financial statement schedulesstatements of summary of investments other than investments in related parties as of December 31, 2017,2020, of condensed financial information of Aegon N.V. as of December 31, 20172020 and 20162019 and for each of the three years in the period ended December 31, 2017,2020, of supplementary insurance information as offor the years ended December 31, 2017, 20162020, 2019 and 2015,2018, of reinsurance for the years ended December 31, 2017, 20162020, 2019 and 20152018, and of valuation and qualifying accounts as offor the years ended December 31, 2017, 20162020, 2019 and 20152018 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, 2017,2020, 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, 20172020 and 2016,2019, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172020 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, 2017,2020, 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”)(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-F 2020 |
Auditor’s report on the Annual Report on Form 20-F | 339 | |||||
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 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.
R. DekkersCritical 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 recorded deferred policy acquisition costs (DPAC) of EUR 8.3 billion included in the deferred expenses line item, value of business acquired (VOBA) of EUR 0.8 billion included in the intangible assets line item, insurance contracts of EUR 122.1 billion and embedded derivatives in insurance contracts of EUR 4.9 billion included in the derivatives liability line item as of December 31, 2020 (collectively, ‘certain assets and liabilities arising from insurance contracts’). Management’s estimation of the valuation of certain assets and liabilities arising from insurance contracts, taking into account the impact of the COVID-19 pandemic, is developed using complex valuation models and significant assumptions, including mortality, morbidity, future expenses, surrender, lapse, utilization rates and, for embedded derivatives, 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 assumptions, 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, taking into account the impact of the COVID-19 pandemic. 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-F 2020 |
Auditor’s report on the Annual Report on Form 20-F | 340 | |||||
Valuation of certain Level 3 investments
As described in Notes 3 and 44 to the consolidated financial statements, the Company recorded investments of EUR 156.5 billion as of December 31, 2020, of which EUR 3.1 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 in turn led to a high degree of auditor judgment and subjectivity 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.
Impairments of Assets
As described in Notes 2.16, 15, 29 to the consolidated financial statements, the Company recorded impairment charges / (reversals) of EUR 391 million for the year ended December 31, 2020, of which EUR 291 million related to impairment charges on financial assets, EUR 29 million related to impairment reversals on financial assets, and EUR 128 million related to impairment charges and reversals on non-financial assets and receivables. Management’s process over impairment losses for debt securities and loans involves calculating the recoverable amount, which is often based on a discounted cash flow model. Management’s process over impairment losses for available for sale equity securities is based on a significant or prolonged decline in fair value below initial costs, however there is also a qualitative assessment based on whether management believes there have been significant changes with an adverse effect to the environment the equity securities operate, which is more subjective and subject to higher estimation uncertainty. Management’s process over impairment of goodwill and intangible assets involves calculating the recoverable value of the asset, which is often based on a discounted cash flow model and the use of significant assumptions such as growth rate and the discount rate.
The principal considerations for our determination that performing procedures relating to impairment of assets is a critical audit matter are (i) there was significant judgment by management in determining the impairment charges for numerous asset classes which are material to the financial statements (ii) the calculation of these impairment charges involves assumptions many of which have high estimation uncertainty and subjectivity, which in turn led to a high degree of auditor judgment and subjectivity in performing the procedures over the impairment charges (iii) the audit effort over testing the impairment charges over the majority of these asset classes involved the use of professionals with specialized skill and knowledge in performing procedures and evaluating the audit evidence obtained.
Aegon Annual Report on Form 20-F 2020 |
Auditor’s report on the Annual Report on Form 20-F | 341 | |||||
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 impairment testing on financial and non-financial assets, including controls over the development of models and significant inputs, as well as management’s determination and approval of assumptions and methodologies used in calculations and controls over data integrity. For impairment charges of debt securities and loans, these procedures included, among others, substantively testing whether there was objective evidence of credit events that occurred after the initial recognition of the asset that had a negative impact on the estimated future cash flows, taking into account the impacts of the COVID-19 pandemic. For impairment charges of available for sale equity investments, these procedures included, among others, substantively evaluating whether there were significant or prolonged declines in fair value below initial cost, which require an impairment that cannot be reversed, as well as testing the reasonability of management’s qualitative analysis. For impairment charges of goodwill and intangible assets, these procedures included, among others, substantive testing procedures over management’s impairment analysis on goodwill and testing management’s assumptions, such as the growth rate and discount rate.
/s/ G.J. Heuvelink RA
PricewaterhouseCoopers Accountants N.V.
Amsterdam, the Netherlands
March 22, 201817, 2021
We have served as the Company’s auditor since 2014.
Aegon Annual Report on Form 20-F |
Table of contents
Additional information | ||||
343 | Overview of Americas | |||
351 | Overview of the Netherlands | |||
357 | Overview of United Kingdom | |||
362 | Overview of International | |||
368 | Overview of Aegon Asset Management | |||
370 | Risk factors Aegon N.V. | |||
393 | Compliance with regulations | |||
394 | ||||
394 | ||||
395 | Dividend policy | |||
396 | ||||
398 | Material contracts | |||
Exchange controls | ||||
Taxation | ||||
| ||||
404 | ||||
Purchases of equity securities by the issuer and affiliated purchasers | ||||
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. The non-U.S. 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 had an Individual Personal Pension (“IPP”) for a UK customer until March 2017 when the benefits were transferred externally to another pension provider. The customer is a UK-based employee of an Iranian bank which appears on OFAC’s Specially Designated Nationals (“SDN”) and Blocked Persons List with the identifiers of [SDGT], [IRAN], and [IFSR]. The last contribution to the pension was in November 2016. The customer is not a SDN; the Iranian bank did not own, benefit from, or have any control over the pension. All payments from the Iranian bank were made in UK Pounds from a UK bank account. Her Majesty’s Treasury (“HMT”) had previously confirmed that this business activity falls within an acceptable exemption. On October, 22 2016 HMT removed the entity from their consolidated list.
Aegon UK also has six UK resident customers who have one active IPP and are UK-based employees of a British registered charity that appears on the SDN List with the identifier [SDGT]; the charity makes 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 Pounds 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 9,741 as at January 12, 2018, and regular monthly contributions of GBP 69.41 are being received into this policy. IPP #2 has a value of GBP 4,287as at January 12, 2018, and regular monthly contributions of GBP 18.61 are being received. IPP #3 has a value of GBP 193,694 as at January 12, 2018, and regular monthly contributions of GBP 527.91 are being received. IPP #4 has a value of GBP 8,854 as at January 12, 2018, and no further contributions are being received. IPP #5 has a value of GBP 43,119 as at January 12, 2018, and no further contributions are being received. IPP #6 has a current value of GBP 8,348 as at January 12, 2018, 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 8,040.
In the Netherlands, Aegon Levensverzekering N.V. has one Dutch resident customer who is a party subject to U.S. 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 pensions 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 65,323 as at January 1, 2018, 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 20-F |
Aegon Americas operates primarily under the Transamerica brand in the United States and has operations in Brazil and Canada.
Aegon in the US
Transamerica is one of the leading life insurance companies in the United States, and the largest of Aegon’s operating units worldwide. Transamerica employs approximately 7,300 people, and its businesses in the United States serve customers in all fifty states, the District of Columbia, and Puerto Rico. 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. The primary offices are in Cedar Rapids, Iowa; Denver, Colorado; and Baltimore, Maryland. There are additional offices located throughout the United States.
Through its subsidiaries and affiliated companies, Transamerica provides a wide range of life insurance, long-term care (LTC) insurance and voluntary benefits (including supplemental health insurance), retirement plans, recordkeeping and advisory services, annuities, mutual funds and other long-term savings and investment products.
Transamerica employs a variety of distribution models to help customers access its products and services. These include working through third-party financial professionals, retail producers and agents, and Transamerica registered investment advisors.
Aegon in Brazil
Aegon has a 50% interest in Mongeral Aegon Seguros e Previdência S.A. (Mongeral Aegon Group), Brazil’s third largest independent (i.e. non-bank affiliated) life insurer1. To further capture growth prospects in Brazil, Mongeral Aegon Group and Bancoob (Banco Cooperativo do Brasil) have established Sicoob Seguradora de Vida e Previdência, a company dedicated to providing life insurance and pension products within the Sicoob system. Sicoob is Brazil’s largest cooperative financial system2, with over 4.6 million associates and over 2,700 points of sale. Mongeral Aegon Group has approximately 700 employees.
Organizational structure
Aegon USA
Transamerica Corporation is the holding company for Aegon’s US operations, 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 venture(s) in the United States and Brazil, collectively or individually, through which Aegon conducts business, except those United States operations further described in the Overview of Aegon Asset Management. Aegon USA entities collectively have operating licenses in every US state, in addition to the District of Columbia, Puerto Rico, the US Virgin Islands, and Guam.
Following the October 1, 2020 merger of Transamerica Life Insurance Company and Transamerica Premier Life Insurance Company, Aegon USA’s primary insurance subsidiaries are:
◆ | Transamerica Life Insurance Company; and |
◆ | Transamerica Financial Life Insurance Company. |
Aegon USA 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. Moreover, Aegon USA’s structure enables it to leverage Transamerica’s brand strength, expertise, and capabilities to fulfill Aegon’s purpose of helping people achieve a lifetime of financial security.
Aegon USA is organized into two business divisions, Workplace Solutions, and Individual Solutions, that operate through one or more of Aegon USA’s affiliated companies. Workplace Solutions offers retirement plan recordkeeping, advisory services, employee benefits (life insurance and supplemental health insurance), group annuities, collective investment trusts, health savings and flexible savings accounts, individual retirement accounts and stable value solutions. Individual Solutions offers annuities, mutual funds, supplemental health insurance, and life and LTC insurance. Aegon USA offers these product lines, described in greater detail below, through several distribution and sales channels.
1 | SUSEP, http://www2.susep.gov.br/menuestatistica/SES/principal.aspx. Webpage visited October 8, 2020. |
2 | SICOOB, https://www.sicoob.com.br/web/sicoob/o-sicoob. Webpage visited October 8, 2020. |
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of Americas | 344 | |||||
On December 10, 2020, Aegon announced strategic organizational changes beginning in 2021. Aegon USA is designated as a core market, with its businesses organized into Financial Assets and Strategic Assets. Brazil is designated as a growth market.
Several Aegon USA product lines are considered Financial Assets and will be closed for new sales. These are traditional, interest rate-sensitive living benefits and death benefits, currently available with variable annuities (VA), standalone individual LTC, and fixed indexed annuities. Aegon USA will cease new sales of standalone products in the first quarter of 2021.
Strategic Assets are where Aegon USA is positioned for a greater potential for an attractive return on capital and growth. In Workplace Solutions, Aegon USA will continue to operate in the large market for retirement plans and enhance its focus on small to mid-size organizations and on employee benefits, stable value solutions and Transamerica Advice Center (TAC) businesses. Workplace Solutions will also continue to provide value-added services, such as Managed Advice® and its proprietary investment solutions. In Individual Solutions, Aegon USA will focus on select life and investment products, including the sale of term life insurance, final expense whole life insurance, and indexed universal life insurance, and select mutual funds and individual retirement products, like accumulation VAs with limited interest rate sensitivity.
Overview of sales and distribution channels
Aegon USA offers its products and services through affiliated and non-affiliated distributors to meet customer needs and provides guidance to Aegon USA customers. Workplace Solutions supports individuals primarily through their employers as customers, Individual Solutions supports individual customers and investors.
Workplace Solutions
Through Workplace Solutions, Aegon USA distributes its products and services through independent financial advisors, benefits consultants, and insurance agents as well as through an affiliated team of experienced registered representatives, investment advisor representatives, and licensed insurance agents.
Individual Solutions
Wholesale distribution
Through its Individual Solutions business line, Aegon USA offers annuities, investments (mutual funds and exchange traded funds (ETFs)), life insurance and LTC insurance products through agreements with independent broker-dealers, banks, wirehouses, independent financial planners, and independent insurance producers. Annuity and investment products are also offered through institutions, including large broker-dealer research and advisory platforms, and registered investment advisors.
Additionally, Aegon USA offers protection products through third-party distribution outlets known as brokerage general agents, direct marketers, and independent marketing organizations. These products are predominantly non-registered products sold through independent insurance producers. This channel offers life insurance (term life, universal life, index universal life, and whole life insurance), LTC insurance and supplemental health products and services through approximately 51,000 independent brokerage distributors and financial institutions. Effective October 2020, Aegon USA no longer sells Medicare Supplement products and services in this channel.
Retail distribution
Aegon USA’s retail affiliate distribution group, Transamerica Financial Network (TFN), provides advice and guidance to individuals to meet their protection and investment needs. TFN consists of World Financial Group Insurance Agency (WFGIA), Transamerica Agency Network (TAN) and Transamerica Financial Advisors, Inc. (TFA). TFN, through licensed agents and registered representatives/ investment advisor representatives, offers insurance, annuities, mutual funds, retirement plans and advisory account solutions. There are approximately 48,000 independent insurance agents associated with WFGIA in the United States and its affiliated insurance agency operating in Canada. There are approximately 1,800 insurance agents associated with TAN. TAN provides the same life and health products as the wholesale channel, with a focus on middle and emerging affluent markets. The TAN agent field is comprised of both employees and independent producers. Approximately 3,000 WFGIA and TAN agents are associated with TFA as registered representatives, of whom approximately 1,200 are registered as investment advisor representatives.
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of Americas | 345 | |||||
Overview of product lines
Life
Aegon USA offers a comprehensive portfolio of protection solutions to customers in a broad range of market segments. Life products include term life (TL), universal life (UL), variable universal life (VUL), index universal life (IUL), and whole life insurance (WL).
Term life insurance
TL 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
UL 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 accumulated in the policy’s account value to cover charges in the month that follows, which are called ‘monthly deductions’. 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 can 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
VUL insurance is permanent life insurance that offers both a death benefit and cash value accumulation potential with financial market participation. The premium amount for VUL insurance is flexible and may be changed by the policyholder within contract limits. Coverage amounts 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 did not actively market VUL insurance in 2020 but may do so in the future.
Index universal life insurance
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 alternative to traditional UL - for which interest is credited at a fixed rate - and VUL, in which the cash value is directly exposed to the market fluctuations. LTC riders and other living benefit riders are available.
Whole life insurance
WL 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. Final Expense WL provides coverage for funeral and burial related costs.
Accident & Health
Aegon USA offers supplemental health insurance and LTC 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, dental, vision, and supplemental medical expense indemnity. Disability and vision are third-party products.
A number of these products provide policyholders with lump sums or specified payments if these policyholders are hospitalized, injured, or diagnosed with a critical illness. Others pay benefits for specific medical expenses and treatments, or cover deductibles, co-payments and co-insurance amounts not covered by other health insurance.
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of Americas | 346 | |||||
Long-term care insurance
LTC insurance products are a category of health insurance and provide benefits to policyholders that require qualified LTC services when they are unable to perform two or more specified 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. Aegon USA’s LTC product is offered as a rider to certain life insurance products and as a standalone product. Aegon USA has made the decision to stop new sales of these products and intends to cease such sales in the first quarter of 2021.
Mutual Funds and ETFs
Mutual funds are professionally managed investment vehicles comprised of pooled money invested by numerous individuals or institutions. Such funds are invested in various underlying security types such as stocks, bonds, money market instruments, and other securities. Aegon USA 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. Aegon USA mutual funds utilize the portfolio management expertise of asset managers across the industry in a sub-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.
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. Aegon USA offers a suite of managed-risk passive ETFs that seek to track the S&P Managed Risk 2.0 Indices marketed under the name DeltaShares. This Managed Risk strategy is applied to US Large Cap, Mid Cap, Small Cap, International Developed Equity and Emerging Market Equity Indices.
Variable Annuities
VAs allow the policyholder to accumulate assets for retirement on a tax-deferred basis and to participate in equity or bond market performance. Additional insurance guarantees, which are offered through riders, can be added to VAs, 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. Aegon USA will cease new sales of traditional VAs with interest rate-sensitive living and death benefit riders in the first quarter of 2021.
Fixed Annuities
Fixed annuities allow the policyholder to accumulate assets for retirement on a tax-deferred basis through periodic interest crediting and principal protection. Aegon USA has de-emphasized traditional fixed deferred annuities and is only marketing new sales through the Transamerica Advice Center (TAC). The traditional fixed deferred annuity book is, according to plan, continuing to reduce over time. Aegon USA historically offered 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 was also available. Additional guarantees, which were offered through riders, can be added to fixed-index annuities, including GLBs. Aegon USA will cease new sales of fixed indexed annuities in the first quarter of 2021.
Retirement Plans and IRAs
Comprehensive and customized retirement plan services are offered to employers across the entire range 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 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 works closely with plan advisors and third-party administrators to serve their customers. Transamerica Retirement Solutions is a top-ten defined contribution record-keeper in the United States based on number of plan participants1.
Plan sponsors have access to a wide array of investment options. Depending on the product chosen by the plan sponsor, unrestricted access to all publicly available investments can be offered. Certain smaller plans have access to hundreds of investment choices from more than 40 investment advisory companies.
1 | PLANSPONSOR, July 15, 2020, https://www.plansponsor.com/research/2020-recordkeeping-survey/?pagesec=8#Top%20Recordkeepers. Webpage visited December 2, 2020. |
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of Americas | 347 | |||||
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’s slate of funds.
For individual plan participants in transition due to a job loss or change or planned retirement, services and products include IRAs, advisory services, and annuities as well as access to other financial insurance products and resources.
Stable Value Solutions
Aegon USA’s Stable Value Solutions business offers synthetic guaranteed investment contracts (GICs) primarily to tax-qualified institutional entities such as 401(k) plans and other retirement plans and college savings 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.
Brazil
Aegon’s business in Brazil consists of a 50% interest in Mongeral Aegon Seguros e Previdência S.A., a Brazilian independent life insurer. Mongeral Aegon Group’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 longevity institute. Mongeral Aegon Group and Bancoob (Banco Cooperativo do Brasil) own Sicoob Seguradora de Vida e Previdência (Sicoob), a life insurance and pensions company that provides life insurance and pension products via the Sicoob system. The joint venture distributes products through Sicoob. Bancoob is a private commercial bank owned by the credit cooperative entities affiliated with the Sicoob system. Sicoob represents a key distribution channel for Mongeral Aegon Group, which already serves over 4 million customers nationwide through over 4,000 brokers.
Mexico
Beginning in 2017, Akaan Transamerica, Aegon’s joint venture in Mexico, offered a wide variety of mutual funds and investment solutions. In 2019, Aegon USA 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 was completed in 2020.
Run-off businesses
Run-off businesses include results related to the run-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. The size of these remaining blocks is small and in 2021 this segment, along with all other business, will be included as part of the main lines of business in underlying earnings. Please refer to Note 5 Segment Information for further information on Aegon USA’s run-off businesses.
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.
In individual life insurance, leading competitors include Pacific Life, Lincoln National, Prudential Financial, John Hancock, National Life, Nationwide, and AIG. Mutual of Omaha is the primary competitor for sales of individual LTC 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, MetLife, Colonial Life, Allstate, Unum, and Guardian Life.
Aegon USA’s primary competitors in the VA market are Jackson National, Prudential Financial, Lincoln National, AIG, Nationwide, and Equitable.
The largest competitors in the mutual fund market include Vanguard, Fidelity, American Funds, T. Rowe Price, J.P. Morgan, and BlackRock.
In the defined contribution plan administration market, Aegon USA’s largest competitors (based on assets under administration) are Fidelity, Empower, Principal Financial, TIAA, Voya, Vanguard, Alight, and BofA Securities. Aegon USA’s largest competitors in the defined benefit segment are Alight, Willis Towers Watson, Conduent, Fidelity, Aon, Mercer, and Milliman.
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of Americas | 348 | |||||
In the market for synthetic GICs, Aegon USA’s Stable Value Solutions business, the largest competitors are Prudential Financial, MetLife, Voya, and Pacific Life.
Regulation and supervision
Aegon USA’s insurance companies and the business they conduct in the United States are regulated primarily at the state level, as supervised by various state insurance regulators. Some activities, products and services are also subject to federal regulation.
State insurance regulation
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 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 company is domiciled in the State of Iowa, and the Iowa Insurance Division exercises principal regulatory jurisdiction over it. This regulation includes implementation and enforcement of standards of solvency, adequacy of reserves and capital, and reinsurance. The state of Iowa is Aegon USA’s designated lead state, giving Iowa a coordinating role in the collective supervision of Aegon USA’s insurance entities.
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 corrective 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), a non-regulatory industry association that works to achieve uniformity and efficiency of insurance regulation across the United States and US territories.
U.S. state regulators have recently updated certain prudential requirements. The solvency framework for variable annuities was updated to better reflect risks and hedging activities. Aegon USA adopted the new framework in 2019 for most legal entities and in 2020 for a legal entity domiciled in New York. Aegon USA is also subject to principle-based reserving requirements for life insurance, which were implemented for a block of term insurance in 2017 (during the three year transition period) and for all new business on January 1, 2020.
Emerging state issues that may impact Aegon USA include a project by the NAIC to develop macroprudential measures and NAIC projects to update capital charges for asset default risk, mortality risk and longevity risk that could impact required capital. The NAIC is also finalizing a group capital measure that could be applied, at the discretion of the Iowa Insurance Division, to Aegon USA’s insurance operations.
In 2017, the NAIC approved amendments to the Life and Health Insurance Guaranty Association Model Act. Among other things, the amendments (where adopted) bring health maintenance organizations (HMO) into the life and health guaranty association system and adjust guaranty fund assessments for future LTC-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 20 states have adopted the amended model.
In February 2020, the NAIC approved an extensive update to its long-standing Suitability in Annuity Transactions Model Regulation. The result is a revised, consumer-focused set of standards and practices that elevate consumers’ best interests as the core component of all annuity recommendations and sales. Currently, Iowa and Arizona have passed the revised Suitability in Annuity Transactions Model Regulation effective January 1, 2021.
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of Americas | 349 | |||||
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, information 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 United States and report to Congress, and the OFR conducts research into 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 supervision of systemically important insurers and insurers that own a federally insured bank or thrift (Savings & Loan Associations). Aegon USA is not currently subject to supervision by the Federal Reserve Board.
Information security and privacy regulation
Aegon USA’s businesses are regulated with respect to information security, data breach response, privacy, and data use at both the federal and state levels. At the federal level, various Aegon USA 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 several Aegon USA businesses. Following a series of high profile data breaches and data exploitation events at various companies that attracted substantial media attention, numerous US regulators and legislators are currently proposing or have already passed additional legal requirements with respect to information security and privacy. These include but are not limited to the California Consumer Protection Act and the 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 the coming years.
Securities regulation
Several 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 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 variable products, mutual funds, and other securities by affiliate and non-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 Advisors, 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 June 30, 2020, the SEC’s Regulation Best Interest (Regulation BI) went into effect. Regulation BI establishes a “best interest” standard of conduct for broker-dealers and associated persons when making a recommendation to a retail customer and requires them to clearly identify any potential conflicts of interests with those products. The rule also requires broker-dealers and investment advisors to provide a brief relationship summary, Form CRS, to retail investors. The rule is applicable to certain Aegon USA broker-dealers and investment advisors.
In addition, since the Department of Labor Fiduciary Rule was vacated, several states have moved forward with developing standard of conduct rules and proposals. New York, Nevada, and Massachusetts have enacted best interest rules, and other states, including New Jersey, have proposed their own fiduciary regulation. The financial services industry continues to operate under heightened scrutiny and increased regulation in various jurisdictions. 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 advisors, 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.
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of Americas | 350 | |||||
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 upon termination of defined benefit plans. These products and services are generally subject to the Employee Retirement Income Security Act of 1974, as amended (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.
The Setting Every Community Up for Retirement Enhancement Act of 2019, better known as the SECURE Act, was signed into law on December 20, 2019. The legislation facilitates the use of MEPs, of which Aegon USA is a leading provider, as well as expands the safe harbor for automatic enrollment in plans, and reduces the burden of offering annuities either as an in-plan investment option or as the form of distribution from a plan. The SECURE Act expands retirement coverage to long-time, part-time workers and “gig economy” workers who may not otherwise have access to tax-deferred retirement savings, as well as increases the age for “required minimum distributions” from tax deferred accounts from 70 1⁄2 to 72. The SECURE Act also accelerates distributions from inherited defined contribution plan accounts and IRAs to offset the cost of the other provisions. Separately, many states have also sought to open their plans to non-government workers who do not have access to an employer retirement savings plan.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020 to provide over $2 trillion in economic relief to address the public health and economic impacts of COVID-19. Among its many provisions were several allowing individuals impacted by COVID-19 to withdraw or borrow funds from their qualified retirement plans without incurring an early withdrawal penalty (income taxes on withdrawals would still be owed).
Federal tax treatment of insurance companies and their products and plans
Although the insurance business is regulated at state level, the US federal tax treatment of life insurers, life insurance, pension and annuity products is governed by the US federal tax code. Provisions that increase the taxation of life insurers, as well as remove or decrease the value of tax incentives for life insurance, pensions and annuity products – considered alone and relative to other investment vehicles – have been proposed in prior Administrations’ federal budgets and by the US Congress. These initiatives may also come in the form of regulatory changes, including regulations that could limit the ability of US companies to deduct interest expense on financing provided by a non-US affiliate. Executive Administration budget proposals and legislative proposals must be enacted by Congress and signed by the President before they become law. Regulatory proposals are subject to public review and comment. The risk of tax law changes is heightened when additional revenue is sought to reduce the federal deficit or to pay for other tax law changes, such as lower tax rates. All such legislative and regulatory proposals have the potential to change the tax obligations of life insurers as well as modify the tax incentives for short- and long-term savings products. Such changes, if enacted, would have a direct impact on the cost and competitiveness of life insurance, annuity and pension products sold to ensure Americans’ financial and retirement security.
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of the Netherlands | 351 | |||||
For over 175 years, Aegon has operated in the Netherlands, where it is a leading provider of life insurance and pensions. Aegon the Netherlands employs approximately 3,300 people and is headquartered in The Hague, with main offices in Amsterdam, Leeuwarden, and Groningen.
Organizational structure
Aegon is one of the most widely recognized brands in the Dutch financial services sector. Aegon the Netherlands also operates through several other brands, including Knab, TKP Pensioen, and Robidus.
Aegon the Netherlands has four lines of business:
◆ | Life; |
◆ | Non-life; |
◆ | Banking; and |
◆ | Service Business. |
Aegon the Netherlands’ primary subsidiaries are:
◆ | Aegon Bank N.V.; |
◆ | Aegon Cappital B.V.; |
◆ | Aegon Hypotheken B.V.; |
◆ | Aegon Levensverzekering N.V.; |
◆ | Aegon Schadeverzekering N.V.; |
◆ | Aegon Spaarkas N.V.; |
◆ | Nedasco B.V.; |
◆ | Robidus Groep B.V.; |
◆ | TKP Pensioen B.V. |
On December 10, 2020, Aegon announced strategic organizational changes beginning in 2021, in which Aegon the Netherlands was designated a core market, as well as organizing its business into Financial Assets and Strategic Assets.
The Life activities of Aegon the Netherlands are considered Financial Assets. The focus of these activities is on protecting and generating capital and on cost reduction by outsourcing of the servicing of the life-books towards partners. With the exception of immediate pension annuities and indexations of existing group life customers, Aegon the Netherlands no longer accept new customers as of 2021.
Strategic Assets are the businesses in which Aegon the Netherlands will invest to grow its customer base, improve customer retention, and margins. Aegon the Netherlands strategically focuses on the following business: Mortgages (Aegon Hypotheken), Banking (Knab
/ Aegon Bank); and Workplace solutions for employers. The last category consists of the following businesses: Aegon Cappital, TKP
Pensioen, Aegon Schadeverzekering, Robidus and Nedasco.
Overview of sales and distribution channels
Aegon the Netherlands uses a variety of distribution channels to help customers access the products and services appropriate to their needs. All business lines use an intermediary channel, which focuses on independent brokers in different market segments in the Netherlands. In recent years, Aegon the Netherlands began investing heavily in online capabilities to support customers and intermediaries, which has enabled us to achieve an enhanced digital self-service experience.
For the Knab brand, Aegon Bank uses the direct and online channels to help its customers make smart financial decisions. It does this by giving them a clear overview of their finances, and helps them by proactively offering products and services to assist them in achieving their financial goals. In 2020, Aegon Bank took the decision that it will migrate all products and customers to the Knab brand in 2021. The distribution of the products (under the Knab brand) via intermediaries will continue, but will also be done via direct and online channels.
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of the Netherlands | 352 | |||||
Overview of business lines
Life
Aegon the Netherlands’ Life entity (Aegon Levensverzekering) is considered a closed book and is managed as a Financial Asset. This means that the focus is on capital optimization and cost reduction to maximize return on capital.
Pensions
Interest rates have been low for an extended period of time, creating a shift from Defined Benefit (DB) pension plans to DC pensions plans. This year, fundamental changes were made to the Dutch pension system. These include that from 2026 onward, new pension accrual is only allowed in DC schemes. As Aegon the Netherlands offers DC schemes through a separate legal entity - Aegon Cappital - the consequence for Aegon Levensverzekering is that all of its Group pension products will become closed books.
In anticipation of these changes, Aegon the Netherlands proactively decided to stop offering Group pension DB products to new clients in 2021. Renewals of existing contracts are still possible, but only if the renewal facilitates the existing clients in their transition to DC no later than 2026. In addition, Aegon Levensverzekering remains open for risk insurance and annuities that are closely linked to DC schemes. More detail on annuities is provided further below.
The Group DB products that remain on the balance sheet of Aegon Levensverzekering are as following:
◆ | Separate account group contracts with individually determined asset investment strategies, profit sharing and guarantees; |
◆ | DB contracts with profit sharing based on a pre-determined interest rate; |
◆ | Traditional variable unit-linked products; |
◆ | DB subscriptions; and |
◆ | DB contracts without profit sharing. |
In the list above the last two products were still sold in 2020 while the others were already closed for new clients. In each product group there are also contracts with a future due date, as a result of premiums that are still being paid. In addition, indexations remain possible for all of these products, while for some products, additional funds need to be contributed.
Annuities
The most actively sold products in this category are simple payout annuities and variable annuities. These products are linked to DC schemes in which participants build up their capital and are obliged, by law, to purchase an annuity at the pension date. Participants can choose between a guaranteed annuity - where all risks are borne by Aegon the Netherlands - or a variable annuity without investment guarantees, where all risks are borne by the participant. Given that a significant shift has been observed to DC schemes, these annuities are a natural driver of growth as they provide a solution for the payout phase. Annuity insurance also includes older products with guaranteed interest rates and profit sharing for which no new business is written.
Risk insurance
This category mainly includes the survivor’s pension insurance sold as a rider to DC pension schemes. Premiums are paid by the employer and the product pays benefits to the spouse/children in the event of the death of the insured.
Endowment insurance
Endowment insurance includes several products that accumulate a cash value. Premiums are paid at inception or over the term of the contract. These products pay benefits on the policy maturity date, subject to survival of the insured. Most policies also pay death benefits should the insured die 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 endowment insurance 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%. In 2013, the guarantee on new products was reduced to 0% and in 2019 the guarantee was ended. The sale of these products ended several years ago.
Term and whole life insurance
Term life insurance pays out death benefits should the insured die 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
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of the Netherlands | 353 | |||||
do not include profit-sharing mechanisms. Part of the whole life insurance portfolio has profit-sharing features, which are based on external indices or the return of related assets. In the first quarter of 2020, Aegon the Netherlands stopped offering these products.
Non-life
Accident and Health
Aegon the Netherlands offers disability and sick leave products to employers that covers these payments for employees not covered by social security, where the employer bears the risk. In addition, for some forms of disability, employers can choose to use the social security system to insure these risks or opt out and seek private insurance. Private insurance appeals to employers, as it helps reduce absenteeism and disability thanks to better reintegration efforts.
For individuals, Aegon the Netherlands offers a disability product mainly targeted at the growing self-employed market.
Property and Casualty
Aegon the Netherlands has focused exclusively on retail lines in general insurance, offering products in the segments of property, motor, travel, legal assistance, private liability claims, pet insurance, and injury. The ambition for the P&C retail segment is to provide the best digital servicing in the Dutch market while building long-lasting relationships with customers and distribution partners.
Through the service concepts, Aegon the Netherlands supports intermediaries with excellent digital processes to help their customers in the most optimal way, by stimulating performance at sustainable levels for customers, intermediaries, and the insurer, while also protecting the health of the supply chain. In addition to the intermediary market, Aegon the Netherlands has further developed digital and online capabilities, especially as the direct market has sustained a sizable share in the overall distribution in the past years, especially for the Motor segment. The direct market includes sales via Aegon’s own website and affiliates, as well as through aggregator websites.
Banking
In 2019, Aegon announced the integration of the Aegon Bank and Knab operations under the Knab brand. By integrating both operations and rationalizing product offerings, it was determined that costs would be reduced, operations would be more efficient, and governance would have a unified approach. In 2020, preparations and migration began and is due to be completed in 2021. During this period, customers and products of the Aegon Bank brand will be migrated to the Knab brand. Aegon Bank continues to service Aegon Netherlands’ variety of pension offerings with its banking products like savings accounts and investments, but under the Knab brand. In 2020, the banking arm of Aegon was classified as a Strategic Asset within Aegon the Netherlands and forms the gateway to individual retirement solutions. In total, our banking solutions are offered to our 540,000 active Dutch customers and small-scale enterprises who bank with us. Knab is a fully online digital bank that went live in 2012.
The Bank focuses on customers whose income and wealth are in the mid-market range and offers both savings and investment products. The main focus of savings is on ‘Banksparen’ products. ‘Banksparen’ is a tax-deferred savings product in which cash amounts are deposited in a ‘locked’ bank account. The amount saved is available for withdraw after a certain period for specific purposes; such as a supplementary pension or paying off a mortgage. This product is predominantly sold via independent financial advisors who remain a very important distribution channel.
Investment contracts
Investment contracts are investment products that offer returns and generate fee income from the performance of the investments.
Services Business
Mortgage loans
Aegon the Netherlands offers mainly annuity/linear residential mortgages, while also catering to consumers requiring interest only loan-parts. Mortgage loans are originated both as investments for Aegon the Netherlands’ insurance and bank entities as well as distributed to third-party investors. Such investors are provided access to this high-quality asset class through the Aegon Dutch Mortgage Fund, SAECURE (Aegon’s Dutch residential mortgage-backed securities program), covered bond program, and various bespoke structures to tailor to investors’ needs. Investors value our mortgage offering for their attractive spread and low credit-loss experience through disciplined conservative underwriting. Consumers and independent financial advisors choose Aegon mortgages for the high quality of service, reliable performance, and accessibility through the economic cycle. During 2020, total mortgage assets-under-administration grew to over EUR 50 billion.
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of the Netherlands | 354 | |||||
Aegon Cappital
Aegon Cappital is a low-cost provider of DC pension schemes offered through intermediary advisors. Aegon Cappital offers DC pension schemes in a standardized subscription-based model to small and medium enterprises and customized contracts for medium-to-large corporations. The model enables employers to choose from a variety of contribution tables and social security offsets, while remaining flexible for regulatory changes, such as changes in pension age or fiscal contribution limits. Savings premiums are invested in life cycle funds by Aegon Investment Management B.V..
Aegon Cappital is one of the largest pension premium institutions (‘PPIs’) in the Netherlands and benefits considerably from economies of scale. The low interest rate environment, and the fundamental changes of the Dutch pension system as of 2026, will result in a continued shift to DC schemes.
PPIs cannot bear any investment or insurance risks on their offerings due to regulatory requirements. The schemes include disability or life insurance which are offered by partners Aegon Levensverzekering, Aegon Schadeverzekering and Elips Life AG, and an optional guaranteed interest rate during the accumulation phase offered by partner Aegon Levensverzekering. Apart from operational and regulatory risk, Aegon Cappital runs no other risk.
TKP Pensioen, Robidus and Nedasco
TKP Pensioen is a top three player in the Dutch market for pension administration. TKP Pensioen administers pension rights for several large company and industry pension funds, as well as other pension providers such as a premium pension institution. Their clients – 3.8 million participants and 76,000 employers – rely on TKP Pensioen for correct and timely pension payments, and clear and accessible pension information and communication, from the mandatory pension statements to customer contact and digital customer services.
Robidus Groep 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 to manage these issues. It operates as an independent organization within Aegon the Netherlands.
Nedasco is an intermediary service provider that is mainly active in non-life business domains.
Competition
Aegon the Netherlands faces strong competition in all markets from insurers, banks, investment companies and pension funds. Its main competitors are Allianz Benelux, ASR and NN Group.
The company has been a key player in the total life market for many years and was ranked third in 2019 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 90% of total premium (Individual Life and Pension) income in 2019. Aegon the Netherlands is the second largest insurance company in the pensions market. Aegon the Netherlands is one of many insurers in the non-life market, where in 2019, ten companies accounted for 80% of the total premium income. In terms of premium income, Aegon the Netherlands’ non-life market share is around 2%, making it the ninth largest company in the market.
In the mortgage loans market, Aegon the Netherlands held a market share of almost 8% based on new sales in 2019, making it the fifth largest mortgage loan provider in the market. Rabobank, ABN AMRO, and ING Bank are the largest mortgage loan providers in the market, but their market share is under pressure, because of a shift to fixed rates for longer periods. Competition is still increasing from foreign competitors and capital from pension funds.
Aegon the Netherlands’ share is growing in the market for Dutch household savings. In 2019, its market share was more than 3%, which is relatively small in comparison to the top three which are 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 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 the defined contribution (PPI) segment is set to grow further due to the fundamental changes of the Dutch pension system as of 2026 and the demand for transparent and cost-effective pension products. Significant growth of scale
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of the Netherlands | 355 | |||||
is necessary to effectively serve this market. Aegon the Netherlands has identified this market as an opportunity for growth and intends to maintain its leadership 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 Dutch Central 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. Regarding 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 several 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.
The Dutch Data Protection Authority (Dutch DPA) supervises processing of personal data in order to ensure compliance with laws that regulate such use. The tasks and powers of the Dutch DPA are described in the General Data Protection Regulation (GDPR), supplemented by the Dutch Implementation Act of the GDPR.
Financial supervision of insurance companies
The Solvency II framework consists of an EU Directive and has consequently been transposed into the Wtf.
The following insurance entities of Aegon the Netherlands are subject to prudential supervision of the DNB:
◆ | Aegon Levensverzekering; |
◆ | Aegon Schadeverzekering; |
◆ | Aegon Spaarkas. |
An insurance company is neither permitted to conduct both life insurance and non-life insurance business within a single legal entity (except for reinsurance), nor to carry out both insurance and banking activities within the same legal entity. Within Aegon the Netherlands, Aegon Levensverzekering, and Aegon Spaarkas conduct life insurance activities. Aegon Schadeverzekering conducts non-life insurance activities. Prudential supervision is exercised by the home state supervisory authority (DNB in the Netherlands).
Solvency II
The Solvency II framework is described in more detail in the section ‘Regulation and supervision’ of Aegon’s 2020 Annual Report on Form 20-F.
Aegon the Netherlands uses a partial internal model (PIM) to calculate the solvency position of its life 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. 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. Following the Internal Model Application Process, Aegon the Netherlands made several major changes to its PIM, the latest in 2020, all of which have been approved by the DNB. In 2020 Aegon the Netherlands included the Deterministic Adjustment (DA) in the PIM. The DA is a mechanism that corrects for the well-documented mismatches that exists between the EIOPA VA and the actual assets that Aegon the Netherlands invests in. These mismatches create non-economic volatility in the Solvency II position of Aegon the Netherlands which is a strategic risk for Aegon and ultimately the policyholders. The goal of the DA therefore is, to reduce the Solvency II ratio volatility due to basis risk between the EIOPA VA reference portfolio and Aegon the Netherlands’s own assets. Basis risk arises due to the absence of mortgages in the EIOPA reference portfolio and the relatively high allocation to peripheral sovereigns and corporates compared to the portfolio of Aegon the Netherlands.
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of the Netherlands | 356 | |||||
Dutch Act on Recovery & Resolution for Insurers
The Dutch Act on Recovery & Resolution for Insurers (R&R Act) is the applicable intervention regime for insurance and reinsurance 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 DNB 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.
Financial supervision of credit institutions
Aegon Bank is subject to indirect supervision by the ECB under the Single Supervisory Mechanism (SSM), one of the elements of the Banking Union. The ECB may give instructions to the DNB in respect of Aegon Bank or even assume direct supervision over the prudential aspects of Aegon Bank’s business. Pursuant to the banking supervision by the DNB, Aegon Bank is (among others) required to file monthly, quarterly, and yearly regulatory reports as well as audited Financial Statements. Aegon Bank is subject to Basel requirements in the Capital Requirements Regulation (‘CRR’) and the Capital Requirement Directive (‘CRD’), as implemented in the Netherlands in the Wft. The CRD and CRR include requirements with respect to the quality and quantity of capital, as well as a liquidity framework. According to the EU Banking Reforms, competent authorities remain responsible for monitoring leverage policies and processes of individual institutions and may impose additional measures to address risk of excessive leverage, if warranted.
Based on the annual Supervisory Review and Evaluation Process (‘SREP’), the DNB sets Aegon Bank’s minimal capital and liquidity requirements.
The Banking Recovery and Resolution Directive (‘BRRD’), as implemented in the Netherlands in the Wft, and the Single Resolution Mechanism Regulation (‘SRM Regulation’) form the European framework for recovery and resolution for (among others) ailing banks, certain investment firms and their holding companies. The BRRD provides for early intervention measures that may be imposed by the DNB in respect of Aegon Bank in the event that its financial condition is deteriorating. It also allows the DNB under certain circumstances to write down or convert relevant capital instruments in a specific order. Were Aegon Bank to fail or be likely to fail and the other resolution conditions were also met, the DNB would be able to place Aegon Bank under resolution. As part of the resolution scheme that could be adopted by the DNB, 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.
Pursuant to the SRM Regulation and the BRRD, Aegon Bank 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 DNB will set a level of minimum MREL on a bank-by-bank basis based on assessment criteria due to be set out in technical regulatory standards.
In 2019, a comprehensive package of banking reforms to increase the resilience of EU institutions known as the ‘EU Banking Reforms’ entered into force (which included changes to the CRD, the BRRD and the SRM Regulation). Most rules start to apply mid-2021. Prior to this in 2017, the Basel Committee published the finalized Basel III reforms (informally known as ‘Basel IV’) to improve the global regulatory framework, with a proposed implementation from January 2023 onwards. The 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 20-F 2020 |
Additional information Overview of United Kingdom | 357 | |||||
Aegon in the United Kingdom (hereafter referred to as Aegon UK) is the market-leading investment platform in the UK, providing a broad range of investment, retirement solutions and protection products to individuals, advisers and employers.
Aegon UK accesses customers through wealth advisers and the Workplace and has a market-leading position in each with 3.8 million customers and GBP 186 billion assets under administration (AUA) underpinned by a growing investment solutions capability.
The business has broad relationships with, around 4,500 adviser firms (over 33% of the market) and around 10,000 employers.
It employs over 2,000 people and its main offices are in Edinburgh, London, Peterborough, and Witham.
The UK is a core market for Aegon, and Aegon UK is viewed as a strategic asset which Aegon plans to invest in with a view to growing the customer base, improving customer retention and growing margin.
Organizational structure
Aegon UK plc is Aegon’s holding company in the UK. 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; |
◆ | Cofunds Ltd.; and |
◆ | Aegon Investments Ltd. |
Overview of business Lines
Aegon UK has successfully transformed from a traditional ‘insurer,’ competing with the likes of Prudential and Royal London to a modern fee-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 its platform 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 of non-core business lines, such as the disposal in 2017 of the Annuity portfolio, whilst progressing the outsourcing of service and administration for its traditional insurance company products. On October 9, 2020 Aegon announced an agreement to sell Stonebridge International Insurance Limited (SIIL). The cash proceeds amounted to GBP 6.9 million, with the potential for a further GBP 7 million in deferred consideration, depending on EEA policy transfers. The transaction agreements were signed on October 8, 2020 and the divestment and legal completion was completed on February 28, 2021.
The platform business is responsible for propositions sold through the Financial Adviser and 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 UK funds. This capability is well established within the Workplace channel with plans to significantly grow within the Financial Adviser channel.
It is positioned for growth, given the participation in the Workplace pensions and Financial Advisor markets, which are forecast to grow at 9.4% and 12% over the next 5 years respectively.
The traditional insurance company products are managed for value and are 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. In July 2019, Aegon UK completed the outsourcing of service and operations tasks to Atos with a 15-year contract to service and administer its traditional insurance company products, thereby improving the profitability of this business line. This builds on the existing relationship, which has seen Atos successfully administer over 400,000 protection policies since 2016.
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of United Kingdom | 358 | |||||
Overview of sales and distribution
Aegon UK 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 by providing a comprehensive range of products and funds, moving with them each time they change employers and allow them to link in with different advisers.
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 and retirement products, through an open architecture investment platform. It aims to capitalize on 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 (SIPP), Individual Savings Account (ISA), General Investment Account (GIA)) investing in a choice of over 4,500 funds and equity trading. Aegon UK also offers its own investment solutions to advisers.
Aegon UK provides a technology platform that supports advisers and their customers in managing their finances and integrates into the back office of the adviser. The aim is to create a primary platform relationship, which positions Aegon UK 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 has delivered significant additional flows in 2020.
Aegon UK partners with, around 4,500 advisers across a wide range of business 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 was successfully 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 provides UK-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 and medium-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, where Aegon UK has an established and market leading offering.
Aegon UK works with leading employee benefits consultants and corporate advisers to provide a Workplace savings platform to employers such as WH Smith, EasyJet and 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 employees 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 and an app that seeks 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.
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of United Kingdom | 359 | |||||
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 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’s in-house Financial Adviser business, Origen, where appropriate.
Protection channel
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.
This also provides a strong overlap with the target customers for Aegon UK’s Financial Adviser and workplace platform and the advisers who help them, giving the opportunity to leverage opportunities to cross-sell.
In addition, Aegon UK offers a range of protection products for small to medium-sized companies that wish to insure key personnel, complementing the core Workplace channel.
Institutional channel
Aegon UK also participates in the institutional market in two distinct areas where capability is provided to other parties who provide policy administration to the end-client:
◆ | An institutional trading platform which powers 27 of the UK’s leading platforms, wealth management firms and investment houses (e.g. Brooks MacDonald, Charles Stanley) and administers a total of GBP 58 billion assets; and |
◆ | An investment-only proposition for Workplace pension schemes, which provides access to insured funds for approximately 155 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.
Aegon UK encounters different competition in each of its core markets but is unique in the way it supports intermediaries wishing to operate across channels providing an end-to-end customer experience.
In the Financial Adviser market, Aegon UK competes with the likes of Fidelity, Transact and Quilter with the objective being to become ‘primary platform’ for the intermediary.
In the Workplace market, Aegon UK competes with the likes of Aviva and Willis Towers Watson to provide employee benefits, engagement and scheme governance.
Regulation and supervision
All relevant Aegon UK companies based in the UK are either: authorized by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the PRA; or authorized and regulated by the FCA, dependent on firm type.
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 is subject to regulatory oversight by the Pensions Regulator following industry changes to authorize Master Trusts and implement revised regulatory powers.
The UK vote on June 23, 2016 to leave the European Union (EU) has implications for financial services companies in the UK. Much of our financial regulation applicable in the UK derives from EU legislation and this remains in force as the UK has on shored this and any new regulations will be embedded using the Financial Services and Markets Act going forward. Through the Brexit deal negotiated by the UK Government, a planned Memorandum of Understanding on financial services is due to be in place by the end of the first quarter of 2021. This will set the future direction of travel for cooperation between the UK and other European countries.
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of United Kingdom | 360 | |||||
During the COVID-19 pandemic, the UK regulators reiterated to firms that their rules give the ability for firms to consider their arrangements and customers’ circumstances. Firms were encouraged to review their arrangements to address the evolving situation while managing the risks to their employees, customers and the impact on the market. Aegon UK put in place measures to allow a regular review of changes to aid customers, and their regulatory impacts and this continues into 2021.
Financial supervision of insurance companies
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 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.
Regulatory Solvency Requirements
The European Union Insurance Directives referred to collectively as Solvency II were incorporated into UK law with effect from January 1, 2016. Under the EU (Withdrawal) Act 2018, following completion of the Brexit transition period on December 31, 2020, the UK has adopted Solvency II regulations and Binding Technical Standards into UK law, with the power to amend these as appropriate for the UK legal environment. Temporary Transitional Powers are in place under which certain provisions of EU regulations will continue to apply until March 31, 2022. Consequently, at present the UK continues to adopt regulatory solvency requirements which are closely aligned to those under Solvency II. Life insurance companies are required to maintain Own Funds which are sufficient to withstand a 1-in-200 shock on a 1-year value at risk basis subject to certain absolute minimum requirements.
Since the introduction of Solvency II on January 1, 2016, Scottish Equitable plc has been using a Partial Internal Model (PIM) to calculate the solvency position. The internal model was approved in December 2015, by the College of Supervisors as part of the Internal Model Approval Process, with an additional Major Model Change approved in July 2017, which added Currency Risk and Operational Risk into the Internal Model. Following the end of the Brexit transition period, the PRA has deemed the existing PIM to be approved for the calculation of the solo regulatory solvency requirements of Scottish Equitable plc
In addition, Scottish Equitable plc uses the Matching Adjustment in the calculation of the technical provisions for its annuities, and uses the Volatility 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 2017, Scottish Equitable plc 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(s), nature of activities and geographical location; turnover; number of employees on a full time equivalent basis; profit or loss before tax; 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.
The Investment Firm Regulation (IFR) and Investment Firm Directive (IFD) are replacing the CRR framework in the EU for investment firms. The FCA will publish the UK equivalent version of these requirements, with a target implementation date of January 1, 2022. These requirements cover capital, liquidity, reporting and disclosure and remuneration and work is underway to prepare for this change.
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of United Kingdom | 361 | |||||
For regulatory reporting of the UK investment entities, the UK regulators have confirmed that firms should continue to report and disclose regulatory data on the same basis until March 2022. Further guidance for post March 2022 will follow and Aegon UK will continue to monitor developments in this regard.
As part of the Supervisory Review and Evaluation Process (SREP) of Cofunds, the FCA requested that the Aegon UK Group perform a CRD IV prudential sub-consolidation. This prudential consolidation group is created in line with the CRR. A holding company, Aegon UK Investment Holdings Limited, has been established as a wholly owned subsidiary of Aegon UK plc, and has become the direct parent of: two CRD IV institutions, Cofunds Limited and Aegon Investment Solutions Limited; one BIPRU firm, Aegon Investments Limited; and an unregulated holding company, Momentum Group Ltd, along with its, Exempt Capital Adequacy Directive firm focused on financial advice, Origen Financial Services Limited, and an unregulated services company, Origen Limited. Going forward, much of our regulatory reporting will be on a Prudential Consolidation Group basis.
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of International | 362 | |||||
Aegon International operates a diversified portfolio of both established and growing protection and retirement businesses in Southern and Eastern Europe (SEE) as well as scaling ventures and a high-net-worth insurance business in Asia.
International’s markets in SEE today include Hungary, Spain and Portugal, Turkey, Poland, and Romania. The Asian business operates two joint ventures in India and China and several wholly-owned subsidiaries, including Transamerica Life (Bermuda) Ltd. (TLB), serving the affluent segment, and Aegon Insights1, independent direct marketing organization in Asia Pacific.
The history of the region dates to 1980, when Aegon first entered the Spanish insurance market. The activities in Spain (and eventually Portugal) have developed largely through distribution partnerships with major Spanish banks, Banco Santander S.A. and Liberbank S.A. Spain and Portugal are now one of the core growth markets of Aegon Group. In 1992, Aegon purchased the majority stake in Hungary’s former state-owned insurance company, Állami Biztosító. It expanded in Central & Eastern Europe (CEE) in the 2000s. The operations in Asia were established in 2003, starting with a JV in China. Transamerica Life (Bermuda) Ltd. (TLB) was established in 2005 and its full-service branches opened in Hong Kong and Singapore in 2006. In 2008, the joint venture in India was formed.
In November 2020, Aegon announced an agreement to sell its Central and Eastern European operations (Poland, Romania, Turkey, and Hungary) to Vienna Insurance Group, as part of its strategy to focus on key markets, simplify the footprint, and strengthen the balance sheet. The closing of the deal is expected in the course of 2021.
Organizational structure
The key lines of business within the region are Spain and Portugal, Hungary, TLB, and China. The remaining business units are grouped in one category for reporting purposes. The corresponding subsidiaries and affiliates (including Aegon’s ownership percentages, where relevant) are as follows:
Spain and Portugal:
◆ | 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 Portugal Non-Life Insurance Co.) (51%); and |
◆ | Aegon Santander Portugal Vida-Companhia de Seguros de Vida S.A. (Aegon Santander Portugal Life Insurance Co.) (51%). |
Hungary:
◆ | Aegon Magyarország Általános Biztosító Zártkörűen Működő Részvénytársaság (Aegon Hungary Composite Insurance Co.). |
TLB:
◆ | Transamerica Life (Bermuda) Ltd. |
China:
◆ | Aegon THTF Life Insurance Co., Ltd. (50%) in China. |
Other key subsidiaries:
◆ | Aegon Towarzystwo Ubezpieczeń na Życie Spótka Akcyjna (Aegon Poland Life2); |
◆ | Aegon Powszechne Towarzystwo Emerytalne Spótka Akcyjna (Aegon Poland Pension Fund Management Co.); |
◆ | Aegon Emeklilik ve Hayat A.Ş. (Aegon Turkey); |
◆ | Aegon Pensii Societate de Administrare a Fondurilor de Pensii Private S.A (Aegon Romania Pension Administrator Co.); |
◆ | Aegon Life Insurance Company Ltd. (49%) in India; and |
◆ | Aegon Insights Ltd. |
1 | Aegon Insights operates as a run-off business |
2 | Romanian insurance business operates as a branch from Aegon Poland Life |
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of International | 363 | |||||
Overview of sales and distribution channels
International distributes its products through various channels: direct to consumer (online and/or physical branches) and via banks, brokers, (tied) agents, and other digital/ e-commerce partners.
The sales and distribution channel mix varies per country, reflecting the differences in the local insurance markets. The strategy is to invest in digital distribution platforms, particularly in Asia, to build distribution capabilities for the future.
Spain and Portugal
On December 19, 2012, Aegon España and Banco Santander S.A., the largest financial institution in Spain, signed a partnership agreement (joint venture) to distribute certain types of insurance products through Banco Santander’s network of branches. This joint venture was effectively created and the transaction closed on June 4, 2013. On December 31, 2014, Aegon España entered into a similar partnership in Portugal with Banco Santander and Santander Totta Seguros S.A., a Portuguese insurance company, part of the Santander International group.
In Spain and Portugal, the life insurance (mainly pure risk) and health products are sold by Santander Life Insurance and Reinsurance, whereas the non-life insurance (mainly accident, home, unemployment, disability, critical illness and funeral) products are sold by Santander General Insurance and Reinsurance Company. Both entities in Spain and Portugal are joint venture entities where Aegon owns 51%.
Another of Aegon’s bancassurance partners in Spain, Liberbank, S.A., has a nationwide presence with a special focus on retail markets in several regions (Asturias, Cantabria, Castilla La Mancha and Extremadura). Liberbank distributes life insurance products through local branches. The distribution agreement is a joint venture between the Life and Pensions, Insurance and Reinsurance company of Liberbank, S.A. and Aegon España, both parties holding equal ownership stakes.
On July 10, 2020, Aegon and Banco Santander completed the acquisition of the in force term life policies previously sold through Banco Popular branches, following Banco Santander’s acquisition of Banco Popular. The joint venture also acquired the right to write new term life and selected lines of non-life policies through the former Banco Popular branches now owned by Banco Santander.
Aegon España’s own distribution channel offers life, health insurance and pension products. It is comprised of a network of brokers and agents, accounting for approximately 80% of the total sales of the fully owned subsidiary, while the remaining 20% of the total sales is generated by the direct channel.
Central & Eastern Europe
Distribution channels in Central & Eastern Europe are dominated by historically strong tied and external agency or brokers. The tied network is particularly strong in Hungary, Turkey, and Poland. In Hungary, there were approximately 1.700 tied agents by end of 2020. Turkey’s tied network was comprised of over 660 agents, while Poland maintained a network of over 200 closely affiliated agents. Turkey, Hungary1 and Poland generate more than 50% of their sales from these network.
Other distribution channels include bank partners (in Romania and Turkey) and the direct online channel (gaining traction in Turkey). In July 2020, Romania’s distribution partnership with Banca Transilvania (BT) has been renewed for another five years, ensuring access to one of the largest bank distribution channels in the country.
As COVID-19 took its toll on sales, agent support schemes were rapidly designed and launched to protect the income and loyalty of the productive agents, such as income guarantee schemes or commission loans.
TLB and Aegon Insights
TLB distributes its products to high-net-worth customers through targeted distribution relationships with selected local and international brokers, as well as through bancassurance channels. From its strong market position in the Universal Life insurance space in Hong Kong and Singapore, the company is now diversifying into other product segments such as Indexed Universal Life (IUL).
Aegon Insights is a marketing, distribution and administration services business operating in Asia Pacific. It primarily worked with local insurers to develop tailored solutions to the specific needs. The revenue is generated through reinsurance arrangements and fee income. With changes in consumer preferences, in 2017 Aegon made the strategic decision to discontinue Aegon Insights’ new business acquisition, while continuing to provide services to the existing customer base in Australia, Hong Kong, Indonesia, and Japan.
1 | for Life and Household products |
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of International | 364 | |||||
China: Aegon THTF
Aegon operates in China through a joint venture with Tsinghua Tongfang Co. Ltd., Aegon THTF Life Insurance Co., Ltd. (hereafter: Aegon THTF). The JV is licensed to sell life insurance, annuity, accident, and health products in China. Since 2003, the company has expanded its network of branches, primarily in the coastal provinces of Eastern China. It has access to a potential market of over 670 million people.
Aegon THTF follows a multi-channel distribution strategy, including agency, brokerage, banks, direct marketing, group sales and digital e-commerce platforms.
India: Aegon Life
Since 2008, Aegon operates in India through its joint venture with Bennett, Coleman & Co. Ltd. (BCCL). The joint venture, Aegon Life Insurance Company, Ltd. (hereafter: Aegon Life), a pioneer of digital insurance in India, follows a digitally focused direct-to-consumer strategy.
Aegon Life distributed its products predominantly via e-sales, direct and group channels, utilizing its own channels (e-sales and direct sales force in branches) and the distribution through several large e-commerce partners. To increase the focus on the digital, strategic partnerships driven strategy, in December 2020 traditional distribution channels were announced to close.
Overview of business lines
Aegon International focuses on serving retail customers with individual life and different types of general, accident, and health insurances.
Life Insurance, Savings & Protection
Spain and Portugal’s life insurance business comprises life savings as well as individual and group protection products, with individual life-risk and health products forming the larger part of the business. Customers’ savings needs are serviced by Aegon España through its affiliates, offering universal life and unit-linked products. Protection business, pursued both in Spain and Portugal, includes primarily life, health, accident, and disability covers, distributed through the JVs and Aegon España’s own channels. These products can typically be complemented with critical illness, income protection and other riders.
In Hungary, Aegon offers primarily savings products, both unit-linked and traditional, which are frequently accompanied with riders. Next to the main coverage, these riders provide customers with additional financial support in the event of an accident, disability or hospitalization. Similarly, in Poland Aegon focuses on unit-linked as well as traditional life products. The Romanian branch currently sells unit-linked, term life and endowment insurance policies. In Turkey, Aegon focuses on Return on Premium (ROP) and savings life products, available in USD.
In Asia, Aegon provides a broad range of life insurance products, including unit-linked, universal life, and traditional life products.
TLB’s core product is Universal Life (UL), denominated in USD, designed to meet the needs of high-net-worth individuals, supporting estate and business planning by providing life protection and helping to preserve and accumulate wealth. In addition to UL, Term Life products are also offered with financial protection at a guaranteed level rate for up to thirty years. To further diversify the Company’s product range, TLB developed an indexed Universal Life (IUL) product for launch in Singapore and Bermuda.
In China, whole-life critical illness products are key products for many channels, such as agency, broker etc. Other products, such as participating annuity and endowment (via agency), whole life insurance products (via agency, brokers) and protection with return of premium (via direct marketing) are also offered. Regular premium whole-life insurance and single premium endowment are the key products offered in the bancassurance channel, while the digital channel is currently focused on offering protection products, such as term life.
In India, Aegon Life offers Group term plans, individual term plans, traditional participating and non-participating savings products, and unit-linked life insurance plans.
Health insurance
Health insurance is primarily offered as riders on life insurance policies in Spain and China and as a standalone health insurance in Turkey and Spain.
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of International | 365 | |||||
In Spain, health insurance is offered through own channels as well as through Santander’s branches. Aegon is collaborating with medical partners across the country. In Portugal, it is also offered through Santander Totta’s distribution network.
Turkey launched a white label complementary health insurance product in 2020, partnering with the second largest health insurance provider in Turkey, Acibadem.
Aegon THTF also offers non-life products, primarily consisting of short-term accident and short-term health products, through group, direct marketing, and agency channels.
Pensions
Currently, pension products are only offered in the SEE region. As of December 31, 2020, Aegon managed the savings of approximately 3 million pension fund members.
In Spain, customers’ pension saving needs are serviced by the joint venture with Liberbank Life and Pensions as well as by Aegon España through its managed pension funds.
Aegon’s pension business in Central and Eastern Europe was impacted by reforms to the pension system in several countries in the region during the past years. In 2020, Aegon was active in the (formerly mandatory) private pension market in Poland and Romania. In the voluntary pension market, Aegon was active in Hungary and Romania. In Turkey, Aegon is only servicing existing pension customers.
General insurance
Aegon España has been offering general insurance products, mainly household protection, unemplyment and funeral insurance, since 2013 through its joint ventures with Banco Santander.
Aegon Hungary also offers various non-life covers, mainly household and car insurance, in addition to some wealth and liability industrial risk and travel insurance. It is a market leader in home insurance in Hungary.
Aegon THTF in China also offers short-term accident products.
Competition
Spain and Portugal
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. For Aegon Spain’s health and general insurance products, the main competitors are both foreign and local companies. Aegon Spain is the exclusive provider of protection products to Santander. The exclusive partnership also holds for Portugal. Key competitors for Aegon’s Santander JVs in Spain and Portugal are large traditional insurance companies.
Central & Eastern Europe
In Hungary, Aegon is the third largest life insurance provider, based on annual standardized premium income, as well as the third largest provider in the non-life insurance market. Key competitors include Generali, Groupama, NN, Allianz, and Magyar Posta. It is the leading insurance company in the Hungarian household market.
In Turkey, Aegon was ranked seventh in the life insurance market based on written premium in December 2020, following a merger of several government owned insurers in the third quarter of 2020. Other competitors also include Allianz, MetLife, and Aviva.
Aegon is the 11th largest life insurance market participant in Poland (based on standardized APE), with PZU as a market leader. In Romania, Aegon was ranked number seven, based on the gross written premiums1, with MetLife and ERGO being key competitors.
In the pension fund market in 2020, Aegon was ranked third in Hungary (voluntary pension scheme) and fourth in Poland (open pension fund) and Romania (mandatory private pension scheme) in terms of both the number of participants and managed assets. Aegon has a smaller share in the voluntary pension market in Romania, Turkey, and Spain.
1 | Own estimate |
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of International | 366 | |||||
China: Aegon THTF
As of August 31, 2020, 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 54th among all life insurance companies and 15th among foreign life companies in China. Aegon THTF’s market share among foreign-invested companies was 1.81% in terms of total premium.
India: Aegon Life
There were 24 licensed life insurers in India at the end of September 2020. While the state-owned Life Insurance Corporation of India continues to maintain a dominant share of new business premiums (both individual and group), private sector companies have grown only modestly to obtain more than 61% of the individual recurring new business premiums written (April 2020 to September 2020). Insurance Companies in India experienced muted sales since March 2020 because of the nationwide lockdown enforced due to COVID 19 pandemic. Aegon Life India ranked 23rd among private life insurers according to individual recurring premiums (April 2020 to September 2020).
TLB
TLB’s main competitors in Hong Kong and Singapore have mainly been other global life insurance providers such as HSBC Life, Manulife Bermuda, and Sun Life Bermuda. The local subsidiaries of both Sun Life and Manulife, in addition to domestic insurers such as AIA, Great Eastern Life, Singapore Life, Generali, AXA, and FWD, are however increasingly developing competitive offerings for this market segment.
Regulation and supervision
SEE
In the European Union, a single insurance company may only be licensed for and conduct either a life insurance business or a non-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:
◆ | 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 |
◆ | Insurance and Private Pension Regulatory and Supervisory Board’s (IRSB) (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.
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. 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 and Insurance Law No. 5684. In Spain, the pension system is supervised by DGSFP and governed by Law on Pension Funds and Plans approved by Royal Legislative Decree 1/2002, of November 29, 2002, and its implementing regulations.
China: Aegon THTF
China’s insurance industry is regulated by the China Banking and Insurance Regulatory Commission (CBIRC). In 2020, the main work focus of the CBIRC is to prevent risks and stabilize development. Therefore, the Committee has strengthened the supervision and management from the product side to the sales side. It includes clarifying the new rules of product development and design, strengthening the management of sales personnel, introducing the traceability requirements of Internet insurance and, promoting the digital return visit.
Effective February 1st, 2021, 91 life insurance companies are divided into two groups for the regulatory supervision – 39 insurers are under the direct supervision of the CBIRC and 52 are under the territorial supervision of the local bureaus of CBIRC. Aegon THTF along
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of International | 367 | |||||
with two other life insurers are now under the direct supervision of Shenzhen Bureau. Certain functions, including product filing and approval are still under CBIRC’s direct supervision.
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.
The IRDAI is active in introducing new regulations that focus on protecting policyholders’ interests and exploring avenues to support growth in the industry. The Regulator issued several circulars and press releases giving guidance to insurance companies in the wake of COVID-19 pandemic.
TLB
TLB is incorporated in Bermuda and regulated by the Bermuda Monetary Authority, the regulator of the financial services sector in Bermuda. TLB has full-service branches which are registered and licensed in Hong Kong and Singapore, respectively. The insurance industry is regulated in Hong Kong by the Hong Kong Insurance Authority (HKIA) and the Monetary Authority of Singapore (MAS) in Singapore. The MAS is an integrated regulator that supervises all financial institutions including banks, insurers, capital market intermediaries and financial advisors in Singapore.
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 Australian Securities and Investments Commission in Australia, and the Insurance Authority in Hong Kong.
Solvency II
The Solvency II insurance solvency regime became effective in European Economic Area (EEA) countries on January 1, 2016. Aegon’s EU-domiciled entities in Southern & Europe use the Standard Formula to calculate the solvency position of their insurance activities. Aegon Spain no longer applies the matching adjustment or transitional arrangements. The insurance activities in Turkey have been included through Deduction & Aggregation on a Solvency II Standard Formula basis.
Aegon’s Asian insurance activities are included in the Aegon Group Solvency II ratio through Deduction & Aggregation. For TLB, Deduction & Aggregation is applied using available and required capital as per the local capital regime. The regulatory regime of Bermuda was granted full equivalence by EC decision of November 26, 2015, effective as of January 1, 2016.
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of Aegon Asset Management | 368 | |||||
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. Total amount of Assets under Management is EUR 388 billion. In September 2020, two main brands, Kames Capital in the UK and TKPI in the Netherlands, were retired and the businesses moved 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 (LBPAM). LBPAM 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., Aegon Asset Management UK plc and Aegon Hungary Asset Management Company Zrt. In July 2020, Aegon Investment Management (Shanghai) Ltd. was set up as a Wholly Foreign Owned Enterprise in Shanghai, China to provide products and services to Chinese customers.
In November 2020, Aegon announced an agreement to sell its Central and Eastern European operations (Poland, Romania, Turkey, and Hungary) to Vienna Insurance Group, as part of its strategy to focus on key markets, simplify the footprint, and strengthen the balance sheet. The asset management division (Aegon Hungary AM Company Zrt. - Assets under Management EUR 1.89 billion) is included in this transaction. The closing of the deal is expected in the course of 2021.
In December 2019, Aegon Asset Management launched its integrated global growth initiative to establish a globally integrated structure. This involved simplification of the operating model which featured regional executive committees and to create a global operational management board (Global Board). Aegon Asset Management also has a Fiduciary Services and Multi-Manager business in the Netherlands. The AAM investment teams are organized into four investment platforms for which AAM is globally competitive and within which AAM has unique, differentiated capabilities. These platforms are Fixed Income, Real Assets, Equities and Multi-Asset & Solutions. Each investment platform is led globally by a chief investment officer that sits on the Global Board of AAM. Strategic direction and global oversight of business performance is executed by this Global Board, which has both global and local roles and responsibilities. This board is supported by several sub committees. Members of the Global Board are appointed by Aegon N.V.. The Risk Advisory Committee and Remuneration Committee support Aegon’s oversight of Aegon Asset Management.
Overview of sales and distribution channels
Aegon Asset Management utilizes both institutional and wholesale distribution channels which combine a global perspective with a focus on local relationships in the Americas, Europe, and Asia. Client types include banks, pensions funds, insurance companies, fiduciary managers family offices, investment consultants, wealth managers, charities, foundations & endowments, third-party investment platforms, as well as its affiliated companies and joint ventures.
Overview of business lines
Aegon Asset Management has three distinct business lines:
Third-party business accounts for circa 65% of its Assets under Management (AuM). The main sources for this include third-party business where 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 asset classes are fixed income, equities, real assets and multi-asset & solutions with fund performance is usually measured against a benchmark or peer group. The institutional businesses typically sell its services to large insurance companies or pension funds. Aegon Asset Management manages 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.
Also third-party business is sourced through relationships with its affiliates where Aegon Asset Management manages funds for Aegon insurers and retirement companies. These funds have various legal structures and performance is usually measured against a benchmark or peer group. The main asset classes include fixed income, equities, real estate, and multi-asset.
Aegon Annual Report on Form 20-F 2020 |
Additional information Overview of Aegon Asset Management | 369 | |||||
The Aegon general account is the third source and this 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 the general account derivatives book of Aegon Netherlands.
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, equity and real estate related strategies. It works directly with pension funds, insurance companies, family offices, endowments, and foundations as well as investment consultants within the institutional market. In the wholesale market, Aegon Asset Management works as a sub-advisor with its insurance company affiliates and other partners to offer competitive and relevant strategies for its client base. It also works with investment 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 PGIM.
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, NN Investment Partners, Robeco and Kempen.
In the United Kingdom, Aegon Asset Management focuses on offering investors fixed income, equities, real estate, and multi-asset strategies. 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.
Aegon Asset Management also distributes to third party investors, including wholesale and institutional clients in Asia through its Hong Kong, Shanghai and Tokyo offices, in Brazil through Aegon’s JV partner Mongeral and in the DACH region, Italy, Spain, Belgium, Luxembourg and the Nordics.
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 local 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, representing LBPAM and Aegon Asset Management strategies. In the institutional market, it also offers investment strategies from Aegon Asset Management to compete for affiliate and thrid-party insurance and pension clients 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.
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. 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 Aegon Asset Management UK plc, and the Securities & Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) for the US-based entities. Aegon Asset Management UK is also regulated by the SEC for its activities in the US market. From a regulatory perspective, the asset management activities of the US-based entities of Aegon Asset Management in the United States do not fall directly 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 Aegon Asset Management UK plc) decided in principle to pay external research costs by their own means.
Aegon Annual Report on Form 20-F 2020 |
Additional information Risk factors Aegon N.V. | 370 | |||||
Aegon faces a number ofnumerous 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. TheseAny of the risks described below, whether internal or external, may materially and adversely affect the Company’s operations, its earnings, the value of its investments, or the sale of certain products and services.services or its ability to fulfil 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 (part of)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 a multinational insurance companyan 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 descriptionsection groups the risk factors into different categories based on the origin of the risk, while recognizing that the identified risk factor can have broader consequences, including developments in 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. Within each category the most material risk factors have been presented first.
The described risk factors are those relating to Aegon’s businesses, and to Aegon’s securities, including its common shares. The order inshares, of which theAegon is aware and which it considers material. Furthermore, 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 key risk factors that may affect Aegon’s businesses and operations in normal market circumstances, as well as other risk factors that are particularly relevant to Aegon in periods of significant economic uncertainty. Additionaluncertainty, when those risks may be more acute.
Summary
In summary, the risk factors cover the following topics in the designated category;
1. Financial risks
◆ | Interest rate volatility, and sustained low or negative interest rate levels may adversely affect Aegon’s profitability and shareholders’ equity. |
◆ | Rapidly rising interest rates may adversely affect Aegon’s profitability and available liquidity. |
◆ | Disruptions in the global financial markets and general economic conditions may affect, and could have materially adverse effects on Aegon’s businesses, results of operations, liquidity and financial condition. |
◆ | Illiquidity of certain investment assets may prevent Aegon from selling investments at fair prices in a timely manner. |
◆ | 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. |
◆ | 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. |
◆ | A downturn in the real estate market may adversely impact valuations and cash flows. |
◆ | The default of a major market participant may disrupt the markets and may affect Aegon’s business, financial condition, liquidity, operations and prospects. |
◆ | Reinsurers to which Aegon has ceded risk may fail to meet their obligations. |
◆ | A downgrade in Aegon’s ratings may increase policy surrenders and withdrawals, adversely affect relationships with distributors, and negatively affect Aegon’s results. |
◆ | Fluctuations in currency exchange rates may affect Aegon’s financial condition and reported results of operations. |
◆ | Aegon may be unable to manage Aegon’s risks successfully through derivatives. |
◆ | Valuation of Aegon’s investments, allowances and impairments is subjective, and discrepant valuations may adversely affect Aegon’s results of operations and financial condition. |
2. Underwriting risks
◆ | Underwriting risk relates to the products sold by Aegon insurance entities and includes policyholder behavior (such as lapses or surrender of policies), policy claims (such as mortality and morbidity) and expenses. 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. |
◆ | Changes in assumptions, estimations, judgments are subjective, and discrepant valuations of DPAC and value of business acquired may adversely affect Aegon’s results of operations and financial condition. |
◆ | Certain of Aegon’s products have guarantees that may adversely affect its results, financial condition or liquidity. |
Aegon Annual Report on Form 20-F 2020 |
Additional information Risk factors Aegon N.V. | 371 | |||||
◆ | Restrictions on underwriting criteria and the use of data may affect Aegon’s ability to do business, its financial position or financial results. |
◆ | 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 litigation and negative publicity. |
◆ | Reinsurance may not be available, affordable, or adequate to protect Aegon against losses. |
◆ | Catastrophic events, which are unpredictable by nature, may result in material losses and abruptly and significantly interrupt Aegon’s business activities. |
3. Operational risks
◆ | Competitive factors may adversely affect Aegon’s market share. |
◆ | Aegon may have difficulty managing its expanding operations, and Aegon may not be successful in acquiring new businesses or divesting existing operations. |
◆ | Aegon may experience difficulties in distributing and marketing products through its current and future distribution channels. |
◆ | Aegon may be unable to adapt to and apply new technologies. |
◆ | Failure of data management and governance can result in regulatory and reputational risk as well as missed business opportunities. |
◆ | Aegon may be impacted by epidemics or pandemics. |
◆ | Aegon may not be successful in managing its exposure to climate risk and adequately adapting investment portfolios for the transition to a low-carbon economy. |
◆ | 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. |
◆ | 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. |
◆ | 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. |
◆ | 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. |
◆ | Inaccuracies in econometric, financial, or actuarial models, or differing interpretations of underlying methodologies, assumptions and estimates, could have a material adverse effect on Aegon’s business, results of operations and financial condition. |
◆ | 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. |
◆ | Issues with third party providers (outsourcing partners and suppliers), including events such as bankruptcy, disruption of services, or standards of service level agreements not being upheld, may adversely impact Aegon’s operational effectiveness and financial condition. |
◆ | Aegon may be unable to attract and retain personnel who are key to the business. |
4. Political, regulatory and supervisory risks
◆ | 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. |
◆ | Changes in accounting standards may affect Aegon´s reported results, shareholders´ equity and dividend. |
◆ | Local statutes, regulators, and decisions of supervisory and other authorities may limit the ability of Aegon’s subsidiaries to pay dividends to Aegon N.V., thereby limiting Aegon’s ability to make payments on debt obligations |
◆ | Risks of application of intervention measures may adversely affect Aegon’s business, results of operations and financial position. |
◆ | The United Kingdom’s exit from the European Union (‘Brexit’) may affect Aegon’s results and financial condition. |
5. Legal and compliance risks
◆ | The outcomes of legal and arbitration proceedings and regulatory investigations and actions may adversely affect Aegon’s business, results of operations and financial position. |
◆ | Changes in government regulations in the jurisdictions in which Aegon operates may affect profitability and operating models. |
◆ | Tax risks may adversely affect Aegon´s businesses and profitability. |
◆ | Judgments of US courts may not be enforceable against Aegon in Dutch courts. |
◆ | Aegon may not manage risks associated with the reform and replacement of benchmark rates effectively. |
◆ | Aegon may not be able to protect its intellectual property and may be subject to infringement claims. |
Aegon Annual Report on Form 20-F 2020 |
Additional information Risk factors Aegon N.V. | 372 | |||||
6. 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. |
◆ | 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. |
◆ | Vereniging Aegon, Aegon’s major shareholder, holds a large percentage of the voting shares and therefore has significant influence over Aegon’s corporate actions. |
◆ | Currency fluctuations may adversely affect the trading prices of Aegon’s common shares and the value of any cash distributions made. |
◆ | Perpetual Contingent 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. |
Financial risks
Interest rate volatility and sustained low or negative interest rate levels may adversely affect Aegon’s profitability and shareholders’ equity.
Aegon is subject include, butexposed 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, sustained low or even negative interest rates, as experienced in recent years, Aegon may not limitedbe 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 or even negative 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 this context, negative interest rates have comparable but larger impacts than low but positive rates.
In-force life insurance and annuity policies may be relatively more attractive to consumers due to built-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 force year-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, mentionedincluding the relationship between the expected duration of its assets and liabilities. However, if interest rates remain low or even negative, the yield earned upon reinvesting interest payments from current investments, or from their sale or maturity, 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.
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, among other things, upon the ability to manage interest rate risk. Aegon may not be able to successfully manage interest rate risk or the potential negative impact of this risk.
Rapidly rising interest rates may adversely affect Aegon’s profitability and available liquidity.
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 deferred policy acquisition costs (DPAC), which in turn reduces net income.
Aegon Annual Report on Form 20-F 2020 |
Additional information Risk factors Aegon N.V. | 373 | |||||
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 losses (investments at fair value through profit or loss) under ‘Forward-looking statements’,International Financial Reporting Standards as issued by the IASB. 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 risks ofneed to post margin in relation to interest rate swaps if rates rise rapidly would put a strain on Aegon’s businesses described elsewhere in this Annual Report.available liquidity.
Disruptions in the global financial markets and general economic conditions may affect, and could have materially adverse effects on, Aegon’s businesses, results of operations, cash flowsliquidity 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.
SuchAny 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 whetherif 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 ECBEuropean Central Bank (ECB) or the US Federal Reserve may have on the financial markets or on Aegon’s businesses, results of operations, cash flows and financial condition.
Illiquidity of certain investment assets may prevent Aegon from selling investments at fair prices in a timely manner.
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 many of Aegon’s businesses. Each asset purchased and liability (e.g., insurance product) 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 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 maintenance 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 the prices at which they 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 to non-compliance with conditions for borrowing or the default of a facility provider under stressed market circumstances, could have an adverse effect on Aegon’s ability to meet liquidity needs and to comply with contractual and other requirements.
Many of Aegon’s derivatives transactions require Aegon to grant collateral against declines in the fair value of these contracts. Volatile financial markets may significantly increase requirements to grant collateral and adversely affect its liquidity position. Further, a downgrade of Aegon’s credit ratings may also result in additional collateral requirements.
Aegon Annual Report on Form 20-F 2020 |
Additional information Risk factors Aegon N.V. | 374 | |||||
Declines in value and defaults in Aegon’s debt securities, private placements, and mortgage loan portfolios and other instruments 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 meet contractual obligations of, issuers and counterparties. Aegon also considers credit risk to include spread risk, that is, the value of thea bond reduceddeclines due to a general widening of credit spreads. For general account products, Aegon typically bears the risk for investment performance equallingequaling the return of principal and interest.interest on fixed income instruments. 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 fulfilfulfill 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 and the Netherlands for instance, 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,includes Dutch government bonds, US Treasury, agency and state bonds, other government issuedgovernment-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 defaultsDefaults 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 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. Hedging of exposures may change those effects significantly and equity hedges are used extensively to manage the equity market risk of variable annuity investment guarantees. Hedging programs are in place that are designed to manage the risks within the limits as 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 real time market movements of equity markets.
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 issued by the International Accounting Standards Board (IFRS),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.
Interest rate volatilityA 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. As an indication, at year-end 2020 Aegon’s general account investments in real estate and mortgages in the Netherlands accounted for around 21% of total general account investments. Risks for Aegon the Netherlands include lower returns or sustained lowvaluation losses on its mortgage portfolio, lower margins due to higher prepayment in the mortgage portfolio in the event of lower interest rate levelsrates and increased payment defaults.
Aegon Annual Report on Form 20-F 2020 |
Additional information Risk factors Aegon N.V. | 375 | |||||
The default of a major market participant may disrupt the markets and affect Aegon.
The failure of a sufficiently large and influential market participant 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 profitability and shareholders’ equity.
Aegon is exposed to interest rate riskcontract counterparties. In addition, such a failure may impact future product sales as both its assets and liabilities are sensitive to movements in long and short term interest rates as well as to changesa potential result of reduced confidence in the volatilityinsurance industry. The default of interest rates. In periodsone or more large international financial institutions, which may result in disruption or termination of rapidly increasing interest rates,their cash, custodial and/or 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. 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.
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 a co-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.
A downgrade in Aegon’s ratings may increase policy loans, 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 usually do increase. Premiumswithdrawals by policyholders of cash values from their policies. Aegon cannot predict what actions rating agencies may take, or what actions Aegon may take in flexible premium policiesresponse to the actions of rating agencies. As with other companies in the financial services industry, Aegon’s ratings may decrease asbe downgraded at any time and without notice by any rating agency.
Withdrawals by policyholders seek investments with higher perceived returns. This activity may result in cash payments by Aegon requiringrequire the sale of invested assets, including illiquid assets, at a time when the prices of those assets are affected adversely by the increase in market interest rates. Thisprice that may result in realized investment losses. These cash payments to policyholders alsowould result in a decrease in total invested assets and a decrease in net income. EarlyAmong other things, early withdrawals may also require acceleratedcause Aegon to accelerate amortization of DPAC, which in turn reducesreducing net income. Hedging against interest rate movements may change these effects significantly. Hedging programs are in place that are designed
Aegon has experienced downgrades and negative changes 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 incomeits outlook in the shorter term. Over time,past and may experience rating and outlook changes in the short-term reductionfuture. A downgrade or potential downgrade, including changes in shareholder equity and income due to rising interest rates would be offset in later years, all else being equal.
During periods of decreasing interest rates or sustained low interest rates, as experienced in recent years, Aegonoutlook, 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 higher funding costs and/or affect the availability of funding in the capital markets. In addition, a lengthening of maturities of the policyholder liabilities from initial estimates, primarily due to lower policy lapses.
In-force life insurancedowngrade may adversely affect relationships with broker-dealers, banks, agents, wholesalers and annuity policies may be relatively more attractive to consumers due to built-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 force year-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 someother distributors of Aegon’s products and accordingly net incomeservices, which may decline. In addition, borrowersnegatively impact new sales and adversely affect Aegon’s ability to compete. A downgrade of Aegon’s credit ratings 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,also affect its ability to lower these rates may be limited by contractually guaranteed minimum ratesobtain reinsurance contracts at reasonable prices or competition.
Depending on economic developments going forward, interest rates at the shorter end of the curve 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 rate risk”.all.
Fluctuations in currency exchange rates may affect Aegon’s financial condition and 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 areis 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,
Aegon Annual Report on Form 20-F 2020 |
Additional information Risk factors Aegon N.V. | 376 | |||||
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 euroeuro.
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 exchange risks”.
Illiquidity of certain investment assets may prevent Aegon from selling investments at fair prices in a timely manner.
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 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 maintenance 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 they are currently recorded to meet its insurance obligations.manage risks successfully through derivatives.
Aegon makes use of (bilateral and syndicated) credit facilitiesis exposed 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 to non-compliance with conditions for borrowing or the default of a facility provider under stressed market circumstances, could have an adverse effect on Aegon’s ability to meet liquidity needs and to comply with contractual and other requirements.
Many of Aegon’s derivatives transactions require Aegon to pledge collateral against declineschanges 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 contracts. Volatileactivities 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 derivatives, a counterparty’s failure to honor Aegon’s obligations or the systemic risk that failure is transmitted from counterparty to counterparty may each have a material adverse effect on Aegon’s businesses, results of operations and financial marketscondition.
Valuation of Aegon’s investments, allowances and impairments is subjective, and discrepant valuations may significantly increase requirements to pledge collateral and adversely affect its liquidity position. Further, a downgradeAegon’s results of operations and financial condition.
The valuation of many of Aegon’s credit ratingsfinancial instruments is based on methodologies, estimations and assumptions that are subject to different interpretations. Changes to investment valuations may also result in additional collateral requirementshave a materially adverse effect on Aegon’s results of operations and affect its liquidity,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 even enable counterpartiescorrespond to terminate such derivative transactions.Aegon’s actual experience, any of which may materially impact Aegon’s results of operations or financial position.
Underwriting risks
Underwriting risk relates to the products sold by Aegon insurance entities.entities and incudes policyholder behavior (such as lapses or surrender of policies), policy claims (such as mortality and morbidity) and expenses. The underwriting process requires, among others,other things, 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 uponon 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 under 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 provisions for insurance liabilities, which may reduce Aegon’s income.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 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 recover up-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
Aegon Annual Report on Form 20-F 2020 |
Additional information Risk factors Aegon N.V. | 377 | |||||
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 changesChanges in various underwriting risks is provided in the notes to the consolidated financial statements, note 36 “Insurance contracts”.
Valuation of Aegon’s investments, allowances and impairments isassumptions, estimations, judgments are subjective, and discrepant valuations of DPAC and value of business acquired may adversely affect Aegon’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 instrumentsthe use of data may affect Aegon’s ability to do business, its financial position or financial results.
Some jurisdictions impose restrictions on particular underwriting criteria, such as gender or race, or use of genetic test results, for determination of premiums and benefits of insurance products. Such restrictions, now or in the future, could adversely impact Aegon’s operations or financial results. Further developments in underwriting, such as automation and use of additional types and sources of data, may also be affected by future regulatory developments regarding privacy and other restrictions with respect to the use of personal data.
Aegon regularly develops new financial products to remain competitive in its markets and to meet the expectations of its customers. If customers do not fully offset the costs of guarantees orachieve expected returns on those products, Aegon may otherwise be insufficient in relation to its obligations. Estimatesconfronted with litigation and assumptions negative publicity.
Aegon makes in connection with hedging activities may face lawsuits from customers and experience negative publicity if Aegon’s products fail to fully reflectperform as expected, regardless of the suitability of products for customers or correspondthe adequacy of the disclosure provided to customers by Aegon and by the actual (longer term) exposure in respectintermediaries who distribute Aegon’s products. New products that are less well understood and that have less of guarantees. Further, unexpected policyholder behaviora performance track record may cause Aegon’s hedgingbe more likely to be less effective. The above factors couldthe subject of such lawsuits. Any such lawsuits may have a materialmaterially adverse effect on itsAegon’s results of operations, corporate reputation and financial condition.
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.
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 and man-made disasters such as hurricanes, windstorms, earthquakes, terrorism, cyber-crime, riots, fires and explosions, pandemics, 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
Aegon Annual Report on Form 20-F 2020 |
Additional information Risk factors Aegon N.V. | 378 | |||||
exposed to the risk of a pandemic (such as Asian Flu, SARs or COVID-19) occurring in one or more of the countries in which Aegon operates or globally. Aegon can be impacted through for instance higher mortality rates in the countries in which it operates and through lower sales and higher lapses on its products due to limitations on customer interactions, pressure on customer income and increased uncertainty. 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 to Aegon’s financial position. For instance, prices and credit quality of investments can be impacted. In addition, monetary policy measures from central banks can result in lower interest rates. 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 also experience business disruption and damage to corporate reputation and financial condition for a substantial period of time.
Operational risks
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 as non-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 use of 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 Aegon’s products and services, particularly as competitors seek to win market share. This may harm Aegon’s ability to maintain or liquidity.increase profitability.
Adverse market and economic conditions can be expected to result in changes to the competitive landscape. Financial distress experienced by financial services industry participants as a result of weak economic conditions and newly imposed regulations may lead to acquisition opportunities. 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’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.
Aegon may have difficulty managing its expanding operations, and Aegon may not be successful in acquiring new businesses or divesting existing operations.
Over time, Aegon has made a number of acquisitions and divestments around the world and it is possible that Aegon may make further acquisitions and divestments in the future. Acquisitions and divestments involve 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 or disentangling operations, technologies, products and personnel; significant delays in completing the integration of disentangling operations; the potential loss of key employees or customers; and 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. Acquisitions may also have a dilutive effect on the ownership and voting percentages of existing shareholders. Divestments 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. There can be no assurance that Aegon will successfully identify suitable acquisition candidates or buyers for operations to be divested or that Aegon will properly value acquisitions or divestments. Aegon is unable to predict whether or when any prospective acquisition candidate or buyer for operations to be divested will become available, or the likelihood that any transaction will be completed once negotiations have commenced.
Aegon Annual Report on Form 20-F 2020 |
Additional information Risk factors Aegon N.V. | 379 | |||||
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 (or their) business. Further, key distribution partners may also merge or 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 are 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. An 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.
Failure of data management and governance can result in regulatory and reputational risk as well as missed business opportunities.
Data is essential for Aegon’s operational performance. However, much of the data held by Aegon is subject to various legal, regulatory and contractual restrictions. To be able to benefit from the data Aegon holds, areas like data management and governance are of key importance. Most internal processes and customer interactions are dependent on accessible, reliable, and compliant data practices and operations. If Aegon fails to adequately execute on these obligations, there are potential legal, regulatory, contractual and reputational risks. Aegon also must endeavor to obtain adequate data rights to be able to execute on its business strategy. Failure to do so will expose it to additional legal risks, successfully through derivatives.including litigation risks.
Aegon may be impacted by epidemics or pandemics.
Aegon is exposed to changesthe risk of an epidemic or a pandemic – such as Asian Flu, SARs or COVID-19 – occurring in one or more of the countries in which it operates or globally. As with other catastrophic events, Aegon can be impacted through, for instance, higher mortality rates in the fair value of its investments,countries in which it operates and through lower sales, higher lapses on products or arrears on contractual payments by customers with respect to policies and mortgage loans. Such impacts can be due to, for instance, limitations on customer interactions, economic hardship, pressure on customer income, increased loans or withdrawals and increased uncertainty. The impacts can be larger where the impact of interest rate, equity marketsepidemic or pandemic leads to adverse market movements – prices and credit spread changes, currency fluctuationsquality of investments and changesdefaults on investments – and monetary policy measures resulting in mortalitylower interest rates. If the health of a significant number of employees or key functions is compromised or internal controls need to be executed in an atypical way, these could have an impact on core business processes, service levels to customers, and longevity.the effectiveness of the control environment. In addition, Aegon uses common financial derivative instruments,faces additional operational risks related to prolonged and expanded working from home/remote working by Aegon’s workforce, such as swaps, options, futuresadditional remote access to company information which could increase information security risk. Also, Aegon can be impacted via its relationships with third parties. These third parties can also be impacted by an epidemic or pandemic with knock-on impacts on Aegon. The described risks may directly or indirectly impact Aegon’s financial health and forward contractsits ability to hedge some ofgenerate capital in the exposures relatedmedium to both investments backing insurance products and company borrowings. long term.
Aegon may not be ablesuccessful in managing its exposure to manageclimate risk and adequately adapting investment portfolios for the riskstransition to a low-carbon economy.
Climate change is a long-term risk associated with these activities successfullyhigh 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 Aegon’s mortgage portfolio. Aegon is exposed to mortality risk and mortgage
Aegon Annual Report on Form 20-F 2020 |
Additional information Risk factors Aegon N.V. | 380 | |||||
underwriting 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 usewider economy.
Transition risks are those arising from the shift to a low-carbon economy. These risks are a function of derivatives. In addition, a counterpartypolicy and regulatory uncertainty, including political, social and market dynamics and technological innovations. Transition risks can affect the value of assets and investment portfolios. Furthermore, Aegon may failbe unable to honoradjust to environmental and sustainability goals. Linked to both the termsphysical and the transition risks, there could also be litigation and reputational risks following from not fully considering or responding to the impacts of its derivatives contracts withclimate change, or not providing appropriate disclosure of current and future risks. The risks can relate both to Aegon and clearing membersthe companies in which it invests.
Given the significant uncertainties related to climate change impacts and clearing housesits long-term nature, it cannot be ruled out that climate change may terminate their derivatives contracts with Aegon. Aegon’s inability to manage risks successfully through derivatives, a counterparty’s failure to honor Aegon’s obligations or the systemic risk that failure is transmitted from counterparty to counterparty may each have a materialmaterially adverse effect on Aegon’s businesses, results of operations and financial condition.
CurrentlyAegon’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, it is possible that risks present in its business strategies and initiatives are not fully identified, monitored, and managed or that risks are not properly measured. Risk measurements make use of historic and public data that may be inaccurate or may not predict future exposures.
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 and/or detect 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 data 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 that 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 operational results, 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, transmit and dispose of 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, (semi-) governmental agencies 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 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, 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.
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
Aegon Annual Report on Form 20-F 2020 |
Additional information Risk factors Aegon N.V. | 381 | |||||
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 potentially 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. Especially if and to the extent 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 of e-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 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 data privacy risks.
Aegon maintains cyber liability insurance to help decrease the financial impact of Brexitcyber-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 Aegon’s businesses are subject to laws and regulations enacted by US federal and state governments, the EU or other non-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. For example:
◆ | 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 Aegon’s businesses’ collection, processing and retention of personal data, reporting of data breaches, and provides for significantly increased penalties for non-compliance. Also, in several jurisdictions in the Asia region where Aegon has activities, new privacy and information security laws have been enacted or existing legislation has been updated. |
◆ | 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. Other states have adopted similar cybersecurity laws and regulations. |
◆ | 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 clearing houses locateda large number of processes and controls to protect the confidentiality, integrity and availability of personal information and other confidential information that is accessible to, or in the United Kingdompossession of, Aegon, its systems, employees and business partners. It is unknown.possible that an Aegon uses London Clearing House (LCH) as central counterpartyemployee, 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 clear mostmaintain adequate processes and controls or if Aegon or its business partners fail to comply with relevant laws and regulations, policies and procedures, misappropriation
Aegon Annual Report on Form 20-F 2020 |
Additional information Risk factors Aegon N.V. | 382 | |||||
or intentional or unintentional inappropriate disclosure or misuse of personal information or other confidential information could occur. Such control inadequacies or non-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 (class action) 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 derivatives transactions. If, following Brexit,business, subject to applicable laws and regulations and other restrictions. It is possible that additional regulatory or other restrictions regarding the systemuse of supervisionsuch 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 United Kingdom is not considered equivalent to thatnear future across Aegon’s operations. Such restrictions and obligations could have material impacts on Aegon’s business, financial conditions and/ or results of the European Union and LCH has not been granted recognition, new and existing derivatives cleared through LCH and executed by EU27 entities, may not comply to EMIR regulations and possibly existing trades may 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.operations.
Inaccuracies in econometric, financial, or actuarial models, or differing interpretations of underlying methodologies, assumptions and estimates, could have a significantmaterial 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 significantan 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 the 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 a mark-to-market basis. In addition, in unforeseen or certain low-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 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.
Aegon Annual Report on Form 20-F 2020 |
Additional information Risk factors Aegon N.V. | 383 | |||||
Issues with third party providers (outsourcing partners and suppliers), including events such as bankruptcy, disruption of services, or 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 alternative 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. 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 and 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 may be unable to attract and 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 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 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 own funds. Important examples include changes to applicable capital requirements by the European Union and/or the qualificationinterpretation thereof by the European Insurance and Occupational Pensions Authority (EIOPA), the National Association of own funds.Insurance Commissioners (NAIC) in the US or US state regulators or local regulators in jurisdictions in which Aegon operates. 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,
Prudential regulatory requirements may not only apply to the European Union, the National Association of Insurance Commissioners’ (NAIC)individual entities in the Aegon Group but may additionally apply at Group level or 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 and consolidated requirements
Aegon Annual Report on Form 20-F 2020 |
Additional information Risk factors Aegon N.V. | 384 | |||||
resulting from the Capital Requirements Directive (CRD) and the Capital Requirements Regulation (CRR), as applied to groups containing bank and/or asset management activities.
The way such requirements are applied to groups like Aegon has an impact on the Group’s capital position, as well as on the availability of capital at a Group level. Changes to prudential regulatory requirements may have an impact on Aegon’s competitive position versus companies that are not subject to these or similar requirements at Group level. As an example, as part of the Solvency II group calculation, Aegon 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 under their local prudential regime. This methodology is approved by Aegon’s group supervisor, De Nederlandsche Bank N.V. (DNB), but remains subject to periodic review. Changes to this methodology might have an impact on Aegon’s capital position, as calculated under Solvency II group requirements and/or US state regulators may adopt revisions to applicable risk based capital formulas and local regulators in other jurisdictionsthe manner in which DNB otherwise exercises group supervision on Aegon, for example through more stringent requirements with respect to intra-group transactions, risk concentrations and reporting.
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 subsidiaries operate may increase their capital requirements.financial position and results:
◆ | A further review of the Solvency II framework, referred to as the Solvency II 2020 review. EIOPA has recently published an extensive technical advice to the European Commission in the form of an opinion on a broad range of topics within the Solvency II framework. This opinion on the 2020 review of Solvency II forms important input for the European Commission in the preparation of its formal proposal for amendments to the Solvency II Directive and Solvency II Delegated Regulation, that is expected to be published in the second half of 2021. The impact on Aegon’s financial position and results depends on the extent to which the EIOPA advice will be embraced by the European Commission and the European co-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 capital requirements. 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 regulatory reserves. 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 available capital. |
In addition to requirements imposed directly throughby 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.
An important example of changed regulatory requirements for insurers originates from the European Commission’s Solvency II Directive, which became effective on January 1, 2016, and which imposes, among other things, substantially greater quantitative and qualitative capital requirements on some of Aegon’s businesses and at the Group level, as well as supervisory and disclosure requirements, and may impact the structure, business strategies, and profitability of Aegon’s insurance subsidiaries and of the Group. Although the Solvency II Directive became effective on January 1, 2016, the requirements remain subject to change, for instance through reviews by the European Commission of the Solvency II requirements, which are currently taking place. Some of Aegon’s competitors, who are headquartered outside the European economic area may not be subject to Solvency II requirements and may thereby be better able to compete against Aegon, particularly in the United States and Asia. In particular, the manner in which Aegon’s United States and Asia insurance businesses are taken into account in the Solvency II group solvency calculation, may have a significant impact on the group’s capital position. In that context, the opinion published by EIOPA on January 27, 2016 regarding theThe application of a combination of accounting methods for the group solvency calculation has offered important additional guidance to Aegon that may help to determine its group solvency position under Solvency II. As is generally the case with respect to the interpretation of regulatory requirements, in the future this guidance, or the manner in which this guidance is applied, may change, which may have, depending on the nature of the change, a significant effect on the outcome of the group solvency calculation. As an illustration, in August 2017, adjustments in the calculation for the US led to an increase in the Group Solvency Ratio. Until June 30, 2017, Aegon used 250% of the local Company Action Level (CAL) RBC as the SCR equivalent. Aegon received approval from the De Nederlandse Bank (DNB) to apply, as of July 1, 2017, a revised methodology 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.
In the United States, the National Association of Insurance Commissioners (NAIC) has taken an initiative to better align the Risk-Based Capital charges with the appropriate risk for invested assets. This may lead to higher risk charges for such assets.
Furthermore, the NAIC Model Regulation entitled ‘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, intended to clarify the regulation on valuation of life insurance policies, 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. It is anticipated that after the enactment of US principle-based reserves, effective January 1, 2017 for new business, new captive reinsurance structures may not be required for these term and secondary guarantee universal life 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 publicitycapital standards and changes in regulations related to captive reinsurance.
In addition, the NAIC is reviewing the use of captives for variable annuity business and is considering actuarial and accounting changes for variable annuities. Aegon utilizes variable annuity captives to align its hedging strategy with capital requirements for a closed block of variable annuities. The NAIC also continues to consider changes to corporate governance and insurers’ use of captives.
Aegon utilizes affiliated captive insurance companies to manage risks of various insurance policies, including universal life with secondary guarantees, level term life insurance and variable annuity policies. 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.
As a further example, Aegon and the Aegon Group may be impacted by further 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)). Since November 3, 2015 Aegon is 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 of G-SIIs for 2017. The policy measures set out in the FSB’s 2016 communication on G-SIIs will continue to apply to the firms listed in the 2016 communication. Continued enhancement of the Entity Based Approach (EBA) for the assessment of systemic risk has been suspended in favour of an Activities Based Approach to managing systemic risk. 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. 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 repurchase own shares orand constrain Aegon’s ability to pay dividends.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 its G-SII designation,requirements or standards applicable with respect to systemic entities or activities, of which the impact on shareholders cannot be predicted. For further detail on developments in these areas, we refer to the section ‘‘Regulation and supervision’’ of Aegon’s 2020 Annual Report on Form 20-F.
Regulatory restrictionsChanges in accounting standards may affect Aegon’s reported results, shareholders’ equity and failure to complydividend.
Aegon’s financial statements are prepared and presented in accordance with regulations may impact Aegon’s ability to do business, its financial position or financial results.
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 may resultIFRS. Any future changes 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, whichthese accounting standards may have a materially adverse effectsignificant impact on Aegon’s businesses,reported results, financial position orcondition, 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 operations.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. IFRS 17 will replace IFRS 4, which was intended as an
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.
Aegon Annual Report on Form 20-F |
Additional information Risk factors Aegon N.V. | 385 | |||||
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 the small effect of increased fees on credit facilities but may result in higher funding costs on future long term debt funding transactions and 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, (e.g. policyholders), not holders of Aegon capital securities. 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 the case, such as with regard to the calculation of capital needs, 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 for non-bank companies deemed to be systemically important financial institutions (SIFIs) that are more stringent than the standards applicable to non-SIFIs. 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.
In the United States, the Patient Protection and Affordable Care Act (PPACA) was enacted in 2011 and upheld, with the exception of the Medicaid expansion mandate, by the US Supreme Court in 2012. PPACA significantly changed the regulation of health insurance in the United States, including in certain respects the regulation of supplemental health insurance products. The current US Presidential administration and US Congress have repealed certain provisions of the PPACA and additional changes in laws or regulations that may impact US health insurance industry are possible. The extent to which employers or individuals may discontinue their purchase of supplemental health insurance products as a result of these changes may significantly impact Aegon USA’s supplemental health insurance products business. The extent of the expected changes or impact on Aegon USA’s supplemental health insurance business cannot be determined at this time.
Solvency II became effective in EU member states as per January 1, 2016. Elements of the Solvency II framework may change going forward. This may affect the way Aegon implements the Solvency II framework, including Aegon’s financial position under Solvency II. Pursuant to Solvency II, Aegon is required to calculate a solvency ratio (own funds divided by the required solvency, the latter referred to as the Group SCR), for the Aegon Group at the level of Aegon which should be at least equal to 100%. Under Solvency I, EU supervisors usually required insurance and reinsurance undertakings to maintain a substantial percentage of own funds above the statutory minimum requirements. Under Solvency II, the DNB leaves the decision as to whether to hold a buffer of own funds in excess of the Group SCR or the SCR to the Aegon Group and the insurance and reinsurance undertakings in the Aegon Group. As the prudential supervisor, the DNB nonetheless monitors Aegon’s capital management policies. Aegon applies its own capital management policies
interim solution and allowed insurers to continue to use accounting principles that determinethey had applied prior to the Company’s risk tolerancesinitial adoption of IFRS. In June 2020, the IASB decided, application subject to EU endorsement process, to defer the effective date of IFRS 17 to annual reporting periods beginning on or after January 1, 2023 (and also extend the basisfixed expiry date of self-imposed criteria. These policies resultthe temporary exemption from applying IFRS 9 in Aegon, at its own election, but supervised by the DNB, maintaining a buffer of own funds in additionIFRS 4 to those required according to Solvency II requirements. Aegon’s maximum risk tolerance for capital adequacy in the operating units is to maintain capitalization ratios above at least 100% SCR untilannual reporting periods beginning on or after January 1, 2023).
An implementation project was started soon after the occurrence of statistical ‘1-in-10 year’ equivalent stress scenarios. However, Aegon aspires to consistently maintain higher capital levels and targets local capitalisation levels in the operating units to support sustainable capital generation and stable dividends also until after the occurrence of statistical ‘1- in-10 year’ equivalent stress scenarios. These scenarios do not only reflect narrow statistical events, but can also include a broader range of stress scenarios such as economic, operational, regulatory and political events. Pursuant to these self-imposed criteria, Aegon currently aims to hold a buffer in excesspublication of the 100% minimum Group Solvency Ratio of 50 to 100%. The calculation of the Group Solvency Ratio in accordance with Solvency II is further described in the section “Regulation and Supervision”.
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. From June 30, 2017 to year-end, the factor of LAC-DT taken into account in Aegon the Netherlands’ Solvency II ratio remained unchanged at 75%. The factor is reassessed quarterly. The Solvency II sensitivity for a 25-percentage points change in the factor is given in the section “Capital and liquidity management”. The treatment of LAC-DT under the Solvency II framework is also one of the elements of the Solvency II review being conducted by the European Commission. The review was work in progress as per year-end 2017. The outcomes of this 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 the LAC-DT that may be taken into account by Aegon going forward.
The United States Department of Labor (DOL) issued a ‘Conflict of Interest’ or ‘Fiduciary’ rule in April 2016 (the ‘DOL Rule’) that substantially broadens the definition of ‘fiduciary’ with respect to retirement savings and investment plans and products (‘qualified assets’). The final rule would, with limited exemptions and carve-outs, make agents and brokers who provide recommendations on qualified assets, subject to a best interest/fiduciary standard. The DOL Rule best interest standard becomes effective with additional requirements and exemptions as of July 1, 2019. The DOL announced that it would further review the DOL Rule and propose additional changes before the DOL Rule becomes fully applicable. In addition the SEC has announced that it will propose a harmonized standard of care for broker dealers and investment advisers. Finally, New York and several other states have proposed or are expected to propose a heightened standard of care for financial professionals in their state and/or relating to the sale of life insurance as well as retirement savings and investment products.
The DOL Rule could have a material adverse impact from a prospective sales perspective both as to Aegon USA’s retirement plan and annuity businesses, and could create other challenges to the operating model of these businesses. In addition, the SEC or the United States’ promulgation or enactment, respectively, of an enhanced standard of care could similarly have a material adverse impact on Aegon USA’s business. In late 2017, the additional requirements applicability date was extended to July 1, 2019.new Standard. It is expected that the DOLimpact of the initial application on Aegon’s financial statements will propose changesbe significant.
Local statutes, regulators, and decisions of supervisory and other authorities may limit the ability of Aegon’s subsidiaries to pay dividends 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 pay operating expenses is dependent upon the receipt of dividends from subsidiaries, in particular, but not limited to, the rule later this year. The final results ofoperating companies in the reviewUS, the Netherlands, and the impactUK. Most of these subsidiaries are subject to regulatory restrictions that can limit the payment of dividends. In addition, local regulators in the countries where Aegon operates, supervisory and other authorities (such as EIOPA or the European Systemic Risk Board) may decide to impose or advise on Aegon USA’s retirement planfurther restrictions to dividend payments, or discourage such payments, specifically in exceptional and annuity business will not be known until after the changes to the rule are finalized by 2018-2019.
Changes in pension and employee benefit regulation, social security regulation, financial services regulation, taxation and the regulation of securities products and transactionsunpredictable economic circumstances. This may adversely affect Aegon’s ability to sell new policiessatisfy its debt obligations or claims exposure on existing policies. For example, in Hungary, the mandatory pension business has been nationalized and therefore Aegon in Hungary has liquidatedpay 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.
Other initiatives, such as by the International Association of Insurance Supervisors, may lead to regulations that would increase capital needs and other requirements that would not be applicable to all carriers and create an uneven competitive playing field.
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 the re-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’), potentially followed by more countries, 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 the negotiations underway, 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 could be adversely impacted by related 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 in the United Kingdom. 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.
More countries could potentially follow the UK in leaving the European Union. This could also result in the mentioned possible abandonment of the euro currency by one or more countries. The topic could be raised in elections and referenda. Any uncertainty, volatility or negative impacts created by these political events could have a material adverse effect on Aegon’s results of operations, cash flows or financial position.operating expenses.
Risks of application of to the Dutch Intervention Actintervention measures may adversely affect Aegon’s business, results of operations and financial position.
In June 2012, the Dutch Intervention Act (Wet bijzondere maatregelen financiële ondernemingen) came into force in the Netherlands, with retroactive effect from 20 January 2012. The Dutch Intervention Act grants far-reaching powers to the Dutch Central Bank (De Nederlandsche Bank N.V., “DNB”on Recovery & Resolution for Insurers (‘R&R Act’) and the Dutch Minister of Financeallows DNB to intervene in situations where an institution, including a Dutch insurer or reinsurer is faced with financial groupdifficulties. The powers under the R&R Act may also extend to the level of the Group and to entities, other than insurance or reinsurance entities in the Netherlands, which are part of the Group, such as Aegon faces financial difficulties or where there is a serious and immediate risk to the stability of the Dutch financial system caused by an institution in difficulty. The Dutch Intervention Act has been amended in respect of, inter alia, banks as a result of the entry into force of the EU Directive on the recovery and resolution of credit institutions and investments firms, which was approved by the European Parliament on 15 April 2014 and of which the final text was published in the Official Journal of the European Union on 12 June 2014 (the “Bank Recovery and Resolution Directive”). The Bank Recovery and Resolution Directive also contains provisions that apply to mixed financial holding companies such as Aegon N.V., including the right of bail-in of creditors. Under the Dutch Intervention Act, substantial powers have been granted to the DNB and the Dutch Minister of Finance enabling them to deal with ailing Dutch insurance companies as well as holding companies of insurance companies and financial conglomerates prior to insolvency. The measures allow them to commence proceedings which may lead to (a) the transfer of all or part of the business of an ailing insurance company to a private sector purchaser, (b) the transfer of all or part of the business of an ailing insurance company to a ‘bridge entity’, (c) the transfer of the shares in an ailing insurance company to a private sector purchaser or a ‘bridge entity’, (d) immediate interventions by the Dutch Minister of Finance concerning an ailing insurance company, and (e) public ownership (nationalization) of (i) all or part of the business of an ailing insurance company or (ii) all or part of the shares or other securities issued by an ailing insurance company or its holding company. The Dutch Intervention Act also contains measures that limit the ability of counterparties to invoke contractual rights (such as contractual rights to terminate or to invoke a right of set-off or to require security to be posted) if the right to exercise such rights is triggered by intervention of the DNB or the Dutch Minister of Finance based on the Dutch Intervention Act or by a circumstance which is the consequence of such intervention. There is a risk that the exercise of powers, or any perceived exercise of powers, by the DNB or the Dutch Minister of Finance under the Dutch Intervention Act 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. Furthermore, the terms of contracts, including debt obligations may be varied (e.g. the variation of maturity of a debt instrument). The Dutch Intervention Act and the Bank Recovery and Resolution Directive aim to ensure that financial public support will only be used as a last resort after having assessed and exploited, to the maximum extent practicable, the resolution tools, including the bail-in tool. The Dutch Ministry of Finance has published a proposal of law at the end of 2017 on recovery and resolution of insurers, and potentially other entities belonging to insurance groups, based in the Netherlands. The act is currently under review in Parliament. If and when formally adopted, this act will replace and complement the provisions of the Dutch Intervention Act. The risks related to this new act are comparable to the risks related to the Dutch Intervention Act described immediately above.
In addition, the new act will allow the resolution authority (the DNB)R&R Act allows 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 starton starting certain business activities, changechanging 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.
The EIOPA opinion on the 2020 review of Solvency II, referred to above, includes advice to the European Commission to include provisions, relating to minimum harmonization of recovery and resolution regime within the European Union, in the formal proposal for amendments to the Solvency II framework, expected to be published in the 2nd half of 2021. This might lead to the introduction of intervention tools, similar to those included in the R&R Act, in other EU member states in which Aegon’s subsidiaries are active.
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 investment firms (the ‘Bank Recovery and Resolution Directive’) is applicable. The Bank Recovery and Resolution Directive contains provisions that 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 of bail-in of creditors.
Lastly, when the stability of the financial system is threatened by the condition 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 superseded. 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 institution. 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 and the regime of the Bank Recovery and Resolution Directive are described in more detail in the section ‘Regulation and supervision’ of Aegon’s 2020 Annual Report on Form 20-F.
The United Kingdom’s exit from the European Union (‘Brexit’) may affect Aegon’s results and financial condition.
Aegon Annual Report on Form 20-F 2020 |
Additional information Risk factors Aegon N.V. | 386 | |||||
Since January 31, 2020, the United Kingdom is no longer a member of the European Union. The post-Brexit relationship between the European Union and the United Kingdom is governed by the Trade and Cooperation Agreement. This Agreement does not include material arrangements relating to financial services. The European Union and the United Kingdom intend to agree upon a memorandum of understanding by March 2021 to establish the framework for regulatory cooperation in financial services, covering, among other things, transparency and appropriate dialogue in the process of adoption, suspension and withdrawal of equivalence decisions in the area of financial services. As the Transition Period only ended recently and with a significant lack of clarity around the way in which the provision of financial services between the European Union and the United Kingdom will be regulated, Aegon could be adversely impacted by unexpected developments and market developments, any of which could reduce the value or results of Aegon’s operations, in particular Aegon’s operations in the United Kingdom. Aegon could also be adversely impacted should Brexit result in the United Kingdom moving away from European Union legislation such as, but not limited to, Solvency II regulations and financial services legislation.
Legal and Compliance
The outcome of 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, 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; claims payments and 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; and intellectual property; andproperty.
Aegon entities are subject to anti-money laundering laws and regulations, including for example the US Bank Secrecy Act, the Dutch Anti Money Laundering and Terrorist Financing (Prevention) Act (Wet ter voorkoming van witwassen en financieren van terrorisme), UK Money Laundering, Terrorist Financing and Transfer of Funds Act, European Anti-Money Laundering Directives, or other regulations and these require us to develop and implement customer identification and risk-based anti-money laundering programs, report suspicious activity, and maintain certain records. Further, Aegon entities are required to follow certain economic and trade sanctions programs, including for example ones administered by the Office of Foreign Asset Control, HM Treasury or the Council of EU that prohibit or restrict transactions with suspected persons, governments, and in certain circumstances, countries. Changes in, or violations of, any of these laws or regulations may require additional compliance procedures, or result in enforcement proceedings, sanctions or penalties, which could have a material adverse effect on Aegon’s businesses, financial condition and result of operations.
Aegon entities may be subject to anti-bribery legislation such as the Foreign Corruption and economic sanctions compliance. For example with respect to employment relationships, Aegon recently faced a suitPractices Act in the state of Georgia filed by self-employed independent insurance agents associated with one of Aegon’s financial marketing units who claimed to be employeesUS, the UK Bribery Act, Dutch anti-bribery provisions and other regulations. Any violations of the organization. This lawsuit was resolved favorably to Aegon. The SEC is conductingFCPA or other anti-bribery laws by Aegon, its employees, subsidiaries or local agents, could have a formal investigation related to certain investment strategies offered through mutual funds, variable productsmaterial adverse effect on its businesses and separately managed accounts. These strategies used quantitative models developed by one of the former portfolio managers of Aegon’s US investment management business unit. Amongreputation and result in substantial financial penalties or other things, the investigation relates to the operation of and/or the existence of errors in the quantitative models in question and related disclosures. The funds and strategies under review were sub-advised, advised or marketed by Aegon’s US group companies. The models are no longer being used although some of the funds are still being offered. The quantitative management strategies are no longer being offered. Aegon is cooperating fully with the investigation. Aegon believes that the investigation will come to a conclusion in 2018, and has taken a provision in anticipation of a possible settlement with the SEC.sanctions.
Government and regulatory investigations including this one, 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. While weRegulators may also seek changes to the way Aegon operates. In some cases, Aegon subsidiaries have modified business practices in response to inquiries.
Customers of certain of Aegon’s products bear significant investment risks with respect to those products which are unableaffected by fluctuations in equity markets as well as interest rate movements. When investment returns disappoint, are volatile, or change due to predict what actions, if any, might be taken and are unable to predictchanges in the costs tomarket or other impact on usrelevant 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 action, thereexposure may not be possible for long periods of time after Aegon becomes aware of such potential claims. Litigation exposure as well may develop over long periods of time; once litigation is initiated,
Aegon Annual Report on Form 20-F 2020 |
Additional information Risk factors Aegon N.V. | 387 | |||||
it may be protracted and subject to multiple levels of appeal, which can lead to significant costs of defense, distraction, and other constraints.
In some jurisdictions, plaintiffs may seek recovery of very large or indeterminate amounts under enhanced liability legal theories or claims of bad faith, which can result in tort, punitive and/or statutory damages. Damages alleged may not be quantifiable or supportable or may have no assurances that this matterrelationship to economic losses or final awards. As a result, Aegon cannot predict the effect of litigation, investigations or other government investigations will notactions on its business.
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 and adverse effectimpact on Aegon’s reputation, financial position,businesses, results of operations, or liquidity.
In addition, insurance companiescash flows and their affiliated regulated entities are 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.financial position. 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. Aegon and other US insurers have been sued for charging fees on products offered in 401(k) platforms which allegedly were higher than fees charged on other products available in the market.
Several US insurers, including an Aegon subsidiary,subsidiaries, have also 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. The class action against Aegon’s subsidiary is pending in the US federal district courthas agreed to settle two such class actions that had been venued in the US District Court for the Central District of California. The settlement in the first case, approved in January 2019, arose from increases implemented in 2015-2016. Over 99% of affected policyholders participated in that 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 are on-going. Resolution of this class action ended a number of other related cases, including other federal and state class actions. In the first phasesecond case, Aegon’s subsidiary agreed to settle a class action lawsuit arising out of oneMDR increases in 2017 and 2018. The court approved that settlement on 16 September 2020. Opt-outs in this case represent less than 7% of the value of the settlement fund. On 15 October 2020, two opt-out policyholders whose objections to the settlement were overruled by the trial court filed an appeal. The appeal has delayed implementation of the settlement. The settlement fund was reduced proportionally for opt outs, although Aegon continues to hold a provision for these policyholders. In the only individual casescase against Aegon’s subsidiary to reach trial the(in 2017), a jury found that thea 2013 increase to a certain group of policies was improper. That caseThe jury verdict was affirmed on appeal, which ended the case.
In addition, insurance companies and others remain ongoing. their affiliated regulated entities may face lawsuits that threaten their business models. For example, several US-based Aegon subsidiaries are defendants in a class action alleging that the business model improperly characterizes distributors as independent contractors instead of employees. Depending on the outcome, this lawsuit, along with similar claims against other companies, as well as regulatory action, could necessitate a change in the business model and/or could result in a significant settlement or 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 MarchSeptember 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 placed in-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. The Court of Appeal has stayed the class action proceedings during the preliminary proceedings at the Supreme Court in another class action of Vereniging Woekerpolis.nl against another insurance company. 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’)(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’)(remisier) that advised on the sale of the institution’s products, was not properly licensed. It also
Aegon Annual Report on Form 20-F 2020 |
Additional information Risk factors Aegon N.V. | 388 | |||||
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 class actionmass claim against Aegon Bank regarding securities leasing product Sprintplan. Allegations include, among other things, a lack of a proper license of the brokers involved. There can be no assurances that this matter will not ultimately result in a material adverse effect on Aegon’s business, results of operations and financial position. In 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. In February 2020, the Court of Appeal rejected all claims filed by platform Aandelenlease against Aegon Bank. Platform Aandelenlease confirmed that it will not appeal the ruling of the Court of Appeal which makes the ruling of the Court of Appeal final.
In the Netherlands Aegon is also 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 Financial Services Complaints Authority (‘Klachteninstituut Financiële Dienstverlening’), with numerous cases having been initiated by Leaseproces B.V. In December 2020 Aegon reached an agreement on a settlement with Leaseproces B.V. for those customers of Vliegwiel and Sprintplan products who are represented by Leaseproces B.V. The casesettlement is now pending atsubject to conditions precedent and further operational details have yet to be agreed. Execution of the court of appeal of The Hague. settlement is expected in 2021.
There can be no assurances that this matterthese matters will not ultimately result in a material adverse effect on Aegon’s business, results of operations, competitive position, reputation, and financial position. In Poland, owners of unit-linked policies continueFor additional information on proceedings in which Aegon is involved, refer to file claims in civil court against Aegon over fees payable upon purchase or surrender of the product. Plaintiffs claim that these fees are not contractually supported. For reasons of commercial necessity as well as atnotes to the instigation of regulatory authorities, Aegon decided to modify the fee structure.
Manyconsolidated financial statements, note 45 ‘Commitments and contingencies’ of Aegon’s 2020 Annual Report on Form 20-F.
Changes in government regulations in the jurisdictions in which Aegon operates may affect profitability and operating models.
Aegon’s regulated businesses, such as insurance, banking, and asset management, are subject to comprehensive regulation and supervision. 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 affect the way in which Aegon conducts its businesses, including its relationship with distributors of its 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.
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 Aegonand other third parties and the extentstructure of any such exposureits relationship with employees. These changes may evolve over time and be open to interpretation through judicial and enforcement action. Such changes may also affect the 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 management.
Aegon may not be possible for long periodsable to comply fully with, or obtain appropriate exemptions from, the wide variety of time after Aegon becomes aware of such potential claims. Once litigation is initiated, it may be protractedlaws and subjectregulations applicable to multiple levels of appeal.
Aegon cannot predict the effect of litigation, investigations or other actions on its businesses and legal entities. 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 insurance industry. In some jurisdictions plaintiffsin which Aegon operates and may seek recovery of very large or indeterminate amounts under claims of bad faith, resultingresult in punitive or treble damages. Damages alleged may not be quantifiable or supportable, orfines and other sanctions, which 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 materialmaterially adverse impacteffect on Aegon’s businesses, financial position or results of operations.
Certain key regulatory proposals that could materially impact Aegon’s financial condition and results of operations cash flowsare described below.
Regulatory changes include preventive and financial position.
Aegon’s risk management policiescorrective supervisory measures that aim to address macro-prudential concerns, referred to in the Holistic 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 suspend G-SII identification as from the beginning of 2020 and processes may leavein November 2022 will, based on the Company exposed to unidentified or unanticipated risk events, adversely affecting its businesses, results and financial condition.
Aegon has devoted significant resources to theinitial years of implementation and maintenance of a comprehensive enterprise risk management framework in all aspects of the business. Nevertheless, its risk measurements make useholistic framework, review the need either to discontinue or re-establish an annual identification of historicG-SIIs.
In addition, the ComFrame, which was adopted in November 2019 by the IAIS, establishes minimum supervisory standards and public dataguidance 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 all insurers). Therefore, IAIGs 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.
State statutes and regulators may limit the aggregate amount of dividends payable by Aegon’s subsidiaries and Aegon N.V., thereby limiting Aegon’s abilitysubject to make payments on debt obligations.
Aegon’s ability to make payments on debt obligations and pay some operating expenses is dependent upon the receipt of dividends from subsidiaries. Some of these subsidiaries have regulatory restrictions that can limit the payment of dividends. In addition, local regulators, acting to represent the interests of local policyholders, are taking an increasingly restrictive stance with respect to permitting dividend payments, which may affect Aegon’s ability to satisfy its debt obligations or pay its operating expenses.
Changes in accounting standards may affect Aegon’s reported results, shareholders’ equity and dividend.
Since 2005, Aegon’s financial statements have been 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 and shareholders’ equity. This includes the level and volatility of reported results and shareholders’ equity. New accountingadditional standards that are likely to have a significant impact on Aegon’s reported results, financial condition and shareholders’ equity include butother insurers or other insurance groups are not limitedsubject to.
On May 12, 2020, DNB announced, in line with expectations due to IFRS 9 –Aegon’s former designation as a G-SII, that it has identified Aegon as one of the two IAIGs in the Netherlands, based on the size and international activities of the Aegon group.
Aegon Annual Report on Form 20-F |
Additional information Risk factors Aegon N.V. | 389 | |||||
Financial InstrumentsThe implementation of ComFrame and IFRS 17 – Insurance Contracts. On July 24, 2014, the IASB issuedholistic 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 fourthcost to Aegon of offering certain products resulting in price increases, leading to the discontinuance of offering of certain products or reducing the amount of risk Aegon takes on. Aegon may consider structural and final versionother business alternatives in light of its new standardrequirements or standards applicable with respect to systemic entities or activities, of which the impact on financial instruments accounting – IFRS 9 Financial Instruments. Applicationshareholders cannot be predicted.
As referred to above, the Solvency II 2020 review covers a broad range of IFRS 9 is required for annual periods beginning on or after January 1, 2018. IFRS 17 – Insurance Contracts was issued on May 18, 2017 with an effective date of January 1, 2021. However, the IASB has also issued an amendment related to IFRS 4 Insurance Contracts. The objectivetopics of the amendmentSolvency II framework. Aegon’s insurance subsidiaries, as well as Aegon at Group level is subject to address the temporary accounting consequencesSolvency II framework. If the technical advice, provided to the European Commission through the EIOPA Opinion on the 2020 review of Solvency II is taken over by the different effective dates of IFRS 9European Commission and IFRS 17. The amendment permits entities whose predominant activities are connected with insurance,the European co-legislators to defera significant extent and without material changes, the application of IFRS 9 until 2021 (the ‘temporary exemption’); and permit all issuers of insurance contractsamendments to recognize in other comprehensive income, rather than profit or loss, the volatility that could arise when IFRS 9 is applied before the new insurance contracts Standard is issued (the ‘overlay approach’). Aegon has decided to make use of the ‘temporary exemption’ to defer the application of IFRS 9 until 2021, as it meets the underlying qualifying criteria for doing so. As Aegon is able to defer the application of IFRS 9 until 2021, the full impact of both IFRS 9 and IFRS 17 is not yet clear. Initial impact assessments on both standards resulted in the expectation that it willSolvency II framework may have a significant impact on reported results, shareholders’ equitythe activities, profitability and disclosures.
Further details are providedfinancial position of Aegon and Aegon’s subsidiaries in the notesEuropean Union.
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 consolidatedPPACA and to other laws and regulations impacting the US health insurance industry could have a material adverse effect on Aegon’s financial statements, note 2 “Summarycondition, results of significant accounting policies”.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.
Tax law changesOn June 5, 2019, the SEC adopted Regulation Best Interest (Regulation BI), a new rule requiring broker-dealers and investment advisers to recommend only those 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 Biden Administration has indicated an interest in revisiting fiduciary-related issues but has not yet made any proposals.
The foregoing regulations and proposed regulations, along with any future regulations by the federal government and/or 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 profitability,ability to sell new policies or claims exposure on existing policies.
The introduction of state-run retirement programs for private-sector employees in the United States could directly compete with private-market retirement plans. More than 30 US states have considered legislation that would establish state-run plans but fewer than 10 states have enacted legislation, and among those, even fewer have actually implemented them. Federal ERISA law raises questions as well as the saleto whether such plans are pre-empted by ERISA.
In general, changes in laws and ownershipregulations 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.
Tax risks may adversely affect Aegon’s products.businesses and 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 materialize due to (i) changes in tax laws, or the(ii) changes in 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 tax compliance risks could potentially leads to inaccurate, incomplete, or untimely tax returns. Materialization of those risks would lead to non-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 effecttrue and fair view.
Aegon Annual Report on Form 20-F 2020 |
Additional information Risk factors Aegon N.V. | 390 | |||||
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.
Most insurance products enjoy certain policyholder tax advantages, particularly inadvantages. This permits, for example, the United States, the United Kingdom and the Netherlands, which permit the tax deferred accumulationbuild-up 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 inside build-up of earnings may not be payable at all and,gross premium amounts with deferred taxation, if payable, generally are due onlyany, when the accumulated earnings are actually paid.
The US Congress has,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 in the United States.sales.
The US Government, as well as state and local governments, also consider from time to timeOverall, tax law changes that may increase the amount of taxes that Aegon pays. Effective January 1, 2018 the Tax Cuts and Jobs Act lowered US corporate tax to 21%, reducing the amount of tax that Aegon pays. Also significant changes were made 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 pays.
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 as non-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 through the internet, 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.
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, robotization, artificial intelligence, data analytics and blockchain. These technologies are changing the way insurance is 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 demands. They want speed, ease of use and accessibility. 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 – quickly enough – adapt and apply these new technologies may impact Aegon’s competitive position, its ability to maintain profitability and adversely affect Aegon’s future financial condition 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 would be 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.
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 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 whom Aegon interacts on a daily basis and financial instruments of governments which Aegon holds. 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 whom 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 a co-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 businesses, profits, capital, and financial position and resultscondition.
Judgments of operations. Refer to Schedule IV for a table showing life insurance in force amounts and premiums on a direct, assumed and ceded basis.
ReinsuranceUS courts may not be available, affordable or adequate to protectenforceable against Aegon against losses.in Dutch courts.
As partThere is no treaty between the United States and the Netherlands providing for the reciprocal recognition and enforcement of Aegon’s overall riskjudgments (other than arbitration awards) in civil and capital management strategy, Aegon purchases reinsurance for certain risks underwritten by Aegon’s various business segments. Market conditions beyond Aegon’s control determinecommercial matters. Judgments of US courts, including those predicated on the availability and costcivil liability provisions of the reinsurance protectionUS federal securities laws, may not be enforceable in Dutch courts. Therefore, Aegon’s investors that obtain a judgment against Aegon purchases. In addition, interpretations of terms and conditions may differ over time as contracts extend for decades. Accordingly, Aegon may be forced to incur additional expenses for reinsurance orin the United States may not be able to obtainrequire Aegon to pay the amount of the judgment unless a competent court in the Netherlands gives binding effect to the judgment, or, if possible, the US investor has brought a successful original action in a Dutch court. Therefore, investors are required to undertake more action in order to enforce sufficient reinsurance on acceptable terms, which may adversely affect Aegon’s abilitya US court judgment than in relation to write future business and realize planned value for current business.any US counterparty.
Aegon may have difficulty managing its expanding operations,not manage risks associated with the reform and replacement of benchmark rates effectively.
Aegon mayrecognizes that the reform of IBORs (Interbank Offered Rates) and any transition to replacement rates entail risks for all our businesses across our assets and liabilities. These risks include, but are not be successful in acquiring new businesses or divesting existing operations.limited to:
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. In addition, they may divert management’s attention and other resources. Divestitures of existing operations may result in Aegon assuming or retaining certain contingent liabilities. All of these 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.
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 and man-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
◆ | 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; |
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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 industry working groups play a role in certain partsthe benchmark reform and the preparation for the replacement of IBORs. Although a lot of work has been done, there is still significant uncertainty around liquidity development, and the worldtimetable and created additional uncertainty asmechanisms for implementation, including application of spread adjustments to future trends and exposure. Generally, Aegon seeksthe alternative reference rates. Accordingly, it is not currently possible to reduce its exposuredetermine whether, or to these events through individual risk selection, monitoring risk accumulation, and purchasing reinsurance.what extent, any such changes would affect Aegon. 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 lossthe implementation 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 claimsalternative reference rates may have a materiallymaterial adverse effect on Aegon’s results of operations, corporate reputationbusiness, financial condition, customers, and financial condition.operations.
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’sthird 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 operation,operations, financial condition and Aegon’s ability to compete.compete and pursue future business opportunities. 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, processing errors, modelling 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.
Aegon’s management maintains a well-controlled environment and sound (conduct) policies and practices to control these risks and keep operational risk at appropriate levels. Notwithstanding these control measures, however, 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, suffers a cyber-attack or other security breach, Aegon may not realize the productivity improvements or cost efficiencies, nor find an alternate provider on the same terms and conditions, and instead experience
Aegon Annual Report on Form 20-F |
Additional information Risk factors Aegon N.V. | 391 | |||||
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, expensive and time-consuming, and the outcome of which is 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, unanticipated 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.
In January 2018, in connection with the transformation of Aegon’s US business and its long term strategy, Aegon entered into a multi-year third party administration arrangement for the administration of certain US based in-force policies currently administered on up to 25 systems and for new US based insurance business. As part of this arrangement Aegon will modernize the systems upon which it administers its insurance business whereby at least 20 of the systems will be consolidated into a new policy administration system hosted by the third party administrator. Aegon may further reduce the remaining in-scope systems in the future. If Aegon does not effectively develop, implement and monitor its outsourcing relationships, or if third-party providers do not perform as anticipated or if Aegon experiences technological or other problems with transition from Aegon or its other third party providers, Aegon may not realize productivity improvements or cost efficiencies and may experience operational difficulties, increased costs and a loss of business that may have an adverse effect upon on Aegon’s operations or financial condition.
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.
While systems and processes are intended to support complex transactions and avoid systems failure, fraud, information security failures, processing errors and breaches of regulation, any failure 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 industry standards and customer preferences. If Aegon fails to keep up-to-date information systems, Aegon may not be able to rely on information for product pricing, risk management and underwriting decisions. In addition, even though back-up and recovery systems and contingency plans are in place, Aegon cannot assure investors that interruptions, failures or breaches in security of these processes and systems will not occur, or if they do occur, that they can be adequately addressed. 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.
Changes towards more sophisticated internet technologies, the introduction of new products and services, changing customer needs and evolving applicable standards increase the dependency on internet, secure systems and related technology. Introducing new technologies, computer system failures, cyber-crime attacks or security breaches may disrupt Aegon’s business, damage Aegon’s reputation and adversely affect Aegon’s results of operations, financial condition and cash flows.
Cyber risk is predominantly determined by the risk of malicious outside forces using public networks to attack the Company’s systems, but also includes inside threats, both malicious and accidental. In recent years this 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 hackers get more organised and employ more sophisticated techniques. At the same time companies increasingly unlock information systems through the internet to customers and business partners expanding the attack surface hackers can exploit. Furthermore, the nature of Aegon’s business increasingly becomes more data driven.
To date the highest impact of cyber security incidents Aegon was exposed to were caused by phishing attacks targeted at business partners and customers. Although these historic events were far from material, Aegon has prepared for more significant cyberattacks would they occur. Aegon has taken cyber insurance to decrease the impact of such an event and at the same time continues to focus on strengthening cyber resilience to mitigate the likelihood and impact of significant events.
A breach of data privacy and 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 rules protecting the privacy and security of personal information. 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 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 a 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 or non-compliance could cause disrupted operations and misstated or unreliable financial data, materially damage Aegon’s reputation or lead to civil or criminal penalties, 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 are likely to be imposed. Such limitations could have material impacts or Aegon’s business, financial conditions and/or results of operations.
Judgments of US courts are not 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.
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 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 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. 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, 2017, 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 569,676,480 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.
Prior to September 2002, Vereniging Aegon beneficially owned approximately 52% of the voting shares and thus held voting control over Aegon. In September 2002, Vereniging Aegon reduced its beneficial ownership to approximately 33% of the voting shares (excluding issued common shares held in treasury by Aegon). In 2003, Aegon and Vereniging Aegon amended the 1983 Merger Agreement, resulting in a right for Vereniging Aegon, upon issuance of shares by Aegon, to purchase as many class B preferred shares existing at that time as would enable it to prevent or offset a dilution to below its actual voting power percentage of 33%. In 2013, Aegon N.V. and Vereniging Aegon entered into an agreement to simplify the capital structure of Aegon and to cancel allholds 32.6% of Aegon’s preferred shares, of which Vereniging Aegon was the sole owner. The execution of this agreement was approved by the General Meeting of Shareholders of Aegon N.V. on May 15, 2013.voting shares. For details on the simplificationshareholding of Vereniging Aegon, its developments, the corporate structure,Amended 1983 Merger Agreement and the Voting Rights Agreement, please see the section Major shareholders on pages 321-323.328-330.
The simplified capital structure included an amendment toFollowing the 1983 Amended Merger Agreement between Aegon N.V. and Vereniging Aegon. Following this 2013 amendment,Aegon, Vereniging Aegon’sAegon has a call option relates toon common shares B.B, which 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%.
The simplification of the capital structure also entailed the amendment of the Voting Rights Agreement between Aegon N.V. and Vereniging Aegon. As a matter of Dutch corporate law, thecommon shares of both classesand 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 1/40th40 of the financial rights attached to a common share. The amended 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 maywill 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. Accordingly, at December 31, 2017, the voting power of Vereniging Aegon under normal circumstances amounted to approximately 14.34%, 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 to 32.6% for up to six months.
Consequently, Vereniging Aegon may have substantial influence on the outcome of corporate actions requiring shareholder approval, including:approval.
Aegon Annual Report on Form 20-F |
Additional information Risk factors Aegon N.V. | 392 | |||||
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 Shares 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 securitiesSecurities (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 April 2019, Aegon issued EUR 500 million Perpetual Contingent Convertible Securities (“PCCS”). Upon the future, Aegon may issueoccurrence 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% 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; (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, extraordinary dividends or stock dividends, rights issues and others. A reduction of the conversion price will result in an increase in the number of common shares to be issued.
The PCCS and other convertible securities or other securities that permit or require Aegon to satisfy obligations by issuing common shares. Those securities would likelymay 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’ anticipationthe issue of common shares upon conversion of the potential resale in the market of substantial amounts of Aegon’s common shares received at maturity. Aegon’s common shares may also be depressedPCCS and/or any convertible securities or by the acceleration by investors 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.may have issued. Negative resultsprice developments may also be produced byresult 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.
Aegon Annual Report on Form 20-F |
393 | ||||||
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. The non-US based subsidiaries of Aegon N.V. do operate in compliance with applicable laws and regulations of the jurisdictions where they conduct business.
Aegon UK has six UK resident customers who have one active Individual Pension Plan (IPP) and are UK-based employees of a British registered charity that appears on the Specially Designated Nationals (SDN) List with the identifier Specially Designated Global Terrorist (SDGT); the charity made 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 Pounds 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 18,087 as at January 19, 2021, and regular monthly contributions of GBP 69.41 are being received into this policy. IPP #2 has a value of GBP 7,382 as at january 19, 2021, and regular monthly contributions of GBP 18.61 are being received. IPP #3 has a value of GBP 280,032 as at January 19, 2021, and regular monthly contributions of GBP 527.91 are being received. IPP #4 has a value of GBP 13,385 as at January 19, 2021, and no further contributions are being received. IPP #5 has a value of GBP 58,323 as at January 19, 2021, and no further contributions are being received. IPP #6 has a current value of GBP 12,621 as at January 19, 2021, 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 11,700.
In the Netherlands, Aegon Levensverzekering N.V. has one Dutch resident customer who is a party subject to US sanctions for whom one active IPP 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 tag [FSE-SY] and other program tags. The customer is not subject to sanctions in the Netherlands or EU.
The active IPP is a lifelong annuity plan which start at the retirement age of 65 (January 2023). The annual pensions benefits as of January 1, 2023 for this policy will be EUR 560.64 gross per year. The contribution into this policy ended in the 1980’s. The related annual net profit arising from this contract is negligible.
The individual life investment linked insurance policy has a value of EUR 81,088 as of January 1, 2021, 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 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 20-F 2020 |
Additional information Property, plant and equipment | 394 | |||||
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 1610 offices located throughout thein Cedar Rapids, 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 11.0 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 theand Groningen, The Netherlands, and Budapest, Hungary. Aegon owns its headquarters and leases other offices in the Netherlands (Hoofddorp,(Amsterdam, Leeuwarden and Groningen)Zaandam), in the United Kingdom and in Spain under long-term leases. Aegon believes that its properties are adequate to meet its current needs.
At the end of 2017,2020, Aegon had 28,31822,322 employees. Approximately 39%36% are employed in the Americas, 35%30% in Europe, 21%International, 18% in Asiathe Netherlands, 10% in the UK and 5%7% in Asset Management. Note that employees of the Holdingwho work at Aegon’s Corporate Center are included in Europe.numbers of the country in which they are located.
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 the a co-creation steering group to come towhich prepares new agreements.agreements and tracks the implementation thereof. The current collective labor agreement has a duration of three years.two years, from July 1, 2020 up to and including June 30, 2022. 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 make non-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:
2020 | 2019 | 2018 | ||||||||||||||||||||||
2017 | 2016 | 2015 | ||||||||||||||||||||||
Americas | 10,951 | 11,943 | 12,701 | 7,960 | 8,570 | 8,824 | ||||||||||||||||||
The Netherlands | 3,460 | 4,794 | 4,802 | 3,930 | 3,998 | 3,938 | ||||||||||||||||||
United Kingdom | 3,435 | 2,673 | 2,478 | 2,307 | 2,261 | 3,135 | ||||||||||||||||||
Central & Eastern Europe | 2,337 | 2,317 | 2,470 | |||||||||||||||||||||
Spain & Portugal | 610 | 600 | 534 | |||||||||||||||||||||
Asia | 6,025 | 5,579 | 7,163 | |||||||||||||||||||||
International | 6,598 | 7,393 | 9,181 | |||||||||||||||||||||
Asset Management | 1,500 | 1,474 | 1,382 | 1,527 | 1,535 | 1,464 | ||||||||||||||||||
28,318 | 29,380 | 31,530 | ||||||||||||||||||||||
22,322 | 23,757 | 26,543 | ||||||||||||||||||||||
Of which Aegon’s share of employees in joint ventures and associates | 6,497 | 5,944 | 7,499 | 4,193 | 5,162 | 6,854 |
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-F |
Additional information Dividend policy | 395 | |||||
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. Aegon’s plans for returning capital to shareholders are based on the actual and expected capital position of its operating units, the expected levels of capital generation and free cash flow and the expected allocation of capital to invest in Aegon’s strategy and in the quality of its balance sheet. After investment in new business to generate organic growth, capital generation 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.policies in addition to adhering to local regulatory and statutory requirements and restrictions.
Aegon uses cash flows from its operating subsidiaries to pay unallocated 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.the Holding’s capital and liquidity in line with its capital management and liquidity risk policies. Aegon’s Executive Board takes into account the actual and expected capital position of its operating units, Cash Capital at Holding balances, leverage ratios and strategic considerations when declaring or proposing dividends on common shares. Depending on circumstances, future prospects and other considerations, Aegon’s Executive Board may electhas discretion to deviate from this target. Aegon’s Executive Board will also takethe aforementioned capital position, financial flexibility, leverage ratios and strategic considerations into account when declaring or proposing dividends on common shares.liquidity measures.
Under normal circumstances, Aegon would expect to declare an interim dividend when announcing Aegon’s first half yearsecond quarter 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 balancebalances prudence versus offering an attractive return to shareholders, for example inshareholders. This is particularly important during adverse economic and/or financial market conditions. Also,Furthermore, Aegon’s operating subsidiaries are subject to local insurance regulations whichthat 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 the business day before the US-ex dividend day.
The principal market for Aegon’s common shares is Euronext Amsterdam.Amsterdam, where they are listed under the symbol ‘AGN’. Aegon’s common shares are also listed on NYSE New York.
The table below sets forth, forYork under the calendar periods indicated, the high and low sales prices ofsymbol ‘AEG’. Aegon’s common shares B are not listed to trade on Euronext Amsterdam and NYSE New York as reported by Bloomberg and is based on closing prices.any securities market.
Euronext Amsterdam (EUR) | NYSE New York (USD) | |||||||||||||||
High | Low | High | Low | |||||||||||||
2013 | 6.86 | 4.23 | 9.48 | 5.76 | ||||||||||||
2014 | 6.96 | 5.75 | 9.46 | 7.27 | ||||||||||||
2015 | 7.70 | 4.87 | 8.35 | 5.41 | ||||||||||||
2016 | 5.65 | 3.01 | 6.09 | 3.37 | ||||||||||||
2017 | 5.49 | 4.26 | 6.35 | 4.73 | ||||||||||||
2015 | ||||||||||||||||
First quarter | 7.70 | 5.87 | 8.35 | 6.97 | ||||||||||||
Second quarter | 7.65 | 6.37 | 8.22 | 7.24 | ||||||||||||
Third quarter | 7.22 | 4.87 | 7.93 | 5.51 | ||||||||||||
Fourth quarter | 5.94 | 4.93 | 6.38 | 5.41 | ||||||||||||
2016 | ||||||||||||||||
First quarter | 5.65 | 4.04 | 6.00 | 4.59 | ||||||||||||
Second quarter | 5.41 | 3.47 | 6.09 | 3.91 | ||||||||||||
Third quarter | 3.98 | 3.00 | 4.37 | 3.37 | ||||||||||||
Fourth quarter | 5.32 | 3.38 | 5.72 | 3.84 | ||||||||||||
2017 | ||||||||||||||||
First quarter | 5.49 | 4.65 | 5.84 | 5.10 | ||||||||||||
Second quarter | 5.04 | 4.26 | 5.40 | 4.73 | ||||||||||||
Third quarter | 5.38 | 4.50 | 6.06 | 5.20 | ||||||||||||
Fourth quarter | 5.42 | 4.72 | 6.35 | 5.50 | ||||||||||||
Sep-17 | 5.03 | 4.63 | 5.94 | 5.50 | ||||||||||||
Oct-17 | 5.18 | 4.72 | 6.02 | 5.50 | ||||||||||||
Nov-17 | 5.42 | 5.03 | 6.24 | 5.83 | ||||||||||||
Dec-17 | 5.41 | 5.13 | 6.35 | 6.08 | ||||||||||||
2018 | ||||||||||||||||
January 2018 | 5.76 | 5.26 | 7.02 | 6.32 | ||||||||||||
February 2018 | 5.77 | 5.19 | 7.02 | 6.30 | ||||||||||||
March 2018 (through March 7, 2018) | 5.71 | 5.36 | 6.91 | 6.62 |
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 20-F |
Additional information Memorandum and Articles of Association | 396 | |||||
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 pages 131 - 135)48-52).
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 Agreement, |
◆ | All shares have the right to participate in Aegon’s net profits. Net |
◆ | 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 fully paid-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 are one-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.. |
Aegon Annual Report on Form 20-F |
Additional information Memorandum and Articles of Association | 397 | |||||
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 of non-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 least two-thirds of the votes cast representing more than one-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 136)48).
Special conditions governing changes in the capital
There are no conditions more stringent than what is required by law.
Aegon Annual Report on Form 20-F 2020 |
Additional information Material contracts | 398 | |||||
There are no material contracts.
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.
i Certain Netherlands tax consequences for holders of shares
The following section outlines certain material Netherlands tax consequences of the acquisition, holding, redemption and disposal of Aegon common shares, but does not purport to be a comprehensive description of all Netherlands tax considerations that may be relevant. This section is intended as general information only and each prospective investor should consult a professional tax adviser 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 Netherlands corporate and individual income tax consequences for:
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.
Dividend withholding tax
Withholding requirement
Aegon is required to withhold 15% Netherlands dividend withholding tax in respect of dividends paid on its common shares.
Netherlands dividend withholding tax will be withheld from the gross dividends paid on the Aegon common shares. In the Netherlands Dividend Withholding Tax Act 1965 (Wet op de dividendbelasting 1965), dividends are defined as the proceeds from shares, which include:
Residents of the Netherlands
If a holder of Aegon common shares is a resident, or deemed to be a resident of the Netherlands for Netherlands corporate or individual income tax purposes, Netherlands dividend withholding tax which is withheld with respect to proceeds from Aegon common shares will generally be creditable for Netherlands corporate income tax or Netherlands 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 Netherlands dividend withholding tax.
A refund of Netherlands 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). Furthermore, a similar refund of Netherlands 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.
A (partial) refund of Netherlands 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). Furthermore, a similar refund of Netherlands 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.
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 Netherlands dividend withholding tax rate from 15% to 5% if the resident of the United States is a company which 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, Netherlands 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 Netherlands 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:
Netherlands 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 qualifying non-Netherlands subsidiaries, provided these dividends received by Aegon are exempt from Netherlands 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 Netherlands tax authorities and not to the amount of the Netherlands dividend withholding tax that Aegon must withhold. The reduction is equal to the lesser of:
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 Netherlands dividend withholding tax. This reduction does not apply in respect of dividends paid to entities that own less than 5% of the nominal paid-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 Netherlands corporate income tax purposes and is fully subject to Netherlands corporate income tax or is only subject to Netherlands 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 Netherlands Corporate Income Tax Act 1969(Wet op de vennootschapsbelasting 1969).
If an individual is a resident or deemed to be a resident of the Netherlands for Netherlands 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 51,95%) under the Netherlands Income Tax Act 2001(Wet inkomstenbelasting 2001)if:
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 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 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 vermogen). 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 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 Netherlands corporate or individual income tax purposes, such person is not subject to Netherlands 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:
representative Aegon common shares are attributable, or (2) realises income or gains with respect to Aegon common shares that qualify as income from miscellaneous activities (resultaat uit overige werkzaamheden) in the Netherlands which include activities with respect to Aegon common shares that exceed regular, active portfolio management (normaal, actief vermogensbeheer), or (3) is, 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 51,95%. 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.
Gift and inheritance tax
Residents of the Netherlands
Generally, gift tax (schenkbelasting) or inheritance tax (erfbelasting) will be due in the Netherlands in respect of the acquisition of Aegon common shares by way of a gift by, or on behalf of, or on the death of, a holder of Aegon common shares that is a resident or deemed to be a resident of the Netherlands for the purposes of the Netherlands Gift and Inheritance Tax Act 1956 (Successiewet 1956) at the time of the gift or his or her death. A gift made under a condition precedent is for the purposes of the Netherlands Gift and Inheritance Tax Act 1956 deemed to be made at the time the condition precedent is fulfilled and is subject to gift tax if the donor is, or is deemed to be, a resident of the Netherlands at that time.
A holder of Netherlands nationality is deemed to be a resident of the Netherlands for the purposes of the Netherlands Gift and Inheritance Tax Act 1956 if he or she has been resident in the Netherlands and dies or makes a gift within ten years after leaving the Netherlands. A holder of any other nationality is deemed to be a resident of the Netherlands for the purposes of the Netherlands Gift and Inheritance Tax Act 1956 if he or she has been resident in the Netherlands and makes a gift within a twelve-month period after leaving the Netherlands. The same twelve-month rule may apply to entities that have transferred their seat of residence out of the Netherlands.
Non-residents of the Netherlands
No gift or inheritance tax will arise in the Netherlands in respect of the acquisition of Aegon common shares by way of a gift by, or as a result of the death of, a holder that is neither a resident nor deemed to be a resident of the Netherlands for the purposes of the Netherlands Gift and Inheritance Tax Act 1956. However, inheritance tax will be due in the case of a gift of Aegon common shares by, or on behalf of, a holder who at the date of the gift was neither a resident nor deemed to be a resident of the Netherlands for the purposes of the Netherlands Gift and Inheritance Tax Act 1956, but such holder dies within 180 days after the date of the gift, and at the time of his or her death is a resident or deemed to be a resident of the Netherlands for the purposes of the Netherlands Gift and Inheritance Tax Act 1956. A gift made under a condition precedent is deemed to be made at the time the condition precedent is fulfilled.
The proposed financial transactions tax
The European Commission has published a proposal for a Directive for a common financial transactions tax (FTT) in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the participating Member States). However, Estonia has stated that it will not participate.
The proposed FTT has a very broad scope and could, if introduced in its current form, apply to certain dealings in Aegon common shares (including secondary market transactions) in certain circumstances.
Under the current proposals, the FTT could apply in certain circumstances to persons both within and outside of the participating Member States. Generally, it would apply to certain dealings in Aegon common shares where at least one party is a financial institution, and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, ‘established’ in a participating Member State in a broad range of circumstances, including (1) by transacting with a person established in a participating Member State or (2) where the financial instrument which is subject to the dealings is issued in a participating Member State.
However, the FTT proposal remains subject to negotiation between participating Member States and is subject to legal challenge. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional EU Member States may decide to participate. Prospective holders of Aegon common shares are advised to seek their own professional advice in relation to the FTT.
Aegon Annual Report on Form 20-F |
Additional information Taxation | 399 | |||||
Value added tax
In general, no value added tax will arise in respect of payments in consideration for the issue of Aegon common shares or in respect of a cash payment made under Aegon common shares, or in respect of a transfer of Aegon common shares.
Other taxes and duties
No registration tax, customs duty, transfer tax, stamp duty, capital tax or any other similar documentary tax or duty will be payable in the Netherlands by a holder of Aegon common shares in respect of or in connection with the subscription, issue, placement, allotment, delivery or transfer of the Aegon common shares.
ii Taxation in the
United States tax consequences to holders of shares |
Introduction
This section describes certain US Federal income tax consequences to beneficial holders of common shares that are held as capital assets.assets, including certain Dutch withholding tax considerations. This section does not address all US Federal income tax matters that may be relevant to a particular holder. Each investor should consult their tax advisor with respect to the tax consequences of an investment in the common shares. This section does not address tax considerations for holders of common shares subject to special tax rules including, without limitation, the following:
◆ | Financial institutions; |
◆ | Insurance companies; |
◆ | Dealers or traders in securities or currencies; |
◆ | Tax-exempt entities; |
◆ | Regulated investment companies; |
◆ | Persons that |
◆ | US expatriates and former citizens or former residents of the United States; |
◆ | Persons subject to special tax accounting rules as a result of any item of gross income with respect to the stock being taken into account in an applicable financial statement; |
◆ | Holders that own (or are deemed to own for US Federal income tax purposes) 10% or more of the voting shares of Aegon; |
◆ | Partnerships, or arrangements treated as partnerships for US tax purposes, or pass-through entities or persons who hold common shares through partnerships or other pass-through entities; and |
◆ | Holders that have a ‘functional currency’ other than the US dollar. |
Further, this section does not address alternative minimum tax consequences or the indirect effects on the holders of equity interests in a holder of common shares. This section also does not describe any tax consequences arising under the laws of any taxingtaxation jurisdiction other than the Federal income tax laws of the US Federal government.
This section is based on the US Internal Revenue Code of 1986, as amended, US Treasury regulations and judicial and administrative interpretations, in each case as in effect and available on the date of this Annual Report. All of the foregoing is subject to change, which change could apply retroactively and could affect the tax consequences described below.
For the purposes of this section, a ‘US holder’ is a beneficial owner of common shares that is, for US Federal income tax purposes:
◆ | A citizen or individual resident of the United States; |
◆ | A corporation created or organized in or under the laws of the United States or any state of the United States (including the District of Columbia); |
◆ | An estate, the income of which is subject to US Federal income taxation regardless of its source; |
◆ | A trust, if a court within the United States is able to exercise primary supervision over its administration and one or more US persons have the authority to control all of the substantial decisions of such trust. |
A non-US holder is a beneficial owner of common shares that is notneither a US holder.holder nor an entity treated as a partnership for US federal income tax purposes.
TaxIf an entity treated as a partnership for US Federal income tax purposes holds common shares, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding common shares and the partners in such partnerships should consult their tax advisors regarding the US Federal income tax consequences to US holdersthem.
Aegon Annual Report on Form 20-F 2020 |
Additional information Taxation | 400 | |||||
Dividend withholding tax in the Netherlands
DistributionsWithholding requirement
Aegon is required to withhold 15% Dutch dividend withholding tax in respect of the gross dividends paid on its common shares. In the Dutch Dividend Withholding Tax Act 1965 (Wet op de dividendbelasting 1965), dividends are defined as the proceeds from shares, which include:
◆ | Direct or indirect distributions of profit, regardless of their name or form. |
◆ | 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 average paid-in capital recognized for Dutch dividend withholding tax purposes, unless a particular statutory exemption applies. |
◆ | 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 its paid-in capital as recognized for Dutch dividend withholding tax purposes. |
◆ | Partial repayments of paid-in capital recognized for Dutch dividend withholding tax purposes, if and to the extent there are qualifying profits (zuivere 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’ includes anticipated profits that have yet to be realized. |
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 Dutch dividend withholding tax rate from 15% to 5% if the resident of the United States is a company which 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, Dutch 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 Dutch 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. |
US tax treatment of distributions
The gross amount of any distribution (including any amounts withheld in respect of Dutch withholding tax) actually or constructively received by a US holder with respect to common shares will be taxable to the US holder as a dividend to the extent of Aegon’s current and accumulated earnings and profits as determined under US Federal income tax principles.dividend. Such dividends will not qualify for the dividends received deduction otherwise allowable to corporations. Distributions in excess of current and accumulated earnings and profits are treated under US tax law as non-taxable return of capital to the extent of the US holder’s adjusted tax basis in the common shares. Distributions in excess of earnings and profits and such adjusted tax basis will generally be taxable to the US holder as capital gain from the sale or exchange of property. However, Aegon does not maintain calculations of its earnings and profits under US Federal income tax principles. Therefore, US holders of Aegon shares will generally be taxed on all distributions as dividends, even if some portion of the distributions might otherwise be treated as a non-taxable return of capital or as capital gain if the amount
of US earnings and profits was known. The amount of any distribution of property other than cash will be the fair market value of that property on the date of distribution.
Certain ‘qualified dividend income’ received by individualcertain non-corporate US holders is taxed at a maximum income tax rate of 20% under current law. Only dividends received from US corporations or from a ‘qualified foreign corporation’ and on shares held by an individuala non-corporate US holder for a minimum holding period (generally, 61 days during the 121-day period beginning 60 days before the ex-dividend date) can qualify for this reduced rate. Aegon is eligible for benefits under the comprehensive income tax treaty between the Netherlands and the US; therefore, Aegon should be considered a ‘qualified foreign corporation’ for this purpose. Accordingly, dividends paid by Aegon to individualnon-corporate US holders on shares held for the minimum holding period may qualify for a reduced income tax rate. Each US holder should consult their tax advisor regarding the applicable tax rate.
In addition, US holders receiving dividends may be subject to a net investment income tax (NIIT). The NIIT is a 3.8% tax on the lesser of net investment income or the amount of modified adjusted gross income (MAGI) that is over a threshold amount based on filing status (USD 250,000 for married taxpayers filing jointly). Each US holder should consult their tax advisor regarding applicability of the NIIT.
Aegon Annual Report on Form 20-F 2020 |
Additional information Taxation | 401 | |||||
Distributions paid in currency other than US dollars (a ‘foreign currency’), including the amount of any withholding tax thereon, must be included in the gross income of a US holder in an amount equal to the US dollar value of the foreign currency calculated by reference to the exchange rate in effect on the date of receipt. This is the case regardless of whether the foreign currency is converted into US dollars. If the foreign currency is converted into US dollars on the date of receipt, a US holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend. If the foreign currency received in the distribution is not converted into US dollars on the date of receipt, a US holder will have a basis in the foreign currency equal to its US dollar value on the date of receipt. Any gain or loss on a subsequent conversion or other disposition of the foreign currency will be treated as ordinary income or loss.
Dividends received by a US holder with respect to common shares will be treated as foreign source income for foreign tax credit limitation purposes. Subject to certain conditions and limitations, any Dutch income tax withheld on dividends may be deducted from taxable income or credited against a US holder’s Federal income tax liability. The limitation on foreign taxes eligible for the US foreign tax credit is calculated separately with respect to “passive‘passive category income”income’ and “general‘general category income”income’. Dividends distributed by Aegon generally will constitute “passive‘passive category income”income’, or, in the case of certain US holders, “financial‘financial services income”income’, which is treated as general category income. Each US holder should consult their tax advisor regarding the availability of the foreign tax credit under their particular circumstances.
The amount of the qualified dividend income paid by Aegon to a US holder that is subject to the reduced dividend income tax rate and that is taken into account for purposes of calculating the US holder’s US foreign tax credit limitation must be reduced by the ‘rate differential portion’ of such dividend (which, assuming a US holder is in the highest income tax bracket, would generally require a reduction of the dividend amount by approximately 45.95% under current law).dividend. Each US holder should consult their tax advisor regarding the implications of the rules relating to qualified dividend income on the calculation of US foreign tax credits under their particular circumstances.
In general, upon making a distribution to shareholders, Aegon is required to remit all Dutch dividend withholding taxes to the Dutch tax authorities. The full amount of the taxes so withheld should (subject to certain limitations and conditions) be eligible for the US holder’s foreign tax deduction or credit as described above. Investors are urged to consult their tax advisors regarding the general creditability or deductibility of Dutch withholding taxes.
Aegon generally affords shareholders an option to receive dividend distributions in cash or in stock. A distribution of additional common shares to US holders with respect to their common shares that is made pursuant to such an election will generally be taxable in the same manner as a cash dividend under the rules described above.
Sale or other disposition of shares
Upon the sale or exchange of common shares, a US holder will generally recognize gain or loss for US Federal income tax purposes on the difference between the US dollar value of the amount realized from such sale or exchange and the tax basis in those common shares. This gain or loss will be a capital gain or loss and will generally be treated as from sources within the United States. Investors should consult their tax advisors with respect to the treatment of capital gains (which may be taxed at lower rates than ordinary income for taxpayers who are individuals, trusts or estates that have held the common shares for more than one year) and capital losses (the deductibility of which is subject to limitations).
In addition, US holders with capital gains may be subject to a NIIT. The NIIT is a 3.8% tax on the lesser of net investment income or the amount of modified adjusted gross income (MAGI) that is over a threshold amount based on filing status (USD 250,000 for married taxpayers filing jointly). Each US holder should consult their tax advisor regarding applicability of the NIIT.
If a US holder receives foreign currency upon a sale or exchange of common shares, gain or loss, if any, recognized on the subsequent sale, conversion or disposition of such foreign currency will be ordinary income or loss, and will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. However, if such foreign currency is converted into US dollars on the date received by the US holder, the US holder generally should not be required to recognize any gain or loss on such conversion.
Passive foreign investment company considerations
Based on the nature of Aegon’s gross income, the average value of Aegon’s gross assets and the active conduct of Aegon’s insurance business, Aegon does not believe that it could be classified as a Passive Foreign Investment Companypassive foreign investment company (PFIC). If Aegon were treated as a PFIC in any year during which a US holder owns common shares, certain adverse tax consequences could apply. Investors should consult their tax advisors with respect to any PFIC considerations.
Aegon Annual Report on Form 20-F 2020 |
Additional information Taxation | 402 | |||||
Tax consequences to non-US holders
A non-US holder generally will not be subject to US Federal income tax on dividends received on common shares or on any gain realized on the sale or exchange of common shares unless the gain is connected with a trade or business that the non-US holder conducts in the United States or unless the non-US holder is an individual, such holder was present in the United States for at least 183 days during the year in which such holder disposes of the common shares, and certain other conditions are satisfied. Non-US holders should consult their tax advisors with respect to the US Federal income tax consequences of dividends received on, and any gain realized from the sale or exchange of, the common shares.
BackupUS withholding and information reporting
Backup withholding and information reporting requirements may apply to certain payments on the common shares and to proceeds of a sale or redemption of the common shares to US holders made within the United States. Aegon, its agent, a broker, or any paying agent, as the case may be, may be required to withhold tax from any payment that is subject to backup withholding if a US holder fails to furnish the US holder’s taxpayer identification number, fails to certify that such US holder is not subject to backup withholding, or fails to otherwise comply with the applicable requirements of the backup withholding rules. Certain US holders are not subject to the backup withholding and information reporting requirements.
Non-USUS and non-US holders thatmay also be subject to withholding and/or reporting to the US Foreign Account Tax Compliance Act (FATCA) if they do not provide required documentation and certifications to the appropriate reporting agent. When documentation and certifications are required, tax certifications of exempt or foreign statusthey will generally be exempt from US informationrequested by the appropriate reporting requirements and backup withholding. However, sales proceeds a non-US holder receives on a sale of common shares through a broker may be subject to information reporting and backup withholding if the non-US holder is not eligible for an exemption.agent.
Backup withholding isand withholding under FATCA are not an additional tax.taxes. Any amounts withheld under the backup withholding rules from a payment to a US holder or a non-US holder generally may be claimed as a credit against such holder’s US Federal income tax liability provided that the required information is furnished to the US Internal Revenue Service (IRS). Investors should consult their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining an exemption. Non-US holders should consult their tax advisors concerning the applicability of the information reporting and backup withholding rules.under FATCA.
Individual US holders may be required to report to the IRS certain information with respect to their beneficial ownership of certain foreign financial assets, such as the common shares, if the aggregate value of such assets exceeds USD 50,000 and the assets are not held through a US financial institution. US holders who fail to report required information could be subject to substantial penalties. Prospective investors should consult their own tax advisors concerning the application of the information reporting rules to their particular circumstances.
Aegon Annual Report on Form 20-F |
Additional information Principal accountant fees and services | 403 | |||||
Principal accountant fees and services
PricewaterhouseCoopers Accountants N.V. (PwC) has served as Aegon’s independent public accountant for each of the years in the three-year period ended December 31, 2017,2020, for which audited financial statements appear in this Annual Report.
The following table presents the aggregate fees for services rendered by PwC in 2017, 20162020, 2019 and 2015.2018.
Fees independent public accountant
In million EUR | 2017 | 2016 | 2015 | |||||||||||||||||||||
in EUR million | 2020 | 2019 | 2018 | |||||||||||||||||||||
Audit fees | 42 | 27 | 20 | 34 | 32 | 37 | ||||||||||||||||||
Audit-related fees | 3 | 3 | 2 | 5 | 6 | 2 | ||||||||||||||||||
46 | 30 | 22 | ||||||||||||||||||||||
40 | 38 | 39 |
Audit fees consist of fees billed for the annual financial statement audit (including required quarterly reviews), subsidiary audits, equity investment audits and other procedures required to be performed by the independent auditor to be able to form an opinion on Aegon’s consolidated financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit or quarterly review. They also include fees billed for other audit services, which are those services that only the external auditor reasonably can provide, and include statutory audits or financial audits for subsidiaries or affiliates of the Company and services associated with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings.
Audit-related fees consist of fees billed for audit-related services including assurance and related services that are reasonably related to the performance of the audit or review of Aegon’s financial statements or that are traditionally performed by the independent auditor. Audit-related services include, among others, assurance services to report on internal controls for third parties, due diligence services pertaining to potential business acquisitions/dispositions; accounting consultations related to accounting, financial reporting or disclosure matters not classified as ‘Audit services’; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; financial audits of employee benefit plans; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements.
All other fees include fees billed for permissible non-audit services that Aegon believes are routine and recurring services, would not impair the independence of the auditor and are consistent with the SEC’s rules on auditor independence.
Audit Committee pre-approval policies and procedures
Aegon’s Audit Committee is responsible, among other matters, for the oversight of the external auditor. The Audit Committee has adopted a policy regarding pre-approval of audit and permissible non-audit services provided by Aegon’s independent auditors (the Pre-approval Policy).
Under the Pre-approval Policy, proposed services either:
◆ | May be pre-approved by the Audit Committee without consideration of specific case-by-case services (general pre-approval); or |
◆ | Require the specific pre-approval of the Audit Committee (specific pre-approval). Appendices to the Pre-approval Policy (that are adopted each year) set out the audit, audit-related, tax and other services that have received general pre-approval of the Audit Committee. All other audit, audit-related, tax and other services must receive specific pre-approval from the Audit Committee. |
For the period 20152018 to 2017,2020, all services provided to Aegon by its independent public accountant were pre-approved by the Audit Committee in accordance with the Pre-approval Policy.
Aegon Annual Report on Form 20-F |
Additional information Purchases of equity securities by the issuer and affiliated purchasers | 404 | |||||
Purchases of equity securities by the issuer and
affiliated purchasers
Period | Total number of shares purchased1) | Average price paid per share in EUR | Total number of shares purchased as part of publicly announced plans or programs | Maximum number of shares that may yet be purchased under the plans or programs at end of month | ||||||||||||
January 1 - 31, 2017 | 691 | 6.52 | - | - | ||||||||||||
February 1 - 28, 2017 | 642 | 6.66 | - | - | ||||||||||||
March 1 - 31, 2017 | 598 | 6.67 | - | - | ||||||||||||
April 1 - 30, 2017 | 804 | 5.67 | - | - | ||||||||||||
May 1 - 31, 2017 | 756 | 5.66 | - | - | ||||||||||||
June 1 - 30, 2017 | 1,387 | 5.62 | - | - | ||||||||||||
July 1 - 31, 2017 | 671 | 6.64 | - | - | ||||||||||||
August 1 - 31, 2017 | 502 | 6.73 | - | - | ||||||||||||
September 1 - 30, 2017 | 1,035 | 6.73 | - | 51,864,626 | ||||||||||||
October 1 - 31, 2017 | 19,073,434 | 4.94 | 19,072,946 | 32,791,680 | ||||||||||||
November 1 - 30, 2017 | 23,573,736 | 5.15 | 23,573,233 | 9,218,447 | ||||||||||||
December 1 - 31, 2017 | 9,218,858 | 5.25 | 9,218,447 | - | ||||||||||||
Total | 51,873,114 | 51,864,626 |
Period | Total number of shares purchased1) | Average price paid per share in EUR | Total number of shares purchased as part of publicly announced plans or programs | Maximum number of shares that may yet be purchased under the plans or programs at end of month | ||||
January 1 - 31, 2020 | - | - | - | - | ||||
February 1 - 29, 2020 | - | - | - | - | ||||
March 1 - 31, 2020 | - | - | - | - | ||||
April 1 - 30, 2020 | - | - | - | - | ||||
May 1 - 31, 2020 | - | - | - | - | ||||
June 1 - 30, 2020 | - | - | - | - | ||||
July 1 - 31, 2020 | - | - | - | - | ||||
August 1 - 31, 2020 | - | - | - | - | ||||
September 1 - 30, 2020 | - | - | - | 24,028,645 2) | ||||
October 1 - 31, 2020 | 24,028,645 | 2.46 | 24,028,645 | - | ||||
November 1 - 30, 2020 | - | - | - | - | ||||
December 1 - 31, 2020 | - | - | - | - | ||||
Total | 24,028,645 | 24,028,645 | ||||||
1 | The shares have been purchased as part of a share purchase program, to neutralize the dilution effect of issued stock dividends and agent-related incentive programs. Excluding Aegon shares purchased by index funds controlled by Aegon. Such purchases are made to the extent necessary to maintain a basket of securities within the relevant fund reflecting the underlying index. Please |
2 | Share purchase program announced on September 17, 2020 |
Aegon Annual Report on Form 20-F 2020 |
405 | ||||||
Table of contents
Other Non-financial information | ||
406 | ||
411 | Basis of preparation | |
414 | Reference tables and reporting frameworks | |
414 | ◆International Integrated Reporting Council (IIRC) framework | |
415 | ||
415 | ||
421 | ||
423 | ||
426 | Glossary | |
432 | Abbreviations | |
433 | Disclaimer | |
435 | Contact | |
436 | Documents on display | |
437 | Index to Exhibits |
Aegon Annual Report on Form 20-F 2020 |
Non-financial data | 406 | |||||
Data on Aegon’s environmental, social and governance performance has been grouped according to stakeholder (customers, employees, business partners, investors
and wider community). Some figures may not add due to rounding. Year-on-year changes have been calculated using pre-rounded numbers.
Customers
Indicator | 2020 | 2019 | Change 2019 to 2020 | 2018 | ||||||||||||
Customer metrics | ||||||||||||||||
Total number of customers | 30.4 million | 29.9 million | 1.4% | 29.3 million | ||||||||||||
Number of new customers | 4.6 million | 4.3 million | 8.0% | 3.8 million | ||||||||||||
Number of customers with two or more products | 4.7 million | 5.0 million | (5.7%) | 5.2 million | ||||||||||||
Customers with two or more products (% of total customers) | 16% | 17% | (1 pp) | 18% | ||||||||||||
Digitally connected customers (% total customers) | 41% | 36% | (4 pp) | 31% | ||||||||||||
Net Promoter Score (NPS) | ||||||||||||||||
Net Promoter Score (NPS) - above peer average1) | 32% | 9% | 23 pp | 38% | ||||||||||||
1st quartile | 26% | 2% | 24 pp | 1% | ||||||||||||
2nd quartile | 6% | 7% | (1 pp) | 36% | ||||||||||||
3rd quartile | 59% | 60% | (1 pp) | 6% | ||||||||||||
4th quartile | 9% | 31% | (23 pp) | 56% | ||||||||||||
Net Promoter Score (NPS) - coverage2) | 87% | 88% | (1 pp) | 89% | ||||||||||||
Complaints | ||||||||||||||||
Total customer complaints3) | 80,510 | 91,348 | (11.9%) | 79,509 | ||||||||||||
Significant fines4) to address cases of mis-selling | EUR 8.2 million | EUR 0.3 million | NM | EUR 84.8 million | ||||||||||||
Claims, benefits and plan withdrawals | ||||||||||||||||
Total claims, benefits and plan withdrawals | EUR 57.4 billion | EUR 59.4 billion | (3.3%) | EUR 53.6 billion |
NA – not applicable
NM – not measured
pp - percentage points
1 | Table shows NPS performance benchmarked against peers for Aegon businesses in the US, Netherlands and UK. Top line shows percentage of businesses ranking in the top half, weighted by customer numbers. Figures below provide the breakdown by quartile. |
2 | This coverage percentage is largely due to the fact that we are not (yet) measuring relation NPS with our customers in our growing joint venture businesses in Brazil, Spain and Portugal. |
3 | Includes all written and verbal complaints. |
4 | Includes any fines in excess of EUR 100,000 |
Aegon Annual Report on Form 20-F 2020 |
Non-financial data | 407 | |||||
Employees
Indicator | 2020 | 2019 | Change 2019 to 2020 | 2018 | ||||||||||||
Workforce | ||||||||||||||||
Total number of employees1) | 22,322 | 23,757 | (6.0%) | 26,543 | ||||||||||||
Total number of direct employees2) | 17,989 | 18,905 | (4.80%) | 19,750 | ||||||||||||
New hires | 2,217 | 2,974 | (25.5%) | 3,891 | ||||||||||||
Turnover | 18% | 32% | (14 pp) | 33% | ||||||||||||
Voluntary | 13% | 15% | (2 pp) | 18% | ||||||||||||
Involuntary | 5% | 17% | (12 pp) | 15% | ||||||||||||
Health and safety | ||||||||||||||||
Absentee rate | 1.7% | 1.8% | (0 pp) | 2.4% | ||||||||||||
Work-related injuries and illnesses | 47 | 184 | (74.5%) | 163 | ||||||||||||
Inclusion and diversity | ||||||||||||||||
% of women in workforce | 50% | 49% | 1 pp | 49% | ||||||||||||
% of women in senior management | 32% | 29% | 3 pp | 33% | ||||||||||||
% of women in Supervisory Board | 43% | 29% | 14 pp | 29% | ||||||||||||
% of women in Executive and Management Board | 17% | 18% | (1 pp) | 27% | ||||||||||||
Employee engagement | ||||||||||||||||
Employee engagement score3) | 72 | 67 | 5 pp | 65 | ||||||||||||
Remuneration | ||||||||||||||||
Total employment costs | EUR 2.0 billion | EUR 2.1 billion | (7.1%) | EUR 2.1 billion | ||||||||||||
Salaries | EUR 1.3 billion | EUR 1.3 billion | (0.1%) | EUR 1.2 billion | ||||||||||||
Ratio of median to CEO salary4) | 32:1 | 33:1 | NM | 42:1 | ||||||||||||
Training and development | ||||||||||||||||
Spending on training and career development | EUR 10.9 million | EUR 16.9 million | (35.5%) | EUR 12.5 million | ||||||||||||
% of employees completing training on Code of Conduct. | 97% | 95% | 2 pp | 99% |
NA – not applicable
NM – not measured
pp - percentage points
1 | Direct employees and tied agents |
2 | Direct employees only |
3 | Index developed by Culture Amp. Employee engagement measures the degree of employee motivation and commitment to the Company. |
4 | The total remuneration IFRS-EU expenses for all employees divided by the annualized CEO expenses. |
Aegon Annual Report on Form 20-F 2020 |
Non-financial data408 | ||
Business partners
Change 2019 | ||||||||||||||||
Indicator | 2020 | 2019 | to 2020 | 2018 | ||||||||||||
Brokers and intermediaries | ||||||||||||||||
Commissions paid to brokers and other intermediaries | EUR 2.3 billion | EUR 2.4 billion | (5.8%) | EUR 2.4 billion | ||||||||||||
Reinsurers | ||||||||||||||||
Premiums paid to reinsurers | EUR 2.7 billion | EUR 2.4 billion | 11.1% | EUR 2.7 billion | ||||||||||||
Goods and services | ||||||||||||||||
Total spend on goods and services | EUR 1.6 billion | EUR 1.5 billion | 3.6% | EUR 1.5 billion | ||||||||||||
% spend on goods and services with ‘in-scope’ suppliers1) | 84% | NM | NA | NM | ||||||||||||
Number of ‘in-scope’ suppliers assessed for ESG performance2) | 67 | NM | NA | NM | ||||||||||||
% ‘in-scope’ spend on goods and services assessed for ESG performance | 56% | NM | NA | NM | ||||||||||||
Fraudulent activity | ||||||||||||||||
Incidents/attempts of fraud involving employees, intermediaries and third parties | 4,014 | 4,541 | (11.6%) | 3,652 |
NA – not applicable
NM – not measured
pp - percentage points
1 | Top 250 suppliers by spend |
2 | Scored for environment, social and governance (ESG) performance through the EcoVadis rating platform |
Investors
Change 2019 | ||||||||||||||||
Indicator | 2020 | 2019 | to 2020 | 2018 | ||||||||||||
Returns to investors | EUR 370 million | EUR 899 million | (58.8%) | EUR 861 million | ||||||||||||
Dividend payments1) | EUR 123 million | EUR 611 million | (79.9%) | EUR 570 million | ||||||||||||
Coupon payments | EUR 248 million | EUR 288 million | (13.8%) | EUR 291 million | ||||||||||||
Dividend payments due/share | EUR 0.12 | EUR 0.31 | (61.3%) | EUR 0.29 | ||||||||||||
Share price (change year-on-year) | (20.5%) | 0.3% | NM | (23.3%) | ||||||||||||
Total shareholder return | (18.4%) | 8.0% | NM | (19.0%) |
NA – not applicable
NM – not measured
pp - percentage points
1 | Does not include impact of share buy-backs. Aegon’s final dividend for 2020 is subject to approval by the Company’s Annual General Meeting of Shareholders, due to take place in June 2021. Figures include both interim and final dividends for each year. Calculation reflects IFRS accounting of inventory effects of share repurchases relating dividends paid in stock. |
Society
Change 2019 | ||||||||||||||||
Indicator | 2020 | 2019 | to 2020 | 2018 | ||||||||||||
Community investment | ||||||||||||||||
Cash donations1) | ||||||||||||||||
Financial security and education | EUR 3.0 million | NM | NA | NM | ||||||||||||
Financial education and literacy | EUR 2.7 million | NM | NA | NM | ||||||||||||
Employability later in life | EUR 0.3 million | NM | NA | NM | ||||||||||||
Longevity and well-being | EUR 5.7 million | NM | NA | NM | ||||||||||||
Physical fitness | EUR 0.2 million | NM | NA | NM | ||||||||||||
Mental vitality | EUR 0.9 million | NM | NA | NM | ||||||||||||
Prevention of diseases | EUR 1.7 million | NM | NA | NM | ||||||||||||
Livable communities | EUR 2.9 million | NM | NA | NM | ||||||||||||
Other | EUR 0.8 million | NM | NA | NM | ||||||||||||
Total cash donations | EUR 9.5 million | EUR 8.2 million | 16.4 | % | EUR 9.3 million |
CONTINUED > Aegon Annual Report on Form 20-F 2020 |
Non-financial data 409 | ||
Indicator | 2020 | 2019 | Change 2019 to 2020 | 2018 | ||||||||||||
Volunteering2) | ||||||||||||||||
Volunteering hours | 4,399 | 19,448 | (77.4%) | 14,082 | ||||||||||||
Volunteering value | EUR 0.2 million | EUR 0.9 million | (77.7%) | EUR 0.7 million | ||||||||||||
Total value community investment | EUR 9.7 million | EUR 9.0 million | 5.4% | EUR 10.1 million | ||||||||||||
Total value as % of net income | 17.6% | 0.6% | 17 pp | 1.4% | ||||||||||||
Responsible investment | ||||||||||||||||
Responsible investment solutions (RIS) total value3) | EUR 212.8 billion | EUR 206.2 billion | 3.2% | NM | ||||||||||||
Exclusions | EUR 203.9 billion | EUR 197.2 billion | 3.4% | NM | ||||||||||||
Best-in-class | EUR 3.3 billion | EUR 2.9 billion | 14.0% | NM | ||||||||||||
Sustainability-themed | EUR 2.4 billion | EUR 1.0 billion | 124.9% | NM | ||||||||||||
Impact investments | EUR 3.2 billion | EUR 5.0 billion | (34.9%) | NM | ||||||||||||
Number of companies engaged | 575 | 564 | 2.0% | 360 | ||||||||||||
% engagements addressing environment issues | 24% | NM | NA | NM | ||||||||||||
% engagements addressing social issues | 20% | NM | NA | NM | ||||||||||||
% engagements addressing corporate governance issues | 49% | NM | NA | NM | ||||||||||||
% engagements addressing general disclosures | 7% | NM | NA | NM | ||||||||||||
Number of shareholder meetings where votes cast | 2,511 | 2,321 | 8.2% | 1,373 | ||||||||||||
Tax | ||||||||||||||||
Taxes borne by Aegon | EUR 319 million | EUR 615 million | NA | EUR 620 million | ||||||||||||
Corporate income tax4) | EUR 10 million | EUR 42 million | NA | EUR 36 million | ||||||||||||
US | (EUR 43 million) | (EUR 12 million) | NA | (EUR 35 million | ) | |||||||||||
Netherlands | EUR 33 million | EUR 32 million | NA | EUR 3 million | ||||||||||||
UK | EUR 14 million | (EUR 9 million) | NA | EUR 30 million | ||||||||||||
Others | EUR 6 million | EUR 31 million | NA | EUR 40 million | ||||||||||||
Taxes collected on behalf of others | EUR 2.51 billion | EUR 2.45 billion | NA | EUR 2.16 billion | ||||||||||||
Environment (business operations) | ||||||||||||||||
GHG emissions (metric tons CO2e)5) | ||||||||||||||||
Scope 1 | 4,993 | 5,189 | (3.8%) | 5,011 | ||||||||||||
Scope 2 (gross/location) | 34,072 | 42,449 | (19.7%) | 47,142 | ||||||||||||
Scope 2 (net/market) | 102 | 1,005 | (89.9%) | 380 | ||||||||||||
Scope 3 operational | 2,139 | 11,637 | (81.6%) | 13,801 | ||||||||||||
Total operational (gross/location) | 41,205 | 59,275 | (30.5%) | 65,955 | ||||||||||||
Total operational (net/market) | 7,237 | 17,831 | (59.4%) | 19,193 | ||||||||||||
Total operational per employee (net/market) | 0.4 | 1.0 | (57.9%) | 1.1 | ||||||||||||
Total operational per unit revenue (EUR million) (net/market) | 0.3 | 0.6 | (49.5%) | 0.6 | ||||||||||||
Energy consumption (MWh) | ||||||||||||||||
Fuel | 18,679 | 25,403 | (26.5%) | 27,239 | ||||||||||||
Electricity (renewable) | 74,699 | 86,107 | (13.2%) | 92,873 | ||||||||||||
Electricity (non-renewable) | 750 | 2,741 | (72.6%) | 748 | ||||||||||||
Electricity (total) | 75,449 | 88,848 | (15.1%) | 93,621 | ||||||||||||
Total energy | 94,128 | 114,251 | (17.6%) | 120,860 | ||||||||||||
Renewable electricity (% total electricity) | 99% | 97% | 2.1% | 99% | ||||||||||||
Renewable energy (% total energy) | 79% | 75% | 4.0% | 77% | ||||||||||||
Travel (million km) | ||||||||||||||||
Air travel | 22.1 | 89.4 | (76.0%) | 107.5 |
CONTINUED > Aegon Annual Report on Form 20-F 2020 |
Non-financial data 410 | ||
Indicator | 2020 | 2019 | Change 2019 to 2020 | 2018 | ||||||||||||
Environment (investments - global general account)6) | ||||||||||||||||
Corporate Fixed Income7) | ||||||||||||||||
Absolute footprint (metric tons CO2e) | 4,878,000 | NA | NM | NA | ||||||||||||
Absolute footprint (coverage) | 77% | NA | NM | NA | ||||||||||||
Relative intensity (metric tons CO2e/EURm invested) | 110 | NA | NM | NA | ||||||||||||
Relative intensity (coverage) | 77% | NA | NM | NA | ||||||||||||
Weighted average carbon intensity (metric tons CO2e/EURm revenue) | 430 | NA | NM | NA | ||||||||||||
Weighted average carbon intensity (coverage) | 84% | NA | NM | NA | ||||||||||||
Carbon Risk / vulnerability (Sustainalytics rating) | 9 | NA | NM | NA | ||||||||||||
Carbon Risk / vulnerability (coverage) | 63% | NA | NM | NA | ||||||||||||
Sovereign Fixed Income8) | ||||||||||||||||
Absolute footprint (metric tons CO2e) | 13,863,000 | NA | NM | NA | ||||||||||||
Absolute footprint (coverage) | 98% | NA | NM | NA | ||||||||||||
Relative intensity (metric tons CO2e/EURm invested) | 500 | NA | NM | NA | ||||||||||||
Relative intensity (coverage) | 98% | NA | NM | NA | ||||||||||||
Weighted average carbon intensity (metric tons CO2e/EURm GDP) | 330 | NA | NM | NA | ||||||||||||
Weighted average carbon intensity (coverage) | 98% | NA | NM | NA | ||||||||||||
Carbon Risk / vulnerability | 67 | NA | NM | NA | ||||||||||||
Carbon Risk / vulnerability (coverage) | 98% | NA | NM | NA |
NA – not applicable
NM – not measured
pp - percentage points
1 | In 2019 we defined the focus of the categories as part of Aegon’s Charitable Donations Standards and in 2020 we have started to measure and report against these. |
2 | Number of hours spent by Aegon employees volunteering on local community projects during the year. COVID-19 social distancing requirements limited volunteering opportunities in 2020. |
3 | Responsible Investment Solutions (RIS) are investment strategies that go beyond ESG integration to pursue competitive financial returns by incorporating specific ESG or sustainability criteria. In 2019, Aegon AM formalized its responsible investment principles and developed a common terminology. AM’s responsible investment solutions span four key categories: exclusions, best-in-class, sustainability-themed and impact investments. This AuM reporting methodology was updated in 2019 and is reflected in the data shown on this page. |
4 | Please note, there is often no direct correlation between tax reported on earnings for any given year and amounts paid or received in tax. Part of the explanation for this is that certain tax-deductible items are not recognized in the Company’s profit & loss statement but directly in equity. Additionally payments and refunds for prior years can impact the amounts paid or received in the current year. The US corporate income tax refund is related to refundable minimum tax credits generated in prior years. Furthermore, the 2020 US tax liability will be satisfied entirely by losses carryforwards and tax credits, including low income housing tax credits. |
5 | GHG emissions have been calculated based on energy consumption and air travel for the US, the UK and the Netherlands, and extraolated to cover the headcount of our remaining in-scope business units. Under the market-based calculation methodology prescribed by the Greenhouse Gas Protocol, electricity consumption in the US has been accounted as zero-carbon through the purchase of Renewable Energy Certificates (RECs). A significant proportion of electricity consumed in the UK and the Netherlands is procured on a ‘green tariff’ basis which has also been accounted as zero-carbon. Aegon’s operations in US, UK and the Netherlands have been carbon neutral since August 2016 through offsetting our remaining market-based GHG emissions by supporting projects in Brazil, China and Turkey. These offset projects were selected in partnership with ClimateCare. |
6 | Measurements for previous years not comparable due to change in scope; see Integrated Annual Report 2019 for details of historical measurement. |
7 | Aegon calculation. Values as of 31 December 2020. Climate metrics calculated per Methodology section below. Relative intensity, weighted average carbon intensity and carbon risk values have been adjusted to account for variance in coverage. Climate change data availability may change over time and characteristics will vary. Certain information ©2021 Sustainalytics, MSCI ESG Research L.L.C. and Bloomberg Finance L.P. Reproduced with permission. Not for further distribution. |
8 | Aegon calculation. Values as of 31 December 2020. Climate metrics calculated per Methodology section below. Relative intensity, weighted average carbon intensity and carbon vulnerability values have been adjusted to account for variance in coverage. Climate change data availability may change over time and characteristics will vary. |
Aegon Annual Report on Form 20-F 2020 |
Basis of preparation | 411 | |||||
Frameworks
Aegon’s aim in producing this report is to provide a balanced overview of the Company’s operations, strategy and performance, as well as our approach to long-term value creation (both financial and non-financial) for our key stakeholder groups. To these ends, this constitutes an integrated report, and has been prepared in accordance with the standards of the International Integrated Reporting Council (IIRC) Integrated Reporting Framework.
Aegon supports the objectives of the Global Reporting Initiative (GRI) standards and we continue to use those in defining our non-financial reporting at a granular level.
We are also integrating the Task force on Climate-related Financial Disclosures (TCFD) reporting framework herein.
The basis of preparation for the financial information can be found in note 2 Significant accounting policies on page 155.
Content and approval
Non-financial content is based on aggregated data collected and reported by Aegon businesses. Content is reviewed by subject matter experts at Corporate Center, as well as the Company’s Management and Supervisory Boards before publication.
Aegon has not sought external assurance for the non-financial information in this report. This is to allow for further progression in the enhancement of our non-financial data collection and reporting processes.
Reporting scope and boundaries
Non-financial data in this report covers the full-year 2020 (January-December), unless otherwise stated. All necessary notes, explanations and definitions are provided in the text or accompanying tables. The scope of our non-financial reporting is determined by two factors:
1. The relative size of our businesses and;
2. The potential impact on overall Group performance or strategy.
Consequently, we focus reporting on our four largest operating segments (Americas, the Netherlands, UK and Asset Management), and include other fully-owned businesses as practicable. We have not included divested businesses, as well as all joint ventures and associates in which Aegon does not have a majority shareholding. For a more detailed overview, see page 413.
Aegon reports impact on both its business and its immediate stakeholders (customers, employees, business partners and investors). Where possible, the Company also includes secondary impacts on society, for example local economies, communities and public services.
Materiality principle
Aegon applies the principle of materiality to determine the content and scope of its integrated Annual Report. For non-financial data, the report focuses on information elated to topics the Company believes have, or will have, a significant long-term impact on its profitability, operations or reputation (i.e. the prospects for successful and continued long-term value creation). The principle of materiality applies to both Aegon’s own businesses and to the Company’s relations with its main stakeholders (see Reporting scope by operating segment, page 413). In determining materiality, Aegon takes into account numerous, wide-ranging factors which may affect our value creation, and as such our long-term growth and returns to investors. This includes potential risks, impact on earnings, brand, reputation, strategy, customer loyalty and recruitment.
Material topics are identified through Aegon’s ‘Business Environment Scan’ (BES) process, the aim of which is to identify topics, including opportunities and new and developing challenges, which could have significant impact on value creation and Aegon’s financial strength, competitive position or reputation. The scan provides for continued refinement of Aegon’s assessment of movement in the opportunities and challenges of the macro-economic environment as they present to the specifics of our business operations.
The BES is performed on a two-yearly basis with annual updates for significant changes. Topic identification, mapping and selection are based on desk research, interviews with experts and management judgment.
Aegon Annual Report on Form 20-F 2020 |
Basis of preparation | 412 | |||||
The findings from our BES process are used not only in defining materiality for our non-financial reporting, but also for the ongoing development of our business strategy. Particular outcomes from the process may be flagged for dedicated follow-up, targeted analysis or enhanced tracking on a global basis.
The following eight topics were rated as most material by significance of their impact and opportunity, and their potential liklihood:
1. Data protection and information security
2. Customer propositions & technological innovation
3. Reputation
4. Low rates, low economic growth and high debts
5. Pandemic
6. People skills
7. Trade wars, regionalization and protectionism
8. Climate change and loss of biodiversity
Global non-financial indicators
Our strategy aims to build life-long relationships with customers to provide financial security and well-being to and through retirement. Our strategy helps us address the material topics that are important to our customers, employees, investors and other stakeholders; this strategy will also strengthen our ability to create long-term value. Aegon has selected six global non-financial indicators; these will be used to assess progress against specific aspects of the Company’s strategy (see page 22).
Additional non-financial data
In addition to the data in this report, Aegon collects other non-financial data. This includes data on working conditions, use of social media in customer support, consumption of energy and greenhouse gas emissions etc. Further details may be found on the Company’s website (aegon.com).
Aegon Asset Management also publishes an annual Responsible Investment report, last published in May 2020 and available at aegon.com.
Indicators | Definition | |||
NPS coverage | Customer centricity | NPS coverage refers to the percentage of customer base where we receive feedback from our customers through relational NPS surveys. Subsequently, we use relational NPS metrics for steering purposes. | ||
Number of customers | Growth, customer centricity | Customers are those with individual, group or corporate policies. We also include those participating in pension plans controlled by trustees or who have white label products serviced by Aegon or Transamerica. There may be some duplications in markets where we operate under more than one brand. Customers of our joint ventures are included on a 100% basis. | ||
Number of new customers | Growth, customer centricity | New customers are those who acquired a product or service during the reporting period (and who were not previously customers of the Company). There may be some duplications in markets where we operate under more than one brand. Customers of our joint ventures are included on a 100% basis. | ||
Number of customers with two or more products (as % of total number of customers) | Life-cycle approach | These are customers who hold two or more products or policies with the Company; examples include life insurance policies, savings accounts, mortgages, deposits in investment funds, or participation in a corporate pension plan etc. (divided by the total number of customers). There may be some duplications in markets where we operate under more than one brand. Customers of our joint ventures are included on a 100% basis. | ||
Number of digitally connected customers (as % of total number of customers) | Digitization, customer centricity | Total number of customers who have registered and created an online account with Aegon, and have logged in to this account at least once (divided by the total number of customers). | ||
Employee engagement score | Customer centricity (increased employee engagement leading to better customer service and higher customer retention) | Based on Aegon’s annual employee survey. Engagement is defined as ‘the level of connection, motivation and commitment a person feels for the place they work’. Aegon uses four dimensions to determine employee engagement: • I see myself still working at this company in two years’ time. • I am proud to work for this company. • The company motivates me to go beyond expectations. • I would recommend this company as a great place to work. All employees, including those in joint ventures, participate on a voluntary basis. New hires (less than 3 months employed) do not participate. Although the majority of employee data is processed centrally, some data is still processed in local HR systems and may be subject to a different level of certainty with regard to completeness. In 2019, contractors as participants were exceptionally allowed for one business unit (0.3% of all participants), however, these were excluded again for 2020. |
Aegon Annual Report on Form 20-F |
Reporting scope by stakeholder group
Indicator | Operating segment | |||||||||||
Americas | Netherlands | United Kingdom | International | Asset Management | Holding and others | |||||||
Customers | ||||||||||||
Number of customers | ||||||||||||
Number of new customers | ||||||||||||
Number of customers with two or more products | ||||||||||||
Net Promoter Score (NPS) | ||||||||||||
Customer complaints | ||||||||||||
Significant fines to address cases of mis-selling | ||||||||||||
Claims, benefits and plan withdrawals | ||||||||||||
Employees | ||||||||||||
Number of employees | ||||||||||||
New hires | ||||||||||||
Turnover | ||||||||||||
Absenteeism | ||||||||||||
Work-related injuries and illnesses | ||||||||||||
% of women in workforce and senior management | ||||||||||||
Employee engagement score | ||||||||||||
Employments costs | ||||||||||||
Ratio of median to CEO salary | ||||||||||||
Spend on training and career development | ||||||||||||
Business partners | ||||||||||||
Commissions paid to brokers and other intermediaries | ||||||||||||
Premiums paid to reinsurers | ||||||||||||
Spend on goods and services | ||||||||||||
Supplier assessment for environment, social and governance (ESG) performance | ||||||||||||
Incidents / attempts of fraud by employees, intermediaries and third parties | ||||||||||||
Investors | ||||||||||||
Returns to investors | ||||||||||||
Dividend payments due/share | ||||||||||||
Share price | ||||||||||||
Total shareholder return | ||||||||||||
Society | ||||||||||||
Community investment (cash donations and volunteering) | ||||||||||||
Responsible investment solutions (RIS) and active engagement | ||||||||||||
Taxes (borne and collected) | ||||||||||||
Energy consumption and business air travel | ||||||||||||
Greenhouse gas (GHG) emissions (operations) | ||||||||||||
Carbon footprint (investment portfolio) | ||||||||||||
Aegon Annual Report on Form 20-F 2020 |
Reference tables and reporting frameworks | 414 | |||||
International Integrated Reporting Council (IIRC) framework
Table below shows Aegon’s compliance with the IIRC’s Integrated Reporting (IR) framework.
For more information, see www.integratedreporting.org.
Disclosure | Topic | Page reference¹ (or details of omissions if applicable) | ||
Guiding principles | Strategic focus and future orientation | COVID-19 (page 8) | ||
Business Environment Scan (page 16) | ||||
Aegon’s strategy (page 19); Responsible business (page 24) and Responsible investment (page 31) | ||||
Long-term value for our stakeholders (page 34) | ||||
Connectivity of information | We identify our material topics (page 16) through our biennial Business Environment Scan. These topics are linked directly to risks and opportunities, which are consider for both Aegon’s strategy (page 19) and approach to Responsible business (page 24). These choices in resource allocation in turn have an impact on the Long-term value for our stakeholders (page 34). | |||
Stakeholder relationships | Long-term value for our stakeholders (page 34) | |||
Materiality | Business Environment Scan (page 16) | |||
Basis of preparation – Materiality principle (page 411) | ||||
Conciseness | Pages 1-45 are structured around our material topics, the risks, opportunities, strategy, as well as performance and value associated with these; we have also applied the materiality principle to content (page 411) | |||
Reliability and completeness | Basis of preparation – Content and approval (page 411) | |||
Independent auditor’s report (page 338) | ||||
Consistency and comparability | This Report is prepared in accordance with IFRS standards, as adopted by the European Union, as well as the IIRC framework. We have used the IIRC framework since 2014; this is Aegon’s third fully combined Annual Report, but its tenth integrated report. For this Report, while we keep in spirit with the Global Reporting Initiative framework, we are no longer reporting against it. We are making the shift to integrating more material frameworks; like that of the Task Force on Climate-related Financial Disclosures (page 415). | |||
Content elements | Organizational overview and external environment | Aegon: A leading provider of financial solutions (page 11) | ||
Aegon’s business environment (page 13) | ||||
Business Environment Scan (page 16) | ||||
Governance | Corporate governance (page 48) | |||
Business model | Value creation (page 35) | |||
Risk and opportunities | Aegon’s business environment (page 13) | |||
Business Environment Scan (page 16) | ||||
Strategy and resource allocation | Aegon’s strategy (page 19) | |||
Long-term value for our stakeholders (page 34) | ||||
Performance | Performance in 2020 (page 22) | |||
Outlook | COVID-19 (page 8) | |||
Performance in 2020 (page 22) | ||||
Basis of preparation and presentation | Basis of preparation (page 411) | |||
Additional note | Financial | Value creation (page 35) | ||
on IR capitals | Human | Value creation (page 35) | ||
Intellectual | Value creation (page 35) | |||
Manufactured | Value creation – Explanatory note (page 35) | |||
Social & relationship | Value creation (page 35) | |||
Natural | Value creation – Explanatory note (page 35) |
1 | All page numbers in this table refer to Aegon’s 2020 Annual Report on Form 20-F, unless otherwise stated. Where there are several examples, we have included principal references only. |
Aegon Annual Report on Form 20-F 2020 |
Reference tables and reporting frameworks | 415 | |||||
EU Directive on Non-Financial Information
The table below shows compliance with EU Directive 2014/95/EU on non-financial reporting. All companies with 500 employees or more are required to publish non-financial information “to the extent necessary for an understanding of the (Company’s)
development, performance, position and impact of its activity relating to, as a minimum, environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters”.
EU Directive requirement | Page reference | Equivalent requirement under Dutch law1 | ||
Article 3.1.a Brief description of company’s business model | Our Business Model (page 35) | Decree non-financial information (article 3.1.a) | ||
Article 3.1.b(i) Description of the policies relating to: | Decree non-financial information (article 3.1.b) | |||
Environmental, social and employee matters (including due diligence processes implemented) | Non-financial policies, procedures and outcomes (page 87) | |||
The outcome of these policies. | Long-term value for our stakeholders (pages 34-45) includes an in-depth description of environmental, social employee outcomes by stakeholder group. | |||
Note: Non-financial data tables (pages 406-410) also include information on outcomes relating to environmental, social and employee matters. | ||||
Article 3.1.b(ii) Description of the policies relating to: | Decree non-financial information (article 3.1.b) | |||
Respect for human rights | Non-financial policies, procedures and outcomes (page 87) | |||
The outcome of these policies. | Long-term value for our stakeholders (page 34-45) includes an in-depth description of human rights outcomes by stakeholder group. | |||
Article 3.1.c(iii) Description of the principal risks with regard to Article 3.1.b(i-iii) namely: | Decree non-financial information (article 3.1.c) | |||
environmental, social and employee matters, | Risk management (page 111) Risk factors (pages 370-392) | |||
respect for human rights, and; | ||||
fight against corruption and bribery, and how these risks are managed. | Note: Aegon’s strategy (page 19) and Responsible business (pages 24-30)describe in detail our approach to managing the risks and opportunitiesassociated with our most important environmental, social and employeesmatters. Further, Our business environment (pages 13-18) covers relatedchallenges from an over-arching macro-economic context. | |||
Article 3.1.d | Decree non-financial information (article 3.1.d) | |||
Non-financial key performance indicators | Performance highlights (page 10) Performance in 2020 (page 22) Non-financial policies, procedures and outcomes (page 87) | |||
Note: Non-financial data (page 406) also includes information on environmental, social and employee matters |
1 | The EU Directive was transposed into Dutch law through two decrees relating respectively to non-financial information and diversity policy (Bekendmaking niet-financiële informatie /Bekendmaking diversiteitsbeleid). |
Task Force on Climate-related Financial Disclosures (TCFD)
Introduction
Climate change represents one of the biggest risks for society, the economy and financial institutions. Mitigating climate change, including the reduction of greenhouse gas (GHG) emissions, is a major global challenge. Aegon believes that governments, companies, and investors have a responsibility to mitigate climate change and its impacts, and facilitate a transition to a climate-resilient economy.
The present disclosure builds on earlier disclosures made since 2017. It is made on behalf of Aegon N.V., a global leader in investment, protection, and retirement solutions, as both an asset owner and an asset manager.
Similar to previous years, it follows the Task Force on Climate-related Financial Disclosure’s (TCFD) four-pillar framework to facilitate disclosure. Aegon strives to continuously enhance its reporting and business practices and welcomes feedback from stakeholders on the appropriateness and relevance of this disclosure.
Governance
Global governance for responsible business and investment topics is coordinated by the Responsible Business and Investment Committee (RBIC). The RBIC meets quarterly to review and discuss topics of importance to Aegon as a whole – including climate change. The RBIC advises the Executive Board and Management Board. It is chaired by the CEO of Aegon Americas
Aegon Annual Report on Form 20-F 2020 |
Reference tables and reporting frameworks | 416 | |||||
(who is also a member of Aegon’s Management Board) and consists of senior-level representatives from across the business.
The Climate Change Working Group (CCWG), a working group of the RBIC, continues to be the primary body responsible for assessing and monitoring climate-related issues within Aegon. The CCWG is tasked with evaluating new climate developments affecting investment, insurance, and our other business activities, and recommending further action when necessary.
The CCWG meets at least quarterly. It is chaired by a member of Aegon Asset Management’s Responsible Investment team and comprises representatives from different functional areas across the Company, including investment portfolio risk management, operational and underwriting risk management, investment analysis, corporate strategy and sustainability, public affairs, and responsible investment.
Climate-related issues assessed as relevant or material by the CCWG are presented to the RBIC through regular reporting. The CCWG also coordinates specific climate-related insight and analysis for the RBIC, including understanding the carbon footprint of investments and providing expert subject matter review of the Aegon N.V. Responsible Investment Policy.
Strategy
Aegon is committed to a responsible way of doing business and seeks to meet the increasing expectations of multiple stakeholders – investors, but also customers, employees, business partners and the wider community. Our Responsible Business vision is to provide financial security and well-being for individuals: a thoughtful approach to secure retirement and healthy aging in our society, and make a lasting contribution to a healthy environment.
Risks
Aegon undertakes a biennial Business Environment Scan to identify macro-economic opportunities and challenges expected to be of high likelihood of occurring and high impact to our business. For 2020 the scan included consideration of climate change and the loss of biodiversity. While direct physical risks from environmental catastrophes and loss of biodiversity to Aegon are expected to be limited, we expect to be exposed to regulatory risks associated with new and emerging market requirements. As a result, we seek to further embed climate and environmental considerations into our business and investment decisions – both to avoid damaging the planet and to safeguard our reputation. See the Business Environment Scan itself for further discussion.
For our life insurance business, most of our liabilities are exposed to mortality and morbidity rates, both the current levels and the uncertainty around how they will develop over the coming decades. An important driver when assessing the value of our liabilities is how past increases in longevity are extrapolated into the future. Climate change will play a role in this, however there
are many other factors that are expected to be more immediately influential, for example: the current COVID-19 pandemic, medical advancements, limits to human biology and changes in lifestyle. It should also be noted that the relationship between mortality and morbidity and climate change is complex, and the direction of the impact can also vary geographically. Furthermore, it is also expected that climate change will have a relatively lower impact on longevity and health of the insured population compared to the general population, as this group is more affluent and is more likely to be able to better adapt to changing conditions. Taking all this into consideration, Aegon follows widely adopted industry methods where the extrapolation of future longevity is performed solely based on past experiences of mortality and morbidity rates, without separately modelling each of the underlying drivers like climate change.
In contrast, our investments are exposed to both physical and transition risks. While we expect the transition risks associated with policy and market actions intended to mitigate climate change to be most salient in the near term, the value of our holdings can reasonably be expected to be influenced by both over time. However, previous scenario analysis has shown that our relatively high allocation to fixed income, including government bonds, should limit our overall exposure.
For our property and casualty (P&C) business, we expect a more direct impact from climate change through, for example, higher claim frequencies arising from an increase in extreme weather events. However, prices for P&C insurance are set in advance for much shorter periods than for life insurance. Prices are determined by closely monitoring past claim frequencies and adjusting the premiums over time while maintaining an adequate level of expected profitability. As a result, it can be reasonably expected that climate change impacts will be gradually considered and reflected in adjusted premiums as the physical consequences of an increase in global temperatures become apparent.
Case study: Climate risk in the Dutch General Account
Aegon Netherlands performed an assessment on the impact of climate change on the General Account asset values and the increase and timing of life and non-life insurance claims. The assessment distinguished between physical risks that arise from more frequent and severe climate events and transitional risks that stem from the process of societal and governmental adjustment towards a net zero carbon economy. In terms of physical risk, while the majority of Aegon Netherlands’ investments are in Western Europe and the US – two regions less vulnerable to the impact from physical climate risk – significant mortgage and real estate holdings in the Netherlands does increase the overall exposure to flood risk. While exposure to transition risk is in part determined by the extent to which investments are made in energy intensive sectors such as energy or industry, it is also reasonable to expect some transition risk from non-sustainable real estate exposure – including mortgages. It is the Dutch government’s ambition to improve the sustainability of the local housing stock by encouraging all
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Reference tables and reporting frameworks | 417 | |||||
buildings achieve an ‘A’ energy label by 2030. If the government decides to expedite implementation of supporting legislation, this could potentially result in lower rated real estate losing market value, thereby increasing the risk associated with a large mortgage portfolio.
Opportunities
As an investor, Aegon has an important role to play in supporting the climate transition. By making climate-smart investment choices, Aegon can contribute to a cleaner, healthier environment as well as provide our clients with opportunities to minimize their own climate impacts. Climate change continues to be a focus of Aegon’s investment strategy and is guided by our Responsible Investment Policy.
Case study: Aegon UK Net Zero Commitment
In early 2021, Aegon UK publicly committed to achieving net zero carbon emissions in their default solutions by 2050 with the aim of exploring the feasibility of reducing them by half by 2030. As a workplace pension provider, Aegon UK is seeking to take a more active position in addressing climate change while supporting the UK Government’s own 2050 net zero ambition. To get started on meeting the commitment, Aegon UK has begun working with HSBC Global Asset Management on the creation of solutions that invest in businesses with strong ESG characteristics. The investment philosophy core to these solutions are the “three t’s” which are embedded into the stock selection process. The three t’s focus on the targets the chosen ESG index (FTSE Developed ESG Low Carbon Emissions Select Index) has in regard to the parent index. The three targets are: a 20% improvement in ESG rating; a 50% reduction in carbon emissions intensity; and a 50% reduction in fossil fuel reserves intensity. The process also includes a number of exclusions, including specific thermal coal-based exclusions.
Case study: Aegon Asset Management Ethical Equity
Launched in 1989, the Aegon Ethical Equity fund is one of the oldest and largest ESG investment offerings in the UK market. The fund is a concentrated portfolio (currently 63 holdings) of UK stocks that excludes companies engaged in unethical activities and integrates ESG considerations in bottom-up analysis. In order to ensure that the ethical exclusions remain appropriate to meet client objectives, the management team formally reviews the ethical criteria every two years through feedback from investors and their advisers. As a result of the last client survey in 2019, the move was made to exclude all firms involved in activities commonly held to be environmentally unsound, in breach of internationally recognized conventions on biodiversity, or in energy intensive industries not tackling climate change – effectively excluding fossil fuel companies from the investible universe of the fund. Although the strategy does not employ an explicit thematic approach to investment selection outside of the pre-defined ethical exclusions, climate change is naturally an important factor for many of the companies considered. Current climate-related investments include companies involved in renewable
energy, social and environmental infrastructure, and sustainable materials.
Case study: ABN AMRO Aegon Global Impact Equities
The ABN AMRO Aegon Global Impact Equities fund offers a focused portfolio of 40-80 high quality companies with the intent to contribute to measurable positive social and environmental impact alongside financial returns. The portfolio invests in listed companies globally, including in emerging markets and across sectors. The investment process combines top-down quantitative elements with bottom-up research, including impact assessments and ESG research. The fund deploys an investment approach combining exclusions, positive screening and impact investing. Detailed net impact analysis is undertaken as part of the stock picking process, which aims to identify and invest in companies providing products and services that capitalize on long-term sustainability trends. Climate change is naturally a crucial factor for many of the companies considered; global emissions must quickly decline for the world to stay below its Paris Agreement limits, which will create risks for some companies but opportunities for others. Current climate-related investments include companies involved in renewable energy production and its supply chain, sustainable manufacturing technologies, energy efficiency, building insulation, and the circular economy.
Risk Management
Identification and Management
Climate change is a long-term risk associated with high uncertainty regarding timing, scope and severity of potential impacts. 2020 saw no material changes to the overall climate risk identification, assessment and evaluation processes described in previous years’ disclosures.
Case study: Climate Scenarios in ORSA
In anticipation of future regulation, representatives from the Climate Change Working Group worked with the Risk function to revise and improve a climate change chapter for the Aegon N.V. 2020 Own Risk and Solvency Assessment (ORSA). In addition to refreshing the content to reflect the latest developments in climate science and regulation, we also undertook an initial look at the potential financial impact of climate scenarios on our investment portfolios. While the specific numerical results quickly illustrated that further investigation and refinement of macroeconomic and portfolio scenario data is required, the overall outcome was encouraging and demonstrated that existing financial risk management processes and tools were fit to analyze climate risk.
Active Ownership
Engagement with Corporates
As an institutional investor, Aegon expects investee companies to work towards reducing their environmental impact. Aegon engages with the companies it invests in both individually and collectively through networks to encourage better climate-related
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Reference tables and reporting frameworks | 418 | |||||
risk practices, including emissions measurement, disclosure, target setting and reporting in line with TCFD recommendations.
Aegon and Aegon Group companies are active members or participants in several collaborative initiatives targeting climate action, including but not limited to: Principles for Responsible Investment (PRI), the lnstitutional lnvestors Group on Climate Change (IIGCC), Climate Action 100+ (CA100+), the ShareAction Investor Decarbonization lnitiative, and CDP.
For further details on Aegon’s active ownership activities, see the Aegon Asset Management Responsible Investment and Active Ownership reports.
Case study: Climate-aligned voting
In their report Voting Matters 2020, responsible investment NGO ShareAction analyzed a sample of proxy voting behavior of the world’s largest asset managers in the period from September 2019 to August 2020. The report highlighted the commitment to climate-aligned voting by Aegon Asset Management in the Netherlands on behalf of its clients as one of only three asset managers to vote 100% in favor of climate action-oriented shareholder resolutions. This is illustrative of Aegon’s overall commitment to climate action, recognizing both the need for strong concerted action to address the climatet crisis as well as the multiple approaches available for Investors to affect change.
Engagement with Policymakers
Aegon acknowledges the importance and necessity of government action in addressing climate change. Engagement with policymakers is critical to shaping Aegon’s investment environment, and Aegon works independently and in collaboration with industry groups to engage on key climate issues.
At the European level, Aegon supports the goals of the European Commission’s Action Plan on Financing Sustainable Growth and recognizes the important role that financial actors play in the transition to a low-carbon economy. Both individually and through trade groups, Aegon’s Government and Policy Affairs team and climate experts have engaged with officials and contributed to consultations on the corresponding sustainable taxonomy and ESG disclosure regulations, the incorporation of sustainability risks into the Solvency II regulatory regime, and the development of standards for the reporting of non-financial information. Aegon has also continued to advocate for action to complete the Capital Markets Union to unlock capital from institutional and cross-border investors to fund sustainable transition projects in Europe.
Metrics and Targets
Own Operations
Aegon measures and reports annually on its operational carbon footprint. Our main operations (US, Netherlands, UK and Asset Management) have been carbon neutral since 2016 by reducing their facility-level emissions and supporting offset projects in cooperation with the NGO ClimateCare. In 2019, we extended
the scope of our offsetting to cover all of our wholly-owned operations. An overview of our total operational emissions can be found in the non-financial data tables (pages 406-410).
Case study: Aegon Netherlands targets
In line with obligations under the Dutch National Climate Agreement and the Spitsbergen Ambition, Aegon Netherlands is focusing efforts on measuring and reducing the greenhouse gas emissions associated with its business activities. Our operations in the Netherlands have set themselves a target of reducing the per-employee CO2 emissions by at least 50% by 2030 against 2018 levels. We aim to achieve this via multiple measures including improving the energy efficiency of our buildings, making greater use of technology to reduce business travel, and providing employees with more sustainable commuting options.
Investments and Holdings
In 2018 we began to measure and report on the carbon footprint of our Investments, With a focus on our proprietary Investment portfolio in the Netherlands. New for 2020 is the first measurement of our global General Account holdings.
The figures are representative of the largest asset classes in our global General Account: corporate and sovereign bonds. As a globally diverse investor, the climate impact of our asset mix largely mirrors the regional economies where our business units operate. Business units may provide additional climate disclosure in line with local commitments, requirements and/ or regulations.
Global General Account - Holdings by Asset Class
Global general account by asset class
(in %)
Source: Aegon calculation. Values as of 31 December 2020.
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Corporate Fixed Income
Global General Account – Corporate Fixed Income
Corporate Fl | Coverage | |||||||||
Absolute footprint | tCO2e | 4,878,000 | 77% | |||||||
Relative intensity | tCO2e/EURm invested | 110 | 77% | |||||||
Weighted average carbon intensity | tCO2e/EURm revenue | 430 | 84% | |||||||
Carbon Risk Rating | Sustainalytics rating | 9.4 | 63% |
Source: Aegon calculation. Values as of 31 December 2020. Climate metrics calculated per Methodology section below. Relative intensity, weighted average carbon intensity, and carbon risk values have been adjusted to account for variance in coverage. Climate change data availability may change over time and characteristics will vary. Certain information ©2021 Sustainalytics, MSCI ESG Research L.L.C. and Bloomberg Finance L.P. Reproduced with permission. Not for further distribution.
Corporate fixed income results are dominated by holdings in the utilities, energy, and materials sectors where their contribution to the footprint and intensity of the account greatly
outweighs their financial position. The chart below provides an indication of active weight by sector against both the absolute footprint and weighted average carbon intensity (WACI)
Global General Account - Corporate Fixed Income Detail
Active contribution by sector
(in%)
Sovereign Fixed Income
Global General Account - Sovereign Fixed Income
Corporate Fl | Coverage | |||||||||
Absolute footprint | tCO2e | 13.863,000 | 98% | |||||||
Relative intensity | tCO2e/EURm invested | 500 | 98% | |||||||
Weighted average carbon intensity | tCO2e/EURm GDP | 330 | 98% | |||||||
Carbon vulnerability | ND GAIN rating | 67 | 98% |
Source: Aegon calculation. Values as of 31 December 2020. Climate metrics calculated per Methodology section below. Relative intensity, weighted average carbon intensity and carbon vulnerability values have been adjusted to account for variance in coverage. Climate change data availability may change over time and characteristics will vary.
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While our largest sovereign holdings are in US and EU member state issued bonds, the results are dominated by holdings from other countries, including emerging markets, where their contribution to the footprint and intensity of the account greatly
outweighs their financial position. The chart below provides an indication of active weight by sector against both the absolute footprint and weighted average carbon intensity (WACI).
Global General Account – Sovereign Fixed Income Detail
Active contribution by region
(In%)
Methodology
Corporate fixed income metrics were calculated following the Partnership for Carbon Accounting Financials (PCAF) guidelines and include scope 1 and 2 emissions. For sovereign assets, Aegon follows a “whole economy” approach based on country-level emissions and GDP. Weighted Average Carbon Intensity (WACI) was calculated in line with TCFD recommendations. Carbon Risk for corporate issues is measured using Sustainalytics Carbon Risk Rating, while climate vulnerability for sovereign issues is measured using the Notre Dame Global Adaptation Initiative (ND-GAIN) Country Index.
Carbon footprint metrics are useful for better understanding existing exposure to direct carbon emissions; however, they are only snapshots of performance at a single (past) point in time, and the size of footprint is not necessarily representative of current or future investment risk. Unfortunately, they do not directly capture other climate considerations such as transition or physical risk nor how prepared an issuer may be for the transition to a net zero carbon economy. Reductions in carbon
footprint or carbon intensity of an investment portfolio may be achieved simply by re-allocating capital to sectors with less direct climate impact – which would not result in any real overall carbon reduction. Furthermore, while exclusionary approaches may be appropriate for activities with no role in a net-zero carbon economy (e.g. thermal coal, oil sands) or as part of specific investment strategies, depriving certain carbon-intensive sectors of capital could limit their ability to reduce emissions – which could be especially harmful to those sectors expected to play a critical role into the future (e.g. steel, cement).
Next Steps
Aegon will seek to continue to improve its climate change strategy, governance, and approach to risk and opportunity measurement and implementation in the coming years. As the Company’s experience with climate issues grows, Aegon will look to increase the breadth of disclosures and further incorporate climate considerations across our business as appropriate.
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UN Principles for Sustainable Insurance (PSI)
As a signatory, Aegon annually reports on actions taken to
implement the PSI’s four principles:
Principles | Actions taken (2020) | |||
1. | We will embed in our decision-making environmental, social and governance (ESG) issues relevant to the insurance business. | ESG is integrated in how we operate. Aegon has its Responsible Business and Investment Committee, consisting of relevant Management Board members, Chief Investment Officers and senior management. They discuss ESG matters related to the business and investing on a quarterly basis, and provide advice to Aegon’s Executive Board. Additionally, as per our Executive Board’s Remuneration Policy, 50% of a member’s variable compensation is related to non-financial performance indicators, of which at least one must be ESG-related and clearly support the wider interests of society. New as of January 1, 2021, is the Global Head of Corporate Sustainability function, which was created to further embed ESG into how Aegon operates. | ||
Our public ESG policies and frameworks are available at aegon.com. In 2020, Aegon made a concerted effort to update the Human Rights Statement and the Vendor Code of Conduct, to reflect current best practice. | ||||
ESG risks are covered by Aegon’s risk universe and in 2020 climate risk was more explicitly recognized in the risk universe, given its increasing relevance and the need to manage the impact on Aegon’s risk profile. Risk management regularly interacts and cooperates on ESG risks, including climate risk, with the Global Corporate Sustainability Team reporting into the CEO and the Climate Change Working Group (CCWG) of the Responsible Business and Investment Committee chaired by a member of Aegon’s Management Board. This is covered in more detail in the Responsible Business section and the Task Force on Climate-related Financial Disclosures (TCFD) section of this report. Of note for 2020 were the recognition of climate change and loss of biodiversity as material topics in the Aegon Business Environment Scan. | ||||
Through our products we offer financial solutions for vulnerable groups in, for example, insurance for people living with HIV in Brazil. We are also working towards more inclusive products via our Qualitative to Quantitative (Q2Q) pilot, which should vastly reduce human bias. From an investment perspective, ESG integration and active ownership are principles we follow across all decisions and portfolios. Aegon Asset Management is a signatory to the Principles for Responsible Investment. | ||||
For more information, please see: | ||||
Business Environment Scan – page 16; Responsible business at Aegon – page 24; Non-financial policies, procedures and outcomes – page 87; Enterprise Risk Management (ERM) framework – page 111; Task Force on Climate-related Financial Disclosures – page 415. | ||||
2. | We will work together with our clients and business partners to raise awareness of ESG issues, manage risk and develop solutions. | For clients, guided by our overarching Responsible Investment Policy, Aegon Asset Management (AAM) has established a Responsible Investment Framework that reflects these key elements including similar policies put forward by AAM’s clients. Our Responsible Investment Framework is structured as follows: | ||
1. ESG integration – Material ESG factors are fundamental to our investment decision-making across all AAM portfolios. By integrating ESG considerations into traditional financial analysis, the AAM research team arrives at an independent view of an issuer’s fundamentals. | ||||
2. Active ownership – We actively engage with investee companies across a wide range of industries to improve their ESG profile and address sustainability issues, often in cooperation with other investors to maximize our influence. We also exercise any shareholder voting rights we have to support our engagement efforts and enhance long-term value creation for all stakeholders. | ||||
3. Solutions – AAM provides a range of responsible investment solutions to pursue ESG objectives alongside financial returns. These solutions are categorized into four types: exclusion-based strategies, best-in-class strategies, sustainability-themed strategies, and impact investments. | ||||
For vendors, in 2020, we replaced Aegon’s previous Sustainable Procurement Policy with a new Vendor Code of Conduct, which sets out the minimum standards our partners must commit to. This document reflects the consistent approach to responsible business that we aim to foster throughout our organization. | ||||
We have started using SAP Ariba, a vendor lifecycle management platform for registering third parties and monitoring them through data feeds. Moreover, Aegon is an early adopter of Ariba Risk Management technology, which supports our third party risk management processes and enables us to invite vendors to contribute to a risk assessment directly from the Ariba system. |
CONTINUED >
All page numbers in this table refer to Aegon’s 2020 Annual Report on Form 20-F, unless otherwise stated.
Where there are several examples, we have included principal references only.
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In addition, Aegon now works with an external assessment company, EcoVadis, that evaluates the ESG risks involved in our partnerships with suppliers. The EcoVadis assessment categories are aligned with the standards laid out in our Vendor Code of Conduct, including key topics such as a supplier’s environmental policies and their labor, human rights, and ethics record. The EcoVadis results can be integrated into our Ariba platform, creating greater oversight of a vendor’s ESG credentials. This partnership allows us to take a more proactive approach to responsible business. Should the external assessment reveal that a partner falls short of our expectations, we can work with them on corrective actions. We believe that this new system for risk management gives us more comprehensive oversight of our partners’ ESG policies, actions, and results. We are now better able to choose suppliers we can trust, and thus to be a good corporate citizen, creating sustainable value for the societies we operate in. In 2020, we decided that we would assess our top 250 vendors by spend (representing 80% of Aegon’s total procurement spend). | ||||
For more information, please see: Responsible investment – page 31; Responsible procurement – page 42. | ||||
3. | We will work together with governments, regulators and other key stakeholders to promote widespread action across society on ESG issues. | Aegon has a dedicated Global Government & Public Affairs department, whose aim is to support regulators and lawmakers. We advocate worldwide for people to have access to insurance and financial services, for people to be aware of opportunities for flexible employment in old age and for governments to plan and provide for their citizens in an age of increasing longevity. Aegon also encourages financial literacy around the world and engages with individuals and policymakers in service of helping people to achieve wealth and health wherever we can. Aegon is active in many international projects that aim to fulfill this goal; for example, an Organisation for Economic Cooperation and Development (OECD) working group on the future of work, and the Living, Learning, and Earning Longer initiative led by the World Economic Forum (WEF), the OECD, and US-based retirement interest group AARP. Within Aegon, our Silver Starters program (developed jointly with the Leyden Academy on Vitality and Ageing) provides online entrepreneurship coaching to over- 50s, to promote lifelong learning and healthy attitudes to aging. | ||
For more information, please see: Society – page 27 | ||||
4. | We will demonstrate accountability and transparency in regularly disclosing publicly our progress in implementing the Principles. | Each year, we publish progress against the PSI principles. Our progress report is included as part of our Annual Report on Form 20-F, and is available at aegon.com. |
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Sustainable Development Goal | Aegon contribution to relevant SDG targets (examples) | |||||
Aegon strategic SDGs | ||||||
No poverty End poverty in all its forms everywhere | Contribution to target 1.2 · Aegon the Netherlands colleagues have been offered training on how to advise friends and family on managing their personal finances during the pandemic and beyond (page 25) · Transamerica launched a comprehensive CARES Act Customer Support Initiative to encourage retirement plan sponsors to offer these new distribution options to participants requiring access to funds, putting customers’ minds at ease (page 36) · Aegon the Netherlands introduced a ‘Blue Heart’ program that enabled people facing financial difficulties, as a result of the pandemic, to postpone their payment (page 37) | |||||
Good health and well-being Ensure healthy lives and promote well-being for all at all ages | Contribution to target 3.4/3.8/3.A · Our Silver Starters program (developed jointly with the Leyden Academy on Vitality and Ageing) provides online entrepreneurship coaching to over-50s, to promote lifelong learning and healthy attitudes to aging (page 28) · In our engagement process, we entered into a dialog with pharmaceutical companies involved in the development of COVID-19 treatments, to ensure fair access to essential medicines, and in particular, vaccines for people around the world (page 31) · Under COVID-19, Aegon International also accelerated hospitalization benefits in China and expanded benefit coverage to COVID-19 for customers in India (page 37) · Aegon excludes tobacco from its investments to help address health concerns over smoking (page 90) | |||||
Affordable and clean energy Ensure access to affordable, reliable, sustainable and modern energy for all | Contribution to target 7.2/7.3 · The Aegon Asset Management Ethical Equity fund’s climate-related investments include companies involved in renewable energy, social and environmental infrastructure, and sustainable materials (page 417) · The ABN AMRO Aegon Global Impact Equities fund’s climate-related investments include companies involved in renewable energy production and its supply chain, sustainable manufacturing technologies, energy efficiency, building insulation, and the circular economy (page 417) | |||||
Decent work and economic growth Promoted sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all | Contribution to target 8.5/8.7/8.10 · In the spirit of Aegon’s WinSocial pioneering offering of insurance to people living with diabetes mellitus, Aegon looks forward to leveraging its proprietary digital underwriting capabilities (Q2Q) to begin issuing policies to qualifying individuals living with HIV in 2021 (page 26) · Aegon was the first company in the Netherlands to make agreements with trade unions in its collective labor agreement on equal pay for men and women and Aegon UK has publicly reported its gender pay gap data since 2017, as required by law (page 39) · Aegon faces the most potential human rights risks in its indirect business relationships, which is why human they are at the core of newly updated Vendor Code of Conduct and our Responsible Investment Policy (page 44) | |||||
Climate action Take urgent action to combat climate change and its impacts | Contribution to target 13.2/13.3 · Aegon the Netherlands is a signatory to the 2019 Dutch National Climate Agreement alongside Aegon Asset Management’s unit in the Netherlands (page 25) · In 2015, Aegon signed the Paris Pledge for Action, affirming our commitment to ensure that the ambition set out by the Paris Agreement is met or exceeded (page 28) · Aegon the Netherlands performed an assessment on the impact of climate change on the General Account asset values and the increase and timing of life and non-life insurance claims (page 416) · In 2018 we began to measure and report on the carbon footprint of our investments, with a focus on our proprietary investment portfolio in the Netherlands and new for 2020 is the first measurement of our global General Account holdings (page 418) |
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Sustainable Development Goal | Aegon contribution to relevant SDG targets (examples) | |||||
Other SDGs (where Aegon also makes a contribution) | ||||||
Zero hunger To end hunger, achieve food security and improved nutrition and promote sustainable agriculture | Contribution to target 2.2 · Aegon donates GBP 20,000 to Aegon Breakfast Clubs in Edinburgh (page 5) | |||||
Quality education Ensure inclusive and quality education for all and promote lifelong learning | Contribution to target 4.7 · Aegon also completed the universal roll-out of our Let’s Talk: Inclusion e-learning program on unconscious bias and how to identify and tackle it (page 41) | |||||
Gender equality Achieve gender equality and empower all women and girls | Contribution to target 5.1/5.5 · Transamerica was named one of the 100 Best Companies for Working Women for a second consecutive year (page 40) · The Central Agency for Statistics in the Netherlands (CBS), at the request of Aegon the Netherlands, identified an overrepresentation of men in senior (and thus higher-paid) positions and Aegon is now taking steps to address this via target setting, succession planning and investigating a potential glass ceiling (page 40) · In 2020, we exceeded our target of 30% female representation across our worldwide senior management, achieving 32%, and for 2021 set the target at 34% (page 41) | |||||
Industry, innovation and infrastructure Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation | Contribution to target 9.4 · Aegon Asset Management engaged a leading multinational steelmaker, who has introduced its first ‘green steel’ solutions for customers, which include steel produced via carbon-neutral processes as well as through the use of ‘green’ hydrogen generated from renewables (page 33) | |||||
Reduced inequalities Reduce inequality within and among countries | Contribution to target 10.3/10.4 · Aegon’s 2020 Global Employee Survey shows that 79% of employees believe they can be their authentic selves at work and have equal opportunity to succeed (page 7) · A priority during AAM’s ongoing engagements with investee companies has been to encourage companies to provide more transparent disclosure in terms of their diversity policies, programs, and targets (page 31) · In 2020, Transamerica founded Black Professionals for Change, a new employee resource group, which is already having an impact, with a series of conversations called ‘Straight Talk on the Black Experience’ (page 40) · Aegon the Netherlands set a goal for 2020 to hire 10 new employees from disadvantaged backgrounds, which they did not achieve, but did identify the challenges to overcome to make this program a success (page 41) | |||||
Sustainable cities and communities Make cities and human settlements inclusive, safe, resilient and sustainable | Contribution to target 11.1 · In the United States we have investments that provide affordable housing to individuals and families that meet median household income requirements (page 235) · Aegon the Netherlands has also invested in long-term residential property leases in the affordable housing segment (page 241) | |||||
Responsible consumption and production Ensure sustainable consumption and production patterns | Contribution to target 12.2/12.6 · We aim to capitalize on changes to our standard working practices as a result of COVID-19 to further reduce the footprint of our direct business operations (page 28) · Year to year, the share of renewable electricity within our wider electricity mix is consistently greater than 95% (pages 29 and 409) | |||||
Life on land Protect, restore and promote sustainable use of terrestrial eco-systems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss | Contribution to target 15.5 · Aegon the Netherlands joins 25 financial institutions to launch the Finance for Biodiversity Pledge, calling on world leaders to commit to reverse nature loss this decade (page 5) | |||||
Peace, justice and strong institutions Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels | Contribution to target 16.1/16.5 · Aegon’s Code of Conduct sets out rules and guidelines that shape and govern the actions of all our employees, which commits us to complying with all legal and regulatory requirements and to prevent insider dealing, corruption, and bribery (page 41) · Under the Aegon Responsible Invest Policy, we exclude investment in controversial weapons (page 90) | |||||
Partnerships for the goals Strengthen the means of implementation and revitalize the Global Partnership for Sustainable Development | Contribution to target 17.16/17.17 · Aegon is active in many international projects, for example, an Organisation for Economic Cooperation and Development (OECD) working group on the future of work, and the Living, Learning, and Earning Longer initiative led by the World Economic Forum (WEF), the OECD, and US-based retirement interest group AARP (page 28) · AAM is a signatory to the UN Principles for Responsible Investment (PRI) (page 32) · Aegon is a signatory to the UN Principles for Sustainable Insurance (PSI) (page 421) |
Note: in our analysis, we excluded two SDGs, where our contributions are not sufficiently material (primarily because of the nature of our business and the location of our operations). These SDGs are ‘clean water and sanitation’ (SDG6), and ‘life below water’ (SDG14). For more information on the SDGs, see https://www.un.org/sustainabledevelopment/sustainable-development-goals/
Aegon Annual Report on Form 20-F 2020 |
Reference tables and reporting frameworks | 425 | |||||
International Responsible Business Conduct Agreement (IRBC Agreement)
In July 2018, Aegon stated its intent to support the spirit and objectives of the Dutch International Responsible Business Conduct Agreement for the insurance sector (also known as ‘the covenant’). By doing so, Aegon will attempt to act, where possible, in accordance with the objectives and undertakings agreed in the covenant and will be receptive to commitment, cooperation, and knowledge-sharing during the implementation of the covenant. The covenant is a collaborative initiative of the Dutch government, non-governmental organizations, and Dutch insurers.
The objective of the covenant is to prevent, mitigate and/or remediate adverse impacts on stakeholders and the environment, which are caused or contributed by our investee companies. The covenant asks insurance companies to apply investment policies and practices in accordance with the processes and principles of the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights.
Aegon N.V.’s Responsible Investment Policy draws heavily on the aforementioned Principles and guidelines. The Policy is instrumental to Aegon’s investment practices as are executed by Aegon Asset Management; the Group’s global asset manager responsible for managing most of Aegon N.V.’s investments. Aegon Asset Management conducted a global investment screening at the beginning of 2020 to identify investee companies that allegedly breach the Principles and Guidelines, as well as the wider UN Global Compact Principles (or are at risk doing so). On top of this, our screening exercise looked specifically at access-to medicines programs, biodiversity controversies, animal welfare policies, and community rights controversies. Applying these findings, we set the prioritization for our engagement activity, which in 2020 saw Aegon Asset Management start or continue engagements with 75 companies. In most cases, Aegon Asset Management continues the process of engagement until we believe that the portfolio company is aligned with our policies, although exclusion ultimately remains an option.
As in previous years, good health and well-being (UN Sustainable Development Goal 3) continues to be one of our focal themes. The outbreak of COVID-19 confirmed our decision to address access to adequate health services and improve access to medicine. To avoid situations in which health emergencies push people into bankruptcy or poverty, we believe it is crucial to strive for universal health coverage and sustainable financing for health. Equally important health issues we address include antimicrobial resistance, better nutrition, and availability of medicine for orphan diseases. Through the engagement activities of Aegon Asset Management, we are addressing the opioid crisis via Investors for Opioid and Pharmaceutical Accountability (IOA) and conducting bilateral engagements with large pharmaceutical companies to improve access to medicine.
Mitigating climate change (SDG 13) remains one of our other focus areas, together with clean and affordable energy (SDG 7). Climate change is an inescapable global challenge, representing one of the greatest systemic risks for society. As greenhouse gas emissions continue to rise, the negative effects of global warming are increasingly clear: shifting weather patterns, rising sea levels, frequent and prolonged extreme weather events. All of which have adverse impacts on the livelihoods of many humans and the entire ecosystem. With human activities resulting in about 1°C of warming to date, achieving the objectives of the Paris Agreement to limit the increase in temperature to 1.5°C—along with the associated Dutch national climate agreement (‘Klimaatakkoord’) goal of achieving a 50% reduction in emissions by 2030 on the way to net zero around 2050—will require focus and dedication. Therefore, we continue to engage with companies in the high-emitting energy, industrial and utility sectors. We must encourage and persuade them to accelerate their journey to net-zero emissions. Not only in the long-term interest of the planet, also because the existence of these companies itself, the jobs they offer, and the future value of our investments are increasingly at risk. Those that do not adapt to this new reality, will eventually be excluded as we phase-out our thermal coal and oil sands investments.
For more detail on our climate actions, see our Task Force on Climate-related Financial Disclosures (TCFD) section at page 415. More information on the active ownership practices of Aegon Asset Management on behalf of Aegon and other clients, can be found in the Active Ownership Report 2019.
Aegon Annual Report on Form 20-F 2020 |
Glossary | 426 | |||||
Accounting Consolidation is the default method for calculating the Group solvency position. With this consolidation method, diversification benefits in the calculation of capital requirements are allowed.
Acquisition dateis the date on which the acquirer effectively obtains control of the acquiree. In most cases this includes at least the transfer of risks and rewards related to the acquired business or assets/liabilities.
Actuarial funding enables a life insurance company to reduce the size of the unit reserves it holds for unit-linked business to reflect some or all of the unit-linked charges it expects to receive in the future from the units nominally allocated. Actuarial funding is used on those contracts that have surrender penalties and the Company will hold a minimum of the surrender value at all times.
Actuarial gains and losses relate to the accounting for post-employment benefit plans. They comprise the effects of experience adjustments and changes in assumptions used to determine the cost of a plan.
Alt-A mortgagesrelates to a type of US residential mortgage which are securitized home equity loans. Typical Alt-A borrower has a credit score high enough to obtain an: ‘A’standing. ‘A’ standing. Alt-A mortgages are primarily backed by loans with fixed interest rates for the entire term of the loan.
Aggregationis the methodology by which capital requirements are calculated across different risk groupings, allowing for diversification benefit between the groupings.
Amortized costis the amount at which the financial asset or liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization using the effective interest rate method of any difference between that initial amount and the maturity amount and minus any reduction (directly or through the use of an allowance account) for impairment or uncollectability.
Asset-Backed Securities (ABS)are securities whose value and income payments are derived from and collateralized (or ‘backed’) by a specified pool of underlying assets.
Assets held by long-term employee benefit fundsare part of plan assets. These are assets (other than non-transferable financial instruments issued by the reporting entity) that:
◆ | Are held by an entity that is legally separate from the reporting entity and exists solely to pay or fund employee benefits; and |
◆ | Are available to be used only to pay or fund employee benefits and are not available to the reporting entity’s own creditors. |
AuthorisedAuthorized Control Level(ACL) is the level US regulators are permitted to seize control of a company.
Bifurcationis the measurement and presentation of embedded derivatives separate from the host contracts, as if they were stand-alone derivative financial instruments.
Binomial option pricing model uses a binomial lattice that represents possible paths that might be followed by the underlying asset’s price over the life of the option, for a given number of time steps between valuation date and option expiration. Each node in the lattice represents a possible price of the underlying asset, at a particular point in time. The valuation process is iterative; it starts at each final node and then works backwards through the lattice to the first node, which is the valuation date, where the calculated result is the value of the option.
Business combinationis the bringing together of separate entities or operations of entities into one reporting entity. This can be realized through a purchase transaction or by means of a merger. A business combination involving entities (or operations of entities) under common control is a business combination in which all of the combining entities (or operations of entities) ultimately are controlled by the same party or parties both before and after the combination, and that control is not transitory.
Company Action Level (CAL) is the regulatory intervention level at which a company has to submit a plan to its state regulators for the Aegon Americas segment. It is 200% of the AuthorisedAuthorized Control Level (ACL) - the level regulators are permitted to seize control of a company. It is a requirement and the most pertinent for measuring risk-based capital (RBC).
Capital fundingincludes debt securities that are issued for general corporate purposes and for capitalizing our business units. Capital funding is part of the Company’s total capitalization that is used for financing our subsidiaries and the cash held at the holding company.
Capitalizationis the recognition of a cost as part of the cost of an asset on the statement of financial position.
Cash Capital at Holding, which is rather a measure of Holdings liquidity, can be defined as the sum of the Holding company assets, less capital investments, less matched short term assets, less other adjustments. Management of Cash Capital at Holding is based on a similar approach as the management of the Group and Local Unit capitalization, using a range approach and a ladder of intervention to trigger timely conversations and escalating management actions.
Cash-generating unitis the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
Cedantis the policyholder under a reinsurance contract.
Claims settlement expensesare costs incurred in settling a claim. These costs include internal administration and payout costs, but also such items as attorney’sattorney´s fees and investigation expenses.
Aegon Annual Report on Form 20-F |
Collateralis an asset pledged by a borrower to secure a loan and is subject to seizure in the case of default.
Collateralized Debt Obligation (CDO)isais a type of asset-backed security which provides investors exposure to the credit risk of a pool of fixed income assets.
Commercial Mortgage-Backed Securities (CMBS)is a type of mortgage-backed security that is secured by the loan on a commercial property.
Compound financial instrumentsare financial instruments that, from the issuer’sissuer´s perspective, contain both a liability and an equity element.
Constructive obligationis an obligation that derives from an entity’sentity´s actions whereby an established pattern of past practice, published policies or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certain responsibilities, and as a result, the entity has created a valid expectation on the part of those other parties that it will discharge those responsibilities.
Contingent liability is a possible obligation dependent on the occurrence of an uncertain future event or a present obligation for which payment is not probable or the amount cannot be measured reliably.
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss.
Currency exchange rate riskis a market risk, namely the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates.
Debt securitiesare interest-paying bonds, debentures, notes, or money market instruments that are issued by governments or corporations. Debt securities are issued with a promise of repayment on a certain date at a specified rate of interest.interest.
Deduction & Aggregation is the alternate method for calculating group solvency that aggregates an entity without allowing for diversification between the entity that is aggregated using D&A and those that are aggregated using Accounting Consolidation.
Deferred tax assetsare amounts of income taxes recoverable in future periods in respect of deductible temporary differences; the carryforwardcarry forward of unused tax losses; and the carryforwardcarry forward of unused tax credits.
Deferred tax liabilitiesare amounts of income taxes payable in future periods in respect of taxable temporary differences.
Defined benefit obligationrelate to the accounting for post-employment benefit plans. It is the present value, without deducting any plan assets, of expected future payments required to settle the obligation resulting from employee service in the current and prior periods.
Defined benefit plansare post-employment benefit plans other than defined contribution plans.
Defined contribution plansare post-employment benefit plans under which an entity pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods.
Deferred Policy Acquisition Cost (DPAC) - are the variable costs related to the acquisition or renewal of insurance contracts and investment contracts with discretionary participation features.
Deposit accounting methodincludes amounts charged and paid to customers directly into the financial liability and not through the income statement as premium income and claims.
Derecognitionis the removal of a previously recognized asset or financial liability from an entity’sentity´s statement of financial position.
Derivativesare financial instruments whose value changes in response to an underlying variable, that often require little or no net initial investment and are settled at a future date.
Discretionary participation featureis a contractual right to receive, as a supplement to guaranteed benefits, additional benefits:
◆ | That are likely to be a significant portion of the total contractual benefits; |
◆ | Whose amount or timing is contractually at the discretion of the issuer; and |
That are contractually based on:
◆ | The performance of a specified pool of contracts or a specified type of contract; |
◆ | Realized and/or unrealized investment returns on a specified pool of assets held by the issuer; or |
◆ | The profit or loss of the Company, fund or other entity that issues the contract. |
Diversificationis the general concept of reducing the total risk of a portfolio of assets and/or liabilities by spreading it across a mix of different risk exposures. Risk reduction occurs due to the less than perfect correlation among the individual risk exposures in the portfolio, meaning risks will not materialize all at the same time.
Aegon Annual Report on Form 20-F |
Effective interest rate methodis a method of calculating the amortized cost of a financial asset or liability 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 financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or liability.
Embedded derivativeis a component of a hybrid instrument that also includes a non-derivative host contract, with the effect that some of the cash flows of the combined instrument vary in a way similar to a derivative.
Equityinstruments are financial instruments issued by the Group that are classified as equity if they evidence a residual interest in the assets of the Group after deducting all of its liabilities.
Equity methodis a method of accounting whereby the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the investor’sinvestor´s share of net assets of the investee. The profit or loss of the investor includes the investor’sinvestor´s share of the profit or loss of the investee.
Equity volatilityis the relative rate at which the price of equity changes.
Excess cash in the holding, which is rather a measure of Holdings liquidity, can be defined as the sum of the Holding company assets, less capital investments, less matched short term assets, less other adjustments. Aegon’s internal policy for the management of excess cash in the holding is based on a similar approach as the management of the Group and Local Unit capitalization, using a range approach and a ladder of intervention to trigger timely conversations and escalating management actions.
Exchange differencesare differences resulting from translating a given number of units of one currency into another currency at different exchange rates.
Fee-based earnings refers to the excess of fees earned over expenses. This is typically associated with pensions business, asset management business, distribution business, variable annuities and unit linked products.
Finance leaseis a lease that transfers substantially all the risks and rewards incident to ownership of an asset.
Financial assetis any asset that is:
◆ | Cash; |
◆ | An equity instrument of another entity; |
◆ | A contractual right to receive cash or another financial asset from another entity or to exchange financial instruments with another party under conditions that are potentially favorable; or |
◆ | A contract that will or may be settled in the entity’s own equity instruments; and is |
◆ | A non-derivative for which the entity is or may be obliged to receive a variable number of the entity’s own equity instruments; or |
◆ | A derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. |
Financial instrumentis any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial liabilityis any liability that is:
◆ | A contractual obligation to deliver cash or another financial asset to another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity; or |
◆ | A contract that will or may be settled in the entity’s own equity instruments; and is |
◆ | A non-derivative for which the entity is or may be obliged to deliver a variable number of the entity’s own equity instruments; or |
◆ | A derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. |
Financial risksare risks of a possible future change in one or more of the following variables: a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index or prices or rates, credit rating or credit index or other variable, provided in the case of a non-financial variable, that the variable is not specific to a party to the contract.
Firm commitmentis a binding agreement for the exchange of a specified quantity of resources at a specified price on a specified future date or dates.
Fixed charge coverage is a measure of the Aegon’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.
Foreign currencyis a currency other than the functional currency of an entity within the Group.
Foreign currency translation reserve (FCTR)is part of shareholders’equity,shareholders’ equity, and is the reserve for the exchange differences recognized from the financial statements of the
group entities. On the 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. The resulting exchange differences are recognized in the FCTR.
Foreign operation is an entity that is a subsidiary, associate, joint venture or branch of a reporting entity within the Group, the activities of which are based or conducted in a country or currency other than those of the reporting entity.
Aegon Annual Report on Form 20-F 2020 |
Glossary | 429 | |||||
Functional currencyis the currency of the primary economic environment in which an entity within the Group operates.
Fungibility & TransferrabilityTransferability is the ability to up-stream and transfer capital between jurisdictions. This ability differs between jurisdictions as it depends on the legal framework of each jurisdiction.
General account investmentsare investments of which the financial risks are not borne by the policyholder.
Goodwillis the amount of future economic benefits arising from assets that are not capable of being individually identified and separately recognized as an asset in a business combination.
Government exposuresrelates to government issued securities including Dutch Government bonds and US Treasury, agency and state bonds.
Guaranteed benefits are payments or other benefits to which a particular policyholder or investor has an unconditional right that is not subject to the contractual discretion of the issuer.
Guaranteed minimum death benefits are benefits that guarantee that the beneficiary, as named in the contract, will receive a death benefit if the annuitant dies. The benefit received differs among contracts and may be greater than the current account value.value.
Guaranteed minimum income benefits are a type of option that annuitants can purchase for their retirement annuities. When the annuity is annuitized, this specific option guarantees that the annuitant will receive a minimum value’s worth of payments, regardless of the current level of the account value.
Guaranteed minimum withdrawal benefits are a type of option that annuitants can purchase for their retirement annuities. This specific option gives annuitants the ability to protect their retirement investments against downside market risk by allowing the annuitant the right to withdraw a percentage
of their withdrawal base each year, regardless of how markets have performed
Hedge effectivenessis the degree to which changes in the fair value or cash flows of the hedged item that are attributable to a hedged risk are offset by changes in the fair value or cash flows of the hedging instrument.
Incremental costis one that would not have been incurred if the entity had not acquired, issued or disposed of a financial instrument.
Insurance assetis an insurer’sinsurer´s contractual right under an insurance contract.
Insurance contractis a contract under which one party (the
(the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.
Insurance liabilityis an insurer’sinsurer´s contractual obligation under an insurance contract.
Insurance riskis a risk, other than financial risk, transferred from the holder of a contract to the issuer.
Interest rate riskis a market risk, namely the risk that the value of a financial instrument will fluctuate due to changes in market interest rates.
Joint controlis the contractually agreed sharing of control over an economic activity, which exists when the strategic and operating decisions relating to the activity require the unanimous consent of the parties sharing control.
Liability adequacy testingis an assessment of whether the carrying amount of an insurance liability needs to be increased (or the carrying amount of related deferred policy acquisition costs or related intangible assets decreased) based on a review of future cash flows.
Liquidity riskis the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial instruments.
Loss absorbing capacity of deferred taxes (LAC-DT)is a loss compensating effect of taxes taken into account in the solvency capital requirement.
Master netting agreementis an agreement providing for an entity that undertakes a number of financial instrument transactions with a single counterparty to make a single net settlement of all financial instruments covered by the agreement in the event of default on, or termination of, any contract.
Matching adjustmentwill adjust the discount rate applied in the valuation of predictable liabilities which are cashflowcash flow matched using fixed income assets. The predictability of the portfolio means that matching assets can be held to maturity and that the insurer is consequently not exposed to price movements, only to the risk of default.
Minimum capital requirement (MCR) is the absolute minimum level of capital an insurance company must hold in excess of its Technical Provisions under Solvency II. This is the threshold of which below local regulators would intervene.
Monetary items are units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.
Aegon Annual Report on Form 20-F 2020 |
Glossary | 430 | |||||
Monoline insurer is an insurance company which issues types of insurance for securities and bonds to cover the interest and principal when an issuer defaults.
Negative amortization mortgages are loans whereby the payment made by the borrower may be less than the accrued interest due and the difference is added to the loan balance. When the accrued balance of the loan reaches the negative amortization limit (typically 110% to 125% of the original loan amount), the loan recalibrates to a fully amortizing level and a new minimum payment amount is determined.
Non-controlling interestsare that portion of the profit or loss and net assets of a subsidiary attributable to equity interests that are not owned, directly or indirectly through subsidiaries, by the parent.
Onerous contractsare contracts in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.
Operational fundingincludes debt securities that are issued for the financing of dedicated pools of assets. These assets are either legally segregated or tracked as separate portfolios.
Operating expenses are all expenses associated with selling and administrative activities (excluding commissions) after reallocation of claim handling expenses to benefits paid.
Partial Internal Model is a combination of a Standard Formula and Internal Model, used to calculatedcalculate the Solvency II capital requirement.
Past service costis the increase in the present value of the defined benefit obligation for employee service in prior periods, resulting in the current period from the introduction of, or changes to, post-employment benefits.
Plan assetsare assets held by a long-term employee benefit fund and qualifying insurance policies.
Policy acquisition costsare the expenses incurred in soliciting and placing new business as well as renewal of existing business. It includes agent’s commissions, underwriting expenses, medical and credit report fees, marketing expenses and all other direct and indirect expenses of the departments involved in such activities.
Policyholder is a party that has a right to compensation under an insurance contract if an insured event occurs.
Presentation currency is the currency in which the financial statements are presented.
Price riskis a market risk, namely the risk that the value of a financial instrument will fluctuate as a result of changes in market prices.
Private loan is a non-derivative financial asset with a fixed interest rate and a maturity date, which is not bought in an active market but negotiated between the two parties involved. Private loans are not embodied in securities. When a private loan takes the form of a private placement of bonds or other investments directly to an institutional investor like an insurance company, it has more the character of a bond loan and such financial instruments are classified as available-for-sale investments rather than as loans and receivables.
Projected unit credit method is an actuarial valuation method that sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation.
Qualifying insurance policies are a component of plan assets. These are insurance policies issued by an insurer that is not a related party of the reporting entity, if the proceeds of the policies:
◆ | Can be used only to pay or fund employee benefits under a defined benefit plan; and |
◆ | Are not available to the reporting entity’s own creditors. |
Real estate investments foreclosedare real estate investments purchased through foreclosure on the mortgage. Such purchases are not accounted for as mortgages, but as real estate investments until they can be sold at a better price than at the foreclosure. Meanwhile they yield a rental income.
Realizable valueis the amount of cash or cash equivalents that could currently be obtained by selling an asset in an orderly disposal.
Recognitionis the process of incorporating in the statement of financial position or income statement an item that meets the
definition of an element and satisfies the following criteria for recognition:
◆ | It is probable that any future economic benefit associated with the item will flow to or from the entity; and |
◆ | The item has a cost or value that can be measured with reliability. |
Reinsurance assetsare a cedant’scedant´s net contractual rights under a reinsurance contract.
Reinsurance contractis an insurance contract issued by one insurer to compensate another insurer for losses on one or more contracts issued by the cedant.
Renewalof a contract is when a policyholder takes whatever action is required, typically payment of a premium, in order to maintain benefits under the contract.
Aegon Annual Report on Form 20-F 2020 |
Glossary | 431 | |||||
Repurchase agreement is a sale of securities with an agreement to buy back the securities at a specified time and price.
Residential Mortgage Backed Security (RMBS)is an asset-backed security that is secured by a residential mortgage or collection of residential mortgages.
Return on plan assets is the investment income derived from plan assets, together with realized and unrealized gains and losses on the plan assets less any costs of administering the plan and less any tax payable by the plan itself.
Reverse repurchase agreement is a purchase of securities with the agreement to resell them at a later specified date and price.
Risk Based Capital Company Action Level is designed primarily for US regulators to identify poorly capitalized companies whose continued operations may be hazardous to policyholders. The insurer’s RBC solvency ratio is determined as its “total‘total adjusted capital”capital’ divided by “authorized‘authorized control level risk based capital. (ACL)”’. However, it is industry and rating agency convention to complete and communicate the RBC solvency ratio relative to the “Company‘Company Action Level Risk Based Capital”Capital’, which is twice the authorized control level.
Security lending involves a loan of a security from one party to another.
Settlement dateis the date that a financial asset is delivered to the entity that purchased it.
Solvency IIis the fundamental reformsupervisory regime introduced per January
1, 2016 and consist of a programme of prudential regulations of European insurance legislation.legislation, which vary in severity depending on the riskiness and diversity of an insurer’s business. The Solvency II programme is divided into three areas: Pillar 1 lays out quantitative requirements for the amount of capital an insurer should hold; Pillar 2 covers governance and risk management of insurers; and Pillar 3 addresses transparency, reporting and public disclosure.
Solvency capital requirement (SCR)is the levelamount of capital anfunds that insurance company mustand reinsurance companies are required to hold in excessorder to have 99.5% confidence that they could survive the most extreme expected losses over the course of its Technical Provisionsa year under Solvency II. The SCR incorporates risks such as non-life underwriting, life underwriting, health underwriting, market, credit, operational and counterparty risks, and must be recalculated at least once per year.
Spot exchange rate is the exchange rate for immediate delivery.
Spread is the difference between the current bid and the current ask or offered price of a given security.
Spread earnings is the difference between the interest earned on investments and the interest credited to policyholders. This is typically associated with traditional type business.
Standard Formula is a risk-based approach to the calculation of an insurersinsurer’s solvency capital requirement under the Solvency II supervisory regime, prescribed by the regulator.
Stochastic modeling is a statistical process that uses probability and random variables to predict a range of probable investment performances.
Temporary differences are differences between the carrying amount of an asset or liability in the statement of financial position and its tax base that will reverse over time.
Trade dateis the date that an entity commits itself to purchase or sell an asset.
Transaction costsare incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or liability.
Transitional measures allow EEA entities to gradually move to a full implementation of Solvency II over a period of time.
Trust Pass-Through securities (TRUPS)are securities through which the holders participate in a trust. The assets of these trusts consist of debentures issued by an Aegon Group company.
Unlockingof DPAC and VOBA refers to the process of updating the DPAC or the VOBA amortization schedule to reflect changes between the past and current expectations of key assumptions used in the projection of future gross profits.
Value of Business Acquired (VOBA)the difference between the fair value and the carrying amount of the insurance liabilities recognized when a portfolio of insurance contracts is acquired (directly from another insurance company or as part of a business combination).
Volatility adjustment (VA) is a volatility adjustment to the discount rates for calculating technical provisions aims at avoiding pro-cyclical investment behavior of insurers when bond prices deteriorate owing to low liquidity of bond markets or exceptional expansion of credit spreads.spreads, under the Solvency II supervisory regime. The adjustment has the effect of stabilizing the capital resources of insurers and will be calculated by EIOPA.
Aegon Annual Report on Form 20-F |
AFMAuthority for the Financial Markets
ALCOAsset & Liability Management Committee
ALMAsset Liability Management
BCRBasic Capital Requirement
CEECentral & Eastern Europe
DNBDutch Central Bank
DOLDepartment of LabourLabor
EFRAGEIOPAEuropean Financial Reporting Advisory GroupInsurance and Occupational Pensions Authority
ESG Environmental, Social and Governance
FSBFinancial Stability Board
GICsGuaranteed Investment Contracts
GMDBGuaranteed Minimum Death Benefits
GMIBGuaranteed Minimum Income Benefits
GMWBGuaranteed Minimum Withdrawal Benefits
G-SIIGlobal Systematically Important Insurer
HLAHigher Loss Absorbing Capacity
IAISInternational Association of Insurance Supervisors
IBOR Interbank Offered rates
ICSInsurance Capital Standard
ORSAOwn Risk and Solvency Assessment
PPIPremium Pension Institution
PSI Principles for Sustainable Insurance
SDG Sustainable Development Goals
SECUnited States Securities and Exchange Commission
SEE Southern & Eastern Europe
Aegon Annual Report on Form 20-F |
1. From 2018, Aegon is required to publish a non-financial statement as part of its Annual Report. This is in compliance with the Dutch Civil Code and EU directive 2014/95/EU. The statement should address the Company’s non-financial performance, as well as its management of social and environmental issues. In addition, recent changes to the Dutch Corporate Governance Code require companies also to explain their strategy and approach to value creation and corporate culture.
2. License to operate refers to the general acceptance or approval by stakeholders for a company to continue its business operations in their community or communities.
3. More information on Aegon’s materiality exercise (both methodology and findings) may be found in the Company’s Review.
4. Based on the International Integrated Reporting Council’s six capitals: financial, human, intellectual, natural, manufactured and social & relationship. Each of these capitals represents a store of value, which companies use and transform through their business activities. It’s important to remember that, during this process, capitals may increase or be depleted in value. For the purposes of reporting, Aegon has chosen the four capitals most relevant to its businesses (financial, human, intellectual and social & relationship).
5. When restructuring, Aegon takes steps to keep redundancies to a minimum. In Europe and Asia, the Company works through trade unions. Where possible, staff are reassigned within the Company. Those leaving Aegon are offered support, advice and training. As part of restructuring in the US, for example, Transamerica is outsourcing administration of approximately 10 million insurance and annuities policies to Tata Consultancy Services. All employees affected will be offered position with TCS.
6. Aegon has set up, for example, a dedicated Aegon Analytics Academy, covering financial, customer and risk analytics. The Company also has a Digital Marketing course in Europe, and organizes two-day Digital Acceleration programs to bring management up to speed with latest technologies.
7. Information on Aegon’s governance system may be found in this report on pages 131-135.
8. Aegon Ireland is accounted on a held for sale basis.
9. Source: MABISZ, http://www.mabisz.hu/hu/piaci-adatok-jelentesek.html. Webpage visited November 14, 2017.
10. Source: KNF, https://www.knf.gov.pl/en/REPORTS_AND_ ANALYSIS/Pension_system/Monthly_data_pension_funds_ market. Webpage visited November 14, 2017.
11. Source: MABISZ, http://www.mabisz.hu/images/stories/ docs-eng/publications/yearbook-2017-english.pdf. Webpage visited November 14, 2017.
12. Source: MABISZ, http://www.mabisz.hu/hu/piaci-adatok-jelentesek.html. Webpage visited November 14, 2017.
13. Source: Insurance Association of Turkey, https://www.tsb. org.tr/official-statistics.aspx?pageID=1003. Webpage visited November 14, 2017.
14. Source: MNB, Aranykönyv, 2016, http://www.mnb. hu/felugyelet/idosorok/v-aranykonyv. Webpage visited November 14, 2017.
15. Source: ADSS, http://www.adss.sk/zhodnotenie-vo-fondoch?year=2017#documents.Webpage visited January 23, 2018.
16. Source: KNF, https://www.knf.gov.pl/en/REPORTS_AND_ ANALYSIS/Pension_system/Monthly_data_pension_funds_ market. Webpage visited November 14, 2017.
17. Source: APAPR, http://www.apapr.ro/statistics.html. Webpage visited January 23, 2018.
18. Note that on a consolidated group level Aegon Bank is not included in the calculation of the Solvency II ratio.
19. On December 14, 2017, Aegon announced that Rob Routs, Chairman of the Supervisory Board, decided to step down, after 10 years of service, at the Annual General Meeting of Shareholders on May 18, 2018.
20. On February 15, 2018, Aegon announced that Dirk Verbeek, member of the Supervisory Board, decided to step down after 10 years of service, at the General Meeting of Shareholders on May 18, 2018.
21. Mr. Rider was appointed as CFO and member of Aegon’s Executive Board on May 19, 2017. Conditional variable compensation is disclosed on an annualized basis for Mr. Rider.
22. 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 Financial Services and Markets Act 2000.
Cautionary note regarding non-IFRS measures
This document includes the following non-IFRS financial measures: underlying earnings before tax, income tax and income before tax. These non-IFRS measures are calculated by consolidating on a proportionate basis Aegon’s joint ventures and associated companies. The reconciliation of these measures to the most comparable IFRS measure is provided in note 5 ‘Segment information’Segment information of this report. Aegon believes that these non-IFRS measures, together with the IFRS information, provide meaningful supplemental information about the underlying operating results of Aegon’s business including insight into the financial measures that senior management uses in managing the business.
Currency exchange rates
This document contains certain information about Aegon’s results, financial condition and revenue generating investments presented in USD for the Americas and Asia, and in GBP for the United Kingdom, because those businesses operate and are managed primarily in those currencies. None of this information is a substitute for or superior to financial information about Aegon presented in EUR, which is the currency of Aegon’s primary financial statements.
Forward-looking statements
The statements contained in this document that are not historical facts are forward-looking statements as defined in the US Private Securities Litigation Reform Act of 1995. The following are words that identify such forward-looking statements: aim, believe, estimate, target, intend, may, expect, anticipate, predict, project, counting on, plan, continue, want, forecast, goal, should, would, could, is confident, will, and similar expressions as they relate to Aegon. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Aegon undertakes no obligation to publicly update or revise any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which merely reflect company expectations at the time of writing. Actual results may differ materially from expectations conveyed in forward-looking statements due to changes caused by various risks and uncertainties. Such risks and uncertainties include but are not limited to the following:
◆ | Changes in general economic and/or governmental conditions, particularly in the United States, the Netherlands and the United Kingdom; |
◆ | Changes in the performance of financial markets, including emerging markets, such as with regard to: |
The frequency and severity of defaults by issuers in Aegon’s fixed income investment portfolios; |
The effects of corporate bankruptcies and/or accounting restatements on the financial markets and the resulting decline in the value of equity and debt securities Aegon holds; and |
The effects of declining creditworthiness of certain |
◆ | Changes in the performance of Aegon’s investment portfolio and decline in ratings of Aegon’s counterparties; |
◆ |
◆ |
◆ | The |
◆ | Changes affecting interest rate levels and continuing low or rapidly changing interest rate levels; |
◆ | Changes affecting currency exchange rates, in particular the EUR/USD and EUR/GBP exchange rates; |
◆ | Changes in the availability of, and costs associated with, liquidity sources such as bank and capital markets funding, as well as conditions in the credit markets in general such as changes in borrower and counterparty creditworthiness; |
◆ | Increasing levels of competition in the United States, the Netherlands, the United Kingdom and emerging markets; |
◆ | Catastrophic events, either manmade or by nature, including by way of example acts of God, acts of terrorism, acts of war and pandemics, could result in material losses and significantly interrupt Aegon’s business; |
◆ | The frequency and severity of insured loss events; |
◆ | Changes affecting longevity, mortality, morbidity, persistence and other factors that may impact the profitability of Aegon’s insurance products; |
◆ | Aegon’s projected results are highly sensitive to complex mathematical models of financial markets, mortality, longevity, and other dynamic systems subject to shocks and unpredictable volatility. Should assumptions to these models later prove incorrect, or should errors in those models escape the controls in place to detect them, future performance will vary from projected results; |
◆ | Reinsurers to whom Aegon has ceded significant underwriting risks may fail to meet their obligations; |
◆ | Changes in customer behavior and public opinion in general related to, among other things, the type of products Aegon sells, including legal, regulatory or commercial necessity to meet changing customer expectations; |
◆ | Customer responsiveness to both new products and distribution channels; |
Aegon Annual Report on Form 20-F 2020 |
Disclaimer | 434 | |||||
◆ | As Aegon’s operations support complex transactions and are highly dependent on the proper functioning of information technology, operational risks such as system disruptions or failures, security or data privacy breaches, cyberattacks, human error, failure to safeguard personally identifiable information, changes in operational practices or inadequate controls including with respect to third parties with which we do business may disrupt Aegon’s business, damage its reputation and adversely affect its results of operations, financial condition and cash flows; |
◆ | The impact of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including Aegon’s ability to integrate acquisitions and to obtain the anticipated results and synergies from acquisitions; |
◆ | Aegon’s failure to achieve anticipated levels of earnings or operational efficiencies, as well as other management initiatives related to cost savings, Cash Capital at Holding, gross financial leverage and free cash flow; |
◆ | Changes in the policies of central banks and/or governments; |
◆ | Litigation or regulatory action that could require Aegon to pay significant damages or change the way Aegon does business; |
◆ | Competitive, legal, regulatory, or tax changes that affect profitability, the distribution cost of or demand for Aegon’s products; |
◆ | Consequences of an actual or potential break-up of the European monetary union in whole or in part, or the anticipated exit of the United Kingdom from the European Union and potential consequences if other European Union countries leave the European Union; |
◆ | Changes in laws and regulations, particularly those affecting Aegon’s operations’ ability to hire and retain key personnel, taxation of Aegon companies, the products Aegon sells, and the attractiveness of certain products to its consumers; |
◆ | Regulatory changes relating to the pensions, investment, and insurance industries in the jurisdictions in which Aegon operates; |
◆ | Standard setting initiatives of supranational standard setting bodies such as the Financial Stability Board and the International Association of Insurance Supervisors or changes to such standards that may have an impact on regional (such as EU), national or US federal or state level financial regulation or the application thereof to Aegon, including the designation of Aegon by the Financial Stability Board as a Global Systemically Important Insurer (G-SII); and |
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This document contains information that qualifies, or may qualify, as inside information within the meaning of Article 7(1) of the EU Market Abuse Regulation (596/2014). Further details of potential risks and uncertainties affecting Aegon are described in its filings with the Netherlands Authority for the Financial Markets and the US Securities and Exchange Commission, including the Annual Report. These forward-looking statements speak only as of the date of this document. Except as required by any applicable law or regulation, Aegon expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Aegon’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Further details of potential risks and uncertainties affecting Aegon are described in its filings with the Netherlands Authority for the Financial Markets and the US Securities and Exchange Commission, including the Annual Report. These forward-looking statements speak only as of the date of this document. Except as required by any applicable law or regulation, Aegon expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Aegon’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Aegon Annual Report on Form 20-F |
HeadquartersHead office
Aegon N.V.
Aegonplein 50
2591 TV The Hague
The Netherlands
Telephone: +31 (0) 70 344 32 10
aegon.comwww.aegon.com
Investor Relationsrelations
Telephone: +31 (0) 70 344 83 05
or toll free (US only): 877-548 96 68
E-mail: ir@aegon.com
Media Relationsrelations
Telephone: +31 (0) 70 344 89 56
E-mail: gcc@aegon.com
Agent for service in the United States of America
Name: Jay OrlandiKaryn Polak
Telephone: +1 443 475 38363480
E-mail: jay.orlandi@transamerica.com
Karyn.Polak@transamerica.com
Colophon | ||||
Consultancy and design | DartGroup, Amsterdam (NL) | |||
Editing and production | Aegon Corporate Communications (NL) | |||
Typesetting | DartGroup, Amsterdam (NL) |
Aegon Annual Report on Form 20-F |
Aegon files annual reports with and furnishes other information to the Securities and Exchange Commission. You may read and copy any document filed with or furnished to the SEC by Aegon at the SEC’s public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Aegon’s SEC filings are also available to the public through theSEC. The SEC’s web site atis www.sec.gov. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room in Washington D.C. and in other locations.
The SEC allows Aegon to ‘incorporate by reference’ information into this Annual Report on Form 20-F, which means that:
◆ | Incorporated documents are considered part of this Annual Report on Form 20-F; and |
◆ | Aegon can disclose important information to you by referring you to those documents. |
Those documents contain important information about Aegon and its financial condition. You may obtain copies ofaccess those documents in the manner described above. You may also request a copy of those documents (excluding exhibits) at no cost by contacting us (refer to page 380)section ‘Contact’).
Aegon Annual Report on Form 20-F |
Exhibits
1 | ||||
2 | Any instruments defining the rights of security holders and / or long-term debt holders. Pursuant to the requirement of this | |||
item, we agree to furnish to the SEC upon request a copy of any instrument defining the rights of holders of long-term debt | ||||
of us or of our subsidiaries for which consolidated or unconsolidated financial statements are required to be filed. |
Description of securities. |
4.1 |
4.2 |
12.1 |
12.2 |
13 |
15 |
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Schema Linkbase Document |
101.CAL | XBRL Taxonomy Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Definition Linkbase Document |
101.LAB | XBRL Taxonomy Labels Linkbase Document |
101.PRE | XBRL Taxonomy Presentation Linkbase Document | |||
(1) Incorporated by reference to Form 6K (0001104659-13-046533) filed with the SEC on June 4, 2013.
(2) Incorporated by reference Exhibit 4.1 to Form 20-F 2013 filed with the SEC on March 21, 2014.
(3) Incorporated by reference Exhibit 4.2 to Form 20-F 2013 filed with the SEC on March 21, 2014.
The company agrees to furnish to the Securities and Exchange Commission upon request copies of instruments with respect to long-term debt of the company and its consolidated subsidiaries.
Aegon Annual Report on Form 20-F |
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Aegon N.V.
/s/ Matthew J. Rider Matthew J. Rider Chief Financial Officer Date: March 17, 2021
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Aegon Annual Report on Form 20-F |
aegon.com