Form 6-K
Table of Contents

Securities and Exchange Commission

Washington, D.C. 20549

 

 

Form 6-K

 

 

 

Report of Foreign Issuer

Pursuant to Rule 13a-16 or 15d/16

of the Securities Exchange Act of 1934

November 2014

 

AEGON N.V.

 

Aegonplein 50

2591 TV THE HAGUE

The Netherlands


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Aegon’s condensed consolidated interim financial statements Q3 2014, dated November 13, 2014, are included as appendix and incorporated herein by reference.

 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    AEGON N.V.
   

 

    (Registrant)
Date: November 13, 2014     By  

/s/ J.H.P.M. van Rossum

      J.H.P.M. van Rossum
      Executive Vice President
      Corporate Controller


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Condensed consolidated income statement

     2   

Condensed consolidated statement of comprehensive income

     3   

Condensed consolidated statement of financial position

     4   

Condensed consolidated statement of changes in equity

     5   

Condensed consolidated cash flow statement

     6   

Notes to the condensed consolidated interim financial statements

     7   

 

Unaudited    1


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Condensed consolidated income statement

 

                                  

EUR millions

    Notes        Q3 2014        Q3 2013        YTD 2014        YTD 2013   
     

Premium income

    4        5,076         4,333         14,701         15,547    

Investment income

    5        1,998         1,877         6,086         5,938    

Fee and commission income

      619         475         1,572         1,442    

Other revenues

                                   

Total revenues

      7,695         6,687         22,364         22,933    

Income from reinsurance ceded

      604         806         2,047         2,170    

Results from financial transactions

    6        1,038         4,408         7,710         9,679    

Other income

            16         203         28         399    

Total income

      9,353         12,104         32,149         35,181    
     

Benefits and expenses

    7        9,253         11,595         30,962         33,778    

Impairment charges / (reversals)

    8        (3)        208         13         282    

Interest charges and related fees

      85         81         267         267    

Other charges

            28         18         34         135    

Total charges

      9,363         11,902         31,275         34,462    
     

Share in net result of joint ventures

      23         (3)        42         (6)   

Share in net result of associates

                          23         19    

Income before tax

      19         204         938         732    

Income tax (expense) / benefit

            33         32         (151)        (32)   

Net income

            52         236         787         700    
     

Net income attributable to:

             

Equity holders of Aegon N.V.

      52         236         787         699    

Non-controlling interests

                                   
     

Earnings per share (EUR per share)

    14               

Basic earnings per common share

      0.01        0.09         0.32         0.25    

Basic earnings per common share B

      -               0.01         0.01    

Diluted earnings per common share

      0.01        0.09         0.32         0.25    

Diluted earnings per common share B

            -               0.01         0.01    

Amounts for 2013 have been restated for the voluntary changes in accounting policies for deferred policy acquisition costs and longevity reserving. Refer to note 2.1 for details about these changes.

 

2    Unaudited


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Condensed consolidated statement of comprehensive income

 

                           
EUR millions   Q3 2014     Q3 2013     YTD 2014     YTD 2013  
     

Net income

    52        236        787        700   
     

Other comprehensive income:

           

Items that will not be reclassified to profit or loss:

           

Changes in revaluation reserve real estate held for own use

    3        (6     1        (5

Remeasurements of defined benefit plans

    (279     67        (722     356   

Income tax relating to items that will not be reclassified

    69        (31     194        (140
     

Items that may be reclassified subsequently to profit or loss:

           

Gains / (losses) on revaluation of available-for-sale investments

    1,154        (567     4,466        (3,487

(Gains) / losses transferred to the income statement on disposal and impairment of available-for-sale investments

    (104     157        (423     -   

Changes in cash flow hedging reserve

    249        (64     629        (375

Movement in foreign currency translation and net foreign investment hedging reserve

    995        (483     1,168        (464

Equity movements of joint ventures

    (8     3        4        (3

Equity movements of associates

    -        42        7        49   

Income tax relating to items that may be reclassified

    (264     164        (1,253     1,156   

Other

    2        -        (3     (3

Other comprehensive income for the period

    1,816        (718     4,068        (2,916

Total comprehensive income/(loss)

    1,868        (482     4,855        (2,216
     

Total comprehensive income/(loss) attributable to:

           

Equity holders of Aegon N.V.

    1,868        (479     4,856        (2,211

Non-controlling interests

    -        (3     (1     (5

Amounts for 2013 have been restated for the voluntary changes in accounting policies for deferred policy acquisition costs and longevity reserving. Refer to note 2.1 for details about these changes.

 

Unaudited    3


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Condensed consolidated statement of financial position                       
             Sep. 30,
2014
     Dec. 31,
2013
 

EUR millions

    Notes                     
   

Assets

         

Intangible assets

       2,264         2,272   

Investments

    9         151,469         135,409   

Investments for account of policyholders

    10         184,317         165,032   

Derivatives

    11         21,731         13,531   

Investments in joint ventures

       1,408         1,426   

Investments in associates

       507         470   

Reinsurance assets

       10,123         10,344   

Deferred expenses

    13         10,883         10,006   

Other assets and receivables

       7,597         7,586   

Cash and cash equivalents

             9,024         5,691   

Total assets

       399,321         351,767   
   

Equity and liabilities

         

Shareholders’ equity

       21,919         17,601   

Other equity instruments

    15         3,820         5,015   

Issued capital and reserves attributable to equity holders of Aegon N.V.

       25,739         22,616   

Non-controlling interests

             9         10   

Group equity

       25,748         22,626   
   

Trust pass-through securities

       135         135   

Subordinated borrowings

    16         744         44   

Insurance contracts

       112,095         101,769   

Insurance contracts for account of policyholders

       97,416         84,311   

Investment contracts

       14,717         14,545   

Investment contracts for account of policyholders

       89,103         82,608   

Derivatives

    11         18,328         11,838   

Borrowings

    17         14,059         12,020   

Other liabilities

             26,977         21,871   

Total liabilities

 

         

373,574

 

    

329,141

 

 

Total equity and liabilities

             399,321         351,767   

Amounts for 2013 have been restated for the voluntary changes in accounting policies for deferred policy acquisition costs and longevity reserving. Refer to note 2.1 for details about these changes.

 

4    Unaudited


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Condensed consolidated statement of changes in equity  
   
EUR millions   Share
capital 1
    Retained
earnings
    Revaluation
reserves
    Remeasurement
of defined
benefit plans
    Other
reserves
   

Other equity

instruments

   

Issued

capital and

reserves 2

    Non-
controlling
interests
    Total  
     

Nine months ended September 30, 2014

                   
     

At beginning of year

    8,701        8,361        3,023        (706     (1,778     5,015        22,616        10        22,626   
     

Net income recognized in the income statement

    -        787        -        -        -        -        787        -        787   
     

Other comprehensive income:

                   

Items that will not be reclassified to profit or loss:

                   

Changes in revaluation reserve real estate held for own use

    -        -        1        -        -        -        1        -        1   

Remeasurements of defined benefit plans

    -        -        -        (722     -        -        (722     -        (722

Income tax relating to items that will not be reclassified

    -        -        1        193        -        -        194        -        194   
     

Items that may be reclassified subsequently to profit or loss:

                   

Gains / (losses) on revaluation of available-for-sale investments

    -        -        4,466        -        -        -        4,466        -        4,466   

(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments

    -        -        (423     -        -        -        (423     -        (423

Changes in cash flow hedging reserve

    -        -        629        -        -        -        629        -        629   

Movement in foreign currency translation and net foreign investment hedging reserves

    -        -        -        (52     1,220        -        1,168        -        1,168   

Equity movements of joint ventures

    -        -        -        -        4        -        4        -        4   

Equity movements of associates

    -        -        -        -        7        -        7        -        7   

Disposal of group assets

    -        -        -        -        -        -        -        -        -   

Income tax relating to items that may be reclassified

    -        -        (1,221     -        (31     -        (1,253     -        (1,253

Other

    -        (2     -        -        -        -        (2     (1     (3

Total other comprehensive income

 

   

 

-

 

  

 

   

 

(2

 

 

   

 

3,452

 

  

 

   

 

(581

 

 

   

 

1,199

 

  

 

   

 

-

 

  

 

   

 

4,069

 

  

 

   

 

(1

 

 

   

 

4,068

 

  

 

Total comprehensive income/ (loss) for 2014

    -        785        3,452        (581     1,199        -        4,856        (1     4,855   
     

Issuance and purchase of treasury shares

    -        (67     -        -        -        -        (67     -        (67

Other equity instruments redeemed

    -        11        -        -        -        (1,184     (1,173     -        (1,173

Dividends paid on common shares

    (104     (266     -        -        -        -        (370       (370

Coupons on non-cumulative subordinated notes

    -        (17     -        -        -        -        (17     -        (17

Coupons on perpetual securities

    -        (102     -        -        -        -        (102     -        (102

Share options and incentive plans

    -        7        -        -        -        (11     (4     -        (4

At end of period

    8,597        8,712        6,475        (1,287     (579     3,820        25,739        9        25,748   
     

Nine months ended September 30, 2013

                   
     

At beginning of year (as previously stated)

    9,099        10,446        6,073        (1,085     (1,045     5,018        28,506        13        28,519   
     

Changes in accounting policies relating to deferred policy acquisition costs

    -        (1,472     43        -        (58     -        (1,487     -        (1,487

Changes in accounting policies relating to policy longevity methodology

    -        (925     -        -        -        -        (925     -        (925
     

At beginning of year, restated

    9,099        8,049        6,116        (1,085     (1,103     5,018        26,094        13        26,107   
     

Net income recognized in the income statement

    -        699        -        -        -        -        699        1        700   
     

Other comprehensive income:

                   

Items that will not be reclassified to profit or loss:

                   

Changes in revaluation reserve real estate held for own use

    -        -        (5     -        -        -        (5     -        (5

Remeasurements of defined benefit plans

    -        -        -        356        -        -        356        -        356   

Income tax relating to items that will not be reclassified

    -        -        1        (141     -        -        (140     -        (140
     

Items that may be reclassified subsequently to profit or loss:

                   

Gains / (losses) on revaluation of available-for-sale investments

    -        -        (3,487     -        -        -        (3,487     -        (3,487

Changes in cash flow hedging reserve

    -        -        (375     -        -        -        (375     -        (375

Movement in foreign currency translation and net foreign investment hedging reserves

    -        -        -        14        (478     -        (464     -        (464

Equity movements of joint ventures

    -        -        -        -        (3     -        (3     -        (3

Equity movements of associates

    -        -        -        -        49        -        49        -        49   

Disposal of group assets

    -        3        -        -        -        -        3        (3     -   

Income tax relating to items that may be reclassified

    -        -        1,145        -        11        -        1,156        -        1,156   

Transfer from / to other headings

    -        (3     3        -        -        -        -        -        -   

Other

    -        -        -        -        -        -        -        (3     (3

Total other comprehensive income

 

   

 

-

 

  

 

   

 

-

 

  

 

   

 

(2,718

 

 

   

 

229

 

  

 

   

 

(421

 

 

   

 

-

 

  

 

   

 

(2,910

 

 

   

 

(6

 

 

   

 

(2,916

 

 

Total comprehensive income / (loss) for 2013

    -        699        (2,718     229        (421     -        (2,211     (5     (2,216
     

Shares issued

    2        -        -        -        -        -        2        -        2   

Issuance and purchase of treasury shares

    -        (78     -        -        -        -        (78     -        (78

Dividends paid on common shares

    -        (240     -        -        -        -        (240     -        (240

Preferred dividend

    -        (83     -        -        -        -        (83     -        (83

Coupons on non-cumulative subordinated notes

    -        (15     -        -        -        -        (15     -        (15

Coupons on perpetual securities

    -        (105     -        -        -        -        (105     -        (105

Share options and incentive plans

    -        30        -        -        -        (22     8        -        8   

Repurchased and sold own shares

    (400     (1     -        -        -        -        (401     -        (401

At end of period

    8,701        8,256        3,398        (856     (1,524     4,996        22,971        8        22,979   

1 For a breakdown of share capital please refer to note 14.

2 Issued capital and reserves attributable to equity holders of Aegon N.V.

Amounts for 2013 have been restated for the voluntary changes in accounting policies for deferred policy acquisition costs and longevity reserving. Refer to note 2.1 for details about these changes.

 

Unaudited    5


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Condensed consolidated cash flow statement

 

             
EUR millions    YTD 2014      YTD 2013
   

Cash flow from operating activities

     2,477        (1,535)
   

Purchases and disposals of intangible assets

     (20)       (18)

Purchases and disposals of equipment and other assets

     (39)       (37)

Purchases, disposals and dividends of subsidiaries, associates
and joint ventures

     77        590 

Cash flow from investing activities

     18        535 
   

Issuance and purchase of treasury shares

     (147)       (25)

Dividends paid

     (266)       (323)

Repurchased and sold own shares

     -         (401)

Issuances, repurchases and coupons of perpetuals

     (1,305)       (140)

Issuances, repurchases and coupons of non-cumulative subordinated notes

     (23)       (20)

Issuances and repayments of borrowings

     2,354        (1,508)

Cash flow from financing activities

     612        (2,417)
   

Net increase / (decrease) in cash and cash equivalents

     3,108        (3,417)

Net cash and cash equivalents at January 1

     5,652        9,497 

Effects of changes in foreign exchange rates

     177        (56)

Net cash and cash equivalents at end of period

     8,937        6,024 
   
                

 

Cash and cash equivalents

     9,024        6,133 

Bank overdrafts

     (87)       (109)

Net cash and cash equivalents

     8,937        6,024 

 

6    Unaudited


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Notes to the condensed consolidated interim financial statements

Amounts in EUR millions, unless otherwise stated

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 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 consolidated subsidiaries (‘Aegon’ or ‘the Group’) have life insurance and pensions operations in over twenty-five 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. Its headquarters are located in The Hague, the Netherlands. The Group employs over 28,000 people worldwide.

1. Basis of presentation

The condensed consolidated interim financial statements as at, and for the nine months ended, September 30, 2014, have been prepared in accordance with IAS 34 ‘Interim Financial Reporting’, as adopted by the European Union (hereafter ‘IFRS’). They do not include all of the information required for a full set of financial statements prepared in accordance with IFRS and should therefore be read together with the 2013 consolidated financial statements of Aegon N.V. as included in Aegon’s Annual Report for 2013 and the disclosures provided in note 2.1 and 2.2 of this report which disclose the impact of voluntary changes in accounting policies that were made by Aegon effective January 1, 2014. Aegon’s Annual Report for 2013 is available on its website (aegon.com).

The condensed consolidated interim financial statements have been prepared in accordance with the historical cost convention as modified by the revaluation of investment properties and those financial instruments (including derivatives) and financial liabilities that have been measured at fair value. Certain amounts in prior periods have been reclassified to conform to the current year presentation. These reclassifications had no effect on net income, shareholders’ equity or earnings per share. The condensed consolidated interim financial statements as at, and for the nine months ended, September 30, 2014, were approved by the Executive Board on November 12, 2014.

The condensed consolidated interim financial statements are presented in euro (EUR) 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.

The published figures in these condensed consolidated interim financial statements are unaudited.

2. Significant accounting policies

All accounting policies and methods of computation applied in the condensed consolidated interim financial statements are the same as those applied in the 2013 consolidated financial statements, except for the newly applied accounting policies as described in note 2.1 and 2.2.

New IFRS accounting standards effective

The following standards, interpretations, amendments to standards and interpretations became effective in 2014:

t  

IFRS 10 Consolidated Financial Statements – Amendment Investment Entities;

t  

IAS 36 Impairment of Assets – Recoverable Amounts Disclosures for Non-Financial Assets; and

t  

IAS 39 Financial instruments: Recognition and Measurement – Amendment Novation of Derivatives and Continuation of Hedge Accounting.

 

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None of these new or revised standards and interpretations had a significant effect on the condensed consolidated interim financial statements for the period ended September 30, 2014.

For a complete overview of IFRS standards, published before January 1, 2014, that will be applied in future years, but were not early adopted by the Group, please refer to Aegon’s Annual Report for 2013.

Taxes

Taxes on income for the nine-month period, ended September 30, 2014, are accrued using the tax rate that would be applicable to expected total annual earnings.

Judgments and critical accounting estimates

Preparing the condensed consolidated interim financial statements requires management to make judgments, estimates and assumptions, including the likelihood, timing or amount of future transactions or events, that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from the estimates made.

In preparing the condensed consolidated interim financial statements, significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended December 31, 2013.

Exchange rates

Assets and liabilities are translated at the closing rates on the balance sheet 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 following exchange rates are applied for the condensed consolidated interim financial statements:

Closing exchange rates

                     

 

 

 

 

USD

 

 

  

 

  

 

 

 

 

GBP

 

 

  

 

 

September 30, 2014

 

 

 

 

 

1

 

 

  

 

  

 

 

 

 

    EUR

 

 

  

 

  

 

 

 

 

  1.2633

 

 

  

 

  

 

 

 

 

  0.7792

 

 

  

 

 

December 31, 2013

 

 

 

 

 

1

 

 

  

 

  

 

 

 

 

    EUR

 

 

  

 

  

 

 

 

 

  1.3780

 

 

  

 

  

 

 

 

 

  0.8320

 

 

  

 

Weighted average exchange rates

                     

 

 

 

 

USD

 

 

  

 

  

 

 

 

 

GBP

 

 

  

 

 

Nine months ended September 30, 2014

 

 

 

 

 

1

 

 

  

 

  

 

 

 

 

    EUR

 

 

  

 

  

 

 

 

 

  1.3554

 

 

  

 

  

 

 

 

 

  0.8120

 

 

  

 

 

Nine months ended September 30, 2013

 

 

 

 

 

1

 

 

  

 

  

 

 

 

 

    EUR

 

 

  

 

  

 

 

 

 

  1.3161

 

 

  

 

  

 

 

 

 

  0.8512

 

 

  

 

 

8    Unaudited


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2.1 Voluntary changes in accounting policies

Aegon adopted voluntary changes in accounting policies, effective January 1, 2014, which are applied retrospectively for all periods presented in this document, both in the main schedules and the associated footnotes. Changes to these policies relate to deferred policy acquisition costs and how Aegon accounts for longevity trends in the Netherlands. In the paragraphs below, details are provided for these changes in accounting policies.

Deferred policy acquisition costs

Aegon adopted a single group-wide accounting policy for deferred policy acquisition costs as of January 1, 2014. Upon initial adoption of IFRS, entities were permitted to continue existing accounting policies for insurance contracts even though such policies were often non-uniform between countries. Through adoption of a uniform, group-wide accounting policy, Aegon eliminates this lack of uniformity for the deferral of policy acquisition costs thereby providing the users of the financial statements with more meaningful information.

IFRS 4 neither prohibits nor requires the deferral of policy acquisition costs, nor does it prescribe what acquisition costs are deferrable. Thus, in developing the new policy, Aegon considered and sought alignment with the proposed description of deferrable policy acquisition costs within the IFRS Insurance Contracts Phase II exposure draft (‘Exposure Draft’). In the absence of detailed guidance in the Exposure Draft, Aegon also considered the recently adopted guidance in US GAAP (ASU 2010-26 ‘Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts’), if not conflicting with IFRS 4 or the Exposure Draft. IFRS currently differs from US GAAP by not limiting the deferral to expenses from successful efforts only and in the detail of how that principle is applied. Under the new accounting policy, deferred policy acquisition costs include costs that are directly attributable to the acquisition or renewal of insurance contracts. The previous accounting policy was based on a broader definition of costs that could be deferred.

Details of the impact of applying this voluntary change to previous periods are provided in the tables presented in note 2.2.

Longevity reserving

As of January 1, 2014, Aegon amended its policy to determine the insurance contract liability of Aegon the Netherlands to account for longevity risk assumed by Aegon. This change will provide more current information about the financial effects of changes in life expectancy of the insured population. It will supply users of the financial statements with more relevant decision making information on the insurance contract liability and will improve transparency on the longevity risks assumed by Aegon.

Mortality tables will be reviewed annually based on the prospective tables taking into account longevity trends. The new methodology will take into account the contractual cash flows related to the longevity risk assumed. Previously the methodology applied by Aegon the Netherlands considered realized mortalities based on retrospective mortality tables.

Details of the impact of applying this voluntary change to previous periods are provided in the tables presented in note 2.2.

 

Unaudited    9


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2.2 Impact of voluntary changes in accounting policies

 

 

Impact of voluntary changes in accounting policies on condensed consolidated income statement

 

 
    

 

YTD 2013
(previously
reported)

    Change in accounting policy     YTD 2013
(restated)
 
           

 

Deferred policy
acquisition
costs

    Longevity
reserving
        
EUR millions                        
         

Benefits and expenses

    33,849         32         (103)        33,778    
   

Income tax (expense) / benefit

    13         (24)        (21)        (32)   
   

Net effect

            (56)        82            
   

Earnings per share (EUR per share)

         

Basic earnings per common share

    0.23                0.02         0.25    

Basic earnings per common share B

    0.01                       0.01    

Diluted earnings per common share

    0.23                0.02         0.25    

Diluted earnings per common share B

    0.01                       0.01    
   

Earnings per common share calculation

         

Net income attributable to equity holders of Aegon N.V.

    673         (56)        82         699    

Preferred dividend

    (83)                      (83)   

Coupons on other equity instruments

    (120)                      (120)   

Earnings attributable to common shareholders

    470         (56)        82         496    
   

Weighted average number of common shares outstanding (in millions)

    2,017                       2,017    

Weighted average number of common shares B outstanding (in millions)

    295                       295    
       

 

Impact of voluntary changes in accounting policies on condensed consolidated statement of comprehensive income

 
    

 

YTD 2013
(previously
reported)

    Change in accounting policy     YTD 2013
(restated)
 
           

 

Deferred policy
acquisition
costs

    Longevity
reserving
        
EUR millions                        
         

Net income

    674         (56)        82         700    
   

Gains / (losses) on revaluation of available-for-sale investments

    (3,461)        (26)               (3,487)   

Movement in foreign currency translation and net foreign investment hedging reserves

    (510)        46                (464)   

Income tax relating to items that may be reclassified

    1,147                       1,156    

Net effect other comprehensive income for the period

            29                   

Net effect comprehensive income

            (27)        82            
   

Total comprehensive income attributable to:

         

Equity holders of Aegon N.V.

    (2,266)        (27)        82         (2,211)   

Non-controlling interests

    (5)                      (5)   

 

10    Unaudited


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Impact of changes in accounting policies on the consolidated statement of financial position

 

 
     December 31,
2013 1)
    Change in accounting policy     Reclassification 2)    

 

December 31,
2013
(restated)

 
           

 

Deferred policy
acquisition costs

    Longevity
reserving
               
EUR millions                              
           

Assets

           

Intangible assets

    2,246         26                       2,272    

Investments in joint ventures

    1,427         (1)                      1,426    

Reinsurance assets

    10,345         (2)                      10,344    

Other assets and receivables

    7,429                       156         7,586    

Deferred expenses

    12,040         (2,035)                      10,006    
   

Equity and liabilities

           

Shareholders’ equity

    19,966         (1,533)        (832)               17,601    
   

Insurance contracts

    100,642         54         1,073                101,769    

Other liabilities

    22,487         (531)        (241)        156         21,871    

1 As reported in Aegon’s Annual Report dated March 19, 2014.

2 As a result of the voluntary accounting changes the balance of the Dutch tax group as at December 31, 2013 changed from a deferred tax liability to a deferred tax asset.

 

 

Impact of voluntary changes in accounting policies on consolidated statement of changes in equity

 

 
     December 31,
2013 1)
    Change in accounting policy    

 

December 31,
2013
(restated)

 
           

 

Deferred policy
acquisition costs

    Longevity
reserving
        

EUR millions

         
         

Share capital

    8,701                       8,701    

Retained earnings

    10,750         (1,557)        (832)        8,361    

Revaluation reserves

    2,998         26                3,023    

Remeasurement of defined benefit plans

    (706)                      (706)   

Other reserves

    (1,777)        (1)               (1,778)   

Shareholders’ equity

    19,966         (1,533)        (832)        17,601    

1 As reported in Aegon’s Annual Report dated March 19, 2014.

 

Unaudited    11


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3. Segment information

3.1 Income statement

 

EUR millions   Americas     The
Netherlands
    United
Kingdom
    New Markets     Holding and
other
activities
    Eliminations     Segment
Total
   

 

Joint
ventures and
associates
eliminations

    Consolidated  

Three months ended September 30, 2014

  

               
     

Underlying earnings before tax geographically

    134         127         28         40         (37)               291                295    

Fair value items

    (159)        (101)                      (36)               (296)        (7)        (304)   

Realized gains / (losses) on investments

    14         52         10                              85         (1)        84    

Impairment charges

    (4)        (5)               (14)                      (23)               (23)   

Impairment reversals

    25                                            28                28    

Other income / (charges)

    (27)        (6)        (10)        14         (1)               (29)               (29)   

Run-off businesses

    (31)                                           (31)               (31)   

Income/ (loss) before tax

    (48)        70         27         48         (74)               23         (4)        19    

Income tax (expense) / benefit

    52         (26)        (2)        (12)        17                29                33    

Net income/ (loss)

           44         25         35         (57)               52                52    

Inter-segment underlying earnings

    (44)        (14)        (15)        69                     
     

Revenues

                   

Life insurance gross premiums

    1,580         1,204         1,243         443                (18)        4,452         (89)        4,363    

Accident and health insurance

    485         34         14         37                (1)        570         (1)        569    

General insurance

           107                52                       160         (16)        144    

Total gross premiums

    2,065         1,345         1,257         533                (19)        5,181         (105)        5,076    

Investment income

    823         637         487         61         79         (79)        2,009         (11)        1,998    

Fee and commission income

    454         81         11         159                (58)        647         (28)        619    

Other revenues

                                                              

Total revenues

    3,343         2,062         1,755         753         83         (156)        7,840         (145)        7,695    

Inter-segment revenues

                         73         80                                    

 

EUR millions   Americas     The
Netherlands
    United
Kingdom
    New Markets     Holding and
other
activities
    Eliminations     Segment
Total
   

 

Joint
ventures and
associates
eliminations

    Consolidated  

Three months ended September 30, 2013 

  

               
     

Underlying earnings before tax geographically

    367         114         22         72         (25)               550         (18)        532    

Fair value items

    (489)        37         (8)        (12)        15                (457)               (453)   

Realized gains / (losses) on investments

           190                (4)                      202                204    

Impairment charges

    (44)        (13)        (12)        (4)                      (73)               (73)   

Impairment reversals

    27                                            27                27    

Other income / (charges)

    90         (2)        (1)        (124)        (5)               (42)               (35)   

Run-off businesses

                                                              

Income/ (loss) before tax

    (40)        326         10         (72)        (15)               209         (5)        204    

Income tax (expense) / benefit

    53         (94)        55                              27                32    

Net income/ (loss)

    13         232         65         (65)        (9)               236                236    

Inter-segment underlying earnings

    (42)        (15)        (14)        65                     
     

Revenues

                   

Life insurance gross premiums

    1,550         431         1,487         304                (18)        3,754         (96)        3,658    

Accident and health insurance

    455         41                41                (2)        537         (2)        535    

General insurance

           104                55                       159         (19)        140    

Total gross premiums

    2,005         576         1,487         400                (20)        4,450         (117)        4,333    

Investment income

    832         587         413         54         84         (83)        1,887         (10)        1,877    

Fee and commission income

    314         78         12         150                (59)        495         (20)        475    

Other revenues

                                                     (1)          

Total revenues

    3,152         1,241         1,912         605         87         (162)        6,835         (148)        6,687    

Inter-segment revenues

                         72         84                                    

 

12    Unaudited


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EUR millions   Americas     The
Netherlands
    United
Kingdom
    New Markets     Holding and
other
activities
    Eliminations     Segment
Total
   

 

Joint
ventures and
associates
eliminations

    Consolidated  

Nine months ended September 30, 2014

  

               
     

Underlying earnings before tax geographically

    767         386         86         163         (100)               1,303         (4)        1,299    

Fair value items

    (326)        (268)        (16)               (73)               (675)        (2)        (677)   

Realized gains / (losses) on investments

    74         183         123         12                       392         (2)        390    

Impairment charges

    (17)        (14)               (38)                      (69)               (69)   

Impairment reversals

    56                                            63                63    

Other income / (charges)

    (35)        (14)        (12)        13         (2)               (49)        (1)        (50)   

Run-off businesses

    (18)                                           (18)               (18)   

Income/ (loss) before tax

    502         281         181         157         (174)               947         (9)        938    

Income tax (expense) / benefit

    (62)        (62)        (38)        (44)        46                (160)               (151)   

Net income/ (loss)

    440         219         143         113         (128)               787                787    

Inter-segment underlying earnings

    (128)        (43)        (43)        199         15              
     

Revenues

                   

Life insurance gross premiums

    4,606         3,243         3,634         1,302                (54)        12,732         (262)        12,470    

Accident and health insurance

    1,356         203         43         128                (4)        1,730         (10)        1,720    

General insurance

           397                167                       564         (53)        511    

Total gross premiums

    5,962         3,843         3,677         1,596                (58)        15,026         (325)        14,701    

Investment income

    2,424         1,957         1,560         175         237         (235)        6,118         (32)        6,086    

Fee and commission income

    1,095         238         31         449                (171)        1,642         (70)        1,572    

Other revenues

                                                     (1)          

Total revenues

    9,482         6,038         5,268         2,221         246         (463)        22,792         (428)        22,364    

Inter-segment revenues

    11                       213         239                                    

 

EUR millions   Americas     The
Netherlands
    United
Kingdom
    New Markets     Holding and
other
activities
    Eliminations     Segment
Total
   

 

Joint
ventures and
associates
eliminations

    Consolidated  

Nine months ended September 30, 2013 

  

               
     

Underlying earnings before tax geographically

    1,015         330         67         181         (97)        (1)        1,495         (42)        1,453    

Fair value items

    (877)        (72)        (11)        (23)        (39)               (1,022)        32         (990)   

Realized gains / (losses) on investments

    82         276         38         (1)                      395                396    

Impairment charges

    (100)        (35)        (28)        (10)                      (173)               (173)   

Impairment reversals

    52                                            52                52    

Other income / (charges)

    84         (29)        (47)        (22)        (5)               (19)               (13)   

Run-off businesses

                                                              

Income/ (loss) before tax

    263         470         19         125         (141)        (1)        735         (3)        732    

Income tax (expense) / benefit

    10         (115)        56         (21)        35                (35)               (32)   

Net income/ (loss)

    273         355         75         104         (106)        (1)        700                700    

Inter-segment underlying earnings

    (131)        (43)        (43)        196         21              
     

Revenues

                   

Life insurance gross premiums

    4,641         3,062         5,033         1,023                (56)        13,704         (341)        13,363    

Accident and health insurance

    1,351         213                136                (6)        1,700         (10)        1,690    

General insurance

           382                137                       519         (25)        494    

Total gross premiums

    5,992         3,657         5,033         1,296                (62)        15,923         (376)        15,547    

Investment income

    2,528         1,684         1,595         179         255         (255)        5,986         (48)        5,938    

Fee and commission income

    942         241         68         425                (180)        1,496         (54)        1,442    

Other revenues

                                                     (3)          

Total revenues

    9,466         5,582         6,696         1,902         265         (497)        23,414         (481)        22,933    

Inter-segment revenues

    15                       221         259                                    

Non-IFRS measures

For segment reporting purposes the following non-IFRS financial measures are included: 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. Aegon believes that its non-IFRS measures provide 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 the non-IFRS measures presented here. 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. Readers are cautioned to consider carefully the different ways in which Aegon and its peers present similar information before comparing them.

 

Unaudited    13


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Aegon believes the non-IFRS measures shown herein, when read together with Aegon’s reported IFRS financial statements, provide meaningful supplemental information for the investing public to evaluate Aegon’s business after eliminating the impact of current IFRS accounting policies for financial instruments and insurance contracts, which embed a number of accounting policies alternatives that companies may select in presenting their results (i.e. companies can use different local GAAPs to measure the insurance contract liability) and that can make the comparability from period to period difficult.

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.

Underlying earnings

Underlying earnings 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. Below we describe items that are excluded from underlying earnings.

Fair value items

Fair value items include the over- or underperformance of investments and guarantees held at fair value for which the expected long-term return is included in underlying earnings. Changes to these long-term return assumptions are also included in the fair value items.

In addition, hedge ineffectiveness on hedge transactions, fair value changes on economic hedges without natural offset in earnings and for which no hedge accounting is applied and fair value movements on real estate are included under fair value items.

Certain assets held by Aegon Americas, Aegon the Netherlands and Aegon UK 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 exclude any over- or underperformance compared to management’s long-term expected return on assets.

Based on current holdings and asset returns, the long-term expected return on an annual basis is 8-10%, 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, including the segregated funds offered by Aegon Canada and the total return annuities and guarantees on variable annuities of Aegon USA. 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 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 the Netherlands and Variable Annuities Europe (included in New Markets) are excluded from underlying earnings, and the long-term expected return for these guarantees is set at zero.

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 and reported under fair value items.

Realized gains or losses on investments

This line item includes realized gains and losses on available-for-sale investments, mortgage loans and other loan portfolios.

 

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Impairment charges/reversals

Impairment charges 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.

Other income or charges

Other income or charges is used to report any items which cannot be directly allocated to a specific line of business. Also items that are outside the normal course of business are reported under this heading.

Other charges include restructuring charges that are considered other charges for segment reporting purposes because they are outside the normal course of business. In the condensed consolidated interim financial statements, these charges are included in operating expenses.

Run-off businesses

Includes underlying results of business units where management has decided to exit the market and to run-off the existing block of business. Currently, this line includes results related to the run-off of the institutional spread-based business, structured settlements blocks of business, bank-owned and corporate-owned life insurance (BOLI/COLI) business, and the sale of the life reinsurance 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.

Share in earnings of joint ventures and associates

Earnings from Aegon’s joint ventures in Spain, China and Japan and Aegon’s associates in India, Brazil and Mexico are reported on an underlying earnings basis.

Actuarial assumption and model updates

Assumptions are reviewed and updated periodically, typically in the third quarter, based on historical experience and observable market data, including market transactions such as acquisitions and reinsurance transactions. 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 the third quarter of 2014, Aegon implemented model and assumption updates resulting in a net EUR 299 million charge to income before tax.

Charges arising from assumption and model updates included in underlying earnings before tax amounted to EUR 221 million.

t  

A charge for actuarial assumption updates in the Americas Life & Protection business amounted to EUR 265 million, and was primarily related to updated mortality assumptions for the older ages. Model updates, including changes to modeled premium persistency, had a negative impact of EUR 29 million.

t  

Actuarial assumption changes and model updates in the Americas Individual Savings & Retirement business resulted in a gain of EUR 100 million. Updated assumptions in variable annuities related to policyholder behavior on partial withdrawals accounted for the majority of an aggregated EUR 129 million benefit. A EUR 29 million charge was mainly caused by updated assumption for the asset portfolio at fixed annuities.

Actuarial assumption changes and model updates not included in underlying earnings resulted in a charge of EUR 78 million to income before tax. This was mainly caused by adjusting the modeled hedging costs for the GMWB variable annuity book, improving the hedging models for indexed universal life products and updating the discount rate on reserves in the run-off life reinsurance book.

 

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3.2 Investments geographically

Amounts included in the tables on investments geographically are presented on an IFRS basis.

 

                                                EUR millions (unless otherwise stated)  
Americas
USD millions
    United
Kingdom
GBP millions
     September 30, 2014   Americas     The
Netherlands
    United
Kingdom
    New
Markets
   

Holding &

other
activities

    Eliminations    

Total

EUR

 
         Investments                  
  2,062        147       Shares     1,632         259         189         26         75         (1     2,180    
  80,282        9,377       Debt securities     63,550         22,289         12,034         3,791                -        101,664    
  10,991        -       Loans     8,700         26,516                498         11         -        35,726    
  11,923        348       Other financial assets     9,438         330         446         10         107         -        10,331    
  972        -       Investments in real estate     770         796                              -        1,568    
  106,231        9,872      

Investments general account

    84,090         50,190         12,669         4,327         193         (1     151,469    
  1,537        12,983       Shares     1,216         9,254         16,662         412                (10     27,534    
  6,380        9,401       Debt securities     5,050         18,541         12,065         269                -        35,925    
  101,380        22,158      

Unconsolidated investment funds

    80,250                28,437         6,275                -        114,962    
  276        3,263       Other financial assets     219         393         4,187         12                -        4,811    
  -        845       Investments in real estate                   1,085                       -        1,085    
  109,572        48,650      

Investments for account of policyholders

    86,735         28,188         62,435         6,969                (10     184,317    
       
  215,804        58,521      

Investments on balance sheet

    170,825         78,378         75,104         11,296         193         (11     335,785    
  166,188        391      

Off balance sheet investments third parties

    131,550         927         501         69,453                -        202,432    
  381,991        58,912      

Total revenue generating investments

    302,376         79,305         75,606         80,749         193         (11     538,217    
         Investments                  
  88,018        9,624       Available-for-sale     69,673         22,307         12,351         3,806        12         -        108,149    
  10,991        -       Loans     8,700         26,516                498         11         -        35,726    
  115,822        48,052      

Financial assets at fair value through profit or loss

    91,682         28,759         61,669         6,990         170         (11     189,258    
  972        845       Investments in real estate     770         796         1,085                       -        2,652    
  215,804        58,521      

Total investments on balance sheet

    170,825         78,378         75,104         11,296         193         (11     335,785    
       
  12        -      

Investments in joint ventures

    10         789                609                -        1,408    
  112        18       Investments in associates     88         19         23         371                -        502    
  30,317        4,245       Other assets     23,999         28,236         5,448         3,288         36,262         (35,612     61,621    
  246,245        62,784      

Consolidated total assets

    194,922         107,423         80,575         15,563         36,456         (35,623     399,316    

 

                                               EUR millions (unless otherwise stated)  

Americas

USD millions

    United
Kingdom
GBP millions
    December 31, 2013   Americas     The
Netherlands
   

United

Kingdom

   

New

Markets

    Holding &
other
activities
    Eliminations    

Total

EUR

 
        Investments                  
  2,007        46      Shares     1,456         447         55         45         36         (2     2,036    
  78,719        8,719      Debt securities     57,125         19,095         10,479         2,812                -        89,511    
  11,289        1      Loans     8,192         24,708                508                -        33,409    
  11,418        173      Other financial assets     8,286         293         208         30         103         -        8,920    
  993        -      Investments in real estate     721         810                              -        1,532    
  104,425        8,938     

Investments general account

    75,780         45,354         10,743         3,396         139         (2     135,409    
  1,804        12,792      Shares     1,309         8,450         15,375         297                (8     25,423    
  6,675        9,643      Debt securities     4,844         16,791         11,590         307                -        33,531    
  94,950        21,776     

Unconsolidated investment funds

    68,905                26,173         5,744                -        100,822    
  230        3,062      Other financial assets     167         405         3,680                       -        4,261    
  -        828      Investments in real estate                   996                       -        996    
  103,659        48,101     

Investments for account of policyholders

    75,224         25,646         57,813         6,357                (8     165,032    
       
  208,084        57,039     

Investments on balance sheet

    151,004         70,999         68,556         9,754         139         (10     300,441    
  155,179        239     

Off balance sheet investments third parties

    112,611         994         287         60,951                -        174,843    
  363,262        57,277     

Total revenue generating investments

    263,616         71,993         68,843         70,705         139         (10     475,285    
       

 

Investments

                 
  86,347        8,892      Available-for-sale     62,661         19,452         10,687         2,827                -        95,635    
  11,289        1      Loans     8,192         24,708                508                -        33,409    
  109,455        47,318     

Financial assets at fair value through profit or loss

    79,430         26,029         56,872         6,418         131         (10     168,870    
  993        828      Investments in real estate     721         810         996                       -        2,528    
  208,084        57,039     

Total investments on balance sheet

    151,004         70,999         68,556         9,754         139         (10     300,441    
       
  -        -     

Investments in joint ventures

           819                607                -        1,426    
  112        16      Investments in associates     81         19         20         350                -        470    
  31,112        4,227      Other assets     22,577         17,067         5,080         2,936         29,869         (28,103     49,430    
  239,307        61,282      Consolidated total assets     173,663         88,903         73,656         13,647         30,008         (28,113     351,767    

4. Premium income and premium to reinsurers

 

                              

EUR millions

    Q3 2014        Q3 2013        YTD 2014        YTD 2013   
     

Gross

           

Life

    4,363         3,658         12,470         13,363    

Non-Life

    713         675         2,231         2,184    

Total

    5,076         4,333         14,701         15,547    
     

Reinsurance 1

           

Life

    571         694         1,890         2,059    

Non-Life

    75         85         227         267    

Total

    646         779         2,117         2,326    

1 Premiums paid to reinsurers are included within Benefits and expenses in the condensed consolidated income statement.

 

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5. Investment income

 

 

                           

EUR millions

    Q3 2014        Q3 2013        YTD 2014        YTD 2013   
     

Interest income

    1,673         1,712         5,052         5,108    

Dividend income

    298         138         939         744    

Rental income

    27         27         94         86    

Total investment income

    1,998         1,877         6,086         5,938    
     

Investment income related to general account

    1,426         1,398         4,226         4,195    

Investment income for account of policyholders

    572         479         1,859         1,743    

Total

    1,998         1,877         6,086         5,938    

6. Results from financial transactions

 

 

                           

EUR millions

    Q3 2014        Q3 2013        YTD 2014        YTD 2013   
     

Net fair value change of general account financial investments at FVTPL other than derivatives

    35         98         196         221    

Realized gains /(losses) on financial investments

    86         207         394         395    

Gains /(losses) on investments in real estate

    (5)        (8)        (19)        (34)   

Net fair value change of derivatives

    342         (432)        678         (911)   

Net fair value change on for account of policyholder financial assets at FVTPL

    562         4,543         6,430         10,005    

Net fair value change on investments in real estate for account of policyholders

    14         (5)        42         (38)   

Net foreign currency gains /(losses)

    (6)               (18)          

Net fair value change on borrowings and other financial liabilities

    11                       36    

Realized gains /(losses) on repurchased debt

    (1)                      (1)   

Total

    1,038         4,408         7,710         9,679    

Net fair value change on for accounts of policyholder financial assets at FVTPL is offset by amounts in the Claims and benefits line reported in note 7 - Benefits and expenses.

7. Benefits and expenses

 

 

                           

EUR millions

    Q3 2014        Q3 2013        YTD 2014        YTD 2013   
     

Claims and benefits

    8,669         10,888         29,007         31,635    

Employee expenses

    508         502         1,490         1,542    

Administration expenses

    286         292         838         812    

Deferred expenses

    (392)        (319)        (1,048)        (977)   

Amortization charges

    181         232         674         766    

Total

    9,253         11,595         30,962         33,778    

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. In addition, commissions and expenses and premium paid to reinsurers are included. Claims and benefits fluctuates mainly as a result of changes in technical provisions resulting from fair value changes on for account of policyholder financial assets included in Results from financial transactions (note 6).

 

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8. Impairment charges/(reversals)

 

                              
                          
EUR millions   Q3 2014     Q3 2013     YTD 2014     YTD 2013  
     

Impairment charges / (reversals) comprise:

           

Impairment charges on financial assets, excluding receivables 1

    26         72         75         175    

Impairment reversals on financial assets, excluding receivables 1

    (28)        (27)        (63)        (52)   

Impairment charges / (reversals) on non-financial assets and receivables

    (1)        163                159    

Total

    (3)        208         13         282    
     

Impairment charges on financial assets, excluding receivables, from:

           

Shares

                           

Debt securities and money market instruments

           53         14         116    

Loans

    21         18         56         58    

Investments in associates

                           

Total

    26         72         75         175    
     

Impairment reversals on financial assets, excluding receivables, from:

           

Debt securities and money market instruments

    (25)        (26)        (54)        (48)   

Loans

    (3)        (1)        (9)        (4)   

Total

    (28)        (27)        (63)        (52)   

1 Impairment charges / (reversals) on financial assets, excluding receivables, are excluded from underlying earnings before tax for segment reporting (refer to note 3).

9. Investments

 

                     
                  
EUR millions     Sep. 30, 2014            Dec. 31, 2013   
     

Available-for-sale (AFS)

    108,149           95,635    

Loans

    35,726           33,409    

Financial assets at fair value through profit or loss (FVTPL)

    6,026             4,833    

Financial assets, excluding derivatives

    149,901           133,877    

Investments in real estate

    1,568             1,532    

Total investments for general account, excluding derivatives

    151,469             135,409    

 

Total financial assets, excluding derivatives

 

                              
      AFS         FVTPL         Loans         Total   
   

Shares

    703         1,477         -         2,180   

Debt securities

    99,799         1,864         -         101,664   

Money market and other short-term investments

    6,410         764         -         7,173   

Mortgages loans

    -         -         31,540         31,540   

Private loans

    -         -         1,806         1,806   

Deposits with financial institutions

    -         -         180         180   

Policy loans

    -         -         2,058         2,058   

Other

    1,237         1,921         141         3,298   

September 30, 2014

    108,149         6,026         35,726         149,901   
   
     AFS      FVTPL      Loans      Total  
   

Shares

    787         1,250         -         2,036   

Debt securities

    88,162         1,350         -         89,511   

Money market and other short-term investments

    5,524         449         -         5,974   

Mortgages loans

    -         -         29,245         29,245   

Private loans

    -         -         1,783         1,783   

Deposits with financial institutions

    -         -         292         292   

Policy loans

    -         -         1,955         1,955   

Other

    1,163         1,784         135         3,082   

December 31, 2013

    95,635         4,833         33,409         133,877   

 

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10. Investments for account of policyholders

 

                   
                 
EUR millions   Sep. 30, 2014        Dec. 31, 2013  
     

Shares

    27,534            25,423    

Debt securities

    35,925            33,531    

Money market and short-term investments

    1,058            850    

Deposits with financial institutions

    3,362            3,006    

Unconsolidated investment funds

    114,962            100,822    

Other

    391            404    

Total investments for account of policyholders at fair value through profit or loss, excluding derivatives

    183,232            164,037    

Investment in real estate

    1,085            996    

Total investments for account of policyholders

    184,317            165,032    

11. Derivatives

The movements in derivative balances mainly result from changes in interest rates and other market movements during the period.

12. Fair value

The following tables provide an analysis of financial instruments recorded at fair value on a recurring basis by level of the fair value hierarchy:

 

 

Fair value hierarchy

 

                                    
                                   
         
EUR millions   Level I        Level II        Level III        Total  
     

As at September 30, 2014

                    
     

Financial assets carried at fair value

                    

Available-for-sale investments

                    

Shares

    124            304            275            703    

Debt securities

    25,576            70,675            3,549            99,799    

Money markets and other short-term instruments

              6,410                      6,410    

Other investments at fair value

    30            331            876            1,237    

Total Available-for-sale investments

    25,729            77,719            4,700            108,149    
     

Fair value through profit or loss

                    

Shares

    1,204            273                      1,477    

Debt securities

    34            1,820            10            1,864    

Money markets and other short-term instruments

    95            669                      764    

Other investments at fair value

              708            1,212            1,921    

Investments for account of policyholders 1

    109,730            71,468            2,035            183,232    

Derivatives

    26            21,427            278            21,731    

Total Fair value through profit or loss

    111,090            96,365            3,534            210,989    

Total financial assets at fair value

    136,820            174,084            8,234            319,138    
     

Financial liabilities carried at fair value

                    

Investment contracts for account of policyholders 2

    14,103            22,457            128            36,688    

Borrowings 3

    504            545                      1,049    

Derivatives

    20            16,169            2,140            18,328    

Total financial liabilities at fair value

    14,627            39,171            2,267            56,065    

 

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Fair value hierarchy

 

                           
         

 

EUR millions

  Level I     Level II     Level III     Total  

 

As at December 31, 2013

           
     

 Financial assets carried at fair value Available-for-sale investments

           

 Shares

    202          262          322          787     

 Debt securities

    20,815          64,184          3,162          88,162     

 Money markets and other short-term instruments

    -          5,524          -          5,524     

 Other investments at fair value

    25          312          826          1,163     

 Total Available-for-sale investments

    21,043          70,282          4,310          95,635     
     

 Fair value through profit or loss

           

 Shares

    1,120          130          -          1,250     

 Debt securities

    64          1,268          17          1,350     

 Money markets and other short-term instruments

    95          354          -          449     

 Other investments at fair value

    -          567          1,217          1,784     

 Investments for account of policyholders 1

    99,040          63,008          1,989          164,037     

 Derivatives

    69          13,134          328          13,531     

 Total Fair value through profit or loss

    100,388          78,461          3,552          182,401     

 Total financial assets at fair value

    121,431          148,744          7,862          278,036     
     

 Financial liabilities carried at fair value

           

 Investment contracts for account of policyholders 2

    12,872          19,641          114          32,628     

 Borrowings 3

    517          500          -          1,017     

 Derivatives

    24          10,383          1,431          11,838     

 Total financial liabilities at fair value

    13,413          30,524          1,545          45,482     

 1 The investments for account of policyholders included in the table above represents only those investments carried at fair value through profit or loss.

 2 The investment contracts for account of policyholders included in the table above represents only those investment contracts carried at fair value.

 3 Total borrowings on the statement of financial position contain borrowings carried at amortized cost that are not included in the above schedule.

Significant transfers between Level I, Level II and Level III

Aegon’s policy is to record transfers of assets and liabilities between Level I, Level II and Level III at their fair values as of the beginning of each reporting period.

The table below shows transfers between Level I and II for financial assets and financial liabilities recorded at fair value on a recurring basis during the nine-month period ended September 30, 2014.

 

 

Fair value transfers

                           
EUR millions   YTD 2014     Full Year 2013  
     
 
 
Transfers
Level I to
Level II 
  
  
  
   
 
 
Transfers
Level II to
Level I 
  
  
  
   
 
 
Transfers
Level I to
Level II 
  
  
  
   
 
 
Transfers
Level II to
Level I 
  
  
  

 Financial assets carried at fair value Available-for-sale investments

           

 Shares

    -          -          -            

 Debt securities

    -          44          1          209    

 Total

    -          44          2          210    
     

 Fair value through profit or loss

           

 Investments for account of policyholders

    -          12          -          263    

 Total

    -          12          -          263    

 Total financial assets at fair value

    -          56          2          473    

Transfers are identified based on transaction volume and frequency, which are indicative of an active market.

 

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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.

 

 

Roll forward of Level III financial instruments

 

 
EUR millions   January 1,
2014
    Total gains /
losses in
income
statement 1
   

Total gains /
losses in OCI

2

    Purchases     Sales     Settlements     Net exchange
differences
    Reclassification     Transfers from
Level I and
Level II
    Transfers to
Level I and
Level II
    September 30,
2014
   

 

Total unrealized gains
and losses for the
period recorded in the
P&L for  instruments
held at September 30,
2014 ³

 

 Financial assets carried at fair value available-for-sale investments

                           

 Shares

    322         45         (16)        54         (141)               11                       (1)        275           

 Debt securities

    3,162         23         82         904         (290)        (158)        146                227         (548)        3,549           

 Other investments at fair value

    826         (81)        (12)        100         (40)        (7)        73                17                876           
      4,310         (13)        54         1,058         (470)        (165)        230                244         (549)        4,700           
     

 Fair value through profit or loss

                           

 Debt securities

    17         (1)                             (9)                                    10           

 Other investments at fair value

    1,217         43                26         (201)               103                80         (55)        1,212         50    

 Investments for account of policyholders

    1,989         119                460         (505)               29                116         (174)        2,035         109    

 Derivatives

    328         (41)                      (16)               10         (4)                      278         (61)   
      3,552         121                486         (722)        (9)        143         (4)        197         (230)        3,534         99    
     

 Financial liabilities carried at fair value

                           

 Investment contracts for account of policyholders

    114                                            11                              128           

 Derivatives

    1,431         714                       (41)               40         (4)                      2,140         723    
      1,545         717                       (41)               51         (4)                      2,267         726    

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 and (Gains)/ losses transferred to the income statement on disposal and impairment of available-for-sale investment of the statement of other comprehensive income.

3 Total gains / (losses) for the period during which the financial instrument was in Level III.

During the first nine months of 2014, 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 441 million (full year 2013: EUR 785 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 the first nine months of 2014, Aegon transferred EUR 778 million (full year 2013: EUR 756 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.

 

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The table below presents information about the significant unobservable inputs used for recurring fair value measurements for certain Level III financial instruments.

 

 

Overview of significant unobservable inputs

 

               
EUR millions  

 

Carrying amount
September 30,
2014

    Valuation  technique 1     Significant unobservable input 2     Range (weighted average)  

Financial assets carried at fair value available-for-sale investments

         

Shares

    134          Broker quote         n.a.         n.a.    
      141          Other         n.a.         n.a.    
      275                             
   

Debt securities

         
      2,953          Broker quote         n.a.         n.a.    
      102          Discounted cash flow         Discount rate         3% - 8% (7.89%)    
      254          Discounted cash flow         Credit spread         0.8% - 3.3% (2.64%)    
      240          Other         n.a.         n.a.    
      3,549                             
   

Other investments at fair value

         

Tax credit investments

    722          Discounted cash flow         Discount rate         8.5%   

Investment funds

    102          Net asset value         n.a.         n.a.    

Other

    51          Other         n.a.         n.a.    
      876                             

September 30, 2014

                               
   

Fair value through profit or loss

         

Debt securities

    10          Other         n.a.         n.a.    
      10                             
   

Other investments at fair value

         

Investment funds

    1,206          Net asset value         n.a.         n.a.    

Other

    6          Other         n.a.         n.a.    
      1,212                             
   

Derivatives 3

         
   

Longevity swap

    91          Discounted cash flow         Mortality         n.a.    

Other

    96          Other         n.a.         n.a.    
      187                             

September 30, 2014

                               

Total financial assets at fair value 3

                               
   

Financial liabilities carried at fair value

         

Derivatives

         

Embedded derivatives in insurance contracts

    2,077          Discounted cash flow         Credit spread         0.3%   

Other

    62          Other         n.a.         n.a.    

Total financial liabilities at fair value

    2,140                             

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 no significant unobservable assumption has been identified and used.

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 EUR 91 million.

The description of Aegon’s methods of determining fair value is included in the consolidated financial statements for 2013. For reference purposes, the valuation techniques included in the table above are described in more detail 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 values for unquoted shares are estimated using 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 illiquidity 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.

 

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Available-for-sale shares include shares in a Federal Home Loan Bank (FHLB) for an amount of EUR 103 million (December 31, 2013: EUR 94 million) that are measured at par, which are reported as part of Other. A FHLB has implicit financial support from the United States government. The redemption value of the shares is fixed at par and they can only be redeemed by the FHLB.

Debt securities

Debt securities are comprised of residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), asset-backed securities (ABS), corporate bonds and sovereign debt. Details on the fair value measurement for these specific types of debt securities are provided below.

Valuations of RMBS, CMBS and ABS are monitored and reviewed on a monthly basis. Valuations per asset type are based on a pricing hierarchy which uses a waterfall approach that starts with market prices from indices and follows with third-party pricing services or brokers. The pricing hierarchy is dependent on the possibilities of corroboration of the market prices. If no market prices are available, Aegon uses internal models to determine fair value. Significant inputs included in the internal models are generally determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles. Market standard models may be used to model the specific collateral composition and cash flow structure of each transaction. The most significant unobservable input is liquidity premium which is embedded in the discount rate. The weighted average liquidity premium used in valuation of ABS has increased to 7.89% (December 31, 2013: 6.62%). Broker quoted debt securities include ABS for an amount of EUR 2,476 million (December 31, 2013: EUR 2,030 million).

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 adjusts 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 increased to 2.64% (December 31, 2013: 2.33%).

When available, Aegon uses quoted market prices in active markets to determine the fair value of its sovereign 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.

Tax credit investments

The 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/tax benefits (and the timing of those cash flows). These inputs are unobservable in the market place. The discount rate used in valuation of tax credit investments has increased to 8.5% (December 31, 2013: 8.2%).

Investment funds

Investment funds include 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.

 

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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) derivatives 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. The most significant unobservable input for these derivatives is the (projected) mortality development.

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

All 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, United Kingdom and Japan which are offered on some variable annuity products and are also assumed from a ceding company; minimum investment return guarantees at end dates that are offered on universal life products sold in the Netherlands; and guaranteed minimum accumulation benefits on segregated funds sold in Canada.

Since the price of these guarantees is not quoted in any market, the fair values of these guarantees are calculated as the present value of future expected payments to policyholders less the present value of assessed rider fees attributable to the guarantees. Given the complexity and long-term nature of these guarantees which are unlike instruments available in financial markets, their fair values are determined by using stochastic techniques under a variety of market return scenarios. A variety of factors are considered including 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 credit spread. The credit spread used in the valuations of embedded derivatives in insurance contracts decreased to 0.3% (December 31, 2013: 0.5%).

The expected returns are based on risk-free rates. Aegon added a premium to reflect the credit spread as required. The credit spread is set by using the credit default swap (CDS) spreads of a reference portfolio of life insurance companies (including Aegon), adjusted to reflect the subordination of senior debt holders at the holding company level to the position of policyholders at the operating company level (who have priority in payments to other creditors). Aegon’s assumptions are set by region to reflect differences in the valuation of the guarantee embedded in the insurance contracts.

 

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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.

Effect of reasonably possible alternative assumptions

The effect of changes in unobservable inputs on fair value measurement as reported in the 2013 consolidated financial statements of Aegon has not changed significantly as per September 30, 2014.

Fair value information about financial instruments not measured at fair value

The following table presents the carrying values and estimated fair values of financial assets and liabilities, excluding financial instruments which are carried at fair value on a recurring basis.

 

 

Fair value information about financial instruments not measured at fair value

 

 

EUR millions

 

 

 
 

 

Carrying amount
September 30, 2014

 

  
  

   
 
Total estimated fair value
September 30, 2014
  
  
   
 
Carrying amount
December 31, 2013
  
  
   
 
Total estimated fair value
December 31, 2013
  
  

  Assets

           

  Mortgage loans - held at amortized cost

    31,540         36,550         29,245         32,869    

  Private loans - held at amortized cost

    1,806         2,085         1,783         1,888    

  Other loans - held at amortized cost

    2,379         2,379         2,381         2,381    

 

  Liabilities

           

  Trust pass-through securities - held at amortized cost

    135         131         135         122    

  Subordinated borrowings - held at amortized cost

    744         828         44         73    

  Borrowings – held at amortized cost

    13,010         13,304         11,003         11,291    

  Investment contracts - held at amortized cost

    14,315         14,680         14,079         14,387    

During the third quarter of 2014, Aegon updated its fair value calculation of its Dutch mortgage loans based on additional market observable data, including market transactions. As a result of this update the discount rate used to present value the future cash flows has increased by 48 bps as of September 30, 2014, mainly driven by an increase in the cost of funds. This refinement reduced the disclosed fair value of Dutch mortgage loans by EUR 0.7 billion compared to its previous valuation. The carrying value, at amortized cost, of Dutch mortgage loans on Aegon’s balance sheet has not been impacted.

Financial instruments for which carrying value approximates fair value

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.

13. Deferred expenses

 

                

EUR millions

    Sep. 30, 2014        Dec. 31, 2013   

 

DPAC for insurance contracts and investment contracts with discretionary participation features

    10,064         9,229    

Deferred cost of reinsurance

    429         421    

Deferred transaction costs for investment management services

    390         356    

Total deferred expenses

    10,883         10,006    

 

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14. Share capital

 

     
                

EUR millions

    Sep. 30, 2014                        Dec. 31, 2013   
     

Share capital - par value

    327         325    

Share premium

    8,270         8,375    

Total share capital

    8,597         8,701    
     

Share capital - par value

       

Balance at January 1

    325         319    

Issuance

           84    

Withdrawal

           (82)   

Share dividend

             

Balance

    327         325    
     

Share premium

       

Balance at January 1

    8,375         8,780    

Withdrawal

           (400)   

Share dividend

    (106)        (5)   

Balance

    8,270         8,375    

Basic and diluted earnings per share

 

         
                              

EUR millions

    Q3 2014            Q3 2013          YTD 2014        YTD 2013   
     

Earnings per share (EUR per share)

           

Basic earnings per common share

    0.01         0.09         0.32         0.25    

Basic earnings per common share B

                  0.01         0.01    

Diluted earnings per common share

    0.01         0.09         0.32         0.25    

Diluted earnings per common share B

                  0.01         0.01    
     

Earnings per share calculation

           

Net income attributable to equity holders of Aegon N.V.

    52         236         787         699    

Preferred dividend

                         (83)   

Coupons on other equity instruments

    (36)        (51)        (119)        (120)   

Earnings attributable to common shares and common shares B

    16         185         668         496    
     

Earnings attributable to common shareholders

    16         184         663         494    

Earnings attributable to common shareholders B

                           
     

Weighted average number of common shares outstanding (in millions)

    2,098         2,098         2,094         2,017    

Weighted average number of common shares B outstanding (in millions)

    581         579         580         295    

Diluted earnings per share is calculated by adjusting the average number of shares outstanding for share options. During the nine months ended September 30, 2014, and during 2013, the average share price did not exceed the exercise price of these options. As a result, diluted earnings per share do not differ from basic earnings per share.

Interim dividend 2014

The interim dividend 2014 was paid in cash or stock at the election of the shareholder. The cash dividend amounted to EUR 0.11 per common share, the stock dividend amounted to one new Aegon common share for every 58 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. Approximately 45% of shareholders elected to receive the stock dividend. The remaining 55% opted for cash dividend. To neutralize the dilutive effect of the 2014 interim dividend paid in shares, Aegon executed a program to repurchase 16,319,939 common shares. Between September 17, 2014, and October 15, 2014, these common shares were repurchased at an average price of EUR 6.4900 per share. These shares will be held as treasury shares and will be used to cover future stock dividends.

 

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At September 30, 2014, Aegon had repurchased 8,273,486 common shares at an average price of EUR 6.6060. The liability for the repurchase of the remaining 8,046,453 shares, valued at the closing share price of EUR 6.5320 at September 30, 2014, amounted to EUR 53 million.

Final dividend 2013

The Annual General Meeting of Shareholders on May 21, 2014, approved a final dividend over 2013 payable in either cash or stock, related to the second half of 2013, paid in the first half of 2014. The cash dividend amounted to EUR 0.11 per common share, the stock dividend amounted to one new Aegon common share for every 59 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. Approximately 40% of shareholders elected to receive the stock dividend. The remaining 60% opted for cash dividend. To neutralize the dilutive effect of the 2013 final dividend paid in shares, Aegon executed a program to repurchase 14,488,648 common shares. Between June 20, 2014, and July 17, 2014, these common shares were repurchased at an average price of EUR 6.4300 per share.

15. Other equity instruments

On June 15, 2014, Aegon redeemed junior perpetual capital securities with a coupon of 7.25% issued in 2007. The junior perpetual capital securities were originally issued at par with a carrying value of EUR 745 million. The principal amount of USD 1,050 million (EUR 774 million) was repaid with accrued interest. The cumulative foreign currency result at redemption was recorded directly in retained earnings.

On March 15, 2014, Aegon redeemed junior perpetual capital securities with a coupon of 6.875% issued in 2006. The junior perpetual capital securities were originally issued at par with a carrying value of EUR 438 million. The principal amount of USD 550 million (EUR 396 million) was repaid with accrued interest. The cumulative foreign currency result at redemption was recorded directly in retained earnings.

16. Subordinated borrowings

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.

17. Borrowings

 

     
                

EUR millions

    Sep. 30, 2014                        Dec. 31, 2013   
     

Debentures and other loans

    13,822         11,830    

Commercial paper

    150         135    

Short-term deposits

           16    

Bank overdrafts

    87         39    

Total borrowings

    14,059         12,020    

Debentures and other loans

Included in Debentures and other loans is EUR 1,049 million relating to borrowings measured at fair value (December 31, 2013: EUR 1,017 million).

On March 13, 2014, Aegon executed a transaction under the Dutch SAECURE program to sell Class A mortgage backed securities (RMBS) amounting to EUR 1.4 billion. ‘SAECURE 14 NHG’ consists of 2 tranches:

t  

EUR 343 million of class A1 notes with an expected weighted average life of 2 years and priced with a coupon of three month Euribor plus 0.40%; and

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EUR 1,024 million of class A2 notes with an expected weighted average life of 5 years and priced with a coupon of three month Euribor plus 0.72%.

Commercial paper, Short-term deposits and Bank overdrafts vary with the normal course of business.

 

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18. Commitments and contingencies

In June, 2013, the Dutch Supreme Court denied Aegon’s appeal from a ruling of the Court of Appeal with respect to a specific Aegon unit-linked product, the ‘KoersPlan’ product. As a result of the Dutch Supreme Court’s denial of appeal, Aegon compensated the approximately 35,000 holders of KoersPlan products who were plaintiffs in the litigation. Aegon has issued, sold or advised on approximately 600,000 KoersPlan products. In June 2014, Aegon announced that it would also compensate holders of KoersPlan-products that were not plaintiffs in the litigation. The compensation equals the excess, if any, of the premium actually charged by Aegon over the amount of premium charged by Aegon for stand-alone death benefit coverage for a comparable risk over the same period. The costs of this product improvement will be covered by existing provisions.

In March 2014, consumer interest group Vereniging Woekerpolis.nl filed a claim against Aegon in court. This claim was resubmitted in September 2014. The claim relates to a range of unit-linked products of Aegon, challenging a variety of elements of these products on multiple legal grounds. At this time it is not practicable for Aegon to quantify a range or maximum liability, if any.

Optas

Aegon and BPVH – a foundation representing Dutch harbor workers and employers – have reached an agreement on removing restrictions on the capital of the harbor workers’ former pension fund Optas. This agreement, announced on April 14, 2014, ends a dispute that began when the Optas pension fund was transformed into an insurance company that was subsequently acquired by Aegon in 2007.

In September Aegon, jointly with BPVH, filed a request with the Dutch court to remove the restriction on the capital of Optas. Upon the court granting this request, Aegon will make a payment of EUR 80 million to BPVH, as well as offering harbor workers more favorable pension terms. In addition, over the coming years Aegon will contribute up to EUR 20 million to help mitigate the effect of an announced reduction in the tax-free pension allowance in the Netherlands.

No amounts in respect of this agreement have been recognized in these condensed consolidated interim financial statements because the outcome of the request to the court to remove the restriction is uncertain.

There have been no other material changes in contingent assets and liabilities as reported in the 2013 consolidated financial statements of Aegon.

 

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19. Acquisitions / divestments

On September 3, 2014, Aegon reached an agreement with Ibercaja Banco S.A. to sell its 50% stake in its life insurance partnership originally established with Caja Badajoz Vida for a consideration of EUR 42 million. The transaction with Ibercaja Banco S.A. is expected to close in the fourth quarter of 2014, subject to regulatory approval. The sale is expected to result in a book gain of approximately EUR 7 million.

On July 30, 2014, Aegon signed a new 25-year agreement to distribute both protection and general insurance products through Banco Santander’s approximately 600 branches in Portugal. Under the terms of the agreement, Aegon will acquire a 51% stake in Banco Santander’s Portuguese insurance activities. The transaction is subject to regulatory approval and expected to close in the fourth quarter of 2014.

20. Events after the balance sheet date

On October 21, 2014, Aegon announced Tsinghua Tongfang will replace CNOOC as its joint venture partner in China.

On October 15, 2014, Aegon reached an agreement to sell its Canadian operations for a total consideration of CAD 0.6 billion (EUR 0.4 billion). The transaction is expected to close in the first quarter of 2015 after obtaining regulatory approval. The sale is expected to result in a book loss of approximately EUR 0.8 billion.

There were no other events after the balance sheet date with a significant impact on the financial position of the company per September 30, 2014.

 

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Disclaimers

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 3 ‘Segment information’ of Aegon’s Condensed Consolidated Interim Financial Statements. Aegon believes that these non-IFRS measures, together with the IFRS information, provide meaningful 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 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, 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:

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Changes in general economic conditions, particularly in the United States, the Netherlands and the United Kingdom;

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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 private sector securities and the resulting decline in the value of sovereign exposure that Aegon holds;
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Changes in the performance of Aegon’s investment portfolio and decline in ratings of Aegon’s counterparties;

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Consequences of a potential (partial) break-up of the euro;

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The frequency and severity of insured loss events;

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Changes affecting longevity, mortality, morbidity, persistence and other factors that may impact the profitability of Aegon’s insurance products;

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Reinsurers to whom Aegon has ceded significant underwriting risks may fail to meet their obligations;

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Changes affecting interest rate levels and continuing low or rapidly changing interest rate levels;

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Changes affecting currency exchange rates, in particular the EUR/USD and EUR/GBP exchange rates;

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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;

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Increasing levels of competition in the United States, the Netherlands, the United Kingdom and emerging markets;

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Changes in laws and regulations, particularly those affecting Aegon’s operations, ability to hire and retain key personnel, the products Aegon sells, and the attractiveness of certain products to its consumers;

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Regulatory changes relating to the insurance industry in the jurisdictions in which Aegon operates;

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Changes in customer behavior and public opinion in general related to, among other things, the type of products also Aegon sells, including legal, regulatory or commercial necessity to meet changing customer expectations;

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Acts of God, acts of terrorism, acts of war and pandemics;

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Changes in the policies of central banks and/or governments;

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Lowering of one or more of Aegon’s debt ratings issued by recognized rating organizations and the adverse impact such action may have on Aegon’s ability to raise capital and on its liquidity and financial condition;

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Lowering of one or more of insurer financial strength ratings of Aegon’s insurance subsidiaries and the adverse impact such action may have on the premium writings, policy retention, profitability and liquidity of its insurance subsidiaries;

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The effect of the European Union’s Solvency II requirements and other regulations in other jurisdictions affecting the capital Aegon is required to maintain;

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Litigation or regulatory action that could require Aegon to pay significant damages or change the way Aegon does business;

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As Aegon’s operations support complex transactions and are highly dependent on the proper functioning of information technology, a computer system failure or security breach may disrupt Aegon’s business, damage its reputation and adversely affect its results of operations, financial condition and cash flows;

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Customer responsiveness to both new products and distribution channels;

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Competitive, legal, regulatory, or tax changes that affect profitability, the distribution cost of or demand for Aegon’s products;

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Changes in accounting regulations and policies or a change by Aegon in applying such regulations and policies, voluntarily or otherwise, may affect Aegon’s reported results and shareholders’ equity;

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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;

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Catastrophic events, either manmade or by nature, could result in material losses and significantly interrupt Aegon’s business; and

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Aegon’s failure to achieve anticipated levels of earnings or operational efficiencies as well as other cost saving and excess capital and leverage ratio management initiatives.

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.

 

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Corporate and shareholder information

 

 

Headquarters  

 

Aegon N.V.

 

 

P.O. Box 85

 

 

2501 CB The Hague

 

The Netherlands

 

 

Telephone

  + 31 (0) 70 344 32 10

 

E-mail

  aegon.com

Group Corporate Communications & Investor Relations

 

Media relations

 

Telephone

  + 31 (0) 70 344 89 56

 

E-mail

  gcc@aegon.com

Investor relations

 

Telephone   + 31 (0) 70 344 83 05
 

 

or 877 548 96 68 - toll free, USA only

E-mail  

 

ir@aegon.com

Publication dates quarterly results 2014 and 2015

 

February 19, 2015

  Results fourth quarter 2014

 

May 13, 2015

  Results first quarter 2015

 

August 13, 2015

  Results second quarter 2015

 

November 12, 2015

  Results third quarter 2015

Aegon’s Q3 2014 press release and Financial Supplement are available on aegon.com.

 

About Aegon

 

Aegon’s roots go back170 years – to the first half of the nineteenth century. Since then, Aegon has grown into an international company, with businesses in more than 25 countries in the Americas, Europe and Asia. Today, Aegon is one of the world’s leading financial services organizations, providing life insurance, pensions and asset management. Aegon’s purpose is to help people take responsibility for their financial future. More information: aegon.com.