| Financial risks | General
As an insurance group, Aegon is exposed to a variety of risks.
Aegon’s largest exposures are to changes in financial markets
(e.g. foreign currency, interest rate, credit and equity market
risks) that affect the value of the investments, liabilities from
products that Aegon sells, deferred expenses and value of business
acquired. Other risks include insurance related risks, such as
changes in mortality and morbidity, which are discussed in note 36
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.
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
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 ‘available-for-sale’,
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
Credit risk
As premiums and deposits are received, these funds are invested to
pay for future policyholder obligations. For general account
products, Aegon typically bears the risk for investment performance
which is equal to the return of principal and interest. Aegon is
exposed to credit risk on its general account fixed-income
portfolio (debt securities, mortgages and private placements),
over-the-counter
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 expose the Group to credit risk.
2018 Maximum Cash Secu- Letters of Real Master Other Total Surplus Net
Debt securities – carried at fair value 81,253 - - 169 - - - 169 -
81,084
Debt securities – carried at amortized cost - - - - - - - - - -
Money market and other short-term investments –
carried at fair value 6,307 - 484 - - - - 484 29
5,852
Mortgage loans – carried at amortized cost 36,240 2,535 - 136 57,009 - - 59,680 23,589
149
Private loans – carried at amortized cost 4,103 45 - - - - - 45 -
4,058
Other loans – carried at amortized cost 2,310 - - - - - 1,960 1,960 1,238
1,589
Other financial assets – carried at fair value 3,551 - - - - - - - -
3,551
Derivatives 7,337 2,627 233 31 - 4,606 - 7,496 225
66
Reinsurance assets 20,505 - 4,035 104 - - - 4,139 - 16,366
At December 31 161,607 5,207 4,752 439 57,009 4,606 1,960 73,972 25,081 112,715
2017 Maximum Cash Securi- Letters of Real Master Other Total Surplus Net
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
Debt securities
Several bonds in Aegon’s Americas’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 tri-party
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
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 the exposure at both group level
and individual country units. The limits also vary by a rating
system, which is a composite of the main rating agencies (S&P,
Moody’s and Fitch) and Aegon’s internal rating of the
counterparty. If an exposure exceeds the stated limit, then the
exposure must be reduced to the limit for the country unit and
rating category as soon as possible. Exceptions to these limits can
only be made after explicit approval from Aegon’s Group Risk
and Capital Committee (GRCC). The policy is reviewed regularly.
At December 31, 2018 there was no violation of the Credit Name
Limit Policy at Group level (December 31, 2017: nil).
At December 31, 2018 Aegon’s largest corporate credit
exposures are to Wilton Re Holdings Ltd, American United Mutual
Insurance, SCOR and Reinsurance Group of America. Aegon had large
government exposures, the largest being in the Americas, the
Netherlands and Germany. Highly rated government bonds and
government exposure domestically issued and owned in local currency
are excluded from the Credit Name Limit Policy.
Aegon group level long-term counterparty exposure limits are as
follows:
Group limits per credit
rating
2018
2017
AAA 900 900
AA 900 900
A 675 675
BBB 450 450
BB 250 250
B 125 125
CCC or lower 50 50
Credit rating
The ratings distribution of general account portfolios of
Aegon’s major reporting units, excluding reinsurance assets,
are presented in the table that follows, organized by rating
category and split by assets that are valued at fair value and
assets that are valued at amortized cost. Aegon uses a composite
rating based on a combination of the external ratings of S&P,
Moody’s, Fitch and National Association of Insurance
Commissioners (NAIC which is for US only) and internal ratings. The
rating used is the lower of the external rating and the internal
rating.
Americas The Netherlands United Kingdom Central & Eastern Spain & Portugal
Credit rating general
assets 2018 Amortized Fair value Amortized Fair value
Amortized cost Fair value Amortized Fair value Amortized Fair value
AAA 941 15,338 1,611 12,956 - 84 - 1 - 9
AA 3,104 3,855 83 6,704 - 594 - 22 - 78
A 3,567 17,428 55 2,482 - 291 16 119 38 386
BBB 266 17,609 924 1,299 - 95 6 502 (3 ) 180
BB 7 1,393 52 39 - 1 9 5 - 17
B - 1,013 - - - - 64 105 - -
CCC or lower - 741 - - - - 1 1 - -
Assets not rated 1,952 4,126 29,534 4,423 - 1,085 11 67 2 4
Total 9,837 61,501 32,259 27,905 - 2,149 106 823 37 673
Past due and/or impaired assets 108 1,346 277 25 - - - 1 - -
At December 31 9,945 62,847 32,536 27,930 - 2,149 106 824 37 673
Asia Asset Management Total 2018 1
Credit
rating general account investments, excluding Amortized Fair value Amortized Fair value Amortized Fair value Total
AAA - 987 - 136 2,552 29,518 32,070
AA - 372 - - 3,188 11,626 14,813
A - 1,823 - 5 3,675 22,542 26,218
BBB - 2,186 - 1 1,193 21,871 23,064
BB - 140 - 9 68 1,653 1,721
B - 132 - 17 64 1,267 1,331
CCC or lower - 22 - 9 1 773 774
Assets not rated 16 14 - 5 31,527 9,960 41,488
Total 16 5,676 - 181 42,268 99,210 141,478
Past due and/or impaired assets - 27 - - 385 1,399 1,784
At December 31 16 5,704 - 181 42,653 100,609 143,263
1
Includes investments of Holding and other
activities.
Americas The Netherlands United Kingdom
Central & Eastern Europe
Spain & Portugal
Credit rating general account investments, excluding reinsurance assets 2017
Amortized cost Fair value
Amortized cost Fair value
Amortized cost Fair value
Amortized cost Fair value
Amortized cost Fair value
AAA 958 18,935 1,658 12,727 - 137 - 1 - 9
AA 2,693 3,353 85 5,449 - 1,139 - 5 - 48
A 2,905 18,684 56 3,186 - 449 8 126 55 167
BBB 330 16,822 941 1,267 - 78 3 495 (3 ) 401
BB 18 1,567 18 22 - 9 72 92 - 20
B - 1,162 - - - - 2 1 - -
CCC or lower - 793 - 3 - - - - - -
Assets not rated 1,892 2,797 27,133 3,770 - 219 107 55 2 6
Total 8,796 64,114 29,890 26,425 - 2,031 193 775 54 651
Past due and/or impaired assets 35 1,145 299 41 - - 82 1 - -
At December 31 8,831 65,259 30,189 26,467 - 2,031 275 777 54 651
Asia Asset Management
Total 2017 1
Credit rating general account
investments, excluding reinsurance assets
2017
Amortized cost Fair value
Amortized cost Fair value
Amortized cost Fair value
Total carrying value
AAA - 985 - 144 2,616 32,960 35,575
AA - 340 - - 2,778 10,334 13,111
A - 1,775 - - 3,024 24,399 27,423
BBB - 1,920 - - 1,271 20,983 22,254
BB - 140 - 1 107 1,852 1,959
B - 117 - 4 2 1,284 1,287
CCC or lower - 23 - 4 - 823 823
Assets not rated 6 1 - 4 29,154 7,011 36,165
Total 6 5,300 - 157 38,951 99,645 138,597
Past due and/or impaired assets - 20 - - 416 1,207 1,624
At December 31 6 5,320 - 157 39,368 100,853 140,221
1
The following table shows the credit quality of the gross positions
in the statement of financial position for general account
reinsurance assets specifically:
Carrying value 2018
Carrying value
2017
AAA - -
AA 9,150 13,379
A 11,041 5,242
Below A 30 24
Not rated 284 555
At December 31 20,505 19,200
Credit risk concentration
The tables that follow present specific credit risk concentration
information for general account financial assets.
Credit risk concentrations – debt securities and money market investments 2018 Americas
The Netherlands
United Kingdom
Central & Eastern Europe Spain & Portugal Asia Asset Manage- ment
Total 2018 1
Of which past
due and/or impaired assets
Residential mortgage-backed securities (RMBSs) 2,138 395 - - - 52 - 2,585 918
Commercial mortgage-backed securities (CMBSs) 3,314 35 127 - - 537 - 4,013 14
Asset-backed securities (ABSs) – CDOs backed by ABS, Corp.
bonds, Bank loans 717 1,669 - - - 61 - 2,447 3
ABSs – Other 1,915 247 61 - 6 323 - 2,552 40
Financial – Banking 6,423 1,473 132 92 118 815 6 9,059 29
Financial – Other 8,863 188 33 4 112 595 121 9,924 19
Industrial 21,060 1,515 213 5 142 2,486 33 25,457 187
Utility 3,572 115 60 5 46 370 - 4,169 144
Government bonds 9,607 15,948 438 650 238 457 17 27,356 8
At December 31 57,609 21,586 1,064 756 662 5,696 176 87,560 1,362
1
Includes investments of Holding and other
activities.
Credit risk concentrations – Government bonds per country of risk
2018 Americas The Netherlands United Kingdom
Central & Eastern Europe
Spain & Portugal Asia Asset Manage- ment
Total 2018 1
United States 8,891 362 9,253
Netherlands 6,040 6,040
United Kingdom 356 1 17 374
Austria 1,102 4 1,106
Belgium 1,000 21 6 1,027
Finland 949 949
France 1,292 33 5 1,329
Germany 4,397 4,397
Hungary 3 410 413
Luxembourg 786 1 787
Spain 89 3 206 298
Rest of Europe 103 264 236 11 9 623
Rest of world 580 30 28 - 5 86 730
Supranational 30 30
At December 31 9,607 15,948 438 650 238 457 17 27,356
1
Includes investments of Holding and other
activities.
Credit risk concentrations
– Credit rating 2018 2
Government bonds Corporate bonds RMBSs CMBSs ABSs
Other Total
2018 1
AAA 20,479 772 6,505 1,753 29,511
AA 4,949 3,264 1,721 9,934
A 614 18,482 1,490 1 20,587
BBB 961 20,360 349 1 21,670
BB 215 1,279 144 1,638
B 136 1,003 69 1,207
CCC or lower 1 302 1,318 1,621
Assets not rated 1,391 1,391
At December 31 27,356 45,462 11,596 3,147 87,560
1
Includes investments of Holding and other
activities.
2
CNLP Ratings are used and are the lower of the
Barclay’s Rating and the Internal Rating with the
Barclay’s rating being a blended rating of S&P, Fitch,
and Moody’s.
Credit
risk concentrations – debt securities and
money market investments
2017 Americas The United Central & Spain & Asia Asset
Total 2017 1 Of which
Residential mortgage-backed securities (RMBSs) 3,025 556 17 - - 57 - 3,655 1,022
Commercial mortgage-backed securities (CMBSs) 3,375 28 146 - - 537 - 4,086 10
Asset-backed securities (ABSs) – CDOs backed by ABS, Corp.
bonds, Bank loans 751 1,529 - - - 47 - 2,327 3
ABSs – Other 1,688 270 88 - 1 331 - 2,378 35
Financial – Banking 6,525 1,440 124 102 104 730 - 9,026 3
Financial – Other 9,028 212 58 3 114 498 137 10,069 4
Industrial 21,975 1,726 255 7 129 2,344 - 26,435 62
Utility 3,386 119 65 3 45 309 - 3,927 -
Government bonds 11,319 15,531 1,060 603 253 466 17 29,249 14
At December 31 61,073 21,411 1,812 718 646 5,319 153 91,153 1,154
1
Credit risk concentrations
– Government bonds per country of risk
2017 Americas The United Central & Spain & Asia Asset
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
1
Credit risk concentrations
– Credit rating 2017 2 Government Corporate bonds RMBSs CMBSs 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
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 2018 Americas
The Netherlands
United Kingdom
Central & Eastern Europe
Spain & Portugal Asia
Asset Manage- ment
Total 2018 1
Of which past due and/or impaired assets
Agricultural 69 - - - - - - 69 15
Apartment 3,993 - - - - - - 3,993 92
Industrial 871 - - - - - - 871 -
Office 1,342 - - - - - - 1,343 -
Retail 1,457 9 - - - - - 1,466 1
Other commercial 258 35 - - - - - 292 2
Residential 12 28,193 - - 1 - - 28,207 227
At December 31 8,002 28,237
-
- 1
-
- 36,240 337
1
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
1
The fair value of Aegon Americas commercial and agricultural
mortgage loan portfolio as per December 31, 2018, amounted to
EUR 8,059 million (2017: EUR 7,132 million). The loan to
value (LTV) amounted to approximately 54% (2017: 55%). Of the
portfolio 1.25% (2017: 0.06%) is in delinquency (defined as 60 days
in arrears). In 2018, Aegon Americas recognized EUR 1 million
of net recoveries (2017: EUR 19 million net impairments) on
this portfolio. In 2018, there were no foreclosures (2017: EUR
0 million) and no impairments or recoveries associatied with
foreclosed loans (2017: EUR 0 million).
The fair value of Aegon the Netherlands mortgage loan portfolio as
per December 31, 2018, amounted to EUR 31,686 million
(2017: EUR 30,926 million). The LTV amounted to approximately
70% (2017: 76%). A significant part of the portfolio 46%
(2017: 51%) is government guaranteed. Of the portfolio, 0.2%
(2017: 0.2%) is in delinquency (defined as 60 days in arrears).
Impairments in 2018 amounted to EUR 0 million (2017: EUR
8 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 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
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 2018 December 31, 2018
2018 Interest income
Total gains and losses on sale of assets Total Investments
Residential mortgage-backed securities 140 (3 ) 137 2,585
Commercial mortgage-backed securities 139 (41 ) 98 4,013
Asset-backed securities 54 - 54 2,447
ABSs – Other 84 15 99 2,552
Total 417 (28 ) 389 11,596
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
Monoline insurers
EUR 178 million (2017: EUR 264 million) of the bonds in
Aegon Americas’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 178 million indirect exposure on the
Monoline insurers, 15% relates to Municipal Bond Insurance
Association, Inc. (MBIA), 13% to Ambac Financial Group, inc.
(AMBAC), and 52% to Assured Guaranty Corporation (AGC) (2017: 31%
related to MBIA, 13% to AMBAC, and 43% 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
2018 Amortized Unrealized Unrealized
Total fair value
Fair value of instruments with unrealized gains
Fair value of instruments with unrealized losses
Debt securities, money market instruments and
other
United States government 6,973 603 (127 ) 7,449 4,772 2,676
Dutch government 4,908 1,136 (3 ) 6,040 6,002 38
Other government 11,293 718 (54 ) 11,957 11,105 852
Mortgage-backed securities 6,275 366 (84 ) 6,557 3,700 2,857
Asset-backed securities 4,948 65 (55 ) 4,958 1,825 3,133
Corporate 39,770 1,748 (1,138 ) 40,379 21,441 18,939
Money market investments 5,955 - - 5,955 5,701 254
Other 919 71 (88 ) 902 707 194
Total 81,039 4,707 (1,550 ) 84,196 55,253 28,943
Of which held by Aegon Americas and NL 72,486 4,370 (1,352 ) 75,504 50,976 24,528
2017
Amortized cost
Unrealized gains
Unrealized losses
Total fair value
Fair value of instruments with unrealized gains
Fair value of instruments with unrealized losses
Debt securities, money market instruments and
other
United States government 8,011 936 (101 ) 8,846 6,805 2,041
Dutch government 4,799 992 (11 ) 5,781 4,885 896
Other government 11,746 838 (17 ) 12,568 11,501 1,067
Mortgage-backed securities 7,326 424 (56 ) 7,694 5,569 2,126
Asset-backed securities 4,624 92 (17 ) 4,698 3,878 820
Corporate 37,168 3,663 (218 ) 40,613 34,945 5,668
Money market investments 6,690 - - 6,690 5,642 1,048
Other 765 98 (73 ) 791 597 193
Total
81,130
7,043
(493 )
87,681
73,822
13,858
Of which held by Aegon Americas and NL 72,937 6,392 (462 ) 78,867 66,688 12,179
Unrealized bond losses by sector
The composition by industry category of Aegon’s available-for-sale
December 31,
2018 December 31, 2017
Unrealized losses – debt securities,
money
market investments and
other
Carrying value of instruments with unrealized losses Unrealized losses
Carrying value of instruments with
Unrealized losses
Residential mortgage-backed securities (RMBSs) 446 (30 ) 732 (30)
Commercial mortgage-backed securities (CMBSs) 2,012 (45 ) 1,140 (22)
Asset-backed securities (ABSs) – CDOs backed by
ABS, Corp. bonds, Bank loans 2,088 (42 ) 87 (2)
ABSs – Other 829 (10 ) 603 (13)
Financial Industry – Banking 2,522 (106 ) 663 (39)
Financial Industry – Insurance 646 (36 ) 231 (7)
Financial Industry – Other 1,523 (69 ) 1,411 (10)
Industrial 10,073 (684 ) 3,305 (131)
Utility 1,258 (78 ) 375 (14)
Government 2,935 (164 ) 3,438 (122)
Other 194 (88 ) 193 (73)
Total held by Aegon Americas and
NL 24,528 (1,352 )
12,179
(462)
Held by other segments 4,415 (197 ) 1,680 (31)
Total 28,943 (1,550 ) 13,858 (493)
As of December 31, 2018, there are EUR 4,370 million
(December 31, 2017: EUR 6,392 million) of gross unrealized
gains and EUR 1,352 million (December 31, 2017: EUR
462 million) of gross unrealized losses in the AFS debt
securities, money markets and other portfolio of Aegon Americas and
Aegon the Netherlands.
After generally strong performance through the first three quarters
of 2018, U.S. credit and equity markets weakened dramatically
during the fourth quarter. Credit spreads widened for the year,
while U.S. equity markets finished the year sharply lower.
Developed-world growth was fairly strong, with th |
